This update serves as a reminder that the annual Patient-Centered Outcomes Research Trust Fund (“PCORTF”) fees are due by July 31, 2023. As background, at the end of 2019, the Federal Government reauthorized the annual payment of fees by health insurers and group health plans into the PCORTF until 2029. (Such payments were previously set to expire for plan years ending on or after October 1, 2018 and before October 1, 2019, and beyond.) The fee is due by July 31 of the calendar year immediately following the last day of the plan year in which the applicable plan ended. The PCORTF fees fund the Patient-Centered Outcome Research Institute (PCORI), established by Congress through the Affordable Care Act in 2010.
For plan years ending on or after October 1, 2021, and before October 1, 2022, the fee is $2.79 multiplied by the average number of lives (employees and dependents) covered under the plan for the plan year. However, for plan years ending on or after October 1, 2022 and before October 1, 2023, the fee is $3.00 multiplied by the average number of lives (employees and dependents) covered under the plan for the plan year. For ease of reference, the following chart outlines the applicable fees that must be paid in 2023 and 2024 based on the plan year start dates:
Please note that the IRS does not appear to have yet released the applicable Form 720 (Quarterly Federal Excise Tax Return), which is the form used by plan sponsors of group health plans to report and pay the annual PCORTF fee. (Please note that while Form 720 is filed quarterly for several other federal excise taxes, the PCORTF fee is only required annually, on the second-quarter filing. Accordingly, if a plan sponsor files Form 720 only to report PCORTF fees, a Form 720 should not be filed for the first, third, or fourth quarter.)
Nonetheless, below are the links to the prior Form 720 and corresponding instructions:
The plan sponsor completing Form 720 must report the average number of covered medical lives (employees and dependents) under its plan(s) subject to the PCORTF fee. The instructions concerning PCORTF are on page 9 of the Instructions for Form 720 Part II (the first portion of the instructions applies to health insurance policies, as opposed to self-funded health plans). In a nutshell, these instructions briefly reference the alternative methods for calculating the average number of lives covered by a plan for the applicable plan year, and how to complete Form 720.
Concerning Form 720 itself, the line item for the PCORTF fee to be reported is referenced at the beginning of Part II (line 133). This line item is divided between “Specified health insurance policies” and “Applicable self-insured health plans.” The form then requires the plan sponsor to list the average number of covered lives for its self-funded plan, multiplied by the applicable fee (depending on the plan year) for a final dollar amount to be paid to the Federal government.
What Plan Sponsors Need to Do: Allied believes that the snapshot count method is the most suitable approach to determine the average number of medical lives during the applicable plan year. To determine the average number of medical lives, please take the following steps:
- Run four different census reports from www.alliedbenefit.com, one for each of the last four quarters on the same date (i.e., the first of the month, the fifteenth of the month, etc.).
- Each Allied census report will provide you with the total number of covered medical lives for the date requested on the census report.
- Add up the total number of covered lives from each of these reports and divide that number by 4 to determine the total number of average lives that should be listed on Form 720.
Please note, and as discussed above, plan sponsors must pay the annual PCTORF fee via Form 720 by July 31, 2023. If you have any questions or need assistance running the census reports, please do not hesitate to contact your Total Benefit Solutions account manager at (215)355-2121
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