Considerations for a State Health Insurer Fee Following Repeal of the Federal 9010 Fee

The recent repeal of the federal health insurer fee may create an opportunity for states to secure substantial funding to support health coverage, without increasing costs on consumers or the health care industry.

The government spending bill enacted in December 2019 repealed the annual fee on health insurance providers under section 9010 of the Affordable Care Act (ACA), effective in 2021.  The fee, which totaled about $20 billion per year, amounted to an assessment of between two and three percent on prior-year health insurance premiums.  A state fee can be designed to pick up this revenue, with little or no year-to-year market impact.  Two states – Maryland and Delaware – have passed similar assessments to fund state reinsurance programs. States could also use this revenue stream to fund other affordability measures like the state subsidy program enacted last year in California.

This opportunity is time-limited: a seamless transition generally requires states to enact their own fee before 2021 premiums are set in the middle of 2020.  Since the federal fee will be collected for the last time in 2020 based on 2019 premiums, state fees should be first collected in 2021 based on 2020 premiums to ensure continuity.  In addition, a state fee may be able to redeploy a one-year “windfall” that issuers would receive due to repeal of the federal fee.  That’s because in many cases the federal fee that was to be paid in 2021 (based on 2020 premiums) was “baked in” to 2020 premiums.

Enacting a fee to replace the federal one presents several design questions for states, including what lines of insurance to include, timing, rate, and targeted exemptions.  Frequent SHVS partner and ACA tax expert Jason Levitis prepared the slides to help states understand these issues.  For states interested in learning more, SHVS is happy to make Jason available to provide technical assistance. In addition, experts at Manatt are available through SHVS to help understand the complex federal rules governing states taxes on Medicaid Managed Care Organizations (MCOs), as well as the related rules under the proposed Medicaid Fiscal Accountability Rule (MFAR). If you have questions or are interested in assistance, contact Heather Howard at heatherh@princeton.edu , or you can contact Jason directly at jason.levitis@gmail.com.

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