[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Rules and Regulations]
[Pages 10333-10335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03944]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 57

[TD 9711]
RIN 1545-BM52


Health Insurance Providers Fee

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains temporary regulations that provide 
rules for the definition of a covered entity for purposes of the fee 
imposed by section 9010 of the Patient Protection and Affordable Care 
Act, as amended. The temporary regulations are necessary to clarify 
certain terms in section 9010. The temporary regulations affect persons 
engaged in the business of providing health insurance for United States 
health risks. The text of the temporary regulations also serves as the 
text of the proposed regulations (REG-143416-14) published in the 
Proposed Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on February 26, 
2015.
    Applicability Date: For dates of applicability, see Sec. Sec.  
57.10 and 57.10T.

FOR FURTHER INFORMATION CONTACT: Rachel S. Smith, (202) 317-6855 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    Section 9010 of the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 (124 Stat. 119 (2010)), as amended by 
section 10905 of PPACA, and as further amended by section 1406 of the 
Health Care and Education Reconciliation Act of 2010, Public Law 111-
152 (124 Stat. 1029 (2010)) (collectively, the Affordable Care Act or 
ACA) imposes an annual fee on covered entities that provide health 
insurance for United States health risks. All references in this 
preamble to section 9010 are references to the ACA. Section 9010 did 
not amend the Internal Revenue Code (Code) but contains cross-
references to specified Code sections. Unless otherwise indicated, all 
other references to subtitles, chapters, subchapters, and sections in 
this preamble are references to subtitles, chapters, subchapters, and 
sections in the Code and related regulations. All references to ``fee'' 
in this preamble are references to the fee imposed by section 9010.
    On November 27, 2013, the Treasury Department and the IRS issued 
the Health Insurance Providers Fee regulations as final regulations (TD 
9643). On August 12, 2014, the Treasury Department and the IRS issued 
Notice 2014-47, 2014-35 IRB 522, to provide further guidance for the 
2014 fee year on the definition of a covered entity. The temporary 
regulations provide further guidance on the definition of a covered 
entity for the 2015 fee year and subsequent fee years.

General Overview

    Section 9010(a) imposes an annual fee on each covered entity 
engaged in the business of providing health insurance. The fee is due 
by the annual date specified by the Secretary, but in no event later 
than September 30th of each calendar year in which a fee must be paid 
(fee year).
    Section 9010(b) requires the Secretary to determine the annual fee 
for each covered entity based on the ratio of the covered entity's net 
premiums written for health insurance for any United States health risk 
that are taken into account for the calendar year immediately before 
the fee year (data year) to the aggregate net premiums written for 
health insurance of United States health risks of all covered entities 
that are taken into account during the data year. In calculating the 
fee, the Secretary must determine each covered entity's net premiums 
written for United States health risks based on reports submitted to 
the Secretary by the covered entity and through the use of any other 
source of information available to the Secretary.
    Section 9010(c)(1) defines a covered entity as any entity that 
provides health insurance for any United States health risk during each 
fee year. Section 9010(c)(2) excludes the following entities from being 
covered entities: (A) Any employer to the extent that the employer 
self-insures its employees' health risks; (B) any governmental entity; 
(C) any entity (i) that is incorporated as a nonprofit corporation 
under a State law, (ii) no part of the net earnings of which inures to 
the benefit of any private shareholder or individual, no substantial 
part of the activities of which is carrying on propaganda, or otherwise 
attempting, to influence legislation (except as otherwise provided in 
section 501(h)), and which does not participate in, or intervene in, 
any political campaign on behalf of (or in opposition to) any candidate 
for public office, and (iii) more than 80 percent of the gross revenues 
of which is received from government programs that target low income, 
elderly, or disabled populations under titles XVIII, XIX, and XXI of 
the Social Security Act; and (D) any entity that is described in 
section 501(c)(9) (a voluntary employees' beneficiary association 
(VEBA)) and is established by an entity (other than by an employer or 
employers) for purposes of providing health care benefits.
    Section 9010(c)(3)(A) provides a controlled group rule under which 
all persons treated as a single employer under section 52(a) or (b) or 
section 414(m) or (o) are treated as a single covered entity. Section 
9010(c)(4) provides that, if more than one person is liable to pay the 
fee on a single covered entity by reason of the application of the 
controlled group rule, then all such persons are jointly and severally 
liable for payment of the fee.
    Section 57.2(c)(1) of the Health Insurance Providers Fee 
regulations defines the term controlled group to mean a group of two or 
more persons, including at least one person that is a covered entity, 
that is treated as a single employer under section 52(a), 52(b), 
414(m), or 414(o). Section 57.2(c)(3)(ii) further provides that a 
person is treated as being a member of the controlled group if it is a 
member of the group at the end of the day on December 31st of the data 
year.

Explanation of Provisions

    Following the publication of the final regulations in TD 9643, the 
Treasury Department and the IRS received questions about how to apply 
the exclusions under section 9010(c)(2) to the general definition of a 
covered entity. The Treasury Department and the IRS also received 
questions about whether covered entities must report information on net 
premiums written for certain members of a controlled group. Notice 
2014-47 was subsequently issued to resolve those questions for the 2014 
fee year. The temporary regulations adopt the general approach of 
Notice 2014-47 to resolve those questions for the 2015 fee year and 
each subsequent fee year.

Application of Exclusions Under Section 9010(c)(2)

    Notice 2014-47 provided that, for the 2014 fee year, the Treasury 
Department and the IRS would not treat any entity as a covered entity 
if it would be

[[Page 10334]]

excluded from the definition of a covered entity because it qualified 
for one of the exclusions under section 9010(c)(2) either for the 
entire 2013 data year or for the entire 2014 fee year, which began on 
January 1, 2014. As described later in this preamble, the controlled 
group rules under section 9010(c)(3)(A) and Sec.  57.2(c)(1) do not 
apply for the limited purpose of determining whether an entity 
qualifies for an exclusion under section 9010(c)(2). Notice 2014-47 
further provided that the entity should not report its net premiums 
written for the 2013 data year because the Treasury Department and the 
IRS would not treat such an entity as a covered entity.
    The temporary regulations amend the rules in the existing Health 
Insurance Providers Fee regulations to incorporate the general approach 
in Notice 2014-47. Specifically, the temporary regulations provide 
that, for the 2015 fee year and each subsequent fee year, an entity 
qualifies for an exclusion under section 9010(c)(2) if it qualifies for 
an exclusion either for the entire data year ending on the prior 
December 31st or for the entire fee year beginning on January 1st. An 
entity that qualifies for an exclusion under this rule is not a covered 
entity for that fee year and must not report its net premiums written.
    The temporary regulations also impose two additional requirements. 
First, the temporary regulations generally impose a consistency 
requirement that binds an entity to its original selection of either 
the data year or the fee year (its test year) to determine whether it 
qualifies for an exclusion under section 9010(c)(2) for the 2015 fee 
year and each subsequent fee year. For example, if an entity selects 
the 2014 data year as its test year for the 2015 fee year, it must use 
the data year as its test year for the 2016 fee year and each 
subsequent fee year.
    Second, the temporary regulations impose a special rule for an 
entity that uses the fee year as its test year. A special rule is 
important in this context because the fee is due by September 30th of 
the fee year, and it may not be clear until the end of the fee year 
whether an entity will in fact qualify for an exclusion. If an entity 
using the fee year as its test year does not report its net premiums 
written because it expects to qualify for an exclusion under section 
9010(c)(2), but the entity ultimately does not qualify for an 
exclusion, the temporary regulations require the entity to use the data 
year as its test year in all subsequent fee years. In this 
circumstance, the entity will necessarily be a covered entity that is 
required to report its net premiums written for the immediately 
following fee year. In addition, an entity that does not timely file a 
report in a fee year, and that is a covered entity for that fee year 
because it does not qualify for an exclusion, may be subject to 
penalties, including the failure to report penalty under section 
9010(g)(2).
    For example, assume that for the 2015 fee year an entity used the 
fee year as its test year and reasonably expected to qualify for the 
section 9010(c)(2)(C) exclusion for that fee year. As a result, the 
entity did not report its net premiums written and it was not treated 
as a covered entity for purposes of the 2015 fee calculation. Further 
assume that as of December 31, 2015, the entity did not satisfy the 80 
percent minimum gross revenues requirement of section 
9010(c)(2)(C)(iii) and therefore did not qualify for this or any other 
exclusion under section 9010(c)(2) for the 2015 fee year. Under the 
temporary regulations, this entity must use the data year for each 
subsequent fee year to determine whether it qualifies for an exclusion 
under section 9010(c)(2). Thus, for the 2016 fee year, because this 
entity must determine its eligibility for an exclusion based on the 
2015 data year, it would not be eligible for an exclusion under section 
9010(c)(2) for the 2016 fee year and must submit a report in that year. 
This entity must also use the data year as its test year for the 2017 
fee year and each subsequent fee year.
    The Treasury Department and the IRS request comments regarding 
whether there are any circumstances in which an entity should be 
permitted by the IRS to change its test year, and if so, what 
conditions and limitations should apply to any such change.

Reporting for Controlled Group Members

    Notice 2014-47 provided that a controlled group must report net 
premiums written only for each person who is a controlled group member 
at the end of the day on December 31st of the data year and who would 
qualify as a covered entity in the fee year if it were a single-person 
covered entity (that is, not a member of a controlled group). The 
temporary regulations incorporate this rule for the 2015 fee year and 
each subsequent fee year. Therefore, a controlled group must not report 
net premiums written for any controlled group member who would fail to 
be a covered entity in the fee year if it were not a member of a 
controlled group. Although that person's net premiums written are not 
taken into account, it remains a member of the controlled group and is 
jointly and severally liable for the fee amount allocated to the 
controlled group.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It has also been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations, and because these regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, these temporary regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small businesses.

Drafting Information

    The principal author of these regulations is Rachel S. Smith, IRS 
Office of the Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the Treasury Department and 
the IRS participated in their development.

List of Subjects in 26 CFR Part 57

    Health Insurance, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 57 is amended as follows:

PART 57--HEALTH INSURANCE PROVIDERS FEE

0
Paragraph 1. The authority citation for part 57 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805; sec. 9010, Public Law 111-148 (124 
Stat. 119 (2010)).

* * * * *

0
Par. 2. Section 57.2 is amended by:
0
1. Redesignating paragraph (b)(3) as paragraph (b)(4).
0
2. Adding paragraph (b)(3).
0
3. Revising paragraph (c)(3)(ii).
    The addition and revision read as follows:


Sec.  57.2  Explanation of terms.

* * * * *
    (b) * * *
    (3) [Reserved]. For further guidance, see Sec.  57.2T(b)(3).
* * * * *
    (c) * * *

[[Page 10335]]

    (3) * * *
    (ii) [Reserved]. For further guidance see Sec.  57.2T(c)(3)(ii).
* * * * *

0
Par. 3. Section 57.2T is added to read as follows:


Sec.  57.2T  Explanation of terms (temporary).

    (a) through (b)(2) [Reserved]. For further guidance, see Sec.  
57.2(a) through (b)(2).
    (3) Application of exclusions--(i) Test year. An entity qualifies 
for an exclusion described in Sec.  57.2(b)(2)(i) through (iv) if it so 
qualifies in its test year. The term test year means either the entire 
data year or the entire fee year.
    (ii) Consistency rule. For purposes of paragraph (b)(3)(i) of this 
section, an entity must use the same test year as it used in its first 
fee year beginning after December 31, 2014, and in each subsequent fee 
year. Thus, for example, if an entity used the 2014 data year as its 
test year for the 2015 fee year, that entity must use the data year as 
its test year for each subsequent fee year.
    (iii) Special rule for fee year as test year. For purposes of 
paragraph (b)(3) of this section, any entity that uses the fee year as 
its test year but ultimately does not qualify for an exclusion 
described in Sec.  57.2(b)(2)(i) through (iv) for that entire fee year 
must use the data year as its test year for each subsequent fee year.
    (b)(4) through (c)(3)(i) [Reserved]. For further guidance, see 
Sec.  57.2(b)(4) through (c)(3)(i).
    (ii) A person is treated as being a member of the controlled group 
if it is a member of the group at the end of the day on December 31st 
of the data year. However, a person's net premiums written are included 
in net premiums written for the controlled group only if the person 
would qualify as a covered entity in the fee year if the person were 
not a member of the controlled group.
    (d) through (n) [Reserved]. For further guidance, see Sec.  52.7(d) 
through (n).

0
Par. 4. Section 57.10 is revised to read as follows:


Sec.  57.10  Effective/applicability date.

    (a) In general. Except as provided in paragraph (b), Sec. Sec.  
57.1 through 57.9 apply to any fee that is due on or after September 
30, 2014.
    (b) [Reserved]. For further guidance, see Sec.  57.10T(b).

0
Par. 5. Section 57.10T is added to read as follows:


Sec.  57.10T  Effective/applicability date (temporary).

    (a) [Reserved]. For further guidance, see Sec.  57.10(a).
    (b) Paragraphs (b)(3) and (c)(3)(ii) of Sec.  57.2T. Paragraphs 
(b)(3) and (c)(3)(ii) of Sec.  57.2T apply on February 26, 2015.
    (c) Expiration date. Paragraphs (b)(3) and (c)(3)(ii) of Sec.  
57.2T expire on February 23, 2018.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: February 19, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2015-03944 Filed 2-23-15; 4:15 pm]
BILLING CODE 4830-01-P