Note: In another Affordable Care Act development, the Supreme Court on November 26, 2013, agreed to review Sebelius v. Hobby Lobby and Conestoga Wood Specialties v. Sebelius.  Both cases raise the issue of whether a regulation that requires health plans to cover certain contraceptives violates the free exercise rights of a for-profit corporate employer.  This issue has been raised in lawsuits across the country, with the Courts of Appeals reaching conflicting conclusions.  Since four Circuit Courts of Appeals have enjoined the enforcement of the regulation, while two have upheld it, a Supreme Court review was inevitable.

These cases raise fundamental issues of religious liberty, public health regulation, gender equality, employment law, and corporate law.  They are not, however, a challenge to the Affordable Care Act, as some news media are reporting them.  They challenge the application of one regulation adopted enforcing the ACA’s preventive services mandate.  Regardless of how the Supreme Court decides these cases, it will have no effect on the implementation of the ACA beyond the application of that one regulation.

The end of this post was also updated on November 27 to briefly note Internal Revenue Service final rules implementing three of the fees and taxes enacted as part of the ACA.

On November 24, 2013, the Department of Health and Human Services published its 2015 Notice of Benefit and Payment Parameters Proposed Rule.  The benefit and payment parameters rule is a regulation that HHS must publish each fall describing the payment parameters of the premium stabilization (risk adjustment, reinsurance, and risk corridor) and cost-sharing reduction programs, as well as the federal exchange user fees for the following year.  The notice is also an opportunity to tweak other aspects of the ACA health insurance programs, and this Notice proposes changes in rating methods in the small business health options program (SHOP); privacy and security rules for personally identifiable information; the annual open enrollment period for 2015; the actuarial value (AV) calculator; the annual limitation on cost sharing for stand-alone dental plans; the meaningful difference standard for qualified health plans offered through the federal exchange; and patient safety standards for issuers of qualified health plans.

Finally, the Notice makes a few changes in the 2014 premium stabilization program. A fact sheet is available here.

This is in all likelihood the last major proposed rule to come out of HHS before the launch of the qualified health plan and the premium tax credit and cost-sharing reduction programs on January 1, 2014.  We are likely to see more rulemaking activity from the Internal Revenue Service in 2013, but HHS has finished its regulatory work.  Indeed, although the Proposed Notice does make some adjustments in the program for 2014, it is primarily oriented toward the second year of the program, 2015.

The benefit and payment parameters proposed notice is supposed to appear in October each year to provide time for the states and health plans to make adjustments for the next following year.  This Proposed Notice was sent by HHS to the Office of Management and Budget for review on September 24, 2013 and released by OMB on November 8.  It is emblematic of troubled launch of the HHS programs that the Proposed Notice is only now appearing now in late November.  It does, however, propose a host of practical adjustments for 2015, and a few for 2014, that should smooth the way going forward.

Modifying 2014 Premium Stabilization Programs.

Notably, the Proposed Rule proposes a couple of adjustments in the premium stabilization programs for 2014, recognizing the changes in the 2014 risk pool that are likely to result from the exchange website troubles and the administrative fix undertaken to accommodate the nonrenewal of 2013 health insurance policies and plans.

First, the Notice proposes to adjust the attachment points for high-cost claims in the individual reinsurance program.  The 2014 payment parameters notice had provided that the reinsurance program would reimburse insurers in the individual market for 80 percent of the cost of enrollee’s claims that exceeded an attachment point of $60,000, up to a cap of $250,000.  The Proposed Notice lowers the attachment point to $45,000, recognizing that the pool of covered individuals is likely to be smaller and higher-risk than initially anticipated.

Second, HHS proposes changes in its 2014 risk corridor program.  The risk corridor program will not apply to 2013 plans renewed in 2014 under the administrative fix, as it only applies to plans subject to the 2014 reforms.  HHS is concerned that widespread renewal of transitional 2013 plans, which presumably will be most attractive to low-risk enrollees, will leave QHPs with higher risk enrollees and thus higher costs relative to the premiums that they established based on an expectation of a more normal risk pool.  The risk corridor program is supposed to assist insurers that end up with a worse risk pool, and thus higher claims costs, than anticipated.

HHS probably cannot change the risk corridors themselves, which are established by law; it is, however, considering changing the definition of allowable costs by increasing the profit margin floor (currently set at 3 percent) and the administrative cost ceiling (currently 20 percent after taxes) to increase the risk corridor payments to offset lower premium revenue and increased claims costs.

The adjustment would only apply to plans with allowable costs of at least 80 percent of their after-tax premiums, because plans under that threshold would usually be required to pay medical loss ratio rebates.  Recognizing that the impact of the 2014 transitional rules will vary considerably from state to state, adjustments to the profit margin floor and administrative cost ceiling will probably vary from state to state as well.  Insurers in the individual and small group market will be required to submit member-month enrollment counts for transitional and non-transitional plans to derive state-specific adjustments.  Finally, medical loss ratio requirements may need to be adjusted if the risk corridor program is adjusted to ensure that rebates that would be owed independent of the transitional policy administrative fix and the risk corridor program adjustments will not substantially change.

Unlike the reinsurance and risk adjustment programs, in which payments out cannot exceed payments in, the risk for cost overruns in the risk corridor program are borne by the federal government.  There is also, however, the possibility that payments into the program from health plans whose revenues significantly exceed allowable costs could result in revenue for the federal government.  My understanding is that it was originally thought that the risk corridor program was more likely to result in revenue rather than costs for the federal government.  At this point, that calculus seems to be changed, but how much it has changed remains to be seen.

The Proposed Notice begins by proposing that student health policies be offered on a school year basis.  Plans in the individual market must, beginning in 2015, be offered on a calendar year basis, but this obviously does not work for student health plans, and the Notice acknowledges this fact.  Student health plans do not, therefore, have to establish open enrollment and coverage effective dates based on the calendar year.

Premium Stabilization Programs For 2015

Risk adjustment.  The Proposed Notice sets out the parameters of the reinsurance, risk corridor, and risk adjustment programs for 2015.  The risk adjustment program moves funds from insurers whose non-grandfathered plans in the individual and small-group market attract better-than-average risk enrollees to insurers whose non-grandfathered plans draw higher-than-average risk enrollees. States that operate their own exchanges may also operate their own risk-adjustment programs, but the federal government will administer the program for states that choose not to, which is likely to be the vast majority of states.  The Proposed Notice sets the user fee to fund the federal risk adjustment program at $1.00 per enrollee in a risk adjustment covered plan per year.  This fee is set to cover program costs other than personnel costs.

The 2015 risk adjustment program will use the same methodology as the 2014 program with a few changes.  First, in states such as Arkansas, where Medicaid benefits are provided through the exchange, an induced utilization multiplier of 1.12 will be applied to Medicaid-funded enrollees to reflect the fact that their minimal cost sharing will result in higher utilization.  Second, HHS seeks comments on how to deal with the geographic adjustment factor in states that have elected to have a large number of geographic rating areas, including some in less populous rural areas that may not have enough enrollees to permit the derivation of valid risk adjustment factors.  Third, the Notice proposes to use state counting methods for 2015 for determining whether an employer is a small employer for purposes of risk adjustment program participation (i.e. whether the break point between large and small employer is at 50 or 100 employees), but will require part-time employees to be counted as full-time equivalents regardless of whether a state will count them or not.

The Proposed Notice describes at great length procedures that will be used to validate risk adjustment data.  Basically, for each of the first two years of the program an initial validation audit sample of 200 enrollees will be selected from each insurer participating in the risk adjustment program, which will be stratified by age and risk to oversample enrollees with higher-cost medical conditions.  The risk adjustment data provided by the insurer will initially be subjected to a validation audit by a validation auditor selected by the plan.  This initial validation auditor will have to be free from actual and apparent conflicts of interest with the insurer.

The initial auditor will validate the risk scores assigned by the insurer, reviewing enrollment documentation, claims and encounter data, and provider medical records for the sampled enrollees. The initial validation audit will be subjected to a second validation audit by an auditor selected by HHS to validate the accuracy of the findings of the first auditor. This second auditor will review a subsample of the enrollees reviewed by the initial validation audit, although the second auditor will review a larger subset of enrollees if the initial review identified inconsistencies.  An insurer-specific error estimation will be derived from the audits that could then, if it were statistically significant, be applied to adjust the average risk score of each risk adjustment eligible plan offered by the insurer.  The insurer could appeal this determination.  For the first two years of the program, however, error rates will not be applied to adjust payments — insurers will simply be informed of their error rates and the adjustments that would have been applied to give them time to understand and adjust to the program.

The risk adjustment program is overseen by HHS, which will audit insurer program compliance and can impose civil money penalties on insurers that fail to comply with program requirements.  Here, as elsewhere, however, HHS intends to work collaboratively with insurers to remedy good-faith noncompliance.  HHS will not perform an initial validation for insurers who fail to hire an initial auditor or submit risk adjustment data, but will rather assign a default risk adjustment charge, although how that charge will be determined is yet to be decided.  Stringent data security requirements, similar to those used now in the Medicare Advantage risk adjustment data validation program, will be applied in the ACA risk adjustment data validation program.

Transitional reinsurance.  The Proposed Notice also addresses the three-year transitional reinsurance program.  This program is intended to compensate insurers in the individual market for high-cost enrollees whom they cover during the first three years of ACA implementation, when the individual market is expected to suffer adverse selection and include a disproportionate share of high-risk enrollees.  Under the ACA, insurers and third-party administrators of self-insured plans must contribute to this program proportionately based on their enrollees in “major medical products.”  The Proposed Notice proposes that major medical coverage be defined as health coverage in terms of the range of services and treatments included in the minimum value standards applied to group plans for determining whether they offer adequate coverage under the employer mandate.  The Notice also provides additional proposals for dealing with situations where an individual is covered by more than one insurance plan or policy to ensure that only one contribution will need to be made for any one covered life.

The Proposed Notice would exempt from reinsurance contributions self-insured, self-administered plans.  Reinsurance contributions are required under the ACA from insurers and from third-party administrators of self-insured plans.  The ACA does not specifically address whether self-administered, self-insured plans are subject to the reinsurance contribution requirement.  Many of these plans are collectively-bargained Taft-Hartley multi-employer plans, which are funded by employer contributions and administered by trusts representing employers and unions.

Unions have argued that the Taft-Hartley plans should not be subject to the reinsurance contribution requirement, which only applies to an insurer or third-party administrator’s “commercial book of business.”  HHS required self-insured, self-administered plans to contribute to the reinsurance pool for 2014, but is reconsidering its initial interpretation of the statute and proposing to exempt them for 2015 and 2016. This has in turn provoked cries of union favoritism from Republican Senators, who have introduced legislation to block this interpretation of the law.  As the contribution amounts for 2014 are significantly larger than those for 2015 and 2016, and HHS does not propose to change the 2014 rule, the Taft-Hartley plans may not view this as a significant victory.

Under the ACA, the reinsurance program must collect $6 billion for 2015 and $4 billion for 2016, plus $2 billion in 2015 and $1 billion in 2016 to reimburse the federal treasury for the early retiree reinsurance program that operated from 2010 to 2013.  HHS proposes to collect an addition $25.4 million in 2015 for administrative expenses, which will be shared with states that elect to operate their own reinsurance programs.  A $44 per enrollee charge will be assessed against insured and self-insured coverage to cover these costs.  HHS will notify contributing entities of their assessed charges for a given year in December of that year.  The entity will have to pay a first installment of the assessed charge in January, 30 days later, to cover the cost of reinsurance and the administrative fee.  The insurer would pay a second installment in the fourth quarter of the year to cover the federal government reimbursement part of the charge.  Thus, for example, for 2014, contributing entities would pay a $52.50 per capita charge in January and a $10.50 charge would be due late in the fourth quarter.

Although the goal of the reinsurance program is to collect a fixed amount per year, there is the possibility that it will collect more or less than that amount, since the collection is ultimately based on a pre-set per capita charge.  Under the Proposed Notice, HHS proposes that if collections are less than the target amount, the amount collected would be split proportionately between the reinsurance program and reimbursing the federal treasury.  If collections are greater than the target amount, the funds would be used to increase reinsurance payments.  All funds collected in a particular year will be spent for that year, rather than being carried forward for future years.

HHS is proposing for 2015 that the reinsurance program would cover 50 percent of that portion of an individual market enrollee’s costs paid by the issuer for claims exceeding a $70,000 attachment point up to a reinsurance cap of $250,000.   Claims considered for reinsurance will be adjusted to exclude sums received by insurers in cost-sharing reduction payments to avoid double payments.  The Proposed Notice sets forth a methodology for doing this, as well as methodologies for allocating cost-sharing payments for family policies that include other enrollees in addition to the high-cost enrollee and for Indians, for whom special cost-sharing rules apply.

The Proposed Notice sets out requirements for audits of state reinsurance programs.  HHS expects two such programs for 2015.  It also proposes requirements for targeted audits of contributing entities and of reinsurance-eligible plans.

Risk corridors.  The Proposed Notice begins its consideration of the third premium stabilization program — the risk corridor program — by noting that a QHP outside the exchange can participate in the risk corridor program as long as it is substantially the same as a QHP in the exchange, which is to say that the only differences are directly tied to federal or state requirements or prohibitions that apply differently depending on whether a QHP is offered through or outside an exchange.  The Proposed Notice observes that the data required for the risk corridor program is very similar to that required for the minimum medical loss ratio program, and it proposes to closely align data submissions, data validation, audit provisions, and sanctions in the two programs.  Where states audit MLR data, HHS proposes to leverage these audit programs for the risk corridor program.  Recognizing that the risk corridor program is a national program, HHS proposes to use its civil money penalty authority to address noncompliance by insurers in all states, regardless of whether a state operates its own exchange.

State rules will be used for counting employees for determining eligibility to participate in the risk corridor program as a small group.  Unlike the risk adjustment program, however, full-time equivalent part-time employees will not be counted for determining risk corridor program eligibility if they were not counted under state law to ensure parallel rules for the risk corridor program and state single-risk pool requirements.

Data for the risk adjustment and reinsurance programs are analyzed in a “dedicated distributed data environment,” which means that the data is held by the insurer rather than being transferred to HHS.  The Proposed Notice provides for communications between HHS and insurers to ensure that data is properly uploaded by insurers into this platform.  HHS intends to give insurers interim reports on risk scores and reinsurance-eligible claims, which will assist them in estimating potential payments and allow them to correct discrepancies.  HHS will provide insurers with a final distributed data environment report after the April 30 deadline for data submission, after which plans will have 15 days to confirm the report or raise discrepancies.  A final report of risk adjustment payments and charge will be provided by June 30 of the year following an applicable benefit year.  Insurers may request reconsideration of assessments or payments, but must pay charges or receive payments based on the notice subject to later adjustments if the reconsideration request is successful.

Requirements For State Exchanges

HHS continues to hope that more states will decide to operate state exchanges in the future.  The success of a number of the state exchanges compared to the problems of the federal exchange may in fact encourage some states to take this path.  The Proposed Notice would ease their path by requiring states to provide HHS with only 6.5 instead of 12 months notice of intent to establish an exchange.  States that submit an exchange blueprint by June 15 of a year could have an exchange operational by January 1 of the following year.

The Proposed Notice would allow exchanges to use and disclose personally identifiable eligibility and enrollment information where HHS determines that the information will only be used for the purposes of, and to the extent necessary to ensure, the efficient operation of the exchange.  Previously, the rules had provided a specific list of permitted uses.  Individuals will have to consent to such use and disclosure, which will be subject to strict privacy and security requirements.  This could include disclosure to or use of personally identifiable information by or collection of such information by non-exchange entities, such as Medicaid or CHIP agencies, agents and brokers, certified application counselors, or navigators, who also must comply with privacy and security requirements.

As already announced, the open enrollment period for 2015 will be extended and delayed, now running from November 15, 2014 to January 15, 2015.  The delay will give insurers additional time to monitor their 2014 enrollments before filing their 2015 rates. Given the extended enrollment period in 2014 and the problems with enrollment to date, this extension seems advisable.  Opponents of the ACA smell politics in the extension, given that it postpones enrollment until after the November 4, 2014 election date, but it is likely that information about rates will in 2014, as in 2013, be widely available before open enrollment begins.  Qualified individuals who enroll before December 15 will be eligible for coverage by January 1.  Individuals already enrolled can continue coverage for 2015.  HHS seeks comments as to whether individuals should have up to the end of a month to pay their premiums to be covered the next month or whether those who enroll after December 15 should be able to get coverage by January 1 under any circumstances.

The SHOP Exchange

The Notice proposes a number of changes in the SHOP program. First, it addresses composite rating. It is a common practice now for insurers to charge employers a uniform premium for a given family composition by adding the rates for all members and dividing by the total number of covered employees.  Beginning in 2014, insurers in the small group market must calculate a separate premium for each covered employee based on age, tobacco use, and family composition.  Insurers can still offer a composite (average) rate, but this poses a problem if employees with different characteristics are added or dropped over the course of the plan year.  Under the proposed rule, the insurer should calculate a composite rate based on the characteristics of plan participants at the beginning of a plan yeat and apply that rate throughout the year despite the fact that plan members were being added and dropped.

HHS is considering a uniform tiered-composite rating structure that could apply market-wide in states that do not require a different methodology.  Under this approach, a separate composite premium would be derived for adults and children, or possibly adults, adult children, and minor children.  HHS seeks comments on this approach.  The proposed rule would not allow composite rating when an employer participating in the federal SHOP exchange offers its employees all QHPs within a single level of coverage, even if composite rating were permitted by state law. The prohibition of composite rating in the federal SHOP may also be extended to stand-alone dental plans.  State exchanges can set their own policy on composite rating.

Under the Proposed Notice, small employers would have the option of enrolling in the SHOP exchange through the internet website of an agent or broker in states that permit such enrollments.  Qualified employers that becomes large employers but continue to purchase coverage through a SHOP would continue to be rated as a small employer. The Notice proposes different methods (not described here) for employers in the federal SHOP to offer stand-alone dental coverage after employee choice becomes available.  For plan years beginning on and after January 1, 2015, employers in the federal SHOP will have flexibility to make different premium percentage contributions for full-time employees and non-full-time employees.

Once premium aggregation becomes available, all SHOPs performing premium aggregation would be permitted to establish one or more standard processes for premium calculation, payment, and collection.  For plan years when premium aggregation is available in the federal SHOP (presumably after 2015) employers would be required to make premium payments to the federal SHOP according to a timeline and process established by HHS.  It is proposed that payment by the employer would need to be made at least two days prior to the employer’s chosen coverage effectuation date.   For plan years beginning on or after January 1, 2015, an insurer would be required to effectuate coverage unless it received a cancellation notice from the federal SHOP, but the SHOP would be required to send a cancellation notice if it does not receive an initial premium payment from the employer.  The Proposed Notice proposes a standard premium pro-rating methodology for the federal SHOP for plan years when premium aggregation is available, providing that groups will be charged for the portion of the month for which an enrollee is enrolled.

Employer and employee eligibility adjustment periods will only be permitted when a SHOP has an optional verification process and collects information through that verification process that is inconsistent with the information provided by an employer or employee on a SHOP application.  SHOPs will not be permitted to collect information on a SHOP application unless that information is necessary to determine SHOP eligibility or effectuate enrollment through the SHOP.  SHOPs will not be permitted to perform individual market eligibility determinations or verifications.

Other Provisions

The ACA directs HHS to determine an “annual premium adjustment percentage” to be used for adjusting annually the maximum annual out-of-pocket cost sharing limit, the maximum annual deductible for small group plans, and the assessable payments imposed on employers under the employer responsibility provisions.  The premium adjustment percentage is the percentage by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds the average per capita premium for 2013.

HHS has determined to base this adjustment amount on projections of premium increases from the National Health Expenditure Accounts, and has set it at 6 percent for 2015.  This would result in a 2015 annual cost sharing limit of $6,750 for self-only coverage and $13,500 for other than self-only coverage.  It would also result in a maximum deductible for small group coverage of $2,150 for self-only coverage and $4,300 for other than self-only coverage. Based on these projections, the maximum annual limitation on cost-sharing for 2015 for individuals with incomes below 200 percent of poverty would be $2,250 and the maximum for individuals with incomes between 200 and 250 percent of poverty would be $5,200.  The maximum amount for other than self-only coverage would be twice those amounts.

The Proposed notice permits insurers that offer coverage of non-essential health benefits to limit cost-sharing for those benefits for persons eligible for cost-sharing reductions, although federal cost-sharing reduction payments are not available for non-essential health benefits.  The Notice also proposes that for 2015 exchanges rather than insurers will calculate the amount due for advance payments for cost-sharing reduction payments based on a formula provided in the Notice.

The federal exchange user fee will remain unchanged for 2015, set at 3.5 percent of premium revenues for insurers that participate in the exchange.  The Notice also provides for adjustment of the user fee where the fee is redirected to pay a third-party administrator for contraceptive coverage for a religious organization, as provided in the final contraceptive coverage rule.

The Notice proposes updates to the actuarial value calculator.  These include proposals to include an estimated update for increases in cost-sharing limits, to update continuance tables when there is a material change in demographic mix in the enrolled population, to update the algorithms behind the AV calculator to adapt to new industry practices and plan designs (such as, for 2015, the application of copayments above a deductible, a revolutionary idea), and to update the continuance tables to reflect more current claims data every 3 to 5 years (with a trend factor applied in intervening years if trend exceeds 5 percent from the last update).

HHS also proposes to update the AV calculator interface through guidance to improve user experience.  The AV calculator is available here, the AV methodology is here, and the AV calculator user’s guide is here.  The Notice proposes a limit on cost sharing for pediatric dental services covered by a stand-alone dental plan for all exchanges at $300 for one covered child and $400 for two or more.  Actuarial value requirements for SADPs would be removed.

The Notice further articulates the requirement that QHPs offered through the exchange be meaningfully different.  This requirement is intended to ensure that exchange shoppers are able to make an informed selection among a manageable number of plans.  Within a service area and metal tier, HHS proposes, plans would be considered meaningfully different if a reasonable consumer could identify al least two material differences among key characteristics between the plan and other plans offered by the same insurer.  The seven key characteristics listed include 1) cost sharing, 2) provider networks, 3) covered benefits, 4) plan type (HMO, PPO0, 5) premiums, 6) HSA eligibility, and 7) self-only, non-self-only, and child-only coverage.  If HHS determines that choice is limited within a service area, HHS can waive the requirement.  Also if QHP issuers merge, they will have a 2 year transition period to eliminate plans that are not meaningfully different.

HHS asks for comments about using its authority to limit insurer participation in the exchange should there be significant difference between rate increases for its QHPs and non-QHPs.  The Notice specifically references the administrative fix transition policy as creating the danger of adverse selection through significantly higher rates for QHPs and asks how to respond.

The ACA provides that, beginning in 2015 QHPs may only contact with hospitals with more than 50 beds that meet certain patient safety standards, including the use of a patient safety evaluation system (PSES) and a comprehensive hospital discharge program.  A PSES means the collection, management, or analysis of information for reporting to or by a patient safety organization.  The ACA further provides that QHPs may contract with health care providers that implement health care quality mechanisms required by HHS regulations.

Because of a concern that there are not sufficient hospitals available that will meet these requirements by 2015, HHS is proposing to phase this requirement in over time. For the first phase, beginning in 2015, QHPs may only contract with hospitals of more than 50 beds that are certified as meeting Medicare participation requirements or Medicaid-only certified for meeting quality performance improvement program and discharge planning requirements.  Further steps might be taken to implement the requirement in 2017.

The Notice provides for netting of payments and charges to QHP issuers.  Insurers will receive advance premium tax credit and cost-sharing reduction payments, owe FFE user fees, and receive payments or pay charges for the premium stabilization programs.  Each month payments owed to and from the federal government will be netted out.   HHS will send a monthly HIX 820 report to insurers describing payments that are being made and insurers must respond within 15 days to report discrepancies.  Discrepancies in payment or collection amounts would be resolved by adjustment of future payments rather than through retroactive payments or collections.

Finally the Notice proposes an administrative appeals process to address unresolved discrepancies in payments due to and from insurers.  The process would involve opportunities for reconsideration, an informal hearing before a hearing officer, and HHS administrator review.

IRS rules.  Also, on November 26, 2013, the Internal Revenue Service released final rules (which will be discussed only very briefly here) implementing three of the fees and taxes enacted as part of the ACA.  These fees and taxes go into effect in 2014.  The first is an annual fee imposed on certain health insurers intended to raise $8 billion for 2014, with the amount increasing until it 2018, when it will yield $14.3 billion.  Thereafter the amount will increase as premiums increase.  The tax is imposed on health insurers, HMOS, self-insured MEWAs, and entities that provide coverage under Medicare Parts C and D and Medicaid.  It is not imposed on self-insured plans, certain nonprofit plans, small insurers, or VEBAs.

A second final rule implements an 0.8 percent tax on income of individuals with taxable income of more than $200,000 and joint filers earning more than $250,000 to fund the Medicare program.  Finally, a third rule implements a tax of 3.8 percent on the lesser of the taxpayer’s net investment income or the taxpayer’s modified adjusted gross income exceeding $200,000 for an individual and $250,000 for a joint filer.  The IRS also published a notice of proposed rulemaking and withdrawal of notice of proposed rulemaking on the net investment income tax.

One issue addressed by the preface of the health insurance fee rule is worth noting.  The fee is imposed on entities that provide “health insurance for any United States health risk.”  This is different from the term “health insurance issuer” normally used in the ACA when referring to major medical insurers.  It could arguably cover stop-loss insurers, which in fact insure health risks.  The preface notes the possibility that stop-loss insurers are offering small employers stop-loss coverage with very low attachment points, which is essentially equivalent to high-deductible health insurance.  This could not only allow evasion of the health insurance fee, but also other ACA requirements that apply to small groups, like coverage of the essential health benefits.

HHS, Labor, and Treasury have requested information about the extent of this practice.  The preface notes that Treasury may conclude at some future point that low attachment point stop-loss coverage could in fact constitute health insurance subject to the fee.