Plan sponsors of self-insured health plans are obliged to pay a membership-based fee for its plan year via the IRS Form 720 by July 31 of the year following the last day of the plan year (including a short plan year); These regulations apply to policy and plan years ending on or after 10/1/2012. Valhalla Business Advisors assists clients to confirm their obligations (i.e. determine whether they are obliged to pay this fee directly) as well as evaluate the amounts due via the multiple methods for calculating the fee payable.
What is the PCORI fee?
The PCORI fee is a government fee established by the Affordable Care Act that helps fund the Patient-Centered Outcomes Research Institute (PCORI). This institute is a government-funded organization charged with improving the quality and relevance of evidence available to help patients, caregivers, clinicians, employers, insurers, and policymakers make better-informed health decisions.
This fee is imposed on health insurance companies and organizations that self-fund their group health insurance. Businesses that utilize HRAs for their employees are also considered self-funded and, therefore, have to pay the PCORI fee, though there are specific rules regarding integrated plans.
How much is the PCORI fee?
The PCORI fee is based on the average number of lives covered under an insurance policy or a self-funded insurance plan. This fee is not just based on the number of employees on an insurance plan but also includes spouses, dependents, and former employees utilizing COBRA benefits.
At most businesses, the number of lives on a plan fluctuates throughout the year. The number of individuals covered by an insurance plan may increase or decrease due to employees moving on to another job or retiring, spouses or dependents leaving the plan, or former employees requesting COBRA benefits.
The PCORI fee is calculated by multiplying the average number of lives covered during the policy year or plan year by the applicable dollar amount determined by the Secretary of Health and Human Services. This dollar amount is adjusted each year to reflect inflation. For plans ending after September 30, 2023, and before October 1, 2024, the applicable dollar amount is $3.22; For plans ending after September 30, 2024, and before October 1, 2025, the applicable dollar amount is $3.47
How does an employer determine the average number of lives covered on their last group health insurance plan?
If your business self-funds its group health insurance or uses HRAs, determining the average number of lives covered requires some calculations. The IRS allows three different methods to determine this number:
- Actual Count Method: Under this method, you count the number of covered lives daily throughout the plan year. This method provides the most precise calculation, but it can be complex and time-consuming.
- Snapshot Method: The snapshot method involves counting the number of covered lives on a specific day or days in each quarter and then averaging those totals. The dates used for counting must be the same for each quarter.
- Form 5500 Method: This method involves taking the count on the first day and the last day of the plan year and then dividing by two. This method is the simplest but may not be the most precise.
Valhalla Business Advisors will assist in evaluating these alternative methods for developing the basis for PCORI fee submission.
Special rules for Health reimbursement arrangements, including deductible reimbursement plans
The IRS provides this specific guidance regarding these scenarios:
"Special rule for coverage under multiple applicable self-insured health plans:
Generally, separate fees apply for lives covered by each specified health insurance policy or applicable self-insured health plan.
However, two or more applicable self-insured health plans may be combined and treated as a single applicable self-insured health plan for purposes of calculating the PCORI fee but only if the plans have:
The same plan sponsor; and
The same plan year.
For example, if amounts in an HRA may be used to pay deductibles and copays under a specified health insurance policy, the HRA (an applicable self-insured health plan) and the policy would be subject to separate PCORI fees. However, an HRA that may be used to pay deductibles and copays under the applicable self-insured health plan is not subject to a separate fee (and the fee will apply only to the applicable self-insured health plan) if both the HRA and the applicable self-insured health plan have the same plan sponsor and the same plan year.
There is no similar rule for lives covered by more than one insurance policy subject to the PCORI fee.
Special counting rule for HRAs and FSAs:
Plan sponsors are permitted to assume one covered life for each employee with an HRA.
Plan sponsors are permitted to assume one covered life for each employee with an FSA."
When is the PCORI fee due, and how do we submit it?
If your business is required to pay the PCORI fee, you need to file Form 720, a quarterly tax form. Part II of Form 720 is dedicated to the PCORI fee. The PCORI fee is due by July 31 of the calendar year following the last day of the plan year to which the fee applies.
For example, if your plan year ended on August 31, 2024, you will need to file Form 720 and pay the PCORI fee by July 31, 2025.
You can find the 2025 IRS Form 720 here: IRS Form 720
Summary
The PCORI fee supports the Patient-Centered Outcomes Research Institute, which conducts research to improve health outcomes and medical treatments. If your business self-funds its health insurance or provides an HRA, including an ICHRA, you are responsible for paying this fee.
By understanding the purpose of the fee, how it’s calculated, the methods to determine the average number of lives covered, the payment deadline, and the potential penalties for late submissions, you can ensure your business stays compliant with PCORI fee regulations.
At Valhalla Business Advisors, we are here to help you navigate these requirements and ensure your business remains in compliance. Feel free to reach out to us with any questions or concerns you may have.
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Resources
IRS 2025 Form 720 Instructions – https://www.irs.gov/pub/irs-pdf/i720.pdf
IRS 2025 Form 720 – https://www.irs.gov/pub/irs-pdf/f720.pdf
IRS PCORI FAQ – https://www.irs.gov/affordable-care-act/patient-centered-outcomes-research-trust-fund-fee-questions-and-answers
Federal Register with Final Regs re: PCORI – https://www.govinfo.gov/content/pkg/FR-2012-12-06/pdf/2012-29325.pdf