What Is a PCORI Fee?
Also known as the Comparative Effectiveness Research Fee (CERF), the Patient-Centered Outcomes Research Institute Fee (PCORI) is one of several fees that contribute to the Patient Protection and Affordable Care Act funding. More specifically, the IRS defines PCORI as “a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans that help to fund the Patient-Centered Outcomes Research Institute (PCORI).” PCORI was recently extended for another ten years and will be imposed through the year 2029.
Who Pays the Fees?
Insurance carriers will pay the IRS if a fully insured plan is in place, and those payments will then be placed into premiums. Carriers will pay the fees for insured plans with HRAs (Health Reimbursement Accounts) and FSAs (Flexible Spending Accounts) for only the underlying medical plans. Costs for HRAs and FSAs that are not included in underlying medical plans will be passed on to the client.
Employers will pay the fee to the IRS if either a self-funded or a level-funded plan is in use. Employers will also pay the IRS if an HRA is used. However, if an HRA is limited, then participants can opt-out of the HRA. If this occurs, the HRA is no longer subject to the PCORI Fee. If the employer requires the HRA, then the PCORI fee is applied. FSAs are exempted from the fee if both the employer’s contribution does not exceed that of the employee and offers health insurance.
Payees must be specific and calculate accurately. Overpayment does not carry over into the following year. For plan, years ending on or after October 1, 2019, and before October 1, 2020, the tax is equal to $2.54 times the number of covered individuals. For plan, years ending on or after October 1, 2020, and before October 1, 2021, the tax is equal to $2.66 times the number of covered individuals.
When Are Fees Due?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans will file Form 720, also known as the Quarterly Federal Excise Tax Return. Form 720 is due on July 31 of the year following the last day of the policy year or plan year. Form 720 and the fee must be submitted on the same date. For the sake of convenience, there is an electronic option through the IRS, and no deposit is necessary for payment.
Issuers and plan sponsors will only be required to file Form 720 once a year. Per the IRS, “Issuers and plan sponsors who are required to pay the PCORI fee, as well as other liabilities on Form 720, will use Form 720 for the 2nd quarter to report and pay the PCORI fee that is due July 31. Only one Form 720 should be filed for each quarter.” For a short-term year, the PCORI fee is due on July 31 of the following year.
Payment Process
As stated previously, Form 720 will be used to file payments. All individuals must be included when calculating payment by an employer, including dependents of employees. Form 720 can be corrected by a plan sponsor or policy issuer by filing Form 720-X available on IRS.gov.
There are several methods to calculating PCORI fees:
- Actual count method – the total number of lives covered (employees and their dependents or, if HRA or FSA, just employees) on each day of the plan year, divided by the total number of days in the plan year.
- Snapshot method – at least one date during each month of each quarter. Dates in each quarter must be within three days of the dates for corresponding quarters. More than one date per month may be used, but the number of dates sampled from each quarter must be the same for all quarters.
- Snapshot actual method – the total number of lives covered (employees and their dependents or, if HRA or FSA, just employees) on each selected date, divided by the number of dates used.
- Snapshot factor method – instead of counting the number of lives, the lives may be calculated as the number of participants with self-only coverage plus $2.35 times the number of participants with other than self-only coverage. This method should not be used for an HRA or FSA plan.
- Form 5500 method
- Plan with only self-only coverage – add the total number of participants at the beginning to the active participants at the end of the plan year, as reported on Form 5500, for that year and divide by two (2) get the average for the year.
- Plan with self-only and other self-only coverage – use the sum of the total number of participants (employees only) at the beginning and the end of the plan year, as reported on Form 5500, for that plan for that year. The sum of the starting and ending number of participating employees approximates the total number of lives covered based on the theory that families with more than 2 covered lives will average out with those who have self-only coverage. This method should not be used for an HRA or FSA plan.
If an individual on an employer’s insurance program has more than one plan, there are three calculation methods.
- HRA and insured plan – since this is not treated as a single plan, the employer/plan sponsor pays the fees for the HRA, and the carrier pays the fees for the insured plan. However, the employer/plan sponsor may count just employees as covered lives in the HRA and disregard covered dependents.
- HRA and other self-insured plans – treated as a single plan to calculate the fee, each participant (including dependents) is only counted once.
- Multiple HRAs and an insured plan – the carrier still pays the fees for the insured plan. The HRAs may be treated as a single plan to calculate the fee, so each participant (disregarding covered dependents) is only counted once.
For more detailed information, please consult the irs.gov website.
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