On March 1, 2013 the Internal Revenue Service (IRS) issued its proposal to levy fees on health insurance carriers. The new fees or excise tax are expected to raise over $100 billion over 10 years beginning in 2014. An excise tax is a tax charged on a specific product that is applied by an intermediary and then paid to the government.

The Affordable Care Act (ACA) in section 9010 authorized the IRS to collect a Health Insurance Provider Fee from health insurance carriers. Comments regarding the proposal must be received by the IRS by June 3, 2013. A public hearing to take testimony on the proposal is scheduled for June 21, 2013.

The fee will be imposed on companies engaged in providing health insurance in the United States with some exceptions. Texas health insurance plans involved in providing coverage for accident only, disability only, disease specific, hospital indemnity, long-term care, or Medicare Supplement coverage are excluded from the fee. Self-insured employer plans and governmental entities are also excluded from the fee.

Educational institutions that offer health insurance for their students will not be subject to the fee. IRS guidelines indicate that since the educational institution uses the premiums collected to purchase health insurance from an unrelated insurance carrier, the unrelated insurance carrier will responsible for paying the excise tax.

The fee will not be assessed on Texas health insurance carriers with aggregate net premiums under $25 million. For health insurance carriers with premiums between $25 million and $50 million, only 50 percent of premiums will be subject to the excise tax. The excise tax will be charged at 100% for carriers with aggregate premiums greater than $50 million.

The fee is expected to raise $8 billion in calendar year 2014, $11.3 billion in calendar years 2015 and 2016, $13.9 billion for calendar year 2017 and $14.3 billion for calendar year 2018. The fee beginning in 2019 will be based on the prior year and increased by the rate of premium growth. Health insurance carriers that fail to pay the fee will be subject to a penalty of $10,000 in addition to the lesser of $1,000 per day that the fee was not paid or the amount of the fee for which the report was required.

America’s Health Insurance Plans (AHIP), the carrier trade group, strongly opposed the new rule stating that the cost will be passed on to the consumers through higher premiums. The Congressional Budget Office has confirmed the claim made by AHIP.

“Imposing a new sales tax on Texas health insurance will add a financial burden on families and employers at a time when they can least afford it,” AHIP President and CEO Karen Ignagni said Friday. “This tax alone will mean that next year an individual purchasing coverage on his or her own will pay $110 in higher premiums, small businesses will pay an additional $360 for each family they cover, seniors enrolled in Medicare Advantage will face $220 in reduced benefits and higher out-of-pocket costs, and state Medicaid managed care plans will incur an additional $80 in costs for each person enrolled.”

Legislation to repeal the fee has been recently introduced by Reps. Charles Boustany, R-La., and Jim Matheson, D-Utah, and is strongly supported by AHIP.

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