Executive Summary

The IRS has released IRS Notice 2022-4 providing the adjusted $2.79 Patient-Centered Outcomes Research Institute (PCORI) fee per covered individual for health plan years ending on or after October 1, 2021 and before October 1, 2022, which includes 2021 calendar plan years.  The fee has increased $0.13 per covered individual from last year (from $2.66).

**The annual PCORI fee must be reported and paid to the IRS by August 1, 2022 (July 31st is a Sunday) via the second quarter Form 720.  **

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What is the PCORI Fee Used For?

The fee is imposed on health insurance issuers and self-insured health plan sponsors in order to fund the Patient-Centered Outcomes Research Institute (PCORI).  The institute operates under three overarching goals:

• Substantially increase the quantity, quality and timeliness of useful and trustworthy information available to support health decisions

• Speed the implementation and use of patient-centered outcomes research evidence

• Influence clinical and healthcare research funded by others to be more patient centered.

The institute currently maintains a robust portfolio of patient-centered outcomes research that addresses a variety of high priority conditions and topics, including projects targeting certain populations of interest such as: racial and ethnic minorities, low socioeconomic status, women, older adults and individuals with multiple chronic conditions.  The PCORI website lists current and completed research projects as well as outcomes. 

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Who Needs to Pay the PCORI Fee?

**Fully Insured Medical Plans: ** Health Insurers are responsible for paying the fee on fully insured health policies.  This fee is built into the insurance premium, so there is no action required by employers.

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Self-Insured Medical Plans: The plan sponsor (the employer) is responsible for paying the PCORI fee for self-insured health plans.   Self-insured plans include so-called “level funded” plans.

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Fully Insured Medical Plan with an HRA:  The insurance carrier will pay the PCORI fee for the insured medical plan, and the employer will pay the PCORI fee based on employees enrolled in the HRA.  This includes both HRAs designed to cover cost-sharing under the major medical plan and specialty HRAs such as those designed to cover fertility, abortion, gender dysphoria, mental health, and other specific medical expenses.  

Self-Insured Medical Plan with an HRA: As long as the self-insured medical plan and HRA have the same plan year, the employer will pay the PCORI fee only for the self-insured medical plan (not the HRA).

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Action Item:  The employer must file the Form 720 and pay the fee for a self-insured medical plan or HRA.  

To Which Plans Does the PCORI Fee Apply?

The PCORI fee generally applies only to major medical plans and health reimbursement arrangements (HRAs).  (See below for an exception that applies to many HRAs.)

The PCORI fee does not apply to dental and vision coverage that are excepted benefits (whether through a stand-alone insurance policy or meeting the “not integral” test for self-insured coverage).   Virtually all dental and vision plans are excepted benefits.  For full details, see our post: ACA and HIPAA Excepted Benefits.

The PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) or HSAs (which are not a group health plan).

For a quick reference guide, the IRS has published a table which summarizes the applicability of the fee to common types of health and welfare benefits.

Does the PCORI Fee Apply to HRAs?

Yes, an HRA is a self-insured health plan.  This includes both HRAs designed to cover cost-sharing under the major medical plan and specialty HRAs such as those designed to cover fertility, abortion, gender dysphoria, mental health, and other specific medical expenses.

• For more details, see our Newfront Office Hours Webinar: Fringe Benefits for Employers.

However, the PCORI rules provide an exception to the fee requirement for an HRA where it is offered along with a self-insured major medical plan that has the same plan year as the HRA.  This avoids the need to pay the PCORI fee for both the HRA and the self-insured major medical plan (i.e., each person covered by both plans is counted only once for purposes of determining the PCORI fee).

There is no exception from the PCORI fee for an HRA offered along with fully insured major medical coverage.  While the insurance carrier is responsible for paying the PCORI fee for the fully insured medical plan, the employer is responsible for paying the PCORI fee on the HRA.   The IRS is essentially double-dipping in this scenario by imposing the PCORI fee on the same lives covered by both the major medical and the HRA.  In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (and not dependents).

Action Item: The PCORI fee is required for an HRA unless it is paired with a self-insured major medical plan that has the same plan year as the HRA.  Where the PCORI fee is required, the employer is responsible for filing the Form 720 and paying the PCORI fee for an HRA solely for the covered employees (not dependents).

**How is the PCORI Fee Calculated? **

Plan Sponsors of self-insured health plans (other than an HRA) calculate the fee based on the average number of total lives covered by the plan (both employees and dependents). 

Plan Sponsors can use one of three alternative methods which are summarized by the IRS in its PCORI fee homepage and PCORI fee FAQs:

• Actual count method

• Snapshot method

• Form 5500 method

How Much Do I Need to Pay on the July 2022 Form 720?

• Plan Years Ending January 2021 – September 2021: $2.66 per covered life (including spouses/dependents)

• Plan Years Ending October 2021– December 2021:  $2.79 per covered life (including spouses/dependents)

For calendar plan years, the applicable rate for the 2021 plan year will be $2.79 per covered life.  

**The IRS has published a table of the applicable filing deadline and rate for each plan year ending date. **

Employers filing for a self-insured medical plan should keep in mind that the plan year is the ERISA plan year reflected in the plan document, SPD, and Form 5500 (if applicable).  The PCORI fee also applies to short plan years, defined as any plan year less than 12 months.  

The fee is due July 31st (August 1st in 2022 because July 31 is a Sunday) of the year following the last day of the plan year, including short plan years. 

Examples:

• Employer with a calendar plan year first changed to a self-insured medical plan (including level funded) effective January 1, 2021.  Employer must file the first Form 720 to pay the PCORI fee in July 2022 based on the $2.79 PCORI rate.

• Employer with a calendar plan year first changed to a self-insured medical plan (including level funded) effective January 1, 2022.  Employer will not file the first Form 720 to pay the PCORI fee until July 2023.

• Employer with a July 1 plan year first changed to a self-insured medical plan (including level funded) effective July 1, 2021.  Employer will not file the first Form 720 to pay the PCORI fee of $2.79 per covered life until July 2023. 

• Employer with a self-insured medical plan has short plan year from July 1, 2021 through December 31, 2021 to transition to a calendar plan year as of 2022. Employer must file the Form 720 in July 2022 to pay the PCORI fee for both the full plan year ending June 2021 ($2.66 per covered life) and the short plan year ending December 2021 ($2.79 per covered life).  The PCORI fee amount is prorated for the short plan year, as detailed in the IRS PCORI Fee FAQ. 

How do we file the PCORI fee?

The PCORI fee is filed on the second quarter IRS Form 720, which is due by August 1, 2022 (July 31st is a Sunday in 2022). 

Instructions for Completing form 720

Page 1:

• The employer will complete their name and address and employer identification number at the top of the form.

• Quarter ending will be June 30, and the year in which you are filing.   

• Final return will be checked if the employer is going out of business, or no longer has a self-insured medical plan or HRA. 

• Address change will be checked if the employer has changed their address since the last filing.

Page 2:

• Skip to Part II, line 133 – Applicable self-insured health plans and choose the plan year ending.  Line (c) is for plan years ending before October 1 (non-calendar year plans) and line (d) is for plan years ending on or after October 1 (generally calendar year plans)

• Enter the number of lives on either line (c) or (d) using one of the methods outlined above.  You may enter the number of lives on both lines if you are filing for a full 12-month plan year and a short plan year. 

• Multiply the number of lives in lines (c) or (d) by the rate in column b and enter the result in column (c) Fee

• Bring the total of lines (c) and (d) in the Fee column over to the tax column

• Bring the same total down to line 2 Total

Page 3:

• Line 3:  bring the same total from Line 2 forward to this line

• Line 10:  bring the amount from line 3 down to line 10

• Sign and date the form and return with payment. 

Consult the IRS Instructions for Form 720 for additional direction on completing the form (see pages 8-9).

Another August 1 Deadline: Form 5500 Filing

One other deadline looming is for calendar plan year health and welfare plans with 100 or more covered employees at the beginning of the plan year.   The Form 5500 filing is due to the DOL by the end of the 7th month after the end of the plan year, normally July 31st.  Since this date is a on Sunday in 2022, the due date falls on the next business day - August 1, 2022.

Plans are permitted to file a Form 5558 with the IRS for an automatic 2 ½-month extension of this deadline (to October 15, 2022 for calendar plan years).

• For more details, see our Newfront Office Hours Webinar: ERISA for Employers.