Compliance Corner: Understanding PCORI Fees

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By: Colin Clark | Staff Attorney

What are PCORI Fees?

PCORI stands for the Patient Centered Outcomes Research Institute. PCORI was created by the Affordable Care Act of 2010 and is a non-profit organization that researches the effectiveness of a wide range of medical services. PCORI conducts clinical research, community outreach, and targeted studies, focusing on which procedures and services produce positive outcomes for patients. Funding for PCORI is obtained largely through yearly fees from certain health insurance policies and self-insured plans. While this fee was originally set to expire in 2018, recent legislation has extended the fees until 2029.

Who Must Pay PCORI Fees?

Fees are paid by specified health insurance policies and applicable self-insured health plans. The following types of insurance coverage or arrangements are subject to the fee:

• Accident and health coverage or major medical insurance coverage
• Retiree-only health or major medical coverage
• Health or major medical coverage under multiple policies or plans
• COBRA coverage
• State & local government health or major medical plans for employees and/or retirees

The following types of arrangements are also subject to the fee, unless the arrangement meets the requirement for treatment as an “excepted benefit.”

• Health Reimbursement Arrangement (HRA), including a premium-only HRA
• Flexible Spending Arrangement (FSA)

The following types of arrangements are not subject to the fee:

• Stand-alone dental or vision coverage
• Group insurance policy designed and issued specifically to cover primarily employees working and residing outside the United States
• Self-insured health plan designed specifically to cover primarily employees who are working and residing outside the United States
• Medicare
• Medicaid
• Children’s Health Insurance Program (CHIP) (the medical assistance program established under title XXI of the Social Security Act)
• Military health plans (programs established by Federal law for providing medical care (other than through insurance policies) to individuals (spouses or dependents) by reason of the individual being (or having been) a member of the Armed Forces of the United States)
• Certain Indian tribal government health plans (programs established by Federal law for providing medical care (other than through insurance policies) to members of Indian tribes (as defined in section 4(d) of the Indian Health Care Improvement Act))
• Health Savings Arrangements (HSAs)
• Archer Medical Savings Accounts (MSAs)
• Hospital indemnity or specified illness benefits
• Stop-loss or indemnity reinsurance
• Employee assistance programs, disease management programs, or wellness programs (provided the program does not provide significant benefits in the nature of medical care or treatment.)
• Accident-only coverage (including accidental death and dismemberment)
• Disability income coverage
• Automobile medical payment coverage
• Workers’ compensation or similar coverage
• On-site medical clinic

How Are PCORI Fees Calculated?

Fees are based on the average number of lives covered under a policy. For specified health insurance policies, the IRS allows 4 calculation methods, and for applicable self-insured health plans, the IRS allows 3 calculation methods. Note that for HRAs and Health FSAs, plan sponsors are permitted to assume one covered life for each employee with an HRA or an FSA. Once the number of lives calculation is complete, this number is then multiplied by the “applicable dollar amount for the year”. The applicable dollar amount changes each year, and the IRS releases a yearly notice with the updated applicable dollar amount to be used in PCORI calculations. For policy/plan years that end on or after October 1, 2024, but before October 1, 2025, the applicable dollar amount is $3.47. This amount has increased every year since its inception, and previous year amounts can be found on the IRS website. Below are the calculation methods allowed by the IRS:

• Actual Count Method (Specified Health Insurance Policies and Applicable Self-Insured Health Plans)
  • An issuer/sponsor may determine the average number of lives covered under a policy for a policy year by adding the total number of lives covered for each day of the policy year and dividing that total by the number of days in the policy year.
• Snapshot Method (Specified Health Insurance Policies and Applicable Self-Insured Health Plans)
  • An issuer/sponsor may determine the average number of lives covered under a policy for a policy year by adding the totals of lives covered on a date during the first, second, or third month of each quarter (or more dates in each quarter if an equal number of dates is used for each quarter), and dividing that total by the number of dates on which a count is made
• Member Months Method (Specified Health Insurance Policies)
  • An issuer may determine the average number of lives covered under all policies in effect for a calendar year based on the member months (an amount that equals the sum of the totals of lives covered on pre-specified days in each month of the reporting period) reported on the National Association of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit filed for that calendar year. Under this method, the average number of lives covered under the policies in effect for the calendar year equals the member months divided by 12.
• State Form Method (Specified Health Insurance Policies)
  • An issuer that is not required to file NAIC annual financial statements may determine the number of lives covered under all policies in effect for the calendar year using a form that is filed with the issuer's state of domicile and a method similar to that described in the Member Month Method section, if the form reports the number of lives covered in the same manner as member months are reported on the NAIC Supplemental Health Care Exhibit.
• Form 5500 Method (Applicable Self-Insured Health Plans)
  • A sponsor may determine the average number of lives covered under the plan for the plan year based on a formula that includes the number of participants actually reported on the Form 5500 for the plan year (called the “Form 5500 method”). A plan sponsor may only use this method if the Form 5500 is filed no later than the due date for the fee imposed for that plan year.

When Are PCORI Fees Due?

PCORI payments are due July 31 of the year following the last day of the policy or plan year. The fees are reported and paid through IRS Form 720. As IRS Form 720 is a Quarterly Excise Federal Excise Tax Return, those who must pay PCORI fees are instructed by the IRS to include PCORI information on their second quarter Form 720.