The Patient Protection and Affordable Care Act (PPACA) of 2010 established the Patient-Centered Outcomes Research Institute (PCORI), which will be funded by the PCOR fee, a new fee assessed on employers that goes into effect this year for most current insurance plans. On April 12, 2012, the IRS released specific, proposed regulations explaining how the PCOR fee is to be calculated and paid. Employers are expected to follow the proposed regulations pending publication of the final version.
What is PCOR?
PCOR, also known as Comparative Effectiveness Research or CER, is research designed to yield more informed health-care decisions by providing evidence on the effectiveness, benefits, and harms of different treatment options. The evidence is generated from research studies that compare drugs, medical devices, tests, surgeries, and/or ways to deliver health care. You may also hear the PCOR Fee referred to as the Comparative Effectiveness Research fee.
In other words, if patients don't get the best possible information about their treatment choices, how can they hope to make an informed decision on what treatment is best for them? From a consumer perspective, abundant data and feedback are available for a virtually infinite universe of goods and services, but when it comes to choosing the right medicine or the best health care treatment, clear and dependable information can be very hard to find. PCOR’s mission is to help patients and providers have access to all the relevant information necessary to be aware of what treatment options are available to their unique case.
In March 2012, PCORI issued the following working definition of what their organization means by “patient-centered outcomes research”: Patient-Centered Outcomes Research (PCOR) helps people and their caregivers communicate and make informed health care decisions, allowing their voices to be heard in assessing the value of health care options.
PCOR answers patient-centered questions such as:
“Given my personal characteristics, conditions and preferences, what should I expect will happen to me?”
“What are my options and what are the potential benefits and harms of those options?”
“What can I do to improve the outcomes that are most important to me?”
“How can clinicians and the care delivery systems they work in help me make the best decisions about my health and health care?”
To answer these questions, PCOR:
Assesses the benefits and harms of preventive, diagnostic, therapeutic, palliative, or health delivery system interventions to inform decision making, highlighting comparisons and outcomes that matter to people.
Is inclusive of an individual’s preferences, autonomy and needs, focusing on outcomes that people notice and care about such as survival, function, symptoms, and health related quality of life.
Incorporates a wide variety of settings and diversity of participants to address individual differences and barriers to implementation and dissemination.
Investigates (or may investigate) optimizing outcomes while addressing burden to individuals, availability of services, technology, and personnel, and other stakeholder perspectives.
Source: PCORI website - http://www.pcori.org/what-we-do/pcor/
What PCOR Means to Your Benefits Pricing and Administration
Under provisions of the PPACA, plan sponsors and insurers will be charged an annual fee through December 31, 2019 to fund PCORI.
Who has to file?
For employers and plan sponsors with only fully-insured plans, the health insurer will file the forms, and fees will be built into annual premiums.
For employers or plan sponsors with self-insured plans, the plan sponsor is responsible for filing and payment. This includes employers who offer both fully-insured plans and Health Reimbursement Arrangements (HRAs), in which case the insurer pays a PCOR fee for the employees on the fully-insured plan and the employer also pays the PCOR fee on employees with HRAs. If an employer offers multiple self-insured plans, they pay only one PCOR fee per covered life, not per self-insured plan.
How will the fee be filed?
Filing and payment of the PCOR fee will be reported on IRS Form 720. The IRS is currently in the process of revising the current quarterly excise-tax Form 720 to address the annual PCOR fee. The form and payment will be due July 31 for all plan years ending in the preceding calendar year. Most immediately, the fee applies to any plan year ending in between October 1, 2012 and December 31, 2012. Any plan year ending before October 1, 2012 will not have to pay the PCOR fee until 2014, for the 2013 plan year.
What is the fee assessment?
Year 1 Fee = $1.00 x Average number of covered lives
Year 2 Fee = $2.00 x Average number of covered lives
Year 3 – Year 7 Fee = ($2.00 x index based on increases in national health expenditures) x Average number of covered lives
Employers and plan sponsors filing on their own will need to select one of the below methods for counting “covered lives”. They must use the same method across all their plans, but can change the method in subsequent years if they choose. The methods are:
Actual count method
Count the actual number of covered individuals (employees, spouses, dependents) on each day of the plan year and divide by 365 (or 366 depending on the year).
Snapshot count method
A plan sponsor may determine the average number of lives covered under a plan by adding the totals of lives covered on one date in each quarter (or more dates if an equal number of dates are used for each quarter) and dividing that total by the number of dates on which a count was made.
For this purpose, the date for each quarter must be the same (for example, the first day of the quarter, the last day of the quarter, the first day of each month, etc.).
An alternate snapshot method, the snapshot factor method, counts covered lives by counting the actual number of employees enrolled in single coverage and actual number of employees enrolled in coverage that includes at least one family member – once a quarter. Divide the total number by 4 and multiply by 2.35.
If the plan offers family coverage, the number of covered lives is the number of participants reported at the beginning of the year plus the number of participants at the end of the year. Since the participant counts on Form 5500 do not include family members, this method is intended to reflect the fact that some reported participants have coverage for family members. If the plan does not offer family coverage, the sum of the beginning of the year and end of the year number of participants may be divided by two to reflect the average number of participants during the plan year.
Note that plan sponsors of plans with start dates between October 2, 2011 and July 11, 2012 can use any reasonable method of determining the average number of covered lives for the Year 1 fee.
FSAs and HRAs subject to PCOR fees are treated as single coverage, even though funds may be used to cover spouses’ and dependents’ medical expenses.
What plans are subject to the fee?
Plans Subject to PCOR fee:
Prescription drug plans
Self-insured dental or vision plans, if provided without a separate election or premium charge
Health Reimbursement Arrangements (HRAs)
Retiree-only health plans (even though some are exempt from other PPACA mandates)
Health plans of the types listed above provided by governmental employers for their employees
What plans are exempt from the fee?
Plans Exempt from PCOR fee:
Separately insured dental or vision plans
Self-insured dental or vision plans, if subject to separate coverage elections and employee contributions
Expatriate coverage provided primarily for employees who work and reside outside of the U.S.
Health Savings Accounts (HSAs)
Employee Assistance Programs (EAPs), wellness programs and disease management programs that do not provide "significant benefits in the nature of medical care or treatment"
The fee also does not apply to lives covered by exempt governmental programs including Medicare parts A, B, C and D, Medicaid and SCHIP programs and federal programs covering members of the Armed Forces and members of Indian Tribes.
How will the PCOR fees be handled for medical loss ratio calculation?
If you’re asking yourself this question, you’re really on top of your PPACA regulations. Section 2718 of the Public Health Services Act as added by the PPACA requires that premium revenue be adjusted to exclude, "...federal and state taxes and licensing or regulatory fees." The PCOR fee qualifies as a federal “assessment allocated to reported health insurance coverage” for the purpose of medical loss ratio rebate calculations. In other words, the PCOR fee should be deducted from premium revenue to appropriately calculate the medical loss ratio as well as in calculating any rebate that is required to be paid.
This article is for overview purposes only. For the official and full text of the IRS proposed regulations, go to http://federalregister.gov/a/2012-09173.
For more information about the Patient-Centered Outcomes Research Institute, go to www.pcori.org.
Please contact us directly for more information or with any questions you have about the PCOR fee or any benefits-related issues. Or, click this link for more Employer Services information and resources.