IRS Provides Safe Harbor Under Health Insurance Providers Fee For Premiums Written For Expatriate Plans

In Notice 2014-24, the Internal Revenue Service has provided a temporary safe harbor for “covered entities” that report direct premiums written for expatriate plans on a Supplemental Health Care Exhibit (SHCE) in connection with the annual fee imposed on insurers of U.S. health risks. The fee is imposed by Sec. 9010 of the Patient Protection and Affordable Care Act (ACA), as amended, for calendar years beginning after 2013, and is based on net premiums written after December 31, 2012.

Under final regulations, each covered entity must annually report its net premiums written for health insurance of U.S. health risks on Form 8963, Report of Health Insurance Provider Information. For covered entities that file the SHCE with the National Association of Insurance Commissioners (NAIC), net premiums written for health insurance generally will equal the amount reported on the SHCE as direct premiums written minus medical loss ratio (MLR) rebates.

Expatriate policies are defined by the Department of Health and Human Services (HHS) as group health insurance policies that provide coverage to employees, substantially all of whom are: (1) working outside their country of citizenship; (2) working outside their country of citizenship and outside the employer’s country of domicile; or (3) non-U.S. citizens working in their home country.

Reg. Sec. 57.4(b)(2) provides that the entire amount reported as direct premiums written on the SHCE—including direct premiums written for expatriate plans—will be considered to be for U.S. health risks unless the covered entity can demonstrate otherwise. The regulations do not, however, provide specific rules for expatriate policies.

While Code Sec. 6055 and the regulations under it, relating to information reporting, ultimately could provide insurers with the information they need to determine more precisely the health risks covered by their expatriate plans, the reporting required under Code Sec. 6055 is delayed until 2016 for coverage in 2015.

In the interim, the new guidance provides a temporary safe harbor only for fee years 2014 and 2015. The safe harbor applies to a covered entity that reports direct premiums written for expatriate plans on its SHCE that include coverage of at least one non-U.S. health risk. Under the safe harbor, a covered entity can treat 50 percent of certain premiums written for expatriate plans as being attributable to non-U.S. health risks. A covered entity that satisfies the requirements in the guidance will be considered to have rebutted the presumption in Reg. Sec. 57.4(b)(2) that the entire amount of direct premiums is for U.S. health risks. In turn, the excluded amount allowed by the safe harbor is excluded in reporting direct premiums written on Form 8963.

For more information, visit http://www.irs.gov/pub/irs-drop/n-14-24.pdf.