Confused about the PCORI 2020 updates? Insurers and Health Reimbursement Arrangement (HRA) custodians (self-insured health plan sponsors), need to know about it. What is PCORI all about? And, how does the update affect payment and filing?
What Is PCORI and How Is it Funded?
The Affordable Care Act (ACA) established PCORI. The legislation aimed to fund research to help patients and healthcare providers. It aims to give information to patients and the public, empowering them to make better decisions for patient health. By funding research within the healthcare system itself, it promotes data-driven decisions.
The Institute establishes healthcare research priorities and delegates funding. By focusing on research with practical applications, it provides feedback to improve system-wide practice and patient outcomes.
Unlike privately funded research, it shares the results with the public. It thus encourages healthcare providers to gather data useful to patients and decision-makers.
PCORI Funding: Insurers & HRAs
Of course, the Institute requires funding. So, the ACA established that research monies come from fees charged to insurers and self-funded plan (HRA) administrators.
As independently funded entities, they must report and pay PCORI fees annually. Policy issuers use the Quarterly Federal Excise Tax Return (IRS Form 720) to do so. So, what should insurers and health Reimbursement Arrangement (HRA) administrators know about the PCORI 2020 updates?
PCORI 2020 Updates Notice
Recently, the Internal Revenue Service (IRS) released Notice 2020-44. It provides information about Patient-Centered Outcomes Research Institute (PCORI) fees and filing. It contains information about the PCORI fee hike, how to calculate the average number of covered lives, and updates to the IRS form 720.
Increased PCORI Fee
Notice 2020-44 announced a fee increase. And, it applies to plan years ending from October 1, 2019 through September 30, 2020. For that period, it places the PCORI fee rate at $2.54 per covered life, representing a $.09 increase from the previous year’s fee.
Calculating Average Number of Covered Lives
Prior to the issuance of the PCORI 2020 update, insurers and HRA sponsors did not have specific guidelines as to how to calculate the average number of covered lives for a policy. Hence, policy issuers may not have reported the number of lives covered by policies. Notice 2020-44 set “transition relief” specifications to calculate that number.
It states that filers may use any of the following methods to estimate the average number of covered lives for the purposes of calculating the PCORI fee:
Actual count method – With the actual count method the plan sponsor counts the number of covered lives on each day of the plan year and calculates the average.
Snapshot method – The snapshot method looks at the number of covered lives on certain dates. The policy administrator counts heads on those days and divides by the number of days sampled. Two variants of the snapshot method exist: the snapshot factor method and the snapshot count method.
Member months method -Insurance policy issuers can report based on the member months reported on the NAIC Supplemental Health Care Exhibit filed for the corresponding calendar year. So, the average number of lives covered under policies in effect equals the member months divided by 12 months.
State form – In states that use a method similar to that of the NAIC Supplemental Health Care Exhibit, issuers may calculate the number of lives covered under all policies using a state form.
Form 720 Update
While the IRS Notice 2020-44 announced the development of an updated Form 720 to file for the PCORI fee, it remains in draft form (as of 15 July 2020). Insurers and HRA custodians may expect the issuance of a final draft soon.
Interested parties can learn more by checking out the Employee Benefits Institute of America (EBIA) ’s Health Care Reform manual, Section XXXVI.H (“Patient-Centered Outcomes Research (PCOR) Fees”). The EBIA Self-Insured Health Plans manual, Section VI.H (“Additional Taxes Under Health Care Reform”), also contains relevant information.
Summary of PCORI 2020 Updates
The sponsors of self-funded plans and insurers should take note of the most important aspects of the PCORI 2020 updates:
The IRS has announced a nine cent increase in the PCORI fees, to bring the rate to $2.54 per covered life.
It has also provided specific guidelines for calculating the average number of covered lives per policy.
The IRS Form 720 has not been updated as of this writing, so filers should be on alert for the publication of the official version.
Check the listed references for official information and more information.
Also remember that if you have questions about PCORI and filing, a qualified insurance broker has filing experience and updated information.