PCORI Fee Summary

The Affordable Care Act (ACA) created a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI) to support clinical effectiveness research for healthcare. Information about the institute’s research and impact can be found at https://www.pcori.org/. The institute is funded in part by fees paid by health insurers and sponsors of self-funded health plans (PCORI fees), which are reported and paid annually using Form 720. General summary information regarding reporting and paying PCORI fees can be found at https://www.irs.gov/newsroom/patient-centered-outcomes-research-institute-fee.

Plans Subject to the Fee

The PCORI fee applies to most group health plans, but not to excepted benefits. Health reimbursement arrangements (HRAs) are self-funded plans subject to the PCORI fee. This includes qualified small employer HRAs (QSEHRAs) and individual coverage HRAs (ICHRAs). Retiree-only plans are also subject to the PCORI fee. NOTE: Health flexible spending arrangements (FSAs) that qualify as excepted benefits are not subject to the fee, but health FSAs not meeting the maximum benefit condition and availability condition would be subject to the PCORI fee.

The IRS published a chart that describes the different types of plans subject to the fee here.

Fully-Insured Plans – For fully-insured plans, the health insurance carriers report and pay the fee (the employer should not have to do anything).

Self-Funded Plans – For self-funded group health plans, including HRAs and retiree-only plans, employers are responsible for reporting and paying the fee.

Originally the PCORI fee applied to plan years ending after September 30, 2012 and before October 1, 2019. However, the Further Consolidated Appropriations Act, 2020 extended the PCORI fees another 10 years to 2029.

Reporting the Fee

The fee is paid using quarterly excise tax Form 720, Line 133 (133(c) and (d) for self-funded plans) and must generally be paid no later than July 31st of the year following the last day of the plan year. The fee must be reported in the 2nd quarter (e.g., for the quarter ending June 30). For employers that do not otherwise file quarterly excise taxes, the Form 720 might only be filed in one quarter each year to report the PCORI fee.

Payment amounts are increased annually and differ based on the ending date of the employer’s plan year, but the fee is less than $3 per covered life. The IRS chart illustrating plan year end dates with applicable fees and due dates can be found here.

Calculating the Average Covered Lives

Self-funded plans may generally use one of three methods to determine the average covered lives used for reporting and paying the PCORI fee. Plan sponsors must stick with one method for the entire plan year, but are allowed to change methods from year to year. COBRA participants and retirees should be counted, regardless of which method below is chosen.

There are two special rules that may apply for counting covered lives when an employer offers multiple self-funded plans or offers an HRA integrated with a fully-insured group medical plan.

Multiple Self-Funded Plans – If one plan sponsor maintains more than one self-funded health plan with the same plan year, the arrangements can be treated as a single plan for purposes of the fee. In other words, each unique covered life is only counted once.

HRAs (and health FSAs not meeting excepted benefit status) – An employer who sponsors an HRA integrated with a fully-insured medical plan is required to pay the fee only with respect to each HRA participant/employee; the employer is not required to count dependents or beneficiaries.

For short plan years, there are no special rules for pro-rating the average covered lives or the fee. If the employer is using the actual count method, the total is divided by a lesser number of days due to the short plan year. If the snapshot method is used, the total is divided by the number of months or quarters of the short plan year. See the FAQ from the IRS found here, specifically Q&A #12-14.

Failure to Pay the Fee

The IRS has not provided formal guidance for entities that fail to pay the PCORI fee, but it is generally advisable to file a Form 720 for the applicable year (or Form 720X for an amendment) as soon as possible for any missed fees and to pay any associated fines or penalties. A separate Form 720 should be filed for each missed plan year rather than paying fees for multiple plan years on the same Form 720.

The PCORI rules do not contain a specific penalty for failure to report or pay the PCORI fee, but since this fee is considered an excise tax, any related penalty for failure to file a return or pay a tax would seem to apply. Code §6651 includes the following penalties for failure to file a return or pay taxes.

• The penalty is 5% of the excise tax due for each month or part of a month the return is late, with a cap of 25% of the unpaid tax. However, the minimum penalty for failure to file within 60 days of the due date, including extensions, is the lesser of $100 or the amount of tax owed with the return.
• There is also a penalty for failing to pay the excise tax on time. It is equal to .5% of any tax not paid by the due date for each month or part of a month the tax remains unpaid, up to 25% of the unpaid tax.

On top of the penalties, interest can be charged on unpaid excise taxes. On the other hand, in some cases, penalties may be waived if the plan sponsor has reasonable cause and the failure to pay was not due to willful neglect.

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.