As the July 31, 2018 deadline approaches for paying fees required under the Affordable Care Act (ACA) to help fund the Patient-Centered Outcomes Research Institute (PCORI), some International Foundation members have been asking about short plan years.

Self-insured plan sponsors will report and pay PCORI fees once a year on Form 720, due by July 31 each year. Form 720 will cover plan years that end during the preceding calendar year. The fee for plan years ending in 2017 is due by July 31, 2018. If you are hoping for a pass this time around because of a short plan year, think again.

A short plan year spans fewer than 12 months and may occur for a couple reasons:

• A new self-insured health plan that operates using a calendar year but is established after January 1 has a short plan year as its first year.
• A non-calendar year plan experiences a short plan year when changing its plan year to a calendar year.

Here’s what we know from the IRS about short plan years:

• The PCORI fee applies to short plan years.
• The fee due for a short plan year is based on the average number of plan participants during the short plan year. There are three methods for self-insured plans to choose from when calculating the average number of participants. The per person dollar amount is based on the plan year end date. It appears the dollar amount is not prorated. You can compare a short plan-year and a 12-month plan year like this:
  • The PCORI fee for a plan that has a short plan year that starts on April 1, 2017 and ends on Dec. 31, 2017 is equal to the average number of lives covered for April through December 31, 2017 multiplied by $2.39 (the applicable dollar amount for plan years ending on or after Oct. 1, 2017).
  • The PCORI fee for a plan that has a 12-month plan year that starts on November 1, 2016 and ends on October 31, 2017 is equal to the average number of lives covered for November 2016 through October 31, 2017 multiplied by $2.39.
• The fee due date for a short plan year is July 31 of the year after the last day of the short plan year, just like for any full plan year.

A puzzling short plan year scenario

Say you had a non-calendar plan year ending August 31, 2017 and a short plan year beginning September 1 and ending December 31, 2017. You had one plan but two plan years that ended in 2017. The question has arisen whether the plan would have to pay the PCORI fee for the short plan year as if it were a full plan year.

It appears, yes, the fee due for a short plan year is the same as for a 12-month plan year, if the average number of covered lives is the same. It appears the fee is due for both 2017 plan years on July 31, 2018. Some have interpreted this as paying double for a year when the plan is transitioning from a non-calendar plan year to a calendar year. We are not claiming to provide legal advice, but we have found nothing in the IRS guidance indicating otherwise.

Calculating the fee based on plan-year end date

For plan years ending January 1, 2017 through September 30, 2017, the fee is $2.26 multiplied by the average number of covered lives. For plan years ending October 1, 2017 through December 31, 2017, the fee is $2.39 multiplied by the average number of covered lives.

For more details, check out the IRS PCORI page with regulations, counting methods, rates and calculations.

Jenny Lucey, CEBS
Manager, Reference/Research Services at the International Foundation

Developed by International Foundation of Employee Benefit Plans staff. This does not constitute legal advice. Consult your plan professionals for legal advice.