By now, employers who sponsor self-insured medical plans are familiar with the fees they must pay to fund Patient-Centered Outcomes Research (“PCORI”) and the Transitional Reinsurance Program. This post describes a detail that can have a significant effect on the amount that each sponsor must pay.
Both fees are calculated as a dollar amount per covered life. The implementing regulations describe three ways to determine the number of covered lives:
- Actual count (averaging), where you count the number of covered lives on each day of a period (a year for the PCORI fee and 9 months for the Reinsurance fee), and then divide by the number of days;
- Snapshot, where you count the number of covered lives on one or more days per calendar quarter and then divide by the number of days; and
- Form 5500, where the number of covered lives is based on the number of participants reported on the plan’s Form 5500.
There are minor differences in the calculations for the PCORI fee and the Reinsurance fee. Those differences and other details are not discussed in this post.
Whereas the actual count and snapshot methods require counting every person in the plan–including employees, spouses, and dependents–the Form 5500 method offers a shortcut that can produce significant savings for large employers. Instead of actually counting covered lives, the plan sponsor simply deems the number of covered lives to be the number of participants at the beginning of the year plus the number of participants at the end of the year.
The reason for this shortcut is that a Form 5500 reports only the number of participants, and not spouses or dependents. The shortcut assumes an average of one spouse or dependent per participant. For plans that have an average of more than one spouse or dependent per participant, this shortcut will result in savings.
Continue Reading Potential Savings Opportunity for Sponsors of Self-Insured Medical Plans