Tax provisions for other organizations

Branded prescription drug (BPD) fee – Pharmaceutical manufacturers and importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On July 24, 2014, the IRS issued final and temporary regulations on the branded prescription drug fee. The regulations describe the rules related to the fee, including how it is computed and how it is paid. On July 24, 2017, the IRS issued regulations finalizing the July 2014 proposed regulation and removing the July 2014 temporary regulation.  The final regulations adopt without change the definition of the term controlled group used in the 2014 proposed regulation.

On July 24, 2014, the IRS issued Notice 2014-42 PDF, which provides additional guidance on the branded prescription drug fee for the 2015 fee year and subsequent fee years. For information on the fee for the 2012, 2013 and 2014 fee years, see Notice 2011-92 PDF, Notice 2012-74 PDF and Notice 2013-51 PDF. 

For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.

Expatriate Health Plans – See Tax Provisions for Individuals

Expatriate health coverage

The Expatriate Health Coverage Clarification Act (EHCCA) was enacted on December 16, 2014.  Section 3(a) of the EHCCA generally provides that the Affordable Care Act (ACA) does not apply to expatriate health plans, employers with respect to expatriate health plans (but solely in the employer’s capacity as plan sponsor of the expatriate health plan), and expatriate health insurance issuers with respect to coverage offered by such issuers under expatriate health plans.  The EHCCA generally applies to expatriate health plans issued or renewed on or after July 1, 2015.  On June 30, 2015, the IRS and Treasury Department issued Notice 2015-43 PDF, which provides transition relief and interim guidance on the application of certain provisions of the ACA to expatriate health insurance issuers, expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans, as defined in EHCCA.  Notice 2015-43 does not apply to the health insurance providers fee (IPF - ACA § 9010 fee).  For purposes of the § 9010 fee, Notice 2015-29 PDF, applies to the 2014 and 2015 fee years, and future guidance will address the 2016 and later fee years.  

Group health plan requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1 PDF, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 PDF and REG-140038-10 PDF, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 PDFprovides guidance to group health plans on the waiting periods they may apply before coverage starts. On June 20, 2014, HHS, DOL and IRS issued final regulations PDF on the ninety-day waiting period limitation.

More information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Further, Notice 2013-54 PDF provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 

Health insurance provider fee (IPF-ACA Section 9010 fee)

The Further Consolidated Appropriations Act, 2020, Division N, Subtitle E § 502, signed into law on December 20, 2019, repealed the annual fee on health insurance providers for calendar years beginning after December 31, 2020 (fee years after the 2020 fee year). As a result of the repeal, 2020 was the last fee year.

Medical device excise tax

Repeal of medical device excise tax

The Further Consolidated Appropriations Act, 2020 H.R. 1865 (Pub.L.116-94), signed into law on December 20, 2019, has repealed the medical device excise tax previously imposed by Internal Revenue Code section 4191. Prior to the repeal, the tax was on a 4-year moratorium.  As a result of the repeal and the prior moratorium, sales of taxable medical devices after December 31, 2015, are not subject to the tax.

Medical loss ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20 PDF, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate. 

On October 24, 2014, the Department of the Treasury and the IRS issued Notice 2014-67 PDF, which describes the conditions under which a hospital or other health care facility with tax-exempt bonding authority may participate in an ACO without jeopardizing the tax-exempt status of the bonds financing that facility.

Patient-Centered Outcomes Research Institute fee

The Affordable Care Act established the Patient-Centered Outcomes Research Institute (PCORI). Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will help patients, clinicians, purchasers and policymakers make better-informed healthcare choices by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

10-year extension of Patient-Centered Outcomes Research Trust Fund fee

The Further Consolidated Appropriations Act, 2020 (Pub. L. 116-94), signed into law on December 20, 2019, has extended the Patient-Centered Outcomes Research Trust Fund fee imposed by Internal Revenue Code sections 4375 and 4376 for 10 years. As a result of this extension, the Patient-Centered Outcomes Research Trust Fund fee will continue to be imposed through 2029.

The IRS and the Department of the Treasury have issued final regulations PDF on this fee.

The IRS generally posts a notice each fall to establish the applicable dollar amount for policy and plan years ending after September and concluding before October the following year. However, due to the law change in December 2019, the 2019-2020 notice was issued in the spring of 2020. Here are the notices and their applicable dates:

• Notice 2014-56 PDF after September 30, 2014, and before October 1, 2015
• Notice 2015-60 PDF after September 30, 2015, and before October 1, 2016
• Notice 2016-64 PDF after September 30, 2016, and before October 1, 2017
• Notice 2017-61 PDF after September 30, 2017 and before October 1, 2018
• Notice 2018-85 PDF after September 30, 2018 and before October 1, 2019
• Notice 2020-44 PDF after September 30, 2019 and before October 1, 2020

Additional information on the fee is available on the PCORI page and in the questions and answers and chart summary. The Form 720, Quarterly Federal Excise Tax Return, is used to report and pay the PCORI fee. Although Form 720 is a quarterly return, the PCORI fee is only filed annually on a second quarter Form 720 that is due by July 31. 

Please refer to the chart for the filing due date and applicable rate depending upon the month a specified health insurance policy or an applicable self-insured health plan ends.

Retiree drug subsidies

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.

Section 162(m) amended – Limitation on deduction for compensation paid by certain health insurance providers

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On Sept. 18, 2014, the Treasury Department and IRS issued final regulations on this provision. 

Section 833 amended – Treatment of certain health organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 PDF provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 PDF provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 PDF extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012.

On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed. Congress subsequently passed the Consolidated and Further Continuing Appropriations Act, 2015, which was signed into law by the President on December 16, 2014, and made a technical correction to section 833(c)(5). On June 21, 2016, the IRS issued final regulations PDF incorporating the Technical Correction.

Tax-exempt 501(c)(29) qualified nonprofit health insurance issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 PDF outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Rev. Proc. 2015-17 PDF, issued in conjunction with final regulations, sets forth procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under section 501(c)(29).

An overview of the CO-OP program is available on the HHS website.

Tax-exempt hospitals – Additional requirements

The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 PDF and Notice 2011-52 PDF). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published temporary regulations PDF and proposed regulations PDF providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-2 PDF confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance.  On December 29, 2014, the IRS issued final regulations TD 9708 providing guidance on the requirements described in section 501(r), the entities that must meet these requirements, and the reporting obligations relating to these requirements under section 6033.  In addition, the final regulations provide guidance on the consequences for failing to satisfy the section 501(r) requirements.  The regulations apply to taxable years beginning one year after December 29, 2014, which is the date the regulations were posted for public inspection by the Federal Register.  On March 10, 2015, the IRS issued Rev. Proc. 2015-21 PDF, which finalizes, with some modifications, the correction and disclosure procedures proposed in Notice 2014-3 PDF, under which certain failures to meet the requirements of section 501(r) will be excused. On June 26, 2015, the IRS issued Notice 2015-46 PDF, which clarifies how a charitable hospital organization may comply with the requirement in the final regulations that a hospital facility include a provider list in its financial assistance policy (FAP). 

Transitional Reinsurance Program

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.