Accounting Issues: Accounting for Annual Health Insurance Fees

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Accounting Issues: Accounting for Annual Health Insurance Fees
On March 23, 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act (PPACA) and on March 30, 2010 the Health Care and Education Reconciliation Act provided provisions to the PPACA. The laws focus on reform of the private health insurance market, provide better coverage for those with pre-existing conditions, improve prescription drug coverage in Medicare and extend the life of the Medicare Trust fund by at least 12 years (Washington). There are a number of provisions in the PPACA Act that will impact the accounting for many companies. Among those provisions are the following (US): * A new annual fee on pharmaceutical manufacturers

* A new excise tax in medical device manufacturers
* Changes to the Retiree Drug Subsidy (RDS)
* Revenue and channel considerations:
* Changes to the Medicaid rebate rate
* Expansion of the 340(b) Public Health Service (PHS) program * Changes for Medicare and Medicaid recipients who are over 65 and indigent * Medicare coverage gap (‘doughnut hole’)

The accounting aspect for the annual fee paid by pharmaceutical manufacturers is subject to review by the Emerging Issues Task Force (EITF). The same accounting issue goes for a provision of the new Health Care Act that calls for annual fees to health insurers are to be paid to the federal government. This leads to an issue at hand for the proper treatment of recording the annual fees and what period they should be recorded in. FASB, Financial Accounting Standards Board, is a private organization that establishes GAAP, generally accepted accounting principles, for public companies in the United States. It was created in 1973 by the Security and Exchange Commission (SEC) to replace the Committee on Accounting Procedure (CAP) and the Accounting Principles Board (APB). To help deal with the issue of how to record the annual fee, FASB has issued a proposed Accounting Standards Update (ASU) Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers. This is open for public comment until April 18, 2011 (McGladrey). The Acts impose an annual fee on health insurers for each calendar year beginning on or after January 1, 2014. A health insurer's portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible. The annual fee for the health insurance industry ranges upward from $8.0 billion therefore, a portion of the annual fee will be allocated to individual health insurers based on the ratio of both of the following amounts incurred by individual health insurers in relation to the amounts incurred by all covered entities: (a) the amount of their net premiums written with respect to health insurance for any U.S. health risk that is written during the preceding calendar year; plus (b) 200% of the covered entity's third-party administrative agreement fees. A health insurance entity's portion of the annual fee becomes payable to the U.S. Treasury once the entity provides health insurance for any U.S. health risk for each applicable calendar year. This would be effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective (Health). * 2014 $8,000,000,000

* 2015 $11,300,000,000
* 2016 $11,300,000,000
* 2017 $13,900,000,000
* 2018 $14,300,000,000

For 2019 and thereafter, the applicable amount shall be the applicable amount for the preceding year increased by the rate of premium growth for such preceding calendar year (US). The EITF has decided that the fee should be recognized in its entirety once the liability has been recognized. The staff believes that the obligating event (that is, the recognition of the liability) occurs when the health insurer provides health insurance for any U.S. health risk during 2014 (Fees). The liability for the entire estimated annual fee should...
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