If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization?
Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness.
Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
Takeaways from this blog post:
- Organizations offering self-insured plans, HRAs, and other specified health benefits must pay a PCORI fee annually via Form 720.
- The fee for plans ending on or after October 1, 2023, and before October 1, 2024 is $3.22 per covered life.
- There are three methods for calculating the number of lives for PCORI fees on Form 720, including the actual count method, snapshot method, and Form 5500 Method.
Specified health insurance policies subject to PCORI fees are generally prepaid health coverage arrangements with fixed premiums for accident or health coverage.
If your company offers a self-insured health plan, such as an HRA, you must pay the PCORI fee.
However, an integrated HRA isn’t subject to PCORI4 if an employer offers it alongside a self-insured plan from the same plan sponsor. In this case, the HRA and medical plan are considered a single plan for the PCORI fee.
An HRA that only covers dental and vision expenses is also exempt from the PCORI fee.
PCORI fees apply to organizations that offer different benefits, including:
Some benefits, such as health savings accounts (HSAs) and other excepted benefits, aren't subject to the fees.
Health plans exempt from the PCORI fee include the following:
For plans ending on or after October 1, 2023, and before October 1, 2024, the PCORI fee5 is $3.22 per covered life. That's up from $3 per covered life for plan years from a year earlier.
The Secretary of Health and Human Services adjusts the amount annually for inflation6.
|
Plan year |
|
|
On or after October 1, 2023, and before October 1, 2024 |
$3.22 |
|
On or after October 1, 2022, and before October 1, 20237 |
$3 |
|
On or after October 1, 2021, and before October 1, 2022 |
$2.79 |
Organizations use Form 720, known as the Quarterly Federal Excise Tax Return8, to report any federal excise taxes collected.
This includes a variety of tax categories and fees, such as:
If you owe a PCORI fee, you must pay it using IRS Form 720 by July 31, following the last day of the plan year. If that date falls on a weekend or federal holiday, the PCORI fee is due on August 1. For self-insured health plans, see Part II, IRS No. 133 (b) of the form. If your business doesn't owe a PCORI fee, you don't need to complete IRS Form 720.
If you currently file Form 720, you will pay the fee with your second quarter return. If you don't regularly file Form 720, you only need to file the form once, during the second quarter, with your return. You don't need to file Form 720 on a quarterly basis.
David Blain is the CEO of BlueSky Wealth Advisors. Part of his role involves ensuring compliance with myriad financial and tax regulations that impact both his firm and its clients. Based on his experience helping clients with tax submissions, the importance of carefully managing the PCORI fee can't be understated.
"Forgetting or choosing not to pay this fee can lead to penalties and interest charges, which can be significant and add unnecessary costs," Blain said. "We've seen scenarios where entities miscalculated their covered lives or missed the fee payment deadline, and both situations led to complications during their annual audits and an increase in administrative burden to rectify the oversight."
If you don't report or pay10 the PCORI fee, you may face penalties similar to those for not filing a tax return. According to Internal Revenue Code §6651, the penalty is 5% of the excise tax due for each month or part of a month the return is late, with a cap of 25% of the unpaid tax.
"For employers and plan sponsors, I strongly recommend setting reminders for the reporting deadline, conducting a regular review of the number of insured members under applicable plans, and always maintaining open lines of communication with tax professionals," Blain said. "In instances where clients have forgotten to make their payments, acting swiftly to correct the oversight and promptly communicating with the IRS has helped in minimizing the penalties."
According to Form 720 instructions, there are three ways to count the number of lives for plan years.
Here's what the instructions state for calculating the number of lives:
Additionally, there are special rules for calculating covered lives if you offer multiple self-funded plans or an integrated HRA from a medical insurance provider.
With an employer-sponsored HRA that's integrated with a fully-insured medical policy, it's only a requirement to pay the fee with respect to each HRA participant.
For multiple self-funded medical plans, you can treat them as a single plan for purposes of the fee. Each covered life is only counted once for the fee calculation.
You can view detailed information about “lives covered” in the final regulations11 document.
Yes. You must count COBRA-covered individuals and dependents in the total number of lives for your benefit.
New to filling out Form 720? We've compiled some examples. Below, the company plan covered an average of three participants and had a plan year that ended on December 31, 2021.
This section is included for informational purposes only. You should seek professional advice from a tax adviser or legal counsel to ensure proper compliance with the law.
The first part of this tax form asks for the basics, such as your name, address, and employer identification number, or EIN.
In the header, the quarter ending date will be June 30, 2022, as you're filing the form for the second quarter. Don't check “Final return” unless your organization is going out of business or you aren't required to file Form 720 in future quarters.
Complete line 133(c) if your organization's plan year ended before October 1 of the previous year. In this example, the plan year ended in December, so we'd move on to the next section. Complete line 133(d) if the plan year ended on or after October 1 (this is the case with most plans). In this example, the plan did.
You'll send Form 720 to the IRS in Ogden, Utah.
Send to:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0009
For applicable employers, the deadline for filing IRS Form 720 and paying PCORI fees is July 31. You should always reach out to a tax professional with your legal questions to ensure you're filling out your form and paying the fees correctly.
If you want a compliant, tax-advantaged health benefit for your employees, PeopleKeep can help! Our HRA administration software makes it easy to set up and manage your health benefit in minutes.
This blog article was originally published on August 4, 2020. It was last updated on May 23, 2024.
1. https://www.irs.gov/forms-pubs/about-form-720
2. https://www.irs.gov/newsroom/patient-centered-outcomes-research-institute-fee
3. https://www.congress.gov/bill/116th-congress/house-bill/1865
5. https://www.irs.gov/pub/irs-drop/n-23-70.pdf
7. https://www.irs.gov/pub/irs-drop/n-22-59.pdf
8. https://www.irs.gov/pub/irs-pdf/i720.pdf
9. https://www.irs.gov/pub/irs-pdf/f6627.pdf
11. https://www.govinfo.gov/content/pkg/FR-2012-12-06/pdf/2012-29325.pdf