The Affordable Care Act established the Patient-Centered Outcomes Research Institute (PCORI) to improve the quality of health care and provide information to help consumers make informed health care decisions. Health plans must pay an annual fee based on covered lives to help fund the Patient-Centered Outcomes Research Trust Fund. To see if a plan is subject to the fee, review this information from the IRS.
The amount of the fee for policy years and plan years that end on or after October 1, 2020 and before October 1, 20201 is $2.66. The fee for plan years ending on or after October 1, 2021 and before October 1, 2022 is $2.79. The fee is reported and paid on the second quarter IRS Form 720 (Quarterly Federal Excise Tax Return) which is due July 31 (August 1, 2022 since the due date falls on a weekend).
If a health plan is fully insured, the insurer is responsible for paying the PCORI fee. If a health plan is self-funded, the plan sponsor (employer) must pay the fee. Stand-alone dental or vision plans, EAPs, wellness programs, plans for employees outside of the U.S., HSAs, and almost all HRAs and FSAs are not required to pay the PCORI fee. The fee is a tax-deductible business expense for employers with self-insured plans.
A self-funded health plan determines the applicable fee by multiplying the fee amount by the average number of total lives covered by the plan. The rules allow employers with self-funded plans to select among three methods for determining the number of covered lives.
Any reasonable method for calculating the average number of covered lives may be used but that reasonable method must be applied consistently for the year and the same method must be used for all plans for which a liability is reported on Form 720 for that year.
The options for counting lives for a self-funded plan include the following.
- Actual Count Method. Calculate the sum of the lives covered for each day of the plan year and divide that sum by the number of days in the plan year.
- Snapshot Method. Add the totals of lives covered on a date during the first, second, or third month in each quarter, or an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made.
- Form 5500 Method. Include the number of lives actually reported on Form 5500 for the plan year (may be used only if Form 5500 is filed before the PCORI Fee is submitted).
Insurers may select among four methods for determining the number of covered lives.
- Actual Count Method. Calculate the sum of lives covered for each day of the policy year and divide the sum by the number of days in the policy year.
- Snapshot Method. Add the total number of covered lives on a date during the first, second or third month in each quarter of the policy year, or an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made.
- Member Months Method. Use the member months reported on the National Association of Insurance Commissioners Supplemental Health Care Exhibit, divided by 12.
- State Form Method. For an insurer not required to file the NAIC Exhibit, use data in any form that is filed with the state of domicile if the state form reports the number of lives covered.
Employers with self-funded health plans should be sure to calculate and pay the required PCORI fee with their 2nd quarter tax filing due August 1.