Speakers Ask IRS To Expand And Clarify Exemptions To Health Insurance Provider Fee


Speakers at a June 21 Internal Revenue Service hearing on the health insurance provider fee asked the IRS and Treasury to expand and clarify proposed regulations by exempting multiemployer plans and governmental risk pools. The speakers expressed concerns that the fee would be imposed inappropriately on self-insured arrangements that are not providing health insurance.

The fee is imposed by Sec. 9010 of the Patient Protection and Affordable Care Act (ACA) and will take effect in 2014. It applies to “covered entities” that provide insurance for U.S. health risks and is based on the individual insurer’s net premiums on health insurance. The fee is supposed to raise $8 billion in 2014 and higher amounts in subsequent years.

Covered entities include health insurance issuers, health maintenance organizations, insurance companies under Subchapter L of the Tax Code, an insurer providing Medicare Advantage or Medicaid, and a non-fully insured multiple employer welfare arrangement (MEWA). Exemptions from the fee are provided for an employer with a self-insured plan, governmental entities, certain nonprofits, and VEBAs not established by employers.

Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP), requested an exemption for multiemployer plans. According to the NCCMP’s comments, multiemployer plans include businesses in every major segment of the multiemployer plan universe, such as airlines, construction, entertainment, manufacturing, service, and trucking industries. There are over 20 million participants in multiemployer plans.

These plans are self-insured, are funded under collective bargain agreements and are administered by a joint board of employer and employee representatives, DeFrehn said. They do not provide health insurance and are not the same as MEWAs. He noted that, under Code Sec. 9832, multiemployer plans do not provide health insurance coverage.

Multiemployer plans generally are VEBAs, according to DeFrehn. He noted that VEBAs are exempt if established by an entity other than an employer or employers. Because multiemployer plans also are established by unions as well as employers, this exemption should apply, he said.

DeFrehn asked that the final regulations clarify that multiemployer plans are not subject to the fee. The exemption also should apply to plans that use a tax-exempt organization that is not a VEBA, and should apply to employer group waiver plans that provide Medicare drug coverage on a self-insured basis.

Deputy Associate Chief Counsel (Employee Benefits) Stephen Tackney asked about entities claiming exemption (ECEs) that are not multiemployer plans. A non-fully insured ECE would be subject to the fee under the proposed regulations. If the final regulations exempted non-ECE multiemployer plans, that would solve the problem, DeFrehn noted.

Jenny Emery, executive director, and Geoffrey Beauchamp, counsel, spoke on behalf of the Association of Governmental Risk Pools (AGRiP). AGRiP represents public entity pools throughout the country that serve as mechanisms for local government entities to provide self-insured health insurance, Emery explained. The pools are established under state intergovernmental cooperation laws that allow cities, counties, schools and special districts to self-fund their health benefits on a pooled basis, she indicated. The pools provide health coverage at lower cost and meet the health care act’s goal of expanding health insurance coverage.

Beauchamp said a pool is comprised exclusively of local government entities within the same state. They are self-funded and self-insure only for employees of participating entities and their families. Through the pool, entities share risk, but do not shift risk, he said. The pool is self-funded through assessments; employers have joint and several liability for contributions to the pool; and employers pledge their taxing authority to fund claims. The pool is a trust but it is not an unrelated entity or third party, so the use of pools does not shift risk to an unrelated third party. Furthermore, a pool is not a MEWA.

Beauchamp made several proposals for amending the regulations to exclude pools from the fee. The government could “tweak” the MEWA category to exclude entities sponsoring pubic plans, since MEWAs are mainly private. The government also could apply the self-insured exemption to the governmental pools. He noted that, unlike private insurers, the pools will not participate in or benefit from the health insurance exchanges; thus the rationale for imposing the fee does not really apply to them. To impose the fee would be the federal government taxing other governments, and would impair the public benefit from using the pools, he said.

Lou Mazawey of the Groom Law Group, Chartered, testified on behalf of the National League of Cities (NLC). The NLC represents 34 risk-sharing pools, each in a different state. He said that the NLC “is on the same page as AGRiP.” NLC plans are functionally like multiemployer plans and involve risk-sharing pools. They do not provide insurance; they enable government entities to provide health benefits to employees and their families. Tackney expressed a concern that the entity would sell insurance; Mazawey responded that pools do not sell insurance to outsiders.

Mazawey noted that pools are generally treated as instrumentalities of government and perhaps could fall under the government exemption. Tackney said there is some controversy regarding the treatment of instrumentalities and that he would be “nervous” about using that approach. Mazawey also noted the self-insurance aspect of the pools.

Julian Roberts, executive director of the National Association of Specialty Health Organizations, spoke on behalf of networks and plans providing specialty care, such as dental, vision, hearing, and behavioral health. He asked that the regulation specifically exclude specialty care, as was done in Code Sec. 9832(c). Tackney noted that the legislative history indicates that limited vision and dental care should be subject to the fee. Roberts responded that these plans are excluded from the health exchanges and should not have to pay the fee.

Juan Hinojosa spoke on behalf of the Associated Employers Group Benefit Plan & Trust, out of Billings, Montana. He said they are licensed as a MEWA and are not a VEBA. Their plan is self-insured; MEWAs are not insurers themselves and do not charge premiums. Hinojosa testified that the proposed regulations would expand the fee beyond Congress’s intent. He noted that the plan does not have access to the health exchanges and does not fit into the rationale for the fee. He proposed that the regulations not distinguish MEWAs from VEBAs.

Patricia Byrnes represented AmeriHealth Caritas, a company that provides Medicaid services to the poor. The company’s customers primarily are state governments. She noted that the proposed regulations would exempt nonprofit organizations that receive more than 80 percent of their revenues from certain government programs, including Medicaid. She said this proposed exemption also should be available to for-profit entities working with governments. Otherwise it is discriminatory and will interfere with fair competition in the marketplace. In response to a question, she said that she was not asking the IRS to apply the fee to nonprofits. Tackney wondered whether the IRS has the authority to exempt for-profits.

Jeffrey Nyquist and Joseph Firestone testified on behalf of the Michigan Education Special Services Association (MESSA). They said that 70,000 participants obtain health insurance through MESSA, all in Michigan and all working for schools. MESSA is a VEBA, is marketed through a collective bargaining agreement, and could qualify for the VEBA exclusion, Nyquist said. Its plan is fully underwritten by different health insurance underwriters, such as Blue Cross Blue Shield Michigan. MESSA pays one premium to the underwriter and then repackages and assigns a premium to the schools. They proposed that the regulations be clarified to provide that the fee does not apply to the portion of the Blue Cross premium that represents the fee paid by MESSA.

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