24 th Annual Health Sciences Tax Conference

Transcription

1 24 th Annual Health Sciences Tax Conference December 9, 2014

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the U.S. This presentation is 2014 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of U.S. and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2

3 Presenters Kevin Nowell Tax Director Presbyterian Healthcare Leslie Zion Manager Intermountain Healthcare Tricia Johnson Ernst & Young LLP Cincinnati, Ohio Helen Morrison Ernst & Young LLP Washington, DC Page 3

4 Overview and introductions Page 4

5 Overview: The Affordable Care Act s (ACA) impact on health plans 2014 expansion of coverage Individual mandate (Internal Revenue Code (IRC) section 5000A) Health Insurance Marketplace Exchanges Premium tax credit (IRC section 36B) Medicaid expansion Taxes, fees and deduction limitation Health insurance provider fee (ACA Section 9010) $500,000 compensation deduction limit (IRC section 162(m)(6)) Patient-Centered Outcomes Research Institute (PCORI) (IRC section 4375) Transitional Reinsurance Program (TRP) fee (ACA Section 1341) Other (exchange fee, risk adjustment fee) Information reporting Page 5

6 ACA taxes, fees and reporting + ACA 9010 Health insurance provider fee 162(m)(6) $500,000 comp deduction limitation 4375 PCORI fee ACA 1341 Transitional Reinsurance Program fee ACA 1311 Exchange fee ACA 1343 Risk adjustment Definition Covered entity health insurance issuer; premiums for US health risk Cover health insurance provider under 9832(b)(2) Issuer of a specified health insurance policy Health insurer commercial book of business Health insurers Government programs (e.g., Medicaid) Excepted benefits (e.g., limited scope dental/vision) Yes (except state nonprofit corp with >80% revenue gov t) Generally, no Limited dental/vision, yes Not necessarily No No Yes No No Generally, no No, only minimum essential coverage Subcapitation arrangements et al Offer Exchange coverage No No No No No Yes Yes Yes Yes No Page 6

7 Introductions Intermountain Healthcare Structure Plan offerings Presbyterian Healthcare Services Structure Plan offerings Page 7

8 Intermountain Healthcare organization structure Parent 501(c)(3) IHC Health Services, Inc. 501(c)(3) Intermountain Community Care Foundation, Inc. 501(c)(3) SelectHealth, Inc. 501(c)(4) Healthcare Captive Insurance Company Intermountain Healthcare Foundation, Inc. 501(c)(3) SelectHealth Benefit Assurance Company Page 8

9 Select Health, Inc. (HMO) Total net premiums: 2013 = $1.5b; 2014Q2 = $900m At-risk members: 2013 = 492,000; 2014Q2 = 575,000 Self-funded members: 2013 = 180,000; 2014Q2 = 172,000 Percent of net premiums: Medicare: 2013 = 2%; 2014Q2 = 7% Medicaid: 2013 = 19%; 2014Q2 = 16% Commercial: 2013 = 79%; 2014Q2 = 77% Section 9010 fee for 2014 = $10.5m PCORI fee = $865m Transitional Reinsurance Program fee = $25.1m Page 9

10 Presbyterian Healthcare Services Parent 501(c)(3) Hospital Delivery System Supporting Org 509(a)(3) Type 1 Presbyterian Foundation 501(c)(3) Ambulance Company 501(c)(3) Property Holding Co 501(c)(2) Presbyterian Network, Inc. Taxable C Corp. Presbyterian Health Plan, Inc. Taxable HMO Presbyterian Insurance Company, Inc. Taxable PPO Page 10

11 Presbyterian Health Plan, Inc. Total net premiums: 2013 = $1.1b; 2014Q2 = $718m Members: 2013 = 271,000; 2014Q2 = 282,000 Percent of net premiums: Medicare: 2013 = 22%; 2014Q2 = 16% Medicaid: 2013 = 52%; 2014Q2 = 61% Commercial: 2013 = 26%; 2014Q2 = 23% Section 9010 fee for 2014 = $16m PCORI fee = $163,000 Transitional Reinsurance Program fee = $5m Page 11

12 Presbyterian Insurance Company, Inc. Total net premiums: 2013 = $151m; 2014Q2 = $101m Members: 2013 = 25,000; 2014Q2 = 31,000 Percent of net premiums: Medicare: 2013 = 62%; 2014Q2 = 65% Commercial: 2013 = 38%; 2014Q2 = 35% Section 9010 fee for 2014 = $2m PCORI fee = $29,000 Transitional Reinsurance Program fee = $900,000 Page 12

13 Topics for discussion Page 13

14 Topics Various ACA taxes and fees ACA Section 9010 excise tax Section 162(m)(6) compensation deduction limitation First limitation on Q returns TRP fee PCORI fee Exchange premium fee for those offering exchange products Information reporting for health plans Page 14

15 ACA Section 9010 Page 15

16 Overview: ACA Section 9010 Annual fee on all health insurance companies with premiums written for US health risks (Covered Entities) Aggregate fee 2014 $8 billion 2015 and 2016 $11.3 billion each year 2017 $13.9 billion 2018 $14.3 billion; thereafter increased by premium growth Assessed based on net premiums written in data year Section 501(c)(3) and 501(c)(4) entities exclude 50% of net premiums written Not tax deductible Internal Revenue Service (IRS) Form 8963 due April 15, corrections; IRS assessment and payment due September 30 Page 16

17 Application Applies to: Health insurance issuers in the individual and group markets Medicaid and Medicare providers Limited scope dental and vision coverage Does not apply to: State nonprofit corporation More than 80% of gross revenue from government programs (e.g., Medicaid, Medicare, State Children s Health Insurance Program (SCHIP)) Satisfies prohibited inurement requirements and other section 501(c)(3) language inclusions Most excepted benefits (e.g., specified disease coverage, fixed indemnity, Medicare supplemental, long-term care) Page 17

18 Open issues Application of controlled group rules Resolution of application of the rules to expatriate plans Resolution of the net premiums written definition to take into account experience-rated refund contracts and premium stabilization reserves Penalties Refund challenges and potential litigation Page 18

19 What are organizations doing? Conversion from taxable to section 501(c)(3) or 501(c)(4) status Section 337(d) toll tax Consider whether there is an opportunity for retroactive exemption to be requested, but not before 27 months prior to conversion Consider self-declaration of section 501(c)(4) status (does not apply for section 501(c)(3)) Conversion from for-profit to nonprofit A nonprofit taxable entity may still be permissible in a consolidated group. Separation of certain lines of business Carve out Medicaid and apply for section 501(c)(3) exemption Carve out Medicare, Medicaid and State CHIP into new nonprofit entity and apply for section 501(c)(4) exemption Business purpose for structuring changes is required Page 19

20 Health systems with insurance operations These systems have a unique opportunity to revisit applying for tax exemption because of parent tax exemption. Often, there is a parallel between the health system s overall focus and the direction of the plan when it comes to assessing and addressing community needs. In the recent past, it has been difficult for the IRS to finalize exemptions due to a lack of guidance, but they appear to be moving more quickly now. The IRS has said for a section 501(c)(4) organization, we ll know it when we see it, but there is almost no guidance. Page 20

21 An analysis example Presbyterian Health Plan (PHP) Conversion from taxable to section 501(c)(3) or 501(c)(4) status Section 337(d) toll tax As a taxable health insurance company, PHP has little tax basis. Most of our value would be in know how and reputation, i.e., goodwill. Therefore, toll tax upon conversion is expected to be large ($50m or more). Conversely, exclusion from section 9010 fee and federal income taxes in a profitable year could offset this gain. Separation of certain lines of business Again, toll tax would have to be considered upon transfer of assets. Business purpose for structuring changes is required As a sub of a tax-exempt parent, could exercise of fiduciary duty to conserve tax exempt s assets be a sufficient business purpose for structure changes? Page 21

22 Other considerations non-tax Non-tax issues associated with conversion to nonprofit status Means of conversion: State law conversion to nonprofit Merger with new nonprofit being the survivor Considerations where new entity is the survivor: Centers for Medicare & Medicaid Services (CMS) licensure State regulatory requirements (departments of insurance) Employee benefit plans Vendor contracts Provider agreements Leases Page 22

23 Section 162(m)(6) compensation deduction limitation Page 23

24 Overview: Section 162(m)(6) Imposes a $500,000 deduction limitation for compensation paid by a covered health insurance provider (CHIP) Applies to compensation deductions in tax years after December 31, 2012; however, compensation earned in tax years after December 31, 2009, is subject to the limitation if it is paid after 2012 Applies to any officer, director, employer or individual providing services Page 24

25 Determination of the limit $500,000 compensation deduction limit Compensation in the year when earned Salary in the year paid Deferred compensation and equity compensation in the years during which compensation is earned Deferred compensation different rules for: Account balance plans Non-account balance plans Equity-based compensation Page 25

26 Application Applies on a controlled group basis If any entity has 25% of its premiums from health insurance coverage that is minimum essential coverage, all entities in the group are subject to the limitation. There is an exception if aggregate premiums for health insurance coverage are less than 2% of aggregate gross revenue. Not applicable Self-insured plans Indemnity reinsurance and stop-loss Direct service payments Not considered a health insurance issuer providing health insurance coverage (e.g., potentially Medicaid and Medicare provider) Page 26

27 Evaluation process Controlled group assessment Determination whether entity is considered a health insurance issuer providing health insurance coverage, as defined in cross-reference Determination whether applicable premiums are 2% or more of the controlled group s total gross revenue Allocation of the tax deduction to entities within the controlled group Particular considerations if entity within the controlled group is tax exempt Page 27

28 PCORI TRP fee Page 28

29 PCORI and TRP fees PCORI TRP Provides funding for Patient-Centered Outcomes Research Institute Trust Fund Transitional Reinsurance Program Administered by IRS Department of Health and Human Services (HHS) Reporting deadline July 31 November 15 Subject years Plan years ending on or after 10/1/12 and before 10/1/19 Calendar years 2014 to rate $2 per covered life $63 per covered life Deductible? Yes Yes Payable from plan assets? No Yes Page 29

30 PCORI Applies to issuer of specified health insurance policies Assesses on a per capita basis $1 per covered life during fiscal year 2013 and $2 thereafter through 2019 First filing was July 31, 2013 (depending upon plan year) Tax deductible Page 30

31 TRP fee Aggregate of $25 billion over 2014, 2015 and $63 per enrollee; 2015 $44 per enrollee; 2016 $27 per enrollee Administered by HHS Must be paid through Complete form by November 15 Upload supporting documentation Schedule Automated Clearing House (ACH) transaction Contact bank to add ACH identification Tax deductible Page 31

32 Methods of counting and the population of your state Page 32

33 Would the 2.35 multiplier benefit you? Counting methods are similar for both PCORI and TRP fees. If you live in any state except: Montana Maine Vermont North Dakota Your population could be higher than the 2.35 persons per household. Page 33

34 Exchange premium fee Page 34

35 Exchange premium fee Fee to support the financial sustainability of Federally Facilitated Exchanges (FFEs) Monthly fee as percent of premium revenue for Exchange coverage Expected to be 3.5% of premiums for FFEs; states may impose additional fee Spread across individual and small group market risk pools Page 35

36 Information reporting Page 36

37 Information reporting: Sections 6055 and 6056 Section 6055 Section 6056 Purpose Reporting by Information reported Due dates Provide report to individuals and IRS with evidence of minimum essential coverage; used by IRS to administer individual mandate Insurance providers, government agencies, multiemployer plans, employers that sponsor self-insured plans Employer- and employee-specific data such as name, address, Taxpayer Identification Number (TIN) for individuals covered by Minimum Essential Coverage Each month during which individual is covered January 31 reports to employees March 31 reports to IRS Provide report to individuals and IRS with evidence of offer of coverage; used by IRS to administer employer mandate and premium tax credit Large employers subject to ACA Employer identifying information Identifying information for all full-time employees Plan data including employee cost, time offered, etc. on a month-bymonth basis January 31 reports to employees March 31 reports to IRS Form New Form 1095-B and 1094-B New Form 1095-C and 1094-C (combined 6055/6056 reporting) New Form 1095-C and 1094-C (combined 6055/6056 reporting) Page 37

38 Section 6055 general rules Information to be reported under section 6055 The name and TIN of each individual enrolled The name and address of the primary insured who submits the application for coverage Months during which the individual is enrolled in minimum essential coverage Complexities TINs birth date of dependent may be reported if employer made a reasonable effort to obtain the TIN; three efforts must be made to obtain the TIN to avoid filing penalties Electronic filing employee consent and other requirements apply Page 38

39 Section 6056 general rules General reporting method Number of full-time employees, by month For each full-time employee, months when coverage was available For each full-time employee, the employee s share of the lowest cost monthly premium for self-only coverage Additional information, some by indicator code Alternative reporting Qualifying offer; 98% offer Complexities Determining whether either alternative reporting method is viable Collecting volume of information Identifying full-time employees Page 39

40 Sections 6055 and 6056 penalties Failure to file and accuracy penalties apply for IRS transmittal or individual statement same as penalties for other information reporting requirements $100 per return, capped at $1.5 million Waiver if failure due to reasonable cause Reduced penalties if corrected return filed within 30 days of required filing date No cut-off for correcting returns Limited relief for returns and statements filed or furnished in 2016 (if reasonable effort to comply is made) Page 40

41 Questions? Page 41

42 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved