Health Insurance Providers Fee
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Final regulations.
CFR Part: "26 CFR Parts 57 and 602"
RIN Number: "RIN 1545-BL20"
Citation: "78 FR 71476"
Document Number: "TD 9643"
"Rules and Regulations"
SUMMARY: This document contains final regulations relating to the annual fee imposed on covered entities engaged in the business of providing health insurance for
   DATES: Effective date: These regulations are effective on
   Applicability date: For dates of applicability see SUBSEC 57.10 and 57.6302-1.
   FOR FURTHER INFORMATION CONTACT:
   SUPPLEMENTARY INFORMATION: The collection of information contained in these final regulations has been reviewed and approved by the
Background
   This document adds the Health Insurance Providers Fee Regulations to the Code of Federal Regulations (26 CFR Part 57) under section 9010 of the Patient Protection and Affordable Care Act (PPACA), Public Law 111-148 (124
   A notice of proposed rulemaking (REG-118315-12, 78 FR 14034) was published in the
   Unless otherwise indicated, all other references to subtitles, chapters, subchapters, and sections in this preamble are references to subtitles, chapters, subchapters, and sections in the Code and related regulations. All references to "fee" in the final regulations are references to the fee imposed by section 9010.
Explanation of Provisions and Summary of Comments
Covered Entities and Exclusions
In General
   Section 9010(a) imposes an annual fee, beginning in 2014, on each covered entity engaged in the business of providing health insurance. Section 9010(c) provides that a covered entity is any entity that provides health insurance for any
   With respect to the first category of covered entity, the proposed regulations provided that a health insurance issuer within the meaning of section 9832(b)(2) means an insurance company, insurance service, or insurance organization that is required to be licensed to engage in the business of insurance in a State and that is subject to State law that regulates insurance. A commenter suggested that the final regulations eliminate any State licensing requirement for a covered entity because an entity may provide health insurance for a
   Notwithstanding this licensing limitation for the first category of covered entity, the term covered entity is not limited to an entity that is a health insurance issuer within the meaning of section 9832(b)(2). An insurance company subject to tax under subchapter L, an entity providing health insurance under
Multiple Employer Welfare Arrangements (MEWAs)
   The proposed regulations provided that the term covered entity includes a
   Commenters suggested that a
   Moreover, section 514(b)(6) of ERISA provides that a
   
   For these reasons, the
   The proposed regulations excluded a
   The final regulations adopt these suggestions and follow the DOL rules excepting these entities from the DOL reporting requirements under 29 CFR 2520.101-2 governing MEWAs. The reasons supporting the DOL's filing exemption also justify exempting these arrangements from section 9010 as more akin to health coverage provided by a self-insured employer. Similar to the filing exemption for certain temporary MEWAs, these two filing exemptions are intended to address situations in which the status as a
   The proposed regulations provided that, solely for purposes of section 9010, an Entity Claiming Exception (ECE) /1/ is subject to the same regime addressing MEWAs. Commenters requested that an ECE not categorically be treated as a
   FOOTNOTE 1 An ECE is defined in 29 CFR 2520.101-2(b) as an entity that claims it is not a
Voluntary Employees' Beneficiary Associations (VEBAs)
   In accordance with section 9010(c)(2)(D), the proposed regulations explicitly excluded any VEBA that is established by an entity other than an employer or employers for the purpose of providing health care benefits. Further, the preamble to the proposed regulations stated that, if an employer provides self-insured employee health benefits through a VEBA, the VEBA is not a covered entity because the exclusion for employers with self-insured arrangements under section 9010(c)(2)(A) applies. The preamble also stated that, if a VEBA purchases health insurance to cover the beneficiaries of the VEBA, the VEBA is not a covered entity because the issuer providing the health insurance that the VEBA purchases is the covered entity subject to the fee rather than the VEBA. The preamble stated that the
   A commenter requested that the final regulations clarify that a VEBA established by a union qualifies for the section 9010(c)(2)(D) exclusion. Commenters also asked for clarification that the section 9010(c)(2)(D) exclusion applies to any VEBA established by a joint board of trustees in the case of a multiemployer plan within the meaning of section 3(37) of ERISA. The final regulations adopt these suggestions with respect to plans established by unions and joint boards of trustees because the union or joint board of trustees is an entity other than the employer or employers. Thus, in the case of a multiemployer plan that maintains a VEBA, neither the plan nor the VEBA is a covered entity.
   Commenters also requested that the final regulations clarify the application of the section 9010(c)(2)(D) exclusion to a VEBA that is part of a single-employer plan established pursuant to a collective bargaining agreement and having a joint board of trustees. As in the case of a multiemployer plan, a VEBA that is, for example, part of a single-employer plan established by a joint board of trustees pursuant to section 302(c)(5) of the Labor Management Relations Act of 1947, is considered to be established by an entity other than the employer or employers and so is eligible for the section 9010(c)(2)(D) exclusion.
   The preamble to the proposed regulations stated that, if a
Section 9010(c)(2)(C) Exclusion
   In accordance with section 9010(c)(2)(C)(i)-(iii), the proposed regulations excluded any entity (i) that is incorporated as a nonprofit corporation under State law; (ii) no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to, influence legislation (except as provided in section 501(h)), and that does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office; and (iii) that receives more than 80 percent of its gross revenues from government programs that target low-income, elderly, or disabled populations under titles XVIII, XIX, and XXI of the Social Security Act (which include
   Commenters suggested that the final regulations exclude a for-profit entity that meets the section 9010(c)(2)(C)(ii) and (iii) requirements. According to the commenters, imposing the fee on these for-profit entities will effectively reduce benefits provided under
   Commenters suggested that the final regulations interpret the requirement set forth in section 9010(c)(2)(C)(iii), that the entity receive more than 80 percent of its gross revenues from enumerated Federal government programs to qualify for that exception, to apply only to revenues that relate to net premiums written. Because gross revenues include all revenues of the covered entity without taking into account their source, the final regulations do not adopt this suggestion.
   As explained in the preamble to the proposed regulations, an entity is not required to be exempt from tax under section 501(a) to qualify for the section 9010(c)(2)(C) exclusion. However, because the provisions of section 9010(c)(2)(C)(ii) relating to private inurement, lobbying, and political campaign activity are the same as those provisions applicable to organizations described in section 501(c)(3), for purposes of applying these requirements, the proposed regulations adopted the standards set forth under section 501(c)(3) and the related regulations. Commenters generally agreed with this approach, which is adopted in the final regulations.
   One commenter suggested that the final regulations incorporate a "safe harbor" under which a transaction will not violate the private inurement prohibition under section 9010(c)(2)(C)(ii) if either the transaction complies with applicable State insurance laws governing the reasonableness of transactions between a health insurance provider and its affiliates or the transaction is approved in accordance with certain procedures set forth in the regulations under section 4958 (relating to taxes on excess benefit transactions). The final regulations do not adopt this suggestion. The private inurement prohibition under section 501(c)(3) contains no exception for transactions that comply with State insurance laws or other applicable State or Federal laws. Similarly, while most situations that constitute inurement will also violate the general rules of section 4958, the two standards are not the same. See
Agencies and Instrumentalities as Governmental Entities
   Section 9010(c)(2)(B) excludes any governmental entity from the definition of covered entity. In defining the term governmental entity, the proposed regulations did not include instrumentalities. The preamble to the proposed regulations requested comments on the types of instrumentalities, if any, that would be considered covered entities under the general definition of covered entity and the extent to which those entities would qualify for other exclusions consistent with the statute.
   Commenters suggested that the final regulations define governmental entity to include an instrumentality, citing statutory language that excludes "any" governmental entity and arguing that, in certain instances, an instrumentality that provides health insurance performs a governmental function and therefore should be excluded. For those reasons, the final regulations adopt this suggestion and define governmental entity to include any agency or instrumentality of
   The final regulations also revise the governmental entity definition to delete the specific provision relating to any public agency that is created by a State or political subdivision thereof and contracts with the State to administer State Medicaid benefits through local providers or health maintenance organizations (HMOs).
   Determinations of whether an entity is an agency or instrumentality have typically been analyzed on a facts and circumstances basis. In determining whether an entity is an agency or instrumentality, courts have applied a test similar to the six-factor test in Revenue Ruling 57-128 (1957-1 CB 311), which generally provides guidance on whether an entity is an instrumentality for purposes of the exemption from employment taxes under sections 3121(b)(7) and 3306(c)(7). See, for example, Bernini v. Federal Reserve Bank of
   Applying principles similar to those described in Revenue Ruling 57-128, in determining whether an entity is an agency or instrumentality for purposes of section 9010, factors taken into consideration include whether the entity is used for a governmental purpose and performs a governmental function.
   Further, section 9010(i) authorizes the
Educational Institutions
   A commenter suggested that the final regulations exclude educational institutions from the definition of covered entity. The final regulations do not adopt this request. The statute does not exclude educational institutions from the definition of covered entity, but as noted in the preamble to the proposed regulations, other exceptions may apply. For example, if an educational institution uses the premiums it receives from students to purchase insurance from a separate, unrelated issuer, the issuer, and not the educational institution, will be the covered entity for purposes of section 9010. If an educational institution provides students with health coverage through a self-insured arrangement, the exclusion for self-insuring employers does not apply because the institution is not providing health coverage as an employer. However, other exclusions may apply. For example, the exclusion for governmental entities applies if an educational institution is a wholly-owned instrumentality of a State. In addition, although an educational institution that is a covered entity must report to the
Other Entities
   Commenters suggested that the final regulations exclude certain section 501(c)(5) labor organizations that provide health coverage under the Federal Employees Health Benefit Plan (FEHBP) on the basis that providing health coverage is part of their exempt function as a section 501(c)(5) entity. The commenters asserted that, although a section 501(c)(5) entity is not organized as a VEBA, it operates like a VEBA because of the various FEHBP rules (including, for example, on use of reserves) and therefore should be treated as a VEBA for section 9010 purposes. The final regulations do not adopt this suggestion.
   Another commenter suggested that the final regulations exclude high risk pools under section 1101 of the ACA, which will expire on
   A commenter requested that the final regulations provide an exclusion for an entity that is selling or otherwise failing to continue the majority of its health insurance business by
   The proposed regulations defined the term covered entity to include an HMO, as defined in section 9832(b)(3). A commenter requested that the final regulations exclude an HMO that is a tax-exempt organization described in section 501(c)(3) or (4) on the basis that
Disregarded Entities
   Two commenters requested further guidance on how to treat disregarded entities for purposes of section 9010. One commenter suggested that the final regulations specifically state that the general rules for disregarded entities apply. A second commenter suggested that, solely for section 9010 purposes, a disregarded entity should always be regarded as a corporation. The final regulations do not adopt any special entity classification rules. Thus, if a covered entity is an eligible entity under
Controlled Groups
   In accordance with section 9010(c)(3), the proposed regulations treated a controlled group as a single covered entity, and defined a controlled group as a group of two or more persons, including at least one person that is a covered entity, that are treated as a single employer under section 52(a), 52(b), 414(m), or 414(o).
   Section 52(a) and (b) provide rules that treat all organizations that are members of a controlled group as a single entity. Generally, section 52(a) provides that the term controlled group of corporations has the meaning given to such term by section 1563(a), except that "more than 50 percent" is substituted for "at least 80 percent" each place it appears in section 1563(a)(1) and the determination is made without regard to section 1563(a)(4) (relating to special rules for certain insurance companies) and 1563(e)(3)(C) (relating to attribution rules for ownership interest held under a trust described in section 401(a) that is exempt from tax under section 501). Section 52(b) provides similar rules for determining whether trades or businesses (whether or not incorporated) are under common control. Section 414(m) requires that all members of an affiliated service group be treated as a single organization, and section 414(o) provides authority for additional rules that may be necessary to prevent the avoidance of certain requirements related to employee benefits.
   A commenter suggested that the final regulations clarify the circumstances under which nonprofit organizations are included in controlled groups under section 9010(c)(3).
In General
   Section 9010 does not define health insurance, providing in section 9010(h)(3) only that health insurance does not include coverage only for accident, or disability income insurance, or any combination thereof as described in section 9832(c)(1)(A); coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance as described in section 9832(c)(3); insurance for long-term care; or
Stop-Loss Coverage
   Several comments requested that the final regulations clarify the treatment of stop-loss coverage. Employers that self-insure their employees' health benefits frequently purchase stop-loss coverage to mitigate risk. The stop-loss provider assumes the risk of claims above a certain agreed-upon threshold known as the attachment point. Some commenters suggested including stop-loss coverage in the definition of health insurance for purposes of section 9010, whereas other commenters suggested excluding it. The DOL, the
Limited Scope Dental and Vision Benefits
   The proposed regulations defined health insurance to include limited scope dental and vision benefits under section 9832(c)(2)(A). Commenters suggested revising the definition of health insurance to exclude limited scope dental and vision benefits (sometimes referred to as stand-alone dental and vision benefits). Alternatively, commenters suggested including only those dental and vision policies that can be offered on an Exchange, such as pediatric dental plans. The final regulations do not adopt these suggestions. The JCT General Explanation indicates that dental and vision benefits are intended to be included as health insurance for purposes of section 9010 and the comments received do not compel a different conclusion. See JCT General Explanation at 331. Accordingly, the final regulations retain the rule in the proposed regulations and provide that limited scope dental and vision benefits, including arrangements that may be sold on an Exchange (for example, pediatric dental coverage), are health insurance for purposes of section 9010.
Coverage Funded by Targeted Government Programs
   Commenters suggested that the final regulations exclude coverage funded by government programs that target low-income, elderly, or disabled populations under titles XVIII, XIX, and XXI of the Social Security Act (which include
Indemnity Reinsurance
   The proposed regulations provided that, solely for purposes of section 9010, health insurance does not include indemnity reinsurance, defined as an agreement between two or more insurance companies under which the reinsuring company agrees to accept, and to indemnify the issuing company for, all or part of the risk of loss under policies specified in the agreement and the issuing company retains its liability to, and its contractual relationship with, the individuals whose health risks are insured under the policies specified in the agreement. A commenter suggested that the final regulations clarify that the definition of indemnity reinsurance extends to reinsurance obtained by HMOs. The final regulations adopt this suggestion and clarify that the issuer of the policies specified in the indemnity reinsurance agreement may be any covered entity.
   Commenters asked about the treatment of a "carve-out" arrangement or similar types of arrangement in which one insurer accepts responsibility for all or part of the health risk within a defined category of medical benefits that another insurer is obligated to provide. For example, a full-service insurer that includes dental benefits as part of its health insurance plan may contract with a dental insurer to provide those benefits to plan members, but still retain an exclusive contractual relationship with plan members and liability for benefits. The commenters expressed concern that premiums received by both the full-service insurer and the secondary services insurer for these benefits could be subject to the fee. Although the final regulations do not expressly address a carve-out arrangement, the secondary services insurer in such an arrangement is not providing health insurance for purposes of section 9010 to the extent the arrangement meets the definition of indemnity reinsurance.
Subcapitation
   A commenter requested that the final regulations clarify the treatment of a subcapitation arrangement. Under a typical subcapitation arrangement, a
Employee Assistance Programs
   Commenters requested that the final regulations exclude benefits under an employee assistance program (EAP) from the definition of health insurance, including an EAP that is treated as insurance in
   Because the extent to which benefits under an EAP may constitute health insurance has not been determined, the final regulations do not expressly define health insurance to include benefits under an EAP. If an EAP provides significant benefits in the nature of medical care or treatment, those benefits would meet the definition of health insurance for section 9010 purposes. Otherwise, benefits under an EAP will not be treated as health insurance for section 9010 purposes until such time and only to the extent that the
   Commenters also requested that the final regulations exclude coverage under a disease management program or a wellness program from the definition of health insurance. The final regulations do not specifically address the treatment of a stand-alone wellness plan or disease management program. These programs generally do not exhibit the risk shifting and risk distribution characteristics of insurance. Additionally, a program of this type may be contained within an EAP that satisfies the standard in Q&A 9 of Notice 2013-54 for being an excepted benefit (taking into account the benefits provided under the programs in determining whether the EAP provides substantial benefits in the nature of medical treatment). For these reasons, the final regulations do not expressly define health insurance to include coverage under a disease management program or wellness program. If these programs provide significant benefits in the nature of medical care or treatment, those benefits would meet the definition of health insurance for section 9010 purposes. Otherwise, coverage under these programs will not be treated as health insurance for section 9010 purposes until such time and only to the extent that the three agencies determine these benefits do not qualify as an excepted benefit.
   The proposed regulations excluded from the definition of health insurance any benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof, within the meaning of section 9832(c)(2)(B), and such other similar, limited benefits to the extent such benefits are specified in regulations under section 9832(c)(2)(C). A commenter questioned whether this exclusion applies to
   Some employers or unions provide
Medicare Cost Contract Plans
   A commenter asked that the final regulations clarify how section 9010 applies to the
Section 9010(b)(2)(B) Partial Exclusion
   After applying section 9010(b)(2)(A) to determine the amount of net premiums written for health insurance of
   One commenter suggested that the final regulations require any covered entity claiming the partial exclusion to submit an
Reporting and Penalties
   Section 9010(g)(1) requires each covered entity to report to the
   A commenter requested that each covered entity be required to report even if it receives no more than
   Section 9010(g)(2) imposes a penalty for failing to timely submit a report containing the required information unless the covered entity can show that the failure is due to reasonable cause. Section 9010(g)(3) imposes an accuracy-related penalty for any understatement of a covered entity's net premiums written. Commenters requested that the final regulations provide a reasonable cause exception for the accuracy-related penalty similar to the reasonable cause exception for the failure to report penalty. Unlike section 9010(g)(2), section 9010(g)(3) does not contain a reasonable cause exception. Therefore, the final regulations do not create a reasonable cause exception for the accuracy-related penalty. However, the final regulations require a covered entity to submit a corrected Form 8963 during the error correction period if the entity believes there are any errors in the preliminary fee calculation. The corrected Form 8963 will replace the original Form 8963 for all purposes, including for the purpose of determining whether an accuracy- related penalty applies, except that a covered entity remains subject to the failure to report penalty if it fails to timely submit the original Form 8963.
   The proposed regulations clarified that the failure to report penalty and the accuracy-related penalty apply in addition to the fee. The final regulations retain this clarification and further clarify that a covered entity may be liable for both penalties.
   A commenter suggested that the final regulations create a safe harbor for the failure to report penalty imposed by section 9010(g)(2) and waive or reduce the penalty for small businesses, or exclude small businesses altogether from the definition of covered entity so that the penalty does not apply. The final regulations do not adopt this suggestion. The statute does not exclude small businesses from either the definition of covered entity or the requirement to report. However, certain statutory provisions will mitigate the impact on small business. Although a small business that is a covered entity must report its net premiums written, it will not be subject to the fee if its net premiums written are
   Commenters requested that the
Fee Calculation and Error Correction Process
In General
   The proposed regulations required each covered entity to report annually its net premiums written for health insurance of
   The final regulations adopt
   Commenters suggested that the final regulations create a "true-up" process by which the fee will be continually adjusted from year to year. Because the fee is an allocated fee, allowing a true-up process for one covered entity will result in adjustments to the fee for all covered entities. In the interest of providing finality and certainty to fee liability, the final regulations do not adopt this suggestion.
Source of Data Used to Calculate the Fee
   The proposed regulations defined the term net premiums written to mean premiums written, including reinsurance premiums written, reduced by reinsurance ceded, and reduced by ceding commissions and medical loss ratio (MLR) rebates with respect to the data year. The preamble to the proposed regulations explained that, for covered entities that file the Supplemental Health Care Exhibit (SHCE) with the
   Commenters suggested that the final regulations require a covered entity to use the SHCE and any equivalent forms as the basis for determining net premiums written if it is required to file the SHCE and any equivalent forms pursuant to State reporting requirements. The final regulations do not adopt this suggestion because forms can change. The instructions to Form 8963 provide additional information on how to determine net premiums written using the SHCE and any equivalent forms as the source of data, and can be updated to reflect changes in forms.
Medical Loss Ratio (MLR) Rebates
   The proposed regulations invited comments on how to compute MLR rebates with respect to the data year using data reported on the SHCE. Commenters suggested that MLR rebates be computed on an accrual basis using lines 5.3, 5.4, and 5.5 of the 2012 SHCE. In response to this comment, the final regulations clarify that MLR rebates are computed on an accrual basis. The final regulations do not designate specific SHCE line numbers as the source of data for computing MLR rebates because forms can change. Instead, the instructions to Form 8963 provide this information.
Medicaid Bonuses
   A commenter requested that the final regulations address the treatment of
Amounts Taken Into Account
   In accordance with section 9010(b)(2)(A), the proposed regulations provided that, for each covered entity (or each controlled group treated as a single covered entity), the
   A commenter asked how the fee will be calculated for a controlled group that is treated as a single covered entity when some but not all of the group's members qualify for the 50-percent exclusion under section 9010(b)(2)(B). The final regulations clarify that, in this circumstance, the section 9010(b)(2)(A) exclusion applies first to each member of the controlled group on a pro rata basis, and then the section 9010(b)(2)(B) exclusion applies only to eligible members of the group.
   For example, if a controlled group consists of one member with
Designated Entities
   The proposed regulations required each controlled group to have a designated entity, defined as a person within the controlled group that is designated to act on behalf of the controlled group with regard to the fee. The proposed regulations further provided that if the controlled group, without regard to foreign corporations included under section 9010(c)(3)(B), is also an affiliated group that files a consolidated return for Federal income tax purposes, the designated entity is the common parent of the affiliated group identified on the tax return filed for the data year. If the controlled group is not a part of an affiliated group that files a consolidated return, the proposed regulations allowed the controlled group to select its designated entity but did not require it to do so. The proposed regulations also required each member of a controlled group to maintain a record of its consent to the designated entity selection and required the designated entity to maintain a record of all member consents. Under the proposed regulations, if the controlled group did not select a person as its designated entity, the
   The final regulations modify the proposed regulations, which provided that the common parent of a consolidated group was the designated entity in all cases. To better coordinate with the consolidated return regulations, the final regulations provide that the designated entity of a controlled group, without regard to foreign corporations included under section 9010(c)(3)(B), that is a consolidated group (within the meaning of
Disclosure
   Section 9010(g)(4) provides that section 6103 (relating to the confidentiality and disclosure of returns and return information) does not apply to any information reported by the covered entities under section 9010(g). The preamble to the proposed regulations stated that the
Expatriate Policies
   In accordance with section 9010(d), the proposed regulations defined the term
   The proposed regulations did not provide specific rules for expatriate policies. However, the definitions of covered entity and health insurance in the proposed regulations only extended to entities and policies that are subject to State or Federal regulation. Commenters expressed the concern that the proposed regulations provided an unfair advantage to foreign health insurers. Not all foreign insurers issuing expatriate policies on
   The final regulations do not adopt these suggestions. Section 9010 defines a
   Alternatively, broadening the definition of covered entity to include a foreign insurer that does not do business in
   The proposed regulations created a presumption under which the entire amount reported on the SHCE filed with the NAIC pursuant to State reporting requirements will be considered to be for
United States Possessions
   Commenters suggested that the fee should not apply to health insurance providers in
   FOOTNOTE 2 See ACA section 1301(b)(2), referencing section 2791(b) of the PHSA (42 U.S.C. 300gg-91). The definition of health insurance issuer in section 2791(b) of the PHSA is substantially similar to the definition in section 9832(b)(2) of the Code. END FOOTNOTE
Taxability and Other Treatment of the Fee
   Section 9010(f)(2) treats the fee as a tax described in section 275(a)(6) (relating to taxes for which no deduction is allowed). Before issuing the proposed regulations, the
   Commenters suggested that the final regulations prohibit a covered entity from collecting amounts to offset the cost of the fee when they collect premiums from excluded entities such as governmental entities and VEBAs. The final regulations do not adopt this suggestion. The health insurance provider, and not the payor of premiums, is liable for the fee. Therefore, any exclusions apply at the health insurance provider level.
   A commenter asked if a covered entity must disclose to its policyholders the extent to which the cost of the fee is included in a policyholder's premium. Because the health insurance provider, and not the policyholder, is liable for the fee, the final regulations do not require a covered entity to disclose to its policyholders any amounts included in premiums to offset the cost of the fee, although nothing in the final regulations prohibits a covered entity from disclosing these amounts. However, a covered entity may be subject to State or other Federal rules, if any, regarding disclosures of these amounts.
Availability of
   The IRS revenue rulings cited in this preamble are published in the Internal Revenue Cumulative Bulletin and are available from the superintendent of Documents, United States Government Printing Office,
Special Analyses
   It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. This regulation merely implements the fee imposed by section 9010 and does not impose the fee itself. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the only collection burden imposed by these regulations is the requirement to maintain a record of consent to the selection of a designated entity, and this collection burden applies only to designated entities of controlled groups, which tend to be large corporations, and their members. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f), the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the
Drafting Information
   The principal author of these regulations is
List of Subjects
   26 CFR Part 57
   Health insurance, Reporting and recordkeeping requirements.
   26 CFR 602
   Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
   Accordingly, 26 CFR chapter 1 is amended as follows:
   Paragraph 1. Part 57 is added to read as follows:
PART 57--HEALTH INSURANCE PROVIDERS FEE
Sec.
57.1 Overview.
57.2 Explanation of terms.
57.3 Reporting requirements and associated penalties.
57.4 Fee calculation.
57.5 Notice of preliminary fee calculation.
57.6 Error correction process.
57.7 Notification and fee payment.
57.8 Tax treatment of fee.
57.9 Refund claims.
57.10 Effective/applicability date.
57.6302-1 Method of paying the health insurance providers fee.
   Authority: 26 U.S.C. 7805; sec. 9010, Pub. L. 111-148 (124
   Section 57.3 also issued under 26 U.S.C. 6071(a)
   Section 57.7 also issued under 26 U.S.C. 6302(a).
   Section 57.6302-1 also issued under 26 U.S.C. 6302(a).
   (a) The regulations in this part are designated "Health Insurance Providers Fee Regulations."
   (b) The regulations in this part provide guidance on the annual fee imposed on covered entities engaged in the business of providing health insurance by section 9010 of the Patient Protection and Affordable Care Act (PPACA), Public Law 111-148 (124
   (c) Section 9010(e)(1) sets an applicable fee amount for each year, beginning with 2014, that will be apportioned among covered entities with aggregate net premiums written over
   (a) In general. This section explains the terms used in this part 57 for purposes of the fee.
   (b) Covered entity --(1) In general. Except as provided in paragraph (b)(2) of this section, the term covered entity means any entity with net premiums written for health insurance for
   (i) A health insurance issuer within the meaning of section 9832(b)(2), defined in section 9832(b)(2) as an insurance company, insurance service, or insurance organization that is licensed to engage in the business of insurance in a State and that is subject to State law that regulates insurance (within the meaning of section 514(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA));
   (ii) A health maintenance organization within the meaning of section 9832(b)(3), defined in section 9832(b)(3) as--
   (A) A Federally qualified health maintenance organization (as defined in section 1301(a) of the Public Health Service Act);
   (B) An organization recognized under State law as a health maintenance organization; or
   (C) A similar organization regulated under State law for solvency in the same manner and to the same extent as such a health maintenance organization;
   (iii) An insurance company subject to tax under part I or II of subchapter L, or that would be subject to tax under part I or II of subchapter L but for the entity being exempt from tax under section 501(a);
   (iv) An entity that provides health insurance under
   (v) A multiple employer welfare arrangement (MEWA), within the meaning of section 3(40) of ERISA, to the extent not fully insured, provided that for this purpose a covered entity does not include a
   (2) Exclusions --(i) Self-insured employer. The term covered entity does not include any entity (including a voluntary employees' beneficiary association under section 501(c)(9) (VEBA)) that is part of a self-insured employer plan to the extent that such entity self-insures its employees' health risks. The term self-insured employer means an employer that sponsors a self-insured medical reimbursement plan within the meaning of
   (ii) Governmental entity. The term covered entity does not include any governmental entity. For this purpose, the term governmental entity means--
   (A) The government of
   (B) Any State or a political subdivision thereof (as defined for purposes of section 103) including, for example, a State health department or a State insurance commission;
   (C) Any Indian tribal government (as defined in section 7701(a)(40)) or a subdivision thereof (determined in accordance with section 7871(d)); or
   (D) Any agency or instrumentality of any of the foregoing.
   (iii) Certain nonprofit corporations. The term covered entity does not include any entity--
   (A) That is incorporated as a nonprofit corporation under a State law;
   (B) No part of the net earnings of which inures to the benefit of any private shareholder or individual (within the meaning of SUBSEC 1.501(a)-1(c) and 1.501(c)(3)-1(c)(2) of this chapter);
   (C) No substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (within the meaning of
   (D) That does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office (within the meaning of
   (E) More than 80 percent of the gross revenues of which is received from government programs that target low-income, elderly, or disabled populations under titles XVIII, XIX, and XXI of the Social Security Act.
   (iv) Certain voluntary employees' beneficiary associations (VEBAs). The term covered entity does not include any entity that is described in section 501(c)(9) that is established by an entity (other than by an employer or employers) for purposes of providing health care benefits. This exclusion applies to a VEBA that is established by a union or established pursuant to a collective bargaining agreement and having a joint board of trustees (such as in the case of a multiemployer plan within the meaning of section 3(37) of ERISA or a single-employer plan described in section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. 186(c)(5)). This exclusion does not apply to a
   (3) State. Solely for purposes of paragraph (b) of this section, the term State means any of the 50 States, the
   (c) Controlled groups --(1) In general. The term controlled group means a group of two or more persons, including at least one person that is a covered entity, that is treated as a single employer under section 52(a), 52(b), 414(m), or 414(o).
   (2) Treatment of controlled group. A controlled group (as defined in paragraph (c)(1) of this section) is treated as a single covered entity for purposes of the fee.
   (3) Special rules. For purposes of paragraph (c)(1) of this section (related to controlled groups)--
   (i) A foreign entity subject to tax under section 881 is included within a controlled group under section 52(a) or (b); and
   (ii) A person is treated as being a member of the controlled group if it is a member of the group at the end of the day on
   (d) Data year. The term data year means the calendar year immediately before the fee year. Thus, for example, 2013 is the data year for fee year 2014.
   (e) Designated entity --(1) In general. The term designated entity means the person within a controlled group that is designated to act on behalf of the controlled group regarding the fee with respect to--
   (i) Filing Form 8963, "Report of Health Insurance Provider Information";
   (ii)
   (iii) Filing a corrected Form 8963 for the group, if applicable, as described in
   (iv) Paying the fee for the group to the government.
   (2) Selection of designated entity --(i) In general. Except as provided in paragraph (e)(2)(ii) of this section, each controlled group must select a designated entity by having that entity file the Form 8963 in accordance with the form instructions. The designated entity must state under penalties of perjury that all persons that provide health insurance for
   (ii) Requirement for consolidated groups; common parent. If a controlled group, without regard to foreign corporations included under section 9010(c)(3)(B), is also an affiliated group the common parent of which files a consolidated return for Federal income tax purposes, the designated entity is the agent for the group (within the meaning of
   (iii) Failure to select a designated entity. Excepted as provided in paragraph (e)(2)(ii) of this section, if a controlled group fails to select a designated entity as provided in paragraph (e)(2)(i) of this section, then the
   (f) Fee. The term fee means the fee imposed by section 9010 on each covered entity engaged in the business of providing health insurance.
   (g) Fee year. The term fee year means the calendar year in which the fee must be paid to the government. The first fee year is 2014.
   (h) Health insurance --(1) In general. Except as provided in paragraph (h)(2) of this section, the term health insurance generally has the same meaning as the term health insurance coverage in section 9832(b)(1)(A), defined to mean benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract, when these benefits are offered by an entity that is one of the types of entities described in paragraph (b)(1)(i) through (b)(1)(v) of this section. The term health insurance includes limited scope dental and vision benefits under section 9832(c)(2)(A) and retiree-only health insurance.
   (2) Exclusions. The term health insurance does not include--
   (i) Coverage only for accident, or disability income insurance, or any combination thereof, within the meaning of section 9832(c)(1)(A);
   (ii) Coverage issued as a supplement to liability insurance within the meaning of section 9832(c)(1)(B);
   (iii) Liability insurance, including general liability insurance and automobile liability insurance, within the meaning of section 9832(c)(1)(C);
   (iv) Workers' compensation or similar insurance within the meaning of section 9832(c)(1)(D);
   (v) Automobile medical payment insurance within the meaning of section 9832(c)(1)(E);
   (vi) Credit-only insurance within the meaning of section 9832(c)(1)(F);
   (vii) Coverage for on-site medical clinics within the meaning of section 9832(c)(1)(G);
   (viii) Other insurance coverage that is similar to the insurance coverage in paragraph (h)(2)(i) through (vii) of this section under which benefits for medical care are secondary or incidental to other insurance benefits, within the meaning of section 9832(c)(1)(H), to the extent such insurance coverage is specified in regulations under section 9832(c)(1)(H);
   (ix) Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof, within the meaning of section 9832(c)(2)(B), and such other similar, limited benefits to the extent such benefits are specified in regulations under section 9832(c)(2)(C);
   (x) Coverage only for a specified disease or illness within the meaning of section 9832(c)(3)(A);
   (xi) Hospital indemnity or other fixed indemnity insurance within the meaning of section 9832(c)(3)(B);
   (xii)
   (xiii) Coverage under an employee assistance plan, a disease management plan, or a wellness plan, if the benefits provided under the plan constitute excepted benefits under section 9832(c)(2) (or do not otherwise provide benefits consisting of health insurance under paragraph (h)(1) of this section);
   (xiv) Student administrative health fee arrangements, as defined in paragraph (h)(3);
   (xv) Travel insurance, as defined in paragraph (h)(4) of this section; or
   (xvi) Indemnity reinsurance, as defined in paragraph (h)(5)(i) of this section.
   (3) Student administrative health fee arrangement. For purposes of paragraph (h)(2)(xiv) of this section, the term student administrative health fee arrangement means an arrangement under which an educational institution, other than through an insured arrangement, charges student administrative health fees to students on a periodic basis to help cover the cost of student health clinic operations and care delivery (regardless of whether the student uses the clinic and regardless of whether the student purchases any available student health insurance coverage).
   (4) Travel insurance. For purposes of paragraph (h)(2)(xv) of this section, the term travel insurance means insurance coverage for personal risks incident to planned travel, which may include, but is not limited to, interruption or cancellation of trip or event, loss of baggage or personal effects, damages to accommodations or rental vehicles, and sickness, accident, disability, or death occurring during travel, provided that the health benefits are not offered on a stand-alone basis and are incidental to other coverage. For this purpose, the term travel insurance does not include major medical plans that provide comprehensive medical protection for travelers with trips lasting 6 months or longer, including, for example, those working overseas as an expatriate or military personnel being deployed.
   (5) Reinsurance --(i) Indemnity reinsurance. For purposes of paragraphs (h)(2)(xvi) and (k) of this section, the term indemnity reinsurance means an agreement between one or more reinsuring companies and a covered entity under which--
   (A) The reinsuring company agrees to accept, and to indemnify the issuing company for, all or part of the risk of loss under policies specified in the agreement; and
   (B) The covered entity retains its liability to, and its contractual relationship with, the individuals whose health risks are insured under the policies specified in the agreement.
   (ii) Assumption reinsurance. For purposes of paragraph (k) of this section, the term assumption reinsurance means reinsurance for which there is a novation and the reinsurer takes over the entire risk of loss pursuant to a new contract.
   (i) Located in
   (j) NAIC. The term NAIC means the
   (k) Net premiums written --The term net premiums written means premiums written, including reinsurance premiums written, reduced by reinsurance ceded, and reduced by ceding commissions and medical loss ratio (MLR) rebates with respect to the data year. For this purpose, MLR rebates are computed on an accrual basis in determining net premiums written. Because indemnity reinsurance within the meaning of paragraph (h)(5)(i) of this section is not health insurance under paragraph (h)(1) of this section, the term net premiums written does not include premiums written for indemnity reinsurance and is not reduced by indemnity reinsurance ceded. However, in the case of assumption reinsurance within the meaning of paragraph (h)(5)(ii) of this section, the term net premiums written does include premiums written for assumption reinsurance and is reduced by assumption reinsurance premiums ceded.
   (l) SHCE. The term SHCE means the Supplemental Health Care Exhibit. The SHCE is a form published by the NAIC that most covered entities are required to file annually under State law.
   (m)
   (n)
   (1) A
   (2) A resident of
   (3) Located in
   (a) Reporting requirement --(1) In general. Annually, each covered entity, including each controlled group that is treated as a single covered entity, must report its net premiums written for health insurance of
   (2) Manner of reporting. The
   (3) Disclosure of reported information. Pursuant to section 9010(g)(4), the information reported on each original and corrected Form 8963 will be open for public inspection or available upon request.
   (b) Penalties --(1) Failure to report --(i) In general. A covered entity that fails to timely submit a report containing the information required by paragraph (a) of this section is liable for a failure to report penalty in the amount described in paragraph (b)(1)(ii) of this section in addition to its fee liability and any other applicable penalty, unless the failure is due to reasonable cause as defined in paragraph (b)(1)(iii) of this section.
   (ii) Amount. The amount of the failure to report penalty described in paragraph (b)(1)(i) of this section is--
   (A)
   (B) The lesser of--
   ( 1) An amount equal to
   ( 2) The amount of the covered entity's fee for which the report was required.
   (iii) Reasonable cause. The failure to report penalty described in paragraph (b)(1)(i) of this section is waived if the failure is due to reasonable cause. A failure is due to reasonable cause if the covered entity exercised ordinary business care and prudence and was nevertheless unable to submit the report within the prescribed time. In determining whether the covered entity was unable to submit the report timely despite the exercise of ordinary business care and prudence, the
   (iv) Treatment of penalty. The failure to report penalty described in this paragraph (b)(1)--
   (A) Is treated as a penalty under subtitle F;
   (B) Must be paid on notice and demand by the
   (C) Is a penalty for which only civil actions for refund under procedures of subtitle F apply.
   (2) Accuracy-related penalty --(i) In general. A covered entity that understates its net premiums written for health insurance of
   (ii) Amount. The amount of the accuracy-related penalty described in paragraph (b)(2)(i) of this section is the excess of--
   (A) The amount of the covered entity's fee for the fee year that the
   (B) The amount of the covered entity's fee for the fee year that the
   (iii) Understatement. An understatement of a covered entity's net premiums written for health insurance of
   (iv) Treatment of penalty. The accuracy-related penalty is subject to the provisions of subtitle F that apply to assessable penalties imposed under chapter 68.
   (3) Controlled groups. Each member of a controlled group that is required to provide information to the controlled group's designated entity for purposes of the report required to be submitted by the designated entity on behalf of the controlled group is jointly and severally liable for any penalties described in this paragraph (b) for any reporting failures by the designated entity.
   (a) Fee components --(1) In general. For every fee year, the
   (2) Calculation of net premiums written. Each covered entity's allocated fee for any fee year is equal to an amount that bears the same ratio to the applicable amount as the covered entity's net premiums written for health insurance of
   (3) Applicable amount. The applicable amounts for fee years are--
Fee year Applicable amount 2014$8,000,000,000 2015$11,300,000,000 2016$11,300,000,000 2017$13,900,000,000 2018$14,300,000,000 2019 and thereafter The applicable amount in the preceding fee year increased by the rate of premium growth (within the meaning of section 36B(b)(3)(A)(ii)).
   (4) Net premiums written taken into account --(i) In general. A covered entity's net premiums written for health insurance of
Covered entity's net premiums written during the data year Percentage of that are: net premiums written taken into account is: Not more than$25,000,000 0 More than$25,000,000 but not more than$50,000,000 50 More than$50,000,000 100
   (ii) Controlled groups. In the case of a controlled group, paragraph (a)(4)(i) of this section applies to all net premiums written for health insurance of
   (iii) Partial exclusion for certain exempt activities. After the application of paragraph (a)(4)(i) of this section, if the covered entity (or any member of a controlled group treated as a single covered entity) is exempt from Federal income tax under section 501(a) and is described in section 501(c)(3), (4), (26), or (29) as of
   (b) Determination of net premiums written --(1) In general. The
   (2) Presumption for
   (c) Determination of amounts taken into account. (1) For each fee year and for each covered entity, the
   (2) For each fee year, the
   (d) Allocated fee calculated. For each covered entity for each fee year, the
   (1) The numerator of which is the covered entity's net premiums written for health insurance of
   (2) The denominator of which is the aggregate net premiums written for health insurance of
   (a) Content of notice. Each fee year, the
   (1) The covered entity's allocated fee;
   (2) The covered entity's net premiums written for health insurance of
   (3) The covered entity's net premiums written for health insurance of
   (4) The aggregate net premiums written for health insurance of
   (5) Instructions for how to submit a corrected Form 8963, "Report of Health Insurance Provider Information," to correct any errors through the error correction process.
   (b) Timing of notice. The
   (a) In general. Upon receipt of its preliminary fee calculation, each covered entity must review this calculation during the error correction period. If the covered entity identifies one or more errors in its preliminary fee calculation, the covered entity must timely submit to the
   (b) Time and manner. The
   (c) Finality. Covered entities must assert any basis for contesting their preliminary fee calculation during the error correction period. In the interest of providing finality to the fee calculation process, the
   (a) Content of notice. Each fee year, the
   (1) The covered entity's allocated fee;
   (2) The covered entity's net premiums written for health insurance of
   (3) The covered entity's net premiums written for health insurance of
   (4) The aggregate net premiums written for health insurance of
   (5) The final determination on the covered entity's corrected Form 8963, "Report of Health Insurance Provider Information," if any.
   (b) Timing of notice. The
   (c) Differences in preliminary fee calculation and final calculation. A covered entity's final fee calculation may differ from the covered entity's preliminary fee calculation because of changes made pursuant to the error correction process described in
   (d) Payment of final fee. Each covered entity must pay its final fee by
   (e) Controlled groups. In the case of a controlled group that is liable for the fee, all members of the controlled group are jointly and severally liable for the fee. Accordingly, if a controlled group's fee is not paid, the
   (a) Treatment as an excise tax. The fee is treated as an excise tax for purposes of subtitle F (sections 6001-7874). Thus, references in subtitle F to "taxes imposed by this title," "internal revenue tax," and similar references, are also references to the fee. For example, the fee is assessed (section 6201), collected (sections 6301, 6321, and 6331), enforced (section 7602), and subject to examination and summons (section 7602) in the same manner as taxes imposed by the Code.
   (b) Deficiency procedures. The deficiency procedures of sections 6211-6216 do not apply to the fee.
   (c) Limitation on assessment. The
   (d) Application of section 275. The fee is treated as a tax described in section 275(a)(6) (relating to taxes for which no deduction is allowed).
   Any claim for a refund of the fee must be made by the entity that paid the fee to the government and must be made on Form 843, "Claim for Refund and Request for Abatement," in accordance with the instructions for that form.
   Sections 57.1 through 57.9 apply to any fee that is due on or after
   (a) Fee to be paid by electronic funds transfer. Under the authority of section 6302(a), the fee imposed on covered entities engaged in the business of providing health insurance for
   (b) Effective/Applicability date. This section applies with respect to any fee that is due on or after
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
   Par. 2. The authority citation for part 602 continues to read as follows:
   Authority: 26 U.S.C. 7805.
   Par. 3. In
<p>
* * * * *
   (b) * * *
CFR Part or section where identified and described Current OMB control No. * * * * * * * 57.2(e)(2)(i) 1545-2249 * * * * * * *
Deputy Commissioner for Services and Enforcement.
   Approved:
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-28412 Filed 11-26-13;
BILLING CODE 4830-01-P
| Copyright: | (c) 2013 Federal Information & News Dispatch, Inc. |
| Wordcount: | 18165 |
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