Employers that sponsor self-insured health plans must pay a new fee (and make a filing with the IRS) by July 31, 2013, under the Affordable Care Act (ACA). The fee for this year is $1.00 per individual covered by the plan. Reporting is made through IRS Form 720.

The ACA imposes a fee on plan sponsors of self-insured health plans and issuers of health insurance policies under new Section 4376 to the Internal Revenue Code. The fee applies for plan years ending on or after Oct. 1, 2012, and extends through plan years ending before Oct. 1, 2019. Referred to as the “PCORI fee,” it is intended to partially fund the Patient-Centered Outcomes Research Institute (also formed as part of the ACA). Although many of the penalty provisions of the ACA apply only to large employers (those with more than 50 employees), the PCORI fee will apply to all group health plans (with the exception of stand-alone dental and vision plans) sponsored and maintained by employers.   

Which Plans Are Required to Pay the Fee 

The fee applies to “applicable self-insured health plans” and “specified health insurance policies.” The fee does not apply to stand-alone dental and vision plans. 

Applicable Self-Insured Health Plans. An “applicable self-insured health plan” is generally any plan for providing accident or health coverage if any portion of the coverage is provided other than through an insurance policy and the plan is established or maintained by an employer for the benefit of employees or former employees. Both health reimbursement arrangements (“HRAs”) and health flexible spending arrangements (“FSAs”) are included in the definition of an applicable self-insured health plan. 

Specified Health Insurance Policies. A “specified health insurance policy” is any accident or health insurance policy (including a policy under a group health plan) issued with respect to individuals residing in the United States. 

The PCORI Fee 

For self-insured plans, the plan sponsor is responsible for paying the fee; for insured plans, the insurer is responsible. Evidence suggests that insurers will seek to recoup the fee by adding it to the premiums charged. For multi-employer plans, it also is likely that the fee will be passed on to participating employers. 

The fee must be paid once a year no later than July 31 of the year following the last day of the covered plan year. For plans that operate on a calendar year, the PCORI fees for 2012 will be due by July 31, 2013. The fee for the first year is $1.00 multiplied by the average number of covered lives in the group health plan. The PCORI fee is increased to $2.00 for the second year, and thereafter it is indexed for increases in national health expenditures. 

How the Fee Is Paid and Reported

The fee is to be paid with IRS Form 720, which was updated on June 3, 2013, as were the accompanying instructions. The new form now contains in Part II (lines marked “IRS No. 133”) a section for reporting the PCORI fee. The new Form 720 and associated instructions can be found at: 



Counting the Average Number of Covered Lives 

Generally, all individuals who are covered during a policy year or plan year must be counted when computing the average number of lives covered for that year. This means, for example, that an employee and his or her dependent child will count as two separate covered lives. Employees and dependents covered under COBRA are counted, as are retirees and former employees receiving coverage under a plan. 

A number of different methods can be used to calculate the number of covered lives. The various methods include an actual count (adding the number of lives covered each day of the year and dividing by the number of days in the year), a “snapshot” (adding the lives covered on certain dates and dividing by the number of dates on which a count is made), and several other methods. 

Special Rule for Health FSAs and HRAs

  • If the only applicable self-insured health plan maintained by an employer is a health FSA or an HRA, the plan sponsor may treat each participant’s health FSA or HRA as covering a single life. In other words, the plan sponsor is not required to include as lives covered any spouse, dependent, or other beneficiary of the individual participant in the health FSA or HRA.
  • An FSA or an HRA is not subject to a separate PCORI fee if the plan sponsor also maintains a separate self-insured health plan with the same plan year. In these circumstances, the plan sponsor is permitted to treat the FSA or HRA and the other plan as a single self-insured health plan and therefore determine and pay the PCORI fee only once with respect to each life covered under the FSA or HRA and the other plan.
  • A plan sponsor may not treat the FSA or HRA and a fully insured plan as a single plan for purposes of the PCORI fee.

A Final Word 

The new PCORI fee will apply to the majority of group health plans sponsored by employers. Employers who are responsible for reporting and paying the fee should review the revised IRS Form 720 and instructions and start the fee calculation process as soon as possible to meet the July 31, 2013 deadline.