Q. I am new to this school. On our calendar, I have a reminder to “file IRS Form 720 by July 31.” My understanding is that Form 720 is a quarterly return that the school does not file—why would I file it in July?
A. There are two reasons why a school would file Form 720 in the second quarter of each year, but not in any other quarter: Either your school offers a self-funded health insurance plan, and/or it provides its employees with a Health Reimbursement Arrangement (HRA).
In either case, the second quarter filing of the Form 720 includes reporting information for the Patient Centered Outcomes Research Institute (PCORI) Fee. This fee is part of the ACA to compile and distribute comparative clinical effectiveness research. The fee is currently scheduled to end in 2019.
The fee is based on the average number of lives covered under your prior plan year. For 2016, it would be based for plan years ending in 2015.
The fee for 2016 also depends on when your plan year ended, as it is adjusted annually for cost of living. Plan years that ended on January 31, 2015, through September 30, 2015, will use $2.08 per covered lives. Plan years that ended between October 1, 2015, and December 31, 2015, will use $2.17 per covered lives.
If you have a self-funded medical plan, the covered lives includes your employee plus any dependents and/or spouse on the plan. For fully funded plans, your insurance carrier pays the fee. For an HRA, you only have to count your employees.
To calculate the “average lives” to which the fee applies, you have three methods: average count method, snapshot method, or Form 5500 method.
Average Count Method: Count the number of lives covered for each day of the plan year, and divide by the number of days in the plan year.
Snapshot Method: Add together the number of lives covered on one date (or an equal number of dates) in each quarter during the plan year, and divide that sum by the number of dates on which the count was made.
Form 5500 Method: Use the number of lives reported on the 5500 form for the appropriate plan year. For self-only coverage, add the beginning and end numbers and divide by two. For self-only and dependent coverage, add the number of participants at the beginning and the end of the form.
This is a very general overview of the fee. If you have additional questions about your situation please feel free to contact Linda Geist here at ISM or your insurance broker.
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