The Internal Revenue Service (IRS) has announced the fee due for plan years ending on or after October 1, 2014, and before October 1, 2015 to fund the Patient-Centered Outcomes Research Trust Fund and has also revised Form 720 (Quarterly Federal Excise Tax Return) to reflect the fee increase. The fee that is due this year for a plan with a calendar plan year is $2.08¹ multiplied by the average number of lives and affects both issuers of health insurance policies and plan sponsors of self-insured health plans.

Action Needed Now: Plan sponsors of self-insured plans should be aware of the fee increase and prepare to file the form and make payment by July 31, 2015.

Cheiron Observation: This fee will continue to be adjusted in the future until it is no longer payable. For self-insured plans, the return must be filed by July 31 of the calendar year immediately following the last day of the plan year. For plan years ending on and after January 1, 2014 and before October 1, 2014, the fee, payable by July 31, 2015 is $2.00 multiplied by the average number of covered lives. For plan years ending on and after October 1, 2014 and before January 1, 2015, the fee, payable by July 31, 2015, is $2.08 multiplied by the average number of covered lives. The $2.08 fee amount also applies for plan years ending on and after January 1, 2015 and before October 1, 2015, payable by July 31, 2016.

Background and Overview

The ACA includes provisions that promote research to evaluate and compare health outcomes. One such provision established the Patient-Centered Outcomes Research Institute (PCORI), which is to assist (through research) patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence-based medicine. The funding source for PCORI is the Patient-Centered Outcomes Research Trust Fund.

The ACA added section 4376 to the Internal Revenue Code. For 2014 and later years, section 4376 imposes a fee on each "applicable self-insured health plan" of $2, as adjusted for the percentage increase in the projected per capita amount of the National Health Expenditures published by HHS each year, multiplied by the average number of lives covered under the plan. The fees apply for plan years ending after September 30, 2012, and do not apply to plan years ending after September 30, 2019.

For more information on the PCORI fees (such as how to determine the average number of lives covered) see the Cheiron Health Alert dated July 2, 2013.

The current Form 720 and instructions may be found at http://www.irs.gov/uac/Form-720,-Quarterly-Federal-Excise-Tax-Return.

Cheiron consultants can assist in determining the amount of fees that are to be paid.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.

¹See IRS Notice 2014-56.