What Is the PCORI Fee?
The Affordable Care Act (ACA) imposes a fee on health insurance issuers and self-insured plan sponsors in order to fund comparative effectiveness research. These fees are widely known as Patient-Centered Outcomes Research Institute (PCORI) fees.
The PCORI fees were scheduled to expire for policy or plan years ending on or after Oct. 1, 2019. In the original ACA, the fees were set to apply only to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.
However, a federal spending bill enacted at the end of 2019 included several provisions affecting benefit plans, including extending the PCORI fees for an additional 10 years. Under the new law, these fees will continue to apply for the 2020-2029 fiscal years.
Issuers and plan sponsors must pay PCORI fees annually on IRS Form 720 by July 31 of each year. The fee will generally cover plan years that end during the preceding calendar year. For the 2019 plan year, fees are due by July 31, 2020.
How Much Are the PCORI Fees?
On Nov. 5, 2018, the IRS published Notice 2018-85, which increased the PCORI fee amount for plan years ending on or after Oct. 1, 2018, and before Oct. 1, 2019 (that is, 2019 for calendar year plans), to $2.45 multiplied by the average number of lives covered under the plan.
Who Must Pay the PCORI Fees?
The entity responsible for paying the PCORI fees depends on whether the plan is insured or self-insured.
- For insured health plans, the issuer of the health insurance policy is required to pay the fees.
- For self-insured health plans, including level-funded plans, the fees are to be paid by the plan sponsor.
The Department of Labor (DOL) has advised that, because the PCORI fees are imposed on the plan sponsor under the ACA, it is not permissible to pay the fees from plan assets under ERISA, although special circumstances may exist in limited situations. The DOL has issued a set of frequently asked questions regarding ACA implementation that include a limited exception allowing multiemployer plans to use plan assets to pay PCORI fees (unless the plan document specifies another source of payment for the fees).
PCORI fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return). These fees are due each year by July 31 of the year following the last day of the plan year. This means that, for plan years ending in 2019, the following action steps are advised:
- Determine whether the employer, as plan sponsor, is responsible for paying the fees.
- If so, select a method for calculating the average number of covered lives during the plan year.
- Then, pay the fees by July 31, 2020 using IRS Form 720.