IRS Rules Further Define Payment of ACA Insurer Fees

New IRS regulations define the way health insurers will pay fees under Section 9010 of the Affordable Care Act. In the rules, the IRS applies Notice 2014-47 and provides further guidance on how covered entities will pay the fees for 2015 and subsequent fee years. It also tells how covered entities will report and pay on behalf of controlled group members.

Section 9010(a) is a tax on “covered entities” engaged in the business of providing health insurance. Filings are due April 15 each year, but the fees are to be paid by Sept. 30.

The rules exist to help insurers decide the extent to which they have to pay taxes on premiums collected, particularly by their subsidiaries, some of which may have qualified for exclusions. The public may comment on the proposed regulations. The comment period will last 90 days from the date of official publication.

Background

The fee will be based on the ratio of the covered entity’s net premiums written for health insurance for U.S. health risks that are taken into account for the calendar year immediately before the fee year (data year) to the aggregate net premiums written for health insurance of U.S. health risks of all covered entities that are taken into account during the data year.

Covered entities include: (1) health insurers; (2) HMOs; (3) Medicare Advantage, Part D and Medicaid insurers; and (4) non-fully insured multi-employer welfare arrangements.

Excluded entities are: (1) self-insured health plans; (2) governmental health coverage programs and plans; (3) certain nonprofit corporations; and (4) certain voluntary employees’ beneficiary associations.

Questions arose from insurers about claiming status as an excepted entity that doesn’t have to pay the fee or report premium information. In Notice 2014-47, the agency answered that question for 2014, and the rules apply that approach to 2015 and future years.

1. If an organization qualified for an exclusion either: through the entire previous year (the data year); and/or qualified for an exclusion through the entire current year (the fee year), it will be considered exempt and it need not report its net premiums written for the current fee year.
2. The rules also require that if a covered entity starts using the previous year to determine an exemption for a current fee year, then it must continue using that look-back method in all future years. The IRS calls this a “consistency requirement.” For example, if an entity selects the 2014 data year as its test year for the 2015 fee year, it must use 2015 as the year that that determines its status in 2016.
3. If an entity uses the current year as its test year, it will pay the fee by Sept 30, which raises the question of whether a claimed exception still might change. If an entity claims an exception on Sept. 30, but ends up not qualifying for an exclusion that year because its status changes after that date: (1) it will be required to use the previous year as its test year an all subsequent fee years; meaning (2) it will lose the ability to claim an exception the next year; (3) it will pay the fee for the current year; and (4) it could be subject to a “failure to report” penalty.

There were also questions about whether covered entities have to report information and pay the tax on net premiums on behalf of certain of their subsidiaries that qualify for an exception.

Controlled groups will report premiums from entities that: (1) are controlled group members on the last day of the previous year; and (2) would qualify as a covered entities if they were standalone entities. Controlled groups will not report premium data from group members that do not qualify as covered entities during the current fee year if they were standalone entities, the rules state. In every other aspect, the subsidiary remains a controlled group member (including having joint and several liability over paying the fee amount for the entire controlled group).