The Internal Revenue Service needs to improve the accuracy of how it decides which fees health insurance providers are supposed to pay each year under the Affordable Care Act, according to a new government report.
The report, from the Treasury Inspector General for Tax Administration, noted the Affordable Care Act imposes an annual fee on health insurance providers. The IRS calculates the amount of the fee for each insurer based on an estimate of the company’s portion of market share premiums. Last year, the amount of the fee totaled $8 billion.
TIGTA acknowledged in its report that the IRS has made significant efforts to educate the insurers, referred to as “covered entities,” about the fee requirements. However, identifying all the insurers that are required to report their net premiums on Form 8963, Report of Health Insurance Provider Information, continues to be a challenge for the IRS because third-party data sources do not contain information regarding all the covered entities. For example, TIGTA’s analysis of third-party data showed that 665 of the 1,233 providers that were listed on Forms 8963, or 53.9 percent, were not included in premium information from third-party sources.
TIGTA also found that regulations do not provide a process for the IRS to correct the health insurance provider fee for all covered entities once the final fee letters are distributed. As a result, insurers that file after the final fee calculation and distribution of the fee letters are not subject to their required portion of the fee. As of Oct. 22, 2014, TIGTA had identified seven insurers that filed Forms 8963 after the IRS made the final fee calculation for 2014. The net premiums for those entities were not included in the IRS’s final fee calculation. In addition, TIGTA identified that 143 of the 477 covered entities filed a Form 8963 late. However, as of Feb. 13, 2015, the IRS had not assessed penalties against any of the 143 covered entities.
“The lack of a reconciliation process allows covered entities that do not timely file required Forms 8963 to be exempt from paying their portion of the annual fee,” said TIGTA Inspector General J. Russell George in a statement. “This in turn results in covered entities that comply with the timely filing requirement paying more than their share in fees,” he added.
TIGTA recommended that the commissioner of the IRS’s Large Business and International Division work with the Treasury Department to amend the regulations to provide for a reconciliation process to ensure that the fee is accurately allocated among the insurers.
IRS officials disagreed with this recommendation, stating that providing a reconciliation process would result in adjustments to the fee for the entire population of covered entities subject to the fee and would lead to a lack of certainty and finality as to their fee liability. However, the IRS indicated that it plans to continue to review the effectiveness of the current administrative process over the next three years. The IRS also plans to evaluate the potential costs and benefits to the government and covered entities to determine whether to amend the regulations to provide for a reconciliation process.
Heather Maloy, commissioner of the IRS’s Large Business and International Division, pointed out the report did not address how TIGTA’s recommendation for a reconciliation process for the health insurance provider fee should be implemented and what costs would be appropriate for the government and fee payers.
“During the development of the Section 9010 regulations, the IRS, the Office of Chief Counsel and the Department of the Treasury carefully considered whether a reconciliation process could be applied to the Section 9010 Fee,” she wrote. “While certain stakeholders made comments on the proposed regulations favoring a ‘true-up’ process by which the fee would be continually adjusted from year to year, IRS, the Office of Chief Counsel and the Department of the Treasury rejected such a process because it would lead to a lack of certainty and finality with regard to the fees for each year. IRS has not received any stakeholder comments since the issuance of the final regulations asking it to revisit a reconciliation process. IRS believes that overall fee payers highly value the certainty and finality of the current process.”
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