On June 21, 2013, the IRS conducted a public hearing on proposed rules regarding the Health Insurance Providers Fee (the “§ 9010 fee”). The § 9010 fee is an annual fee starting in 2014 for covered entities engaged in the business of providing health insurance. The total fee payable in 2014 is $8 billion.
The proposed rules do not definitively state whether health care risk pools (“pools”) formed by government entities will be subjected to fees under § 9010 of the PPACA. Both the National League of Cities (“NLC”) and the Association of Governmental Risk Pools (“AGRiP”) spoke at the June 21, 2013 hearing and, echoing comments that they had previously submitted to the IRS, indicated that they believed that IRS regulations should clearly specify that government entity pools are not exposed to § 9010 fee.
Generally, the PPACA explains that the fee applies to covered entities engaged in the business of providing health insurance for any United States health risk. The statutory language and the IRS proposed rules both explicitly exclude employers with self-funded coverage and governmental entities from the covered entity definition. The proposed rules also exclude certain nonprofit entities and certain organizations that qualify as Voluntary Employees’ Beneficiary Associations under Internal Revenue Code § 501. In contrast, multiple employer welfare arrangements (“MEWA”) are explicitly subjected to the fee under the proposed rules. Government entities that utilize pools are concerned that, if government entity pools are not explicitly excepted from the proposed rules, the IRS will either treat pools as MEWAs or some other entity that does not fall into the exceptions for either self-funded employers or government entities.
In an attempt to ensure that government entity pools are excepted from § 9010 fee, both the NLC and AGRiP adopted a belt-and-suspenders approach at the IRS hearing. NLC and AGRiP argued that the final rules should explicitly exclude pools from the fee, but they also argued that a reasonable interpretation of the PPACA and the proposed rules would exclude government entity pools from the fee.
NLC took the position that government entity pools should clearly fall into the government entity exception of § 9010 fee. The PPACA explicitly excludes any government entity from the fee, but the preamble to the proposed rules indicates that instrumentalities of government entities are not included in the government entity exception to the fee. The NLC argued, however, that because pools serve an “essential government function,” pools should be exempt from the § 9010 fee, similar to the treatment of governmental entities.
Alternatively, the NLC argued that pools fall into the self-funded employer exception set forth in the proposed rules. NLC pointed out that the proposed rules focus on whether an employer shifts risks to a third party in order to determine whether an employer is operating a self-funded health insurance plan. The NLC argued that pools fit this definition because the individual government entities that participate in the pools are sharing the risk of the pool. Therefore, the participating government entities would be self-funded, and the pools would not be subject to § 9010 fee.
AGRiP elected to pursue a slightly different approach in its argument that § 9010 fee do not apply to government entity pools. While also arguing that government entity pools should and would fall into both the government entity and the self-funded employer exceptions respectively, AGRiP focused its argument on explaining why a government entity pool should not be included in the MEWA subcategory of covered entities created by the proposed rules. To sum up AGRiP’s argument, government entity pools operate in a similar fashion to private MEWAs, but, unlike private MEWAs, pools are expressly exempt from ERISA and are not required to meet the filing, registration, and enforcement provisions adopted by the Department of Labor for private MEWAs. It would seem inconsistent for pools run by government entities to be subjected to § 9010 fee when other federal efforts have focused entirely on regulating private MEWAs.
Until the IRS provides further guidance, government entities participating in pools will have no way of being certain whether they will be subject to § 9010 fee in 2014; however, there is hope that the IRS will follow the recommendations of the NLC and AGRiP and will unambiguously exclude pools from § 9010 fee.
AGRiP’s written comment on the proposed rule can be found here.
NLC’s written comment on the proposed rule can be found here.