What are PCORI fees

PCORI (Patient-Centered Outcomes Research Institute) fees are annual charges on certain health insurance plans that fund research on improving patient care.

A $3.22 USD fee (at the time of writing) is mandated for every patient and imposed on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans. 

The Patient-Centered Outcomes Research Institute is a non-profit organization set up through the 2010 Patient Protection and Affordable Care Act and later ratified by the 2020 Further Consolidated Appropriations Act. 

Recent examples of Priority Funding Areas (PFAs) announced by PCORI include proposals to address adolescent alcohol abuse and investigate the treatment of delirium in older adults.

PCORI fees totaled $319 million in 2023. It is anticipated that PCORI fees will raise around $399 million in financial year 2029.

Who is required to pay PCORI fees?

PCORI fees must be paid by issuers of specified health insurance policies and sponsors of self-insured health plans. This includes employers offering self-insured health plans, certain governmental entities, and other organizations providing health coverage to employees or members.

How are PCORI fees calculated?

PCORI fees are calculated based on the average number of lives covered under the policy or plan. The fee is usually based on an average since employee levels may fluctuate during each plan year. 

There are two methods of coming up with this average. The first option is to get accurate figures of staffing levels each day and average these totals over the year. This method is more time-consuming due to the larger data burden it imposes.

It is also possible to take a snapshot of employee levels at regular quarterly intervals and average that result. For instance, you might take a snapshot on January 1st, April 1st, July 1st, and October 1st and average those results.

Example:

Acme Incorporated has a financial year for its employee plan beginning on March 1st, so they choose to calculate their annual average employee level on March 1st, June 1st, September 1st, and December 1st.

Their employee levels on those dates, respectively were 324, 327, 331 and 325. This produces an average of 324+327+331+325 / 4 = 327 (rounded up). This means the PCORI fees payable were 327 * $3.22 = $1,052.94.

There are other methods for calculating these fees, including basing them upon the number of employees listed on your IRS form 5500, if you have a pension or welfare benefit plan covered by the Employee Retirement Income Security Act (ERISA).

Consult your accountant or tax specialist to determine the best method for calculating your PCORI fees. Whatever method is adopted, it should be used consistently within the same plan year, but a different system may be used for subsequent annual filings.

The fee amount per covered life is adjusted annually for inflation. For plan years ending on or after October 1, 2024, the applicable dollar amount must be checked for updates.

When are PCORI fees due?

PCORI fees are due by July 31 of the year following the last day of the plan year. For example, if the plan year ends on December 31, 2023, the PCORI fee is due by July 31, 2024.

How are PCORI fees reported and paid?

PCORI fees are reported and paid using IRS Form 720, the Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, PCORI fees are reported and paid annually by the July 31 deadline.

Employers who pay PCORI fees must therefore add one filing date and one payment date to their schedule of mandatory IRS returns. If they already pay Federal Excise Taxes, the same 720 form can be used to report PCORI fees too.

Note that although church, government, and not-for-profit plans, don’t usually file federal tax returns, they are still required to use form 720 to file PCORI fees annually.

If, having filed, you discover you have miscalculated the number of employees, you can file IRS form 720X to register a correction, then arrange to pay adjusted fees (or receive a reimbursement for any overpayment).

Form 720 can be filed electronically, or mailed to:

Department of the Treasury

Internal Revenue Service

Cincinnati, OH 45999-0009

Are there any exemptions from PCORI fees?

Certain types of health coverage are exempt from PCORI fees. These include excepted benefits such as standalone dental and vision plans, employee assistance programs, and most health flexible spending arrangements (FSAs). 

Plans providing only excepted benefits under the Affordable Care Act (ACA) are also exempt. In addition, plans that cover only retirees may also be exempt. Lastly, policies that are primarily for stop-loss insurance or indemnity reinsurance are not required to pay the PCORI fees.

Additional exemptions include:

• Life insurance
• Short- or long-term accident and disability insurance
• Health savings accounts (HSAs)
• Long-term care
• Hospital indemnity / specific illness coverage
• Stop-loss coverage

In addition, there are no exemptions for not-for-profit, church, or government plans. Union plans must pay PCORI fees on behalf of their membership and grandfathered plans are also required to make the payments.

Since it can be a little complex to know which policies require PCORI fees, it’s always worth consulting with a tax specialist before completing your IRS filing.

What are the consequences of not paying PCORI fees?

Failure to pay PCORI fees can invoke IRS imposed penalties and interest charges. The IRS has the authority to enforce the collection of unpaid fees, leading to additional financial and legal consequences for non-compliance.

Fines can amount to as much as 25% of the unpaid fees.

What role do PCORI fees play in employee benefits administration?

PCORI fees are integral to employee benefits administration for employers offering self-insured health plans. Benefits administrators must ensure accurate calculation, reporting, and timely payment of these fees, coordinating with payroll departments, health plan administrators, and tax professionals.

Can PCORI fees be passed on to employees?

While employers are responsible for paying PCORI fees, they may indirectly pass on these costs to employees through adjustments in health plan premiums or other benefit costs. 

However, the fees themselves, and filing responsibilities, remain the employer’s responsibility.

Fees are tax-deductible.

How can businesses ensure compliance with PCORI fees?

To ensure compliance, businesses should:

• Maintain accurate records of covered lives under their health plans
• Stay informed about annual fee adjustments and IRS deadlines
• Use IRS Form 720 to report and pay the fees on time
• Consult with tax professionals or benefits consultants for complex compliance requirements
• Implement internal controls and audits to verify accurate fee calculations and timely payments

Understanding and adhering to PCORI fee requirements helps businesses manage their financial responsibilities and support the advancement of healthcare research.

For more detailed guidance on how Deel’s PEO services can help ensure compliance with payroll and benefits administration in the US, book a call with our team.

Disclaimer: This content is for informational purposes only and is not intended as tax or legal advice. The information provided is correct as of the original publication date.