What Was the ACA Section 9010 Health Insurance Fee?

The Affordable Care Act (ACA) introduced a number of financing mechanisms, one of which was the Health Insurance Providers Fee established under Section 9010 of the act. This provision created an annual fee levied on the health insurance industry. The primary purpose of this fee was to help generate revenue to fund federal programs, including the premium tax credits and other subsidies offered to individuals purchasing coverage through the health insurance marketplaces. It was structured as an aggregate amount collected from the entire industry and allocated among individual insurers.

Entities Subject to the Fee

The Health Insurance Providers Fee applied to organizations defined as “covered entities” under the law. A covered entity was any business engaged in providing health insurance for United States health risks. This included traditional health insurance issuers, health maintenance organizations (HMOs), and entities providing insurance coverage under government programs like Medicare Advantage, Medicare Part D, and certain Medicaid managed care plans.

Certain entities were explicitly exempt from the annual fee. An exemption was for self-insured employers, which fund their own employee health plans rather than purchasing insurance from a third-party carrier. Other exempt organizations included:

• Most governmental entities that provide health coverage.
• Certain nonprofit corporations.
• Voluntary Employees’ Beneficiary Associations (VEBAs).

Specifically, a nonprofit entity that received more than 80 percent of its gross revenues from government programs serving low-income, elderly, or disabled populations was not subject to the fee. This distinction ensured the financial obligation was placed on commercial insurance carriers rather than on employers directly or on certain public-service-oriented organizations.

Calculation of the Fee

The calculation of the Health Insurance Providers Fee was a multi-step process that began with a fixed, aggregate amount for the entire insurance industry. This total amount, known as the “applicable amount,” was set by statute for each specific year the fee was in effect. For example, the applicable amount started at $8 billion for 2014 and was set at $15.5 billion for 2020, the final year of its collection. This industry-wide total was then allocated among the various covered entities.

An individual insurer’s portion of the total fee was determined by its market share. This share was calculated based on the company’s “net premiums written” for the preceding calendar year relative to the total net premiums written by all covered entities for that same year. “Net premiums written” was defined as the direct premiums earned from policyholders, with certain adjustments, such as a reduction for reinsurance premiums paid to other insurers. To illustrate the allocation, if the total industry fee was $15.5 billion and an insurance company’s market share was 1%, its allocated fee for the year would be $155 million.

The law also included a threshold to exclude smaller insurers. Entities with net premiums written of $25 million or less were not required to pay any fee. For those with premiums between $25 million and $50 million, only 50% of their premiums were included in the calculation. Insurers with over $50 million in net premiums had 100% of their applicable premiums counted.

Required Information Reporting on Form 8963

To administer the fee, the Internal Revenue Service (IRS) required covered entities to report their premium data annually using IRS Form 8963, titled “Report of Health Insurance Provider Information.” This form was not a tax return but an information report used by the IRS to gather the necessary data to compute each insurer’s share of the aggregate fee.

On Form 8963, each covered entity was required to report its total net premiums written for United States health risks for the preceding calendar year. This figure served as the basis for the allocation calculation. For most insurance companies, the data needed to complete this form was sourced directly from their statutory financial statements filed with state regulators, which are based on guidelines from the National Association of Insurance Commissioners (NAIC). The form required filers to report these amounts, which the IRS then aggregated to determine the total market size and calculate each entity’s pro-rata share of the fee.

Tax Treatment and Final Repeal

The financial impact of the Health Insurance Providers Fee on insurers was magnified by its tax treatment. Under the law, the fee was treated as a federal excise tax, and the payments were not tax-deductible for federal income tax purposes. This meant that for every dollar an insurer paid for the fee, it had to generate more than a dollar in revenue to cover both the fee and the associated income tax on that revenue. For instance, assuming a 21% corporate income tax rate, an insurer would need to collect approximately $1.27 in premiums to have $1.00 left over to pay the fee after accounting for federal income taxes. This additional cost was often passed on to consumers in the form of higher premiums for fully insured health plans.

After several years of collection, interspersed with one-year moratoriums in 2017 and 2019, the fee was permanently eliminated. The repeal was enacted as part of the Further Consolidated Appropriations Act, 2020, which was signed into law on December 20, 2019. This legislation specified that the repeal was effective for all calendar years after 2020. The fee was collected for the last time in 2020 based on 2019 premium data, and no fees have been assessed since.