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.

 

 

New Rule Aimed at Market Stabilization

The Trump administration has published a new proposed rule aimed at stabilizing the individual insurance market. This coincides with NAHU’s emphasis on the critical need to stabilize the individual insurance market.

Critics will say that the rule doesn’t do enough. However, the rule advises that this first step is one of several that will be taken.

One of the provisions calls for individuals to verify that they qualify for a Special Enrollment Period (SEP). Anyone applying for new coverage will be required to provide verification of their SEP beginning in June 2017. Coverage will be pended awaiting verification.  The administration estimates that this may impact as many as 650,000 individuals.

The proposal would also require that SEP enrollment due to marriage would require that one of the spouses had minimum essential coverage prior to filing for coverage via SEP. The proposal would also limit changes in metal levels – the richness of the plan – for SEP-related changes.

Comments are due by March 7, 2017.

The rule can be reviewed here.

IRS Missive Seeks Out Non-Filing ALEs

It seems that some employers are receiving requests from the IRS asking where their reports are! These letters appear to be one of the first efforts by the IRS to enforce the employer responsibility requirements of the ACA.

Employers who have 50 or more full-time and full-time equivalent employees are required to file Forms 1094-C and 1095-C with the IRS. Last year was the first year that employers were required to file these forms addressing coverage provided in 2015.

The letter requires a response from the employer within 30 days from the date on the letter.

Employers are directed to check a box indicating their status for 2015. Choices include:

  • An assertion that filing had already occurred
  • Acknowledgement that the employer is an ALE and that the forms are included along with the response to the IRS letter
  • Acknowledgement that the employer is an ALE and the date that the employer will file the required forms
  • An assertion that the employer was not an ALE for calendar year 2015.

The letter closes with a reminder that noncompliance with reporting requirements could result in an assessment of penalties.

Employers that have not yet filed these information returns for calendar year 2015 should do so as soon as possible, if they receive a letter or not. It would also be wise to memorialize the reason for the delay and steps taken to come into compliance so that an employer can provide these facts in any effort to claim they made a “good faith compliance” effort.

Employers should take this enforcement effort as a gentle nudge to comply with the upcoming filing deadlines for the 2016 returns. Reports are due to be filed with the IRS on the following dates:

  • February 28, 2017 for paper forms
  • March 31, 2017 for electronical filing.

 

ACA’s Individual Mandate — IRS Provides Update

With all of the talk about whether the Affordable Care Act will be repealed, replaced, delayed or some other description, one can forget about the fact that individuals have had tax consequences related to the ACA. A recent IRS letter that updated members of Congress about tax return data and the ACA provides an interesting window into the tax side of the ACA.

One of the provisions of the ACA provides advance payments of premium tax credits to help people reduce their out-of-pocket premium costs through the year. These are generally referred to as APTC (advanced premium tax credits).

APTC is calculated based on an individual or household’s expected income, family size and other factors. APTC is reconciled when taxes are filed at the end of the tax year. In some cases individuals will have received too much of a credit while in other cases they may qualify for more credit when their taxes are calculated.

Taxpayers who received APTC must reconcile the advanced payments using Form 8962. The IRS reported that forms 8962 processed as of December 15, 2016 showed:

  • The average premium tax credit for 5.3 million taxpayers was $3,620
    • 49% of these taxpayers claimed less than $2,000
    • 22% claimed $5,000 to $10,000
    • 5% claimed credits in excess of $10,000
  • About 2.4 million filers were due additional tax credits when they filed their taxes
    • The average additional amount received was about $670
    • 80% claimed less than $1,000
  • About 3.3 million taxpayers reported excess APTC meaning that they had to repay the excess
    • The average excess to be repaid was $870; totaling $2.9 billion
    • 50% of these filers owed a repayment of less than $500
    • 75% reported owing less than $1,000
  • There are statutory repayment caps that may apply which are based on household income
    • Statutory repayment affected approximately 921,000 taxpayers; about 28% of those claiming excess APTC
    • Approximately $874 million in excess APTC for tax year 2015 was above the statutory caps.

Individuals who have not enrolled in qualifying coverage for periods during the year may owe an individual responsibility payment – the individual mandate penalty. The individual responsibility payment for 2015 was 2% of income above the filing threshold or$325 per adult, whichever is greater.

Approximately 6.5 million taxpayers reported a total of $3.0 billion in individual shared responsibility payments. The average payment was around $470 with about 70% of payments $500 or less.