Specified Health Insurance Policies and PCORI Fee: Who Pays and When

A specified health insurance policy is the category defined in Internal Revenue Code Section 4375(c): any accident or health insurance policy, including a policy issued under a group health plan, covering individuals who reside in the United States. The classification matters because the issuer of any policy that fits owes the annual Patient-Centered Outcomes Research Institute (PCORI) fee, set at $3.84 per covered life for policy years ending between October 1, 2025, and September 30, 2026, and running through policy years ending before October 1, 2029.¹

The Statutory Definition

Section 4375(c) reaches broadly. The statute covers accident or health insurance policies issued with respect to individuals residing in the United States, and Treasury regulations extend the term to “prepaid health coverage arrangements,” which include hospital or medical service plan contracts, hospital or medical service certificates, and health maintenance organization contracts.²³ The IRS has said this reading aligns with the definition of “health insurance” added by the Health Insurance Portability and Accountability Act of 1996, which was drafted to bring HMOs and similar arrangements under the insurance umbrella.⁴

“Individuals residing in the United States” means people with a place of abode here, including in the U.S. territories: Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands.⁴ Someone on a temporary U.S. visa who maintains a place of abode in the country is treated as a U.S. resident for this purpose.⁵ Issuers may rely on the address on file for the primary insured. If that address is outside the United States, the issuer can treat the primary insured and any covered spouse or dependents as not residing here.

What Falls Outside the Definition

Several kinds of coverage that look like health insurance are carved out, and each carve-out means no PCORI fee for the issuer.

Excepted Benefits

A policy is not a specified health insurance policy if substantially all of its coverage consists of “excepted benefits” under IRC Section 9832(c).³ Section 9832(c) lists these benefits, and they include:

Stand-alone accident or disability income insurance
Workers’ compensation and similar insurance
Limited-scope dental or vision benefits, when offered separately
Long-term care, nursing home, and home health care benefits, when offered separately
Specified-disease or hospital indemnity coverage, when offered as independent, noncoordinated benefits
Medicare supplemental (Medigap) insurance, when offered as a separate policy
Credit-only insurance, liability insurance, and automobile medical payment insurance

The complete list is in 26 U.S.C. § 9832(c).⁶

Stop Loss and Indemnity Reinsurance

Stop loss policies and indemnity reinsurance agreements are excluded because they do not provide coverage on a per-life basis; they limit the financial exposure of the original obligor instead.⁴ Under the regulations, a stop loss policy is one where the insurer covers losses above a specified threshold while the self-insured plan sponsor keeps its direct relationship with covered individuals. An indemnity reinsurance policy is one where a reinsurer indemnifies the issuing insurer while that issuer keeps its contractual relationship with the covered lives.⁷ The IRS has said no inference should be drawn from this exclusion about whether such policies are health insurance for other legal purposes.

Expatriate Group Policies

Group policies designed and issued specifically to cover employees who are primarily working and residing outside the United States are excluded.³ The Expatriate Health Coverage Clarification Act of 2014 built out this framework. Under IRS Notice 2015-43, issuers and plan sponsors may exclude lives covered under qualifying expatriate plans issued or renewed on or after July 1, 2015, including coverage for employees working abroad, for non-U.S. citizens or residents assigned to the U.S. temporarily (six months or less in a policy year), and for similarly situated individuals as the Act defines them.⁸

Government Programs and Narrow-Benefit Programs

Medicare, Medicaid, the Children’s Health Insurance Program, and federal programs providing medical care to members of the Armed Forces, veterans, and members of Indian tribes are exempt from the fee.¹ Policies limited to employee assistance programs, disease management programs, or wellness programs are also excluded, so long as they do not provide significant medical care or treatment benefits.⁵

Who Owes the Fee and How Much

For a specified health insurance policy, the insurance issuer is liable for the fee under Section 4375.¹ An issuer may pass the cost through as higher premiums, but the legal obligation to remit to the IRS stays with the issuer.⁹ Self-insured plans are handled under a parallel provision, Section 4376, where the plan sponsor (typically the employer, union, joint board of trustees, or VEBA trustee) pays the fee directly. That’s a different track and doesn’t change who owes the fee on an insured policy.

The fee equals the average number of lives covered under the policy for the policy year multiplied by a rate that the Secretary of Health and Human Services adjusts each year for growth in projected per capita National Health Expenditures.¹ Recent rates:

$3.84 for policy years ending on or after October 1, 2025, and before October 1, 2026
$3.47 for policy years ending on or after October 1, 2024, and before October 1, 2025
$3.22 for policy years ending on or after October 1, 2023, and before October 1, 2024¹

Counting Covered Lives

The per-life structure makes the count the core compliance task. An issuer of a specified health insurance policy may choose one of four IRS-approved methods:

Actual count: count lives covered on each day of the policy year and divide by the number of days in the year.
Snapshot: count lives on a chosen date in each quarter and average the four figures. Each quarter’s date must fall within three days of the corresponding date used in the first quarter.⁵
Member months: divide the member months reported on the NAIC Supplemental Health Care Exhibit by 12.
State form: for issuers not required to file NAIC statements, use a comparable state-filed form reporting covered lives.⁷

All covered individuals count, including employees, spouses, dependents, retirees, and COBRA participants.¹

Filing and Paying

Issuers report and pay the fee on IRS Form 720, Quarterly Federal Excise Tax Return, under IRS No. 133 in Part II.¹⁰ The form is filed just once a year for PCORI purposes, for the second quarter, and it is due by July 31 of the calendar year following the last day of the policy year.¹¹ A policy year ending December 31, 2025, produces a filing and payment deadline of July 31, 2026.¹² No deposit is required, and payment can be made through EFTPS or IRS Direct Pay. An issuer that files Form 720 only to report the PCORI fee does not need to file it in other quarters unless it has other excise tax obligations.

When the Fee Ends

The fee was originally scheduled to expire for plan years ending on or after October 1, 2019. The Further Consolidated Appropriations Act of 2020 (Pub. L. 116-94) extended it by ten years, so it now applies to policy years ending before October 1, 2029.¹

1
IRS. Patient-Centered Outcomes Research Trust Fund Fee Questions and Answers
2
Cornell Law Institute. 26 USC § 4375(c)
3
eCFR. 26 CFR 46.4375-1
4
Federal Register. Fees on Health Insurance Policies and Self-Insured Plans for the Patient-Centered Outcomes Research Trust Fund
5
GovInfo. TD 9602
6
Office of the Law Revision Counsel. 26 USC § 9832
7
eCFR. 26 CFR 46.4375-1
8
IRS. Notice 2015-43
9
Federal Register. Final Regulations – Fees on Health Insurance Policies and Self-Insured Plans
10
IRS. Instructions for Form 720
11
IRS. Patient-Centered Outcomes Research Institute Fee
12
IRS. Patient-Centered Outcomes Research Institute Filing Due Dates and Applicable Rates