Public agencies that provide a health reimbursement arrangement (HRA) benefit are required to pay an annual excise tax known as the Patient-Centered Outcomes Research Institute (PCORI) fee. The Affordable Care Act established the PCORI fee to help fund the Patient-Centered Outcomes Research Trust Fund’s research into health outcomes, clinical effectiveness, and risk and benefits of medical treatments and services. The PCORI fee applies to specified health insurance policies and plan sponsors of applicable self-insured health plans. Since HRAs are self-insured health plans, the PCORI applies to them. This is regardless of whether the HRA is for current employee or retirees.
The annual PCORI fee may increase every year. For plan years ending between October 1, 2024 and September 30, 2025, the PCORI fee is $3.47 multiplied by the average number of lives covered by the HRA during the year. When counting the “average number of lives” the HRA covers, there is a special rule for HRAs that permits employers to only count the lives of employees, without requiring the inclusion of spouses or dependents who participate in the HRA. (26 C.F.R. section 46.4376-1(c)(vi).)
If your public agency is not currently reporting and paying the PCORI fee for an HRA, please take notice of the PCORI fee requirement. The PCORI fee is in effect every year through 2029 and is an annual fee that must be paid for HRAs. The PCORI fee is reported using IRS Form 720, which is due on July 31 of the year following the last day of the policy year or plan year. The PCORI fee payment is also due when the Form 720 is due. For HRA plans that have not reported and paid the fee, there is typically a 3-year statute of limitations for all open tax years.