UPDATE: The HIT was repealed. See the Leavitt article for full details.
The Internal Revenue Service (IRS) recently released Notice 2019-50 announcing the Health Insurer Fee rate methodology for 2020. The Affordable Care Act (ACA) imposes an annual fee on covered entities engaged in the business of providing health insurance. The fee is a fixed amount (Applicable Amount) allocated among all covered entities in proportion to their relative market share as determined by each entity’s net premiums written for the data year, which is the year immediately preceding the year in which the fee is paid (the year in which the fee is paid is the fee year). The Suspension of Certain Health-Related Taxes enacted on January 22, 2018, suspended the fee for 2019. Absent legislative action, the fee will resume in 2020.
Background
For years prior to 2020, the rate of premium growth was based on per enrollee spending for employer-sponsored insurance as published in the National Health Expenditure Account (NHEA). However, in the 2020 Notice of Benefit and Payment Parameters, HHS provided a new premium growth measure beginning in calendar year 2020 that captures increases in individual market premiums in addition to increases in employer-sponsored insurance premiums for purposes of calculating the premium adjustment percentage for the 2020 benefit year and beyond. With this Notice, the Department of the Treasury and the IRS adopt the new premium growth measure provided in the 2020 Notice of Benefit and Payment 3 Parameters for purposes of determining the Applicable Amount for the fee imposed by Section 9010.
2020 Applicable Amounts
The 2020 Applicable Amount is determined by multiplying the fee for the 2018 base year (14,300,000,000) by the premium adjustment percentage for 2020 (1.0855118907), rounded to the nearest dollar. The 2020 Applicable Amount is $15,522,820,037.
Action Not Required
Only insurance carriers are required to remit this fee. All other employer plan sponsors will pay this fee as part of their premiums paid to the insurance provider carrier. Self-funded plans are specifically excluded from this requirement as a remitting covered entity but they, like insured plans, will pay this fee as a pass-through to their premium rates. Plan sponsors should be made aware this fee is back on and will be reflected in their 2020 or 2021 premiums.
1 Covered entity includes any entity engaged in the business of providing health insurance, including Health Maintenance Organizations (HMO), insurance companies, Medicare plans and Medicaid; but specifically excludes employers that self-insures, Voluntary Employees’ Beneficiary Associations (VEBA), and student health plans.
NOTICE OF DISCLAIMER
The Leavitt Group is not a law firm, and cannot provide legal, tax or financial advice. The information herein is provided for your organization’s general background and educational purposes only. You should consult an attorney regarding the application of the information provided herein to your organization’s specific situation considering your organization’s particular needs.