When the Consolidated Appropriations Act, 2016, was signed into law on December 18, 2015, along came with it a moratorium on the Health Insurance Provider (HIP) fee for 2017. The HIP fee is imposed on each covered entity engaged in the business of providing health insurance under Section 9010 of the Patient Protection and Affordable Care Act. With the moratorium, questions have arisen for insurance carriers, subject to the HIP fee, for the Internal Revenue Service (IRS) and the National Association of Insurance Commissioners (NAIC). Questions for each of the regulatory bodies will be discussed hereafter. Ultimately, the main purpose of this memo is to provide information for insurance carriers in regards to the moratorium to address IRS reporting and filings and to provide the current status of the NAIC interpretation exposure draft on the moratorium.
Internal Revenue Service
To address questions from insurance carriers, subject to the HIP fee, the IRS posted the following:
Health Insurance Provider Fee: 2017 Moratorium – Questions and Answers
Q1: Under the 2017 moratorium, is there a health insurance provider fee in 2017?
A1: No. There is no fee in 2017.
Q2: Must Form 8963 be filed in the 2017 fee year?
A2: No. Do not file Form 8963 in the 2017 fee year.
Q3: Does the 2017 moratorium affect the 2016 fee year?
A3: No. Form 8963 for the 2016 fee year is due by April 18, 2016. The 2016 applicable amount is $11.3 billion and any required payment is due on September 30, 2016.
Q4: Does the 2017 moratorium apply to fee year 2017 or data year 2017? In other words, does the moratorium apply to (1) the fee paid in 2017 based on the 2016 data year or (2) to the fee paid in 2018 based on the 2017 data year?
A4: The 2017 moratorium applies to fee year 2017. Therefore, no fee will be due in fee year 2017 based on the 2016 data year.
Q5: How does the 2017 moratorium affect the filing obligation or fee amount for the 2018 fee year?
A5: The 2017 moratorium has no effect on the filing obligation or fee amount for the 2018 fee year.
Q6: Is the 2017 fee amount payable in 2018?
A6: No. The 2017 fee amount does not shift to 2018. The “applicable amount” for fee year 2018 remains at $14.3 billion (see Treas. Reg. § 57.4(a)(3)).
National Association of Insurance Commissioners
In early 2016, America’s Health Insurance Plans (AHIP) and Blue Cross/Blue Shield Association (BCBSA) recommended that the Statutory Accounting Principles Working Group (SAPWG) issue an interpretation to SSAP No. 106, Affordable Care Act Section 9010 Assessment, to promote consistent statutory reporting by insurance carriers for the 2017 HIP fee moratorium. It was also recommended that the interpretation exposure period be shortened to have guidance for insurers for the first quarter reporting period. Currently, the SAPWG, has in exposure draft, Interpretation 16-01 (INT 16-01), to address the following issues:
Issue 1 – Should the liability for the ACA Section 9010 fee based on 2015 data year net written premiums be accrued on January 1, 2016 (the fee year)?
Issue 2 – The ACA Section 9010 assessment does not apply to 2016 data year net premiums written, which includes calendar year and the portion of fiscal year policies written in 2016 data year. How does the moratorium for 2017 fee year impact accounting and disclosure for 2016 statutory financial statements?
Issue 3 – What is the accounting for the amount related to the ACA Section 9010 assessment payment that was originally due on September 30, 2017 but is no longer required?
Issue 4 – Is there an accrual of the ACA Section 9010 assessment payment based on 2017 data year, which will be due on September 30, 2018?
Issue 5 – The 2018 ACA Section 9010 assessment payment will be based on 2017 data year net written premiums including calendar year and the portion of fiscal year policies.
The SAPWG’s response to each of the issues can be found in the exposure draft of INT 16-01 and are as follows:
Issue 1 Response:
Yes, accrual of liability on January 1, 2016 for ACA Section 9010 assessment based on 2015 data year net written premiums shall be consistent with SSAP No. 106. Amounts that were segregated in special surplus at year-end 2015 should be reflected as a liability in the year of payment (fee year), in this case September 2016.
Issue 2 Response:
For 2016, there will be multiple reporting elements impacted.
- As noted in Issue 1, a liability will be recognized on January 1, 2016 related to the 2015 data year premiums that will be paid in September 2016.
- Because there will not be an ACA Section 9010 fee based on premium written in the data year of 2016 there will not be a monthly segregation of special surplus in 2016 for the 2016 data year net written premium.
- At year-end 2016 the disclosures related to the fee payable immediately in the 2017 year and the related impact on Total Adjusted Capital (TAC) and Authorized Control Level (ACL) will report “zero” as the fee payable in 2017.
Issue 3 Response:
Because there is not an ACA Section 9010 fee due in September 2017, there is not an accrual of a liability on January 1, 2017 based on 2016 data year net written premiums.
Issue 4 Response:
Yes, monthly segregation of amounts in special surplus for ACA Section 9010 assessment based on 2017 data year net written premiums resumes during 2017. Therefore, in the 2017 data year, the reporting entity is required to reclassify from unassigned surplus to special surplus an amount equal to its estimated subsequent fee year assessment. This segregation in special surplus is accrued monthly throughout the data year.
Issue 5 Response:
Accrual of liability on January 1, 2018 for ACA Section 9010 assessment based on 2017 premiums will revert to the accounting prescribed in SSAP No. 106. The special surplus amount from year end 2017 is reversed and the full current fee year assessment liability shall be accrued as a liability for the amount payable in September 2018.
Monthly reclassification of amounts from unassigned surplus to segregation in special surplus related to data year amounts to be paid in 2019 will continue.
Although the timing of the moratorium can be confusing, the guidance provide by the IRS and the NAIC should promote consistent reporting for the HIP Fee Section 9010 Assessment for the applicable reporting periods affected and provide consistency for the application of SSAP No. 106 for insurance companies.
It is also important to note the IRS Q&A is the current guidance at this point and the IRS will release additional guidance as it is deemed necessary. The SAPWG’s current guidance is the group’s tentative consensus. INT 16-01 is currently in exposure draft and is open for comments. Comments for exposure draft INT 16-01 are due to the NAIC by March 10, 2016. This will allow the SAPWG to address the interpretation at its spring meeting to have guidance to insurers for their first quarter reporting.
For more information regarding the current status of the NAIC interpretation exposure draft on the moratorium or help understanding these announcements, contact Karsten Hatch.