What is the PCORI Fee?
We’ve been talking about PCORI fees in our office a lot lately. The most important thing to know is that the deadline to pay the PCORI fees is July 31 each year (unless that date falls on a weekend). But what else should you know?
What is PCORI?
PCORI stands for the Patient-Centered Outcomes Research Institute. It was established as a part of the Affordable Healthcare Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury. PCORI fees are paid to fund this research. The fee has been extended through 2029.
Who pays these fees?
Insurance carriers are responsible for paying the PCORI fee on behalf of a fully insured plan. However, the employer is responsible for paying the fee on behalf of a self-insured health plan, including a Health Reimbursement Arrangement (HRA). Employers who have a level-funded insurance plan also need to pay this fee. (Level-funded is a type of self-insured plan.)
How much are we talking?
The amount of the PCORI fees due by an employer or an insurer is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” and the plan or policy year end date. The fee applies to health plans for the preceding calendar year.
- For plan years that ended on or after Oct. 1, 2021, and before Oct. 1, 2022, the fee is $2.79 per covered life and is due by July 31, 2022.
- For plan years that ended on or after Oct. 1, 2020, and before Oct. 1, 2021, the fee is $2.66 per covered life.
How do we count the number of lives covered?
If only it were as easy as 1, 2, 3. … Plan sponsors or employers may choose from three methods when determining the average number of lives covered by their plans. Each method involves some calculations that are not for the faint of heart.
Actual Count Method: Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year. Pretty straightforward, but somewhat tedious.
Snapshot Count Method: Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method”).
Each date used for the second, third and fourth quarter must be within three days of the date that corresponds to the date used for the first quarter. For example, if the first quarter count is on Jan. 7, the second quarter count must be between April 4 and April 10, and all dates must fall within the same plan year.
Form 5500 Method: Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2. For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.
Special Rules for HRAs: The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.
The Centers for Medicare and Medicaid explains these methods pretty well here.
How do you report and pay PCORI fees?
Employers that sponsor self-insured group health plans (including HRAs) must report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return. It is important to note that the PCORI fees should not be built into the premium equivalent rate that is developed for self-insured plans if they plan includes employee contributions. However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense. And don't forget, the deadline is July 31, unless that date falls on a weekend!
Are there exceptions?
The fee does not apply to exempt governmental programs, including Medicare, Medicaid, Children’s Health Insurance Program
(CHIP) and any program established by federal law for providing medical care.
If you have an FSA, do you have to pay PCORI fees?
What if I recently changed to a self-insured plan or an HRA? Do I have to pay the fees on July 31?
The PCORI fees to be paid on July 31, 2022, are for plans that ended in 2021. If you started a self-insured plan or an HRA in 2021, your plan year won't end until 2022, so you will pay PCORI fees in 2023.
What if I still have questions about PCORI?
Click here for a deeper dive, or call us -- we can help!
PCORI is only one of the numerous reports and taxes that groups may need to file. For more on what might apply to you, read these blogs: