Updated PCORI Fees Announced

The Affordable Care Act (ACA) created a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI) to support clinical effectiveness research for healthcare. Information about the institute’s research and impact can be found here. The institute is funded in part by fees paid by health insurers and sponsors of self-funded health plans (PCORI fees), which are reported and paid annually in the second quarter using Form 720.

The latest updated fee amount for plan years ending in October 2025 – September 2026 is $3.84 per covered life as set forth in IRS Notice 2025-61 - Internal Revenue Bulletin: 2025-45 | Internal Revenue Service.

General summary information regarding reporting and paying PCORI fees can be found here.

Plans Subject to the Fee

The PCORI fee applies to most group health plans, but not to excepted benefits. Health reimbursement arrangements (HRAs) and retiree-only plans are subject to the PCORI fee, but most health flexible spending arrangements (FSAs) qualify as excepted benefits and are not subject to the fee. The IRS published a chart that describes the different types of plans subject to the fee here.

The Consolidated Appropriations Act, 2020 extended the PCORI fees another 10 years to 2029.

For fully-insured plans, the health insurance carriers report and pay the fee (the employer should not have to do anything). For self-funded group health plans, including HRAs and retiree-only plans, employers are responsible for reporting and paying the fee.

Note: Qualified small employer HRAs (QSEHRAs) and individual coverage HRAs (ICHRAs) are subject to the PCORI fee.

Reporting the Fee

The fee is paid using quarterly excise tax Form 720, Line 133 (133(c) and (d) for self-funded plans) and must be paid no later than July 31st of the year following the last day of the plan year; for example, the PCORI fee is due by July 31, 2026, for any plan years ending during 2025. The fee must always be reported in the 2nd quarter (for the quarter ending June 30), regardless of the employer’s plan year. For employers that do not otherwise file quarterly excise taxes, the Form 720 might only be filed for the second quarter each year to report the PCORI fee.

Payment amounts are increased annually and differ based on the ending date of the employer’s plan year. The fees for plan years ending in 2025 are below:
January - September 2025 $ 3.47
October - December 2025 $ 3.84

Calculating the Average Covered Lives

Self-funded plans may use one of three methods to determine the average covered lives used for reporting and paying the PCORI fee. Plan sponsors must stick with one method for the entire plan year, but can change methods from year to year. COBRA participants and retirees should be counted, regardless of which method below is chosen.

Actual Count Method:

Calculate the lives covered for each day of the plan year and divide by the number of days in the plan year.

Snapshot Method:

Add the lives covered on a consistent date each month or quarter and divide the total by the number of dates on which a count was made (e.g., divide by 12 if the count is done each month, or by 4 if the count is done each quarter). Under the snapshot method, there are two methods for counting family members:

  • Count the actual lives covered on the designated date; or
  • Count the participants with self-only coverage on the designated date, plus the participants with coverage other than self-only coverage on the designated date multiplied by 2.35.

Form 5500 Method:

Use the participant count reported on the Form 5500 for the plan year. The number of average covered lives is determined by adding the participant counts at the beginning and the end of the plan year. However, if a plan offers only single coverage, the final result is divided by 2. Note: This method may be used only if the Form 5500 is filed no later than the due date for the fee imposed for that plan year.

Short Plan Years: IRS guidance clarifies there is no pro-rating for short plan years. If the employer is using the actual count method, the total is divided by a lesser number of days due to the short plan year; if the snapshot method is used, the total is divided by the number of months or quarters of the short plan year. 

There are two special rules that apply for counting covered lives when an employer offers multiple self-funded plans or offers an HRA integrated with a fully-insured group medical plan.

1. Multiple Self-Funded Plans

If one plan sponsor maintains more than one self-funded health plan with the same plan year, the arrangements can be treated as a single plan for purposes of the fee (i.e., each unique covered life is only counted once). For example, if the employer offers a self-funded group medical plan and an integrated HRA, the employer could base the fee of the covered lives for the group medical plan and disregard the HRA (because the same individuals are covered under both plans).

2. HRAs (and health FSAs not meeting excepted benefit status)

An employer who sponsors an HRA integrated with a fully-insured medical plan is required to pay the fee only with respect to each HRA participant/employee; the employer is not required to count dependent or beneficiaries.

Failure to Pay the Fee

For a failure to file, it is generally advisable to file a Form 720 for the applicable year (or Form 720X for an amendment) as soon as possible for any missed fees and then to pay any associated fines or penalties the IRS may assess. A separate Form 720 should be filed for each missed plan year rather than paying fees for multiple plan years on the same Form 720.

Since this PCORI fee is considered an excise tax, Code §6651 sets forth the following penalties for failure to file a return or pay a tax.

  • For failure to file the Form 720, the penalty is 5% of the excise tax due for each month or part of a month the return is late, with a cap of 25% of the unpaid tax.
  • For failure to pay the PCORI fee, the penalty is .5% of any tax not paid by the due date for each month or part of a month the tax remains unpaid, up to 25% of the unpaid tax.

On top of the penalties, interest can be charged on unpaid excise taxes. On the other hand, in some cases, penalties may be waived if the plan sponsor has reasonable cause and the failure to pay was not due to willful neglect.

 

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This legal update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

Posted in Regulatory Updates, Uncategorized