ACA Reminders: Patient-Centered Outcome Research Institute (PCORI) Fee and MLR Rebates

By: HUB’s EB Compliance Team

Although many plan obligations are tied either to the calendar year or the plan year, there are two Affordable Care Act (ACA) items that arise “off cycle” during the summer months: the Patient-Centered Outcomes Research Institute (PCORI) Fee and Medical Loss Ratio (MLR) rebates.

PCORI Fee

• What is the PCORI fee? This annual fee is a federal assessment paid by insurers and sponsors of self-funded health plans to help fund the Patient-Centered Outcomes Research Institute. The Institute’s goal is to help patients, clinicians, purchasers and policymakers make better-informed healthcare choices by advancing clinical effectiveness research, which should ultimately improve healthcare costs.

• Who pays? For employers that offer fully insured plans, the insurer will pay. (Note: Although the carrier will transmit payment to the federal government, be aware that all carriers pass through the full cost of PCORI charges to the policyholder). For employers that have a self-funded plan, the employer pays. Plan sponsors of level-funded plans should determine if the employer is responsible for paying directly, or if the carrier/third-party administrator pays and ultimately passes through the cost.
• What plans are subject to the PCORI fee? Self-funded and level-funded medical plans, health reimbursement arrangements (HRA), individual coverage HRAs (ICHRA), qualified small employer HRAs (QSEHRA), spousal incentive HRAs (SIHRAs), health flexible spending accounts (FSA) that are not excepted benefits (most are).

• How much is it? It depends on when your plan year ends.

NOTE: PCORI fees are updated for each 12-month calendar cycle running from October 1 through the following September 30. The breakdown shown above pinpoints how much a payer owes on the 2026 payment due date, based on when the plan sponsor’s plan year ended in 2025. This approach has sometimes led to confusion as most plan sponsors tend to focus on when the plan year begins.

• How is it calculated? The fee is assessed based on the number of covered lives on a plan. There are special rules for calculating covered lives (and some simplifying assumptions employers can use). Once the number of covered lives is determined, that number is multiplied by the per dollar amount expressed above.
• How are short plan years accounted for? From time to time employers move their plan year start dates. For example, an employer with a plan year that starts September 1 of each year may move their plan year start to January 1. Moving the plan year requires a short plan year of less than 12 months. In this example, the employer would have a regular plan year that ends on August 31^st and a short plan year that ends on December 31. With two plan years ending during the applicable period covered by the 2026 filing, the employer would owe two PCORI fees, one for each plan year.

• How is it paid? It is paid using IRS Form 720 for the second calendar quarter. This is a catchall form which includes a number of different taxes. Based on their businesses, some employers will file Form 720 for every quarter, while many will only use it to pay the PCORI fee.

• When is it due? It is due annually, by July 31.

• Is this a permanent fee? As of now, the fee will remain effective for plan or policy years ending before October 1, 2029. The fee is scheduled to sunset after that.

• Where can I get more information? See the IRS PCORI webpage here. IRS FAQs on MLR rebates is available here.

MLR Rebate

• What is the MLR? If an insurer does not spend enough of the premiums it collects within its book of business on either claims or health improvement activities, it may be required to issue a rebate. If an insurance carrier does not spend at least 80% (85% in large group) on claims or health improvement, the insurance carrier is required to rebate part of the premium back to employers so that it meets the 80% (or 85%) medical loss ratio (hence, MLR) required threshold. Special rules (described below) direct how plan sponsors can use MLR proceeds.

• Who pays? Insurance carriers pay a “rebate” to the policyholder and must also notify plan participants of such payment. MLR obligations do not apply to self-funded group health plans.

• How much is it? It depends on the insurer’s book of business and the coverage the employer has. Some rebates are small, and others may be significant. The rebates are never based on an individual employer’s specific group health plan. Depending on the carrier’s overall book of business, a particular group health plan with a low loss ratio individually still might not receive any MLR rebate because of claims incurred by other employers within that same carrier’s book of business. However, based on 2023 data (the most recent year available), from the Centers for Medicare and Medicaid Services (CMS) carriers paid out over $1.6 billion in rebates. The great majority of this amount was attributable to the individual insurance market, with significantly smaller amounts attributable to the small and large segment group market.

• What do I do with it? It depends. If some of the premium is paid by employees and dependents (including former employees and dependents on COBRA), then such participants are most likely owed some portion of the rebate. The amount may depend, in part, on how the plan document defines required participant contributions. If the rebate is small, you may also be able to use it for health plan improvement activities. If you are unsure how to share the rebate, please reference HUB’s MLR Rebate Decision Tree that further describes the different options that may be available.

• When is it paid? Insurance carriers must issue rebates by August 1 of each year.

• How will I know if my carrier is paying an MLR rebate? Affected carriers will issue a written notice to plan sponsors informing them about a pending MLR rebate. Moreover, as mentioned above, the carrier must also notify plan participants of any MLR-rebate payment. In many cases, this means participants may be contacting their employer to ask about the size of a rebate and how it will be paid based on the carrier’s notification letter.

• Where can I get more information?

If you have any questions, please contact your HUB advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER:

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore, they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual’s specific circumstances. It is based on HUB International’s understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and HUB International does not have an obligation to update this information. You should consult an attorney, accountant or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.