The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute to study clinical effectiveness and health outcomes. To finance the Institute’s work, a small annual fee — commonly called the PCORI fee — is charged on group health plans.
- Insurers are responsible for calculating and paying the fee for fully insured plans. Employers sponsoring self-funded plans are responsible for calculating and paying the fee with respect to those plans (this includes standalone health reimbursement accounts for fully insured and self-funded plans).
- Payment is due by July 31 following the calendar year in which the plan year ends. Use IRS Form 720.
- The fee applies for each plan year ending between October 1, 2012 and September 30, 2019 only. The fee is an annual amount multiplied by the number of plan participants:
- $1 per year per participant for plan year ending between October 1, 2012 and September 30, 2013.
- $2 per year per participant for plan year ending between October 1, 2013 and September 30, 2014.
- $2.08 per year per participant for plan year ending between October 1, 2014 and September 30, 2015.
- $2.17 per year per participant for plan year ending between October 1, 2015 and September 30, 2016.
- For plan years ending between October 1, 2016 and September 30, 2019, the amount will be adjusted for inflation
Frequently Asked Questions
Q1: What plans does the PCORI fee apply to?
A1: All plans that provide medical coverage to employees owe this fee. Medical coverage includes preferred provider (PPO) plans, health maintenance organization (HMO) plans, point-of-service (POS) plans, high deductible health plans (HDHPs), and health reimbursement arrangements (HRAs).
The fee does not apply to:
- Stand-alone dental and vision plans (stand-alone means these benefits are elected separately from medical, or the benefits are provided under separate insurance policies from the medical coverage)
- Life insurance
- Short- and long-term disability and accident insurance
- Long-term care
- Health flexible spending accounts (FSAs), as long as the employee also is offered medical coverage and any employer contribution is (in most cases) $500 or less
- Health savings accounts (HSAs)
- Hospital indemnity or specified illness coverage
- Employee assistance programs (EAPs) and wellness programs that do not provide significant medical care or treatment
- Stop-loss coverage
Q2: Does the fee apply to all medical plans?
A2: Yes it does. There are no exceptions for small employers. There are no exceptions for government, church or not-for-profit plans. Grandfathered plans owe this fee. Union plans must pay the fee on their covered members.
Q3: Who must pay this fee?
A3: The fee must be determined and paid by:
- The insurer for fully insured plans (although the fee likely will be passed on to the plan)
- The plan sponsor of self-funded plans, including HRAs
- The plan’s TPA may assist with the calculation, but the plan sponsor must file IRS Form 720 and pay the applicable fee
- If multiple employers participate in the plan, each must file separately unless the plan document designates one as the plan sponsor
Q4: When is the PCORI fee due?
A4: The fee is due by July 31 of the year following the calendar year in which the plan/policy year ends.
Q5: How much is the fee?
A5: The fee is $1.00 per covered life in the first year the fee is in effect. The fee is $2.00 per covered life in the second year. In the third through seventh years, the fee is $2.00, adjusted for medical inflation, per covered life. For plan years that end on or after October 1 2014, and before October 1, 2015, the indexed fee is $2.08. For plan years that end on or after October 1 2015, and before October 1, 2016, the indexed fee is $2.17.
The fee is based on covered lives (i.e., employees, retirees, and COBRA participants and covered spouses and children). If, however, the plan owes the fee for HRA or health FSA coverage, it only needs to count the employees/retirees/COBRA participants – covered dependents are not counted for HRAs or health FSAs. Employees and their dependents who are residing outside U.S. (based on the address on file with the employer) may be excluded.
Q6: What if the plan terminates?
A6: The fee is due for each plan year the plan was in effect.
Q7: What if a plan is new?
A7: The fee will be due for each year the plan is in effect. The rate for that plan year will apply (for example, if the first year is January 1, 2013 – December 31, 2013, the first fee will be $2.00 per covered life and will be due on July 31, 2014).
Q8: How is the fee calculated?
A8: Plan sponsors of self-funded benefits have several options to calculate the fee:
- Actual Count Method – Count the covered lives on each day of the plan year, and average the result.
- Snapshot Count Method – Determine the number of covered lives on the same day (plus or minus three days) of each quarter or month, and average the result.
- Snapshot Factor Method – Determine the number of covered employees/retirees/COBRA participants on the same day (plus or minus three days) of each quarter or month who have self-only coverage and the number who have other than self-only coverage. Multiply the number of employees/retirees/COBRA participants with other than self-only coverage by 2.35 to approximate the number of covered dependents (rather than actually counting them), and add that to the number of employees/retirees/COBRA participants with self-only coverage. Average the result.
- Form 5500 Method – Determine the number of participants at the beginning and end of the plan year as reported on Form 5500.
Q9: May an employer change its calculation method?
A9: The same method must be used throughout a reporting year, but it may be changed from year to year.
Q10: What if the employer sponsors multiple plans?
A10: If there are multiple self-funded plans (such as self-funded medical and HRA) with the same plan year, only one fee would apply to a covered life.
If there are both fully insured and self-funded plans, a fee would apply to each plan unless the employee is only covered under one type of plan – the insurer would pay the fee on the insured coverage and the plan sponsor would pay the fee on the HRA.
Q11: How is the fee paid?
A11: The fee will be reported and paid on IRS Form 720 each July 31.
Even though Form 720 is generally filed quarterly, the PCORI report and fee will just be filed once per year, at the end of the second quarter (unless the employer needs to file the form to report another tax).
Even though government, church and not-for-profit plans don’t generally file federal tax returns, they are required to file the Form 720.
Only the relevant parts of the form need to be completed. The relevant parts are:
- Identifying information at the beginning of the form
- Part II, line 133 (self-funded plans complete the “Applicable self-insured plans” line; the “Specified health insurance policies” line will be completed by carriers for insured policies)
- Part III, items 3 and 10
- The signature section
- The voucher form, if the form is mailed
- The form may be filed electronically or mailed to: Department of the Treasury, Internal Revenue Service, Cincinnati, OH 45999-0009
Q12: Is the fee tax-deductible?
A12: Yes, the fee is tax-deductible.
For more information, see:
- An IRS FAQ: Patient-Centered Outcomes Research Trust Fund Fee (IRC 4375, 4376 and 4377): Questions and Answers
- An IRS chart that shows which plans owe the fee: Application of the Patient-Centered Outcomes Research Trust Fund Fee to Common Types of Health Coverage or Arrangements
- IRS Form 720
- IRS Form 720 Instructions (see pages 8 – 9)
- PCORI regulation: Fees for the Patient-Centered Outcomes Research Trust Fund
- An IRS Information Page: Patient-Centered Outcomes Research Institute Fee