On Nov. 30, 2017, CMS issued a memorandum related to coverage for women’s contraceptive services. As background, PPACA requires all non-grandfathered group health plans to provide coverage for certain preventive care services with no cost-sharing. Those services include all FDA-approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity as prescribed by a health care provider. There had previously been an exemption in place for plans sponsored by religious employers, such as churches and synagogues. There was also an accommodation process in place for religiously affiliated nonprofit organizations that didn’t qualify for the exemption and also for closely held, for-profit entities with religious objections. Under the accommodation process, the plan would still provide contraceptive coverage to participants, but the services would be provided directly by the insurer without involvement or payment by the employer plan sponsor.
On Oct. 13, 2017, HHS, DOL and the Treasury Department jointly issued interim final rules that extend the exemption to all employers (except non-federal governmental employers) and health insurance issuers that have a sincerely held religious objection to providing some or all contraceptive benefits. The exemption was also extended to nonprofit employers (except for non-federal governmental employers), for-profit employers that aren’t publicly traded, and health insurance issuers that have a sincerely held moral objection to providing some or all contraceptive benefits. The accommodation process is also available to employers with religious or moral objections. These rules were covered in detail in the Oct. 17, 2017, edition of Compliance Corner.
The newly issued memorandum provides guidance related to the notice that must be provided by plans that take advantage of the exemption or accommodation. If the plan previously took advantage of the accommodation and now wishes to take advantage of the exemption, the insurance issuer, the plan, the employer plan sponsor or the third-party administrator must provide notice to the plan’s participants. The notice must be provided at least 30 days prior to the beginning of the plan year. If the 30-day notice isn’t distributed prior to the beginning of the plan year or if the change is made in the middle of the plan year, the notice must be provided at least 60 days prior to the effective date of the exemption (as required under the SBC notification rules).
Employers with sincerely held religious or moral objections to providing contraceptive coverage that wish to pursue the exemption or accommodation are encouraged to work with outside counsel and their insurer before implementation.
On Nov. 29, 2017, the DOL published final regulations providing a 90-day delay – through April 1, 2018 – of the effective date of the final regulations concerning claims procedures for plans that provide disability benefits.
As background, on Oct. 12, 2017, the DOL released proposed regulations providing a 90-day delay — through April 1, 2018. The final regulations – which subject disability claims procedures to requirements similar to health care reform’s enhanced requirements for group health plans – were discussed in our Jan. 10, 2017, edition of Compliance Corner and are scheduled to apply to claims for disability benefits under ERISA-covered employee benefit plans that are filed on or after Jan. 1, 2018.
According to the DOL, it’s undertaking efforts to examine regulatory alternatives that meet its objectives of ensuring the full and fair review of disability benefit claims while not imposing unnecessary costs and adverse consequences (pursuant to President Trump’s Feb. 24, 2017, Executive Order 13777). The DOL believes that this delay will allow an additional opportunity to collect comments and reexamine the impacts of the final regulations.
Plan sponsors involved in the adjudication of disability claims should carefully review these regulations. Once the dust has settled, there may be administrative challenges when attempting to implement the new procedures in a timely manner. Note that the regulations’ applicability is based on a specific date and isn’t currently tied to the plan year.
On Nov. 2, 2017, the IRS released new FAQs on their website and a sample ESRP notification letter (Letter 226J) with corresponding webpage. On the sample letter and website, the IRS provides details regarding assessment and collection of ESRPs for the 2015 calendar year (i.e., the first year employers were subject to the employer mandate).
As background, employers with 50 or more full-time equivalent employees are required to offer coverage to all full-time employees (FTEs) and their dependent children or face paying an ESRP. An ESRP is triggered if at least one FTE of an ALE received a premium tax credit through the federal exchange, and that ALE failed to offer coverage to at least 95 percent (70 percent in 2015) of FTEs or the coverage offered was unaffordable or did not met minimum value.
Beginning in late 2017, the IRS will notify certain ALEs of a proposed ESRP by sending Letter 226J. If an employer disagrees with the IRS proposed assessment, they will have an opportunity to appeal the ESRP proposal by completing Form 14764 and attaching supporting documentation (such as employee waiver forms, payroll records or benefit admin system data) that prove an offer of coverage was made to a particular employee. If there is no supporting documentation, the employer should provide a detailed statement of the circumstances using Form 14764. If the IRS rejects an appeal, a demand letter for payment (Notice CP 220J) with the final calculated amount will be issued to the ALE. However, if the ALE agrees with the proposed ESRP, they may make payment using Form 14764 and attach a check or pay online.
Employers generally have 30 days from the date the letter is generated to respond. Therefore, ALEs who receive Letter 226J should thoroughly read the instructions and respond quickly to the IRS with the required information.
Finally, please ask your advisor or account management team for a copy of our new ESRP white paper, which provides more detail.
On Oct. 27, 2017, in conjunction with the Notice of Benefit and Payment Parameters for 2019, CMS published its draft 2019 actuarial value (AV) calculator and methodology. The AV calculator is designed by HHS and CMS to help estimate the AV for a given plan design in the individual and small group markets, which is used to categorize such plans into the metal levels of coverage (bronze, silver, gold and platinum). The proposed rules describe the calculator’s methodology and operation, and can be quite technical and complex. The rules primarily provide technical guidance to insurers, but contain general information regarding medical trends.
The calculator is largely unchanged from previous years, which means that individual and small group insurance plan options may stay largely the same in plan design and metal level status. However, one interesting change was that the annual projection factor for medical costs used in 2018 was 3.25 percent, but HHS increased that factor to 5.4 percent for 2019. The projection factor for prescription drugs remains at the higher level of 11.25 percent to account for the expectation that the cost of prescription drugs is to increase at a substantially higher rate than medical costs.
Employers do not need to take any action in relation to the AV calculator. Large groups are not categorized into one of the metal tier categories. The AV of fully insured and small group policies will be determined by the insurer. However, the cost of medical and prescription services is expected to increase significantly over the next two years for all sized plans.
On Oct. 27, 2017, CMS proposed standards for issuers and exchanges for plan years beginning on or after Jan. 1, 2019. The rules are intended to increase flexibility in the individual market, improve program integrity and reduce regulatory burdens associated with the ACA in the individual and small group markets. The specific proposals are discussed below.
Lastly, CMS encouraged insurers to offer more qualified high deductible health plans to HSA-eligible individuals. This is consistent with several proposed congressional bills that would expand HSA funding.
The rules are only in proposed format now and won’t be effective until final regulations have been released unless CMS states otherwise.
In the recently released proposed rules regarding benefit and payment parameters for 2019, CMS proposed new rules pertaining to the implementation of the Small Business Health Options Program (SHOP) exchanges. Under the proposed rules, which the federally facilitated SHOPs and state-based SHOPs using the federal platform would adopt if finalized, employers would enroll in a SHOP plan directly with an insurance company offering SHOP plans, and could use the assistance of a SHOP registered agent/broker. Employers would still need to obtain a determination of eligibility by going to HealthCare.gov.
As background, on May 15, 2017, CMS announced plans to discontinue use of Healthcare.gov to enroll small employers and employees into the federally facilitated SHOP exchange effective Jan. 1, 2018 (discussed in our May 31, 2017, edition of Compliance Corner). This decision was a result of lower than expected agent/broker participation and enrollment numbers. In the past, small employers could only qualify for the Small Business Health Care Tax Credit by applying for coverage and enrolling employees through the SHOP. However, this process has been seen as overly burdensome and difficult for employers, employees, agents/brokers and carriers involved, and is generally blamed for low utilization of the SHOP.
Thus, in an effort to encourage greater agent/broker and carrier participation and increase employee enrollment, CMS proposed these rules, which would alter how small businesses receive the Small Business Health Care Tax Credit. The rules would also change the way small businesses enroll their employees. Beginning in 2018, small groups in states that use the federally facilitated Healthcare.gov will continue to receive a determination of eligibility for the tax credit through Healthcare.gov, but will instead enroll in coverage through an agent/broker or directly with the carrier.
In the meantime, to prevent the SHOP exchanges from continuing to incur operational burdens and to mitigate burdens for issuers, agents/brokers and employers, while CMS considers comments on the proposed rules it will permit SHOP enrollment in accordance with those proposed rules. So, SHOP enrollment can begin in accordance with the proposed rules on the first date on which employers can complete a group enrollment for a plan year that would take effect in 2018 (e.g., for plans with effective dates on or after Jan. 1, 2018). State-based SHOPs and their relevant stakeholders (e.g., issuers and agents/brokers) will have this same flexibility.
Finally, as a reminder, small employers may only enroll through Healthcare.gov until Nov. 15, 2017. Groups that presently have SHOP plans may continue to pay premiums through Healthcare.gov until renewal in 2018.
On Oct. 17, 2017, the IRS released a statement on its ACA Information Center for Tax Professionals webpage for the upcoming 2018 filing season regarding a change in reporting requirements on individual federal income tax returns (Form 1040). The IRS won’t accept electronically filed tax returns where the taxpayer doesn’t address the health coverage requirements of the ACA on line 61 (Health Care: Individual Responsibility). So, electronic tax returns must indicate whether the taxpayer had coverage, had an exemption or will make a shared responsibility payment. Additionally, paper returns that don’t address the health coverage requirements may be suspended pending the receipt of additional information, and any refunds may be delayed.
The 2018 filing season will be the first time the IRS won’t accept tax returns that omit this information. The IRS took a different stance for the 2017 filing season, which we discussed in our March 7, 2017, edition of Compliance Corner.
As background, the individual shared responsibility provision (i.e., the individual mandate) requires individuals to do at least one of the following:
Some taxpayers will have qualifying health care coverage for all 12 months in the year and will be able to check the "full-year coverage" box on line 61 of their return. This year, the IRS has put in place system changes that will reject tax returns during processing in instances where the taxpayer doesn’t provide information related to health coverage (i.e., leaves the box unchecked).
As a reminder, the legislative provisions of the ACA are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe. So, the IRS may still enforce the individual mandate, and Forms 1040 will be rejected at the time of filing. To avoid refund and processing delays when filing 2017 tax returns in 2018, taxpayers should indicate whether they and everyone on their return had coverage, qualified for an exemption from the coverage requirement or are making an individual shared responsibility payment.
When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed, and taxpayers should work with individual tax advisors with respect to answering those questions and correspondence.
On Oct. 18, 2017, the IRS published a National Taxpayer Advocate (NTA) blog that describes tools developed by the Taxpayer Advocate Service (TAS) to assist individuals and employers with estimating credits and payments related to the ACA. The TAS is an independent organization within the IRS that advocates for taxpayers and ensures they understand their rights.
The two tools outlined for employers include the Employer Shared Responsibility Provision (ESRP) Estimator (originally released on June 1, 2016, and discussed in our June 14, 2016, edition of Compliance Corner) and the Small Business Health Care Tax Credit (SBHCTC) Estimator.
As background, the ESRP Estimator helps employers understand the employer mandate and how it may apply to them. Specifically, the ESRP Estimator can be used by employers to determine the number of full-time employees and full-time equivalents, whether an employer is an applicable large employer subject to the employer mandate, and the maximum amount of potential penalty an employer may face if they fail to offer coverage. Also provided are links to the actual regulations, real-life examples, detailed instructions and definitions of key terms.
Please note that the ESRP Estimator will only provide information in relation to 2016 and future tax years due to the numerous transition relief rules applicable in 2015. In addition, the ESRP Estimator is intended as a guide to help employers understand the employer mandate and is not to be used to determine ultimate employer mandate liability.
TAS has also developed the SBHCTC Estimator to help small businesses and their preparers navigate the complex rules to determine eligibility for the SBHCTC. The estimator will also estimate the credit a small business might receive. If the small employer is eligible, the SBHCTC can help the employer provide health insurance coverage to its employees.
However, this estimator does have limitations. The SBHCTC Estimator will only provide an estimate for 2014 and future tax years. Some figures used in determining the credit are indexed for inflation; so, for future years, the estimator cannot provide a detailed estimate. To calculate the actual credit, the employer must use Form 8941, Credit for Small Employer Health Insurance Premiums. Additionally, this estimator doesn’t determine whether the health insurance coverage offered by the employer is an eligible plan or which employees are considered employees for purposes of determining the credit.
Keep in mind that both estimators only provide estimates, rather than accurate calculations, to use as a guide in making decisions regarding the employer’s taxes.
On Oct. 12, 2017, President Trump issued an Executive Order related to the availability and expansion of association health plans (AHPs), short-term limited duration insurance (STLDI) policies and health reimbursement arrangements (HRAs).
On the same day, the White House also announced that it will no longer pay cost-sharing reduction subsidies to insurers.
In an effort to increase competition and provide access to alternative coverage in the health insurance market, the Order encourages the DOL to propose regulations that expand access to AHPs and allow coverage sales across state lines.
A similar provision was included in two previous Republican Senate proposals. Also, many states currently allow association plans. In those states, employers with a certain “commonality of interest” – who are not part of a controlled group – are permitted to come together to purchase health insurance in a move known as a “multiple employer welfare arrangement” under ERISA.
Such plans have increased reporting requirements to both the state Department of Insurance and the Employee Benefits Security Administration. However, most states prohibit or restrict self-insured association plans and discourage employer participation across state lines. This Order encourages the DOL to propose regulations permitting both practices as well as to review the definition of “commonality of interest” to grow the number of employers allowed to participate in an association plan.
This arrangement may be helpful to some employers who are currently in the small group market with age-banded rates and mandated essential health benefits. If they joined an AHP with other employers, they would escape community rating and move to large group experience premium rating, which can lead to lower premiums for an older, yet healthy employee population.
Another portion of the Order encourages the Treasury Department, DOL and HHS (the Departments) to propose regulations that allow individuals to continue STLDI coverage for a longer period of time. Access to an individual policy offered through an exchange is restricted in terms of when an individual may enroll. Enrollment through the exchange occurs during the annual open enrollment period. If an individual misses the opportunity, he or she may only enroll mid-year following a qualified special enrollment period event — such as birth, adoption, change in residence, becoming eligible for a premium tax credit or losing other coverage. To accommodate for the period of time in which they would be otherwise uninsured, an individual may purchase STLDI.
STLDI is, importantly, not minimal essential coverage (MEC), not required to cover essential health benefits and limited in coverage. The individual may still owe an individual mandate penalty, but the policy provides protection for some health care costs. Currently, an individual may only be covered under STLDI for a maximum of three months. The Order encourages the Departments to propose regulations that allow individuals to continue STLDI coverage for a longer period of time.
Finally, the Order encourages the Departments to consider proposing regulations or revising guidance to increase the usability of HRAs; more specifically, the Order encourages the use of HRAs with non-group coverage.
As background, a large employer may currently only offer and maintain an HRA when it is integrated with a major medical group plan. The HRA cannot reimburse the cost of individual policy premiums. A small employer who does not offer a group health plan may reimburse the cost of individual policy premiums through the use of a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The maximum reimbursement under a QSEHRA is $4,950 per employee. In the proposed regulations, the Departments may consider increasing the annual maximum QSEHRA contribution or provide a way for large employers to reimburse the cost of an individual policy through an HRA.
Cost-Sharing Reduction Subsidies
Also on Oct. 12, 2017, the White House announced that the administration will not continue payment of cost-sharing reduction subsidies. As we’ve reported in the past, these payments provide reduced cost-sharing – for example, deductible, copayments and coinsurance – to lower income individuals who purchase an individual health policy through the exchange and have household income between 100 percent and 250 percent of the federal poverty level.
Although CSR subsidies have been the subject of ongoing litigation, both the Obama and Trump administrations have been continuing payments during ongoing legal proceedings. Without payments from the administration, the insurers will still be required by the Affordable Care Act to provide the subsidies — which is why this issue has been the driving factor behind insurer decisions to pull out of the individual market in 2018 and increase premiums to better account for increased cost.
What Happens Now?
From here, the Departments will begin the traditional rulemaking process. The Order indicates that the DOL shall consider proposing regulations related to AHPs (within 60 days), while all three Departments shall consider proposing regulations related to STLDI (within 60 days) and the expansion of HRAs (within 120 days). Following the issuance of proposed regulations, the Departments will receive public comments. Final regulations won’t be issued until the comments are considered and evaluated by the Departments.
This process won’t be completed in 2017 and will continue into early 2018.
What Does This Mean for Individuals and Employers?
Looking ahead, employers may have alternatives available to them. Joining AHPs or reimbursing individual policy premiums through an HRA are both on the table, but for now nothing has changed.
Many employer groups are currently preparing for their 2018 offerings with renewal discussions and open enrollment. Those decisions and efforts should continue, as these announcements have no immediate impact on 2018 group coverage. Similarly, individuals who are preparing to purchase individual coverage for 2018 will be able to do so starting Nov. 1, 2017. The options and rates for those individual policies were finalized before the announcement regarding the payment of cost-sharing reduction subsidies.
As always, we’ll continue to watch for future developments that affect employers and their health care plans. Please contact your advisor with any specific questions.
Effective Oct. 6, 2017, the HHS, the Treasury Department and the DOL (the Departments) jointly issued interim final rules that broaden the exemption from the PPACA’s contraceptive mandate. As background, the PPACA requires plans to cover certain preventive services with no cost-sharing. Since the implementation of the PPACA, a number of religious institutions objected to being required to offer certain contraceptives, prompting the Obama administration to provide a waiver and accommodation process for those institutions. Additionally, in a case that went all the way to the Supreme Court, the Court ruled in favor of Hobby Lobby, holding that closely held employers could also choose not to cover certain contraceptives.
The Trump administration’s interim final rules basically allow any employer to claim a religious or moral objection to offering certain contraceptives, including non-closely held companies and even publicly traded companies. Specifically, the rule on religious exemptions allows any individual or nongovernmental entity (including churches, nonprofit and for-profit entities, whether or not they’re closely held) to object to providing coverage for all or some subset of contraceptives if they have sincerely held religious beliefs against offering such coverage.
Additionally, the rule on moral exemptions allows an entity or individual to object to contraceptive coverage based on sincerely held moral convictions (that are not religious in nature). This rule does not apply to publicly traded companies.
Interestingly, the rules don’t actually define or determine when an entity has sincerely held religious or moral beliefs. Instead, the preambles of both rules ascertain that religious or moral objections would be determined according to state law. Both rules also make the accommodation process optional for entities.
Further, the rules also allow employees to claim a religious objection to being covered by a plan that provides coverage for contraceptives (if their insurance provider/employer plan allows individuals to obtain other health coverage that doesn’t cover contraceptives).
Employers should keep in mind that the rules require employers to notify employees of any change in contraceptive coverage, in accordance with current ERISA rules. So, for example, where the decision not to cover certain contraceptives is a material modification or reduction in covered services, the employer will need to provide employees with Summaries of Material Modification. In addition, if that decision is made outside of open enrollment/renewal, the employer may also be responsible for an advance notice under the summary of benefits and coverage (SBC) rules, which may require 60-days’ advance notice of such a change.
Employers who wish to avail themselves of these exemptions should work with counsel to ensure that they understand the exemption and implement it in a compliant manner.
The Departments are soliciting comments on the rules (which will be due by Dec. 5, 2017). As with many of the proposed changes to the PPACA, this rule has already sparked litigation, as major women’s rights groups and some states oppose the rule. We’ll continue to follow developments on these rules.
On Oct. 6, 2017, the IRS released Notice 2017-61, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after Oct. 1, 2017, and before Oct. 1, 2018, is $2.39. This is a $.13 increase from the amount in effect for plan and policy years ending on or after Oct. 1, 2016, but before Oct. 1, 2017.
As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee doesn’t apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee is, however, required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives, and is reported and paid on IRS Form 720 (which hasn’t yet been updated to reflect the increased fee). It’s expected that the Form will be updated prior to July 31, 2018, since that’s the first deadline to pay the increased fee amount for plan years ending between October and December 2017.
On Oct. 3, 2017, the IRS released final instructions related to IRC Sections 6055 and 6056 reporting. The 2017 instructions appear to have no substantial changes from the 2016 instructions, and the final forms were reported on in the Oct. 3, 2017, edition of Compliance Corner. For example, the multiemployer interim relief rule remains in place for applicable large employers that contribute to a multiemployer plan.
The most notable change is that no Section 4980H transition relief is available beginning with the 2017 reporting year. Thus, all references to such relief have been removed. Specifically, boxes B and C on Line 22 of the Form 1094-C (which were previously used to claim transition relief) have now been marked as “reserved.” Similarly, column (e) of Part III of the Form 1094-C has also been marked “reserved.”
Here are some other minor changes from last year:
Importantly, the final instructions provide no mention of relief from penalties for a good faith compliance effort. This is similar to the 2016 version of the instructions. However, the IRS later provided such relief through communication on their website in regards to the 2016 reporting year. While the IRS could potentially provide a similar communication closer to the 2017 filing deadlines, employers should assume for now that no such good faith relief will be available.
As a reminder, Forms 1094-B and 1095-B (the forms used for Section 6055 reporting) are required of insurers and small self-insured employers that provide MEC. These reports will help the IRS administer and enforce PPACA’s individual mandate. Form 1095-B, the form distributed to the covered employee, will identify the employee, any covered family members, the group health plan and the months in 2017 for which the employee and family members had MEC under the employer's plan. If the plan is fully insured, Form 1094-B identifies the insurer (for a fully insured plan) or the employer (for a self-insured plan) and is used by the insurer to transmit corresponding Forms 1095-B to the IRS.
Additionally, PPACA requires all employers with 50 or more full-time-equivalent employees to file Forms 1094-C and 1095-C with the IRS and to provide statements to employees to comply with IRC Section 6056 (meant to help the IRS enforce the PPACA’s employer mandate). Specifically, large fully insured employers will need to complete and submit Forms 1094-C and 1095-C (Parts I and II). Large self-insured employers, which are subject to both Sections 6055 and 6056, may combine reporting obligations by using Form 1094-C and completing all sections of Form 1095-C (Parts I, II and III). Small self-insured employers would need to file Forms 1094-B and 1095-B. Employers with grandfathered plans must comply with the reporting requirements as well.
Finally, the due dates for 2017 employer reporting are:
On Oct. 12, 2017, the DOL released proposed regulations providing a 90-day delay – through April 1, 2018 – in the effective date of the final regulations concerning claims procedures for plans that provide disability benefits. The final regulations – which subject disability claims procedures to requirements similar to health care reform’s enhanced requirements for group health plans – were discussed in our Jan. 10, 2017, edition of Compliance Corner and are scheduled to apply to claims for disability benefits under ERISA-covered employee benefit plans that are filed on or after Jan. 1, 2018.
According to the DOL, it’s undertaking efforts to examine regulatory alternatives that meet its objectives of ensuring the full and fair review of disability benefit claims while not imposing unnecessary costs and adverse consequences (pursuant to President Trump’s Feb. 24, 2017, Executive Order 13777). The DOL believes that this delay will allow an additional opportunity to collect comments and reexamine the impacts of the final regulations. Ultimately, the DOL is seeking public comments on the proposed delay and on the regulations themselves.
Plan sponsors involved in the adjudication of disability claims should carefully review these regulations. Once the dust has settled, there may be administrative challenges when attempting to implement the new procedures in a timely manner. Note that the regulations’ applicability is based on a specific date and isn’t currently tied to the plan year.
On Sept. 26, 2017, Senate Majority Leader Mitch McConnell announced that the Senate would not be holding a vote on the Graham-Cassidy plan, due to dwindling support. Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) unveiled a revised version of their legislation to repeal and replace the PPACA in hopes of winning a few more votes, before the reconciliation clock ran out on Sept. 30, 2017. Those hopes were dashed when a preliminary Congressional Budget Office (CBO) report said that the proposed bill would result in millions fewer people having comprehensive health insurance and when pivotal Republican senators declared their opposition.
As background, most of the changes in the bill affected the individual and small group market, making only slight changes to the large group market. Specifically, the bill would have eliminated the employer mandate penalties (also likely impacting employer reporting requirements, at least in terms of simplification), without a corresponding change to the employer-sponsored coverage tax benefit. Most employers would have likely approved of the changes made to HSAs, as described more fully below. However, the chances of passage quickly became a long shot with several key Republican senators voicing their opposition to the bill. As a quick reminder, the Senate was using the budget reconciliation process to pass the bill (thereby only needing 50 votes, which is 10 votes less than would generally be required to pass a bill). Additionally, the provisions of a reconciliation bill generally must relate to or influence the budget, meaning they drive or otherwise impact federal revenue.
To recap, the Graham-Cassidy bill would have made the following changes to HSAs:
With respect to PPACA fees and taxes, this bill didn’t go as far as previous House and Senate proposals. Graham-Cassidy would have repealed only the medical device and elimination of the deduction for Medicare Part D subsidy expenses, but the Cadillac tax remained.
Additionally, the bill contained various other notable reforms for the individual and small group markets, including an elimination of the premium tax credits and cost-sharing subsidy program beginning in 2020, and a phasing out of the small business tax credit by 2020.
Finally, the Graham-Cassidy bill proposed to expand the scope of state waivers to allow a state to override the PPACA requirements with respect to essential health benefits, cost-sharing requirements and annual limits rules, actuarial value standards, age rating bands in the individual and small group markets, and coverage of preventive health services, among other things.
The defeat of the Graham-Cassidy bill means we’re all left with many questions, including: Will President Trump sign an executive order allowing Americans to purchase health care across state lines? Can Congress garner bipartisan support for market stability legislation? Will the PPACA repeal and replace efforts make their way into tax reform?
As always, we’ll continue to watch for future developments that affect employers and their health care plans. Please contact your advisor with any specific questions on employee benefits compliance.
On Sept. 28, 2017, the IRS released final forms related to IRC Section 6056 reporting. The instructions are still in draft format. The final forms appear to have no substantial changes from the 2016 forms.
The most notable change is that no Section 4980H transition relief is available beginning with the 2017 reporting year. Thus, all references to such relief have been removed. Specifically, boxes B and C on Line 22 of the Form 1094-C (which were previously used to claim transition relief) have now been marked as “reserved.” Similarly, column (e) of Part III of the Form 1094-C has also been marked “reserved.”
As a reminder, PPACA requires employers (including self-insured, fully insured and uninsured) with 50 or more full-time-equivalent employees to file Forms 1094-C and 1095-C with the IRS and to provide statements to employees to comply with IRC Section 6056 (meant to help the IRS enforce the employer mandate). Specifically, large fully insured employers will need to complete and submit Forms 1094-C and 1095-C (Parts I and II). Large self-insured employers subject to both Sections 6055 and 6056 may combine reporting obligations by using Form 1094-C and completing all sections of Form 1095-C (Parts I, II and III). Small self-insured employers would need to file Forms 1094-B and 1095-B. Employers with grandfathered plans must comply with the reporting requirements as well.
Finally, as a reminder on reporting deadlines for the 2017 calendar year, the deadline to provide information returns to employees or responsible individuals is Jan. 31, 2018. Also, employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Paper filings are due by Feb. 28, 2018. Those filing electronically must report by April 2, 2018 (March 31, 2018 falls on a Saturday).
On Sept. 28, 2017, the IRS released final forms related to IRC Section 6055 reporting. The instructions are still in draft format. The final forms appear to have no substantial changes from the 2016 forms.
As a reminder, Forms 1094-B and 1095-B (the forms used for Section 6055 reporting) are required of insurers and small self-insured employers providing minimum essential coverage. These reports will help the IRS to administer and enforce PPACA’s individual mandate. Form 1095-B, the form distributed to the covered employee, will identify the employee, any covered family members, the group health plan and the months in 2017 for which the employee and family members had minimum essential coverage (MEC) under the employer's plan. If the plan is fully insured, Form 1094-B identifies the insurer (for a fully insured plan) or the employer (for a self-insured plan) and is used by the insurer to transmit corresponding Forms 1095-B to the IRS.
Please note that a completed Form 1095-B must be distributed to covered employees/individuals by Jan. 31, 2018, for the 2017 reporting year. The Forms 1095-B, along with the transmittal Form 1094-B, must be filed with the IRS by Feb. 28, 2018, if filing by paper and April 2, 2018 (March 31, 2018 falls on a Saturday), if filing electronically.
On Aug. 31, 2017, the U.S. District Court for D.C. issued a ruling in American College of Emergency Physicians v. Price, Civ. No. 16-913 (D.D.C., Aug. 31, 2017), related to the ACA’s mandated coverage of emergency health services. As background, the Emergency Medical Treatment and Labor Act requires hospitals and emergency departments to provide medical examination, treatment or facility transfer to individuals who have an emergency medical condition.
The ACA requires certain payment by group health plans and health insurers for services performed by an emergency department of a hospital. If the services are performed by an out-of-network provider, the cost-sharing requirements must be the same as if the services were performed by a network provider. In June 2010, HHS, DOL and the Treasury Department (the Departments) issued interim final regulations that established the payment methodology for those out-of-network services. The benefit must be the greater of —
During the comment period for interim rule, the plaintiffs (the American College of Emergency Physicians), along with others, commented that the manner in which the UCR rates are calculated by insurers is often not transparent and may be inaccurate. They suggested using an independent database, which would be more transparent.
In November 2015, the Departments issued the final regulations. In response to the plaintiff’s comments, the Departments simply stated that they believed the concern was addressed by the requirement that the amount be the greatest of the three amounts.
In its ruling, the court explained that an agency is not required to address every comment received during the regulatory process, but it must respond in a reasoned manner to those comments that raise significant problems. The court ruled that the Departments acted arbitrarily and capriciously by failing to seriously respond to comments and proposed alternatives submitted by the plaintiffs and others regarding perceived problems with the greatest-of-three regulation.
The case is remanded back to the Departments for them to provide further response to the comments and an explanation of their final rules. The ruling does not change the current requirement related to non-network emergency services. Plans must continue to provide coverage for such at network levels with payment to be determined by the greatest-of-three standard. We will continue to monitor the issue and report any developments in Compliance Corner.
The IRS has released Publication 5164, Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR), for tax year 2017 (processing year 2018). The publication describes the testing procedures that must be completed by those filing electronic PPACA returns with the IRS, specifically Forms 1094-B, 1095-B, 1094-C and 1095-C. As a reminder, those who are filing 250 or more forms are required to file electronically with the IRS.
Importantly, the testing procedure applies to the entity that will be transmitting the electronic files to the IRS. Thus, only employers who are filing electronically with the IRS on their own would need to complete the testing. If an employer has contracted with a software vendor who is filing on the employer’s behalf, then the testing and this publication would not apply to the employer, but would apply to the software vendor instead.
For reporting year 2017, the IRS is providing two options (see pages 13-15) for submitting test scenarios: predefined scenarios and criteria-based scenarios. Predefined scenarios provide specific test data within the submission narrative for each form line that needs to be completed. Criteria-based scenarios allow more flexibility to the tester to test and create data on their own that may be unique to their organization when completing the necessary test scenarios.
Correction scenarios are also provided (see page 18), but they are not required in order to pass testing.
As a reminder, electronic filing of 2017 returns will be due April 2, 2018 (since March 31, 2018 falls on a weekend). If you are a large employer who is required to file electronically and would like information on third-party vendors who can assist, please contact your advisor.
On Sept. 13, 2017, the IRS released Publication 5258: ACA Information Returns (AIR) Submission Composition and Reference Guide. The guide has been updated for use in 2018.
This resource is meant to assist various entities with electronic information return (AIR) submissions required under PPACA, i.e., Forms 1094-B and 1095-B under Section 6055 and Forms 1094-C and 1095-C under Section 6056.
Among technical updates in the 2018 version, Publication 5258 also contains a reminder that a Form 1094-C, Authoritative Transmittal, must now be submitted without including any 1095-C forms if it is a correction to a previously submitted and processed Form 1094-C. In other words, 1095-C forms do not need to be resubmitted if the mistake is solely on the transmittal form.
The guide includes information on the process for applying for the program, technical requirements, what testing is necessary before the actual transmission, parameters for filing and data file size limits. The technical nature of this reference guide reinforces the need for employers to partner with an IT professional (either in-house or external) or experienced vendor if planning to file PPACA information returns electronically.
As a reminder, if you are a self-insured employer or applicable large employer, the deadline to provide information returns to employees or responsible individuals is Jan. 31, 2018, for tax year 2017. Also, employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Paper filings are due by Feb. 28, 2018. Those filing electronically must report 2017 data by April 2, 2018 (because March 31, 2018 falls on a Saturday).
On Sept. 14, 2017, the IRS released a revised version of Publication 5165, entitled “Guide for Electronically Filing Affordable Care (ACA) Information Returns for Software Developers and Transmitters,” for tax year 2017 (processing year 2018). This publication outlines the communication procedures, transmission formats, business rules and validation procedures for returns transmitted electronically through the Affordable Care Act Information Return System (AIR). Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C or 1095-C should review the latest guidance and make any necessary adjustments to their filing process.
Employers filing electronically must use AIR, and the only acceptable format will be XML. The individual responsible for electronically filing the employer’s forms will be required to register with the IRS e-Services and will receive a PIN, which will be used to sign the Terms of Agreement and electronically filed forms.
On Aug. 28, 2017, the IRS released a draft version of the instructions for Forms 1094-C and 1095-C, which are used by large employers to comply with Section 6056 reporting under the PPACA. The most notable change is that no Section 4980H transition relief is available beginning with the 2017 reporting year. Thus, all references to such relief have been removed. Specifically, boxes B and C on Line 22 of the Form 1094-C (which were previously used to claim transition relief) have now been marked as “reserved.” Similarly, column (e) of Part III of the Form 1094-C has also been marked “reserved.”
In Part II of the Form 1095-C, it was anticipated that the “Plan Start Month” box would be mandatory for 2017. In this draft version, the box remains optional for 2017.
The IRS provides clarification that there is no specific code, relative to Line 16 on the Form 1095-C, for an employee who waives an offer of coverage. This is consistent with the previous interpretation, which generally instructed that the line either be left blank or completed with an affordability safe harbor code, as applicable.
There is an additional remark in the section regarding corrected returns that may cause confusion for employers. It states that an incorrect entry of the employee’s cost of coverage on Line 15 would not necessitate a corrected filing if the entry differs from the correct amount by $100 or less. This safe harbor is based on guidance provided in IRS Notice 2017-9 for certain de minimis errors. It is unclear as to whether the $100 is based on the monthly or annual amount. When you consider the purpose of Line 15 -to aid in the determination of whether the employee’s cost of coverage is affordable-, it is unlikely that an error in the amount reported of up to $100 annually would affect the affordability calculation in many cases. Thus, if an employer reports an incorrect cost of coverage on Line 15, the reported amount differs from the correct amount by $100 or less annually and the mistake does not impact the affordability calculation, the employer may not be required to file a corrected form. Nevertheless, if the employee requests a corrected form, one must be provided by the employer.
The deadline for furnishing the completed Form 1095-C to employees will be Jan. 31, 2018. The deadline for filing the Forms 1094-C and 1095-C electronically with the IRS will be April 2, 2018 -March 31, 2018 falls on a Saturday. The deadline for filing paper forms with the IRS will be Feb. 28, 2018. Those filing by paper are reminded that the forms must be printed in landscape format.
Importantly, the draft instructions provide no relief from penalties for a good faith compliance effort. This is similar to the 2016 version of the instructions. However, the IRS later provided such relief through communication on their website in regards to the 2016 reporting year. They could provide a similar communication closer to the 2017 filing deadlines.
We’ll keep you updated of any developments, including release of the finalized forms and instructions.
The IRS recently released IRS Information Letters 2017-0010, 2017-0011, 2017-0013 and 2017-0017 to address PPACA’s employer and individual mandates following President Trump’s executive order directing agencies to minimize PPACA’s burdens (see: Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal). The executive order does not change the applicability of these laws.
Letters 2017-0011 and 2017-0017 are in response to taxpayer questions regarding application of the individual mandate. As a reminder, the individual mandate requires individuals to have minimum essential coverage (MEC) for each month, qualify for a coverage exemption or pay a penalty when filing their taxes. The letters confirm that, absent a coverage exemption (one of which is for individuals whose coverage options are considered unaffordable), individuals should carry MEC or pay a penalty.
Letters 2017-0010 and 2017-0013 are in response to taxpayer questions regarding application of the employer mandate. Under the employer mandate, an employer with 50 or more full-time equivalent employees is required to offer minimum value, affordable coverage to full-time employees (those working 30 hours or more per week) or face a potential tax penalty. The letters state that there is no provision in the statute (establishing the employer mandate) that provides for a waiver of an employer mandate tax penalty for financial or religious reasons.
Letters 2017-0010, 2017-0013 and 2017-0017 specifically note that the above referenced executive order does not change the law (only legislative action can change the statutory provisions of PPACA).
While the letters do not necessarily provide new information, they’re a reminder that PPACA (including the employer and individual mandates) is still the law of the land and requires compliance despite legislative efforts to repeal it and administrative action to otherwise modify it.
On Aug. 4, 2017, the U.S. Court of Appeals for the Third Circuit – in Real Alternatives v. HHS, No. 16-1275 (3rd Cir. Aug. 4, 2017) – affirmed the district court’s decision for the government. This case involved objections to the requirement to provide contraceptive coverage at no cost-sharing imposed by PPACA based on moral objections of a nonprofit, nonreligious organization and its employees.
As background, PPACA requires health plans to cover contraceptives at no cost sharing. The provision that includes contraceptive coverage is commonly referred to as the “Contraceptive Mandate,” and it includes a limited exemption for houses of worship (and their integrated auxiliaries). To accommodate non-profit religious and for-profit employers, the government allows these employers to seek an opt-out from providing contraceptive coverage, with the government then arranging for their employees to receive the coverage through third parties at no cost to, and with no participation from, the objecting employers.
Specifically, this case involves two issues:
Although other federal district courts have weighed-in on both of these issues, this is the first appellate court decision addressing both.
The court, in this case, answered both questions in the negative. Specifically, two of the three circuit judges on the appellate panel answered both questions in the negative. The third judge agreed with the majority on the first issue involving moral objections but provided a lengthy dissent on the second issue.
On the first issue, the court held that the employer’s equal protection rights were not violated because it is not similarly situated to religious employers with comparable objections to the contraceptive mandate. The court reasoned that the employer in this case is in no way like a religious denomination or one of its nontheistic counterparts — not in structure, not in aim, not in purpose, and not in function. The court did note that they did not doubt that the employer’s stance on contraceptives is grounded in sincerely-held moral values. But such sincerity is not enough to justify an exemption for this type of private organization.
On the second issue, the court also held that the employees’ exercise of religion is not substantially burdened since nothing in the plan compels them to use the services. The court found that there is no substantial burden if the governmental action does not force the individuals to violate their religious beliefs or deny them the rights, benefits, and privileges enjoyed by other citizens — even if the challenged governmental action would interfere significantly with their ability to pursue spiritual fulfillment according to their own religious beliefs. The dissenting judge found that the contraceptive mandate substantially burdens employees’ religious beliefs.
Although this will likely not be the last court decision we see on the contraceptive mandate, nonreligious employers may be affected by the final decision in this appellate case. Keep in mind that an executive order was also recently issued in May of 2017 (see: Presidential Executive Order Promoting Free Speech and Religious Liberty) that directs the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services to consider issuing amended regulations consistent with applicable law to address conscience-based objections to the preventive-care mandate. While we will continue to monitor these cases and governmental action, employers should consult with legal counsel before changing their benefit plan design in regard to contraceptives.
Early in the morning on Friday, July 28, 2017, the Senate, by a vote of 51-49, rejected the Health Care Freedom Act (HCFA), or “skinny repeal” of the ACA, which was the last-ditch effort of Senate Republicans to repeal and replace the ACA. In dramatic fashion, three Senate Republicans voted no on the measure, including Lisa Murkowski (AK), Susan Collins (ME) and John McCain (AZ), who cast his vote with an emphatic thumbs down. Sen. McCain appeared to be the difference-maker as he returned from his home state to the Senate floor just days after having announced his diagnosis with brain cancer. His “no” vote spelled defeat for the HCFA, as all Democrats and Independents voted no as well.
The week leading up to the vote brought all sorts of political twists and turns as Senate Republicans attempted to garner enough support to keep the ball on ACA repeal and replace moving forward. On Tuesday, McCain appeared to be the Republican hero, as he voted in favor of starting the Senate ACA repeal-and-replace debate. His vote, along with Vice President Pence’s tiebreaking vote, began 20 formal hours of debate on amendments to the American Health Care Act (AHCA, which is the version of ACA repeal and replace passed by the House back in June).
During the debate, the Senate also rejected the Better Care Reconciliation Act (BCRA, which was the Senate’s original ACA repeal-and-replace proposal), a 2015 bill that sought total repeal of the ACA, and several other amendments (including one relating to support of a single payer system). That all led to the last-effort vote on the HCFA, the actual text of which was not released until late on the evening of July 27, just hours before the final vote. The HCFA would have repealed only portions of the ACA (hence the “skinny repeal”), including the individual and employer mandates. The HCFA also included a provision giving states more flexibility through waivers. Senate Republicans who supported the HCFA had hoped they could pass the measure and then go to conference with House Republicans to come up with a final proposal that would go further in repealing and deeper in replacing the ACA. The votes of Sens. Murkowski, Collins and McCain dashed those hopes.
Following the vote, Senate Majority Leader Mitch McConnell (KY) expressed disappointment in the result, while Senate Minority Leader Chuck Schumer (NY) expressed relief. Both articulated interest in visiting a bipartisan approach for future discussion. Other congressional leaders also weighed in, including House Leader Paul Ryan, who expressed disappointment. President Trump tweeted to “let Obamacare implode, then deal.”
Looking forward, it appears the GOP effort to repeal and replace the ACA is dead, at least with respect to the budget reconciliation process. Republicans had hoped to use that process since it requires only a simple majority of 50 votes rather than the normal supermajority of 60 votes. It’s unclear how Republicans might proceed from here. There is the possibility of future legislation aimed at repealing and/or fixing the ACA, although those efforts would now require Democratic involvement and support. Already, though, senators and other members of Congress are presenting different ideas, both to the public and to the White House. Some potential bipartisan ideas include continued funding of the ACA subsidies, expanding state innovation waivers, allowing carriers to sell catastrophic coverage, fixes to reinsurance programs to help with high-cost enrollees and piecemeal changes to the ACA.
In addition to continued discussion in Congress, the Trump administration will also have to decide how they’ll enforce the ACA, particularly considering Trump’s executive order that asks federal agencies to relieve the burdens associated with ACA compliance. While the administration could perhaps relax or simplify some ACA rules, it couldn’t likely ignore enforcement altogether without the risk of some type of litigation.
For employers, the ACA remains the law of the land, as it has throughout this entire process. This means employers should continue with their compliance efforts, including (among other things) tracking hours and offering affordable coverage under the employer mandate, keeping records for related reporting and making PCOR and reinsurance payments that are due in 2017.
As always, we will continue to monitor the situation and report on developments. In the meantime, please reach out to your NFP advisors and client service teams for additional support.
On July 28, 2017, the IRS released draft versions of the 2017 informational reporting forms that insurers and self-insured employers will use to satisfy their obligations under IRC Section 6055 and that large employer plan sponsors and health plans will use to satisfy their obligations under IRC Section 6056. These forms, once finalized, will be filed in early 2018 relating to 2017 information. The IRS is currently accepting comments on the draft forms. Instructions for the forms have not yet been released.
As a reminder, Forms 1094-B and 1095-B (6055 reporting) are required of insurers and small self-insured employers that provide minimum essential coverage. These reports will help the IRS to administer and enforce the individual mandate. Form 1095-B, the form distributed to the covered employee, will identify the employee, any covered family members, the group health plan and the months in 2017 for which the employee and family members had minimum essential coverage under the employer's plan. Form 1094-B identifies the insurer or small self-insured employer and is used to transmit the corresponding Form 1095-B to the IRS.
Forms 1094-C and 1095-C (6056 reporting) are to be filed by applicable large employers that are subject to the employer mandate (as they will help the IRS administer and enforce the employer mandate). Employers will use Form 1095-C to identify the employer, the employee, whether the employer offered minimum value coverage meeting the affordability standard to the employee and dependents, the cost of the lowest plan option and the months for which the employee enrolled in coverage under the employer's plan. Further, if the plan is self-insured, the employer will use the form to fulfill its Section 6055 reporting obligations by indicating which months the employee and family members had minimum essential coverage under the employer’s plan.
Whereas Form 1095-C reports coverage information at the participant level, Form 1094-C reports employer-level information to the IRS. The applicable large employer will use this form to identify the employer, number of employees, whether the employer is related to other entities under the employer aggregation rules and whether minimum essential coverage was offered.
The 2017 draft forms appear to have only a few minor changes compared to the 2016 forms. Highlights of the changes are as follows:
Despite efforts to repeal and replace the ACA, it remains the law of the land, and employers will need to continue with ACA compliance until further notice. This means that large employers will need to continue to offer affordable, minimum value coverage to all full-time employees and prepare to comply with employer reporting requirements as to 2017 coverage.
Politics never stops, and neither do we. As we were preparing for publication, the state of health care continued to be a fluid issue. Developments are released almost hourly. Most recently, late in the afternoon on July 25, 2017, the Senate, by a vote of 51-50 (with Vice President Pence casting the tie-breaking vote) advanced debate on the Senate’s health care plan to repeal and replace the ACA. The next step is debate on the Senate floor as to the bills and amendments put forth for this purpose, including the Senate’s proposal (the Better Care Reconciliation Act, or BCRA), the House’s proposal (the American Health Care Act or AHCA), and the 2015 Senate bill that repealed the ACA without any type of replacement. Although the advancement means the Senate has cleared a big hurdle in moving the ACA repeal-and-replace effort forward, it remains unclear whether Senate Republicans can come to an agreement and pass a formal bill to repeal or replace the ACA.
Looking at how we got here, on Monday, July 17, 2017, the GOP’s efforts to repeal and replace the ACA came to an abrupt halt when two additional senators, Jerry Moran (R-KS) and Mike Lee (R-UT), announced their lack of support for the current bill. The GOP had already lost the votes of two Republican senators, Rand Paul (KY) and Susan Collins (ME), so the GOP wouldn’t have enough support to advance the BCRA to a procedural vote. Senate Majority Leader Mitch McConnell subsequently admitted that the BCRA would fail and claimed he would instead seek a vote on straight repeal of the ACA with a two-year delay (to allow time to debate and enact some type of replacement).
The idea of straight repeal was embraced by President Trump earlier in 2017 and was embraced by the House and GOP senators in 2015 when they voted “yes” on HR 3762, Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, which was a bill intended to repeal the ACA. The vote in 2015 didn’t carry as much weight as it would today because the GOP knew at that time that President Obama would veto it.
Then, on July 19, 2017, the Congressional Budget Office (CBO) released a report analyzing an updated version of HR 3762 entitled “Obamacare Repeal Reconciliation Act of 2017.” Its provisions are more focused on straight repeal and do not include replacement provisions. The report states that under this design, 32 million more individuals would be uninsured by 2026 as compared to the ACA. Additionally, the repeal-only bill would reduce the deficit by $473 billion.
Three GOP senators – Shelley Moore Capito (WV), Susan Collins and now Lisa Murkowski (AK) – have indicated they’ll vote "no" on a repeal-only bill. Even if the repeal-only approach gains traction, it comes with risks. Not only does it assume that Democrats would join the efforts to fix the ACA (as a replacement bill outside of the reconciliation process would require 60 votes); it also places U.S. insurance markets in potential chaos due to the uncertainty during the interim.
On July 20, 2017, the CBO released a revised report reflecting recent amendments to the BCRA, including a $45 million appropriation to fight opioid addiction, and allowing individuals to use tax credits to purchase catastrophic coverage. Importantly, the report did not include an analysis of Senator Cruz’s provision to permit insurers to offer policies that do not cover essential health benefits and that may be health underwritten. The report stated that under this proposal, 22 million additional individuals would be uninsured by 2026, which is similar to the previous version of the BCRA. However, the deficit would be reduced by $420 billion, which is significantly more than the previous version.
On July 21, Senate Parliamentarian Elizabeth MacDonough stated that several key provisions of the BCRA may not pass a Byrd Rule challenge. As a reminder, the Byrd Rule is one that governs the reconciliation process in the Senate. A bill may pass the Senate with only a simple majority as long as the provisions included in the bill are related to the federal budget. If a provision does not impact the budget, it may be challenged. A successful challenge would mean that the provision would need to be removed, revised or pass a supermajority vote (60+ votes) to proceed.
The provisions of concern are the cut to federal funds for Planned Parenthood, the prohibition of federal subsidies toward the purchase of insurance that covers abortion and a six-month waiting period for enrollees who have a gap in coverage. The waiting provision is a key one in that it serves as an incentive for healthy individuals to carry continuous coverage. An incentive is seen by many as necessary because the BCRA repeals the individual and employer mandate penalties. If healthy individuals drop insurance, the premium cost for the remaining insureds may increase.
The Senate will move forward in debating and potentially amending the proposals to repeal and replace the ACA. The Senate is limited to 20 hours of formal debate, but there will be more private discussions and debate as the next steps unfold. There’s no specific timeframe for the Senate, but most anticipate the Senate will move forward quickly as they still have other agenda items (including tax reform) on the table and are restricted by reconciliation deadlines. It’s unclear whether Republican senators will come to any consensus during the next few days of debate, or whether they would reach across the aisle and work with Democrats on a bipartisan approach.
If no legislation is passed, what does this mean for employers? Again, the ACA remains the law of the land and employers will need to continue with ACA compliance until further notice. Primarily, this means that large employers will need to continue to offer affordable minimum value coverage to all full-time employees and comply with employer reporting requirements to avoid potential penalties — that is, unless the Trump administration determines there’s a lawful way to avoid enforcing the ACA and communicates non-enforcement sufficiently for employers to rely upon.
As always, we will continue to update you on any developments.
On June 22, 2017, the IRS announced that changes to its e-Services platform will temporarily impact the PPACA application process for a transmitter control code (TCC) used to access the Affordable Care Act Information Returns (AIR) Program. The TCC is used in the AIR Program to file electronic information return submissions required under PPACA, i.e., Forms 1094-B and 1095-B under Section 6055 and Forms 1094-C and 1095-C under Section 6056. There will be no impact to users who electronically file through the AIR Program and who already have a TCC.
However, starting July 10, 2017, users are unable to submit new TCC applications or make any changes to existing TCC applications. According to the IRS, the TCC application process will be unavailable for three to five weeks.
Most employers have been using vendors to assist in filing their PPACA forms (1094/95-B and 1094/95-C), and vendors are the ones obtaining TCC codes. So the temporary delay on the application process likely has minimal impact on employers directly. That said, employers planning to e-file their 2017 PPACA forms on their own and which have not yet obtained a TCC code should review the bulletin and plan accordingly, as the TCC is a required component of the AIR Program.
On July 3, 2017, the Congressional Research Service (CRS) released a comparison of the ACA, the American Health Care Act (AHCA) and the Better Care Reconciliation Act (BCRA). As a reminder, the AHCA is the Republican proposal to repeal and replace the ACA that was passed by the House, while the BCRA is the proposal introduced in the Senate. The whitepaper begins with a brief narrative summarizing the general provisions of the AHCA and BCRA as well as the Congressional Budget Office reports for both acts.
The bulk of the whitepaper is a side-by-side detailed comparison of provisions under current law (ACA) and the two Republican proposed bills. Many of the provisions are of interest, directly or indirectly, to employer plan sponsors, including: the individual mandate, the employer mandate, premium rating based on age for small group policies, small business tax credit, medical loss ratio rebates, premium tax credits, cost-sharing subsidies, small business health plans, Medicaid expansion, Health Insurance Tax, Cadillac Tax, qualified medical expenses under a health FSA and contributions to an HSA.
The paper is a helpful resource to better understand the current discussions going on in Washington related to health care reform. We will continue to update you in Compliance Corner of any developments.
On June 22, 2017, the U.S. Senate introduced a bill to repeal and replace the ACA. The bill, called the Better Care Reconciliation Act (BCRA), is the Senate’s response to the American Health Care Act (AHCA), which the House passed back in May. In introducing the BCRA, Senate Majority Leader Mitch McConnell said he anticipated a vote on the BCRA before Congress’s week-long Fourth of July recess. It now appears that the vote won't happen until after the break. Because the bill is a reconciliation bill, it requires only a majority of senators to approve in order to pass the Senate — although it’s unclear whether there’s enough Republican support in the Senate to achieve a majority.
The BCRA makes some of the same ACA changes as does the AHCA. Those include repealing the ACA’s individual and employer mandate penalties, health FSA contribution limits and health insurance tax. It also includes several changes to HSAs: amending HSA contribution limits to align with the HSA-qualifying HDHP out-of-pocket maximums, allowing reimbursements from an HSA that are incurred after HDHP enrollment but prior to the HSA’s establishment, and allowing catch-up contributions from both spouses to the same HSA. Similar to the AHCA, the BCRA allows reimbursements from HSAs, FSAs and HRAs for over-the-counter (non-prescription) medications and delays the so-called “Cadillac tax” until 2026. Those similarities to the AHCA would likely be viewed as welcome by employers, since they reduce administrative requirements on reimbursement accounts and either relax or completely do away with some employer compliance obligations (like the need to track hours, run measurement periods and offer affordable coverage to full time employees under the employer mandate).
That said, in other areas, the BCRA has significant differences from the AHCA. For example, while the AHCA replaces the ACA’s premium tax credits (PTCs) and cost-sharing subsidies with refundable tax credits based on age, the BCRA retains the ACA’s PTC basic structure, with some significant differences on eligibility and amount. To begin with, the BCRA makes PTCs available to individuals with incomes between zero and 350 percent of the federal poverty level (FPL) (the relative percentages are 100 and 400 percent under the ACA). In addition, the BCRA adjusts the benchmark plan for subsidy awards to a cheaper, skinnier plan (58 percent actuarial value, compared to the ACA’s 70 percent benchmark plan) with the median premium cost of all qualifying health plans in the rating area (rather than the second-lowest cost silver plan under the ACA). Under the BCRA, PTC qualification still depends on whether the employer, if any, offers coverage to the individual. That means employer reporting of offers (via IRS Form 1095-C) may still be required, since the government would need to know whether that offer was made to determine PTC eligibility. While the government may simplify reporting going forward, employers can expect the reporting to continue in the future, even under the BCRA. Lastly, along the lines of PTC eligibility, the BCRA adds an additional layer of verification for individuals applying for advance payment of the PTC. Specifically, the BCRA requires the exchange to verify an individual’s identity with the Social Security Administration prior to advance payment of the PTC, whereas the ACA allows the advance payment prior to the verification. (The House also recently passed a bill related to verifying an individual’s identity prior to advanced payment of the PTC [SB 2581, linked below], which is contingent upon the AHCA’s passage into law.)
As far as other comparisons between the AHCA, BCRA and ACA, the BCRA doesn’t allow insurers to apply a surcharge (or potentially, where there’s a state waiver in place, apply medical underwriting) to an individual with a lapse in coverage, as does the AHCA. Instead, through a revision introduced to the bill on June 26, 2017, the BCRA would lock out from coverage for six months those individuals that have a lapse in coverage for 63 or more days. Although they address it differently, the AHCA and BCRA include these provisions to provide an incentive for individuals to enroll in coverage without an immediate medical event or need. This is crucial to maintaining stability in the individual market.
Like the AHCA, the BCRA doesn’t eliminate the ACA’s pre-existing condition exclusion prohibitions or essential heath benefit (EHB) requirements. Both the AHCA and BCRA would allow states to waive out of the EHB requirements and come up with their own version of EHBs, but the BCRA’s waiver process appears to be broader than the AHCA in an attempt to give states even more flexibility in designing plan requirements.
Much of the debate over the BCRA will be directed at Medicaid and the Medicaid system and the individual market (reinsurance and individual high-risk pools and stabilization). On Medicaid, the BCRA phases out ACA Medicaid expansion between 2021 and 2024 and then proposes even deeper cuts (as compared to the AHCA) beyond that. The BCRA also allows states to impose a work requirement on non-disabled, non-elderly, non-pregnant adults as a condition to receiving Medicaid coverage. The BCRA does retain some of the AHCA’s provisions relating to Medicaid, though, including the idea of using block grants as the means for federal support. On the individual market, the BCRA proposes a few new ways to help stabilize the market with respect to high-risk individuals. While the Medicaid and individual market discussion doesn’t directly impact employers, it does impact them when considering the overall health care delivery and payer ecosystem: What impacts the individual market may impact the Medicaid market, which may impact the employer group market. In addition, the Medicaid discussion goes a long way in determining whether the BCRA will actually pass the Senate. This obviously impacts the other BCRA provisions above that directly impact employers.
CBO Report Released
On June 26, 2017, the Congressional Budget Office and Joint Committee on Taxation (collectively the CBO) released their cost estimate regarding the BCRA. According to the report, the number of Americans uninsured would grow by 22 million in 2026 under the BCRA, 1 million less than the number reported in the CBO related to the AHCA. The deficit is projected to decrease by $321 billion over the same period, a significant difference compared to the $119 deficit reduction reported as to the AHCA.
Impact on Employer Plan Sponsors
Until both the House and Senate pass a final ACA repeal and replacement bill, and until the President signs it into law, the ACA remains the law of the land. That means employers should continue their compliance efforts across the board, including compliance with the employer mandate and associated reporting. As always, we’ll continue to monitor developments and provide updates as things develop.
On May 24, 2017, the Congressional Budget Office and Joint Committee on Taxation (collectively the CBO) released their cost estimate regarding the most recent version of the American Health Care Act (AHCA). As reported in the May 16, 2017, edition of Compliance Corner, the U.S. House of Representatives narrowly passed the AHCA, which represents the House Republicans’ attempt to repeal and replace the ACA.
According to the report, the AHCA would reduce the deficit by $119 billion over 10 years, $32 billion less in net savings compared to the previous version of the bill. Under prior scored versions of the bill, the CBO estimated that 24 million more people (by 2026) would be uninsured compared to estimates of those uninsured under the ACA. With the new amendments that ultimately led to passage in the House, the number of uninsured (as compared to ACA estimates) has been reduced to 23 million people (by 2026). It is noted that the increase in the uninsured (compared to the ACA estimates) would likely be disproportionately larger for older people and for lower-income Americans (due to increased premiums and reduced tax credits, respectively). Premiums following passage of the AHCA are projected to be somewhat lower in the individual market, but could become unaffordable for individuals with pre-existing conditions in some states. The majority of the impact of the AHCA’s passage would be felt by the individual market.
The $119 billion in projected deficit reduction is attributable to $1.1 trillion in savings offset by a reduction in revenues by $992 billion. The largest savings projected under the AHCA would come from cuts in Medicaid ($834 billion in savings over 10 years) and repeal of ACA’s tax credits ($665 billion savings over 10 years). The savings from the elimination of the ACA tax credits would be reduced by AHCA tax credits ($375 billion over 10 years) and AHCA funds dedicated to the Patient and State Stability Fund ($117 billion over 10 years). Elimination of the individual mandate and employer mandate penalties would reduce projected revenue by $210 billion, and repeal of certain taxes on wealthy individuals and corporations would reduce projected revenue by another $662 billion.
In conclusion, the CBO notes the uncertainty surrounding its estimates, particularly the unpredictability of which states would incorporate the waivers related to EHBs and community rating. As a reminder, the AHCA, if it becomes law, would allow flexibility for states to waive out of community rating and instead allow insurers to medically underwrite a policy for someone with a pre-existing condition following a lapse in coverage (rather than apply the 30-percent surcharge). In addition, due to the MacArthur amendment, the AHCA would allow states that receive a waiver to develop their own definition of EHBs. Even among those states that take advantage of the waivers, the resultant requirements (and ultimate cost) could vary widely from these projections. The CBO has attempted to develop estimates that lie in the middle of potential outcomes.
As we have stated before, it’s important to note that the status quo remains until the President signs the AHCA into law. Until that point, the ACA remains the law of the land. That means employers should continue their compliance efforts.
On May 16, 2017, CMS released a new checklist to help states pursue an innovation waiver under Section 1332 of the ACA. Specifically, this new checklist is intended to help states complete the required elements of the application that could allow them to set up high-risk pools for sicker residents and establish state-operated reinsurance programs.
As background, the ACA allows states to apply for an “innovation waiver” from the employer mandate penalty tax and certain other requirements for plan years beginning on or after Jan. 1, 2017. The waivers give states the flexibility to pursue their own strategies to provide their residents with access to health insurance that is affordable and provides MEC.
Through the release of this checklist, CMS is continuing to highlight innovation waivers as a way for states to modify existing laws or create something entirely new to meet the unique needs of their communities. CMS is promoting these waivers to give states the opportunity to develop strategies that best suit their individual needs, such as lower premiums for consumers, improved market stability and increased consumer choice.
If a state’s waiver proposal is approved, the state may be able to receive pass-through funding to help offset a portion of the costs for the high-risk pool/state-operated reinsurance and other premium stabilization programs while also lowering costs for consumers. According to the press release, CMS welcomes the opportunity to work with states on Section 1332 innovation waivers, and, in particular, invites states to pursue approval of waiver proposals that include high-risk pool/state-operated reinsurance programs.
On May 15, 2017, CMS announced plans to discontinue use of Healthcare.gov to enroll small employers and employees into the federally facilitated SHOP (Small Business Health Options Program) exchange effective Jan. 1, 2018. This decision comes as a result of lower than expected broker/agent participation and enrollment numbers. According to CMS, there were only 270,000 employees enrolled nationwide as of January 2017 (including federal and state-based SHOPs), which considerably falls short of the four million estimated to be enrolled by 2017.
Currently, small employers may only qualify for the Small Business Health Care Tax Credit by applying for coverage and enrolling employees through the SHOP. However, this process has been seen as overly burdensome and difficult for employers, employees, brokers and carriers involved, and is generally blamed for low utilization of the SHOP.
Therefore, in an effort to encourage greater broker and carrier participation and increase employee enrollment, CMS proposes rulemaking that would alter how small businesses receive the Small Business Health Care Tax Credit. The rules would also change the way small businesses enroll their employees. Beginning in 2018, small groups in states that use the federally facilitated Healthcare.gov will continue to receive a determination of eligibility for the tax credit through Healthcare.gov, but will instead enroll in coverage through a broker or directly with the carrier.
In addition, CMS proposes that state-based SHOP exchanges could decide to continue offering online enrollment, or instead require enrollment directly with the insurance company or through the assistance of an agent/broker.
On May 4, 2017, by a vote of 217-213, the U.S. House of Representatives narrowly passed the American Health Care Act (AHCA), which represents the House Republicans’ attempt to repeal and replace the ACA. The AHCA now heads to the U.S. Senate, where its future is uncertain.
Background on the House’s Passage of the AHCA
The AHCA was introduced in the House earlier in the year, but a prior vote scheduled in April was canceled as House Republicans couldn’t garner enough support. However, later in April and in early May, two amendments – known as the MacArthur and Upton amendments, named after their respective sponsors, Tom MacArthur (R-NJ) and Fred Upton (R-MI) – were added to the AHCA. The MacArthur amendment added state flexibility with respect to premium rating, defining essential health benefits (EHBs) and charging higher premiums or applying medical underwriting for those with pre-existing conditions (PECs) in certain situations (more on that below). Those two amendments brought additional House Republicans on board, allowing the AHCA to pass the House.
Generally speaking, the AHCA repeals the penalties associated with the ACA’s individual and employer mandates, the health insurance tax on insurers, the health FSA employee contribution limits and the prohibition on HSA/FSA/HRA reimbursements for over-the-counter (non-prescription) medications. For HSAs specifically, it increases contribution limits to match out-of-pocket maximums under the HDHP, allows reimbursements from an HSA that are incurred after enrollment in an HDHP but prior the establishment of the HSA (for up to 60 days), and allows catch-up contributions from both spouses to the same HSA. Importantly, the AHCA delays the ACA’s so-called “Cadillac tax” until 2026, creates new, refundable tax credits (based on age) as a replacement for the ACA’s premium tax credit system, and completely overhauls Medicaid. Lastly, under the MacArthur amendment, states may seek a waiver to allow insurers more flexibility in premium rating based on age (5:1 instead of the ACA’s 3:1, and in some instances even higher than 5:1).
Two issues relating to the AHCA have generated particular interest: PEC exclusions and EHBs. On PEC exclusions, the AHCA doesn’t eliminate the ACA’s prohibition on PEC exclusions, meaning insurers and plans cannot deny coverage to those with PECs. However, the AHCA allows insurers to charge higher premiums (up to 30 percent more) to anyone (including those with PECs) who allow their coverage to lapse for more than 63 days. In addition, the AHCA allows flexibility for states to waive out of community rating and instead allow insurers to medically underwrite a policy for someone with a PEC and a lapse in coverage (rather than apply the 30-percent surcharge). So while there’s a possibility that under the AHCA an individual with a PEC and lapse in coverage could face higher premiums upon enrollment in a plan (via either the surcharge or the medical underwriting), if individuals maintain coverage continuously, that possibility would not arise. For example, if an individual with cancer has group coverage through his or her employer, is terminated from employment, and continues coverage via COBRA (or through an individual plan on or off the exchange) such that he/she doesn’t go more than 63 days without coverage, his/her premiums won’t be impacted by the existence of a PEC.
On EHBs, the MacArthur amendment allows states that receive a waiver to develop their own definition of EHBs. Under the ACA, insurers and plans are prohibited from having annual or lifetime dollar limits on EHBs, and the definition of “EHB,” although defined by ACA broadly into 10 categories, was slightly different in each state. Under the AHCA, states may have more flexibility to define “EHBs.” Thus, there are some who argue that the prohibition on annual and lifetime limits on EHBs could be affected if a state is given the opportunity to totally eliminate EHBs. However, the AHCA itself doesn’t directly repeal or replace the ACA’s rules on the lifetime and annual dollar limit prohibition, and the MacArthur amendment seems to only give the states the opportunity to decide what EHBs are included within the 10 broad categories outlined in the ACA (it doesn’t seem to allow a state to deem no health benefits essential at all). As such, we believe (along with other industry experts) that the AHCA still prohibits lifetime and annual limits. Nonetheless, we hope final iterations of the bill clarify this point.
Future of the AHCA
Looking forward, it’s difficult to predict the AHCA’s fate. The bill now heads to the Senate, where Republicans would need enough votes to send it to the President’s desk. The prevailing thought is that the Senate will use the budget reconciliation process to pass the vote (thereby needing fewer votes than would generally be required to pass a bill). The provisions of a reconciliation bill generally must relate to or influence the budget, meaning they drive or otherwise impact federal revenue. Some believe a few provisions of the AHCA, including PECs, EHBs and premium rating, are extraneous to the reconciliation process — meaning they don’t impact the budget. Thus, it’s possible that those provisions could be challenged under the so-called “Byrd rule,” which could mean those extraneous provisions might ultimately be left out of the AHCA. Because House Republicans made PECS, EHBs and the premium rating such hot-button items during the House debate on the AHCA, any Senate changes (through the Byrd rule or otherwise) relating to those items could have an impact once the bill is sent back to the House with changes.
In addition, the Congressional Budget Office (CBO) hasn’t yet scored the AHCA with its recent MacArthur and Upton amendments. The original CBO scoring (of the AHCA prior to the amendments) was controversial, as it stated that up to 24 million individuals may lose health insurance coverage under the bill. The CBO scoring could have a major impact on which way Senate Republicans vote on the AHCA.
There’s also recent discussion of Republican Senators either completely overhauling the AHCA or even drafting their own repeal-and-replacement bill. If the Senate proceeds under either of those routes, their revised or new bill would head back to the House for another vote. Only time will tell how this all will play out.
Impact on Employer Plan Sponsors
Although the AHCA has gained some momentum, it’s important to note that the status quo remains until the President signs it into law. Until then, the ACA remains the law of the land. That means employers should continue their compliance efforts across the board. Among other things, that includes compliance with the employer mandate and the associated reporting. Employers should continue those efforts through tracking of hours, including any measurement periods used for variable hour or seasonal workforces. Employers should also plan to continue compliance with other ACA requirements, including PCOR and reinsurance fee payments, covering preventive services at zero cost-sharing, covering dependents to age 26 and observing PEC exclusion prohibitions.
As always, we’ll continue to monitor developments and provide updates as we move forward.
On May 4, 2017, the IRS released Rev. Proc. 2017-36 to announce the adjusted indexed applicable percentage table in
IRC Sec. 36B(b)(3)(A)(i). This table is used to calculate an individual’s premium tax credit for tax years beginning after calendar year 2017 (i.e., plan years beginning in 2018). The applicable percentage table for 2018 is as follows:
|Household Income Percentage of Federal Poverty Line||Initial Percentage||Final Percentage|
|Less than 133%||2.01%||2.01%|
|At least 133% but less than 150%||3.02%||4.03%|
|At least 150% but less than 200%||4.03%||6.34%|
|At least 200% but less than 250%||6.34%||8.10%|
|At least 250% but less than 300%||8.10%||9.56%|
|At least 300% but not more than 400%||9.56%||9.56%|
Rev. Proc. 2017-36 also updates the 2018 required contribution percentage, which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage. The percentage decreases from 9.69 percent to 9.56 percent for plan years starting in 2018. In addition, the percentage used to determine if an individual is exempt from the individual shared responsibility payment due to lack of affordable minimum essential coverage decreases from 8.16 to 8.05 percent in 2018.
On April 25, 2017, the U.S. Preventive Services Task Force (USPSTF) released a final recommendation statement on screening for preeclampsia. Preeclampsia may arise during pregnancy and causes high blood pressure, kidney damage and other related issues, and is a potentially life-threatening complication. Specifically, the USPSTF statement states that screening for preeclampsia in pregnant women is recommended, including taking blood pressure measurements throughout pregnancy.
As background, PPACA requires that group health plans and insurers provide certain preventive services without imposing any cost-sharing (this is sometimes referred to as providing “first-dollar coverage”). As a result, no deductibles, co-pays, co-insurance or other cost-sharing may be imposed on these services, including evidence-based items or services with an A or B rating recommended by the USPSTF.
Coverage of preeclampsia screening for pregnant women is on the USPSTF list with a B rating. Compliance with this recommendation (as with any new USPSTF recommendation) is required beginning one year after the recommendation is issued. Therefore, coverage of preeclampsia screening for pregnant women (without cost sharing) should be included for plan years commencing on or after April 25, 2018.
On April 25, 2017, Republican leaders within the U.S. House of Representatives released a copy of what is being called the MacArthur Amendment. The proposal signals the Republicans’ intention to move forward with a revised American Health Care Act (AHCA). The amendment, sponsored by Tom MacArthur (R-NJ), would keep certain ACA provisions in place such as the prohibition on pre-existing condition exclusion periods, the prohibition on gender discrimination in premium rating, no cost sharing for certain preventive care services and coverage for children to age 26.
The amendment would provide states with greater flexibility in terms of premium rating based on age and health status; and essential health benefits.
Under the proposed plan, states would be able to apply for a waiver that would:
To pass the House, the bill would need 216 votes. The bill would still pass even if 22 republicans failed to support the bill (assuming all other representatives voted along party lines). It is unclear at this time if the Republicans have enough votes for the bill to pass and to proceed to the Senate. Congress has other priorities this week including discussions on tax reform and a vote on the budget to avoid an impending government shutdown.
We will continue to keep you updated on any developments.
On April 13, 2017, CMS issued the final regulations related to Market Stability. The rules included few changes from the proposed rules issued in February 2017, which were summarized in the Feb. 22, 2017 edition of Compliance Corner.
Special Enrollment Periods: Beginning in June 2017, individuals enrolling in a federally facilitated exchange through a special enrollment period (such as loss of eligibility for other coverage, birth, marriage, release from incarceration and change in residence) will be required to go through a pre-enrollment verification process before coverage is effective. Applications will be pended until the individual submits documentation (within 30 days). State-based exchanges are encouraged, but not required, to use the verification process. Specific to the special enrollment period for marriage, in order to enroll in the individual market, at least one spouse must demonstrate prior minimum essential coverage or that he/she lived in a foreign country for one or more days during the 60 days preceding the marriage date.
Exchange Open Enrollment Period: For the 2018 coverage year, the open enrollment period in the exchange will run from Nov. 1, 2017, to Dec. 15, 2017. This is a change from past years when enrollment was permitted through January.
Guaranteed Availability: Under the guaranteed availability rules, an insurer must accept any new application for coverage during the open enrollment or special enrollment periods. Under the final rules, if an individual or employer owes past premiums within the last 12 months to an insurer or a member of the insurer’s controlled group, the insurer may collect the debt before effectuating the new coverage. This rule applies in the individual, small group and large group markets both on and off the exchange.
Metal Levels: Non-grandfathered individual and small group policies are currently categorized into four metal levels based on their actuarial value (AV): bronze (60 percent AV), silver (70 percent AV), gold (80 percent AV) and platinum (90 percent AV). A policy must be within +/- two points of the metal level. To encourage flexibility and the design of new plans, the actuarial value of policies will be determined using a -4/+2 points beginning Jan. 1, 2018.
On April 7, 2017, The Treasury Inspector General for Tax Administration (TIGTA) released a report entitled “Affordable Care Act: Assessment of Efforts to Implement the Employer Shared Responsibility Provision.” TIGTA was tasked with assessing the IRS’ preparations for enforcing the employer mandate and reporting requirements.
As of Oct. 28, 2016, the IRS had processed 439,201 Forms 1094-C and over 110 million Forms 1095-C for the 2015 data year. However, some of the “processes did not function as intended, which resulted in the IRS not having accurate and complete data for use in its compliance strategy to identify noncompliant employers.” One of the reported problems was an inability to process paper forms in a timely manner into the ACA Information Returns (AIR) System, which is the system for electronic returns. As of Oct. 28, 2016, the IRS had not processed 24 percent of the Forms 1094-C and 32 percent of the Forms 1095-C received by paper. Of the forms that were processed, TIGTA’s random sample of review discovered that 20 percent of the forms were scanned incorrectly into the AIR system with some data entries missing or incorrectly captured.
Employers who electronically file their returns with the IRS may receive an error message if an issue exists with the file. The most common error is related to a mismatch of an individual’s social security number. The report stated that the error codes caused confusion for employers and did not include enough information for the employer to correct the error (e.g.: identify the individual for whom there was a SSN mismatch).
TIGTA made several recommendations for improvement to which the IRS responded in detail with information on their ongoing corrective actions. Importantly, the report demonstrates the IRS continues to improve its processes and procedures in order to enforce the employer mandate and reporting requirements. Therefore, despite the IRS's technological struggles to properly determine employer mandate compliance, employers should continue their employer mandate compliance efforts (including reporting) since the IRS is committed to resolving the issues and enforcing the mandate.
On April 6, 2017, the IRS revised a webpage entitled “Types of Employer Payments and How They Are Calculated,” which educates applicable large employers (ALEs) (generally those employers with 50 or more full-time employees including full-time equivalent employees in the preceding calendar year) on PPACA's employer shared responsibility provisions (also known as the “employer mandate”).
The webpage first describes which payment applies when employers fail to offer minimum essential coverage (known as “Penalty A”). The description details how the payment is calculated. Note that there is certain transition relief available under this penalty for 2016 on a limited basis and for employers who offer coverage to at least 95 percent of their full-time employees, as well as those who did not previously offer coverage to dependents, but took steps during either 2014 or 2015 to extend coverage to dependents.
If an ALE is subject to Penalty A, then the annual payment will be $2,000 for each full-time employee (without regard to whether each employee received a premium tax credit), after excluding the first 30 full-time employees (was the first 80 full-time employees in 2015) from the calculation. If the ALE includes multiple ALE members (known as a “controlled group” or also sometimes referred to as an “aggregated group”), the 30- employee reduction is distributed ratably across the controlled group based on each ALE member’s number of full-time employees.
The IRS will determine whether an ALE owes this payment on a month-by-month basis although it is often referred to as an annual payment amount. Thus, an ALE who owes the payment will pay $166.67 (1/12 of $2,000) per month per full-time employee. Note that the $2,000 amount is indexed for inflation as follows:
The second penalty applies when an employer fails to offer minimum essential coverage that provides minimum value and is affordable (known as “Penalty B”). The webpage details how the payment is calculated, which is a different calculation than for Penalty A described above. There are three examples illustrating which penalty applies and the calculations required.
If an ALE owes Penalty B, then the annual payment will be $3,000 for each full-time employee who received the premium tax credit.
Again, the IRS will determine whether an ALE owes this payment on a month-by-month basis. Thus, an ALE who owes the payment will pay $250 (1/12 of $3,000) per month for each full-time employee who received the premium tax credit. (Unlike Penalty A, this calculation does not include full-time employees who enrolled in coverage under the employer’s plan, or who had other non-Marketplace coverage, or who did not have any coverage.) The $3,000 amount is also indexed for inflation as follows:
The total Penalty B amount cannot exceed the amount that the employer would have owed had it been liable for Penalty A, described above. This limitation ensures that the payment for an employer that offers minimum essential coverage can never exceed the payment that the employer would owe if it did not offer minimum essential coverage.
Part-time employees and full-time equivalent employees do not factor into the Penalty A or B calculation. Also, certain full-time employees are not included in the payment calculations, for example, very generally, a full-time employee in a waiting period.
Finally, the webpage defines the meaning of the term “offer of coverage” and describes how the assessment and collection of the employer shared responsibility payment will be handled by the IRS. Importantly, this payment is not deductible for federal income tax purposes.
On March 24, 2017, the U.S. House of Representatives canceled a vote on the proposed ACA replacement plan, known as the American Health Care Act (AHCA). According to House leadership, the Republicans could not garner enough support for the AHCA to pass the House. Following the cancelation, House Speaker Paul Ryan (R-WI) and Pres. Trump stated that the ACA repeal and replace efforts will be put on the backburner and that Congress would move on to other Congressional agenda items, including tax reform. However, since those announcements, there have been ongoing discussions behind the scenes regarding a revival of the ACA repeal and replace efforts. So Congress may revisit the issue in the near future.
From its introduction, the AHCA faced an uphill battle in the House, as Republican factions never fully supported the bill. In particular, the House Freedom Caucus, a conservative group of about 40 Congresspersons, thought the bill should go further with regard to repealing the ACA. Specifically, the caucus wanted a full repeal of the ACA’s prohibition on lifetime and annual dollar limits and the ACA’s mandates with respect to essential health benefits, believing those play a role in rising health care insurance premium rates. In addition, the caucus is opposed to the idea of the federal government mandating which benefits should be included in health insurance plans. Instead, the caucus says, individuals should be able to choose what benefits they want. Ultimately, House leadership could not appease the caucus while also maintaining support from other, more moderate House Republicans.
While reviving the ACA repeal and replace debate seems to be going on behind the scenes, the future of the ACA remains unclear. For employers, the best approach is to continue to comply with the ACA’s requirements, including offering affordable coverage to full time employees pursuant to the employer mandate and with related reporting requirements.
In the meantime, there are a few different scenarios that may play out. Under the first scenario, the Republicans quickly come to agreement on a replacement for the AHCA. As discussed earlier, it appears House leadership and the White House don’t want to abandon the ACA discussion quite yet. With pressure mounting from within and from campaign promises, perhaps the Republicans can quickly unify and pass an alternative bill. This seems unlikely given the intense focus without resolution over the past few months; but it is a possibility.
Under a second scenario, the ACA remains the law of the land, but the Trump administration refuses to enforce ACA’s requirements and penalties. Setting aside the limits to which agencies within the administration can ignore the law, this would leave a relaxed version of the ACA. The law would still be on the books, and so employers should comply. But perhaps there would be less pressure, since penalty exposure would be lessened and other requirements, including reporting, may be simplified. Under yet another scenario, the ACA remains the law but the Trump administration enforces it. Under this scenario, the status quo remains—employers must continue to comply with all of the ACA’s requirements or risk penalties. This is really the compliance approach all employers should assume for now.
As always, we will continue to monitor developments on the continued Republican effort to repeal and replace the ACA as we move forward.
On March 16, 2017, the IRS updated its online resource “Questions and Answers on the Premium Tax Credit.” The revised Question #15 specifically addresses the eligibility of a spouse and dependent for a premium tax credit. Generally, a spouse and dependent are not eligible for a premium tax credit if they are eligible to enroll in the employee’s group health plan and the coverage provided to the employee is of minimum value and affordable.
A typical plan design for a group health plan is one in which the employee’s enrollment is required in order for a spouse and/or dependent to be covered. In other words, a spouse or dependent could not be enrolled independently of the employee. Under such a design, some had argued that if an employee waived coverage, the spouse and dependent should still be eligible for a premium tax credit because technically they are no longer eligible to enroll in the employer’s plan. The new guidance clarifies that if the employee is given an opportunity to enroll him/herself, spouse and dependent, then all three had an opportunity to enroll in the employer’s plan (which meets minimum value and affordability requirements) and the spouse and dependent are, therefore, not eligible for a premium tax credit.
On March 13, 2017, HHS and the Department of the Treasury (the Departments) released a letter giving states greater flexibility in pursuing an innovation waiver under Section 1332 of the ACA.
As background, the ACA allows states to apply for an “innovation waiver” from the employer shared responsibility penalty tax and certain other requirements for plan years beginning on or after Jan. 1, 2017. The waivers provide states the flexibility to pursue their own strategies to provide their residents with access to health insurance that is affordable and provides MEC.
The Departments’ letter highlights innovation waivers as a way for states to modify existing laws or create something entirely new to meet the unique needs of their communities. The Departments are promoting these waivers to give states the opportunity to develop strategies that best suit their individual needs, such as lower premiums for consumers, improved market stability and increased consumer choice.
If a state’s waiver proposal is approved, the state may be able to receive pass-through funding to help offset a portion of the costs for the high-risk pool/state-operated reinsurance and other premium stabilization programs while also lowering costs for consumers. According to the letter, the Departments welcome the opportunity to work with states on Section 1332 innovation waivers, and in particular, invite states to pursue approval of waiver proposals that include high-risk pool/state-operated reinsurance programs.
On Feb. 23, 2017, CMS announced an additional one-year extension for certain individual and small group policies commonly referred to as grandmothered plans. As background, on Nov. 14, 2013, President Obama — via a CMS letter — announced the availability of a transitional policy that allowed individual and small group health insurance plans that were previously cancelled due to noncompliance with PPACA insurance mandates to be renewed in 2014 without being subject to PPACA-related penalties. Specifically, the Nov. 14, 2013, CMS letter stated that health insurance coverage in the individual or small group market that was renewed for a policy year between Jan. 1, 2014, and Oct. 1, 2014, would not be considered to be out of compliance with the following market reforms:
In March 2014, the transitional policy was extended, meaning that such plans could continue through 2016. Then in February 2016, a second extension was granted through Dec. 31, 2017. The latest extension means that the non-grandfathered health insurance coverage in the individual or small group market that has been continually renewed since 2014 may continue to be renewed for policy years beginning on or before Oct. 1, 2018, with all policies ending by Dec. 31, 2018. Such policies continue to be exempt from the above mentioned requirements.
Although the transitional policy allows the continuation of noncompliant plans at a federal level, the practice must be approved by a state regulator for the policies to be available in a particular state. Further, an insurer then has the choice as to whether to continue to offer the policies.
Any small employers who are currently covered by such a policy should work with their advisor and insurer regarding renewal of the coverage.
On Feb. 15, 2017, the IRS updated its Individual Shared Responsibility Provision web page to include a statement that the IRS will not reject individual federal income tax returns (Form 1040) that have a blank entry on line 61 (Health Care: Individual Responsibility).
However, the IRS clarified that the blank line 61 does not relieve the individual from payment of a penalty, but it does mean the IRS will process the return (whereas previously they would have rejected those returns). So, the change in position is not necessarily penalty relief, but relief from a return rejection. The IRS also stated that it is currently reviewing Pres. Trump’s Jan. 20, 2017, executive order to determine its implications and that taxpayers should continue to file their tax returns as they normally would.
As a quick background, the individual shared responsibility provision (i.e., the individual mandate) requires individuals to do at least one of the following:
Some taxpayers will have qualifying health care coverage for all 12 months in the year, and will be able to check the "Full-year coverage" box on line 61 of their return. This year, the IRS had put in place system changes that would have rejected tax returns during processing in instances where the taxpayer didn’t provide information related to health coverage (i.e., left the box unchecked). However, the Jan. 20, 2017, executive order (mentioned above) directed federal agencies to exercise authority and discretion available to them to reduce potential burden. Consistent with that, the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status on line 61.
As a reminder, the legislative provisions of the PPACA are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe. So, the IRS may still enforce the individual mandate, but Forms 1040 will not be rejected at the time of filing, allowing the returns to be processed. Thus, the IRS maintains the option to follow up with those who elect not to indicate their coverage status. It is not clear at this time what circumstances might trigger a follow up. When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed, and taxpayers should work with individual tax advisors with respect to answering those questions and correspondence.
Late Monday, March 6, 2017, Republicans released the latest version of their PPACA repeal and replacement legislation. The proposed legislation, called the American Health Care Act, was circulated by the House Ways and Means and Energy and Commerce committees, the two committees with primary jurisdiction over health care.
The proposed legislation is expected to be introduced on the House floor on Wednesday, March 8, as a budget measure, making it eligible for passage through Congress via the so-called budget reconciliation process (meaning it would need only 51 votes to pass). As for a summary of the major points, the proposed legislation:
Importantly, because employer reporting isn’t considered a budget item, it isn’t included in the legislation. That said, fact sheets and congressional reports suggest that the federal agencies (HHS, IRS and DOL) could choose to streamline those reporting processes (by allowing employers to report offers of coverage on a Form W-2, for example) or not enforce the current reporting requirements or penalties (pursuant to President Trump’s executive order on PPACA non-enforcement). For similar reasons (i.e., non-budgetary items), the legislation doesn’t appear to impact PPACA’s preventive care, dependent coverage up to age 26 and other provisions (e.g., PCOR fee and state-based exchanges, although there won’t be premium tax credits after 2020). It remains to be seen how those non-budgetary PPACA provisions will be handled.
Lastly, the proposed legislation doesn’t include any repeal or cap on the employee tax exclusion for employer-provided health insurance benefits — a provision most thought would be included to help fund the replacement plan.
The proposed legislation is not yet law. Most expect more debate and change over the next few weeks and months as the proposed legislation works its way through Congress. We’ll continue to monitor developments and provide updates as we move forward.
On Jan. 26, 2017, HHS announced the 2017 federal poverty levels (FPL). The threshold for the 48 contiguous states is $12,060 for a single household and $24,600 for a household of four individuals. The thresholds are different for Alaska ($15,060 and $30,750, respectively) and Hawaii ($13,860 and $28,290, respectively).
The FPL plays an important role under the PPACA. Individuals purchasing coverage through the exchange may qualify for a premium tax credit if their household earnings are within 100 percent to 400 percent of the FPL. Employers wishing to avoid a penalty under the employer mandate may use the FPL affordability safe harbor, which means the cost of an employee’s required contribution for employer sponsored coverage does not exceed 9.69 percent (for 2017) of the single FPL. This means that the FPL affordability safe harbor threshold in the 48 contiguous states for 2017 would be $97.38 per month. As a reminder, the FPL safe harbor is only one of the affordability safe harbors; the other two are the rate of pay and Form W-2 methods.
Additionally, the IRS has recently updated their website to include the 2017 employer mandate penalty amounts. If an employer fails to offer minimum essential coverage to 95 percent or more of its full-time employees, the Penalty A amount for 2017 is $2,260 (up from $2,160 in 2016) times each full-time employee (minus the first 30 employees). If an employer fails to offer affordable coverage meeting minimum value, the Penalty B amount for 2017 is $3,390 (up from $3,240 in 2016) times each full-time employee receiving a premium tax credit.
On Feb. 15, 2017, CMS issued a proposed rule for 2018, which proposes new reforms to assist with the stabilization of the individual and small group health insurance markets.
The goal is to help protect patients participating in the individual and small group health insurance markets while future reforms are being employed. Ultimately, the hope is that this will provide more flexibility to states and insurers, and give patients access to more coverage options. That said, the proposed rule would make changes to certain exchange standards, such as special enrollment periods, the timing of the annual open enrollment period, guaranteed availability, network adequacy rules, essential community providers, the actuarial value requirements and the qualified health plan (QHP) certification timeline.
Specifically, the rule proposes a variety of policy and operational changes to stabilize the exchanges, including:
CMS is accepting comments on the proposed regulations through March 7, 2017. Although this rule mostly affects the exchanges and insurers offering coverage on the exchange, employers should familiarize themselves with the portions of the rule surrounding special enrollment verification and the open enrollment period.
On Jan. 17, 2017, CMS released an updated consumer guide on special enrollment periods (SEPs). SEPs allow individuals to enroll in coverage through the exchange when they experience certain mid-year life changes (outside of the annual enrollment period), such as marriage or birth/adoption of a child.
As background, to help consumers better understand which SEPs are available to eligible individuals, CMS has provided this recently updated outreach tool. It includes basic information on SEP eligibility and availability.
For employers, the consumer guide does not contain any new compliance obligations. However, employers may want to familiarize themselves with the guide should employees raise questions relating to exchange enrollment and SEPs.
On Jan. 20, 2017, Pres. Trump signed an executive order relating to PPACA enforcement. The order states that it is the policy of Pres. Trump’s administration to seek the prompt repeal of PPACA. In the meantime, to minimize unwarranted economic and regulatory burdens relating to PPACA, the order directs the agencies charged with implementing the law (e.g., HHS, DOL and IRS, as well as any other sub-regulatory agencies) to exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay implementation of any PPACA provision that would impose a fiscal burden. That would include costs, fees, taxes, penalties or regulatory burdens on individuals, families, health care providers, health insurers, patients, employers or others who purchase or provide health insurance on behalf of employees, and makers of medical devices, products or medications.
The order, signed on Pres. Trump’s inaugural day in office, signals the new administration’s intent to delay or waive many of PPACA’s requirements (and eventually repeal and replace PPACA). But the order does not by itself delay or waive any specific requirements and it is too soon to determine what changes will result from this order. While regulatory agencies now have directed authority to delay or waive requirements, there are administrative and procedural hurdles that must be considered.
To begin with, several of Pres. Trump’s potential cabinet members (including Tom Price as Secretary of HHS) are still in the nomination confirmation process. In addition, the agencies have previously proposed or finalized regulations on many, if not all, of PPACA’s requirements, and agencies may be bound to specific processes and procedures with respect to undoing or disregarding them. Finally, some requirements (such as reporting) may be necessary to continue providing subsidies for those covered in the public marketplace, and therefore may be difficult to immediately repeal or delay.
As a result, a timeline for specific delay, waiver or exemption from PPACA remains unclear. Nevertheless, the order grants those agencies with the authority to make adjustments to the regulations, delay due dates, ignore penalties or otherwise avoid full implementation of the law. So, employers (and the health care and insurance industry as a whole) can expect big changes eventually.
For employers, as discussed above, the executive order itself does not immediately repeal or delay any specific PPACA requirements. The employer mandate and other PPACA provisions were enacted through Congressional action and cannot be overridden by an executive order. Thus, until further specific action is taken, employers should continue to comply with the employer mandate (offering affordable coverage to all full-time employees and their dependents), employer reporting (providing employee statements/Forms 1095-B/C and filing with the IRS), Form W-2 informational reporting and other PPACA requirements (e.g., SBC distribution, prohibition on excessive waiting periods, etc.). We will continue to monitor and report on developments, including any announcements on specific exemptions or delays relating to employer compliance.
On Jan. 12, 2017, the DOL, HHS and Treasury jointly released Frequently Asked Questions About the ACA’s Implementation, Part 37. The first two questions are related to integrated HRAs, while the remaining two questions provide mostly technical guidance aimed at insurers.
As a reminder, employers with 50 or more full-time equivalent employees can only offer an HRA if it is integrated with non-HRA (major medical) coverage. This means that:
Please note that this arrangement is different than the qualified small employer HRAs (QSEHRAs) that small employers (those with fewer than 50 FTEs) may sponsor as a result of the CURES Act. QSEHRAs can reimburse employees for individual policies but may not be integrated with group non-HRA coverage.
Under the second bullet above, those who are covered under the HRA, including a spouse and dependents, must be covered under a non-HRA group medical plan. Question #1 of the new FAQs clarifies that the non-HRA coverage may be sponsored by the employee’s spouse. The employer may rely upon the employee’s certification.
Question #3 clarifies that the family members covered under the integrated HRA may be covered under different non-HRA group plans. For example, the employee may be covered under his/her employer’s medical plan with self-only coverage, while the other family members are covered under the spouse’s employer’s medical plan.
The FAQs confirm and formalize prior guidance on the issue of HRA integration. Employers should review their HRA plan designs, if any, to ensure compliance.
On Jan. 11, 2017, CMS provided guidance outlining the requirements for group health plans and health insurance issuers that are subject to the HHS-administered federal external review process.
As background, non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual coverage must comply with the applicable external review process in their state if that process meets the standard established by the National Association of Insurance Commissioners (NAIC). If the state external review process does not meet this standard, or if the plan or issuer is not subject to state insurance regulation, then those group health plans and health insurance issuers must still implement an effective external review process meeting those same standards. The Code of Federal Regulations establishes the federal external review process for this purpose.
Insured coverage not subject to an applicable state external process and self-insured non-federal governmental plans may elect to use the federal Independent Review Organization (IRO) external review process or the HHS-administered federal external review process as outlined in the guidance.
The guidance outlines the requirements for standard external review under the HHS-administered federal external review process. Those requirements fall within the following categories:
The guidance also outlines the requirements for an expedited external review under the HHS-administered federal external review process.
Plan sponsors who are not subject to state insurance regulation or plan sponsors located in states where the state external review process does not meet the NAIC standard can use this guidance to implement the HHS-administered external process.
On Dec. 12, 2016, CMS issued a fact sheet regarding a pilot program to implement a Marketplace confirmation process for special enrollment periods (SEPs). SEPs allow individuals to enroll in coverage through the exchange when they experience certain mid-year life changes (outside of the annual enrollment period), such as marriage or birth/adoption of a child.
As background, concerns have been raised about whether current exchange rules and procedures are sufficient to ensure that only those who are eligible enroll through SEPs. In response to those concerns, CMS introduced a new SEP confirmation process, back in June 2016, which provided important data on the effects to exchange enrollment numbers. As a result, CMS announced this pilot program, which is designed to test the impact of pre-enrollment substantiation of SEP eligibility on various outcomes including compliance, enrollment, continuity of coverage, the risk pool and other effects.
The pilot program is set to begin in June 2017 for all states currently using the federally-facilitated exchange on healthcare.gov. Fifty percent of applicants will be randomly selected to participate in the pilot, which will subject those consumers to an enhanced verification process for all SEP types. Applicants selected will be required to provide documents proving eligibility for the SEP within 30 days. The Marketplace will then hold enrollment until sufficient documentation is provided by the applicant. Once approved, premium payment can be made and coverage will generally begin as of the original effective date. Conversely, if proper documentation is not provided, coverage may be terminated.
Using 2017 data expected to become available in spring 2018, CMS will evaluate the impact of the pre-enrollment verification program on the risk pool, enrollment numbers and other key metrics. Further, CMS will provide additional training for brokers assisting consumers with enrollment and document submission, and enhanced consumer information will be available on the healthcare.gov website.
For employers, the fact sheet and pre-enrollment verification process do not contain any new compliance obligations. However, employers may want to be aware of the verification process (and Marketplace enrollment process) should employees raise questions relating to exchange enrollment and SEPs.
On Dec. 19, 2016, the IRS published final rules pertaining to premium tax credit (PTC) eligibility for those enrolling in exchange coverage as well as certain affordability implications. The final rules adopt most, but not all, of the IRS proposed rules published in July 2016. Some provisions were delayed. Most notably delayed are the affordability implications of opt-out payments for employees who decline employer-sponsored health coverage (the IRS expects to finalize opt-out rules separately after examining issues raised).
The final rules primarily affect individuals who enroll in exchange coverage and receive a PTC, including family members who live in different states and enroll in different qualified health plans. Under the employer mandate, if a large employer fails to offer affordable coverage to a full-time employee, the employee may qualify for a PTC in the exchange, which in turn may trigger an employer mandate penalty for the employer.
For employers, the rules address several areas of interest:
First, under the final rules, if an individual declines an opportunity to enroll in affordable minimum value coverage for a year (thus making the individual ineligible for a PTC), but the individual is not given an opportunity to enroll in employer coverage in one or more subsequent years, the individual is not PTC-ineligible for the subsequent year or years. Thus, in those subsequent years, the employer may be treated as failing to satisfy their employer mandate responsibilities with respect to that individual. This confirms our prior understanding that employers should offer employees an effective opportunity to enroll in coverage each year.
Second, the final rules address advanced payment of a PTC based upon inaccurate affordability information. According to the rules, the IRS will enforce the intentional or reckless disregard standard during the evaluation of an individual’s tax return. The IRS will apply this standard where the individual knowingly provides incorrect information to the Exchange or makes little or no effort to determine whether the information provided is accurate. However, an individual is not responsible for inaccurate data provided by a third party, such as their employer.
Third, the rules also clarify that if an employer offers only excepted benefit coverage to an individual, that individual is not considered as having been offered MEC that would make the individual PTC ineligible. Therefore, offering only excepted benefit coverage could also trigger an employer mandate penalty (if the employee is a full-time employee).
Regarding the individual mandate, the final regulations address several issues relating to advance payment of the PTC and the reconciliation process. The IRS Form 8962 instructions, listed in 2016 Publication 974, discuss the reconciliation process, and instruct those receiving an advanced PTC to file Form 8962 so that the IRS can compare the advanced PTC paid with the actual PTC. The regulations also address the PTC amount and its interaction with the benchmark premium, and contain many examples of how those rules will operate. However, because those rules are more specific to the individual mandate, we will not address them in detail. Thus, interested employers may find more information in the regulations themselves.
As mentioned above, the final rules discuss a few topics that the IRS will address at a later date. Specifically, the IRS delayed final rules addressing the effect of opt-outs on the determination of affordability under the employer mandate. Until opt-outs are addressed in their own final rules, employers should follow the guidelines set forth in Notice 2015-87 (addressed in the Dec. 22, 2015, edition of Compliance Corner).
The final rules took effect Dec. 19, 2016. Therefore, employers should review their coverage offer and affordability strategies with their advisor to ensure compliance with the employer mandate for the 2017 plan year.
On Dec. 14, 2016, the IRS released an updated version of Publication 5165, entitled “Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters,” for tax year 2016 (processing year 2017). This updated publication replaces prior versions and outlines the communication procedures, transmission formats, business rules and validation procedures for returns transmitted electronically through the Affordable Care Act Information Return System (AIR).
As a reminder, if you are a self-insured employer or applicable large employer, the deadline to provide information returns to employees or responsible individuals is March 2, 2017 (changed from Jan. 31, 2017), for tax year 2016. Also, employers filing 250 or more forms must file electronically with the IRS by March 31, 2017. Employers filing fewer than 250 forms may file by paper or electronically, and paper filings are due by Feb. 28, 2017.
Those filing electronically must use AIR, and the only acceptable format will be XML. The individual responsible for electronically filing the employer’s forms will be required to register with the IRS e-Services and receive a PIN which will be used to sign the electronically filed forms.
Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C or 1095-C will want to review the guidance and familiarize themselves with the filing process. They may also need to engage their internal technology teams to assist in properly formatting files (or work with an outside vendor to assist).
On Dec. 16, 2016, the DOL published final regulations concerning claims procedure for plans providing disability benefits. As background, in November 2015, the EBSA proposed regulations related to disability plan claims procedures (covered in the Nov. 17, 2015, edition of Compliance Corner). The proposed regulations were written to amend ERISA’s rules to better align them with PPACA’s internal claims appeal rules for health plans.
The final regulations are very similar to the proposed regulations in that they require more detailed disclosures and notices, independence and impartiality of those persons making the decision on disability benefits claims, deemed exhaustion of claims and appeals if plans do not adhere to the claims processing rules, the treatment of rescissions as adverse benefit determinations, and culturally and linguistically appropriate notices.
Some notable changes from the proposed regulations include the following:
The final regulation will be effective 30 days following the Dec. 19, 2016, publication. The improvements in the claims procedure process are generally applicable to disability benefit claims submitted on or after Jan. 1, 2018.
Plan sponsors involved in the adjudication of disability claims should review these regulations to implement the new procedures in a timely manner.
On Dec. 20, 2016, the DOL issued FAQs About Affordable Care Act Implementation Part 35. The FAQs address special enrollment periods (SEPs) under HIPAA, the coverage of preventive services as required by the PPACA and the new benefit option called “qualified small employer health reimbursement arrangements” (QSEHRAs). While the guidance really doesn’t provide any new information on these issues, they do answer employers’ frequently asked questions.
On Jan. 9, 2017, the DOL, HHS, and the Treasury (the Departments) jointly issued FAQs About Affordable Care Act Implementation Part 36. This FAQ is focused on accommodation for religious employers in providing contraceptive coverage for plan participants.
Special Enrollment Periods, Part 35, Q1
An individual who is enrolled in an individual health insurance policy through the Marketplace and loses eligibility for that policy is entitled to enroll in the group health plan through a HIPAA SEP. Please note that loss of coverage for cause or failure to pay premiums does not trigger a SEP. Those individuals would have to wait to enroll in the group health plan following another qualifying event or during the next open enrollment period. Examples of a valid loss of eligibility for coverage that would trigger special enrollment include moving out of the policy’s service area or the carrier no longer offering the policy.
Preventive Services, Part 35, Q2; Part 36, Q1
In December 2016, the Health Resources and Services Administration (HRSA) updated its guidelines for women’s preventive services. Effective for plan years starting on or after Dec. 20, 2017, non-grandfathered group health plans must provide coverage for these preventive services with no cost sharing for participants. The updated guidelines expand coverage for breast cancer screening, breastfeeding services and supplies, cervical cancer screening, contraceptive services (religious exemption applies), gestational diabetes mellitus screening and HIV screening.
Certain religious employers, such as churches and synagogues, are exempt from the PPACA’s requirement to provide coverage for contraceptive services without cost sharing for plan participants. Other employers may qualify for an accommodation if they are a non-profit organization with religious objections to providing contraceptive coverage or a closely held for-profit corporation that has religious objections. Under the accommodation, there are two options for the eligible employer. The employer may self-certify its objection to the insurer (or TPA) on EBSA Form 700 or self-certify directly to HHS with no form.
In May 2016, the U.S. Supreme Court considered the case of Zubik v. Burwell, in which eligible employers claimed the accommodation violated their rights under the Religious Freedom Restoration Act (RFRA). The Court vacated the lower courts’ decisions and remanded the challenges to the accommodation. Although the Court declined to opine on whether the accommodation violated the RFRA, the Court did encourage the parties to develop an approach that accommodates religious exercise while ensuring that women covered by employer’s health plans have their needs, including contraceptive coverage, met. In July 2016, the Departments published a request for information regarding revisions to the accommodation. The recently issued ACA FAQs Part 36 is the Departments’ response after considering the comments they received.
The Departments are not making changes to the accommodation at this time. The guidance states “…no feasible approach has been identified at this time that would resolve the concerns of the religious objectors, while still ensuring that the affected women receive full and equal health coverage, including contraceptive coverage.”
The remainder of the FAQ discusses the comments that the Departments received along with the issues that they present. The Departments also provide a detailed explanation of why they believe the existing accommodation regulations are consistent with the RFRA.
Employers eligible for the contraceptive coverage accommodation are to continue to rely upon the two existing self-certification methods.
QSEHRAs, Part 35, Q3
Q3 reiterates the provision of the QSEHRA in Section 18001 of the Cures Act, which was discussed in the Dec. 13, 2016, edition of Compliance Corner. A small employer that is not subject to the employer mandate and that does not sponsor a group health plan for any employees may implement a QSEHRA. The QSEHRA must be fully funded by the employer up to a maximum annual benefit of $4,950 for single coverage and $10,000 for family coverage. Qualified medical expenses, including the cost of individual health insurance policy premiums, are eligible for reimbursement from the QSEHRA. To maintain its tax advantaged status, any participating employee must provide proof of other MEC.
Any small employer offering a QSEHRA must provide employees with a written disclosure describing the requirement to maintain MEC coverage, the arrangement’s impact on eligibility for a premium tax credit and identifying the annual benefit.
Finally, a QSEHRA is not subject to ERISA or COBRA.
On Dec. 16, 2016, HHS released the final rules regarding benefit and payment parameters for 2018. HHS mostly finalized the rules that were proposed in September 2016 (discussed in the Sept. 7, 2016, edition of Compliance Corner). The rules primarily contain technical guidance for insurers, particularly those offering qualified health plans in the Marketplace. However, there are some rules that directly impact employers offering group health plans.
Annual Limits. The annual out-of-pocket maximums that were originally proposed have been finalized. The maximum out-of-pocket limits for 2018 will be $7,350 for single coverage (up from $6,850 in 2016) and $14,300 for family coverage (up from $13,700 in 2016). The annual limitation on cost sharing for stand-alone dental plans, which are certified by the Marketplace and offering pediatric dental essential health benefits, remains $350 for one child and $700 for two or more children.
SHOP Enrollment. For small employers who purchase coverage through the SHOP, the rules regarding enrollment of newly eligible employees will change in 2018. Currently, the enrollment period for a newly eligible employee (whose waiting period is longer than 45 days) must run until at least 15 days prior to the end of the waiting period. Under the new rules, the employer must notify the SHOP within 30 days of an employee becoming eligible. The employee then has 30 days from the notice to enroll. The coverage will be effective the first of the month following the employee’s election. Additionally, waiting periods in the SHOP cannot exceed 60 days and initial measurement periods cannot exceed 10 months.
Special Enrollment Periods (SEPs). The rules finalize and codify several events that allow for a SEP, which are already available to consumers because of prior guidance. The following circumstances will trigger a SEP in both the individual Marketplace and SHOP:
Coordination of Benefits with Medicare. Under the current rules, an individual who is enrolled in Medicare Part A or Part B may not purchase an individual policy through the Marketplace. However, the individual may renew enrollment in such a policy. The final rules will prohibit an insurer from renewing a Medicare enrolled individual in a new policy, but permit an insurer to renew such individual under existing coverage.
Guaranteed Availability of Group Policies. Under the current rules, an insurer must accept any application for coverage from an employer who has employees living, working or residing in the insurer’s service area. The proposed rules requested comments on whether an insurer could deny the application if the employer did not have a place of business or headquarters within the service area. The final rules clarify that the insurer must continue to offer guaranteed availability of coverage for employees living, working or residing within the insurer’s service area regardless of the employer’s location. The expectation of HHS is that coverage would be accomplished by sharing provider networks of affiliated insurers.
Actuarial Value. HHS finalized the 2018 actuarial value calculator. One significant change is how bronze plans are calculated. Under current rules, a plan’s actuarial value must be plus or minus 2 percent from the target tier of coverage. For example, a bronze plan must have an actuarial value of 58 to 62 percent. Under the new rules for 2018, a bronze plan may have an actuarial value of 58 to 65 percent if the plan provides coverage for at least one major service prior to the deductible. Such major services include primary care visits, specialist visits, inpatient hospital services, generic drugs, specialty drugs, preferred branded drugs or emergency room services.
Premium Rating for Children. The premium rate for children under non-grandfathered individual and small group policies is currently based on a single age band for children aged 0 to 20 years. Under the final rules, a single age band will apply for children aged 0 to 14 years and then single-year age bands will apply for children aged 15 to 20 years.
The rules are generally effective for policy years starting on or after Jan. 1, 2018.
On Dec. 29, 2016, and Jan. 4, 2017, the IRS issued a set of revised questions and answers (Q&As) providing additional guidance on employer compliance with PPACA reporting requirements under IRC Sections 6055 and 6056. Additionally, on Jan. 5, 2017, the IRS issued updated Q&As providing additional guidance on reporting using Forms 1094-C and 1095-C for calendar year 2016 that are to be filed in 2017, and on the employer mandate.
As background, Section 6055 is meant to assist the government in enforcing the individual mandate (reports on coverage at the individual level). Section 6056 is meant to assist the government in enforcing the employer mandate (reports on the employer’s coverage at the employer level) and advance premium tax credit (APTC) eligibility (reports whether a specific individual was offered minimum value, affordable employer sponsored coverage for each month, which affects that individual’s ability to qualify for an APTC).
To fulfill the Section 6056 requirement, Form 1095-C is to be used by applicable large employers (ALEs) (those employers with 50 or more full-time employees including full-time equivalent employees in the preceding calendar year). Form 1094-C is to be used for transmitting Form 1095-C. Self-insured ALEs will combine Sections 6055 and 6056 reporting on Form 1095-C.
The Section 6055 Q&As address the basics of employer reporting, including which entities are required to report, what information must be reported and how and when reporting entities must report required information. The Section 6056 Q&As cover the same topics and also address questions related to the methods of reporting. The Sections 6055 and 6056 Q&As have been revised to include changes related to the due dates for the forms, hiring of third party service providers and other relevant updates for reporting on calendar year 2016. The Section 6056 Q&As now include Q&As on reporting for governmental entities.
On Jan. 5, 2017, the IRS also issued updated Q&As providing additional guidance on reporting using Forms 1094-C and 1095-C for calendar year 2016 that are to be filed in 2017.
In discussing the basics of reporting, the IRS addresses the forms that must be used and the employees that must be reported on, as well as the information that must be provided to those employees.
In the section on reporting offers of coverage, the IRS details which lines on the forms should be used to reflect an offer of coverage in addition to giving guidance on which lines should be used to reflect employees who have been hired or terminated during the year. They also address how an employer will complete their authoritative transmittal if they are eligible for one of the alternative reporting methods.
The IRS also answers questions on how a governmental unit that has been designated to report on behalf of other governmental units will complete the Forms 1094-C and 1095-C.
The last section of Q&As confirms information on reporting offers of COBRA coverage, including specific information on various scenarios where COBRA is offered.
Importantly, each section provides helpful guidance on what reporting actions an ALE member is required to take. Remember, the definition of an ALE member in the regulations states that “if a person, together with one or more other persons, is treated as a single employer that is an ALE on any day of a calendar month, that person is an ALE member for that calendar month.”
Finally, on that same day (Jan. 5, 2017), the IRS issued the following updated Q&As on the employer mandate:
These Q&As provide general guidance about the employer shared responsibility provisions, limited transition relief in 2016, calculation of the employer mandate penalty payment and making an employer mandate penalty payment.
Since the reporting forms are due in early 2017, employers should be tracking information now and preparing to complete the forms. NFP has resources to assist. Ask your advisor for more information.
Q&As on Reporting of Offers of Coverage by Employers (Section 6056) »
Q&As on Information Reporting by Health Care Providers (Section 6055) »
Q&As on Forms 1094-C and 1095-C »
Q&As on Employer Mandate »
On Dec. 28, 2016, the IRS released IRS Health Care Tax Tip 2016-82, which provides employers and providers with valuable facts about IRS Forms 1095-B and 1095-C, which must be submitted to the IRS. Specifically, the Tax Tip identifies the purpose of the two forms, the deadline by which the forms should be filed and the deadline by which the forms should be distributed to participants.
Although this publication is not new information, it is a helpful resource and reminder of employers’ reporting responsibilities.
On Dec. 31, 2016, in Franciscan Alliance, Inc. v. Burwell, the U.S. District Court for the Northern District of Texas (the court) published an opinion preliminarily prohibiting HHS from enforcing the provisions of the regulation implementing PPACA Section 1557 concerning gender identity or termination of pregnancy. As background, PPACA Section 1557 generally prohibits HHS-funded entities from discriminating on the basis of race, color, national origin, sex, age or disability.
HHS previously published regulations that define “sex” to include “gender identity”, thereby prohibiting discrimination against transgender individuals. “Gender identity” is defined as an individual’s internal sense of gender, which may be male, female, neither or a combination of male and female, and which may be different from an individual’s assigned birth sex. In addition, the regulations also added a notice requirement (taglines and translation aids) for those individuals with limited English proficiency. The regulations were effective Jan. 1, 2017 (although the notice requirement took effect earlier). Importantly, another law (Title IX) also prohibits discrimination based on sex, and Title IX includes an exemption for religiously-affiliated entities. In issuing its Section 1557 regulations, HHS declined to incorporate any such religious exemption.
In Franciscan Alliance, the plaintiffs (eight states and three religiously-affiliated private health care provider organizations) argued that HHS overreached in its definition of “sex” in the Section 1557 regulations. Title IX, on which the Section 1557 regulations are based, defines “sex” as the immutable, biological differences between males and females as acknowledged at or before birth. The plaintiffs complained that the alleged overreach pressures providers and plans to deliver health care in a manner that violates their religious freedom (and in some cases, their independent medical judgment), and therefore HHS should not be allowed to enforce the Section 1557 regulations.
The court agreed with the plaintiffs, and in its opinion issued a nationwide preliminary injunction, finding that the gender identity and termination of pregnancy provisions of the Section 1557 regulations exceed statutory authority, contradict existing law (Title IX) and likely violate the Religious Freedom Restoration Act. Since, in the court’s view, implementation of the regulations would likely cause harm to and impose a substantial burden on the plaintiffs’ religious exercise, and since HHS had numerous less restrictive alternatives available to provide access and coverage for gender transition and abortion procedures, the injunction was necessary.
HHS subsequently reminded entities that it will continue to enforce other provisions of Section 1557, including the notice requirements (which were not part of the injunction). It’s unclear at this point whether HHS will appeal the decision or whether the incoming administration will choose to continue to defend the regulation at all.
Ultimately, with President-elect Trump taking office at the end of January 2017, and with other related cases in different levels of federal courts (which may also have an impact on gender identity and sex discrimination), the future of Section 1557 and its related regulations is unclear. We will continue to monitor developments and report in future editions of Compliance Corner.
As for a takeaway for employers, although the district court’s opinion prohibits HHS from enforcing PPACA Section 1557’s rules on gender identity and pregnancy termination, individuals may still be able to sue health plans (or physicians) for gender identity discrimination under Title IX. Thus, discrimination or disparate treatment of transgender individuals may invite litigation and is therefore not recommended. Employers that are considering employment practices or benefits on gender identity should consult with outside counsel.