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IRS posts instructions for PPACA health insurer tax

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The Internal Revenue Service (IRS) is asking for comments on a draft of the instructions for paying a new Patient Protection and Affordable Care Act (PPACA) tax.

The draft instructions, for IRS Form 8963, are supposed to help U.S. health insurance providers pay the annual fee on health insurance providers required by Section 9010 of PPACA. PPACA Section 9010 requires health insurance providers, or “covered entities,” to pay a total of $8 billion for the 2014 “data year” and $11.3 billion for the 2015 data year.

PPACA drafters created the fee to help pay for the cost of implementing PPACA, and because of drafters’ desire to keep the new individual health insurance ownership mandate from creating a windfall for private health insurers.

America’s Health Insurance Plans (AHIP) has been lobbying to persuade Congress to eliminate the tax. AHIP argues that the fee will backfire, by increasing insurers’ costs, leading to higher rates, and discouraging consumers from buying health coverage.

A panel at the National Association of Insurance Commissioners developed the PPACA Section 9010 fee accounting guidelines

In the new instructions, the IRS says a company that must file a Form 8963 generally will be a “covered entity that provided health insurance for any United States health risk” in 2014. For purposes of this fee, the IRS defines “covered entity” to include a health maintenance organization (HMO); an insurer that provides health insurance through Medicare Advantage, Medicare Part prescription drug or Medicaid programs; and a non-fully insured multiple employer welfare arrangement (MEWA).

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The total of net premiums subject to the fee includes “reinsurance premiums written, reduced by reinsurance ceded, and reduced by ceding commissions and [medical loss ratio (MLR)] rebates.” The affected net premium total also includes premiums written for assumption reinsurance — but not premiums written for indemnity reinsurance.

In an assumption reinsurance arrangement, a company takes over the entire risk from the “direct insurance writer,” or original coverage issuer.

In an indemnity reinsurance arrangement, a company agrees to protect the direct writer against all or part of the risk of loss under policies under policies specified in the agreement, and the direct writer keeps its liability to, and contractual relationships with, the plan enrollees.

See also: PPACA: NAIC Posts Minimum MLR Draft

The Obama administration has delayed implementation dates for same PPACA provisions. If the IRS sticks to the schedule described in the draft Form 8963 instructions, the form filings will be due at the IRS by April 15, 2015.

The IRS estimates that keeping and collecting the business information needed to file the form will take about 5 hours and 30 minutes per filer; that learning about the form will take someone at the carrier 53 minutes; and that actually preparing the form will take the carrier 67 minutes.

The IRS will use the information from the form to calculate what it thinks the filer’s fee amount should be. The IRS does not say in the draft instructions when it will send the preliminary fee calculation to a carrier, but the carrier is supposed to file a corrected version of the form by July 15, 2015.

“The IRS will not accept corrected Forms 8963 filed after this date,” the agency says.

The IRS is supposed to send a carrier an acknowledgement that the agency has received a corrected Form 8963 within 10 days of submission. A carrier that does not get an acknowledgement within 10 days is supposed to call a specific telephone number or send an e-mail to a specific e-mail address to let the IRS know it still needs an acknowledgement.


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