Each year by July 31, employers sponsoring certain self-funded health plans must file and pay an annual fee to the IRS to fund the Patient Centered Outcomes Research Institute (PCORI). Employers must report the fee on the second quarter IRS Form 720.
The IRS usually releases the second quarter Form 720 after Memorial Day. Employers can gather their enrollment counts from their third-party administrator (TPA) for their self-funded health plan year that ends during calendar year 2025, and can take care of the filing and payment using the updated Form 720 anytime between when the new form is published and July 31.
Applies to:
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Employers sponsoring any self-funded medical plan, including a level-funded plan, a Health Reimbursement Arrangement (HRA) under certain circumstances, or an Individual Coverage HRA (ICHRA).
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Insurance carriers are responsible for PCORI fees for fully insured plans.
Exempt:
Excepted benefits such as stand-alone vision or dental, HSAs or health FSAs that qualify as excepted benefits.
Go Deeper:
The PCORI fee must be reported each year on the second quarter version of IRS Form 720 and paid electronically or mailed to the IRS using the Form 720-V payment voucher.
Employers that are subject to PCORI fees but no other types of excise taxes should file Form 720 only for the second quarter. In other words, no filings are needed for the other quarters, only the second quarter.
For plan years ending in 2025 before October 1, the PCORI fee due this July is $3.47 per covered life. For plan years ending between October 1, 2025 and December 31, 2025, the PCORI fee due this July is $3.84 per covered life.
How to Calculate the Number of Covered Lives
The PCORI fee is based on the number of employees, spouses and dependents that are covered by the plan (for an HRA, it is based only on the number of enrolled employees, not spouses and dependents). The employer can use the actual count method, snapshot method, snapshot factor method, or Form 5500 method to determine the average number of covered lives. Below is more information on each of the approved counting methods:
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Actual Count Method: This method calculates the average of covered lives by adding the number of lives covered each day of the plan year divided by the number of days in the plan year.
For example, a plan that starts on January 1 calculates the sum of covered lives (including spouses and dependents) as 676,772 divided by 365, which is 1,854.17. Thus, the PCORI fee for plan year ending in 2025 is 1,854.17 times $3.84, or $7,120.01.
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Snapshot Method: This method calculates the average by adding the total number of lives covered on a date during the first, second, or third month in each quarter, or an equal number of dates during each quarter, and dividing by the number of dates. The date chosen in each quarter must be within ±3 days of the date used in other quarters.
Example for a calendar year plan:
|
Date |
Count |
Total Fee |
|
1/4/25 |
2,000 |
|
|
4/5/25 |
2,100 |
|
|
7/5/25 |
2,050 |
|
|
10/4/25 |
2,050 |
|
|
Total |
8,200 ÷ 4 = 2,050.00 |
× $3.84 = $7,872.00 |
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Snapshot Factor Method: This method uses the number of participants with other than self-only coverage (e.g., family, EE + spouse, EE + child, etc.) on the designated quarterly dates discussed above under the snapshot method, multiplied by 2.35, and adds the number of employees on each date with self-only coverage to come up with the enrollment total for each date.
Example for a calendar year plan:
|
Date |
Count Non-Single |
+ Count Single |
Total Fee |
|
1/4/25 |
800 × 2.35 = 1,880.00 |
+ 600 = 2,480.00 |
|
|
4/5/25 |
800 × 2.35 = 1,880.00 |
+ 608 = 2,488.00 |
|
|
7/5/25 |
808 × 2.35 = 1,898.80 |
+ 610 = 2,508.80 |
|
|
10/4/25 |
808 × 2.35 = 1,898.80 |
+ 610 = 2,508.80 |
|
|
Total |
9,985.60 ÷ 4 = 2,496.40 |
× $3.84 = $9,586.18 |
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Form 5500 Method: This is based on the average number of covered lives reported on Form 5500 for the plan year. Employers can only use this method if the Form 5500 is filed no later than the due date for the PCORI fee imposed for that plan year. In other words, if the plan year ending in 2025 will not have the 5500 filed by July 31, 2026, this method cannot be used.
Under this method, the total number of lives is calculated by adding the total participant counts at the beginning and end of the year and dividing by 2 for a plan that only offers single coverage. If a plan offers single coverage along with other coverage (e.g., family coverage), the total number of lives is determined by adding the total participant counts at the beginning and end of the year (without dividing by 2).
Example for a calendar year plan:
|
Date |
Count |
If Dependents Ineligible |
Total Fee |
|
1/1/25 |
1,400 |
||
|
12/31/25 |
1,418 |
||
|
Total |
2,818.00 |
× $3.84 = $10,821.12 |
|
|
2,818 ÷ 2 = 1,409.00 |
(or $5,410.56 single-only) |
What if the employer did not pay or made a mistake in prior years?
The IRS has not provided express guidance on how to address late PCORI payments. Based on the forms and instructions, it appears that employers should use prior year forms (found here) that correspond to the due date of the fee. If the IRS notifies the employer plan sponsor of their intent to impose a penalty, the group should have the opportunity to appeal if the failure was due to reasonable cause.
A mistake to a previous submission can be corrected using Form 720-X.
Where to get assistance with calculating the number of covered lives?
Employers should rely on the TPA to assist with the calculation. Even if the employer uses a TPA or a vendor to assist with the calculation, the PCORI fee for a self-insured plan, ICHRA or HRA is the responsibility of the plan sponsor and must be paid by the employer to the IRS directly. Failure to file likely carries the same penalty for failure to pay other taxes due on Form 720.
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