Health Reform Expert: Here’s What HR Needs to Know About GOP Repeal Bill Passing

The House of Repersentives has just passed the American Health Care Act (AHCA), new legislation to begin the repeal process of the ACA. Check out this great article from HR Morning and take a look how this new legislation will affect HR by Jared Bilski.

Virtually every major news outlet is covering the passage of the American Health Care Act (AHCA) by the House. But amidst all the coverage, it’s tough to find an answer to a question that’s near and dear to HR: What does this GOP victory mean for employers? 

The AHCA bill, which passed in the House with 217 votes, is extremely close to the original version of the legislation that was introduced in March but pulled just before a vote could take place due to lack of support.

While the so-called “repeal-and-replace” bill would kill many of the ACA’s taxes (except the Cadillac Tax), much of the popular health-related provisions of Obamacare would remain intact.

Pre-existing conditions, essential benefits

However, the new bill does allow states to waive certain key requirements under the ACA. One of the major amendments centers on pre-existing conditions.

Under the ACA, health plans can’t base premium rates on health status factors, or pre-existing conditions; premiums had to be based on coverage tier, community rating, age (as long as the rates don’t vary by more than 3 to 1) and tobacco use. In other words, plans can’t charge participants with pre-existing conditions more than “healthy” individuals are charged.

Under the AHCA, individual states can apply for waivers to be exempt from this ACA provision and base premiums on health status factors.

Bottom line: Under this version of the AHCA, insurers would still be required to cover individuals with pre-existing conditions — but they’d be allowed to charge astronomical amounts for coverage.

To compensate for the individuals with prior health conditions who may not be able to afford insurance, applying states would have to establish high-risk pools that are federally funded. Critics argue these pools won’t be able to offer nearly as much coverage for individuals as the ACA did.

Under the AHCA, states could also apply for a waiver to receive an exemption — dubbed the “MacArthur amendment” — to ACA requirement on essential health benefits and create their own definition of these benefits.

Implications for HR

So what does all this mean for HR pros? HR Morning spoke to healthcare reform implementation and employee benefits attorney Garrett Fenton of Miller & Chevalier and asked him what’s next for the AHCA as well as what employers should do in response. Here’s a sampling of the Q&A:

HR Morning: What’s next for the AHCA?
Garrett Fenton: The Senate, which largely has stayed out of the ACA repeal and replacement process until now, will begin its process to develop, amend, and ultimately vote on a bill … many Republican Senators have publicly voiced concerns, and even opposition, to the version of the AHCA that passed the House.

One major bone of contention – even within the GOP – was that the House passed the bill without waiting for a forthcoming updated report from the Congressional Budget Office.  That report will take into account the latest amendments to the AHCA, and provide estimates of the legislation’s cost to the federal government and impact on the number of uninsured individuals …

… assuming the Senate does not simply rubber stamp the House bill, but rather passes its own ACA repeal and replacement legislation, either the Senate’s bill will need to go back to the House for another vote, or the House and Senate will “conference,” reconcile the differences between their respective bills, and produce a compromise piece of legislation that both chambers will then vote on.

Ultimately the same bill will need to pass both the House and Senate before going to the President for his signature.  In light of the House’s struggles to advance the AHCA, and the razor-thin margin by which it ultimately passed, it appears that we’re still in for a long road ahead.

HR Morning: What should employers be doing now?
Garrett Fenton: At this point, employers would be well-advised to stay the course on ACA compliance. The House’s passage of the AHCA is merely the first step in the legislative process, with the bill likely to undergo significant changes and an uncertain future in the Senate. The last few months have taught us nothing if not the impossibility of predicting precisely how and when the Republicans’ ACA repeal and replacement effort ultimately will unfold.  To be sure, the AHCA would have a potentially significant impact on employer-sponsored coverage.

However, any employer efforts to implement large-scale changes in reliance on the AHCA certainly would be premature at this stage.  The ACA remains the law of the land for the time being, and there’s still a long way to go toward even a partial repeal and replacement.  Employers certainly should stay on top of the legislative developments, and in the meantime, be on the lookout for possible changes to the current guidance at the regulatory level.

HR Morning: Specifically, how should employers proceed with their ACA compliance obligations in light of the House passage of the AHCA?Garrett Fenton: Again, employers should stay the course for the time being, and not assume that the AHCA’s provisions impacting employer-sponsored plans ultimately will be enacted.  The ACA remains the law of the land for now.  However, a number of ACA-related changes are likely to be made at the regulatory and “sub-regulatory” level – regardless of the legislative repeal and replacement efforts – thereby underscoring the importance of staying on top of the ever-changing guidance and landscape under the Trump administration.

Fenton also touched on how the “MacArthur amendment” and the direct impact it could have on employers by stating it:

“… could impact large group and self-funded employer plans, which separately are prohibited from imposing annual and lifetime dollar limits on those same essential health benefits.  So in theory, for example, a large group or self-funded employer plan might be able to use a “waiver” state’s definition of essential health benefits – which could be significantly more limited than the current federal definition, and exclude items like maternity, mental health, or substance abuse coverage – for purposes of the annual and lifetime limit rules.  Employers thus effectively could be permitted to begin imposing dollar caps on certain benefits that currently would be prohibited under the ACA.”

See the original article Here.

Source:

Bilski J. (2017 May 5). Health reform expert: here's what HR needs to know about GOP repeal bill passing [Web blog post]. Retrieved from address http://www.hrmorning.com/health-reform-expert-heres-what-hr-needs-to-know-about-gop-repeal-bill-passing/


Discovery for Health and Welfare Benefit Plans: Required ERISA Reporting—Form 5500

Make sure you are aware of all the requirements for Form 5500 reporting. Take a look at this great article from our partner, United Benefit Advisors (UBA) about how to properly file Form 5500 by Anne B. Vandeveer.

Most companies are fully aware of Form 5500 reporting requirements related to their 401(k) plans, but are less familiar with the Form 5500 reporting requirements for their health and welfare benefit plans.

Requirements: Most employer-sponsored health and welfare benefit plans, including, but not limited to, group health, dental, vision, life insurance, disability insurance, voluntary worksite benefits (typically, but not always), and health flexible spending account (FSA) plans are subject to the reporting requirements under the Employee Retirement Income Security Act (ERISA) of 1974.

A Form 5500 is due to be filed with the Department of Labor (DOL) within seven months after the end of the plan year.

Exemptions: While there are a few common exceptions to filing for smaller plans and those sponsored by certain governmental and church plans, most employers who are filing Form 5500 for their retirement plans will also have Form 5500 reporting requirements for their health and welfare plans. Certain funding types (VEBAs, Trusts) may not be exempt based on size, however.

Normal Annual Filing: Once Schedule A information is available on the plan, from the carrier or third-party administrator (TPA), this information, along with some general participant enrollment information, is used to complete the filing. So long as company ownership, participation, and plans offered haven't changed from year to year, it's a fairly simply process.

It is worth reviewing the filing history of all plans subject to ERISA for all prior years to rule out any delinquencies in advance of filing for the current year. If all is in order, the filing deadline is the last day of the seventh month after the end of the plan year. Extensions, of up to 2.5 months, are available if the company applies prior to the initial deadline by filing Form 5558 with the Internal Revenue Service (IRS).

Failure to File and Remedy: If a Form 5500 filing is determined to be delinquent, the company is potentially subject to penalties imposed by the DOL (up to $1,100 per day) if the DOL discovers this before the return is filed electronically. The company can voluntarily "enter" the DOL's delinquent filer amnesty program. The program is formally named the Delinquent Filer Voluntary Compliance Program (DFVCP) and entering it will eliminate the risk of any future penalty associated with the delinquent Form 5500 returns. However, the DOL still imposes a lower, capped dollar penalty, which is assessed on a "per plan" basis.

The first step for a DFVCP filing is in defining the applicable plans and plan years along with the due date for each plan, historically. Correction is generally suggested as far back as the delinquency goes, or minimally as far back as documentation can be provided. That said, many companies choose to internally review all options and risks.

Preparation of Filings: The DOL mandates electronic filings under its EFAST2 system and it can be challenging for employers to prepare their own Form 5500 filings. Defining whether, and which of, your plans are subject to the ERISA reporting requirements is the best first step of the ERISA reporting process.

Because the forms resemble IRS tax forms, companies often assume that an accountant is needed for preparation. This is not necessarily the case and it is more common to rely on a benefits consultant with domain expertise. These consultants routinely determine filing requirements, have experience dealing directly with the DOL (not IRS), and transmit hundreds of filings annually.

That said, it is important to note that, regardless of who prepares the filing, it remains the sole responsibility of the employer, or Plan Sponsor, when it comes to Form 5500 transmissions or failures to file.

See the original article Here.

Source:

Vandeveer A. (2017 April 18). Discovery for health and welfare benefit plans: required ERISA reporting-form 5500[Web blog post]. Retrieved from address http://blog.ubabenefits.com/discovery-for-health-and-welfare-benefit-plans-required-erisa-reporting-form-5500


10 Things to Know about Medicaid: Setting the Facts Straight

Do you need help understanding all the aspects of Medicaid? Check out this informative article by Julia Paradise from Kaiser Family Foundation about the 10 most important things you must know when dealing with Medicaid.

Medicaid, the nation’s public health insurance program for low-income children, adults, seniors, and people with disabilities, covers 1 in 5 Americans, including many with complex and costly needs for medical care and long-term services. Most people covered by Medicaid would be uninsured or underinsured without it. The Affordable Care Act (ACA) expanded Medicaid to reach low-income adults previously excluded from the program and provided federal funding to states for the vast majority of the cost of newly eligible adults.

President Trump and other GOP leaders have called for far-reaching changes to Medicaid, including caps on federal funding for the program. In the debate about Medicaid’s future, some critics of the program have made statements that are at odds with data, research, and basic information about Medicaid. To inform policy decisions that may have significant implications for Medicaid, the low-income people it serves, and the states, this brief highlights 10 key Medicaid facts.

1.    Medicaid is a cost-effective program, providing health coverage for low-income Americans at a lower per-person cost than private insurance could.

Some say that Medicaid costs too much. Total Medicaid costs are high because Medicaid covers many people with complex needs for both health care and long-term care. Most Medicaid spending is for seniors and people with disabilities (Figure 1). Analysis shows that when the greater health needs of Medicaid enrollees are adjusted, costs per enrollee are lower in Medicaid relative to private insurance; spending per enrollee would be 25% higher if adult Medicaid beneficiaries were instead covered by employer-based insurance, largely because private insurers generally pay providers more than states do. Growth in Medicaid acute care spending per enrollee has also been low relative to other health spending benchmarks, and federal data show that Medicaid has constrained per capita spending growth more than Medicare and private insurance. States have strong financial incentives to manage Medicaid closely and ensure program integrity because they must pay a large share of Medicaid costs and must also balance their budgets. The ACA provided increased funding and new tools for both federal and state Medicaid program integrity efforts, and states continue to strengthen their operations, using data analytics and predictive modeling, expanding their program integrity activities to managed care, and making other investments.

2.    Medicaid bolsters the private insurance market by acting as a high-risk pool.

Some say that private insurance could do a better job of covering low-income people than Medicaid. Actually, Medicaid was established to provide health coverage for many uninsured people who were excluded from the private, largely employment-based health insurance system because of low income, poor health status, or disability. Over time, federal and state expansions of Medicaid have resulted in historic reductions in the share of children without coverage and, in the states adopting the ACA Medicaid expansion, sharp declines in the share of adults without coverage. Nearly 8 in 10 nonelderly, non-disabled adults are in working families and a majority are working themselves, but many work in small firms and types of industries that tend to have limited or no job-based coverage options. Among adult Medicaid enrollees who are not working, illness or disability is the main reason. By covering many of the poorest and sickest Americans, Medicaid effectively serves as a high-risk pool for the private health insurance market, taking out the highest-cost people, thereby helping to keep private insurance premiums more affordable.

Medicaid also bolsters the private insurance system by providing supplemental coverage for many privately insured children with special needs and children and adults with disabilities. Medicaid pays for therapies, dental and vision care, and other medical and long-term services and supports needed by many of these individuals but typically not covered by private insurance.

3.    Federal Medicaid matching funds support states’ ability to meet changing coverage needs, such as during economic downturns and public health emergencies.

Some argue that federal funding for Medicaid should be capped to remove states’ incentives to spend more. The availability of federal matching funds with no pre-set limit does not mean that states have no incentives to constrain spending. On the contrary, because they must spend their own dollars to claim federal matching payments, and are required by their constitutions to balance their budgets, states have a strong interest in running efficient and effective programs. State cost-cutting measures taken in hard economic times have led to lean Medicaid operations, and state Medicaid programs have been leaders in health care delivery and payment reform designed to control costs and improve care. Over 2007-2013, average annual growth in Medicaid spending per enrollee was  less than growth in private health insurance premiums – 3.1% compared to 4.6%.

The guarantee of federal matching funds at least dollar for dollar enlarges states’ financial capacity to respond to changing coverage needs. Because federal funds flow to states based on actual needs and costs, Medicaid can respond if there is an economic downturn, or medical costs rise, or there is a public health emergency such as the opioid epidemic or a natural disaster such as Hurricane Katrina. Federal payments to states adjust automatically to reflect the increased costs of the program. Capped federal funding for Medicaid would reduce federal spending, but the burden of the reductions would fall on states. The levers that states have to manage with reduced federal Medicaid funding are cuts in Medicaid eligibility and benefits, which could limit their ability to meet the health needs of their residents, respond to recessionary pressures and emerging health issues, and provide access to new but costly health care technologies, including life-saving drugs, to Medicaid beneficiaries. Federal caps would also lock in states’ historical spending patterns, constraining their flexibility to respond to changing resources and priorities.

4.    Medicaid is a major spending item in state budgets, but also the largest source of federal funds for states.

Some say that Medicaid is crowding out state spending on education and other state priorities. Medicaid is a major item in state budgets, but it is also the single largest source of federal funds for states. In FY 2015, Medicaid accounted for more than half (57%) of all federal funds states received. The federal government matches state Medicaid spending at least dollar for dollar and pays more in poorer states, and states receive an enhanced federal match – 95% in 2017 – for Medicaid expansion adults. In FY 2015, Medicaid accounted for 28% of total state spending (i.e., including state spending of federal dollars), but less than 16% of state spending of state funds – a distant second to state funds spending on K-12 education (almost 25%).

An analysis examining economic and fiscal trends in Medicaid expansion and non-expansion states found that Medicaid expansion states, which typically raise more tax revenues as a share of total taxable resources than non-expansion states, spend more per capita on both Medicaid and K-12 education. Research shows that the injection of federal Medicaid matching funds into state economies has a multiplier effect, directly benefiting the health care providers that serve Medicaid beneficiaries, and also indirectly supporting other businesses and industries (e.g., vendors), producing increased state economic activity and output as the funds flow through the system. More recent analyses find positive effects of the Medicaid expansion on multiple economic outcomes in states, including budget savings, revenue gains, and overall economic growth.

5.    States have broad discretion in designing key aspects of their Medicaid programs.

Some say that Medicaid is federally controlled and inflexible, leaving states little room to shape their own programs. In fact, beyond federal minimum requirements for Medicaid, states have and use extensive flexibility and options to design key dimensions of their Medicaid programs. For example, they can and do elect to cover many optional services and optional groups. State Medicaid programs vary widely in terms of who is eligible, which services are covered, premiums and cost-sharing requirements, the delivery systems in which beneficiaries get care, and provider payment methods and rates. The different program design choices that states make, reflecting their particular needs, preferences, and priorities, are a large underlying factor in the wide variation in state Medicaid spending per enrollees (Figure 5). In 2011, Medicaid spending per full-benefit enrollee ranged from $4,010 in Nevada to $11,091 in Massachusetts. In addition to the flexibilities and optional state authorities provided by federal Medicaid law, states can obtain Section 1115 demonstration waivers that permit them to test and implement approaches that deviate from federal Medicaid rules if the HHS Secretary determines they advance program objectives. As of January 2017, 37 states had a total of 50 approved Section 1115 waivers.

6.    Medicaid beneficiaries have robust access to care overall, although access to certain types of specialists is an ongoing challenge for Medicaid and all payers.

Some say that access to care in Medicaid is lacking because 30% of physicians do not accept new Medicaid patients (about 70% do accept new Medicaid patients versus about 85% who accept new privately insured and Medicare patients). Taken alone, physician participation rates are a weak measure of access to care. A large body of research shows that Medicaid beneficiaries have far better access to care than the uninsured and are far less likely to postpone or go without needed care due to cost. Moreover, rates of access to care and satisfaction with care among Medicaid enrollees are comparable to rates for people with private insurance (Figure 6). Gaps in access to certain providers, especially psychiatrists, some specialists, and dentists, are ongoing challenges in Medicaid and often in the health system more broadly. Contributing factors include provider shortages, geographic maldistribution of health care providers, low Medicaid payment rates, and lack of transportation. Managed care plans, which now serve most Medicaid beneficiaries, are responsible under their contracts with states for ensuring adequate provider networks. There is no evidence that physician participation in Medicaid is declining. In a 2015 survey, 4 in 10 PCPs who accepted Medicaid reported seeing an increased number of Medicaid patients since January 2014, when the coverage expansions in the ACA took full effect. A recent analysis found no consistent evidence that increases in the share of adults with insurance at the local-area level affected access to care for adults in those areas who were already insured, including Medicaid beneficiaries.

7.    Medicaid keeps coverage and care affordable for low-income Americans.

Some say that Medicaid enrollees should pay more for their health care and have more “skin in the game” to restrain utilization. Federal law limits Medicaid premiums and cost-sharing to minimize financial barriers to coverage and care for low-income people: total out-of-pocket costs for a family are limited to 5% of the family’s income. Research shows that average spending greatly exceeds average income in low-income households, suggesting that these households accrue debt even as they earn. Therefore, even small amounts of spending on health care can crowd out other necessities or push low-income families further into debt. A family of three living at 138% FPL (the eligibility threshold for adults in Medicaid expansion states) has income of $28,180. Out-of-pocket costs totaling just 3% of their income – about $845 – would leave this family with less than $27,500 to pay for housing, utilities, food, clothing, transportation, school supplies, and other necessities. The same family living in one of the non-expansion states, where the median eligibility limit for parents is 44% FPL, would be left with about $8,700 to meet these basic costs.

Numerous studies have shown significant declines in enrollment in coverage after the implementation of new or higher premiums, as well as shorter spells of enrollment and reduced rates of renewal (Figure 7). Many who lose coverage become uninsured. Cost-sharing has been shown to lead to significant reductions in use of services, including essential and effective services like screenings and preventive care, prescription drugs, inpatient care, and other care key to health outcomes. Cost-sharing can have a particularly large impact on people with lower income and significant health care needs, as small copays add up quickly. Medicaid providers frequently report difficulty collecting cost-sharing, which effectively reduces their reimbursement; states do not collect much revenue from premiums, and state savings are largely attributable to decreased enrollment and reduced use of services – often, needed services. The Oregon Health Insurance Experiment (OHIE) showed that gaining Medicaid virtually eliminated catastrophic out-of-pocket medical spending among previously uninsured adults and reduced financial hardship. Federal action to reduce financial protections in

Medicaid would run counter to the empirical evidence that premiums and cost-sharing impede coverage and access to care, and preempt waiver initiatives underway in numerous states to further test these policies.

8.    Evidence of Medicaid’s impact on health outcomes is growing.

Some say that having Medicaid is worse than being uninsured. In fact, research shows consistently that Medicaid improves access to care for both children and adults with low income. Access to screening and preventive care in Medicaid translates into well-child care, earlier detection of health and developmental problems in children, and earlier diagnosis of cancer, diabetes, mental illness, and other chronic conditions in people of all ages. Access to primary care providers and specialists, prescription drugs, and other services improves the likelihood that Medicaid enrollees will get treatment for both their acute and chronic conditions. Expansions of Medicaid pregnant women and children have led to improved birth outcomes and child health, and there is growing evidence that Medicaid expansions to adults are associated with increased use of screening services and preventive care, prescription drugs, inpatient care, and other services key to improving health outcomes (Figure 8). The OHIE, which used a uniquely rigorous study design, found that uninsured adults who gained Medicaid coverage through a state lottery reported improved self-rated mental health and had a 30% reduction in clinically observed rates of depression relative to the comparison group of adults who remained uninsured. Medicaid also increased diabetes detection and use of diabetes medication, though the effect on control of diabetes, hypertension, and high cholesterol was not statistically significant. Research has also found that Medicaid expansions for adults were associated with significant reductions in mortality. A new study shows meaningful impacts of the Medicaid expansion on mental health for low-income parents. Some Medicaid critics, citing a small sample of observational clinical studies, have asserted that Medicaid beneficiaries have worse outcomes than the uninsured. However, a group of distinguished health services researchers commenting in a leading medical journal wrote that these studies lack a causal model explaining the observed data and, outlining numerous analytic problems with the critics’ interpretation of the findings, effectively discredited their argument.

9.    Medicaid is the primary payer for long-term care for seniors and people with disabilities.

Some assume that Medicare, the federal health insurance program for seniors and people with disabilities, covers long-term care. In fact, Medicare coverage of long-term care is extremely limited. Medicaid is essentially the only public or private insurance program that covers long-term care. Six in 10 nursing home residents are covered by Medicaid, and Medicaid’s role in providing access to community-based long-term services and supports (LTSS) for both seniors and people with disabilities is hard to overstate. The program is the largest single source of payment for long-term care, financing half of total spending in this sector, including both nursing home care and home and community-based services (HCBS) (Figure 9). Over time, states have been working to rebalance their LTSS systems by devoting a greater percentage of their long-term care spending to HCBS relative to nursing home care, and Medicaid has been instrumental in expanding access to community-based LTSS, advancing efforts to increase community integration of seniors and individuals with disabilities.

In addition to covering LTSS, Medicaid also makes Medicare work for nearly 10 million poor Medicare beneficiaries (1 in 5 of all Medicare beneficiaries), known as “dual eligibles,” by helping with their Medicare premiums and out-of-pocket costs and covering vision and dental care and other benefits that Medicare does not cover. In the debate about the ACA Medicaid expansion to low-income adults, some have argued that state choices to adopt the expansion come at the cost of Medicaid’s neediest beneficiaries, but the research does not bear this out. A recent study found no evidence for the claim that Medicaid expansion leads to longer waiting lists for Medicaid HCBS waivers for seniors and people with disabilities. The study found that waiting lists for these waivers pre-date the ACA Medicaid expansion, and that there appears to be no relationship between a state’s Medicaid expansion status and changes in its HCBS waiver waiting list.

10. Medicaid is popular with the American public as well as with enrollees themselves.

Some say that Medicaid is a poor and broken program. The majority of Americans say that Medicaid is a very important program. More than half (56%) report that they, a child of theirs, or another family member or friend has been enrolled in Medicaid; the same percentage say that Medicaid is important for them and their family (Figure 10). Most Medicaid enrollees say the program is working well for the low-income people it covers and the vast majority feel well-protected financially. Focus group research has shown high levels of satisfaction with Medicaid among parents with children in the program. Two-thirds of Americans do not support caps on federal funding for Medicaid, the vast majority (84%) say that continuing federal funding for Medicaid expansion is important, and few (12%) want decreased federal spending on Medicaid.

See the original article Here.

Source:

Paradise J. (2017 May 9). 10 things to know about medicaid: setting the facts straight [Web blog post]. Retrieved from address http://www.kff.org/medicaid/issue-brief/10-things-to-know-about-medicaid-setting-the-facts-straight/

 


Workers Might See Employer Health Coverage Disappear Under New GOP AHCA

Do you receive your healthcare through an employer? Then take a look at this article from Benefits Pro about how the passing of the AHCA will affect employees who get their healthcare through an employer by Marlene Y. Satter.

It’s not just individuals without employer health coverage who could lose big under the newly revised version of the Republicans’ American Health Care Act.

People who get health coverage from their jobs could be left swinging in the wind, too—in fact, as many as half of all such employees could be affected.

That’s according to an Alternet report that says an amendment added to the bill currently being considered by the House of Representatives would allow insurers in states that get waivers from regulations put in place by the Affordable Care Act to deny coverage for 10 types of health services—including maternity care, prescription drugs, mental health treatment and hospitalization.

An MSNBC report points out that “because the Republican-led House is scrambling to pass a bill without scrutiny or serious consideration,” the last-minute amendment’s full effects aren’t even known, since “[t]his is precisely the sort of detail that would’ve come to light much sooner if Republicans were following the American legislative process. In fact, this may not even be the intended goal of the GOP policy.”

While the ACA prohibits employer-based plans from imposing annual limits on coverage and bare lifetime caps on 10 essential benefits, the Obama administration did loosen those restrictions back in 2011, saying that employers could instead choose to follow another state’s required benefits.

What the new Republican take on the AHCA does is push that further—a lot further—by allowing large employers to pick the benefit requirements for any state. That would let them limit coverage on such costly types of care as mental health and substance abuse services.

In a Wall Street Journal report, Andy Slavitt, former acting administrator of the Centers for Medicare and Medicaid Services under President Barack Obama, is quoted saying, “It’s huge. They’re creating a backdoor way to gut employer plans, too.”

The changes to employer-based plans would hit anyone not insured by Medicare or by small-business plans, because the bill includes cuts to Medicaid and changes to the individual market as well.

A report from the Brookings Institution points out that “One of the core functions of health insurance is to protect people against financial ruin and ensure that they get the care they need if they get seriously ill.” The ACA pushed insurance plans to meet that standard, it says, by requiring them to “limit enrollees’ annual out-of-pocket spending and [bar] plans from placing annual or lifetime limits on the total amount of care they would cover.”

However, while those protections against catastrophic costs “apply to almost all private insurance plans, including the plans held by the roughly 156 million people who get their coverage through an employer,” the Brookings report says, the amendment to the Republican bill “could jeopardize those protections—not just for people with individual market plans, but also for those with employer coverage.”

How? By modifying “the ‘essential health benefit’ standards that govern what types of services must be covered by individual and small group market insurance plans. The intent of the amendment is reportedly to eliminate the federal benefit standards that currently exist and instead allow each state to define its own list of essential health benefits.”

And then, with employers allowed to pick and choose which state’s regulations they’d like to follow, a loophole the size of the Capitol building would not only allow “states will set essential health benefit standards that are considerably laxer than those that are in place under the ACA,” says the report, but “large employers may have the option to pick which state’s essential health benefits requirements they wish to abide by for the purposes of these provisions.”

The result? “[T]his would likely have the effect of virtually eliminating the catastrophic protections with respect to large employers since employers could choose to pick whichever state set the laxest standards. The same outcome would be likely to occur for all private insurance policies,” the report continues, “if insurers were permitted to sell plans across state lines, as the Administration has suggested enacting through separate legislation.”

While the actual effect of the amendment is unclear, the Brookings report concludes, “there is strong reason to believe that, in practice, the definition of essential health benefits that applied to the catastrophic protections would be far weaker under the House proposal than under current law, seriously undermining these protections. These potential adverse effects on people with employer coverage, in addition to the potentially damaging effects of such changes on the individual health insurance market, are thus an important reason that policymakers should be wary of the House proposal with respect to essential health benefits.”

See the original article Here.

Source:

Satter M. (2017 May 4). Workers might see employer health coverage disappear under new GOP AHCA [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/05/04/workers-might-see-employer-health-coverage-disappe?page_all=1


Section 105(h) Nondiscrimination Testing

Under Internal Revenue Code Section 105(h), a self-insured medical reimbursement plan must pass two nondiscrimination tests. Failure to pass either test means that the favorable tax treatment for highly compensated individuals who participate in the plan will be lost. The Section 105(h) rules only affect whether reimbursement (including payments to health care providers) under a self-insured plan is taxable.

When Section 105(h) was enacted, its nondiscrimination testing applied solely to self-insured plans. Under the Patient Protection and Affordable Care Act (ACA), Section 105(h) also applies to fully-insured, non-grandfathered plans. However, in late 2010, the government delayed enforcement of Section 105(h) against fully-insured, non-grandfathered plans until the first plan year beginning after regulations are issued. To date, no regulations have been issued so there is currently no penalty for noncompliance.

Practically speaking, if a plan treats all employees the same, then it is unlikely that the plan will fail Section 105(h) nondiscrimination testing.

What Is a Self-Insured Medical Reimbursement Plan?

Section 105(h) applies to a “self-insured medical reimbursement plan,” which is an employer plan to reimburse employees for medical care expenses listed under Code Section 213(d) for which reimbursement is not provided under a policy of accident or health insurance.

Common self-insured medical reimbursement plans are self-funded major medical plans, health reimbursement arrangements (HRAs), and medical expense reimbursement plans (MERPs). Many employers who sponsor an insured plan may also have a self-insured plan; that self-insured plan is subject to the Section 105 non-discrimination rules. For example, many employers offer a fully insured major medical plan that is integrated with an HRA to reimburse expenses incurred before a participant meets the plan deductible.

What If the Self-Insured Medical Reimbursement Plan Is Offered Under a Cafeteria Plan?

A self-insured medical reimbursement plan (self-insured plan) can be offered outside of a cafeteria plan or under a cafeteria plan. Section 105(h) nondiscrimination testing applies in both cases.

Regardless of grandfathered status, if the self-insured plan is offered under a cafeteria plan and allows employees to pay premiums on a pre-tax basis, then the plan is still subject to the Section 125

nondiscrimination rules. The cafeteria plan rules affect whether contributions are taxable; if contributions are taxable, then the Section 105(h) rules do not apply.

What Is the Purpose of Nondiscrimination Testing?

Congress permits self-insured medical reimbursement plans to provide tax-free benefits. However, Congress wanted employers to provide these tax-free benefits to their regular employees, not just to their executives. Nondiscrimination testing is designed to encourage employers to provide benefits to their employees in a way that does not discriminate in favor of employees who are highly paid or high ranking.

If a plan fails the nondiscrimination testing, the regular employees will not lose the tax benefits of the self-insured medical reimbursement plan and the plan will not be invalidated. However, highly paid or high ranking employees may be adversely affected if the plan fails testing.

What Are the Two Nondiscrimination Tests?

The two nondiscrimination tests are the Eligibility Test and Benefits Test.

The Eligibility Test answers the basic question of whether there are enough regular employees benefitting from the plan. Section 105(h) provides three ways of passing the Eligibility Test:

  1. The 70% Test – 70 percent or more of all employees benefit under the plan.
  2. The 70% / 80% Test – At least 70% of employees are eligible under the plan and at least 80% or more of those eligible employees participate in the plan.
  3. The Nondiscriminatory Classification Test – Employees qualify for the plan under a classification set up by the employer that is found by the IRS not to be discriminatory in favor of highly compensated individuals.

The Benefits Test answers the basic question of whether all participants are eligible for the same benefits.

Definition of Terms in the Nondiscrimination Tests

A highly compensated individual (HCI) is an individual who is:

  • One of the five highest-paid officers
  • A shareholder who owns more than 10 percent of the value of stock of the employer’s stock
  • Among the highest-paid 25 percent of all employees (other than excludable employees who are not participants)

Under Section 105(h), an employee’s compensation level is determined based on the employee’s compensation for the plan year. Fiscal year plans may determine employee compensation based on the calendar year ending within the plan year. Only current year compensation may be used to determine compensation levels.

For shareholder stock ownership, Section 318 constructive ownership rules apply. Per the attribution rules, a spouse is deemed to own the interest held by the other spouse. Also, an employee is deemed to own the ownership interest of the employee’s parents, children, and grandchildren. Further, a person with an option to buy stock is considered to own the stock subject to that option and a shareholder who owns 50 percent of more of a corporation is deemed to own a proportionate share of stock owned by the corporation.

Section 105(h) also defines excludable employees. The following employees may be excluded from the highest-paid 25 percent of all employees, unless they are eligible to participate in the plan:

  • Employees who have less than three years of service
  • Employees who are not 25 years old
  • Part-time employees (defined as customary weekly employment of less than 35 hours) or seasonal employees (defined as customary annual employment of less than 9 months)
  • Collectively bargained employees
  • Nonresident aliens who receive no earned income from U.S. sources

Exclusions should be applied uniformly. Employees in excludable categories should not be excluded during testing if the employees are eligible under the plan.

How Are the Tests Applied?

The Eligibility Test

All three of the alternative eligibility tests discuss who benefits under the plan. Although the Eligibility Test’s name implies that it looks at eligibility, the more cautious interpretation is that an employee must have elected coverage or have been provided with free coverage by plan design for the employee to benefit under the plan. For purposes of Section 105(h), an employee benefits from the plan when the employee actually participates in the plan.

A self-insured plan must pass one of the following three tests to pass the Eligibility Test:

  1. 70% Test: A self-insured plan passes the Eligibility Test if 70 percent or more of all employees participate in the plan.
  2. 70% / 80% Test: A self-insured plan passes the Eligibility Test if at least 70 percent of employees are eligible under the plan and at least 80 percent or more of those eligible employees participate in the plan.
  3. Nondiscriminatory Classification Test: A self-insured plan passes the Eligibility Test if it demonstrates that the plan benefits employees who qualify under a classification set up by the employer and found by the IRS not to be discriminatory in favor of highly compensated individuals.

To determine whether a self-insured plan passes the Nondiscriminatory Classification Test, the IRS will look at the facts and circumstances of each case, applying the standards of Section 410(b)(1)(B) that apply to tax-preferred retirement plans. If an employer must rely on the Nondiscriminatory Classification Test to pass the Eligibility Test, then the employer should consult with its attorney or tax professional about running the nondiscriminatory classification test because it is complicated to apply.

then the employer should consult with its attorney or tax professional about running the nondiscriminatory classification test because it is complicated to apply.

Although Section 105(h) is not clear on the exact process for conducting the Nondiscriminatory Classification Test, the plan may rely on the Section 410(b) regulations’ current nondiscriminatory classification test. Under the test, a classification is not discriminatory if it satisfies either the Safe Harbor Percentage Test or the Facts and Circumstances Test.

Safe Harbor Percentage Test. To meet the Safe Harbor Percentage Test, a plan’s ratio percentage must be equal to or greater than the applicable safe harbor percentage. If the plan’s ratio percentage is 50 percent of more, then the plan passes the Safe Harbor Percentage Test. If the plan’s ratio percentage is less than 50 percent, the plan might pass if the ratio percentage exceeds the safe harbor percentage found in the IRS’ Nondiscriminatory Classification Table below.

The plan’s ratio percentage is determined by dividing the percentage of non-highly compensated individuals who benefit under the plan by the percentage of highly compensated individuals who benefit under the plan.

The plan’s non-highly compensated individuals concentration percentage is the percentage of all employees who are non-highly compensated individuals.

Nondiscriminatory Classification Table

Non-HCI Concentration Percentage Safe Harbor Percentage Unsafe Harbor Percentage Non-HCI Concentration Percentage Safe Harbor Percentage Unsafe Harbor Percentage
0-60 50.00 40.00 80 35.00 25.00
61 49.25 39.25 81 34.25 24.25
62 48.50 38.50 82 33.50 23.50
63 47.75 37.75 83 32.75 22.75
64 47.00 37.00 84 32.00 22.00
65 46.25 36.25 85 31.25 21.25
66 45.50 35.50 86 30.50 20.50
67 44.75 34.75 87 29.75 20.00
68 44.00 34.00 88 29.00 20.00
69 43.25 33.25 89 28.25 20.00
70 42.50 32.50 90 27.50 20.00
71 41.75 31.75 91 26.75 20.00
72 41.00 31.00 92 26.00 20.00
73 40.25 30.25 93 25.25 20.00
74 39.50 29.50 94 24.50 20.00
75 38.75 28.75 95 23.75 20.00
76 38.00 28.00 96 23.00 20.00
77 37.25 27.25 97 22.25 20.00
78 36.50 26.50 98 21.50 20.00
79 35.75 25.75 99 20.75 20.00

If the plan’s ratio percentage is equal or greater than the safe harbor percentage, then the plan’s employee classification meets the safe harbor and is nondiscriminatory.

Facts and Circumstances Test. If the plan fails the Safe Harbor Percentage Test, then the plan would apply the Facts and Circumstances Test. To pass the Facts and Circumstances Test, the plan’s ratio percentage must be greater than or equal to the corresponding unsafe harbor percentage in the chart above.

Also, the IRS must find the classification to be nondiscriminatory based on all the relevant facts and circumstances. No one single factor will be dispositive; here are some of the facts that the IRS will consider:

  • The underlying business reason for the classification.
  • The percentage of the employer’s employees benefiting under the plan.
  • Whether the number of employees benefitting under the plan in each salary range is representative of the number of employees in each salary range of the employer’s workforce.
  • The difference between the plan’s ratio percentage and the safe harbor percentage.

The Benefits Test

To pass the Benefits Test, all benefits provided to highly compensated individuals who are participating in the plan must be provided to all other participants. Also, all benefits available for highly compensated individuals’ dependents must also be available on the same basis for all non-highly compensated participants’ dependents.

Essentially, the Benefits Test requires a plan to have no facial discrimination and no discrimination in its operation.

To have no discriminatory benefits on its face, the plan must have the following features:

  • Required employee contributions must be identical for each benefit level.
  • The maximum benefit level cannot vary based on a participant’s age, years of service, or compensation.
  • All benefits provided for participants who are highly compensated individuals are provided for all other participants.
  • Disparate waiting periods cannot be imposed for highly compensated individuals and non-highly compensated participants.

To have no discriminatory benefits in operation, the plan must not discriminate in favor of highly compensated individuals in actual operation; this is a facts and circumstances determination that looks to see if “the duration of a particular benefit coincides with the period during which [a highly compensated individual] utilizes the benefit.”

When to Test

Section 105(h) and its regulations do not specify when nondiscrimination testing must be done. However, for highly compensated individuals to retain favorable tax treatment, the self-insured plan must satisfy the tests for a plan year.

As a best practice, the employer should test prior to the beginning of the plan year, several months before the end of the plan year, and after the close of the plan year. Testing before and during the plan year will allow the plan sponsor to potentially make election or plan design changes to correct testing problems. The nondiscrimination tests cannot be satisfied by corrections made after the end of the plan year. The employer should keep a record of its test results.

Consequences of Failing the Nondiscrimination Tests

If the plan fails the nondiscrimination tests, then highly compensated individuals’ excess reimbursements will be taxable. If the plan is discriminatory, then non-highly compensated individuals will not lose their tax benefits and the plan will not lose its status as a valid Section 105 plan.

Amounts that are excess reimbursement are includable in a highly compensated individual’s income; the excess reimbursement calculation varies based on whether the benefits were paid to highly compensated individuals due to either discriminatory coverage for failing to meet the Eligibility Test, or discriminatory benefits for failing to meet the Benefits Test.

If a self-insured plan fails to meet the Eligibility Test and provides discriminatory coverage, the amount of the excess reimbursement is calculated as:

Total amount of reimbursement to the highly compensated individual X Total benefits paid during the plan year for all highly compensated individuals = The dollar amount to be included in the highly compensated individual’s income
Total benefits paid during the plan year for all participants

If a self-insured plan fails to meet the Benefits Test and provides discriminatory benefits, the amount of the excess reimbursement is the amount reimbursed to that highly compensated individual for the discriminatory benefit.

If the benefit was only available to a highly compensated individual and not to other participants, then the total amount reimbursed to that highly compensated individual for that benefit will be included in that individual’s gross income.

If the benefit is available to non-highly compensated individuals but it is a lesser benefit, then the amount available to the highly compensated individual is offset by the amounts available to the non-highly compensated individuals.

A pro rata share of the discriminatory coverage or discriminatory benefit will be taxable when coverage is partially paid with employee after-tax contributions and partially paid with employer contributions.

If a self-insured plan fails to meet both the Eligibility Test and the Benefits Test, the excess reimbursement is calculated by first applying the Benefits Test. Then the amount of excess reimbursement under the Benefits Test is subtracted from the numerator and dominator when the Eligibility Test is calculated.

The regulations provide six excess reimbursement examples, found here in the Appendix to this Advisor.

Reporting Discriminatory Amounts

If a self-insured plan discriminates in favor of highly compensated individuals, the employer should include the excess reimbursement in the highly compensated individual’s gross income and report the income in Box 1 of Form W-2. The amounts should not be reported in Box 3 or Box 5 of Form W-2 because the amounts are not considered wages for FICA or FUTA withholding.

Plan Design Considerations

Plan sponsors should be cautious of plan designs that create separate plans for different employee groups or that do not cover all employees, create different eligibility requirements for different groups of employees, or base employer contributions or benefits on employees’ years of service or compensation level.

Appendix: Excess Reimbursement Examples

Example 1

Corporation M maintains a self-insured medical reimbursement plan which covers all employees. The plan provides the following maximum limits on the amount of benefits subject to reimbursement: $5,000 for officers and $1,000 for all other participants. During a plan year Employee A, one of the 5 highest paid officers, received reimbursements in the amount of $4,000. Because the amount of benefits provided for highly compensated individuals is not provided for all other participants, the plan benefits are discriminatory. Accordingly, Employee A received an excess reimbursement of $3,000 ($4,000−$1,000) which constitutes a benefit available to highly compensated individuals, but not to all other participants.

Example 2

Corporation N maintains a self-insured medical reimbursement plan which covers all employees. The plan provides a broad range of medical benefits subject to reimbursement for all participants. However, only the 5 highest paid officers are entitled to dental benefits. During the plan year Employee B, one of the 5 highest paid officers, received dental payments under the plan in the amount of $300. Because dental benefits are provided for highly compensated individuals, and not for all other participants, the plan discriminates as to benefits. Accordingly, Employee B received an excess reimbursement in the amount of $300.

Example 3

Corporation O maintains a self-insured medical reimbursement plan which discriminates as to eligibility by covering only the highest paid 40% of all employees. Benefits subject to reimbursement under the plan are the same for all participants. During a plan year Employee C, a highly compensated individual, received benefits in the amount of $1,000. The amount of excess reimbursement paid Employee C during the plan year will be calculated by multiplying the $1,000 by a fraction determined under subparagraph (3) [of 26 CFR 1.105-11].

Example 4

Corporation P maintains a self-insured medical reimbursement plan for its employees. Benefits subject to reimbursement under the plan are the same for all plan participants. However, the plan fails the eligibility tests of section 105(h)(3)(A) and thereby discriminates as to eligibility. During the 1980 plan year Employee D, a highly compensated individual, was hospitalized for surgery and incurred medical expenses of $4,500 which were reimbursed to D under the plan. During that plan year the Corporation P medical plan paid $50,000 in benefits under the plan, $30,000 of which constituted benefits paid to highly compensated individuals. The amount of excess reimbursement not excludable by D under section 105(b) is $2,700:

$4,500 x ($30,000 ¸ $50,000)

Example 5

Corporation Q maintains a self-insured medical reimbursement plan for its employees. The plan provides a broad range of medical benefits subject to reimbursement for participants. However, only the five highest paid officers are entitled to dental benefits. In addition, the plan fails the eligibility test of section 105(h)(3)(A) and thereby discriminates as to eligibility. During the calendar 1981 plan year, Employee E, a highly compensated individual, received dental benefits under the plan in the amount of $300, and no other employee received dental benefits. In addition, Employee E was hospitalized for surgery and incurred medical expenses, reimbursement for which was available to all participants, of $4,500 which were reimbursed to E under the plan. Because dental benefits are only provided for highly compensated individuals, Employee E received an excess reimbursement under paragraph (e)(2) above in the amount of $300. For the 1981 plan year, the Corporation Q medical plan paid $50,300 in total benefits under the plan, $30,300 of which constituted benefits paid to highly compensated individuals. In computing the fraction under paragraph (e)(3) [of 26 CFR 1.105-11], discriminatory benefits described in paragraph (e)(2) are not taken into account. Therefore, the amount of excess reimbursement not excludable to Employee E with respect to the $4,500 of medical expenses incurred is $2,700:

$4,500 x ($30,000 ¸ $50,000)

and the total amount of excess reimbursements includable in E's income for 1981 is $3,000.

Example 6

(i) Corporation R maintains a calendar year self-insured medical reimbursement plan which covers all employees. The type of benefits subject to reimbursement under the plan include all medical care expenses as defined in section 213(e). The amount of reimbursement available to any employee for any calendar year is limited to 5 percent of the compensation paid to each employee during the calendar year. The amount of compensation and reimbursement paid to Employees A-F for the calendar year is as follows:

Employee Compensation Reimbursable amount paid
A $100,000 $5,000
B 25,000 1,250
C 15,000 750
D 10,000 500
E 10,000 500
F 8,000 400
Total $8,400

 

(ii) Because the amount of benefits subject to reimbursement under the plan is in proportion to employee compensation the plan discriminates as to benefits. In addition, Employees A and B are highly compensated individuals. The amount of excess reimbursement paid Employees A and B during the plan year will be determined under paragraph (e)(2) [of 26 CFR 1.105-11]. Because benefits in excess of $400 (Employee F's maximum benefit) are provided for highly compensated individuals and not for all other participants, Employees A and B received, respectively, an excess reimbursement of $4,600 and $850.

To download the full compliance alert click Here.


Are Healthcare Cost-Shifting Efforts at a Tipping Point?

Are you having trouble controlling your healthcare cost? Take a look at this interesting article from Employee Benefits Advisor on how rising healthcare costs are affecting employers by Bruce Shutan.

With the fate of healthcare reform in limbo, new research suggests employers are moving forward with a host of incremental changes to their health and wellness plans in hopes of curtailing costs on their own.

Kim Buckey, VP of client services at DirectPath, an employee engagement and healthcare compliance technology company, has noticed a slowdown in adoption of high-deductible health plans and cost-shifting strategies that aren’t quite living up to expectations. DirectPath’s 2017 Medical Plan Trends and Observations Report, based on an analysis of about 975 employee benefit health plans, found employers applying creative methods for cost control.

Buckey noted greater use of health savings accounts, wellness incentives, price transparency tools and alternative care options.

Slightly more than half of the employers studied by DirectPath offer a price transparency tool, while another 18% plan to do so in the next three years. Price-comparison services were found to save employees and employers alike an average of $173 and $409, respectively, per procedure.

In an effort to reduce costs and the administrative burden of tracking coverage for dependents, surcharges on spouses who can elect coverage elsewhere soared more than 40% within the past year to $152 per month.

The number of plans that offer wellness incentives rose to 58% from 50% between 2016 and 2017. Rewards included paycheck contributions, plan premium discounts, contributions to HSAs and health reimbursement arrangements and reduced co-pays for office visits. HSAs were far more popular than employee-funded HRAs (67% vs. 15% of employers examined), while employer contributions to HSAs increased nearly 10%.

Barriers to care and cost containment
A separate survey conducted by CEB, a technology company that monitors corporate performance, noted that although as many as one-third of organizations offer telemedicine, more than 55% of employees aren’t even aware of their availability and nearly 60% believe they’re difficult to access.

DirectPath and CEB both found that the average cost of specialty drugs increased by more than 30%. This reflects research conducted by the National Business Group on Health. Nearly one-third of NBGH members said the category was their highest driver of healthcare costs last year.

The pursuit of a panacea for rising group health costs has been meandering. When Buckey’s career began, she recalls how indemnity plans gave way to HMOs and managed care, then HDHPs, consumer-directed plans and private exchanges. “There is no one silver bullet that’s going to solve this problem,” she explains, “and I think employers and their advisers are starting to understand that it’s got to be a combination of things.”

More employers are now realizing that cost-shifting isn’t a viable long-term solution and that “whatever changes are put in place will require a well thought-out, year-round and robust communication plan,” she says.

There’s also a serious need to improve healthcare literacy, with Buckey noting that many employees still struggle to understand basic concepts such as co-pays, deductibles and HSAs. Consequently, she says it’s no wonder why they often “just shut down and do whatever their doctor tells them.

“So I think anything that advisers and brokers can do to support their employers in explaining these plans, or whatever changes they choose to implement,” she continues, will help raise understanding and eventually have a positive influence on behavior change. This, in turn, will help lower employee healthcare costs.”

See the original article Here.

Source:

Shutan B. (2017 April 5). Are healthcare cost-shifting efforts at a tipping point? [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/are-healthcare-cost-shifting-efforts-at-a-tipping-point


How Employers Should Proceed After the AHCA’s Collapse

Take a look at the great article from Employee Benefits Advisor on what employers need to know about healthcare with the collapse of the AHCA by Alden J. Bianchi and Edward A. Lenz.

The stunning failure of the U.S. House of Representatives to pass the American Health Care Act has political and policy implications that cannot be forecasted. Nor is it clear whether or when the Trump administration and Congress will make another effort to repeal and replace, or whether Republicans will seek Democratic support in an effort to “repair,” the Affordable Care Act. Similarly, we were unable to predict whether and to what extent the AHCA’s provisions can be achieved through executive rulemaking or policy guidance.

Here are some ways the AHCA’s failure could impact employers in the near term.

Immediate impact on employers
Employers were not a major focus of the architects of the ACA, nor were they a major focus of those who crafted the AHCA. This is not surprising. These laws address healthcare systems and structures, especially healthcare financing. Rightly or wrongly, employers have not been viewed by policymakers as major stakeholders on those issues.

In a blog post published at the end of 2014, we made the following observations:

The ACA sits atop a major tectonic plate of the U.S. economy, nearly 18% of which is healthcare-related. Healthcare providers, commercial insurance carriers, and the vast Medicare/Medicaid complex are the law’s primary stakeholders. They, and their local communities, have much to lose or gain depending on how healthcare financing is regulated. The ACA is the way it is largely because of them. Far more than any other circumstance, including which political party controls which branch of government, it is the interests of the ACA’s major stakeholders that determine the law’s future. And there is no indication whatsoever that, from the perspective of these entities, the calculus that drove the ACA’s enactment has changed. U.S. employers, even the largest employers among them, are bit players in this drama. They have little leverage, so they are relegated to complying and grumbling (not necessarily in that order).

With the AHCA’s collapse, the ACA remains the law of the land for the foreseeable future. The AHCA would have zeroed out the penalties on “applicable large” employers that fail to make qualified offers of health coverage, but the bill’s failure leaves the ACA’s “play or pay” rules in full force and effect. The ACA’s reporting rules, which the AHCA would not have changed, also remain in effect. This means, among other things, that many employers, especially those with large numbers of part-time, seasonal, and temporary workers that face unique compliance challenges, will continue to be in the position of “complying and grumbling.”

This does not mean that nothing has changed. The leadership of the Departments of Health and Human Services, Labor and Treasury has changed, and these agencies are now likely to be more employer-friendly. Thus, even though the ACA is still the law, the regulatory tone and tenor may well be different. For example, although the current complex employer reporting rules will remain in effect, the Treasury and IRS might find administrative ways to simplify them. Similarly, any regulations issued under the ACA’s non-discrimination provisions applicable to insured health plans (assuming they are issued at all) likely will be more favorable to employers than those issued under the previous administration.

There are also unanticipated consequences of the AHCA’s failure that employers might applaud. We can think of at least two.
1. Stemming the anticipated tide of new state “play or pay” laws
The continuation of the ACA’s employer mandate likely will put on hold consideration by state and local governments of their own “play or pay” laws.

In anticipation of the repeal of the ACA’s employer mandate, the Governor of Massachusetts recently introduced a budget proposal that would reinstate mandated employer contributions to help cover the costs of increased enrollment in the Medicaid and Children’s Health Insurance Program, known as MassHealth. Under the proposal, employers with 11 or more full-time equivalent employees would have to offer full-time employees a minimum of $4,950 toward the cost of an employer group health plan, or make an annual contribution in lieu of coverage of $2,000 per full-time equivalent employee. While the Governor’s proposal is not explicitly conditioned on repeal of the ACA’s employer mandate, the ACA’s survival may prompt a reconsideration of that approach.

California lawmakers were also considering ACA replacement proposals, including a single-payer bill introduced last month by Democratic state senators Ricardo Lara and Toni Atkins. Had the ACA’s employer mandate been repealed, those proposals were likely just the tip of an iceberg. When the ACA was enacted in 2010, Hawaii, Massachusetts, and San Francisco were the only jurisdictions with their own healthcare mandates on the books. But in the prior two-year period, before President Obama was elected and made healthcare reform his top domestic priority, more than two dozen states had introduced various “fair share” health care reform bills aimed at employers.

Most of the state and local “play or pay” proposals would have required employers to pay a specified percentage of their payroll, or a specified dollar amount, for health care coverage. Some required employers to pay employees a supplemental hourly “health care” wage in addition to their regular wages or provide health benefits of at least equal value. California, Illinois, Pennsylvania, and Wisconsin considered single-payer proposals.

To be sure, any state or local “play or pay” mandates would be subject to challenge based on Federal preemption under the Employee Retirement Income Security Act (ERISA). While some previous “play or pay” laws were invalidated under ERISA (e.g., Maryland), others (i.e., San Francisco) were not. In sum, given the failure of the AHCA, there would appear to be no rationale, at least for now, for any new state or local “play or pay” laws to go forward.

2. Avoiding upward pressure on employer premiums as a result of Medicaid reforms
The AHCA proposed to reform Medicaid by giving greater power to the states to administer the Medicaid program. Under an approach that caps Medicaid spending, the law would have provided for “per capita allotments” and “block grants.” Under either approach, the Congressional Budget Office, in its scoring of the AHCA, predicted that far fewer individuals would be eligible for Medicaid.

According to the CBO: CBO and JCT estimate that enacting the legislation would reduce federal deficits by $337 billion over the 2017 to 2026 periods. That total consists of $323 billion in on-budget savings and $13 billion in off-budget savings. Outlays would be reduced by $1.2 trillion over the period, and revenues would be reduced by $0.9 trillion. The largest savings would come from reductions in outlays for Medicaid and from the elimination of the ACA’s subsidies for non-group health insurance.

While employers rarely pay attention to Medicaid, the AHCA gave them a reason to do so. Fewer Medicaid-eligible individuals would mean more uncompensated care — a significant portion of the costs of which would likely be passed on to employers in the form of higher premiums. As long as the ACA’s expanded Medicaid coverage provisions remain in place, premium pressure on employers will to that extent be avoided.

Long-term impact on employers
As we conceded at the beginning, it’s not clear how the Republican Congress and the Administration will react to the AHCA’s failure. If the elected representatives of both political parties are inclined to try to make the current system work, however, we can think of no better place that the prescriptions contained in a report by the American Academy of Actuaries, entitled “An Evaluation of the Individual Health Insurance Market and Implications of Potential Changes.”

The actuaries’ report does not address, much less resolve, the major policy differences between the ACA and the AHCA over the role of government — in particular, the extent to which taxpayers should be called on to fund the health care costs of low-and moderate-income individuals, and whether U.S. citizens should be required to maintain health coverage or pay a penalty. And even if lawmakers can reach consensus on those contentious issues, they still would have to agree on the proper implementing mechanisms.

But whatever the outcome, employers are unlikely to play a major role.

See the original article Here.

Source:

Bianchi A. & Lenz E. (2017 April 6). How employers should proceed after the AHCA's collapse [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/how-employers-should-proceed-after-the-ahcas-collapse


How Affordable Care Act Repeal and Replace Plans Might Shift Health Insurance Tax Credits

Find out how your health insurance tax credits will be impacted with the repeal of the ACA in this great article by Kaiser Family Foundation.

An important part of the repeal and replacement discussions around the Affordable Care Act (ACA) will involve the type and amount of subsidies that people get to help them afford health insurance.  This is particularly important for lower and moderate income individuals who do not have access to coverage at work and must purchase coverage directly.

The ACA provides three types of financial assistance to help people afford health coverage: Medicaid expansion for those with incomes below 138% of poverty (the Supreme Court later ruled this to be at state option); refundable premium tax credits for people with incomes from 100% to 400% of the poverty level who purchase coverage through federal or state marketplaces; cost-sharing subsidies for people with incomes from 100% to 250% of poverty to provide lower deductibles and copays when purchasing silver plans in a marketplace.

This analysis focuses on alternative ways to provide premium assistance for people purchasing individual market coverage, explaining how they work, providing examples of how they’re calculated, and presenting estimates of how assistance overall would change for current ACA marketplace enrollees.  Issues relating to changing Medicaid or methods of subsidizing cost-sharing will be addressed in other analyses.

Premium Tax Credits Under the ACA and Current Replacement Proposals

The ACA and leading replacement proposals rely on refundable tax credits to help individual market enrollees pay for premiums, although the credit amounts are set quite differently.  The House Leadership proposal released on March 6, the American Health Care Act, proposes refundable tax credits which vary with age (with a phase-out for high-income enrollees) and grow annually with inflation.  The tax credits under the ACA vary with family income and the cost of insurance where people live, as well as age, and grow annually if premiums increase.

These various tax credit approaches can have quite different implications for different groups of individual market purchasers.  For example, the tax credits under the ACA are higher for people with lower incomes than for people with higher incomes, and no credit is provided for individuals with incomes over 400% of poverty.  The current replacement proposal, in contrast, is flat for incomes up to $75,000 for an individual and $150,000 for a married couple, and so would provide relatively more assistance to people with upper-middle incomes.  Similarly, the ACA tax credits are relatively higher in areas with higher premiums (like many rural areas), while the replacement proposal credits do not vary by location.  If premiums grow more rapidly than inflation over time (which they generally have), the replacement proposal tax credits will grow more slowly than those provided under the ACA.

What is a Tax Credit, and How is it Different from a Deduction?

A tax credit is an amount by which a taxpayer can reduce the amount they owe in federal income tax; for example, if a person had a federal tax bill of $2,500 and a tax credit of $1,000, their tax liability would be reduced to $1,500.  A refundable tax credit means that if the amount of the tax credit is greater than the amount of taxes owed, the taxpayer receives a refund of the difference; for example, if a person had a federal tax bill of $1000 and a tax credit of $1,500, they would receive a refund of $500.  Making the credit refundable is important if a goal is to assist lower-income families, many of whom may not owe federal income tax. An advanceable tax credit is made available at the time a premium payment is owed (which similarly benefits lower-income families so that they can receive the financial assistance upfront). The ACA and a number of replacement proposals allow for advance payment of credits.

A tax credit is different from a tax deduction.  A deduction reduces the amount of income that is taxed, while a credit reduces the amount of tax itself.  For example, if a person has taxable income of $30,000, a $500 deduction reduces the amount of taxable income to $29,500.  If the person’s marginal tax rate is 15%, the deduction reduces the person’s taxes by 15% of $500, or $75. Because people with lower incomes have lower marginal tax rates than people with higher incomes – and, typically don’t itemize their deductions – tax credits are generally more beneficial to lower income people than deductions.

The next section describes the differing tax credit approaches in more detail and draws out some of the implications for different types of purchasers.

How the Different Tax Credits Are Calculated

The ACA provides tax credits for individuals with family incomes from 100% to 400% of poverty ($11,880 to $47,520 for a single individual in 2017) if they are not eligible for employer-provided or public coverage and if they purchase individual market coverage in the federal or a state marketplace.  The tax credit amounts are calculated based on the family income of eligible individuals and the cost of coverage in the area where the live. More specifically, the ACA tax credit for an eligible individual is the difference between a specified percentage of his or her income (Table 1) and the premium of the second-lowest-cost silver plan (referred to as the benchmark premium) available in the area in which they live.  There is no tax credit available if the benchmark premium is less than the specified percentage of premium (which can occur for younger purchasers with relatively higher incomes) or if family income falls outside of the 100% to 400% of poverty range.  For families, the premiums for family members are added together (including up to 3 children) and compared to specified income percentages. ACA tax credits are made available in advance, based on income information provided to the marketplace, and reconciled based on actual income when a person files income taxes the following.

Take, for example, a person age 40 with income of $30,000, which is 253% of poverty.  At this income, the person’s specified percentage of income is 8.28% in 2017, which means that the person receives a tax credit if he or she has to pay more than 8.28% of income (or $2,485 annually) for the second-lowest-cost silver premium where he or she lives.  If we assume a premium of $4,328 (the national average benchmark premium for a person age 40 in 2017), the person’s tax credit would be the difference between the benchmark premium and the specified percentage of income, or $4,328 – $2,485 = $1,843 (or $154 per month).

The American Health Care Act takes a simpler approach and specifies the actual dollar amounts for a new refundable tax credit that could be used to purchase individual market coverage.  The amounts vary only with age up until an income of $75,000 for a single individual, at which point they begin to phase out. Tax credits range from $2,000 for people under age 30, to $2,500 for people ages 30 to 39, $3,000 for people age 40 to 49, $3,500 for people age 50 to 59, and $4,000 for people age 60 and over starting in 2020. Eligibility for the tax credit phases out starting at income above $75,000 for single individuals (the credit is reduced, but not below zero, by 10 cents for every dollar of income above this threshold, reaching zero at an income of $95,000 for single individuals up to age 29 or $115,000 for individuals age 60 and older). For joint filers, credits begin to phase out at an income of $150,000 (the tax credit is reduced to zero at an income of $190,000 for couples up to age 29; it is reduced to zero at income $230,000 for couples age 60 or older; and it is reduced to zero at income of $290,000 for couples claiming the maximum family credit amount). People who sign up for public programs such as Medicare, Medicaid, public employee health benefit programs, would not be eligible for a tax credit. The proposal further limits eligibility for tax credits to people who do not have an offer available for employer-provided health benefits.

Table 2 shows how projected ACA tax credits in 2020 compare to what would be provided under the American Health Care Act for people at various incomes, ages, and geographic areas. To show the ACA amounts in 2020, we inflated all 2017 premiums based on projections for direct purchase spending per enrollee from the National Health Expenditure Accounts. This method applies the same premium growth across all ages and geographic locations.  Note that the table does not include cost-sharing assistance under the ACA that lowers deductibles and copayments for low-income marketplace enrollees. For example, in 2016, people making between 100 – 150% of poverty enrolled in a silver plan on healthcare.gov received cost-sharing assistance worth $1,440; those with incomes between 150 – 200% of poverty received $1,068 on average; and those with incomes between 200 – 250% of poverty received $144 on average.

Under the ACA in 2020, we project that a typical 40-year-old making $20,000 per year would be eligible for $4,143 in premium tax credits (not including the additional cost-sharing subsidies to lower his or her deductibles and copayments), while under the American Health Care Act, this person would be eligible $3,000. For context, we project that the average ACA premium for a 40-year-old in 2020 would be $5,101 annually (meaning the tax credit in the ACA would cover 81% of the total premium) for a benchmark silver plan with comprehensive benefits and reduced cost-sharing. A $3,000 tax credit for this same individual under the American Health Care Act would represent 59% of the average 40-year-old benchmark silver premium under the ACA.

Generally, the ACA has higher tax credit amounts than the replacement plan for lower-income people – especially for those who are older and live in higher-cost areas – and lower credits for those with higher incomes. Unlike the ACA, the replacement plan provides tax credits to people over 400% percent of the poverty level (phasing out around 900% of poverty for a single person), as well as to people current buying individual market coverage outside of the marketplaces (not included in this analysis).

While replacement plan tax credits vary by age – by a factor of 2 to 1 for older adults relative to younger ones – the variation is substantially less than under the ACA. The big differences in ACA tax credits at different ages is due to the fact that premiums for older adults can be three times the level of premiums for younger adults under the ACA, but all people at a given income level are expected to pay the same percentage of their income towards a benchmark plan. The tax credit fills in the difference, and this amount is much higher for older adults. These differences by age would be even further magnified under the American Health Care Act (which permits premiums to vary by a factor of 5 to 1 due to age). Before the ACA, premiums for older adults were typically four or five times the premiums charged to younger adults.

The tax credits in the ACA vary significantly with premium costs in an area (see Table 2 and Figure 2). At a given income level and age, people receive bigger tax credits in a higher premium area like Mobile, Alabama and smaller tax credits in a lower premium area like Reno, Nevada. Under the ACA in 2017, premiums in Mobile, Alabama and Reno, Nevada approximately represent the 75th and 25th percentile, respectively.

The disparities between the ACA tax credits and those in the American Health Care Act will therefore vary noticeably across the country. For more on geographic differences between the ACA and the replacement plan, see Tax Credits under the Affordable Care Act vs. the American Health Care Act: An Interactive Map.

The same general pattern can be seen for families as individuals, with lower-income families – and particularly lower-income families in higher-cost areas – receiving larger tax credits under the ACA, while middle-income families in lower-cost areas would receive larger tax credits under the American Health Care Act (Figure 3).

Figure 4 below shows how tax credits under the ACA differ from those in the American Health Care Act for a couple in their 60’s with no children. In this scenario, because premiums for older adults are higher and the ACA ties tax credits to the cost of premiums, a 60-year-old couple would receive larger tax credits under the ACA than the American Health Care Act at lower and middle incomes, but would receive a larger tax credit under the American Health Care Act at higher incomes.

Estimates of Tax Credits Under the ACA and the American Health Care Act Over Time

We estimated the average tax credits that current ACA marketplace enrollees are receiving under the ACA and what they would qualify for if the American Health Care Act were in place.

The average estimated tax credit received by ACA marketplace enrollees in 2017 is $3,617 on an annual basis, and that this amount will rise to $4,615 by 2020 based on projected growth rates from the Congressional Budget Office. This includes the 81% who receive premium subsidies as well as the 19% who do not.

We estimate – based on the age distribution of marketplace enrollees – that current enrollees would receive an average tax credit under the American Health Care Act of $2,957 in 2020, or 36% less than under the ACA (see Table 3 and Figure 3). While many people would receive lower tax credits under the Affordable Health Care Act, some would receive more assistance, notably the 19% of current marketplace enrollees who do not qualify for ACA subsidies.

While ACA tax credits grow as premiums increase over time, the tax credits in the American Health Care Act are indexed to inflation plus 1 percentage point. Based on CBO’s projections of ACA tax credit increases and inflation, the disparity between the average credits under the ACA and the two replacement plans would widen over time. The average tax credit current marketplace enrollees would receive under the American Health Care Act would be 41% lower than under the ACA in 2022 and 44% lower in 2027.

Discussion

Like the ACA itself, the American Health Care Act includes refundable tax credits to help make premiums more affordable for people buying their own insurance. This might seem like an area where a replacement plan could preserve a key element of the ACA. However, the tax credits are, in fact, structured quite differently, with important implications for affordability and which groups may be winners or losers if the ACA is repealed and replaced.

For current marketplace enrollees, the American Health Care Act would provide substantially lower tax credits overall than the ACA on average. People who are lower income, older, or live in high premium areas would be particularly disadvantaged under the American Health Care Act. People with incomes over 400% of the poverty level – including those buying individual market insurance outside of the marketplaces – do not get any financial assistance under the ACA but many would receive tax credits under the replacement proposal.

The underlying details of health reform proposals, such as the size and structure of health insurance tax credits, matter crucially in determining who benefits and who is disadvantaged

See the original article Here.

Source:

Cox C., Claxton G., Levitt L. (2017 March 10). How affordable care act repeal and replace plans might shift health insurance tax credits [Web blog post]. Retrieved from address http://www.kff.org/health-reform/issue-brief/how-affordable-care-act-repeal-and-replace-plans-might-shift-health-insurance-tax-credits/


Cafeteria Plans: Qualifying Events and Changing Employee Elections

Have any questions about cafeteria plans and how they work? Check out this great article from our partner, United Benefit Advisors (UBA) about which events qualify and what changes can happen to any employee's cafeteria plan by Danielle Capilla

Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance. Employees are given the opportunity to select the benefits they want, just like an individual standing in the cafeteria line at lunch.

Only certain benefits can be offered through a cafeteria plan:

  • Coverage under an accident or health plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-insured medical reimbursement plans, dental, vision, and more);
  • Dependent care assistance benefits or DCAPs
  • Group term life insurance
  • Paid time off, which allows employees the opportunity to buy or sell paid time off days
  • 401(k) contributions
  • Adoption assistance benefits
  • Health savings accounts or HSAs under IRS Code Section 223

Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-employees, transportation and other fringe benefits, long-term care, and health reimbursement arrangements (unless very specific rules are met by providing one in conjunction with a high deductible health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.

Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also affected aspects of cafeteria plan administration.

Employees are allowed to choose the benefits they want by making elections. Only the employee can make elections, but they can make choices that cover other individuals such as spouses or dependents. Employees must be considered eligible by the plan to make elections. Elections, with an exception for new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be changed during the plan year, unless a permitted change in status occurs. There is an exception for mandatory two-year elections relating to dental or vision plans that meet certain requirements.

Plans may allow participants to change elections based on the following changes in status:

  • Change in marital status
  • Change in the number of dependents
  • Change in employment status
  • A dependent satisfying or ceasing to satisfy dependent eligibility requirements
  • Change in residence
  • Commencement or termination of adoption proceedings

Plans may also allow participants to change elections based on the following changes that are not a change in status but nonetheless can trigger an election change:

  • Significant cost changes
  • Significant curtailment (or reduction) of coverage
  • Addition or improvement of benefit package option
  • Change in coverage of spouse or dependent under another employer plan
  • Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
  • Changes in 401(k) contributions (employees are free to change their 401(k) contributions whenever they wish, in accordance with the administrator’s change process)
  • HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
  • COBRA qualifying event
  • Judgment, decrees, or orders
  • Entitlement to Medicare or Medicaid
  • Family Medical Leave Act (FMLA) leave
  • Pre-tax health savings account (HSA) contributions (employees are free to change their HSA contributions whenever they wish, in accordance with the their payroll/accounting department process)
  • Reduction of hours (new under the ACA)
  • Exchange/Marketplace enrollment (new under the ACA)

Together, the change in status events and other recognized changes are considered “permitted election change events.”

Common changes that do not constitute a permitted election change event are: a provider leaving a network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a legal separation (unless the separation leads to a loss of eligibility under the plan), commencement of a domestic partner relationship, or a change in financial condition.

There are some events not in the regulations that could allow an individual to make a mid-year election change, such as a mistake by the employer or employee, or needing to change elections in order to pass nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing evidence that the mistake has been made. For instance, an individual might accidentally sign up for family coverage when they are single with no children, or an employer might withhold $100 dollars per pay period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.

Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts in the middle of the plan year, so long as automatic election language is in the plan documents. An “insignificant” amount is considered one percent or less.

Plans should consider which change in status events to allow, how to track change in status requests, and the time limit to impose on employees who wish to make an election.

See the original article Here.

Source:

Capilla D. (2017 February 07). Cafeteria plans: qualifying events and changing employee elections  [Web blog post]. http://blog.ubabenefits.com/cafeteria-plans-qualifying-events-and-changing-employee-elections


Compliance Recap February 2017

Stay up-to-date with the most recent ACA regulations thanks to our partners at United Benefits Advisor (UBA)

February had relatively little activity in the employee benefits world because a new Secretary of the Department of Health and Humans (HHS) was recently confirmed and HHS started its rulemaking under the new administration.

On February 10, 2017, the U.S. Senate confirmed Rep. Tom Price as the new Secretary of HHS, who has a budget of more than $1 trillion, the largest budget of any Cabinet secretary. HHS administers the Patient Protection and Affordable Care Act (ACA), Medicare, and Medicaid, and oversees other programs and agencies.

The Centers for Medicare & Medicaid Services (CMS) extended its transitional policy for nongrandfathered coverage in the small group and individual health insurance markets. The Internal Revenue Service (IRS) delayed the deadline for small employers to provide its initial written notices to employees regarding Qualified Small Employer Health Reimbursement Arrangements (QSE HRAs). CMS proposed a rule on ACA market stabilization.

HHS issued its Annual Civil Monetary Penalties Inflation Adjustment to reflect required inflation-related increases to the civil monetary penalties in its regulations. The IRS released a letter that discusses retroactive Medicare coverage’s effect on HSA contributions. Also, the IRS announced that it will not automatically reject individual tax returns when the taxpayer failed to indicate continuous coverage, failed to claim an exemption from the individual mandate, or failed to pay the penalty.

UBA Updates

UBA released three new advisors in February:

  •  CMS’ Proposed Rule on ACA Market Stabilization
  • Medicare Part D: Creditable Coverage Disclosures
  • Health Insurance Marketplace Notice and OMB Expiration Date

UBA updated existing guidance:

  •  Qualified Small Employer Health Reimbursement Arrangements FAQ

CMS Allows States to Extend Life of “Grandmothered” or Transitional Health Insurance Policies

On February 23, 2017, the Department of Health and Human Services’ Centers for Medicare & Medicaid Services (CMS) released its Insurance Standards Bulletin Series, in which it re-extended its transitional policy for non-grandfathered coverage in the small group and individual health insurance markets.

States may permit issuers that have renewed policies under the transitional policy continually since 2014 to renew such coverage for a policy year starting on or before October 1, 2018; however, any policies renewed under this transitional policy must not extend past December 31, 2018.

If permitted by applicable state authorities, health insurance issuers may choose to continue certain coverage that would otherwise be cancelled, and affected individuals and small businesses may choose to re-enroll in such coverage.

As background, CMS’ transitional policy was first announced in November 14, 2013; CMS had most recently extended the transitional policy on February 29, 2016, for an additional year for policy years beginning on or before October 1, 2017, provided that all policies end by December 31, 2017.

Policies subject to the transitional relief are not considered to be out of compliance with the ACA’s single risk pool requirement or the following Public Health Service Act (PHS Act) provisions:

  • Section 2701 – relating to fair health insurance premiums
  • Section 2702 – relating to guaranteed availability of coverage
  • Section 2703 – relating to guaranteed renewability of coverage
  • Section 2704 – relating to the prohibition of pre-existing condition exclusions or other discrimination based on health status, with respect to adults, except with respect to group coverage
  • Section 2705 – relating to the prohibition of discrimination against individual participants and beneficiaries based on health status, except with respect to group coverage
  • Section 2706 – relating to non-discrimination in health care
  • Section 2707 – relating to comprehensive health insurance coverage
  • Section 2709 – relating to coverage for individuals participating in approved clinical trials

However, issuers can choose to adopt some of or all these provisions in their renewed policies.

IRS Delays Initial Notice Requirements for QSE HRAs

Under the 21st Century Cures Act, small employers that want to reimburse individual health coverage premiums through HRAs called “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRAs) must provide annual written notice to all eligible employees no later than 90 days before the beginning of the benefit year.

On February 27, 2017, the Internal Revenue Service (IRS) issued Notice 2017-20 that delays the initial written notice deadline. The Department of the Treasury and the IRS intend to issue guidance to provide employers with additional time to furnish the initial notice to employees; the extended deadline will be no earlier than 90 days following the issuance of future guidance. Further, no penalties will be imposed for failure to provide the initial notice before the extended deadline.

CMS’ Proposed Rule on ACA Market Stabilization

On February 17, 2017, the Department of Health and Human Services’ Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to stabilize the health insurance market and address risks to the individual and small group markets. CMS proposes changes to guaranteed availability of coverage, network adequacy, essential community providers, open enrollment periods, special enrollment periods, continuous coverage, and standards for the Exchanges.

The proposed changes primarily affect the individual market. However, to the extent that employers have fully-insured plans, some of the proposed changes will affect those employers’ plans because the changes affect standards that apply to issuers.

Public comments are due by March 7, 2017.

HHS Civil Monetary Penalties Increase

On February 3, 2017, the Department of Health and Human Services (HHS) issued its Annual Civil Monetary Penalties Inflation Adjustment to reflect required inflation-related increases to the civil monetary penalties in its regulations. Here are some of the adjustments:

  • Medical Loss Ratio report and rebating: The maximum penalty increases to $111 per day, per individual affected by the violation.
  • Summary of Benefits and Coverage: For failure to provide, the maximum penalty increases to $1,105 per failure.
  • HIPAA: The penalty range increases to a minimum penalty of $112 up to a maximum of $55,910 per violation, and the maximum penalty for all violations of an identical requirement in a calendar year increases to $1,677,299.

Most adjustments are effective for penalties assessed after February 3, 2017, for violations occurring after November 2, 2015. The HIPAA penalty adjustments are effective for penalties assessed after February 3, 2017, for violations occurring on or after February 18, 2009.

IRS Letter Regarding the Retroactive Medicare Coverage Effect on HSA Contributions

The Internal Revenue Service (IRS) recently released a letter regarding retroactive Medicare coverage and health savings account (HSA) contributions.

As background, Medicare Part A coverage begins the month an individual turns age 65, provided the individual files an application for Medicare Part A (or for Social Security or Railroad Retirement Board benefits) within six months of the month in which the individual turns age 65. If the individual files an application more than six months after turning age 65, Medicare Part A coverage will be retroactive for six months.

Individuals who delayed applying for Medicare and were later covered by Medicare retroactively to the month they turned 65 (or six months, if later) cannot make contributions to the HSA for the period of retroactive coverage. There are no exceptions to this rule.

However, if they contributed to an HSA during the months that were retroactively covered by Medicare and, as a result, had contributions in excess of the annual limitation, they may withdraw the excess contributions (and any net income attributable to the excess contribution) from the HSA.

They can make the withdrawal without penalty if they do so by the due date for the return (with extensions). Further, an individual generally may withdraw amounts from an HSA after reaching Medicare eligibility age without penalty. (However, the individual must include both types of withdrawals in income for federal tax purposes to the extent the amounts were previously excluded from taxable income.)

If an excess contribution is not withdrawn by the due date of the federal tax return for the taxable year, it is subject to an excise tax under the Internal Revenue Code. This tax is intended to recapture the benefits of any tax-free earning on the excess contribution.

Individual Mandate – IRS Will Not Reject Silent Returns

For 2016 returns, the Internal Revenue Service (IRS) intended to reject electronically filed “silent returns,” when the taxpayer failed to indicate continuous coverage on Line 61, failed to file a Form 8965 to claim an exemption from the individual mandate, or failed to pay the penalty.

On February 15, 2017, the IRS issued a statement that it would change course and process silent returns. This means that returns without a completed Line 61 will not be systemically rejected by the IRS at the time of filing. The IRS determined that allowing returns to be accepted for processing – when a taxpayer doesn’t indicate health insurance coverage status – is consistent with the January 20, 2017, Executive Order directing federal agencies to exercise authority and discretion to reduce potential burden under the ACA.

Per the IRS, the ACA’s provisions are still in force until changed by Congress; further, taxpayers remain required to follow the law and pay what they may owe. The IRS indicates that if it has questions about a return, it will follow up with correspondence and questions to taxpayers at a future date, after the filing process is complete.

Please be aware that this change in IRS policy for individual filers does not affect employer reporting.

To download the full compliance click Here.