Compliance Corner


FAQ: How is the PCOR filing impacted if a fully insured medical plan with HRA switches to a self-insured medical plan with HRA in 2023?

May 23, 2023

HRAs are generally considered self-insured plans that are subject to the PCOR fee. Employers who sponsor self-insured plans (including HRAs) must report and pay the annual PCOR fee with their second quarterly filing of Form 720 (Quarterly Federal Excise Tax Return). The filing is due no later than July 31 of the calendar year immediately following the last day of the plan year to which the fee applies. This means that employers with 2022 calendar year self-insured plans must report and remit the PCOR payment with Form 720 by July 31, 2023.

For example, let’s assume an employer sponsored an integrated HRA with a fully insured medical plan in 2022. At its plan renewal, the employer changed its medical plan from fully insured to self-insured and continues to offer an integrated HRA effective January 1, 2023. The employer’s ERISA plan year is January 1. When does the employer need to file and pay the PCOR fee along with the completed Form 720 with the IRS?

For the employer’s calendar year plans in 2022, the employer is required to file and remit the payment of the PCOR fee for its integrated HRA by July 31, 2023, even when the employer sponsors a fully insured medical plan. The medical carrier pays the PCOR fee for the fully insured medical plan, which is generally included in the premiums, and the employer pays the PCOR fee for the HRA. To calculate the PCOR fee for HRAs, the employer simply counts one covered life per HRA. Unlike the rule that applies to self-insured medical plans, the count for HRAs should not include spouses or other dependents. For example, if the employer had 300 covered lives (including spouses and children) who were enrolled in its medical plan and 80 employees who enrolled in its HRA plan in 2022 (based on the allowable calculation methods further described below), the employer would multiply 80 times the $3, which is the PCOR fee amount per covered life for the plan year ending between October 1, 2022 and September 30, 2023.

The PCOR fee and filing for the employer’s 2023 calendar year plans is due July 31, 2024. The employer sponsors two self-insured plans: its medical plan and integrated HRA. Under the PCOR fee regulations, if an employer sponsors multiple self-insured arrangements with the same plan year (e.g., a self-insured medical plan combined with an integrated HRA like this illustration), the employer can treat the multiple arrangements as one plan. Therefore, the employer pays only one PCOR fee for the same participant. Employers can use any of the following four methods to calculate the number of covered lives for the employer’s PCOR fee that is due in July 2024.

Actual Count Method: Under the actual count method, the employer calculates the sum of the lives covered for each day of the plan year and divides that sum by the number of days in the plan year (365/366 days for 12-month plan years, reduced as applicable for short plan years).

Snapshot Method: Under the snapshot method, the employer adds the total number of lives covered on one date (or on an equal number of dates) in each quarter of the plan year and then divides the total by the number of dates for which a count was made.

Snapshot Factor Method: The snapshot factor method works the same as the snapshot method, except that the employer counts the number of participants with self-only coverage on the designated dates plus the number of participants with coverage other than self-only coverage on the designated dates multiplied by 2.35.

Form 5500 Method: Under the Form 5500 method, the employer uses the number of participants reported on Form 5500 for the applicable plan year, provided the Form 5500 is filed by no later than the July 31 due date for remittance of the corresponding PCOR fee. If the employer exclusively offers self-only coverage, then the employer adds the participant count on the first and last days of the plan year (respectively lines 5 and 6d in Part II on Form 5500) and divides the sum by two. If the employer offers family coverage (or any coverage other than self-only coverage), then the employer adds the participant count on the first and last days of the plan year (but does not divide that sum by two).

The IRS has not published the revised form and instructions for the second quarter Form 720 filing as of the date this article is published. The updated form and instructions are generally available by mid-June. In the meantime, employers who sponsor self-insured plans are encouraged to review the PCOR requirements and calculate the fee using any of the methods noted above.

For additional information about the PCOR fee requirements, please contact your NFP benefits consultant or broker for a copy of the NFP publication, ACA: A Quick Reference Guide to the PCOR Fee.