On Dec. 18, 2015, President Obama signed HR 2029, which served as the vehicle for both the Consolidated Appropriations Act, 2016 (House Amendment #1) and the Protecting Americans from Tax Hikes Act of 2015 (House Amendment #2). While the legislation primarily served as a general omnibus bill addressing appropriations and tax policies, the two amendments contain several items of importance to employers sponsoring employee benefit plans.
Consolidated Appropriations Act, 2016 (House Amendment #1)
House Amendment #1 includes a two-year delay of the so called “Cadillac tax,” which is a 40 percent excise tax on the high cost of health plans, found in IRS Code Section 4980I. Specifically if the monthly cost of an employee’s applicable employer-sponsored health coverage exceeds a threshold of $850 ($10,200 annually) for self-only coverage, or $2,292 ($27,500 annually) for coverage other than self-only, the excess benefit amount will be taxed at 40 percent. The tax was previously scheduled to be effective in 2018, but this amendment delays the effective date of the Cadillac tax to 2020. Importantly, the tax was previously a nondeductible expense to employers but the amendment makes the tax deductible to employers.
The amendment also includes a provision allowing potential adjustments to the age and gender parameters outlined in the law. Congress will study and hear reports on other possible benchmarks for the Cadillac tax’s age and gender adjustment, rather than the current reference to the Federal Employees Health Benefit Plan. To that end, the legislation includes a requirement that the Comptroller General of the United States provide a report within 18 months to Congress on appropriate age and gender adjustments in consultation with National Association of Insurance Commissioners (NAIC).
While employers don’t need to take immediate action as a result of this delay, it’s welcome relief for many employers who expected to be impacted by the tax in 2018 when it was originally effective. NFP’s Benefits Compliance team will continue to monitor and report on future developments with respect to the Cadillac tax.
A second provision within House Amendment #1 provides for a one-year moratorium on the annual fee on health insurance providers, known as the HIT tax. The tax, enacted through Section 9010 of PPACA, will be suspended from Jan. 1, 2017, through Dec. 31, 2017. This tax applies only to insurers and excludes self-insured plans, although it does apply to limited-scope dental, vision and retiree-only plans. While the delay of this tax doesn’t require any employer action, employers may see a decrease in costs since most insurers passed the fee onto the plan through rate increases.
House Amendment #1 also suspends implementation of the 2009 recommendations made by the United States Preventive Services Task Force (USPSTF) with respect to breast cancer screening, mammography and prevention until Jan. 1, 2018. As a reminder, recommendations by the USPSTF with an A or B rating must be covered with zero cost-sharing for participants in a non-grandfathered employer-sponsored health plan. Therefore, employers sponsoring non-grandfathered group health plans would follow the 2002 recommendations related to breast cancer screening, mammography and prevention until Jan. 1, 2018.
Protecting Americans from Tax Hikes Act of 2015 (House Amendment #2)
Medical Device Tax
Section 4191 of the IRS Code imposed an excise tax on the sale of certain medical devices by the manufacturer or importer of the device. The tax applied to sales of taxable medical devices beginning Jan. 1, 2013. The tax was 2.3 percent. House Amendment #2 suspends this provision for two years, which means that the tax will not apply to sales beginning Jan. 1, 2016, through Dec. 31, 2017.
Parking and Transit Passes
Finally, House Amendment #2 includes a provision to restore parity to the tax exclusion for parking and mass transit benefits. Under current law, the qualified parking exclusion limit is $250 per month and the transit pass limit is $130 per month. In 2016, the qualified parking exclusion limit increases to $255 per month, but there was no similar increase for transit passes. This amendment provides for indefinite parity for parking and transit passes, setting both limits at $250 per month for 2015 and increasing both to $255 per month in 2016, rather than the short-term fixes provided in prior years. The effective date for this provision is Jan. 1, 2015.
In order for the extension to be effective retroactive to Jan. 1, 2015, expenses incurred for months beginning after Dec. 31, 2014 by an employee for employer-provided vanpool and transit benefits may be reimbursed (under a bona fide reimbursement arrangement) by employers on a tax-free basis to the extent they exceed $130 per month and are no more than $250 per month.
Questions about any of these legislative developments should be directed to your advisor.
On Dec. 16, 2015, the Departments of the IRS, DOL and HHS jointly issued guidance in the form of Notice 2015-87, addressing a variety of important issues affecting employers sponsoring group health plans. The notice includes 26 questions and answers divided into six parts. Part II of the notice contained guidance jointly issued by the three departments, while Parts III-VI address provisions only under the jurisdiction of the Treasury and IRS. A brief summary of each section, along with effective dates of the issues discussed in the notice is provided below.
Part II: HRAs and Coordination with Individual Coverage, Group Health Plans and Employer-Funded Health Care Arrangements
Six questions and answers are included within this section, which provide additional clarity on Health Reimbursement Arrangements (HRAs).
Question 1 states that if an HRA is only available to retirees or former employees, and fewer than two current employees are covered on the plan, then the HRA will be considered an excepted benefit and may be used to purchase individual coverage. However, the availability of the HRA will preclude a participant from receiving a premium tax credit in the exchange.
Question 2 explains that an HRA that covers two or more participants who are current employees (a nonexcepted benefit) cannot reimburse individual coverage premiums for individuals once they terminate employment and cease to be covered by the employer-sponsored group plan. Since the HRA is not an excepted benefit (it is available to current employees) then it will fail to be integrated with another group plan if it is available to be used to purchase individual coverage.
Question 3 discusses the ability of a participant to use funds previously credited in an HRA before Jan. 1, 2014 to reimburse medical expenses under the terms of the HRA in place prior to Jan. 1, 2014 without causing the HRA to fail the market reforms. Since the reimbursement of individual coverage was prohibited effective Jan. 1, 2014, this FAQ is essentially allowing the reimbursement of individual policy premiums using HRA funds credited before Jan. 1, 2014.
Question 4 is a new development, as the Departments are taking the approach that an HRA is only available to individuals who are enrolled in both the HRA and the employer’s group health plan. In other words, an employee who has self-only coverage cannot request reimbursement for medical expenses for a spouse or dependents since the employee does not have family coverage through the employer. The Departments suggest designing eligibility for the HRA to be continuously tied to individuals covered under the employer’s group health plan, so that eligibility for expense reimbursement will automatically adjust when an employee makes a mid-year election change for coverage. Since this is a change from prior guidance, the IRS is allowing a transition period to comply with this provision. As such, the IRS will allow HRAs to continue to reimburse expenses of family members not enrolled in the employer’s other group health plan based on the terms of the plan as of Dec. 16, 2015 (the date of the notice) for plan years beginning before Jan. 1, 2017. However, the notice clarifies that the employer is responsible under Section 6055 to report the coverage as minimum essential coverage for each individual who received reimbursements from the HRA but was not enrolled in the employer’s group health plan.
Question 5 further expands on previous guidance issued in IRS Notice 2013-54 and clarifies that HRAs and employer payment plans may reimburse individual market coverage consisting solely of excepted benefits such as limited purpose dental or vision coverage. Two examples illustrate the application of this. In the first example, the HRA is designed to only reimburse excepted benefit coverage. However, in the second example, the HRA is not designed to only reimburse excepted benefit coverage, but the employee is reimbursed for a policy consisting of only excepted benefits. Under this second example, the plan design would violate market reforms. Thus, the HRA or any employer payment plan reimbursing premiums for individual coverage for active employees must include limitations such that reimbursements are only available for individual market coverage for excepted benefits.
Question 6 clarifies that an employer arrangement reimbursing the cost of individual market coverage under a cafeteria plan is an employer payment plan, which as previously clarified under IRS Notice 2013-54 is a group health plan for purposes of market reforms and is expressly prohibited.
Part III: Employer Mandate Considerations When Employer Offers HRAs, Flex Credits, Cash-out, or Fringe Benefit Payments under McNamara-O’Hara Service Contract Act or Davis-Bacon (Questions 7-17)
Question 7 discusses how contributions to an HRA are taken into account for purposes of whether an applicable large employer (ALE) has made an offer of affordable, minimum value coverage. The FAQ also clarifies that employer contributions to an HRA which can be counted towards affordability should be determined ratably for each month of the period to which it relates.
The guidance states that if the employee can use the HRA to pay premiums for an eligible employer-sponsored plan, or can use the HRA to pay premiums and receive reimbursements for cost-sharing, then amounts made available under the current plan year are counted towards the employee’s required premium contribution towards the eligible employer-sponsored plan.
However, if the employee cannot use the HRA to pay premiums for an eligible employer-sponsored plan, but can only receive reimbursements for cost-sharing, then the amount available under the HRA is not counted towards premium contribution towards the eligible employer-sponsored plan, but rather is counted towards minimum value.
Question 8 discusses how flex contributions to a cafeteria plan are taken into account for purposes of determining whether an ALE has made an offer of affordable, minimum value coverage. Whether employer flex contributions may be taken into account depends on the nature of the contribution.
Therefore, employers who have a flex credit arrangement in their cafeteria plan design must carefully determine whether they will be able to apply the health flex contribution towards the employee’s affordability calculation. Employers who offer a cash-out arrangement within their cafeteria plan should see the discussion for Q/A-9, below.
Question 9 discusses arrangements where an employer provides for a cash-out/opt-out payment if an employee declines participation in the employer-sponsored group plan. Importantly, the IRS is clarifying what NFP Benefits Compliance has suspected, which is that the amount of the cash-out available to the employee must be added to the amount of the employee’s contribution for health coverage for purposes of determining whether coverage is affordable to the employee.
The IRS intends to propose regulations addressing situations like this where there is an unconditional opt-out payment conditioned solely on the employee declining coverage under the plan. It is anticipated that the proposed regulations will also address and request comments on the treatment of opt-out payments that are conditioned not only on the employee declining employer-sponsored coverage but also on satisfaction of additional conditions (such as the employee providing proof of having coverage provided by a spouse’s employer or other coverage). The IRS expects any regulations will be effective prospectively, following the issuance of regulations.
However, if an employer does not currently offer a cash-out option for declining coverage, if they put one in place after Dec. 16, 2015, then they will need to include the mandatory opt-out amount as part of the employee’s required contribution when calculating affordability of coverage. For this purpose, an opt-out arrangement is treated as adopted after Dec. 16, 2015 unless:
If an employer satisfies these requirements and previously had an opt-out payment in place, then the opt-out payment will not be treated as increasing the employee’s required contribution for affordability purposes.
Question 10 addresses employer payments for fringe benefits made pursuant to the McNamara-O’Hara Service Contract Act, the Davis-Bacon Act, or the Davis Bacon Related Acts (the “Acts”). Because of the unique nature in the way these workers may be paid under these Acts, the IRS recognizes that there are difficulties complying with the employer mandate affordability requirements. As such, the IRS will continue to consider how the requirements under these Acts and the employer mandate will be coordinated. In the meantime and until further guidance is issued (and for plan years beginning before Jan. 1, 2017) employer fringe benefit payments (including flex credits or flex contributions) that are available to employees covered by the Acts to pay for coverage under an eligible employer-sponsored plan (even if alternatively available to the employee in other benefits or cash) will be treated as reducing the employee’s required contribution for participation in that eligible employer-sponsored plan for purposes of Penalty B, but only to the extent the amount of the payment does not exceed the amount required to satisfy the requirement to provide fringe benefit payments. In addition, for these same periods an employer may treat these employer fringe benefit payments as reducing the employee’s required contribution for purposes of reporting under Section 6056 (Form 1095-C), subject to the same limitations that apply for purposes of Penalty B. Employers are, however, encouraged to treat these fringe benefit payments as not reducing the employee’s required contribution for purposes of reporting under Section 6056.
Question 11 encourages employers using relief from Questions 8 through 10 (described above), to notify employees that they may need updated information about their required contributions and should contact the employer using the telephone number provided on the Form 1095-C. Because the amount reported by the employer as the employee’s required contribution will be a lower amount, the employee may actually need further information and could be eligible for a premium tax credit.
Question 12 clarifies that the IRS intends to amend the employer mandate regulations to reflect that the applicable percentage in the affordability safe harbors should be adjusted so that employers may rely upon the 9.56 percent for plan years beginning in 2015 and 9.66 percent for plan years beginning in 2016.
Question 13 provides the adjusted amounts of the employer mandate penalties for 2015 and 2016.
Penalty A is $2,080, Penalty B is $3,120
Penalty A is $2,160, Penalty B is $3,240
Question 14 discusses the definition of “hour of service” and clarifies that there is no 501-hour limit on the hours of service required to be credited to an employee. It also clarifies whether to count hours of service if an individual is receiving short-term or long-term disability payment. It will depend on how the payments are made and whether the employee contributed directly or indirectly towards those payments.
Question 15 extends the rules concerning rehired employees of educational institutions to employees of staffing agencies, when the employee is primarily performing services for one or more educational institutions. The IRS felt this rule was needed due to educational institutions attempting to avoid application of the existing rules by using a third-party staffing agency for certain services such as bus drivers and cafeteria workers. Because the staffing agency is not an educational organization subject to the special rule, the staffing agency could apply the lookback measurement method or the rules on new hires to treat some or all of these individuals as failing to be full-time employees or as new employees after a break in service of less than 26 weeks. However, the IRS intends to amend the employer mandate regulations to expand the special rules related to educational institutions to also apply to any employee providing services primarily to one or more educational organizations.
Questions 16 and 17 discuss treatment of AmeriCorps members and offers of coverage under TRICARE for purposes of the employer mandate.
Part IV: Employer Mandate Application to Governmental Entities, Information Reporting for Large Employers under Section 6056 and Impact of Recent Law Changes to HSA Eligibility for Persons Eligible for VA Benefits
Relating to governmental entities, Question 18 clarifies that the aggregation rules for determining whether employers are a single employer do not specifically address application to governmental entities. The IRS clarifies that governmental entities must apply a reasonable, good faith interpretation of the employer aggregations rules for purposes of determining whether a government entity is an ALE or ALE member, subject to the employer mandate and information reporting requirements. The IRS does state that if a government entity is subject to the reporting requirement, either as an ALE or because it has employees receiving self-insured health coverage, then each separate employer entity must use its own EIN for purposes of the reporting requirements. Accordingly, Question 19 states that separate Forms 1094-C (Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns), must be filed by each employer that is an ALE member of an applicable large employer group, and each Form 1094-C must have a separate EIN that is the EIN of the ALE member filing the form.
With respect to individuals who are eligible to receive medical benefits administered by the Department of Veterans Affairs (VA), the recent Surface Transportation Act made changes to the eligibility of these individuals to contribute to an HSA. Question 20 provides for administrative simplification by stating that any hospital care or medical services received from the VA by a veteran who has a disability rating from the VA will be considered to be hospital care or medical services for service-connected disability. As such, an individual who has actually received this care, or preventive care or disregarded coverage from the VA will not be disallowed from making HSA contributions.
Part V: Application of COBRA Continuation Coverage Rules on Unused, Carryover Amounts in a Health FSA
With respect to COBRA participants, first, any carryover amount must be included in determining the amount of benefit that a qualified beneficiary is entitled to receive during the remainder of the plan year in which the qualifying event occurs. Second, the COBRA premium maximum of 102 percent does not include unused health FSA amounts carried over from prior years. The applicable premium for COBRA is based solely on the employee’s salary reduction for the year, plus any nonelective employer contribution. Third, if similarly situated non COBRA beneficiaries are able to carryover unused amounts from the health FSA, COBRA participants must be allowed to do the same. The difference is that COBRA beneficiaries do not need to be allowed to elect additional salary reduction amounts.
A Health FSA may be designed such that an individual is only permitted to carry over unused amounts if they also participate in the health FSA the following plan year. A health FSA may also be designed to limit the ability to carry over unused amounts to a maximum period, subject to the $500 limit. For example, the limit could be one year.
Part VI: Relief from Penalties for Employers showing a Good Faith Effort under Section 6056 Reporting (Question 26)
This Q/A provides relief from penalties for employers who file an incomplete or incorrect return or furnish an incomplete or incorrect return to employees in 2016 for the calendar year 2015. The key is that the ALE must be able to show a good faith effort to comply with the information reporting requirements.
If you have questions about any of the newly released guidance, please contact your advisor.
On Dec. 18, 2015, the IRS released final regulations related to premium tax credit eligibility and minimum value for employer-sponsored plans. The regulations were released simultaneously with IRS Notice 2015-87 and address many of the same issues. For example, the regulations clarify that new amounts contributed to an HRA reduce an employee’s required contribution for coverage if the employer sponsors both the medical plan and the HRA and that the employee may use the funds to pay premiums for a primary medical plan. An example of this would be an HRA that is integrated with a major medical plan, but the employer does not permit employees to make premium contributions on a pre-tax basis through a Section 125 cafeteria plan. This is an important clarification for an employer who sponsors an HRA and is trying to determine whether its offer of coverage is considered affordable for employer mandate purposes.
Also in conjunction with IRS Notice 2015-87 (see related article above), the final regulations clarify that an employer’s flex contributions to a Section 125 cafeteria plan will not reduce an employee’s required contribution for affordability purposes if the employee is able to choose to receive the flex contribution as taxable compensation.
Further, the final regulations provide guidelines regarding premium tax credit eligibility. As a reminder, an individual is eligible for a premium tax credit if they have household income between 100 percent and 400 percent of the federal poverty line and are not eligible for minimum value, affordable coverage from an employer. The regulations clarify that a parent’s modified adjusted gross income (on which premium tax credit eligibility is based) includes a child’s gross income, tax-exempt interest and nontaxable Social Security income.
With regard to wellness program rewards, the regulations finalize the proposed regulations without significant changes. If the wellness program is related to cessation of tobacco use and the reward is provided in the form of reduced premium contributions, the plan may use the lower employee required contribution amount to determine affordability for all full-time employees. If the plan is not related to cessation of tobacco use, the employer must determine affordability for all full-time employees based on the higher contribution amount.
The regulations are effective Dec. 18, 2015 and generally applicable to taxable years ending after Dec. 31, 2013.
On Dec. 9, 2015, the IRS issued Notice 2015-86, which provides guidance related to the tax treatment of same-sex spouses following the June 2015 Supreme Court ruling in Obergefell v. Hodges. As background, the Obergefell case requires a state’s civil marriage laws to apply to same-sex spouses on the same terms and conditions as opposite-sex spouses. Prior to this ruling, in June 2013, the Supreme Court ruled in U.S. v. Windsor that same-sex spouses who were married under applicable state law would be recognized for federal tax purposes.
While a group health plan is not required to offer coverage to spouses, if it does the employer plan sponsor should review the terms of eligibility. The notice states that if the plan defines an eligible spouse based on applicable state law and the state has expanded the definition to include same-sex spouses, the plan must offer coverage to same-sex spouses as of the date that the state law changed.
In regards to Section 125 cafeteria plans, if the plan began offering coverage to same-sex spouses in the middle of a plan year, this is considered a change in coverage due to a significant improvement in coverage, which is an optional qualifying event. An employee is permitted to change his/her election mid-year based on this event. Please note that like many Section 125 qualifying events, this event is optional for employers and must be provided for in the Section 125 plan document.
If the cafeteria plan did not previously provide for this qualifying event (changes following a significant improvement in coverage), the plan may be amended. The amendment must be adopted by the last day of the plan year in which same-sex spouses became eligible for coverage or the last day of the plan year which included Dec. 9, 2015, whichever is later.
The notice further clarifies that a qualified retirement plan is not required to make additional changes to its terms or operation as a result of the Obergefell ruling. The plan should have already been amended following the Windsor ruling to recognize same-sex spouses. A plan may be amended to provide new rights or benefits to participants with same-sex spouses. An amendment must be adopted by the end of the plan year in which it is effective. In the case of a government plan, the deadline for an amendment is the end of the plan year in which it is effective; or the last day of the next regular legislative session beginning after the amendment is effective, whichever is later.
On Dec. 2, 2015, HHS released the Proposed Notice of Benefit and Payment Parameters for 2017. The notice, published in the Federal Register, includes proposed changes which would have wide-sweeping effects on health insurance plans offered both through and outside of the health exchange marketplace. Topics addressed in the proposed regulations include:
This is a brief summary of major topics discussed within the proposed regulations which may be of interest to employers. The rule also discusses many topics of interest to issuers, navigators, brokers and others working with exchanges which are not discussed in detail in this article. HHS is accepting comments on the proposed regulations through Dec. 21, 2015.
The IRS occasionally publishes Health Care Tax Tips to help employers and individuals understand how PPACA may affect their taxes. There have been multiple tips published since our last edition of Compliance Corner. Here is a brief listing of those tips and the information conveyed.
On Nov. 6, 2015, the U.S. Supreme Court agreed to review the accommodation that the government offered nonprofit religious organizations to excuse them from complying with the regulatory requirement to provide contraceptive coverage without cost-sharing to their employees. As background, several lawsuits were filed claiming that the accommodation violates the Religious Freedom Restoration Act (RFRA). The U.S. Court granted certiorari (meaning they will review the decision) for seven lawsuits in which federal courts of appeal had previously rejected claims that the accommodation violates the RFRA. The cases come from the U.S. Court of Appeals for the Second, Third, Fifth, Sixth, Seventh, Tenth and District of Columbia Circuits.
Under the religious organization accommodation, self-insured religious nonprofits (including universities, hospitals and charities) that object to covering contraceptives must notify HHS or their TPA of their objection. In turn, at the direction of the DOL, the TPA becomes liable to provide the contraceptives at no cost to covered individuals. The process for the TPA to be reimbursed for that cost is somewhat convoluted. Specifically, to receive payment for the contraceptive coverage provided, the TPA must contract with an insurer that markets coverage through the federally facilitated marketplace (FFM). The insurer pays the TPA, and then the FFM reduces the user fee that the insurer would otherwise pay. The insurer also receives an additional 15 percent administration fee for the service, which it can share with the TPA. Thus, the federal government—via the FFM, insurer and TPA—pay the cost of contraceptive coverage for employees of religious organizations.
Following the U.S. Supreme Court’s grant of certiorari, on Nov. 9, 2015, HHS released a series of FAQs regarding the operation of the existing accommodation at www.regtap.info (which requires a user name and password registration). Specifically, the FAQs clarify that Pharmacy Benefit Managers (PBMs) are treated the same as TPAs. That means a PBM can also—through insurers that participate in the FFM—obtain reimbursement for providing contraceptive coverage to participants of self-insured religious organization plans. TPAs and PBMs that covered contraceptives in 2014 were generally required to submit a “Notice of Intent Disclosure Form” by Jan. 1, 2014 (or by the 60th day after the TPA/PBM received a self-certification from a religious nonprofit or a notification from the DOL). However, to provide additional time, the FAQ gives TPAs and PBMs until Nov. 13, 2015, to submit the form. Further, although FFM-participating insurers were supposed to submit forms and information to receive the user fee adjustments for 2014 by Jan. 1, 2015, the FAQ states that insurers can submit the forms and information until Dec. 11, 2015.
The remaining FAQs discuss the specifics of the reimbursement and information collection requirements which primarily apply to insurers, PBMs and TPAs. NFP Benefits Compliance will continue to report on this issue as it evolves. Self-insured religious nonprofit groups currently offering benefits to employees should consult with legal counsel concerning the possible implications of the Supreme Court’s decision.
On Nov. 13, 2015, the IRS, DOL and HHS (the departments) jointly published final regulations on several PPACA provisions, including grandfathered plans, pre-existing condition exclusions, coverage rescissions, lifetime and annual limits, dependent coverage, appeals processes and other patient protections. The departments previously issued interim final or other regulatory guidance on these provisions. The final regulations adopt most of the previous guidance without substantial change. Below is a short overview of the changes and clarifications made by the final regulations.
On grandfathered plans, the regulations confirm that grandfathered status is determined separately with respect to each benefit package available under a group health plan. The regulations also provide the example (outlined in a previously published DOL FAQ) of a group health plan that offers three benefit package options (PPO, POS and HMO): each of those options is treated as a separate benefit package and if any one of them ceases grandfathered status, it will not affect such status of the other benefit packages. The regulations also codify other previously published DOL FAQs, including those relating to grandfathered status disclosure notices (for which the DOL has model language), anti-abuse rules and changes that will cause a loss of grandfathered status.
On pre-existing condition exclusions and coverage rescissions, the final regulations retain the approaches taken in interim final regulations and codify other guidance without substantial change.
On annual and lifetime limits, the regulations clarify some issues relating to the definition of “essential health benefits” (EHB) (to which the annual and lifetime limit prohibitions apply). First, the regulations re-emphasize that annual and lifetime limits on EHBs are generally prohibited, regardless of whether such benefits are provided on an in-network or out-of-network basis. In determining the definition of EHB itself, previous guidance suggested that plans can use a state’s benchmark plan as a guide and that they may use a reasonable interpretation of the term “EHB.” For self-insured and large group plans (not required to provide EHB but required to eliminate annual/lifetime limits on the EHBs they do provide), the regulations state that the departments’ interpretation that a reasonable interpretation includes only those EHB base-benchmarks that in fact have been selected (as opposed to all those that have been authorized). In addition, the regulations state that three base-benchmark plans (the three largest Federal Employee Health Benefits Program (FEHBP) available to all federal employees nationally) may also be used (which can be helpful for plans that have employees spread out across the country and not situated only in a single state). So, self-insured and large group plans may select among any of the 51 EHB base-benchmark plans selected by a state (or the District of Columbia) and the FEHBP base-benchmark plan in determining which benefits cannot be subject to annual/lifetime limits.
The final regulations also codify the general exemption from annual/lifetime limits prohibitions for health FSAs and for HRAs and other account-based plans that are integrated with group coverage. The regulations codify the ways in which an HRA may be ‘integrated’ with group coverage. In addition, the regulations confirm and codify that stand-alone HRAs (those not integrated with group coverage) are subject to the prohibitions, and will generally not satisfy them.
On dependent coverage, the final regulations confirm that a plan cannot impose a surcharge or provide different coverage to older children (up to age 26). In addition, although many plans (primarily HMOs) restrict eligibility to participants who live or work within the plan’s service area, such plans cannot impose such a restriction on dependent children. That said, the plan does not have to cover services outside the service area. Also, although some hoped that the departments would clarify whether ‘dependent’ in this context includes foster or stepchildren, the regulations do not address the issue. Finally, since they are no longer applicable, several provisions were removed from the final regulations: the special enrollment opportunity for previously aged-out dependent children and the special rule that allows grandfathered plans to exclude eligibility for dependent children with other coverage available.
On appeals processes, most of the changes are very technical, and too detailed to cover here. But at a high level, on internal reviews, the regulations emphasize that the DOL claims procedure continues to apply and describe several rules relating to providing evidence relating to a claim. On the culturally and linguistically appropriate standard, the regulations confirm that plan notices related to benefit decisions must include a one sentence statement in a non-English language if at least 10 percent of a county’s residents have literacy in the same non-English language (and once a participant requests a notice in a non-English language, all subsequent notices must be provided automatically in that language). On external reviews, the regulations also outline the federal review process and describe prohibited fees.
On patient protections, the regulations clarify that plans may impose geographical limitations on which a doctor or participant chooses as a primary care physician. And, women of all ages may receive obstetrical and gynecological care without prior authorization or referral. On out-of-network cost sharing, the regulations address balance billing. Specifically, when determining the amount to be paid on out-of-network emergency claim, the plan must pay the median amount negotiated with in-network providers for the emergency service, the amount calculated using the same method the plan uses to determine payments for out-of-network services, or the amount that would be paid under Medicare (whichever is greatest). However, if a state prohibits balance billing, the plan does not have to comply with those payment guidelines.
Lastly, the final regulations apply for plan years beginning on or after Jan. 1, 2017. Until then, plans may rely on previous guidance.
On Oct. 19, 2015, CMS issued FAQs addressing the impact of recent legislation that amended the definition of “small employer” for purposes of health care reform’s insurance market. As covered in the Oct. 20, 2015 and Oct. 6, 2015 editions of Compliance Corner, the Protecting Affordable Coverage for Employees (PACE) Act was signed into law Oct. 7, 2015, defining “small employer” as one that employed an average of 1-50 employees during the preceding year. The law includes a provision allowing states the option to extend the definition of “small employer” to 1-100. Without the legislation, the definition of small employer would have been 1-100 in all states beginning Jan. 1, 2016.
The FAQs released by CMS attempt to clarify how some market provisions will be affected by the change, and outlines certain actions that may be required of states. For example, states electing to extend the small employer definition to up to 100 must do so uniformly, to all health insurers in the state, including those in the SHOP. States electing this option must have notified CMS by Oct. 30, 2015 for a Jan. 1, 2016 effective date.
CMS also clarifies the breadth of the PACE Act, stating that the definition of small employer is relevant for many purposes, including MLR, risk corridors and risk adjustment reporting. The guidance states that a transition period is in place allowing insurers to use a 1-100 definition of small employer for 2015 MLR purposes, but the 1-50 definition must be used in subsequent years. Importantly, the legislation does not affect employee counting methods which apply for these purposes.
Due to the fact that the SHOP enrollment began Nov. 1, 2015, CMS did not have enough time to change the eligibility screens on healthcare.gov to incorporate instances where a state has elected to extend the small group size up to 100. As a result, the SHOP eligibility questions will prompt an employer to answer whether they have 1-50 employees, and CMS will work to update the questionnaire as quickly as possible once the state elections are made. Insurers are asked to notify CMS if they believe an employer group with too many employees has incorrectly enrolled in the SHOP.
Finally, please note that the implementation of the PACE Act does not in any way alter the PPACA employer mandate that requires an employer with 50 or more full-time equivalent employees to offer an affordable, minimum value plan or face penalties.
On Oct. 23, 2015, the DOL published FAQs about Affordable Care Act Implementation (Part XXIX) and Mental Health Parity Implementation which provide guidance on the coverage of preventive services, testing for the breast cancer susceptibility gene (BRCA), wellness programs and the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).
Questions 1-8 address various issues related to the coverage of preventive services. As background, PPACA requires non-grandfathered group health plans to provide in-network preventive services without cost sharing. Clarifications made by the FAQs include:
Question 9 also relates to the coverage of preventive services and outlines the methods for employers utilizing the religious accommodation related to the provision of contraceptive services. For qualifying non-profit or closely held for-profit employers with sincerely held religious objections to providing contraceptive services, two methods may be used to relieve the employer from providing such coverage:
Question 10 addresses which women must receive coverage without cost sharing for genetic counseling and, if indicated, testing for harmful BRCA mutations. As background, one of the preventive services required to be provided without cost sharing is screening for women who have a family history of breast, ovarian and other cancers that predispose them to harmful mutations of the breast cancer susceptibility genes BCRA 1 or BCRA 2. The FAQ clarifies that women found to be at an increased risk due to family history must receive coverage without cost sharing for genetic counseling and, if indicated, testing for harmful mutations. This is true whether or not the woman has previously been diagnosed with cancer, as long as she is not currently symptomatic or receiving cancer care.
Question 11 addresses wellness programs and establishes that non-financial incentives (i.e. gift cards, thermoses and sports gear) are subject to the wellness program regulations. In other words, if a plan provides a reward (even one that is non-financial in nature) based on an individual satisfying a health standard, then the wellness program regulations are implicated, including the requirement to provide a reasonable alternative standard for those not able to meet the health standard.
Questions 12 & 13 relate to disclosures associated with MHPAEA. As background, MHPAEA requires group health plans and health insurance issuers to ensure that financial requirements such as co-pays, deductibles and treatment limitations such as visit limits applicable to mental health or substance use disorder (MH/SUD) benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits. These FAQS clarify that a plan, upon request, can provide a summary description of the medical necessity criteria for both MH/SUD benefits and medical/surgical benefits that is written to be understandable to a layperson.
On Nov. 2, 2015, President Obama signed HR 1314, the Bipartisan Budget Act of 2015. The bill includes the repeal of PPACA’s automatic enrollment provision which was to apply to employers who sponsor a group health plan and have more than 200 full-time employees. Those employers were to implement a procedure to automatically enroll full-time employees in the group health plan with an opportunity to subsequently opt out of coverage. PPACA did not include an effective date. The provision had been on hold since PPACA’s passage in March 2010.
The repeal of the automatic enrollment requirement is expected to generate $7.9 billion in revenue based on the assumption that fewer employees will enroll in group health plan coverage, which leads to a higher amount of employee wages subject to taxes. Additionally, some who would have been automatically enrolled may go without coverage and therefore be responsible for an individual mandate penalty.
On Oct. 7, 2015, President Obama signed HR 1624, the Protecting Affordable Coverage for Employees (PACE) Act, into law, creating Public Law No. 114-60. As reported in the Oct. 6, 2015 edition of Compliance Corner, the PACE Act repeals the mandated small group expansion from groups of up to 50 employees to groups of up to 100 employees. Now that the President has signed this legislation, it is up to the states to determine how to respond.
Some states have adopted the proposed PPACA definition of small employer as up to 100 employees into their state insurance codes. For those states, it will be difficult to revert to the 50 employee definition without state legislative action. Other states did not amend their state insurance code, but looked at the issue as a regulatory matter, with many state insurance departments issuing bulletins regarding the transition to small group status for 51-100 employers. As a result of the PACE Act, some states are rescinding their bulletins, issuing new clarification, or posting FAQs to clarify the state’s position. State action as a result of the PACE Act will be reported in the state section of this and future Compliance Corners).
Further, it remains to be seen whether insurance carriers, who have already filed rates for 2016, will be able to react quickly enough for employers in the 51-100 category who wish to continue to buy coverage as a large group (and not subject themselves to certain health care reform requirements, such as community rating and covering essential health benefits). Thus, both action from state regulators and carriers will have a big impact on the actual implementation of the law, which is effective immediately.
Just before publication of this edition of Compliance Corner, CMS released a set of FAQs on the PACE Act and its effect on the states. We’ll report on the FAQs in more detail in the next edition of Compliance Corner. The FAQ is linked below.
On Oct. 13, 2015, the IRS released Notice 2015-60, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after Oct. 1, 2015 and before Oct. 1, 2016 is $2.17. This is a $.09 increase from the amount in effect for plan and policy years ending on or after Oct. 1, 2014 but before Oct. 1, 2015.
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 is, however, required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives. The fee 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 will be updated prior to July 31, 2016, since that is the first deadline to pay the increased fee amount for plan years ending between October and December 2015.
On Oct. 1, 2015, CMS announced that the 2015 reinsurance contribution submission form is now available, as well as the revised manual. As a reminder, sponsors of self-insured group health plans must submit their 2015 annual enrollment count and schedule their reinsurance contribution payments through www.pay.gov by Nov. 16, 2015. Self-insured plans administered in-house by the employer with no third party administrator are exempt from the fee.
The contribution amount is $44 and may be made in two installments, due Jan. 15, 2016 and Nov. 15, 2016. Alternatively, an employer may make a single payment by Jan. 15, 2016.
A welcome change for 2015 is that those filing for a single employer plan are not required to complete and submit the CSV supporting documentation file.
CMS has released a 12-page Quick Start Guide, which will be a helpful first step for employers seeking information on how to file. Web-based training is also available.
Lastly, in a recent FAQ (ID 13662), CMS clarified that once a submission is completed, an employer cannot cancel the filing and resubmit because they discover that an alternative counting method yields a lower enrollment count. An employer may use any of the available methods to determine the annual enrollment count, but may not change methods after the filing deadline.
CMS Annoucement »
2015 ACA Transitional Reinsurance Program Submission Form Manual »
CMS Quick Start Guide to the 2015 Transitional Reinsurance Form »
2015 Reinsurance Contributions Form Completion and Submission Interactive Web-based Training »
REGTAP FAQ ID: 13662 »
On Oct. 1, 2015, the US Congress passed HR 1624, called the “Protecting Affordable Coverage for Employees (PACE) Act.” The PACE Act repeals the mandated small-group expansion from groups of up to 50 employees to groups of up to 100 employees. As background, many of PPACA’s insurance mandates, including certain restrictions on insurance premium rating, apply to ‘small’ employers, a term that has traditionally been defined by the states. However, PPACA included a provision to change the definition of small employer from 1-50 to 1-100 employees effective Jan. 1, 2016. PACE repeals that PPACA-mandated definition, meaning states can continue to define small employers and groups as they see fit. Thus, unless a state has expanded its definition of small employer, PPACA’s insurance mandates would not apply to employers in the 51-100 group in that state.
Practically speaking, passage of the PACE Act creates new questions. For example, many employers in the 51-100 group, in an attempt to delay PPACA’s rating restrictions (and associated premium increases), are contemplating or are already proceeding with an early renewal in 2015. CMS previously blessed early renewal (prior to Oct. 1, 2016) as a way to delay PPACA’s small group mandates, so long as state regulators and carriers allowed it. Employers that chose early renewal may no longer be subject to PPACA’s small group restrictions.
In addition, while some states have adopted the new PPACA definition into their state insurance codes, others have not. Many state insurance departments have also issued bulletins on transition to small group status for 51-100 employers. It remains to be seen whether adoption states will also repeal the new definition and whether state regulators will react. Importantly, the PACE Act has not yet been signed by President Obama, and is therefore not yet officially law. Because the law had major bipartisan support, most anticipate the president will sign it. Assuming he does, action from state regulators and carriers will have a big impact on its actual implementation.
Once the PACE Act is signed, small group employers should work with carriers and advisors in determining appropriate next steps.
On Sept. 17, 2015, the IRS released a new webpage entitled “ACA Information Center for Applicable Large Employers (ALEs)” which provides ALEs with information and resources to assist with informational returns required under IRC Sections 6055 and 6056.
As a reminder, self-insured employers with fewer than 50 full-time employees (including equivalents) are required to file Forms 1094-B and 1095-B to comply with Section 6055 (meant to assist the government in enforcing the individual mandate). ALEs (including
self-insured, fully insured and uninsured) for the current calendar year are employers with 50 or more full-time and full-time equivalent employees on average during the prior year and must file Forms 1094-C and 1095-C to comply with Section 6056 (meant to assist the government in enforcing the employer mandate). Employers filing 250 or more forms must file with the IRS electronically. Employers filing fewer than 250 forms may either file by paper or electronically. Those filing electronically must report 2015 data by March 31, 2016.
The new webpage includes the following sections:
The new webpage also includes links to:
ALEs should be taking steps now to prepare for reporting in early 2016. Understanding the complex employer mandate and reporting requirements is important and NFP has resources to assist. Ask your advisor for more information.
On Sept. 11, 2015, the US District Court for the District of Columbia, in Central United Life v. Burwell (2015 WL 5316779 (D.D.C. 2015)), enjoined HHS from enforcing a requirement that fixed indemnity insurance is only an excepted benefit if the purchaser attests they have MEC.
As background, fixed indemnity plans are generally exempt from PPACA’s mandates, including the requirement to cover preventive-services at zero cost-sharing and the prohibition on annual/lifetime dollar limits for essential health benefits. To qualify for the exemption (i.e., to be considered an ‘excepted benefit’), the benefits must be provided under a separate policy, certificate or contract of insurance (meaning it must be fully insured). Further, there cannot be coordination between the provision of benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor. Finally, the benefits must be paid without regard to whether benefits are provided under any group health plan. Under regulations issued in 2014, HHS also provided that fixed indemnity insurance would only be considered ‘excepted’ if the individual recipient attests that they have MEC. In this case, the attestation requirement was challenged by the insurer plaintiff as exceeding HHS’s authority.
In deciding the case, the court noted that the term ‘fixed indemnity insurance’ is not defined by the statute and that the legislative history provides no guidance. While HHS has authority to interpret the statute and develop regulations in support of the statute, the court stated that HHS cannot introduce “wholly foreign concepts” in its regulations. The court concluded that the attestation clause has no basis in the statutory text and, therefore, enjoined HHS from enforcing that requirement.
Excepted benefit status is essential for fixed indemnity policies because they are designed to avoid PPACA’s mandates and insurers want to be able to sell these types of policies to individuals who have no other coverage (i.e., no other MEC). On the other hand, HHS is concerned that the public might incorrectly believe the purchase of a fixed indemnity plan will be enough to get them out of PPACA’s individual mandate penalty. Considering these competing interests, this issue is likely far from resolved.
On Sept. 18, 2015, CMS released guidance that describes the process federally facilitated exchanges and partnership exchanges using the federal platform will use to notify employers that an employee was determined to be eligible for a premium tax credit (PTC) through the exchange. Eligibility for a PTC is reserved for individuals who are neither enrolled in employer-sponsored coverage nor eligible for affordable minimum value coverage. After receipt of these notifications, employers may appeal the determinations of eligibility by asserting that either the individual was enrolled in employer-sponsored coverage or eligible for affordable minimum value coverage (assuming that is the case).
As background, PPACA requires exchanges to notify employers when an individual has been determined eligible for a PTC. Some state-based exchanges have already begun sending notifications. As a result of the CMS guidance, exchanges using the federal platform (federally facilitated and partnership exchanges) will be phasing in the employer notice requirement. In 2016, notices will be sent to employers (for whom the exchange has a complete address) whose employees received a PTC. However, they will not notify employers if an employee terminates coverage supplemented by a PTC. State-based exchanges have the same flexibility in phasing in their employer notice process. These notices will identify the specific employee and include a statement that the employee is enrolled in exchange coverage with a PTC.
The guidance clarifies that employers will still be liable for potential employer mandate penalties related to 2015 whether the exchange sent out notices or not. This is because those penalty determinations are independently made by the IRS.
An employer can appeal the eligibility determination within 90 days by mailing an appeal request to:
Health Insurance Marketplace
465 Industrial Blvd.
London, KY 40750-0061
Employers may also fax their appeal request to a secure fax line: 1-877-369-0129. The appeal request form will be available here: https://www.healthcare.gov/marketplace-appeals/.
If the appeal is successful, the exchange will send a notice to the employee encouraging them to correct their exchange coverage application. The notice will also explain that failure to update the application may result in tax liability.
On Sept. 18, 2015, the IRS issued a new set of questions and answers (Q&As) providing additional guidance on reporting using Forms 1094-C and 1095-C.
As background, PPACA requires applicable large employers to report offers of health coverage and enrollment in health coverage under IRC Sections 6055 and 6056. Under those Sections, employers must file certain forms (1094-C & 1095-C) with the IRS and distribute to employees/covered individuals either a copy of the forms or a substitute form (1095-C).
In the new Q&As, the IRS provides the following guidance on Forms 1094-C and 1095-C:
In discussing the basics of reporting, the IRS addresses the forms that must be used and the employees that must be reported on, as well as the information that must be provided to those employees.
In the section on reporting offers of coverage, the IRS details which lines on the forms should be used to reflect an offer of coverage in addition to giving guidance on which lines should be used to reflect employees who have been hired or terminated during the year. They also address how an employer will complete their authoritative transmittal if they are eligible for one of the alternative reporting methods.
The IRS also answers questions on how a governmental unit that has been designated to report on behalf of other governmental units will complete the Forms 1094-C and 1095-C.
The last section of Q&As confirms information on reporting offers of COBRA coverage, including specific information on various scenarios where COBRA is offered. This section verifies some of the COBRA reporting information that we reported on in the last edition of Compliance Corner (see the Sept. 22, 2015 edition).
Since the reporting forms are due in early 2016, employers should be tracking information now and preparing to complete the forms. NFP has resources to assist. Ask your advisor for more information.
In September 2015, the IRS released the final version of Publication 5223 outlining rules and specifications related to the use of substitute forms under IRS Sections 6055 and 6056. (We reported the release of the draft version in the Aug. 25, 2015, edition of Compliance Corner.) As background, larger 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 certain forms (1095-B and 1095-C) with the IRS and distribute to employees/covered individuals either a copy of the forms or a substitute form. The reporting requirements first apply in January 2016 (reporting on the 2015 calendar year), and will continue annually going forward. Publication 5223 provides guidance for employers that want to use a substitute form to satisfy that distribution requirement.
The final version largely replicates the draft version, with a few notable exceptions. According to the final version, all data fields must be included on a substitute form. For example, it is not acceptable to furnish a Form 1095-C that does not include Part III. Furthermore, while filers are allowed to truncate identification numbers of recipients of the recipient statement and are allowed to truncate the identification number of the employer in Part II of Forms 1095-B provided to recipients, the filer’s EIN may not be truncated on the recipient statement. Furthermore, truncation is not allowed on any documents filed with the IRS. Lastly, maximum penalties associated with the filing of unacceptable substitute forms were increased.
Employers should review the publication to understand how the IRS views the requirements related to distribution of substitute forms under IRC Sections 6055 and 6056.
The IRS recently finalized the 2015 versions of Forms 1094-B, 1095-B, 1094-C, 1095-C and related instructions.
There were no changes to Forms 1094-B and 1095-B compared to the 2015 draft versions. However, the instructions clarify the Section 6055 reporting requirements for individuals who are covered under more than one type of MEC. Employers who sponsor a group medical plan along with an HRA should understand their reporting responsibility, as follows:
There were no changes to the Forms 1094-C and 1095-C compared to the 2015 draft versions. The instructions, however, contain several changes.
The biggest change relates to the reporting of COBRA coverage. The IRS had previously reported, through guidance posted to their website, that an employer with 50 or more FTEs had Section 6056 reporting obligations for a terminated FTE who elected COBRA coverage. The COBRA coverage was to be reported on Line 14 of Form 1095-C as an offer of coverage. The new guidance changes this requirement significantly. An employer has no Section 6056 reporting requirement for employees who have terminated employment and elected COBRA. For the months following the termination of employment, the employer will use code 1H on Line 14 of Form 1095-C to indicate no offer of coverage and code 2A on Line 16 to indicate that the employee was not employed during the month. If an active employee is on COBRA (for example- a part time employee who is no longer eligible for coverage but still employed), the employer will still need to report the COBRA continuation as an offer of coverage by completing Lines 14 through 16 accordingly.
Other changes include a clarification that when determining size, an employer should disregard an employee for any month in which the employee has coverage under TRICARE or the Veterans Administration. This is to comply with previously enacted legislation.
Lastly, when determining the count of total employees for Column (c) of Form 1094-C, employers now have a fifth option. They can determine the number of employees on the 12th of each month. This is in addition to the four existing counting methods: The first day of the month, the last day of the month, the first day of the first pay period of the month and the last day of the first pay period of the month.
On Sept. 16, 2015, the IRS published Notice 2015-68. The notice announces the IRS’s intent to propose regulations under IRC Section 6055 addressing several different issues, and also invites comments on those issues. As background, PPACA’s individual mandate requires all U.S. citizens to be enrolled in MEC or pay a tax. “MEC” is defined to include an employer-sponsored plan, a government-sponsored plan (such as Medicare, CHIP and TRICARE) and any individual plan (such as a qualified health plan offered via a state health insurance exchange). To assist the federal government in enforcing the individual mandate, IRC Section 6055 requires any entity that provides MEC to report to the IRS listing all individuals (including taxpayer identification numbers (TINs) and months of coverage) covered under the MEC plan. In addition, such an entity must provide a copy of the report to the covered individual (which the individual files with the IRS in order to show they have MEC).
Generally speaking, responsibility for Section 6055 reporting falls on the insurer in the fully insured context and on the employer in the self-insured context. Section 6055 reporting is performed on a calendar year basis, with the first reports due in early 2016 (reporting on 2015 compliance). It will be completed using Forms 1094-B and 1095-B (except for a large self-insured employer, which would complete its reporting using Forms 1094-C and 1095-C). The IRS previously released those forms and instructions.
Notice 2015-68 indicates that the IRS plans to propose regulations that would clarify several issues relating to the Section 6055 reporting requirements. Among the clarifications that apply to employers, the IRS intends to propose that statements (i.e., copies of the forms filed with the IRS that are distributed to covered employees) reporting coverage under an expatriate health plan may be furnished in electronic format unless the recipient affirmatively refuses to consent or requests a paper statement. That rule would apply for expatriate coverage issued or renewed on or after July 1, 2015. In addition, with respect to supplemental coverage, the notice states that reporting will not be required for MEC that supplements or provides benefits in addition to other MEC, so long as the primary and supplemental coverage have the same plan sponsor or the coverage supplements government-sponsored coverage (such as Medicare).
Lastly, the notice states that self-insured employers will not be subject to penalties for failure to report a TIN, so long as the employer makes appropriate requests (called ‘solicitations’) for the TIN. The initial solicitation must be made at an individual’s first open enrollment or, if already enrolled on Sept. 17, 2015, the next open enrollment period. The second solicitation must be made at a reasonable time thereafter. The third solicitation must be made by December 31 of the year following the initial solicitation. If the employer makes (or is in the process of making) those solicitations, it should report the employee’s birthdate (rather than their TIN). Employers need not solicit a TIN from an individual whose coverage is terminated.
Comments must be submitted by Nov. 16, 2015.
On May 8, 2015, the IRS and Treasury officials made an oral presentation at the Tax Section’s Employee Benefits Committee meeting. During that presentation the IRS held a Q&A session. The Joint Committee on Employee Benefits (JCEB) of the American Bar Association has created a report on the IRS responses during the Q&A session. The report includes unofficial, nonbinding remarks about health care reform, 401(k) plans and other topics.
Of particular interest are the health care reform Q&As. Although the responses in the JCEB report have not been reviewed by the IRS and do not represent official IRS policy, they provide helpful guidance on how the IRS might respond to certain issues. Here is a short summary of the four Q&As:
As employers prepare for reporting in early 2016, understanding the complex employer mandate requirements is important. NFP has resources to assist. Ask your advisor for more information.
On Sept. 8, 2015, CMS issued a frequently asked question (FAQ) related to the SBC final regulations. The FAQ guidance includes an extension under which issuers must make group certificate of coverage documents relating to SBCs accessible online.
As background, on June 12, 2015, the DOL, IRS and HHS (collectively, the Departments) issued final regulations on the SBC and uniform glossary requirements under PPACA. The final regulations were published in the Federal Register on June 16, 2015. While the final regulations essentially finalized the language of the proposed regulation with no changes, the Departments did make a few clarifications. One such clarification concerns the requirement for issuers to include a web address where participants can review and obtain a copy of their individual coverage policy or group certificate of coverage. Specifically, the final rule clarifies that issuers in the group market can provide a sample certificate of coverage until the actual certificate is executed by the plan sponsor. The web address must be included beginning the first day of the first open enrollment period beginning on or after Sept. 1, 2015, for SBCs provided to individuals who enroll or re-enroll in a group health plan through open enrollment.
In the current guidance, CMS acknowledges that some insurers are having difficulty making group certificates of coverage accessible by the applicability dates because of the volume of documents that must be made available and because this is the first time for this process. Thus, CMS will not take enforcement action against an issuer that cannot meet the online accessibility requirement, if it makes group certificate of coverage documents accessible online by Nov. 1, 2015. The extension is limited to the requirement to make group certificates of coverage accessible online and does not apply to any other requirements under the SBC final regulations.
For employers with open enrollment periods prior to Nov. 1, 2015, this means that the insurer still has to provide a timely SBC, but is not required to post the SBC on its website until Nov. 1, 2015. The SBC that is provided must still include the web address of where the document will be posted in the future.
On Aug. 31, 2015, the IRS released a supplemental notice of proposed rulemaking (published in the Sept. 1, 2015 Federal Register) to be used in determining whether employer-sponsored health coverage provides minimum value (MV) for purposes of an individual’s premium tax credit eligibility. The guidance is consistent with prior IRS and HHS guidance, which states that a plan does not provide MV if it does not include coverage for in-patient hospitalization services or substantial coverage of physician services. Previously, there was a way to achieve minimum value status for a plan (through the MV calculator) without offering hospitalization and physician coverage. That loophole was closed by the IRS last year via IRS Notice 2014-69.
For employers, MV is important because it is the level of coverage an ALE must offer a full-time employee to avoid potential liability under the employer mandate. In addition, an offer of MV coverage precludes an employee from qualifying for a premium tax credit for coverage taken through the marketplace. This notice establishes that when determining premium tax credit eligibility, "an eligible employer-sponsored plan provides minimum value only if the plan's share of the total allowed costs of benefits provided to an employee is at least 60 percent AND the plan provides substantial coverage of inpatient hospital and physician services" (emphasis added). The IRS is requesting comments as to the meaning of “substantial coverage”.
The changes in this notice will generally be effective for plan years beginning after Nov. 3, 2015.
There remains a limited exception. If an employer prior to Nov. 4, 2014, had entered into an agreement with a non-hospital/non-physician services plan (or had begun enrolling employees into that plan), the plan will be considered as meeting MV for purposes of the employer mandate through the end of the plan year (so long as the plan year began by Mar. 1, 2015). Such an offer will not preclude an employee, if they are otherwise eligible, from qualifying for a premium tax credit.
The IRS is requesting comments on this notice by Nov. 2, 2015.
On Aug. 18, 2015, CMS issued updated guidance related to the transitional reinsurance program and contributions required by PPACA. As background, group health plans are required to report reinsurance enrollment calculations to CMS annually from 2014 through 2016. The next report is due by Nov. 16, 2015 (since Nov. 15, 2015, is a Sunday). This report will be completed through https://pay.gov/public/home using the “2015 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form” which will be made available Oct. 1, 2015. Plans will be assessed a fee per covered life. For 2015, that fee is $44. Payment is broken into two installments, with the first payment due by Jan. 15, 2016. For fully insured plans, the insurer is generally responsible for the filing and payment. For self-insured plans, the employer as plan sponsor is responsible for filing and payment.
The new guidance clarifies the calculation methods a group health plan will use when determining the number of covered lives. The calculation methods for a self-insured plan are similar to those used for PCOR fee purposes: Actual count, snapshot count, snapshot factor and Form 5500. However, while the PCOR fee takes into account the average number of covered lives over the plan year, the reinsurance fee calculates the average number of covered lives over a nine-month period (January through September), regardless of plan year. For example, a plan calculating the reinsurance contribution amount using the snapshot method will select at least one day in each of the three quarters to determine the total number of covered lives and then divide by three. The number of covered lives should be rounded to the nearest hundredth.
If an employer maintains multiple group health plans that provide coverage for the same covered lives, the sponsor may choose whether to report the enrollment count separately for each plan or combined into a single plan. If the sponsor chooses to aggregate the plans into one report, they must use the actual count or snapshot counting method if at least one plan is fully insured. If all plans are self-insured, the sponsor must use actual count, snapshot or snapshot factor method.
Reinsurance contributions are not required for individuals who have dual coverage under the group health plan and Medicare and for whom Medicare is primary. Additionally, reinsurance contributions are not required for individuals who reside in a U.S. territory.
Reporting entities must maintain documents to substantiate the enrollment count for at least 10 years. Employers that sponsor self-insured plans should review the guidance and their counting methods to ensure they are properly calculating the reinsurance contribution amount.
On Aug. 12, 2015, the Treasury, DOL and HHS published information in the form of a frequently asked question related to transparency in coverage reporting required under PPACA. The agencies announced their intention to propose transparency reporting regulations that will apply to non-grandfathered group health plans. This reporting is separate from Sections 6055 and 6056 reporting. Non-grandfathered group health plans will be required to report information to HHS and the state insurance commissioner related to the plan’s claims payment policies and practices, enrollment data and cost-sharing requirements. More guidance is forthcoming. The reporting will not be required until after the agencies issue final regulations.
On Aug. 11, 2015, the IRS published a draft 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, larger 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 certain forms (1095-B and 1095-C) with the IRS and distribute to employees/covered individuals either a copy of the forms or a substitute form. The reporting requirements first apply in January 2016 (reporting on the 2015 calendar year), and will continue annually going forward. Publication 5223 provides draft guidance for employers that want to use a substitute form to satisfy that distribution requirement.
According to the publication, the substitute form must contain all information provided on the actual form. In addition, the information must be printed in a font large enough to be easily read by the form recipient. Also, aside from the employer’s name and primary trademark or slogan, the substitute form may not include logos, slogans and advertisements since those items may detract from the importance of the tax information being reported.
The publication also states that employers may electronically distribute substitute forms to employees and covered individuals, so long as those employees/individuals provide consent to receive those particular forms via electronic delivery (and the consent itself is made via electronic means). In addition, prior to distributing the substitute form electronically, the employer must provide the form recipient with a statement that the employee/individual may request to receive a paper version of the form and that electronic consent can be withdrawn at any time (and the procedures to do so).
While the publication is in draft form and cannot yet be relied upon as official guidance, employers should review the publication to get an idea of how the IRS views the requirements relating to distribution of substitute forms under IRC Sections 6055 and 6056.
On Aug. 12, 2015, the IRS released two sets of regulations eliminating the 30-day automatic extension for certain information returns. The purpose of these regulations is to combat refund claim fraud. Filing the returns earlier and allowing fewer extensions will allow the IRS to reconcile filings on a timely basis and determine which refund claims are legitimate. The temporary regulations specifically end automatic extensions for forms in the W-2 series (except Form W-2G), effective for returns due after Dec. 31, 2016. Additionally, the proposed regulations eliminate automatic extensions for most other information returns, including forms in the 1094 and 1095 series. Prior to these regulations, an automatic 30-day extension was available by filing Form 8809. A filer could request an additional non-automatic 30-day extension for Forms W-2, 1042-S and 8027 as well as the 1095 series, 1098 series, 1099 series and 5498 series by filing an additional Form 8809. While these combined regulations eliminate the automatic extension and restrict the circumstances under which a non-automatic 30-day extension may be granted, a filer may still apply for a non-automatic extension. However, an extension will only be granted in the case of extraordinary circumstances or catastrophe. An example cited in the regulations is a natural disaster or fire destroying the records a filer needs for filing the information returns.
The IRS is seeking comments by Nov. 12, 2015, regarding the appropriate time to remove the automatic extension available for the 1095 series, 1098 series, 1099 series, 5498 series and Forms 1042-S and 8027. Timing of the elimination of the automatic extension for Forms 1095-B and 1095-C will be important for group health plan sponsors. Currently an automatic extension for the report to the government is available (but not for the Forms 1095-B and 1095-C sent to the employee or covered individual). That extension may no longer be available starting with the 2018 filing season.
The regulations would take effect once the proposed regulations are finalized, but no earlier than the 2018 filing season.
On July 30, 2015, the IRS published IRS Notice 2015-52 outlining possible approaches to several “Cadillac Tax” issues. Earlier this year, as reported in the March 10, 2015, edition of Compliance Corner, the IRS published Notice 2015-16, which addressed issues such as “what is applicable coverage” and “the cost of applicable coverage.” Notice 2015-52 supplements that guidance and provides insight into how the IRS may deal with certain other Cadillac Tax issues. This most recent notice covers issues including persons liable for the tax, employer aggregation, determining the cost of applicable coverage, possible permitted adjustments to the applicable limits for age and gender demographics and notice and payment requirements.
As background, beginning in 2018, under the Cadillac Tax requirement, a 40 percent excise tax will be levied on the amount of the aggregate monthly premium for each primary insured individual (including COBRA/state continuation eligible individuals) that exceeds an annual applicable dollar limit for the employee for the month. The IRS is tasked with developing rules to determine the cost of applicable coverage, using COBRA applicable premium rules as a guide. The law specifies two base applicable dollar limits: $10,200 per employee for self-only coverage and $27,500 for other-than-self-only coverage. Multi-employer plans are treated as providing other-than-self-only coverage. To account for cost of living increases, there is a provision to adjust these base amounts in the case of excess cost increases between 2010 and 2018 and to annually adjust them post-2018. The law also allows for adjustments for qualified retirees and employers with a majority of employees engaged in high-risk professions such as installing or repairing electrical and telecommunications lines.
Generally speaking, the tax will apply to both fully insured and self-insured group plans and is not deductible for federal income tax purposes. The entity providing health coverage will be liable for the Cadillac tax. This will be coverage providers in the case of a fully insured plan, employers with regard to HSAs and the entities that administer plan benefits with regard to all other coverage for most other situations. This notice provides that the controlled group rules found in Internal Revenue Code Section 414 would generally apply for purposes of the Cadillac Tax. These are the same rules used to determine whether a controlled group exists for employer mandate purposes.
Notice 2015-52 clarifies that the excise tax and costs relating to increased income tax can be passed from coverage providers to employers. Furthermore, an income tax reimbursement formula is discussed, as is the proper allocation of contributions to HSAs, FSAs and HRAs.
Since not all employers have similar workforces, and coverage for certain segments of a workforce costs more than others (for the same level of coverage), it is possible age and gender adjustments to the Cadillac tax dollar limit (the amount above which a tax would apply) will be allowed. To accomplish this, the age and gender characteristics of the national workforce would need to be established for comparison. Once that information is gathered, it would be put into national-level tables for ease of use.
Employers will be responsible for informing coverage providers of the amount of excess benefit provided for each taxable period. The form and timing for that notice are still being developed. It is expected that the Cadillac tax will be remitted through Form 720, which is an existing quarterly excise tax filing used for several other purposes, including the filing and payment of the PCOR fee. It is likely that the IRS will designate one quarter as the Cadillac tax quarter.
While IRS Notice 2015-16 and IRS Notice 2015-52 give us insight into how the IRS may approach these issues, they are not formal regulations or guidance. When the proposed, and then final, regulations are published, many of these approaches may be included. However, many could be adjusted based upon comments received from industry coalitions, employer advocacy groups and coverage providers. Therefore, we do not recommend employers make changes to their plan design based on these notices. Making adjustments once the regulations are released is more appropriate.
The IRS invites comments on these issues. Comments are due by Oct. 1, 2015. Once comments are received and considered, the IRS will issue proposed regulations.
On July 31, 2015, President Obama signed HR 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, into law. The law includes provisions affecting the employer mandate, HSA eligibility and Form 5500 filing.
When an employer is determining their size for employer mandate purposes, they may now disregard employees who had coverage under TRICARE or a care health program through Veterans Affairs (VA) for that month. It is important to understand that these employees are only disregarded for calculating the employer’s size to determine whether the employer is subject to the employer mandate and Section 6056 reporting. If the employer is indeed subject to the employer mandate, any full-time veteran employee with TRICARE or VA coverage would still be offered minimum value, affordable coverage by the employer in order to avoid a penalty. Similarly, an employer with 50 or more full-time equivalent employees would still include a full-time veteran employee in Section 6056 reporting. This provision is effective Jan. 1, 2014. Employers close to the 50 or 100 full-time equivalent employee threshold may want to recalculate their size using at least 6 consecutive months in 2014. The result could affect whether they are subject to the employer mandate or reporting this year.
With regard to HSA eligibility, the IRS had previously provided in IRS Notices 2004-50 and 2008-59 that an employee was not eligible for HSA contributions if he/she had received medical benefits (other than preventive or permissible care) from VA in the preceding three months. The new law provides an exception in addition to the preventive and permissible care provision. Effective Jan. 1, 2016, an individual remains eligible for HSA contributions if the only care received from the VA in the preceding three months was preventive care, permissible care (i.e. dental or vision) or care related to a service-connected disability.
Lastly, plans that are subject to the Form 5500 filing must complete the filing within seven months following the end of the plan year. A two and a half month extension is available. Effective Jan. 1, 2016, HR 3236 lengthens the extension period to 3 and a half months.
On Aug. 7, 2015, the IRS released 2015 draft versions of Forms 1094-C and 1095-C Instructions, Forms 1094-B and 1095-B Instructions and revised 2015 drafts of Forms 1095-B and 1095-C.
The revised draft forms appear to have no substantial changes. The instructions, however, have several changes from the 2014 versions.
Most of the changes to the Forms 1094-C and 1095-C Instructions are to reflect guidance previously issued by the IRS related to reporting. As a reminder, Forms 1094-C and 1095-C are required of employers who have 50 or more full-time equivalent employees (i.e., those subject to PPACA’s employer mandate). Information provided on this forms is intended to help administer the employer mandate.
Summary of changes:
The Forms 1094-C and 1095-C Instructions also include new guidance.
Similarly, the instructions for Forms 1094-B and 1095-B also have been revised to incorporate previously issued guidance from the IRS. As a reminder, these forms will be used to administer the individual mandate. A small employer with fewer than 50 full-time equivalent employees who sponsors a self-funded plan will use these forms to comply with its reporting requirements under Section 6055.
The instructions for Forms 1094-B and 1095-B also include new guidance.
On July 22, 2015, CMS issued a Fact Sheet and a series of frequently asked questions (FAQs) related to State Innovation Waivers. As background, PPACA Section 1332 permits a state to apply for a waiver from certain provisions including a state exchange, premium tax credits, the individual mandate and the employer mandate. To apply for a waiver, the state must submit an application and supporting materials to the Secretary of HHS. Approved waivers would be effective Jan. 1, 2017.
To receive approval, the state must demonstrate an innovative way to provide access to quality health care that is at least as comprehensible and affordable and covers a comparable number of state residents as would be provided under the federal process. The state waiver must also provide coverage to a comparable number of state residents. Lastly, it must not increase the federal deficit.
While there is no direct impact to employers at this time, this issue has the potential to greatly impact employers in states that later receive approval for an innovation waiver. We will continue to monitor and report any developments.
On Aug. 4, 2015, the IRS published Health Care Tax Tip 2015-46. The resource summarizes PPACA’s provisions for employers, including the Small Business Health Care Tax Credit, SHOP availability, Sections 6055 and 6056 reporting, employer mandate obligations and related transition relief. The chart identifies which provisions are available for employers based on size and also provides links to resources on each topic.
REGTAP is hosting a series of webinars in August and September to educate contributing entities, including plan sponsors of self-insured plans that are not self-administered.
In the first webinar, entitled "Transitional Reinsurance Program Contributions Overview for 2015 Benefit Year," REGTAP covered the following topics:
The slide deck for that webinar is now available online at www.regtap.info.
The next webinar in the series, "The Transitional Reinsurance Program Contributing Entities and Counting Methods," will be presented Aug. 17, 24 and 31, 2015. The same material will be presented on all three dates, and attendees may register for the date of their choice. Individuals who are new to REGTAP will need to first register for a website ID and password before registering for the presentation.
On Aug. 5, 2015, the IRS released an updated draft of Publication 5164, entitled “Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR),” which contains general and program-specific testing information for use with ACA Assurance Testing System (AATS). The testing process information found in this publication includes who must test, Transmitter Control Code registration and criteria for passing testing.
Software developers must pass all applicable test scenarios before the software is deemed approved allowing them the ability to communicate with the IRS. Transmitters (a third-party sending the electronic information return data directly to the IRS on behalf of any business required to file), including issuers (health insurance issuers, sponsors of self-insured health plans or government agencies that administer government-sponsored health insurance programs), must use approved software to perform the communications test. Additionally, transmitters and issuers are only required to complete communication testing to transmit information returns to the IRS in the first year.
As a reminder, self-insured employers with fewer than 50 full-time equivalent employees are required to file Forms 1094-B and 1095-B to comply with Section 6055 of the IRC (to assist in enforcing the individual mandate). Employers (including self-insured, fully insured and uninsured) with 50 or more full-time equivalent employees are required to file Forms 1094-C and 1095-C to comply with Section 6056 of the IRC (to assist in enforcing the employer mandate). Employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may either file electronically or by using paper forms. Those filing electronically must report 2015 data by March 31, 2016.
Employers who file Forms 1094-B, 1095-B, 1094-C or 1095-C will want to review the guidance and familiarize themselves with the proposed filing process. Those filing electronically must use AIR and approved software. The individual responsible for electronically filing the employer’s forms will be required to register with IRS e-Services and receive an e-Services PIN which will be used to sign the electronically filed forms.
On July 10, 2015, the IRS issued a set of new questions and answers (Q&As) providing additional guidance on the PCOR fee.
As background, PPACA added the PCOR fee on health plans to support clinical effectiveness research. The PCOR fee applies to plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. The PCOR fee is due by July 31 of the calendar year following the close of the plan year. For plan years ending in 2014, the fee is due by July 31, 2015.
Additionally, the PCOR fee is assessed based on the number of employees, spouses and dependents who are covered by the plan. For 2014 plan years ending on or before Sept. 30, 2014, the fee is $2.00 multiplied by the average number of lives covered under the plan. For plan years ending between Oct. 1, 2014, and Sept. 30, 2015, the fee increases to $2.08. The PCOR fee can either be paid electronically or mailed to the IRS with Form 720 using a Form 720-V payment voucher. According to the IRS, the fee is tax-deductible as a business expense.
In the new Q&As, the IRS provides the following guidance on the PCOR fee:
Some of the Q&As confirm information about the PCOR fee which we have provided in past editions of Compliance Corner (see the June 30, 2015 and July 14, 2015 editions) and on our HR & Benefits Compliance Solutions website.
There are also some helpful Q&As on exceptions to the PCOR fee (the PCOR fee does not apply to health insurance policies and self-insured plans that provide only excepted benefits, such as plans limited to vision or dental benefits and most FSAs) and on overpayments (plan sponsors cannot reduce the PCOR fee due July 31 for any overpayment from a prior year).
Other important questions addressed include:
PCOR fee calculations can be complex. NFP has resources to assist. Ask your advisor for more information.
On July 10, 2015, HHS, DOL and the Department of the Treasury issued final regulations related to women’s preventive services. The regulations finalize previously issued interim final and proposed rules from 2010 and 2014.
As background, non-grandfathered group health plans are required under PPACA to provide certain preventive care services with no cost sharing for participants. This includes contraceptive-related services for women. Religious employers, primarily limited to churches and other houses of worship, are exempt. An accommodation is available for religiously affiliated non-profit organizations. The group health plans sponsored by such organizations would still offer coverage for contraceptive services and items, but the cost would be borne by the insurer, not the participants or the non-profit organization. The organization would provide a self-certification to the insurer.
In August 2014, interim final regulations provided an alternative accommodation for non-profit organizations. To use this alternative accommodation, the organization notifies HHS of its religious objection rather than self-certifying to the insurer. HHS will coordinate with the insurer so contraceptive coverage is provided under the plan without cost to the participants or the organization. This alternative accommodation is finalized in the new regulations.
Also in August 2014, proposed regulations were issued in response to the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014). The proposed regulations expanded the availability of the accommodation to closely held for-profit entities that certify their religious objection to providing contraceptive coverage.
The final regulations define a closely held entity as one that is not a non-profit entity; has no publicly traded ownership interests and has more than 50 percent of its ownership interest directly or indirectly owned by five or fewer individuals. Ownership interests held by certain members of a family are treated as being owned by a single individual. To take advantage of one of the two accommodations, the for-profit entity’s highest governing body (for example, board of trustees or owners) must adopt a resolution establishing its owners’ religious objections to contraceptive services.
Interestingly, the regulations also provide accommodations for entities in which the structure is “substantially similar” to one in which five or fewer individuals own 50 percent or more of the entity. An example provided of a substantially similar structure is one in which six individuals own 49 percent of the entity.
Any employer plan sponsor that believes it may qualify for an accommodation and would like to pursue it further should contact their advisor.
On June 30, 2015, the IRS issued Notice 2015-43, providing interim guidance on the application of certain provisions of PPACA to expatriate health insurance issuers, expatriate health plans and employers in their capacity as plan sponsors of expatriate health plans.
As background, on Dec. 16, 2014, Congress enacted the Expatriate Health Coverage Clarification Act of 2014 (EHCCA). Section 3(a) of the EHCCA provides that PPACA generally does not apply to expatriate health plans. Although HHS, DOL, and the Treasury (the “Departments”) did not issue prior guidance, the EHCCA became effective for expatriate health plans issued or renewed on or after July 1, 2015.
As a result, notice 2015-43 provides additional time and guidance to expatriate health plans so they can comply with the EHCCA's requirements. This notice allows “a reasonable good faith interpretation of the EHCCA” until further guidance is issued. Specifically, until there is further guidance, defining an expatriate health plan as “an insured group health plan with respect to which enrollment is limited to primary insureds for whom there is a good faith expectation that such individuals will reside outside of their home country or outside of the United States for at least six months of a 12-month period and any covered dependents, and also with respect to group health insurance coverage offered in conjunction with the expatriate group health plan,” in accordance with the DOL ACA Implementation FAQs Parts XIII and XVIII, is generally considered a reasonable good faith interpretation of the EHCCA.
However, since the notice confirms that coverage under an expatriate health plan counts as minimum essential coverage, the reasonable good faith standard does not apply to PPACA tax reporting requirements found in IRC Sections 6055 and 6056, the PCOR fee or the Health Insurance Providers Fee (also known as the "health insurance tax" or "HIT tax"), and expatriate plans should comply with those requirements.
The IRS previously released Notice 2015-29 providing guidance addressing the application of the HIT tax to expatriate plans (see the Apr. 7, 2015 edition of Compliance Corner). However, Notice 2015-43 includes a special rule for the PCOR fee. It states, “issuers and plan sponsors are permitted to determine the PCOR fee by excluding lives covered under a specified health insurance policy … if the facts and circumstances demonstrate that the policy or plan (1) was designed and issued specifically to cover primarily employees (a) who are working and residing outside the United States, or (b) who are not citizens or residents of the United States but who are assigned to work in the United States for a specific and temporary purpose or who work in the United States for no more than six months of the policy year or plan year; or (2) was designed to cover individuals who are members of a group of similarly situated individuals.”
The IRS is seeking comments to assist with the development of proposed regulations by the Departments. Comments are due by Oct. 19, 2015.
On June 29, 2015, President Obama signed the Trade Preferences Extension Act of 2015 into law, creating Public Law No. 114-27. Among other things, the Act increased the penalties that can be levied upon entities who fail to comply with the PPACA reporting requirements. As background, PPACA requires certain informational reporting to the IRS and to plan participants under IRC Sections 6055 and 6056.
Specifically, the Act increased the penalty for failure to file a required information return with the IRS to $250 per return, a $150 increase from the previous penalty of $100 per return. The Act also doubled the cap on the total amount of penalties during a calendar year from $1,500,000 to $3,000,000. Further, if the failures to file result in a failure on both the information return (transmittal filed with the IRS) and on the individual statement (statement distributed to employees), then the penalties are doubled. The penalties are also doubled to $500 for each failure if the failure to file is caused by intentional disregard on the part of the entity responsible for filing. In the case of intentional disregard, there is no cap on the amount of penalties that can be imposed.
The increased penalties also apply to Forms W-2 and other information returns and filings, and they are effective on reporting that is required to be filed after 2015. Keep in mind, though, that this Act does not change the IRS’s enforcement of the first year of reporting for Sections 6055 and 6056. It still will not penalize employers who have made a good faith effort to comply with the reporting requirements in 2016. However, if the IRS finds that a good faith effort was not made, it could impose the newly increased penalties.
On June 25, 2015, the U.S. Supreme Court, in a 6 – 3 ruling in King v. Burwell, held that the IRS may promulgate regulations to extend premium tax credits (PTCs) for coverage purchased through exchanges established by the federal government under PPACA Section 1321. Therefore, PTCs remain available for eligible individuals purchasing coverage through all state exchanges, including federally facilitated exchanges (FFEs).
First available in 2014, PTCs are intended to assist individuals with paying premiums for private health coverage offered through the exchanges. IRC Section 36B, added by PPACA, explicitly states that eligible individuals may receive PTCs if they are enrolled “through an Exchange established by the State.” However, the IRS promulgated a regulation encompassing a broader interpretation of Section 36B that allows PTCs to be available in both state-established exchanges and FFEs. This led to several lawsuits against the government claiming that the IRS exceeded its regulatory authority in creating the regulation and that the explicit language of Section 36B prohibits the availability of PTCs for individuals who obtain coverage in FFEs. This is an important distinction, because approximately 6 million Americans currently receive PTCs through an FFE. In addition, PTC qualification is the event that triggers potential employer mandate penalties for employers. This decision means that those individuals will continue to receive PTCs, and that employer mandate penalties can be triggered in states with FFEs.
As background on the case, King and three other Virginia taxpayers filed suit, challenging the validity of the IRS regulation, claiming that the IRS’s interpretation regarding the availability of PTCs is contrary to the statutory language of PPACA. Specifically, the plaintiffs argued that Virginia’s FFE could not administer PTCs and, therefore, the plaintiffs would be exempt from the individual mandate due to the cost of insurance being unaffordable. The U.S. Court of Appeals for the Fourth Circuit ruled against the plaintiffs and upheld the IRS regulation as a valid exercise of agency discretion in alignment with the overall goals of PPACA.
On appeal, the Supreme Court agreed with the Fourth Circuit and the majority opinion, written by Chief Justice Roberts, held that the relevant statutory language in IRC Section 36B is properly viewed as ambiguous and subject to multiple interpretations. Focusing on the purpose and intent of the law instead of a strict reading, the Supreme Court stated that “the statutory scheme compels the Court to reject the petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal exchange and likely create the very ‘death spirals’ that Congress designed the Act to avoid.” Therefore, the Supreme Court reasoned that the “Act’s context and structure compel the conclusion that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act.” The Supreme Court also provided a few examples of areas of PPACA where it would not make sense to interpret “established by the State” to mean only state-based exchanges. As a result of the Supreme Court examining the context of the phrase within the overall purpose of PPACA, the IRS regulation stands without need for amendment and PTCs are available in states that operate under either a state or federal exchange.
Justice Scalia wrote the dissenting opinion, stating that “words no longer have meaning if an Exchange that is not established by the State is ‘established by the State.’” Justice Scalia further argued that "rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act's limitation of tax credits to state exchanges" and concluded that “[w]e should start calling PPACA “SCOTUScare.”
This decision gives employers and individuals a better idea of how to plan for PPACA compliance, and its provisions will remain in effect. Specifically, larger employers should continue to comply with the employer mandate, offering coverage to all full-time employees and dependents. In addition, large employers and employers that sponsor self-insured plans must plan to comply with informational reporting requirements (beginning in early 2016, reporting on 2015 compliance).
NFP Benefits Compliance will continue to monitor these developments and will provide additional information in future Compliance Corner newsletters, as necessary.
On June 16, 2015, the IRS released draft versions of the informational reporting forms that employer plan sponsors and health plans will use to satisfy their obligations under Sections 6055 and 6056 of the IRC in early 2016. The IRS is currently accepting comments on the draft forms. Instructions for the forms have not yet been released.
As a reminder, Forms 1094-B and 1095-B (6055 reporting) are required of insurers providing minimum essential coverage. These reports will help the IRS to administer and enforce the individual mandate. Form 1095-B, the form distributed to the employee, will identify the employee, any covered family members, the group health plan and the months in 2015 for which the employee and family members had minimum essential coverage under the employer's plan. The employee will subsequently file the form with his/her individual tax return. Form 1094-B identifies the insurer 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 subject to the employer mandate. These reports will help the IRS to administer and enforce the employer mandate. Employers will use Form 1095-C to identify the employer, each employee, whether the employer offered minimum value coverage 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. An 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, whether minimum essential coverage was offered and if the employer qualified for the 2015 transition relief for employers with 50 to 99 employees.
The draft 2015 B forms and Form 1094-C do not contain any significant changes from the 2014 versions. However, draft Form 1095-C slightly differs from the 2014 version in the following ways:
On June 15, 2015, CMS released technical guidance containing instructions on electing a federal external review process within the Health Insurance Oversight System (HIOS). As background, PPACA instituted new rules concerning internal claims and appeals and external review. Specifically, if a claimant exhausts the internal appeals process, then certain circumstances allow for the claimant’s appeal to go through an external review. Plans and issuers must comply with either a state external review process or the federal external review process.
This guidance requires health insurance issuers and self-insured, non-federal governmental plans to submit information regarding their election of a federal external review process to HHS through HIOS. The guidance includes a website where current federal contractor information can be found and provides instructions for electing a federal external review process, both for new HIOS users and existing HIOS users. Further, the guidance mentions that a copy of the HIOS eternal review election module user manual is available.
On June 15, 2015, the IRS released resources to assist various entities with electronic ACA informational return (AIR) submissions of returns required under PPACA. Forms 1094-B and 1095-B (6055 reporting) are required of insurers providing minimum essential coverage. Forms 1094-C and 1095-C (6056 reporting) are to be filed by applicable large employers subject to the employer mandate. Further, employers who sponsor a self-insured plan will use the Form 1095-C to fulfill their Section 6055 reporting requirements.
Electronic filing of Forms 1094 and 1095 (both B and C) is required by high-volume filers (those who file at least 250 returns) and is optional for employers who file fewer than 250 returns. The IRS previously established the AIR working group to provide instructions about how this electronic filing must be done. The two resources the IRS released are a comprehensive AIR Submission Composition and Reference Guide as well as a webpage that walks through some of the particulars of the AIR program.
Information provided by these resources includes: the process for applying for the program, technical requirements, what testing is necessary before the actual transmission, parameters for filing and data file size limits. While these resources are very technical in nature, they will be useful to entities that are filing these returns electronically.
On June 12, 2015, the DOL, IRS and HHS (collectively, the Departments) issued final regulations on the SBC and uniform glossary requirements under PPACA. The final regulations were published in the Federal Register on June 16, 2015.
These regulations amend the final regulations published in February 2012 and finalize the proposed regulations published Dec. 30, 2014 (See the Jan. 13, 2015 edition of Compliance Corner).
While the final regulations essentially finalized the language of the proposed regulation with no changes, the Departments did make a few clarifications. One such clarification concerns the requirement for issuers to include a web address where participants can review and obtain a copy of their individual coverage policy or group certificate of coverage. Specifically, the final rule clarifies that issuers in the group market can provide a sample certificate of coverage until the actual certificate is executed by the plan sponsor.
Another clarification relates to reducing unnecessary duplication. Specifically, group health plans that contract with a third party can rely on that entity to provide SBCs. This provision also applies to issuers who provide coverage to students at institutions of higher education. The final rules did clarify, however, that the group health plan must still monitor the issuing entity to ensure that the SBCs are provided and that they include the proper content.
While this final regulation addresses the requirements for providing the SBC and uniform glossary, the Departments will release finalized templates of the SBC and uniform glossary by January 2016. Those templates will apply to plans starting on the first day of the plan year beginning in 2017.
The final regulations are effective on Aug. 17, 2015.
HHS has issued a request for information seeking public comments regarding the health plan identifier (HPID) requirements, including its policy on health plan enumeration and the requirement to use the HPID in electronic health care transactions. The deadline for submitting written or electronic comments is July 28, 2015.
As background, HIPAA requires health plans to obtain an HPID, which is to be used by the plan in certain HIPAA-related transactions. The HPID is a unique identifier for the plan, similar to a taxpayer identification number—a standard number that applies in all transactions so the parties involved know the true identity of the plan. Large health plans (those with annual receipts of more than $5 million) were supposed to obtain an HPID by Nov. 5, 2014 while small health plans had an additional year to comply. On Oct. 31, 2014, HHS announced that enforcement of HIPAA's HPID requirement had been delayed indefinitely (See the Nov. 4, 2014 edition of Compliance Corner).
HHS is now soliciting public input to assess whether policy changes may be warranted. At this time, no action is needed by employers (unless they wish to submit comments). The HPID requirement remains indefinitely on hold pending further guidance from HHS.
On May 19, 2015, the IRS issued a set of revised and new FAQs providing additional guidance on employer compliance with PPACA reporting requirements under IRC Sections 6055 and 6056.
As background, Section 6055 is meant to assist the government in enforcing the individual mandate (reports on coverage at the individual level). Section 6056 is meant to assist the government in enforcing the employer mandate (reports on the employer’s coverage at the employer level) and advance premium tax credit (APTC) eligibility (reports whether a specific individual was offered minimum value, affordable employer sponsored coverage for each month, which affects that individual’s ability to qualify for an APTC).
To fulfill the Section 6056 requirement, Form 1095-C is to be used by applicable large employers (ALEs) (those employers with 50 or more full-time employees including full-time equivalent employees in the preceding calendar year). Form 1094-C is to be used for transmitting Form 1095-C. Self-insured ALEs will combine Sections 6055 and 6056 reporting on Form 1095-C.
In the revised Q&As, the IRS provides the following guidance on the reporting of health care coverage by ALEs:
Some of the revisions include new FAQs confirming an ALE that does not have full-time employees does not generally have to file under Section 6056, but still must comply with Section 6055 and file Form 1094-C and Form 1095-C if it sponsors a self-insured health plan in which individuals were enrolled. There are also new FAQs that provide additional guidance on delivery of Form 1095-C to an employee (confirming that ALEs can furnish by hand delivery and electronically, if certain conditions are met) and penalties that may apply if an ALE fails to comply with reporting requirements in 2017 for coverage offered in 2016 and later years.
In the new FAQs, the IRS provides more specific guidance to ALEs on how to complete the required forms, including:
Important questions addressed in this new set of FAQs are:
The reporting obligations are complex. Ask your advisor for more information.
On May 26, 2015, the DOL, HHS and the Treasury (collectively, the Departments) published FAQs (FAQs about Affordable Care Act Implementation (Part XXVII)) which provide guidance on cost sharing and provider nondiscrimination.
As background, in the final HHS Notice of Benefit and Payment Parameters for 2016, HHS clarified that the self-only maximum annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in self-only coverage or in coverage other than self-only. Subsequently, CMS issued several follow-up clarifications. (See the Feb. 24, 2015, March 24, 2015, and May 19, 2015 editions of Compliance Corner). However, the Departments have received numerous questions regarding the application of these clarifications to non-grandfathered self-insured and non-grandfathered large group health plans. The new FAQs appear to address many of those questions.
In Q/A-1, the Departments confirm that these clarifications apply to both non-grandfathered self-insured and large group health plans. The guidance confirms the maximum out-of-pocket expenses employers can require employees to pay before health plan coverage takes effect: $6,850 for single coverage and $13,700 for family coverage. An example illustrates how this limit will work when a family of four has family coverage with a $13,000 limit on cost sharing for all four enrollees. In the example, no individual member of the family may have cost-sharing that exceeds $6,850.
Q/A-2 clarifies that this change only applies for plan or policy years that begin on or after Jan. 1, 2016.
Q/A-3 clarifies that this change also applies to non-grandfathered HDHPs.
In a change of topics, Q/As-4 and -5 discuss provider nondiscrimination issues. As background, health care reform prohibits non-grandfathered group health plans from discriminating with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider's license or certification under applicable state law. In Q/A-4, the Departments state that until further guidance is issued, plans and issuers are expected to implement the requirements using a good faith, reasonable interpretation of the law and that no enforcement action will be taken against a group health plan or health insurance issuer who does so.
In Q/A-5, the Departments state that a prior FAQ no longer applies. The now redacted FAQ stated that the provider nondiscrimination rule is self-implementing, and that until further guidance was issued, plans and issuers were expected to implement the requirements using a good faith, reasonable interpretation of the law. Specifically, to the extent an item or service is a covered benefit under the plan or coverage and consistent with reasonable medical management techniques specified under the plan with respect to the frequency, method, treatment or setting for an item or service, a plan may not discriminate based on a provider's license or certification to the extent the provider is acting within the scope of the provider's license or certification under applicable state law. The new Q/A-5 states that until further guidance is issued, the Departments will not take any enforcement action against a group health plan as long as the plan or issuer is using a good faith, reasonable interpretation of the statutory provision.
On May 8, 2015, CMS issued guidance in the form of an FAQ. As background, non-grandfathered plans must have a maximum out-of-pocket annual limit of $6,850 in 2016 for self-only coverage. The guidance clarifies that even if an individual is enrolled in the family-tier coverage of a HDHP with a deductible of $10,000, each individual’s eligible expenses are still limited to the $6,850 self-only OOP maximum.
On May 12, 2015, CMS issued an FAQ regarding group health plans that received an email requesting information about their reinsurance contribution submission even if the employer, issuer, TPA or ASO contractor had already submitted a reinsurance contribution for their respective covered lives. As background, CMS contacted group health plans for which it was unable to locate an “ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form” (Form) for the 2014 Benefit Year, and requested that these plans provide information to confirm the status of their Form filing for the 2014 Benefit Year so that CMS can reconcile its records.
In the FAQ, CMS acknowledges that some email recipients may have already filed a Form directly, or had a TPA or ASO contractor file on their behalf. In addition, CMS recognizes that insured group health plans may have had their Form submitted by the issuer for the plan's covered lives.
Nevertheless, CMS requests that all email recipients complete a series of questions this webpage as soon as possible in order to resolve their filing status. If the group health plan believes a health insurance issuer, TPA or ASO contractor has successfully filed on its behalf or that they are exempt from filing, the plan is instructed to select “No” for the question “Have you completed a form filing?” By making this selection, the plan will be allowed to verify this filing information.
In order to verify filing, the plan will need to provide the Pay.gov tracking ID(s) for the Form filing. Before beginning this process, the plan can access the series of questions it must answer using this link.
Please note that if an employer does not meet the definition of “contributing entity” under 45 CFR Sec. 153.20, or if an employer believes the coverage it offers qualifies for an exemption from reinsurance contributions under 45 CFR Sec. 153.400(a), the employer will need to provide such information or select a reason for the exemption.
On May 11, 2015, the DOL, HHS and the Treasury (collectively, the Departments) published FAQs (FAQs about Affordable Care Act Implementation (Part XXVI)), which provide guidance on the coverage of preventive services. As background, PPACA requires non-grandfathered group health plans to provide preventive services without cost-sharing. The new FAQs specifically give regulatory guidance concerning breast cancer (BRCA) testing, FDA-approved contraceptives, sex-specific services, well-women care for dependents and colonoscopy coverage.
Under PPACA, one of the preventive services required to be provided without cost sharing is screening for women who have a family history of breast, ovarian and other cancers that predispose them to harmful mutations of the breast cancer susceptibility genes BCRA 1 or BCRA 2. However, there was some confusion as to whether or not the requirement to offer BCRA testing and genetic counseling extended to women who had prior non-BCRA-related breast cancer, but no family history or current symptoms. The FAQs clarify that genetic counseling and BCRA genetic testing must be provided with no cost sharing to women who have had prior non-BCRA cancers as long as they have not been diagnosed with BRCA-related cancer.
Another requirement under the preventive services mandate is for plans to provide coverage for contraception without cost sharing. However, the original FAQs on contraceptive coverage also provided that plans and issuers could use reasonable medical management techniques. In the new FAQs, the Departments clarify the rules on using medical management techniques as they apply to contraceptives. Specifically, plans must cover at least one form of contraception in each of the 18 FDA methods of contraception. See the FDA Birth Control Guide for a list of the 18 methods. The Departments explicitly addressed the ring and the patch, stating that a plan cannot limit contraceptives to the pill just because other methods are also hormonal contraceptives.
The FAQs further clarified that medical management techniques can be used within each method of contraception, such that plans may discourage the use of brand name contraceptives over generics or may encourage the use of one FDA-approved item over others. Additionally, plans that utilize medical management techniques must provide an exception process that is accessible, transparent, sufficiently expedient and not unduly burdensome on the participant or their service provider.
Due to the confusion surrounding whether or not plans had to cover at least one form of contraception in each method, the Departments will apply this guidance for plan years beginning on or after 60 days from the date the FAQs were issued (July 10, 2015).
In addition, the FAQs state that plans cannot limit sex-specific recommended preventive services based on an individual’s sex assigned at birth or gender identity. For example, a mammogram or pap smear would have to be provided to a transgender man if his medical provider determines the procedures are appropriate.
The FAQs also state that the recommended women’s preventive care services also apply to dependent children. So if the medical provider of a dependent child determines that well-women visits are age- and developmentally-appropriate for the dependent, then the plan would have to cover those services with no cost sharing.
Finally, the FAQs provide that the anesthesia used during colonoscopies is also to be provided without cost sharing.
On April 27, 2015, the U.S. Supreme Court granted certiorari and vacated the Sixth Circuit’s decision in Michigan Catholic Conference, et al. v. Burwell, Secretary of United States Department of Health and Human Services (2015 WL 1879768, 83 USLW 3447 (U.S. Apr 27, 2015) (NO. 14-701)). As background, the plaintiffs represented multiple nonprofit entities, all of whom are affiliated with the Catholic Church. The plaintiffs alleged that the contraceptive mandate violates the Religious Freedom Restoration Act, the Free Speech, Free Exercise and Establishment Clauses of the First Amendment and the Administrative Procedure Act.
The district courts and the Sixth Circuit each denied preliminary injunctions that would stop the government from enforcing the contraceptive mandate. The plaintiffs appealed to the Supreme Court and the court remanded the case to the Sixth Circuit for further consideration in light of Burwell v. Hobby Lobby Stores Inc. (82 USLW 3328 (U.S. Nov 26, 2013) (NO. 13-354) ( (See the July 1, 2014 Compliance Corner article entitled “U.S. Supreme Court: PPACA Contraceptive Mandate Does Not Apply to Closely Held Companies” for more information.) This is just one case in a long line of challenges to the PPACA contraceptive mandate and religiously affiliated employers may be affected by the final decision in this case. Employers should consult with legal counsel before changing their benefit plan design in regard to contraceptives.
The IRS has released the draft version of Publication 5165, entitled “Guide for Electronically Filing Affordable Care (ACA) Information Returns for Software Developers and Transmitters.” Employers who file Forms 1094-B, 1095-B, 1094-C or 1095-C will want to review the guidance and familiarize themselves with the proposed filing process.
As a reminder, self-insured employers with fewer than 50 full-time equivalent employees are required to file Forms 1094-B and 1095-B to comply with Section 6055 of the IRC enforcing the individual mandate. Employers (including self-insured, fully insured and uninsured) with 50 or more full-time equivalent employees are required to file Forms 1094-C and 1095-C to comply with Section 6056 of the IRC enforcing the employer mandate. Employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Those filing electronically must report 2015 data by March 31, 2016.
Those filing electronically must use the Affordable Care Act Information Return System (AIR). The only acceptable format will be XML. The individual responsible for electronically filing the employer’s forms will be required to register with the IRS e-Services and receive an e-Services PIN which will be used to sign the electronically filed forms.
Simultaneously, the IRS released a PowerPoint presentation summarizing the process and providing answers to frequently asked questions (FAQs). In the FAQs, the IRS states that if a vendor files the Form 1094-C on an employer’s behalf, the employer is not be required to electronically sign the form. The signature requirement has been waived for the 2015 processing year.
On April 8, 2015, CMS issued a list of the largest three small-group products by state, as well as a listing of the three largest nationally available Federal Employee Health Benefit Program (FEHBP) plans, based on enrollment in the first quarter of 2014.
As background, non-grandfathered plans in the individual and small group markets both inside and outside of the Marketplaces must cover essential health benefits (EHB). The PPACA provides that what actually constitutes EHBs includes items and services within ten statutorily defined benefit categories, and that the scope of these benefits shall equal the scope of benefits provided under a typical employer plan. In response, HHS previously codified regulations to allow each state to select a benchmark plan that serves as a reference, or “base benchmark plan” for what the typical employer plan includes within that state. HHS intends to use this benchmark approach at least through plan year 2017.
States can choose a benchmark plan from among the following health insurance plans:
This report identifies the first and third bullet points, based on first quarter 2014 enrollment data self-reported by issuers of individual and small group products and collected through HealthCare.gov. The report may be useful to employers, whether operating primarily in one state or in multiple states, to compare the employer’s benefit offerings with the state’s most popular small group insurance product or one of the largest three FEHBP plan options. Note that the plans listed within the report may not accurately represent the state’s selected base benchmark plan because the default plan for a state that did not select a benchmark plan is the largest plan by enrollment in the largest product in the state’s small group market (included within the report).
On April 15, 2015, the IRS released Publication 5215, which is primarily directed at small self-insured employers and health insurance carriers. As background, under PPACA entities that provide health insurance coverage to individuals are required (under IRC Section 6055) to report that coverage to the IRS and to the individual. Publication 5215 is a two-page document that provides general information aimed at helping small employers and other affected entities understand the Section 6055 reporting requirements. (PPACA also requires applicable large employers—those subject to the employer mandate—to report to the IRS and individual under IRC Section 6056. The IRS previously released Publication 5196—covered in the Feb. 24, 2015, edition of Compliance Corner—as a guide for those employers.)
Publication 5215 addresses several important points, including:
The reporting obligations are very complex. Publication 5215 touches on a few high points. The takeaway for all small self-insured employers is that they must track months of coverage for covered individuals during 2015, including any month for which an individual is enrolled in MEC for at least one day, as well as gather other vital information to ensure a smooth reporting process in early 2016. NFP has resources to assist. Ask your advisor for more information.