In July 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-06. This ASU was issued to address questions raised in comment letters1 regarding how health insurers should report in their income statements fees mandated by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the “Acts”).
The Acts impose an annual fee on health insurers for each calendar year in which they provide qualified health insurance for any U.S. health risk. The amount of the annual fee for the health insurance industry will be allocable to individual insurers based on the ratio of the insurer’s net health insurance premiums written in the previous calendar year to the total of all health insurance for all U.S. health risk that is written during the same period. The fee, which is not deductible for federal tax purposes, will be effective for calendar years after December 31, 2013 and will be payable by September 30th of each year in which an entity provides qualifying health insurance.
Upon becoming subject to the fee, ASU 2011-06 requires that health insurers record an estimated liability for the entire allocable portion of the fee, together with an offsetting deferred charge. The deferred charge should then be amortized to operating expense on a straight-line basis over the calendar year to which it relates, unless another method provides a better allocation.