Health Insurers Ask IRS to Reduce Tax Burden of Health Insurance Fee

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By Sara Hansard

Health insurers and the U.S. Chamber of Commerce have asked the Internal Revenue Service and the Treasury Department to take steps to reduce the tax burden of the nondeductible health insurance fee that begins in 2014.

America's Health Insurance Plans (AHIP), the trade association that represents most health insurers in the United States, noted that it “strongly supports a repeal of the health insurer fee” in its June 3 comment letter on the Health Insurance Providers Fee proposed rule. AHIP recommended that IRS adopt an interpretation of the fee in the final rule “that eliminates or ameliorates the negative impact of the non-deductibility of the fee.”

The proposed IRS rule implementing the health insurance fee (HIF) under Section 9010 of the Affordable Care Act (REG-118315-12) was released March 1 (42 DTR G-2, 3/4/13). Comments on the rule were due June 3.

“Health insurers not only will need to increase health insurance premiums to cover the fee, they also will need to increase premiums to cover their increased tax burden arising from recovery of the fee,” AHIP said in its letter, signed by Daniel Durham, executive vice president, policy and regulatory affairs; and Thomas Wilder, senior counsel. “This is because any premium increase necessary to recover the fee will increase taxable income (at least this appears to be the government's initial view as expressed in the preamble of the Proposed rules), while the fee itself will not reduce taxable income,” it said.

AHIP suggested that IRS and Treasury reconsider comments to ameliorate the problem, including an analysis submitted to Treasury official Mark Iwry in 2012 by David Schneider of law firm Skadden Arps on behalf of insurers. The proposals call for excluding from gross income premium increases resulting from the fee, AHIP said. “We believe the Treasury Department has authority to treat a health insurer's payment of additional income taxes arising due to the recovery of the fee as amounts that count towards satisfaction of that insurer's fee obligation,” it said.

Texts of comment letters from AHIP, Jost, BCBSA, Aetna, and the U.S. Chamber of Commerce are in TaxCore.

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