What Is the IRS PCORI Fee and Who Is Required to Pay It?
Understand your responsibilities for the IRS PCORI fee. Learn which health plans are affected and how issuers and plan sponsors ensure compliance.
The Patient-Centered Outcomes Research Institute (PCORI) fee is a charge from the Affordable Care Act (ACA) used to fund the institute’s clinical effectiveness research. This research provides patients and healthcare providers with better information for making health decisions. The fee was extended by federal legislation and now applies to plan years ending before October 1, 2029.
Determining PCORI Fee Applicability
The responsibility for paying the PCORI fee depends on the health plan. For employers with fully insured health plans, the insurance carrier is responsible for paying the fee directly to the IRS. The cost is factored into the employer’s monthly premiums, meaning the employer has no direct reporting or payment obligation.
In contrast, for employers with self-funded health plans, the employer is the plan sponsor and must calculate and pay the fee. This applies to various self-funded arrangements, including level-funded plans, plans providing major medical benefits, and certain Health Reimbursement Arrangements (HRAs) like Individual Coverage HRAs (ICHRAs).
Certain health and welfare benefits are exempt from the PCORI fee. These include standalone dental and vision plans that are not integrated with a major medical plan, Health Savings Accounts (HSAs), and plans primarily covering employees who work and live outside the United States.
Calculating the PCORI Fee
The total PCORI fee is calculated by multiplying the average number of covered lives by the applicable rate for the plan year. The IRS adjusts this rate annually. For plan years that ended in 2024, the filing is due July 31, 2025, and two rates may apply. For plan years ending between January 1, 2024, and September 30, 2024, the rate is $3.22 per covered life. For plan years ending between October 1, 2024, and December 31, 2024, the rate is $3.47 per covered life.
Sponsors of self-funded plans have three permitted methods to determine the average number of covered lives.
Actual Count Method
The plan sponsor counts the total number of lives covered for each day of the plan year and divides that total by the number of days in the year. For example, if a plan had 100 covered lives every day of a 365-day plan year, the average is 100.
Snapshot Method
This approach involves adding the total number of lives covered on a specific date in each quarter of the plan year, then dividing the total by the number of dates on which a count was made. For instance, an employer could count covered lives on March 31, June 30, September 30, and December 31, sum those four counts, and divide by four. A variation, the snapshot-factor method, involves counting employees on a date and multiplying by a factor to account for dependents.
Form 5500 Method
This method uses a formula based on participant counts reported on the plan’s Form 5500 for the applicable plan year. If a plan offers only self-only coverage, the sponsor averages the total participants from the beginning and end of the plan year. If the plan offers coverage for dependents, the sponsor adds the participant counts from the beginning and end of the year to find the average number of lives.
Reporting and Paying the Fee
The PCORI fee is reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, plan sponsors filing it only for the PCORI fee should file it just once per year. The form and payment are due by July 31 of the calendar year immediately following the last day of the plan year.
Plan sponsors must complete Part II of Form 720, using the entry for IRS No. 133. The employer enters the calculated average number of covered lives and multiplies it by the correct rate for the plan year to determine the total fee owed. The payment should be submitted with the Form 720-V payment voucher, which should indicate the tax period is the “2nd Quarter.”
Payments can be made by mail with the form or electronically through the Electronic Federal Tax Payment System (EFTPS). Since Form 720 is a tax form, it is prepared by the employer or its accountant, not a third-party administrator. The IRS permits employers to deduct PCORI fees as an ordinary and necessary business expense.