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Latest News on the ACA|
Employers Get Relief as IRS Extends Due Dates for 2015 ACA Reporting
Employers have gotten an early New Year’s gift from the IRS. On December 28, 2015, the IRS released Notice 2016-4 to extend due dates for the 2015 information reporting required by the
Affordable Care Act (ACA). Employers will have an additional two months to furnish forms to individuals and an extra three months to file forms with the IRS.
The Cadillac Tax: What We Know & Don’t Know
The Patient Protection and Affordable Care Act (the “ACA”) introduced a new term into our benefits lexicon: the “Cadillac Tax.” Beginning in 2018, the ACA imposes a nondeductible excise tax (the “Cadillac Tax”) on employers, health insurance issuers, and/or entities administering plan benefits if the aggregate value of applicable employer-sponsored coverage exceeds the specified threshold limit. The Cadillac Tax is equal to 40% of the aggregate value in excess of the threshold limit. In 2018, the threshold limit is set to be $10,200 for individual coverage and $27,500 for family coverage.
With 2018 fast approaching and in response to growing questions from employers, insurers and practitioners, on February 23, 2015 the Department of the Treasury and the IRS (“IRS”) finally released guidance on the Cadillac Tax, in the form of Notice 2015-16 (the “Notice”). The Notice is less guidance from the IRS and more of a solicitation of comments to the IRS. Notice 2015-16 describes the approaches IRS is considering with regard to implementation of the Cadillac Tax rules and requests comments on many aspects of the law. Comments must be submitted by May 15, 2015.Click here to view the full document
Reminder: Large Self-Insured Plans Must Register for an HPID by November 5, 2014
As part of the Affordable Care Act’s (“ACA”) Administrative Simplification provision, all “controlling health plans” (defined below) must obtain a 10-digit numeric identifier known as a Health Plan Identifier, or HPID. The HPID is part of a project that federal agencies, health insurers and health care provider groups have been working on for years, as final rules for the HPID requirement were published in the Federal Register.Click to View Full Document
IRS to Amend Cafeteria Plan Regulations to Facilitate Enrollment in Marketplace Coverage
On Thursday, September 18, 2014, the Internal Revenue Service (“IRS”) released Notice 2014-55, which expands the cafeteria plan “change in status” rules to allow plans to offer employees an option to revoke their elections for employer-sponsored health coverage to purchase a qualified health plan through a Health Insurance Marketplace (“Marketplace”). The notice is effective immediately and will appear in IRB 2014-41, to be published Oct. 6, 2014.Click to View Full Document
It was a busy week for news regarding the Affordable Care Act (ACA). Courts issued conflicting rulings on ACA subsidies, the IRS raised the threshold for “affordable coverage” under the employer mandate, and the IRS released drafts of forms related to the new employer reporting requirements for 2015.
Conflicting Court Rulings on ACA Subsidies
On July 22, two different federal appeals courts ruled on whether subsidies are available through all ACA insurance exchanges or only through state-run exchanges. The two rulings are mirror opposites so further appeals are expected. In the meantime, subsidies continue to be available in all states.
Exchange subsidies are an important issue for large employers due to the ACA’s “play or pay” provision (employer mandate). Starting in 2015, large employers may be assessed penalties for failure to offer health coverage to their full-time employees. The penalty mechanism is not triggered, however, unless at least one full-time employee receives an exchange subsidy for an individual insurance policy. For this reason, the availability of subsidies can have significant impact on employers.
By way of background, the ACA provides for establishing health insurance exchanges (or marketplaces) in each state. States have the option of establishing and running the exchanges. For any state that is unable or unwilling to establish a state-run exchange, the ACA provides for Health and Human Services to operate a federally-facilitated exchange (FFE) for the state in compliance with its state insurance laws.
The ACA also provides for subsidies in the form of premium tax credits, based on household income, to help individuals and families purchase insurance through an exchange. The plain text of the ACA refers to subsidies in connection with an exchange “established by the State.” The two appeals courts separately considered whether the current practice of extending subsidies to all states is consistent with the law:
IRS Increases “Affordable Coverage” Threshold for 2015
On July 24, the IRS released Rev. Proc. 2014-37 providing indexing adjustments for several dollar amounts and percentages under the ACA. Large employers becoming subject to the ACA’s “play or pay” provision (employer mandate) in 2015 will welcome the news that the affordable coverage threshold is increasing slightly from 9.5 percent to 9.56 percent.
Under the play or pay rules, large employers may be assessed penalties for failure to offer full-time employees minimum value coverage that is affordable. “Affordable” generally means the employee’s contribution for self-only coverage (if elected) does not exceed 9.5 percent of the employee’s income from that employer. Although 9.5 percent was the 2014 amount written into the original law, it is subject to change each year for inflation. For 2015, the affordability limit will be 9.56 percent.
IRS Releases Draft Forms for ACA Reporting
The ACA added two health coverage reporting requirements to the Internal Revenue Code. Both take effect for 2015, with the first reports due in early 2016:
Caution: Large employers are those with 50 or more full-time employees (including full-time-equivalents). Although some mid-size (50-99) employers and/or some employers with non-calendar year plans may qualify for short-term transition relief under the ACA’s “play or pay” rules, the ACA’s reporting requirements still apply for 2015.
Large employers that also sponsor a self-funded health plan can use Form 1095-C to satisfy both the § 6056 and 6055 reporting requirements.
On July 24, the IRS posted preliminary drafts of Forms 1094-B, 1094-C, 1095-B, and 1095-C. Draft instructions will not be posted until next month, but the forms (with indicator codes) seem self-explanatory. The IRS expects to finalize the forms and instructions later this year.
Supreme Court Sides With Employers and Not Administration in Hobby Lobby
In a 5-4 decision announced June 30, 2014 in Burwell v. Hobby Lobby Stores, Inc. (“Hobby Lobby”) (f/k/a Sebelius v. Hobby Lobby Stores, Inc.), the United States Supreme Court (the “Court”) ruled that the federal government erred in requiring for-profit, faith-based employers to pay for certain forms of birth control that contradicted their religious beliefs.
The Court found that the government violated the Religious Freedom Restoration Act of 1993 (“RFRA”) by requiring faith-based employers to provide certain forms of birth control as part of the preventive services requirements included in the Patient Protection and Affordable Care Act (the “ACA”). Among its many insurance mandates, the ACA requires non-grandfathered health insurance plans (see http://www.proskauer.com/en-US/publications/client-alert/health-care-reform-grandfathered-health-plan-interim-final-regulations/ for information on grandfathered plans) to cover “preventive services” at no cost to participants. Health and Human Services (“HHS”) included birth control as preventive services required to be covered by non-grandfathered plans. In its list of 20 contraceptives that were required to be included as preventive services, HHS included four that worked after fertilization as opposed to before fertilization. Immediately, three distinct groups of employers expressed concerns about the inclusion of birth control generally and/or these four forms of contraception specifically as “preventive services” that must be provided by employers. These three distinct groups are:
Hobby Lobby is a faith-based employer. Hobby Lobby argued that requiring the company to pay for or provide pills and procedures that they believe terminate life—so-called abortifacients—intrudes on their religious beliefs. Hobby Lobby’s owners, a private family, sued HHS, asserting that requiring them to pay for or provide abortifacients violated their First Amendment rights to freedom of religion and also violated the RFRA. The RFRA provides that the federal government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling governmental interest. The Administration first argued that Hobby Lobby (nor any other for-profit, faith-based employer) was not a person for purposes of the RFRA or the First Amendment. The Court dispensed with that argument, finding that there was no statutory basis to support the government’s position.
The next question the Court decided was whether the law imposed a substantial burden on religious beliefs. Here the Court found that the HHS rule required the owners of Hobby Lobby to engage in conduct that “seriously violates their sincere religious beliefs.” The Court noted that if Hobby Lobby refused to provide the mandated benefits they would be facing fines of $475,000,000 per year. While the government apparently did not see that as a significant burden, the Court took a common sense view and concluded that subjecting a company to almost a half billion dollar per year fine for not following the law was pretty substantial. After the Court found that Hobby Lobby was a “person” for purposes of the RFRA and that the law imposed a substantial burden, it then observed that for the government to prevail it had to demonstrate a compelling state interest for its rule and that its requirement was the least burdensome or restrictive means for achieving it goals.
The Court assumed (with Justice Kennedy providing the swing vote in his concurrence) that the government has a compelling interest with respect to birth control. However, the Court found that even assuming a compelling interest there were less restrictive alternatives for the government to achieve its goals. The government could, the four-person majority noted, simply provide these benefits to all, without charge to the individuals; in his concurrence, Justice Kennedy questioned this, and noted the Court’s opinion does not decide this issue. But Kennedy and the four-person majority agreed the government could extend the Accommodation to the for-profit, faith-based employers.
Because there are less restrictive alternatives, the Court has found that HHS had violated the RFRA as applied to these faith-based, for profit, private employers.
The Hobby Lobby ruling has a direct impact on a relatively small number of employers and employees—as a percentage of total employers across the country there are very few that can be considered faith-based employers.
However, the ruling is significant in that it signals the Court’s willingness to exercise its checks and balances power. It appears that the Court will not be willing to provide the Administration much leeway in its implementation of the ACA when implementation impacts other rights or otherwise is inconsistent with existing law. The ruling may also be significant for the religious-affiliated employers. By identifying the Accommodation as a less restrictive alternative, the Court may be signaling those religious-affiliated employers that they will not find the type of relief they are seeking from the country’s highest court, as it appears to have blessed the Accommodation approach. This remains to be seen, of course, since the Court essentially reserved its opinion on the fundamental compelling interest issue.
Finally, the Hobby Lobby decision should stand as a reminder that while there may be differences of opinion about specific rules and requirements under the ACA, and some of those differences may be decided against the government, the law itself is not going away. Employers need to continue to monitor new developments and implement strategies for complying with the ACA.
ACA’s Deductible Limits for Small Groups Repealed
On April 1, 2014, President Obama signed into law the Protecting Access to Medicare Act of 2014. The primary purpose of the law was to provide a one-year delay of a 24% reduction in payment rates for physicians who participate in the Medicare program.
Of interest to small employers, Section 213 of the law repeals a provision of the Affordable Care Act (ACA) that limited deductibles in small group health insurance plans to no greater than $2,000 for single coverage and $4,000 for family coverage. For purposes of the ACA’s insurance market reforms, an employer in the small group market employs an average of 50 or fewer full-time equivalent employees (in 2016, the definition of small group changes to 100 or fewer employees).
Before its repeal, the ACA’s deductible limit rule was intended to be effective for plan years beginning in 2014. The implementing regulations prohibited carriers from taking into account an employer’s health FSA or HRA contributions for purposes of determining compliance with the deductible limits. This left some small employers with no choice but to purchase plans with lower deductibles if they were to continue offering coverage, which in most cases significantly increased premiums. Carriers in certain states, however, were able to avoid implementing the deductible limit rules due to various “fixes” offered by the Obama administration through the Centers for Medicare and Medicaid Services (CMS), as well as an exception in the Health and Human Services regulations, which enabled plans to exceed the deductible limits if it was necessary in order for the plan to achieve a specified actuarial value (e.g., 60%).
The repeal of the ACA’s deductible rule is retroactive to the date of the ACA’s enactment (March 23, 2010). It is unclear how quickly, if at all, carriers offering plans in the small group market will return to offering policies with deductibles that exceed the now-repealed $2,000/$4,000 limits.
Guidance Released on Coordination of Health FSA Carryover with HSAs; FSA Correction Procedures
On March 28, 2014, the Internal Revenue Service’s (IRS) Office of Chief Counsel released two memoranda that provide guidance on certain administrative issues affecting employers that sponsor health flexible spending arrangements (health FSAs).
Memorandum number 201413005 provides guidance on various issues relating to the $500 health FSA carryover and its effect on employees’ health savings account (HSA) eligibility. The memorandum addresses several issues including the transfer of funds from a “general purpose” health FSA to a “limited purpose” health FSA for employees who wish to establish an HSA after participating in a health FSA the prior year.
Memorandum number 201413006 addresses common issues associated with health FSA claim substantiation requirements. Notably, it clarifies that Form W-2 (rather than Form 1099) is the correct form on which to report improper payments to an employee that the employer treats as includible in the employee’s income.
Memorandum Number 201413005 - FSA Carryovers and HSA Eligibility
Memorandum Number 201413006 – Health FSA Correction Procedures
FSA Correction Procedures
Cafeteria plans are required to have the following procedures in place in the event employees do not timely substantiate health FSA expenses reimbursed through a debit card:
Exhaustion of Correction Methods Required before Expense is Included in Income
The memorandum clarifies that an employer may alter the order of the above correction procedures as long as it does so consistently for all participants. However, the memorandum requires exhaustion of correction procedures (ii) through (iv) above before an employer may apply correction procedure (v) and include the improper payment in the employee’s income. The IRS notes that including the improper payment in employees’ gross income should be the exception rather than a routine occurrence, and that repeated inclusion in income of improper payments suggests that proper substantiation procedures are not in place or that payments may be a method of cashing out unused FSA amounts.
Corrections Occurring After the End of the Plan Year
The memorandum clarifies that in the event correction procedures (ii) through (iv) were not applied during the plan year in which the improper payment occurred, the employer should report the improper payment as wages on a Form W--2, which are subject to withholding for income tax, FICA and FUTA. Form 1099 should not be used for this purpose.
Employers that sponsor HDHPs and HSA--compatible FSAs should discuss the impact of these memoranda with their FSA vendors and benefit consultants to determine if any plan design changes are desired in light of this latest guidance.
IRS Releases Final Regulations on ACA Reporting for Employers and Insurers
On Wednesday, March 5, 2014, the Internal Revenue Service (IRS) released final regulations (Final Regulations) on two reporting requirements under the Affordable Care Act (ACA) effective in 2015.
The ACA added Sections 6055 and 6056 to the Internal Revenue Code (Code). Code § 6055 requires reporting by all entities that provide insurance (insurance companies, self-insured employers, governmental entities and others) which is filed with the IRS and given to the individuals to whom they provide "minimum essential coverage" (MEC). Code § 6056 reporting is filed with the IRS and given to individuals and is used to report whether applicable large employers - those with 50 or more full-time employees, including full-time equivalents (FTEs) - offered coverage to their full-time employees that meets the affordability requirements of the ACA’s pay-or-play mandate.
The IRS released proposed regulations (Proposed Regulations) last year. The Final Regulations largely follow the Proposed Regulations but also simplify the proposed rules for both employers and issuers. A single, combined form is available for self-insured employers, which are generally subject to both reporting requirements. Large employers with fully insured group health plans will complete only the top half of the form for Code § 6056 reporting, while the insurance company will complete a separate form to satisfy its Code § 6055 obligation. The rules are particularly streamlined for employers that make highly affordable coverage available to employees, including an offer of coverage to their spouses and dependents.
SIGNIFICANT REPORTING RELIEF AVAILABLE
The Final Regulations include the “general method” for reporting that was described in the Proposed Regulations. However, significant relief from extensive and potentially duplicative reporting is provided in the form of two simplified reporting options which greatly reduce the reporting burden.
If an employer provides a "qualifying offer" of insurance to any of its full time employees, the Final Regulations provide a simplified alternative to reporting monthly, employee-specific information on those employees. A qualifying offer is an offer of minimum value coverage that annually costs the employee no more than 9.5 percent of the Federal Poverty Level (approximately $1,100 in 2014) for single coverage, combined with an offer of MEC to the employee’s spouse and dependent children (natural and adopted children).
Employers who can certify that they made a qualifying offer for all 12 months of the year will need to certify the offer and report only the names, addresses, and tax ID numbers (TINs) of those employees who receive the qualifying offers. Employers will also provide the employees a copy of that simplified report or a standard statement indicating that the employee received a full year qualifying offer.
Employers will be permitted to use a code for each month a qualifying offer was made for any employee who receives a qualifying offer for fewer than 12 months of the year.
For 2015 only, employers certifying that they have made a qualifying offer to at least 95% of their full-time employees (plus an offer to their spouses and children) will be able to use the simplified reporting method for their entire workforce, including for any employees who do not receive a qualifying offer for the full year. Those employers will provide employees with standard statements relating to their possible eligibility for premium tax credits.
"Option to Report without Separate Certification of Full-Time Employees"
This option allows employers who offer affordable, minimum value coverage to at least 98% of the employees named in the report to certify the offering without having to identify full-time status. This may be useful for employers that offer coverage to all employees - in that case, as long as coverage is affordable and minimum value, the reports do not have to identify which employees on the report are full-time.
"General Method of Reporting"
In the event an applicable large employer does not qualify to use a simplified reporting method, it must make a section 6056 information return with respect to each full-time employee. Each Code § 6056 information return must show:
Generally, the Final Regulations provide that the Code § 6056 return may be made by filing Form 1094-C (a transmittal) and Form 1095-C (an employee statement). Form 1095-C will be used by employers to satisfy the Code §§ 6055 and 6056 reporting requirements, as applicable. An employer that sponsors a self-insured plan will report on Form 1095-C, completing both sections. An employer that offers fully insured coverage will also report on Form 1095-C, but will complete only the top half of the form. Form 1095-B will be used by non-employer entities that are reporting for Code § 6055 purposes (e.g., health insurance issuers, self-insured multiemployer plans, and providers of government-sponsored coverage).
Employers must file Form 1094-C with the IRS by February 28 following the reporting year (March 31 if filing electronically) and must provide Form 1095-C to full-time employees by January 31 following the reporting year.
All forms have yet to be developed. Electronic delivery is permissible with the affirmative consent of the employee.
To ensure compliance with requirements imposed by U.S. Treasury Regulations, Proskauer Rose LLP informs you that any U.S. tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
FINAL REGULATIONS ON EMPLOYER “PLAY OR PAY” MANDATE RELEASED – IRS PROVIDES TRANSITION RELIEF TO EMPLOYERS WITH 50-100 EMPLOYEES
On Tuesday, February 10, 2014, the IRS released final regulations on the Affordable Care Act’s (ACA) employer “shared responsibility” provisions, also known as the “Play or Pay” mandate.
The final regulations weigh in at 227 pages. We will review them over the coming days and will release additional communication pieces once we fully digest these new regulations. In the meantime, below are some highlights of the new guidance.
VARIOUS EMPLOYEE CATEGORIES
The IRS is also evaluating how to best simplify the employer reporting requirements set to apply in 2015. The IRS expects to release additional guidance shortly that aims to substantially simplify and streamline these reporting requirements. The final regulations are available here: https://s3.amazonaws.com/public-inspection.federalregister.gov/2014-03082.pdf An IRS Q&A is available here: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Liability
Health care reform law dodges another bullet
By Alden J. Bianchi
A recent Federal Court decision turned back a potentially debilitating challenge to the Affordable Care Act’s rules governing premium subsidies. The decision, Halbig v. Sebelius, has consequences for large employers, i.e., those that are subject to the Act’s employer shared responsibility or “pay-or-play” rules. The dispute giving rise to the claim before the court related to a final IRS regulation (26 C.F.R. § 1.36B-2) authorizing the grant of premium tax credits to low- and moderate-income individuals who qualify for and purchase qualified plan coverage under either a state-run public exchange or a “federally-facilitated” public exchange (i.e., an exchange operated by the Department of Health and Human Services in a state that declines to establish its own public exchange).
The nub of the challenge involved the language of Internal Revenue Code Section 36B, which calculates the amount of the premium tax credit based in part on the premium expense for the health plan. Here’s how we explained it previously:
Section 1401 of the Affordable Care Act provides that eligible taxpayers may receive income tax credits for purchase of insurance “through an Exchange established by the State under [Act Section 1311]” (emphasis added). Section 1311 is the provision of the Act that enables the states to establish health insurance exchanges. That provision does not refer to federally-facilitated exchanges. Act Section 1321 provides that if a state does not elect to create an exchange that meets federal requirements, the federal government will “establish and operate” an exchange. This invites the question whether, in a state that fails to create an exchange, there can be any tax credits for insurance bought on a federally run exchange?
The plaintiff in Halbig urged the court to hold that individuals in states that fail to establish an exchange will be ineligible for premium tax credits to assist with the purchase of coverage. For employers, such a holding would be good news since assessable payments under the Act’s employer shared responsibility provisions are triggered only where one or more employees qualify for a premium tax credit. If no employee is eligible, then there can be no liability for any assessable payments. The court rejected the plaintiff’s central claim, however, holding instead that individuals who qualify for and purchase health insurance through public exchanges may receive federal tax credits regardless of whether they buy a plan on a state-established exchange or one that is federally facilitated.
As an aside, one of the claims in the case involved the application of the Anti-Injunction Act, with respect to which the court had to determine whether the employer shared responsibility penalty was a tax. That the court determined that the penalty is a tax is not all that interesting, but its reasoning is priceless:
“The Section 4980H assessment acts like a tax and looks like a tax. The Court therefore embraces a modified version of the “now-infamous ‘duck test’”: “WHEREAS it looks like a duck, and WHEREAS it walks like a duck, and WHEREAS it quacks like a duck,” and WHEREAS it is called a duck by Congress on multiple occasions, “[THE COURT] THEREFORE HOLD[S] that it is a duck.”
Two problems that could undermine the Affordable Care Act
By Editorial Board, Washington Post
FOR YEARS, critics have charged that President Obama’s Affordable Care Act is a government takeover of the health-care system, which accounts for about a sixth of the economy. The criticism is feeble. Actually, as the law rolls out, some of the biggest threats to its success stem from the fact that its architects decided not to be more coercive.
Two major issues have cropped up since the phase-in began Oct. 1 that could undermine the law’s fundamental logic.
First is the challenge to enroll large numbers of people in private insurance plans. To work well, the law’s new insurance marketplaces need millions to sign up and enough healthy people paying into the system to offset the medical costs of the sick. But this week the Department of Health and Human Services admitted that enrollment is lagging. It announced that, as of the end of last month, 365,000 people have obtained private coverage through the new marketplaces. The number enrolled more than tripled in November, yet the projection was to have 1.2 million people signed up by now.
It is very likely that many more people will enroll as the HealthCare.gov Web site improves and as big coverage deadlines approach this month and next year. But the results hinge on one critical bit of policy — the often-attacked individual mandate, which requires that nearly everyone in the country have health insurance by March or else pay a fee. Unfortunately, the mandate is weak.
The penalty for lacking coverage next year is a mere $95, and it may be hard for the Internal Revenue Service to collect even that from some people. Healthy people might choose to forgo 12 months of premium payments and eat a much smaller annual fee. A larger fee, which was in early drafts of the law, would be a more effective incentive than what’s in place now.
The second alarming development concerns reports that insurance companies might be using backdoor methods to dissuade ill — and therefore expensive — patients from enrolling in their plans. Before the Affordable Care Act, insurers simply rejected applications from people with preexisting conditions. Now that’s illegal, which is one of the law’s centerpiece achievements. So, patients rights groups worry, insurers are limiting access to important pharmaceuticals, such as anti-HIV drugs, to push the ill away.
We don’t know how widespread this practice will be. So far, we have only anecdotes about suspiciously designed coverage plans for prescription drugs. Over time, regulators could try to crack down on the practice if it becomes a problem.
In the first few years, the law’s design should limit the benefits that companies could realize by screening out sick customers. But the fact that insurance companies have any opportunity to do this is the result of state and federal officials deciding to leave a number of decisions about drug coverage to insurance companies, instead of taking a prescriptive approach more akin to the rules that govern Medicare’s Part D drug program.
Though we would have made the individual mandate’s penalty larger, not every problem can or should be solved by federal regulation, and there is still a decent chance that the balance between regulation and liberty that the Affordable Care Act struck will work. If it does, the more rational health-care system that results will have been well worth the price in expanded government intervention in the health-care market.
Obamacare 'Glitch' Allows Some Families To Be Priced Out Of Health Insurance
By Ricardo Alonso-Zaldivar
WASHINGTON -- Some families could get priced out of health insurance due to what's being called a glitch in President Barack Obama's overhaul law. IRS regulations issued Wednesday failed to fix the problem as liberal backers of the president's plan had hoped.
As a result, some families that can't afford the employer coverage that they are offered on the job will not be able to get financial assistance from the government to buy private health insurance on their own. How many people will be affected is unclear.
The Obama administration says its hands were tied by the way Congress wrote the law. Officials said the administration tried to mitigate the impact. Families that can't get coverage because of the glitch will not face a tax penalty for remaining uninsured, the IRS rules said.
"This is a very significant problem, and we have urged that it be fixed," said Ron Pollack, executive director of Families USA, an advocacy group that supported the overhaul from its early days. "It is clear that the only way this can be fixed is through legislation and not the regulatory process."
But there's not much hope for an immediate fix from Congress, since the House is controlled by Republicans who would still like to see the whole law repealed.
The affordability glitch is one of a series of problems coming into sharper focus as the law moves to full implementation.
Starting Oct. 1, many middle-class uninsured will be able to sign up for government-subsidized private coverage through new health care marketplaces known as exchanges. Coverage will be effective Jan. 1. Low-income people will be steered to expanded safety-net programs. At the same time, virtually all Americans will be required to carry health insurance, either through an employer, a government program, or by buying their own plan.
Bruce Lesley, president of First Focus, an advocacy group for children, cited estimates that close to 500,000 children could remain uninsured because of the glitch. "The children's community is disappointed by the administration's decision to deny access to coverage for children based on a bogus definition of affordability," Lesley said in a statement.
The problem seems to be the way the law defined affordable.
Congress said affordable coverage can't cost more than 9.5 percent of family income. People with coverage the law considers affordable cannot get subsidies to go into the new insurance markets. The purpose of that restriction was to prevent a stampede away from employer coverage.
Congress went on to say that what counts as affordable is keyed to the cost of self-only coverage offered to an individual worker, not his or her family. A typical workplace plan costs about $5,600 for an individual worker. But the cost of family coverage is nearly three times higher, about $15,700, according to the Kaiser Family Foundation.
So if the employer isn't willing to chip in for family premiums – as most big companies already do – some families will be out of luck. They may not be able to afford the full premium on their own, and they'd be locked out of the subsidies in the health care overhaul law.
Employers are relieved that the Obama administration didn't try to put the cost of providing family coverage on them.
"They are bound by the law and cannot extend further than what the law provides," said Neil Trautwein, a vice president of the National Retail Federation.
Crucial Rule Is Delayed A Year For Obama's Health Law
By Jackie Calmes and Robert Pear July 3, 2013
WASHINGTON — In a significant setback for President Obama’s signature domestic initiative, the administration on Tuesday abruptly announced a one-year delay, until 2015, in his health care law’s mandate that larger employers provide coverage for their workers or pay penalties. The decision postpones the effective date beyond next year’s midterm elections.
Employer groups welcomed the news of the concession, which followed complaints from businesses and was posted late in the day on the White House and Treasury Web sites while the president was flying home from Africa. Republicans’ gleeful reactions made clear that they would not cease to make repeal of Obamacare a campaign issue for the third straight election cycle.
While the postponement technically does not affect other central provisions of the law — in particular those establishing health insurance marketplaces in the states, known as exchanges, where uninsured Americans can shop for policies — it threatens to throw into disarray the administration’s effort to put those provisions into effect by Jan. 1. “I am utterly astounded,” said Sara Rosenbaum, a professor of health law and policy at George Washington University and an advocate of the law. “It boggles the mind. This step could significantly reduce the number of uninsured people who will gain coverage in 2014.”
At the White House, Tara McGuinness, a senior adviser on the law, disputed that.
“Nothing in the new guidance regarding employer reporting and responsibility will limit individuals’ eligibility for premium tax credits to buy insurance through the marketplaces that open on Oct. 1,” she said.
Under the law, most Americans will be required to have insurance in January 2014, or they will be subject to tax penalties. The announcement on Tuesday did not say anything about delaying that requirement or those penalties.
Administration officials sought to put the action in a positive light in the online announcements, and they emphasized that the existing insurance coverage of most Americans would not be affected.
“We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively,” Mark J. Mazur, an assistant Treasury secretary, wrote on the department’s Web site. “We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.”
The 2010 Affordable Care Act required employers with more than 50 full-time workers to offer them affordable health insurance starting next year or face fines. Some companies with payrolls just above that threshold said they would cut jobs or switch some full-time workers to part-time employment so that they could avoid providing coverage.
Under the provision to set up state-based marketplaces, subsidies are supposed to be available to many lower- and middle-income people who do not have access to coverage from employers or other sources. It may be difficult, however, for officials running the exchanges to know who is entitled to subsidies if employers do not report information on the coverage they provide to workers.
Enrollment in the exchanges is to begin Oct. 1, with insurance coverage taking effect on Jan. 1. “We are on target to open the health insurance marketplace on Oct. 1 where small businesses and ordinary Americans will be able to go to one place to learn about their coverage options and make side-by-side comparisons of each plan’s price and benefits before they make their decision,” Valerie Jarrett, Mr. Obama’s senior adviser and liaison to the business community, wrote on the White House Web site.
But even some supporters of the law dispute that the establishment of the health insurance exchanges is on schedule, especially since progress varies by state and some Republican-led states are resisting the health care law and withholding resources for putting it into effect.
Much of the administration’s public effort, especially at the Department of Health and Human Services, has been directed toward spreading the word to uninsured Americans, especially younger and healthy individuals whose participation is needed to help keep down premiums for everyone else. About 85 percent of Americans are insured, so most individuals will be unaffected, at least initially.
Behind the scenes, however, the administration has been fielding questions and criticisms from businesses about the reporting requirements — especially the Treasury Department, which has responsibility, given its oversight of the tax reporting system.
Employer groups were quick to applaud the delay. At the U.S. Chamber of Commerce, which has strongly opposed the law, Randy Johnson, senior vice president for labor, immigration and employee benefits, said in a statement, “The administration has finally recognized the obvious — employers need more time and clarification of the rules of the road before implementing the employer mandate.”
E. Neil Trautwein, a vice president of the National Retail Federation, said the delay “will provide employers and businesses more time to update their health care coverage without threat of arbitrary punishment.”
Mr. Mazur, the Treasury official, said the delay “will allow us to consider ways to simplify the new reporting requirements consistent with the law.” “Second,” he added, “it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees.”
Within the next week, Mr. Mazur said, Treasury will issue official guidance to insurers, self-insuring employers and other parties that provide health coverage. Formal rules will be proposed this summer, he added, but the administration will encourage employers to comply with the law’s reporting provisions in 2014, as originally mandated.
Democrats were all but silent on the news, but a spokesman for Senator Harry Reid of Nevada, the majority leader, released a statement late Tuesday. “Both the administration and Senate Democrats have shown — and continue to show — a willingness to be flexible and work with all interested parties to make sure that implementation of the Affordable Care Act is as beneficial as possible to all involved,” the spokesman, Adam Jentleson, said. “It is better to do this right than fast.”
But Republicans immediately reacted with statements claiming vindication for their efforts to repeal the law altogether.
Senator John Barrasso, Republican of Wyoming, called the administration action “a cynical political ploy to delay the coming train wreck associated with Obamacare until after the 2014 elections.”
And Senator Mitch McConnell, the Senate Republican leader, who faces re-election next year in Kentucky, said in a statement, “The fact remains that Obamacare needs to be repealed and replaced with common-sense reforms that actually lower costs for Americans.”
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How PPACA will impact small employers
Most news surrounding the implementation of the Patient Protection and Affordable Care Act (PPACA) pertains to the employer penalties for noncompliance with the large employers’ shared responsibility provision that begins with the 2014 plan year. However, how does PPACA apply if an employer has fewer than 50 full-time equivalent employees?
“This has been a subject of great confusion among business owners,” says Chuck Whitford, client advisor, JRG Advisors, the management arm of ChamberChoice.
Smart Business spoke with Whitford about how smaller business owners need to be counting employees carefully and preparing for PPACA provisions.How is employer size defined?
A large employer is defined as having 50 or more full-time equivalent employees during a testing period that can be from six to 12 months. Full time is defined by the government as 30 hours per week. The term equivalent is used to account for those who work less than 30 hours per week. For example, if an employer has 30 full-time employees working 30 hours each week and three part-time employees working 20 hours each week, it has 32 full-time equivalent employees. The part-time hours per month are added, then divided by 130 to determine additional full-time equivalent employees.
There is some relief for seasonal workers.How does PPACA apply to small employers?
The employer penalties are just one piece. All employers are subject to certain rules if providing a health insurance plan, such as:
If a plan is not grandfathered — hasn’t changed since the law went into effect in 2010 — then it must continue to waive all cost sharing for preventive care services, which includes women’s preventive care for plans renewing on or after Aug. 1, 2012.
Employers also must offer employees information on the public insurance exchange whether providing health coverage or not. The law requires this notice be distributed each March; however, it has been delayed in 2013, pending Department of Labor guidance.
In 2014, all non-grandfathered small group plans will have limits on the deductibles charged in-network. The maximum deductible will be $2,000 per individual and $4,000 per family. There also will be out-of-pocket limits that apply to all non-grandfathered plans. These limits are the same as those for high deductible health plans, which this year is $6,250 for an individual and $12,500 for a family.How will the pricing methodology change?
The biggest change for small employers will be the pricing methodology applied to group insurance plans. Insurance companies will be unable to use gender, industry, group size or medical history, and therefore are limited to family size, geography, tobacco use and age. The companies can charge the oldest ages no more than three times what they charge the youngest ages. Many insurance companies use a ratio of 7:1 or higher, so this should result in higher rates for younger, healthier groups and better rates for older, less healthy groups. In addition, there will be new taxes and fees passed through to the employer in 2014.Where do small employers have flexibility?
A small employer, with fewer than 50 full-time employees, has more flexibility in determining how many hours an employee must work to be benefits-eligible. For example, a small employer can establish 37.5 hours as the minimum to be eligible for the company health plan, so employees regularly working less than 37.5 hours aren’t eligible. Those employees most likely are eligible for a subsidy to purchase coverage in the public insurance exchange. But, as a small employer not subject to the employer penalties, there are no financial consequences.
Because of the complexities, employers are encouraged to review their employee count and other pending health care reform legislation with a qualified advisor.
Understanding Health Reform
Patient-Centered Outcomes Fee
This fee is essentially a tax on all employer-sponsored health plans (including self-funded plans) that will fund comparative clinical research around patient-centered outcomes. It is also called the Comparative Effectiveness Research Fee.
How is the fee calculated
What is the fee funding?
How is the fee calculated?
How is the average number of lives determined?
Self-funded plans may determine the average number of covered lives by using any of the following methods. Like fully insured plans, plan sponsors must use the same method consistently for the duration of any year and the same method for all policies subject to the fee.
How are fees against HRAs and FSAs being determined?
Additional Information Regarding PPACA Taxes and Fees
BCBS/BCN - PPACAct - Taxes and Fees FAQ
Model Exchange Notices
The United States Department of Labor (DOL) has issued long-awaited guidance on the health insurance exchange notice requirement that applies under the Patient Protection and Affordable Care Act (PPACA). Generally, PPACA requires employers to provide notice to employees regarding the existence of the health insurance exchange, the availability of coverage and premium assistance, and information regarding the potential forfeiture of employer contributions toward employer-offered health coverage, if an employee purchases coverage through the health insurance exchange.
The notice requirement applies to employers that are subject to the Fair Labor Standards Act, even if the employer does not, or will not, offer health coverage. The notice must be issued to all full-time and part-time employees by October 1, 2013, regardless of whether the employee is currently enrolled in the employer’s health coverage. For employees hired on or after October 1, 2013, the notice must be provided within 14 days of the date of hire. The notice may be distributed electronically in accordance with the DOL’s safe harbor rules.
The guidance issued by the DOL includes two model notices which may be used to satisfy the notice requirements:
How PPACA Will Impact Small Employers
Most news surrounding the implementation of the Patient Protection and Affordable Care Act (PPACA) pertains to the employer penalties for noncompliance with the large employers’ shared responsibility provision that begins with the 2014 plan year. However, how does PPACA apply if an employer has fewer than 50 full-time equivalent employees?
What are some other considerations?
How will the pricing methodology change?
3:10 PM 6/7/2013
Where do small employers have flexibility?
PPACA Guidelines on Benefit Waiting Periods
Question: When PPACA’s guidelines on excessive waiting period limits go into effect for plan years on or after January 1, 2014, does this mean that groups can no longer have a waiting period that is “the first of the month following 90 days”?
Answer: The current thinking (absent explicit guidance from the IRS/DOL on the 90-day limitation on waiting periods) is that employers who have first of the month following 90 days of employment rules will need to amend them for plan years beginning on and after January 1, 2014. The language in the PPACA regulations prohibits eligibility waiting periods that exceed 90 days except in very specific circumstances.
The FAQs clarify the agencies’ current views on the following aspects of this rule: First, plans will not have to cover all employees after 90 days – i.e., exclusions by job category or classification, including part-time status, will still be permitted. Second (and the part that meets your question), the 90-day waiting period begins when the employee is otherwise eligible for coverage under the terms of the Plan. Thus, an otherwise eligible employee cannot be made to wait more than 90 days before coverage is effective. Third, plans may condition eligibility on an employee’s working a specified number of hours within a given period so long as the required hours do not exceed a certain number (to be specified in upcoming guidance).
The FAQs provide the following helpful example [full text of the FAQs can be found at http://www.dol.gov/ebsa/newsroom/tr12-01.html] underlined for your quick reading:
How do the Departments intend to address the application of the 90-day waiting period limitation in PHS Act section 2708 to an offer of coverage by an employer? Having reviewed the comments in response to IRS Notice 2011-36, the Departments intend to retain, for purposes of PHS Act section 2708, the definition in existing regulations that the 90-day waiting period begins when an employee is otherwise eligible for coverage under the terms of the group health plan. This is the definition of waiting period used for purposes of Title XXVII of the PHS Act, Part 7 of ERISA, and chapter 100 of the Code. Under this approach, if a plan were to provide that full-time employees are eligible for coverage without satisfying any other condition, and an employee were hired as a full-time employee, the waiting period (if the employer were to choose to impose one) for that employee would begin on the date of hire and could not exceed 90 days. Consistent with PHS Act section 2708, eligibility conditions that are based solely on the lapse of a time period would be permissible for no more than 90 days.”
We recommend that you work with your benefits advisor and review your plan eligibility rules and plan documentation and consider amending waiting periods based on timing alone (like the first of the month following 90 days) to reflect that the total waiting period will be no more than 90 days in total.
Employer Notification of Exchange / Marketplace
Among the key changes in health care reform is an employee's option, if eligible, to choose a plan from a state-run exchange. Beginning this Fall, you are required to inform all employees and new hires of the new exchanges. Employers will need to provide notice with information about the exchanges and an employee's ability to shop for coverage. The notice should also include eligibility rules for Premium credits and the differences between an exchange plan and an employer-sponsored plan.
On Thursday, May 9, 2013 the Employee Benefits Security Administration (EBSA) which is part of the Department of Labor, issued a “model notice” that employers may use to fulfill this requirement. You can find the notice for your customers that offer a health plan here: www.dol.gov/ebsa/pdf/flsawithplans.pdf.
For employers that do not offer a plan, they must still provide notice and that model notice can be found at www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf.
These notices must be provided to existing employees on or before October 1, 2013. Notice must be given to new employees within 14 days of their start date.
Topics covered and Information that must be provided includes:
Additional information can be found at www.dol.gov/ebsa/newsroom/tr13-02.html.
Our advice is that employer‘s tailor their notice as closely as possible to the model notice provided by the Employee Benefits Security Administration to avoid running afoul of the Fair Labor Standards Act and to avoid any potential for fines.
HSAs, HRAs, and the Affordability and the Minimum Value Tests
By Scott Lyon - posted Friday May 10, 2013
As we head into the summer, it seems that the folks in Washington are ramping up the release of various regulations for the Affordable Care Act. On May 3, the IRS issued proposed regulations of the income tax credit that some employees may be eligible for when purchasing coverage on the Marketplace. This same regulation, of course, has implications for the Employer Mandate/Shared Responsibility/Play or Pay requirements, specifically how employer contributions to Health Savings Accounts and Health Reimbursement Arrangements will be treated.
Remember that an Applicable Large Employer (50 or more FTE) could be subject to a play or pay penalty if the provided plan is either unaffordable or does not meet the minimum value requirements. A plan is unaffordable if the cost to an employee is greater than 9.5 percent of their W-2 Box 1 income for employee-only coverage. A plan does not meet minimum value if it does not cover the cost of at least 60 percent of essential health benefits.
So, what does all that mean to HSAs and HRAs? The proposed regulations address both contributions and will help employers avoid potentially costly mistakes for getting it wrong and misclassifying contributions.
HSA Contributions – Remember first that HSA contributions cannot be used to pay premiums and therefore they do not impact the affordability test. However, a contribution to an HSA can be used to satisfy the 60 percent minimum value test.
HRA Contributions – HRA contributions allow some additional flexibility. Depending on how the plan documents are constructed, HRA contributions can be used to pay premiums or to make reimbursements for medical expenses and therefore could impact either the affordability or minimum value tests and maybe both.Probably the best way to show this is in a simple chart:
So far, this seems to be relatively straightforward. So, when or why does this matter? It matters when you receive your next rate renewal and are looking for ideas on how to offset the premium increase and still remain compliant with the rules and regulation of the Affordable Care Act. HSAs and HRAs may be just the mechanism that you need.
Additional guidance was offered for wellness programs, but because so few small businesses offer a standalone wellness program, I only raise this to your attention and will direct you back to the IRS proposed regulation dated May 3, 2013 for additional information.
If you have questions, please contact your independent insurance agent or your HSA and HRA plan administrator (and remember – how the plan documents are structured is critical).
Reducing My Hours? See You in Court!
March 19, 2013
By Andrew R. McIlvaine
What's Ahead for the Affordable Care Act in 2013?
as of March 29, 2013
This month marks the third anniversary of the Patient Protection and Affordable Care Act becoming law.
The Federal Government Has Delayed The Exchange Notification Requirement
as of January 25, 2013
The Affordable Care Act requires employers to notify their employees of the existence of health benefits exchanges. The original act required the notification be issued by March 1, 2013. Information released on Thursday postpones the requirement likely until late summer or fall 2013. The goal is to coincide with open enrollment on the Exchanges, which begins Oct. 1, 2013 (for a Jan. 1, 2014 effective date.)
Two reasons were cited for the delay:
The Department of Labor is considering providing model, generic language that could be used to satisfy the notice requirement. Alternately, the government may make a template available on the Exchanges, which employers could download, complete and issue to employees.
Blue Cross Blue Shield of Michigan
Helping Employers Understand Health Care Reform - 2012 and Beyond
Temporary Reinsurance Program: Sticker Shock for Employers
by Miller Johnson - January 8, 2013
Health Care Reform imposes a new fee on group health plans during 2014, 2015 and 2016. The purpose of this temporary fee is to establish a reinsurance pool for insurers in the individual health insurance market. By providing a reinsurance pool for these insurers, the goal is to lessen the risk for the insurers so that premiums for individual coverage will not increase because of the guaranteed availability of insurance in this market beginning in 2014.
Taxes and Fees - And How They May Impact You
Affordable Care Act update for insured and self-funded plan sponsors
by Aetna Life Insurance Company
The Affordable Care Act (ACA) includes a number of provisions that affect both insured and self-funded plans. Those provisions include four new taxes and fees, which we expect to impact the cost of plans going forward. The responsibility for paying the new taxes and fees will fall on both health insurers and plan sponsors.
This flyer discusses these four new taxes and fees. While we are still awaiting final regulatory rules and guidance on how each of these taxes and fees will be calculated and paid, we want to help you stay up to date based on what we know at this time. We will provide you with updated information about how we expect them to impact your health plan as additional regulatory guidance becomes available.New taxes and fees coming soon
These four ACA-mandated taxes and fees are expected to impact health plan(s):
Because the new federal fees will impact the cost of plans going forward, we feel it’s important for you to understand each fee. By doing so, you can better
anticipate and plan for the expected impacts. Research conducted by the National Federation of Independent Businesses (NFIB) in November 2011 suggests
that insured premiums will increase by at least 2-3 percent as a result of the Health Insurer Fee alone. Milliman recently published a report * for the Society of
Actuaries that indicates an increased premium estimate of $73 to $78 per member per year (PMPY) for the Reinsurance Contribution. For 2014 this works
out to approximately 4 percent of premiums for the combined Health Insurer Fee and Reinsurance Contribution for a representative group plan.
In addition to taxes and fees on health plans, the ACA also imposed new annual taxes on pharmaceutical companies with more than $5 million in sales,
beginning in 2011. Between 2012 and 2019 the aggregate tax ranges from $2.8 to $4.1 billion, and continues thereafter. Beginning in 2013, the ACA
also imposes an excise tax of 2.3 percent on the sale of any taxable medical device.
* Milliman/Society of Actuaries study “Design and Implementation Considerations of ACA Risk Mitigation Programs”, Adrian Clark and James T. O’Connor,
June 2012. Accessed at:
Six things you're legally required to
tell your employees under health reform
Nov. 19, 2012
In order to comply with federal regulations under the Affordable Care Act, you need to let your employees know about six important things:
Employers must report the total cost of employer-sponsored health coverage on their employees' W-2 forms. The requirements generally apply to W-2 forms for 2012 that employers must give to employees in January 2013. (Note: At this time, employers which issue fewer than 250 W-2s are exempt from this requirement.)
Effective March 1, 2013, this provision requires all employers to provide each employee with written notification of the existence of health insurance exchanges and subsidies. The notifications must include:
Effective Jan. 1, 2013, this provision requires employers to withhold additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year.
If you offer a plan that's considered grandfathered, you must notify participants.
If your plan requires that participants select a primary care physician (PCP), you must notify participants that women can select a gynecologist and parents may select a pediatrician for their children.
Religious organizations claiming exemption from certain ACA requirements (i.e. contraception benefits) need to notify employees.
United States: Health Care Reform: Safe Harbor For Determining Full-Time Employee Status
11 October 2012
New guidance has been issued on two requirements under the Patient Protection andAffordable Care Act (the "Act") that will become effective in 2014. Specifically, the Treasury Department and Internal Revenue Service recently released Notice 2012-58, which describes a safe harbor approach employers may use for purposes of determining whether an employee is "full-time" for purposes of the Act's "pay-or-play" mandate. In addition, the Departments of Treasury, Labor and Health and Human Services released guidance on the Act's rule that prohibits group health plans from imposing waiting periods in excess of 90 days.
Health Care Reform at a Glance
© 2012 Preferred Benefits, Inc.