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April 11, 2022
The Affordable Care Act (ACA) created a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI) to support clinical effectiveness research. It is funded in part by fees paid by health insurers and sponsors of self-funded health plans (PCORI fees), which are reported on paid annually using Form 720. General summary information regarding PCORI fees can be found at opens in a new windowwww.irs.gov/newsroom/patient-centered-outcomes-research-institute-fee.
The PCORI fee applies to most group health plans, but not to excepted benefits. Health reimbursement arrangements (HRAs) are self-funded plans and therefore subject to the PCORI fee as well. This includes qualified small employer HRAs (QSEHRAs) and individual coverage HRAs (ICHRAs). Retiree-only plans are also subject to the PCORI fee. The IRS published a chart that describes the different types of plans subject to the fee here – opens in a new windowwww.irs.gov/newsroom/application-of-the-patient-centered-outcomes-research-trust-fund-fee-to-common-types-of-health-coverage-or-arrangements.
Health insurance carriers pay the fee directly in the case of fully-insured plans, but employers are responsible for reporting and paying the fee for any self-funded group health plans, including HRAs.
Originally the PCORI fee applied to plan years ending after September 30, 2012 and before October 1, 2019. However, the Further Consolidated Appropriations Act, 2020 extended the PCORI fees another 10 years to 2029.
The fee is paid using quarterly excise tax Form 720, Line 133, and must generally be paid no later than July 31st of the year following the last day of the plan year. The fee is reported in the 2nd quarter (e.g., for the quarter ending June 30, 2021).
Payment amounts are increased annually and differ based on the employer’s plan year, but the fee is less than $3 per covered life. The IRS chart illustrating plan year end dates with applicable fees and due dates can be found here – opens in a new windowwww.irs.gov/affordable-care-act/patient-centered-outreach-research-institute-filing-due-dates-and-applicable-rates.
Self-funded plans may generally use one of three methods to determine the average covered lives used for reporting and paying the PCORI fee. Plan sponsors must stick with one method for the entire plan year, but are allowed to change methods from year to year. COBRA participants and retirees should be counted, regardless of which method below is chosen.
There are two special rules that may apply for counting covered lives when an employer offers multiple self-funded plans or offers an HRA integrated with a fully-insured group medical plan.
For short plan years, there are no special rules for pro-rating the average covered lives or the fee. If the employer is using the actual count metod, the total is divided by a lesser number of days due to the short plan year. If the snapshot method is used, the total is divided by the number of months or quarters of the short plan year. See the FAQ from the IRS found here – opens in a new windowwww.irs.gov/affordable-care-act/patient-centered-outcomes-research-trust-fund-fee-questions-and-answers, specifically Q&A #12-14.
The IRS has not provided formal guidance for entities that fail to pay the PCORI fee, but it is generally advisable to file a Form 720 for the applicable year (or Form 720X for an amendment) as soon as possible for any missed fees and to pay any associated fines or penalties. A separate Form 720 should be filed for each missed plan year rather than paying fees for multiple plan years on the same Form 720.
The PCORI rules do not contain a specific penalty for failure to report or pay the PCORI fee, but since this fee is considered an excise tax, any related penalty for failure to file a return or pay a tax would seem to apply. Code §6651 includes the penalties for failure to file a return or pay taxes.
In some cases, penalties may be waived if the plan sponsor has reasonable cause and the failure to pay was not due to willful neglect.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.