A health insurance provider is defined as an insurer, or corporate group that includes two or more health insurers that gets at least 25% of gross premiums from selling minimum essential coverage (MEC) plans as outlined in the ACA. In addition those impacted by this law must also get at least 2% of its gross revenue from MEC premiums.
Further, the rule clarified that an employer is not a covered health insurance provider solely because it maintains a self-insured medical reimbursement plan.
In 2013, the 10 largest health insurance corporations paid their top executives a total of nearly $300 million in taxable compensation, according to the Institute for Policy Studies, a liberal research organization. Had the $500,000 provision not been in effect that year, these corporations could have claimed as much as 96% of this compensation, or $289 million as deductible.
With the new limit, the insurers can only claim 27% of their executive compensation as deductible. That translates into an estimated $72 million in additional tax payments, Policy Studies says.
When the IRS issued proposed regulations on this provision in 2013, the industry trade group America's Health Insurance Plans voiced its objections.
“The provision applies not only to officers and directors of health insurers, but to all individuals providing services to any company that is part of an affiliated group that includes a health insurer,” AHIP said in a letter to the IRS. “As a result, health insurers and members of the group need to develop costly and complex administrative systems to track and report compensation and will find it difficult to recruit key personnel compared to their peers that are not subject to the new deduction limitations.”
An AHIP spokeswoman declined to comment on the final regs, saying the trade group was still reviewing the document.
Follow Virgil Dickson on Twitter: @MHvdickson