As reported in our Alert “IRS Proposes Rules on Fees Assessed on Health Plans to Fund Patient-Centered Outcomes Research Trust Fund”, the Patient Protection and Affordable Care Act (PPACA) imposed a fee on sponsors of group health plans that is intended to partially fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI fee is applicable to each plan year ending on or after October 1, 2012 and before October 1, 2019. The fee must be paid by July 31 of the calendar year following the close of the plan year. For 2012 calendar year plans and certain fiscal year plans, the first PCORI fee is due by July 31, 2013.
For plan years ending on or after October 1, 2012 and before October 1, 2013, the fee is $1.00 multiplied by the average number of covered lives (which includes the employee, spouse and any covered dependents) in the group health plan. The fee increases to $2.00 multiplied by the average number of covered lives for plan years ending on or after October 1, 2013 and before October 1, 2014, and thereafter, the fee will be increased based on increases in national health expenditures.
Plan sponsors must report and remit the PCORI fee to the IRS using IRS Form 720, “Quarterly Federal Excise Tax Return”. The Form 720 can be submitted electronically or on-line. The plan sponsor must file this form; the PCORI regulations prohibit third parties from filing Form 720 on behalf of the plan sponsor. Although the PCORI fee is not an expense that can be paid using plan assets and must be paid by the plan sponsor, the IRS Office of the Chief Counsel recently released a memorandum concluding that the fee is deductible as an ordinary and necessary business expense under Section 162 of the Code.