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PPACA pay curb could snare providers, stop-loss issuers

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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.

“Remuneration” will include just about any form of compensation that increases an individual’s gross pay and to which the individual has a “legally binding right.” If an applicable individual has a binding right to the cash value in a split-dollar life arrangement, the value will affect the remuneration total during the year when the legally binding right to the value arises, officials say.

When the IRS released a draft version in April 2013, many commenters wrote to ask the IRS to exclude various types of products, companies and people from the scope of the regulations.

In the preamble to the final rule, officials say the new deductibility cap will have no effect on employers that sponsor self-insured plans. Issuers of stop-loss will be free from the cap for now, but officials say they may eventually define stop-loss plans with low attachment points as health insurance for compensation deductibility cap purposes.

Similarly, officials declined to make a clear statement about whether “clinical risk bearing entities,” such as hospital companies involved in accountable care organizations (ACOs), are health insurance issuers for comp deductibility cap purposes. Interpreting the definition of “health insurance issuer” now could affect how the IRS interprets other federal laws, officials say.

The IRS may provide further guidance on the meaning of the terms “health insurance issuer” and “health insurance coverage” later, officials say. They also may publish guidance on ways to keep executives or others from getting around the compensation deduction cap by setting up small companies and having the small companies sell services to the affected health insurers.

See also: Insurers wait for PPACA comp cap regulations.


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