“Grandmother” Rallies – Transition Relief Extended

As Mark Twain once wrote in a cable to a New York newspaper, “The report of my death was an exaggeration.” So, it is with “grandmothered” plans!

CMS gave “grandmother” new life in an announcement on April 9, 2018 extending the transition relief known as “grandmothered” plans.

Rather than terminating “grandmothered” policies at the end of 2018, this extension applies to policy years beginning “on or before October 1, 2019, provided that all such policies end by December 31, 2019.” The transitional relief applies to individual and small group markets.

The notice includes an attachment to be used if a cancellation notice has been sent to the policyholder and the carrier will now continue to policy. The notice provides guidance on differences between “grandmothered” plans and ACA-compliant plans. The notice also explains steps to take to choose a different policy.

As before, the extension of transitional relief allows states to decide whether and to what extent to  allow transitional relief. As such, brokers and consumers should look to their state’s insurance regulators for further guidance.

Grandmothered Plans — On Life Support?

Plans that are not fully in compliance with the Affordable Care Act (ACA) but are not “grandfathered” are referred to as “grandmothered” plans. “Grandfathered” plans had to be in effect prior to enactment of the ACA on March 23, 2010. “Grandmothered” plans could have been purchased subsequent to March 23, 2010 but before December 31, 2013. Both “grandfathered” and “grandmothered” plans have been able to be renewed depending on meeting regulatory or state requirements.

“Grandmothered” plans came about as the result of transitional relief offered by CMS in November 2013. The relief described in a letter allowed health insurance coverage in the individual and small group market that would be renewed between January 1, 2014 and October 1, 2014 to avoid certain insurance market reforms. The rationale for allowing the transition relief was that ACA compliant policies would have been significantly more expensive in many cases.

States could decide whether or not to allow these transitional policies. If a state allowed transitional policies, insurers could decide if they wanted to continue them or not. As many as 35 states allowed “grandmothered” policies.

There have been subsequent renewals of this transition relief. The most recent extension of “grandmothered” plans – and to date the last extension – was issued on February 23, 2017. This letter extended the period of transition relief to policy years beginning on or before October 1, 2018. The relief further limited the relief by noting that “provided all such policies end by December 31, 2018.”

The extension to the end of the 2018 calendar year was to align the end of the policies with the calendar year policy in the individual market.

States could elect to comply with this extension of the transitional relief or they could choose not to do so. They could also selectively elect shorter periods but were precluded from extending transition relief beyond the end of 2018.

Many small group employers and their insurance broker advisors are asking if “grandmothered” policies will survive to see 2019. Hope had flickered when a leaked version of a recent Republican reconciliation bill included an extension for these plans. This legislation never came to a vote.

As things currently stand, “grandmothered” plans will come to an end as of December 31, 2018. As has been the case with a number of ACA provisions, however, “grandmother” may make a miraculous recovery. Only time will tell.

Electronic Notice Distribution Requirements — Challenging and in Need of Change

Employers and employees have embraced benefit portals to enroll in coverage and access benefit information. Despite the near ubiquity of electronic benefits media, rules that govern the electronic distribution of materials required to be disclosed by ERISA haven’t kept pace – having been written more than a decade ago.

Today’s rules have an over-arching requirement for distribution of plan documents – that the employer or plan administrator must use a means that is “reasonably calculated to ensure actual receipt” of required notices by plan participants. The method also has to achieve “full” distribution. These sweeping requirements have led many employers to provide documents by first-class mail as this continues to be the “gold standard” for sending notices.

For a variety of reasons, including the cost of printing and mailing documents, employers want to use electronic means to send notices. In a recent comment letter NAHU sent to the ERISA Advisory Council they recounted an employer’s expense of $35,000 to prepare and mail ERISA required documents.

The rules on electronic distribution consider two groups of employees:

  1. Those employees with regular work-related computer access
  2. Employees without regular work-related computer access.

Employers may distribute documents to employees with regular access to computers as a part of their workday without obtaining consent from employees to receive them electronically. The employees don’t have to have a means to print the documents but only to access them. Importantly, the employee must be able to access the documents where they are performing their duties. As such, a computer kiosk in the break room does not meet these requirements.

For all others, the employer must provide paper copies of documents unless an employee “affirmatively consents” to electronic distribution of documents. This consent must be obtained prospectively, i.e., before any documents are distributed. Furthermore, the consent must include an electronic address to receive the information.

An employer must provide the following information as a part of affirmative consent to receive documents electronically:

  • If documents will be sent electronically, then the employee must affirmatively consent from the email address that they agree to use to receive information
  • A statement regarding the types of documents that will be provided electronically
  • Notice that the employee can withdraw consent, how to do so and that paper copies can be requested and whether there is a charge to receive paper documents
  • How to notify the employer of changes to the address for electronic disclosure
  • Any requirements relative to hardware or software to obtain the information.

The method must also result in actual receipt of the information. This may require a confirmation of receipt of transmitted notices or a process to address undelivered electronic mail.

Confidentiality of electronic documents that contain personal information is also required.

There are also format requirements that must be met. In short, the electronic documents must be consistent with the style, format and content requirements applicable to the particular document.

And, it must be clear to the recipient that the information has significance. For example, if the document relates to changes in the benefits, that should be evident in the transmittal.

DOL rules on disclosure can be found here. Technical release 2011-03 on the topic can be found here.

Electronic Distribution of Forms 1095-B and 1095-C

The rules to distribute the Employer Shared Responsibility Forms to individuals are similar to those established by the DOL for ERISA purposes. Any electronic notice must contain all of the required information that also complies with the guidelines in IRS Publication 5223. Publication 5223 is titled “General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C and 1095-C.”

Affirmative consent to receive the statements electronically is required and must not have been withdrawn prior to the statement being issued. As with the ERISA document distribution rules, the consent must be made electronically in a way that shows that the individual can access the statement in the electronic format in which the form will be furnished.

The employer must also inform the recipient that the statement is ready to be accessed and printed, if desired. The employer may provide this information by mail or electronically. Notably, this notice must include the capitalized statement “IMPORTANT TAX RETURN DOCUMENT AVAILABLE.” This statement would be the subject line if the notice is being sent by email.

The IRS has not provided a safe harbor for distribution of the 1095-B and 1095-C by electronic means. As such, the rules should be strictly followed.

In the letter to the ERISA Advisory Council as well as other communications with the federal Departments of Labor and Treasury, NAHU has called for an update to the electronic distribution guidance for employers to make use of electronic means more flexible. NAHU has called for making use of a “reasonably accessible” standard where an employee could acknowledge through online enrollment that disclosure documents provided online are reasonably available.

NAHU has also recommended accommodation for apps to store and access notices and plan documents. And, reflecting on today’s electronic media norms, NAHU suggested that a valid address for electronic delivery notifications should include phone numbers for text messages as well as social media accounts.

NAHU’s recommendations also include a call for harmonizing requirements for electronic distribution across government agencies. Employers would gain administrative and compliance efficiencies if the DOL and Department of the Treasury had the same disclosure requirement rules.

In the meantime, employers sanguine about these distribution requirements do so at their peril. A 2015 court case, Thomas v. CIGNA Group Ins., found in favor of the employee’s beneficiary because there was no evidence that the participant received the SPD on the company intranet.




Tax Reform Changes HSA Limit

In the spirit of “beware what you wish for” the recent tax reform law included a small surprise for those with health savings accounts (HSAs). Page 400 of IRS Bulletin number 2018-10 contains a revision -downward – of the HSA family contribution limit.

The revision is due to a change in how the amount is calculated. “Chained CPI” will be used for annual inflation adjustments beginning with the 2018 tax year instead of using the CPI (Consumer Price Index).

For the tax year 2018 the new “chained CPI” calculation will reduce the HSA contribution limit for family coverage to $6,850 instead of $6,900. This is a reduction of $50. The self-only limit remains unchanged from the previously announced amount of $3,450.

As a reminder, the self-only limit for 2017 was $3,400. The family limit for 2017 was $6,750.

Anyone who has contributed an amount in excess of $6,850 for 2018 should contact their HSA administrator to address the excess contribution.

The complete IRS bulletin 2018-10 can be found here.

Medicare and COBRA Can Cause Confusion

Employees – and their employers – are often confused when the employee who is Medicare-eligible retires. Some employees want to continue their coverage under COBRA because they’ve met their deductible for the year or simply because they’re familiar with the employer plan in which they were enrolled while working.

But, making the decision to take COBRA can have unforeseen consequences. COBRA is not creditable coverage for Medicare Part B. An employee who goes on COBRA rather than enrolling in Medicare is not eligible for a Special Enrollment Period for Medicare Part B when COBRA ends. COBRA is not considered “coverage based on current employment.” Someone in this situation will face the Part B late enrollment penalty of 10% per year for life.

Employees may not realize that the rules for COBRA are different when it comes to Medicare Part D. As such, if an employee researches how COBRA interacts with Medicare Part D, they’ll find that COBRA may be creditable coverage for Medicare Part D, prescription drug coverage. In the case of  Medicare Part D, a person will have a Special Enrollment Period to join a Medicare drug plan without paying a penalty when COBRA coverage ends.

So, COBRA is not creditable coverage for Medicare Part B, but it is creditable coverage for Medicare Part D. No wonder there’s confusion.

NAHU has been working with Congressional leaders on a legislative fix to the Medicare Part B problem. Legislation that would make COBRA coverage creditable for Medicare Part B is expected to be introduced in the next weeks.

A knowledgeable insurance broker can help navigate these tricky transitions from work to retirement. Also, the website and book Medicare & You from the Centers for Medicare & Medicaid Services is an excellent resource. The book is updated annually and covers a wide variety of Medicare related information including enrollment, benefits and the like.

ACA’s Individual Mandate — Still in Force

The new tax law passed by Congress and signed by the President does not repeal the individual mandate as many people have assumed. The tax law actually zeroes out the individual mandate penalty. And, importantly, this action takes effect in 2019.

The actual law text is:



(a) IN GENERAL.—Section 5000A(c) is amended—

(1) in paragraph (2)(B)(iii), by striking ‘‘2.5 percent’’ and inserting ‘‘Zero percent’’, and

(2) in paragraph (3)—

(A) by striking ‘‘$695’’ in subparagraph (A) and inserting ‘‘$0’’, and

(B) by striking subparagraph (D).

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to months beginning after December 31, 2018.

For individuals who question whether the IRS will continue to enforce the individual mandate, knowing that penalties will go away next year, only time will tell. For the 2018 tax filing season, the IRS has stated that they will not accept tax returns that omit information specifying whether an individual had coverage or whether they qualified for an exemption from the individual mandate.

Opinions are mixed on what effect no penalty assessment will have on how many people maintain health coverage. Employers may find that some employees will drop employer-sponsored coverage since the employees will no longer face a penalty if they don’t have coverage.

Some individuals may no longer purchase individual health insurance. But, the extent to which individuals purchased coverage to avoid the somewhat low individual mandate penalty is unknown.

One likely outcome is that there will be an uptick in adverse selection. Adverse selection occurs when individuals who believe that they will have medical expenses seek out or retain health insurance coverage when they might not otherwise do so. Until the extent of any adverse selection is understood, insurers are likely to be conservative in their pricing or in their decisions on which markets they will participate in.

Cautions and Caveats Regarding Health Care Sharing Ministries

There has been a significant increase in enrollment in health care sharing ministries over the years since enactment of the Affordable Care Act (ACA). ACA specifically referenced health care sharing ministries, allowing an exemption from the individual mandate for individuals participating in one.

According to the Alliance of Health Care Sharing Ministries there are more than 100 registered health care sharing ministries across the country. And, the alliance claims more than one million participants.

A health care sharing ministry is not insurance. Instead, they are faith-based organizations that provide “financial, emotional, and spiritual support” to members. Participating individuals pay a monthly membership fee if they meet the qualifications to join the ministry. In many cases, the monthly membership fee is significantly lower than an insurance plan.

Qualifications may require regular attendance at worship services, abstention from tobacco and alcohol and other unhealthy activities. In some cases applicants must pledge to live a Christian lifestyle or get a recommendation from their clergy.

Since these plans are not insurance, states are generally unable to require the ministries to meet solvency requirements or establish required reserves for claims. Other protections regarding appeals for claims decisions are also not applicable to these plans.

A new wrinkle with the health care sharing ministry plans is the interest of some employers in offering these plans to employees. Apart from the concerns regarding solvency and minimal state or federal oversight, there are tax implications to consider. A letter from the IRS unequivocally states that a health care sharing ministry is “not employer-provided coverage under an accident or health plan.” The cost of employee participation is “not excluded” from the employee’s gross income. The IRS letter can be reviewed here.

Employers who are subject to the employer shared responsibility (ESR) provisions face additional hurdles if considering these plans. A health care sharing ministry plan is not considered minimum essential coverage (MEC). As such, employers could face ESR penalties if they cannot meet the required 95% offer of coverage requirement to avoid the “no offer” penalty of $2,320 per employee in 2018.

Employees may also balk at an employer offering a plan that is inextricably tied to religion and religious practices.

Employers should obtain legal guidance before offering a health care sharing ministry plan to explore all issues surrounding these plans. Individuals interested in the plans should ensure that they understand fully the requirements and restrictions associated with them.

IRS Pushes Back Due Date for ACA’s Employer Reporting

The IRS delivered a highly coveted holiday gift to employers when it announced that employers could delay sending 1095-B and 1095-C forms to employees. Notice 2018-06 was published just before Christmas.

The notice allows applicable large employers (ALEs) subject to the ACA filing requirements to furnish the required notices to individuals as late as March 2, 2018 rather than January 31, 2018. The notice advises that individuals do not need to wait for the 1095-B or 1095-C forms if they wish to file their taxes before receiving the notices from their employer or insurer.

Importantly, the notice does not provide relief for filing with the IRS. Employers must still file information returns and transmittals with the IRS before February 28, 2018 or April 2, 2018 if filing electronically. Electronic filers would normally have to file by March 31. However, since March 31 is a Saturday, the due date is pushed to the first business day following the due date.

Good faith transition relief has also been extended to employers filing returns for the 2017 year. The IRS will not impose penalties on reporting entities that have made good-faith efforts to comply with the reporting requirements. This relief is applicable to the “furnishing and filing of incorrect or incomplete information reported on a statement or return.”

Good- faith relief requires that the employer made a good -faith effort to comply with the regulations. It is applied to situations where there is missing or incorrect taxpayer identification numbers, dates of birth or other information on a return. Notably, it does not extend to failure to furnish or timely furnish a statement or return.

Failure to file returns timely or at all can result in significant penalties. Penalties range from $50 to $540 per return. The IRS notice 2017-58 regarding penalties can be found here.

Employers who have not met the due dates to file returns should do so as soon as practicable. The IRS can abate these penalties for reasonable cause. Reasonable cause requires a reporting entity to demonstrate that it acted in a responsible manner and that the failure to file was due to events beyond the reporting entity’s control.

While employers had been asking the IRS for delayed filing, this notice specifically states that such relief is not likely in future years.

The IRS news release explaining the delay can be found here.

IRS Notice 2018-06 can be seen here.

20 Things to Know About QSEHRAs

QSEHRAs allow small employers to provide health reimbursement arrangement (HRA) funds for employees to purchase individual coverage. They were part of the 21st Century Cures Act enacted on December 13, 2016. While the concept may sound simple enough, recent IRS guidance shows that these arrangements are complex tax arrangements.

Notice 2017-67 provides IRS guidance on the requirements for employers wishing to offer these arrangements. The complete notice can be found here.

Here are 20 things to know about QSEHRAS:

  1. A “qualified small employer health reimbursement arrangement” is one that is funded solely by an eligible employer without salary reduction. It is provided on the same terms to all eligible employees.


  1. An eligible employer is one that is not an ALE under the definition in section 4980H of the ACA. An employer whose workforce increases to 50 or more full-time employees during a calendar year will not become an ALE before the first day of the following calendar year. Importantly, if a QSEHRA is provided on a non-calendar year basis, eligibility for the QSEHRA terminates on January 1 if the employer has become an ALE due to an increase in employees as noted.


  1. An employer must not offer a group health plan to any of its employees. For this purpose, a group health plan includes a plan that provides only excepted benefits such as a vision or dental plan.


  1. The amount of the benefit may vary based on the price of a policy in the individual insurance market based on the age of the employee and/or family members and the number of family members eligible.


  1. The maximum dollar limit per year for 2017 is $4,950 for an individual employee and $10,050 for family coverage. The maximum benefit may be prorated based on the months that an individual is covered by the arrangement. The annual maximum is to be adjusted for inflation using the Consumer Price Index (CPI) inflation rate. The 2018 maximum permitted benefit is $5,050 for self-only coverage and $10,250 for family coverage.


  1. The plan is subject to nondiscrimination requirements and may exclude employees defined in Section 105(h)(3)(B). The Act amends these requirements for the purposes of this provision by substituting 90 days for “3 years” in clause (i). As such, employees that may be excluded are:
  • Employees who have not completed 90 days of service
  • Employees who have not attained age 25
  • Part-time and seasonal employees
  • Employees who are members of a collective bargaining agreement
  • Employees who are nonresident aliens and who receive no earned income in the US.


  1. Employers are required to provide a notice 90 days before the beginning of the year or when an employee is first eligible for the plan. An employer that provides a QSEHRA during 2017 or 2018 may have until the later of February 19, 2018 or 90 days before the first day of the plan year to provide the notice. The notice must contain:
  • Statement of the amount of the eligible employee’s permitted benefit
  • Statement that information regarding the benefit must be provided by the employee to any health insurance exchange if applying for APTC
  • Statement that if the employee is not covered under MEC (minimum essential coverage) for any month that the employee may be subject to the individual mandate tax for the month and any reimbursements under the arrangement may be included in gross income.


  1. The HRA reimbursement is treated as affordable coverage for a month if the amount that would be paid by the employee as premium for self-only coverage under the second lowest cost silver plan offered in their respective individual health insurance market does not exceed the household affordability threshold. The applicable amount for a month is calculated based on 1/12 of the employee’s permitted benefit.


  1. Controlled group rules apply when determining whether an employer is an eligible employer to offer a QSEHRA. Each employer in the controlled group must provide a QSEHRA to all eligible employees with the same terms and same amounts of permitted benefits.


  1. Employees cannot waive the QSEHRA benefit.


  1. A safe harbor describes which employees may be deemed ineligible as part-time or seasonal. These would be any employee whose customary weekly employment is less than 25 hours or any employee whose customary annual employment is less than 7 months.


  1. A QSEHRA can only be provided to active employees. A 2% shareholder who is otherwise an employee is not an employee for QSEHRA nor is a retiree.


  1. An employer must base the permitted benefit on the number of family members who have minimum essential coverage (MEC). This would mean that an employee with self-only coverage would have to receive the family permitted benefit is their spouse is enrolled in a different plan or policy that provides MEC, even though the plan may be from another employer.


  1. A QSEHRA arrangement can limit reimbursements to one or more of: insurance premiums, cost-sharing expenses that are medical expenses or certain other medical expenses. It may also reimburse premiums for Medicare or Medigap policies. The arrangement must still be “effectively available” to all eligible employees.


  1. Eligible employees must provide proof that they have MEC at least annually in order to obtain QSEHRA reimbursements. Each reimbursement request must include an attestation that the individual seeking the reimbursement continues to have MEC.


  1. Requested reimbursements must be substantiated as qualified medical expenses. Substantiation requirements for FSAs (flexible spending arrangements) will satisfy this requirement.


  1. A QSEHRA is subject to the PCORI fee.


  1. A QSEHRA that reimburses any medical expense including cost-sharing disqualifies the person from making HSA contributions.



  1. Mistakes in reimbursements may result in the QSEHRA arrangement failing to satisfy the requirements for the QSEHRA. This failure may result in all payments to all employees under the arrangement becoming taxable.


  1. The guidance in Notice 2017-67 applies to plan years beginning on or after November 20, 2017.










ACA Employer Reporting Penalties Increase for 2018

Many employers are getting unwelcome mail from the IRS –Letter 226J- assessing employer shared responsibility penalties. Early reports of employers receiving these letters are that errors made on the 1094-C and 1095-C forms may be the trigger.

Hopefully, these errors can be corrected and many of the penalties will be abated. But, this experience points out how important completion and filing of these forms can be. It is far better to file information correct and timely and avoid having to address an IRS missive demanding penalties!

Employers who fail to file reports timely or with incorrect information will find that doing so will cost more in 2018. Revenue Procedure 2017-58 ups some penalties for 2018.

Scenario                                            Penalty Per Return 2017         Penalty Per Return 2018

Failure to file correct returns                           $260                                                  $270

Failure to file w/in 30 days of due date          $50                                                    $50

Failure to file by August 1                                  $100                                                 $100

Intentional Disregard                                          $540                                                 $540

These are filing penalties. Employers may also face employer shared responsibility penalties for not offering coverage or for offering coverage which doesn’t meet the affordability standard.

The IRS notice regarding penalties can be found here.