If you’re considering self-funding your company’s healthcare plan, you shouldn’t overlook PCORI.
The Patient-Centered Outcomes Research Institute (PCORI) fees are easy to miss, but can lead to fines or non-compliance.
This guide explains what PCORI fees are, how to calculate them, when they are due, and how to pay them to ensure timely filing and avoid penalties.
Whether you are evaluating or already managing a self-insured plan, understanding PCORI ensures you remain compliant.
What Are PCORI Fees?
The PCORI is an independent organization that conducts research on treatments and drugs to improve healthcare outcomes and decision-making. It’s established under the Affordable Care Act (ACA) to fund health research.
To fund this institution, the ACA introduced charges on specific healthcare plans, which are paid as PCORI fees.
Which Plans are Subject to PCORI Fees?
PCORI fees apply to fully insured and self-insured plans, but not all of them. Here is a list of plans that attract this fee:
- Applicable self-insured health plans, including COBRA coverage
- Retiree-only health
- Major medical coverage
- Health Reimbursement Arrangements
Examples of healthcare plans exempted from PCORI fees include:
- Stand-alone dental or vision coverage
- Medical insurance policies for workers residing and working outside the USA
- Medicare and Medicaid plans
- Children’s Health Insurance Programs (CHIP)
- Military health plans
- Stop-loss insurance
Key Differences Between PCORI Fees and Healthcare Insurance Premiums
The table below provides a side-by-side comparison of PCORI fees vs. other healthcare insurance premiums:
| PCORI Fees | Healthcare Insurance Premiums | |
|---|---|---|
| Purpose | Funds the Patient-Centered Research Institute to facilitate medical research on treatment effectiveness. | Paid to keep your healthcare plan active. Covers some of the insurance companies’ expenses, such as administrative costs. |
| Frequency of Payment | A fee reported annually on Form 720. | A constant payment is often paid monthly, annually, or quarterly, depending on the insurance company. |
| Who Pays | Insurance companies must pay this fee for fully-insured plans, while employers must pay for self-funded plans. | The policyholder (employer or other individuals) pays for these healthcare insurance premiums. |
| How the Fees are Paid | Paid using the IRS Form 720. | Paid directly to the insurance company because it’s a business, no government form needed. |
As an employer with self-funded and fully-insured plans, you should understand that paying your insurance premiums for the fully-insured plans doesn’t automatically mean that you shouldn’t pay the PCORI fees for your self-funded plans.
Consider partnering with an employee benefits consulting firm to ensure you meet your fiduciary responsibilities.
At Ethos Benefits, we are a fiduciary-driven employee benefits advisor. We have 10+ years of experience helping companies deliver employee-centered health benefits while remaining compliant with relevant federal and statutory requirements.
We also create a proactive renewal strategy to save money often wasted on last-minute compliance checks.
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Who Pays PCORI Fees?
PCORI fees apply to:
- Health Insurance Companies: Insurance providers offering fully insured plans must pay the PCORI fees for plans that are subject to them. Employers are not required to pay the fee directly, but insurance companies typically include this cost in their premiums.
- Employers: Employers with self-insured plans must directly pay these fees to ensure compliance.
How to Calculate PCORI Fees
PCORI fees are calculated based on the number of lives (employees and their dependents) included in the self-insured plan.
The PCORI amount varies and must be paid and reported annually on the IRS Form 720 by July 31st of the subsequent calendar year.
Here are the most recent PCORI fee amounts:
| Plan Ending (months): | File Return Date | Applicable PCORI Rate |
|---|---|---|
| January – September 2025 | July 31 2026 | $3.47 |
| October – December 2025 | July 31 2026 | $3.84 |
You should understand that the PCORI rate is indexed for inflation and may increase annually before it expires in 2029.
IRS Approved Calculation Methods for Self-Insured Plans
For employers with self-funded healthcare plans, you can apply different calculation strategies to ensure PCORI compliance.
Here are some of the calculation methods:
1. Actual Count Method
Add the number of lives covered per day throughout the year to determine the total covered life days.
For example, if on January 1st your plan covers 500 lives, add this number to the number of lives covered in the subsequent days until December 31st. Remember, the daily covered lives often fluctuate.
Divide the total covered life days in the year by 365 to determine the average, then multiply this figure by the PCORI rate.
Here is a calculation example:
- Total covered lives in the year: 200,000
- Number of days in the year: 365
- PCORI Rate: $3.47
200,000/365 x 3.47= $1,901.37 (PCORI fees)
2. Snapshot Count Method
Choose one date in each quarter and determine the number of lives covered on each date. Be consistent with the dates you pick. For example, if your preferred date is January 10th, stick to this date in the next quarter, that is, April 10th.
Add the number of lives covered in each quarter and divide by 4 to get the average. Multiply the average by the PCORI rate to get the PCORI fees.
Below is a calculation example:
- Total covered lives in the four quarters: 2260
- Number of quarters: 4
- PCORI Rate: $3.47
2260/4 x 3.47= $1,960.55 (PCORI fees)
3. Form 5500 Method
Add the total number of lives covered at the beginning of the plan year to the total number of participants at the end of the plan year.
Divide this summation by 2, then multiply it by the PCORI rate to get the applicable fees.
Check this calculation example:
- Total number of lives at the start of the plan year: 400
- Total number of lives at the end of the plan year: 440
- PCORI Rate: $3.47
(400+440)/2 x 3.47= $1,457.40 (PCORI fees)
Side-by-Side Comparison of the Calculation Methods
Let’s quickly compare the PCORI calculation methods below:
| Method | Accuracy | Common Use |
|---|---|---|
| Actual Count Method | High | High |
| Snapshot Count Method | Medium | For employers with reliable quarterly data and HR systems. |
| Form 5500 Method | Low | Employers looking for a simple calculation method with acceptable accuracy, subject to ERISA. |
Common PCORI Calculation Mistakes Employers Make
As an employer, you must be cautious when calculating the PCORI fees to avoid IRS penalties.
Here are common calculation mistakes people make:
1. Using Employee Count Only to Calculate
Employers often use the number of employees enrolled in the plan to calculate their PCORI fees.
However, for compliance, you must include the number of lives in the plan, including the employees’ spouses and other dependents. Such errors lead to underreporting, triggering IRS penalties.
2. Using the Wrong PCORI Rate
PCORI rates change annually. Most employers often use last year’s rate in their calculations, leading to incorrect figures.
These errors attract fines, especially if the IRS audits your business and realizes that you have been reporting the wrong PCORI fees for years.
3. Applying the Wrong Calculation Methods
Some employers apply the wrong calculation methods. Others misinterpret the calculation rules, leading to incorrect figures.
This leads to underreporting, making you non-compliant.
4. Forgetting Secondary Plans
Most employers focus on major healthcare plans and overlook secondary plans, like Health Reimbursement Arrangements (HRAs). This causes compliance gaps.
Despite having numerous covers, you must calculate PCORI fees for each plan to ensure full compliance.
When Are PCORI Fees Due?
Pay and report your PCORI fees annually by July 31st, which is typically after the last day of the applicable plan year.
For example, if your plan ended on December 31st, 2025, your PCORI fees are due on July 31st, 2026.
Why Employers Miss the PCORI Deadline
Despite the stringent PCORI regulations, some employers often submit their IRS Form 720 late.
Let’s explore why some employers miss the PCORI deadline:
- Lack of Awareness: Small business employers are not well-informed about PCORI. This causes them to miss the deadline since they do not even report these fees.
- Confusion Over Responsibility: Most employers assume that the insurer is responsible for the PCORI fees. However, this applies only to fully-insured plans. Employers must report and pay the PCORI fees for self-funded plans to avoid confusion and ensure they do not miss the deadline.
- Filing Process Confusion: Some employers aren’t conversant with the application process. Others do not know how to file the IRS Form 720. The confusion, especially on deadline day, causes employers to report their fees late.
- Relying on Third Parties: Some employers hire third parties to handle these compliance obligations. However, most do not follow up. This causes a delay in PCORI fees reporting, especially if the employer has numerous plans with different compliance requirements.
How to Pay PCORI Fees
If you’re new to PCORI regulations, you may feel overwhelmed when paying for the fees. However, the process of paying and reporting these fees is easy.
Follow these simple steps when filing your PCORI fees:
1. Have All the Needed Requirements
Here are the key requirements needed before paying your PCORI fees:
- Identify the specific plans that require PCORI compliance.
- Get the Form 720 file.
- Calculate the required PCORI fee amount.
- Avail the amount of payment needed.
2. Fill the IRS Form 720
Here is a step-by-step guide for filling out the IRS Form 720.
- Provide your Company Details: Provide accurate information about your business. This includes your company name, address, and employer identification number. However, do not check the “final return” option unless you’re planning to close your business.
- Fill in Part II, Section 133: Complete Section 133 by indicating the applicable PCORI rate based on when your plan ended.
- Fill in Part III, Lines 3 and 10: Provide the information required in lines 3 and 10, which is the total tax and the balance due.
- Provide Payment Information: Complete the payment voucher to illustrate your PCORI fees.
- Submit the Form: Send the completed Form 720 and payment voucher to the IRS by mail.
Mistakes to Avoid When Filing the IRS Form 720
Completing the IRS Form 720 is easy, but employers often make simple mistakes that leave them vulnerable to penalties.
Here are common mistakes you should avoid:
- Inaccurate Reporting: Reporting incorrect figures and simple misspellings are among the most common mistakes employers make. A slight discrepancy may prompt the IRS to send you a warning.
- Sending an Incomplete Form: Failing to complete IRS Form 720 is another common error. Double-check the document before mailing it to the IRS to avoid warnings.
- Applying the Wrong PCORI Fee Rate: Some employers aren’t up to date on the correct PCORI fee rates, so they often use the wrong rates to calculate their fees. This causes underreporting, which attracts penalties from the IRS.
- Omitting the Payment Voucher: Failing to include the payment voucher when mailing your form is another common error. While you are required to submit the completed Form 720, failing to send the voucher may result in processing delays.
Penalties for Non-Compliance and Late Payments
The IRS imposes fines and interest charges on employers who don’t comply with the PCORI fees or miss the deadline.
These penalties include:
- Failure to Pay Penalty: You will pay a 0.5% penalty of the unpaid fees for each month the PCORI fees remain unpaid. However, these penalties are capped at 25%.
- Failure to File Penalty: Failing to file the IRS Form 720 before the deadline attracts a 5% penalty per month on the fees owed. This fine is also capped at 25%.
- Interest Charges: The interest accrues if your PCORI fees remain unpaid. The IRS has a variable interest rate, set quarterly and generally equals the federal short-term rate plus 3%.
Frequently Asked Questions (FAQs)
Here are the frequently asked questions on PCORI fees:
Are PCORI Fees a Tax-Deductible Business Expense?
Yes. PCORI fees are tax-deductible business expenses because they are necessary for conducting business and are similar to other taxes incurred when enrolling in a healthcare plan.
How Much is the PCORI Fee?
PCORI fees vary depending on the set rates and the number of lives covered.
In recent years, the fee has been approximately $3.47 per covered life in the healthcare plan, though this amount changes each year since the IRS publishes new rates.
Do PCORI Fees Apply to Stop-Loss Coverage?
No. PCORI fees do not apply to stop-loss coverage. This coverage protects employers, not employees, from huge claims.
That’s why it’s not considered a health plan and is not subject to PCORI fees.
What Tools or Software Can Help With PCORI Fee Calculations?
You can use spreadsheets, like Google Sheets, online PCORI fee calculators, and tax filing software to calculate your PCORI fees.
Conclusion
You must pay the PCORI fees if you’re an employer with a self-funded plan, since they’re tax-deductible business expenses. However, these fees vary, depending on the number of lives covered and the IRS’s published rate.
Failure to comply with PCORI attracts penalties and interest charges that increase your business expenses. Furthermore, miscalculation of these fees may result in an IRS warning.
Given the complexity of PCORI fees, we recommend consulting an employee benefits advisor to help you meet your PCORI compliance requirements among your other regulatory requirements.
At Ethos Benefits, we ensure your benefits strategy is compliant and cost-effective. As part of our flat-fee consulting, we offer comprehensive administrative services, including PCORI compliance.
Schedule a call today to get comprehensive benefits administration support and meet your PCORI compliance.
