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.