Tax Provisions for Other Organizations
Branded Prescription Drug Fee (BPD) - Pharmaceutical Manufacturers and Importers
The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On July 24, 2014, the IRS issued final and temporary regulations on the branded prescription drug fee. The regulations describe the rules related to the fee, including how it is computed and how it is paid. Also on July 24, 2014, the IRS issued Notice 2014-42, which provides additional guidance on the branded prescription drug fee for the 2015 fee year and subsequent fee years. For information on the fee for the 2012, 2013 and 2014 fee years, see Notice 2011-92 , Notice 2012-74 and Notice 2013-51.
For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.
Expatriate Health Plans – See Tax Provisions for Individuals
Expatriate Health Coverage
The Expatriate Health Coverage Clarification Act (EHCCA) was enacted on December 16, 2014. Section 3(a) of the EHCCA generally provides that the Affordable Care Act (ACA) does not apply to expatriate health plans, employers with respect to expatriate health plans (but solely in the employer’s capacity as plan sponsor of the expatriate health plan), and expatriate health insurance issuers with respect to coverage offered by such issuers under expatriate health plans. The EHCCA generally applies to expatriate health plans issued or renewed on or after July 1, 2015. On June 30, 2015, the IRS and Treasury Department issued Notice 2015-43, which provides transition relief and interim guidance on the application of certain provisions of the ACA to expatriate health insurance issuers, expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans, as defined in EHCCA. Notice 2015-43 does not apply to the health insurance providers fee (IPF - ACA § 9010 fee). For purposes of the § 9010 fee, Notice 2015-29, applies to the 2014 and 2015 fee years, and future guidance will address the 2016 and later fee years.
Group Health Plan Requirements
The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-140038-10, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On June 20, 2014, HHS, DOL and IRS issued final regulations on the ninety-day waiting period limitation..
Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy.
Health Insurance Provider Fee (IPF- ACA § 9010 fee)
The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On Nov. 26, 2013, the Treasury Department and IRS issued final regulations on this annual fee imposed on covered entities engaged in the business of providing health insurance for United States health risks. On Aug. 12, 2014, the Treasury Department and IRS issued Notice 2014-47 clarifying the scope of the term “covered entity” and the fact that reporting is not required in 2014 for an entity that would not qualify as a covered entity, even if it is a member of a controlled group that is a covered entity. On February 23, 2015, the IRS and Treasury Department issued temporary regulations providing further guidance on the definition of a covered entity for the 2015 fee year and each subsequent fee year.
On March 30, 2015, the Treasury Department and IRS issued Notice 2015-29, which provides guidance on how the special rule for expatriate health plans for the 2014 and 2015 fee years under the Expatriate Health Coverage Clarification Act of 2014 applies to the annual fee on health insurance providers. This notice obsoletes Notice 2014-24, which provided a temporary safe harbor for covered entities that reported direct premiums written for expatriate plans on a Supplemental Health Care Exhibit (SHCE).
On January 29, 2016, the Treasury Department and IRS issued Notice 2016-14, which provides guidance for fee year 2016 on how the definition of expatriate health plans under the Expatriate Health Coverage Clarification Act of 2014 applies to the annual fee on health insurance providers. This notice provides that, solely for the 2016 fee year, the definition of expatriate health plan will be the same as provided in the Department of Health and Human Services MLR final rule definition.
The Consolidated Appropriations Act of 2016, Title II, § 201, Moratorium on Annual Fee on Health Insurance Providers, suspends collection of the health insurance provider fee for the 2017 calendar year. Thus, health insurance issuers are not required to pay these fees for 2017. This moratorium does NOT affect the filing requirement and payment of these fees for 2016. Form 8963 (Rev. February 2016) must be filed by April 18, 2016.
On December 8, 2016, Treasury and the IRS published proposed regulations to address the treatment of retrospectively rated contracts and to clarify the treatment of the permanent risk adjustment program in determining net premiums written. In addition, on December 8, 2016, Treasury and IRS published proposed regulations requiring any covered entity reporting more than $25 million in net premiums written on any Form 8963, including corrected forms, to file Form 8963 electronically.
For additional information visit our Affordable Care Act Provision 9010 - Health Insurance Providers Fee page and these questions and answers.
Information Reporting on Health Coverage by Insurers (Section 6055)
On March 5, 2014, the Department of the Treasury and IRS issued final regulations on minimum essential coverage information reporting by providers of MEC to the IRS and each covered individual. The information reporting is to be provided by health insurance issuers, self-insured employers, government agencies and certain other parties that provide health coverage. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 announcing transition relief for 2014 from this annual information reporting. Notice 2015-68 was issued on September 17, 2015, and announces that the Department of the Treasury and the IRS intend to propose regulations addressing various issues related to information reporting by providers of MEC. On July 29, 2016, the Department of Treasury and the IRS issued proposed regulations providing rules requiring issuers to report coverage under a catastrophic health plan enrolled in through the Marketplace, clarifying the circumstances under which reporting is not required for an individual covered by more than one plan or program that is minimum essential coverage, and modifying the requirements under section 6724 for establishing reasonable cause for a failure to report an individual’s taxpayer identification number. For additional information on minimum essential coverage information reporting see our questions and answers and this fact sheet issued by the U.S. Department of the Treasury.
The 2015 Form 1095-B and 1094-B and instructions that insurers will use to report on health coverage that they provide for individuals that they cover are available.
On December 28, 2015, IRS issued Notice 2016-4, which extends the due dates for the 2015 information reporting requirements, both furnishing to individuals and filing with the Internal Revenue Service (Service), for insurers, self-insuring employers, and certain other providers of minimum essential coverage under I.R.C. § 6055, and the information reporting requirements for applicable large employers under I.R.C. § 6056. Specifically, this Notice (1) extends the due date for furnishing the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2016, until March 31, 2016, and (2) extends the due date for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage from February 29, 2016, to May 31, 2016 if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically. This Notice also provides guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns.
On November 18, 2016, IRS issued Notice 2016-70, which extends the due date for the 2016 requirement to furnish ACA-related statements to individuals for insurers, self-insuring employers, and certain other providers of minimum essential coverage under I.R.C. § 6055, and for applicable large employers under I.R.C. § 6056, and extends good-faith transition relief from section 6721 and 6722 penalties to the 2016 information-reporting requirements under sections 6055 and 6056. Specifically, this Notice (1) extends the due date for furnishing the 2016 Form 1095-B, Health Coverage, and the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2017, until March 2, 2017, and (2) extends good-faith transition relief from section 6721 and 6722 penalties to the 2016 information-reporting requirements under sections 6055 and 6056. This Notice also provides guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C by the time they file their 2016 tax returns.
Medical Device Excise Tax
On Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Department of the Treasury also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax.
The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law on Dec. 18, 2015, includes a two year moratorium on the medical device excise tax imposed by Internal Revenue Code section 4191. Thus, the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer, producer, or importer of the device during the period beginning on Jan. 1, 2016, and ending on Dec. 31, 2017.
Medical Loss Ratio (MLR)
Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.
Medicare Shared Savings Program
The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.
The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.
On October 24, 2014, the Department of the Treasury and the IRS issued Notice 2014-67, which describes the conditions under which a hospital or other health care facility with tax-exempt bonding authority may participate in an ACO without jeopardizing the tax-exempt status of the bonds financing that facility.
Patient-Centered Outcomes Research Institute Fee
The Affordable Care Act established the Patient-Centered Outcomes Research Institute. Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will help patients, clinicians, purchasers and policy-makers make informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.
The IRS and the Department of the Treasury have issued final regulations (PDF) on this fee. On Sept. 18, 2014, the IRS issued Notice 2014-56, which establishes the applicable dollar amount for policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015. On Oct. 9, 2015, the IRS issued Notice 2015-60, which establishes the applicable dollar amount for policy and plan years ending after Sept. 30, 2015, and before Oct. 1, 2016. On Nov. 4, 2016, the IRS issued Notice 2016-64, which establishes the applicable dollar amount for policy and plan years ending after Sept. 30, 2016, and before Oct. 1, 2017. Additional information on the fee is available on the PCORI page and in our questions and answers and chart summary. Form 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the PCORI fee. Although Form 720 is a quarterly return, for PCORI, Form 720 is filed annually only, by July 31. If for any reason you need to make corrections after filing your annual Form 720 for PCORI, write “Amended PCORI” at the top of the second filing.
Retiree Drug Subsidies
Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.
Section 162(m) Amended - Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers
The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On Sept. 18, 2014, the Treasury Department and IRS issued final regulations on this provision.
Section 833 Amended - Treatment of Certain Health Organizations
The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012.
On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed. Congress subsequently passed the Consolidated and Further Continuing Appropriations Act, 2015, which was signed into law by the President on December 16, 2014, and made a technical correction to section 833(c)(5). On June 21, 2016, the IRS issued final regulations incorporating the Technical Correction.
Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers
The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process.Rev. Proc. 2015-17, issued in conjunction with final regulations, sets forth procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under section 501(c)(29).
An overview of the CO-OP program is available on the HHS website.
Tax-Exempt Hospitals - Additional Requirements
The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 and Notice 2011-52). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published emtporary regulations and proposed regulations providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-2 confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance. On December 29, 2014, the IRS issued final regulations TD 9708 providing guidance on the requirements described in section 501(r), the entities that must meet these requirements, and the reporting obligations relating to these requirements under section 6033. In addition, the final regulations provide guidance on the consequences for failing to satisfy the section 501(r) requirements. The regulations apply to taxable years beginning one year after December 29, 2014, which is the date the regulations were posted for public inspection by the Federal Register. On March 10, 2015, the IRS issued Rev. Proc. 2015-21, which finalizes, with some modifications, the correction and disclosure procedures proposed in Notice 2014-3, under which certain failures to meet the requirements of section 501(r) will be excused. On June 26, 2015, the IRS issued Notice 2015-46, which clarifies how a charitable hospital organization may comply with the requirement in the final regulations that a hospital facility include a provider list in its financial assistance policy (FAP).
Transitional Reinsurance Program
The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.