There are already a few threads on this subject, but since there seems to be considerable interest I thought it would be better to start a new one to discuss the substance of the Health Insurance Providers Fee imposed by Sec. 9010(a) of the Affordable Care Act (the “HIPF”) based on a review of the proposed treasury regulations and address some misperceptions from other threads. The treasury regulation and commentary can be found at http://federalregister.gov/a/2013-28412.
The HIPF is an $8 billion aggregate fee (increasing to $14+ billion in future years) that applies very broadly to state licensed health insurance companies, health maintenance organizations, entities that provide insurance under Medicare Advantage, Medicare Part D, or Medicaid, and several other types of entities. The only full exemptions I see are for governmental entities, certain specific types of nonprofit health insurance entities (VEBAs), and entities formed to self-insure employees (including stop loss insurance). There is a partial exemption for other nonprofit insurance entities – 501(c)(3), (4), (26), or (29) entities. And the HIPF only applies to entities with more than $25 million in premiums, and applies at a reduced rate to premium amounts between $25 million and $50 million. “Health insurance” is also broadly defined and includes limited scope dental and vision insurance although it excludes indemnity reinsurance and accident, disability, specific disease, long term care, or Medicaid supplemental policies. The amounts are tied to the annual statements filed with the NAIC.
Insurance companies must file Form 8963 with the IRS by 4/15 (even if the company has less than $25 million in premiums and the HIPF won’t ultimately apply). There is a late filing penalty if the form is not timely filed and accuracy related penalties if the form is not properly completed. There is no payment due to the IRS at the time of the filing. The IRS will calculate the HIPF based on the total premiums reported and will send out bills by 8/31. The payment is due by 9/30. The HIPF is calculated on an aggregate basis then allocated out to all the entities on a pro-rata basis.
The distinction between a “tax” and a “fee” is more semantic than anything. The HIPF is a tax under IRC Sec. 275(a)(6). But the returns are not considered “tax returns” and, therefore, the amounts reported on the forms are subject to public disclosure. In fact, I believe the IRS will be publicly releasing the reported amounts on their website. But does it really matter from a practical perspective whether the HIPF is a fee or a tax?
The legal incidence of the HIPF clearly falls on the insurance company. And there is no prohibition from the insurance company collecting amounts from its insureds to offset the HIPF. But any separate charge for HIPF reimbursement would itself be part of the premiums received, and would itself be subject to the HIPF (i.e. if insurance companies try to pass the cost through then it will be pyramided and the increase in cost to the consumer will be higher than the stated rate of the HIPF to the insurance company). That may either dissuade insurers from explicitly passing the cost through, or increase the amounts paid by insureds if the amounts are explicitly passed through. The commentary to the proposed regulations notes that “the final regulations do not require a covered entity to disclose to its policyholders any amounts included in premiums to offset the cost of the fee, although nothing in the final regulations prohibits a covered entity from disclosing these amounts. However, a covered entity may be subject to State or other Federal rules, if any, regarding disclosures of these amounts.” So whether the amounts can or must be disclosed is not clear, and the answer may be different state-by-state, entity-by-entity, or even policy-by-policy.
Some misperceptions from other threads:
• The statement “Starting in 2014, a new tax takes root and that is a 2% tax on every health insurance premium across the country” is inaccurate – This is accurate as long as the HIPF is considered a tax (certainly arguable) and the 2% estimate is reliable (. I The real issue is whether the legal incidence of the tax on the insurance companies means that it won’t be passed on to insureds. Again, this is a complicated issue that will be based on many factors.
• The HIPF is some sort of targeted fee on insurance companies for using the exchanges – I don’t think this is accurate because I don’t see anything limiting the tax to only insurance companies that offer policies through the exchanges. Health insurance companies that do not offer policies through exchanges (or only generate a small portion of their premiums through exchanges) are all subject to the HIPF.
• The tax is not “deductible” – No and yes. For the insurance company the answer is no, the tax is not deductible for purposes of calculating its income. For employers paying premiums on behalf of their employees the answer is yes, the tax is deductible along with wages, premiums, and other benefits paid to employees. But I’m not sure why this matters.
• Insurance companies can’t figure out their portion of the HIPF for 2014 – It is true that insurance companies can’t calculate to the penny. However, NAIC filings are all publicly available information so in theory a company could calculate its share of the $8 billion total before the IRS sends out the bill on 8/31. They can’t do this for the current year until after all NAIC annual statements are filed (I think the due date for those is 3/1). They could estimate before 3/1 based on their own 2014 data and an extrapolation of the 2013 data, and they would likely get very close. I’m not sure if this estimate would meet standards for setting premium rates. That being said, insurance companies definitely need to incorporate an estimate of the HIPF when they set their premium rates. Insurance companies are highly regulated by state insurance departments for solvency, and they would need to have some sort of estimate to make sure they have sufficient reserves to pay their HIPF liability.
• BCBS of Alabama is doing something wrong – I am a little confused by Wake Forest professor Mark Hall’s statement that because other types of taxes are not itemized on broken out per premium and itemized that the HIPF should not be either. Income and sales taxes are not based on gross premiums amounts, so any attempt to break them out per premium would be difficult. State level premium taxes are easier in theory, but tax credits and retaliatory taxes would complicate that calculation. The HIPF is based on premiums and much easier to allocate per premium, so the calculation is much simpler and the estimates will be much more accurate. And the specific itemized lines on the BCBS Alabama premium bills (whether paid by an insured or an employer of an insured) is determined under Alabama regulatory insurance law. It may be the case that they are not allowed to include an itemized ACA line, or it may be the case that they are supposed to include an itemized ACA line. I would expect that the Alabama Department of Insurance will weigh in if BCBS of Alabama is doing something improper.
Some of the debate on other threads has turned personal, but I think it’s a worthwhile debate on the merits. I guess the next questions would be, even if the HIPF is a new 2% tax on every health insurance premium, is that a good thing or a bad thing? Are there better ways to fund the cost of the exchanges? Should the cost be born only by participants (insurers or insureds) of the exchanges? Is $8 billion to $14 billion an appropriate level of funding? Who bears the cost of the HIPF? Who receives the benefits? I’m not sure I know the answers to any of these questions.
I feel vindicated after reading this diary, all my comments and my own diary on this topic, my concerns and unfairness with this tax, now learning the special carve-outs who is exempted from this tax, like non-profits, make me even more mad than before.
Don’t worry about the personal attacks against me, knowing there are people like yourself, and thousands more who read BMG, makes it all worth while.
Here they go again! Insurance companies sure have powerful lobbying and marketing efforts! They are making a big deal over something that is, in the scheme of things, pretty small. Please consider the following:
1. The fee is relatively tiny. I am skeptical about any claims the insurance industry makes, and they are claiming that this fee could represent a 2% increase in premiums. That is a tiny fee increase, especially when compared with the increase in business that these same insurance companies will receive under ACA.
2. The fee is progressive. The fee does not apply to the first $25 million of annual premiums. For the next $25 million of annual premiums, only 50% is applied. So, the fee has a greater impact on the larger, national insurance companies, which, coincidentally, are the organizations that spend the most on marketing and lobbying.
3. Non-profit insurance companies only pay half of the fee. Here in Massachusetts, all three of our commercial insurance companies are non-profit. Specifically, Blue Cross, Tufts Health Plan, and Harvard Pilgrim would all pay half of the amount. So, if you accept the industry’s claims about the impact of the fee, then the impact in Massachusetts will be to increase premiums by 1%.
It’s time to stop these silly attacks on Obamacare! Sure there might be some fees and taxes, but there are also some huge benefits. Just like there are huge benefits to Medicare and Social Security.
was to refute the argument that the exact cost of the fee to the insurer would be passed on to the insured. There are a variety of factors that can influence how much of that cost is passed on.
I think Professor Hall’s point was that BCBS Alabama’s motivations were more political rather than informational, but his comments were truncated for the NPR report.
The personal aspect of the debate is, in fact, personal, thought not merely personal. It’s about a community norms, not character assassination.
In 2012, the CEO of Blue Cross Blue Shield of Alabama, Terry Kellogg, was paid $4.29 million. That’s a lot of money to be paid for running a non-profit organization. Instead of complaining about the HIP fee, BCBS of Alabama should reduce premiums by lowering the CEO’s salary.
Right now, I just don’t have a lot of sympathy for insurance companies that are complaining about Obamacare fees.
has written more than $4 billion in Alabama premiums in each of the past 5 years. Assuming the HIPF will be imposed at 2% (the low end of the estimates) and that BCBS of Alabama will be eligible for the 50% exemption as a nonprofit entity, that means that the HIPV will be at least $40 million per year for this company. It seems rational for them to focus on reducing a $40+ million cost rather than a $4 million cost, I can’t really fault them for that.
I would want to separately state the HIPF and to pass it through to my customers. It makes business sense to note to your customers that (part of?) the annual premium increase is due to external taxes/fees – your insureds will be angry at someone else rather than you for their increased costs. I don’t think the motivations need to be political or informational.
That one insurance organization currently has about 90% of Alabama’s healthcare market. They’ve also amassed a “surplus” of over one billion dollars.
As far as showing the amount of the HIP fee to their subscribers, a company can do whatever it wants. In my opinion, BCBS of Alabama should also show the total amount spent on executive compensation, and they could also show the amount that they spend on political advocacy.
Since they will receive the benefit of the vast majority of the new subscribers in Alabama, I really think that they should just be saying: “Thank you, President Obama”.
require them to hold sufficient reserves to cover their policies. The amount of these required reserves are determined by actuaries at state departments of insurance. That “surplus” may or may not be deemed sufficient after a $40M+ additional annual tax/fee is added to their books.
And although they wrote $4 billion in premiums in 2012, they paid out over $3.6 billion in claims and incurred over $300M in other non-claim expenses. They earned almost $50M in investment income, and paid just under $40M in federal and foreign taxes. So their total net income was approximately $100M. Interesting to note that if the HIPF is considered a federal tax for NAIC reporting purposes, it will essentially double their tax amount. I guess I just can’t get that worked up that they’ve dispatched their “powerful lobbying efforts” to prevent their taxes from doubling.
Not to say that this means that the ACA as a whole or the HIPF in particular is a bad thing. And you may be right that BCBS of Alabama will reap other benefits that will partially or totally offset the HIPF burden. But its certainly not, as you claim, a “tiny fee increase.”
Yes the fee is tiny when compared with the multi billion surplus that Alabama’s Blue Cross insurance company amassed. It’s also tiny when you realize that 640,000 people in Alabama are uninsured. Of those uninsured people, approximately 95% qualify for federal subsidies.
BCBS of Alabama is that state’s dominant insurance carrier, and they have a history of anti-Obamacare statements. They recently sent 87,000 subscribers termination notices that included an offer of replacement plans with fee increases; they blamed Obamacare for the increases. Actually, all of the plans that they cancelled were “grandfathered”, and the ACA did not require cancellation.
But I just went through the 2012 financials for you. The company paid less than $40M in total federal and foreigntaxes and had net income of $100M. So the HIPF is 100% of its taxes and 40% of its net income. I don’t see how anyone could view that as “tiny.” We’re talking about a significant increase in operating costs – more than 10 times the CEO salary that had you so miffed above. And I don’t think its valid to compare the amount of the HIPV to the reserves (whether they are $1 billion as you originally claimed or “multi-billion ” as you later claimed) that are actuarilly required to be maintained to pay claims. Those are there so the company can pay its outstanding claims and stay solvent, not there for the government to raid to use for setting up exchanges.
make with the implementation of Obamacare?
Both how much more in gross premiums, and how much more in net income (after the additional costs). Depends on a lot of factors – the pool of the new insureds, the new premium rates for both current and new insureds, the cost of medical services, other administrative costs, etc. I don’t have an answer for you.
We’re dealing with a lot of uncertainties. And to assume that the figures from Alabama are true, well, it’s premature.
My concern was also a different fee.
Dan’s “concern” was the cost to self-insurers. Oddly, the self-insurance lobby doesn’t seem to be complaining.
Go back and read the transcripts and my comments. I noted several times how the self-insured escape the Obamacare taxes and mandates and how those who buy/pay for actual insurance, get screwed.
Seriously, this debate is over, for all intents and purposes, another dagger in the heart of Obamacare. But the true believers still carry the water for Obama and this bad law, which is unbelievable.
to incentivize companies to self-insure their employees rather than pay health insurance premiums to a 3rd party health insurer (and most likely still pay a 3rd party company to manage the plan) for their employees? Is a self-insured arrangement inherently worse than traditional 3rd party health insurance? I’m not sure I understand this objection.
Then the Obamacare tax on premiums will increase even more to cover the expected revenue, thus, making it more expensive to buy health insurance, right?
They stand to benefit from the fee–it’s the poor little guy who can’t self-insure–but they are blowing the whistle on the evil Obamacare.
Dan, I worked really hard to understand what the hell you were saying in your diary. The best I can say is that it was incoherent. If it had been more coherent, I would have spent less time on it. A few hints:
1. Whenever you write “it’s obvious,” you might consider stating what’s so obvious.
2. Look for contrary evidence before posting a diary. Right-wing news sources and trade groups rarely give unvarnished facts. The same is true for some union sources, though I have to say I don’t see propaganda being put out by the NEA, MTA, or AFT. If you know the contrary, you may be able to pre-empt it or at least address it when the inevitable comments come. Our advantage over you is that most of us already know the reactionary arguments, and your sources are either misused, suspect, or just plain old wrong.
You keep saying we liberals won’t change our minds. Dude, it’s you who have your mind made up. On Obamacare, on climate change.
There may be a problem down the road evidently.
So it’s not the self-insurers who get screwed, it’s the employers who get to deduct the fee?
Of course not. So in your own hypothetical, you pay 50% of the premiums, which if you work for a small business, is about right. So in that case, Mark, the employer and employee share the cost of the tax, right?.
But, what if the small business owner throws up hands like my Dodge dealer in Michigan, then if you go on the Obamacare Exchange, you will pay 100% of the tax.
How on earth would a small company self-insure, unless they have a bunch of under 30 workers who don’t get sick. I can’t see, unless they have deep pockets, that many small companies would self-insure. If they do, I doubt they would hire anyone over 50.
company would self-insure. You seem to need a lot of money.
I never said the cost wouldn’t be passed on to the insured. I doubted that the total amount would be passed on to the insured.
From a policy perspective, it is a matter how many people benefit from Obamacare and if there are fixes and what they are. Right now, about half of the uninsured own or operate small businesses. If that number is cut dramatically, the suffering may be worth it. It’s not like there was a choice about what we could have done.
And I’ll wait for the fact checkers to see what’s up with Extreme Dodge. The story may be true, but at the very least, these things are complicated.
There is less insurance policies being written, so, the taxes would need to be I creased due to the smaller number of premiums, right? And if there are more self-insured, those would likely be people younger and healthier, why else would a company self-insure? So those left buying insurance policies will pay even higher premiums b/c the risk pool is higher/older/ and sicker. There is your trickle-down misery.
happen. You can’t roll out a program this complicated and expect everything to work. You can’t expect to cover all the negatives that might crop up.
I understand your logic.
You can keep,your own healthcare plan, you can keep your own doctor, ACA will save you $2500, people will have more choices and lower deductibles.
I don’t expect everything to work perfectly, Mark, but I don’t exept the bill to be built on lies and fraud and gut the middle class with higher premiums and taxes. I didn’t expect the opposite to be true, Mark, that’s my beef. Some seem to have the attitude that “we should just suck it up”. You are single and make $14 hour in Texas, Suck it up, pay 100% full cost. Family of four making $64,000 or so in NYC, suck it up, and pay full cost with high deductibles and premiums. You live in NH and the nearest in-network hospital in 25 miles away, suck it up.
I heard from the left back in 2003, those that supported the Iraq War should offer up their sons and daughters to go fight. I say the same thing here, you like this Obamacare bill and all its glory while you demean Sen. Cruz who just wanted to delay Obamacare for one year, yet some called him a “political terrorists”, then walk the walk and get into the Obamacare Exchanges and prove you really want to help those without health care and you truly believe in Obamacare.
He is holding people accountable?
Sure he is. In his fantasies.
He doesn’t run a PAC. He can’t convince moderates.
*
He’s only saying this because he wants everything to be about him. Note how ill-supported his reckless assertions are.
The taxes only apply to the the larger, by dollar amount, of the insurers. If the insurers get smaller, by virtue of collecting fewer premiums they’ll fall off the tax radar. The self-insured aren’t virtuous and responsible, therefore exempt. They are exempt purely by virtue of their size.
Also, since the fee funds the exchanges, and the self-insured are unlikely to use the exchanges, the argument can be made that the exchanges will, themselves, cost less and so the fee will not need to be raised: fewer premiums on the exchanges means smaller costs for the exchanges.
The total HIPF in the aggregate is set each year (starts at $8 billion, increases to $14 billion+), the total collected won’t change. Who pays it could change – danfromwaltham is concerned that this will incentivize more employers to self-insure their employee pool. Example – A large widget company with 50,000 employees now offers its employees a few 3rd party options for health insurance (Cigna, Aetna, UnitedHealth, BCBS, etc). Because the HIPF will increase the premiums charged by these large health insurance companies, the widget company will set up its own subsidiary and pay the premium amounts to that entity. The widget company will still likely hire Cigna, Aetna, UnitedHealth, BCBS, etc to manage the plan, but the actual insurance will be provided through the subsidiary. Therefore, the premiums will be paid to the subsidiary, the medical services claims will be paid by the subsidiary, the reserves to pay the claims will be maintained in the subsidiary, etc. The subsidiary will be treated like an insurance company for many regulatory purposes, but won’t be subject to the HIPF. And because the aggregate fee is fixed (the $8-14+ billion) and the amount will now be collected from the remaining smaller pool of 3rd party health insurance companies, that will further increase the cost of buying health insurance for anyone who does not work for an employer large and sophisticated enough to create its own self-insurance program.
The concern seems valid in theory – not something that can be dismissed out of hand. But I’d like to see whether there has been a movement of companies creating self-insurance programs in 2013 and 2014 – that’s not something I’ve seen or heard about – can you point to where its happening?
“Buckno Lisicky & Co., an 85-person accounting firm in Allentown, Pa. The company switched from a traditional health plan to a self-insured plan”.
“Serenic Corp., an Alberta, Canada-based maker of nonprofit accounting software. The firm will move its 40 U.S.-based workers to a self-insured plan in June, in part to avoid the health law’s risk-spreading provisions that could raise its costs, said CEO Randy Keith.”.
I honestly believe those that still support this terrible law and voted for Obama in 2012 (yes, I voted for Mitt Romney) should walk the walk and get on the exchanges.
http://m.us.wsj.com/articles/SB10001424127887323336104578503130037072460?mobile=y
Not clear this is even mildly significant.
The employer pays a ‘deductible’ of several thousand dollars, with a reinsurance carrier for catastrophic losses beyond the self-insurance pool (usually $10 – 15 thousand per person).
It’s in the range of one percent of their premium! That’s all. Around one percent.
Why don’t they concentrate on the 99% that represent their costs? Instead, they are taking every opportunity to bash Obamacare. They are acting in a political manner that represents the views of their CEO.
Are you under the impression that insurance companies are not currently fighting to keep their costs down? Over 91% of BCBS of AL’s 2012 costs were incurred paying claims. Do you understand that keeping those costs down involves tactics such as negotiating lower reimbursement rates to healthcare providers, denying coverage, dropping costly insureds from the rolls, imposing lifetime limits on coverage, etc? Many of those tactics to keep costs down are illegal and/or represent bad business practices.
Of course, we shouldn’t care whether taxes on health insurance are more or less, so much as we should care about the total cost of healthcare and how affordable it is. If the premiums are less, what proportion is taxes is not so important.
Healthcare costs have risen so much that the goal sounds ludicrously easy — as if one were cheating. It is not to make healthcare cheaper. It is not even get healthcare costs to stop rising every year. It may not even be the modest goal of keeping increases in healthcare costs in line with inflation. Success — and important success — could consist in just reducing the annual increases even if they remain above the inflation rate.
Do you mean the costs of acquiring health insurance (premiums) or the costs to deliver healthcare services?
I’m really only addressing the facts of the specific HIPF aspect of the ACA. Only after the facts are clarified can we determine if the HIPF helps to further the overarching policy goals. It seems likely that the HIPF will make premiums more expensive viewed in a vacuum. But the next question is whether your end goal is reducing premiums or reducing the cost to deliver the healthcare services, and/or whether the increase is necessary as part of a broader scheme to reduce premiums.
… and yes.
That dog, as they say in Alabama, won’t hunt unless and until it stops chasing it’s own tail.
It’s refreshing to have an empirical debate with someone from the center-right. Perhaps it’s just my DFW fatigue…
Obamacare looks to be the Hindenburg of healthcare leglislation.
guy in competition with a stopped clock for being right.
A stopped clock is right twice a day, every day – that’s not a competition, the stopped clock is cleaning Dan’s clock!
I don’t believe power-wheels is center-right in her/his political orientation.
In this case, I think it’s just numbers and facts. It seems clear enough to me that PW relies on them and DFW does not.
At the end of the day, government-sponsored single-payer is the only approach that will work. Fact-based analysis like this will lead us there — it’s just a matter of how much time and money we’re willing to squander on politics and subsidies to the already-wealthy health insurance industry along the way.
that a discussion of the facts regarding how the HIPF works has cause one commenter to conclude that “Obamacare is worse than expected” while it has caused you to conclude that gov’t sponsored single-payer is both an inevitability and the only workable approach. I disagree strongly with both of those conclusions. I’m guessing that both conclusions have virtually nothing to do with any of the facts actually discussed and wonder if there is any possible discussion of facts that would cause either conclusion to change.