The Patient-Centered Outcomes Research Institute (PCORI) fee is a mandatory assessment for both fully insured and self-funded healthcare plans, applicable to policy years between 2012 and 2029. Passed under the Affordable Care Act (ACA), this fee finances PCORI, an independent non-profit organization dedicated to advancing research to enhance healthcare outcomes for patients and caregivers. Here’s a critical overview to help you prepare before the July 31 deadline.
PCORI Fees 101: ACA Compliance and Annual Payment Procedures
Under the Affordable Care Act (ACA), health insurance issuers and sponsors of self-insured plans must pay Patient-Centered Outcomes Research Institute fees (PCORI fees). These fees are reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return.
PCORI fees and Form 720 submissions are due annually by July 31st. This generally covers plan years that concluded in the previous calendar year. For instance, fees for plan years ending in 2023 must be submitted by July 31, 2024.
What Is the PCORI Fee?
The PCORI fee is a temporary fee imposed on health plans, applicable to policy years from 2012 through 2029. Its main objective is to fund the PCORI's research initiatives, which focus on enhancing the quality and efficacy of healthcare. Initially scheduled to expire for plan years ending on or after October 1, 2019, the PCORI fees were extended for an additional 10 years through a federal spending bill enacted at the end of 2019. As a result, these fees will remain in effect for fiscal years 2020 through 2029.
Who Needs to Pay?
- Fully Insured Plans: The insurance carrier pays the PCORI fee.
- Self-Funded Plans: The employer sponsoring the plan is responsible for paying the fee.
Why Is the PCORI Fee Important?
Funding from the PCORI fee supports critical research that provides evidence-based information to help patients and caregivers make better-informed healthcare decisions. This research covers various healthcare topics, including treatment effectiveness, care delivery improvements, and patient-centered outcomes.
How to Calculate Your PCORI Fee Payment
Calculating the PCORI fee payment is crucial for employers and insurers responsible for health plans. Understanding the calculation process and the necessary filing requirements will help you avoid penalties and contribute to the funding of essential healthcare research.
Assessment and Enforcement
- PCORI fees are assessed, collected, and enforced like taxes.
- They apply to issuers of “specified health insurance policies” and plan sponsors of “applicable self-insured health plans.”
Basis for Calculation
- The fee is based on the average number of lives the plan covers.
- Final rules provide multiple methods for determining the average number of covered lives.
Reporting Requirements
- Issuers and plan sponsors must use Part II, Number 133 of Form 720, to report the average number of lives covered.
- The average number of covered lives is reported separately for specified health insurance policies and applicable self-insured health plans.
Fee Calculation
- The reported number of covered lives is multiplied by the applicable rate for the tax year.
Applicable rates:
- $3.00 for plan years ending on or after October 1, 2022, and before October 1, 2023.
- $3.22 for plan years ending on or after October 1, 2023, and before October 1, 2024.
Total Tax Owed: Fees for specified health insurance policies and applicable self-insured health plans are combined to determine the total tax owed.
Action Steps for Employers to Assess PCORI Fee Obligations
Employers must take specific actions to assess and fulfill their PCORI fee obligations accurately. The below pointers outline the essential steps employers should follow to ensure compliance and calculate fees properly.
Steps for Employers:
- Determine Subject Plans: Identify which health plans are subject to the PCORI fees.
- Assess Plan Funding Status: Determine whether the plan is insured or self-insured to establish whether the issuer or the employer is responsible for paying the fees.
- Select Calculation Approach: For self-insured plans, choose an appropriate method for calculating the average number of covered lives.
The IRS offers valuable resources, including a detailed chart, to help employers understand how the fees apply to different types of health coverage or arrangements.
Highlights & Important Dates for PCORI Fees
This legal update provides key information about the PCORI fees, including applicability dates and payment deadlines. It is intended to guide employers and insurers through the necessary steps for compliance. Please consult with legal counsel for specific legal advice.
Applicability Dates
- The PCORI fee applies to plan or policy years ending after September 30, 2012, and before October 1, 2029.
Payment Deadline
- Issuers and plan sponsors must report and pay the PCORI fees annually using IRS Form 720.
- For plan or policy years ending in 2023, the PCORI fees are due by July 31, 2024.
- Issuers and plan sponsors who file Form 720 solely to report the PCORI fee are not required to file the form for the first, third, or fourth quarter of the year.
PCORI Fees: Key Information and Deadline Reminders for CBC
Understanding and complying with PCORI fee requirements is essential for employers and insurers. You can ensure timely and accurate fee payment by identifying the plans subject to the fees, determining the responsible party based on plan funding status, and selecting the correct method for calculating covered lives.
Don't wait until the last minute—review your plans now and prepare to file Form 720 by the July 31 deadline. For additional support and detailed guidance, seek advice from our team or consult with IRS resources to navigate the specifics of your situation effectively.
If you have any questions or need further assistance, contact our Custom Benefit Consultants (CBC), Inc. team. We are here to help you every step of the way to ensure your organization remains compliant and informed.
