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Frequently Asked Questions about the Patient-Centered Outcomes Research Institute (PCORI) Fee | Compliance Advisor

Q1: To what plans does the PCORI fee apply?

A1: All plans that provide medical coverage to employees owe this fee. Medical coverage includes preferred provider (PPO) plans, health maintenance organization (HMO) plans, point-of-service (POS) plans, high deductible health (HDHP) plans, and health reimbursement arrangements (HRAs).

The fee does not apply to:

  • Stand-alone dental and vision plans (stand-alone means these benefits are elected separately from medical, or the benefits are provided under separate insurance policies from the medical coverage)
  • Life insurance
  • Short- and long-term disability and accident insurance
  • Long-term care
  • Health flexible spending accounts (FSAs), as long as the employee is also offered medical coverage and any employer contribution is (in most cases) $500 or less
  • Health savings accounts (HSAs)
  • Hospital indemnity or specified illness coverage
  • Employee assistance programs (EAPs) and wellness programs that do not provide significant medical care or treatment
  • Stop-loss coverage

Q2: Does the fee apply to all medical plans?

A2: Yes, it does. There are no exceptions for small employers. There are no exceptions for government, church or not-for-profit plans. Grandfathered plans owe this fee. Union plans must pay the fee on their covered members.

Q3: Who must pay this fee?

A3: The fee must be determined and paid by:

  • The insurer for fully insured plans (although the fee likely will be passed on to the plan).
  • The plan sponsor of self-funded plans, including HRAs.
  • The plan’s TPA may assist with the calculation, but the plan sponsor must file IRS Form 720 and pay the applicable fee.
  • If multiple employers participate in the plan, each must file separately unless the plan document designates one as the plan sponsor.

Q4: When is the PCORI fee due?

A4: The fee is due by July 31 of the year following the calendar year in which the plan/policy year ends.

The fee initially applied from 2012 to 2019, based on plan/policy years ending on or after October 1, 2012, and before October 1, 2019. However, in December 2019, the Further Consolidated Appropriations Act, 2020 extended the fee to plan/policy years ending before October 1, 2029.

Q5: How much is the fee?

A5: For plan years that end on or after October 1, 2022, and before October 1, 2023, the indexed fee is $3.00.

For plan years that end on or after October 1, 2023, and before October 1, 2024, the indexed fee is $3.22.

For plan years that end on or after October 1, 2024, and before October 1, 2025, the indexed fee is $3.47.

For plan years that end on or after October 1, 2025, and before October 1, 2026, the indexed fee is $3.84.

The fee is based on covered lives (i.e., employees, retirees, and COBRA participants and covered spouses and children). If, however, the plan owes the fee for HRA or health FSA coverage, it only needs to count the employees/retirees/COBRA participants – covered dependents are not counted for HRAs or health FSAs. Employees and their dependents who are residing outside the U.S. (based on the address on file with the employer) may be excluded.

Q6: What if the plan terminates?

A6: The fee is due for each plan year the plan was in effect.

Q7: What if a plan is new?

A7: The fee will be due for each year the plan is in effect. The rate for that plan year will apply.

Q8: How is the fee calculated?

A8: Plan sponsors of self-funded benefits have several options to calculate the fee:

  • Actual Count Method – Count the covered lives on each day of the plan year and average the result.
  • Snapshot Count Method – Determine the number of covered lives on the same day (plus or minus three days) of each quarter or month and average the result.
  • Snapshot Factor Method – Determine the number of covered employees/retirees/COBRA participants on the same day (plus or minus three days) of each quarter or month who have self-only coverage and the number who have other than self-only coverage. Multiply the number of employees/retirees/COBRA participants with other than self-only coverage by 2.35 to approximate the number of covered dependents (rather than actually counting them) and add that to the number of employees/retirees/COBRA participants with self-only coverage. Average the result.

Example: Blackstone has a calendar year plan. Blackstone has chosen to measure on the first workday of each month. Its covered employees are:

 Self-onlyOther than self-only
Jan. 1, 20255040
Feb. 1, 20255040
March 1, 20255242
April 1, 20255341
May 1, 20255440
June 3, 20255342
July 1, 20255442
Aug. 1, 20254940
Sept. 3, 20254841
Oct. 1, 20254840
Nov. 1, 20255040
Dec. 2, 20255143
Total612491

For the year, Blackstone has a total of 612 self-only employee lives and 491 other than self-only employee lives. Blackstone will multiply the 491 by an assumed 2.35 dependents per employee, for total of 1,153.85 employee/dependent covered lives. Add 612 and 1,153.85 for 1,765.85 total lives and divide by 12 for the average number of lives.

  • Form 5500 Method – Determine the number of participants at the beginning and end of the plan year as reported on Form 5500.
  • If dependents are covered, add the participant count for the start and the end of the plan year. The average covered lives equals the sum of the participants covered on the first day of the plan year and the participants covered on the last day of the plan year (i.e., adding the numbers found on lines 5 and 6(d) of Form 5500).
  • If dependents are not covered, add the participant count for the start and the end of the plan year and average the result.
  • The Form 5500 must be filed by July 31 to use this option.

Q9: May an employer change its calculation method?

A9: The same method must be used throughout a reporting year, but it may be changed from year to year.

Q10: What if the employer sponsors multiple plans?

A10: If there are multiple self-funded plans (such as self-funded medical and HRA) with the same plan year, only one fee would apply to a covered life.

For example, Z Corp. has a self-funded medical plan and a self-funded HRA that operate on a calendar year basis. The medical plan has 110 covered employees and 205 covered dependents. The same 110 employees are covered by the HRA. Z Corp. will owe the fee on 110 covered employees plus 205 covered dependents.

If there are both fully insured and self-funded plans, a fee would apply to each plan unless the employee is only covered under one type of plan. The insurer would pay the fee on the insured coverage and the plan sponsor would pay the fee on the HRA.

For example, Jay County has a fully insured medical plan and an integrated self-funded HRA. Both operate on a May 1 plan year. 130 employees and 212 dependents are covered by the medical plan and HRA. The insurer will pay the fee on the employees and dependents covered under the fully insured medical policy on. Jay County will pay the fee on the employees, but not the dependents, covered under the HRA.

Q11: How is the fee paid?

A11: The fee will be reported and paid on IRS Form 720 each July 31.

  • Even though Form 720 is generally filed quarterly, the PCORI report and fee will just be filed once per year, at the end of the second quarter.
  • Even though government, church, and not-for-profit plans don’t generally file federal tax returns, they are required to file the Form 720.
  • Only the relevant parts of the form need to be completed. The relevant parts are:
  • Identifying information at the beginning of the form
  • Part II, line 133 self-funded plans complete the “Applicable self-insured plans” line
  • Part III, items 3 and 10
  • The signature section
  • The form may be filed electronically or mailed to:
    Department of the Treasury
    Internal Revenue Service
    Ogden, UT 84201-0009
  • Part III, items 3 and 10
  • The signature section
  • The form may be filed electronically or mailed to:
    Department of the Treasury
    Internal Revenue Service
    Ogden, UT 84201-0009

Q12: Is the fee tax-deductible?

A12: Yes, the fee is tax-deductible.

Q13: Is there a penalty for failure to file or pay the PCORI fee?

A13: Although the PCORI statute and its regulations do not include a specific penalty for failure to report or pay the PCORI fee, the plan sponsor may be subject to penalties for failure to file a tax return because the PCORI fee is an excise tax. The plan sponsor should consult with its attorney on how to proceed with a late filing or late payment of the PCORI fee. The PCORI regulations note that the penalties related to late filing of Form 720 or late payment of the fee may be waived or abated if the plan sponsor has reasonable cause and the failure was not due to willful neglect.

Q14: How does a plan sponsor correct a previously filed Form 720?

A14: If a plan sponsor already filed Form 720, then the plan sponsor can make a correction to a previously filed Form 720 by using Form 720-X.

For more information, see:

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