Maintenance Taxes on Health Maintenance Organizations

The Texas Department of Insurance (TDI) sets maintenance tax rates each year. Maintenance taxes are used to fund the TDI, including the Division of Workers’ Compensation and the Workers’ Compensation Research and Evaluation Group. The maintenance taxes also fund the Office of Injured Employee Counsel, another state agency that is attached administratively to the TDI and is funded by that agency’s operating account. The Comptroller’s office collects the maintenance tax on the Texas Annual Insurance Maintenance, Assessment and Retaliatory Report (Form 25-102).

For a Health Maintenance Organization (HMO), the maintenance tax is a per capita amount for each enrollee of a plan, including both the certificate holder and each covered dependent. Separate rates are charged for basic, single and limited health care services, defined by the type of license applied for and issued to the HMO by the TDI.

The average number of enrollees for the tax report year can be computed using the “Exhibit of Premiums, Enrollment and Utilization” from the Annual Statement of the National Association of Insurance Commissioners (NAIC). That table shows the number of enrollees at the end of each quarter.

To calculate the tax, the company must first determine each quarter’s net number of enrollees by subtracting enrollees for non-taxable revenues (as reported on Form 25-205) from each quarterly total. The net total for each quarter should then be added together and divided by four to determine the average for the year. The average should be entered in Column A of the Texas Annual Insurance Maintenance, Assessment and Retaliatory Report (Form 25-102) as appropriate on line 13, 14 or 15, depending upon whether the business represents the basic, single or limited health care service. Multiply the number in Column A by the rate in Column B to arrive at the maintenance tax due.

Maintenance taxes are due March 1 of the year following the initial issuance or renewal of coverage, which is the same due date as for premium taxes.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1209.html