The new fee on health insurers.

• Author: Kovel, Timothy

One of the key revenue provisions of the Patient Protection and Affordable Care Act (PPACA), PL. 111-148, is Section 9010, which provides for the imposition of an annual fee for calendar years beginning after 2013 on health insurance providers that are "covered entities." A covered entity is any entity with net premiums written for health insurance for "U.S. health risks," or the health risk of any individual who is a U.S. citizen, a resident of the United States, or who is located in the United States. Such an entity includes a "health insurance issuer," defined as an insurance company, insurance service, or insurance organization (including a health maintenance organization) that is licensed to engage in the business of insurance in a state and is subject to state law that regulates insurance (Regs. Sec. 57.2(b)).

"Health insurance" includes coverage providing benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer (Regs. Sec. 57.2(h)(1)).

To be subject to the fee, a covered entity must have net premiums written with respect to such health insurance for a calendar year exceeding $25 million. However, reporting requirements apply even if the covered entity's premiums fall below the $25 million threshold. The net premiums written taken into account during any calendar year are shown in Exhibit 1 above.

Net premiums written include reinsurance premiums written, reduced by reinsurance ceded, and reduced by ceding commissions and medical loss ratio rebates with respect to the data year (the year preceding the fee year). In determining net premiums written, medical loss ratio rebates are computed on an accrual basis. Net premiums written do not include premiums written for indemnity reinsurance and are not reduced by indemnity reinsurance ceded. However, the net premiums written do include premiums written for assumption reinsurance and are reduced by assumption reinsurance premiums ceded (Regs. Sec. 57.2(k)).

Each covered entity's allocated fee will be based on the applicable amount for the fee year (see Exhibit 2 on p. 333). Each entity's allocated fee is computed by multiplying the applicable amount by the ratio of the entity's net premiums written with respect to health insurance for U.S. health risks during...