IRS Increases PCORI Fee for Insurers, Self-Insured Health Plan Sponsors

In late November 2020, the IRS issued Notice 2020-84, which announced an increase in fees that insurers and self-insured health plan sponsors pay to the trust fund for the Patient-Centered Outcomes Research Institute (PCORI). Here’s what employers need to know about this change.

What is the Patient-Centered Outcomes Research Institute (PCORI)?

The Patient-Centered Outcomes Research Institute (PCORI) is a non-profit institute that was founded in 2010 as part of the Affordable Care Act (2010).

PCORI funds research to help patients and healthcare workers to make more informed decisions about everyday healthcare choices. This includes determining the effectiveness of different medical treatments on different conditions.

IRS Increases Annual Fee, Extends Funding Through 2029

Each year, insurers and self-insured health plan sponsors pay an annual fee to the IRS to fund the PCORI trust fund. The IRS adjusted this fee to $2.66 per plan enrollee, which is an increase from $2.54 for the 2020 plan year. 

Applicable groups are required to pay the fee to the IRS using the second quarter Form 720. In 2021, this fee applies to policy and plan years that end on or after Oct. 1, 2020, and before Oct. 1, 2021. It is due to the IRS by July 31, 2021. 

PCORI fees are scheduled to run through 2029 and will likely be adjusted again to account for changes in per capita amounts of National Health Expenditures.

How is the PCORI Fee Calculated?

The fee is calculated by taking the average number of lives covered under a policy or plan and the applicable dollar amount for the policy year or plan year. 

According to the IRS, there are three different methods that can be used to calculate the fee for applicable self-insured health plans. These include: 

1. Actual Count Method: Take the total number of lives covered each day of the year and divide that sum by the total number of days in that plan year
2. Snapshot Method: Take the total number of lives covered on a single date in each quarter and divide that sum by the number of dates on which the count was made
3. Form 5500 Method: Determine the average number of lives covered under a plan for a plan year using the number of participants reported on Form 5500

For specified health insurance policies, the PCORI fee can be calculated using the same three methods or by using the state form method. For more information on how to calculate these fees, refer to final IRS regulations.

What Else Should Employers Know?

Employers need to stay on top of 2021 compliance as the end of the year approaches. Use this HR calendar to keep track of key dates in the new year.

Likewise, when prepping for 2021, HR professionals should prepare accordingly for ACA reporting. Use the following FAQ to help answer employee questions about Form 1095-C and find all relevant ACA forms here.