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Seed-stage founders, ops leaders, and finance leads can’t treat PCORI fees as “admin noise.” These small excise amounts fund patient-centered comparative research that improves U.S. healthcare policy, and missing them creates unnecessary penalties.
PCORI (the Patient-Centered Outcomes Research Institute) funds comparative clinical effectiveness research to help patients and providers make better-informed decisions.
The PCORI fee is an annual, per-covered-life charge assessed on specified health insurance policies and applicable self-insured plans; when a plan is fully insured, the insurer usually pays, but for self-insured, level-funded, HRAs (including QSEHRAs and ICHRAs), the plan sponsor must generally calculate and remit the fee.
Reporting and payment are done on IRS Form 720 (the Quarterly Federal Excise Tax Return) with PCORI entered under the PCORI line; filed annually with a due date of July 31 following the plan year.
This guide is your step-by-step roadmap to determine liability, count covered lives correctly, calculate the fee, and file Form 720 accurately so your team stays compliant.
What Are PCORI Fees?
The Patient-Centered Outcomes Research Institute (PCORI) fee originates from the Patient Protection and Affordable Care Act (ACA), specifically Sections 4375 and 4376 of the Internal Revenue Code.
Section 4375 imposes a fee on specified health insurance policies (i.e., fully insured policies) for each policy year ending after September 30, 2012. Section 4376 imposes a fee on applicable self-insured health plans, i.e., employer-sponsored plans that aren’t fully insured, for each plan year ending after the same date.
The PCORI fee was originally scheduled to expire for plan or policy years ending after September 30, 2019. However, Congress extended the obligation through plan/policy years ending before October 1, 2029, under the Further Consolidated Appropriations Act, 2020.
The PCORI fee exists to fund the Patient-Centered Outcomes Research Institute via the Patient-Centered Outcomes Research Trust Fund.
Its mission is to support research that helps patients, clinicians, purchasers, and policy makers make better-informed decisions about healthcare options, treatments, services, or strategies.
Who Must Pay PCORI Fees?
The table below shows the types of plans and arrangements, and how PCORI applies:
PCORI — Responsibility by Plan Type
Health Plan Structure & PCORI Responsibility
Health Plan Structure
Is PCORI Fee Owed?
Who Pays / Responsible Party
Fully insured plans
Yes, unless exempted (see exceptions)
The issuer or insurance carrier of the health policy must calculate and remit the fee.
Self-insured / applicable self-insured plans
Yes
The plan sponsor (typically the employer) is responsible. This includes many startups that are self-funded or use level-funded plans.
Level-funded plans
Yes, treated like self-insured for PCORI fee purposes
Employer/plan sponsor must pay; lives covered include employees + dependents, etc. (see “covered lives” below)
HRAs, QSEHRAs, ICHRAs
Special considerations apply (see details below)
Depending on structure, the employer may be responsible, especially when the arrangement has features of an “applicable self-insured health plan.”
Do Seed-Stage Employers Owe PCORI Fees?
When you’re running a startup and considering offering healthcare benefits, you must know when the PCORI fees apply. These fees aren’t just for big companies; many seed-stage employers with HRAs, QSEHRAs, ICHRAs, or self-insured / level-funded medical plans will owe them.
Here’s how to tell.
Common Startup Health Benefit Structures and Their PCORI Status
PCORI — HRAs & Level-Funded Plans
PCORI — HRAs & Level-Funded Plans
Benefit Type
What It Is / Why Startups Use It
Generally Subject to PCORI Fees?
QSEHRA (Qualified Small Employer HRA)
For small employers without a traditional group health plan. Reimburses employees for individual premiums and out-of-pocket.
Yes. Considered an applicable self-insured health plan and subject to PCORI fees.
ICHRA (Individual Coverage HRA)
Allows employees to buy their own insurance (individual market) with reimbursements. Gives flexibility.
Yes. An ICHRA is treated as a self-insured health plan for PCORI purposes. Employer must report and pay on average covered lives.
Level-Funded / Self-Insured Medical Plans
The employer bears much of the risk or contracts with a stop-loss; premiums not purely fixed. Often more control but more liability.
Yes. If self-insured (or level-funded with the employer bearing risk), the employer is the plan sponsor and must pay via Form 720.
Does Your Company Owe PCORI Fees?
Here’s how to know whether your startup must pay PCORI fees:
Do you offer any plan that is self-insured, or an HRA (QSEHRA or ICHRA) reimbursing major medical or premiums?
If yes, proceed to the next question
If no, and all plans are fully insured with no HRAs, likely you don’t pay. They carry the obligation through the insurer.
Is your HRA only excepted benefits (vision, dental, etc.)?
If yes, then no PCORI fee for that HRA.
If no, proceed.
Is the HRA integrated with another self-insured medical plan with the same plan year and the same employer?
If yes, you avoid paying double fees for the same covered lives (you count each covered life once).
If no, you must pay separately for each applicable plan.
Examples
Startup A (small team with QSEHRA only)
They have a QSEHRA, which reimburses employees for individual insurance premiums. Although they are lean, they must pay PCORI. They are “applicable self-insured health plan” sponsors. They count average covered lives and file Form 720.
Startup B (fully insured group plan)
They purchase group health coverage entirely through an insurer; no HRAs or self-insured components. The insurer is responsible for PCORI on the specified health insurance policy. The employer generally does not file PCORI fees.
Startup C (level-funded / self-insured medical plan)
They carry risk, and the plan is self-insured. Thus, the employer is the plan sponsor and must calculate average lives, file Form 720, and pay PCORI. If they also have an ICHRA, they include that as well.
How to Calculate PCORI Fees (Step-by-Step)
The IRS allows several approved methods for calculating PCORI fees, and choosing the right one can ensure compliance and also prevent you from making mistakes.
IRS-Approved Methods to Determine “Average Number of Lives Covered”
For self-insured health plans (applicable to many seed-stage companies using level-funded plans, HRAs treated as self-insured, etc.), the IRS permits three methods:
Actual count method
Snapshot method
Form 5500 method
Each method involves counting “covered lives” (employees and dependents, COBRA, retirees, etc., unless special exclusions apply) and then multiplying by the applicable fee per covered life.
Applying the Methods
To show how these methods work, here are two case studies:
Example 1: 12 Employees and Dependents under a QSEHRA
Let’s assume:
Plan year is calendar year (January 1 – December 31)
12 employees, each with 1 dependent (so total covered lives = employees + dependents)
Suppose every day, all 12 employees and their dependents are covered; that implies 24 covered lives each day. Then:
Sum of lives over 365 days = 24 × 365 = 8,760 lives-days
Average covered lives = 8,760 ÷ 365 = 24
Fee = 24 × $3.47 = $83.28
If coverage fluctuates during the year, you’d sum up each day’s count and divide by 365 (or the number of days in that plan year).
Example 2: 25 Employees in a Level-Funded Plan (with dependents)
Assume:
Level-funded self-insured medical plan with 25 employees, each averages 1.5 dependents (so some have many, some few)
Plan uses the Snapshot Method
Plan year ends September 30, 2024, fee per covered life = $3.22 (since ending before October 1, 2024)
To use the Snapshot Method;
Pick a date in the first calendar quarter (say January 7), then pick a date in each subsequent quarter within ±3 days of that same “day of month” rule (so around April 7, July 7, October 7)
Suppose on those four snapshot dates, covered lives are:
January: 25 employees + dependents = 60 lives
April: 25 + dependents = 62 lives
July: 25 + dependents = 58 lives
October: 25 + dependents = 61 lives
Sum = 60 + 62 + 58 + 61 = 241
Average covered lives = 241 ÷ 4 = 60.25
Fee = 60.25 × $3.22 = $194.01
If using the Form 5500 Method, you’d average the number of participants at the beginning and end of the plan year (as reported on Form 5500) and multiply by the rate.
Steps for Filing PCORI Fees on IRS Form 720
When your startup sponsors an applicable self-insured health plan (or HRA, ICHRA, etc.), you must report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return, even though PCORI is only filed annually.
Form 720 is the IRS vehicle for reporting various federal excise taxes. The PCORI fee is one such tax (identified as “IRS No. 133” in Part II). Even though the form is called “Quarterly,” if your only excise tax liability is PCORI, you only file once per year (in the second quarter return).
Here’s how to complete the PCORI section of Form 720:
PCORI — Form 720 Steps
PCORI — Steps to Report on Form 720
Confirming whether your health benefits (HRAs, QSEHRAs, ICHRAs, self-insured or level-funded plans) are subject to the PCORI fee.
Identifying your plan's year-end date, since this determines the applicable dollar rate per covered life and when you owe the fee.
Choosing a counting method (Actual Count, Snapshot, or Form 5500, etc.) and making sure you have the data required.
Marking deadlines for when you must file and pay via IRS Form 720 (always by July 31 following the end of the plan year).
Automate Reminders for the July 31 Deadline
Set up recurring reminders at key intervals:
6 to 8 weeks before July 31 to begin gathering covered lives data.
4 weeks before to ensure the counting method is correct and records are accurate.
1 week before to confirm Form 720 is filled properly, signed, and the payment method is ready.
Use calendar tools, project management software, or even simple shared spreadsheets with alerts. Build this into your HR or finance ops calendar.
Coordinate HR, Finance, and Your Benefits Broker
PCORI compliance touches multiple functions. It’s important to reduce gaps in responsibility. HR maintains benefit enrollment, covered lives data, plan year dates, and dependents information.
Finance/accounting handles payments, filling out Form 720, tracking IRS rates, and ensuring funds are available. A benefits broker or consultant often helps interpret ambiguous cases (e.g., HRAs paired with medical plans, combining insured and self-insured parts) and keeps up with regulatory changes.
Clear role assignments avoid duplication or omissions. For example, a broker might assume the insurer handles something that falls to the employer. CRC Benefits emphasizes confusion over such divisions as a frequent compliance error.
Use Payroll / Benefits Administration Tools for Accuracy
Manual counting of covered lives can introduce errors. Use software or tools that can:
Pull enrollment data automatically (employees + dependents) for your health plans.
Track plan year ends and transitions (e.g., hiring/leaving, new dependents).
Calculate average covered lives via your chosen method with audit trails.
Store versions of documentation in case IRS or auditors ask “how you came up with this number.”
Consider Outsourcing (CPA, Benefits Consultant, or Compliance Software)
If your startup is at the seed stage, resources are tight, but mistakes on PCORI can be more costly in the long run. Outsourcing options include:
CPA / tax advisor who understands excise taxes and filings like Form 720.
Benefits consultant or broker with experience in PCORI rules, especially for HRAs/QSEHRAs/ICHRAs and plan combinations.
Compliance software that automates reminders, counting, form generation, audits, and record-keeping.
Many employers find that paying a consultant or tool is cheaper than spending internal time, risking penalties, or fixing errors after an IRS notice.
Action Plan for Seed-Stage Employers
Here’s your step-by-step checklist so you can meet PCORI obligations:
Step 1: Confirm if PCORI Applies
PCORI fees are imposed on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans, including level-funded plans, HRAs, and ICHRAs.
Fully insured plans: the carrier typically handles PCORI. Self-insured or HRA/ICHRA plans: the employer is responsible.
Confirm whether your plan is “excepted benefits” (like stand-alone dental, vision, FSAs with limited scope). These are generally exempt.
Step 2: Count Covered Lives
Life counts include employees, dependents, COBRA participants, and retirees if covered.
Choose one of the approved methods (actual count, snapshot, or using Form 5500 if eligible). Use the same method throughout your plan year.
Step 3: Calculate Fee Using IRS Rate
Determine your plan/policy year-end date. This determines which per-life rate applies. For example, for plan years ending between January 1, 2024, and September 30, 2024, the rate is US $3.22 per covered life; if ending between October 1 and December 31, 2024, the rate is $3.47.
Multiply the average number of covered lives by the applicable rate.
Step 4: File Form 720 by July 31
Although Form 720 is a quarterly excise tax return, the PCORI fee is reported and paid once a year on the second-quarter version of Form 720 by July 31 of the calendar year following the end of your plan/policy year.
Use the correct lines: e.g., Line 133(c) or (d) for applicable self-insured health plans, depending on your plan year-end.
Step 5: Store Records for Compliance
Maintain documentation of how you calculated covered lives (which method, raw counts, snapshots, etc.).
Keep copies of Form 720 filed, proof of payment, plan year definitions, and any notices from the IRS.
Retain records for at least the period required for tax returns and audits (usually 3 to 6 years).
Simplify PCORI Compliance and Form 720 Filing as a Startup
The IRS requires plan sponsors of QSEHRAs, ICHRAs, and level-funded/self-insured medical plans to count covered lives, apply the correct IRS rate, and submit fees annually on Form 720 by July 31.
But early-stage teams often lack dedicated compliance staff, thus making it easy to miss details like including dependents in headcounts or choosing the right calculation method.
Startups can stay compliant by standardizing PCORI as part of their annual tax checklist, automating reminders ahead of the July 31 deadline, and maintaining clear documentation for audit readiness.
Partnering with experts also reduces risk; services like Chore specialize in payroll tax registrations, filings, and compliance, thereby helping you with IRS forms without burning runway or overloading lean finance teams.
Ready to eliminate the stress of PCORI compliance? Let Chore handle Form 720 and other tax obligations so your team can focus on scaling your startup.
FAQs
Are PCORI fees tax-deductible?
Yes, PCORI fees are tax-deductible for employers as ordinary business expenses. Startups sponsoring self-insured, level-funded, or HRA/QSEHRA/ICHRA plans can deduct them on their tax return, but employees cannot.
Does an HRA-only plan owe PCORI fees?
Yes, HRA-only plans (including QSEHRA and ICHRA) owe PCORI fees because they’re treated as self-insured. Employers must:
File annually on Form 720 (Part II, IRS No. 133) by July 31.
Count only employees (not dependents) as covered lives.
Multiply covered lives × the IRS PCORI fee rate for that plan year.
How long must records be kept?
Employers must keep PCORI fee records for at least 4 years after filing Form 720, including calculations, proof of payment, and plan documentation. It’s advisable to keep them for 6 years to cover audits and ERISA compliance.
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Chore Team
| Last updated on
Sep 17, 2025
The Chore team consists of individuals from diverse backgrounds with a passion for learning and a desire to share knowledge.
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