The Internal Revenue Service needs to do better at ensuring that health insurance policy issuers and self-insured plan sponsors pay a fee required under the Affordable Care Act known as the Patient-Centered Outcomes Research fee, according to a new government report.
The report, from the Treasury Inspector General for Tax Administration, noted that the Affordable Care Act includes a tax provision that mandates an excise tax equal to one or more dollars based on the average number of lives covered under a specified health insurance policy or self-insured health plan during a specific year. The new Patient-Centered Outcomes Research fee is used to offset the costs of the PCOR Institute, which funds research that will provide information to help patients and their healthcare providers make more informed health care decisions.
In its review, TIGTA found that 72,035 health insurance policy issuers/self-insured plan sponsors filed a Form 720, Quarterly Federal Excise Tax Return, with PCOR fees totaling $114 million for tax year 2012. However, of these filers, 30,996 (or approximately 43 percent) paid a PCOR fee of less than $4.25, which is the IRS’s cost just to process these returns.
The IRS developed a PCOR compliance plan that states it will use third-party data sources to identify potential nonfilers. TIGTA noted that the IRS is in the process of analyzing this information for use in evaluating tax year 2012 return filing compliance. However, the data that the IRS obtained do not include the necessary information to calculate the potential PCOR fees owed by these nonfilers.
TIGTA reviewed additional data from these third-party sources and identified 25 health insurance policy issuers and 1,753 self-insured health plan sponsors that potentially did not file a Form 720 reporting a PCOR fee in tax year 2012 as required.
For the quarter ending June 30, 2013, TIGTA also found 2,242 transactions had transcription errors which resulted in an overstatement of approximately 359 million average lives covered. While the average number of lives recorded in the Business Return Transaction File is not reliable, these errors do not affect the PCOR fees paid.
"The Patient-Centered Outcomes Research fee is an important source of funds for research that will enable people to make more informed healthcare decisions," said TIGTA Inspector General J. Russell George in a statement. "As such, it is important for the IRS to take the steps we have recommended to ensure that the applicable health insurance policy issuers and self-insured plan sponsors comply with the requirements in the law."
TIGTA recommended that the IRS obtain the data needed to identify noncompliance with the filing and payment requirements for PCOR fees. Based on these results, TIGTA suggested, the IRS should identify nonfilers, send notices as appropriate, and determine if additional enforcement actions are required. The IRS should also alert and instruct employees on how to avoid the significant Form 720 transcription errors that materially affect the accuracy of the average number of lives covered for the PCOR fees, TIGTA recommended.
In addition, the report suggested that the IRS establish a systemic error report for the Form 720 with a PCOR fee and refer accounts for possible examination that do not match.
IRS officials agreed with three recommendations but disagreed with the fourth recommendation to establish a systemic error report, stating that they have limited information technology resources and funding available. However, TIGTA said it believes establishing a systemic error report that generates when the PCOR fee and/or tax payments do not match for Forms 720 with a PCOR fee will have minimal impact on IRS resources, as well as allow the IRS to improve its monitoring of PCOR fee reporting and payment compliance.
IRS officials also disputed some of TIGTA’s estimates of how much money might be due from health insurers and plan sponsors who failed to file the required form or pay any fees.
“Your report includes outcome measures with monetary benefits of $1.5 million in PCOR fees associated with 25 health insurance policy issuers that did not file Form 720 for tax year 2012,” wrote Heather C. Maloy, commissioner of the IRS’s Large Business and International Division. “Your report also includes monetary benefits of $1.8 million in PCOR fees associated with 1,753 self-insured health plan sponsors with approximately 1.8 million participants did not file a Form 720 to report the PCOR fees for tax year 2012. While we agree in both these instances that these returns were not filed, we do not agree with your stated monetary benefits of $3.3 million, as all identified entities may not be subject to the PCOR filing requirements and all identified lives covered may not be subject to the fee under ACA Section 6301.”
An IRS spokesperson emailed a further comment to Accounting Today on Wednesday. “The IRS collected more than $114 million through the administration of the Patient-Centered Outcomes Research (PCOR) fee for tax year 2012,” said the IRS. “We also appreciate TIGTA’s acknowledgement of the achievements and progress the IRS has made in the administration of this fee. The IRS does not agree with TIGTA’s estimate of $3.3 million in unpaid fees from certain entities that did not file a return. More specifically, we disagree with the report’s calculation that incorrectly assumes all entities are subject to the PCOR filing requirement and all individuals covered are subject to the fee. We agree with many of TIGTA’s recommendations and remain committed to improving compliance in this area.”
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