IRS Raises PCORI Fees on Health Plans Due in 2023

The IRS is raising the fee that insurance issuers or sponsors of self-insured health plans pay annually to fund the federal Patient-Centered Outcomes Research Institute (PCORI) trust fund. The fee applies to health plans for the preceding calendar year, and for plan years ending in 2022, PCORI fees are due by July 31, 2023.

According to Notice 2022-59, which the IRS issued on November 14, the current annual fee adjustments are as follows:

  • For plan years that ended on or after October 1, 2022 and before October 1, 2023. (including calendar year plans), the fee is
    $3 per person covered by the plan, up from $2.79 a year earlier.
  • For plan years that ended on or after October 1, 2021 and before October 1, 2022. the fee is
    $2.79 per person, from $2.66 the previous year.

Fees are calculated for covered lives, including covered dependents, retirees and COBRA participants. The IRS has published a chart showing the application of PCORI fees to common types of health coverage.

Self-insured employers pay the annual PCORI fee directly to the IRS – third-party administrators cannot report and pay the fee. For fully insured employers, the fee is paid by the insurance provider, although the cost may be factored into premium increases.

Fees are reported and paid annually with the filing of IRS Form 720 (Quarterly Federal Excise Tax Return) for the second quarter and are due by July 31 of the year following the end of the plan year, unless that date falls on a weekend or federal holiday . In 2023, the IRS will issue an updated Form 720 for the second quarter with the PCORI fees adjusted for the upcoming July 31 payment date.

The fee applies until 2029

The Affordable Care Act created the fee to fund an institute in Washington, D.C., that conducts research on the comparative effectiveness of medical treatments. The fee was originally intended to apply only to plans with terms ending after September 30, 2012 and before October 1, 2019. However, as part of the Bipartisan Budget Act of 2019, the annual PCORI filing and fees were extended for an additional 10 years, until 2029.

“The PCORI fee is calculated using the average number of lives covered by the policy or plan and the applicable dollar amount for that policy or plan year,” explained William Sweetnam, legislative and technical director at the Employers’ Council on Flexible Compensation in Washington, DC “The applicable dollar amount was $2 when the fee was enacted as part of the Affordable Care Act, and that amount increases annually based on increases in the projected amount of national health care spending per capita.”

Calculation of PCORI fees

The IRS provides self-insured employers with options for determining the average number of plan enrollees, which the IRS calls covered lives – employees, spouses and dependents covered by the health plan. According to the IRS, plan sponsors can use any of the following methods to calculate the average number of covered lives under the plan:

  • The actual counting method. Plan sponsors add the total number of covered lives for each day of the year divided by the total number of days in the plan year.
  • The snapshot method. Sponsors add total covered lives on a single date in each quarter of the plan year.
  • The moment factor method. Similar to the snapshot method, the number of covered lives for any one day can be determined by counting the actual number of covered lives for that day or by treating those with self-only coverage as one life and those with coverage other than only itself as 2.35 lives.
  • The Form 5500 method. Plan sponsors use a formula that includes the number of participants reported on Form 5500 for the plan year.

PCORI fees can be paid through the Federal Electronic Tax Payment System.

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