March 2013

PPACA Assessment Fee Debate Continues

The Statutory Accounting Principles Working Group (SAPWG) of the National Association of Insurance Commissioners (NAIC) held a conference call on March 7, 2022 to continue the discussion regarding the accounting treatment of fees to be paid to the federal government by health insurers resulting from Section 9010 of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (PPACA).

The majority of regulators and the SAPWG continue to have differing views from interested parties within the health insurance industry regarding this contested topic.  The proposed accounting approach favored by regulators and the SAPWG focuses on health insurers being required to accrue the expense for the assessment in the year the premiums on which the assessment are based are written.  Thus, for the 2014 year, health insurers face the possibility of recognizing the expense of both the 2014 assessment and 2015 assessment during the 2014 calendar year. 

The basis for the regulators’ and SAPWG’s position is that previously existing statutory accounting guidance defines the writing of the premiums on which the assessment is based as the event triggering the recognition of a liability.  Further, regulators argue that while the writing of health risks in the following calendar year obligates the insurer to pay the assessment, the existing practices and procedures surrounding renewing of policies prior to the effective date create a circumstance where it is apparent that insurers will write health risks in the following calendar year prior to January 1, and demonstrate the insurer’s intent to do so.   Finally regulators contest that insurers’ 2014 premium rates are likely to include some level of increases to cover the expected 2015 year assessment, thus, there should be a matching of the related expenses against these additional premium revenues.

Following the March 7, 2022 conference call, the SAPWG re-exposed 2011-38 – Fees Payable to the Federal Government by Health Insurers, which, as proposed, requires insurers subject to the assessment, beginning in 2014, to begin accruing the related expense as the premiums subject to the assessment are written during 2014.  The expense recognition is subject to a phase-in period, whereby as of December 31, 2014, one-third of the expected 2015 assessment would be recognized as expense, and two-thirds would be recognized as a direct charge to surplus, followed by two-thirds expense recognition and one-third surplus as of December 31, 2015, and finally, full expense recognition as of December 31, 2016.  This proposed treatment will create a difference between statutory accounting and U.S. GAAP. 

The comment period for the exposure draft has been shortened to 20 days, ending March 26, 2013, to allow the SAPWG time to review comments from interested parties in order to permit sufficient discussion of the issue and related interested party comments at the NAIC’s upcoming meetings in April of 2013 in Houston, Texas.

The assessment under Section 9010 of PPACA is payable to the federal government annually beginning in September 2014.  The fees are based on a health insurer’s allocable share of all subject written premiums from the preceding calendar year (i.e., premiums written in 2013 for the 2014 year assessment), and is payable by any entity that writes health insurance risks in  the United States of America during the year in which the fee is payable (i.e., 2014).  The total assessment expected to be imposed on health insurers in 2014 is estimated to be $8 billion. 

For more information on the PPACA assessment or the activities of the SAPWG, please contact Ken Hugendubler or Eric Kelly of ParenteBeard.

Ken Hugendubler
Insurance Industry Practice Leader
Ken.Hugendubler@ParenteBeard.com | 215.972.2330              

Eric Kelly
Senior Manager
Eric.Kelly@ParenteBeard.com | 215.972.2195  

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