As employee benefit offerings continue to change, the individual coverage health reimbursement arrangement (ICHRA) stands out as a versatile choice for employers. However, with this flexibility comes the responsibility of handling compliance that differs from a fully-insured group plan.
Two critical components that employers must be aware of are Form 720 and the Patient-Centered Outcomes Research Institute (PCORI) fee. Form 720 serves as the reporting tool for a variety of federal excise taxes, including the PCORI fee. This fee funds research on the effectiveness of medical treatments.
In this article, we’ll explain how the PCORI fee works and how you can stay compliant with Internal Revenue Service (IRS) requirements.
In this blog post, you’ll learn:
Employers use Form 720, also known as the Quarterly Federal Excise Tax Return1, to report certain excise taxes to the IRS.
It includes a range of tax categories and fees, including:
The deadline for submitting Form 720 for PCORI purposes is July 31 of the year after the end of the policy or plan year. For example, suppose you have a calendar year individual coverage HRA (ICHRA) that ended on December 31, 2024. In that case, you’ll pay a PCORI fee for that 2024 plan year in July 2025. Payment is also due at this time.
| Plan year | PCORI fee |
| Plan years ending after October 1, 2024, and before October 1, 2025. | $3.47 |
| Plan years ending after October 1, 2023, and before October 1, 2024. | $3.22 |
According to the IRS, failing to report or pay the PCORI fee can result in penalties2 similar to those for not filing a tax return. Under Internal Revenue Code §6651, the penalty amounts to 5% of the excise tax owed for each month, or part of a month, the return is overdue, topping out at 25% of the outstanding tax.
ACA healthcare reform initiatives created the Patient-Centered Outcomes Research Institute3 (PCORI) to support clinical effectiveness research. It’s partially funded by PCORI fees paid by specific insurance carriers and plan sponsors of self-insured health plans.
PCORI’s goal is to help patients, healthcare providers, and policymakers make well-informed health choices using evidence-based medicine and clinical research findings.
Health insurance companies normally cover PCORI fees with a fully-insured group plan. However, employers offering self-insured health plans, including ICHRAs, must pay it themselves using Form 720.
PCORI fees also apply to employers who offer:
Some employee benefits, such as health savings accounts (HSAs), aren’t subject to the fees.
Health plans exempt from PCORI fees include:
The IRS provides detailed Form 720 instructions on how to calculate PCORI fees.
Here are the three ways to count the number of covered lives for plan years:
When filing Form 7204, follow these six steps.
Enter your company information at the top of Page 1.
On Page 2, Part II:
Enter the total tax on Page 3, Part III, lines 3 and 10.
Sign and date Form 720 at the bottom of Page 3.
Fill out Form 720-V for the 2nd Quarter tax period.
Send the completed form, payment voucher, and check to the IRS at:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0009
When you use Remodel Health’s ICHRA+ platform, we handle compliance so you can focus on what matters most at your organization. We provide pre-filled Form 720s with calculated PCORI amounts so that you can easily submit your payment to the IRS.
Along with providing necessary data for compliance filings, we handle:
Plus, your employees can shop for individual health plans directly through Remodel Health instead of trying to figure out the individual marketplace on their own.
Knowing your PCORI fee obligations is crucial to maintaining compliance and optimizing your benefits strategy. Ensuring that you accurately assess and report these fees can protect your organization from potential penalties while demonstrating a commitment to providing comprehensive health benefits to your workforce.
This article is for informational purposes only. Remodel Health doesn’t provide tax advice. Seek professional guidance from a tax adviser or legal counsel to ensure proper compliance.