On June 17, 2021, the US Supreme Court issued its opinion in the latest legal controversy surrounding the ACA. In the opinion for California v. Texas, the Supreme Court determined that the challengers to the law lacked standing to bring the case to court. Accordingly, the case concludes without discussion of the legal challenges to the ACA, and the ACA remains the law of the land.
The plaintiffs in this case, including Texas and several other states, two individuals and the Trump Administration, challenged the individual mandate requirements under the ACA (which required US citizens to obtain healthcare coverage or face a penalty). Although previous challenges to the mandate resulted in a 2012 Supreme Court decision that the mandate was the lawful exercise of Congress’ taxing power, the plaintiffs stated that Congress waived that power when it reduced the penalty to $0 in 2017. The plaintiffs argued that without Congress exercising its power to tax, the mandate is unconstitutional. They went even further to say that since the mandate is unconstitutional, the entire ACA is unconstitutional too.
The ACA’s defenders, which included California and several other states and the District of Columbia, argued that the plaintiffs could not bring the case to court because they were not harmed by the mandate, particularly once the penalty was reduced to $0. Although the district and appellate courts disagreed and kept the case alive, the defendants asked the Supreme Court to consider the matter.
We have covered this case as it has made its way through the court system. You can find articles tracing its appellate history in the February 4, 2020, January 22, 2020, January 7, 2020, and January 8, 2019, editions of Compliance Corner.
The Supreme Court agreed with the defendants. For a case to be considered by a court, the plaintiffs must show that they were harmed by the allegedly unlawful acts of another. The individual plaintiffs argued that they were harmed because the mandate required them to pay for health coverage every month (with money that they would have spent on other things). The state plaintiffs argued that the mandate forced people to enroll in state-run medical insurance programs, directly and indirectly increasing the state’s costs to run those programs. However, the Supreme Court reasoned that the federal government lacked a way to enforce the mandate if the penalty was reduced to $0, so it could not act in a way that would harm the plaintiffs. The individual plaintiffs and the state residents could simply opt not to purchase insurance and experience no repercussions. The Supreme Court also pointed out that some of the administrative expenses that the states complained of were traceable to other sections of the ACA, not the mandate at issue in the case.
Because the plaintiffs could not show that the ACA’s mandate harmed them, the court reversed the lower courts’ judgment regarding standing, vacated the judgment and remanded the case back down to the lower courts with instructions to dismiss the case.
Since the Supreme Court did not rule on any of the underlying constitutional arguments regarding the mandate and other parts of the ACA, the law remains unchanged. For employers, that means continued compliance with the various requirements imposed by the ACA, including offering affordable coverage to all full-time employees (and the related employer reporting).
On June 4, 2021, the DOL, HHS and the Treasury (the agencies) issued two FAQs concerning the maximum out-of-pocket limit for plan years beginning January 1, 2022. In previous years, the limit was adjusted annually based upon the premium adjustment percentage described under the ACA. The method used in 2020 and 2021 relied upon estimates of private health insurance premiums for the private health insurance market (excluding Medigap and the medical portion of property and casualty insurance) as a measure of premium growth. Using this method, the maximum out-of-pocket limits for plan years beginning in 2021 are $8,550 for self-only coverage and $17,100 for other than self-only coverage. These limits were covered in an article in the May 27, 2020, edition of Compliance Corner.
However, continued use of this calculation would result in more rapid increases in consumer costs than would have occurred had HHS retained the method used to calculate the premium adjustment percentage prior to the 2020 plan year. Accordingly, the agencies adopted a method that utilizes estimates of employer-sponsored insurance premiums as a measure of premium growth. By applying this method, the maximum out-of-pocket limits for plan years beginning in 2022 will be $8,700 for self-only coverage and $17,400 for other than self-only coverage.
On May 24, 2021, the IRS released the 2021 drafts of Forms 1094-C and 1095-C. Earlier in the month, the IRS released the 2021 drafts of Forms 1094-B and 1095-B. These forms are 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 2022 relating to 2021 information. All forms appear to be unchanged from their 2020 versions. (Note that 2021 draft instructions for these forms have not yet been released.)
The ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires insurers and small self-insured employers to report on Forms 1094-B and 1095-B that they provided minimum essential coverage to covered individuals during the year. Section 6056 requires applicable large employers (under the employer mandate) to report on Forms 1094-C and 1095-C that they provided affordable and minimum value coverage to full-time employees.
As a reminder, the forms must be filed with the IRS by February 28, 2022, if filing by paper, and March 31, 2022, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by January 31, 2022. The penalties for failure to file and report are $280 per failure. This means that an employer who fails both to file a completed form with the IRS and to distribute a form to an employee/individual would be at risk for a $560 penalty. Keep in mind that the IRS allows reporting entities not to distribute the Form 1095-B if certain conditions are met.
Employers should become familiar with these forms in preparation for filing information returns for the 2021 calendar year. However, these forms are only draft versions, and they should not be filed with the IRS or relied upon for filing. We will keep you updated of any developments, including release of the finalized forms and instructions.
Draft Form 1094-B »
Draft Form 1095-B »
Draft Form 1094-C »
Draft Form 1095-C »
On May 10, 2021, HHS announced that they would interpret and enforce prohibitions on discrimination based on sex under the ACA’s Section 1557 and Title IX to include 1) discrimination on the basis of sexual orientation; and 2) discrimination on the basis of gender identity. They updated their enforcement policy in light of the decision rendered in Bostock v. Clayton County in June of 2020.
In Bostock, the US Supreme Court ruled that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. The majority opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.
However, the Bostock decision came only a few days after the Trump administration’s HHS issued a final rule amending Section 1557 of the ACA to scale back explicit protections based upon gender identity introduced by the Obama administration. At the time, the Trump administration argued that Bostock did not directly address Section 1557. This created a conflict between the judicial branch and executive branch that resulted in additional uncertainty in the area of benefits law. (We addressed the Bostock decision and Trump administration’s final Section 1557 rule in an article in the June 23, 2020, edition of Compliance Corner.)
HHS’ newest notice on this subject addresses this conflict head on and indicates their belief that the Bostock case and subsequent federal circuit decisions apply to ACA Section 1557 and Title IX. As such, HHS will interpret and enforce Section 1557’s prohibition of discrimination on the basis of sex, including discrimination on the basis of sexual orientation and gender identity.
HHS also clarified that in so doing, they will comply with all legal requirements, including the Religious Freedom Restoration Act. They will also comply with any applicable court orders that have been issued in cases concerning Section 1557.
While this decision returns HHS’ policy to the one furthered by the Obama administration and presented in Bostock, we anticipate additional challenges to Section 1557. Employers seeking to discriminate in their benefit plans on the basis of sexual orientation or gender identity should consult with legal counsel about their obligations under the law, as should any plans/entities that are subject to Section 1557.
Press Release »
Notification of Interpretation and Enforcement of Section 1557 of the ACA and Title IX »
On May 5, 2021, CMS released the Final Benefit and Payment Parameters for 2022, along with an accompanying fact sheet. The regulations are intended for health insurers and the marketplace but include important information that also affects large employers and self-insured group health plans. The effective date is July 6, 2021.
For 2022, the out-of-pocket maximum applicable to insured and self-insured plans is $8,700 for self-only coverage (up from $8,550) and $17,400 for family coverage (up from $17,100). This limit is distinct from the 2022 IRS out-of-pocket maximums applicable to HSA-compatible high deductible health plans (HDHPs), which are $7,050 for self-only coverage (up from $7,000) and $14,100 for family coverage (up from $14,000).
As previously reported in the 2021 Benefit and Payment Parameters Rule, effective with the 2022 MLR reporting year, insurers are to deduct prescription drug rebates and any other price concessions received by the insurer (or any entity providing pharmacy benefit management services to the insurer) from the incurred claim amount. The 2022 final rules clarify that prescription coupons, rebates and other concessions received directly by the insured are excluded for this purpose as they did not benefit the insurer.
HHS has long had a policy that provides a special enrollment period in the health insurance marketplace for an individual who loses a COBRA premium subsidy. The final rules codify this practice, which applies not only to the current ARPA COBRA subsidies but also to an employer-provided subsidy. The individual will have a 60-day period following the end of the subsidy to enroll in individual coverage both on and off the marketplace.
Interestingly, CMS did not finalize a proposed rule that would have required all health insurance exchanges to verify at least 75% of new enrollments coming through a special enrollment period. The reasoning provided was that it was believed to be overly burdensome on consumers and the state exchanges. Similarly, CMS stated that they will not take enforcement action against state exchanges that do not perform random certification of employer-sponsored coverage for individuals applying for individual coverage and a premium tax credit. This is required by the statute and regulations, but CMS will continue the nonenforcement policy through at least 2022.
Employers may find this annual guidance helpful in designing their plan benefit offerings.
2022 Benefit and Payment Parameters Final Rule »
2022 Benefit and Payment Parameters Fact Sheet »
On February 10, 2021, the Department of Justice filed a letter with the US Supreme Court, in which the United States stated that it has reconsidered its position in the pending case challenging the ACA, Texas v. California. Under the Trump Administration, the United States joined several Republican-led states in challenging the ACA’s individual mandate as unconstitutional. In a previous case, the Supreme Court held that the individual mandate was constitutional because Congress exercised its power to tax when it imposed a penalty upon people who did not obtain health coverage and gave people a choice between paying the penalty and buying insurance. In 2017, Congress reduced the penalty to $0, and several Republican-led states argued that by doing so Congress took away the choice and left an unconstitutional requirement to purchase insurance. Although the United States initially joined the case in defense of the law, it switched positions during the case’s appeals.
In this letter, the Biden administration states that the United States no longer supports the argument against the individual mandate. Its new position is that the individual mandate is constitutional because Congress did not remove the choice to purchase insurance or not, but simply removed the negative consequence of choosing not to purchase insurance.
The case remains active. The Supreme Court heard oral arguments in November but it has yet to issue a ruling. Although the United States stated in its letter that it did not believe additional briefing was necessary, it is possible that the Court will ask for more from the United States.
We previously reported on this case in Compliance Corner, such as in the March 3, 2020, edition. We will keep an eye on further developments in the case and report them as they happen.
On February 2, 2021, the IRS announced that it added two more codes that can be used when reporting offers of ICHRAs for 2020. These codes are:
These codes were previously reserved from Code Series 1 on Form 1095-C, line 14.
To determine affordability, the employee’s cost for the lowest cost self-only silver coverage in the rating area in which they live minus the employer’s ICHRA contribution must be no greater than 9.78% (for 2020, 9.83% in 2021) of the employee’s earnings. CMS maintains a list of lowest cost, self-only silver coverage plans, here.
If the state of residence or employment has its own exchange, then that exchange will have tools to help determine the affordability calculation.
Employers who must report on their ICHRA offers for ACA compliance purposes should be aware of this development.
On January 28, 2021, the president signed an executive order instructing federal agencies to examine their regulations in order to find ways to strengthen the ACA. In addition, this order will create a special enrollment period (SEP) in the federal health insurance marketplace, from February 15, 2021, to May 15, 2021.
The order directs agencies to review:
The order also revokes Executive Order 13765, which announced the Trump Administration’s intent to repeal the ACA. That order was discussed in the January 24, 2017, edition of Compliance Corner. The order also revoked Executive Order 13813, which encouraged agencies to expand access to AHPs and allow coverage sales across state lines. That order was discussed in the October 17, 2017, edition of Compliance Corner. Finally, the order requires agencies to review any policies and regulations issued as a result of those two orders and consider repealing, revising or rescinding them.
While the creation of the SEP will affect individuals that will enroll on the marketplace, employers should be mindful of this extension in case there are employees who seek to drop coverage under their plans to take advantage of the SEP. Specifically, the permissible qualifying event for a revocation due to enrollment in a qualified plan will allow an employee to drop their employer’s plan mid-year if they intend to enroll in the marketplace.
Since this order includes directives to agencies to act, details regarding implementation have not yet been worked out. We will keep an eye on developments and report them as they occur.
On January 10, 2021, the Department of the Treasury released final regulations related to Individual Coverage HRAs (ICHRAs) and the application of the employer mandate and nondiscrimination. The final regulations contain only minor changes from the proposed rules and guidance.
Under the rules, an employer of any size may use an ICHRA to pay for or reimburse the cost of employees' individual health policies. The employer cannot offer any group health plan to the same classification of employees being offered the ICHRA, although an employer could also offer a dental only or vision only plan to those employees. The same terms and reimbursements must apply within the same classification, though the employer may increase the maximum reimbursement based on family size and age.
The ICHRA is subject to COBRA and ERISA, which means it is subject to the SPD, Form 5500, and fiduciary requirements. The individual policies themselves are not subject to ERISA. Expenses must be substantiated before reimbursement.
A notice relating to the ICHRA must be provided to eligible employees at least 90 days before the beginning of each plan year or no later than the date an employee is first eligible to participate in the ICHRA. The notice must include specific and detailed information. A model notice is available on the DOL site.
An ALE may use an ICHRA to satisfy its obligations under the employer mandate. The minimum value standard can be met through the substantiation of qualifying individual coverage. The cost of individual coverage must be affordable to the employee. In order to be affordable, the employee’s cost for the lowest cost self-only silver coverage in the rating area in which they live minus the employer’s ICHRA contribution must be no greater 9.83% (for 2021) of the employee’s earnings. There are two safe harbors relevant to this calculation.
Employers who have already adopted ICHRAs may want to review the preamble of the regulations as it has detailed information about administration. Employers interested in learning more about ICHRAs should contact their consultant.
On December 31, 2020, the DOL updated its FAQs for the FFCRA by adding FAQ numbers 104 and 105. These new FAQs concern issues relating to the fact that employers are no longer required to provide EPSL and EFMLA after December 31, 2020.
FAQ 104 asks whether an employee, who was eligible to take leave under the FFCRA but did not take any of that leave in 2020, was entitled to that leave after December 31. The DOL states that employers no longer must provide such leave; however, they can voluntarily provide the leave. Although recent legislation did not extend the time that covered employers must provide the leave, it did allow employers who opt to voluntarily provide that leave to obtain tax credits for granting the leave until March 31, 2021.
FAQ 105 asks whether a covered employer must pay an employee for any outstanding leave granted under EFMLA, to which she was entitled, once the leave provisions under FFCRA expired. The employee in question used six weeks of FFCRA leave before the end of the year, but her employer has not paid her for the last two weeks of that leave. The DOL stated that there is a statute of limitations for violations of the FFCRA that runs from two years from the date of the alleged violation (it is three years for willful violations). The agency will investigate and enforce complaints related to the FFCRA made within this time. So, employers are still obliged to pay outstanding wages owed under that law (and under the example above, the employee would be entitled to the last two weeks of pay).
Employers should be aware of these new FAQs, now that the obligation to provide leave under the FFCRA has expired.
On December 1, 2020, the IRS released final regulations clarifying that when Congress zeroed out the personal exemption deduction (provided for meeting the individual mandate) for taxable years beginning after December 31, 2017, and before January 1, 2026, it did not prevent individuals from claiming the premium tax credit when enrolling in a health plan on the Marketplace.
The premium tax credit is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance bought through the Health Insurance Marketplace. Among other requirements, a person can obtain the credit by establishing a household income for the taxable year that is at least 100% but not more than 400% of the federal poverty line for the taxpayer’s family size for the taxable year. The individual’s family size is determined by the number of personal deductions that the person makes on their individual tax returns.
Although the Tax Cuts and Jobs Act of 2017 (TCJA) ended the personal exemption for the years 2018 – 2025 by effectively making it zero, the TCJA also made clear that this should not be considered when determining whether an individual qualified for the deduction in other parts of the IRS Code. The new regulations make clear that an individual’s family, for purposes of obtaining the credit, include the person’s spouse and any other individual from whom the applicant can claim a personal exemption deduction, regardless of whether the applicant could claim that deduction under the TCJA. Similarly, a person who would be the subject of another person’s claim for a personal exemption cannot obtain the premium tax credit.
The new regulations also govern how to distribute advance payments of the premium tax credit in light of this clarification, as well as income tax return filing requirements related to the premium tax credit.
Employers should be aware of this development and how it may affect employees’ ability to obtain and use the premium tax credit.
On December 11, 2020, the DOL, HHS and IRS issued final rules that amend certain requirements for grandfathered group health plans to maintain their grandfather status. The rules provide such plans with greater flexibility to make changes in response to increases in health coverage costs.
As background, the ACA allows certain group health plans that existed as of the law’s enactment on March 23, 2010, to be treated as grandfathered health plans. This treatment exempts the plans from some ACA mandates. To preserve grandfather status, these plans are restricted in their ability to make plan design changes or increase cost sharing. The 2015 grandfathered plan rules outline these limitations.
The final rules follow July 15, 2020, proposed rules, which have been adopted without substantial change. The 2015 existing regulations are modified in two respects.
First, the rules provide an alternative method of measuring permitted increases in fixed amount cost sharing. Under the existing regulations, increases for fixed amount cost sharing other than copayments (e.g., deductibles and out-of-pocket maximums) cannot exceed thresholds based upon the Consumer Price Index measure of medical inflation. Specifically, the 2015 rules define the maximum increase as medical inflation (from March 23, 2010) plus 15 percentage points. However, this component of the CPI index includes price changes for Medicare and self-pay patients, which are not reflected in grandfathered group health plan costs.
The alternative standard relies upon the premium adjustment percentage, rather than medical inflation. The premium adjustment percentage is published by HHS in the annual notice of benefit and payment parameters and reflects the cumulative historic growth in private health insurance premiums from 2013 through the preceding calendar year. As a result, this measure may better reflect increases in underlying costs for grandfathered group health plans.
This new measurement method does not replace the current standard. Rather, an employer can use the method that yields the greater result. Therefore, grandfathered plans are allowed to increase these out-of-pocket costs at a rate that is the greater of the medical inflation adjustment percentage or premium adjustment percentage, plus 15 percentage points.
Second, the final rules permit a grandfathered group HDHP to increase fixed-amount cost-sharing requirements, such as deductibles, to the extent necessary to maintain HDHP status without losing grandfather status. This change was designed to ensure that participants enrolled in such coverage remain eligible to contribute to an HSA.
Employers who sponsor grandfathered plans should be aware of these final rules, which will be applicable beginning on June 15, 2021.
Grandfathered Group Health Plans »
Grandfathered Group Health Insurance Coverage »
On November 24, 2020, the IRS released Notice 2020-84, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after October 1, 2020, and before October 1, 2021, is $2.66. This is a $0.12 increase from the $2.54 amount in effect for plan and policy years ending on or after October 1, 2019, but before October 1, 2020.
As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee does not apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is 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 has not yet been updated to reflect the increased fee).
It is expected that the form and instructions will be updated prior to July 31, 2021, since that is the first deadline to pay the increased fee amount for plan years ending between October and December 2020. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.
The PCOR fee requirement has been extended and is in place through the plan years ending after September 30, 2029.
The IRS recently released a revised version of Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters, for tax year 2020 (processing year 2021). This publication outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the ACA Information Return System (AIR). The updated version of this publication contains no major changes. The AIR system itself is quite technical; for example, the forms must be filed using the Extensible Markup Language (XML) schemas outlined in the publication.
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. Because of the complexity, most employers partner with a payroll or software vendor to assist them with the electronic filing. Those employers still have a responsibility to review the forms for accuracy before submission to the IRS and distribute the forms to employees. Employers filing fewer than 250 forms may file with the IRS by paper.
As a reminder, the IRS previously announced a slight adjustment to the 2020 filing due dates (due in early 2021). Based on that announcement, Forms 1095-B and 1095-C would need to be distributed to employees by March 2, 2021 (instead of January 31, 2021), and those forms along with the Forms 1094-B and 1094-C would need to be filed with the IRS by March 31, 2021, if filing electronically and by March 1, 2021 (since the February 28, 2021, due date falls on a Sunday), if filing by paper.
The IRS recently published the final versions of the 2020 reporting Forms 1094-B and 1095-B, 2020 reporting Forms 1094-C and 1095-C, and instructions for those forms. Forms 1094-B and 1095-B are used by insurers and small self-insured employers to report that they offered MEC. Forms 1094-C and 1095-Cs are used by ALEs to report that they offered minimum value, affordable coverage to their full-time employees. These forms are filed with the IRS, and copies of Forms 1095-B and 1095-C are also distributed to individuals.
This year’s forms feature a few new changes. The Plan Start Month section of Form 1095-C must now be completed. In addition, the penalty for the failure to file a correct information return increased to $280 per return (up from $270 for each incorrect return), and the penalty cap is raised to a total of $3.392 million for a calendar year, up from a cap of $3.339 million in 2019. Finally, the updated draft 1095-C form shows that the affordability safe harbor percentage threshold is 9.78% in 2020, down from the 9.86% threshold in 2019.
The 2020 forms and instructions also require employers to include information concerning Individual Coverage Health Reimbursement Arrangements (ICHRAs), if applicable. The instructions for Form 1094-C state that offers of ICHRA coverage count as offers of minimum essential coverage and both Forms 1095-B and 1095-C have new codes for information concerning ICHRAs offered to employees. Line 8 of Form 1095-B has a new Code G, which identifies ICHRAs as the type of employer-sponsored coverage. Form 1095-C’s Line 14 now has codes to identify the full-time or part-time status of the employee offered an ICHRA, whether the ICHRA was offered to a full-time employee’s spouse or dependents, whether the ICHRA is affordable, and whether the affordability was based upon where the full-time employee lives or works (the ZIP code of the full-time employee’s residence or place of work can be entered on Line 17, if the employee was offered an ICHRA). The employee’s contribution is recorded on Line 15.
As a reminder, the date by which employers must distribute Forms 1095-B or 1095-C to individuals has been extended. 2020 forms must now be distributed to individuals by March 2, 2021 (instead of January 31, 2021). Even though this extension is provided, employers are encouraged to furnish the 2020 statements as soon as they are able. Further, as in prior years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. That said, reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by March 1, 2021 (as February 28, 2021, falls on a Sunday) if filing by paper, and March 31, 2021, if filing electronically. As noted above, the penalty for failure to comply is $280 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to an employee/individual would be at risk for a $560 penalty.
Form 1094-B »
Form 1095-B »
Form 1094-C »
Form 1095-C »
Instructions for Forms 1094-B and 1095-B »
Instructions for Forms 1094-C and 1095-C »
On October 2, 2020, the IRS released Notice 2020-76, extending the deadlines for distributing ACA reporting forms to individuals.
As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities that provide minimum essential coverage to report to the IRS and to covered individuals the months in which the individuals were covered. Section 6056 requires applicable large employers (under the employer mandate) to report to the IRS and full-time employees whether they offered minimum essential coverage that was affordable and minimum value.
This relief is consistent with that offered in previous years. As the IRS has done for the previous reporting years, the date by which employers must distribute Forms 1095-B or 1095-C to individuals has been extended. 2020 forms must now be distributed to individuals by March 2, 2021 (instead of January 31, 2021). Even though this extension is provided, employers are encouraged to furnish the 2020 statements as soon as they are able. Further, as in prior years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. That said, reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by March 1, 2021 (as February 28, 2021, falls on a Sunday) if filing by paper, and March 31, 2021, if filing electronically.
Despite this relief, the IRS may still seek penalties on employers who fail to comply with the deadlines. The IRS also indicates that employers can no longer request an automatic extension of the due date by which they must distribute the forms to individuals, as the extension they have provided is just as generous. In fact, the IRS will not respond to any such request for an extension. Employers may still request an automatic extension to file the Forms 1094-B/C and 1095-B/C with the IRS, as long as they submit a Form 8809 on or before the due date of those filings.
The IRS also continues to recognize good faith efforts made by employers that file the 2020 forms. Specifically, employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C will not be subject to penalties if the information is incorrect or incomplete. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the ACA Information Return Program electronic submission process.
Since the intention of this good faith relief was to be transitional relief, the IRS states that this is the last year they intend to provide such relief. Note that this relief does not apply to a failure to timely furnish or file a statement or return, and it does not extend to employer mandate penalties (for large employers that did not offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).
Notably, similar to last year, this notice also provides penalty relief for employers which will allow them to forego distributing the Form 1095-B to individuals. As a reminder, this resulted from the IRS accepting comments on the necessity of the Form 1095-B now that the individual mandate penalty has been zeroed out. So, as long as employers post a notice on their website that the document is available upon request, and then fulfill any such request within 30 days, they can choose not to distribute the Forms 1095-B to covered individuals.
However, employers should note that the penalty relief pertaining to the Form 1095-B is not available for Form 1095-C, but can be applied to employees who are not full-time and only receive a Form 1095-C to meet the Form 1095-B reporting requirement. In other words, those employees who are only receiving a Form 1095-C because the employer uses Part III to comply with Section 6055 no longer have to be provided a Form 1095-C. (Self-insured applicable large employers must still provide and file Form 1095-C to full-time employees and complete Part III of the Form, indicating the covered spouses and dependents of the full-time employees.)
Although the IRS provided similar relief in the past, the agency explains that unless they receive comments to explain why relief related to furnishing statements under Sections 6055 and 6056 continues to be necessary, no relief will be granted in future years. Comments must be submitted by February 1, 2021 (Notice 2020-76 provides instructions on how to do so).
Employers should keep this guidance in mind as they are preparing their ACA filings and distributions for 2020.
The IRS recently released an updated version of Publication 5164, entitled “Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR),” for tax year 2020 (processing year 2021). The publication describes the testing procedures that must be completed by those filing electronic ACA 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 procedures apply 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’s filing on behalf of the employer, then the testing and this publication would not be utilized by the employer, but the software vendor instead.
The IRS provides scenarios for each form type (see pages 12-13) for reporting year 2020. Each scenario contains all the information needed to prepare the XML. The scenarios test the functionality of the business rules and each test submission must match the scenarios exactly to pass tests. Correction scenarios are also provided (see pages 15-16), but those are not required in order to pass testing.
As a reminder, electronic filing of 2020 returns will be due March 31, 2021. Employers that are filing on their own will need to review the updated testing requirements in Publication 5164. Large employers that are required to file electronically, and would like information on third-party vendors who can assist, can contact their advisor for more information.
On September 2, 2020, the US District Court for the District of Columbia issued an injunction against HHS, stopping the agency from enforcing its amendments to its rule implementing Section 1557 of the ACA. The specific amendments subject to the injunction are those that scale back the rule’s prohibition against discriminating on the basis of gender identity or sexual orientation, as well as the insertion of a religious exemption allowing religious organizations to opt out of following the rule when doing so would be inconsistent with their religious beliefs. This is the second federal district court to block these new amendments.
The amendments to the rule implementing Section 1557 were discussed in the June 23, 2020, edition of Compliance Corner.
In this case, Whitman-Walker Clinic v. HHS, a group of organizations that provide healthcare and other services to the LGBTQ community filed suit against HHS within days of the publication of its final rule. The plaintiffs alleged that the agency acted in an arbitrary and capricious way when implementing the amendments to the rule, and that these amendments conflict with Section 1554 of the ACA by creating unreasonable barriers and impeding access to healthcare services to members of the LGBTQ. The plaintiffs also alleged that the final rule violates the First Amendment’s right to free speech, the Fifth Amendment’s guarantees of equal protection and substantive due process, and the Establishment Clause. As a preliminary matter, the plaintiffs asked the court to enjoin the agency from enforcing its final rule while litigation proceeded.
The court considered whether the plaintiffs would likely succeed on the merits of their case. The court concluded that they were likely to both succeed on the merits and suffer irreparable harm on the allegations that HHS acted arbitrarily and capriciously when it stripped out language regarding sexual orientation and gender identity from the definition of “discrimination of the basis of sex.” Although the court did not agree that “gender identity” was included in the original regulation, it did agree that discrimination based upon “sex stereotyping” was prohibited. The court additionally found that the agency improperly incorporated the religious exemption established in Title IX of the Civil Rights Act of 1964 into the final rule. Accordingly, the court issued its injunction. The injunction is effective nationwide.
This ruling is part of ongoing litigation and could be appealed, so the ultimate disposition of the final rule is unknown. It should be noted that this is the second federal district court to enjoin this rule. The first case, Walker v. Azar, was discussed in the August 18, 2020, edition of Compliance Corner. Employers that would operate their plans in a manner consistent with the final rules should consult with legal counsel about the implications of this decision. We will keep an eye on developments in this area to see how they may affect the benefits employers provide to their employees.
On September 24, 2020, President Trump issued the Executive Order on An America-First Healthcare Plan, providing a summary of efforts made regarding the efficiency and quality of healthcare in the US, and directives aimed at lowering healthcare costs for Americans.
In an effort to lower healthcare costs, the order directs HHS to:
In addition, HHS is directed to continue to maintain and improve upon existing processes to reduce waste, fraud and abuse in the healthcare system and to advance the quality of delivery of care for veterans, while continuing to promote medical innovations of conditions impacting Americans (such as COVID-19 and Alzheimer’s disease, among others).
Further, in response to the order, HHS issued a final rule from the Food and Drug Administration and related guidance, among other items, as noted in its September 24, 2020, press release. The final rule permits importation of certain drugs from Canada in an effort to lower patient drug costs and explains the process for states who wish to do so.
While the order does not directly impact group health plans, employers should be aware of these developments.
Executive Order on An America-First Healthcare Plan »
FDA Final Rule on Importation of Prescription Drugs »
FDA Guidance on Importation of Prescription Drugs »
HHS September 24, 2020 Press Release »
On August 19, 2020, the IRS updated its guidance on the employer mandate (also known as employer shared responsibility).
The Q&A updates reflect index adjustments to penalties and the affordability percentage for calendar year 2021. The employer shared responsibility payment, which is the penalty an applicable large employer must pay if it does not offer minimum essential coverage to at least 95% of its full-time employees, is now the product of $2,700 (which is up from $2,570 in 2020) multiplied by the number of full-time employees employed for the calendar year. The penalty for failing to offer affordable coverage or coverage that does not provide minimum value, which is computed separately for each month, is the product of $4,060 (up from $3,860 in 2020) multiplied by the number of full-time employees who received premium tax credits in that month. The update also confirms that the percentage used to determine whether coverage is affordable (the affordability threshold) for plan years beginning in 2021 is now 9.83% (up from 9.78% for plan years beginning in 2020).
As a reminder, the draft 2020 versions of the ACA employer shared responsibility reporting forms were discussed in the July 21, 2020, edition of Compliance Corner.
Employers should be aware of these updates when determining premiums for 2021 and preparing their employer shared responsibility reporting forms for the calendar year 2021.
On August 17, 2020, in Walker v. Azar, the US District Court for the Eastern District of New York blocked the Trump administration’s final rule concerning Section 1557 of the ACA. As reported in the June 23, 2020, edition of Compliance Corner, HHS issued a final rule that amended the agency’s prior regulation concerning Section 1557 of the ACA. This rule scaled back explicit protections based upon gender identity introduced by the previous administration, relying instead on broader protections against discrimination on the basis of sex provided for in the ACA. The final rule was to take effect on August 18, 2020.
This federal district case was initiated by two transgender women seeking medical care for ongoing health conditions. Both claim that they experience discrimination in their efforts to obtain that care and they asked the district court to vacate the final rule because it is contrary to a recent Supreme Court ruling that held that discrimination based upon gender identity is prohibited by Title VII of the Civil Rights Act of 1964. As a preliminary matter, the plaintiffs asked that the Trump administration be enjoined from enforcing the final rule, pending the resolution of the litigation.
In this case, the district judge agreed that the final rule was contrary to the Supreme Court ruling in Bostock v. Clayton Cty., Ga. As was also previously reported in the June 23 edition of Compliance Corner, the Supreme Court ruled that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. That opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.
The federal district court noted that HHS adopted a position in its final rule regarding what constituted discrimination based upon sex that was soon to be rejected by the Supreme Court. HHS was aware that the Supreme Court case was coming when it issued its final rule, and did not attempt to change or pull down its final rule after the Supreme Court issued its ruling. So it appeared to the district court that the agency was taking a position that was rejected by the Supreme Court and was, therefore, contrary to law. In addition, by failing to take action that harmonized with the Supreme Court’s ruling, the agency was deemed to be acting in an arbitrary and capricious manner. As a result of these determinations, the federal district court stayed the implementation of the final rule until further order from the court.
This ruling is part of ongoing litigation and could be appealed, so the ultimate disposition of the final rule is unknown. Employers that would operate their plans in a manner consistent with the final rules should consult with legal counsel about the implications of this decision. We will keep an eye on developments in this area to see how they may affect the benefits employers provide to their employees.
On July 21, 2020, the IRS published Rev. Proc. 2020-36, which provides the 2021 premium tax credit (PTC) table and the employer contribution percentage requirements applicable for plan years beginning after December 31, 2020.
As background, the ACA's employer-shared responsibility rules (also known as the "employer mandate") require an employer to provide affordable, minimum value coverage to its full-time employees. The IRS' required contribution percentage is used to determine whether an employer-sponsored health plan offers an individual "affordable" coverage, and the affordability percentage is adjusted for inflation each year. In addition, the ACA also provides a refundable PTC, based on household income, to help individuals and families afford health insurance through affordable insurance exchanges. The IRS provides the PTC percentage table for individuals to calculate their PTC.
For 2021, the ACA's affordability percentage will increase to 9.83% (up from 9.78% in 2020). For the employer mandate and affordability, this means that an employee's required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.83% of the federal poverty line or of an employee's W2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon).
The 2021 PTC table used to determine an individual's eligibility for PTCs is provided below:
|
Household Income Percentage of Federal Poverty Line |
Initial Percentage |
Final Percentage |
|
Less than 133% |
2.07% |
2.07% |
|
At least 133%, but less than 150% |
3.10% |
4.14% |
|
At least 150%, but less than 200% |
4.14% |
6.52% |
|
At least 200%, but less than 250% |
6.52% |
8.33% |
|
At least 250%, but less than 300% |
8.33% |
9.83% |
|
At least 300%, but not more than 400% |
9.83% |
9.83% |
The revenue procedure is effective for plan years beginning on and after December 31, 2020.
Employers should be mindful of the upcoming 2021 affordability percentages and make sure that the premium offerings for 2021 continue to be affordable for full-time employees, so as to avoid any employer-shared responsibility penalties. The penalties related to employer shared responsibility remain the law (despite the fact that the ACA's individual mandate was repealed in 2019).
The IRS recently released draft versions of the 2020 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 2021 relating to 2020 information. (Note that 2020 draft instructions for these forms have not yet been released.)
As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires insurers and small self-insured employers to report on Forms 1094-B and 1095-B that they provided minimum essential coverage to covered individuals during the year. Section 6056 requires applicable large employers (under the employer mandate) to report on Forms 1094-C and 1095-C that they provided affordable and minimum value coverage to full-time employees.
On July 13, 2020, the IRS released the 2020 draft of Forms 1094-C and 1095-C. Earlier in the month, the IRS released the 2020 draft of Forms 1094-B and 1095-B. While the Forms 1094-B and 1094-C are basically unchanged from their 2019 versions, there are notable changes to Forms 1095-B and 1095-C. Highlights of the changes are as follows:
As a reminder, the forms must be filed with the IRS by March 1, 2021 (as February 28, 2020, falls on a Sunday), if filing by paper and March 31, 2021, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by February 1, 2021 (as January 31, 2021, falls on a Sunday). The penalties for failure to file and report are $270 per failure. This means that an employer who fails both to file a completed form with the IRS and to distribute a form to an employee/individual would be at risk for a $540 penalty. Keep in mind, though, that the IRS has provided relief that would allow reporting entities not to distribute the Form 1095-B if certain conditions are met.
Employers should become familiar with these forms in preparation for filing information returns for the 2020 calendar year. However, these forms are only draft versions, and they should not be filed with the IRS or relied upon for filing. We will keep you updated of any developments, including release of the finalized forms and instructions.
Draft Form 1094-B »
Draft Form 1095-B »
Draft Form 1094-C »
Draft Form 1095-C »
On July 10, 2020, the DOL, HHS and IRS released a proposed rule to amend certain requirements for grandfathered group health plans seeking to maintain their grandfathered status. The proposal is designed to provide such plans greater flexibility to make changes with respect to fixed-amount cost-sharing increases, including those necessary to maintain HDHP status.
As background, the ACA permits certain group health plans that existed as of the law’s enactment on March 23, 2010, to be treated as grandfathered health plans. By such treatment, the plans are exempt from some of the ACA’s mandates. However, to preserve such status, these plans are limited in their ability to alter the plan design or increase cost sharing.
The proposal follows a public request for information by the agencies on February 25, 2019. This request was designed to gather feedback as to whether the existing 2015 grandfathered plan rules could be modified to better assist plan sponsors responding to rising healthcare costs, while maintaining affordability for employees.
Under the current regulations, increases for fixed-amount cost sharing other than copayments (e.g., deductibles and out-of-pocket maximums) cannot exceed thresholds determined by the Consumer Price Index (CPI) measure of medical inflation. However, this component of the CPI index includes not only prices for private insurance, but also self-pay patients and Medicare, which would not be reflected in group health plan costs.
Accordingly, the proposed rule provides the alternative method of measuring permitted increases in such fixed-amount cost sharing by using the premium adjustment percentage published each year by HHS in the annual notice of benefit and payment parameters. The premium adjustment percentage reflects the cumulative historic growth from 2013 through the preceding calendar year in premiums for private health insurance. Therefore, this measure is viewed as more accurately reflecting the cost increases for grandfathered group health plans than the CPI measure.
The proposal does not eliminate use of the CPI index, but rather allows an employer to use the method that yields the greater result. Therefore, the increases to non-copay fixed-amount cost-sharing for grandfathered group health plans could not exceed the greater of the CPI measure of medical inflation percentage or the applicable premium adjustment percentage, plus 15 percentage points.
In addition, the proposal clarifies that a grandfathered group HDHP may increase fixed-amount cost-sharing requirements, such as deductibles, to the extent necessary to maintain their HDHP status without losing grandfathered status. This change was initiated to ensure that participants enrolled in that coverage remain eligible to contribute to an HSA.
Employers who sponsor grandfathered plans should be aware of these developments. The agencies are accepting public comments on the proposal through August 14, 2020. The proposed changes would become effective 30 days following the publication of a final rule and would not have retroactive effect.
Grandfathered Group Health Plans and Health Insurance Coverage Proposed Rule »
Agency FAQs »
On July 8, 2020, the U.S. Supreme Court issued a 7-2 decision in Little Sisters of the Poor Saints Peter and Paul Home v. Pennsylvania that upheld the current administration’s religious and moral exemptions from the employer mandate to provide birth control to employees.
This decision is the result of long-running litigation that began when the previous administration promulgated rules that clarified the ACA’s requirement that employers provide group health plans to their employees that includes preventive care and screening services to women without cost sharing. The previous administration defined “preventive care” to include birth control. In doing so, the previous administration created an exemption for religious institutions and gave nonprofits affiliated with those institutions an exemption if those nonprofits self-certified that offering birth control coverage in their health plans would violate sincerely held religious beliefs.
Employers with religious objections to birth control took the previous administration to court, asserting that the requirement would keep them from exercising their religious beliefs in violation of the Religious Freedom Restoration Act. The current administration later issued interim rules that expanded the exemption to any employer, including publicly traded employers, which objected on religious grounds. Employers that are not publicly traded can also object for broader moral reasons.
Two states, Pennsylvania and New Jersey, filed suit against the federal government, alleging that the federal government did not follow administrative procedure in promulgating the interim rules that expanded the exemptions and lacked the statutory authority to do so. The federal district court agreed with the states and issued a national preliminary injunction preventing the exemptions from going into effect pending the resolution of the litigation. The U.S. Court of Appeals for the Third Circuit affirmed that judgment and the injunction.
However, the Supreme Court disagreed and ruled that the ACA gave the federal government wide latitude to grant the exemptions, in that the law does not expressly require that contraceptives be covered by an employer’s group health plan. The Court also concluded that the current administration substantially followed administrative procedure when promulgating the interim rules and that any errors made during that process did not substantially harm the states. Accordingly, the Court reversed the Third Circuit’s judgment and remanded the case back to the district court for further proceedings.
Note that the exemptions at issue in this case were created in interim rules promulgated by the federal government. These exemptions can also be found in the final rule promulgated by the federal Health and Human Services Department, which we covered in the June 23, 2020, edition of Compliance Corner.
Employers intending to avail themselves of a religious or moral exemption from offering contraceptives should consult with their legal counsel about the implications of this Supreme Court decision.
Little Sisters of the Poor Saints Peter and Paul Home v. Pennsylvania »
Over the course of a few days in June, the executive branch and the judicial branch asserted two potentially conflicting positions regarding discrimination against persons on the basis of sexual orientation or gender identity.
On June 12, 2020, the HHS Office for Civil Rights (OCR), issued a final rule that amended the agency’s prior regulation concerning Section 1557 of the ACA. This rule scaled back explicit protections based upon gender identity introduced by the previous administration, relying instead on broader protections against discrimination on the basis of sex provided for in the ACA.
Section 1557 prohibits healthcare providers, health plans and insurers from discriminating on the basis of race, color, national origin, sex, age and disability. OCR’s prior regulation, referred to as the “2016 Rule,” expanded the scope of these prohibitions by including discrimination based upon gender identity, as well as requiring health plans and insurers to cover gender reassignment surgery. The 2016 Rule also required entities covered by the rule to distribute nondiscrimination notices with foreign language taglines, and required them to have compliance coordinators and written grievance procedures to handle complaints concerning possible violations of Section 1557.
Stating that the 2016 Rule exceeded the scope of the authority granted under Section 1557, the OCR’s new final rule eliminates those requirements. The new final rule also removed the definition section, which included broad definitions of gender identity, and narrows the application of the regulations to just HHS programs administered under Title I of the ACA (which does not include Marketplace plans). Specific protections from discrimination based upon sexual orientation and pregnancy termination were also removed.
Although several commenters wanted the agency to wait until the U.S. Supreme Court issued an anticipated ruling regarding gender identity and sexual orientation protections under Title VII of the Civil Rights Act of 1964 before committing to these changes, the agency opted not to wait. The agency’s position was that, even assuming that the Court ruled that Title VII protections extended that far, gender identity and sexual orientation create special issues in the healthcare context that the Court would not address. Accordingly, the agency asserted that the changes to the final rule addressed those issues directly and the agency did not need to wait for the Court.
However, on June 15, 2020, the U.S. Supreme Court ruled in Bostock v. Clayton Cty., Ga that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. The majority opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The Court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.
Although this ruling is primarily focused on employment law issues, it signals a potential conflict between the judicial branch and the executive branch of the federal government over how best to deal with this type of discrimination in other areas, such as benefits. While the administration’s new final rule concerning Section 1557 purports to rely upon the broad protections provided under the ACA, the fact that specific protections for gender identity were removed indicates a narrower approach to these issues than that espoused by the Court. Accordingly, challenges to this new rule may create additional uncertainty in this area of benefits law.
We will keep an eye on developments in this area to see how they may affect the benefits employers provide to their employees.
On June 8, 2020, the IRS released Notice 2020-44, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after October 1, 2019, and before October 1, 2020, is $2.54. This is a $.09 increase from the $2.45 amount in effect for plan and policy years ending on or after October 1, 2018, but before October 1, 2019.
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, however, is 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 and instructions will be updated prior to July 31, 2020, since that’s the first deadline to pay the increased fee amount for plan years ending between October and December 2019. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.
The PCOR fee requirement is in place until the plan years ending after September 30, 2029.
On May 14, 2020, CMS released the Final Benefit and Payment Parameters for 2021, along with an accompanying fact sheet. The regulations are primarily directed at health insurers and the marketplace, but include important information that also affects large employers and self-insured group health plans. The effective date is July 13, 2020.
As background, these annual parameters specify the uniform standards for health plans subject to the ACA. Related regulatory and reporting issues are also prescribed. Accordingly, the guidance can serve as a useful planning tool for insurers and employers.
Overall, the 2021 regulations minimize regulatory changes in an effort to promote a more stable and predictable regulatory market. The guidance provides the updated plan cost-sharing limits and addresses the application of prescription drug coupons towards such limits. There are new annual reporting requirements with respect to state mandates for benchmark plans. Other highlights include amendments to the medical loss ratio (MLR) calculation and new notice obligations for non-federal government sponsors of excepted benefit health reimbursement arrangements (EBHRAs).
For 2021, the out-of-pocket maximum applicable to insured and self-funded plans is $8,550 for self-only coverage and $17,100 for family coverage. This limit is distinct from the 2021 IRS out-of-pocket maximum applicable to HSA-compatible high deductible health plans (HDHPs), which is $7,000 for self-only coverage and $14,000 for family coverage.
The guidance also clarifies that, to the extent consistent with state law, plans will be permitted, but not required, to count drug manufacturer coupons or discounts towards enrollees’ annual out-of-pocket limits. (The prior 2020 rule permitted the exclusion of coupons towards the cost-sharing limits only if the drug has a generic equivalent available.) However, the 2021 parameters do not address concerns regarding the applicability of drug coupons to an HSA-compatible HDHP. Accordingly, absent new guidance, these plans should continue to disregard the discounts in determining whether the HDHP statutory deductible has been satisfied.
The ACA requires non-grandfathered health plans in the individual and small group health plans to cover 10 essential health benefits (EHBs). States may require benefits in addition to the EHBs that are incorporated in the state benchmark plans. Beginning in 2021, states will be required to annually notify HHS of any such additional state-required benefits in a form and manner specified by HHS. The change is intended to ensure states are defraying the costs of additional required benefits for those advanced premium tax credits.
In an effort to lower premium amounts, the guidance amends the MLR regulations to require issuers to deduct prescription drug rebates and any other price discounts received by the issuer (or any entity providing pharmacy benefit management services to the issuer) from the incurred claim amount. This change is effective for the 2022 MLR reporting year. Additionally, issuers must report expenses for outsourced services in the same manner as expenses for non-outsourced services, to ensure that the full benefit of prescription drug rebates is reflected in premiums and not offset by outsourcing expenses.
For the benefit of employees, non-federal governmental plan sponsors that offer EBHRAs will now be required to provide a notice that includes the eligibility requirements, annual or lifetime benefit limits, and a summary of benefits generally consistent with ERISA requirements. The notice requirement was designed to ensure that employees received clear information about their excepted benefit offer regardless of whether the arrangement was subject to ERISA.
Employers may find this annual guidance helpful in designing their plan benefit offerings.
HHS Benefit and Payment Parameters Final Rule »
Final Benefit and Payment Parameters Fact Sheet »
On March 12, 2020, CMS provided a set of FAQs that discusses the designation of COVID-19 treatment as an essential health benefit (EHB). As background, under the ACA, plans may not impose annual or lifetime limits on essential health benefits.
The FAQs address three questions:
Employers should consider this guidance as they provide coverage to participants who may be diagnosed with and treated for COVID-19.
FAQs on Essential Health Benefit Coverage and the Coronavirus »
On March 2, 2020, the Supreme Court announced that it will review a ruling by the U.S. Court of Appeals for the Fifth Circuit that found the individual mandate of the ACA – and possibly other provisions of the ACA – are unconstitutional. The Court will take up TX v. US during its October 2020 term. As such, the Court will not likely issue its own decision until after the November 2020 elections.
The ACA is still in force and plan sponsors should continue to comply with the various mandates imposed by the law. We will continue to follow any developments as this case makes its way through the appeals process.
On February 21, 2020, the IRS Office of Chief Counsel released a memorandum confirming that there is no applicable statute of limitations on an Employer Shared Responsibility Payment (ESRP) imposed by IRC §4980H. As background, applicable large employers (ALE) may be liable for two separate payments:
The IRS concludes in the memorandum that because no tax return is filed to report an ALE’s liability for the ESRP, there is no statute of limitations for the ESRP.
Explained further in the memorandum, the IRS generally imposes a three year statute of limitations that begins upon the filing of a “return.” However, the Supreme Court has established a four-part test to determine when a document filed with the IRS constitutes a “return” for this purpose. Specifically, one requirement is that the document provided includes sufficient data to calculate tax liability. While ALEs are required to report information about offers of coverage on Forms 1094-C and 1095-C, this reporting does not include sufficient data to calculate tax liability. This is because the reporting does not provide information specific to an employee’s eligibility for a premium tax credit, which is necessary to calculate the ESRP. Rather, the penalty is only calculated after cross-referencing information provided via the forms with the full-time employees’ individual tax returns.
That said, because there is no return that contains the necessary data to calculate the amount of an ESRP that could be owed by an ALE, the IRS’s three year statute of limitations does not apply and, as such, there is no statute of limitations for the ESRP. Importantly, ALEs should be aware that they can be liable for an ESRP assessment indefinitely and should continue to maintain compliance with the ACA’s employer mandate. Additionally, while the instructions for forms 1094-C and 1095-C advise filers to maintain copies of returns (and supporting documents) for a minimum of three years, implementing a longer retention period may be prudent in light of this memorandum.
On January 31, 2020, CMS announced an additional one-year extension with respect to specific ACA compliance requirements for certain non-grandfathered individual and small group coverage known as “grandmothered” policies. Under the latest extension, states may permit insurers that have continually renewed eligible grandmothered policies since January 1, 2014, to again renew that coverage for a policy year beginning on or before October 1, 2021, provided that the policies end by January 1, 2022.
As background, on November 14, 2013, CMS issued a letter outlining a transitional policy with respect to the health care reform mandates for coverage in the individual and small group markets. Under the policy, state authorities could allow health insurance issuers to continue certain coverage that would otherwise have been cancelled for failure to comply with the ACA requirements. This initiative allowed individuals and small businesses to elect to re-enroll in such coverage. Specifically, the non-enforcement policy provided relief from the following market reforms:
The transitional policy has been continually extended since the initial announcement, thus permitting grandmothered policies to maintain an exemption from the above-mentioned requirements. However, although the CMS bulletin allows for the temporary continuation of these non-compliant plans at the federal level, the practice must still be approved by state regulators in order for policies to be available in a particular state. Insurers then also have a choice as to whether to keep offering the policies. The bulletin includes a notice to be used in the event a coverage cancellation notice was already sent and the insurer will now be providing an option to the policyholder to continue the coverage.
Accordingly, small employers who are currently covered by such grandmothered policies should be aware of the most recent non-enforcement extension. These employers should work with their advisors and insurers regarding possible renewal of the coverage.
On February 3, 2020, the DOL, HHS, and the Department of the Treasury issued two FAQs concerning the application of recent updates to SBC materials.
These agencies are charged with developing standards that group health plans and health insurance issuers can apply when compiling and providing SBCs to plan participants in accordance with the ACA. On November 7, 2019, updates to the SBC template, coverage examples calculator, guide, and narratives for coverage examples were released.
The first FAQ states that group health plans and health insurance issuers must use these updated materials beginning on the first day of the first open enrollment period for plan years beginning on or after January 1, 2021.
The second FAQ clarifies that using the calculator is not mandatory. It is a tool to help group health plans and health insurance issuers to generate the estimated out-of-pocket costs that a consumer can expect to pay under the plan for the coverage examples on the SBC. The calculator makes several assumptions that may not apply to particular plans or policy designs, so the agencies allow the plans and issuers to create their own calculators or to modify the calculator as necessary. However, plans and issuers can use the calculator even when they could develop more accurate methods for generating coverage examples, because it retains its status as a safe harbor.
Employers should be aware of the 2021 updates to SBC materials, their application, and when they must be applied.
2021 Updates to the SBC Template, Calculator, Guide and Narratives »
In January, HHS announced the 2020 federal poverty levels (FPL). The guidelines for the 48 contiguous states is $12,760 for a single person household and $26,200 for a four person household. The guidelines are different for Alaska ($15,950 and $32,750, respectively) and Hawaii ($14,680 and $30,130, respectively).
The FPL plays an important role under the ACA. Individuals who purchase coverage through the exchange may qualify for a premium tax credit if their household earnings are within 100% to 400% 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 9.78% (for 2020), down from 9.86% (for 2019), of the single person FPL. This means that the FPL affordability safe harbor threshold in the 48 contiguous states for 2019 would be $103.99 per month, which is $12,760 divided by twelve and multiplied by 9.78%. 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 safe harbors.
Employers should consider this adjustment to the FPL when determining whether their coverage is affordable, especially if they're using the FPL affordability safe harbor. The 2020 FPL is applicable beginning January 15, 2020.
On January 29, 2020, the United States Court of Appeals for the Fifth Circuit announced that it would not revisit its earlier decision in the TX v. US case. That decision was made by a panel of three judges, and could have been reviewed by the entire Court under certain circumstances. In this case one of the appellate court judges made the request to have the entire Court hear the case. However, as a result of this decision, the case will proceed as originally ordered by the appellate court.
As background, on December 18, 2019, the Fifth Circuit ruled that the individual mandate was unconstitutional because Congress declined to exercise its constitutional taxing authority to penalize citizens who did not obtain health insurance. Although the District Court that first heard this case also ruled that the loss of the individual mandate meant that the entire ACA was also unconstitutional, the Fifth Circuit was not convinced. Instead, the appellate court remanded the case back to the District Court to examine that question more closely and provide more detail about what provisions in the ACA would fail and rule on whether other provisions could stand.
On an 8-6 vote, the entire Fifth Circuit decided not to review the case, which means that the case will proceed in a remand to the District Court. Although the defendants in the case asked the Supreme Court to expedite its consideration of this case, the Supreme Court declined to do so.
The ACA is still in force and plan sponsors should continue to comply with the various mandates imposed by the law. We will continue to follow any developments that come from TX v. US.
Despite defendants’ efforts to persuade the US Supreme Court to expedite its consideration of the lawsuit challenging the constitutionality of the ACA, the Court denied their request.
On December 18, 2019, the Fifth Circuit Court of Appeals ruled that the individual mandate was unconstitutional because Congress declined to exercise its Constitutional taxing authority to penalize citizens who did not obtain health insurance. Although the District Court that first heard this case also ruled that the loss of the individual mandate meant that the entire ACA was also unconstitutional, the Fifth Circuit was not convinced. Instead, the appellate court remanded the case back to the District Court to examine that question more closely, provide more detail about what provisions in the ACA would fail, and rule on whether other provisions could stand.
On January 3, 2020, two defendants in the case asked the Supreme Court to hear their appeal of the Fifth Circuit ruling on an expedited basis. The defendants, California and the US House of Representatives, asked that the Court consider their appeal during the current term, which ends in June 2020, without waiting for the lower courts to reconsider these issues first. They argued that these issues, and the ultimate fate of the ACA, are too important to wait and that uncertainty about the outcome needed to be resolved sooner rather than later.
On January 10, 2020, the plaintiffs in the federal lawsuit challenging the ACA’s individual mandate and, potentially, the entire ACA, filed a brief with the US Supreme Court urging the Court not to expedite its review of the case. The plaintiffs in the case include the federal Department of Justice, 18 Republican attorneys general and governors, and two individual plaintiffs. They argued that the defendants failed to articulate the harm in waiting, as the lower court rulings are stayed pending the resolution of the appeals. They also argued that there is no need to rush the process, and to give the lower courts more time to consider the issues more carefully. In the alternative, the plaintiffs asked that the Court wait and take up the matter in their next session, which begins in October 2020.
On January 21, 2020, the Court issued an order denying the defendants’ request to expedite consideration of the case. The order did not weigh in on the merits of the parties’ arguments. As a result, the Court will likely not take up this matter until 2021 at the earliest.
This news does not change anything about the ACA or its application to employer plan sponsors. As such, plan sponsors should continue to comply with the ACA’s provisions as they are now.
On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act of 2020 (HR 1865) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also includes a number of employee benefits-related provisions. Specifically, the bill repeals the tax on high cost health coverage (aka the Cadillac tax), the health insurance tax (HIT, aka the Health Insurance Providers Fee), and the medical device tax. The bill also extends the ACA’s PCOR fee for 10 years (until 2029) and the paid family and medical leave tax credit for one year, and retroactively eliminates a commuter benefit tax for tax-exempt organizations.
ACA Tax Repeals
PCOR Fee Extension
HR 1865 extends the PCOR fee for 10 more years. As background, the ACA imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.
The PCOR fee previously applied to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. However, HR 1865 extends the fee through 2029.
Employers with self-insured plans (including HRAs) will need to continue their compliance with the PCOR fee requirement by filing Form 720 by July 31 each year. We anticipate the IRS will issue additional guidance on the extension, including applicable fee amounts, prior to the July 31, 2020, deadline.
Employer-Paid Family and Medical Leave Tax Credit
HR 1865 extends the employer-paid family and medical leave tax credit for one year. As background, the 2017 Tax Cuts and Jobs Act established a business tax credit for certain employer-paid family and medical leave, which ranges from 12.5% to 25% of the wages paid to qualifying employees, where such wage payments are at least 50% of the wages normally paid to the employee. The credit was originally available to employers only for wages paid in 2018 and 2019, HR 1865 extends the credit through 2020.
Retroactive Elimination of Commuter Benefit Tax for Tax-Exempt Organizations
HR 1865 also eliminates a tax on commuter benefits for tax-exempt organizations. As background, Congress (as part of the 2017 Tax Cuts and Jobs Act), enacted Section 512(a)(7), which required tax-exempt organizations to include in unrelated business taxable income their costs for providing “qualified transportation fringe benefits” to their employees. HR 1865 repeals section 512(a)(7) retroactive to the date of its enactment. We anticipate that the IRS will issue guidance relating to the repeal, including how to amend Forms 990-T (used to report and pay the tax), and how to claim related refunds.
On December 18, 2019, a three-judge panel of the United States Court of Appeals for the Fifth Circuit ruled that the MEC provision (otherwise known as the “individual mandate”) of the ACA is unconstitutional. However, the appeals court declined to rule on whether the individual mandate rendered the entire ACA unconstitutional or if it can be severed from the ACA. The appeals court remanded that matter back to the district court to make the determination. As a reminder, the matter came before the appeals court after US District Judge Reed O’Connor of the Northern District of Texas ruled that the individual mandate was unconstitutional and so integral to the ACA that the entire law must be overturned.
The question of whether the individual mandate is unconstitutional hinges upon the tax penalty imposed upon taxpayers who fail to obtain health insurance that provides MEC. A previous ruling by the US Supreme Court, back in 2012, determined that Congress had the authority to create an individual mandate in the ACA through its power to tax. Thus, as long as the law imposed a tax, the mandate was constitutional. In late 2017, Congress reduced the tax to $0, and in response 20 states and two individuals challenged the ACA on the basis that Congress waived its authority to impose the individual mandate when it declined to impose a tax. Both the district court and the appeals court accepted this argument.
The appeals court remanded back to the district court the issue regarding whether the individual mandate being invalidated causes the whole ACA to fail. The appellate court asks the district court to do two things: 1) Explain which provisions in the ACA are so intertwined with the individual mandate that they must also be severed from the ACA; and 2) Decide whether the court can enjoin only those provisions of the ACA that injure the states and individuals that brought the suit or declare the ACA unconstitutional only as to those states and individuals.
The lawsuit will continue to move through the courts for some time. The states defending the ACA in this lawsuit have already appealed this decision to the Supreme Court. Even if the Supreme Court declines to take up the matter at this time, the district court must now reconsider key issues, as noted above, and issue new rulings that will very likely be appealed as well. Although it is very difficult to predict the course of any lawsuit, it is not unreasonable to expect this one to take many more months to resolve.
For employers and group health plans, the Fifth Circuit decision does not change any requirements or obligations currently imposed under the ACA. Specifically, employers should continue their efforts toward timely ACA employer reporting and compliance with other coverage mandates, as the regulatory agencies will continue enforcing the ACA. We will report future developments in Compliance Corner.
On December 10, 2019, the IRS released a draft of the 2019 Instructions for Form 8941, Credit for Small Employer Health Insurance Premiums. This publication provides a general overview of the purpose and eligibility requirements for the small business health care tax credit, as well as specific instructions for completing the form.
As background, the small business health care tax credit allows eligible small employers that offer health insurance coverage to their employees to take a tax credit of up to 50% of the nonelective contributions they pay toward the premium cost. Tax-exempt eligible small employers are permitted a tax credit of up to 35% of such contributions. To qualify, a small employer generally must purchase the health coverage for its employees through SHOP. For tax years beginning after 2013, this credit is only available for a period of two consecutive tax years.
The instructions for Form 8941 provide the necessary information to compute the tax credit, and include worksheets to determine the applicable number of employees, average wages, and average premiums for each state’s small group health insurance market. The IRS modifies the form instructions periodically to reflect changes in regulations and/or numeric values, such as the average premium amounts. As standard procedure, the IRS releases a preliminary draft of the updated guide prior to final publication.
Employers that could potentially claim this credit should be aware of the release of the draft instructions. The IRS is accepting comments regarding the proposed publication. Accordingly, employers should also recognize that changes to the released version may occur prior to finalization.
On December 2, 2019, the IRS released IRS Notice 2019-63, extending the deadlines for distributing ACA reporting forms to individuals. The IRS also provided relief from penalties for good faith effort and from the requirement to distribute the Form 1095-B to individuals. As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities that provide minimum essential coverage to report to the IRS and to covered individuals the months in which the individuals were covered. Section 6056 requires applicable large employers (under the employer mandate) to report to the IRS and full-time employees whether they offered minimum essential coverage that was affordable and minimum value.
As the IRS has done for the last four reporting years, they have extended the date by which employers must distribute Forms 1095-B or 1095-C to individuals. Those forms must now be distributed by March 2, 2020 (instead of January 31, 2020). However, as in previous years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. So reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by February 28, 2020, if filing by paper and March 31, 2020, if filing electronically.
If an employer doesn’t comply with the deadlines, the employer can be subjected to penalties. The IRS also indicates that employers can no longer request an automatic extension of the due date by which they must distribute the forms to individuals, as the extension they’ve provided is just as generous. In fact, the IRS will not respond to any such extension. Employers may still request an automatic extension to file the Forms 1094-B/C and 1095-B/C with the IRS, as long as they submit a Form 8809 on or before the due date of those filings.
The IRS is also reinstating relief recognizing good faith effort made by employers that file the 2019 forms. Specifically, employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C will not be subject to penalties if the information is incorrect or incomplete. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the ACA Information Return Program electronic submission process. This relief doesn’t apply to a failure to timely furnish or file a statement or return, and it doesn’t extend to employer mandate penalties (for large employers that didn’t offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).
Notably, this notice also provides penalty relief for employers, which will allow them to forego distributing the Form 1095-B to individuals. This comes after the IRS accepted comments on the necessity of the Form 1095-B now that the individual mandate penalty has been zeroed out. As long as employers post a notice on their website that the document is available upon request, and then fulfill any such request within 30 days, they don’t have to distribute the Forms 1095-B to covered individuals.
This relief is not available for Form 1095-C, but can be applied to employees who are not full-time and only receive a Form 1095-C to meet the Form 1095-B reporting requirement. In other words, those employees who are only receiving a Form 1095-C because the employer uses Part III to comply with Section 6055 no longer have to be provided a Form 1095-C. Also keep in mind that employers that must provide and file Form 1095-C to full-time employees must still complete Part III of the Form, indicating the covered spouses and dependents of the full-time employees.
Employers should keep this guidance in mind as they are preparing their filings and distributions. NFP’s Benefits Compliance Team will continue to monitor any developments that might impact employer reporting obligations in future years.
The IRS recently released the 2019 draft versions of the Forms 1095-B and 1095-C. As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities to report on Forms 1094-B and 1095-B that they provided minimum essential coverage to covered individuals during the year. Section 6056 requires applicable large employers (under the employer mandate) to report on Forms 1094-C and 1095-C that they provided affordable and minimum value coverage to full-time employees.
On December 4, 2019, the IRS released the 2019 draft of Form 1095-C. On December 5, 2019, the IRS released the 2019 draft of Form 1095-B. The forms are basically unchanged from their 2018 versions, with the exception being that the Form 1095-B reflects the fact that the individual mandate penalty has been zeroed out.
The forms must be filed with the IRS by February 28, 2020, if filing by paper and March 31, 2020, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by March 2, 2020. The penalties for failure to file and report are $270 per failure. This means that an employer who fails both to file a completed form with the IRS and to distribute a form to an employee/individual would be at risk for a $540 penalty. Keep in mind, though, that the IRS has provided relief that would allow reporting entities not to distribute the Form 1095-B if certain conditions are met.
We’ll keep you updated of any developments, including release of the finalized forms and instructions.
On November 13, 2019, the IRS published a draft version of the instructions for 2019 reporting forms 1094-B and 1095-B, which are used by insurers and small self-insured employers to report that they offered MEC. The IRS also published a draft version of the instructions for 2019 reporting Forms 1094-C and 1095-C, which are used by applicable large employers to comply with Section 6056 reporting under the ACA. These drafts are for informational purposes only but employers should familiarize themselves with the forms in preparation for 2019 plan year filings.
This year’s forms feature a few new changes. They show that while the penalty for the failure to file a correct information return remains $270 for each incorrect return, the penalty cap is raised to a total of $3.339 million for a calendar year, up from a cap of $3,275,500 in 2018. In addition, the updated draft 1095-C form shows that the affordability safe harbor percentage threshold is 9.86% in 2019, up from the 9.56% threshold in 2018.
Although many anticipated that instructions pertaining to the individual mandate would be removed since the mandate was eliminated effective 2019, those instructions remain. They can be found in Section III of the drafts for both Forms 1095-B and 1095-C.
As a reminder, the forms must be filed with the IRS by February 29, 2020, if filing by paper and March 31, 2020, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by January 31, 2020. As noted above, the penalty for failure to comply is $270 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to an employee/individual would be at risk for a $540 penalty.
Draft Instructions for Forms 1094-B and 1095-B »
Draft Instructions for Forms 1094-C and 1095-C »
On November 15, 2019, the IRS revised its webpage related to the Health Insurance Providers Fee with a reminder that the fee was suspended in 2019, but will be in effect for 2020. The Health Insurance Providers Fee is commonly referred to as the Health Insurance Tax (HIT). It applies to insured medical, dental, and vision policies. It does not apply to self-insured plans.
The fee is paid by the insurer, but may be passed on to the employer as the policyholder in the premiums charged. Employers may then pass along the fee to participating employees by considering it in their employee premium calculation. The amount of the fee varies based on the insurer’s ratio of net premiums compared to net premiums for all US health insurance policies. The amount passed along to group policyholders is generally considered to be 3% to 5% of the policy’s premium.
There is no action required from employers. It is just a reminder that the fee will be back in effect in 2020, so employers may notice a line item on their premium invoice detailing the fee if the insurer chooses to itemize. Otherwise, the insurer may simply add the fee to the premium without itemizing on the invoice.
On November 8, 2019, CMS provided the 2021 Summary of Benefits and Coverage (SBC), instructions, SBC Calculator Guide, and Narratives. As background, the ACA requires group health plans and insurers to provide an SBC to applicants and enrollees whenever they are deciding whether to enroll in health plan coverage.
The updated SBC will be used for plan years beginning on or after January 1, 2021. Although insurers will complete this form for insured clients, employer plan sponsors should familiarize themselves with the updated forms.
On November 4, 2019, the IRS released a revised version of Publication 5165, entitled “Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters,” for tax year 2019 (processing year 2020). 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). The filing is quite technical. The forms must be filed using the Extensible Markup Language (XML) schemas outlined in the publication.
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. Because of the complexity, most employers partner with a payroll or software vendor to assist them with the electronic filing. Those employers still have a responsibility to review the forms for accuracy before submission to the IRS and distribute to employees. Employers filing fewer than 250 forms may file by paper with the IRS.
At this time, no extensions have been announced related to the due dates. Thus, the Forms 1095-C and 1095-B would need to be distributed to employees by January 31, 2020, and those forms along with the Forms 1095-B and 1094-B would need to be filed with the IRS by March 31, 2020, if filing electronically and by February 28, 2020, if filing by paper.
The IRS recently released an updated version of Publication 5164, entitled “Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR),” for tax year 2019 (processing year 2020). The publication describes the testing procedures that must be completed by those filing electronic ACA 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 procedures apply 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’s filing on behalf of the employer, then the testing and this publication would not apply to the employer, but would apply to the software vendor instead.
Similar to prior years, the IRS provides two options (see pages 12-13) for submitting test scenarios for reporting year 2019: 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 give more flexibility to test and create data that may be unique to their organization when completing the necessary test scenarios. Correction scenarios are also provided (see page 17), but those are not required in order to pass testing.
As a reminder, electronic filing of 2019 returns will be due March 31, 2020. Most large employers that are required to file the forms work with third-party vendors in performing electronic filing, so the testing outlined in Publication 5164 wouldn’t apply to the employer. But if the employer is filing on their own, they’ll want to review the updated testing requirements in Publication 5164. Large employers that are required to file electronically, and would like information on third-party vendors who can assist, can contact their advisor for more information.
On August 26, 2019, the DOL, HHS, and Treasury (the “agencies”) jointly issued an FAQ to address group health plan concerns regarding the application of drug coupons towards annual cost-sharing limits under the ACA. The FAQ recognized potential conflicts in prior agency guidance and provided temporary enforcement relief to plans and issuers pending further clarifying regulations.
Under the ACA, cost sharing by enrollees in non-grandfathered group health plans cannot exceed specified annual limits. The agencies have reached different conclusions as to whether coupons issued by drug manufacturers to offset the cost of patient prescriptions can be applied towards the applicable annual limits.
The HHS final Notice of Benefit and Payment Parameters for 2020 (2020 NBPP Final Rule) states that plans can exclude the value of manufacturer’s drug coupons from satisfaction of the cost sharing limits, provided that a generic equivalent is available for the prescribed drug. This rule was intended to encourage the use of generic drugs and promote cost savings. However, plans were left unclear as to whether drug coupons should be counted towards the annual limits if the prescribed drug did not have a generic equivalent. The 2020 NBPP Final Rule also appeared to conflict with previous IRS guidance regarding the application of drug coupons by high deductible health plans (HDHPs) designed for compatibility with health savings accounts (HSAs). HDHPs must meet specific federal requirements with respect to annual deductibles and out of pocket expenses. With the exception of preventive care, HDHPs generally cannot provide coverage below the annual deductible amount. In Notice 2004-50, the IRS specified that an HDHP must disregard drug discounts and only apply the amount actually paid by the employee in determining if the annual deductible has been satisfied. So, although the 2020 NBPP Final Rule could be interpreted to allow the coupon amount to be applied towards the deductible when a generic equivalent is not available, the IRS notice requires the exclusion of the amount in order for an individual to maintain HSA eligibility.
The agencies plan to address these inconsistencies in upcoming regulations in 2021. In the interim, the agencies will not take any enforcement actions against plans or insurers for excluding the drug coupon amounts from the cost sharing limits.
For group health plan sponsors, the FAQ is an acknowledgement of the ambiguous and potentially conflicting agency guidance previously provided. Until the 2021 regulations are released, group health plans can continue to exclude drug coupon amounts from the annual cost-sharing limits, regardless of whether a generic equivalent is available. Once the new guidance is issued, employers and issuers will need to review their plan designs and policies with respect to drug coupons and make any necessary updates.
On June 28, 2019, the IRS sent a letter (number 2019-0008) to Senator Susan Collins, reaffirming that they will continue enforcing the employer mandate. Senator Collins, on behalf of several of her constituents, had written to the IRS asking whether the IRS might waive or reduce employer mandate penalties based on hardship or other factors. Senator Collins had also asked whether the IRS might be willing to extend transition relief for employers with fewer than 100 employees.
In the letter, the IRS, via Associate Chief Counsel Victoria Judson, responded by saying that the employer mandate does not provide for a waiver of penalties. The IRS also stated in the letter that no transition relief is available for 2017 and future years.
The letter also addresses a January 20, 2017 White House executive order directing federal agencies to exercise authority and discretion permitted to them to waive, defer, grant exemptions from, or delay regulatory burden imposed by the ACA. The IRS states that the legislative provisions of the ACA are still in force until Congress changes them, and therefore taxpayers (employers, when it comes to the ACA’s employer mandate) must follow the law and pay what they may owe.
The letter contains no new employer obligations, but does serve as a reminder that the IRS continues to enforce the ACA’s employer mandate. Recently, employers have been receiving letters from the IRS for failure to comply with the employer mandate and for late-filing the related forms (Forms 1094/95-C). Employers should continue to diligently comply with the employer mandate and reporting.
On July 23, 2019, the IRS published Rev. Proc. 2019-29, which provides the 2020 premium tax credit (PTC) table and the employer contribution percentage requirements applicable for plan years beginning after December 31, 2019.
As background, the ACA's employer-shared responsibility rules (also known as the "employer mandate") require an employer to provide affordable, minimum value coverage to its full-time employees. The IRS's required contribution percentage is used to determine whether an employer-sponsored health plan offers an individual "affordable" coverage, and the affordability percentage is adjusted for inflation each year. In addition, the ACA also provides a refundable PTC, based on household income, to help individuals and families afford health insurance through affordable insurance exchanges. The IRS provides the PTC percentage table for individuals to calculate their PTC.
For 2020, the ACA's affordability percentage will decrease to 9.78% (down from 9.86% in 2019). For the employer mandate and affordability, this means that an employee's required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.78% of the federal poverty line or of an employee's W2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon).
The 2020 PTC table used to determine an individual's eligibility for PTCs is provided below:
Household Income Percentage of Federal Poverty Line Initial Percentage Final Percentage Less than 133% 2.06% 2.06% At least 133%, but less than 150% 3.09% 4.12% At least 150%, but less than 200% 4.12% 6.49% At least 200%, but less than 250% 6.49% 8.29% At least 250%, but less than 300% 8.29% 9.78% At least 300%, but not more than 400% 9.78% 9.78%
The revenue procedure is effective for plan years beginning on and after December 31, 2019.
Employers should be mindful of the upcoming 2020 affordability percentages and make sure that the premium offerings for 2020 continue to be affordable for full-time employees, so as to avoid any employer-shared responsibility penalties. The penalties related to employer shared responsibility remain the law (despite the fact that the ACA's individual mandate was repealed in 2019).
On July 17, 2019, the US House of Representatives passed H.R. 748, which would repeal the 40% excise tax on employer-sponsored coverage that exceeds a certain threshold (also known as the Cadillac tax). As background, the Cadillac tax was introduced by the ACA, but has since been delayed through subsequent legislation.
The effort to repeal the law has clear bipartisan support, which was evidenced by the margin of the House vote; the measure passed on a 419-6 basis. The repeal is now expected to go on to the Senate, where there seems to be support for bypassing the committee process in favor of sending the repeal straight to a vote. This momentum may mean that the Cadillac tax repeal could be signed into law in the coming weeks.
The repeal of the Cadillac tax would be welcome relief for employers, considering the effect these taxes would have ultimately had on their plans. Bipartisan efforts for a full repeal of the Cadillac tax are likely to continue until the repeal is signed by the president. We will continue to monitor these developments and report on them here.
On July 12, 2019, the US Court of Appeals for the Third Circuit affirmed a district court decision that enjoined the 2017 HHS final rules providing exemptions for the ACA’s contraceptive mandate. As background, the ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost-sharing. Under the ACA, certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process.
However, in October 2017, HHS published two interim final rules that significantly expanded the religious exemption (as outlined in our October 17, 2017, article here) by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services. The government went on to issue final versions of the rules (as outlined in our November 13, 2018, article here).
Following the publication of the interim final rules, a number of states filed lawsuits challenging the new exemptions. They argued that the DOL had failed to follow the Administrative Procedures Act (APA) and that the new exemptions would harm their state residents and run afoul of the ACA. Federal district courts in Pennsylvania and California both issued injunctions blocking enforcement of the interim and final rules.
The Third Circuit took up the case that came out of the Pennsylvania District Court on appeal, and they agreed with the lower court that the states included in the suit against the federal government had standing to sue. They also agreed that the states are entitled to an injunction of the law because they are likely to succeed in showing that the adoption of the final rules violated the APA.
Additionally, they argued that a nationwide injunction was necessary to avoid harm to individuals throughout the country. Specifically, they reasoned that employees working for employers in the states that filed the lawsuit might actually live in other states and that students covered by these plans might also go to school out of state.
We expect the government to continue to appeal this decision. We’ve also seen a conflicting opinion come out of the federal district court in the northern district of Texas (which invalidated the entire contraceptive mandate for certain employers).
Ultimately this means that the future of these exemptions remains uncertain. For employers, neither the court decisions nor the final rules settle the issue. As such, employers wishing to claim any expanded religious exemptions to the ACA’s contraceptive mandate should work with outside counsel to better understand the risks inherent in going forward with doing so.
Commonwealth of PA v. President U.S. of America, 888 F.3d 52 (3rd Cir. 2018) »
On July 12, 2019, the HHS issued an update to Technical Guidance-01-2018 for self-insured, non-federal governmental health plans (and insurance carriers in the group and individual markets) that rely upon 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.
The guidance notes that MAXIMUS, a federal contractor, has started accepting online requests for external review through their online portal. As a result, there are now three options for employees (policyholders) and beneficiaries to request an external review (the other options being via mail or fax). Plans that use the HHS-administered external review process must now update the applicable notices to properly describe these available options.
This technical release also replaces technical guidance issued September 11, 2018 by providing a revised website address where a claimant can make an online request for external review.
The federal external review process requires an adverse benefit determination or a final internal adverse benefit determination to contain a notice to the claimant that the claimant can request an external review of the adverse benefit determination or final internal adverse benefit determination. A claimant can now submit such a request online to externalappeal.cms.gov under the “Request a Review Online” heading, in writing by faxing their request to 1.888.866.6190, or by sending it by mail to: MAXIMUS Federal Services, 3750 Monroe Avenue, Suite 705, Pittsford, NY 14534.
Self-insured employers that rely upon the HHS-administered federal external review process should update the notice to properly inform claimants of their three options for requesting an external review (via email, mail, fax, or through the online portal).
On May 24, 2019, HHS released proposed regulations, substantially revising ACA Section 1557. As background, Section 1557 took effect in 2016 and prohibits health care discrimination on the basis of race, color, national origin, sex, age, or disability. Specifically, the law mandated that individuals cannot be denied access to health care or coverage, or otherwise discriminated against, based on one of those factors. Notably, the law protects transgender individuals under the auspices of discrimination based on sex.
After various court cases challenged the law (including a partial injunction in 2016 on the Section 1557 provisions relating to gender identity and termination of pregnancy), HHS is proposing to revise the law by mainly repealing the definition of discrimination on the basis of sex to exclude gender identity and pregnancy termination. The proposed rule also eliminates the requirement to include nondiscrimination notices in at least 15 languages.
Importantly, the proposed regulations also vastly limit the application of Section 1557 to only entities that are engaged in health care activities that are funded by HHS, whereas Section 1557 originally applied to all operations of an entity, even if it was not principally engaged in health care. This distinction will mean that most group health plan insurers and self-insured health plans will not have to comply with Section 1557.
As we have seen with many other proposed changes to ACA provisions, there have already been legal challenges to this new proposed rule. So, any employer that wants to change health coverage under their plan in a way that is consistent with the finalized version of this rule will need to consult with legal counsel before doing so. We will continue to follow any developments on this issue and report them in Compliance Corner.
On March 2, 2019, the IRS updated their questions and answers (Q&As) providing additional guidance on employer compliance with PPACA reporting requirements under IRC Sections 6055 and 6056. The only updates to the Q&As appear to be updated links to the required forms to route the user to the 2018 versions (instead of the 2017 versions).
As background, Section 6055 requires every provider of minimum essential coverage to report coverage information by filing an information return with the IRS and furnishing a statement to individuals. Section 6056 is meant to allow employers to report on their compliance with the employer mandate. Those reports also allow the government to determine 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 premium tax credit.
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, as follows:
The Section 6056 Q&As cover the same topics and also address questions related to the methods of reporting, as follows:
Overall, the Sections 6055 and 6056 Q&As appear to have remained the same and haven’t been revised. Still, employers should ensure that they have followed this guidance in preparing their 2018 forms. NFP has resources to assist. Ask your advisor for more information.
On Feb. 25, 2019, the DOL, IRS and HHS (the “agencies”) jointly issued a request for information regarding grandfathered health plans. As background, grandfathered plans are group health plans or health insurance coverage that have continuously provided coverage and have not made certain prohibited design changes since March 23, 2010. Grandfathered plans are exempt from some requirements under the ACA, including coverage of preventive services with no cost-sharing and the expanded appeals process and external review, but are still subject to other ACA provisions. Grandfathered status can be maintained indefinitely as long as the plan continues to cover at least one person, no prohibited plan design changes are made, and the required disclosure and recordkeeping obligations are met.
Consistent with Pres. Trump’s Executive Order issued on Jan. 20, 2017, the purpose of this request is to better understand challenges that group health plans and issuers face in avoiding loss of grandfathered status. The agencies aim to determine how they can help to preserve grandfathered status in ways that benefit employers, employee organizations, plan participants and other stakeholders. The agencies also seek to understand why plans have chosen to maintain grandfathered status (including costs, benefits and other factors) and why participants continue to enroll in grandfathered coverage. Finally, the agencies ask how many plan sponsors and carriers anticipate changes that would cause a loss of grandfathered status.
The request explains that the number of grandfathered plans has decreased each year since the ACA was enacted. However, despite those declining numbers, the agencies note that some employers, insurers and participants continue to find value in keeping grandfathered status. Importantly, no changes to the grandfathered rules have been made as of yet, but our team will continue to stay abreast of any modifications. Comments are due by March 27, 2019.
Two federal district courts recently issued injunctions on the final rules providing exemptions from the ACA’s contraceptive mandate. As background, the ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost-sharing. Under the ACA, certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process.
However, in October 2017, HHS published two interim final rules that significantly expanded the religious exemption (as outlined in our Oct. 17, 2017, article here) by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services. The government went on to issue final versions of the rules (as outlined in our Nov. 13, 2018, article here).
Following the publication of the interim final rules, a number of states filed lawsuits, challenging the new exemptions. They argued that the DOL had failed to follow the Administrative Procedures Act (APA) and that the new exemptions would harm their state residents and run afoul of the ACA. The federal district courts in Pennsylvania and California initially issued injunctions blocking enforcement of the interim final rules.
After government appeals, the courts again chose to enjoin the enforcement of the final rules. Specifically, on Jan. 13, 2019, the U.S. District Court for the Northern District of California enjoined the implementation of the final rules in the states of California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Minnesota, New York, North Carolina, Rhode Island, Vermont, Virginia, and Washington and the District of Columbia. In its decision, the court agreed that the states could succeed on their claims that the final rules violated the ACA and APA.
On Jan. 14, 2019, the U.S. District Court for the Eastern District of Pennsylvania issued an injunction that blocks implementation of the final rules nationwide. The Pennsylvania court also found that the states that filed (Pennsylvania and New Jersey) are likely to prevail on their claim that the final rules violate the APA.
We expect the government to continue to appeal these decisions, and it is also likely that the filing states will do the same should an appeals court rule in the government’s favor. Ultimately this means that the future of these exemptions remains uncertain. For employers, neither the court decisions nor the final rules settle the issue. As such, employers wishing to claim any expanded religious exemptions to the ACA’s contraceptive mandate should work with outside counsel to better understand the risks inherent in going forward with doing so.
Earlier this month, HHS announced the 2019 federal poverty levels (FPL). The guidelines for the 48 contiguous states is $12,490 for a single person household and $25,750 for a four person household. The guidelines are different for Alaska ($15,600 and $32,190, respectively) and Hawaii ($14,380 and $29,620, respectively).
The FPL plays an important role under the ACA. Individuals who purchase 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 9.86 percent (for 2019), up from 9.56 percent (for 2018), of the single person FPL. This means that the FPL affordability safe harbor threshold in the 48 contiguous states for 2019 would be $102.62 per month, which is $12,490 divided by twelve and times 9.86 percent. 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 safe harbors.
Employers should consider this adjustment to the FPL when determining whether their coverage is affordable, especially if they're using the FPL affordability safe harbor. The 2019 FPL is applicable beginning Jan. 11, 2019.
On Dec. 14, 2018, a federal judge in the U.S. District Court for the Northern District of Texas held, in Texas v. U.S., that the ACA’s individual mandate is unconstitutional and therefore the entire ACA is invalid. The ruling is a result of a challenge to the ACA brought by a coalition of Republican-led states, including Texas. Because the current administration refused to defend the ACA, several Democratic-led states intervened to defend the law. The challenge is focused on the ACA’s individual mandate — the requirement for all US citizens to purchase health insurance or pay a penalty tax.
As background, in 2012, the U.S. Supreme Court held the individual mandate (and thereby the ACA) constitutional, stating that the individual mandate was actually a tax, and that imposing a tax is a valid exercise of Congress’s authority. The coalition of states in Texas v. U.S. argued that Congress erased that constitutional basis for the individual mandate when it reduced the tax penalty to $0 under the Tax Cuts and Jobs Act of 2017. The district court agreed, stating that because the penalty tax is now gone, there’s no constitutional justification for the individual mandate; and because the individual mandate is “essential to” and “inseverable from” the other provisions of the ACA, the entire ACA falls.
On Dec. 30, 2018, Judge O’Connor granted the intervenor states’ request for final judgement based on the Dec. 14 decision and a stay of that judgement. This means that the coalition of intervening states can now appeal the law. An appeal would likely go to the U.S. Court of Appeals for the Fifth Circuit. Many legal experts believe the case is headed to the U.S. Supreme Court, meaning the ACA’s future could once again be in the hands of the highest court in the land. There is also a chance Congress could revisit health care as an issue in 2019, although with Democrats taking control of the House, any legislative changes would require bipartisan support.
If the district court’s ruling is ultimately upheld, the ACA would be deemed invalid. That would have far-reaching consequences, as the ACA goes beyond just the exchanges, premium tax credits and employer obligations most people are familiar with. For employers, though, while the employer mandate, reporting and other obligations would disappear, so would some of the more popular provisions. For example, plans could once again exclude adult children, impose cost-sharing for preventive services and annual exams, and exclude or impose surcharges for individuals with pre-existing conditions. While there does appear to be bipartisan congressional support for those more popular provisions of the ACA, it remains to be seen whether Congress would enact new legislation that would maintain those protections.
As for impact on employers, because the ACA remains the law for now, employer-related requirements remain in place. This includes the employer mandate, employer reporting (Forms 1094/95-C), Summary of Benefits and Coverage, W-2 reporting of employer-sponsored coverage, and all insurance mandates: coverage of dependents up to age 26, coverage of preventive services without cost-sharing, and the prohibitions on annual limits for essential health benefits and pre-existing condition exclusions. In addition, the exchanges remain open for business for individuals; people who enrolled by the Dec. 15, 2018, deadline received coverage effective Jan. 1, 2019. Employers should continue to monitor their compliance obligations.
As always, NFP’s Benefits Compliance team will continue to track and report on future developments on this issue.
Texas v. U.S. »
Partial Final Judgement »
Order Granting Stay »
On Dec. 13, 2018, the U.S. Court of Appeals for the Ninth Circuit issued a preliminary opinion in the case of California v. Azar. This case, which was brought by the states of California, Delaware, Virginia, Maryland and New York, challenges the Trump administration’s exemptions for the ACA’s contraceptive mandate. As background, the ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost-sharing. Under the ACA, certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process.
However, in October 2017, HHS published two interim final rules that significantly expanded the religious exemption (as outlined in our Oct. 17, 2017, article here) by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services. The interim final rules also provided an exemption for insurers with sincerely held moral objections to contraceptive coverage.
The states filed this lawsuit in early 2018, challenging the new exemptions. They argued that the DOL had failed to follow the Administrative Procedures Act (APA) and that the new exemptions would harm their state residents. The federal district court in which the case was filed agreed and imposed a nationwide preliminary injunction on the interim final rules. A federal court in Pennsylvania did the same.
The government appealed this case, arguing (among other things) that the states didn’t have standing to sue. The Ninth Circuit disagreed with that argument, holding that the states do have standing to sue on this issue and that the government likely violated the APA’s requirements. However, the court found the district court’s nationwide injunction to be overbroad and so they limited the injunction to the states of California, Delaware, Virginia, Maryland, and New York (which are the states that filed the lawsuit).
Ultimately, the future of these exemptions remains uncertain. As we recently discussed in Compliance Corner (see our Nov. 13, 2018, article here), the government released the final versions of these exemptions. They are scheduled to become effective later this month. Additionally, the nationwide injunction imposed by the federal district court in Pennsylvania is still intact.
For employers, neither the court decisions nor the final rules settle the issue. As such, employers wishing to rely upon any expanded religious exemptions to the ACA’s contraceptive mandate should work with outside counsel to better understand the risks inherent in going forward with claiming an exemption.
On Nov. 28, 2018, the IRS published Notice 2018-94, which delays the date by which informational statements must be provided to individuals. The notice also provides transitional good faith relief for reasonable mistakes made in reporting Sections 6055 and 6056 information about 2018.
Specifically, the due date for providing individuals with Form 1095-B (by a carrier or self-insured employer) and Form 1095-C (by an applicable large employer) has been extended from Jan. 31, 2019, to March 4, 2019. The deadline for filing these forms with the IRS hasn’t changed. That date remains April 1, 2019, if filing electronically, or Feb. 28, 2019, if not filing electronically. If an employer doesn’t comply with the deadlines, the employer could be subject to penalties. The notice also states that because the automatic extension of the due date to furnish is as generous as the permissive 30-day extension to provide notices to individuals/employees, the IRS will not formally respond to any request for such an extension.
Despite the extended due date, employers and other coverage providers are encouraged to furnish 2018 statements as soon as they’re able. But if individuals haven’t received these forms by the time they file their individual tax returns, they may rely upon other information received from employers or coverage providers to attest that they had minimum essential coverage as required by the individual mandate. Individuals need not amend their returns once they receive the forms, but they should keep them with their tax records.
In addition, Notice 2018-94 extends good faith effort relief to employers for incorrect or incomplete returns filed in 2019 (as to 2018 information). The IRS previously provided relief for penalties stemming from 2018 reporting failures (as to 2017 information). Accordingly, for 2018 and prior filings, relief is available to entities that could show that they made good faith efforts to comply with the information reporting requirements, even if they reported incorrect or incomplete information. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the Affordable Care Act Information Return Program (AIR) electronic submission process. This relief doesn’t apply to a failure to timely furnish or file a statement or return, and it doesn’t extend to employer mandate penalties (for large employers that didn’t offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).
Lastly, the notice states that the IRS is reviewing whether the repeal of the individual mandate tax penalty (which takes effect in 2019) will change the reporting requirements under IRC Section 6055 for self-insured employers and other coverage providers (such as an insurer of a fully insured plan) to report on all covered individuals under the plan on either Form 1095-B or 1095-C. NFP’s Benefits Compliance division will continue to monitor any developments that might impact employer reporting obligations in future years.
The IRS recently issued the 2018 version of the Form 8941, Credit for Small Employer Health Insurance Premiums, and the related instructions. Form 8941 is used by small employers to calculate and claim the small business health care tax credit. As background, this tax credit benefits employers that do all of the following:
An employer may only claim the credit for a two-consecutive-year period.
The 2018 instructions include three important information items.
First, the average annual wage for 2018 is increased from $53,000 (in 2017) to $54,000.
Second, the IRS states that employers located in Hawaii cannot claim this credit for insurance premiums paid for health plans beginning after 2016. This is because Hawaii’s Section 1332 Innovation Waiver related to the SHOP was approved by HHS. Thus, effective 2017, the state of Hawaii is no longer required to maintain a SHOP because of the state’s Prepaid Health Care Act, which requires employers of all sizes to offer affordable coverage to employees. The state also provides premium assistance to small employers.
Lastly, for calendar year 2018, some SHOP Marketplaces in certain counties didn’t have qualified health plans available for employers to offer to employees. However, relief is available which allows eligible small employers with a principal business address in those counties to claim the credit for 2018, including coverage through a SHOP or coverage that met the requirements for relief under IRS Notice 2016-75 (if applicable), for all or part of 2017.
If a small employer qualifies for the health care tax credit, they should work with their accountant to properly claim the credit with the IRS.
On Nov. 5, 2018, the IRS released Notice 2018-85, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after Oct. 1, 2018, and before Oct. 1, 2019, is $2.45. This is a $.06 increase from the $2.39 amount in effect for plan and policy years ending on or after Oct. 1, 2017, but before Oct. 1, 2018.
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, however, is 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 and instructions will be updated prior to July 31, 2019, since that’s the first deadline to pay the increased fee amount for plan years ending between Oct. and Dec. 2018. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.
The PCOR fee requirement is in place until the plan years ending after Sept. 30, 2019.
On Nov. 7, 2018, the HHS, the Treasury Department and the DOL (the Departments) jointly released advanced copies of two final regulations that broaden the exemption from the ACA’s contraceptive mandate. The final rules are effective 60 days following publication in the Federal Register (expected Nov. 15, 2018).
As background, the ACA requires plans to cover certain preventive services with no cost-sharing. However, a number of religious institutions objected to being required to cover certain contraceptives, prompting the Obama administration to provide a waiver and accommodation process for those institutions. The Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc. ruled in favor of Hobby Lobby, holding that closely held for-profit employers could also choose not to cover certain contraceptives.
Then, in Oct. 2017, the Trump administration issued two interim final rules which broadened the exemption for sincerely held religious beliefs and sincerely held moral convictions. Further litigation spawned from the interim final rules and two federal courts issued preliminary injunctions blocking the federal government from enforcement of these rules as a result (see Jan. 9, 2018, edition of Compliance Corner). It remains to be seen how the courts’ injunctions will impact the finalized rules.
After considering over 100,000 public comments, the final rules remain largely unchanged from the interim final rules issued back in Oct. 2017 (see article in Oct. 17, 2017, edition of Compliance Corner).
Here is a general overview of both final rules:
First, the final rule on religious exemptions expands the exemption that previously applied only to churches and similar religious organizations. This particular exemption will be available to non-governmental employers and institutions of higher education, nonprofits, for-profits, insurers and individuals with religious objections where the employer plan sponsor and/or issuer (as applicable) are willing to offer a plan omitting certain contraceptive coverage. The religious exemption does not apply to governmental plans, and no publicly-traded employers are expected to invoke the religious exemption.
Second, the final rule on moral exemptions is more restrictive than the religious exemption. Under the moral exemptions rule, only nonprofits, privately held for-profit employers, insurers, institutions of higher education, and individuals can invoke an exemption to the contraceptive mandate based on sincerely held moral objections. This could encompass association health plans where the plan sponsor is a nonprofit or a privately-held for-profit entity. However, the moral final rule does not extend to governmental plans or publically traded for-profit employers.
Both rules maintain the availability of an optional accommodation where the entity’s insurer or third-party administrator is responsible for providing contraceptive services to plan participants and beneficiaries on a voluntary basis. In other words, an otherwise exempt employer could decide to take advantage of the accommodation, which would provide contraceptive coverage to its employees and their dependents on an optional basis. Businesses that object to covering some, but not all, contraceptives would be exempt with respect to only those methods to which they’re opposed.
Under both final rules, if an employer objects to contraceptive coverage on a religious or moral basis, the group health plan, the insurer, and the coverage itself are exempt from the full ACA guidelines on contraceptive methods. Those entities are not subject to a penalty for failure to cover contraceptives for plan enrollees. Employers who claim an exemption do not have to provide any sort of self-certification or notice to the government.
Several states currently require insurers to cover contraceptives and several others have religious exemptions of some kind, but it should not be assumed that these are comparable with the new federal exemption. The departments state that the final rules only apply to the federal contraceptive mandate and do not regulate, preempt or otherwise address various state contraceptive mandates or religious exemptions. Therefore, if a plan is exempt under the final rule on religious or moral exemptions that does not necessarily exempt the plan or insurer from applicable state laws. Of course, state mandates do not apply to self-funded plans, but they apply to fully-insured plans.
Importantly, though, ERISA requires employers to outline the plan’s covered services in the plan document. As such, 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 the change.
The final rules are effective 60 days following publication on the Federal Register (presumably effective Jan. 15, 2019). However, as these various legal challenges work their way through the courts, employers wishing to avail themselves of these exemptions should work with legal counsel to ensure that they implement the exemptions in a compliant manner, paying special attention to applicable state laws.
Press Release »
Fact Sheet »
Final Regulations for Religious Exemptions »
Final Regulations for Moral Exemptions »
This week, the IRS released the 2018 version of Publication 5223, General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C and 1095-C. As background, applicable large employers (those subject to the employer mandate) and employers that sponsor self-insured plans are subject to certain informational reporting requirements under IRC Sections 6055 and 6056. Under those sections, those employers must file Forms 1095-B and 1095-C (as applicable) with the IRS and distribute either a copy of the forms or a substitute form to employees or otherwise covered individuals.
Publication 5223 outlines standards for acceptable substitute forms that may be sent to the IRS and also outlines acceptable standards for substitute forms furnished to individuals. The standards are quite rigorous, including specific font size, ink type, paper orientation and weight, and print positions. Importantly, should the employer choose to use substitute forms, these standards must be satisfied in order to avoid employer reporting penalties (also outlined in the publication). The 2018 version of Publication 5223 contains no major changes from previous years but has been updated to reference new dates and forms.
Most employers use the standard Forms 1094/95-B/C to fulfill their reporting obligations, in which case the publication is not applicable. That said, employers that want to use substitute forms should review the publication to ensure any substitute forms they use are consistent with the standards.
Non-grandfathered health plans must provide coverage for certain recommended preventive care services with no cost sharing applied to participants. The recommendations are issued by the United States Preventive Services Task Force (USPSTF), the Advisory Committee on Immunization Practices (ACIP) of the CDC, and the Health Resources and Services Administration (HRSA). Group health plans must provide coverage for a new recommendation for plan years starting one year after it’s issued.
Below is a listing of the preventive care services that have been newly recommended since March 2018 along with the effective date (plans must comply for plan years starting on or after the indicated date).
USPSTF Recommendations »
ACIP Recommendations »
HRSA Recommendations for Children and Adolescents »
HRSA Recommendations for Women »
HRSA Recommendations for Newborns »
On Oct. 17, 2018, the IRS issued proposed regulations relating to the de minimis error safe harbor exceptions to penalties for failure to file correct information returns or furnish correct payee statements under IRC sections 6721 and 6722. These proposed regulations are consistent with prior guidance on the safe harbor included on page five of the final instructions to Forms 1094/1095-C, which were reported on in our Oct. 16, 2018 edition of Compliance Corner.
As background, the penalties apply when a person is required to file an information return or furnish a payee statement but the person fails to do so on or before the prescribed date, fails to include all of the information required to be shown or includes incorrect information.
Under the safe harbor, an error on an information return or payee statement is not required to be corrected, and no penalty is imposed, if the error relates to an incorrect dollar amount and the error differs from the correct amount by no more than $100 ($25 in the case of an error with respect to an amount of tax withheld). The information return or payee statement must be otherwise correct and timely filed or furnished on time. The safe harbor does not apply in cases of intentional disregard of the requirements to file or furnish correct information returns or payee statements. Further, the proposed regulations highlight the fact that the safe harbor does not apply if the payee elects in writing to receive a corrected statement.
Finally, the proposed regulations update the penalty amounts to reflect legislative increases and adjustments for inflation. Employers may be interested in the de minimis error safe harbor exceptions to penalties, because it applies to information reported on Forms W-2, 1094/1095-C, and 1099-R.
On Oct. 24, 2018, HHS and the IRS jointly released guidance on the use of innovation waivers under the ACA which replaces previous guidance issued on Dec. 16, 2015 (80 FR 78131).
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’s affordable and provides MEC.
The new guidance revises 2015 guidance with the intent of providing more flexibility to states, as the previous guidance imposed significant restrictions on states beyond what was required by the ACA. For example, the 2015 guidance focused on the number of individuals estimated to receive comprehensive and affordable coverage. In contrast, this guidance concentrates on access to comprehensive and affordable coverage, thereby allowing states to offer access to more options that are less comprehensive but potentially more affordable.
In addition, the guidance expands the definition of coverage that must be provided to a comparable number of residents to include access to all forms of private coverage (including short-term, limited-duration insurance; association health plans; and employer-sponsored coverage) and public coverage (like Medicaid). To allow states greater flexibility in pursuing a waiver despite timing limitations (as when a state legislative calendar results in infrequent legislative sessions), the guidance clarifies that even though states are required to enact a law providing for implementation of the waiver, in certain circumstances, existing state legislation combined with a duly enacted state regulation or executive order may satisfy the requirement.
HHS intends to release additional guidance in the future, including examples of how states can take advantage of the increased flexibility in obtaining a waiver. In the meantime, this guidance makes it clear that waivers could potentially allow states to implement expanded options for association health plans. Thus, employers and citizens in certain states may potentially have greater coverage options in the future.
The IRS recently released final Forms 1094 and 1095 (B and C) and instructions related to IRC Sections 6055 and 6056 reporting. The 2018 forms and instructions appear to have no substantial changes from the 2017 versions.
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 the ACA’s individual mandate for 2018. 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 2018 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.
In addition, the ACA 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 (intended to help the IRS enforce the ACA’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. In addition, employers with grandfathered plans must comply with the reporting requirements.
The 2018 final forms and instructions appear to have only minor changes compared to the 2017 forms. Highlights of the changes are as follows:
Lastly, the due dates for 2018 employer reporting are:
Employers should become familiar with these forms in preparation for filing information returns for the 2018 calendar year. In addition, despite the repeal of the individual mandate penalty in 2019, large employers will still need to continue to offer affordable, minimum value coverage to all full-time employees and prepare to comply with employer reporting requirements as to 2018 coverage.
Form 1094-B »
Form 1095-B »
Form 1094-C »
Form 1095-C »
B Form Instructions »
C Form Instructions »
On Sept. 14, 2018, the IRS released Publication 5164, entitled “Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR),” for tax year 2018 (processing year 2019). The publication describes the testing procedures that must be completed by those filing electronic ACA 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’s filing on behalf of the employer, then the testing and this publication would not apply to the employer, but would apply to the software vendor instead.
For reporting year 2018, the IRS provides two options (see pages 12-13) 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 give more flexibility to test and create data that may be unique to their organization when completing the necessary test scenarios.
Correction scenarios are also provided (see page 17), but they’re not required in order to pass testing.
As a reminder, electronic filing of 2018 returns will be due April 1, 2019 (since March 31, 2019, falls on a weekend). If you’re a large employer who’s required to file electronically and would like information on third-party vendors who can assist, please contact your advisor.
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 2018 (processing year 2019). 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.
The IRS has released the latest version of Publication 5258: “ACA Information Returns (AIR) Submission Composition and Reference Guide.” The guide has been updated for use in 2019.
This publication is meant to assist various entities with electronic information return (AIR) submissions required under the ACA — Forms 1094-B and 1095-B under Section 6055, and Forms 1094-C and 1095-C under Section 6056.
The guide includes information on the process for applying for the program, technical requirements and updates to the 2019 version, 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 ACA information returns electronically.
As a reminder, if you’re a self-insured employer or an applicable large employer, the deadline to provide information returns to employees or responsible individuals is Jan. 31, 2019, for tax year 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, 2019. Those filing electronically must report 2018 data by April 1, 2019 (since March 31, 2019 falls on a weekend).
IRS Website on ACA AIR Program »
ACA Information Returns (AIR) Submission Composition and Reference Guide »
On Sept. 10, 2018, the IRS released a draft version of the instructions for Forms 1094-B and 1095-B, which are used by insurers and small self-insured employers to report that they offered MEC . These instructions are largely unchanged from the 2017 version. The one change mentioned is that insurance carriers are now encouraged (but not required) to report catastrophic health plan coverage offered through the Marketplace.
On Sept. 11, 2018, 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 instructions are largely unchanged from the 2017 versions. The Plan Start Month in Part II of the Form 1095-C continues to be an optional field. Employers relying upon the multiemployer arrangement interim guidance will continue to report 1H (no offer of coverage) on Line 14 of the Form 1095-C, with Line 15 blank and code 2E on Line 16.
The forms must be filed with the IRS by Feb. 28, 2019 if filing by paper and April 1, 2019 if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by Jan. 31, 2019. The penalties for failure to comply have increased from $260 to $270 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to an employee/individual would be at risk for a $540 penalty.
We’ll keep you updated of any developments, including release of the finalized forms and instructions.
2018 Forms 1094-B and 1095-B Draft Instructions »
2018 Forms 1094-C and 1095-C Draft Instructions »
On Sep. 11, 2018, CMS issued Technical Guidance 01-2018, which updated 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 updates previous guidance (provided in January 2017) because the federal contractor that administers the process has begun to accept requests for external review through an online portal. As such, the guidance informs plans and issuers that their notices to plan participants must be updated to inform them that there are now three options for requesting an external review (mail, fax or through the online portal).
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 Aug. 1, 2018, the DOL, HHS and Department of the Treasury (the Departments) issued a final rule related to short-term, limited-duration coverage. The rule finalizes the proposed rule, issued in February 2018, with some modification. The issuance of the rules was a direct result of an executive order issued by President Trump in October 2017, which sought an extension of the coverage.
As background, short-term, limited-duration insurance is a type of coverage intended to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another form of coverage. This type of coverage is exempt from the definition of "individual health insurance coverage" under the ACA and is, therefore, not subject to ACA provisions that apply to individual health insurance plans — including the requirement to provide coverage for essential health benefits, the prohibition on annual and lifetime dollar limits and prohibition on pre-existing condition exclusions. As a result, short-term, limited-duration insurance plans generally cost less than ACA-compliant plans.
The proposed rule to change the maximum duration of short-term, limited-duration coverage to less than 12 months from the current maximum duration of less than three months was finalized. Additionally, the final rule permits such coverage to be renewed for no more than a total of 36 months.
Under the proposed rules, issuers were required to provide a disclosure to consumers explaining that short-term, limited-duration coverage isn’t required to comply with certain federal requirements and doesn’t constitute minimum essential coverage. The final rule revised the notice to add language specifying the federal requirements with which the policy is not required to comply.
For example, the required notice states that the consumer should be aware of any policy exclusions related to pre-existing conditions, mental health services, preventive care and maternity care. Further, the revised notice explains that an individual who doesn’t have minimum essential coverage in 2018 may owe a payment on their tax return. This is to reflect the individual mandate that’s in place for the remainder of 2018 and the fact that the penalty for such goes away in 2019. The notice must appear in the contract and application materials in at least 14-point font.
Importantly, the final rule makes clear that states may further restrict the availability of short-term, limited-duration policies. A state may prohibit such coverage, enforce a shorter maximum policy period, restrict renewals or require additional disclosure. Such laws will not be preempted by the final rule.
The final rule is applicable to policies sold on or after 60 days following publication in the Federal Register.
On July 3, 2018, the IRS released draft versions of the 2018 informational reporting forms that insurers and self-insured employers will use to satisfy their obligations under IRC Section 6055. In addition, on July 11, 2018 the IRS released 2018 draft versions of the forms 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 2019 relating to 2018 information. The IRS is currently accepting comments on the draft forms. A 2018 draft version of Form 1095‐B and draft instructions for these 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 2018 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 2018 draft forms appear to have only a few minor changes compared to the 2017 forms. Highlights of the changes are as follows:
Employers should become familiar with these forms in preparation for filing information returns for the 2018 calendar year. However, these forms are only draft versions, and they shouldn’t be filed with the IRS or relied upon for filing. In addition, despite the repeal of the individual mandate penalty in 2019, large employers will still need to continue to offer affordable, minimum value coverage to all full-time employees and prepare to comply with employer reporting requirements as to 2018 coverage.
2018 Draft Form 1094-C »
2018 Draft Form 1094-B »
2018 Draft Form 1095-C »
CMS has imposed a new reporting requirement on employers who sponsor wraparound coverage. Few employers will be impacted by the new requirement as wraparound coverage is a specific type of coverage that is rarely offered.
As background, wraparound coverage was introduced in 2015 as a new type of excepted benefit. As an excepted benefit, it's exempt from certain ACA insurance mandates (such as the essential health benefits requirement and the prohibition on lifetime and annual dollar limits) and HIPAA portability (including special enrollment rights).
Wraparound coverage must supplement either non-grandfathered/non-grandmothered individual or multi-state plan coverage. The plan must provide meaningful coverage beyond general cost sharing. The cost of the wraparound coverage must be no more than the greater of the annually indexed health FSA employee contribution limit ($2,650 in 2018) or 15 percent of the cost of the employer's primary medical plan. Importantly, the employees who are eligible for the wraparound coverage must either be retired employees or employees who are not reasonably expected to be full-time (i.e. part-time employees). They must be offered non-excepted coverage by the employer. Further, the employer must still offer full-time employees the opportunity to enroll in minimum value, affordable employer-sponsored medical coverage. Lastly, the coverage must first be implemented between Jan. 1, 2016 and Dec. 31, 2018 and be in effect for no more than three years.
The one-time reporting requirement is due within 60 days after the publication of the form (on June 25) or 60 days after the first of the plan year that the coverage is offered, whichever is earlier. The Wraparound Coverage Reporting Form will collect the following information: the type of coverage that is supplemented (individual or multi-state plan); who is eligible to enroll; number of enrolled; and additional benefits provided by the coverage (for example, services such as home health care or access to an onsite health clinic at no cost).
While wraparound coverage has been available since 2016, very few employers have implemented such coverage because of the limited application. It's really only beneficial for employers wanting to help supplement individual coverage purchased by non-full-time employees who are already eligible for one of the employer's medical plans. Employers are generally not required to offer any type of coverage to such employees. Thus, most employers do not sponsor such a plan and will not be impacted by this new requirement.
On May 31, 2018, the IRS released proposed regulations to significantly expand mandatory electronic filing of most ACA information returns. As background, employers filing 250 or more information returns during a single calendar year are required to file electronically, but currently, the 250 return threshold applies separately to each type of information return. For example, if an employer files 200 Forms W-2 and 100 Forms 1095-C for 2018, the employer isn’t required to file either form electronically because each filing is separately considered and neither reaches the 250 filing threshold.
The proposed regulations would require aggregation of most information returns when determining the 250 return threshold instead calculation of each information return separately by form type. Forms that would have to be aggregated include Forms 1095-B and 1095-C, Forms 1099, Forms 1099-R issued by qualified retirement plans and Forms W-2. In addition, any corrected returns would need to be filed electronically under the proposed rules, even if fewer than 250 corrected forms are filed during the year.
If these proposed rules are finalized, the new aggregation rules are likely to affect most employers, and only the smallest applicable large employers would be permitted to file paper Forms 1095-C. However, the IRS noted that its waiver process would continue to be available for certain filers that lack access to electronic filing at a reasonable cost.
The proposed regulations would become effective for information returns due after Dec. 31, 2018. The IRS is accepting comments on the proposed rule until July 30, 2018. Thus, applicable large employers that could be affected may want to make arrangements to file information returns electronically if they aren’t already doing so.
Filing Requirements for Information Returns Required Electronically, Proposed Rules »
On May 25, 2018, the IRS released helpful guidance on the various types of 227 letters, which are acknowledgement letters sent to close an employer shared responsibility payment (ESRP) inquiry (see the Nov. 14, 2017, and March 6, 2018, editions of Compliance Corner for more information on that process) or provide the next steps to the applicable large employer (ALE) regarding the proposed ESRP. To clarify, at this stage the IRS uses the information the ALE provided in response to the initial Letter 226-J to review their ESRP. The Letter 227 version that the ALE receives will explain the outcome of that review and the next steps to take to fully resolve the ESRP.
There are five different 227 letters:
The ALE should carefully read the letter for the next steps available and information on how the case will be resolved. If appropriate, the ALE should complete the response Form 14764, indicating their agreement or disagreement. If the ALE disagrees with the proposed ESRP, they must provide an explanation of why they disagree and/or indicate changes needed on Form 14765. The ALE should return all documents as instructed in the letter by the response date. If they agree with the proposed ESRP, they should follow the instructions to sign the response form and return it with full payment in the envelope provided by the IRS. In a situation similar to other assessed taxes, the ESRP will be subject to an IRS lien and the IRS may levy enforcement actions.
Considering what we've seen in regards to these ESRP assessments, there are some compliance responsibilities ALEs should keep in mind for future filings. ALEs should make sure that offers of coverage are documented every year during open enrollment and that signed waiver forms are collected from any FTEs who decline the group health coverage. Additionally, employers should keep important records, such as payroll records, variable-hour tracking calculations, signed enrollment forms and copies of enrollment materials showing employee costs and coverage options.
Finally, ALEs should carefully consider and select a vendor, if appropriate, to populate and file Forms 1094-C and 1095-C. They also shouldn't assume the vendor will correctly populate the forms without any employer oversight. Generally, this means the ALE should ensure all IRS instructions for completing the forms are properly followed, that the indicator codes used in Lines 14 and 16 are correct before filing any 1095-C forms with the IRS and that filing and employee distribution are completed by the IRS deadlines each year. While a vendor may assist an employer with its reporting requirements, the responsibility and liability for such compliance remain with the employer.
Please ask your NFP client service team for a copy of our ESRP Process white paper for more information.
On May 22, 2018, the IRS published Rev. Proc. 2018-34, which provides the 2019 premium tax credit (PTC) table and the employer contribution percentage requirements applicable for plan years beginning after Dec. 31, 2018.
As background, the ACA's employer-shared responsibility rules (also known as the "employer mandate") require an employer to provide affordable, minimum value coverage to its full-time employees. The IRS's required contribution percentage is used to determine whether an employer-sponsored health coverage offers an individual "affordable" coverage, and the affordability percentage is adjusted for inflation each year. In addition, the ACA also provides a refundable PTC, based on household income, to help individuals and families afford health insurance through affordable insurance exchanges. The IRS provides the PTC percentage table for individuals to calculate their PTC.
For 2019, the ACA's affordability percentage will increase to 9.86 percent (up from 9.56 percent in 2018). For the employer mandate and affordability, this means that an employee's required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.86 percent of the federal poverty line or of an employee's W2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon).
The 2019 PTC table used to determine an individual's eligibility for PTCs is provided below:
| Household Income Percentage of Federal Poverty Line | Initial Percentage | Final Percentage |
| Less than 133% | 2.08% | 2.08% |
| At least 133%, but less than 150% | 3.11% | 4.15% |
| At least 150%, but less than 200% | 4.15% | 6.54% |
| At least 200%, but less than 250% | 6.54% | 8.36% |
| At least 250%, but less than 300% | 8.36% | 9.86% |
| At least 300%, but not more than 400% | 9.86% | 9.86% |
The revenue procedure is effective for plan years beginning on and after Dec. 31, 2018.
Employers should be mindful of the upcoming 2019 affordability percentages and make sure that the premium offerings for 2019 continue to be affordable for full-time employees, so as to avoid any employer-shared responsibility penalties. The penalties related with employer shared responsibility remain the law (despite the fact that the ACA's individual mandate will be repealed beginning in 2019).
The IRS recently released Publication 5208, which is directed at applicable large employers (those subject to the ACA's employer mandate, also known as the "employer shared responsibility payment").
Specifically, the one-page document provides:
The employer shared responsibility requirements and related reporting obligations are very complex. Publication 5208 touches only on a few high points. The takeaway for employers is that they must determine each year if they are ALEs and are subject to the employer shared responsibility provisions and subsequent information-reporting requirements. Specifically, those considered ALEs must offer coverage that’s affordable and meets minimum value to all full-time employees or face a penalty.
NFP has many resources to assist. Please ask your advisor for more information.
On April 27, 2018, the IRS published Notice 2018-27, which provides relief for certain small employers that wish to claim the Small Business Health Care Tax Credit (the Credit) for 2017 and later years.
As background, the Credit was created by the ACA under IRC Section 45R and provides relief to certain small employers that provide health insurance coverage to their employees. To qualify for the credit, the health insurance coverage must be a qualified health plan (QHP) purchased through the Small Business Health Options Program (SHOP) Marketplace, and employers may only claim the credit for two consecutive taxable years (the credit period).
The HHS advised the IRS that, for calendar years 2017 and 2018, SHOP exchanges in an increasing number of counties across the U.S. don’t have any QHPs available for otherwise eligible small employers to offer employees. However, because the Credit has been available since 2010, the relief provided in this Notice is more limited than in earlier years.
The relief within 2018-27 helps “eligible small employers” who first claimed the credit for all or part of 2016 (or claimed the credit for all or part of a later taxable year) for coverage offered through the SHOP Marketplace, but are unable to offer employees a QHP through a SHOP Marketplace plan for all or part of the remainder of the credit period because there aren’t any plans available in the county where the employer is located. Pursuant to this Notice, employers now have the ability to calculate the credit for the subsequent portion of the credit period by treating health insurance coverage provided for the portion of the remaining credit period as qualifying for the credit, as long as it would have qualified for the credit under the rules applicable before Jan. 1, 2014. The Notice provided five examples to illustrate when the relief will and won’t apply.
Notice 2018-27 also mentions that employers in Hawaii continue to be unable to claim the Credit for plan years beginning in calendar years 2017-2021. This is because Hawaii’s application for a 5-year state innovation waiver under ACA Section 1332 was approved in 2016 and, therefore, Hawaii isn’t required to operate a SHOP Marketplace. As background, ACA Section 1332 waivers allow a state to pursue innovative strategies for providing residents with access to high-quality, affordable health insurance while retaining the basic protections of the ACA. As such, any future Section 1332 waivers that allow a state not to be required to operate a SHOP Marketplace will supersede the relief provided in this Notice.
Please note that this Notice in no way modifies or otherwise affects the transitional relief provided in the earlier issued notices that provide similar transitional relief for 2014, 2015 and 2016.
On May 3, the DOL, IRS and HHS (the Departments) issued final regulations related to ACA-mandated coverage for emergency services. As a reminder, the ACA places certain requirements on non-grandfathered group health plans that cover services received in an emergency department. The plan must pay benefits for those services without regard to prior authorization determination or the provider’s network participation status.
The 2010 interim final regulations further clarified the amount that plans must pay for non-network emergency services. The plan must pay the greater of: the in-network negotiated amount for emergency services; the out-of-network amount based on usual, customary and reasonable (UCR) charges plus the in-network cost-sharing provision; or the Medicare amount.
Many stakeholders submitted comments to the Departments expressing concern over the methodology for determining the out-of-network emergency service rate. Specifically, the concern was that there would be manipulation of rates since there’s little transparency or oversight related to insurers’ UCR calculations. When the Departments issued final regulations in 2015, there was little change from the interim final rules.
In April 2016, the Departments issued additional guidance in the form of an FAQ, which stated that a plan’s calculations of each of the three rate options must be disclosable to the DOL or a plan participate upon request.
In May 2016, the American College of Emergency Physicians filed a lawsuit against the Departments claiming that the Departments didn’t meaningfully respond to the stakeholders’ concerns and the rules didn’t ensure a reasonable payment for out-of-network emergency services. The U.S. District Court for the District of Columbia agreed in part and remanded the case to the Departments for further explanation of the final regulations.
The recently issued final regulations are the Departments’ response to that court order. The regulations retain the same methodology based on the three rate options with no change. The regulations provide detailed justification as well as a discussion of stakeholders’ comments and suggestions. For example, some had suggested that the Departments create a national database to help set UCR rates. The Departments dismissed this solution as costly, time-consuming and an overstep of their authority.
The final regulations won’t change how non-network emergency services will be paid under group health plans. However, it serves as a reminder for employers who sponsor an ERISA-covered group health plan. If a participant requests additional information related to the calculation or payment of their non-network emergency claim, this could be considered an ERISA disclosure request that must be responded to within 30 days. The employer would want to work with the insurer on any requests.
On May 1, 2018, the Congressional Research Service (CSR) published a report entitled “Federal Requirements on Private Health Insurance Plans.” The report details the federal requirements that apply to private individual, small group and large group health insurance plans and also self-insured plans.
Of particular interest to employers may be the chart starting on page three of the report that lists more than 30 separate requirements (such as mental health parity, guaranteed issue, guaranteed renewability, COBRA and essential health benefits) and identifies which plans are subject to each requirement. For example, both small and large insured plans are subject to guaranteed issue and renewability; but large insured plans and self-insured plans aren’t required to provide coverage for essential health benefits.
If you have any questions as to which requirements apply to your plan, please contact your advisor for guidance.
On April 17, 2018, the 2019 Notice of Benefit and Payment Parameters was published in the Federal Register. These final regulations adopt most of the proposed regulations, which were issued on Oct. 27, 2017, although there are some deviations in the final regulations.
The rules – which are generally effective for plan years beginning on or after Jan. 1, 2019 – are intended to enhance the role of states in the individual and small group markets, provide states with additional flexibilities, reduce regulatory burdens associated with the ACA and improve affordability.
Many of the rules are aimed primarily at insurers as they are technical in nature and related to the parameters and provisions for the risk adjustment program. The rules which may be of interest to employers are summarized below.
Small Business Health Options Program (SHOP) Premium Rating
Issuers offering coverage through a SHOP are not required, under federal law, to offer average enrollee premiums (commonly referred to as composite rates). They may be required or permitted to do so under applicable state law.
SHOP Guaranteed Availability of Coverage
Effective for plan years beginning on or after Jan. 1, 2018, an insurer may limit enrollment of an employer to the annual enrollment period of November 15 through December 15 of each year if the employer fails to comply with the group participation rules.
Off-Exchange Special Enrollment Periods
Individuals are permitted to enroll mid-year in off-exchange coverage following the gaining of a dependent through marriage, birth, adoption, placement for adoption, placement in foster care or through a child support order (or other court order). The individual may enroll in or change coverage along with their dependents, including the newly gained dependent and any existing dependents. The new dependent also has an independent right to enroll in coverage without the parent or spouse.
Broker-assisted SHOP Enrollment
SHOP rules relax the requirements for interested small employers to enroll in the SHOP online. Small employers who desire to participate in the SHOP will have the option to utilize a broker rather than use the online enrollment platform.
As a result, a state exchange on the federal platform will no longer be able to utilize the federal platform for the functions of employee eligibility, enrollment and premium aggregation functions.
Verification of Employee’s Eligibility for Premium Tax Credit
The proposed rules requested information on ways to improve verification of whether an exchange applicant reasonably expects to be enrolled in employer-sponsored coverage or is eligible for minimum value, affordable coverage from an employer — as such coverage renders the individual eligible for an advanced premium tax credit.
The final rules discuss the need for a comprehensive database of information on employer-sponsored coverage, but acknowledges that one does not currently exist and the building of such a database would be costly. The federally facilitated exchange (FFE) conducted a pilot study that involved the exchange contacting the employers of individuals receiving a premium tax credit. The employers were contacted by telephone based on contact information provided by the individual on the application.
Though only a small sampling of employers were contacted, the FFE found that this approach was not cost-effective. At this time, exchanges will continue to perform verifications using the federal employment database, SHOP database and any alternative method approved by HHS. This means that employers may not have an advanced opportunity to verify an employee’s eligibility for a premium tax credit.
If an employee is ineligible for a premium tax credit due to an employer’s offer of coverage, a large employer would have an opportunity to appeal any associated employer mandate penalty assessed after the fact through the Letter 226J process.
Essential Health Benefits (EHB) Benchmark Plans
States will have greater flexibility in how they select their EHB benchmark plans for plan year 2020 and beyond.
A state’s benchmark plan directly impacts a group health plan’s design in that it serves as a reference plan that defines the scope and limits applied to EHBs. Beginning in 2020, states will be able to select a new benchmark plan annually, select another state’s benchmark plan or substitute categories of benefits from another state’s benchmark plan. Under the proposed rules, CMS requested comments regarding a federal default definition of EHB with states having the ability to expand benefits beyond the default definition.
This specific provision is not being implemented at this time.
Stand-Alone Dental Plans (SADP)
Effective in 2019, SADPs will not be required to meet any specific actuarial valuation. This rule is intended to increase the number of options and plan designs available to consumers.
Medical Loss Ratio (MLR)
Rather than an insurer tracking and reporting their actual Quality Improvement Activity expenses, they will be able to use a standardized amount based on 0.8 percent of the insurer’s earned premium for the year.
This could affect the frequency and amount of MLR rebate checks distributed by insurers to fully insured group health plans.
Maximum Out-of-Pocket Annual Limits
The maximum out-of-pocket limits for 2019 will be $7,900 for single coverage – up from $7,350 in 2018 – and $15,800 for family coverage (up from $14,700 in 2018).
Similar to the preamble of the proposed rules, CMS continued to encourage 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.
Lastly, CMS stated an intention to consider proposals in future rulemaking that would help reduce drug costs and promote drug price transparency.
The rules are generally effective for plan year 2019, unless otherwise indicated. Employers should work with their insurers and administrators to implement the new out-of-pocket limits. Small employers should work with their advisors concerning any questions related to the SHOP and participation requirements.
On April 9, 2018, the IRS released FAQ guidance on the newly-created tax credit available to employers who offer paid FMLA leave. As background, the 2017 Tax Cuts and Jobs Act (2017 Tax Reform) added Section 45S to the Internal Revenue Code to establish a new temporary tax credit for employers that voluntarily offer paid family and medical leave to employees.
Section 45S is intended to incentivize employers to offer FMLA leave on a paid basis. To be eligible for the new federal tax credit, an employer must have a written policy that offers at least two weeks (annually) of paid family and medical leave to full-time employees and a proportionate amount to part-time employees that is based on the employee’s expected work hours. The paid leave must be available to all employees who have been employed by the employer for at least one year and who, for the preceding year, had compensation of not more than 60 percent of the highly compensated employee threshold for the preceding year — for 2018, that means employees making more than $72,000, as 2017 is the preceding year. Extending the offer of paid family leave to employees above the threshold is permissable, but the credit would not be available.
The FAQs add further detail as to what qualifies as "family and medical leave" for purposes of the credit. Section 45S mirrors the federal Family and Medical Leave Act (FMLA), to include one or more of the following:
If the employer provides paid leave as vacation leave, personal leave, or medical or sick leave – other than leave for one or more reasons above – that paid leave is not considered family and medical leave.
The FAQ also explains how to calculate the general business credit, which is equal to 12.5 percent of the amount of wages paid to a qualifying employee while on family and medical leave when the employer provides at least 50 percent of normal wages for up to 12 weeks per taxable year. The credit increases incrementally up to a maximum of 25 percent for employers that offer 100 percent of normal wages during a qualifying leave, is currently available for wages paid in taxable years beginning after Dec. 31, 2017 and is scheduled to expire after Dec. 31, 2019. Essentially, it’s available for employers that offer paid FMLA leave in 2018 and 2019.
The Section 45S tax credit is available to all employers, even those that are not subject to FMLA, so long as they offer certain FMLA-like protections to employees. Section 45S does not mandate that employers provide FMLA leave on a paid basis and does not change any aspect of FMLA. It also does not take into account any paid leave required by state or local law in determining the amount of paid leave the employer provides. Further, it is unclear how employers that pay in excess of State or local requirements may qualify for the credit under Section 45S.
The IRS intends to publish additional guidance on the credit. An example of the items to be addressed include, but are not limited to: when the written policy must be in place, how paid family and medical leave relates to an employer’s other paid leave, how to determine whether an employee has been employed for one year or more, the impact of state and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.
Employers that currently offer a paid leave opportunity to full-time employees (and part-time employees) should review the FAQs to determine if the current program qualifies for the available tax credit. If an employer currently does not offer an FMLA program or the program offered does not meet the standard established under Section 45S, they should consider the tax benefits of a paid family and medical leave policy, keeping in mind that this program is temporary (at least currently). Employers may also want to work with outside counsel, since a review of current leave policies and procedures would be necessary.
On March 20, 2018, the Congressional Research Service (CRS) released its 2018 U.S. paid family leave report, giving an overview of paid family leave in the United States — including employer-sponsored paid family leave and state-run paid family leave insurance programs. It also compares paid family leave policies in other advanced-economy countries and addresses recent legislative activity as it relates to federal paid family leave.
As a reminder, FMLA provides workers with an entitlement of up to 12 weeks of unpaid leave for their own serious health condition, to care for an immediate family member (spouse, child, or parent — but not a parent "in-law") with a serious health condition, or following birth/adoption/placement for foster care, but no federal law currently provides workers entitlement to paid leave of any kind.
The report discusses state mandated paid family leave for eligible employees engaged in certain caregiving activities, including California, New Jersey, New York, Rhode Island, Washington State and the District of Columbia, and highlights recent federal legislation which allows employers to receive tax credits for a portion of wages paid to employees out on FMLA.
The report also illustrates trends in voluntary employer-provided paid family leave within the U.S. private sector. Not surprisingly, the statistics show that employer-provided paid leave is more prevalent among professional and technical occupations and industries, high-paying positions, full-time employees, and employees working for large companies. It also indicates, however, that there may be a shift in company-provided family leave due to recent company announcements emphasizing paid parental leave and more expansive uses of family leave.
While no mandated federal paid leave legislation has been enacted as of yet, employers should be aware of state law and city ordinances mandating paid leave for certain caregiving situations. Therefore, employers wishing to keep abreast of paid leave mandates and trends may find this report useful.
On March 12, 2018, the U.S. District Court for the District of Massachusetts, in Massachusetts v. U.S. Dept. of Health and Human Services (HHS), 2018 WL 1257762 (D. Mass. 2018), held that Massachusetts lacks standing to challenge two interim final HHS rules relating to the contraceptive coverage exemption for employers with religious and moral objections. As background, the ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost-sharing. Certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process. Then, in October 2017, HHS published two interim final rules that significantly expanded the religious exemption (as outlined in our Oct. 17, 2017, article here) by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services. The interim final rules also provided an exemption for insurers with sincerely held moral objections to contraceptive coverage.
In Massachusetts v. HHS, the state of Massachusetts argued that HHS hadn’t complied with the Administrative Procedure Act (APA) when it failed to provide an applicable notice and comment period before issuing the two interim final rules, and that the rules will cause significant harm to Massachusetts women who lose contraceptive coverage as a result of the rules’ enforcement. Massachusetts estimated that between 666 and 2,520 Massachusetts women who are currently using contraception would lose their employer-sponsored coverage and would, therefore, experience increased out-of-pocket costs, as a result of the two rules. Based on those arguments, the state requested a nationwide permanent injunction (prohibition) on enforcement of the two rules.
The court denied the injunction, concluding that Massachusetts hadn’t established that anyone had actually been harmed by the new rules or that employers would actually use the expanded exemptions. The court reasoned that because Massachusetts already has a law on its books that prohibits certain employer-sponsored group health plans from imposing cost-sharing for contraceptives, the estimates were inaccurate and inappropriately based on unsupported assumptions.
Interestingly, courts in California (CA) and Pennsylvania (PA) have previously imposed nationwide preliminary injunctions that block enforcement of the two interim final rules. The Massachusetts court, however, distinguished itself by concluding that employers in CA and PA are likely to use the expanded exemptions (since those states don’t have similar laws prohibiting it). According to the MA court, to be able to show harm (fiscal injury or suffering some type of adverse effect on the health of state residents), the state must show that employers intend to actually use the expanded exemptions. The MA court’s ruling means the case may continue; we’ll have to wait and see how the court rules on the merits of the case itself.
For employers, the court decision doesn’t bring new compliance obligations, but the issue is still quite unsettled. Thus, employers wishing to rely upon any expanded religious exemptions should work with outside counsel to better understand whether they qualify for such exemptions.
In March, 2018, the Government Accountability Office (GAO) released a publication which reviews the awarded commitments provided by the Patient-Centered Outcomes Research Institute (PCORI) and the corresponding expenditure data from the Patient-Centered Outcomes Research Trust Fund (Trust Fund) as well as the HHS data on obligated funds to publish the PCORI findings and build data capacity for the research.
As background, PCORI is a federally funded, nonprofit corporation authorized by the ACA to improve the quality and relevance of evidence through research to help patients, clinicians, purchasers and policymakers to make informed health care decisions. In short, PCORI exists to improve comparative clinical effectiveness research (CER). The ACA also requires HHS to publish the findings from the CER, including those provided by PCORI, and to coordinate with relevant federal health programs to handle the research. Funding for this research is collected from the general fund of the Department of Treasury (Treasury), transfers from the Medicare trust funds, and fees collected by the Treasury from private insurance and self-insured health plans.
The ACA charged the GAO to review PCORI’s use of federal funding by 2018. For this report, the GAO analyzed: (i) the PCORI’s use of the commitments made for the Trust Fund for comparative CER activities, including the distribution of the research findings and (ii) HHS’s use of the Trust Fund for these activities.
The GAO findings in this review were limited, because most research is still underway. Only 53 of the 543 research projects were completed as of the end of fiscal year 2017, because the CER process from initial proposal stage to publishing the research may take up to six years to complete. To date, PCORI has committed about $2 billion for awards in 2010-2017. About 79 percent of the $2 billion is for research awards ($1.6 billion) and 16 percent is to build the capacity to use existing health data to conduct the research. PCORI projects to commit an additional $721 million in fiscal years 2018-2021. Of the current committed funds, health conditions that received the highest PCORI research award commitments include mental and behavioral health, cancer, cardiovascular disease, neurological disorders and patients suffering from multiple chronic conditions.
HHS has committed $448 million from the Trust Fund, a majority of which was to distribute and implement CER findings. Similar to the situation at PCORI, a majority of the research is still being completed, and the CER has yet to be done. HHS plans to spend $120 million in fiscal years 2018-2020 to satisfy the obligation to train researchers on conducting CER, build data capacity and perform administrative activities.
The report contains no new employer obligations, but employers may be interested in reviewing it to gain a better understanding of the PCORI.
The GAO Report of PCORI’s use of federal funds »
The GAO Report of PCORI’s research activities published in 2015 »
Compliance Corner wouldn’t normally include coverage of a district court case that hasn’t yet been decided. However, the details of this specific case serve as a cautionary tale for employer plan sponsors to remain diligent in their overall compliance efforts.
In 2014, employee Magdy Abdelmassih worked for a number of Kentucky Fried Chicken restaurants located in Pennsylvania. Mitra, a corporation in Texas, owned the restaurants, with Manish Patel and Pushpak Patel serving as co-owners and co-CEOs. From March 10 to April 28, 2014, Abdelmassih was on FMLA related to a chronic medical condition. Later that year, he was terminated from employment.
In Abdelmassih v. Mitra QSR KNE LLC, 2018 WL 1083857 (E.D. Pa. 2018), Abdelmassih brought a total of eight claims against the corporation, HR manager, regional manager and owners under the ADA, ADEA, COBRA, FLSA, FMLA and related state law. The Feb. 28, 2018 ruling by the U.S. District Court for the Eastern District of Pennsylvania was simply to determine whether summary judgment would be granted to the defendants on those claims. In other words, the court ruled whether the legal claims would continue under review or if they would be dismissed.
The court dismissed the ADEA, ADA, FMLA and FLSA claims against co-owners Manish and Pushpak Patel. While individuals can be held liable in some capacity under these laws, the court determined that the owners didn’t play an active, supervisory role in Abdelmassih’s employment.
The ADEA claim against the corporation and other defendants wasn’t dismissed in summary judgment, as evidence was presented that the regional manager had made disparaging comments regarding the employee’s age (he was in his 60s). The court dismissed the ADA claim for failure to provide reasonable accommodation, reasoning that there was no evidence that the employee had requested or stated a need for accommodation. The ADA claim for discrimination related to disability and the FMLA claim related to retaliation wasn’t dismissed in summary judgment, as there was evidence that the employer had possibly treated the employee in a discriminatory or retaliatory manner upon return from FMLA, ultimately resulting in termination of employment. Also, the employer failed to distribute the required FMLA notices to the employee (Notice of Eligibility and Rights & Responsibilities; Designation Notice). Additionally, the court denied summary judgment on the FLSA claim against the corporation, as there was evidence that the employee regularly worked 50 or more hours per week without overtime payment.
Lastly, upon the employee’s termination of employment, the employer failed to provide the employee with a COBRA election notice. The employee brought a claim under COBRA against the corporation and the owners. The claim against the owners was dismissed as they weren’t the plan administrators. As a reminder, under ERISA, the plan administrator is liable for statutory penalties based on failure to provide required notification. The plan administrator must be identified in the SPD. If the SPD fails to identify a plan administrator (or if the plan fails to have an SPD), the employer plan sponsor is the default plan administrator. If a specific individual is named as the plan administrator, that individual could be held personally responsible for any failures. This is why it’s best practice to identify the employer as the plan administrator in the SPD and other plan documents. In this case, the benefits brochure listed the HR manager as the COBRA contact and United Healthcare as the insurance provider. The owners weren’t mentioned in any documentation, so summary judgment was granted for that claim.
It will be interesting to see how these claims are ultimately decided by the court. While the defendants presented evidence of the employee’s past poor performance, there was enough evidence of notification failures, retaliation and discrimination on the employer’s behalf that the defendants were denied summary judgment for several of the claims. This case serves as a reminder of an employer’s obligation to distribute FMLA and COBRA notices in a timely manner, the importance of identifying the employer as the plan administrator in plan documents and the potential consequences for failure to train managers on the ADA, ADEA and FLSA requirements.
On March 8, 2018, CMS issued a letter to Idaho Gov. Otter and Insurance Director Cameron that states that health insurance products sold under the state insurance department's Bulletin No. 18-01 don't comply with several provisions required under the ACA. As such, CMS acknowledged its duty, somewhat reluctantly, to take over enforcement responsibility if it determines that a state fails to substantially enforce the requirements.
As background, Idaho Bulletin No. 18-01 was released in January 2018 in response to Gov. Otter's executive order directing the Idaho Department of Insurance to pursue creative options that encourage carriers to offer lower-cost health plans, including options that don't meet ACA requirements. Generally, the bulletin requires that insurers follow some ACA mandates, but it substantially relaxes others. For example, the bulletin allows carriers to impose preexisting condition exclusions when an individual experiences a break in coverage, omits certain essential health benefits, permits premium increases for individuals who report having particular health conditions and authorizes annual benefit dollar limits.
CMS's letter identifies eight categories in which the bulletin authorizes provisions that fail to meet ACA requirements. It also gives the state 30 days to respond, spells out the process of determining whether the state is properly enforcing the ACA, and mentions the consequences if CMS has to assume enforcement authority, including potential civil penalties levied against noncompliant insurers. However, the letter suggests that the Idaho plans could possibly be offered under the proposed exception for short-term, limited-duration plans.
While these plans don't directly affect the employer-sponsored insurance market, it may be helpful for employers to understand these developments in order to assist with employee inquiries.
On Feb. 20, 2018, the DOL, HHS and Department of the Treasury (the Departments) issued a proposed rule to change the maximum duration of short-term, limited-duration coverage to less than 12 months (the current maximum duration is less than three months). The issuance of this proposed rule was a direct result of an executive order issued by President Trump in October 2017, which sought an extension of the short-term, limited-duration coverage allowed.
As background, short-term, limited-duration insurance is a type of coverage intended to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another form of coverage. This type of coverage is exempt from the definition of "individual health insurance coverage" under the ACA and is, therefore, not subject to ACA provisions that apply to individual health insurance plans — including the requirement to provide coverage for essential health benefits, the prohibition on annual and lifetime dollar limits and prohibition on pre-existing condition exclusions. As a result, short-term, limited-duration insurance plans generally cost less than ACA-compliant plans.
In, 2016, the Departments published a final rule that restricted short-term, limited-duration insurance to less than three months (including any renewal periods), but key stakeholders, including state regulators, expressed concerns that the three-month limit could cause harm to some consumers, limit consumer options and have little positive impact on the risk pools in the long run. The new proposed rules address these concerns by reverting to an earlier definition of such insurance that permits this coverage up to 12 months.
In addition to extending the duration of coverage, the proposed rule also requires specific language to appear in the contract (and in any application materials) to help consumers understand the short-term, limited-duration coverage they're purchasing. There are two permissible versions of the notice, but both are intended to clearly communicate that the short-term, limited-duration coverage isn't required to comply with the federal requirements for health insurance, that the expiration of the coverage or loss of eligibility may require waiting until an open enrollment period and the coverage is not "minimum essential coverage" (which means the individual could later be exposed to a tax liability for failure to obtain MEC).
CMS is accepting comments on the proposed rule for 60 days until April 23, 2018.
On March 1, 2018, the IRS released sample Notice CP 220J, which will notify applicable large employers (ALEs) that the IRS has charged them an employer shared responsibility payment (ESRP).
As background, this notice was preceded by the release of Letter 226J, which is the initial letter sent by the IRS notifying ALEs of a proposed ESRP (see the Nov. 14, 2017, edition of Compliance Corner for more information), and Forms 14764 (ALE's response to a proposed ESRP) and 14765 (list of employees receiving premium tax credit). (Ask your advisor for a copy of our ESRP Process white paper for more information.)
So, if the IRS concludes that an ALE in fact owes an ESRP, the IRS will send Notice CP 220J, soliciting the payment. Specifically, Notice CP 220J will show the assessed tax amount and provide the ALE with payment instructions. The ALE should carefully read the notice for the due date, amount due and payment options. The ALE won't have to submit payment before the notice is sent. In a situation similar to other assessed taxes, the ESRP will be subject to an IRS lien and the IRS may levy enforcement actions. Additionally, interest will accrue from the date of the notice and demand and will continue until the total amount due is paid in full.
Finally, if an ALE disagrees with the ESRP assessment being made by the IRS, various options are discussed on page two of the notice, including filing suit in a U.S. District Court and the opportunity to ask questions about the ESRP calculations.
Considering what we've seen in regards to these ESRP assessments, there are some compliance responsibilities ALEs should keep in mind for future filings. ALEs should make sure that offers of coverage are documented every year during open enrollment and that signed waiver forms are collected from any FTEs who decline the group health coverage. Additionally, employers should keep important records, such as payroll records, variable-hour tracking calculations, signed enrollment forms and copies of enrollment materials showing employee costs and coverage options.
Finally, ALEs should carefully consider and select a vendor, if appropriate, to populate and file Forms 1094-C and 1095-C. They also shouldn't assume the vendor will correctly populate the forms without any employer oversight. Generally, this means the ALE should ensure all IRS instructions for completing the forms are properly followed, that the indicator codes used in Lines 14 and 16 are correct before filing any 1095-C forms with the IRS and that filing and employee distribution is completed by the IRS deadlines each year. While a vendor may assist an employer with its reporting requirements, the responsibility and liability for such compliance remains with the employer.
On Jan. 18, 2018, HHS announced the 2018 federal poverty levels (FPL). The threshold for the 48 contiguous states is $12,140 for a single household and $25,100 for a household of four individuals. The thresholds are different for Alaska ($15,180 and $31,380, respectively) and Hawaii ($13,960 and $28,870, respectively).
The FPL plays an important role under the ACA. Individuals who purchase 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 9.56 percent (for 2018) of the single FPL. This means that the FPL affordability safe harbor threshold in the 48 contiguous states for 2018 would be $96.71 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 safe harbors.
Employers should consider this adjustment to the FPL when determining whether their coverage is affordable, especially if they're using the FPL affordability safe harbor. The 2018 FPL is applicable beginning Jan. 13, 2018.
In the last 12 months, there have been several changes to the preventive services that must be offered with no cost sharing. As background, the ACA requires non-grandfathered health plans to provide coverage for a range of preventive care services without cost-sharing requirements (such as copayments, deductibles or coinsurance requirements) for patients. The mandatory preventive care benefits required under the ACA include evidence-based screenings and counseling, routine immunizations, preventive services for children and youth, and preventive services for women.
The ACA's list of "Mandated Preventive Health Care Services" is subject to annual updates, and insurers and self-funded health plan administrators must ensure that their coverage requirements encompass each of the newly added items (as applicable) as of the first day of the plan year or policy year one year after the recommended update is issued. Additionally, plan documents, benefit schedules, summary plan descriptions (SPDs) and similar communications, and any related materials should be carefully reviewed and updated (where appropriate). Those updated documents should also be provided to plan participants.
The list for significant updates to the Mandated Preventive Health Care Services provided by the U.S. Preventive Services Task Force (USPSTF) are listed as follows (by order of effective date):
The Health Resources and Services Administration (HRSA) provided updates to the preventive services for women (incorporated into the Mandated Preventive Health Care Services), mandated for plan years beginning on and after Dec. 20, 2017:
The following are updates to the 2018 Immunization Practices provided by the Advisory Committee on Immunization Practices (ACIP) (incorporated into the Mandated Preventive Health Care Services). They are effective February 2018:
The revised nominated conditions to the Recommended Uniform Screening Panel (RUSP) mandated for plan years beginning on and after February 2017 include:
There are significant changes made to the Bright Futures/American Academy of Pediatrics – Bright Futures Project Recommendations, which are mandated for plan years beginning on and after May 1, 2018), and include:
Though the NFP Benefits Compliance team has provided these updates ad hoc in the past, going forward, we intend to summarize all changes to the Mandated Preventive Health Care Services list in October of each year so that plan sponsors have time to incorporate the new changes (if any) into the plan documents prior to the beginning of the then upcoming plan year.
Note: Plan sponsors (of non-grandfathered plans) should work with their medical and pharmacy benefit administrators to ensure that the new recommendations are implemented and determine if there's a cost impact to the plan. Further, the impact of some of these expansions is unknown, but it may be best to reach out to your stop-loss carrier to see if there are additional concerns.
USPSTF, Preventive Care Mandates »
HRSA, Women's Preventive Service Guidelines »
ACIP, 2018 Immunization Schedule for Children and Adolescents Aged 18 or Younger »
Recommended Uniform Screening Panel (RUSP) »
Bright Futures provided by the American Academy of Pediatrics »
The IRS recently updated the website section, “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act,” primarily to adjust for 2018 penalty amounts that relate to ALEs that fail to offer affordable coverage to all their full-time employees (under IRC Section 4980H). The updates include (Q&A-54):
As a reminder, the IRS has started to send Letter 226-J to inform ALEs of their potential liability under IRC Section 4980H (Employer Shared Responsibility Payment – ESRP) for the 2015 calendar year. This notes the first-ever assessment of employer shared responsibility penalties.
IRS Letters 226J are based on information from Forms 1094-C and 1095-C filed by the ALE, the individual income tax returns filed by the ALE’s employees and information from the state health insurance exchanges relating to premium tax credit qualification. Some of the notices already distributed have contained assessed penalties in the millions of dollars. More Letters 226-J are expected to be issued in 2018 and future years. If you receive one, be sure to reach out to counsel so that you can promptly prepare a response within 30 days.
On Jan. 22, 2018, Pres. Trump signed H.R. 195 into law. The main purpose of this legislation was to continue funding government operations and reauthorize the Children’s Health Insurance Program (CHIP) for six more years. However, it also impacts several provisions of the ACA, including the Cadillac tax and the health insurance tax (HIT).
First, the effective date of the excise tax on employer-sponsored coverage that exceeds a certain threshold, known as the Cadillac tax, has been pushed back until 2022 (tax years beginning after Dec. 31, 2021).
Second, the health insurance provider fee, also called the HIT, will be in moratorium for calendar year 2019. In other words, the HIT is effective for 2018, suspended for 2019, and effective again for calendar year 2020 and beyond. In response to the changes, the IRS released an FAQ that provides greater detail on how the provider fee is paid, when it applies and how the moratorium in 2019 affects 2018, 2020 and beyond.
Additionally, the bill delays the medical device tax, which will now be effective for sales made after Dec. 31, 2019.
The delay of the Cadillac tax and the HIT is welcome relief for employers, considering the effect these taxes may ultimately have on their plans. Bipartisan efforts for a full repeal of the Cadillac tax and HIT are likely to continue. Regardless, employers should evaluate whether plan amendments are necessary considering these recent changes.
The IRS recently issued the 2017 version of the Form 8941, Credit for Small Employer Health Insurance Premiums, and the related Instructions. Form 8941 is used by small employers to calculate and claim the small business health care tax credit. As background, this tax credit benefits employers that do all of the following:
The 2017 instructions include three important changes. First, the average annual wage for 2017 is increased from $52,000 (in 2016) to $53,000. Second, the IRS states that employers located in Hawaii cannot claim this credit for insurance premiums paid for health plans beginning after 2016. This is because Hawaii’s Section 1332 Innovation Waiver related to the SHOP was approved by HHS. Thus, effective 2017, the state of Hawaii is no longer required to maintain a SHOP because of the state’s Prepaid Health Care Act, which requires employers of all sizes to offer affordable coverage to employees. The state also provides premium assistance to small employers. There is transition relief for Hawaii employers that claim the credit for plan years beginning in 2016 and continuing into 2017. The credit will continue to be available for those months falling in 2017.
Lastly, small employers located in Pierce, Polk and St. Croix counties in Wisconsin are eligible to claim the credit if they offered health insurance coverage outside of the exchange to employees and otherwise qualify for the credit. The credit is available to employers who did not offer coverage through the SHOP because in 2016, the SHOP in these counties failed to offer qualified health plans to small employers. The employer must have a principal business address in one of the identified counties.
If a small employer qualifies for the health care tax credit, they should work with their accountant to properly claim the credit with the IRS.
On Dec. 22, 2017, the IRS released Notice 2018-06, which delays the date by which informational statements must be provided to individuals and provides transitional good faith relief for reasonable mistakes made in reporting Sections 6055 and 6056 information about 2017.
Specifically, the due date for providing individuals with Form 1095-B (by a carrier or self-insured employer) and Form 1095-C (by an applicable large employer) has been extended by 30 days, to March 2, 2018 (changed from Jan. 31, 2018). The deadline for filing these forms with the IRS hasn’t changed. That date remains April 2, 2018, if filing electronically, or Feb. 28, 2018, if not filing electronically. If an employer doesn’t comply with the deadlines, the employer could be subject to penalties.
Despite the extended due date, employers and other coverage providers are encouraged to furnish 2017 statements as soon as they’re able. But if individuals haven’t received these forms by the time they file their individual tax returns, they may rely upon other information received from employers or coverage providers to attest that they had minimum essential coverage as required by the individual mandate. Individuals need not amend their returns once they receive the forms, but they should keep them with their tax records.
In addition, Notice 2018-06 extends good faith effort relief to employers for incorrect or incomplete returns filed in 2018 (as to 2017 information). The IRS previously provided relief for penalties stemming from 2017 reporting failures (as to 2016 data), and the relief appears to be outlined in the 2017 Instructions for Forms 1094-C and 1095-C. Accordingly, for 2017 and prior filings, relief is available to entities that could show that they made good faith efforts to comply with the information reporting requirements, even if they reported incorrect or incomplete information. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the AIR electronic submission process. This relief doesn’t apply to a failure to timely furnish or file a statement or return, and doesn’t extend to employer mandate penalties (for large employers that didn’t offer affordable coverage to full-time employees pursuant to the ACA’s employer mandate).
On Dec. 28, 2017, CMS finalized the 2019 actuarial value (AV) calculator methodology, which only contained small changes from the draft calculator reported on in the Nov. 14, 2017, Compliance Corner. 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 11.5 percent to account for the expectation that the cost of prescription drugs is to increase at a substantially higher rate than medical costs. For the 2019 AV calculator, the maximum out-of-pocket limit and related functions have been set at $8,000 to account for an estimated 2019 annual limitation on cost sharing. The 2019 annual limitation on cost sharing will be specified in the final 2019 payment notice.
Employers don’t need to take any action in relation to the AV calculator. Large groups aren’t 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.