PCORI Fees are Due Monday, August 1st.

Patient-Centered Outcomes Research Institute (PCORI) Fees

The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans.

PCORI fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return). These fees are due each year by July 31 of the year following the last day of the plan year. A federal spending bill enacted at the end of 2019 extended the PCORI fees for an additional 10 years. These fees will continue to apply for the 2020-2029 fiscal years.

This ACA Overview provides a summary of the ACA’s PCORI fees. Please contact [B_Officialname] for more information.

Links and Resources

Please see the following Internal Revenue Service (IRS) resources for more information on the ACA’s PCORI fees:

Final regulations on the PCORI fees
PCORI Fee Overview Page
PCORI Fee: Questions and Answers
IRS Form 720 and instructions
PCORI Fee Due Dates and Applicable Rates
A federal spending bill enacted at the end of 2019 extended the PCORI fees to apply for the 2020-2029 fiscal years.

PCORI Fees

The ACA imposes PCORI fees on health insurers and self-insured plan sponsors.
These fees are widely known as PCORI fees, although they may also be called PCOR fees or comparative effectiveness research (CER) fees.
The fee originally applied to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. However, it was extended to apply through the 2029 fiscal year.

Reporting & Paying the Fee

The IRS’ instructions for filing Form 720 include information on reporting and paying PCORI fees.
The payment, paid through the Electronic Federal Tax Payment System (EFTPS), should be applied to the second quarter (in EFTPS, select “Q2” for the Quarter under Tax Period on the “Business Tax Payment” page).

When are the PCORI Fees Effective?

The PCORI fees were originally scheduled to apply for plan years ending on or after Oct. 1, 2012, but not for plan years ending on or after Oct. 1, 2019. However, a federal spending bill enacted at the end of 2019 extended the PCORI fees for an additional 10 years. As a result, these fees will continue to apply for the 2020-2029 fiscal years.

Issuers and plan sponsors are required to pay the PCORI fees annually on IRS Form 720, by July 31 of each year. It generally covers plan years that end during the preceding calendar year. For plan years ending in 2021, the next PCORI fee payment is due Aug. 1, 2022, since July 31, 2022, is a Sunday.

How Much are the PCORI Fees?

The ACA set the PCORI fee at:

$1 multiplied by the average number of covered lives for plan years ending before Oct. 1, 2013 (2012 for calendar year plans).
$2 multiplied by the average number of covered lives for plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014.

For years after, the IRS published the adjusted PCORI fee amount each year, which is calculated based on the percentage increase in the projected per capita amount of the National Health Expenditures published by the Department of Health and Human Services (HHS) each year.

On Sept. 18, 2014, IRS Notice 2014-56 adjusted the PCORI fee amount to $2.08 times the average number of covered lives for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015.
On Oct. 9, 2015, IRS Notice 2015-60 adjusted the PCORI fee amount to $2.17 times the average number of covered lives for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2016.
On Nov. 4, 2016, IRS Notice 2016-64 adjusted the PCORI fee amount to $2.26 times the average number of covered lives for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017.
On Oct. 9, 2017, IRS Notice 2017-61 adjusted the PCORI fee amount to $2.39 times the average number of covered lives for plan years ending on or after Oct. 1, 2017, and before Oct. 1, 2018.
On Nov. 5, 2018, IRS Notice 2018-85 adjusted the PCORI fee amount to $2.45 times the average number of covered lives for plan years ending on or after Oct. 1, 2018, and before Oct. 1, 2019.
On June 8, 2020, IRS Notice 2020-44 adjusted the PCORI fee amount to $2.54 times the average number of covered lives for plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020. It also provides transition relief for calculating the average number of covered lives for this period. Issuers and plan sponsors may use any reasonable method to make this calculation, so long as it is applied consistently for the duration of the plan year.
On Nov. 24, 2020, IRS Notice 2020-84 adjusted the PCORI fee amount to $2.66 times the average number of covered lives for plan years ending on or after Oct. 1, 2020, and before Oct. 1, 2021.
On Dec. 21, 2021, IRS Notice 2021-04 adjusted the PCORI fee amount to $2.79 times the average number of covered lives for plan years ending on or after Oct. 1, 2021, and before Oct. 1, 2022.

The PCORI fees are based on the average number of covered lives under the plan or policy. This generally includes employees and their enrolled spouses and dependents. Individuals who are receiving continuation coverage (such as COBRA coverage) must be included in the number of covered lives under the plan in calculating the PCORI fee. The final rules outline a number of alternatives for issuers and plan sponsors to determine the average number of covered lives.

What Policies and Plans are Subject to PCORI Fees?

The PCORI fees generally apply to insurance policies providing accident and health coverage and self-insured group health plans. The final regulations contain some exceptions to this general rule, and also clarify how the PCORI fees apply to certain types of health coverage arrangements. For example, the PCORI fees do not apply if substantially all of the coverage under a plan or policy is for excepted benefits, as defined under the Health Insurance Portability and Accountability Act (HIPAA). In addition, the PCORI fees may apply to retiree-only plans and policies, even though retiree-only coverage is exempt from many of the ACA’s other requirements.

Health Insurance Policies and Health Plans

The PCORI fees apply to “specified health insurance policies” and “applicable self-insured health plans.” The ACA broadly defines these terms as follows:

Specified Health Insurance Policy—An accident or health insurance policy (including a policy under a group health plan) issued with respect to individuals residing in the United States, including prepaid health coverage arrangements.
Applicable Self-Insured Health Plan—A plan providing accident or health coverage, any portion of which is provided other than through an insurance policy, which is established or maintained by:
- One or more employers for the benefit of their employees or former employees;
- One or more employee organizations for the benefit of their members or former members;
- Jointly by one or more employers and one or more employee organizations for the benefit of employees or former employees;
- A voluntary employees’ beneficiary association (VEBA); or
- Other specified organizations, including a multiple employer welfare arrangement (MEWA).

Governmental Entities

Governmental entities that are health insurance issuers or sponsors of self-insured health plans are subject to the PCORI fees, except that the fees do not apply to “exempt governmental programs”—Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and any program established by federal law to provide medical care (other than through insurance policies) for members of the Armed Forces or veterans or for members of Indian tribes.

Excepted Benefits

The PCORI fees do not apply if substantially all of the coverage under a plan is for excepted benefits, as defined under HIPAA. Excepted benefits include, for example, stand-alone dental and vision plans, accident-only coverage, disability income coverage, liability insurance, workers’ compensation coverage, credit-only insurance or coverage for on-site medical clinics. A health FSA qualifies as an excepted benefit if:

Other group health plan coverage, not limited to excepted benefits, is made available to the eligible class of participants; and
The maximum benefit payable under the FSA to any eligible participant does not exceed two times the participant’s salary reduction election (or, if greater, $500 plus the amount of the salary reduction election).

Retiree Health Plans

Although stand-alone retiree health plans are generally exempt from many of the ACA’s requirements, sponsors and issuers of these plans are subject to the PCORI fees, unless the plan qualifies as an excepted benefit under HIPAA.

Continuation Coverage

If continuation coverage under COBRA (or similar continuation coverage under federal or state law) provides accident and health coverage, the coverage is subject to the ACA’s PCORI fees.

Multiple Health Plans

The final regulations address how the PCORI fees apply when an employer sponsors more than one health plan for its employees (for example, a fully insured major medical insurance policy and a self-insured prescription drug plan). As a general rule, an issuer or plan sponsor may not disregard a covered life when calculating its PCORI fees merely because that individual is also covered under another specified health insurance policy or applicable self-insured plan.

However, multiple self-insured arrangements established and maintained by the same plan sponsor with the same plan year are subject to a single fee. For example, if a plan sponsor establishes or maintains a self-insured arrangement providing major medical benefits, and a separate self-insured arrangement with the same plan year providing prescription drug benefits, the two arrangements may be treated as one applicable self-insured health plan so that the same life covered under each arrangement would count as only one covered life under the plan for purposes of calculating the fee.

HRAs and Health FSAs

Health reimbursement arrangements (HRAs) and health flexible spending accounts (health FSAs) are not completely excluded from the obligation to pay PCORI fees. However, two special rules apply for plan sponsors that provide an HRA or health FSA. Under these special rules:

If a plan sponsor maintains only an HRA or health FSA (and no other applicable self-insured health plan), the plan sponsor may treat each participant’s account as covering a single life. This means that the plan sponsor is not required to count spouses or other dependents.
An HRA is not subject to a separate PCORI fee if it is integrated with another self-insured plan providing major medical coverage, provided the HRA and the plan are established and maintained by the same plan sponsor and have the same plan year. This rule allows the sponsor to pay the PCORI fee only once with respect to each life covered under the HRA and other plan. However, if an HRA is integrated with an insured group health plan, the plan sponsor of the HRA and the issuer of the insured plan will both be subject to the PCORI fees, even though the HRA and insured group health plan are maintained by the same plan sponsor.

The same analysis applies to health FSAs that do not qualify as excepted benefits.

Qualified Small Employer HRA (QSEHRA)

Due to a new federal law, the 21st Century Cures Act, small employers that do not maintain group health plans can adopt stand-alone HRAs without violating the ACA, effective for plan years beginning on or after Jan. 1, 2017. Depending on its plan design, this new type of HRA, called a qualified small employer HRA (QSEHRA), can be used to help employees pay for their own health insurance policies and reimburse other out-of-pocket medical expenses. However, specific requirements apply to QSEHRAs, including a maximum benefit limit and a notice requirement.

Plan sponsors of applicable self-insured health plans must file Form 720 annually to report and pay the PCORI fee; a QSEHRA is an applicable self-insured health plan for this purpose.

Individual Coverage HRA (ICHRA)

Beginning in 2020, employers of all sizes may implement a new HRA design—an individual coverage HRA (ICHRA)—to reimburse their eligible employees for insurance policies purchased in the individual market or Medicare premiums, subject to certain conditions. A key restriction for ICHRAs is that employers cannot offer any employee a choice between an ICHRA and a traditional group health plan.

Plan sponsors of applicable self-insured health plans must file Form 720 annually to report and pay the PCORI fee; an ICHRA is an applicable self-insured health plan for this purpose.

Employee Assistance, Disease Management and Wellness Programs

Employee assistance programs (EAPs), disease management programs and wellness programs that do not provide significant benefits in the nature of medical care or treatment are not subject to the PCORI fees. This exception also covers an insurance policy to the extent that it provides for an EAP, disease management program or wellness program, if the program does not provide significant benefits in the nature of medical care or treatment.

Who Must Pay the PCORI Fees?

The entity responsible for paying the PCORI fees depends on whether the plan is insured or self-insured.

For insured health plans, the issuer of the health insurance policy is required to pay the fees.
For self-insured health plans, the fees are to be paid by the plan sponsor.

Although sponsors of fully-insured plans are not responsible for paying PCORI fees, issuers may shift the fee cost to sponsors through a modest premium increase.

The Department of Labor (DOL) has advised that, because the PCORI fees are imposed on the plan sponsor under the ACA, it is not permissible to pay the fees from plan assets under the Employee Retirement Income Security Act (ERISA), although special circumstances may exist in limited situations. On Jan. 24, 2013, the DOL issued a set of frequently asked questions (FAQs) regarding ACA implementation that include a limited exception allowing multiemployer plans to use plan assets to pay PCORI fees (unless the plan document specifies another source of payment for the fees).

When two or more related employers provide health coverage under a single self-insured plan, the employer responsible for the PCORI fees is the one designated in the plan documents as the plan sponsor (or as the plan sponsor for purposes of reporting the PCORI fees). This designation must be made by the due date for reporting the PCORI fees, which is July 31 of each year for plan years ending in the preceding calendar year. If this designation is not made on time, then each employer is required to report and pay PCORI fees with respect to its own employees.

How are the PCORI Fees Calculated?

The PCORI fees are based on the average number of lives covered under the plan or policy. This generally includes employees and their enrolled spouses and dependents. Individuals who are receiving continuation coverage (such as COBRA coverage) must be included in the number of covered lives under the plan in calculating the PCORI fee. The final regulations outline a number of alternatives for issuers and plan sponsors to determine the average number of covered lives. As a general rule, plan sponsors and issuers may only use one method for determining the average number of covered lives for each plan year. However, because of the anticipated termination of the PCORI fee prior to its extension, issuers and plan sponsors may not have anticipated the need to identify the number of covered lives for plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020. Thus, IRS Notice 2020-44 provides that issuers and plan sponsors may use any reasonable method to make this calculation for this period, so long as it is applied consistently for the duration of the plan year. Issuers and plan sponsors may also continue to use the following methods.

Insured Health Plans

Health insurance issuers have three options for determining the average number of covered lives:

The Actual Count Method—This method involves calculating the sum of lives covered for each day of the plan year and dividing that sum by the number of days in the plan year.
The Snapshot Method—This method involves adding the total number of lives covered on a date in each quarter of the plan year, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made.
The Form Method—As an alternative to determining the average number of lives covered under each individual policy for its respective plan year, this method involves determining the average number of lives covered under all policies in effect for a calendar year based on the data included in the National Association of Insurance Commissioners Supplemental Health Care Exhibit (Exhibit) that some issuers are required to file (called the member months method). For issuers that are not required to file an Exhibit, there is a similar available method that uses data from equivalent state insurance filings (called the state form method).

Self-insured Health Plans

Sponsors of self-insured plans may determine the average number of covered lives by using the actual count method or the snapshot method. For purposes of the snapshot method, the number of lives covered on a designated date may be determined using either the snapshot factor method or the snapshot count method.

Snapshot factor method.Under the snapshot factor method, the number of lives covered on a date is equal to the sum of:
- The number of participants with self-only coverage on that date; plus
- The product of the number of participants with coverage other than self-only coverage on the date and 2.35.
Snapshot count method. Under the snapshot count method, the number of lives covered on a date equals the actual number of lives covered on the designated date.

Alternatively, plan sponsors may use the Form 5500 method, which involves a formula using the number of participants reported on the Form 5500 for the plan year.

For HRAs and health FSAs that are required to be reported separately (for example, because they are integrated with an insured group health plan and do not qualify as excepted benefits), the regulations simplify the determination of average number of covered lives by allowing plan sponsors to assume one covered life for each employee with an HRA or health FSA.

In addition, a self-insured plan that provides accident and health coverage through fully-insured and self-insured options may determine the plan’s PCORI fees by disregarding the lives covered solely under the fully-insured options.

How are the PCORI Fees Reported and Paid?

In general, the PCORI fees are assessed, collected and enforced like taxes under the Internal Revenue Code. Issuers and plan sponsors must report and pay the PCORI fees annually on IRS Form 720 (Quarterly Federal Excise Tax Return). Instructions for the form are also available.

Form 720 and full payment of the PCORI fees are due by July 31 of each year. It generally covers plan years that end during the preceding calendar year. Thus, the first possible deadline for filing Form 720 was July 31, 2013. The deadline for filing Form 720 is Aug. 1, 2022, for plan years ending in 2021. Deposits are not required for this fee, so issuers and plan sponsors are not required to pay the fee using Electronic Federal Tax Payment System (EFTPS). However, if the fee is paid using EFTPS, the payment should be applied to the second quarter.

On Jan. 24, 2013, the Departments issued FAQs that address payment of PCORI fees from plan assets. In general, because the fee is imposed on the plan sponsor and not on the plan itself, the plan sponsor must pay the fee outside the plan. This means that plan assets cannot be used to pay the fee. However, there are certain circumstances in which PCORI fees may be paid from plan assets.

Multiemployer Plans

In the case of a multiemployer plan, the plan sponsor liable for the PCORI fee would generally be the independent joint board of trustees appointed and directed to establish the employee benefit plan. According to the Departments, a multiemployer plan’s joint board of trustees is permitted to pay PCORI fees from plan assets, unless the plan document specifies another source for payment of the fee.

ERISA imposes certain responsibilities on fiduciaries that are designed to avoid misuse and mismanagement of plan assets. Generally, plan assets must be used for the exclusive benefit of plan participants and beneficiaries.

The Departments understand that a multiemployer plan’s joint board of trustees normally has no function other than to sponsor and administer the multiemployer plan and has no source of funding independent of plan assets to pay PCORI fees. The fee is not an excise tax or penalty imposed on the trustees in connection with a violation of federal law or a breach of their fiduciary obligations in connection with the plan. In addition, the Departments stated that the joint board would not be acting in a capacity other than as a fiduciary of the plan in paying a PCORI fee.

As a result, the Departments believe that it would be unreasonable to construe ERISA’s fiduciary provisions as prohibiting the use of plan assets to pay a PCORI fee to the federal government.

Non-Multiemployer Plans

According to the Departments, there may be rare circumstances where sponsors of employee benefit plans that are not multiemployer plans would also be able to use plan assets to pay the PCORI fee. For example, a VEBA that provides retiree-only health benefits may be able to use plan assets to pay a PCORI fee if the sponsor is a trustee or board of trustees that exists solely for the purpose of sponsoring and administering the plan, and has no source of funding independent of plan assets.

However, this exception would not necessarily apply to other plan sponsors required to pay the PCORI fee. For example, a group or association of employers that act as a plan sponsor, but that also exist for reasons other than solely to sponsor and administer a plan, may not use plan assets to pay the fee even if the plan uses a VEBA trust to pay benefits under the plan. These entities or associations, such as employers that sponsor single employer plans, would have to identify and use some other source of funding to pay the PCORI fee.

Are the PCORI Fees Deductible?

On May 31, 2013, the IRS issued a Chief Counsel Memorandum addressing the deductibility of the PCORI fees. According to the IRS, the required PCORI fee is an ordinary and necessary business expense paid or incurred in carrying on a trade or business and, therefore, is deductible under Code Section 162.

What Should Employers Do Now?

The deadline for filing Form 720 is July 31 of each year. Employers should take the following steps to assess their compliance obligations:

Determine which employee benefit plans are subject to the PCORI fees;
Assess plan funding status (insured vs. self-insured) to determine whether the employer or a health policy issuer is responsible for the fees; and
For any self-insured plans, select an approach for calculating average covered lives.

The PCORI fee applies separately to “specified health insurance policies” and “applicable self-insured health plans,” and is based on the average number of lives covered under the plan or policy.

Using Part II, Number 133 of Form 720, issuers and plan sponsors must report the average number of lives covered under the plan separately for specified health insurance policies and applicable self-insured health plans. That number is then multiplied by the applicable rate for that tax year, as follows:

$1 for plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans).
$2 for plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014.
$2.08 for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015.
$2.17 for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2016.
$2.26 for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017.
$2.39 for plan years ending on or after Oct. 1, 2017, and before Oct. 1, 2018.
$2.45 for plan years ending on or after Oct. 1, 2018, and before Oct. 1, 2019.
$2.54 for plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020.
$2.66 for plan years ending on or after Oct. 1, 2020, and before Oct. 1, 2021.
$2.79 for plan years ending on or after Oct. 1, 2021, and before Oct. 1, 2022.

The fees for specified health insurance policies and applicable self-insured health plans are then combined to equal the total tax owed.

Issuers or plan sponsors that file Form 720 only to report the PCORI fee will not need to file Form 720 for the first, third or fourth quarter of the year. Issuers or plan sponsors that file Form 720 to report quarterly excise tax liability for the first, third or fourth quarter of the year (for example, to report the foreign insurance tax) should not make an entry on the line for the PCORI tax on those filings.

More Information

Please contact gente for additional information on PCORI fees.