Do you offer cov­er­age to your employ­ees through a self-insured group health plan? Do you spon­sor a Health Reim­burse­ment Arrange­ment (HRA)? If so, do you know whether your plan or HRA is sub­ject to the annu­al Patient-Cen­tered Research Out­comes Insti­tute (PCORI) fee?

This arti­cle answers fre­quent­ly-asked ques­tions about the PCORI fee, which plans are affect­ed, and what you need to do as the employ­er spon­sor. PCORI fees for 2017 health plans and HRAs are due July 31, 2018.

What is the PCORI fee?

The Afford­able Care Act (ACA) cre­at­ed the Patient-Cen­tered Out­comes Research Insti­tute to study clin­i­cal effec­tive­ness and health out­comes. To finance the non­prof­it institute’s work, a small annu­al fee is charged on health plans.

Most employ­ers do not have to take any action, because most employ­er-spon­sored health plans are pro­vid­ed through group insur­ance con­tracts. For insured plans, the car­ri­er is respon­si­ble for the PCORI fee and the employ­er has no duties.

If, how­ev­er, you are an employ­er that self-insures a health plan or an HRA, it is your respon­si­bil­i­ty to deter­mine whether PCORI applies and, if so, to cal­cu­late, report, and pay the fee.

The annu­al PCORI fee is equal to the aver­age num­ber of lives cov­ered dur­ing the health plan year, mul­ti­plied by the applic­a­ble dol­lar amount:

  • If the plan year end date was between Jan­u­ary 1 and Sep­tem­ber 30, 2017: $2.26.
  • If the plan year end date was between Octo­ber 1 and Decem­ber 31, 2017: $2.39.

Pay­ment is due by July 31 fol­low­ing the end of the cal­en­dar year in which the plan year end­ed. There­fore, for plan years end­ing in 2017, pay­ment is due no lat­er than July 31, 2018.

Does the PCORI fee apply to all health plans?

The fee applies to all health plans and HRAs, exclud­ing the following:

  • Plans that pri­mar­i­ly pro­vide “except­ed ben­e­fits” (e.g., stand-alone den­tal and vision plans, most health flex­i­ble spend­ing accounts with lit­tle or no employ­er con­tri­bu­tions, and cer­tain sup­ple­men­tal or gap-type plans).
  • Plans that do not pro­vide sig­nif­i­cant ben­e­fits for med­ical care or treat­ment (e.g., employ­ee assis­tance, dis­ease man­age­ment, and well­ness programs).
  • Stop-loss insur­ance policies.
  • Health sav­ings accounts (HSAs).

The IRS pro­vides a help­ful chart indi­cat­ing the types of health plans that are, or are not, sub­ject to the PCORI fee.

If I have multiple self-insured plans, does the fee apply to each one?

Yes. For instance, if you self-insure one med­ical plan for active employ­ees and anoth­er med­ical plan for retirees, you will need to cal­cu­late, report, and pay the fee for each plan. There is an excep­tion, though, for “mul­ti­ple self-insured arrange­ments” that are spon­sored by the same employ­er, cov­er the same par­tic­i­pants, and have the same plan year. For exam­ple, if you self-insure a med­ical plan with a self-insured pre­scrip­tion drug plan, you would pay the PCORI fee only once with respect to the com­bined plan.

Does the fee apply to HRAs?

Yes. The PCORI fee applies to HRAs, which are self-insured health plans, although the fee is waived in some cas­es. If you self-insure anoth­er plan, such as a major med­ical or high deductible plan, and the HRA is mere­ly a com­po­nent of that plan, you do not have to pay the PCORI fee sep­a­rate­ly for the HRA. In oth­er words, when the HRA is inte­grat­ed with anoth­er self-insured plan, you only pay the fee once for the com­bined plan.

On the oth­er hand, if the HRA stands alone, or if the HRA is inte­grat­ed with an insured plan, you are respon­si­ble for pay­ing the fee for the HRA.

What about QSEHRAs? Does the fee apply?

Yes. A Qual­i­fied Small Employ­er Health Reim­burse­ment Arrange­ment (QSEHRA) is new type of tax-advan­taged arrange­ment that allows small employ­ers to reim­burse cer­tain health costs for their work­ers. Although a QSEHRA is not the same as an HRA, and the rules apply­ing to each type are very dif­fer­ent, a QSEHRA is a self-insured health plan for pur­pos­es of the PCORI fee. In late 2017, the IRS released guid­ance con­firm­ing that small employ­ers that offer QSEHRAs must cal­cu­late, report and pay the PCORI fee.

Can I use ERISA plan assets or employee contributions to pay the fee?

No. The PCORI fee is an employ­er expense and not a plan expense, so you can­not use ERISA plan assets or employ­ee con­tri­bu­tions to pay the fee. An excep­tion is allowed for cer­tain mul­ti-employ­er plans (e.g., union trusts) sub­ject to col­lec­tive bar­gain­ing. Since the fee is paid by the employ­er as a busi­ness expense, it is tax deductible.

How do I calculate the fee?

Mul­ti­ply $2.26 or $2.39 (depend­ing on the date the plan year end­ed in 2017) times the aver­age num­ber of lives cov­ered dur­ing the plan year. “Cov­ered lives” are all par­tic­i­pants, includ­ing employ­ees, depen­dents, retirees, and COBRA enrollees. You may use any one of the fol­low­ing count­ing meth­ods to deter­mine the aver­age num­ber of lives:

  • Aver­age Count Method: Count the num­ber of lives cov­ered on each day of the plan year, then divide by the num­ber of days in the plan year.
  • Snap­shot Method: Count the num­ber of lives cov­ered on the same day each quar­ter, then divide by the num­ber of quar­ters (e.g., four). Or count the lives cov­ered on the first of each month, then divide by the num­ber of months (e.g., 12). This method also allows the option — called the “snap­shot fac­tor method” — of count­ing each pri­ma­ry enrollee (e.g., employ­ee) with sin­gle cov­er­age as “1” and count­ing each pri­ma­ry enrollee with fam­i­ly cov­er­age as “2.35.”
  • Form 5500 Method: Add togeth­er the “begin­ning of plan year” and “end of plan year” par­tic­i­pant counts report­ed on the Form 5500 for the plan year. There is no need to count depen­dents using this method since the IRS assumes the sum of the begin­ning and end­ing of year counts is close enough to the total num­ber of cov­ered lives. If the plan is employ­ee-only with­out depen­dent cov­er­age, divide the sum by 2. (If Form 5500 for the plan year end­ing in 2017 is not filed by July 31, 2018, you can­not use this count­ing method.)

For an HRA, count only the num­ber of pri­ma­ry par­tic­i­pants (employ­ees) and dis­re­gard any dependents.

How do I report and pay the fee?

Use Form 720, Quar­ter­ly Excise Tax Return, to report and pay the annu­al PCORI fee. Report all infor­ma­tion for self-insured plan(s) with plan year end­ing dates in 2017 on the same Form 720. Do not sub­mit more than one Form 720 for the same peri­od with the same Employ­er Iden­ti­fi­ca­tion Num­ber (EIN), unless you are fil­ing an amend­ed return.

The IRS pro­vides Instruc­tions for Form 720. Here is a quick sum­ma­ry of the items for PCORI:

  • Fill in the employ­er infor­ma­tion at the top of the form.
  • In Part II, com­plete line 133© and/or line 133(d), as applic­a­ble, depend­ing on the plan year end­ing date(s). If you are report­ing mul­ti­ple plans on the same line, com­bine the information.
  • In Part II, com­plete line 2 (total).
  • In Part III, com­plete lines 3 and 10.
  • Sign and date Form 720 where indicated.
  • If pay­ing by check or mon­ey order, also com­plete the pay­ment vouch­er (Form 720‑V) pro­vid­ed on the last page of Form 720. Be sure to fill in the cir­cle for “2nd Quar­ter.” Refer to the Instruc­tions for mail­ing information.

Cau­tion! Before tak­ing any action, con­firm with your tax depart­ment or con­troller whether your orga­ni­za­tion files Form 720 for any pur­pos­es oth­er than the PCORI fee. For instance, some employ­ers use Form 720 to make quar­ter­ly pay­ments for envi­ron­men­tal tax­es, fuel tax­es, or oth­er excise tax­es. In that case, do not pre­pare Form 720 (or the pay­ment vouch­er), but instead give the PCORI fee infor­ma­tion to your organization’s tax pre­par­er to include with its sec­ond quar­ter­ly filing.


If you self-insure one or more health plans or spon­sor an HRA, you may be respon­si­ble for cal­cu­lat­ing, report­ing, and pay­ing annu­al PCORI fees. The fee is based on the aver­age num­ber of lives cov­ered dur­ing the health plan year. The IRS offers a choice of three dif­fer­ent count­ing meth­ods to cal­cu­late the plan’s aver­age cov­ered lives. Once you have deter­mined the count, the process for report­ing and pay­ing the fee using Form 720 is fair­ly sim­ple. For plan years end­ing in 2017, the dead­line to file Form 720 and make your pay­ment is July 31, 2018.

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