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Self-funded employers exempt from ACA premium revenue fee

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Self-funded employers will be exempt from a health care reform law fee that will be imposed, starting in 2014, on commercial health insurers and health maintenance organizations, federal regulators proposed in rules issued Friday.

That fee, assessed on health insurers' premium revenue above $25 million, is intended to generate $8 billion in revenue in 2014 and an additional $50.8 billion in revenue from 2015 through 2018.

Referring to a section of the Patient Protection and Affordable Care Act, the proposed regulation — issued by the Internal Revenue Service — said the fee will not be imposed on employers that self-fund employees' and retirees' health care benefits.

While the exemption was expected due to the statutory language, it “is still welcome news to have the regulations confirm that self-insured employer plans are not subject to the new tax,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

The proposed regulations also clarify that that a self-funded plan may use a third party, such as a commercial insurer, for administration and remain exempt as long as there is no shifting of risk to the third party.

The IRS also said it is not aware of any special health care trusts — known as voluntary employees' beneficiary associations — that would be subject to the fee.

Even if a VEBA purchased insurance to cover beneficiaries, “the VEBA is not a covered entity subject to the fee because the insurer providing the health insurance that the VEBA purchases is the covered entity subject to the fee rather than the VEBA,” the IRS said.