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Federal Updates
IRS Publishes Proposed Regulations on Health Insurance Providers Fee
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On Dec. 9, 2016, the IRS published two sets of proposed regulations amending the Health Insurance Providers Fee final regulations.
As background, PPACA instituted the Health Insurance Providers Fee to help fund the cost of PPACA implementation and exchanges. This fee, also called the "health insurance tax" or "HIT", applies to any "covered entity" engaged in the business of providing health insurance to U.S. citizens, residents and certain other persons present in the U.S. Put simply, this fee applies only to insurers, and the regulations specifically exclude self-insured plans. The final regulations help define a "covered entity" for these purposes as health insurance issuers, HMOs, insurance companies, insurers providing health insurance under Medicare Advantage, Medicare Part D or Medicaid, and certain Multiple Employer Welfare Arrangements (MEWAs) that are not fully insured. So, for fully insured health insurance, insurers are liable for the contributions. The IRS will send each covered entity its final fee calculation for that year by August 31 and each covered entity must pay its final fee by September 30 of the fee year. This is a permanent annual fee on health insurers, but there is a one year moratorium in 2017. Employers should be aware of any amendments to the final regulations because the amount of the tax will likely get passed on to the plan through rate increases, but there is nothing the employer should do in anticipation of this tax.
That said, the first set of proposed regulations require certain covered entities engaged in the business of providing health insurance to electronically file Form 8963, "Report of Health Insurance Provider Information."
Specifically, a covered entity (including a controlled group) reporting more than $25 million in net premiums written on a Form 8963 or corrected Form 8963 must electronically file these forms after Dec. 31, 2017. Forms 8963 reporting $25 million or less in net premiums written are not required to be electronically filed. This is because a covered entity reporting no more than $25 million in net premiums written is not liable for a fee and therefore the time constraints applicable to computation of the fee are not applicable with respect to these entities. These proposed regulations also provide that if a Form 8963 or corrected Form 8963 is required to be filed electronically, any subsequently filed Form 8963 filed for the same fee year must also be filed electronically, even if such subsequently filed Form 8963 reports $25 million or less in net premiums written. In addition, these proposed regulations provide that failure to electronically file will be treated as a failure to file.
The first set of proposed regulations generally apply for taxable years ending after Dec. 31, 2017.
Speaking of net premiums written, the second set of proposed regulations modify the current definition of "net premiums written" for purposes of the HIT. These proposed regulations would modify the current definition of net premiums written to account for premium adjustments related to retrospectively rated contracts, computed on an accrual basis. These amounts are received from and paid to policyholders annually based on experience. Retrospectively rated contract receipts and payments do not include changes to funds or accounts that remain under the control of the covered entity, such as changes to premium stabilization reserves.
These proposed regulations also add specific language to the definition of net premiums written to clarify that net premiums written include risk adjustment payments received and are reduced for risk adjustment charges paid. If a covered entity did not include risk adjustment payments received as direct premiums written on its Supplemental Health Care Exhibit (SHCE) or did not file an SHCE with the National Association of Insurance Commissioners (NAIC), these amounts are still part of net premiums written and must be reported on Form 8963. For this purpose, risk adjustment payments received and charges paid are computed on an accrual basis.
As background on net premiums written, the aggregate annual fee for insurers is apportioned among various insurers based on a ratio designed to reflect market share of U.S. health insurance business. For each insurer, the fee for a calendar year is an amount that bears the same ratio to the applicable amount as the covered entity's net premiums written during the preceding calendar year with respect to health insurance for any U.S. health risk bears to the aggregate net written premiums of all covered entities during the preceding calendar year with respect to such health insurance. In simpler terms, the applicable amount is divided among insurers according to a formula or index based on each insurer's net premiums. The IRS makes a preliminary calculation of the fee for each covered entity and notifies the covered entity of its preliminary calculation for that fee year using Letter 5066C.
Additionally, the final regulations also define "health insurance" and advise on exclusions when determining net premiums to be reported. "Health insurance" is defined as benefits consisting of medical care provided under a certificate, policy or contract with a health insurance insurer. Generally excluded from this definition are HIPAA-excepted benefits. However, limited-scope dental and vision benefits are not excluded, nor are retiree-only plans. Not all of a covered entity's net premiums need to be reported. The first $25 million of net premiums for a year and 50 percent of the next $25 million in net premiums for the same year do not need to be reported.
The second set of proposed regulations generally apply for taxable years ending after Sept. 30, 2018.
Proposed Regulations Regarding Electronic Filing »
Proposed Regulations Regarding New Premiums Written »
Congress Passes "Cures Act" Allowing Stand-Alone HRAs for Small Employers
On Dec. 7, 2016, the US Congress passed HR 34, called the "21st Century Cures Act" (Cures Act). The Cures Act legislation will permit small employers (those with fewer than 50 full-time employees during a calendar year who are not subject to the employer mandate) who do not offer a group health plan to provide a qualified small employer health reimbursement arrangement (QSEHRA).
As background, HRAs are generally considered "group health plans" under PPACA's market reform provisions, the IRC, ERISA and the Public Health Service Act (PHSA) and could not be offered on a stand-alone basis. However, the Cures Act exempts QSEHRAs from the group health plan definition, and thus from PPACA's market reform provisions (except for the Cadillac tax). Therefore, eligible employees may use these qualified small employer HRAs to purchase coverage through the individual market (including the exchanges) if the following criteria are met:
Employer is not an applicable large employer subject to the employer mandate;
The HRA is entirely employer-funded; no employee salary reductions permitted;
Employer does not currently offer a group health plan to any employees;
Reimbursements may only be used for IRC Sec. 213(d) qualified medical expenses;
QSEHRA benefits must be offered on the same terms to all "eligible employees" (some employees can be disregarded);
QSEHRA benefit may be excluded from the employee's income only if the recipient has proof of minimum essential coverage (individual coverage on or off the exchange is allowed); and
Annual QSEHRA benefits may not exceed maximum of $4,950 for an individual, or $10,000 if family members are covered (indexed annually).
In addition, small employers funding a QSEHRA are required to provide an annual notice to all eligible employees. Generally, this notice must include the annual HRA benefit, a statement that the employee should furnish HRA information to the exchange if applying for a premium tax credit, and a statement warning against a tax penalty assessed for failure to carry minimum essential coverage and that HRA reimbursements could be includable in gross income. Failure to provide a notice could result in penalties assessed on the employer, but a grace period is available for employers who provide the notice within 90 days of the law's enactment.
For any month that an employee is provided a QSEHRA which constitutes affordable coverage, the employee would not be eligible for a premium tax credit on the exchange. Determined by the exchange, the coverage is affordable if the employee's premium for self-only coverage under the second-lowest cost silver plan minus 1/12th of that employee's permitted benefit for that month is not more than 1/12th of 9.5 percent of the employee's household income for the year. Employers need not concern themselves with affordability (since only small employers—not subject to PPACA's employer mandate—would be eligible to offer QSEHRAs). Otherwise, if the HRA coverage is not considered affordable, the employee's monthly premium tax credit would generally be reduced by 1/12th of the HRA annual benefit amount.
Assuming the Cures Act is signed by President Obama (most expect he will), the provision is effective Jan. 1, 2017. Thus, small group employers should work with advisors in determining appropriate next steps.
HR 34 »
IRS Extends 2016 Due Dates for Sections 6055 and 6056 Individual Statements and Extends Good Faith Relief into 2016
On Nov. 18, 2016, the IRS released Notice 2016-70, which delays the date by which informational statements must be provided to individuals and provides transitional good faith relief for reasonable mistakes made in reporting Sections 6055 and 6056 information about 2016.
Specifically, the due date for providing individuals with Form 1095-B (by a carrier or self-insured employer) and Form 1095-C (by an applicable large employer) have been extended by 30 days, to March 2, 2017 (changed from Jan. 31, 2017). The deadline for filing these forms with the IRS has not changed. Those dates remain March 31, 2017, if filing electronically, or Feb. 28, 2017, if not filing electronically. If an employer does not comply with the extended deadlines, the employer could be subject to penalties.
Despite the extended due dates, employers and other coverage providers are encouraged to furnish 2016 statements as soon as they are able. Yet, if individuals have not received these forms by the time they file their individual tax returns, they may rely upon other information received from employers or coverage providers to attest that they had minimum essential coverage as required by the individual mandate. Individuals need not amend their returns once they receive the forms, but they should keep them with their tax records.
In addition, Notice 2016-70 extends good faith effort relief to employers for incorrect or incomplete returns filed in 2017 (as to 2016 information). The IRS previously provided relief for penalties stemming from 2016 reporting failures (as to 2015 data). Specifically, relief was available to entities that could show that they made good faith efforts to comply with the information reporting requirements, even if they reported incorrect or incomplete information. This relief did not apply to a failure to timely furnish or file a statement or return.
In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the AIR electronic submission process.
The IRS does not anticipate extending this relief – either with respect to the due dates or with respect to good faith relief – to reporting for 2018 (as to 2017 data).
IRS Notice 2016-70 »
Post-Election: What's the Future of the Affordable Care Act?
Now that the election is over, and with President-elect Donald Trump pledging to make significant alterations to the Affordable Care Act (ACA), the ACA's future is very much up in the air. With Republicans controlling the White House and Congress, the door is open for huge changes to the law. At this point, it's not clear whether those changes will include complete repeal, major overhaul or minor tweaks. Regardless, the election results leave the ACA, and perhaps other laws relating to employer-provided benefits, exposed.
To begin with, whether President-elect Trump and Congress can or will make sweeping changes to the ACA (and the timing of such changes) depends on many factors and unknowns. Those factors and unknowns raise significant and legitimate questions. For example, will all Congressional Republicans go along with the proposed changes? Will Congress be able to use the reconciliation process, if needed, to push through its agenda? Will popular provisions (such as the prohibition on pre-existing condition exclusions and coverage of dependents to age 26) remain (as the President-elect has now said he'd like to keep)? How will changes to the individual and employer mandates and state-based exchanges impact the health insurance market, the economy and the future of the health care delivery system overall? What about the approximately eight million individuals receiving a subsidy now, and the approximately 20 million that are now covered but who weren't covered prior to the ACA? While the President-elect's platform asks for immediate changes (including elimination of subsidies), it's more likely that because of administrative and procedural challenges, there will be no changes for 2017.
President-elect Trump has also promised to replace the ACA, but the exact specifics of a replacement have not been spelled out. His agenda focuses on expanding consumer directed plans, including broader use (and perhaps more favorable tax treatment of) health savings accounts and flexible spending accounts. The agenda also includes allowing insurers to sell across state lines with the hope of increasing competition and decreasing premium costs. He also has suggested full individual federal tax deductions for health insurance premium payments, as well as requiring price transparency from all health care providers. It remains to be seen whether those ideas fully develop and become law.
Looking forward, President-elect Trump and Congress are poised for plenty of political maneuvering, particularly with the perception that Congressional Democrats will try and defend the ACA. Employers should be aware of the potential changes and the President-elect's agenda, and should keep a keen ear out for developments. Of particular importance, and as a last note to employers, remember that nothing has yet actually changed: The ACA is currently in effect, and employers should comply! That means, among other things, that large employers should continue to offer affordable coverage to full-time employees and plan to report on IRS Form 1095-C for 2016 in early 2017. Plan designs should continue complying with ACA-protected mandates, such as coverage of dependents to age 26 and the prohibitions on pre-existing condition exclusions and annual/lifetime dollar limits for essential health benefits. Employers that self-insure should plan to continue to pay reinsurance contributions and PCOR fees. In other words—comply until told otherwise!
NFP Benefits Compliance will be watching as the situation develops and reporting in Compliance Corner and through other means. We will also be taking steps to work closely with our clients to monitor specific impacts and consequences. Stay tuned…!
IRS Releases Final Guidance on Substitute Forms under IRC Sections 6055 and 6056
On Oct. 27, 2016, the IRS released Publication 5223 outlining rules and specifications related to the use of substitute forms under IRS Sections 6055 and 6056. As background, large employers (those subject to the employer mandate) and employers that sponsor self-insured plans are subject to certain informational reporting requirements under IRC Sections 6055 and 6056. Under those sections, those employers must file certain forms (1095-B and 1095-C) with the IRS and distribute either a copy of the forms or a substitute form to employees/covered individuals.
Publication 5223 outlines standards for acceptable substitute forms that may be sent to the IRS and also outlines acceptable standards for substitute forms furnished to individuals. Employers should review the publication to ensure any substitute forms they use are consistent with the standards.
Publication 5223 »
Agencies Publish Final Regulations on Excepted Benefits, Short-Term Coverage and Essential Health Benefits (EHBs) Lifetime and Annual Dollar Limits
On Oct. 31, 2016, the IRS, DOL and HHS jointly published final regulations relating to several PPACA regulations, including excepted benefits and the prohibition on lifetime and annual dollar limits for EHBs. As background, the agencies published proposed regulations on these topics back in June 2016 (covered in the June 14, 2016, edition of Compliance Corner). The final regulations, for the most part, adopt those proposed regulations as final.
On excepted benefits, the final regulations codify the proposed regulations and a set of FAQs released by the DOL in 2015 (FAQs About Affordable Care Act Implementation Part XXIII, covered in the Feb. 24, 2015, edition of Compliance Corner) relating to whether supplemental benefits can be considered 'excepted benefits' (which are not subject to PPACA, HIPAA and several other federal laws). Briefly, among other things, supplemental coverage may be considered excepted if the supplemental policy is issued by an insurer that is not the employer's primary medical plan insurer, the policy is designed to fill gaps in primary coverage, the cost of the policy does not exceed 15 percent of the primary plan coverage and the policy does not differentiate eligibility, benefits or premiums based on a health factor.
Beyond supplemental coverage, the final regulations state that travel insurance is considered an excepted benefit. In addition, while the June 2016 proposed regulations addressed two other types of excepted benefits (fixed indemnity and specified disease coverage), the final regulations state that the agencies are further considering those types of coverage and expect to address them in final form in future guidance.
On short-term coverage, the final regulations keep the definition of "short-term coverage" (as outlined in the proposed regulations) to include only coverage for periods of less than three months. Also, coverage cannot be renewed at the end of the three-month coverage period. Lastly, the final regulations keep the requirement that insurance carriers provide a notice to consumers that the short-term coverage is not considered MEC for purposes of the individual mandate (and therefore an individual enrolled in short-term coverage could potentially be subject to an individual mandate penalty). This definition applies for plan or policy years beginning on or after Jan. 1, 2017 (although no enforcement action will be taken before April 1, 2017, assuming the coverage is otherwise compliant with the regulations).
On lifetime and annual dollar limits for EHBs, the final regulations adopt the proposed regulations without change. As has been the case since PPACA was enacted, self-insured plans and large fully insured group health plans are not required to cover EHBs (as are small fully insured plans). However, where a self-insured or large fully insured plan does include an EHB in its coverage, it may not impose an annual or lifetime dollar limit to that EHB. According to the regulations, in identifying which benefits are EHBs, the self-insured or large fully insured plan may reference any of the 51 state benchmark plans (including the District of Columbia) or one of the three largest Federal Employees Health Benefits Programs. In doing so, the final regulations clarify that the state benchmark plan references must include supplemented and state-required benefit mandates.
While the final regulations largely track the proposed regulations, employers should be aware of the changes and work with insurers and TPAs to ensure they are in compliance.
Final Regulations »
IRS Releases Updated PPACA Information Returns (AIR) Submission Composition and Reference Guide
On Nov. 9, 2016, the IRS released Publication 5258: ACA Information Returns (AIR) Submission Composition and Reference Guide. The guide has been updated for use in 2017. An early look at the 2017 guide was reported in the Nov. 1, 2016, edition of Compliance Corner. This resource is meant to assist various entities with electronic information return (AIR) submissions required under PPACA, i.e. Forms 1094-B and 1095-B under Section 6055 and Forms 1094-C and 1095-C under Section 6056.
Among technical updates in the 2017 version, Publication 5258 also instructs that a Form 1094-C, Authoritative Transmittal, must now be submitted without including any 1095-C forms if it is a correction to a previously submitted and processed Form 1094-C. In other words, 1095-C forms do not need to be resubmitted if the mistake is solely on the transmittal form.
The guide includes information on the process for applying for the program, technical requirements, what testing is necessary before the actual transmission, parameters for filing and data file size limits.
The technical nature of this reference guide reinforces the need for employers to partner with an IT professional (either in-house or external) or experienced vendor if planning to file PPACA information returns electronically.
AIR Program Website »
PCOR Fee Increased for 2016-2017 Plan Years
On Nov. 4, 2016, the IRS released Notice 2016-64, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after Oct. 1, 2016, and before Oct. 1, 2017, is $2.26. This is a $.09 increase from the amount in effect for plan and policy years ending on or after Oct. 1, 2015, but before Oct. 1, 2016.
As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee does not apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee is, however, required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives. The fee is reported and paid on IRS Form 720, which has not yet been updated to reflect the increased fee. It is expected that the Form will be updated prior to July 31, 2017, since that is the first deadline to pay the increased fee amount for plan years ending between October and December 2016.
Notice 2016-64 »
CMS Publishes 2016 Reinsurance Contributions Review and Discussion Session
This week, CMS published a set of slides, "2016 Reinsurance Contributions Review and Discussion Session," which it used in two recent 90-minute webinar sessions. The slides are meant to help insurance carriers and employers with self-insured plans to identify key reinsurance contribution program dates and uniform contribution rates for the 2016 benefit year. As described in our announcement, reinsurance contribution enrollment counts are due by Nov. 15, 2016, while actual contribution payments ($27 per covered life) are not due until Jan. 17, 2017, and Nov. 15, 2017.
The slides include information on the contribution submission process, counting methods, contribution rate calculations (including different scenarios), and common form filing problems and issues.
Employers with self-insured plans subject to the reinsurance contribution should review the slides and ensure that they are properly complying with their reinsurance contribution obligations. The slides include agency contact information (email and phone number) for employers with questions relating to the reinsurance contribution and the content within the slides.
2016 Reinsurance Contributions Review and Discussion Session »
IRS Releases Early Look at PPACA Information Returns (AIR) Submission Composition and Reference Guide, Processing Year 2017
On Oct. 18, 2016, the IRS released the Early Look AIR Submission Composition and Reference Guide, Processing Year 2017 version 1.0. This resource is meant to assist various entities with electronic information return (AIR) submissions required under PPACA. Forms 1094-B and 1095-B (Section 6055 reporting) are required of insurers providing MEC and smaller employers (less than 50 full-time employees and equivalents) that self-insure their group health plans. Forms 1094-C and 1095-C (Section 6056 reporting) are to be filed by applicable large employers subject to the employer mandate. Further, applicable large employers who sponsor a self-insured plan will use the Form 1095-C to fulfill their Section 6055 reporting requirements (via Part III of Form 1095-C).
As a reminder, if you are a self-insured employer or applicable large employer, the deadline to provide information returns to employees or responsible individuals is Jan. 31, 2017, for tax year 2016. Also, employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Paper filings are due by Feb. 28, 2017. Those filing electronically must report 2016 data by March 31, 2017.
The guide includes information on the process for applying for the program, technical requirements, what testing is necessary before the actual transmission, parameters for filing and data file size limits. While these resources are very technical in nature, they are useful to entities that are filing returns electronically. For employers that have engaged a vendor, the vendor should be on top of any electronic filing submission requirements.
Early Look AIR Submission Composition and Reference Guide, Processing Year 2017 »
DOL Publishes PPACA Implementation FAQs Part XXXIII (Premium Reduction Arrangements for Student Health Plan Coverage) and Part XXXIV (Mental Health and Substance Use Disorder Parity)
On Oct. 21, 2016, the IRS, DOL and HHS (the Departments) published FAQs about PPACA Implementation (Part XXXIII), addressing whether the Departments will extend enforcement relief to colleges and universities that offer certain health care premium reduction arrangements with student health plans.
As background, the Departments previously published guidance (DOL Technical Release 2013-03) stating that an employer payment plan (EPP), which also includes an HRA-type of arrangement, is a group health plan under which an employer reimburses an employee (or directly pays) for some or all of the premium expenses incurred for an individual market health insurance policy. That guidance stated that an EPP and HRA are subject to PPACA as group health plans, and therefore must comply with the PPACA requirement to provide preventive services with zero cost-sharing and the PPACA prohibition on annual dollar limits for essential health benefits. Most EPPs and HRAs violate those two PPACA provisions unless they are integrated with a group health plan. Note that an individual policy is not considered a group health plan.
The Departments also previously published guidance stating that "student health insurance coverage" is a type of individual market health insurance coverage that is offered to students and their dependents under a written agreement between an institution of higher education and an insurer. According to the 2016 guidance, many colleges and universities provide students with student health coverage (either through an individual policy or through self-insured coverage) at a greatly reduced cost or no cost at all as part of their student package, which may also include tuition assistance and a stipend for living expenses. The health insurance premium charged to the student may take into account a premium reduction arrangement. Because some of these students also perform services for the school (such as teaching or performing research), the question has been raised whether such premium reduction arrangements might be considered group health plans that violate the above two PPACA provisions.
The Departments previously provided temporary enforcement relief to these type of programs in January of 2016, allowing colleges and universities to determine whether their arrangements were prohibited based on the particular facts and circumstances. This new guidance extends that enforcement relief. The Departments will not assert that a premium reduction arrangement offered by an institution of higher education fails to satisfy PPACA's requirement related to preventive services or annual dollar limits if the arrangement is offered in connection with student health coverage.
Additionally, on Oct. 27, 2016, the Departments published FAQs about PPACA Implementation (Part XXXIV), addressing coverage of preventive care related to tobacco cessation interventions and several issues related to mental health and substance use disorder (MH/SUD) parity implementation.
Q/A 1 relates to how tobacco cessation is addressed under the preventive services mandate of PPACA. The FAQ notes both pharmacotherapy and behavioral interventions are effective and recommended by the most recent U.S. Preventive Services Task Force (USPSTF) Final Recommendation Statement, and that all intervention types and combinations should be offered. The USPSTF statement referred to by the FAQ also describes seven FDA-approved over-the-counter and several prescription medications now available for treating tobacco dependence.
The FAQ requests comments on whether all seven of the FDA-approved pharmacotherapy interventions should be covered without cost sharing when prescribed by a health care provider or when reasonable medical managements techniques may be used to limit such interventions. Comments are also requested on whether plans should be allowed to limit the number of quit attempts, limit the duration of intervention, or limit the types of behavioral interventions.
Submitted comments will help craft future guidance, but will not supplement or clarify current USPSTF recommendations. Comments are due by Jan. 3, 2017.
The other eight questions of the FAQ address the application of the MHPAEA. These scenarios address parity regarding nonquantitative treatment limitations (NQTLs) (including medical necessity criteria or preauthorization requirements) and medication-assisted treatment (MAT) for Opioid Use Disorder and court-ordered treatment.
Q/A 2 provides information to employees about available resources to help obtain requested MHPAEA documentation and how to understand it. Q/A 3 clarifies that a group health plan or issuer should use claims data from that particular plan for a reasonable projection of future claims and that the broader book of business of the TPA or issuer should not be used.
Q/A 4 & 5 reinforce the idea that conditions must be the same between medical/surgical conditions and mental health conditions. If there is an additional treatment limitation on the mental health service, then it would be in violation of MHPAEA. Specifically, Q/A 4 provides that a plan could not require in-person examination for prior authorization of MH/SUD inpatient benefits if the plan allowed for telephonic authorization of medical/surgical inpatient benefits. Q/A 5 prohibits a plan from imposing a requirement on MH/SUD benefits when there is a lack of access to the programs necessary to satisfy that requirement.
Finally, the FAQs contain several questions regarding MAT for Opioid Use Disorder. Among the questions addressed, Q/A 8 provides that, if a plan states that it follows "nationally-recognized guidelines," and/or if it deviates from such guidelines, the following of such guidelines or the degree of deviations from such guidelines must be in parity as between medical/surgical benefits and mental health benefits.
Comments are due by Jan. 3, 2017.
FAQs about PPACA Implementation (XXXIII) »
FAQs about PPACA Implementation (Part XXXIV) »
CMS Publishes 2016 Transitional Reinsurance Contributions Information Guide
On Oct. 4, 2016, CMS published the 2016 Reinsurance Contributions Information Guide. As a reminder, sponsors of self-insured group health plans must submit their 2016 annual enrollment count and schedule their reinsurance contribution payments through www.pay.gov by Nov. 15, 2016. The 2016 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form ("2016 Form") is now available through www.pay.gov. Self-insured plans administered in-house by the employer with no third party administrator are exempt from the fee. This is the last year of the reinsurance fee and reporting.
The contribution amount is $27 per covered life and may be made in two installments, due Jan. 17, 2017 and Nov. 15, 2017. Alternatively, an employer may make a single payment by Jan. 17, 2017.
For 2016, those filing for a single employer plan are not required to complete and submit the CSV supporting documentation file.
CMS has released a 14-page Quick Start Guide, which will be a helpful first step for employers seeking information on how to file. Web-based training is also available and educational materials can be found on the CMS website.
Finally, in two recent FAQs (ID 17800 and 17773), CMS identified the notable changes for the 2016 reinsurance contribution submission process.
A unique billing contact and contact for submission information is required on the 2016 Form;
The 2016 contribution rate is $27.00 per covered life; and
Some key deadlines have changed.
CMS also clarified that if an employer qualifies for the self-insured, self-administered exemption for 2016, the employer should report this and other identifying information to CMS via email at ReinsuranceContributions@cms.hhs.gov.
2016 Reinsurance Contributions Information Guide »
CMS Quick Start Guide to the 2016 Transitional Reinsurance Form »
CMS Transitional Reinsurance Website »
2016 Reinsurance Contributions Form Completion, Submission, and Payment Interactive Web-based Training »
REGTAP FAQ ID: 17800 »
IRS Releases Publication 5164, Test Package for 2017 Electronic PPACA Filers
The IRS has released the final version of Publication 5164, Test Package for Electronic Filers of PPACA Information Returns, Processing Year 2017. The publication describes the testing procedures that must be completed by those filing electronic PPACA returns with the IRS, including Forms 1094-B, 1095-B, 1094-C and 1095-C. As a reminder, those who are filing 250 or more forms are required to file electronically with the IRS.
Importantly, the testing procedure applies to the entity that will be transmitting the electronic files to the IRS. Thus, only employers who are filing electronically with the IRS on their own would need to complete the testing. If an employer has contracted with a software vendor who is filing on the employer's behalf, then the testing and this publication do not apply to them. Further, the testing is only required for the transmitter's first year of electronic filing. Those who completed electronic filing for the 2015 reporting year would not be required to complete testing for the 2016 reporting year.
For reporting year 2016, the IRS is providing two options (see page 20) for submitting test scenarios:
Option 1 – Predefined Scenarios: Use the detailed scenarios with data predefined by IRS, or
Option 2 – Criteria-Based Scenarios: Develop test scenarios using data based on criteria specified within the submission narrative.
Correction scenarios are also provided (see page 24), but not required in order to pass testing.
As a reminder, electronic filing of 2016 returns will be due March 31, 2017 (with paper filings due Feb. 28, 2017). If you are a large employer who is required to file electronically and would like information on third party vendors who can assist, please contact your advisor.
IRS Publication 5164 »
OSHA Issues Final Rules Implementing PPACA's Whistleblower Protections
On Oct. 12, 2016, the DOL's Occupational Safety and Health Administration (OSHA) issued a final rule implementing PPACA's whistleblower protection provisions. This final rule establishes procedures and time frames for the filing and handling of retaliation complaints.
As background, OSHA published interim final regulations in 2013, which requested public comments. The final rule responds to submitted comments and provides protections for workers who receive financial assistance through an exchange.
According to the final rule, an employer may not retaliate against an employee for receiving subsidized coverage under a qualified health plan through an exchange. Furthermore, retaliation is prohibited for raising concerns regarding conduct that employees believe violate the consumer protections and health insurance reforms found in Title I of PPACA, such as the prohibition on lifetime and annual dollar limits on essential health benefits, the requirement for non-grandfathered plans to cover certain preventive services with no cost sharing, prohibition on pre-existing condition exclusions and the prohibition on rescissions.
An employee who believes he or she has been the victim of retaliation in violation of PPACA may file a complaint within 180 days of the claimed retaliation. OSHA will review the employee's evidence and conduct an investigation at its discretion. Under the final rule, OSHA has the power to negotiate settlements or enter an order awarding damages and other remedies.
The rules are effective Oct. 13, 2016.
Final Rule »
IRS Releases Updated Publication 5165 for Electronically Filing PPACA Returns
On Sept. 29, 2016, the IRS released an updated version of Publication 5165, entitled "Guide for Electronically Filing Affordable Care (ACA) Information Returns for Software Developers and Transmitters," for tax year 2016 (processing year 2017). This publication outlines the communication procedures, transmission formats, business rules and validation procedures for returns transmitted electronically through the Affordable Care Act Information Return System (AIR). Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C or 1095-C will want to review the guidance and familiarize themselves with the filing process.
Those filing electronically must use AIR, and the only acceptable format will be XML. The individual responsible for electronically filing the employer's forms will be required to register with the IRS e-Services and receive a PIN which will be used to sign the electronically filed forms.
IRS Publishes Final Forms 1094-B and 1095-B and Related Instructions and Announces E-Services Changes
On Sept. 21, 2016, the IRS released final forms and instructions related to IRC Section 6055 reporting and announced e-services changes. The IRS had previously released draft versions of the 2016 informational reporting forms on June 22, 2016, as reported in the July 12, 2016, edition of Compliance Corner, with draft instructions being released on Aug. 10, 2016, as reported in the Aug.23, 2016, edition of Compliance Corner. The final forms and instructions appear to have no substantial changes from the draft forms and instructions that were released earlier this year.
As a reminder, Forms 1094-B and 1095-B (the forms used for Section 6055 reporting) are required of insurers and small self-insured employers providing minimum essential coverage. These reports will help the IRS to administer and enforce PPACA's individual mandate. Form 1095-B, the form distributed to the covered employee, will identify the employee, any covered family members, the group health plan and the months in 2016 for which the employee and family members had minimum essential coverage (MEC) under the employer's plan. If the plan is fully insured, Form 1094-B identifies the insurer (for a fully insured plan) or the employer (for a self-insured plan) and is used by the insurer to transmit corresponding Forms 1095-B to the IRS.
Please note that the section 6055 filing deadlines revert to the original established dates for 2017 (the deadlines were extended for 2016). A completed Form 1095-B must be distributed to covered employees/individuals by Jan. 31, 2017, for the 2016 reporting year. The Forms 1095-B, along with the transmittal Form 1094-B, must be filed with the IRS by Feb. 28, 2017, if filing by paper and March 31, 2017, if filing electronically. Penalties amounts for failures to file or for incorrect filings have been updated.
The IRS also released information related to important upcoming e-services updates. E-Services are a suite of web-based tools allowing users to complete certain transactions online with the IRS. The updates are intended to strengthen protections of e-services accounts by requiring two-factor authentication. Once the changes are implemented (the target date is Oct. 24, 2016), returning users accessing the e-Services system will have to provide a security code (sent via text message to their phone) in addition to their credentials (username and password). This will impact current and future users of IRS e-services. As it relates to filing Forms 1094-B/C and 1095-B/C, this will be of interest to issuers, software developers, electronic transmitters and applicable large employers filing electronically.
Form 1094-B »
Instructions for Forms 1094-B and 1095-B »
E-Services Changes »
IRS Finalizes 2016 Forms 1094-C and 1095-C and Instructions
On Sept. 29, 2016, the IRS released final forms and instructions related to IRC Section 6056 reporting. The IRS had previously released draft versions of the 2016 informational reporting forms on June 22, 2016, as reported in the July 12, 2016, edition of Compliance Corner, with draft instructions being released on Aug. 1, 2016, as reported in the Aug. 9, 2016, edition of Compliance Corner. The final forms and instructions appear to have no substantial changes from the draft forms and instructions that were released earlier this year.
Here are the identified changes:
On page 2 the IRS provided clarification that former employees who terminated employment in the previous year and are on COBRA for a self-insured plan could be reported on either Form 1094-B/1095-B or Part III, Form 1095-C.
Pages 2 and 4 clarify that substitute 1095-C statements to taxpayers may be in portrait format, but substitute statements to the IRS must be in landscape format.
Page 5 explains that the void box (above the corrected box) on Form 1095-C should be ignored and should not be used.
Page 12 includes a note to clarify that Code 1G should only be used for All 12 months or not at all.
Page 13 includes a note to clarify that an affordability safe harbor should not be used for any month in which the employer failed to offer coverage to at least 95% of full-time employees.
All the previous changes identified in the draft instructions were maintained. Please note that Code 2I for Line 16 ("Non-calendar year transition relief") was removed and is now reserved, as was reported in the Aug. 9, 2016, edition of Compliance Corner. That means small employers with 50 to 99 full-time equivalent employees and a non-calendar year plan will now need to complete Lines 14 through 16 with whatever offer was made or not made– the transition relief would be claimed on Form 1094-C, Line 22.
As a reminder, PPACA requires employers (including self-insured, fully insured and uninsured) with 50 or more full-time equivalent employees to file Forms 1094-C and 1095-C with the IRS and to provide statements to employees to comply with IRC Section 6056 (meant to help the IRS enforce the employer mandate). Specifically, large fully insured employers will need to complete and submit Forms 1094-C and 1095-C (Parts I and II). Large self-insured employers subject to both Sections 6055 and 6056 may combine reporting obligations by using Form 1094-C and completing all sections of Form 1095-C (Parts I, II and III). Small self-insured employers would need to file Forms 1094-B and 1095-B. Note, employers with grandfathered plans must comply with the reporting requirements as well.
Finally, as a reminder on reporting deadlines for the 2016 calendar year, the deadline to provide information returns to employees or responsible individuals is Jan. 31, 2017. Also, employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Paper filings are due by Feb. 28, 2017. Those filing electronically must report by March 31, 2017.
Form 1094-C »
Instructions for Forms 1094-C and 1095-C »
OCR Issues PPACA Section 1557 Notice in Top 15 Languages
On Sept. 14, 2016, HHS Office of Civil Rights issued guidance related to the language assistance notification required under Section 1557 of PPACA. As background, Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs or activities. Specifically, individuals cannot be denied access to health care or health coverage or otherwise discriminated against based on one of those factors. Section 1557 has received a lot of attention because of its protection of transgender individuals under sex discrimination. It's important to note that the law provides protection for many other individuals as well.
Under Section 1557, covered entities are required to include a tagline in significant publications and on their websites notifying individuals of the availability of language assistance services. The entity must provide auxiliary aids and services, free of charge, in a timely manner to individuals with a disability or limited English proficiency (LEP) so that they have equal opportunity and meaningful access to health programs or activities. The notice must be provided in the top 15 languages for each state. OCR has identified those languages and provided the respective tagline.
It is important to understand who is a covered entity and responsible for providing the notice. Covered entities include:
Programs and activities sponsored by HHS, including Medicare and Marketplaces;
Health plans and insurers who receive federal financial assistance from HHS (e.g., grants, property, Medicaid, Medicare Parts A/C/D, and premium tax credits and cost-sharing subsidies from the Marketplace); and/or
Entities principally engaged in providing health services or health coverage (such as a pharmacy, hospital or other health care provider).
Thus, the notice for fully insured plans will be responsibility of the insurer, if the insurer receives federal financial assistance from HHS (most do). Employers falling into the last category of entities engaged in providing health services or health coverage should work with outside counsel to determine applicability and a plan of compliance, if necessary. Most likely, all other employer plan sponsors are not subject to Section 1557, but should consider discussing with outside counsel to know for sure.
The notice effective date is 90 days from the final regulation date of July 18, 2016.
OCR FAQ's »
Top 15 Languages Chart »
Tagline Translations »
HHS Publishes Notice of Benefit and Payment Parameters for 2018
On Sept. 6, 2016, HHS—through CMS—published Proposed Notice of Benefit and Payment Parameters for 2018. The notice is a proposed rule relating to several of PPACA's provisions, some of which are aimed at health insurance generally and some of which are aimed at group health plans specifically. Here is a recap of each items addressed in the proposed rule.
Annual Limit on Cost Sharing (Out-of-Pocket Maximum). For 2018, the proposed out-of-pocket maximum is $7,350 for self-only coverage and $14,700 for family coverage. This is an increase from 2017 out-of-pocket maximums of $7,150 for self-only coverage and $14,300 for family coverage. The proposed rules also address stand-alone dental plans in this regard, and propose maintaining the dental annual limitation on cost sharing at $350 for one child and $700 for one or more children.
Child Age Rating. As background, PPACA allows insurers to vary premium rates based on age only within a ratio of three to one for adults. The current rules relating to age rating provide for a single age band for children aged zero through 20, for which the age factor is .635. The proposed rules increase the current age factor for children up to age 14 from .635 to .765 and would then gradually increase the age factor each year from ages 15 to 20. This is meant to allow higher child age factors and more accurately reflect heath care costs for children. This change would occur for plan years beginning in 2018.
Notice of Potential Out-Of-Network Billing. Beginning in 2017, insurers offering QHPs must provide 48-hour advance notification to enrollees before providing a service that might include out-of-network providers whose charges are not subject to the in-network cost sharing limit. If the insurer fails to provide the notice, the out-of-network charge must be counted against the enrollee's annual out-of-pocket in-network limit. The insurer is not responsible for balance billing arrangements, but does apply to QHPs offered both on and off the exchange (and regardless of whether the QHP actually covers out-of-network services).
Electronic Appeals, Notices and Funds Transfers in the Marketplace. The proposed rules indefinitely delay the requirement for a Marketplace/exchange (including SHOPs) to establish electronic appeals processes. For SHOP exchanges, the proposed rules make electronic notices the default (although employers may continue to select mailed paper notices as an option), although SHOPs can continue to use paper notices where technical limitations are present. The rule requests comments on electronic funds transfers (EFT) where the individual pays via EFT but later loses premium tax credits (e.g., because of a data match issue or something similar).
Marketplace Rescission. The proposed rule allows a Marketplace to require an insurer to establish to the satisfaction of the Marketplace that rescission is appropriate (i.e., that there was actual fraud or material misrepresentation).
Marketplace Enrollment. HHS has previously published less formal guidance on events that would give rise to special enrollment periods for Marketplace enrollment. The proposed rules codify several of those events, including:
Victims of spousal abandonment or domestic abuse and their dependents who are enrolled in coverage (but who want to enroll in coverage separately from their abandoner or abuser);
Dependents of Indians enrolled or enrolling in a QHP through an exchange at the same time as the Indian;
Those who were incorrectly denied payment of the advance premium tax credit due to Medicaid or CHIP eligibility but who are later determined ineligible for Medicaid or CHIP;
Those misled by significant plan or benefit display errors, including those relating to service areas, premiums or covered services; and
Those who resolve data matching issues after an inconsistency period has expired or who have income below 100 percent of the FPL and did not enroll in coverage while waiting for HHS verification
The proposed rules also seek comment on a few different issues under PPACA. The comment requests do not themselves create new rules, but do provide insight on how HHS may be leaning on certain issues. Below is a recap of those comment requests.
Guaranteed Availability. PPACA allows insurers that offer coverage through a network of providers to limit small and large group employer group eligibility only to employers that have employees who live, work or reside in the network service area. HHS requests comments on whether certain arrangements fall within the PPACA parameter.
Coordination of Benefits with Medicare. Under current law, insurers may not sell individual policies to those who are entitled to (enrolled in) Medicare Parts A or B if the insurer knows the individual coverage would duplicate Medicare coverage. However, under the guaranteed availability rules, Medicare eligibility and enrollment is not a basis for coverage non-renewal or termination. HHS understands the conflict, and seeks comment on how those two provisions can be reconciled. Generally speaking, Medicare pays primary to an individual policy. HHS wonders if insurers should be allowed to make individual policies secondary where an individual is eligible for, but not enrolled in, Medicare, and how the coordination of benefit rules should apply to those who are enrolled in Medicare because of end-stage renal disease.
Medical Loss Ratios (MLRs). The proposed rules address newer plans with respect to the MLR calculation. The current rules allow insurers to calculate MLRs on a three-year rolling average, which allows the insurer to offset higher and lower MLRs over that period. Newer plans, though, do not have that benefit, and HHS believes that may be a barrier to market entrance for insurers. As a result, the proposed rules recognize that new, non-grandfathered plans must be issued for a 12-month plan year but allows insurers to defer reporting of new business in some instances. The proposed rules also allow insurers the option of calculating their MLRs for a single year if the insurer recalculates MLR liability in the two subsequent years and makes adjustments accordingly going forward. The MLR rules can be complicated, and most of this applies to the insurer, but may affect the MLR rebate an employer receives, particularly for newer plans and policies.
Finally, HHS proposes to remove reference to the transitional reinsurance program from the regulations, since that program and related plan expense end with the 2016 plan year.
HHS also published a fact sheet that summarizes the proposed rules. There are more topics in the rules relating to insurers, navigators and brokers involved with exchange plans—those are not discussed in detail in this article. In addition, there is substantial discussion on HHS's interest in improvements to the risk adjustment program. Those are meant to help strengthen the Marketplace's (exchange) ability to protect consumers' access to affordable and quality options in the individual and small group markets. Topics relating to the risk adjustment program improvement include rules relating to insurers who withdraw from the Marketplace, accounting for partial year enrollments, incorporating prescription drug utilization, addressing the high-cost risk pool, validation of risk adjustment data and a general recalibration of risk adjustment percentages. Interested parties should review the rules for more information, as well as a CMS blog post that further discusses the issue.
Overall, for employers, while the proposed rules do not all provide new employer compliance obligations, employers should review the rules and fact sheet to better understand the different changes to benefits and parameters for 2018.
Proposed Rules »
HHS Fact Sheer »
CMS Blog on Market Stabilization »
IRS Announces 2016 Individual Mandate Cap
On Aug. 19, 2016, the IRS released Revenue Procedure 2016-43, which provides the national average premium to be used to determine maximum individual shared responsibility payments for 2016.
In other words, the IRS provided the dollar amount that an individual will be capped at for failing to maintain health insurance in 2016. The caps are $2,796 per person ($233 per month) and $13,380 for a family of five ($1,115 per month). A family of five is the maximum number of individuals in the shared responsibility family.
This cap limits the total possible penalty to the annual premium for the national average of what it would cost to purchase a bronze level health plan. Note that the penalty amounts are calculated on a month by month basis, and are ultimately reported by taxpayers on their income tax returns.
Rev. Proc. 2016-43 »
HHS Publishes Draft 2018 Actuarial Value Calculator and Methodology
On Aug. 29, 2016, in conjunction with the Notice of Benefit and Payment Parameters for 2018, HHS published its draft 2018 actuarial value (AV) calculator and methodology. The AV calculator is designed by HHS and CMS to help estimate the actuarial value for a given plan design in the individual and small group markets. AV is important for determining the richness of benefits offered under a group health plan, and for categorizing plans in the Marketplaces/exchanges. The draft 2018 AV methodology describes the calculator's methodology and operation, and can be quite complex. Below is a list of updates to prior versions made by the 2018 AV calculator and methodology.
The use of 2015 claims data (as opposed to pre-PPACA claims data used in earlier versions).
The use of data from EPO and HMO plan types (earlier versions used data only from PPO and POS plans).
The projection factor allows for projections from 2015 to 2018.
The enrollment distribution projects to the anticipated 2018 demographic distribution for the expected enrolled population.
For two-tier plan designs, the calculator uses a utilization-weighted average between the AVs of the two tiers.
The 2018 draft simplifies the AV calculator's source coding and adds new messages to notify users of input errors.
Inclusion of claims by enrollees who had been enrolled for at least four months (prior versions used only those who had been enrolled at least 12 months).
For the maximum out-of-pocket calculation, the calculator is updated to reflect 2018 adjustments and calculates the point at which the maximum out-of-pocket limit is reached to decrease the influence of services that account for a substantial share of total spending relative to services that account for a substantial share of spending in the coinsurance range.
For so-called 'nested deductibles,' the calculator uses an equivalent combined deductible for calculation of the point at which the maximum out-of-pocket limit is reached.
Provides modified trend factors for trending forward 2015 claims (using a 3.5 percent trend factor for medical claims and 11.5 percent factor for drug claims).
The ability to enter a plan design with a copayment for an outpatient facility fees and for outpatient physician and surgical services.
The calculator includes a section on frequently asked questions, which also may be helpful for those that are interested in learning more about the AV calculator. HHS is accepting comments on the calculator until Sept. 30, 2016.
CMS Draft 2018 AV Calculator »
CMS Draft 2018 AV Calculator Methodology »
IRS Releases Draft Instructions for Forms 1094-B and 1095-B
On Aug. 10, 2016, the IRS released draft instructions for Forms 1094-B and 1095-B. The draft forms were released in June and discussed in the July 12, 2016, edition of Compliance Corner.
As a reminder, Forms 1094-B and 1095-B are used by small self-insured employers with fewer than 50 full-time equivalent employees who are not subject to the employer mandate. The forms are used to report participants who have minimum essential coverage (MEC), as required by Section 6055 of the IRC. The forms may also be used by a self-insured large employer to report coverage for non-employees such as ex-spouse COBRA participants and retirees. For plans that are fully insured, the insurer is responsible for Section 6055 reporting, which means that covered employees and their spouses/dependents receive a Form 1095-B from the insurer.
The 2016 draft instructions contain few changes from the 2015 instructions. The instructions reaffirm that excepted benefits such as stand-alone dental and vision plans are not MEC and should not be reported. Interestingly, the IRS refers filers to the recently released Section 6055 proposed regulations for additional information related to Taxpayer Identification Number (TIN) solicitation and participants who have MEC under two plans. These regulations were discussed in the Aug. 9, 2016, edition of Compliance Corner.
A completed Form 1095-B must be distributed to covered employees/individuals by Jan. 31, 2017, for the 2016 reporting year. The Forms 1095-B along with the transmittal Form 1094-B must be filed with the IRS by Feb. 28, 2017, if filing by paper and March 31, 2017, if filing electronically. Electronic filing is required of those filing 250 or more of the same forms, unless a waiver request is approved by the IRS. The instructions clarify that original submissions and corrections are counted separately when determining whether electronic filing is required.
Filers will be eligible for an automatic 30 day filing extension if they complete Form 8809 by the date on which the filing was due. No signature or explanation will be required. Please note that this is an extension to the filing with the IRS.
The instructions confirm that taxpayers will not be required to submit a copy of the Form 1095-B with their individual federal income tax returns. The draft instructions and form state: "Do not attach to your tax return. Keep for your records." Taxpayers may use the information from the form to complete and file their returns, but will not be required to attach a copy of the form.
2016 Draft Instructions, Forms 1094-B and 1095-B »
IRS Releases Draft Publication 5164, Test Package for 2017 Electronic PPACA Filers
The IRS has released the draft version of Publication 5164, Test Package for Electronic Filers of PPACA Information Returns, Processing Year 2017. The publication describes the testing procedures that must be completed by those filing electronic PPACA returns with the IRS, including Forms 1094-B, 1095-B, 1094-C and 1095-C. As a reminder, those who are filing 250 or more forms are required to file electronically.
For reporting year 2016, the IRS is providing two options for submitting test scenarios:
Option 1; Develop test scenarios using data based on criteria specified within the submission narrative, or
Option 2; Use the detailed scenarios with data predefined by IRS.
Correction scenarios are also provided, but not required in order to pass testing.
As reported in another article in this edition, electronic filing of 2016 returns will be due March 31, 2017 (with paper filing due Feb. 28, 2017). If you are a large employer who is required to file electronically and would like information on third party vendors who can assist, please contact your advisor.
Draft Publication 5164 »
CMS Issues Guidance on Health Coverage Tax Credit Hardship Exemption
On Aug. 12, 2016, CMS issued guidance related to the health coverage tax credit (HCTC), which is a premium assistance program in the form of a tax credit available through Dec. 31, 2019. The notice provides information about a hardship exemption that may be claimed through the tax filing process for individuals who qualify for the HCTC, but who are not enrolled in HCTC-qualifying health insurance coverage. This hardship exemption applies only for certain months in 2016.
Quickly, the HCTC expired on Jan. 1, 2014, and was retroactively reinstated on July 5, 2015. Prior to the HCTC's expiration, advance HCTC payments assisted certain individuals who are Pension Benefit Guaranty Corporation pension recipients with their premium payments. The credit is also available to individuals who are eligible under the Trade Adjustment Assistance and Alternative Trade Adjustment Assistance programs. These advance payments were included in the reinstated HCTC and the same process to provide them that was operating previously was expected to be in operation by July 2016.
However, the IRS has announced that the previous advance payments process will not be in place by July 2016. A limited interim process will begin in the second half of 2016, with the full process to be reinstated by January 2017. Some eligible individuals who expected this assistance beginning in July 2016 may not have access to the interim process or may not wish to use the interim process. According to CMS these individuals may pay the full amount of their qualifying health insurance premium and claim the HCTC when filing their 2016 federal income tax returns.
Others may be unable to make the premium payments without the assistance provided by advance HCTC payments and may cancel health insurance coverage in 2016. The issue then becomes compliance with the individual shared responsibility provision (i.e., individual mandate) under PPACA, which requires each individual to either have MEC, qualify for an exemption or make an individual shared responsibility payment when filing his or her federal income tax return. PPACA provides nine categories of exemptions. One exemption is for individuals who experienced a hardship, as determined by HHS, with respect to the capability to obtain coverage.
The new guidance states that HHS, in coordination with the IRS, has determined that due to the delay of the reinstatement of the advance payments process, any individual who is not enrolled in HCTC-qualifying health insurance coverage for one or more months between July and December 2016, but would have been eligible for the HCTC if enrolled, will be entitled to a hardship exemption from the individual shared responsibility provision for the months during that period that he or she was HCTC-eligible. The IRS intends to publish guidance allowing individuals who are eligible for this exemption to claim it on their tax returns.
CMS Memo »
IRS Releases 2016 Draft Form 1094-C and 1095-C Instructions
On Aug. 1, 2016, the IRS released draft instructions for the Forms 1094-C and 1095-C. This follows the release of the draft forms on June 22, 2016, which we included an article on in the July 12, 2016, edition of Compliance Corner.
The forms and instructions have been updated to reflect changes in transition relief.
In regards to the Form 1094-C, Line 22, Box B ("Qualifying Offer Method Transition Relief") is not applicable for 2016 and is now reserved for future use. Box A is still available for those employers who qualify to use the Qualifying Offer Method.
In regards to Form 1095-C, Code 1I for Line 14 ("Qualifying Offer Transition Relief 2015") and Code 2I for Line 16 ("Non-calendar year transition relief") have been removed and are now reserved.
Notably, the reference to relief from penalties for good faith effort has been removed. Penalties will be applied for failure to comply unless the employer can show reasonable cause.
There are two new codes that have been added for use on the Form 1095-C, Line 14. They are 1J and 1K and apply to an employer who makes an offer of coverage to spouses which is subject to one or more reasonable conditions. An example would be an employer who allows enrollment of spouses only if the spouse is not eligible for other coverage, such as Medicare or other employer sponsored coverage. (Note- Because of the Medicare Secondary Payer Regulations, which prohibit an employer from taking into account an employee's or spouse's eligibility for Medicare, it is recommended that an employer with a conditional offer only consider other employer sponsored coverage.) The difference between 1J and 1K is that 1J would be used by employers who do not offer coverage to dependent children.
The instructions also clarify the reporting of post-employment coverage other than COBRA (e.g., retiree coverage). Such coverage should not be reported as an offer of coverage on Line 14. An employee who has terminated employment and who is eligible for retiree coverage would have 1H (no offer of coverage) reported on Line 14 with 2A (no longer employed) reported on Line 16 of the Form 1095-C.
It is worth noting that other relief and guidance was continued.
Plan start month continues to be optional, but the IRS anticipates making this field mandatory in 2017.
Multiemployer interim relief is still available for employers who are required to contribute to the cost of a multiemployer plan on behalf of an employee due to a collective bargaining agreement. The employer would enter 1H on Line 14 of the Form 1095-C with 2E on Line 16 regardless of whether the employee was actually eligible to enroll or enrolled in the multiemployer plan.
Government entities and churches may continue to apply a reasonable good faith interpretation of employer aggregation rules.
The reporting of COBRA coverage remains unchanged. If an employee has terminated employment, COBRA is not considered an offer of coverage for Form 1095-C, Line 14 purposes. However, if an employee is still employed, but no longer eligible for coverage (e.g., a part-time employee who has lost eligibility according to the terms of the plan), COBRA would be reported as an offer of coverage on Line 14.
The instructions confirm the understanding that for the 2016 reporting year, Forms 1095-C must be distributed to employees by Jan. 31, 2017. Forms 1094-C and 1095-C must be filed with the IRS by Feb. 28, 2017, if filing by paper and March 31, 2017, if filing electronically. Importantly, the instructions indicate that when an employer files electronically and the file is "Accepted with Errors," the employer may file the corrections either by paper or electronically. The employer would only be required to file electronic corrections if they had 250 or more corrections to submit.
Employers will be eligible for an automatic 30 day filing extension if they complete Form 8809 by the date on which the filing was due. No signature or explanation will be required. Please note that this is an extension to the filing with the IRS.
Lastly, there had been some speculation that taxpayers would be required to submit a copy of the Form 1095-C with their individual federal income tax returns. This question was answered with a caption on the draft Form 1095-C that states: "Do not attach to your tax return. Keep for your records." Based on that, taxpayers may use the information from the form to complete and file their returns, but will not be required to attach a copy of the form.
Again, these are the draft version of the instructions. They are a good indication of what is to come for the 2016 reporting year, but not finalized. The NFP Benefits Compliance team will keep you informed of the final instructions when released.
Draft 2016 Instructions »
IRS Issues Proposed Section 6055 Reporting Regulations
On Aug. 2, 2016, the IRS released proposed regulations on information reporting of minimum essential coverage (MEC) by coverage providers under IRC Section 6055. This would be of interest to self-insured employer plan sponsors that are responsible for Section 6055 reporting, including the reporting of HRA coverage.
One of the areas addressed by the proposed regulations is in relation to the solicitation of Taxpayer Identification Numbers (TINs). Under previous guidance, there was a procedure requiring three solicitations at proscribed times before the insurer or self-insured employer would be excused from a penalty for failure to report a TIN for a participant. There were comments that further guidance was necessary to illustrate what represented a reasonable effort to gather and report a particular missing TIN. Under the proposed regulations, coverage providers can report a birth date in place of a TIN once reasonable efforts have been made. A reasonable effort would entail soliciting the TIN when coverage is applied for, a second solicitation within 75 days of the application, and a third solicitation by December 31 of the year following the initial solicitation. As to those participants that are already enrolled in coverage, the coverage provider can treat July 29, 2016, (the date of this guidance) as the date the coverage was applied for and any request for the TIN between the actual account application date and July 29, 2016, will be considered to be the first solicitation. The second solicitation could then be made anytime within 75 days of July 29, 2016. The proposed regulations also clarify that TIN solicitations made to the responsible individual would be treated as TIN solicitations of all covered individuals on the policy or plan. Nevertheless, the coverage provider would need to separately solicit the TIN for any individual added to the policy or plan.
The second significant issue addressed by the proposed regulations has to do with plans which would not be required to be reported, specifically duplicative coverage and supplemental coverage. The proposed regulations incorporate the reporting exceptions outlined in the 2015 instructions for Forms 1094-B and 1095-B. Examples included help demonstrate these rules. Regarding duplicative MEC coverage, coverage under an HRA or other MEC plan need not be reported for Section 6055 purposes if the coverage provider provides that individual with other MEC for which reporting is required. In other words, if the self-insured employer also offers an HRA, the HRA coverage would not need to be reported if the employer plan sponsor is already reporting other MEC as to that individual. Regardless of whether the employer sponsors a self-insured or fully insured group health plan, if an employee has waived the group medical plan and participates in the HRA, the employer would have a Section 6055 responsibility to report the HRA coverage. This could occur when an employee waives the employer's group health plan to participate in a spouse's group health plan.
Regarding supplemental coverage, HRA coverage (or other MEC coverage) need not be reported if the individual is only eligible for the supplemental coverage if enrolled in other MEC that must be reported (i.e., Medicare, TRICARE, Medicaid, or certain employer-sponsored coverage).
The proposed regulations also address areas that have little applicability to employer plan sponsors. These other issues addressed include reporting of catastrophic coverage, reporting of coverage under basic health programs (which are akin to government-sponsored coverage such as Medicaid and CHIP) and the proper truncating of employer sponsor TINs by an insurer when providing participant statements (i.e. Form 1095-B).
These proposed regulations generally apply for taxable years ending after Dec. 31, 2015. In addition, they may be relied upon for calendar years ending after Dec. 31, 2013.
IRS Proposed Regulations »
HHS Releases Section 1557 Training Materials
The HHS Office of Civil Rights (OCR) has released training materials related to the enforcement of Section 1557. As background, HHS released final regulations regarding Section 1557 in May 2016. Please see the June 1, 2016, edition of Compliance Corner.
Effective for plan years starting on or after Jan. 1, 2017, the regulations prohibit a health program or activity from discriminating against individuals based on race, color, national origin, sex, age or disability. For this purpose, a health plan or health insurance is considered a health program or activity and is prohibited from denying or limiting coverage or eligibility, imposing additional cost sharing or imposing a discriminatory benefit design based on one of the identified factors.
Importantly, the regulations provide that sex discrimination includes discrimination based on gender identity. Plans are prohibited from a benefit design that includes a blanket exclusion for services related to gender transition.
Of concern to many employer plan sponsors is the definition of covered entity. In other words, to whom do the regulations apply? The new guidance released by OCR defines a covered entity as:
Health plans and insurers who receive federal financial assistance from HHS (such as grants, property, Medicaid, Medicare Parts A/C/D, and premium tax credits and cost-sharing subsidies from the Marketplace.); and/or
Entities principally engaged in providing health services or health coverage (such as a pharmacy, hospital or other health care provider)
When an insurer or entity engaged in health services/coverage receives federal financial assistance from HHS, all of its operations are subject to the requirements. An employer who is principally engaged in health care or health coverage (e.g., a hospital, nursing home or a health insurance company) is liable for discrimination under Section 1557 in its employee health benefit program sponsored by the employer. Additionally, an employer who purchases a group health insurance policy from an issuer who receives funds from HHS could see a change in its benefits design because the issuer is liable for discrimination under Section 1557.
The regulations previously provided that application to TPAs related to an insurer is limited. Liability would be determined based on which party is in control of the action or decision. For example, if a self-funded employer contracts with the TPA for administrative services only, the TPA would be liable for discrimination related to its actions such as timing of claims payment and medical management procedures.
Group health plans subject to Section 1557 cannot deny or limit sex-specific health services based solely on the fact that the gender identity or gender recorded for an individual does not align with the sex who usually receive those types of sex-specific services. Two examples provided in these training materials are related to denying a transgender male coverage for a pap smear or denying a transgender woman a prostate exam. If a covered group health plan denies a claim for coverage for a hysterectomy that a patient's provider says is medically necessary to treat gender dysphoria, OCR will evaluate the extent of the covered entity's coverage policy for hysterectomies under other circumstances.
Employer plan sponsors should work with their insurers or TPAs to understand the law's applicability to their group health plan. The regulations also require a participation notification, but in most cases, this will be the responsibility of the insurer.
OCR Training Materials »
IRS Issues Update on Information Returns Filed After June 30, 2016
On June 30, 2016, the IRS released a bulletin and updated the Affordable Care Act Information Returns (AIR) Program website to inform applicable large employers, self-insured employers and other health coverage providers, that the AIR system will continue to accept electronically filed information returns after the June 30, 2016, deadline. Quickly, employers filing 250 or more forms must file electronically with the IRS, and those filing electronically were required to report 2015 data by June 30, 2016.
The IRS update also explains that those filers wishing to file electronically may complete required system testing after June 30, 2016. Additionally, if any transmissions or submissions were rejected by the AIR system, employers have 60 days from the date of rejection to submit a replacement and have the rejected submission treated as timely filed. If an employer submitted and received "Accepted with Errors" messages, then they may continue to submit corrections after June 30, 2016. Errors are expected to be corrected as soon as possible.
The IRS reiterates that PPACA information return filers that missed the June 30, 2016, deadline will not generally be assessed late filing penalties under IRC Section 6721 if the reporting entity has made legitimate efforts to register with the AIR system and to file its information returns, and it continues to make such efforts and completes the process as soon as possible. Moreover, consistent with existing information reporting rules, filers that are assessed penalties may still meet the criteria for a reasonable cause waiver from the penalties.
Ultimately, the IRS encourages employers that were not able to submit all required PPACA information returns electronically by June 30, 2016, to complete the filing of their PPACA information returns as soon as possible. Similarly, employers filing fewer than 250 forms who missed the May 31, 2016, paper filing deadline should complete the filing of their paper returns as soon as possible or risk potential penalties.
IRS Bulletin »
IRS Issues Proposed Rules on Employer Offers, Opt-Out (Cash-In-Lieu of Coverage) Arrangements and Affordability, and PTC Eligibility
On July 6, 2016, the IRS published proposed rules relating to PPACA's employer mandate (including offers of coverage, opt-out arrangements and affordability), premium tax credit (PTC) eligibility and the individual mandate. As background, PPACA's individual mandate generally requires all U.S. citizens to have minimum essential coverage (MEC) or pay a tax. To help facilitate coverage, individuals within a certain income range (100 to 400 percent of federal poverty level) may qualify for a PTC, if they purchase coverage through exchanges (also called 'Marketplaces'). The PTC's value is determined with reference to the actual cost an individual or family pays for coverage or the difference between the premium of a state's benchmark plan (second-lowest-cost silver level plan available to individual or family) and the individual or family's required contribution (which in turn is dependent on their modified adjusted gross income). Lastly, under the employer mandate, if a large employer fails to offer affordable coverage to a full-time employee, the employee may qualify for a PTC in the exchange, which in turn may trigger an employer mandate penalty for the employer.
The newly-published proposed rules address several issues of interest for employers. To begin with, under the proposed regulations, if an individual declines an opportunity to enroll in affordable minimum value coverage for a year (thus rendering that individual PTC ineligible), but the individual is not given an opportunity to enroll in employer coverage in one or more succeeding years, the individual is not PTC ineligible for the succeeding year or years. In those succeeding years, the employer may be treated as not having satisfied their employer mandate responsibilities with respect to that individual. This confirms our previous understanding that employers should give employees an effective opportunity to enroll annually.
The rules also clarify that if an employer offers only excepted benefit coverage to an individual, that individual is not considered as having been offered MEC that would make the individual PTC ineligible. That could also trigger an employer mandate penalty (if the individual was a full-time employee).
The rules also address opt-out payments, also known as 'cash in lieu of benefits' arrangements, and their impact on PTC eligibility. An opt-out payment involves an employer offering cash payment for those employees that waive or otherwise decline employer coverage—the cash offer may be unconditional or conditional (conditioned on the availability of other coverage, such as through a spouse). This is related to the issue of affordability of coverage—coverage is affordable if the cost of single-only coverage does not exceed 9.66 percent (for 2016) of the employee's modified adjusted gross household income. According to a 2015 IRS notice, beginning in 2017 opt-out payments are included in the employee's contribution—not the employer's—amount when it comes to calculating affordability, which makes affordability more difficult to achieve. Importantly, if the cash-out payments were adopted prior to Dec. 16, 2015, they could be continued through the end of 2016 (thus allowing employers time to bring plan designs into compliance). The proposed rules codify that prior 2015 IRS notice position, and also clarify that unconditional (those not conditioned on availability of other coverage) opt-out arrangements adopted pursuant to a collective bargaining agreement in effect before Dec. 16, 2015, would not be treated as affecting affordability until the first year after the agreement expires.
Conditional opt-out payments (those based on the availability of other coverage) are treated differently. If the opt-out is 'eligible', then the opt-out payment is disregarded for purposes of affordability. An opt-out is 'eligible' if it is conditioned on the employee declining enrollment in employer-sponsored coverage and providing (at least annually during open enrollment) reasonable evidence that the employee (and his/her dependents) have group health coverage through another source (not in the individual market). Reasonable evidence can be an employee attestation. The logic behind this position is that if an individual has group coverage through another source, that individual would not be eligible for a PTC through the exchange since he/she would already have MEC. Therefore, since the employee could not qualify for a PTC, the employer would not owe an employer mandate penalty. The use of conditional opt-out payments brings into question the long-standing restriction under Section 125 for conditioning an employee's waiver on the presence of other coverage. Hopefully, additional guidance on this interaction is forthcoming.
On the individual mandate, the proposed regulations address several issues relating to advance payment of the PTC and the reconciliation process. The regulations also address the PTC amount and its interaction with the benchmark premium, and contain many examples of how those rules will operate. Because those rules are more specific to the individual mandate, we will not expound on them here. Interested employers can read more in the regulations themselves.
The proposed rules generally take effect in 2017. Employers should review their coverage offer and affordability strategies (particularly if they have a cash-out option) to ensure compliance with the employer mandate for the 2017 plan year.
IRS Releases Information Letter Regarding the Impact of Retirement Plan Distributions on PTC Eligibility
On June 24, 2016, the IRS publicly released Information Letter 2016-0035, dated May 27, 2016, which is a response to a taxpayer's email correspondence concerning repayments of advance PTC payments.
In this case, the taxpayer took a distribution from a retirement account and it appears that the distribution was not included in the estimated household income used to compute his/her advance credit payments. Distributions from a retirement account are generally required to be included in a taxpayer's household income. Thus, the IRS explained that because the estimated household income did not include the retirement distribution, the advance credit payments were more than the PTC allowed.
As background, the PTC is a refundable tax credit for certain individuals who enroll, or who have a family member who enrolls in a health insurance plan through an exchange, and is intended to help with the cost of the insurance. Taxpayers may claim the PTC by filing IRS Form 8962 with their federal income tax return.
In its response, the IRS provided that taxpayers are ineligible to claim a PTC if their household income was more than 400 percent of the federal poverty line for their family size. Taxpayers must use the household income reported on their federal income tax return to determine whether they qualify for a PTC and, if so, the amount of the credit. The estimated household income used to compute advance PTC payments is not used to determine a taxpayer's PTC. So, if their estimated household income is too low, then a taxpayer can find themselves in a situation where they must repay some or all of the advance credit payments.
According to the letter, taxpayers who get the benefit of advance credit payments must, when they file their tax return for the year, compare the actual PTC they are allowed to their advance credit payments. If a taxpayer's advance credit payments are more than their PTC, then that taxpayer must repay all or the excess of advance credit payments. Note, the amount of the repayment may be limited for taxpayers with household income of less than 400 percent of the federal poverty line for their family size.
Finally, the letter points out that because the amount of a taxpayer's advance credit payments are based on estimates, it is important for taxpayers to promptly inform the exchange of any changes in circumstances, such as changes to the amount of estimated household income used by the exchange to compute advance credit payments, that would cause a difference between the advance credit payments and the actual PTC allowed.
This newly released letter is a reminder that the estimated PTC is the maximum amount of advance credit payments for which the taxpayer is eligible and that the taxpayer may choose to have all, some or none of the advance credit payments for which they are eligible paid to the insurance provider.
Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. However, this letter does provide general information which may be helpful to individuals with questions on this particular topic.
IRS Information Letter 2016-0035 »
IRS Releases 2016 Draft Versions of 6055 and 6056 Informational Reporting Forms
On June 22, 2016, the IRS released draft versions of the 2016 informational reporting forms that insurers and self-insured employers will use to satisfy their obligations under IRC Section 6055. Then, on July 8, 2016, the IRS released draft versions of the informational reporting forms that employer plan sponsors and health plans will use to satisfy their obligations under IRC Section 6056. These forms, once finalized, will be filed by employer plan sponsors in early 2017 relating to 2016 information. The IRS is currently accepting comments on the draft forms. Instructions for the forms have not yet been released.
As a reminder, Forms 1094-B and 1095-B (6055 reporting) are required of insurers and small self-funded employers providing minimum essential coverage. These reports will help the IRS to administer and enforce the individual mandate. Form 1095-B, the form distributed to the covered employee, will identify the employee, any covered family members, the group health plan and the months in 2016 for which the employee and family members had minimum essential coverage under the employer's plan. It is believed that the employee will subsequently file the form with his/her individual tax return. Form 1094-B identifies the insurer and is used by the insurer to transmit the corresponding Form 1095-B to the IRS.
Forms 1094-C and 1095-C (6056 reporting) are to be filed by applicable large employers subject to the employer mandate. These reports will help the IRS to administer and enforce the employer mandate. Employers will use Form 1095-C to identify the employer, the employee, whether the employer offered minimum value coverage to the employee and dependents, the cost of the lowest plan option and the months for which the employee enrolled in coverage under the employer's plan. Further, if the plan is self-insured, the employer will use the form to fulfill its Section 6055 reporting obligations by indicating which months the employee and family members had minimum essential coverage under the employer's plan.
Whereas Form 1095-C reports coverage information at the participant level, Form 1094-C reports employer-level information to the IRS. An employer will use this form to identify the employer, number of employees, whether the employer is related to other entities under the employer aggregation rules and whether minimum essential coverage was offered.
The 2016 draft forms appear to have only a few minor changes compared to the 2015 forms. Form 1094-B is unchanged. Each of the other forms has some insignificant wording changes. A high-level summary of other minor changes to the 1094-C, 1095-B and 1095-C is below:
1094-C- Line 22, option B, relating to Qualifying Offer Method Transition Relief, has been removed.
1095-B- Line 9, relating to the SHOP Marketplace identifier (if applicable), has been removed.
1095-C- There are a few changes related to the line 14 indicator codes. The Qualifying Offer Transition Relief indicator code (1I) has been removed. In addition, two new indicator codes (1J and 1K) will be available to indicate whether an offer of minimum essential coverage to an employee's spouse is a conditional offer or not. The goal is to align reporting with eligibility for a PTC. More information about the use of these new indicator codes will be available once the 2016 draft instructions are released.
Submit Comments on Draft Forms »
CMS Publishes 2017 SBC FAQs
On July 8, 2016, CMS published four frequently asked questions related to the revised version of the SBC. As discussed in the April 19, 2016, edition of Compliance Corner, HHS, DOL, and the Department of the Treasury released the final template for the SBC and uniform glossary on April 6, 2016.
The FAQs are intended to provide clarity as to when plans are required to use the new SBC. Plans must use the revised SBC beginning the first open enrollment period on or after April 1, 2017. If the plan does not have an annual open enrollment period, the SBC should be used the first day of the first plan year beginning on or after April 1, 2017.
Based on the guidance, it would seem that a plan with a March 2017 open enrollment period for an April 1, 2017, plan year start date would not be required to use the revised template. Hopefully, future guidance will clarify this point.
Previously, the SBC included coverage information for two sample treatment scenarios involving maternity and diabetes. The new 2017 SBC also includes a third coverage example related to a simple fracture. To assist a plan in completing the coverage examples, HHS provides sample values and a calculator. The values and calculator are not yet available for the simple fracture example. The FAQ's clarify that until the values and calculator are issued, plans may enter "$0" for each field of the simple fracture coverage example.
CMS FAQs »
2017 SBC Template and Uniform Glossary »
Agencies Publish FAQs on ACA Implementation, Part XXXII
On June 21, 2016, the DOL, HHS and IRS jointly published, FAQs about Affordable Care Act Implementation (Part 32), addressing whether a COBRA election notice can include additional information about health insurance Marketplace (also known as "public exchange") coverage options. As a reminder, the COBRA model election notice contains information about enrollment in the Marketplaces which may yield a more cost-effective option for coverage.
This FAQ states that COBRA election notices may include additional information on Marketplace coverage. Specifically, plan administrators may include information such as: How to obtain assistance with enrollment (including special enrollment), the availability of financial assistance, information about health insurance Marketplace websites and contact information, general information regarding particular products offered in the Marketplaces, and other information that may help qualified beneficiaries choose between COBRA and other coverage options.
The FAQ adds no new employer obligations, and there is no need to add the additional information to the current model COBRA election notice. But the FAQ indicates that employers may add more information if they think it would be helpful for employees to better understand their options through the Marketplace.
FAQs about Affordable Care Act Implementation (Part XXXII) »
IRS Health Care Tax Tip 2016-57: Deadline Reminder for Employers and Providers: Electronically File Information Returns with IRS by June 30
On June 22, 2016, the IRS released IRS Health Care Tax Tip 2016-57, which provides an important reminder of the fast approaching June 30 deadline for employers and providers to electronically file information returns (IRS Forms 1094-C and 1095-C) with the IRS.
As background, employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Those filing electronically must report 2015 data by June 30, 2016. Paper filings were due by May 31, 2016.
That said, employers should only attempt this filing process with the assistance of a knowledgeable information technology professional or a vendor. The filing is not as simple as uploading a PDF to an online portal. It involves registering with the ACA Information Returns (AIR) System and receiving a PIN by mail. The forms must be submitted through the system using extensible markup language (XML) schemas.
Finally, this tip includes a chart, which describes the electronic filing due dates in 2016 for employers and coverage providers. Please remember that these deadlines only apply for reporting in 2016 for coverage in 2015. In future years, the due dates will be different.
Health Care Tax Tip 2016-57 »
Agencies Propose Rules on Excepted Benefits, Short-Term Limited Duration Insurance, Lifetime and Annual Limits and Expatriate Plans
On June 10, 2016, the IRS, DOL and HHS jointly published proposed rules on several PPACA issues, including excepted benefits, short-term limited duration insurance, lifetime and annual limits and expatriate plans. The first two topics are meant to address certain plans that are exempt from HIPAA and PPACA. Finally, the expatriate topic is meant to implement certain aspects of the Expatriate Health Coverage Clarification Act (EHCCA), enacted in 2014.
Excepted Benefits
As background, certain benefits—known as HIPAA "excepted benefits"—are not subject to PPACA. The reason is that such benefits are generally not considered to provide major medical coverage. Excepted benefits consist of several categories of benefits, including (among others) limited-scope dental and vision, workers compensation and long-term care insurance. Some excepted benefits, though, somewhat resemble medical coverage. Those include hospital or other fixed indemnity coverage, cancer or illness-specific policies, or other supplemental coverage (coverage that somehow fills gaps for the primary medical coverage).
It is these fixed indemnity supplemental coverage policies that the proposed rules address. Specifically, the proposed rules clarify the rules relating to fixed-dollar indemnity coverage. To be considered excepted, the coverage must pay a fixed amount per day or other time period without regard to the cost of the service or type of claim. For example, coverage that pays different amounts based on hospitalization versus doctors' services, or that pays a percentage of the incurred costs, does not qualify. In addition, insurers offering group indemnity coverage must provide—in application, enrollment and reenrollment materials—a warning that the coverage will not be considered minimum essential coverage for purposes of PPACA's employer and individual mandates.
The proposed rule also addresses supplemental coverage, stating that to be excepted, coverage must either be designed to fill gaps in cost-sharing (such as deductibles and coinsurance) of the primary medical coverage or to provide benefits that are not essential health benefits (EHBs) in the state in which the supplemental coverage is offered. The proposed rule also emphasizes that coverage cannot somehow become supplemental through coordination of benefit requirements. The focus is on the type of benefits covered and their relation to the major medical coverage.
Short-Term Limited Duration Coverage
To begin with, short-term coverage is defined to be coverage that is provided pursuant to a contract with an insurer that has an expiration date specified in the contract that is less than 12 months after the original effective date of the contract. Short-term coverage may be attractive to healthy individuals, since it may cost much less, particularly compared to PPACA-compliant coverage available privately or through the exchanges. Some carriers market short-term coverage as primary medical coverage, and sometimes carriers offer short-term coverage for periods of close to one year and individuals can enroll at any time (not just during open enrollment). However, the coverage may be quite limited, and does not generally satisfy the minimum essential coverage requirement under PPACA's individual mandate. The proposed rule emphasizes that the surge in short-term coverage offerings has serious repercussions for the market risk and rates.
Therefore, the proposed rule amends the definition of 'short-term coverage' to include only coverage for periods of less than three months. In addition, coverage could not be renewed at the end of the three-month period. The three-month period is consistent with the individual mandate's short-term exception—an individual can avoid a penalty if they have a short-term gap in coverage that does not exceed three months. In addition, the proposed rule requires carriers to provide a notice to consumers that the short-term coverage is not considered minimum essential coverage and therefore enrollment in the short-term coverage will not by itself allow an individual to avoid an individual mandate penalty.
Lifetime and Annual Limits
The proposed rule further clarifies the definition of "EHBs" for purposes of PPACA's lifetime and annual dollar limit prohibition on EHBs. EHBs are defined as benefits covered by the benchmark plan of a state, including state-mandated benefits. The proposed rule clarifies that EHBs can also be defined by reference to one of the three federal employee benefit programs that may be used as benchmark plans by the states to meet EHB requirements.
Expatriate Plans
On expatriate plans, the proposed rule is meant to assist implementation of the EHCCA, which was enacted in 2014. As background, expatriate health plans are exempt from most PPACA requirements, and the EHCCA generally defined "expatriate plan" to include group coverage for which substantially all primary enrollees are qualified expatriates. The proposed rule defines "primary enrollee" as the individual covered by the plan other than as a dependent, spouse or beneficiary and "substantially all" as 95 percent. Qualified expatriates are those individuals who fall into one of three categories (referenced by letters A, B and C):
Category A: Individuals who because of their skills, qualifications, job duties or experience are transferred or assigned to the U.S. for a specific and temporary employment purpose and who are reasonably determined to require access to health insurance and other related services in multiple countries (they are expected to travel out of the U.S. at least once per year) and who are offered multinational benefits on a periodic basis.
Category B: Individuals who work outside the U.S. for at least 180 days during a consecutive 12-month period that overlaps with the plan year.
Category C: Individuals who are members of a group of similarly situated individuals that is formed for the purpose of traveling or relocating internationally for an educational or service purpose (including students and missionaries), so long as the group is not formed primarily for the sale of health insurance and so long as the agencies determine the group requires access to health insurance services in multiple countries.
Beyond the requirement to cover substantially all qualified expatriates, the proposed rule also outlines other requirements for expatriate plans. First, for an insured plan, the plan must be offered by a U.S.-licensed insurer (and the term "U.S." is defined to include all 50 states, the District of Columbia and Puerto Rico (but not other U.S. territories)). In addition, the plan must be issued by an insurer that is licensed in more than two countries and meets certain other requirements on size and claims processing. Second, the expatriate plan must cover inpatient hospital services, outpatient facility services, physician services and emergency services in the U.S. and in the country from which the qualified expatriate was assigned or in which he/she is employed. Third, the plan must provide at least minimum value. Fourth, if the plan provides dependent coverage, it must cover adult children up to age 26. Fifth, the plan must satisfy federal law that applied prior to PPACA, including HIPAA's pre-existing condition exclusion limitations.
Comments on the proposed rule are due on or before Aug. 9, 2016. At that point, the agencies will consider any comments as they develop a final rule. Generally speaking, employers and insurers may rely on the proposed regulations for compliance in the meantime.
HHS Press Release »
Congressional Research Service Publishes ACA Resources for Frequently Asked Questions
On May 25, 2016, the Congressional Research Service published a report listing various ACA resources. Although the document was created to assist congressional staffers in responding to questions from constituents, there are several resources that apply to employer plan sponsors. Specifically, there are links to documents that answer questions on the employer mandate, reporting requirements, employer penalties, wellness programs and genetic information, and small businesses. There is also information on various subjects that pertain to group health plans such as mental health parity, women's health care (preventive services and contraceptive mandate), Medicaid, Medicare and CHIP.
PPACA: Resources for Frequently Asked Questions »
CMS Issues REGTAP FAQs on SHOP Marketplace
On May 27, 2016, CMS posted three new frequently asked questions (FAQs) to the Registration for Technical Assistance Portal (REGTAP) related to the federally facilitated SHOP Marketplace. The FAQs and information summarized below address issues that may be of interest to employers.
FAQ #16161 explains that in order for a group to enroll in SHOP Marketplace coverage, at least one employee who is not a business owner or a spouse needs to enroll and accept the offer of coverage. As long as that one employee is not a business owner or a spouse, that group should be able to enroll in coverage through the SHOP Marketplace. Under the SHOP Marketplace rules for minimum participation, in order for an employer to enroll in SHOP Marketplace coverage, 70 percent of employees offered coverage (in most states) must accept, unless the employees who waive their offer of coverage are enrolled in another form of minimum essential coverage. Those employees with coverage through a spouse or another form of minimum essential coverage are not held against an employer's minimum participation rate.
FAQ #16161 »
FAQ #16162 describes the time period the credit is available to employers. The small business health care tax credit is available to employers for a limit of two consecutive tax years. It is a tax credit, so employers file for the credit with their tax returns. They will receive the credit as a refund as they would any other refund.
FAQ #16156 clarifies that employers must make SHOP Marketplace payments in full by the first of the month. If the SHOP Marketplace does not receive a payment by the end of the month, then coverage will be terminated the following day. There's a 31 calendar day grace period to make a full delinquent payment and continue plan coverage.
The information provided above is not intended to be a comprehensive resource. It only highlights a few FAQs that may be relevant to employers. To ensure receipt of the most current information, employers should register for REGTAP updates.
IRS Releases Employer Shared Responsibility Provision Estimator
On June 1, 2016, the Taxpayer Advocate Service released a new tool, called the Employer Shared Responsibility Estimator (ESRP Estimator) to help employers understand the employer mandate and how it may apply to them. The Taxpayer Advocate Service is an independent organization within the IRS that advocates for taxpayers and ensures they understand their rights.
The ESRP Estimator can be used by employers to determine the number of full-time employees and full-time equivalents, whether an employer is an applicable large employer subject to the employer mandate, and the maximum amount of potential penalty an employer may face if they fail to offer coverage. Also provided are links to the actual regulations, real-life examples, detailed instructions and definitions of key terms.
Please note that the ESRP Estimator will only provide information in relation to 2016 and future tax years due to the numerous transition relief rules applicable in 2015. In addition, the ESRP Estimator is intended as a guide to help employers understand the employer mandate and is not to be used to determine ultimate employer mandate liability.
Employer Shared Responsibility Provision Estimator »
IRS Health Care Tax Tip 2016-54: Five Facts about the Small Business Health Care Tax Credit
On June 1, 2016, the IRS released IRS Health Care Tax Tip 2016-54, which provides important facts about the small business health care tax credit.
As background, there is a tax credit that benefits employers who:
Offer coverage through the small business health options program, also known as the SHOP Marketplace;
Have fewer than 25 full-time equivalent employees;
Pay an average wage of less than $50,000 a year; and
Pay at least half of employee health insurance premiums.
The guidance reminds those employers that the maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers. To be eligible for the credit, employers must pay premiums on behalf of employees enrolled in a qualified health plan offered through a SHOP Marketplace, or qualify for an exception to this requirement.
Further, the credit is available to eligible employers for two consecutive taxable years beginning in 2014 or later. Employers may be able to amend prior year tax returns to claim the credit for tax years 2010 through 2013 in addition to claiming this credit for those two consecutive years. Employers can also carry the credit back or forward to other tax years if they do not owe tax during the year.
Finally, employers may get both a credit and a deduction for employee premium payments. Since the amount of the employer's health insurance premium payments will be more than the total credit, if the employer is eligible, then they may still claim a business expense deduction for the premiums in excess of the credit.
A helpful calculator is available to assist employers in determining whether to consult with their tax professional or CPA with regard to the small business health care tax credit. Employers should contact their advisor for access to the calculator and for more information about the small business health care tax credit.
Tax Tip 2016-54 »
HHS Issues Final PPACA Nondiscrimination Regulations
On May 18, 2016, HHS published a final rule implementing section 1557 of PPACA. Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age or disability and applies to health programs or activities that receive federal financial assistance/HHS funding, including Medicare, the health insurance Marketplaces and plans offered by issuers that participate in the Marketplaces. Further, covered entities (under the rule) may include hospitals, health clinics, health insurance issuers, state Medicaid agencies, community health centers, physician's practices and home health care agencies. FAQs were also released to help address the regulations.
This guidance will have limited applicability to a majority of employer plan sponsors because they are not likely sponsoring plans that are receiving federal funding in this manner. The only employer plans that may be affected are the small employers who are on the SHOP or who may have purchased a policy from an insurer who is receiving federal funding.
Even for those group health plans to which this rule applies, it appears that the bulk of the requirements would be implemented by the insurer and/or by the covered entities/health service providers. Nevertheless, covered entities (those receiving federal funding) will have a notice requirement. Covered entities with 15 or more employees are also required to have a civil rights grievance procedure and an employee designated to coordinate compliance.
Of note, these rules provide that sex discrimination includes discrimination on the basis of gender identity. Thus, insurers to which this guidance applies cannot deny or limit coverage for services ordinarily available to individuals of one gender because an individual was born a member of the other gender. Categorical coverage exclusions or limitations for health services related to gender transition are per se discriminatory.
While there is not a blanket religious exemption under these rules, the rule does not displace existing protections for religious freedom and conscience.
These new rules are generally effective July 18, 2016, but additional time is allowed if plan design changes are required to come into compliance. In that case, it is effective on the first day of the plan year beginning on or after Jan. 1, 2017. The final rules will likely not have a huge impact on plan design as group health plans sponsored by employers are already prohibited from discrimination on the grounds of race, color, national origin, sex, age or disability under other federal laws including Title VII, HIPAA, ADEA and the MSP rules.
FAQs »
CMS Releases FAQ on Waiting Periods for Essential Health Benefits
On May 26, 2016, CMS issued an FAQ on market reform implementation in the individual and small group health plan market. The FAQ includes guidance on waiting periods for essential health benefits (EHB). Additionally, the purpose of this FAQ is to clarify previously released CMS guidance contained in a May 16, 2014, bulletin entitled Frequently Asked Questions on Health Insurance Market Reforms and Marketplace Standards".
For plans that must provide EHB coverage (including pediatric orthodontia), the FAQ states that issuers are prohibited from imposing benefit-specific waiting periods, since such waiting periods discriminate against individuals with significant health needs. In addition, imposing a waiting period on an EHB could mean the issuer is not offering coverage that provides EHB as required by federal regulations.
After further consideration, CMS decided that pediatric orthodontia should not be excluded from this prohibition on waiting periods, because the same discrimination concerns also apply to these benefits.
This FAQ guidance applies to insurers, but it is also relevant for employers with small group plans subject to the requirement to provide EHB. CMS expects issuers to make the necessary changes to their plans by plan years beginning on or after Jan. 1, 2018, and will not take enforcement action until that time.
HHS Releases Interim Final Rule on Amendments to Special Enrollment Periods
On May 11, 2016, HHS released an interim final rule on amendments to special enrollment periods (SEPs). The rule also includes changes to the Co-Op Program as well (not discussed in this summary). The changes to the special enrollment periods primarily affect individuals who gain access to a new qualified health plan (QHP) as a result of a permanent move. Now, such individuals are only eligible for a special enrollment period if they: 1) Had minimum essential coverage for at least one day in the 60 days prior to the permanent move; 2) were previously living outside of the U.S. or in a U.S. Territory but moved to a location within the U.S. and seek to enroll in coverage within 60 days of completing the permanent move; or 3) are newly eligible for a QHP due to release from incarceration (other than incarceration pending disposition of charges). The reason these changes are necessary is due to concerns that unintended uses of the permanent move SEP will lead to adverse selection and immediate, unexpected losses which could be contrary to public interest.
In other changes affecting the provision of permanent moves, the guidance clarifies that individuals who were previously living in a non-Medicaid expansion state (and ineligible for Medicaid), but who become eligible for advance payments of the premium tax credit as a result of a permanent move will be eligible for the SEP. This change is necessary because such individuals will not satisfy item #1 above, requiring an individual requesting an SEP as a result of a permanent move to have had minimum essential coverage for at least one of the last 60 days.
Finally, related to SEPs, the interim final rule repeals the requirement that exchanges meet the Jan. 1, 2017, deadline to implement certain provisions previously promulgated. The reason given is due to changes which may occur prior to that date which might strain operational expenses and result in an unnecessary expenditure of funds. For example, a requirement that advanced availability of an SEP should be available to those who anticipate a permanent move, so that the triggering event date is actually 60 days in advance of the permanent move, would have been required to go into effect by Jan. 1, 2017. However, this requirement is now optional, and at the option of the Exchange. Similar requirements which are now optional for a Jan. 1, 2017 effective date include special enrollments due to a loss of a dependent due to divorce, legal separation or death (since this could also result in a loss of minimum essential coverage, already an existing SEP).
These interim final rules apply to non-grandfathered individual coverage both inside and outside of the exchange, as well as QHP coverage offered through SHOP coverage. Comments are being accepted until July 5, 2016. The interim final rule is generally effective May 11, 2016, although the provisions related to Special Enrollment Periods are effective July 11, 2016. While not directly related to employers, it may be helpful for those who do not currently sponsor a group health plan or for those whose employees wish to purchase coverage through the exchange.
Interim Final Rule »
Fact Sheet »
On May 2, 2016, CMS posted 25 new frequently asked questions (FAQs) related to the federally facilitated SHOP Marketplace to the Registration for Technical Assistance Portal (REGTAP). The selected FAQs and information summarized below address issues that may be of interest to small employers.
FAQ #15710 describes the time period (from Nov. 15 through Dec. 15 of each year) small employers may enroll in the SHOP Marketplace without needing to meet the minimum participation rate (MPR) requirement for their state.
FAQ #15713 clarifies that for any group to enroll in the SHOP Marketplace, either inside or outside of the MPR window, at least one employee who is not a business owner or a spouse must enroll.
FAQ #15717 explains that the MPR is calculated upon initial enrollment and upon renewal. If a small business drops below the MPR throughout the year, it is still eligible to participate in the SHOP Marketplace.
FAQ #15720 provides an overview of the tax credit available through the SHOP Marketplace. The tax credit can be worth up to 50 percent of an employer's contribution toward premium costs and up to 35 percent for tax-exempt employers. To qualify for the tax credit, small employers must have fewer than 25 full-time equivalent employees and the average employee salary must be about $50,000 per year or less. The employer must also offer coverage to all full-time employees and contribute at least 50 percent to their employee premium costs.
FAQ #15721 provides an example of how the new MPR calculation works. In most states, 70 percent of employees offered coverage must accept the offer of coverage in order for an employer to enroll in SHOP Marketplace coverage. For plans beginning in 2016, an employer's MPR in the SHOP Marketplace will be calculated by taking the number of employees enrolled in health coverage, either on or off the SHOP Marketplace, divided by the number of employees who were offered SHOP Marketplace coverage. For example, an employer offering SHOP Marketplace coverage to 10 full-time employees, two of which are enrolled in coverage through a spouse and one of which is covered by Medicare would constitute a total of three employees declining SHOP Marketplace coverage. In this example, only four employees must accept SHOP Marketplace coverage to meet the 70 percent MPR.
FAQ #15724 clarifies that employers can offer dental coverage without having to offer health coverage through the SHOP Marketplace. New for plan year 2016, small employers may offer their employees dental coverage without also having to offer health coverage through the SHOP. Unless the employer decides to offer both health and dental coverage through the SHOP, its employees can choose to enroll in health-only coverage, dental-only coverage or both health and dental coverage. For the dependents of the employees electing SHOP, they may also choose coverage in which they would like to enroll. Dependents may choose to enroll in health-only, dental-only or both, but they must always enroll in the same plan or plans chosen by the employee.
U.S. Supreme Court Remands Contraceptive Cases to Circuit Courts
On May 16, 2016, the U.S. Supreme Court vacated and remanded the cases represented in Zubik v. Burwell. As background, the PPACA requires health plans to cover contraceptives at no cost sharing. To accommodate religious organizations, the government proposed that they notify their insurer that they wish not to participate in the offering of certain contraceptives to their employees. However, several religiously affiliated plaintiffs alleged that the government's accommodation for religious organizations (requiring the notice to insurers) violates the Religious Freedom Restoration Act (RFRA).
After similar cases were argued in the U.S. Courts of Appeals for the Second, Third, Fifth, Sixth, Seventh, Tenth and District of Columbia Circuits, the Court agreed to hear the case. Following oral arguments, the Court requested additional information from both sides addressing "whether contraceptive coverage could be provided to petitioners' employees, through petitioners' insurance companies, without any such notice from petitioners." In this opinion, the Court confirmed that the two sides were able to agree that this option is feasible.
Specifically, the religious organizations acknowledged that their religious exercise is not infringed if they don't have to do anything more than contract with an insurer who will provide cost-free contraception. The government also acknowledged that religious organizations with insured plans could be modified to operate in a manner that doesn't require any action on the part of the organization, but still ensures that women receive contraceptive coverage.
Since the two sides were able to come to these conclusions, the Court vacated the judgments of the lower courts and remanded the cases back to the Third, Fifth, Tenth and D.C. Circuits so that the parties may formulate an approach that will accommodate the religious organizations' religious exercise while providing contraceptive coverage.
The Court also expressed that they have not ruled on the merits of the case, and the case does not in any way limit, the government's ability to ensure that women covered by health plans sponsored by religious organizations receive contraceptive coverage without cost.
Although this action by the Court is not a final determination in these cases, religiously affiliated employers may be affected by the final decision in this case. While we will continue to monitor these cases, employers should consult with legal counsel before changing their benefit plan design in regard to contraceptives.
Zubik v. Burwell »
DOL Releases FAQs about Affordable Care Act Implementation (Part XXXI)
On April 20, 2016, the DOL published FAQs about Affordable Care Act Implementation (Part XXXI) which provide guidance on market reform provisions of the Affordable Care Act, the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), and the Women's Health and Cancer Rights Act (WHCRA).
Summaries of the FAQs are below.
Q/As 1 & 2 (Preventive Services). Q/A 1 establishes that preparations for a colonoscopy (including bowel preparation medication), are an integral part of the procedure and must be covered without cost-sharing, subject to reasonable medical judgment. Q/A 2 allows plans to develop a standard exception form that providers may use to prescribe particular contraceptive services based on a medical necessity determination for an individual. The Medicare Part D Coverage Determination Request Form may be used as a model as plans are developing their own forms.
Q/A 3 (Rescissions). Q/A 3 addresses rescission as it pertains to teachers. The question describes a teacher who was employed under a ten-month contract from August 1 to May 31 but whose coverage ran for the entire Aug. 1–July 31 plan year. Premiums had been fully paid and the teacher had not committed fraud or misrepresented herself. According to the FAQ, if the teacher resigned on July 31, termination of coverage retroactive to May 31 would be a prohibited rescission. However, the plan could still terminate coverage prospectively.
Q/A 4 (Out-of-Network Emergency Services). Q/A 4 provides that plans are generally required, under ERISA's disclosure provisions and PPACA's appeals and external review requirements, to disclose, upon request, how they calculate payments for out-of-network emergency services.
Q/As 5 & 6 (Clinical Trials). Q/A 5 and Q/A 6 generally relate to coverage for individuals participating in approved clinical trials. A plan may not limit coverage for chemotherapy provided in connection with an individual's participation in an approved clinical trial if it normally provides for such chemotherapy coverage outside of a clinical trial. Similarly, if a plan typically covers items or services to diagnose or treat certain complications or side effects, the plan may not deny coverage of these items or services to diagnose or treat complications or side effects in connection with an approved clinical trial.
Q/A 7 (Cost-sharing Limits). Previous guidance addressed referenced-based pricing. Consistent with that guidance, if a plan establishes a reference price, but doesn't use a proper method to ensure reasonable access to quality providers, the plan will not be considered to have established an adequate network. The plan, would therefore, be required to count an individual's out-of-pocket expenses for providers who do not accept the reference price toward the maximum annual out-of-pocket limit.
Q/As 8 through 11 (Mental Health Parity). Clarification is provided regarding the "substantially all" and "predominant" tests for financial requirements and quantitative limitations under the MHPAEA. These requirements apply to any benefits a plan may offer for medication-assisted treatment for opioid use disorder.
Q/A 12(Reconstructive Surgery After Mastectomy Under WHCRA). The WHCRA protections require that the plan provide coverage for all stages of reconstruction of the breast on which a mastectomy was performed, including nipple and areola reconstruction.
Employers should consider these FAQs and how they may need to change their plan documents or administrative practices as a result.
FAQs about Affordable Care Act Implementation (Part XXI) »
CMS Announces Direct Enrollment Extension
On April 18, 2016, CMS issued a memo announcing an extension for four states to continue to accept direct enrollment in the SHOP. This means that they may continue to accept paper enrollments by small businesses enrolling in coverage through the SHOP. The deadline for them to switch to online enrollment was originally Jan. 1, 2017, but has now been extended to Jan. 1, 2019. The affected states are Hawaii, Idaho, Oregon and Vermont. All other SHOPs already accept online enrollments.
If the four remaining states are not ready to implement online enrollment by 2019, they must move forward at that time with one of the following options: utilize the federal information technology platform, utilize information technology solutions from another state's SHOP, leverage an insurer's enrollment platform or implement an approved Section 1332 state innovation waiver.
Regardless of whether you are a small business in the four states with direct enrollment or one of the other states, NFP advisors are licensed for the exchange and happy to assist you through the process including enrollment, ongoing compliance requirements and renewal.
The IRS recently released an updated version of Publication 5165, entitled "Guide for Electronically Filing Affordable Care (ACA) Information Returns for Software Developers and Transmitters," for tax year 2015 (processing year 2016). This publication outlines the communication procedures, transmission formats, business rules and validation procedures for returns transmitted electronically through the Affordable Care Act Information Return System (AIR). Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C or 1095-C will want to review the guidance and familiarize themselves with the filing process.
As a reminder, if you are a self-insured employer or applicable large employer, the deadline to provide information returns to employees or responsible individuals was March 31, but the deadline to file them with the IRS is fast approaching. Employers filing 250 or more forms must file electronically with the IRS. Employers filing fewer than 250 forms may file by paper or electronically. Those filing electronically must report 2015 data by June 30, 2016. Paper filings are due by May 31, 2016.
IRS Announces 2017 Adjustments on Employer Mandate Affordability and Other Percentages
On April 11, 2016, the IRS published Rev. Proc. 2016-24, which announces the 2017 indexing adjustments for two different percentages under PPACA. The first, applicable via guidance in IRS Notice 2015-87, relates to the affordability calculation under the employer mandate. For purposes of determining whether employer-sponsored coverage is affordable under the employer mandate, the percentage will increase to 9.69 percent. The original amount was 9.5 percent, which was then increased to 9.56 percent in 2015 and 9.66 percent in 2016. Applicable large employers (ALEs), who are subject to the employer mandate, should be aware of the increase, since it may affect their contribution strategies going forward.
The second relates to the amount a premium tax credit-eligible individual must contribute towards the cost of exchange coverage. As background, individuals with household incomes between 100 and 400 percent of the federal poverty line may be eligible for federal premium tax credits—amounts that help decrease the cost of health insurance coverage for that individual, if purchased through a public exchange. Such an individual is still generally required to contribute some amount towards coverage, and that amount varies based on household income.
Agencies Release Final SBC Template
On April 6, 2016, HHS, DOL and Department of the Treasury (the Departments) released the final templates for the Summary of Benefits and Coverage (SBC) and uniform glossary. The changes include an additional coverage example and word changes the Departments hope will improve readability for consumers.
As background, health care reform requires group health plans and insurers to provide an SBC to applicants and enrollees describing certain details of the plan. This is intended to help individuals make more informed decisions when selecting health coverage and options.
The SBC template includes coverage examples, which are intended to estimate what proportion of expenses under an illustrative benefits scenario might be covered by a given plan. A hypothetical situation is provided consisting of a sample treatment plan for a specified medical condition during a specific period of time, based on recognized clinical practice guidelines. Previously, the template used two coverage examples: 1) having a baby (normal delivery) and 2) routine maintenance of well-controlled Type 2 diabetes. The updated template now includes a third coverage example that addresses coverage for a foot fracture so that a consumer understands what a plan covers in an emergency scenario.
Changes to the template also include clearer language describing certain coverage components, including services covered before the deductible is met, embedded deductibles for family coverage, and out-of-pocket limits. Additionally, the SBC instructions provide more detail than the previous version.
As communicated in guidance provided last month (see our article in the Mar. 22, 2016 edition of Compliance Corner), the revised SBC template will not be used until the first open enrollment period that begins on or after April 1, 2017. Thus, calendar year plans will not be required to use the revised template until open enrollment relating to coverage beginning on Jan. 1, 2018.
HHS SBC Materials and Supporting Documents »
IRS Health Care Tax Tip 2016-41: Have Fewer Than 50 Employees? Here's How ACA Affects You
On April 6, 2016, the IRS released IRS Health Care Tax Tip 2016-41, which summarizes how PPACA's employer mandate affects an employer with fewer than 50 full-time employees, including full-time equivalent employees.
As background, if an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer mandate or the employer information reporting provisions for the current year.
However, employers that provide self-insured health coverage must file an annual information return reporting certain information for individuals they cover under Section 6055 of the IRC. This requirement applies regardless of the size of the employer's workforce. So, self-insured employers with fewer than 50 full-time employees must provide Forms 1095-B to their employees.
The guidance reminds employers that calculating the number of employees is especially important for employers that have close to 50 full-time employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year, and divides that total number by 12.
This tip also reminds employers that employers with 50 or fewer employees can purchase health insurance coverage for their employees through the SHOP. Further, employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees' premium costs and generally if they purchase coverage through the SHOP.
Congressional Research Service Releases Brief Related to Cadillac Tax
On March 24, 2016, the Congressional Research Service released "Excise Tax on High-Cost Employer-Sponsored Health Coverage: In Brief." The brief does not provide any new information related to the Cadillac tax (officially called the excise tax on high-cost employer sponsored health coverage), but it does provide a helpful summary of what is currently known about the tax and expectations of how it will be implemented.
The tax was originally supposed to be effective 2018. The Consolidated Appropriations Act of 2016 delayed implementation to 2020.
The 40 percent tax will be assessed on the cost of applicable coverage that exceeds identified annual limits. The annual limits for 2020 are estimated to be $10, 800 for single coverage and $29,100 for family coverage. The estimates are based on the health cost adjustment percentage and a projected rate for the Consumer Price Index for All Urban Consumers.
The annual limits for some employers could be increased if the age and gender characteristics of their employees are significantly different from the characteristics of the national workforce. The limits may also be adjusted for qualified retirees and a plan that has a majority of enrollees in a high-risk profession. High- risk professions include those repairing or installing electrical or telecommunications lines, law enforcement officers, employees in fire protection activities, emergency medical technicians, first responders, paramedics, longshore employees, construction workers, miners, those involved in agriculture, forestry workers and fishermen.
The excise tax is expected to apply to the following:
Cost of group health coverage
Employer and employee contributions to health FSA
Employer contributions to HRA
Employer and pre-tax employee contributions to HSA
On-site medical clinic (if providing more than de minimis medical care)
Executive physical programs
Cost of specified disease or illness plan, hospital indemnity or other fixed indemnity insurance policy if paid with pretax dollars
It is not expected to apply to the following:
Stand-alone dental or vision plans
Long-term care coverage
In March 2015, the Congressional Budget Office estimated that the tax would generate $87 billion in revenue if implemented in 2018. A revised report has not yet been issued reflecting the 2020 implementation. The collected taxes are to be used to offset the cost of ACA provisions. The brief states that the tax is generally considered an indirect method of limiting the current tax exclusion for employer provided benefits.
Although the tax will not apply until 2020, employers should familiarize themselves with this brief in order to remain abreast of the specifications of the tax and how it will be implemented.
Excise Tax on High-Cost Employer-Sponsored Health Coverage: In Brief »
Employer Reimbursement of Individual Health Policies: New IRS Information Letter
The IRS recently issued an information letter on March 2, 2016, pertaining to employer reimbursement of individual health policies. While this letter does not provide any new information, it highlights the fact that the IRS is aware of a number of vendors offering designs they allege allow employers to reimburse premiums for employees' individual health insurance policies on a tax-free basis. The letter reiterates that such employer premium reimbursement arrangements fail to meet the market reform provisions of PPACA applicable to group health plans - the prohibition on annual limits for essential health benefits and the requirement to provide preventive services at zero cost-sharing.
As background, if the employer uses an arrangement that provides cash reimbursement for the purchase of an individual health policy, the employer's payment arrangement is part of a plan, fund, or other arrangement established for the purpose of providing medical care to employees. It does not matter whether the employer treats the money as pre-tax or post-tax to the employee. Therefore, the arrangement is considered group health plan coverage and is subject to the market reform provisions of PPACA.
In its response, the IRS provided clarification on whether an employer can offer a group health plan that satisfies the market reform provisions by providing coverage for essential health benefits without annual limits in addition to a separate arrangement to pay for other medical expenses. According to the letter, the group health plan and the separate arrangement generally may be combined to determine if together the combined arrangement satisfies the market reforms.
Additionally, the letter clarifies that when the employer does not offer the employee a group health plan and the employee obtains other coverage, such as an individual health insurance policy, the separate arrangement cannot be combined with that other coverage to determine if it satisfies the market reform rules for group health plans. So, the arrangement to reimburse the individual health policy premiums would violate the market reforms.
Finally, the letter identifies one option for employers who do not want to offer coverage under a group health plan to their employees, but want to offer them some form of assistance. Those employers may consider providing additional compensation to their employees that the employees may use for any purpose, including the purchase of an individual health policy. The additional compensation would be taxable, but the employer would not have created a group health plan that fails to satisfy the market reforms.
Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. However, this letter does provide general information which may be helpful to employers with questions on this particular topic.
Joint FAQ Delays Implementation Date for New SBCs
On March 11, 2016, the DOL, HHS and IRS jointly published an FAQ, FAQs about Affordable Care Act Implementation (Part 30), delaying the implementation date for using the revised template for the SBC, instructions and updated uniform glossary. As a reminder, the DOL recently proposed revisions to the SBC template (see our March 8, 2016, Compliance Corner article). Because the DOL expected to release the final templates of the new SBC and uniform glossary in early 2016, but are just now releasing the proposed revisions, they are a bit behind schedule.
As such, rather than having the new documents apply to plans starting on the first day of the plan year beginning in 2017, the FAQ clarifies that the revised SBC template will not be used until the first open enrollment period that begins on or after April 1, 2017. Thus, calendar year plans will not be required to use the revised template until open enrollment relating to coverage beginning on Jan. 1, 2018 (assuming the revised templates are finalized in an expeditious manner).
FAQs about Affordable Care Act Implementation (Part 30) »
IRS Health Care Tax Tip 2016-29: New Reporting Responsibilities for Certain Employers in 2016
On March 9, 2016, the IRS released IRS Health Care Tax Tip 2016-29, which summarizes an employer's responsibilities under the employer mandate and Sections 6055 and 6056 reporting. An applicable large employer who fails to offer affordable and minimum value coverage to full-time employees, the employer could be required to make an employer shared responsibility payment (i.e., employer mandate penalty).
The guidance reminds employers that they must complete and distribute Forms 1095-B and 1095-C to employees by March 31, 2016. (For more information, please see our reminder article in this same edition.) It also reminds employers that reporting is due to the IRS by May 31, 2016, if filing by paper and June 30, 2016, if filing electronically. Electronic filing is required of employers filing 250 or more forms.
DOL Proposes Revisions to SBC Template
On Feb. 26, 2016, the DOL issued proposed revisions to the SBC template, Uniform Glossary, and other related documents. As background, the DOL submitted the final rule on SBCs on June 12, 2015, stating that they would release the final templates of the SBC and Uniform Glossary in early 2016. These documents, once finalized, will apply to plans starting on the first day of plan year beginning in 2017.
In addition to publishing the revised documents, the DOL is requesting comments on these revisions which are due by 30 days after the date that the proposed revisions were entered into the Federal Register (Feb. 26, 2016).
At this time, no employer action is required, although employers may wish to review the proposed materials and submit comments. Employers should, however, be on the lookout for the finalized versions of these materials in time for the 2017 plan year.
Proposed SBC and Related Materials »
Federal Register »
HHS Final Notice of Benefit and Payment Parameters for 2017; Letter to Issuers
On March 8, 2016, the 2017 Notice of Benefit and Payment Parameters was published in the Federal Register. These final regulations adopt most of the proposed regulations (discussed in the Dec. 15, 2015 edition of Compliance Corner), although there are some deviations in the final regulations. CMS also released its annual "Letter to Issuers" which outlines requirements for issuers seeking to offer qualified health plans (QHPs) on the Marketplace or SHOP.
Topics addressed included:
Business Address for Rating Purposes. For the small-group market and the SHOP, if an employer does not have a business location in the issuer's service area but has employees who live or reside within the service area, the geographic rating area for purposes of the network plan will be the rating area where the greatest number of employees within the plan's service area live or reside as of the beginning of the plan year.
Individual Mandate Changes. The new rule establishes that members of healthcare sharing ministries, Indian tribes or individuals eligible to receive services from an Indian health provider, and incarcerated individuals can now claim their exemption from the individual mandate without a certificate. Also, individuals who would have been eligible for Medicaid if their state had extended Medicaid to the under 65 adult population may qualify for a hardship exemption and do not have to go through the step of attempting to apply for Medicaid, as was originally required.
Marketplace Open Enrollment. The open enrollment period for the individual Marketplace for 2017 and 2018 will run from Nov. 1 of the previous year through Jan. 31 of the coverage year. For coverage in 2019 and beyond, open enrollment will begin on Nov. 1 and end on Dec. 15 of the year preceding the coverage effective date of Jan. 1.
Network Adequacy (Cost Sharing). The regulations finalize that issuers must count the cost sharing charged to the enrollee for an essential health benefit provided by an out-of-network provider toward the enrollee's annual limitation on cost sharing. The exception to this requirement would be if the issuer provides the longer of 48 hours notification before the provision of the benefit, or whenever the issuer would typically respond to a prior authorization request, to the enrollee that the provider may be out-of-network and that the enrollee may incur additional costs. This rule aims to limit "surprise bills" to consumers.
SHOP. The regulations finalize adding a third option for employees using SHOP coverage. Under this third option, employers would have the option of offering all plans across all actuarial value levels from one issuer, known as "vertical choice." The SHOP currently offers employers a "horizontal choice" of all plans available at a selected actuarial coverage level. Comments are also sought on whether states with a federally facilitated SHOP should have the opportunity to decide whether additional models of employee choice should be made available in their state. SHOPs in all states would continue to be required to permit employers to offer a choice of all QHPs at a single level of coverage.
Small Employer Definition. Consistent with the PACE Act, the regulations revise the definition of "small employer" to 50 employees, with an option for states to extend the cutoff to 100 employees. This definition applies for small/large group market delineations and establishes eligibility for the SHOP, which is open only to small employers until 2017 when states can choose to extend SHOP eligibility to large employers.
Special Enrollment Periods (SEP). The regulations previously sought comment on whether special enrollment periods are subject to abuse. In conjunction with the finalization of these regulations, the Administration released a Fact Sheet on the Special Enrollment Confirmation Process. See our article in this edition of Compliance Corner for more details.
State Exchange Hybrid. The regulations finalized a new hybrid exchange model, referred to as a "State-Based Exchange on the Federal Platform (SBE-FP)," under which a state exchange would enter into an agreement to use the eligibility and enrollment platform and information technology infrastructure of the federally facilitated exchange.
Student Health Insurance Plans. The regulations finalize the proposal to eliminate the requirement for student health insurance plans to offer coverage within specific metal levels, and instead would require student health insurance plans to offer an actuarial value of at least 60 percent.
Minimum Participation and Contribution Rules. The regulations did not finalize the proposal to eliminate the enrollment window for small employers (November 15-December 15) in states which choose to expand the small group market to include employers with up to 100 employees. The concern was that in such states, many employers would be subject to the employer mandate requirements but unable to purchase coverage for their employees on a guaranteed issue basis outside of the enrollment window. However, the preamble noted that States have the flexibility to further restrict the use of minimum employer contribution or group participation rules as appropriate.
Notice of Employee Enrollment in Subsidized Exchange Coverage. Exchanges are currently required to notify an employer when one of its employees is determined to be eligible for advance premium tax credits. The regulations finalize the proposal to change this requirement so notice is given only when an employee actually enrolls in this type of subsidized coverage. As a reminder, employer shared responsibility penalties are triggered when a full-time employee enrolls in subsidized coverage through an exchange. CMS also notes that it plans to improve the questions it asks individuals initially about their potential offers of employer-sponsored coverage, including improving training provided to call-center operators on this topic. That way, fewer ineligible individuals will enroll in subsidized exchange coverage and individual employee tax consequences will be mitigated.
Out-of-pocket (OOP) Maximum. For 2017, the regulation finalized the OOP maximum at $7,150 for self-only coverage and $14,300 for family coverage. This is an increase from the 2016 OOP maximums of $6,850 for self-only and $13,700 for family.
Transitional Reinsurance Contributions. The transitional reinsurance program is formally ending, as it was only intended to operate from 2014 through 2016.
This is a brief summary of major topics discussed in the final regulations which may be of interest to employers. The rule also discusses many topics of interest to issuers, navigators, brokers and others working with exchanges which are not discussed in detail in this article. The regulation is generally effective Jan. 1, 2017, unless otherwise noted.
2017 Notice of Benefit and Payment Parameters »
Final Letter to Issuers »
Press Release »
Form Now Available for Employers to Appeal Employee's PTC
Some employers may begin to receive notices from the federally-facilitated exchange (FFM) indicating that they have had one or more employees receive a premium tax credit (PTC). As discussed in the Oct. 6, 2015 edition of Compliance Corner, the FFM Employer Notice Program is scheduled to begin spring 2016. In preparation, the Employer Appeal Request Form is now available on healthcare.gov.
The form will be used by an employer who receives notice that an ineligible employee has received a PTC. An employee is ineligible for a PTC if he is eligible for affordable group coverage that provides minimum value. The employee is also ineligible if he is enrolled in the employer's group coverage, regardless of whether the coverage provides minimum value or is affordable.
The employer will have 90 days to appeal. The form includes space for the employer to explain why the employee is not eligible. Additionally, the employer may attach documentation. An example of documentation would be proof of the employee's enrollment in the group health plan, such as a copy of the completed enrollment form. If an employee waives coverage, it will be helpful for the employer to provide proof of not only the employer's offer to that employee, but also of the offer's satisfaction of minimum value and affordability.
Please note that employer mandate penalties are not assessed through this process. This process is to determine whether the employee is eligible for the PTC they actually received. If not, the employee may have tax liability. Employer mandate penalties will be assessed directly by the IRS in a subsequent notification process. However, it is still important for employers to respond promptly and accurately to the Marketplace notices so that ineligible individuals do not continue to receive a PTC and that the employer's offer of coverage is recorded.
FFM Employer Notice Program »
CMS Announces Additional One-Year Reprieve for Individual and Small Group Plans That Are PPACA Noncompliant
On Feb. 29, 2016, CMS announced an additional one-year reprieve for individuals and small groups whose policies are not compliant with certain provisions of PPACA, sometimes referred to as "grandmothered plans." As background, on Nov. 14, 2013, President Obama — via a CMS letter — announced the availability of a transitional policy that allows individual and small group health insurance plans that were previously cancelled due to noncompliance with PPACA insurance mandates to be renewed in 2014 without being subject to PPACA-related penalties. Specifically, the Nov. 14, 2013, CMS letter stated that health insurance coverage in the individual or small group market that was renewed for a policy year between Jan. 1, 2014, and Oct. 1, 2014, would not be considered to be out of compliance with the following market reforms:
Community rating;
Guaranteed issue and renewability of coverage;
Prohibition of coverage exclusions based on pre-existing conditions;
Non-discrimination based on health status;
Non-discrimination regarding health care providers;
Comprehensive coverage (i.e., coverage of essential health benefits and the application of maximum out-of-pocket limits); and
Coverage for participation in clinical trials.
Then on March 5, 2014, CMS issued a memo stating that the transitional policy would be extended through Oct. 1, 2016, meaning that the extension would apply to policy years beginning on or before Oct. 1, 2016. The 2014 memo also stated that CMS would at a later time consider whether an additional one-year extension (i.e., through Oct. 1, 2017) would be appropriate.
The Feb. 29, 2016, memo confirms that CMS will extend the transitional policy to policy years beginning on or before Oct. 1, 2017, provided that all policies end by Dec. 31, 2017.
Although the transitional policy allows the continuation of noncompliant plans at a federal level, whether the two-month transitional policy will be extended to individual and small group policies must be first approved by state insurance regulators. Then, individual issuers will need to decide if they will allow for the two-month extension of these plans. If both of these conditions are met, individuals and employers currently enrolled in grandmothered plans with renewal dates between Oct. 1 and Jan. 1 will be greatly impacted. Without the guidance, to extend a grandmothered plan into 2017, employers would have had to ensure that the health insurance renewal date was October 1, 2016, or earlier. This should be a big help to the many employers currently in grandmothered plans with December 1 or January 1 renewals. Note that many states have chosen not to adopt the transitional policy.
Furthermore, states may elect to extend the transitional policy for shorter periods than outlined above or can limit the extended transitional policy to only the individual or small group market if they desire. Since that is a state-by-state decision, small employers interested in extending their grandmothered plans should reach out to their state insurance department or insurer to determine if their plans might continue.
CMS Bulletin »
CMS Publishes Fact Sheet on Special Enrollment Confirmation Process
On Feb. 24, 2016, CMS issued new guidance on the implementation of a confirmation process for special enrollment periods (SEPs), which allow individuals to enroll in coverage through the exchange when they experience certain mid-year life changes (outside of the annual enrollment period).
As background, concerns have been raised about whether current exchange rules and procedures are sufficient to ensure that only those who are eligible enroll through SEPs. In response to that feedback, CMS is establishing a new confirmation process that will address these concerns in the 38 states using the federally-facilitated exchange platform on healthcare.gov.
Once the confirmation process is in place, individuals who enroll or change plans using a SEP for any of the following triggering events will be directed to provide documentation to verify their eligibility:
Loss of MEC;
Permanent move;
Birth;
Adoption, placement for adoption, placement for foster care or child support or other court order; or
Marriage.
According to CMS, these SEPs represented three quarters of healthcare.gov individuals who enrolled or changed plans using a SEP in the second half of 2015. CMS will provide individuals with a list of qualifying documents, like a birth or marriage certificate. Individuals will be able to upload documents to their healthcare.gov account or mail them in.
CMS will review documents to ensure individuals qualify for a SEP and will follow up if there is a question or problem. If individuals don't respond to a CMS notice, they could be found ineligible for their SEP and could lose their insurance.
The CMS fact sheet also explains that there will be other improvements to the SEP application process. Specifically, individuals will be required to acknowledge document requests and indicate they understand documents will be requested to verify their SEP eligibility. Individuals must also attest at the end of their HealthCare.gov application that they are providing true information and understand the penalties for misrepresentation. CMS is also updating the HealthCare.gov website to clarify application questions for individuals (e.g., what does and does not qualify as a loss of MEC, and a permanent move).
Finally, the CMS fact sheet states that they will invite comments from consumer advocates, insurance companies and other stakeholders on the key features of the new confirmation process. Specifically, CMS will look at communications with individuals about providing required documents, acceptable documentation, and refining the confirmation process.
Although this new confirmation process will not directly affect employers, it's important for employers to be aware of the rules so they can articulate them to employees who may be considering enrolling on the exchange under a perceived SEP.
CMS Fact Sheet on Special Enrollment Confirmation Process »
Text of CMS FAQs on the 2017 Moratorium on Health Insurance Provider Fee
On Feb. 29, 2016, CMS released a set of FAQs addressing the moratorium on the Health Insurance Provider Fee (also known as the "health insurance tax" or "HIT"), which was implemented with the passage of the Consolidated Appropriations Act of 2016. The FAQ includes four questions:
Q/A-1: Does the 2017 moratorium apply to the 2017 fee year or the 2017 data year?
Q/A-2: What is the 2017 fee amount that would have been collected but for the moratorium?
Q/A-3: Will the 2017 moratorium affect the fee amount for the 2018 fee year?
Q/A-4: What is the expected impact on 2017 plan year rate changes as a result of the moratorium?
The FAQs primarily impact insurers, since they are the ones relieved from paying the fee in 2017. However, employers may find this information helpful, as it is expected the moratorium on the fee will be passed along in the form of reduced costs for health insurance policies for the 2017 year only.
CMS FAQ »
IRS Releases Updated AIR Submission Composition and Reference Guide
On March 1, 2016, the IRS released the updated AIR Submission Composition and Reference Guide, version 4.2. This resource is meant to assist various entities with electronic ACA information return (AIR) submissions required under PPACA. Forms 1094-B and 1095-B (Section 6055 reporting) are required of insurers providing MEC. Forms 1094-C and 1095-C (Section 6056 reporting) are to be filed by applicable large employers subject to the employer mandate. Further, employers who sponsor a self-insured plan will use the Form 1095-C to fulfill their Section 6055 reporting requirements.
Electronic filing of Forms 1094 and 1095 (both B and C) is required by high-volume filers (those who file at least 250 returns) and is optional for employers who file fewer than 250 returns. The IRS previously established the AIR working group to provide instructions on how this electronic filing must be done. The IRS has released various resources such as the comprehensive AIR Submission Composition and Reference Guide as well as a webpage that walks through some of the particulars of the AIR program.
Information provided by these resources includes: the process for applying for the program, technical requirements, what testing is necessary before the actual transmission, parameters for filing and data file size limits. While these resources are very technical in nature, they will be useful to entities that are filing these returns electronically.
AIR Submission Composition and Reference Guide »
IRS Acknowledges Need for Revised FAQ Related to Reporting of COBRA Coverage
In the Sept. 22, 2015, edition of Compliance Corner, we summarized the changes contained in the final version of the Forms 1094-C and 1095-C Instructions. One of the biggest changes was related to the reporting of COBRA coverage. The instructions made it clear that an employer has no Section 6056 obligation to report an offer of COBRA coverage on Lines 14 through 16 of the Form 1095-C for a terminated employee. There is a responsibility to report an offer of COBRA coverage on Lines 14 through 16 for an active employee who is no longer eligible for coverage (for example, an employee who has changed from full-time eligible to part-time ineligible status). Self-insured large employers also have a Section 6055 responsibility to report elections of COBRA coverage in Part III of the Form 1095-C. Self-insured small employers would report such coverage on Form 1095-B.
While the instructions contained the most recent guidance, the IRS website still maintained outdated guidance, which conflicted with the instructions. The website still instructed employers to report offers of COBRA coverage on Lines 14 through 16 if the employee elected COBRA coverage. It also maintained information related to how to report offers of COBRA coverage to an ongoing employee who is no longer eligible for active coverage, but still employed.
On Feb. 18, 2016, the IRS updated their website to indicate that the answer to the question related to reporting offers of COBRA coverage for an ongoing employee (Q/A #17) is currently being revised. An updated response will be provided in the future. Interestingly, the IRS did not indicate that the answer to the question related to the reporting of COBRA coverage for terminated employees electing COBRA (Q/A #16) was being revised.
As the deadline for providing Forms 1095-C to employees approaches (March 31, 2016), it is important to note the most recent guidance for employers regarding the Section 6056 reporting of COBRA coverage. The instructions state:
"An offer of COBRA continuation coverage that is made to a former employee upon termination of employment should not be reported as an offer of coverage on line 14. For a terminated employee, code 1H (No offer of coverage) should be entered for any month for which the offer of COBRA continuation coverage applies.
An offer of COBRA continuation coverage that is made to an active employee (for instance, an offer of COBRA continuation coverage that is made due to a reduction in the employee's hours that resulted in the employee no longer being eligible for coverage under a plan) is reported in the same manner and using the same code as an offer of that type of coverage to any other active employee."
Thus, for employees whose employment has been terminated, an employer has no responsibility to report an offer of COBRA on Lines 14 through 16, regardless of whether the former employee elects coverage. For the months following the termination, Line 14 would be 1H, Line 15 would be blank and Line 16 would be 2A. For ongoing employees who are eligible for COBRA (e.g., employee experiences a reduction in hours that causes a loss of eligibility for coverage, but remains employed), an employer would continue to report that offer on Line 14 (with 1E, or whatever code best fits the employer's offer). Line 15 would be the cost of self-only COBRA coverage. Line 16 would be 2C if enrolled. If waived, one of the other codes should be used, if applicable, such as 2B or one of the affordability safe harbor codes (2F, 2G or 2H).
If you have outstanding questions regarding reporting, please contact your advisor.
IRS Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C »
Form 1095-C Instructions »
CMS Publishes Guidance on New Mid-Year Special Enrollment Period
On Feb. 5, 2016, CMS issued new guidance on a special enrollment period for individuals without exchange coverage due to a failure to file a tax return for 2014 and reconcile their 2014 advance premium tax credit (APTC).
As background, the exchange cannot determine an individual's eligibility if an APTC was previously paid for the individual or on behalf of a member of the tax household, but the individual did not file an individual federal income tax return and reconcile the APTC for the year in which APTC was provided. In other words, if the individual received the benefit of an APTC, they must file a tax return to reconcile the amount of an APTC made on their behalf with the amount of their actual premium tax credit. An individual must file a return and submit a Form 8962 for this purpose even if they are otherwise not required to file a return.
Additionally, coverage year 2016 is the first year in which the requirement to file a tax return and reconcile previously paid APTC is in effect and many individuals who received APTC in 2014 may not have been required to file a tax return in previous years. Individuals who were enrolled in coverage for 2015 for whom the exchange did not have information by Dec. 15, 2015, indicating that their tax filer(s) filed and reconciled an APTC for 2014, were re-enrolled in 2016 coverage without an APTC. As a result, such individuals may choose to end their coverage through the exchange because it is unaffordable without financial assistance.
The new guidance states that in the first coverage year in which the requirement is in effect, CMS is providing a time-limited special enrollment period (following the end of the open enrollment period —from Feb. 1, 2016, through March 31, 2016) for individuals who:
are not currently enrolled in 2016 coverage through the exchange;
are not receiving an APTC (determined ineligible) in 2016 because they failed to file a tax return for 2014 and reconcile their APTC; and
subsequently filed their 2014 tax return and reconciled their 2014 APTC.
This special enrollment period will only be available to individuals who have previously attempted to enroll in 2016 coverage and they must attest to having filed a tax return and reconciled 2014 APTC on their 2016 exchange application.
Finally, the effective date of coverage under this special enrollment period will be the first of the month following plan selection and enrollment completion.
CMS Guidance on New Mid-Year Special Enrollment Period »
Form 8962 »
Instructions for Form 8962 »
CMS Issues Notice on Transitional Reinsurance Payment for 2015 Benefit Year
On Feb. 12, 2016, CMS issued a notice related to the transitional reinsurance program required by PPACA and contribution collections for the 2015 benefit year.
As background, group health plans are required to report reinsurance enrollment calculations to CMS annually from 2014 through 2016. Plans are assessed a fee per covered life. For 2015, that fee is $44. Payment is broken into two installments. The first payment was due by Jan. 15, 2016, with the second due by Nov. 15, 2016. For fully insured plans, the insurer is generally responsible for the filing and payment. For self-insured plans, the employer as plan sponsor is responsible for filing and payment.
The notice states that for the 2015 benefit year, HHS anticipates that it will have $7.7 billion in reinsurance contributions to be used for reinsurance payments. That estimate is based on current submissions from contributing entities for the 2015 benefit year. As of Feb. 3, 2016, HHS estimates that it will collect a total of $6.5 billion. Of that amount approximately $5.5 billion has already been collected, all of which will be used for reinsurance payments for the 2015 benefit year. $1.0 billion is scheduled to be collected by Nov. 15, 2016.
Additionally, approximately $1.7 billion in reinsurance contributions are being carried over from the 2014 benefit year, which will be used for reinsurance payments for the 2015 benefit year. As noted in the "Interim Reinsurance Payments for the 2015 Benefit Year," HHS will make an early payment at a coinsurance rate of 25 percent under the transitional reinsurance program for the 2015 benefit year to issuers of reinsurance-eligible plans starting in March 2016. The final 2015 coinsurance rate and final estimated reinsurance payment amounts will be announced in the final estimated reinsurance payment reports for the 2015 benefit year issued June 30, 2016.
CMS Notice »
Departments Publish Guidance on PPACA's Application to Student Health Coverage
On Feb. 6, 2016, the IRS, DOL and HHS (the Departments) published guidance (DOL Technical Release 2016-01 and IRS Notice 2016-17) relating to the application of certain PPACA provisions to premium reduction arrangements offered in connection with student health plans. As background, the Departments previously published guidance (DOL Technical Release 2013-03) stating that an employer payment plan (EPP, which also includes an HRA-type of arrangement) is a group health plan under which an employer reimburses an employee (or directly pays) for some or all of the premium expenses incurred for an individual market health insurance policy. That guidance stated that an EPP and HRA are subject to PPACA as group health plans, and therefore must comply with the PPACA requirement to provide preventive services with zero cost-sharing and the PPACA prohibition on annual dollar limits for essential health benefits. Most EPPs and HRAs violate those two PPACA provisions, unless they are integrated with a group health plan (and an individual policy is not considered a group health plan).
Also previously, the Departments published guidance stating that "student health insurance coverage" is a type individual market health insurance coverage that is offered to students and their dependents under a written agreement between an institution of higher education and an insurer. According to the 2016 guidance, many colleges and universities provide students with student health coverage (either through an individual policy or through self-insured coverage) at a greatly reduced cost or no cost at all as part of their student package, which may also include tuition assistance and a stipend for living expenses. The health insurance premium charged to the student may take into account a premium reduction arrangement. Because some of these students also perform services for the school (such as teaching or performing research), the question has been raised whether such premium reduction arrangements might be considered group health plans that violate the above two PPACA provisions.
Under the new guidance, the payment arrangement may or may not constitute a prohibited EPP or HRA (i.e., one that violates the two PPACA provisions), depending on all of the facts and circumstances. The guidance recognizes that some schools may not have previously recognized their particular EPP or HRA was prohibited. Therefore, the Departments are giving schools additional time to ensure their premium arrangements are not prohibited. Specifically, the Departments will not assess penalties for a prohibited EPP or HRA for a plan or policy year beginning before Jan. 1, 2017.
School employers that have questions regarding their premium arrangements should work with outside counsel in determining whether the arrangement may be a prohibited EPP or HRA. The new guidance gives such employers additional time to comply without risk of a penalty.
DOL Technical Release 2016-01 »
IRS Publishes Revised Instructions for Form Insurers Use to Pay Fee on Health Insurance Providers
On Feb. 2, 2016, the IRS released revised Instructions for Form 8963. As background, PPACA imposes a fee on health insurance providers (called "covered entities") engaged in the business of providing health insurance with respect to United States health risks. This fee, and thus the reporting, does not apply to self-insured plans. Also known as the "health insurance tax" or "HIT," the fee is payable by each covered entity for a calendar year and equals the entity's proportionate share of the aggregate amount for that year as set by statute ($11.3 billion in 2015). Each entity's proportionate share is determined based on the entity's net premiums written for U.S. health risks for the previous calendar year as compared with the aggregate net premiums of all covered entities. The instructions detail which covered entities must pay the fee and how each covered entity's fee obligation will be determined.
This year, covered entities must report net premiums written during the prior year by filing Form 8963 no later than April 18, 2016. The IRS will notify covered entities of their preliminary fee calculation by June 15, 2016. Covered entities will then be notified of their final fee calculation by August 31, 2016. The fee is due Sept. 30, 2016.
Importantly, the fee will not be assessed directly against employer plan sponsors. That said, payment of a large overall fee will likely affect premiums paid by employers who sponsor fully insured plans and may impact decisions about whether to self-insure.
The HIT has been suspended for 2017. That means insurers will not have 2017 payments due based on the amount of business written in 2016. However, payments are still due this year (2016) for the amount of premiums written last year (2015).
Form 8963 Instructions »
IRS Addresses Expatriate Plans and the Fee on Health Insurance Providers
On Feb. 1, 2016, the IRS published Notice 2016-14 explaining how expatriate plans are to be treated in relation to the fee on health insurance providers (also known as the "health insurance tax" (HIT)), described in more detail in the previous article. The Notice provides that while proposed regulations are being developed to define expatriate plans for purposes of the HIT, the definition of an expatriate plan used for MLR purposes can continue to be used for 2016 HIT purposes.
Previously, IRS Notice 2015-29 (addressed in the April 7, 2015, edition of Compliance Corner) adopted the MLR definition of expatriate health plans as to the HIT for the 2014 and 2015 fee years (the years data is collected to determine the amount of the fee paid).
Notice 2016-14 also outlines the filing procedure related to expatriate health plans in 2016.
Please remember that the HIT is not applicable to self-insured coverage and will be paid by carriers in the case of fully-insured coverage.
IRS Revises Publication 5215: Understanding Reporting Requirements of the Health Care Law – Form 1095-B
On Jan. 25, 2016, the IRS released a revised version of Publication 5215 to reflect the delay in Sections 6055 and 6056 reporting for the 2015 reporting year. Forms 1095-B and 1095-C must now be distributed to employees by March 31, 2016, as opposed to the original due date of Feb. 1, 2016. If filing by paper, Forms 1094-B, 1095-B, 1094-C and 1095-C must be filed with the IRS by May 31, 2016 (changed from Feb. 29, 2016). If filing electronically, those forms are due to the IRS by June 30, 2016 (changed from March 31, 2016). The extended deadlines apply to all filers automatically. In summary, the deadline for distributing forms to employees has been extended two months, while the filing deadline with the IRS has been extended three months.
As background on this publication, under PPACA entities that provide health insurance coverage to individuals are required (under IRC Section 6055) to report that coverage to the IRS and to the individual. Publication 5215 is a two-page document that provides general information aimed at helping small self-insured employers and other affected entities understand the Section 6055 reporting requirements.
Publication 5215 addresses several important points, including:
The reporting requirement for calendar year 2015 applies to small self-insured employers that provide MEC to individuals. Those employers must report that coverage to the IRS and give the covered individuals information about the coverage to help them when filing their tax return. Carriers must also report on covered individuals for fully insured plans.
The requirements to properly report on IRS Forms 1094-B and 1095-B, including furnishing and filing due dates, what information is reported and how Form 1095s apply to reporting entities.
The introduction of Forms 1094-C and 1095-C, which are the forms provided to full-time employees and to the IRS to help the IRS determine if an employer or its employees potentially owe a shared responsibility payment to the IRS.
Types of MEC offered and identification of the MEC provider for purposes of reporting responsibility.
The reporting obligations are very complex. Publication 5215 touches on a few high points. The takeaway for all small self-insured employers is that they must track months of coverage for covered individuals during 2015, including any month for which an individual is enrolled in MEC for at least one day, as well as gather other vital information to ensure a smooth reporting process in early 2016. Ask your advisor if you need assistance with this requirement.
IRS Publishes Health Care Tax Tips Relating to PPACA's Employer Mandate
On Jan. 27, 2016, the IRS published Health Care Tax Tip 2016-11: Why Size of Your Workforce Matters and on Feb. 3, 2016, the IRS published Health Care Tax Tip 2016-14: Averaging Full-time and Full-time Equivalent Employees and Why it Matters. Both provide employers with helpful facts about how the size of their workforce, small or large, affects which parts of the employer mandate apply to them. Tax Tip 2016-11 is available in Spanish.
Here is a summary of the information included.
The number of employees the employer had during the prior year determines whether the employer is an applicable large employer (ALE) for the current year.
The employer mandate provision and the employer information reporting provisions for offers of coverage to full-time employees apply only to ALEs.
An employer with 50 or more full-time employees/equivalents is considered an ALE. However, an aggregated group, which is commonly owned or otherwise related or affiliated employers, must combine their employees to determine their workforce size.
Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates during the year.
A full-time employee is one who works on average at least 30 hours of service per week for a calendar month (or 130 hours per month).
To calculate the number of full-time equivalent employees for each month the employer would total the hours worked by each non-full time employee in a month and divide by 120.
To determine an employer's workforce size for a year, the total number of full-time employees for each month of the prior calendar year is added to the total number of full-time equivalent employees for each calendar month of the prior calendar year. The combined total of full-time employees/equivalents is then divided by 12. This is the average number of full-time employees/equivalents for the calendar year.
Remember, if the employer is a member of an aggregated group, the employers must count the full-time employees/equivalents of all members of the group for each month of the prior year.
Thus, employers with 50 or more full-time employees, including equivalents, should be complying with the reporting requirements now. Understanding the complex employer mandate and reporting requirements is important. If you need assistance, please reach out to your advisor.
Health Care Tax Tip 2016-11 (en Español) »
CMS Publishes 2017 Actuarial Value Methodology
On Jan. 21, 2016, CMS published the final 2017 actuarial value calculator methodology. As a reminder, non-grandfathered fully insured individual and small group policies are rated by metal tiers reflecting the plan's actuarial value: Bronze (60 percent), silver (70 percent), gold (80 percent) and platinum (90 percent). Each valuation is permitted a +/- 2 percentage-point variation. Carriers use the calculation and underlying methodology to determine the policies' value and respective tier.
CMS updated a couple of technical issues with the calculator, but it remains largely the same as the 2016 version. Thus, a non-grandfathered fully insured small group policy that remains unchanged in plan design will likely have the same valuation in 2017 that it did in 2016.
The guidance reiterates that an employer's new contributions to an HRA or HSA are included in the calculation to determine the plan's actuarial value.
Finally, the calculator uses an estimated maximum out-of-pocket (MOOP) annual limit of $7,200 for 2017 for essential health benefits, which is currently at $6,850 for 2016. The 2017 actuarial value calculator is only an estimate or expectation of what the MOOP limit will be for 2017. The actual 2017 MOOP limit will not be announced until the final HHS annual notice of benefit and payment parameters, which is not expected until later in 2016.
2017 Actuarial Value Methodology »
2017 Actuarial Value Calculator »
CMS Blog Clarifies Special Enrollment Period Questions
On Jan. 19, 2016, CMS posted a blog entitled "Clarifying, Eliminating and Enforcing Special Enrollment Periods." The blog announces the elimination of several unnecessary special enrollment periods, clarifies the definition of another special enrollment period and outlines stronger enforcement. As background, special enrollment periods allow individuals to enroll in coverage in the exchange when they experience certain mid-year life changes (outside of the annual enrollment period).
CMS announced the elimination of multiple special enrollment periods they feel are unnecessary since the exchange has evolved. Last month, they announced the elimination of the tax season special enrollment period. The blog also shared that special enrollment periods are no longer available for:
Consumers who enrolled with too much in advance payments of the premium tax credit because of a redundant or duplicate policy
Consumers who were affected by an error in the treatment of Social Security Income for tax dependents
Lawfully present non-citizens that were affected by a system error in determination of their advance payments of the premium tax credit
Lawfully present non-citizens with incomes below 100 percent Federal Poverty Level (FPL) who experienced certain processing delays
Consumers who were eligible for or enrolled in COBRA and not sufficiently informed about their coverage options
Consumers who were previously enrolled in the Pre-Existing Condition Health Insurance Program
CMS also clarified that the special enrollment period available to consumers who gained access to new health plans because they permanently moved is not available for consumers who make short-term or temporary moves and don't plan to stay in the new location. For example, this special enrollment period would not apply to a consumer admitted to a hospital in a different geographical region for treatment.
Finally, CMS stated they would be taking steps to ensure compliance with the special enrollment period rules. Specifically, they will conduct an assessment of plan selections made during special enrollment periods, and their program integrity team will take steps to ensure that consumers properly qualified for the special enrollment period they claimed.
Although this subject will not directly affect employers, it's important for employers to be aware of the rules so they can articulate them to employees who may be considering enrolling on the exchange under a perceived special enrollment period.
CMS Blog »
Inflation-Adjusted Penalties for Failure to File Information Returns Released
On Jan. 11, 2016, the IRS released Rev. Proc. 2016-11, which included the inflation-adjusted penalty amounts for failure to file information returns, which affects Sections 6055 and 6056 reporting.
As background, Treasury Regulations apply the Section 6721 and Section 6722 penalties to Section 6055 and 6056 reporting. As background, Section 6055 is meant to assist the government in enforcing the individual mandate (reports on coverage at the individual level). Section 6056 is meant to assist the government in enforcing the employer mandate (reports on the employer's coverage at the employer level) and advance premium tax credit (APTC) eligibility (reports whether a specific individual was offered minimum value, affordable employer sponsored coverage for each month, which affects that individual's ability to qualify for an APTC).
For this purpose, if the information reported on a return or a statement is incomplete or incorrect, a failure to timely file or furnish a corrected document is considered a failure under Sections 6721 and 6722. On June 29, 2015, the Trade Preferences Extension Act significantly increased the penalties assessed upon such a failure to file (see our Compliance Corner article dated July 14, 2015). Significantly, the law now permits annual adjustments for inflation. As a result, Rev. Proc. 2016-11 implements this adjustment for the 2015 calendar year.
However, there is currently relief in place for reports filed in 2016 on offers of coverage made in 2015. As long as an employer is able to show a good faith effort, they will not be assessed a penalty for incomplete or incorrect returns filed or statements furnished to employees for coverage offered (or not offered) in calendar year 2015. See Questions and Answers on Information Reporting by Health Coverage Providers (Section 6056), Q/A-3:
3. Is relief available from penalties for incomplete or incorrect returns filed or statements furnished to employees in 2016 for coverage offered (or not offered) in calendar year 2015?
Yes. In implementing new information reporting requirements, short-term relief from reporting penalties frequently is provided. This relief generally allows additional time to develop appropriate procedures for collection of data and compliance with the new reporting requirements. Accordingly, the IRS will not impose penalties under sections 6721 and 6722 on ALE members that can show that they have made good faith efforts to comply with the information reporting requirements. Specifically, relief is provided from penalties under sections 6721 and 6722 for returns and statements filed and furnished in 2016 to report offers of coverage in 2015 for incorrect or incomplete information reported on the return or statement. No relief is provided in the case of ALE members that cannot show a good faith effort to comply with the information reporting requirements or that fail to timely file an information return or furnish a statement. However, consistent with existing information reporting rules, ALE members that fail to timely meet the requirements still may be eligible for penalty relief if the IRS determines that the standards for reasonable cause under section 6724 are satisfied. See question 31 for more information about penalties under sections 6721 and 6722.
Also see Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055), Q/A-3
3. Is relief available from penalties for incomplete or incorrect returns filed or statements furnished to covered individuals in 2016 for coverage provided in calendar year 2015?
Yes. In implementing new information reporting requirements, short-term relief from reporting penalties frequently is provided. This relief generally allows additional time to develop appropriate procedures for collection of data and compliance with the new reporting requirements. Accordingly, the IRS will not impose penalties under sections 6721 and 6722 for 2015 returns and statements filed and furnished in 2016 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements. Specifically, relief is provided from penalties under sections 6721 and 6722 for returns and statements filed and furnished in 2016 to report coverage in 2015 for incorrect or incomplete information reported on the return or statement. For example, a group health plan insurer that makes a reasonable effort to obtain the EIN of the employer sponsoring the coverage will not be subject to penalties under sections 6721 or 6722 if the insurer fails to enter an EIN on line 11 of Form 1095-B for 2015 or enters an EIN that is found to be incorrect. No relief is provided in the case of reporting entities that cannot show a good faith effort to comply with the information reporting requirements or that fail to timely file an information return or furnish a statement. However, consistent with the existing information reporting rules, reporting entities that fail to timely meet the requirements still may be eligible for penalty relief if the IRS determines that the standards for reasonable cause under section 6724 are satisfied. See question 29, below, for more information about penalties under sections 6721 and 6722.
This table reflects the adjusted penalty amounts:
Penalty Original Amount Amount After Trade Preferences Extension Act (June 29, 2015) Rev. Proc. 2016-11 adjustments for inflation (Jan. 11, 2016)
Failure to file/furnish an annual IRS return or provide individual statements to all full-time employees $100 $250 $260
Annual cap on penalties $1,500,00 $3,000,000 $3,178,500
Failure to file/furnish when corrected within 30 days of the required filing date $30 $50 $50
Annual cap on penalties when corrected within 30 days of required filing date $250,000 $500,000 $529,500
Failure to file/furnish when corrected by August 1 of the year in which the required filing date occurs $60 $100 $100
Cap on penalties when corrected by August 1 of the year in which the required filing date occurs $500,000 $1,500,000 $1,589,000
Lesser cap for entities with gross receipts of not more than $5,000,000 $500,000 $1,000,000 $1,059,500
Lesser cap for entities with gross receipts of not more than $5,000,000 when corrected within 30 days of required filing date $75,000 $175,000 $185,000
Lesser cap for entities with gross receipts of not more than $5,000,000 when corrected by August 1 of the year in which the required filing date occurs $200,000 $500,000 $529,500
Penalty per filing in case of intentional disregard. No cap applies in this case. $250 $500 $520
The penalty amounts listed above will apply to employers who cannot show a good faith effort to comply with the informational reporting requirements of Sections 6055 and 6056. Penalty amounts will be adjusted annually.
IRS Publishes Reminders for Employers Subject to Employer Mandate
On Jan. 13, 2016, the IRS published Health Care Tax Tip 2016-05, Five ACA Facts for Applicable Large Employers. The tax tip is meant to remind applicable large employers (ALEs—those with 50 or more full-time employees including equivalents that are subject to PPACA's employer mandate) of five things.
ALEs must file an annual report relating to their employer mandate obligations (to offer affordable minimum value (MV) coverage to all full-time employees and their dependents).
Self-insured ALEs must file an annual report relating to all covered individuals (while not included in this IRS publication, smaller self-insured employers also must file this report)
ALEs which do not offer affordable MV coverage may owe a penalty to the IRS.
ALEs may be required to report the value of health coverage provided to employee on their Form W-2 (this requirement does not apply if the ALE files fewer than 250 Forms W-2).
An ALE with exactly 50 employees can purchase health insurance through the SHOP.
Although the tax tip contains no new compliance requirements, the tip is a helpful reminder for all ALEs on their compliance obligations. The tax tip includes helpful links to other IRS web pages with more information on each of the five reminders.
IRS Updates FAQs on PPACA Reporting
On Jan 14, 2016, the IRS updated FAQs related to PPACA reporting requirements under Sections 6055 and 6056.
As background, Section 6055 is meant to assist the government in enforcing the individual mandate (reports on coverage at the individual level). Section 6056 is meant to assist the government in enforcing the employer mandate (reports on the employer's coverage at the employer level) and advance premium tax credit (APTC) eligibility (reports whether a specific individual was offered minimum value, affordable employer sponsored coverage for each month, which affects that individual's ability to qualify for an APTC).
To fulfill the Section 6056 requirement, Form 1095-C is to be used by ALEs. Form 1094-C is to be used for transmitting Form 1095-C. To fulfill the 6055 requirement, small self-insured employers will use Forms 1094-B (transmittal) and 1095-B (individual statement). Self-insured ALEs will combine Sections 6055 and 6056 reporting on Form 1095-C.
In the questions and answers (Q&As) related to Section 6055, the IRS provides the following guidance on the reporting of health care coverage by ALEs:
Basics of Employer Reporting (Questions 1-4);
Who is Required to Report (Questions 5-15);
What Information Must Providers Report (Questions 16-19); and
How and When to Report the Required Information (Questions 20-30).
Question 20 was amended and Question 30 was added to account for Notice 2016-4, which extended the 6055 and 6056 reporting deadlines for reporting on compliance in 2015. We addressed Notice 2016-4 in a special email blast on Dec. 28, 2015. Ask your advisor if you need a copy of this communication. Question 20 addresses the due dates for the forms and Question 30 instructs that the deadlines for reduced penalties related to corrected forms are similarly extended.
In the Q&As related to Section 6056, the IRS provides the following guidance on the reporting of health care coverage by ALEs:
Methods of Reporting (Questions 13-17); and
Similar to the 6055 Q&A page, the 6056 Q&A page included changes related to Notice 2016-4. Question 18 was amended and Question 32 was added to account for Notice 2016-4. Question 18 addresses the due dates for the forms and Question 32 instructs that the deadlines for reduced penalties related to corrected forms are similarly extended.
Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055) »
Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056) »
IRS Publishes Correction to Final Regulations Regarding the Premium Tax Credit
On Jan. 15, 2016, the IRS released a correction to final regulations initially published Dec. 18, 2015, related to premium tax credit eligibility and minimum value for employer-sponsored plans (see our Compliance Corner article dated Dec. 22, 2015). The final regulations contained an error that needed further clarification.
Specifically, 26 CFR part 1, Section 1.36B-3, paragraph (d)(2)(i)(A), previously stated that the premium assistance amount for a partial month of coverage would be the lesser of the enrollment premiums for the month (not including any amounts that were refunded) or the excess of the benchmark plan premium for a full month of coverage over the full contribution amount for the month.
That paragraph has been revised to state that the premium assistance amount for a partial month of coverage will be the lesser of the enrollment premiums for the month (reduced by any amounts that were refunded) or the excess of the benchmark plan premium for a full month of coverage over the full contribution amount for the month.
The following example may help illustrate the rules under this revised paragraph.
Austin is single and has no dependents. Austin enrolls in a qualified health plan with a monthly premium of $450. The difference between Austin's benchmark plan premium and contribution amount for the month is $420. Austin's premium assistance amount for a coverage month with a full month of coverage is $420 (the lesser of $450 and $420).
Now, let's say that the issuer of Austin's qualified health plan is notified that Austin died Sept. 20. The issuer terminates coverage as of that date and refunds the remaining portion of the September enrollment premiums ($150) for Austin's coverage.
Under this paragraph, Austin's premium assistance amount for September is the lesser of the enrollment premiums for the month ($300 ($450—$150)) or the difference between the benchmark plan premium for a full month of coverage and the full contribution amount for the month ($420). Austin's premium assistance amount for September is $300, the lesser of $420 and $300.
The correction is effective Jan. 15, 2016 and applicable retroactively to Dec. 18, 2015.
Correcting Amendment to Final Regulations »
CMS Revises Bulletin to Reflect MLR Adjustment
On Dec. 17, 2015, CMS issued an updated bulletin entitled "Frequently Asked Questions on the Impact of the PACE Act on State Small Group Expansion." With the exception of one change which impacts the MLR calculation for small employer groups, the bulletin is an exact replica of a previous bulletin issued Oct. 19, 2015 (See our article from the Nov. 3, 2015 Compliance Corner).
Question 4 previously stated that the definition of a small employer group for MLR purposes would be based upon whether the state expanded the definition of small group to 1-100 employees or kept the definition at 1 - 50. However, the guidance allowed for a transition period which, while not entirely clear, appeared to allow carriers to use the 1-100 definition for MLR calculation purposes in 2015 only, then use a 1-50 definition beginning in 2016. That was the interpretation of some states who issued bulletins on the matter (Tennessee and Indiana, both reported in previous editions of Compliance Corner and Texas, in this edition).
Question 4 has now been revised and the new verbiage clearly allows carriers to use the 1-100 definition for both the 2015 and 2016 reporting years, then change to 1-50 beginning with the 2017 reporting year if the state did not increase the upper limit in accordance with the PACE Act. This change means states who have already issued guidance will likely need to update that guidance to reflect this new extension.
The impact of adding one extra year for carriers to adjust to the PACE Act for MLR reporting purposes has a ripple effect. For states that didn't expand their definition of small group to 1 -100, (or those that did but are considering rolling the definition back to 50 during their legislative sessions this year), there is now relief in place. Carriers in states that will use the 1-50 definition of small employer may use the 1-100 definition in 2015 and 2016 for MLR purposes only, but in subsequent years (2017) must use 1-50 for MLR purposes. Thus, the guidance gives carriers more time to set their rates appropriately for 2017. For those states (such as New York) that changed their definition of small employer to 1-100, carriers now must use the 1-100 definition uniformly for all PPACA programs, including MLR.
Dec. 17, 2015 FAQs »
Administration Issues Additional Guidance Related to Innovation Waivers
On Dec. 11, 2015, HHS and the Department of the Treasury released guidance in the Federal Register for states interested in pursuing an innovation waiver under section 1332 of the ACA. Health care reform authorizes states to apply for an "innovation waiver" from the employer shared responsibility penalty tax and certain other requirements for plan years beginning on or after Jan. 1, 2017. The waivers provide states the flexibility to pursue their own strategies to provide their residents with access to health insurance that is affordable and provides MEC. The newly released guidance outlines how waiver applications will be evaluated.
Among the aspects of an application that will be evaluated are the scope of coverage available under the alternative model, the affordability of plans, the comprehensiveness of the coverage available, its impact on other provisions of the PPACA and whether use of the alternative model costs less to the federal government.
Applications made for innovation waivers will be available for public comment for a minimum of 30 days.
80 FR 78131 »
HHS Fact Sheet »
IRS Releases Guidance Related to HCTC
On Dec. 22, 2016, the IRS issued Notice 2016-02, which is related to the health coverage tax credit (HCTC). As a reminder, the HCTC is premium assistance in the form of a tax credit available to certain individuals who are Pension Benefit Guaranty Corporation pension recipients. The credit is also available to individuals who are eligible under the Trade Adjustment Assistance and Alternative Trade Adjustment Assistance programs. The individual must have qualified health coverage, which includes COBRA, a spouse's group health plan, individual coverage and certain employee benefit plans funded by a voluntary employees' beneficiary association. Individual health coverage from a state exchange is only qualified for tax years 2014 and 2015.
The HCTC is separate and different from the premium tax credit (PTC) available through the exchange for qualified individuals. The PTC is only available to individuals who have household income between 100 percent and 400 percent of the federal poverty level. Additionally, to be eligible for the PTC, an individual cannot be eligible for minimum value, affordable coverage from an employer. The notice clarifies that if an individual purchases coverage through the exchange, they cannot claim both the HCTC and PTC for the same coverage month.
The notice also includes several frequently asked questions related to tax filings and HCTC elections, which will be helpful to eligible individuals.
IRS Releases Guidance for Small Businesses Claiming Health Care Tax Credit
On Jan. 6, 2015, the IRS updated their Web page dedicated to information about the Small Business Health Care Tax Credit to inform employers that qualify for the credit how the required sequestration impacts the amount of the credit. Due to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming a refundable credit are subject to sequestration, which means payments processed on or after Oct. 1, 2015, and on or before Sept. 30, 2016, will be automatically reduced by 6.8 percent.
Subsequently, the IRS also released updated forms and instructions to file and claim the Small Business Health Care Tax Credit. The main change on the 2015 Forms was that average annual wages must be less than $52,000 for 2015 in order to claim the credit (up from $51,000).
Q&A Website »
IRS Releases Health Care Tax Tip 2015-85, 8 Facts for ALEs about New Information Statements to be Filed in 2016
On Dec. 29, 2015, the IRS published Health Care Tax Tip 2015-85 providing employers with eight helpful facts about the 2015 reporting statements. The tips are available in both English and Spanish.
Here is a summary of the tips included.
The deadline for distributing forms to employees has been extended two months, while the filing deadline with the IRS has been extended three months.
ALEs are required to file Form 1094-C with the IRS; however, ALEs are not required to furnish a copy of Form 1094-C to their full-time employees.
ALEs must provide Form 1095-C or a substitute form to each employee who was a full-time employee for any month of the calendar year.
ALEs that sponsor self-insured plans must provide Form 1095-C to each employee who enrolls in the self-insured health coverage or enrolls a family member in the coverage, regardless of whether the employee is a full-time employee for any month of the calendar year.
Form 1095-C is not required for either an employee who was not a full-time employee in any month of the year, or an employee who was in a limited non-assessment period for all 12 months of the year, unless the employee or the employee's family member was enrolled in a self-insured plan sponsored by an ALE.
If an ALE sponsors a health plan that includes both self-insured options and insured options, the ALE should complete Part III of Form 1095-C only for employees and family members who enroll in the self-insured option.
ALEs that offer coverage through an employer-sponsored insured health plan and do not sponsor a self-insured health plan should not complete Part III of Form 1095-C.
ALEs may provide a substitute Form 1095-C; however, the substitute form must include all information on Form 1095-C and must comply with generally applicable requirements for substitute forms.
IRS Health Care Tax Tip 2015-85 »
IRS Health Care Tax Tip 2015-85 (en Español) »
IRS Extends Deadlines for Section 6055 and 6056 Reporting
On Dec. 28, 2015, the IRS released IRS Notice 2016-4, which delays Sections 6055 and 6056 reporting for the 2015 reporting year. Forms 1095-B and 1095-C must now be distributed to employees by March 31, 2016, as opposed to the original due date of Feb. 1, 2016. If filing by paper, Forms 1094-B, 1095-B, 1094-C and 1095-C must be filed with the IRS by May 31, 2016 (changed from Feb. 29, 2016). If filing electronically, the forms are due to the IRS by June 30, 2016 (changed from March 31, 2016). The extended deadlines apply to all filers automatically. In summary, the deadline for distributing forms to employees has been extended two months, while the filing deadline with the IRS has been extended three months.
The original due dates were aligned so that individual taxpayers could use the information contained in the forms to file their individual tax returns. Specifically, the information is needed by individuals to help determine whether they were eligible for the premium tax credit or subject to the individual mandate. The IRS has granted this automatic extension due to the fact that insurers, self-insuring employers and other providers of minimum essential coverage need additional time to adapt and implement systems and procedures to comply with the reporting requirement. As a result of this delay, if individuals have not received the information by the time they file their individual tax return, they may rely upon other information received from employers or coverage providers when filing their returns. They need not amend their returns once they receive the forms, but they should keep them with their tax records.
The IRS reinforced that an employer should make a good-faith effort with reporting. If an employer does not comply with the extended deadlines, the employer could be subject to penalties.
IRS Notice 2016-4 »
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