81 FR 89017 - Health Insurance Providers Fee

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 237 (December 9, 2016)

This document contains proposed regulations that would modify the current definition of ``net premiums written'' for purposes of the fee imposed by section 9010 of the Patient Protection and Affordable Care Act, as amended. The proposed regulations will affect persons engaged in the business of providing health insurance for United States health risks.

[Federal Register Volume 81, Number 237 (Friday, December 9, 2016)]
[Proposed Rules]
[Pages 89017-89019]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-29487]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 57

[REG-134438-15]
RIN 1545-BN10


Health Insurance Providers Fee

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that would modify 
the current definition of ``net premiums written'' for purposes of the 
fee imposed by section 9010 of the Patient Protection and Affordable 
Care Act, as amended. The proposed regulations will affect persons 
engaged in the business of providing health insurance for United States 
health risks.

DATES: Comments and requests for a public hearing must be received by 
March 9, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-134438-15), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
134438-15), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW, Washington, DC 20224, or sent electronically, via the 
Federal eRulemaking portal at www.regulations.gov (IRS REG-134438-15)

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Rachel S. Smith, (202) 317-6855; concerning submissions of comments and 
request for a hearing, Regina Johnson, (202) 317-6901 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION: 

Background

    Section 9010 of the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 (124 Stat. 119 (2010)), as amended by 
section 10905 of PPACA, and as further amended by section 1406 of the 
Health Care and Education Reconciliation Act of 2010,

[[Page 89018]]

Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the 
Affordable Care Act or ACA) imposes an annual fee on covered entities 
that provide health insurance for United States health risks. Section 
9010 did not amend the Internal Revenue Code (Code) but contains cross-
references to specified Code sections. In this preamble all references 
to section 9010 are references to section 9010 of the ACA and all 
references to ``fee'' are references to the fee imposed by section 
9010.
    Section 9010(a) imposes an annual fee on each covered entity 
engaged in the business of providing health insurance. The fee is due 
by the annual date specified by the Secretary, but in no event later 
than September 30th of each calendar year in which a fee must be paid 
(fee year).
    Section 9010(b) requires the Secretary to determine the annual fee 
for each covered entity based on the ratio of the covered entity's net 
premiums written for health insurance for any United States health risk 
that are taken into account for the calendar year immediately before 
the fee year (data year) to the aggregate net premiums written for 
health insurance of United States health risks of all covered entities 
that are taken into account during the data year. In calculating the 
fee, the Secretary must determine each covered entity's net premiums 
written for United States health risks based on reports submitted to 
the Secretary by the covered entity and through the use of any other 
source of information available to the Secretary. Section 9010 does not 
define the term ``net premiums written.''
    On November 29, 2013, the Treasury Department and the IRS published 
in the Federal Register (TD 9643; 78 FR 71476) final regulations 
regarding the fee (final regulations). The final regulations define 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. Net premiums written do not include premiums written for 
indemnity reinsurance (and are not reduced by indemnity reinsurance 
ceded) because indemnity reinsurance is not considered health insurance 
for purposes of section 9010. However, net premiums written do include 
premiums written (and are reduced by premiums ceded) for assumption 
reinsurance; that is, reinsurance for which there is a novation and the 
reinsurer takes over the entire risk.
    The preamble to the final regulations explained that, 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 MLR rebates with respect 
to the data year, subject to any applicable exclusions under section 
9010. The instructions to Form 8963, Report of Health Insurance 
Provider Information, 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 to the 
SHCE.

Explanation of Provisions

    The proposed regulations would amend and clarify the rules for how 
``net premiums written'' take into account certain premium adjustments 
and payments.

1. Retrospective Premium Adjustments

    Following the publication of the final regulations, the Treasury 
Department and the IRS received comments requesting that premium 
adjustments related to retrospectively rated contracts be taken into 
account in determining net premiums written. The NAIC's Accounting 
Practices and Procedures Manual Statement of Statutory Accounting 
Principles No. 66, Retrospectively Rated Contracts, defines a 
retrospectively rated contract as a contract which has the final policy 
premium calculated based on the loss experience of the insured during 
the term of the policy (including loss development after the term of 
the policy) and on the stipulated formula set forth in the policy or a 
formula required by law. These premium adjustments, made periodically, 
may involve either the payment of return premium to the insured (a 
``retrospectively rated contract payment'') or payment of an additional 
premium by the insured (a ``retrospectively rated contract receipt''), 
or both, depending on experience.
    Commenters recommended that in calculating net premiums written, 
premiums written should be increased by retrospectively rated contract 
receipts and reduced by retrospectively rated contract payments. 
Commenters asserted that retrospectively rated contract payments are 
refunded to policyholders in much the same way as MLR rebates. 
Therefore, without an adjustment for retrospectively rated contract 
payments, covered entities that make these payments will bear a 
liability for an amount of the annual fee that correlates to premiums 
from which they do not actually receive an economic benefit.
    In response to these comments, the proposed regulations would 
modify the current definition of net premiums written to account for 
premium adjustments related to retrospectively rated contracts, 
computed on an accrual basis. These amounts are received from and paid 
to policyholders annually based on experience. Retrospectively rated 
contract receipts and payments do not include changes to funds or 
accounts that remain under the control of the covered entity, such as 
changes to premium stabilization reserves.

2. Risk Adjustment Payments and Charges

    Following the publication of the final regulations, questions also 
arose about the treatment of risk adjustment payments under the ACA. 
Section 1343 of the ACA provides a permanent risk adjustment program 
for certain plans in the individual and small group markets. In 
general, the program transfers risk adjustment funds from health 
insurance plans with relatively lower-risk enrollees to issuers that 
disproportionately attract high-risk populations, such as individuals 
with chronic conditions. Section 1343(a)(1) generally requires each 
state, or the Department of Health and Human Services (HHS) acting on 
behalf of the state, to assess a charge on health plans and health 
insurance issuers in the individual or small group markets within a 
state (with respect to health insurance coverage) if the actuarial risk 
of the enrollees of such plans or coverage for a year is less than the 
average actuarial risk of all enrollees in all plans or coverage in the 
state for the year that are not self-insured group health plans. 
Section 1343(a)(2) generally requires each state, or HHS acting on 
behalf of the state, to make a payment to health plans and health 
insurance issuers in the individual or small group markets within a 
state (with respect to health insurance coverage) if the actuarial risk 
of the enrollees of such plans or coverage for a year is greater than 
the average actuarial risk of all enrollees in all plans and coverage 
in the state for the year that are not self-insured group health plans.
    Although not specifically listed, net premiums written, as defined 
in the final regulations, include risk adjustment payments received by 
a covered entity under section 1343(a)(2) of the ACA and are reduced 
for risk adjustment charges paid by a covered entity under section 
1343(a)(1) of the ACA. Nonetheless, several covered entities asked 
whether net premiums

[[Page 89019]]

written included risk adjustment payments received and charges paid. 
Therefore, these proposed regulations add specific language to the 
definition of net premiums written to clarify that net premiums written 
include risk adjustment payments received and are reduced for risk 
adjustment charges paid. If a covered entity did not include risk 
adjustment payments received as direct premiums written on its SHCE or 
did not file an SHCE, these amounts are still part of net premiums 
written and must be reported as such on Form 8963. For this purpose, 
risk adjustment payments received and charges paid are computed on an 
accrual basis.

3. Other Premium Adjustments

    These proposed regulations would authorize the IRS to provide rules 
in guidance published in the Internal Revenue Bulletin for additional 
amounts to be taken into account in determining net premiums written. 
If the Treasury Department and the IRS determine that published 
guidance providing additional adjustments to net premiums written is 
warranted, such guidance will be published in the Internal Revenue 
Bulletin.

Proposed Effective/Applicability Date

    These regulations are proposed to apply with respect to any fee 
that is due on or after September 30, 2018.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. Because these regulations do not include a collection of 
information, a Regulatory Flexibility Analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to Code 
section 7805(f), this notice of proposed rulemaking will be submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. Comments are requested on all aspects of these proposed 
regulations. The Treasury Department and the IRS specifically request 
comments on the following:
    1. How the adjustments to net premiums written under these proposed 
regulations tie to amounts reported on the SHCE.
    2. Whether there should be a transition rule for premium 
adjustments related to retrospectively rated contracts and how any such 
rule should be implemented.
    All comments will be available for public inspection and copying. A 
public hearing may be scheduled if requested in writing by any person 
that timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place for the hearing will be published 
in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Rachel S. 
Smith, IRS Office of the Associate Chief Counsel (Passthroughs and 
Special Industries). However, other personnel from the Treasury 
Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 57

    Health Insurance, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 57 is proposed to be amended as follows:

PART 57--HEALTH INSURANCE PROVIDERS FEE

0
1. The authority citation for part 57 continues to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
0
2. Section 57.2 is amended by revising paragraph (k) to read as 
follows:


Sec.  57.2  Explanation of terms.

* * * * *
    (k) Net premiums written--(1) In general. The term net premiums 
written means premiums written, adjusted as provided in paragraph 
(k)(2) of this section.
    (2) Adjustments. Net premiums written include adjustments to 
account for:
    (i) Assumption reinsurance, but not indemnity reinsurance. Net 
premiums written include reinsurance premiums written, reduced by 
reinsurance ceded, and reduced by ceding commissions with respect to 
the data year. Net premiums written do not include premiums written for 
indemnity reinsurance and are not reduced by indemnity reinsurance 
ceded 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. However, in the case of assumption reinsurance 
within the meaning of paragraph (h)(5)(ii) of this section, net 
premiums written include premiums written for assumption reinsurance, 
reduced by assumption reinsurance premiums ceded.
    (ii) Medical loss ratio (MLR) rebates. Net premiums written are 
reduced by MLR rebates with respect to the data year. For this purpose, 
MLR rebates are computed on an accrual basis.
    (iii) Premium adjustments related to retrospectively rated 
contracts. Net premiums written include retrospectively rated contract 
receipts and are reduced by retrospectively rated contract payments 
with respect to the data year. For this purpose, net premium 
adjustments related to retrospectively rated contracts are computed on 
an accrual basis.
    (iv) Amounts related to the risk adjustment program under section 
1343 of the ACA. Net premiums written include risk adjustment payments 
(within the meaning of 42 U.S.C. 18063(b)) received with respect to the 
data year and are reduced by risk adjustment charges (within the 
meaning of 42 U.S.C. 18063(a)) paid with respect to the data year. For 
this purpose, risk adjustment payments and risk adjustment charges are 
computed on an accrual basis.
    (v) Additional adjustments published in the Internal Revenue 
Bulletin. The IRS may provide rules in guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter) for 
additional adjustments against premiums written in determining net 
premiums written.
0
3. Section 57.10 is amended by revising paragraph (a) and adding 
paragraph (c) to read as follows:


Sec.  57.10   Effective/applicability date.

    (a) In general. Except as provided in paragraphs (b) and (c) of 
this section, Sec. Sec.  57.1 through 57.9 apply to any fee that is due 
on or after September 30, 2014.
* * * * *
    (c) Paragraph (k) of Sec.  57.2. Paragraph (k) of Sec.  57.2 
applies to any fee that is due on or after September 30, 2018.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-29487 Filed 12-8-16; 8:45 am]
 BILLING CODE 4830-01-P