What is the Health Insurance Providers Fee and Who Pays It?

To offset the growing number of uninsured Americans, Congress enacted the Affordable Care Act (ACA) in 2010. With it came provision 9010, establishing the Health Insurance Providers (HIP) fee, a tax that is placed on covered entities that provide health insurance. The intention of this fee was to help fund state marketplaces and exchanges, and the first filing was in 2014.

The cost to covered entities or insurance providers has been billions of dollars each year. The applicable fee for 2018 is $14.3 billion – an increase of $5 billion since 2014 – and that figure will continue to rise in unison with insurance enrollment.

Applicable fee portions per insurance provider are based on the previous year’s share of earned premiums. In 2017, there was a moratorium on the Health Insurance Providers fee and it will be suspended in 2019 as well.

What is the Health Insurance Providers fee?

The ACA imposes fees on insurance companies and HMOs that provide fully insured health coverage. The IRS considers this Health Insurance Providers fee to be a non-deductible tax imposed on earned health insurance premiums.

Proponents of the Health Insurance Providers fee have argued that an increase in health plan membership – prompted by enactment of the ACA – would increase revenue for insurance providers, making the fee feasible and legitimate. However, according to a recent report published by the Kaiser Foundation, enrollment declined by 12 percent in the first quarter of 2018.

Opponents argue that the Health Insurance Providers fee increases the cost of health coverage for individuals, families and small businesses because covered entities recoup lost revenue through raising premium prices for consumers.

What is a covered or unaffected entity?

According to the IRS, “a covered entity is generally any entity with net premiums written for health insurance for U.S. health risks during the fee year.” Net premiums are defined as premiums written during the calendar year, and premiums are taken into account for the Health Insurance Providers fee when they exceed $25 million.

A U.S. health risk is defined as anyone who lives in the United States, including “an alien individual treated as a resident of the United States.” Some entities, however, are excluded because of their non-profit status or the type of coverage they provide. The following are unaffected entities:

  • Accident only coverage.
  • Administrative only plans/stop-loss.
  • Coverage for specific diseases or hospital indemnity coverage.
  • Expatriate plans after 2015.
  • Medicaid and Children’s Health Insurance Programs (CHIP) that comply with political activity restrictions.
  • Medicare supplemental coverage that meets the requirements of 1882 (g) (1).
  • Non-profit corporations receiving 80 percent of their revenue from government programs.
  • Self-funded employer sponsored group health plans.
  • Voluntary employee beneficiary association plans sponsored by an entity other than employers.

Affected entities include many stand-alone and niche plans that categorize most remaining health coverage plans, specifically:

  • Individual and group medical plans.
  • Medicaid (and some CHIP) programs.
  • Medicare Advantage Plans.
  • Part D prescription benefit plans.
  • Retiree-only.
  • Stand-alone, behavior health and pharmacy plans.
  • Taft-Hartley Plans, if the plans meet the other criteria for covered entity status

What this means going forward

The Health Insurance Providers fee is one of the factors that have driven healthcare insurance premiums in the past. Because the fee is projected to rise as sold premiums increase, prices will continue to rise for consumers, especially during years when the Health Insurance Providers Fee is in effect.

On May 24, 2018, in an effort to offset premiums that will trickle down to consumers, U.S. House of Representative introduced bill H.R.5963. The aim of this bill is to delay the health insurance providers fee until after 2020. This bill has since been referred to the house subcommittee on health.

Despite constant changes and political battles, HCIM remains committed to helping our clients plot a course through health reform to achieve sustained growth. Our Strategic Consulting Team is comprised of experienced healthcare executives who partner with small to midsized payers throughout the transition to value-based care.

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