Understanding PCORI Fees: What They Are and Who is Required to Pay Them

The Patient-Centered Outcomes Research Institute (PCORI) fee is a federal fee established under the Affordable Care Act (ACA) to fund research that helps patients, healthcare providers, and policymakers make informed healthcare decisions. If you are an employer or plan sponsor offering health coverage, it’s important to understand if you are responsible for paying the PCORI fee, how to calculate it, and when it is due.

Who is Required to Pay the PCORI Fee?

The obligation to pay the PCORI fee depends on the type of health plan offered:

• Self-Insured Health Plans: Employers that provide self-funded health coverage, including major medical plans, retiree-only plans, and standalone Health Reimbursement Arrangements (HRAs), are responsible for paying the PCORI fee based on the number of covered lives.

• Fully Insured Health Plans: Employers offering fully insured health coverage do not pay the PCORI fee directly. Instead, the insurance carrier is responsible for calculating and paying the fee on their behalf.

•Health Reimbursement Arrangements (HRAs) and Flexible Spending Arrangements (FSAs): If the HRA is not integrated with a fully insured medical plan, the employer must pay the PCORI fee. Most stand-alone FSAs, however, are generally exempt.

If you are unsure whether your plan requires you to pay the fee, it’s recommended to consult with a tax professional or benefits advisor.

When is the PCORI Fee due?

The PCORI fee is due annually on July 31st of the year following the end of your plan year. For example:

• If your plan year ended on December 31, 2024, your PCORI fee payment will be due by July 31, 2025.

Employers or plan sponsors must file IRS Form 720 (Quarterly Federal Excise Tax Return) to report and submit the fee. Although Form 720 is generally filed quarterly for other excise taxes, the PCORI fee is reported and paid once per year.

How is the PCORI Fee Calculated

The PCORI fee is calculated based on the number of covered lives under your plan, including employees, spouses, dependents, and other individuals receiving coverage. The IRS adjusts the fee amount annually to account for inflation. Employers must use the IRS's prescribed methods to calculate the average number of covered lives and apply the current fee rate per covered life.

Key Takeaways

• The PCORI fee helps fund research to improve healthcare decision-making.

• Employers with self-insured health plans or standalone HRAs are generally responsible for calculating and paying the fee.

• For fully insured plans, the insurance carrier handles the payment.

• The fee must be reported and paid using IRS Form 720 by July 31st each year.

• The fee amount is adjusted annually by the IRS.

Need assistance with your PCORI Fee?

Understanding and complying with the PCORI fee requirements is essential to avoid penalties and ensure smooth plan administration. If you have questions about whether your health plan is subject to the fee, how to calculate it, or how to file Form 720, we recommend speaking with Rose Street Advisors, our team is happy to assist you. If you’re not yet a client but need guidance, please don’t hesitate to contact us — we’re here to help ensure your plan remains compliant and well-managed.

Justine Dickens

EMPLOYEE BENEFITS ADVISOR

Justine is a devoted and meticulous team member with a passion to educate and support business partners and their employees. Since 2013, Justine’s commitment to her clients has allowed her to instill confidence and stability in the benefits packages offered to their employees. Her strengths allow her to communicate efficiently, focus on customization and understand the complexities of an ever changing industry. She is a Dale Carnegie Graduate and has her NAHU Self-Funded Certification.

When she is not working, Justine is busy running her son and daughter to their practices and games and volunteering in the community. She enjoys playing golf, hiking and spending time with her family and friends.

PCORI Fees - What are They and When Do I Pay Them?

One of the many requirements in the Affordable Care Act (ACA) is the Patient-Centered Outcomes Research Institute (PCORI) fee, an often overlooked but essential aspect of compliance. The PCORI fee is a charge imposed on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans. It was established to fund the Patient-Centered Outcomes Research Institute, an organization tasked with improving the quality and relevance of evidence available to help patients, caregivers, and healthcare providers make informed health decisions.

Who Needs to Pay the PCORI Fee?

The fee applies to: • Health Insurance Providers: Issuers of specified, fully insured health insurance policies. For fully insured health plans, the insurance carrier pays the PCORI fee on your behalf. No action is required of the employer. • Self-Insured Plan Sponsors: Employers or plan sponsors of applicable self-insured health plans, including Health Reimbursement Arrangements (HRAs). The employer is responsible for the PCORI fee for self-insured health plans and HRAs.

How Much is The PCORI Fee?

The PCORI fee amount is adjusted annually and is based on the average number of lives covered under the policy or plan. As of the most recent update, the fee is: • $3.00 per covered life for plan years ending on or after October 1, 2022, and before October 1, 2023. • $3.22 per covered life for plan years ending on or after October 1, 2023, and before October 1, 2024. The fee increases slightly each year based on the projected increases in national health expenditures.

Calculating the PCORI Fee

Calculating the PCORI fee involves determining the average number of lives (employee, spouse and dependents) covered under the policy or plan during the plan year. Please note that for HRA plans, an employer pays the PCORI fee only on the number of participating employees, not including covered spouses and dependents. There are several methods for this calculation: 1. Actual Count Method: Count the total number of covered lives for each day of the plan year and divide by the number of days in the year. 2. Snapshot Method: Add the total number of lives covered on one date (or more dates, if using the "more dates" variation) in each quarter of the plan year and divide by the number of dates used. 3. Form 5500 Method: Use the participant counts reported on the Form 5500 for the plan year, if filed. Plan sponsors can choose the method that best fits their reporting capabilities, but they must use the same method consistently within a given plan year.

Reporting and Payment

To report and pay the PCORI fee, issuers and plan sponsors must file Form 720 (Quarterly Federal Excise Tax Return) annually, by July 31 of the year following the last day of the plan year. The fee is reported in Part II of the form under "Patient-Centered Outcomes Research Fee". The latest version of Form 720 can be found here: https://www.irs.gov/pub/irs-pdf/f720.pdf (see Part II, IRS No. 133). Ensuring compliance with PCORI fee requirements is critical to avoid penalties. Failure to pay the fee or report it accurately can result in interest and penalties imposed by the IRS. For more detailed information, refer to the IRS instructions for Form 720 or reach out to your Rose Street Advisors team for assistance.

Alicia Ball

STRATEGIC OPERATIONS ADVISOR

As Strategic Operations Advisor, Alicia has the opportunity to lead the Employee Benefits Department every day. The focus of her role is to ensure the Department is operating at maximum efficiency, which allows us to ensure that our client’s needs and expectations are consistently exceeded. She accomplishes this efficiency through her strong communication, ability to maximize resources and staying true to Rose Street’s core values. Alicia’s tenure with Rose Street began in 2016 as our Maxwell Health Champion. She then spent time as a Employee Benefit Advisor where she built long lasting relationships with her clients that remain in place today even with her role change. In her spare time, Alicia tries to keep up with her very busy son, volunteers as a Big Sister for the Big Brother, Big Sister organization, and makes sure to spend as much time outside as she possibly can.

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