PCORI Explained and Fees

The Affordable Care Act (ACA) requires health insurance companies and sponsors of self-insured plans to pay fees to the Patient-Centered Outcomes Research Institute (PCORI). These fees must be reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return. Employers with self-funded or level-funded plans must handle these requirements themselves. However, for fully funded plans, the insurance company takes care of reporting, filing, and paying these fees.

 What is PCORI

PCORI stands for Patient-Centered Outcomes Research Institute. The PCORI fee funds the PCORI Trust Fund, which supports empirical research to improve evidence-based medicine. The fee was implemented in 2012 and is scheduled to sunset in October 2029.

Although Form 720 is a quarterly filing, the PCORI reporting is only due with the second quarter filing by July 31, following the end of the health plan year. Payments are made directly to the IRS: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201-0009.  Note: This is the national address for all PCORI filings.

 What Plans are Required to Complete PCORI Reports?

• Self-insured medical plans

• Health insurers

• Flexible Spending Arrangements (FSA), if separate from the insurer

• Health Reimbursement Arrangements (HRA), if separate from the insurer

• COBRA coverage

Calculating the PCORI Fee Payment

PCORI fees are generally assessed, collected, and enforced like taxes. They are imposed on an issuer of a “specified health insurance policy” and a plan sponsor of an “applicable self-insured health plan” based on the average number of participants, including dependents, covered under the plan. 

Using Part II, Number 133 of Form 720, issuers and plan sponsors report the average number of lives covered under the plan separately. That number is then multiplied by the applicable rate for that tax year ($3.00 for plan years ending on or after Oct. 1, 2022, and before Oct. 1, 2023, or $3.22 for plan years ending on or after Oct. 1, 2023, and before Oct. 1, 2024).

The fees for specified health insurance policies and applicable self-insured health plans are then combined to equal the total tax owed.

 Methods for Calculating

1. Actual Count: Employers can count the total number of people covered for each day of the plan year and divide by the number of days in the plan year to obtain an average.

2. Snapshot: Employers can take a snapshot of the number of covered persons on any one day in a fiscal quarter, use the same quarterly period for each of the other quarters, and then average the four numbers.

3. Form 5500: Employers can use the data submitted on annual Form 5500.

The IRS offers valuable resources, including a chart detailing how fees are applied to various health coverage types and arrangements. For plans covering fees for HRA or FSA programs, the fee is charged only once per employee, not for each dependent. This rule also applies to COBRA participants and retirees with HRA or FSA plans. Employees enrolled in both a fully funded plan and an HRA or FSA must make separate payments. However, FSAs are exempt from PCORI fees if the employer contributes less than $500 to an employee's FSA and provides a fully funded group health plan.