Wednesday, December 4, 2013

Another Obamacare Tax Finalized: Final Regulations on Health Insurance Provider Fee

On November 29, the Treasury Department and the Internal Revenue Service (IRS) issued final regulations on the Health Insurance Provider Fee, also known as the Health Insurance Industry Fee or my favorite, the Health Insurer Tax (HIT).  Health insurers will begin paying this permanent annual fee in 2014.  

The amount of the fee begins at $8 billion in 2014 and is scheduled to increase each year. It will be allocated among insurers based on each insurer’s share of total U.S. health insurance premiums.

Industry sources indicate that the financial impact will be approximately 2.5 percent of premiums. The Insurer Fee is included in the premium of fully insured plans, when approved by the state. The industry fee is designed to collect, on an industry-wide basis, the amounts shown below for each of the following years:

  • 2014 – $8.0 billion 
  • 2015 – $11.3 billion 
  • 2016 – $11.3 billion 
  • 2017 – $13.9 billion 
  • 2018 – $14.3 billion

This tax is permanent.  For additional information, see study by Oliver Wyman (AHIP 2012, PDF format)

In addition to medical insurance, The cost of this fee will be built into premiums for insured dental and vision plans. It does not apply to self-funded plans.  

The final regulations did not include significant changes from the proposed regulations. They clarified that the following types of plans are excluded:

  • Voluntary Employees’ Beneficiary Associations (VEBAs) established by a union or collective bargaining agreement
  • Employee Assistance Plan (EAP), disease management programs and wellness programs that do not provide significant health insurance benefits
  • Non-profit corporations that receive more than 80 percent of their revenue from government sponsored poverty programs (Medicaid, CHIP) and that comply with certain restrictions on political activity
  • Medicare supplemental coverage that meets the requirements of section 1882(g)(l)
  • Coverage for specific diseases or hospital indemnity coverage
  • Accident only coverage

Each year’s fee will be based on the insurer’s previous calendar year premiums. The regulations confirmed the method for calculating the fee, and changed the date by which each insurer must report net premiums for the previous year from May 1 to April 15. Payment of the fee is due by September 30 each year.

Simultaneously, the IRS issued initial drafts of the IRS form insurers will need to file when reporting and paying the fee.

Review the final rule