Renee Moran

Accouting Theory

March 16, 2011

EITF-Issue No. 10-H: Fees paid to the Government by Health Insurers

EITF Issue No. 10-H is an expansion of Issue No. 10-D. Issue No. 10-D is pertains to “Fees

Paid to the Federal Government by Pharmaceutical Manufacturers”. Task Force members were split on

Issue No. 10-D. Some suggested that an accounting policy election may be most appropriate in which

to present the fee due while others believed it was more similar to a cost of doing business in the year

the fee levied or a tax in the year the fee was levied. The Task Force it would greatly benefit users of

financial statements for the fee to be treated consistently by the industry which would not be if it were

treated with an option of how to record it. November 19, 2010 the consensus-for-exposure was reached

and affirmed that the annual fee should be presented as an operating expense and that the liability for

the fee should be estimated and recorded in full upon the first qualifying sale with a corresponding

deferred cost that is amortized using the straight-line method of allocation. Another method of

allocation may be used only if it better allocates the fee over the calendar year that it is payable.

Many comment letter respondents commented on the proposed update resulting from Issue No.

10-D and requested that the Task Force expand that scope of that Issue. Request was made for the Task

Force to widen the scope of Issue 10-D to include the accounting for fees to be paid by health insurers

as required by the Patient protection and Affordable Care Act and the Health Care and Education

Reconciliation Act (the Acts). After discussing expanding the scope of Issue 10-D, it was determined

that adding Issue No. 10-H, “Fees paid to the Government by Health Insurers”, was appropriate. This

was discussed at the November 19, 2010 EITF meeting. Plenty of time will be given to stakeholders to

comment on any proposed guidance on the Issue because the fees will not be enacted until 2014.Issue
10-H was formally added to the EITF agenda by the acting FASB chairman.

The annual fee that will be applicable to the health insurance industry ranges from $8 billion or

more. Part of the fee will be allocated to the individual health insurers based on the based on two

amounts incurred by them in relation to the amounts incurred by all covered entities. The two amounts

incurred that the fee will be based upon are the amount of their net premiums written with respect to

health insurance for any U.S health risk that is written during the preceding year and 200% of the

covered entity's (as defined by the Acts) 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 calendar year beginning on or after

January 1, 2014. The first specific issue at hand is whether the conclusions reached under Issue 10-D

regarding the accounting for the fee due under the Acts for pharmaceutical manufacturers should be

applicable to the fee to be paid by health insurers under the acts. The second specific issue is whether

the fee incurred by health insurers under the Acts meets the definition of acquisition costs in Topic 944,

Financial Services-Insurance.

As stated on www.fasb.org, at the meeting held on December 1, 2010 the Board approved the

consensus-for-exposure and the issuance of a proposed Update for a 120-day public comment period.

At a future meeting this Issue will be discussed.