Employer-sponsored health plans come with various compliance obligations, and Patient-Centered Outcomes Research Institute (PCORI) fees are one that HR leaders should understand. PCORI, which was established under the Affordable Care Act (ACA), funds research to support more informed health care decisions. To support this mission, federal law requires certain health insurers and plan sponsors to pay PCORI fees annually.
These fees apply to issuers of specified health insurance policies and sponsors of applicable self-insured health plans. While the fee does not directly enhance employee coverage, it remains a required federal fee for organizations that offer group health coverage.
What are PCORI fees?
PCORI fees are amounts paid into the Patient-Centered Outcomes Research Trust Fund (PCORTF), which helps to fund PCORI and related research activities. As outlined in the ACA, PCORI conducts comparative clinical effectiveness research to improve patient outcomes and inform medical care decisions. This research helps identify what treatments work best in real-world settings.
The PCORI fee applies to certain health insurance policies and self-insured plans, and the fee amount is calculated per covered life using an annual rate set by the IRS. While these fees help fund health care research, they do not provide additional coverage or services to employers or plan participants. Typically, insurance carriers pay the fee for fully insured plans, while plan sponsors (i.e., employers) pay the fee directly for self-insured plans.
Which plans are subject to PCORI fees?
PCORI fees apply to many major medical coverage arrangements, often depending on the type of coverage and the plan’s funding structure. Plans that are typically subject to the fee include:
- Employer-sponsored fully insured plans (with PCORI fees for such plans typically paid by the insurance carrier)
- Employer-sponsored self-insured health plans providing major medical coverage
- Self-insured Health Reimbursement Arrangements (HRAs) that do not qualify as excepted benefits
- COBRA health coverage
- Many level-funded health plans, depending on funding and contract structure
Plans Not Subject to PCORI Fees
Generally, plans that meet the IRS requirements for excepted benefits are not subject to the fee. This might include:
- Stand-alone dental or vision plans
- Most employee assistance programs (EAPs), wellness programs and disease management programs
- Stand-alone long-term care benefits
- International employer-sponsored health plans that only cover employees living outside the United States
- Health Savings Accounts (HSAs)
- Most Flexible Spending Accounts (FSAs), provided that the arrangement qualifies as an excepted benefit
- Hospital indemnity plans
For fully insured plans, the insurance carrier typically handles payment, but it’s important to confirm who is responsible with your carrier or benefits advisor. Even if employers are not directly responsible for paying the fee, it’s helpful to understand how it can impact their overall benefits costs, especially for employers that sponsor multiple plan types within the same plan year.
PCORI Fees and HRAs
Many employers with Health Reimbursement Arrangements (HRAs) that are attached to a fully insured medical plan face confusion when it comes to PCORI fee responsibility. In these cases, the carrier typically pays PCORI fees for the medical plan; however, employers must still pay PCORI fees directly to the IRS for their HRA. In other words, while the carrier is responsible for the medical plan’s PCORI fees, the employer is responsible for the HRA’s PCORI fees.
How to Calculate PCORI Fees
The basic formula for PCORI fees multiplies the average number of covered lives during the plan year by the applicable dollar amount as set by the IRS. The IRS adjusts this dollar amount annually based on the medical care component of the Consumer Price Index.
IRS-approved calculation methods include:
- Actual Count: Daily tallies of covered lives divided by days in the plan year
- Snapshot: Covered life counts taken on designated dates during each quarter and averaged together
- Form 5500: Participant counts calculated using the applicable Form 5500 method under IRS rules
- State Form and Member Months: Additional options for specified health insurance policies
For self-insured plans, plan sponsors select a reasonable method that can be applied consistently year over year. For HRAs and certain health FSAs that are subject to the fee, employers may count one covered life per employee account holder, subject to IRS rules. Employers with multiple self-insured components from the same sponsor and plan year may aggregate plans under IRS rules to avoid double-counting.
Who counts as a covered life for PCORI purposes?
The number of covered lives generally includes all covered individuals enrolled in the applicable plan during the plan year. This encompasses employees, employees’ spouses and dependents, and COBRA continuants.
Because plan enrollment fluctuates throughout the year, counting methods average coverage over time, rather than relying on a single date.
Special rules may apply for midyear plan changes, mergers or spinoffs that affect the covered population. Employers should document their methodology, raw data and calculations each year in case of audit or internal review.
Reporting and Paying PCORI Fees (Form 720)
PCORI fees are reported and paid using the second quarter version of IRS Form 720, the Quarterly Federal Excise Tax Return. Aside from PCORI fees, this form allows businesses to calculate and make excise tax payments on certain categories, such as fuel, alcohol, indoor tanning equipment, airline tickets and tobacco products. Even if a responsible filer has no other liabilities that require Form 720, they must file for the second quarter to report PCORI fees.
The typical due date is July 31, following the end of the applicable plan year. For example, a plan year that begins on January 1, 2025, and ends on December 31, 2025, would have a fee due date of July 31, 2026.
When it comes to PCORI fees, Form 720 requires responsible filers to:
- Identify the applicable tax period and plan year
- Report the average number of covered lives
- Apply the appropriate IRS dollar amount for that plan year’s end date
- Calculate the total fee owed
HR leaders should align with their organization’s benefits administration and finance teams well before the deadline to ensure that enrollment data, plan year details and payment processes are coordinated.
Steps for HR Leaders Managing PCORI Compliance
HR leaders can streamline PCORI fee compliance with proactive planning, including steps like:
- Working with benefits administrators or third-party administrators to obtain accurate enrollment data
- Creating an annual compliance calendar to track PCORI fees and other HR compliance tasks and deadlines
- Confirming which plans the PCORI fee applies to each year, especially after plan design changes, acquisitions or carrier changes
- Documenting the chosen counting method, supporting reports and internal approval
- Reviewing previous filings to promote consistency and identify any structural changes affecting current fees
- Consulting legal counsel or tax advisors for complex arrangements, such as those involving multiemployer plans, international assignees or trust fund structures
How a Benefits Advisor Can Help with Plan Compliance
PCORI requirements can seem complex, especially as plan designs, vendor relationships and IRS guidance continue to evolve. Working with a knowledgeable benefits broker can help HR leaders to interpret requirements, gather needed information and understand how compliance requirements may connect to broader benefits strategy and funding decisions.
Higginbotham partners with employers to review plan structures, coordinate with carriers and administrators and align compliance efforts with an integrated employee benefits strategy. To learn more about how Higginbotham can provide a single source solution for your organization’s employee benefits, connect with one of our benefits consultants today.
