How to Survive a Department of Labor Health Plan Audit

Ask anyone to choose a root canal or an IRS audit and the choice will be no surprise – root canal. Many employers would choose a root canal over a Department of Labor (DOL) health plan audit, too.

A DOL health plan audit can be triggered by a complaint or luck! In any event, notice of a DOL health plan audit calls for immediate attention from the employer.

The scope of documents that the DOL can review is broad, in large part due to the DOL’s responsibility to enforce a number of complex laws including:

  • ERISA
  • COBRA
  • HIPAA
  • PPACA.

In fact, the appendix to one DOL audit request listed 26 items for the employer to provide. Employers generally have 30 days to assemble the documentation requested for the audit.

If this information sounds like a really bad dream, the DOL has provided a lifeline. This lifeline is the self-compliance tool that is intended to help employers assess whether their plans are in compliance with the various laws. As importantly, assembling the documentation called for by the compliance tool would go a long way to making a health plan audit request more manageable.

Warning, this tool is comprehensive with 68 pages covering 93 questions!

Which brings back the idea of choices. Which is preferable, assembling the documents called for in the self audit over a period of weeks or months or scrambling when a DOL auditor is knocking on the door?

Cadillac Tax Still Looms

The Cadillac tax, the 40% excise tax on some health plans under the ACA, is still rolling along. As such, employers may want to take steps to avoid the tax which, as of now, will apply beginning in 2020.

The AHCA currently being debated in Congress repeals many of the ACA taxes. Importantly, it does not repeal the Cadillac tax instead deferring it to 2026. And neither does  the just released Senate bill,  the Better Care Reconciliation Act of 2017, which delays the tax until 2026.

Plans subject to the tax in 2020 will be those that cost more than $10,800 for individuals and $29,100 for families. The Cadillac tax was initially projected to affect 3% of health plans. Recent estimates project that it will hit 47% of plans by 2020.

Assuming that the tax will be enforced in 2020 gives employers a rather short timeline to make plan changes to avoid the tax. If employers want to ease the impact of significant changes to their benefits they have only one or two renewal cycles to do so.  Some employers are already increasing deductibles or out-of-pocket limits to reduce premiums to avoid the tax.

NAHU has developed an infographic that outlines the concerns with the Cadillac tax.

IRS information on the ACA tax provisions including the Cadillac tax can be found here.

The Congressional Budget Office discussion of private health insurance premiums and federal policy referenced in NAHU’s infographic is here.

Compliance Cornered’s previous post on this topic is here.

Caution — Affordability Percentage Declining for 2018

Employers who are beginning assessing their plans for 2018 may need to revisit their contribution strategy if they are subject to the employer responsibility requirements of the ACA. Employers who are “applicable large employers” (ALEs) must ensure that coverage is “affordable” in order to avoid the ACA’s employer penalty.

Employer sponsored coverage was initially defined as an employee contribution for self-only coverage of no more than 9.5% of  the employee’s household income. The safe harbor established by the IRS affirmed that employers don’t know an employee’s household income; substituting the use of Form W-2 wages.

The affordability percentage is indexed and, as such, has gradually increased reaching 9.69% in 2017. However, 2018’s limit will decrease to 9.56%. As a result, even if an employer’s health plan premium doesn’t increase, the employer may have to up the employer’s contribution to keep coverage affordable. See the simplified example below:

Year       Affordability %   Annual W-2     Affordability      Max. Contribution

2017      9.69%                   $45,000               4360.50               $363.38

2018      9.56%                   $45,000               4302.00               $358.50

Employers who use the federal poverty level safe harbor will benefit from an increase in the federal poverty level to offset the affordability percentage decrease. The maximum monthly contribution using the FPL safe harbor will increase as shown below.

Federal Poverty Level Safe Harbor

Year                  Prior Year FPL   Affordability %   Maximum Monthly Contribution

2017                     $11,880               9.69%                   $95.93

2018                     $12,060               9.56%                   $96.08

With the daily news of Congressional deliberations to “repeal and replace” the ACA, some wonder if compliance with the ACA is still required. Unless and until legislation is passed by the House and Senate and signed by the President, compliance with the provisions of the ACA is recommended.

The IRS Revenue Procedure announcing the 2018 affordability measure is here.

Will Window Shopping Save SHOP?

On May 15, 2017 the Centers for Medicare and Medicaid Services (CMS) announced plans to change how employers can shop in the federal SHOP (FF-SHOP) marketplace. The announcement proposes that federally facilitated SHOP plans will no longer offer online enrollment for plan years beginning in 2018. Instead, employers can use the federal SHOP to “window shop” for plans and obtain a determination of SHOP eligibility. This announcement follows through on discussions in the 2018 Notice of Benefit and Payment Parameters first published last summer.

Online enrollment in SHOP qualified plans would be done via direct insurer enrollment. This would mean that employers wishing to offer plans with multiple insurers will have to obtain quotes from each insurer and then enroll directly through each insurer. And, employers will be billed separately by each insurer for their enrolled employees.

The announcement notes that as of January 2017 there were approximately 7,600 employers with active FF-SHOP coverage covering about 39,000 individuals. Enrollment is well below the Congressional Budget Office (CBO) estimate for enrollment in 2017, initially projected to be 4 million enrollees nationwide.

Employers who want to use the small employer tax credit must create an account at HealthCare.gov to determine their eligibility for SHOP and the tax credit. Employers will be able to review available plans and prices on the site.

Brokers are expected to be integral to future success of the FF-SHOP. The announcement specifically refers to agents or brokers registered with SHOP as assisting employers. Brokers interested in working with the federal SHOP must still complete the Privacy and Security agreement to be a registered FF-SHOP broker. As a registered FF-SHOP broker they will also be listed in the “find an agent” feature at HealthCare.gov.

Another change made in the 2018 Notice of Benefit and Payment Parameters first published last summer may peak more interest in the SHOP. The requirement was that a federal exchange would only certify a QHP to offer coverage in the individual market if the issuer offered through the SHOP at least one silver and one gold plan when the insurer had at least a 20 percent share of the small group market in the state measured by earned premium. This policy known as the “tying policy,” was eliminated for 2018.

The change to “window shopping” will also mean that FF-SHOP qualified plans will no pay the 3.5% user fee for the plans.

HSAs and Medicare Conflicts

Employees who have enjoyed the benefit of health savings accounts (HSAs) may be in for a taxing surprise when they enroll in Medicare. That’s because Medicare enrollment disqualifies someone from contributing to an HSA.

Working employees may sign up for premium free Medicare Part A when they are first eligible for coverage at age 65. Signing up for Part A or signing up for social security, which triggers enrollment in Part A, requires a person to cease making HSA contributions. A person who signs up for social security is automatically signed up for Medicare Part A.

By claiming social security benefits after age 65, an automatic retroactive coverage period for Part A is triggered. The retroactive period is limited to six months or the entitlement date for Medicare, whichever is shorter. HSA contributions made during this Part A retroactive period may result in an IRS penalty.

Working aged employees or spouses can delay enrollment in Medicare Parts A and B if they are enrolled in an employer group health plan. Before considering this option, it’s important to understand whether the employer plan will assume coordination with Medicare benefits. If Medicare is the primary payer, the employee could have to pay the expenses that Medicare would have paid out of their own pocket.

Employees should discuss their Medicare and HSA options with their benefits advisor and accountant well in advance of reaching age 65.

Here are some resources that are helpful in understanding Medicare for employees:

Medicare.gov “I have employer coverage”

Coordination of Benefits brochure

Medicare & Other Health Benefits: Your Guide to Who Pays First

Health Savings Accounts (HSA) and Medicare

Medicare Part A & Part B sign up periods

IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans

ACA Employer Reporting Compliance Still Required

Mark Twain has been quoted as saying, “The rumors of my death have been greatly exaggerated.” One could use this same phrase to describe the penalties that employers face for noncompliance with the ACA’s employer reporting requirements.

President Trump’s first executive order signed on January 20th may be the “rumor” that ACA compliance is stayed. The order includes the following statement:

“Sec. 2.  To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

Despite this order, the law still stands, as well as the pages of regulations published to implement the law. Whether the order can be used by any federal agency to waive penalties is unclear and could result in legal action.

The recent release of a TIGTA report may indicate that the IRS is still moving forward in its efforts to assess penalties on noncompliant employers. TIGTA is the Treasury Inspector General for Tax Administration. TIGTA issued a final report on April 7, 2017 titled: Affordable Care Act: Assessment of Efforts to Implement the Employer Shared Responsibility Provision. The report can be read here.

The report found that the IRS has had difficulty processing the ACA-related forms that employers have filed. Despite these delays some of the needed systems are expected to come online in May 2017.

Much of the 43 page report focuses on technical review and analysis of IRS processes. But, it is clear that progress is being made to implement the penalty assessment capabilities of the IRS that will identify noncompliant Applicable Large Employers (ALEs).

Employers are advised to continue to comply with the requirements of the ACA unless and until President Trump signs a law that ends them. Anything else amounts to “rumors.”

 

Rule on Market Stabilization Finalizes Special Enrollment Documentation

Starting in June 2017, new consumers in all states served by the HealthCare.gov platform attempting to enroll through applicable special enrollment periods (SEPs) will have to undergo pre-enrollment verification of eligibility. Enrollees would have their enrollment delayed or “pended” until verification of eligibility is completed by the Exchange.

The goal of SEP documentation is to help stabilize the individual insurance market and limit a person’s ability to enroll in coverage only after they discover they need medical care.

A quick review of the final rule’s requirements finds the following regarding SEPs:

  • Pre-enrollment verification applies to federally facilitated and state based exchanges that use the HealthCare.gov platform
  • Enrollees claiming special enrollment period (SEP) eligibility must submit their application and select a Qualified Health Plan (QHP)
  • Enrollment is “pended” until verification of SEP eligibility
  • Start date of coverage is determined by date of QHP selection
  • Consumers have 30 days from date of QHP selection to provide documentation of their qualification for the SEP
  • The exchange will attempt to obtain eligibility through automated means such as verifying birth by “confirming baby’s existence” or electronically verifying that the consumer was denied Medicaid or CHIP
  • Enrollees have proof of previous year health coverage via tax statements which may be helpful in some circumstances
  • Letters from insurers, employers and government health programs are acceptable documentation
  • SEP verification will be phased in with emphasis on the highest volume situations
    • Loss of minimum essential coverage
    • Permanent move
    • Medicaid/CHIP denial
    • Marriage
    • Adoption.

State based exchanges not using the federal platform have the flexibility to determine whether and how to implement pre-enrollment verification of eligibility for SEPs. The final rule suggests that states that have difficulty implementing verification should consider allowing issuers to conduct verification.

 

Keep on Complying!

One would have to be in a deep sleep to avoid the barrage of “news” regarding Congressional action to repeal the Affordable Care Act (ACA). But, all of the drama does not mean that anything has changed… yet.

Health insurance brokers have been fielding calls from clients asking if they still have to file forms 1094-C and 1095-C  which are due to the IRS by March 31, 2017.

The answer is, yes!

Other brokers and accountants are being asked if individuals should complete their tax returns due in April including the information regarding health coverage.

Once again, the answer is, yes!

Complying with the provisions of the Affordable Care Act will be required until legislation has passed both houses of Congress and been signed into law. Even after President Trump takes action, it’s likely that some provisions of the new law will be phased in. As a result, compliance with provisions of the Affordable Care Act (ACA) may be part of the compliance landscape for some time to come.

IRS Eases Filing Requirement for Individuals

In response to the Trump administration executive order that directed federal agencies to use discretion to reduce regulatory burdens, the IRS recently reversed course regarding individual tax returns and ACA compliance. The IRS had planned to reject individual tax returns if they were filed without information relating to whether the taxpayer had health coverage. In response to the executive order, these returns will be processed rather than rejected.

An individual shared responsibility payment for tax year 2016 is reported on line 61 of Form 1040, line 38 of Form 1040A, or line 11 of Form 1040EZ.

This doesn’t give individual filers who may not have had health coverage for all or part of 2016 a free pass. The IRS notice specifically notes that “legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe.”

The IRS reserves its right to follow-up with questions about a return and pursue amounts owed.

The announcement regarding this change in processing returns can be found here.

More information on the individual shared responsibility provision can be found on the IRS website here.

 

Contribution Strategy May Complicate Compliance

One of the recurring questions posed by NAHU members asks whether employers can vary the employer contribution to health coverage by employee class. For example, an employer may want to pay 75% of coverage for hourly workers and 50% for salaried workers. Or, an employer may want to offer 100% of coverage for workers who were with the company prior to January 1, 2017 but only 75% for those hired on or after January 1, 2017.

The short answer is “yes.” Employers have had a long history of varying contributions based on classes of employees.

The complication enters if the employer allows for pre-tax deductions of the employee portion of the premium. Cafeteria plans are subject to the Section 125 nondiscrimination rules, but there is a safe harbor exception available for premium only plans, commonly called POP plans. The safe harbor is available for POP plans if the employer allows all employees to elect the same salary reduction. These rules by the IRS indicate the following:

(f) Safe harbor test for premium-only-plans—(1) In general. A premium-only-plan (as defined in paragraph (a)(13) of this section) is deemed to satisfy the nondiscrimination rules in section 125(c) and this section for a plan year if, for that plan year, the plan satisfies the safe harbor percentage test for eligibility.

What this safe harbor means is that a plan is deemed to satisfy the Section 125 nondiscrimination rules because all employees can participate and can elect the same salary reductions for the same benefits.  There is no need to test utilization.

Here is an example from the IRS rules:

(2) Example. The following example illustrates the rules in paragraph (f) of this section:

Example. Premium-only-plan. (i) Employer F’s cafeteria plan is a premium-only-plan (as defined in paragraph (a)(13) of this section). The written cafeteria plan offers one employer-provided accident and health plan and offers all employees the election to salary reduce same amount or same percentage of the premium for self-only or family coverage. All key employees and all highly compensated employees elect salary reduction for the accident and health plan, but only 20 percent of nonhighly compensated employees elect the accident and health plan.

(ii) The premium-only-plan satisfies the nondiscrimination rules in section 125(b) and (c) and this section.

Keep in mind that this POP plan safe harbor is not available if the employer is offering other benefits beside just facilitating the payment of premiums. If the employer is offering a health FSA, the POP safe harbor  would not be applicable. Full Section 125 testing would be required.

The long answer, therefore, is that an employer wanting to create separate classes and vary contributions, eligibility or benefits will not be able to use this POP safe harbor. Full Section 125 testing will be required. A vendor or legal counsel can help the employer determine if the plan will be able to vary contributions, eligibility or benefits and still pass the Section 125 nondiscrimination testing.