Read the proposed regulations [PDF 238 KB]
The health insurance providers fee—effective for calendar years beginning after December 31, 2013—is imposed pursuant to Section 9010 of the Patient Protection and Affordable Care Act and affects those persons in the business of providing health insurance for U.S. health risks.
The fee is designed to collect a specific amount (e.g., $8 billion for calendar year 2014, $11.3 billion for calendar years 2015 and 2016, $13.9 billion for calendar year 2017 and $14.3 billion for calendar year 2018) annually in the aggregate from “covered entities” (i.e., certain health insurance issuers, HMOs, insurance companies taxed under subchapter L, Medicare Advantage, Medicare Part D and Medicaid coverage providers, and certain Multiple Employer Welfare Associations (MEWAs)). This annual amount will be apportioned among the covered entities according to their respective market shares—as measured by net premiums written.
In general, each “covered entity” with aggregate net premiums written over $25 million in the calendar year immediately preceding the fee year (referred to in the proposed regulations as the “data year”) is liable for the annual fee. The first $37.5 million of a covered entity’s net premiums written is disregarded, and certain other exclusions apply (e.g., 50% of premiums from certain “exempt activities” are excluded from the computation of net premium written).
The fee—which is considered an excise tax—is due by September 30th of each fee year, and is to be deposited electronically.
A controlled group rule applies in determining a “covered entity.” The preamble and the proposed regulations address the application of this rule, in particular, with regard to the status of tax-exempt entities within a health insurance group.
The proposed regulations require that one entity—the “designated entity”—be responsible for the filing and reporting of the group’s net premiums written. For groups of entities filing consolidated returns, this will be the common parent of the group. Despite that a single entity is responsible for the group’s filings and payment of the fee, all group members are jointly and severally liable for the final fee for a given fee year.
Under the proposed regulations, the IRS will determine aggregate net premiums written for all covered entities based on reports submitted on Form 8963, and any other source of information available to the IRS.
A covered entity’s (group’s) “net premium written” on U.S health risks generally equals premiums written, including reinsurance premium, less reinsurance ceded, less ceding commissions for reinsurance ceded, less medical loss ratio (MLR) rebates.
The proposed regulations specify that, because indemnity reinsurance is not health insurance, premiums attributable to indemnity reinsurance are expressly excluded from the calculation; premiums for assumption reinsurance, however, are included. Net premiums written for entities filing a Supplemental Health Care Exhibit (SHCE) with the National Association of Insurance Commissioners (NAIC) will be the amounts reported on the SHCE.
Late filing of Form 8963 and underreporting of net premiums written will attract penalties. No tax return will be required, and deficiency procedures will not apply.
The IRS will send each covered entity a notice of preliminary fee calculation each fee year, and will allow for an error correction process prior to determining a covered entity’s final fee for a given fee year. The fee will be treated as an excise tax, and will be nondeductible for federal income tax purposes. Guidance regarding the error correction process will be set forth in published IRS guidance.
Comments, public hearing
The proposed regulations are scheduled to be published in the Federal Register on Monday, March 4, 2013. Comments concerning the regulations are due by a date that is 90 days after March 4. The proposed regulations solicit comments regarding high risk pools, MLR rebates, and health plans covering expatriates.
A hearing is scheduled for June 21, 2013, and requests to speak and outlines of topics to be discussed at the hearing are due June 3, 2013.
For more information, contact a KPMG tax professional: