	Annual Fee on Health Insurers

The Patient Protection and Affordable Care Act (ACA, P.L. 111-148 ) and the Reconciliation Act of 2010 ( P.L. 111-152 ) impose a fee on certain for-profit health insurers, starting in 2014. The aggregate ACA fee, to be collected by the Internal Revenue Service (IRS) across all affected insurers operating in the United States, is set at $8.0 billion in 2014. The fee will gradually rise to $14.3 billion in 2018, and will be indexed to the annual rate of U.S. premium growth thereafter ( Table 1 ). Nonprofit entities incorporated under state law that receive more than 80% of their gross revenues from government programs that target low-income, elderly, or disabled populations (such as the State Children's Health Insurance Plan [CHIP], Medicare, and Medicaid). IRS regulations define net health care premiums written as gross premiums from insurance sales (including reinsurance premiums written), reduced by ACA medical loss ratio rebates to enrollees, reinsurance ceded, and ceding commissions. (Ceded premiums are premiums paid by an insurer to a reinsurance firm for protection against defined market risks.) Each year the IRS would apportion the fee among affected insurers based on (1) their net premiums written in the previous calendar year as a share of total net premiums written by all covered insurers, and (2) their dollar value of business. Covered insurers are not subject to the fee on their first $25 million of net premiums written. The annual ACA fee would be imposed on 50% of net premiums above $25 million and up to $50 million, and 100% of net premiums in excess of $50 million. The proposed rules provide differing treatment for certain tax-exempt insurers such as public charities, social welfare organizations, high-risk health insurance pools, or consumer-operated-and-oriented plans (COOP). After applying the fee adjustments (see above) a covered insurer that is exempt from federal taxes would have the ACA fee applied to only 50% of its net premiums that are subject to the fee, so long as the premiums are attributable to the insurer's tax-exempt activity. 3. Insurers' ability to pass on the new ACA tax, in the form of higher premiums to consumers, will vary based on factors such as the degree of market competition or a firm's specific business strategy. Government programs such as Medicare and Medicaid that contract with private insurers to deliver health benefits consider an insurer's tax payments, along with other costs, when setting annual program reimbursement levels. Some insurance companies have released estimates regarding the impact of the fee. The premium tax does not apply to direct government programs, so does not apply to Medicaid and Medicare fee-for-service plans, where the government administers and pays for services. Government regulations could limit how much of the fee is passed on to Medicare beneficiaries.
The Patient Protection and Affordable Care Act (P.L. 111-148) and the Reconciliation Act of 2010 (P.L. 111-152) impose an annual fee on certain for-profit health insurers, starting in 2014. The aggregate amount of the ACA fee, to be collected across all covered insurers, will be $8.0 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.3 billion in 2018. After 2018, the aggregate fee will be indexed to the overall rate of annual premium growth, as calculated by the Internal Revenue Service.
The annual fee will be apportioned among health insurers, based on (1) their market share and (2) their dollar value of business. The fee applies to net health care premiums written, which are defined in regulations as gross premiums from insurance sales minus refunds to enrollees under the medical loss ratio provisions of the ACA, certain commissions, and premiums ceded to reinsurers. Ceded premiums are premiums that an insurer transfers to a reinsurer, as payment for protection against defined market risks.
The ACA fee does not apply to the first $25 million of net premiums written by a covered insurer. The fee will be imposed on 50% of net premiums written above $25 million and up to $50 million, and 100% of net premiums in excess of $50 million. The regulations shield a higher level of net premiums from the fee for insurers that are exempt from federal taxes and are considered to be public charities, social welfare organizations, high-risk health insurance pools, or consumer-operated-and-oriented health plans (COOP).
The ACA fee does not apply to entities that fully self-insure, government-run insurance programs, or nonprofit insurers incorporated under state law that receive more than 80% of their gross revenues from government programs that target low-income, elderly, or disabled populations (such as the State Children's Health Insurance Plan [CHIP], Medicare, and Medicaid).
Some insurance issuers have informed shareholders and state insurance regulators that they intend to pass on the cost of the fee to businesses and enrollees in the form of higher premiums. Private insurers that contract with government organizations to provide Medicare and Medicaid health benefits will be subject to the fee, which could have implications for enrollee premiums and government payments to those plans. It is difficult to estimate the precise impact of the fee on the insurance industry, government programs, and consumers for several reasons, including a lack of public data on net premiums written. In addition, insurers' ability to pass on the fee will vary depending on competition in local markets, and their individual financial strategies.