Health Care Reform
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Let American Fidelity be your guide.
Health Care Reform
American Fidelity Assurance Company's goal is to be our customers' primary resource for managing challenges and changes resulting from Health Care Reform and rising health care costs. This website is a resource to help our customer groups focus on the steps you need to take today, find the answers you need, and plan for additional changes. We look forward to helping you during the months and years ahead.
The U.S. Department of Health and Human Services (HHS) and the centers for Medicare & Medicaid Services (CMS) recently released a notice addressing, among other topics, annual limitations on cost sharing for self-only coverage and clarifying the application of the minimum value standard to employer-sponsored health plans.
For 2016, out-of-pocket costs are limited to $13,700 for a family and $6,850 for self-only coverage. The notice specifies that the annual limitation on cost sharing for self-only health coverage applies to all individuals regardless of whether the individual is covered by a self-only health plan or is covered by a health plan that is other than self-only. High deductible health plans may continue to offer plans that count the family's cost sharing to the deductible limit. However, a high deductible health plan may not require an individual in the family plan to exceed the annual limitation on cost sharing for self-only coverage, effectively embedding the individual out-of-pocket limit within all family high deductible healh plans. Furthermore, any annual limit on cost sharing must apply for an entire year regardless of whether a health plan is a calendar year plan or not. The notice also states that plans are not required to count out-of-network charges toward cost-sharing limits.
Under the Patient Protection and Affordable Care Act (ACA), an employer's share of the total allowed costs of benefits provided under the health plan must equal or exceed 60% to satisfy the ACA's minimum value requirement. The new notice clarifies that, in order to meet minimum value standards, a health plan must provide a benefit package that includes substantial coverage of both inpatient hospital services and physician services. If an employer offers health coverage that fails to meet the minimum value requirement, and any employee goes to the marketplace and qualifies for the financial assistance, that employer could be subject to a $3,000 penalty under Internal Revenue Code section 4980H(b).
This is true even if the health plan "passes" under the minimum value calculator available on the HHS website, which is one of several options for calculating minimum value. Employers who have already enrolled employees in plans that do not cover hospital care, or who signed contracts to provide such plans by November 4, 2014, will not face a penalty for plan years beginning on or before March 1, 2015. Such employers are advised to re-evaluate their plan offerings because they will be subject to a penalty for future plan years.
The IRS recently released a new fact sheet explaining the process the agency plans to use to administer the employer mandate under the Patient Protection and Affordable Care Act (ACA).
Beginning January 1, 2015, the ACA imposes two potential penalties-(1) a penalty imposed on employers that choose not to offer healthcare coverage to substantially all of their full-time employees, and (2) a penalty imposed on employers that offer coverage, but the coverage offered is not adequate or affordable under the law. Both penalties are triggered when any one full-time employee obtains health insurance through the Public Exchange Marketplace (Marketplace) and receives a premium tax credit.
The new IRS fact sheet details these two types of penalities and how they will be calculated. It sets forth how the penalities will be imposed month-by-month, and gives examples of how the penalties might be assessed in various scenarios.
The fact sheet also explains that employers will not self-report or calculate these employer shared responsibility payments. Rather, the IRS will calculate the potential penalty due and contact the employer. The IRS' determination will occur after employees have filed their individual tax returns for the year claiming any premium tax credits. After the IRS sends the calculation to the employer, the employer will have an opportunity to respond to the IRS before any assessment or notice/demand for payment will be made. The IRS will adopt procedures to ensure that employers are notified when an employee receives the premium tax credit for purchasing coverage through the Marketplace.
Employers should begin to think about the ACA and to prepare now, before an assessment or collection notice arrives from the IRS. Applicable transition relief, ACA safe harbors, and careful workforce planning can minimize or prevent employer mandate penalties. Thorough documentation will be an employer's best defense against an IRS claim that an employer mandate penalty is due.
On November 26, 2014, the Internal Revenue Service (IRS) and Treasury Department published final regulations addresing how different types of employer payment arrangements are factored into affordability calculations under the Individual Mandate.
A number of customers have contacted us to ask about this recent guidance and how it might affect their benefit offerings. In particular, some customers are concerned about the situation in which an employer offers a section 125 cafeteria plan with the option of taking so-called "cashable" flex credits as a taxable benefit. Such credits can either be cashed out after-tax, or used to select from a menu of pre-tax benefit offerings. Below are a few key questions customers have asked, along with American Fidelity Administrative Services (AFAS's) responses.
As always, AFAS reminds its customers that we do not provide tax or legal advice. Employers are urged to work with their own legal counsel to determine how the IRS regulations migh apply to their specific facts and circumstances.
1. What is the Individual Mandate?
The Individual Mandate (or individual shared responsibility provision) went into effect January 1, 2014 and requires individual taxpayers to maintain minimum essential coverage for themselves and their dependents, or potentially pay a penalty when they file their annual tax returns.
2. How Do Individuals Who Cannot Afford Coverage Qualify for an Exemption from the Individual Mandate?
Certain individuals may qualify for an exemption from the individual shared responsibility penalties. If an exemption applies, then even if that individual fails to obtain minimum essential coverage he or she will not owe an Individual Mandate penalty.
One such exemption is available if the individual declines employer-sponsored coverage that is considered unaffordable. The final IRS regulations published on November 26, 2014 explain how to qualify for this type of exemption. The exemption is available to an individual employee who fails to obtain minimum essential coverage when the plan offered to that employee is not affordable because the individual's required contribution to the employer's lowest cost self-only coverage exceeds 8 percent of his or her total household income.
The final regulations include provisions designed to help an employee calculate whether his or her available employer coverage is considered affordable or unaffordable for purposes of claiming this exemption.
3. For Purposes Of The Individual Mandate, How Do Employer Flex Credits Count Toward An Employee's Required Contribution To The Cost Of Coverage?
The final regulations state that, for purposes of determing the affordability of coverage, the employee's required contribution is reduced by any contributions made by an employer under a section 125 cafeteria plan that (1) may not be taken as a taxable cash benefit, (2) may be used to pay for minimum essential coverage, and (3) may be used only to pay for medical care within the meaning of Internal Revenue Code section 213.
The effect of this guidance is that cashable credits that can be taken by the employee as additional taxable compensation, or that can be used to pay for something other than medical care, will be treated as a contribution of the employee rather than the employer for the purpose of determining affordability under the Individual Mandate.
4. Will Employer Plans Offering Flex Credits Be Considered "Affordable" Under The Employer Mandate?
Because employers usually do not know an employee's household income, the ACA provides three affordability safe harbors for employers, based on the employee's 1) box 1 Form W-2 wages; 2) rate of pay, or 3) the federal poverty line. Employers will not pay an unaffordability penalty if the coverage they offer to employees is affordable under one of the three safe harbors.
The November 26, 2014 regulations address the Individual Mandate only, and are silent on the issue of whether similar rules will apply to determining employer affordability safe harbors under Section 4980H. There has been speculation that the IRS could apply similar flex credit guidance to the Employer Mandate affordability rules via future rulemaking. However, as the rules stand today, the language about the flex credits from the November 26, 2014 guidance does not seem to be directly applicable to the determination of affordability safe harbors under the Employer Mandate.
AFAS will continue to monitor regulatory developments in this area and update its customer accordingly.
The Internal Revenue Service (IRS) has released final versions of the forms that will be used to meet the Patient Protection and Affordable Care Act's (ACA) information reporting requirements under Internal Revenue Code sections 6055 and 6056. Sections 6055 and 6056 require insurers, including employers that sponsor self-insured plans, and large employers to file information returns with the IRS and also provide statements to employees. Reporting is mandatory for the 2015 calendar year regardless of an employer's plan year effective date in 2015. Information for 2015, including the actual months of coverage and dependent social security numbers, is required to be reported in early 2016.
Insurers and employers that sponsor self-insured health plans will use IRS Forms 1094-B and 1095-B to report under section 6055 on individuals enrolled in minimum essential coverage. Large employers (as defined by the ACA, those employing 50 or more full-time equivalents) will use IRS Forms 1094-C and 1095-C to report under section 6056 on offers of health coverage and enrollment in employer-provided plans. Employers that sponsor self-insured plans and that are also applicable large employers will use IRS Forms 1094-C and 1095-C to file a combined report under both section 6055 and section 6056.
On December 16, 2014, the Department of Health and Human Services released the updated “Culturally and Linguistically Appropriate Services (CLAS)” county data list, which is used to comply with certain disclosure requirements under the Public Health Service Act (PHSA, as added by PPACA). Non-grandfathered group health plans and health insurance issuers offering non-grandfathered health insurance coverage are required to provide certain notices in a “culturally and linguistically appropriate” manner, if at least 10% of a county’s population is literate only in the same non-English language, as defined under Section 2719 of the PHSA.
Notices related to internal claims and appeals, external review processes, and the Summary of Benefits and Coverage (SBC) are required to be in compliance. In these instances, the employer must provide the notices upon request in the non-English language, and include in all English versions of the notices a statement in the non-English language clearly indicating how to access non-English language services from the plan or insurance issuer.
The CLAS county data list is updated annually and includes all counties which meet or exceed the 10% threshold. The 2014 edition included a note stating that the only change from the prior list is the addition of Sullivan County in Missouri, which now meets the 10% threshold of Spanish speaking households. This is the first county in Missouri to be added to the CLAS county data list.
On November 6, 2014, the U.S. Department of Labor (DOL) issued guidance on state regulation of stop-loss insurance for self-insured group health plans.
The guidance provides that unless prohibited by state insurance law, a stop-loss insurer could offer insurance policies with attachment points set so low that the insurer assumes nearly all of the employer's claim's risk.
Some states have considered measures to prohibit insurers from issuing stop-loss contracts with attachment points below a specified level, but have been unsure that they may regulate stop-loss coverage due to ERISA preemption of state regulation of private sector employee benefit plans.
The guidance clarifies the role of states to regulate stop-loss insurance for employee benefit plans while maintaining an employer’s flexibility in stop loss design based on what is allowable in its state of residence.
This effectively provides the employer with the advantage of not being required to meet state insurance laws with a self-funded major medical plan and the ability to shift the risk of the self-funded plan through stop-loss insurance.
The Department of Health and Human Services has delayed the submittal deadline of employer enrollment counts for 2014 to administer the fees owed under the Transitional Reinsurance program to 11:59 pm on December 15, 2014. The original deadline under the program was November 15, 2014. The deadlines for payments of the two part of the fee (January 15, 2015 and November 15, 2015) remain the same.
The Transitional Reinsurance Fee, paid by insurers for insured medical plans and by plan sponsors of self-funded plans, was instituted by Health Care Reform to help stabilize premiums for coverage in the individual health care market during the first three years of operation of the Federal and State Public Exchanges.
The information provided here is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All interpretations are subject to change as the appropriate agencies publish additional guidance. American Fidelity does not provide legal advice – as such, we suggest that employers and individuals consult with their legal counsel and/or tax advisors about how Health Care Reform may impact them.
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