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IRS issues guidance on health insurer fee and expatriate plans for 2016

Notice 2016-14, 2016-7 IRB

In a Notice, IRS has provided guidance for the 2016 fee year on how the definition of expatriate health plans under the Expatriate Health Coverage Clarification Act of 2014 applies for purposes of the health insurance provider’s fee imposed by Sec. 9010 of the Affordable Care Act.

Background. Effective for calendar years beginning after Dec. 31, 2013, covered entities engaged in the business of providing health insurance with respect to U.S. health risks face an annual flat fee. The fee is a fixed amount allocated among all covered entities in proportion to their relative market share as determined by each entity’s net premiums written for the data year, which is the year immediately preceding the year in which the fee is paid (the “fee year”). (Sec. 9010 of the Patient Protection and Affordable Care Act (P.L. 111-148), as amended by PPACA Sec. 10905, and further amended by Sec. 1406 of the Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152)—collectively, the Affordable Care Act)

Under final regs issued in 2013 (T.D. 9643, 11/26/2013 (see Weekly Alert ¶  11  12/05/2013), each covered entity is required to annually report its net premiums written for health insurance of U.S. health risks during the data year to IRS by April 15th of the fee year, on Form 8963, Report of Health Insurance Provider Information. A U.S. health risk is a health risk of any individual who is: (1) a U.S. citizen; (2) a resident of the U.S.; or (3) located in the U.S. during the period. For covered entities that file the Supplemental Health Care Exhibit (SHCE) with the National Association of Insurance Commissioners (NAIC), net premiums written for health insurance generally will equal the amount reported on the SHCE as direct premiums written minus medical loss ratio (MLR) rebates with respect to the data year, subject to any applicable exclusion.

However, the 2013 regs do not provide specific rules for expatriate policies. Regs issued by Health and Human Services (HHS) on the medical loss ratio (MLR rules) define expatriate policies as group health insurance policies that provide coverage to employees, substantially all of whom are: (a) working outside their country of citizenship; (b) working outside their country of citizenship and outside the employer’s country of domicile; or (c) non-U.S. citizens working in their home country.

The SHCE includes separate reporting for expatriate plans, which are defined by reference to the definition of expatriate policies in the MLR rules. These rules provide that the entire amount reported as direct premiums written on the SHCE (including direct premiums written for expatriate plans) will be considered to be for U.S. health risks unless the covered entity can demonstrate otherwise. (Sec. 57.4(b)(2) of the MLR rules)

In March of 2014, IRS issued Notice 2014-24, 2014-16 IRB, which provided a temporary safe harbor for a covered entity that reports expatriate health plans on its SHCE. Notice 2014-24 allowed a covered entity to exclude 50% of its direct premiums written for expatriate health plans reported on the SHCE in reporting total direct premiums written to IRS for purposes of determining the fee for the 2014 and 2015 fee years. Certain covered entities applied this temporary safe harbor in reporting their direct premiums written for purposes of determining their 2014 fee, which was due on Sept. 30, 2014. (See Weekly Alert ¶  24  04/03/2014.)

In December of 2014, Congress enacted the Expatriate Health Coverage Clarification Act of 2014 (EHCCA; Division M, P.L. 113-235). Sec. 3(a) of the EHCCA provides that the Affordable Care Act generally does not apply to expatriate health plans. Sec. 3(c)(1) of the EHCCA specifically excludes expatriate health plans from the Sec. 9010 fee by providing that, for calendar years after 2015, a qualified expatriate enrolled in an expatriate health plan is not considered a U.S. health risk. These rules are generally effective for expatriate health plans issued or renewed on or after July 1, 2015.

Sec. 3(c)(2) of the EHCCA provides a special rule that applies solely for purposes of determining the fee under Sec. 9010 for fee years 2014 and 2015. The special rule does not affect the calculation of the fee generally for all covered entities. Instead, after the fees are calculated, the special rule proportionally reduces the fee of a covered entity with expatriate health plans to account for its net premiums written for those plans.

For purposes of the special rule that applies solely to the 2014 and 2015 fee years, IRS determined that the MLR final rule definition of expatriate policies also used on the SHCE and in Notice 2014-24 was broad enough to cover all potential expatriate health plans described in Sec. 3(d)(2) of the EHCCA. No inference was intended regarding the definition of expatriate health plan under Sec. 3(d)(2) of the EHCCA for any other purpose.

In March of 2015, Notice 2015-29, 2015-15 IRB 873, provided a special rule for computing the annual health insurer fee imposed by Sec. 9010 of the Affordable Care Act. Because guidance was needed to implement the special rule for fee years 2014 and 2015, Notice 2015-29 defined expatriate health plan by reference to the MLR final rule definition solely for the limited purpose of the special rule for fee years 2014 and 2015. Section 3(d)(2) of the EHCCA provides a definition of the term “expatriate health plan” that is more detailed than the MLR final rule definition of expatriate health policies. IRS determined that the MLR final rule definition of expatriate policies was sufficiently broad to cover potential expatriate health plans described in Sec. 3(d)(2) of the EHCCA.Notice 2015-29 applied only to fee years 2014 and 2015.

In December of 2015, the 2016 Consolidated Appropriations Act (P.L. 114-113, 12/18/2015) provided a one-year suspension of the annual fee on health insurance providers for 2017. The effective date of the annual fee was amended so that it applies to calendar years: (1) beginning after Dec. 31, 2013 and ending before Jan. 1, 2017; and (2) beginning after Dec. 31, 2017.

Latest guidance. Notice 2016-14, Sec. 3 notes that while proposed regs are being developed that will address the definition of an expatriate health plan in Sec. 3(d)(2) of the EHCCA for purposes of Sec. 3(c)(1) of the EHCCA, guidance on the definition of expatriate health plan is needed for the 2016 fee year. Beginning in 2016, Sec. 3(c)(1) of the EHCCA excludes expatriate health plans from the Sec. 9010 fee. Notice 2016-14 provides that, solely for this limited purpose, the definition of expatriate health plan will be the same as provided in the MLR final rule definition. No inference is intended regarding the definition of expatriate health plan in Sec. 3(d)(2) of the EHCCA for any other purpose, nor for purposes of the Sec. 9010 fee for later years.

Amounts reported on the SHCE. If a covered entity (including controlled group members, if any) reported direct premiums written for expatriate health plans on its SHCE for 2016, the covered entity must exclude those direct premiums written for expatriate health plans from the Direct Premiums Written column (f) on its 2016 Form 8963 and attach the reconciliation described in Notice 2016-14, Sec. 4.02. For this limited purpose, an expatriate health plan means an expatriate policy under the MLR final rule definition. (Notice 2016-14, Sec. 4.01)

Such a covered entity must attach a statement to its 2016 Form 8963 certifying that:

a. The covered entity (or designated entity, in the case of a controlled group) filed the SHCE for 2016;
b. The covered entity is filing the statement pursuant to Notice 2016-14;
c. The aggregate dollar amount of direct premiums written for expatriate health plans reported on the SHCE(s) for 2016 for the covered entity (including the amounts for all members of the controlled group, if applicable) are excluded from direct premiums written reported in the Direct Premiums Written column (f) on the covered entity’s 2016 Form 8963. (Notice 2016-14, Sec. 4.02)

Amounts not reported on the SHCE. If a covered entity (including controlled group members, if any) received direct premiums written for expatriate health plans in 2015 that were not reported on SHCEs for 2016, then the covered entity (including controlled group members, if any) must exclude direct premiums written for expatriate health plans from the Direct Premiums Written column (f) on its 2016 Form 8963 and attach the reconciliation described in Notice 2016-14, Sec. 5.02. An expatriate health plan means an expatriate policy under the MLR final rule definition for this purpose. (Notice 2016-14, Sec. 5.01)

Such a covered entity must attach a statement to its 2016 Form 8963 certifying:

a. The covered entity is filing the statement pursuant to Notice 2016-14;
b. The aggregate dollar amount of direct premiums written for expatriate health plans that met the MLR final rule definition, that it excluded from the Direct Premiums Written column (f) on its 2016 Form 8963 (including the amounts for all members of the controlled group, if applicable); and
c. The source of information that the covered entity has available on request for determining direct premiums written for expatriate health plans for 2016, such as the Accident and Health Policy Experience filed with the NAIC, the MLR Annual Reporting Form filed with the Center for Consumer Information and Insurance Oversight of the Department of Health and Human Services, or any similar statements filed with the NAIC, with any state government, or with the federal government pursuant to applicable state or federal requirements. (Notice 2016-14, Sec. 5.02)

References: For the annual fee on health insurance providers, see FTC 2d/FIN ¶  E-5641  et seq.