Don’t Sweat Summer Compliance: PCORI Fees due July 31
Although summer is a hot time for HR compliance deadlines, there’s one that most employers don’t need to sweat about: Fees charged to group health plans under the Affordable Care Act (ACA) by the Patient-Centered Outcomes Research Institute (PCORI). PCORI was created to study clinical effectiveness and health outcomes. To finance the Institute’s work, PCORI fees are annually charged to group health plans; this year, PCORI fees are due July 31.
To help small and medium-sized business (SMB) leaders or brokers with SMB clients meet this annual HR compliance deadline—and of course, ace any PCORI-related questions on trivia night—Mineral created this precise PCORI FAQ.
Does the PCORI fee apply to all health plans?
For the most part, yes. The fee applies to all health plans and HRAs (health reimbursement arrangements), except for:
- Plans that primarily provide “excepted benefits,” like standalone dental and vision plans, most health flexible spending accounts with little or no employer contribution, and certain supplemental or gap-type plans.
- Plans that do not provide significant benefits for medical care or treatment (including employee assistance, disease management, and wellness programs).
- Stop-loss insurance policies.
- Health savings accounts (HSAs).
Pro tip: The IRS provides a helpful chart indicating which plans are/aren’t subject to PCORI fees.
How are PCORI fees calculated?
The amount owed in PCORI fees depends on the date your plan year ends. The fee is $2.79 per participant per year (PPPY) for plan years ending Oct. 1, 2021 – Sept. 30, 2022, and $3 PPPY for plan years ending Oct 1, 2022 – Sept. 30, 2023.
To calculate the amount owed, multiply $2.79 or $3 by the average number of covered lives covered during the plan year. “Covered lives” are all participants, including employees, dependents, retirees, and COBRA enrollees. You can determine the average number of lives one of three ways:
- Average count method: The number of lives covered on each day of the plan year divided by the number of days in the plan year.
- Snapshot method: The number of lives covered on the same day each quarter divided by four quarters. Or, the lives covered on the first of each month divided by 12 months.
- Form 5500 method: Add together the “beginning of plan year” and “end of plan year” participant counts reported on the Form 5500 for the plan year. If the plan is employee-only without dependent coverage, divide the sum by 2. (Note that you cannot use this method if the Form 5500 for the 2022 plan year isn’t filed by July 31.)
Who needs to pay the PCORI piper?
Again, this generally isn’t a compliance issue for employers to sweat about because employer-sponsored health plans are commonly provided through group insurance carriers that are responsible for calculating and paying PCORI fees. However, employers that self-fund group health plans are responsible for calculating, reporting, and paying PCORI fees each year.
That’s me. How do self-funded employers pay PCORI fees?
There’s a form for that. Specifically, Form 720. But (you knew there was a “but”) before taking any action, confirm whether your organization files Form 720 for any purposes other than PCORI fees. For instance, some employers use Form 720 to make quarterly payments for environmental taxes, fuel taxes, or other excise taxes. In that case, give the PCORI fee information to your organization’s tax preparer to include with its quarterly filing.
If I have multiple self-insured plans, do PCORI fees apply to each one?
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.
What about hybrid plans such as level-funded or partially self-funded?
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 refer to a self-funded group medical plan sponsored by an employer that has assumed all financial risk, other than protection under stop-loss insurance. If your hybrid plan is self-funded, you are responsible for the paying PCORI fees. If unsure, check with your state’s insurance commissioner or legal counsel.
Do PCORI fees apply to HRAs?
Yes. The PCORI fee applies to HRAs, which are self-insured health plans. 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.
More acronyms for you: What about QSEHRAs? Do PCORI fees apply?
We love a good HR acronym! And 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. A QSEHRA is a self-insured health plan for purposes of PCORI fees.
Okay, how about these acronyms: ICHRAs and EBHRAs? Do PCORI fees apply?
Mineral is an undisputed champ when it comes to HR acronyms. What is disputed however, is whether Individual Coverage Health Reimbursement Arrangements (ICHRAs) are subject to PCORI fees. ICHRAs are a new type of tax-advantaged arrangement, first offered in 2020, that allow employers to reimburse certain health costs for their workers. While the IRS hasn’t provided specific guidance regarding ICHRAs and PCORI fees, it appears the fee applies since ICHRAs are self-insured health plans.
However, Excepted Benefits Health Reimbursement Arrangements (EBHRAs) also are self-insured health plans, but are limited to “excepted benefits,” such as dental and vision care costs. So, PCORI fees don’t apply to EBHRAs.
Can I use ERISA plan assets or employee contributions to pay the fee?
Nice try, but no. PCORI fees are an employer expense, not a plan expense; that means you cannot use ERISA plan assets or employee contributions to pay them. However, since PCORI fees are paid by employers as a business expense, they are tax deductible.