A hospital company that assumes insurance risk could eventually face a $500,000 annual cap on the deduction for compensation for an executive or surgeon.
The same $500,000 compensation deductibility cap could eventually apply to executives and other employees at a carrier that issues health plan stop-loss insurance with a low attachment point.
Officials at the Internal Revenue Service (IRS) talk about those possibilities in the preamble to final regulations implementing Section 9014 of the Patient Protection and Affordable Care Act (PPACA). PPACA Section 9014 added Section 162(m)(6) to the Internal Revenue Code. IRC Section 162(m)(6) states that certain “health insurance providers” can deduct only $500,000 in annual remuneration for an “applicable individual.”
The IRS is preparing to publish the final IRC Section 162(m)(6) regulations in the Federal Register on Tuesday. The regulations are set to take effect on the official publication date and to apply in plan years starting on or after the publication date.
The IRS defines “health insurance provider” to include an insurer, or corporate group that includes two or more health insurers, that gets at least 25 percent of its gross premiums from selling “minimum essential coverage” — major medical coverage. The insurer or group also must get at least 2 percent of its gross revenue from MEC premiums.
The “applicable individuals” affected include the officers, directors and employees of the affected insurers. The deduction cap will also affect people who provide services for, or on behalf of, the affected insurers.