ASC

ASC 720-50

Fees Paid to the Federal Government by Pharmaceutical Manufacturers and Health Insurers

720 Other Expenses

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In brief

IntermediateRecognitionPresentationIndustry-specificInitial measurement

ASC 720-50 governs how pharmaceutical manufacturers and health insurers account for the annual, non-tax-deductible fees payable to the U.S. Treasury under the Affordable Care Act (as amended by the Health Care and Education Reconciliation Act). The entire estimated annual fee liability is recognized in full upon the first qualifying event in the calendar year (first branded prescription drug sale, or first provision of U.S. health risk insurance), with an offsetting deferred cost amortized to expense — normally straight-line — over that calendar year. The fee is presented as an operating expense.

Key points (7)
  • The Acts impose annual fees on pharmaceutical manufacturers for calendar years beginning on or after January 1, 2011, and on health insurers for calendar years beginning on or after January 1, 2014; the fee is payable no later than September 30 of the applicable year and is not tax deductible (720-50-05-2).
  • Each entity's share is allocated by market share: branded prescription drug sales of the preceding year for manufacturers (720-50-05-3), and net premiums written in the preceding calendar year for U.S. health risk for insurers (720-50-05-4).
  • The full estimated liability is recorded upon the first qualifying sale (manufacturers) or once qualifying health insurance is provided (insurers) in the applicable calendar year, with a corresponding deferred cost (720-50-25-1).
  • The deferred cost is amortized to expense straight-line over the calendar year the fee is payable, unless another method better allocates the fee (720-50-25-1).
  • The health insurer fee is not an acquisition cost as defined in Subtopic 944-30 (720-50-25-1).
  • The annual fee shall be presented as an operating expense (720-50-45-1).
  • The guidance rests on the unique facts and circumstances of these fees; judgment is required before analogizing to other fee arrangements (720-50-15-1).

For students. The classic trap is thinking the fee accrues ratably as sales or premiums occur — instead the entire annual liability is booked at the first qualifying sale/coverage, and it is the deferred asset (not the liability) that is amortized straight-line over the year. Also remember the fee is not tax deductible and is not an insurance acquisition cost under 944-30.

annual health care reform feebranded prescription drug salesnet premiums writtendeferred cost amortizationliability recognition triggeroperating expense presentationnon-deductible feemarket-share allocation

Machine-generated study aid for ASC 720-50. Check the source paragraphs below.

720-50-00Status

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720-50-00-1
The following table identifies the changes made to this Subtopic.
  • Note: Subtopic title changed by Accounting Standards Update No. 2011-06 on 07/21/11 from Other Expenses—Fees Paid to the Federal Government by Pharmaceutical Manufacturers to Other Expenses—Fees Paid to the Federal Government by Pharmaceutical Manufacturers and Health Insurers.
ParagraphActionAccounting Standards UpdateDate
720-50-05-1AmendedAccounting Standards Update No. 2011-0607/21/2011
720-50-05-1AddedAccounting Standards Update No. 2010-2712/16/2010
720-50-05-2AmendedAccounting Standards Update No. 2011-0607/21/2011
720-50-05-2AddedAccounting Standards Update No. 2010-2712/16/2010
720-50-05-3AddedAccounting Standards Update No. 2011-0607/21/2011
720-50-05-4AddedAccounting Standards Update No. 2011-0607/21/2011
720-50-15-1AmendedAccounting Standards Update No. 2011-0607/21/2011
720-50-15-1AddedAccounting Standards Update No. 2010-2712/16/2010
720-50-25-1AmendedAccounting Standards Update No. 2011-0607/21/2011
720-50-25-1AddedAccounting Standards Update No. 2010-2712/16/2010
720-50-45-1AmendedAccounting Standards Update No. 2011-0607/21/2011
720-50-45-1AddedAccounting Standards Update No. 2010-2712/16/2010
720-50-65-1AddedAccounting Standards Update No. 2010-2712/16/2010
720-50-65-2AddedAccounting Standards Update No. 2011-0607/21/2011

720-50-05Overview and Background

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720-50-05-1
This Subtopic provides guidance on the annual fees paid by pharmaceutical manufacturers and health insurers to the U.S. Treasury in accordance with the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts).
720-50-05-2
The Acts impose annual fees on the pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011, and on the health insurance industry for each calendar year beginning on or after January 1, 2014. An entity's portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible.
720-50-05-3
For the pharmaceutical manufacturing industry, the annual fee will be allocated to individual pharmaceutical manufacturers on the basis of the amount of their branded prescription drug sales for the preceding year as a percentage of the industry's branded prescription drug sales for the same period. A pharmaceutical manufacturing entity's portion of the annual fee becomes payable to the U.S. Treasury once the entity has a gross receipt from branded prescription drug sales to any specified government program or in accordance with coverage under any government program for each calendar year beginning on or after January 1, 2011.
720-50-05-4
For the health insurance industry, the annual fee will be allocated to individual health insurers based on the ratio of the amount of an entity's net premiums written during the preceding calendar year to the amount of health insurance for any U.S. health risk that is written during the preceding calendar year. 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.

720-50-15Scope and Scope Exceptions

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720-50-15-1
The guidance in this Subtopic applies to all pharmaceutical manufacturers and health insurers that are subject to the annual fee imposed by the Acts described in paragraphs
720-50-05-1 through 05-4
. The guidance in this Subtopic is based on the unique facts and circumstances of the fee to be paid by pharmaceutical manufacturers and health insurers in accordance with the Acts; accordingly, an entity should apply judgment when evaluating the facts and circumstances of other fee arrangements before analogizing to the guidance in this Subtopic.

720-50-25Recognition

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720-50-25-1
The liability related to the annual fee described in paragraphs
720-50-05-1 through 05-4
shall be estimated and recorded in full upon the first qualifying sale for pharmaceutical manufacturers or once the entity provides qualifying health insurance for health insurers in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The annual fee imposed on health insurers does not represent a cost related to the acquisition of policies that is consistent with the definition of an acquisition cost in Subtopic 944-30.

720-50-45Other Presentation Matters

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720-50-45-1
The annual fee described in paragraphs
720-50-05-1 through 05-4
shall be presented as an operating expense.

720-50-65Transition and Open Effective Date Information

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720-50-65-1
Paragraph superseded on 07/14/2011 after the end of the transition period stated in Accounting Standards Update No. 2010-27, Other Expenses (Topic 720): Fees Paid to the Federal Government by Pharmaceutical Manufacturers.
720-50-65-2
Paragraph superseded on 07/02/2014 after the end of the transition period stated in Accounting Standards Update No. 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers.

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