The IRS announced the 2025 limits for Healthcare Flexible Spending Accounts and Commuter Benefits. You can find more details in Revenue Procedure 2024-40 which was released yesterday, 10/22/2024. The IRS released HSA amounts earlier this year in Revenue Procedure 2024-25.
The IRS just released the Final Forms and Instructions for the 2023 filing year. No major substantive changes were made to the forms or instructions for the 2023 reporting. However, a major change will be in effect beginning January 1st, 2024, which reduces the threshold for electronic filing to 10 or more forms (previously 250 or more forms). This new change will essentially force the majority of employers to electronically file in 2024.
Employers should become familiar with the new forms and instructions and make sure they have a solution in place for electronic filing beginning January 1st, 2024.
The IRS released Rev. Proc. 2023-23 on May 16, 2023, containing the 2024 high deductible health plan, HSA, and excepted benefits HRA annual limits. The plan limits apply to plan years beginning during the 2024 calendar year. The HSA annual contribution limits apply to the 2024 calendar year.
On Aug. 1, 2022, the IRS issued Revenue Procedure (Rev. Proc.) 2022-34 to index the contribution percentages in 2023 for determining the affordability of an employer’s plan under the Affordable Care Act (ACA).
For plan years beginning in 2023, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:
· 9.12% of the employee’s household income for the year for purposes of both the pay or play rules and premium tax credit eligibility. This is the most substantial decrease in this percentage since these rules were implemented (down from 9.61% in 2022). It is the lowest that this percentage has ever been set, at 0.38% below the statutory affordability percentage of 9.5%.
· 8.17% of the employee’s household income for the year for purposes of an individual mandate exemption (adjusted under separate guidance). This is a slight increase from 2022, which was set at 8.09%. Although this penalty was reduced to zero in 2019, some individuals may need to claim an exemption for other purposes.
Important Dates
Aug. 30, 2021 IRS Rev. Proc. 22-34 substantially decreased the ACA’s affordability contribution percentage for 2023 for purposes of the pay or play rules and premium tax credit.
Jan. 1, 2023 The updated percentages are effective for plan years beginning Jan. 1, 2023.
Action Steps
The updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2023. The updated affordability percentage for the pay or play rules and premium tax credit is the most significant decrease since these rules were implemented. As a result, many employers may have to substantially lower their employee contributions for 2023 to meet the adjusted percentage. The affordability percentage for the individual mandate exemption increased slightly from 2022.
Overview of the Affordability Requirement
Under the ACA, the affordability of an employer’s plan may be assessed in the following three contexts:
· The employer shared responsibility penalty for applicable large employers (ALEs) (also known as the pay or play rules or employer mandate);
· An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage; and
· The premium tax credit for low-income individuals to purchase health coverage through an Exchange.
Although all of these provisions involve an affordability determination, the test for determining a plan’s affordability varies for each provision.
This chart illustrates the adjusted affordability percentages for each purpose since 2014. Each provision is described in more detail following the chart.
Affordability Percentage
Purpose
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Employer Shared Responsibility Rules
9.5%
9.56%
9.66%
9.69%
9.56%
9.86%
9.78%
9.83%
9.61%
9.12%
Individual Mandate Exemption
8%
8.05%
8.13%
8.16%
8,05%
8.3%
8.24%
8.27%
8.09%
8.17%
Premium Tax Credit Availability
9.5%
9.56%
9.66%
9.69%
9.56%
9.86%
9.78%
9.83%
9.71%
9.12%
Employer Shared Responsibility Rules
Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit. This is significant because the ACA’s employer share responsibility penalty for ALEs is triggered when a full-time employee receives a premium tax credit for coverage under an Exchanged.
To determine an employee’s eligibility for a tax credit, the ACA provides that employer-sponsored coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5% of the employee’s household income for the tax year. After 2014, this required contribution percentage is adjusted annually toreflect the excess of the rate of premium growth.
The ACA’s employer shared responsibility or pay or play rules require ALEs to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The affordability of health coverage is a key point in determining whether an ALE will be subject to a penalty.
These rules generally determine the affordability of employer-sponsored coverage by reference to the rules for determining premium tax credit eligibility. Therefore, for 2014, employer-sponsored coverage was considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage did not exceed 9.5% of the employee’s household income for the tax year. This affordability percentage was adjusted to:
· 9.56% for 2015 plan years;
· 9.66% for 2016 plan years;
· 9.69% for 2017 plan years;
· 9.56% for 2018 plan years;
· 9.86% for 2019 plan years;
· 9.78% for 2020 plan years;
· 9.83% for 2021 plan years; and
· 9.61% for 2022 plan years.
For 2023, Rev. Proc. 22-34 significantly decreases the affordability contribution percentage to 9.12%. This means that employer-sponsored coverage for the 2023 plan year will be considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage does not exceed 9.12% of the employee’s household income for the tax year.
This is the most substantial decrease in this percentage since these rules were implemented and is the lowest this percentage has ever been set, at 0.38% below the statutory affordability percentage of 9.5%. As a result, many employers may have to significantly lower their employee contributions for 2023 to meet the adjusted percentage.
Employers may use an affordability safe harbor to measure the affordability of their coverage. The three safe harbors that measure affordability are based on Form W-2wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual. IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages for 2015 and future years.
The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.
Individual Mandate Exemption
The ACA’s individual mandate requires most individuals to obtain acceptable health coverage for themselves and their family members or pay a penalty. However, individuals who lack access to affordable minimum essential coverage are exempt from the individual mandate. For purposes of this exemption:
· Coverage is affordable for an employee if the required contribution for the lowest-cost, self-only coverage does not exceed 8% of household income (as adjusted).
· Coverage is affordable for family members if the required contribution for the lowest-cost family coverage does not exceed 8% of household income (as adjusted).
This affordability contribution percentage was adjusted to 8.05% for plan years beginning in 2015; 8.13% for plan years beginning in 2016; 8.16% for plan years beginning in 2017; 8.05% for plan years beginning in 2018; 8.3% for plan years beginning in 2019; 8.24% for plan years beginning in 2020; 8.27% for plan years beginning in 2021; and 8.09% for plan years beginning in 2022.
The 2023 Notice of Benefit and Payment Parameters final rule slightly increases the required contribution percentage in 2023. For 2023, an individual qualifies for this affordability exemption if he or she must pay more than 8.17% of his or her household income for minimum essential coverage.
The tax reform bill, called the Tax Cuts and Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective beginning in 2019. As a result, individuals are no longer penalized for failing to obtain acceptable health insurance coverage. However, the 2019 Notice of Benefit and Payment Parameters final rule notes that individuals may still need to seek this exemption for 2019 and future years (for example, in order to be eligible for catastrophic coverage).
Premium Tax Credit
The ACA provides premium tax credits to help low-income individuals and families afford health insurance purchased through an Exchange. The amount of a taxpayer’s premium tax credit is determined based on the amount the individual should be able to pay for premiums (expected contribution).
The expected contribution is calculated as a percentage of the taxpayer’s household income, based on the FPL. This percentage increases as the taxpayer’s household income increases and is indexed each year after 2014, as follows:
Contribution Percentage
Income Level
2014
2015
2016
2017
2018
2019
2020
2021 – 2022*
2023
Up to 133% FPL
2%
2.01%
2.03%
2.01%
2.01%
2.08%
2.06%
0%
1.92%
133-150% FPL
3-4%
3.02-4.02%
3.05-4.07%
3.06-4.08%
3.02-4.03%
3.11-4.15%
3.09-4.12%
0-2%
2.88-3.84%
150-200% FPL
4-6.3%
4.02-6.34%
4.07-6.41%
4.08-6.43%
4.03-6.34%
4.15-6.54%
4.12-6.49%
2-4%
3.84-6.05%
200-250% FPL
6.3-8.05%
6.34-8.10%
6.41-8.18%
6.43-8.21%
6.34-8.10%
6.54-8.36%
6.49-8.29%
4-6%
6.05-7.73%
250-300% FPL
8.05-9.5%
8.10-9.56%
8.18-9.66%
8.21-9.69%
8.10-9.56%
8.36-9.86%
8.29-9.78%
6-8.5%
7.73-9.12%
300-400%
9.5%
9.56%
9.66%
9.69%
9.56%
9.86%
9.78%
8.5%
9.12%
*The American Rescue Plan Act temporarily lowered the applicable percentages in this table for 2021 and 2022 only.
Patient-Centered Outcomes Research Institute (PCORI) Fees
The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans.
PCORI fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return). These fees are due each year by July 31 of the year following the last day of the plan year. A federal spending bill enacted at the end of 2019 extended the PCORI fees for an additional 10 years. These fees will continue to apply for the 2020-2029 fiscal years.
This ACA Overview provides a summary of the ACA’s PCORI fees. Please contact [B_Officialname] for more information.
Links and Resources
Please see the following Internal Revenue Service (IRS) resources for more information on the ACA’s PCORI fees:
A federal spending bill enacted at the end of 2019 extended the PCORI fees to apply for the 2020-2029 fiscal years.
PCORI Fees
The ACA imposes PCORI fees on health insurers and self-insured plan sponsors.
These fees are widely known as PCORI fees, although they may also be called PCOR fees or comparative effectiveness research (CER) fees.
The fee originally applied to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. However, it was extended to apply through the 2029 fiscal year.
The payment, paid through the Electronic Federal Tax Payment System (EFTPS), should be applied to the second quarter (in EFTPS, select “Q2” for the Quarter under Tax Period on the “Business Tax Payment” page).
When are the PCORI Fees Effective?
The PCORI fees were originally scheduled to apply for plan years ending on or after Oct. 1, 2012, but not for plan years ending on or after Oct. 1, 2019. However, a federal spending bill enacted at the end of 2019 extended the PCORI fees for an additional 10 years. As a result, these fees will continue to apply for the 2020-2029 fiscal years.
Issuers and plan sponsors are required to pay the PCORI fees annually on IRS Form 720, by July 31 of each year. It generally covers plan years that end during the preceding calendar year. For plan years ending in 2021, the next PCORI fee payment is due Aug. 1, 2022, since July 31, 2022, is a Sunday.
How Much are the PCORI Fees?
The ACA set the PCORI fee at:
$1 multiplied by the average number of covered lives for plan years ending before Oct. 1, 2013 (2012 for calendar year plans).
$2 multiplied by the average number of covered lives for plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014.
For years after, the IRS published the adjusted PCORI fee amount each year, which is calculated based on the percentage increase in the projected per capita amount of the National Health Expenditures published by the Department of Health and Human Services (HHS) each year.
On Sept. 18, 2014, IRS Notice 2014-56 adjusted the PCORI fee amount to $2.08 times the average number of covered lives for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015.
On Oct. 9, 2015, IRS Notice 2015-60 adjusted the PCORI fee amount to $2.17 times the average number of covered lives for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2016.
On Nov. 4, 2016, IRS Notice 2016-64 adjusted the PCORI fee amount to $2.26 times the average number of covered lives for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017.
On Oct. 9, 2017, IRS Notice 2017-61 adjusted the PCORI fee amount to $2.39 times the average number of covered lives for plan years ending on or after Oct. 1, 2017, and before Oct. 1, 2018.
On Nov. 5, 2018, IRS Notice 2018-85 adjusted the PCORI fee amount to $2.45 times the average number of covered lives for plan years ending on or after Oct. 1, 2018, and before Oct. 1, 2019.
On June 8, 2020, IRS Notice 2020-44 adjusted the PCORI fee amount to $2.54 times the average number of covered lives for plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020. It also provides transition relief for calculating the average number of covered lives for this period. Issuers and plan sponsors may use any reasonable method to make this calculation, so long as it is applied consistently for the duration of the plan year.
On Nov. 24, 2020, IRS Notice 2020-84 adjusted the PCORI fee amount to $2.66 times the average number of covered lives for plan years ending on or after Oct. 1, 2020, and before Oct. 1, 2021.
On Dec. 21, 2021, IRS Notice 2021-04 adjusted the PCORI fee amount to $2.79 times the average number of covered lives for plan years ending on or after Oct. 1, 2021, and before Oct. 1, 2022.
The PCORI fees are based on the average number of covered lives under the plan or policy. This generally includes employees and their enrolled spouses and dependents. Individuals who are receiving continuation coverage (such as COBRA coverage) must be included in the number of covered lives under the plan in calculating the PCORI fee. The final rules outline a number of alternatives for issuers and plan sponsors to determine the average number of covered lives.
What Policies and Plans are Subject to PCORI Fees?
The PCORI fees generally apply to insurance policies providing accident and health coverage and self-insured group health plans. The final regulations contain some exceptions to this general rule, and also clarify how the PCORI fees apply to certain types of health coverage arrangements. For example, the PCORI fees do not apply if substantially all of the coverage under a plan or policy is for excepted benefits, as defined under the Health Insurance Portability and Accountability Act (HIPAA). In addition, the PCORI fees may apply to retiree-only plans and policies, even though retiree-only coverage is exempt from many of the ACA’s other requirements.
Health Insurance Policies and Health Plans
The PCORI fees apply to “specified health insurance policies” and “applicable self-insured health plans.” The ACA broadly defines these terms as follows:
Specified Health Insurance Policy—An accident or health insurance policy (including a policy under a group health plan) issued with respect to individuals residing in the United States, including prepaid health coverage arrangements.
Applicable Self-Insured Health Plan—A plan providing accident or health coverage, any portion of which is provided other than through an insurance policy, which is established or maintained by:
One or more employers for the benefit of their employees or former employees;
One or more employee organizations for the benefit of their members or former members;
Jointly by one or more employers and one or more employee organizations for the benefit of employees or former employees;
A voluntary employees’ beneficiary association (VEBA); or
Other specified organizations, including a multiple employer welfare arrangement (MEWA).
Governmental Entities
Governmental entities that are health insurance issuers or sponsors of self-insured health plans are subject to the PCORI fees, except that the fees do not apply to “exempt governmental programs”—Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and any program established by federal law to provide medical care (other than through insurance policies) for members of the Armed Forces or veterans or for members of Indian tribes.
Excepted Benefits
The PCORI fees do not apply if substantially all of the coverage under a plan is for excepted benefits, as defined under HIPAA. Excepted benefits include, for example, stand-alone dental and vision plans, accident-only coverage, disability income coverage, liability insurance, workers’ compensation coverage, credit-only insurance or coverage for on-site medical clinics. A health FSA qualifies as an excepted benefit if:
Other group health plan coverage, not limited to excepted benefits, is made available to the eligible class of participants; and
The maximum benefit payable under the FSA to any eligible participant does not exceed two times the participant’s salary reduction election (or, if greater, $500 plus the amount of the salary reduction election).
Retiree Health Plans
Although stand-alone retiree health plans are generally exempt from many of the ACA’s requirements, sponsors and issuers of these plans are subject to the PCORI fees, unless the plan qualifies as an excepted benefit under HIPAA.
Continuation Coverage
If continuation coverage under COBRA (or similar continuation coverage under federal or state law) provides accident and health coverage, the coverage is subject to the ACA’s PCORI fees.
Multiple Health Plans
The final regulations address how the PCORI fees apply when an employer sponsors more than one health plan for its employees (for example, a fully insured major medical insurance policy and a self-insured prescription drug plan). As a general rule, an issuer or plan sponsor may not disregard a covered life when calculating its PCORI fees merely because that individual is also covered under another specified health insurance policy or applicable self-insured plan.
However, multiple self-insured arrangements established and maintained by the same plan sponsor with the same plan year are subject to a single fee. For example, if a plan sponsor establishes or maintains a self-insured arrangement providing major medical benefits, and a separate self-insured arrangement with the same plan year providing prescription drug benefits, the two arrangements may be treated as one applicable self-insured health plan so that the same life covered under each arrangement would count as only one covered life under the plan for purposes of calculating the fee.
HRAs and Health FSAs
Health reimbursement arrangements (HRAs) and health flexible spending accounts (health FSAs) are not completely excluded from the obligation to pay PCORI fees. However, two special rules apply for plan sponsors that provide an HRA or health FSA. Under these special rules:
If a plan sponsor maintains only an HRA or health FSA (and no other applicable self-insured health plan), the plan sponsor may treat each participant’s account as covering a single life. This means that the plan sponsor is not required to count spouses or other dependents.
An HRA is not subject to a separate PCORI fee if it is integrated with another self-insured plan providing major medical coverage, provided the HRA and the plan are established and maintained by the same plan sponsor and have the same plan year. This rule allows the sponsor to pay the PCORI fee only once with respect to each life covered under the HRA and other plan. However, if an HRA is integrated with an insured group health plan, the plan sponsor of the HRA and the issuer of the insured plan will both be subject to the PCORI fees, even though the HRA and insured group health plan are maintained by the same plan sponsor.
The same analysis applies to health FSAs that do not qualify as excepted benefits.
Qualified Small Employer HRA (QSEHRA)
Due to a new federal law, the 21st Century Cures Act, small employers that do not maintain group health plans can adopt stand-alone HRAs without violating the ACA, effective for plan years beginning on or after Jan. 1, 2017. Depending on its plan design, this new type of HRA, called a qualified small employer HRA (QSEHRA), can be used to help employees pay for their own health insurance policies and reimburse other out-of-pocket medical expenses. However, specific requirements apply to QSEHRAs, including a maximum benefit limit and a notice requirement.
Plan sponsors of applicable self-insured health plans must file Form 720 annually to report and pay the PCORI fee; a QSEHRA is an applicable self-insured health plan for this purpose.
Individual Coverage HRA (ICHRA)
Beginning in 2020, employers of all sizes may implement a new HRA design—an individual coverage HRA (ICHRA)—to reimburse their eligible employees for insurance policies purchased in the individual market or Medicare premiums, subject to certain conditions. A key restriction for ICHRAs is that employers cannot offer any employee a choice between an ICHRA and a traditional group health plan.
Plan sponsors of applicable self-insured health plans must file Form 720 annually to report and pay the PCORI fee; an ICHRA is an applicable self-insured health plan for this purpose.
Employee Assistance, Disease Management and Wellness Programs
Employee assistance programs (EAPs), disease management programs and wellness programs that do not provide significant benefits in the nature of medical care or treatment are not subject to the PCORI fees. This exception also covers an insurance policy to the extent that it provides for an EAP, disease management program or wellness program, if the program does not provide significant benefits in the nature of medical care or treatment.
Who Must Pay the PCORI Fees?
The entity responsible for paying the PCORI fees depends on whether the plan is insured or self-insured.
For insured health plans, the issuer of the health insurance policy is required to pay the fees.
For self-insured health plans, the fees are to be paid by the plan sponsor.
Although sponsors of fully-insured plans are not responsible for paying PCORI fees, issuers may shift the fee cost to sponsors through a modest premium increase.
The Department of Labor (DOL) has advised that, because the PCORI fees are imposed on the plan sponsor under the ACA, it is not permissible to pay the fees from plan assets under the Employee Retirement Income Security Act (ERISA), although special circumstances may exist in limited situations. On Jan. 24, 2013, the DOL issued a set of frequently asked questions (FAQs) regarding ACA implementation that include a limited exception allowing multiemployer plans to use plan assets to pay PCORI fees (unless the plan document specifies another source of payment for the fees).
When two or more related employers provide health coverage under a single self-insured plan, the employer responsible for the PCORI fees is the one designated in the plan documents as the plan sponsor (or as the plan sponsor for purposes of reporting the PCORI fees). This designation must be made by the due date for reporting the PCORI fees, which is July 31 of each year for plan years ending in the preceding calendar year. If this designation is not made on time, then each employer is required to report and pay PCORI fees with respect to its own employees.
How are the PCORI Fees Calculated?
The PCORI fees are based on the average number of lives covered under the plan or policy. This generally includes employees and their enrolled spouses and dependents. Individuals who are receiving continuation coverage (such as COBRA coverage) must be included in the number of covered lives under the plan in calculating the PCORI fee. The final regulations outline a number of alternatives for issuers and plan sponsors to determine the average number of covered lives. As a general rule, plan sponsors and issuers may only use one method for determining the average number of covered lives for each plan year. However, because of the anticipated termination of the PCORI fee prior to its extension, issuers and plan sponsors may not have anticipated the need to identify the number of covered lives for plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020. Thus, IRS Notice 2020-44 provides that issuers and plan sponsors may use any reasonable method to make this calculation for this period, so long as it is applied consistently for the duration of the plan year. Issuers and plan sponsors may also continue to use the following methods.
Insured Health Plans
Health insurance issuers have three options for determining the average number of covered lives:
The Actual Count Method—This method involves calculating the sum of lives covered for each day of the plan year and dividing that sum by the number of days in the plan year.
The Snapshot Method—This method involves adding the total number of lives covered on a date in each quarter of the plan year, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made.
The Form Method—As an alternative to determining the average number of lives covered under each individual policy for its respective plan year, this method involves determining the average number of lives covered under all policies in effect for a calendar year based on the data included in the National Association of Insurance Commissioners Supplemental Health Care Exhibit (Exhibit) that some issuers are required to file (called the member months method). For issuers that are not required to file an Exhibit, there is a similar available method that uses data from equivalent state insurance filings (called the state form method).
Self-insured Health Plans
Sponsors of self-insured plans may determine the average number of covered lives by using the actual count method or the snapshot method. For purposes of the snapshot method, the number of lives covered on a designated date may be determined using either the snapshot factor method or the snapshot count method.
Snapshot factor method.Under the snapshot factor method, the number of lives covered on a date is equal to the sum of:
The number of participants with self-only coverage on that date; plus
The product of the number of participants with coverage other than self-only coverage on the date and 2.35.
Snapshot count method. Under the snapshot count method, the number of lives covered on a date equals the actual number of lives covered on the designated date.
Alternatively, plan sponsors may use the Form 5500 method, which involves a formula using the number of participants reported on the Form 5500 for the plan year.
For HRAs and health FSAs that are required to be reported separately (for example, because they are integrated with an insured group health plan and do not qualify as excepted benefits), the regulations simplify the determination of average number of covered lives by allowing plan sponsors to assume one covered life for each employee with an HRA or health FSA.
In addition, a self-insured plan that provides accident and health coverage through fully-insured and self-insured options may determine the plan’s PCORI fees by disregarding the lives covered solely under the fully-insured options.
How are the PCORI Fees Reported and Paid?
In general, the PCORI fees are assessed, collected and enforced like taxes under the Internal Revenue Code. Issuers and plan sponsors must report and pay the PCORI fees annually on IRS Form 720 (Quarterly Federal Excise Tax Return). Instructions for the form are also available.
Form 720 and full payment of the PCORI fees are due by July 31 of each year. It generally covers plan years that end during the preceding calendar year. Thus, the first possible deadline for filing Form 720 was July 31, 2013. The deadline for filing Form 720 is Aug. 1, 2022, for plan years ending in 2021. 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.
On Jan. 24, 2013, the Departments issued FAQs that address payment of PCORI fees from plan assets. In general, because the fee is imposed on the plan sponsor and not on the plan itself, the plan sponsor must pay the fee outside the plan. This means that plan assets cannot be used to pay the fee. However, there are certain circumstances in which PCORI fees may be paid from plan assets.
Multiemployer Plans
In the case of a multiemployer plan, the plan sponsor liable for the PCORI fee would generally be the independent joint board of trustees appointed and directed to establish the employee benefit plan. According to the Departments, a multiemployer plan’s joint board of trustees is permitted to pay PCORI fees from plan assets, unless the plan document specifies another source for payment of the fee.
ERISA imposes certain responsibilities on fiduciaries that are designed to avoid misuse and mismanagement of plan assets. Generally, plan assets must be used for the exclusive benefit of plan participants and beneficiaries.
The Departments understand that a multiemployer plan’s joint board of trustees normally has no function other than to sponsor and administer the multiemployer plan and has no source of funding independent of plan assets to pay PCORI fees. The fee is not an excise tax or penalty imposed on the trustees in connection with a violation of federal law or a breach of their fiduciary obligations in connection with the plan. In addition, the Departments stated that the joint board would not be acting in a capacity other than as a fiduciary of the plan in paying a PCORI fee.
As a result, the Departments believe that it would be unreasonable to construe ERISA’s fiduciary provisions as prohibiting the use of plan assets to pay a PCORI fee to the federal government.
Non-Multiemployer Plans
According to the Departments, there may be rare circumstances where sponsors of employee benefit plans that are not multiemployer plans would also be able to use plan assets to pay the PCORI fee. For example, a VEBA that provides retiree-only health benefits may be able to use plan assets to pay a PCORI fee if the sponsor is a trustee or board of trustees that exists solely for the purpose of sponsoring and administering the plan, and has no source of funding independent of plan assets.
However, this exception would not necessarily apply to other plan sponsors required to pay the PCORI fee. For example, a group or association of employers that act as a plan sponsor, but that also exist for reasons other than solely to sponsor and administer a plan, may not use plan assets to pay the fee even if the plan uses a VEBA trust to pay benefits under the plan. These entities or associations, such as employers that sponsor single employer plans, would have to identify and use some other source of funding to pay the PCORI fee.
Are the PCORI Fees Deductible?
On May 31, 2013, the IRS issued a Chief Counsel Memorandum addressing the deductibility of the PCORI fees. According to the IRS, the required PCORI fee is an ordinary and necessary business expense paid or incurred in carrying on a trade or business and, therefore, is deductible under Code Section 162.
What Should Employers Do Now?
The deadline for filing Form 720 is July 31 of each year. Employers should take the following steps to assess their compliance obligations:
Determine which employee benefit plans are subject to the PCORI fees;
Assess plan funding status (insured vs. self-insured) to determine whether the employer or a health policy issuer is responsible for the fees; and
For any self-insured plans, select an approach for calculating average covered lives.
The PCORI fee applies separately to “specified health insurance policies” and “applicable self-insured health plans,” and is based on the average number of lives covered under the plan or policy.
Using Part II, Number 133 of Form 720, issuers and plan sponsors must report the average number of lives covered under the plan separately for specified health insurance policies and applicable self-insured health plans. That number is then multiplied by the applicable rate for that tax year, as follows:
$1 for plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans).
$2 for plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014.
$2.08 for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015.
$2.17 for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2016.
$2.26 for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017.
$2.39 for plan years ending on or after Oct. 1, 2017, and before Oct. 1, 2018.
$2.45 for plan years ending on or after Oct. 1, 2018, and before Oct. 1, 2019.
$2.54 for plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020.
$2.66 for plan years ending on or after Oct. 1, 2020, and before Oct. 1, 2021.
$2.79 for plan years ending on or after Oct. 1, 2021, and before Oct. 1, 2022.
The fees for specified health insurance policies and applicable self-insured health plans are then combined to equal the total tax owed.
Issuers or plan sponsors that file Form 720 only to report the PCORI fee will not need to file Form 720 for the first, third or fourth quarter of the year. Issuers or plan sponsors that file Form 720 to report quarterly excise tax liability for the first, third or fourth quarter of the year (for example, to report the foreign insurance tax) should not make an entry on the line for the PCORI tax on those filings.
More Information
Please contact gente for additional information on PCORI fees.
The Supreme Court ruled in Bostock v. Clayton County that employment discrimination based on gender identity or sexual orientation violates Title VII of the Civil Rights Act.
Definitions:
Sexual Orientation: One’s sexual attractions, whether directed toward individuals of the same sex, the other sex or both sexes.
Gender Identity: One’s internal sense of gender, which may be different from the sex assigned at birth.
On July 25, 2022, the Department of Health and Human Services (HHS) issued a proposed rule that would revise existing regulations for the Section 1557 nondiscrimination protections under the Affordable Care Act (ACA). The proposed rule is intended to solidify protections against discrimination on the basis of sex, including sexual orientation and gender identity.
ACA Section 1557
Section 1557 prohibits discrimination based on sex in any health program or activity that receives federal funds or is administered by a federal agency. A 2016 HHS rule defined “sex” to include sex stereotypes and gender identity, along with pregnancy termination and other pregnancy-related conditions.
In 2020, HHS issued new regulations that changed the 2016 definition of “sex” to allow for distinctions based on “the biological binary of male and female.” However, a federal court blocked HHS from enforcing the 2020 version of the rule. On May 10, 2021, HHS announced that it would now interpret and enforce the Section 1557 prohibition on discrimination based on sex to include discrimination based on sexual orientation and gender identity.
Proposed Rule
The proposed rule attempts to address gaps identified in prior regulations to advance protections under Section 1557. It would, among other things:
Clarify the application of Section 1557 nondiscrimination rules to health insurance issuers that receive federal financial assistance;
Codify nondiscrimination protections on the basis of sex as including discrimination based on sexual orientation and gender identity;
Clarify that sex discrimination includes discrimination based on pregnancy or related conditions, including “pregnancy termination;” and
Require covered entities to have Section 1557 policies and training.
The 7th Circuit Court of Appeals has ruled in Ziccarelli v. Dart that an employer can violate the federal Family and Medical Leave Act (FMLA) by discouraging an employee from exercising FMLA rights without denying an FMLA leave request. The 7th Circuit’s jurisdiction covers Illinois, Indiana and Wisconsin.
Statutory Language of the FMLA
The FMLA provides that an employer may not “interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under” the act.
Ziccarelli v. Dart
Cook County Sheriff’s Office employee Salvatore Ziccarelli claimed that when he called the office’s FMLA manager to discuss using his remaining FMLA leave for post-traumatic stress disorder treatment, he was told that he had already taken “serious amounts” of FMLA and would be disciplined if he took any more. He resigned shortly after and sued, alleging an FMLA violation.
In allowing the case to go forward, the 7th Circuit acknowledged that its opinions have used “varying language that has led to some confusion” on the issue of FMLA interference. However, the court held that the statutory text “makes clear that a violation does not require actual denial of FMLA benefits. This understanding of the statute does not conflict with the relevant case law in this or other circuits.” In its reasoning, the court noted the use of the “disjunctive ‘or’” in the statutory language and FMLA regulations stating that discouraging FMLA use would be interference under the act.
Steps for Employers
Employers covered by the FMLA should avoid appearing to discourage employees from using their FMLA leave.
Finding the right third-party administrator (TPA) can be challenging, and organizations often underestimate the time and resources required to select the best candidate for their needs. However, understanding the importance of finding the right TPA and exercising due diligence can pay dividends by ensuring smooth and cost-effective plan operation and minimizing legal risks.
Why Organizations Use TPAs
Unlike insurance providers that sell coverage, TPAs provide administrative and operational service to employers. Some examples of services they provide are claims processing, management and reporting. TPAs can also help organizations with plan design and implementation. TPAs charge fees for their services and may earn commissions from premiums paid to an insurer.
Administering benefits can be overwhelming. Many organizations rely on TPAs to, for example, meet regulatory standards more efficiently than they could on their own. By outsourcing administrative and operational services to TPAs, organizations can focus their efforts and attention elsewhere, thereby conserving time, resources, and efforts.
gente helps employers with administration and compliance for:
Consumer-Driven/Tax-Favored Accounts
HRA – Health Reimbursement Arrangements
ICHRA – Individual Coverage Health Reimbursement Arrangement
QSEHRA – Qualified Small Employer Health Reimbursement Arrangement
EBHRA – Excepted Benefits Health Reimbursement Arrangement
ACA Reporting (State and Federal Filings, 1094-B/1095-B and 1094-C/1095-C)
ACA Consulting
Pay or Play Strategies
226-J Assistance
5699 Assistance
HR Consulting
Human support from a single project to embedded on-site
Payroll Processing
Online Enrollment
Benefits of Selecting the Right TPA
It’s crucial for an organization to choose the right TPA for its needs. An organization’s goals should match the TPA’s offerings; otherwise, it may pay for services it does not need. Worse, choosing the wrong TPA can lead to poor claim outcomes, legal exposures, and higher insurance costs.
Choosing the right TPA can provide an organization with responsive, flexible, and personalized service. It can enable an organization to operate more efficiently by minimizing claim and administrative costs. The appropriate TPA can also offer an organization considerable knowledge and experience in administering health plans. A TPA can identify potential trouble spots and reduce an organization’s legal risks.
Strategies for Selecting the Right TPA
Each organization is unique. Selecting the right TPA depends on an organization’s specific health plan and related needs. However, a potential TPA’s qualifications, quality of services, and fees should also be considered when deciding if it’s the right fit.
Consider the following strategies when searching for a TPA:
Understand the organization’s needs and priorities. Plans have different needs depending on the type, design, asset size, and number of participants. Knowing what an organization needs and setting priorities to meet those needs can go a long way toward finding a TPA. A suitable TPA will be able to provide answers to problems and solve issues quickly. Our service team sits together in Wayne, New Jersey, and is always eager to help.
Determine whether a TPA can meet needs. TPAs offer various services, and they should be reviewed individually. By understanding a TPA’s services and how it administers them, an organization can determine whether the TPA will meet its needs. Each of gente’s services is available individually.
Ensure legal compliance. The regulatory landscape is constantly changing, so organizations should consider how a TPA remains current on legal developments and how it can help with compliance. The right TPA should be able to guide an organization through its legal issues. gente provides the highest level of support in resolving difficult compliance issues, though employer’s counsel should always be involved.
Compare candidates. An organization’s relationship with a TPA is based on reliability, so any potential TPA must be able to work effectively with their client. Organizations may review metrics of a TPA’s actual claim outcomes and know how fast it pays claims as well as its error rates. By comparing these metrics to other TPAs, organizations can select the right TPA for them. gente has been proudly serving employers for more than twenty years and has well-earned reputation for high-touch, responsive service.
Check references. Organizations can ask a potential TPA about other clients of similar size and needs. Then, those clients can be contacted to discuss their experience working with the TPA. gente is happy to share references with prospective clients.
Know costs. Organizations should be aware of all services offered by a TPA and know the costs of each. Understanding the terms of any agreement with a TPA, especially fees and expenses, is essential when choosing a TPA. gente’s costs are all-inclusive and fully transparent. There are no hidden fees for any of our services.
Assess data security. TPAs should have safeguards in place to handle and protect clients’ data. Verifying a TPA’s security protocols and standards will help an organization determine whether the TPA is a good fit. gente keeps ahead of security threats with a number of protections to store and transmit data securely and prevent unauthorized access.
Reviewing all relevant factors, quality, and cost of services can help an organization choose a TPA. After making a selection, it’s important to regularly review the TPA’s performance to ensure it is meeting the organization’s needs.
Conclusion
There’s a lot at stake for an organization when selecting a TPA. The right TPA can improve an organization’s claim outcomes, reduce legal exposures, and lower benefits costs. Implementing these strategies can help an organization find the best candidate for them.
For the best in third-party administration, contact gente today at sales@gente.soutions.
WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rate for the final 6 months of 2022. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business and certain other purposes.
For the final 6 months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022. The IRS provided legal guidance on the new rates in Announcement 2022-13, issued today.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2022. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. For travel from January 1 through June 30, 2022, taxpayers should use the rates set forth in Notice 2022-03.
“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” said IRS Commissioner Chuck Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”
While fuel costs are a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance, and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute.
Midyear increases in the optional mileage rates are rare, the last time the IRS made such an increase was in 2011.
“For calendar year 2023, the annual limitation on deductions under Section 223(b)(2)(A)for an individual with self-only coverage under a high deductible health plan is $3,850. For calendar year 2023, the annual limitation on deductions under Section 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,750.”
“For calendar year 2023, a ‘high deductible health plan’ is defined under Section 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,500 for self-only coverage or $3,000 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,500 for self-only coverage or $15,000 for family coverage.”
For plan years beginning in 2023, the maximum amount that may be made newly available for the plan year for an excepted benefit HRA under Section 54.9831-1(c)(3)(viii)is $1,950.”
