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What is a specified medical insurance policy?

To sum it up...
  • A specified medical insurance policy is any health or accident insurance that covers individuals, families, and groups, excluding additions to coverage that are not part of the main policy
  • The PCORI trust fund was established in 2010 as a means of privately utilizing expertise in the health industry to improve the choices in treatments
  • Fees are paid into the trust fund through the US Treasury, Medicaid and Medicare trust funds and through a small fee per covered person with qualified health insurance.
  • PCORI fees are $2.36 per covered life, annually as of 2017 but can be raised for inflation anytime after October.
  • PCORI fees are tax-deductible business expenses

Knowledge of specified medical insurance policies is important for issuers to know in order to pay the mandated PCORI fee the second quarter of each year. This helps lead you to the right number of insured lives, which allows you to figure the amount correctly. Corrected filing can be done, but it is always more desirable to get this done right the first time.

The Affordable Care Act painted a picture that is very broad when it comes to defining a specified medical insurance policy. It is considered any accident or health insurance policy for individuals, families, and groups.

Every individual on the policy is considered a covered member. This number gains relevance when considering a number of various fees that the IRS requires of qualifying policies, which is based on the number of people enrolled.

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Exceptions With a Specified Health Insurance Policy

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There are some types of medical insurance coverages and supplements that are exempt from most types of additional fees. HIPAA clarifies what types of insurance coverage is exempt, such as:

  • Accident or disability-only insurance coverage
  • Supplements like dental and vision that are not part of the regular plan
  • Workers compensation
  • On-site medical clinics
  • Credit-only coverage

Generally, any type of medical insurance that is not a part of the individual, family or group plan is exempt. Itemized coverage that is secondarily added to the primary policy is not considered to be the “policy,” but merely an expansion of benefits.

PCORI Fees

The Patient-Centered Outcomes Research Institute has a trust fund that was established by Congress in 2010. This trust fund is provided financial resources in three ways:

  • Transfers from Medicaid and Medicare trust funds
  • General US Treasury transfers
  • Modest fees from private and self-funded health insurance policies

This trust fund was established as part of the Affordable Care Act to implement ways of helping improve the health care system and availability of quality treatment options through research. They receive 80 percent of the money, with 20 percent going to health and Human Services to administrate and bolster the program.

Why are PCORI fees assessed?

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These nominal fees are a way to help fund the advancement of good and safe medical treatments for patients by bringing together elements of:

  • Quality research
  • Health practitioner advice and recommendations
  • Patient testing and opinion
  • Buyer decisions
  • Policymaker advocacy

The PCORI is not a governmental agency, but rather a non-profit that is there to benefit the public health. 

They do receive government funding, but act in the interest of patient care and improving the options available for quality and effective treatments to all sorts of disease and conditions.

How much are PCORI Fees?

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The PCORI fee began as a modest $1 addition to the trust fund per covered individual back in 2012. It then moved up to $2 dollars by the year 2013. It now rests at $2.26 per person, annually, with the ability to raise as needed for inflation after October 2017.

The number of covered individuals can be done through a direct head count, taking a snapshot for a best-guess estimate at the time, member months method, or use the state form to find the average number of lives that need to be financially accounted for.

How are the PCORI fees paid?

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Once you, the issuer, has determined the number of people that the fee applies to, simply calculate the amount needed to be paid by multiplying by the current charge. There are instructions on form 720, which is what is used to file the fee with the IRS.

This form will only have to be done for paying the PCORI fee in the second quarter of the year following the end of the medical insurance policy year the fee is accrued.

You will not have to file this form the first, third, or fourth quarter unless there are other reasons you are required to do quarterly reporting to the IRS. The fee payments have to be mailed by July 31 of the year but are not required to be electronically transferred.

Is the PCORI Fee Tax Deductible?

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Any expense that is considered necessary and ordinary can be deducted at tax time. The PCORI fee is considered one that is fully tax deductible. Make sure you do not confuse this with the shared responsibility, or excise tax for durable medical products. neither of these fees is tax deductible. You do not want to end up owing unexpected amounts of money to the IRS.

Understanding what a specified medical insurance policy allows you to stay in compliance with calculating all of the necessary fees associated with health reform laws.

Contact a health insurance expert today and find out more about PCORI fees and the best way to maintain an accurate count of covered individuals.

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