The Patient-Centered Outcomes Research Institute (PCORI) was created by the Affordable Care Act (ACA). It imposes an annual fee to issuers of self-insured health plans to fund research that evaluates and compares health outcomes, benefits/risks of medical treatments and services, and clinical effectiveness. Furthermore, it helps fund the Patient Protection and Affordable Care Act.
The PCORI fee is a tax that employers and plan sponsors owe if they offer a self-funded or level-funded health plan. These are health plans where the employer assumes the financial risk for providing health care benefits to its employees. It is assessed on all covered lives — including employees, retirees, spouses, and dependents. COBRA continuants are also included as “enrolled individuals” so be sure to factor them into your total counts if anyone is out on COBRA.
Our team at Generous Benefits recommends using the “snapshot factor method.” Choose the first date of each quarter starting with the first day of your plan year and do this 4 times, counting quarterly. For example, if your plan policy year begins on January 1st, choose: 1/1, 4/1, 7/1, and 10/1 and count the participants enrolled on your self-funded medical plan. Then, you will want to take a snapshot of the number of lives covered on each chosen date for each quarter. For employees with dependents, instead of counting the number of lives, you can calculate them using a blanket factor of 2.35 per IRS guidelines. Then you take the average number and multiply it by the PCORI fee according to the below:
July 31st in the year following the last day of your policy plan year.
PCORI fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return). Fill out Part II – this is specifically for PCORI fees. Enter the number of covered lives under your applicable self-insured health plan or specified health policy. After you calculate your fee and include it on the form, you can pay electronically on the IRS website at the same time you submit your Form 720.
It was recently extended another 10 years through 2029, so as long as you are offering a self-funded or level-funded health plan, you are responsible for this every July 31st. The final payment is due to the Internal Revenue Service (IRS) in July 2030.
Here is a video from Bret walking you through how to do these calculations using our online benefits platform, Employee Navigator: