It's PCORI fee season, but you already knew that ... right?

For well over a decade now, the start of summer has meant that a certain fee soon comes due and payable to Uncle Sam by many employers. All these years later though, it’s amazing how many calls our human capital professionals still field around this time each year from benefits professionals wanting to know more about “the PCORI fee.” So, let’s take it from the top!

What is it?

The Patient Centered Outcomes Research Institute (PCORI) fee was among the first mandates imposed by the Affordable Care Act (ACA). The fee is paid by certain providers and organizations that manage their own health plans. It helps to support the PCORI, which conducts research on which treatments work best to improve healthcare decisions for all patience, clinicians, buyers and policymakers. The PCORI fee went into effect after Sept. 30, 2012 and though it was originally set to expire in 2019, the fee was subsequently extended and now applies to plan years ending before Oct. 1, 2029. That’s because the period it covers includes plan years that start on Oct. 1 of the current year and end on Oct. 1 of the following year.

How much is the fee?

The amount of the PCORI fee equals the average number of lives – including employees, retirees, spouses and dependents – covered during the plan year multiplied by the applicable dollar amount for the year. For the 2023-2024 plan year, the applicable dollar amount is $3.22 per covered life.

For example, if your company averages 10 covered lives, then your PCORI fee due would equal $32.20. If your company averages 100 covered lives, then your PCORI fee due would equal $322.00.

Who pays this fee?

Who makes the PCORI payment is determined by the health insurance plan funding arrangement. For fully insured plans, it is the issuer of the policy who is most commonly known as the health insurance plan carrier or insurer. For self-funded plans, the plan sponsor must pay the fee. Third-party administrators (TPAs) are not allowed to pay the fee for this type of plan.

Keep in mind that Health Reimbursement Arrangements (HRAs) are considered self-funded health plans and are subject to the PCORI fee. However, special rules apply to HRAs for the purposes of calculating the PCORI fee.

How do I know how much to pay?

For applicable self-insured health plans, there are three ways or “methods” that can be used to arrive at the average number of lives covered:

1. Actual count method

Count the total number of covered lives for each day of the policy year and divide the number of days in a year.

2. Snapshot method

Count the number of members on a single day (or days, if consistent for each quarter) during a quarter and divide the total by the number of dates on which a count was made. The date used for each quarter must be the same (i.e., the first day, the last day, etc.).

3. Form 5500 method

For self-only coverage, determine the average number of participants by combining the total number of participants at the beginning of the plan year with the total number of participants at the end of the plan year, as reported on Form 5500, and divide by two. In the case of plans with self-only and other coverage, the average number of total lives is the sum of total participants covered at the beginning and the end of the plan year, as reported on Form 5500.

As a practical tip, you may be able to avoid calculating the fee by requesting a PCORI fee report from your insurance carrier. Since they must pay this fee in fully insured scenarios, many have written the calculation reports and are willing to make them available upon request, regardless of the plan funding mechanism.

How is the PCORI fee actually paid?

The fee is paid by using IRS Form 720, which is a multi-purpose quarterly federal excise tax return. A very small but recognizable section of the form provides the space where you can insert the information regarding your fee calculation and payment. You can electronically file Form 720, but doing so is not required and most employers who only file the 720 for this purpose do not go this route. The companion form instructions have information regarding the check payee and the mailing address. Fee payments are due by July 31, 2024 for the 2023-2024 plan year.

We missed the deadline… last year… and the year before. What do we do?

Aside from PCORI fee payment fundamentals, the other question we field most frequently these days involves missed filings. Unfortunately, specific guidance is not available on how to approach a missed PCORI fee filing and payment. The PCORI rules do not contain a specific penalty for failure to report or pay the PCORI fee. This fee ultimately is considered an excise tax, so penalties for failure to file or pay a tax work down that general risk path.

We generally recommend that an employer use the information it has available to calculate the payment and make it using the Form 720 for the applicable year in question, even though it’s late. Taken a step farther, the employer can use another form – Form 720-X – to calculate and proactively pay the excise tax late penalty at the time they pay the PCORI.