By way of background, the Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute (PCORI) to study clinical effectiveness and health outcomes. To finance the Institute’s work, a small annual fee—commonly called the PCORI fee—is charged on group health plans. Grandfathered health plans are not exempt.
Most employers do not have to take any action because employer-sponsored health plans are commonly provided through group insurance contracts. For insured plans, the carrier is responsible for calculating and paying the PCORI fee and the employer has no additional duties.
However, employers that sponsor self-funded group health plans are responsible for calculating, reporting, and paying this fee each year.
The PCORI fee applies for each plan year based on the plan year end date. The fee is an annual amount multiplied by the number of plan participants.
Payment is due by July 31st in the following calendar year in which the plan year ends. Because the due date in 2022 falls on Sunday, you may file the return on the next business day. This year, payment is due on Monday, August 1, 2022. Use IRS Form 720, Quarterly Federal Excise Tax Return.
The fee applies to all health plans and HRAs, excluding the following:
The IRS provides a helpful chart indicating the types of health plans that are, or are not, subject to the PCORI fee.
For the purposes of the 2022 PCORI obligations, this would be the 2nd Quarter of 2022. So, when completing Form 720 be sure to fill in the circle for “2nd Quarter.”
Caution! Before taking any action, confirm with your tax department or controller whether your organization files Form 720 for any purposes other than the PCORI fee. For instance, some employers use Form 720 to make quarterly payments for environmental taxes, fuel taxes, or other excise taxes. In that case, do not prepare Form 720 (or the payment voucher), but instead give the PCORI fee information to your organization’s tax preparer to include with its second quarterly filing.
Yes. For instance, if you self-insure one medical plan for active employees and another medical plan for retirees, you will need to calculate, report, and pay the fee for each plan. There is an exception, though, for “multiple self-insured arrangements” that are sponsored by the same employer, cover the same participants, and have the same plan year. For example, if you self-insure a medical plan with a self-insured prescription drug plan, you would pay the PCORI fee only once with respect to the combined plan.
The terms “level-funded” or “partially self-funded” are not defined by law, so it can mean different things to different carriers, vendors, and employers. In most cases, the terms are intended to refer to a self-funded group medical plan sponsored by an employer who has assumed all financial risk, other than protection under stop-loss insurance. However, this is not absolute. If your hybrid plan is in fact self-funded plan, then the employer is responsible for the paying the PCORI fee. If unsure, check with the state’s insurance commissioner or legal counsel.
Yes. The PCORI fee applies to HRAs, which are self-insured health plans, although the fee is waived in some cases. If you self-insure another plan, such as a major medical or high deductible plan, and the HRA is merely a component of that plan, you do not have to pay the PCORI fee separately for the HRA. In other words, when the HRA is integrated with another self-insured plan, you only pay the fee once for the combined plan.
On the other hand, if the HRA stands alone, or if the HRA is integrated with an insured plan, you are responsible for paying the fee for the HRA.
Yes. A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is special type of tax-advantaged arrangement that allows small employers to reimburse certain health costs for their workers. Although a QSEHRA is not the same as an HRA, and the rules applying to each type are very different, a QSEHRA is a self-insured health plan for purposes of the PCORI fee. The IRS provides guidance confirming that small employers that offer QSEHRAs must calculate, report, and pay the PCORI fee.
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a new type of tax-advantaged arrangement, first offered in 2020, that allows employers to reimburse certain health costs for their workers. The IRS has not provided specific guidance regarding ICHRAs and the PCORI fee, but it appears the fee applies since an ICHRA is a self-insured health plan.
An Excepted Benefits Health Reimbursement Arrangement (EBHRA) also is a self-insured health plan, but it is limited to “excepted benefits,” such as dental and vision care costs. So, the PCORI fee does not apply to EBHRAs.
No. The PCORI fee is an employer expense and not a plan expense, so you cannot use ERISA plan assets or employee contributions to pay the fee. (An exception is allowed for certain multiemployer plans (e.g., union trusts) subject to collective bargaining.) Since the fee is paid by the employer as a business expense, it is tax deductible.
Multiply $2.66 or $2.79 (depending on the specific date the plan year ended in 2021) times the average number of lives covered during the plan year. “Covered lives” are all participants, including employees, dependents, retirees, and COBRA enrollees.
You may use any one of the following counting methods to determine the average number of lives:
Note: For an HRA, QSEHRA or ICHRA, count only the number of primary participants (employees) and disregard any dependents.
Use Form 720, Quarterly Excise Tax Return, to report and pay the annual PCORI fee. Report all information for self-insured plan(s) with plan year ending dates in 2021 on the same Form 720. Do not submit more than one Form 720 for the same period with the same Employer Identification Number (EIN), unless you are filing an amended return.
The IRS provides Instructions for Form 720. Here is a quick summary of the items for PCORI:
If you self-insure one or more health plans or sponsor an HRA, you may be responsible for calculating, reporting, and paying annual PCORI fees. The fee is based on the average number of lives covered during the health plan year. The IRS offers a choice of different counting methods to calculate the plan’s average covered lives. Once you have determined the count, the process for reporting and paying the fee using Form 720 is fairly simple. For plan years ending in 2021, the deadline to file Form 720 and make your payment is August 1, 2022.