The Internal Revenue Service issued final rules just before Thanksgiving on how it will collect tens of billions of dollars in taxes to pay for the Patient Protection and Affordable Care Act. The regulations spell out which types of organizations will be subject to a fee on insurers that starts in 2014. That tax, which is opposed by insurers, is expected to raise nearly $60 billion in the next five years, with most of that going to pay for premium subsidies for lower- and middle-income consumers.
The new rules also spell out how the law's net income investment tax will be calculated and how additional Medicare payroll tax withholdings on higher-earning individuals will be implemented.
The health insurance fee applies to insurance firms with premium revenues in excess of $25 million annually. Insuring entities excluded from the fee are government entities, nonprofit groups that receive at least 80% of their revenue from government programs such as Medicaid, and self-insured businesses.
One disputed issue was whether the tax applies to not-for-profit HMOs, which argued that Congress intended for them to be exempt. But the final rules indicate these insurers have to pay. Some observers expect litigation over the issue.
Another controversial issue was whether “stop-loss” coverage should be treated as insurance and be taxed. The final rules do not apply the fee to this type of coverage, though the IRS indicated this might be reconsidered in the future.
Small employers that self-insure sometimes buy stop-loss coverage to protect them from unexpectedly high medical bills. But some experts argued that this type of coverage should be taxed to discourage small businesses from self-insuring to evade ACA coverage rules.