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IRS issues revised 2014 and 2015 calculation of health insurer fee for expatriate plans

Notice 2015-29, 2015-15 IRB

In a Notice, IRS has provided a special rule for computing the annual health insurer fee imposed by § 9010 of the Affordable Care Act for the 2014 and 2015 fee years, so as to reflect a rule for expatriate health plans contained in 2014 legislation. The Notice is effective Mar. 30, 2015 and applies only to fee years 2014 and 2015.

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 (PPACA, 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. 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, 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)

On Mar. 29, 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.

On Dec. 16, 2014, Congress enacted the Expatriate Health Coverage Clarification Act of 2014 (EHCCA; Division M, P.L. 113-235). Section 3(a) of the EHCCA provides that the ACA generally does not apply to expatriate health plans. Section 3(c)(1) of the EHCCA specifically excludes expatriate health plans from the § 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.

Section 3(c)(2) of the EHCCA provides a special rule that applies solely for purposes of determining the fee under § 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 has determined that the MLR final rule definition of expatriate policies also used on the SHCE and in Notice 2014-24 is broad enough to cover all potential expatriate health plans described in § 3(d)(2) of the EHCCA. No inference is intended regarding the definition of expatriate health plan under § 3(d)(2) of the EHCCA for any other purpose.

IRS provides special rule for computing fee. In Notice 2015-29, IRS has provided a special rule for expatriate health plans for fee years 2014 and 2015 under the EHCCA.

To claim the benefit of the special rule, a covered entity must satisfy a set of prerequisites and attach a statement to its 2015 Form 8963 in which it makes various certifications contained in the Notice. There are two sets of these prerequisites and certifications, one for SHCE filers and the other for Non-SHCE filers.

Here’s how the special rule will work:

1. IRS will first calculate the 2015 fee for all covered entities as described in §57.4.
2. For a covered entity with premiums for expatriate health plans included in total direct premiums written reported for the 2015 fee year, IRS will adjust the covered entity’s 2015 fee by (a) multiplying its 2015 fee amount by a fraction, the numerator of which is the amount of its expatriate health plan premiums taken into account that is included in net premiums written taken into account for the 2015 fee year, and the denominator of which is the covered entity’s total net premiums written taken into account for the 2015 fee year; and (b) subtracting this amount from the 2015 fee.
3. For a covered entity with net premiums written for expatriate health plans included in total direct premiums written reported for the 2014 fee year, IRS will further adjust the entity’s 2015 fee by (a) multiplying its 2014 fee amount by a fraction, the numerator of which is the amount of its expatriate health plan premiums taken into account that is included in net premiums written taken into account for the 2014 fee year and not previously excluded in determining the 2014 fee, and the denominator of which is the covered entity’s total net premiums written taken into account for the 2014 fee year; and (b) subtracting this amount from the 2015 fee.

As a general rule, IRS will apply the special rule for both the 2014 and 2015 fee years by adjusting the 2015 fee rather than by issuing refunds. However, if this computation reduces the covered entity’s 2015 fee below zero and results in an amount due to the covered entity for the 2015 fee year, IRS will pay the amount due to the covered entity.

Notice 2015-29 obsoletes Notice 2014-24.

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

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