It was the intent of Congress in enacting the Patient Protection and Affordable Care Act to regulate health insurance comprehensively. Most of the regulatory provisions of Title I (the insurance reforms) apply to “A group health plan and a health insurance issuer offering group or individual health insurance coverage.” The definitions of these terms are drawn from the definitional section of the Public Health Services Act (added by the Health Insurance Portability and Accountability Act), which defines a “group health plan” as an ERISA plan, and a “health insurance issuer” as “an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance.” 42 U.S.C. § 300gg-91(a)(1), (b)(2). Thus the ACA covers both self-insured ERISA plans and insured individual and group plans.
In fact, however, the ACA does not apply to all health insurance coverage, and does not apply to all health insurance coverage to which it does apply to the same extent. HIPAA excepted benefit plans, including specific disease and fixed-dollar indemnity plans, and short term individual coverage are not subject to ACA requirements, and many of the provisions of the ACA that apply to individual and small group plans, including the essential benefit package, the risk adjustment program, and the risk pooling, community rating, minimum medical loss ratio, and unreasonable premium increase justification requirements do not apply to self-insured plans. It is, therefore, important to read the ACA section by section to determine which requirements or prohibitions apply to which types of health insurance.
One particularly important provision that has not received enough attention is section 9010, “Imposition of Annual Fee on Health Insurance Providers” (at 811-815 in the link). This provision is found in Title IX of the ACA, but was amended both by the December 2009 Managers’ Amendment, which became Title X, and by the Health Care and Education Reconciliation Act, enacted in March 2010. Section 9010 imposes a fee, beginning in 2014, on a “covered entity’s net premiums written with respect to health insurance for any United States health risk.” The fee is determined by multiplying the fraction determined by dividing the covered entity’s net premiums by the net premiums of all covered entities that are taken into account under the statute times a set annual amount, which begins at $8 billion, but rises to $14.3 billion by 2018. This fee will be an important revenue source for funding the ACA’s coverage expansions.
The fee imposed by section 9010 does not apply to all insurers equally. Insurers with annual net premiums of $50 million are fully taxed on their revenues, while insurers with annual net premiums of $25 to $50 million are taxed on only half of their net premium revenues, and insurers with net premiums below $25 million are not taxed at all. Certain tax-exempt insurers are also taxed on only half of their net premium revenues (after applying the small insurer discount just mentioned).
The fee also only applies to “covered entities.” Section 9010(c) defines “covered entity” as an entity that “provides health insurance for any United States health risk,” subject to a number of exclusions. These exclusions include “any employer to the extent that such employer self-insures its employees’ health risks;” government entities; certain non-profit insurers that derive 80% of their revenue from government programs; and VEBAs that are tax exempt under I.R.C. § 501(c)(9).What is the universe of “covered entities,” however, that remain subject to § 9010 after these exclusions are applied?
To answer this question it is necessary to parse the meaning of “health insurance” and “United States health risk.” Both terms are defined in the section, but only in part. “United States health risk” is defined to include the health risk of an individual who is a United States citizen, resident, or located in the United States. § 9010(d). “Health insurance” is defined to exclude certain but not all forms or HIPAA excepted benefits (as defined in I.R.C. § 9832(c)), long-term care insurance, and Medicare supplemental insurance. Nowhere in § 9010, or indeed anywhere in the Internal Revenue Code, however, are the terms “health insurance” or “health risk” defined. Section 9010 tells us what “health insurance” is not, but not what it is.
The most interesting question is whether health insurance for a United States health risk includes stop-loss coverage. The sale of stop-loss coverage to small employer groups is increasing very rapidly. As noted above, self-insured small groups are not subject to many of the consumer and market protections that the ACA applies to insured small groups. Self-insured group plans are also not subject to state regulation because of ERISA preemption. There is thus a great deal of interest in the part of small group plans in self-insuring. Small groups can only self-insure, however, if they can find generous stop-loss coverage that will assume most of the health risk of employees. A small employer that fully assumed coverage for its employees without stop-loss coverage would face unacceptable risk. Some insurers, therefore, are actively marketing stop-loss coverage, often with very low attachment points, to small groups.
Is this stop-loss coverage subject to section 9010? It certainly is “insurance” and it certainly covers a “health risk.” It also does not fit within any of the explicit exclusions from the term “health insurance.” But is “stop-loss insurance” “health insurance”? The term “health insurance” is nowhere defined in the Internal Revenue Code (which would be the relevant code since the fee is administered by the Secretary of the Treasury and the fee is considered to be an excise tax, see § 9010(f),(h)(1)). “Health insurance coverage” and “Health insurance issuer” are defined in § 9832, but those are not the terms used in section 9010, presumably intentionally. By analogy, the term “group health plan” is used throughout the ACA to mean an ERISA plan, but in § 1301(b) the term “health plan” is explicitly defined to not include self-insured ERISA group plans. Wherever the term “health plan” is used in the ACA without the adjective “group,” therefore, it does not include self-insured ERISA plans, but where it appears with the adjective “group” self-insured plans are included. Similarly, it must be presumed that Congress used the term “health insurance” to mean something different from the defined terms “health insurance coverage” or “health insurance issuer,” which terms are used throughout the ACA in different contexts.
Is stop-loss insurance that covers health care risks health insurance? This is certainly a reasonable interpretation of the term. Moreover, the fact that Congress explicitly excluded from the definition of “covered entity” risk borne by employers in self-insured plans, but not risk that they pass on to stop-loss insurers, indicates that Congress did not intend to exempt stop-loss plans from the fee.
Applying the fee to stop-loss coverage would help to level the playing field between conventional health insurers and health insurers that insure health risk through stop-loss plans, and might help stem the flood of small groups to self-insured status, which in turn threatens to undo the consumer protections extended to employees insured through small groups and the market protections built into the ACA to stabilize the small group market (such as the risk adjustment and risk pooling requirements).
Section 9010(c) tasks the Secretary of the Treasury with providing implementing regulations and guidance. It is to be hoped that the Secretary will clarify through the regulatory process that the § 9010 fee applies not only to conventional insurance, but also to stop-loss insurance. Stop-loss insurance increasingly serves as an alternative mechanism for covering the same health risks that are covered by conventional insurance, while at the same time providing a means of evading ACA consumer and market protections. Section 9010 should be applied to stop-loss insurance just as it is to conventional insurance.