PCORI Fee for FSA - plan year 2021 payable 2022?

[Scott A. Davis]

This statement was recently made by a TPA. related to PCORI fees in 2022: 

Generally, health care Flexible Spending Accounts (FSAs) are not required to file a Form 720 unless the employer (and not just the employee) makes contributions to it that exceed the lesser of $500 annually or a dollar-for-dollar match of the employee's contribution. 

I did look as the IRS Chart chart summary. and FAQs Related Item: Patient-Centered Outcomes Research Trust Fund Fee: Questions and Answer and  the final regulations , but do not see the above exception.  Does anyone have insight to the above bold exception??

 

I did see the follow exceptions for FSAs:

Special rule for coverage under multiple applicable self-insured health plans:

• Generally, separate fees apply for lives covered by each specified health insurance policy or applicable self-insured health plan.
• However, two or more applicable self-insured health plans may be combined and treated as a single applicable self-insured health plan for purposes of calculating the PCORI fee but only if the plans have:
  • The same plan sponsor; and
  • The same plan year.

 

Special counting rule for HRAs and FSAs: 

• Plan sponsors are permitted to assume one covered life for each employee with an HRA.
• Plan sponsors are permitted to assume one covered life for each employee with an FSA.

Q5. Which individuals are taken into account for determining the lives covered under a specified health insurance policy or applicable self-insured health plan?

A5. Generally, all individuals who are covered during the policy year or plan year must be counted in computing the average number of lives covered for that year. Thus, for example, an applicable self-insured health plan must count an employee and his dependent child as two separate covered lives unless the plan is a health reimbursement arrangement (HRA) or flexible spending arrangement (FSA).

Thanks for you review and reply in advance!

 

[Lois Baker]

Here's one path through the maze:

From the chart summary, FSAs are subject to the PCORI fee " unless the arrangement satisfies the requirements for being treated as an excepted benefit"

From the definition of "excepted benefits" (athttps://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.9831-1#p-54.9831-1(c)(3)(v)):

(v) Health flexible spending arrangements. Benefits provided under a health flexible spending arrangement (as defined in section 106(c)(2)) are excepted for a class of participants only if they satisfy the following two requirements -

(A) Other group health plan coverage, not limited to excepted benefits, is made available for the year to the class of participants by reason of their employment; and

(B) The arrangement is structured so that the maximum benefit payable to any participant in the class for a year cannot exceed two times the participant's salary reduction election under the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant's salary reduction election). For this purpose, any amount that an employee can elect to receive as taxable income but elects to apply to the health flexible spending arrangement is considered a salary reduction election (regardless of whether the amount is characterized as salary or as a credit under the arrangement).

[Scott A. Davis]

Yes, thanks Lois. I review this today and found that the TPA was speaking about an non-excepted benefit Health FSA, which would be subjec to PCORI Fees, but is rare to still have due to most comply with the ACA. Otherwise, the PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) per a update today fron Newfront's Karen Hooper, VP, Senoir Compliance Manager.

[Brian Gilmore]

Here's the problem there--the ACA has rendered non-excepted health FSAs unlawful and subject to $100/day/employee penalties under IRC §4980D for violation of the ACA market reforms.

DOL Technical Release 2013-3:

https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03

2. Application of the Market Reforms to Certain Health FSAs

Question 7: How do the market reforms apply to a health FSA that does not qualify as excepted benefits?

Answer 7: The market reforms do not apply to a group health plan in relation to its provision of benefits that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits if the employer also makes available group health plan coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). See 26 C.F.R. §54.9831-1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. § 146.145(c)(3)(v). Therefore, a health FSA that is considered to provide only excepted benefits is not subject to the market reforms.

If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. Because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements.