The Basics of The 2021 PCORI Fee Update – Zupnick Associates

The IRS updated the PCORI fees for 2021.

The PCORI fee is now $2.66 per covered individual, which is an increase from $2.54 per covered individual. The due date for this fee is rapidly approaching. Find out everything you need to know about the PCORI fee update.

What you’ll find:

What is PCORI?

The Patient-Centered Outcomes Research Institute (PCORI) was established by the Affordable Care Act in 2010. PCORI is a nonprofit, nongovernmental organization that collects and conducts clinical effectiveness research for evidence-based medicine, cost-effectiveness, and program evaluation. They identify the most effective clinical and public health interventions to best improve the lives of healthcare consumers.

Patients, clinicians, purchasers, and policymakers use this information to make well-informed decisions regarding healthcare, plans, and policies.

What are PCORI fees?

PCORI is funded by two revenue streams:

  1. Appropriations from the US Treasury
  2. Private insurance carriers & sponsors of self-funded plans

In order to help fund PCORI, the IRS imposed the PCORI fee on health insurance issuers and sponsors of self-funded plans. The PCORI fees were updated for 2021 bringing the new fee to $2.66 for each individual covered under the policy.

The PCORI fee was first initiated for insurance plans ending after 2012. The first year was only $1 for each individual covered. It went up the following year to $2 for each individual covered and has consistently increased every year since.

When & why did the PCORI fee extension start?

Originally, the PCORI fee was applied to insurance policies & plans ending after September 30, 2012 and before October 1, 2019. Many companies & business owners thought the PCORI fee would be long gone by 2020. However, the Further Consolidated Appropriations Act was signed into law in December 2019 extending the PCORI fee for another 10 years.

Now the PCORI fee will be applied to insurance policies and plans ending after October 1, 2019 and before October 1, 2029.

Who has to pay the PCORI fee & when are they due?

There are specific circumstances when the employer pays the PCORI fee and when the insurance carrier pays.

  1. Self-Funded Plan

If the employer has a self-funded plan to cover the health of their employees they are required to file and pay the PCORI fee directly to the IRS. In a self-funded plan, the employer assumes all or majority of the costs associated with benefit claims. Even if the insurance company assists with the payments, the employer will pay the costs.

Self-funded plans can be excluded from PCORI fees if they provide insignificant benefits for medical care or treatment. Such benefits include but are not limited to short-term counseling, disease management, employee assistance programs, and some wellness programs.

Self-funded plans do include HRAs & FSAs. FSA & HRA accounts are considered to be Non-Excepted Benefits and PCORI fees will be applied to each individual covered under the policy.

FSA & HRA accounts that meet the requirements of an Excepted Benefit are not subject to PCORI fees. HRA accounts with a maximum benefit less than $500 satisfy the requirement to be an Excepted Benefit. If the maximum benefit exceeds $500 it is considered a Non-Excepted Benefit.

FSA accounts are considered Non-Excepted Benefits if they fall within one of these two guidelines:

  1. The maximum benefit is greater than two times the enrollee’s salary reduction election.
  2. The maximum benefit is greater than the enrollee’s salary reduction election plus $500 or more.

HRA & FSA accounts that only compensate for limited benefits meet the requirements for an Excepted Benefit. In this case, PCORI fees will be excluded because the FSA or HRA account is considered as an Excepted Benefit.

  1. Fully Insured Plan

If the employer is fully insured, the insurance carrier assumes the costs of benefit claims and handles the payments being made. The employer is not responsible for filing and paying the PCORI fee themselves.

The insurance carrier is responsible for filing the Form 720 on behalf of the employer and will pay the PCORI fee directly to the IRS. The PCORI fee is typically included in the total cost of the employer’s insurance premium.

The PCORI fee is required to be reported once a year in the second quarter of the fiscal year. The Form 720, Quarterly Federal Excise Tax Return is used for this purpose. It is available on the IRS website. This form is traditionally used quarterly, but the IRS has authorized this form for annual use for PCORI fees as well.

Once filed, the PCORI fee is due by July 31st.

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