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IRS finalizes but may revisit ACA taxes

Anthony Brino

Self-funded employers with stop-loss coverage can breathe a sigh of relief now that the Internal Revenue Service finalized rules for new health insurance fees, but nonprofit HMOs banking on an exemption will have to pay up.

The Treasury Department and the IRS issued the final rules for the Affordable Care Act’s section 9010’s health insurance fees, intended to raise about $60 billion over the next five years, although they indicated that some issues could be revisited depending on how employers and insurers fare with them.

The fee will apply to health plans with annual premium revenues of at least $25 million, with exemptions for self-insured companies, government entities, nonprofit plans with at least 80 percent of revenue from government programs and voluntary employees' beneficiary associations not established by employers.

Following a revenue-raising schedule outlined in the ACA, starting with $8 billion in 2014, covered plans will submit IRS 8963 forms by April 15. The IRS will then use those to calculate the applicable fees through a fairly complicated process: excluding the first $25 million net premiums, accounting for 50 percent of net premiums between $25 million and $50 million, and then accounting for 100 percent of net premiums over $50 million.

The IRS received more than 80 written comments on the proposed rules and also held a public hearing. Among the input, not-for-profit HMOs asked to be exempt from the fee, something the IRS was not on board with.

While certain types of VEBAs are exempted, “there is no similar exclusion for an entity that qualifies as a tax-exempt organization under either section 501(c)(3) or (4),” the IRS wrote in the Federal Register. “However, such a tax-exempt organization would be eligible for the partial exclusion” under ACA section 9010(b)(2)(B), which outlines criteria for a partial exclusion taking into account only 50 percent of premiums.

Some consumer advocates also urged the IRS to not exempt stop-loss coverage from the fee, out of concern that could drive more businesses to self-funding — a concern the IRS said it shares and something it may revisit.

The Labor Department, Health and Human Services and Treasury “are concerned that more employers in small group markets with healthier employees may pursue self-insured arrangements with stop-loss arrangements that have low attachment points as a functionally equivalent alternative to an insured group health plan,” officials wrote.

In 2012, those agencies issued an RFI to try to learn more about the issue, and while they do, the fee “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.”

Other commenters also suggested that for-profit plans earning at least 80 percent of revenue through government programs be excluded, arguing that those fees will effectively be paid for through Medicaid and Medicare funds.

The IRS rejected those proposals, responding that the ACA “sets forth specific requirements for an entity to qualify for the exception, including that the entity be a nonprofit corporation and that the entity receive the required portion of its gross income from the enumerated federal government programs.”

In separate Federal Register filings, the IRS also finalized rules for the ACA’s additional Medicare tax and the net investment income tax.

The Medicare tax of 0.9 percent tax will be levied on Americans earning incomes of $200,000 or more for single taxpayers and $250,000 for married couples filing jointly, and the net investment income tax, of 3.8 percent, will be levied on individuals, estates and trusts based on earned interest, dividends, royalties and rent.

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