The Patient-Centered Outcomes Research Institute (PCORI) fee is an annual fee imposed by the Affordable Care Act (ACA) on issuers of certain health insurance policies and sponsors of applicable self-insured health plans. The fee helps fund the Patient-Centered Outcomes Research Institute, which conducts research to improve the quality and effectiveness of healthcare.
This guide provides employers with essential information to understand and comply with PCORI fee requirements.
Who is Responsible for Paying the PCORI Fee?
Fully Insured Plans: The health insurance issuer (the insurance company) is responsible for paying the PCORI fee.
Self-Insured Plans (including HRAs): The employer (plan sponsor) is responsible for calculating and paying the PCORI fee. This includes level-funded plans and Health Reimbursement Arrangements (HRAs), even if paired with a fully insured medical plan (in which case, the HRA is typically treated separately for PCORI purposes unless the medical plan is also self-insured by the same sponsor).
PCORI Fee Amounts Due (July 31, 2026)
The PCORI fee amount is adjusted annually for inflation and is determined based on your 2025 plan year end date multiplied by the average number of covered lives under the plan.
PCORI Fee Per Covered Life (Plan Year Ending Between)
January 1, 2025 – September 30, 2025: $3.47
October 1, 2025 – December 31, 2025: $3.84
Note: The fee is due by July 31st of the calendar year following the last day of the applicable plan year. For example, for a calendar year plan ending on December 31, 2025, the PCORI fee is $3.84.
How to Determine the Average Covered Lives
The IRS provides three permissible methods for calculating the average number of covered lives under a self-insured plan. Employers must apply the chosen method consistently throughout the entire plan year.
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Actual Count Method
This method involves counting the precise number of covered lives for each day of the plan year and then dividing that total by the number of days in the plan year. This is generally the most precise but also the most administratively burdensome method.
Formula:
Average Covered Lives =
Sum of Covered Lives Each Day of Plan Year / Number of Days in Plan Year
Example: If your plan year runs from January 1 to December 31, you would count every individual (employees, spouses, dependents) covered under the plan on January 1, then on January 2, and so on, for all 365 days. Sum these daily counts and divide by 365.
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Snapshot Method (Most Commonly Used)
The Snapshot Method offers a less burdensome approach than the Actual Count Method. There are two variations:
Snapshot Count Method: This method requires you to count the actual number of covered lives on a specific, predetermined date (or dates) in each quarter of the plan year. The dates must be consistent (e.g., the first day, last day, or a specific day of the month) for each quarter, and within three days of the chosen date for the first quarter. The average is then calculated by summing these snapshot counts and dividing by the number of dates used (typically four, if using one date per quarter).
Formula:
Average Covered Lives =
Sum of Covered Lives on Designated Dates in Each Quarter / Number of Designated Dates
Example: For a calendar year plan, you might choose to count covered lives on January 15, April 15, July 15, and October 15. Sum these four counts and divide by four.
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Snapshot Factor Method: This variation simplifies the counting of dependents. For each snapshot date, you count:
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The number of participants with self-only coverage.
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The number of participants with coverage other than self-only (e.g., family coverage), multiplied by a factor of 2.35.
Add these two numbers for each snapshot date, then average them over the number of snapshot dates used.
Formula:
Average Covered Lives (per snapshot date) = Self-Only Covered Lives + Non-Self-Only Covered Lives x 2.35
Overall Average Covered Lives = Sum of Average Covered Lives per Snapshot Date / Number of Snapshot Dates
Example: On a snapshot date, if you have 100 employees with self-only coverage and 50 employees with family coverage, the calculation for that date would be 100 + (50 x 2.35) = 100 + 117.5 = 217.5. You would repeat this for each snapshot date and then average the results.
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Form 5500 Method
This method is available for plans that are required to file Form 5500 (generally for plans with 100 or more participants). The average number of covered lives is determined based on participant counts reported on your Form 5500.
For plans that offer more than employee-only coverage (e.g., family coverage): Add the total participant counts at the beginning and end of the plan year as reported on Form 5500 (specifically, the sum of line 5 and line 6(d) of Form 5500). Do not divide this sum by two. The IRS assumes this sum is a reasonable proxy for the total covered lives.
Formula:
Average Covered Lives = Participants at Beginning of Year (Form 5500, Line 5) + Participants at End of Year (Form 5500, Line 6d)
For plans that offer only employee-only coverage (e.g., some HRAs only covering employees): You average the total number of participants at the beginning and end of the plan year as reported on Form 5500.
Formula:
Average Covered Lives = Participants at Beginning of Year + Participants at End of Year
Important Considerations for the Form 5500 Method: This method is generally the simplest if you already file a Form 5500. Be cautious if your plan year for PCORI purposes does not align with your Form 5500 reporting period, or if your Form 5500 covers multiple plans and not just the applicable self-insured health plan.
For HRAs, if the HRA is integrated with a self-insured medical plan under the same sponsor, you do not need to count the HRA lives separately if they are already counted under the medical plan. If the HRA is integrated with a fully insured medical plan, the HRA typically requires a separate PCORI fee based on the average number of employees and former employees (not dependents) covered by the HRA.
Where to Report the Information on Form 720
The PCORI fee is reported and paid annually using IRS Form 720, Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, for PCORI purposes, it is generally filed annually for the second quarter (which ends June 30th) to cover plan years that ended in the preceding calendar year.
Specifically, you will report the PCORI fee in Part II of Form 720, under IRS No. 133, “Patient-Centered Outcomes Research (PCOR) Fee.”
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Line 133(a) or 133(b): These lines are generally used by insurance carriers for fully insured plans.
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Line 133(c) or 133(d): As a self-insured plan sponsor, you will typically use these lines.
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Line 133(c): For plan years ending on or after January 1 and before October 1 of the preceding calendar year.
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Line 133(d): For plan years ending on or after October 1 and before January 1 of the preceding calendar year.
You will need to enter:
1. The average number of covered lives (determined by one of the methods below).
2. The applicable PCORI fee rate for your plan year.
3. The calculated total PCORI fee.
If you are only filing Form 720 to report the PCORI fee and no other excise taxes, you only need to file the second-quarter Form 720.
Key Action Items for Employers
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Determine Plan Applicability: Confirm if your organization offers a self-insured health plan (including HRAs or retiree-only plans) that is subject to the PCORI fee.
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Select a Calculation Method: Choose one of the IRS-approved methods (Actual Count, Snapshot, or Form 5500) to calculate the average number of covered lives. Use the method consistently.
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Calculate the Fee Amount: Multiply the average number of covered lives by the applicable PCORI fee rate for your plan year.
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Prepare Form 720: Complete Form 720, specifically Part II, IRS No. 133, for the second quarter.
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File and Pay by Deadline: Submit Form 720 and payment to the IRS by July 31st of the year following the end of your applicable plan year. Electronic payment via EFTPS is generally recommended.
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Maintain Records: Keep thorough documentation supporting your calculation and payment for at least four years for audit and compliance purposes.
Always refer to the latest IRS guidance and consult with a tax professional if you have specific questions or complex plan structures.
