When Are PCORI Fees Due and How Are They Calculated?

The Patient-Centered Outcomes Research Institute (PCORI) fee is an excise tax established under the Affordable Care Act (ACA) to fund the Patient-Centered Outcomes Research Institute. This independent, non-profit organization researches healthcare outcomes, clinical effectiveness, and the risks and benefits of various medical treatments and services, supporting evidence-based decisions for patients, caregivers, and other stakeholders.

Understanding PCORI Fees

PCORI fees are imposed on issuers of specified health insurance policies and sponsors of applicable self-insured health plans. For fully insured plans, the health insurance company pays the fee, while employers sponsoring self-insured plans (including HRAs) are directly responsible for filing and remitting it to the IRS.

The fee applies to various types of health coverage, including major medical plans, COBRA continuation coverage, and retiree-only medical plans. Health Flexible Spending Accounts (FSAs) may also be subject to the fee if employer contributions exceed certain thresholds. Exemptions generally include standalone dental or vision plans, Health Savings Accounts (HSAs), certain governmental programs like Medicare and Medicaid, and specific employee assistance programs that do not provide significant medical care.

Calculating PCORI Fees

The amount of the PCORI fee is determined by multiplying a specified dollar amount by the average number of “covered lives” under the policy or plan for the applicable plan year. The IRS adjusts this dollar amount annually for inflation, and the precise rate depends on the plan or policy year’s end date.

For instance, for plan years ending between October 1, 2023, and September 30, 2024, the fee is $3.22 per covered life. For plan years ending on or after October 1, 2024, and before October 1, 2025, the fee increases to $3.47 per covered life.

Sponsors of self-insured plans can use several methods to count the average number of covered lives:

• Actual Count Method: Involves counting the total number of lives covered each day of the plan year and dividing that sum by the number of days in the year.
• Snapshot Method: Determines the number of covered lives on a specific date (or dates) during each quarter or month of the plan year, and these counts are then averaged.
• Form 5500 Method: Utilizes the participant counts reported on the Form 5500 filed for the plan year.

For HRAs, a specific counting rule applies: generally only employees (not dependents) are counted. If an HRA is integrated with a self-insured medical plan with the same plan year and sponsor, only one PCORI fee is due based on the medical plan’s covered lives.

Reporting and Paying PCORI Fees

PCORI fees are reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return. Though Form 720 is typically a quarterly return, PCORI fees are reported only once a year. Payment is due by July 31st of the calendar year following the last day of the policy or plan year.

To illustrate, if a plan year ended on December 31, 2023, the PCORI fee for that year was due by July 31, 2024. For a plan year ending on March 31, 2024, the corresponding fee is due by July 31, 2025. When July 31st falls on a weekend or holiday, the due date automatically shifts to the next business day.

Plan sponsors or issuers reporting only PCORI fees should file the second-quarter Form 720. The relevant section for reporting PCORI fees is Part II, line 133(c) or (d), depending on the plan year end date.

Payments can be submitted electronically through the Electronic Federal Tax Payment System (EFTPS), which is the preferred method, or by mail with Form 720-V. The PCORI fee requirement has been extended and applies to plan years ending before October 1, 2029, making this an ongoing annual compliance obligation for applicable plans.