The Patient Protection and Affordable Care Act (the Act), as amended by the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act), promises to provide dramatic changes in the availability, delivery and funding of health care in the United States. Many other provisions that will impact employers and delivery vehicles have not yet received much attention.

One such provision is Section 1406 of the Reconciliation Act, which amended Sections 9010 and 10905 of the Act. These sections collectively impose an annual fee upon “health insurance providers.” The fee commences in 2014 in the aggregate amount of $8 billion, increases to $14.3 billion in 2018 and escalates thereafter. The fee is assessed annually upon all providers based upon their proportionate amount of aggregate “net premiums written” in excess of $25 million.

The Act provides exclusions in the case of “(A) any employer to the extent that such employer self-insures its employees’ health risks,” and “(B) any governmental entity (except to the extent such an entity provides health insurance coverage through the community health insurance option).”

There is no such blanket exclusion provided in the case of voluntary employees’ beneficiary associations, typically referred to as “VEBAs” described in Section 501(c)(9) of the Internal Revenue Code. Instead, in the Reconciliation Act Congress enacted a very limited exclusion for VEBAs: “(D) any entity which is described in section 501(c)(9) of such Code and which is established by an entity (other than by an employer or employers) for purposes of providing health care benefits.”

As a result, VEBAs established by trade associations or through specific legislation or bankruptcy orders appear to be excluded from the annual fee imposed upon “health insurance providers.” But the typical arrangement, whereby a large employer provides its employee health insurance benefits through its own VEBA, appears to be subject to the annual fee.

The Patient Protection and Affordable Care Act can be found here. The full text of the Reconciliation Act, including Section 1406, can be found here. Click here to read “Health Reform Legislation Affects Large and Small Employees” in the March 26 edition of Corporate and Financial Weekly Digest.