IRS Updates: Providers Fee, ALE Penalties
The IRS issues guidance throughout the year to keep both employers and individuals apprised of the latest news regarding changes to and interpretations of the Internal Revenue Code (IRC). Here are a couple of important items related to health care benefits.
Health insurance providers fee
In Notice 2019-50, the IRS establishes the 2020 “applicable amount” for purposes of the health insurance providers fee under the Affordable Care Act (ACA). The fee is imposed on any entity engaged in the business of providing health insurance — including health insurers, but not self-insured group health plans or certain other entities.
The applicable amount, which is the aggregate fee for the year determined according to the statute and related regulations, is allocated among the entities subject to the fee. The fee payable by an entity is determined according to the entity’s proportionate share of the applicable amount based on its net premiums written for U.S. health risks for the previous calendar year. The fee was suspended for 2019 but, absent legislative action, will apply again for the 2020 calendar year.
The notice explains that, for 2014 through 2018, the applicable amount is set forth in Section 9010 of the ACA. For calendar years after 2018, the applicable amount is the applicable amount for the preceding calendar year increased by the premium growth rate, which (beginning with 2020) is determined using premium growth measures set forth in the annual Notice of Benefit and Payment Parameters. According to the notice, the methodology used to determine the 2020 applicable amount implicitly considers data that would have been used to determine the 2019 applicable amount had the fee not been suspended for that year. The 2020 applicable amount is $15,522,820,037.
The IRS calculates each entity’s proportionate share of the fee using information reported by the entity on Form 8963. Although the fee isn’t directly assessed against plan sponsors, it affects premiums paid by employers that sponsor insured plans.
Employer shared responsibility
Earlier this year, the IRS released Information Letter 2019-0008 on employer shared responsibility under IRC Sec. 4980H in response to a legislator’s inquiry. The legislator asked whether employer shared responsibility penalties, which were added to the IRC as part of the ACA, may be waived or reduced based on hardship or other factors. The legislator also asked whether the IRS will extend transition relief for employers with fewer than 100 employees.
The letter provides background information on employer shared responsibility, noting that applicable large employers (ALEs) may be liable for penalties if they fail to offer adequate health insurance to full-time employees and their dependents. The letter explains that the law doesn’t provide for a waiver of the penalties, but several forms of transition relief were available for 2015 and 2016. However, no transition relief is available for 2017 and years thereafter.
The letter concludes with a reference to a January 2017 executive order directing federal agencies to exercise their discretion to waive, defer, grant exemptions from or delay regulatory burdens imposed by the ACA. The letter points out that, notwithstanding the executive order, the ACA’s legislative provisions remain in force until Congress changes them. So, ALEs must follow the law and pay applicable penalties.
Enforcement of employer shared responsibility penalties got off to a slow start. Although the ACA provided that penalties would apply starting in 2014, implementation of employer shared responsibility was delayed until 2015. Transition relief further delayed penalties for qualifying ALEs with fewer than 100 full-time employees until after the 2015 plan year.
As noted in the information letter, that transition relief has expired. Forms related to 2015 penalty assessments weren’t released until the end of 2017. Now, however, enforcement has picked up, and many ALEs — rightly or wrongly — have received penalty notices. This information letter signals the IRS’s position that, unless the ACA is changed, ALEs that fail to satisfy Sec. 4980H will continue to be liable for employer shared responsibility penalties.
Keep in mind that the penalty amounts increase with annual indexing. For 2018, the annual penalties (per applicable employee) are $2,320 under Sec. 4980H(a) and $3,480 under Sec. 4980H(b).
The ACA may seem like old news. But, as this IRS notice and information letter demonstrate, the law’s provisions continue to be actively adjusted. Ask your CPA for help identifying and understanding any of the ways the law might affect your organization.