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Regulation and Compliance > Federal Regulation > IRS

IRS to health insurers: Who's your mommy?

By Allison Bell

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The Internal Revenue Service (IRS) wants each family of health insurers to name a health insurance parent entity, in writing.

The family could simply keep the name of the parent on file, without sending the name to the IRS — but, if the IRS audited the family’s compliance with the Patient Protection and Affordable Care (PPACA) limit on the deductibility of executive pay, the audit team would use the parent entity information in the audit process.

The IRS talks about the parent entity naming process in a paperwork review filing.

PPACA created Internal Revenue Code (IRC) Section 162(m)(6) — a provision that puts a $500,000 limit on the deductibility of annual compensation for employees and directors at health insurers.

Health insurers have argued that the provision is irrational and discriminatory, and the IRS has tried to interpret it in a narrow way. An otherwise “covered health insurance provider” is exempt, for example, if it and its sister health insurance issuers get less than 2 percent of their combined revenue from the sale of health insurance. The IRS calls that exemption a “de minimis exception.”

The IRS says 451 entities will have to maintain a health insurance issuer parent entity designation to justify use of the de minimis exception.

“The IRS will use the information during an audit to determine whether the affiliated group correctly determined whether it qualifies for the de minimis exception,” officials say in a statement explaining the need for the proposed information collection.

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