The Internal Revenue Service (IRS) is trying to keep health insurers from wiggling out of Patient Protection and Affordable Care Act (PPACA) pay restrictions.
Section 162(m)(6) prohibits “covered health insurance providers” from deducting more than $500,000 in compensation paid to “applicable individuals” each year. The IRS gave general advice about how to apply the law in IRS Notice 2011-02.
Applicable individuals include a health insurer’s employees, officers and directors.
When the IRS issued the notice, it asked for comments about how it could keep the compensation deductibility rule from applying to a company that happens to write a very small amount of health insurance. The IRS also is asking how it should apply the rule in other complicated or unusual situations.
Officials have suggested in the proposed regulations that the deduction limit should apply only if an employer gets 2 percent or more of its revenue in the form of health insurance premiums. The IRS would not count reinsurance premiums as health insurance premiums.