As explained in our May 2012 article, health insurers and sponsors of self-insured health plans must now pay an annual fee to help fund a Patient-Centered Outcomes Research Institute (“PCORI”). Created by the Affordable Care Act (“ACA”), this PCORI fee will remain in effect for seven years. Although the fee starts at only $1 per covered life, it increases to $2 per covered life in the second year, and will then be adjusted for inflation.
For most insurers and plan sponsors, payment of the first PCORI fee will be due by July 31, 2013 (for policy or plan years ending on or after October 1, 2012). This fee is to be reported and paid using IRS Form 720 (“Quarterly Federal Excise Tax Return”). The IRS has just posted a revised version of the Form 720 on its website.
The PCORI fee is now listed as the first of the fees itemized in Part II of the Form 720. Although the Instructions to the Form provide helpful guidance, anyone responsible for reporting and paying this fee will want to consult the final IRS regulations, as well. They describe in some detail the various options available to insurers and sponsors for determining the number of covered lives.
At essentially the same time that it posted the revised Form 720, the IRS issued a General Counsel Memorandum (AM2013-002) addressing the deductibility of the PCORI fee. Although a number of other fees and taxes created by the ACA are expressly nondeductible (including the employer “play-or-pay” penalty, the excise tax on “Cadillac health plans,” and the health insurance provider fee), that is not the case with the PCORI fee. Assuming the fee otherwise qualifies as an ordinary and necessary business expense, an insurer or self-insured plan sponsor should be able to deduct the fee when calculating its federal income tax liability.
For assistance in calculating a PCORI fee, or in completing and filing a Form 720, please contact any member of Spencer Fane’s Health Care Reform Practice Group.