Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness.

Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 720.

·         Organizations offering self-insured plans, HRAs, and other specified health benefits must pay a PCORI fee annually via Form 720.

·         There are three methods for calculating the number of lives for PCORI fees on Form 720, including the actual count method, snapshot method, and Form 5500 Method.

Who owes the PCORI fee?

Specified health insurance policies subject to PCORI fees are generally prepaid health coverage arrangements with fixed premiums for accident or health coverage.

If your company offers a self-insured health plan, such as an HRA, you must pay the PCORI fee.

How much is the PCORI fee?

The Secretary of Health and Human Services adjusts the amount annually for inflation.

What is IRS Form 720?

Organizations use Form 720, known as the Quarterly Federal Excise Tax Return⁸, to report any federal excise taxes collected.

This includes a variety of tax categories and fees, such as:

• Environmental taxes. This includes petroleum oil spill liability, products, and chemicals that cause ozone layer depletion. With these environmental taxes, you'll also have to complete IRS Form 6627⁹.
• Communications and air transportation taxes. This includes phone service and air travel.
• Fuel taxes. This category includes fuel types such as diesel, kerosene, gasoline, and natural gas.
• Retail taxes. This is for trucks, trailers, and tractors.
• Ship passenger taxes.
• Foreign insurance taxes. This is for insurance that's issued by foreign insurers.
• Manufacturers taxes. This includes a long list of products and services, such as coal, tires, indoor tanning services, and vaccines.
• Other excise taxes.
• PCORI fees. These are for specified health insurance policies and applicable self-insured health plans.

Does your business need to submit IRS Form 720?

If you owe a PCORI fee, you must pay it using IRS Form 720 by July 31, following the last day of the plan year. If that date falls on a weekend or federal holiday, the PCORI fee is due on August 1. For self-insured health plans, see Part II, IRS No. 133 (b) of the form. If your business doesn't owe a PCORI fee, you don't need to complete IRS Form 720.

If you currently file Form 720, you will pay the fee with your second quarter return. If you don't regularly file Form 720, you only need to file the form once, during the second quarter, with your return. You don't need to file Form 720 on a quarterly basis.

How to calculate the PCORI "number of lives"

According to Form 720 instructions, there are three ways to count the number of lives for plan years.

Here's what the instructions state for calculating the number of lives:

• The actual count method: Add the total of lives covered for each day of the plan year and divide that total by the total number of days in the plan year.
• The snapshot method: Take the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second, or third month of each quarter and divide that total by the number of dates on which you made a count.
• Form 5500 Method: Take the number of participants reported on Form 5500, Annual Return/Report of Employee Benefit Plan, or Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Does COBRA coverage to retirees or former employees count as "lives" covered?

Yes. You must count COBRA-covered individuals and dependents in the total number of lives for your benefit.

How to complete Form 720

New to filling out Form 720? We've compiled some examples. Below, the company plan covered an average of three participants and had a plan year that ended on December 31, 2021.

Step 1: Complete company information header

The first part of this tax form asks for the basics, such as your name, address, and employer identification number, or EIN.

In the header, the quarter ending date will be June 30, 2022, as you're filing the form for the second quarter. Don't check “Final return” unless your organization is going out of business or you aren't required to file Form 720 in future quarters.

Step 2: Complete Part II, line 133(c) or (d)

Complete line 133(c) if your organization's plan year ended before October 1 of the previous year. In this example, the plan year ended in December, so we'd move on to the next section. Complete line 133(d) if the plan year ended on or after October 1 (this is the case with most plans). In this example, the plan did.

Step 3: Complete Part III lines 3 and 10, sign and date

Step 4: Complete the payment voucher

Step 5: Send the completed form, payment voucher, and check to the IRS

You'll send Form 720 to the IRS in Ogden, Utah.

Send to:

Department of the Treasury

Internal Revenue Service

Ogden, UT 84201-0009

Conclusion

For applicable employers, the deadline for filing IRS Form 720 and paying PCORI fees is July 31. This article was originally published on August 4, 2020. It was last updated on May 23, 2024.