FAQ's about the PCORI Fee for Health FSAs
Please review the following important information about Health FSA plan sponsors (i.e., employers) that may owe a PCORI fee. Some groups may owe this fee as early as July 31, 2013.
- What is the PCORI fee?
As part of Health Care Reform, Plan sponsors of self-funded plans and insurers of insured plans must pay a fee to help fund the Patient-Centered Outcomes Research Institute (PCORI) based on the average number of covered lives participating in the plan. The fee generally applies to major medical plans and it does not apply to HIPAA excepted benefits. For plan years ending after September 30, 2012, the fee is $1 per year times the average number of lives covered by the plan. Each year the fee is set to increase and no fee will be due for plans years ending after September 30, 2019.
- How does this impact Health Flexible Spending Accounts?
Health Flexible Spending Accounts (Health FSAs) are generally considered HIPAA excepted benefits and, therefore, are not subject to the PCORI fee. However, there are certain criteria that a Health FSA must meet to be considered a HIPAA excepted benefit. If the Health FSA is not a HIPAA excepted benefit, the employer-plan sponsor may owe a PCORI fee for the “class of participants” for which the Health FSA is not a HIPAA excepted benefit.
- How do I know if an employer’s FSA is a HIPAA excepted benefit
A Health FSA must meet all of the following to be a HIPAA excepted benefit:
- Participants must be offered other major medical coverage in addition to the Health FSA. (For example, if an employer allows all employees to participate in the Health FSA but only full-time employees may enroll in major medical coverage, the Health FSA would not be a HIPAA excepted benefit for the part-time employees.)
- Employer contributions to the Health FSA may generally not exceed $500.
- If an employer offers Section125 flex credits that an employee may contribute to a Health FSA, 50% or more must be available for a cash-out option.
- If the Health FSA qualifies as a HIPAA excepted benefit, what now?
No PCORI fee is due.
- If the Health FSA does not meet the HIPAA excepted benefit criteria, what now?
If the number of Health FSA participants for whom the Health FSA is not a HIPAA excepted benefit is not “substantial,” then no PCORI fee is due for the FSA (Note that “substantial” was not defined in the PCORI guidance, but an employer may want to use 5% as a guideline, which is how “substantial” is defined for purposes of the Free Rider Penalty).
If the number of Health FSA participants for whom the Health FSA is not a HIPAA excepted benefit is “substantial,” then a PCORI fee is due for the average number of Health FSA participants for whom the Health FSA is not a HIPAA excepted benefit (Note that the fee is not due for all employees who were eligible for the Health FSA, but rather just for those who chose to participate in the Health FSA and for whom the Health FSA is not a HIPAA excepted benefit).
- If an employer owes a PCORI fee for their Health FSA, when is it first due?
For 12-month plan years that end October 1, 2012 through December 31, 2012, the first PCORI fee is due by July 31, 2013. For 12-month plan years that end January 1, 2013 through September 30, 2013, the first PCORI fee is due by July 31, 2014.
- How does the employer pay the fee?
The employer is required to file Tax Form 720 and make a payment to the IRS for the amount due.
- Where can the employer get Tax Form 720?
- What are the next steps?
Review your health plan to confirm whether your Health FSAs are HIPAA excepted benefits.If your Health FSA is a HIPAA excepted benefit , no PCORI fee is due for the Health FSA. If not, as the employer, you will need to file Tax Form 720 and pay the fee for the average number of Health FSA participants for whom the Health FSA is not a HIPAA excepted benefit.
If the Health FSA is not a HIPAA excepted benefit, you may want to amend the eligibility for the Health FSA to match the eligibility for major medical coverage and/or reduce the amount of employer contributions to the Health FSA to ensure the Health FSA is a HIPAA excepted benefit. In some states this may be subject to collective bargaining guidelines. You can work with the American Fidelity 125/Flex Department on the amendment. You can contact that department at 1-888-306-8424.
If, as the employer, you do not choose to amend your plans to ensure your Health FSA is a HIPAA excepted benefit, we will be asking you to sign a form acknowledging that you will be responsible for any additional compliance obligations that exist for Health FSAs that are not HIPAA excepted benefits.
- How does this affect AFA products?
AFA products are all HIPAA excepted benefits and are not subject to the PCORI fee. Therefore, the eligibility requirements to purchase AFA products do not need to change.
- Who do we contact for more information?
You can contact our Section 125/Flex Department at 1-888-306-8424.