Treasury Inspector General for Tax Administration
September 24, 2015
TIGTA - 2015-31
Contact: David Barnes
WASHINGTON – Improvements are needed to ensure the accuracy of the allocation of the Health Insurance Provider Fee, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
The Affordable Care Act imposes an annual fee on health insurance providers (referred to as covered entities). The Internal Revenue Service (IRS) calculates the fee amount for each covered entity based on the covered entity’s portion of market share premiums. For Fee Year 2014, the amount of the fee was $8 billion.
The overall objective of this review was to determine whether the IRS has developed processes to identify providers required to file premium reports, assess penalties on those that did not, and accurately determine health insurance providers’ market shares and applicable annual fees.
The IRS has put forth significant efforts to educate covered entities on fee requirements. However, the identification of all covered entities required to report net premiums on Form 8963, Report of Health Insurance Provider Information, continues to be a challenge, because third-party data sources do not contain information regarding all covered entities. For example, TIGTA’s analysis of third-party data showed that 665 (53.9 percent) of the 1,233 providers that were listed on Forms 8963 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, covered entities 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 October 22, 2014, TIGTA had identified seven covered entities that filed Forms 8963 after the IRS made the final fee calculation for Fee Year 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 February 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 J. Russell George, Treasury Inspector General for Tax Administration. “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, Large Business and International Division, work with the Department of the Treasury to amend the regulations to provide for a reconciliation process to ensure that the fee is accurately allocated among covered entities.
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.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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