Doctor concerned with health care law

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Health Law Daily, September 18, 2013

New fee on health insurance premiums under PPACA under scrutiny by governors, medical schools, insurance companies

By Paul Clark

Congress, state governors, medical schools, and insurance companies have all weighed in on the possible ramifications of a new surcharge on health insurance premiums included as part of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), according to the Congressional Research Service (CRS). The new fee is scheduled to raise $8 billion in revenue in 2014, and $60 billion from 2014 through 2018.

Background. Prior to the enactment of PPACA, there was no provision in federal law to tax or levy a surcharge on health insurance companies, although almost all states impose a health insurance premium tax. This tax varies from less than 1 percent of premiums in Nebraska and Wyoming to 3 percent or more in Hawaii, Mississippi, and Nevada. The most common premium tax is between 2 percent and 2.5 percent of premiums, imposed by half of the states in 2009. According to the U.S. Census Bureau, in 2012, states collected $16.7 billion in premium taxes on a broad range of insurance (including property and casualty, life, and health products).

The new tax (PPACA sec. 9010) will be levied on insurance companies based on the amount of health insurance premiums the company collects each year. Insurers with net premiums in a calendar year of $25 million or less are exempt from the fee. For insurers with more than $25 million but not more than $50 million in premiums, 50 percent of the premiums will be taken into account in determining the fee; and 100 percent of the premiums will be taken into account in determining the fee for insurers with more than $50 million in annual premiums.

Under PPACA, each year the IRS will apportion the fee among covered 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) the dollar value of business.

The new tax does not apply to entities that fully self-insure, government-run insurance programs, or non-profit insurers incorporated under state law that receive more than 80 percent of their gross revenues from government programs that target low-income, elderly, or disabled populations.

CRS review. According to the CRS, “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.” The CRS also noted the following issues regarding the new fee –

  • At least five bills have been introduced in Congress to repeal the new fee or to require better reporting to consumers about the nature of the fee.
  • Some state governors have raised concerns that the premium fee will result in higher costs to states that offer fully capitated Medicaid managed care plans under contract with insurers. The Republican Governors Association has asked Congress to exempt Medicaid and Children’s Health Insurance Program managed care plans from the insurance tax.
  • The Association of American Medical Colleges has asked the Treasury Department to consider using part of the revenue raised through the new fee to fund graduate medical education programs, noting that “as [PPACA’s] marketplace reforms are implemented and the number of Americans with health insurance expands, it is critical that the nation also explores ways to expand support for GME.”
  • Some insurance companies are looking for a tax break on any revenues they raise by passing on the cost of the new fee to consumers. According to the CRS, “the insurers argue that they are effectively being `double-taxed’: once through [PPACA’s] fees/excise taxes, and next based on income earned from new fees and higher premiums instituted to offset any reduction in profits due to the tax.

MainStory: TopStory HealthCareReformNews

Health Law Daily

Introducing Wolters Kluwer Health Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.