Insurers face $4.9M penalty for late filing of IRS form

Health insurers that were late filing a form with the government avoided paying an annual fee tied to the Affordable Care Act, but they may face total penalties of more than $4.9 million, according to a new report from the Treasury Inspector General for Tax Administration.

A total of 143 insurers out of 477 failed to file Form 8963, known as the Report of Health Insurance Provider Information, with the Internal Revenue Service (IRS) by the April 15 deadline, the report states. That form is used to allocate the Health Insurance Provider Fee, which insurers--or "covered entities," as the report calls them--pay annually based on their portion of market share premiums. The total fee for fiscal year 2014 was $8 billion.

The report does not explicitly state how much the late-filing insurers avoided in fees, but does note that in total, they face a $4,906,407 potential penalty. Of the insurers that filed late, most were either unsure or unaware of the filing requirements.

The late filing of Form 8963 is especially problematic because the IRS does not have a process to correct the amount all covered entities must pay once it distributes its final fee letters. This means late filers don't have to pay their portion of the fee, which "in turn results in covered entities that comply with the timely filing requirement paying more than their share in fees," the report states.

Yet the IRS does not agree with the report's recommendation that it conduct a reconciliation process for the Health Insurance Provider Fee, noting that reallocating the $8 billion fee for 2014 would result in only a .015 percent change in the amount that current fee-payers owe. "IRS does not believe that this relatively low adjustment rate warrants such a change at this time," writes Heather C. Maloy, the commissioner of the IRS' large business and international division.

The IRS also argues that readjusting the fee would leave insurers with a lack of certainty about their fee liability. However, it does plan to review the effectiveness of the current process throughout the next three years.

The IRS also has struggled to implement another ACA-related fee for insurers, known as the Patient-Centered Outcomes Research fee. More than 40 percent of insurers failed to pay that fee, a previous report from the Treasury Department found.

Tax-filing issues tied to the ACA have been a challenge for consumers, as well. In early August, the Associated Press reported that 1.8 million Americans could lose their subsidies for health coverage because they filed to file returns that account for these tax credits.

To learn more:
- read the report (.pdf)
- here's the report announcement