The IRS on Nov. 26 finalized regulations (T.D. 9643) on the annual fee imposed on health insurance providers. That fee, which is set to begin in 2014, was imposed as part of the Patient Protection and Affordable Care Act of 2010, and affects “covered entities” that are in the business of providing health insurance for U.S. health risks.
This industrywide fee is set at $8 billion for 2014 and will
increase annually, to $14.3 billion in 2018, after which it will be
indexed for inflation. The first $25 million in net premiums
written by each covered entity is not taken into account for the
provider fee, thus exempting small insurers. One commenter
suggested exempting certain for-profit hospital health plans that
are owned by tax-exempt entities, but the Treasury Department did
not adopt the approach.
The final regulations clarify the definition of covered entity and
provide additional guidance on the fee calculation and error
correction process.
Along with the final regulations, the IRS issued a draft Form 8963,
“Report of Health Insurance Provider Information,” and
additional guidance in the form of Notice 2013-76, which provides
information regarding the time and manner for submitting Form 8963
and for notifying covered entities about their preliminary fee
calculation, among other things.
The IRS also issued Rev. Rul. 2013-27, which addresses whether amounts a covered entity collects from policyholders to offset the cost of the annual fee is income for that covered entity under Section 61(a). The IRS ruled the amount collected by the covered entity from policyholders is income under Section 61.
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