The IRS has announced that the annual PCORI fee, which is imposed on health insurance issuers and self-insured health plan sponsors to fund the work of the Patient-Centered Outcomes Research Institute, will increase from $3.22 per plan enrollee to $3.47 per plan enrollee for plans that end between October 1, 2024 and September 30, 2025. While payment of the PCORI fee is not due until July 31, 2025, additional information on the fee is provided below for reference.

Background

• The PCORI fee was established as part of the Affordable Care Act (ACA) and supports the Washington, D.C.-based institute of the same name, funding research on the comparative effectiveness of medical treatments.
• The annual fee generally applies to major medical plans and health reimbursement arrangements (HRAs) that cover employees who work and reside in the United States.
• The PCORI fee is due to the IRS by July 31 each year for all plan years ending on any date in the previous calendar year. The amount of the PCORI fee depends on the date on which the plan year ended in the previous calendar year. For example, a plan year that ends June 30, 2024 would pay a fee of $3.22 per plan enrollee while a calendar year plan ending December 31, 2024 would pay a fee of $3.47 per plan enrollee.
• The PCORI fee was originally set to expire in 2020. However, new legislation passed on December 20, 2019 extended the fee for an additional ten years.
• The IRS, which treats the fee as an excise tax, has published a table that summarizes the application of the fee to various types of health coverage and an FAQ that contains additional information about the fee. The PCORI fee generally applies to
• major medical insurance coverage
   – accident and health coverage
   – retiree-only health or major medical coverage
   – COBRA coverage
   – HRAs, unless excepted (i.e., separately offered, limited-scope dental or vision only benefits)
   state and local government employee or retiree health or major medical plans.
  HRA and Health FSA Special Rules
• Health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) are subject to the PCORI fee unless at least one of the following exclusions applies:
  • The plan is designed to provide health benefits to employees who reside and work outside the U.S.
  • The plan qualifies as an excepted benefit.
• An FSA is considered an excepted benefit when the plan sponsor does not contribute more than $500 per year to employee accounts and offers another medical plan with non-excepted benefits.
• An HRA is considered an excepted benefit when it only reimburses for excepted benefits, such as limited dental/vision plans or long-term care plans, and is not integrated with a group health plan
  Fee Calculation and Payment
• Insurance carriers generally pay the PCORI fee on behalf of fully insured plans. However, the fee for self-insured plans must be paid by the employer that sponsors the plan.
• The PCORI fee is due each July 31 for all plans years ending in the previous calendar year.
• The fee calculation is based on the number of covered lives as determined by the calculation method used (see below). The fee assessed is based on the date the plan year ends, with the increase to the fee taking effect each October 1.
• For plan years ending between January 1, 2024 and September 30, 2024, the PCORI fee due July 31, 2025 is $3.22 per covered life. For plan years ending between October 1, 2024 and December 31, 2024 (including 2024 calendar year plans), the PCORI fee due July 31, 2024 is $3.47 per covered life.
• Plan sponsors may use one of three methods to determine the average number of lives covered by their plans:
  • Actual count method: the sum of lives covered for each day in the plan year divided by the number of days in the plan year. If data is provided on a monthly basis, employers may divide the sum of the average lives per month by the number of months in the plan year.
  • Snapshot method: the sum of the lives covered on one date in each quarter (or an equal number of dates in each quarter) divided by the number of days on which a count was made.
  • Form 5500 method: for sponsors of plans with self-only coverage, the mean of the number of covered employees at the beginning of the plan year, as reported on Form 5500, and the number of covered employees at the end of the plan year. For plans that offer more than self-only coverage, the sum of the number of employees covered at the beginning of the plan year and the number of employees covered at the end of the plan year, as reported on Form 5500.
• The PCORI fee should be filed and paid through the Electronic Federal Tax Payment System using IRS Form 720. Instructions for completing Form 720 can be found here.