REMINDER – Patient-Centered Outcomes Research Fee
The Internal Revenue Service (“IRS”) in April 2017 released an updated Federal Form 720, Quarterly Federal Excise Tax Return, with instructions, which incorporate the provisions associated with the fifth year of the Patient-Centered Outcomes Research Fee (“Fee”). The Fee is imposed, under Internal Revenue Code §4375 and §4376, on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans for all policy or plan years ending on or after October 1, 2012 and before October 1, 2019.
Background on the Patient-Centered Outcome Research Institute
The Fee
The Patient-Centered Outcomes Research Fee will be imposed on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans for all policy or plan years ending on or after October 1, 2012 and before October 1, 2019. The Fee has increased, with the cost set at $2.26 per “covered life” for all policy and plan years ending on or after October 1, 2016, but before October 1, 2017. Thereafter, the Fee will be increased based on the average increase in the projected per capita amount of national health expenditures and will sunset for all policy and plan years ending on or after October 1, 2019. Note that the Fee for policy and plan years ending before October 1, 2016 remains at $2.17 per covered life. The rate for policy years ending on or after October 1, 2017 will be adjusted later in the future based upon increases in healthcare spending.
Calculating and Reporting the Fee
This Fee is reportable on a second quarter Form 720 and is due and payable by July 31st of 2017. As outlined in the Form 720 instructions, there are a number of methods which issuers of specified health insurance policies may choose from when determining the average number of lives covered under a policy for the policy year. For this plan year (October 1, 2016 to before October 1, 2017), the fee of $2.26 will be multiplied by the average number of covered lives, as determined using one of the four methods noted below:
- Actual count method;
- Snapshot method;
- Member months method; or
- State form method.
Additionally, the Form 720 instructions note that the following are the methods which sponsors of applicable self-insured health plans may use when calculating the average number of covered lives:
- Actual count method;
- Snapshot method; or
- Form 5500 method.
Reporting and Paying the Fee
As noted above, taxpayers should report and pay the fee on the second quarter Form 720 no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. For those taxpayers whose only filing obligation with respect to Form 720 is to the report the Fee, they do not need to file Form 720 for the first, third, or fourth quarters of the year.
Per the Form 720 instructions, deposits are not required for this fee, so issuers and plan sponsors are not required to pay the Fee using Electronic Federal Tax Payment System (“EFTPS”). However, if the Fee is paid using EFTPS, the payment should be applied to the second quarter.
More Information
For more information about the Patient-Centered Outcomes Research Fee, please contact one of our Healthcare Services team or utilize one of the below links.
A copy of Form 720 along with instructions can be accessed below, along with additional information regarding the Fee:
- The updated Form 720 is available at https://www.irs.gov/pub/irs-pdf/f720.pdf
- The updated instructions for Form 720 are available at https://www.irs.gov/pub/irs-pdf/i720.pdf
- Details on PCORI’s authorization and funding are available at https://www.pcori.org/node/127.
- Patient-Centered Outcomes Research Trust Fund Fee (IRC 4375, 4376 and 4377): Questions and Answers are available.
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