IRS Issues Guidance On ACA’s Health Insurance Provider Fee

The Internal Revenue Service has released guidance relating to the health insurance provider fee imposed by Sec. 9010 of the Patient Protection and Affordable Care Act (ACA). The guidance, issued in the form of final regulations, a revenue ruling, and a notice, addresses tax and reporting issues for covered entities subject to the fee. The regulations were effective on Nov. 29, 2013.

ACA Sec. 9010 sets an applicable fee amount for each year, beginning with 2014 that will be apportioned among covered entities with aggregate net premiums written over $25 million for health insurance for United States health risks. Generally, each covered entity is liable for a fee in each fee year that is based on its net premiums written during the data year in an amount determined by the IRS.

Generally, a covered entity is one engaged in the business of providing health insurance that covers a United States health risk. Self-insured employer plans are not considered covered entities.

Tax treatment. Rev. Rul. 2013-27 provides that a covered entity must include in gross income amounts it collects from policyholders to offset the cost of the annual health insurance fee. ACA Sec. 9010 imposes the annual fee on a covered entity, not on the covered entity’s health insurance policyholders. The fee is part of the covered entity’s cost of doing business. No exemption or exclusion from gross income applies to additional amounts that the covered entity charges its policyholders to cover the cost of this fee.

Reporting. Notice 2013-76 provides guidance on: (1) the time and manner for submitting Form 8963, Report of Health Insurance Provider Information; (2) the time and manner for notifying covered entities of their preliminary fee calculation; (3) the time and manner for submitting a corrected Form 8963 for the error correction process; and (4) the time for notifying covered entities of their final fee calculation.

A covered entity that fails to timely submit Form 8963 is subject to a penalty of $10,000 plus the lesser of: (1) an amount equal to $1,000 multiplied by the number of days during which such failure continues; or (2) the amount of the covered entity’s fee for which the report was required.

Final regulations. The final regulations adopt, with modifications, the proposed regulations issued on March 4, 2013. The regulations clarify that ACA Sec. 9010 will not apply to stop-loss coverage until such time and only to the extent that future guidance addresses the issue of whether, and if so under what circumstances, stop-loss coverage constitutes health insurance. In addition, the regulations retain the rule in the proposed regulations that provides that limited scope dental and vision benefits, including arrangements that may be sold on an exchange, are health insurance for purposes of ACA Sec. 9010.

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