The Patient Protection and Affordable Care Act, otherwise known as Obamacare, added sections 4375 and 4376 to the Internal Revenue Code. Section 4375 imposes a fee “on each specified health insurance policy” for each policy year ending after September 30, 2012. Section 4376 imposes a fee on “any applicable self-insured health plan” for each plan year ending after September 30, 2012. The fee imposed by sections 4375 and 4376 was intended to fund the Patient-Centered Outcomes Research Trust Fund and are known by the acronym PCORI.
The PCORI fee was scheduled to expire for policy and plan years ending after September 30, 2019. However, in December, 2019, Congress passed the Further Consolidated Appropriations Act, 2020, which extended the termination dates of the PCORI fee to September 30, 2029. So, those who were looking forward to their PCORI fee obligation terminating are still on the hook.
The PCORI fee is imposed on “each specified health insurance policy” and on “any applicable self-insured health plan”. The term “specified health insurance policy” is defined in section 4375(c)(1) as:
. . . any accident or health insurance policy (including a policy under a group health plan) issued with respect to individuals residing in the United States.
Further, section 4375(b) provides that the fee shall be paid by the issuer of the policy.
The term “applicable self-insured health plan” is defined section 4376(c) as:
. . . any plan for providing accident or health coverage if —
(1) any portion of such coverage is provided other than through an insurance policy, and
(2) such plan is established or maintained –
A. by 1 or more employers for the benefit of their employees or former employees,
B. by 1 or more employee organizations for the benefit of their members or former members,
C. jointly by 1 or more employers and 1 or more employee organizations for the benefit of employees or former employees,
D. by a voluntary employees’ beneficiary association described in section 501(c)(9),
E. by any organization described in section 501(c)(6), or
F. . . . by a multiple employer welfare arrangement . . .
Section 4376(b)(1) provides that the fee shall be paid by the plan sponsor, and section 4376(b)(2) defines the term “plan sponsor” as including (A) “the employer in the case of a plan established or maintained by a single employer”, (B) “the employee organization in the case of a plan established or maintained by an employee organization” and (C) “any association, committee, joint board of trustees or other similar group of representatives who establish or maintain the plan”.
The amount of the fee was initially $2.00 times the average number of lives covered under the policy or the plan. Both section 4375 and section 4376 provided for an annual increase in the fee.
As stated above, the PCORI obligation originally did not apply for policy or plan years ending after September 30, 2019. However, in December, 2019, Congress extended the termination date to September 30, 2029. The IRS recognized that this may have imposed an undue burden on some issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans who had not anticipated the need to determine the number of covered lives for any period after September 30, 2019. As a result, on June 8, 2020, the IRS issued Notice 2020-44.
Notice 2020-44 provides a transition rule for issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans. It provides four methods for issuers of specified health insurance policies to use in calculating the number of covered lives:
In addition, an issuer can use any other reasonable method.
Likewise, Notice 2020-44 provides that a plan sponsor of an applicable self-insured health plan may use any one of three methods to calculate the number of covered lives:
In addition, a plan sponsor can use any other reasonable method.
Notice 2020-44 also provides the dollar amount that must be used to calculate the fee imposed by section 4375 and section 4376. For policy and plan years ending on or after October 1, 2019, and before October 1, 2020, the applicable dollar amount is $2.54 per covered life.
The IRS anticipates issuing treasury regulations to reflect the extension of the PCORI obligation.
