When Is the PCORI Fee Due and How Is It Reported?
Simplify PCORI fee compliance. Learn about this temporary healthcare tax, its applicability, and the precise process for reporting and payment.
The Patient-Centered Outcomes Research Institute (PCORI) fee is a temporary federal fee imposed on health insurance issuers and sponsors of self-insured health plans. This fee helps fund the Patient-Centered Outcomes Research Institute, an organization established to advance clinical effectiveness research. The research conducted by the Institute aims to help patients, clinicians, purchasers, and policymakers make more informed healthcare decisions. The PCORI fee was initially set to expire in 2019 but was extended for an additional ten years, meaning it applies to policy and plan years ending before October 1, 2029.
Understanding the PCORI Fee and Applicable Plans
The responsibility for paying the PCORI fee depends on the type of health plan. For fully insured health plans, the health insurance issuer (the insurance company) is responsible for calculating and paying the fee directly to the Internal Revenue Service (IRS). Conversely, for applicable self-insured health plans, the plan sponsor, typically the employer, bears the responsibility for reporting and paying the fee.
A “covered life” refers to any individual covered under the health policy or plan for the purpose of the fee. This includes employees, retirees, spouses, and dependents enrolled in the plan. For certain arrangements like Health Reimbursement Arrangements (HRAs), specific counting rules may apply, often counting only the employee for the HRA portion if it’s integrated with a self-insured medical plan and the combined plan is counted once.
The PCORI fee applies to a broad range of health plans. These include fully insured group medical plans, self-insured group medical plans, and Health Reimbursement Arrangements (HRAs). Plans providing COBRA continuation coverage and retiree-only plans are also subject to the fee. Some plans are exempt, such as stand-alone dental or vision plans, Health Savings Accounts (HSAs), and plans covering employees working outside the U.S.
Determining Your PCORI Fee Amount
Calculating the PCORI fee involves multiplying the average number of covered lives during the policy or plan year by the applicable dollar amount for that year. The applicable dollar amount is adjusted annually for inflation by the IRS. For instance, for plan years ending between October 1, 2023, and September 30, 2024, the rate is $3.22 per covered life, while for plan years ending between October 1, 2024, and September 30, 2025, the rate increases to $3.47 per covered life.
Plan sponsors and issuers can use several approved methods to determine the average number of covered lives. The “actual count method” involves totaling the lives covered for each day of the plan year and dividing that sum by the number of days in the year.
The “snapshot method” allows for counting covered lives on specific dates during each quarter of the plan year. The average is then determined by summing these counts and dividing by the number of snapshot dates used. For this method, the chosen dates must be consistent across quarters.
Another approach is the “Form 5500 method,” which can be used by certain self-insured plans that file Form 5500. Under this method, the number of participants reported on the Form 5500 at the beginning and end of the plan year is used to determine the average covered lives. It is important that the Form 5500 is filed by the PCORI fee due date for this method to be applicable.
Reporting and Submitting the PCORI Fee
The PCORI fee is reported and paid annually using IRS Form 720, Quarterly Federal Excise Tax Return. Despite Form 720 being a quarterly return, the PCORI fee is reported only once a year. The payment is made for the second quarter, regardless of the plan year’s end date.
The annual due date for reporting and paying the PCORI fee is July 31st of the calendar year following the last day of the policy or plan year. For example, for a plan year ending in 2024, the fee would be due by July 31, 2025.
On Form 720, the PCORI fee is reported in Part II, specifically on line 133. Lines 133(a) and (b) are for fully insured policies, typically completed by the insurer, while lines 133(c) and (d) are for applicable self-insured plans.
Payment of the PCORI fee can be made electronically through the Electronic Federal Tax Payment System (EFTPS) or by mailing a check with Form 720-V, Payment Voucher. When using EFTPS, the payment should be applied to the second quarter.