21st Century Cures Act Includes New HRA Provision for Small Employers

The 21st Century Cures Act passed the House and Senate on a bipartisan basis and  signed  by the President on December 13, 2016. This 1,000 page bill includes language that allows small employers to provide health reimbursement arrangement (HRA) funds for employees to purchase individual coverage.

Key provisions of Section 18001 titled “Exception from Group Health Plan Requirements for Qualified Small Employer Health Reimbursement Arrangements.

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.

Notwithstanding this requirement, 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.

The arrangement provides payment or reimbursement of an eligible employee’s expenses for medical care under Section 213(d) incurred by the employee and eligible family members.

An eligible employer is one that is not an ALE under the definition in section 4980H of the ACA. Also, the employer must not offer a group health plan to any of its employees.

The maximum dollar limit per year is $4,950 for an individual employee and $10,000 for family members.

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 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.

Notice Required

 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. 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.

Failure to provide the notice can result in a penalty of $50 per employee per incident not to exceed $2,500.

 Notices must be provided to years beginning after 12/31/16 or 90 days after the date of enactment of the Act.

HRA and Affordability

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.

Effective Dates and Other Notes

The provisions of the section are effective for years beginning after 12/31/16. Coordination with the health insurance premium credit applies to taxable years beginning after 12/31/16.

Form W-2 reporting applies to calendar years beginning after 12/31/16.

 The HRA benefit is not subject to COBRA continuation requirements.

This small employer HRA is not considered a “group health plan” for some ERISA purposes.

There are some provisions for transitional relief which may benefit small employers that have had HRAs that were not in compliance with previous IRS guidance.

 

 

Preparing for 2017 – Checking Status and Filing Forms

Santa may be making a list and checking it twice, but employers have to check their ALE status and prepare to file forms!

Employers of all sizes need to take stock by calculating the number of full-time and full-time equivalent employees for the year 2016. If the average meets or exceeds 50, the employer will be an applicable large employer, or ALE, for 2017.

Determination of ALE status is done on a calendar year basis. It is not done based on an employer’s health plan renewal date. Importantly, employers that don’t currently offer a health plan must make this assessment!

The end of the year also has employers assembling the information necessary to complete Forms W-2 for employees. And, effective with the New Year, employers have this one filing deadline for both employee and agency copies of this form. These are due to be distributed by January 31, 2017. More details on this filing change can be found here.

One crunch employers faced has been eased by a recent IRS delay in the filing deadline for ACA’s 1095-C forms. Notice 2016-70 provides a 30 day extension to the due date for furnishing the 1095-B and 1095-C forms to individuals. These must be provided by March 2, 2017 rather than January 31, 2017.

This delay is particularly helpful for employers who use the W-2 safe harbor to determine whether health coverage was affordable for employees. Without a delay, employers would have to gather the wage data for the Form W-2 and apply that information to the 1095-C reporting regarding the safe harbor so that the two forms – W-2 and 1095-C could be issued to meet the January 31 deadline.

 

IRS Notice Delays ACA Employer Reporting to Individuals

In a surprise pre-Thanksgiving Day notice, the IRS has given employers some breathing space to complete and provide ACA’s 1095-C forms to employees. Notice 2016-70 provides the following:

It extends the “good faith compliance” transition relief from penalties when there is a good-faith effort to comply with information reporting requirements under sections 6055 and 6056

  • It provides an automatic extension of 30 days for the due date to provide forms 1095-B and 1095-C, but only for providing forms to individuals
  • Due dates for reporting to the IRS are not extended
  • It reminds taxpayers that they do not need to have their forms 1095-B and 1095-C to complete their tax return. They can obtain needed information from other sources.

Employers who had already filed for a 30 day extension to provide notices to employees will not receive a response from the IRS due to this automatic extension.

The notice also states that the good-faith compliance recognition applies only to incorrect or incomplete information. It does not apply for a failure to file a statement or return or a failure to furnish statements on a timely basis.

Preparing for ACA’s Employer Reporting in 2017

Despite the results of the election, compliance with the ACA goes on, unless and until Congress takes action. Even then, odds are that changes to the ACA will take time to be implemented.

As such, with 2016 drawing to a close, employers are reminded that they have to calculate whether they will be an Applicable Large Employer (ALE) for 2017. An employer who is an ALE has employer shared responsibility requirements under the Affordable Care Act (ACA).

Employers with 50 or more full-time and full-time equivalent employees during the previous year are deemed to be ALEs (applicable large employers) who must report to the IRS and to employees. Therefore, employers who averaged 50 or more full-time and full-time equivalent employees during the calendar year 2015 are considered ALEs for 2016 and must report in 2017. Reporting in 2017 reflects enrollment and offers of coverage for 2016.

Employers who meet the ALE definition must report whether or not they offer an insured or self-insured health plan. Employers who meet the ALE definition must report even if they don’t offer any health coverage to employees. And, employers who are too small to be ALEs, but who offer self-insured health coverage, must report to the IRS regarding coverage offered to their employees.

The deadlines for reporting for coverage year 2016 are as follows:

  • Deadline to distribute forms to employees and covered individuals will be January 31, 2017
  • Deadline to file paper forms with the IRS will be February 28, 2017
  • Deadline to file electronically with the IRS will be March, 31, 2017.

The requirement to furnish the Form 1095-C is met if the form is addressed and mailed on or before the due date. Statements must be mailed or hand delivered unless the recipient has affirmatively consented to receive the statement electronically.

Employers can obtain an automatic 30-day extension of time to file forms to the IRS by completing Form 8809 — Application for Extension of Time To File Information Returns. This form must be filed in advance of the due date for the returns. It should be filed as soon as an employer determines that an extension of time is necessary.

An extension of time to furnish statements to employees is not automatic. A letter requesting an extension must be sent to the IRS. Instructions on filing for this extension are found on page 6 of the instructions for Forms 1094-C and 1095-C. The instructions can be found here.

Penalties for failing to report or making errors in reporting can be sizeable. It’s important to note that the IRS will no longer operate under a “good faith compliance” standard for this year’s reporting.

  • The penalty for failure to file a correct information return is $260 per return
  • The penalty for failure to provide a correct payee statement is $260 for each statement with the failure
  • There are limits to the size of the penalties unless there is “intentional disregard” to file and furnish the required statements.

Penalties may be waived due to reasonable cause. However, ignorance of the requirement to file is unlikely to gain a penalty waiver. As such, employers who discover that they should have filed this past year would be wise to file as soon as possible or consult with tax advisors.

 

 

Medicare Enrollment and “Seamless Conversion”

Anyone approaching Medicare age is sure to be swamped with mail regarding the coverage options to consider. For many people, these mailers are put aside or disregarded as “junk mail.” But, Medicare enrollment is an important decision which has both medical care and financial implications.

Individuals are finding that a process intended to make Medicare enrollment simpler is sometimes leading to undesired consequences. CMS allows insurance companies to automatically enroll individuals who have current healthcare coverage into a Medicare Advantage (MA) plan offered by the insurance company when the person first becomes eligible for Medicare.

This process is called “seamless conversion enrollment.” Individuals will receive a written notice at least 60 days prior to the Medicare Advantage coverage effective date. Someone who doesn’t wish to have the MA coverage offered must opt-out of the coverage before the coverage begins.

CMS has released a list of insurance companies that have received approval for “seamless conversion.” It can be found here. CMS has suspended approving additional carriers pending a review of “seamless conversion” amid complaints that have surfaced from Medicare enrollees.

“Seamless conversion” may help people who wish to remain with their known insurance company. But, it’s important that anyone enrolled in the MA plan ascertain that any desired medical providers continue to be part of the MA plan.

Selecting any insurance plan – whether as a senior citizen or at any age – is a complicated and confusing obligation. A health insurance broker can help navigate the many options and advise on the most appropriate policy to fit an individual’s needs.

 

Marketplace Appeals — The Results

At the risk of sounding like Nick Cannon on the television show  America’s Got Talent when they’re announcing performers advancing to the next round of competition, employers are beginning to see the results of appeals that they’ve filed when employees receive subsidies in the marketplace. Employers are finding some of these appeal decisions perplexing, especially when an appeal is denied. And, some employers fear that penalties will follow as a result of the lost appeal.

First, and of most importance, the marketplace appeal does not determine if an employer has to pay an employer shared responsibility penalty to the IRS. This point is made clear on both the appeals form and on the webpage that addresses employer appeals.

Second, an appeal that is denied may be due to the particular facts and circumstances of the employee and his/her family. In particular, even though an employer may have offered coverage that meets the minimum value and affordability safe harbors, the measure of affordability at the marketplace is based on household income. Household income may be quite different from an employee’s W-2 income. The marketplace’s decision regarding an employer’s appeal will not reveal personal and income information of the employee subject to the appeal.

The appeal decision letter explains that the marketplace will not consider whether an employee is a full-time employee or whether the employer employs 50 or more full-time employees and is subject to the employer shared responsibility payments. The reasoning cited in the letter is that “neither of these issues affect the employee’s eligibility for advance payments of the premium tax credit and cost-sharing reductions (if applicable).

Another employer found that the information which the employer sent to support their appeal did not go far enough. The employer submitted proof that the employer had offered coverage to the employee that met minimum value and was affordable. The hearing officer wanted proof of this offer in the form of the employee’s response to the offer. Employers that have been reluctant to require that employees sign waivers when they decline coverage may decide to require signed waivers or take other steps that can buttress the fact that an offer was made and rejected.

A review of several decision letters finds that decisions often cite “insufficient information” as the basis for the decision to reject the appeal. Employers may want to develop a checklist of materials that they will provide to ensure that appeals are not lost for want of more information.

Still other employers have received a letter while an appeal is under review that asks for more information to support the appeal. The types of information requested and documents that may contain the requisite information are shown below in a table copied from a letter asking for more information.

appeal-documents

While marketplace appeal decisions are not triggers for IRS penalties, a successful marketplace appeal may be helpful if the IRS does attempt to penalize an employer. The successful appeal would be another piece of information for an employer to include in the IRS appeal’s process. And, whether an appeal is successful at the marketplace level, or not, an employer will have already collected information that would be required to appeal an IRS penalty determination should one be received.

 

 

 

 

Cash-in-Lieu Options Face Compliance Hurdles in 2017

IRS rules further regulating cash-in-lieu (opt-out) programs are effective the first day of the plan year beginning on or after January 1, 2017. The rules provide for two different types of cash-in-lieu or opt-out arrangements: conditional and unconditional.

The easiest opt-out plan administratively is an “unconditional opt-out” arrangement. An unconditional opt-out doesn’t have strings such as requiring proof of other coverage for an employee waiving coverage. As such, the IRS guidance requires that the opt-out payment be calculated as a part of the employer’s affordability calculation for employer shared responsibility purposes.

The IRS described this unconditional opt-out arrangement in Notice 2015-87 where it said:

If an employer offers to an employee an amount that cannot be used to pay for coverage under the employer’s health plan and is available only if the employee declines coverage (which includes waiving coverage in which the employee would otherwise be enrolled) under the employer’s health plan (an opt-out payment), this choice between cash and coverage presented by the offer of an opt-out payment is analogous to the cash-or-coverage choice presented by the option to pay for coverage via salary reduction. In both cases, the employee may purchase the health plan coverage only at the price of forgoing a specified amount of cash compensation that the employee would otherwise receive – salary, in the case of a salary reduction, or other compensation, in the case of the opt-out payment.

In short, the amount available as an opt-out payment is added to the employee’s premium contribution amount when an employer is calculating affordability for the ACA’s employer shared responsibility requirements. Notice 2015-87 provides this example:

If an employer offers employees group health coverage through a Section  125 cafeteria plan, requiring employees who elect self-only coverage to contribute $200 per month toward the cost of that coverage, and offers an additional $100 per month in taxable wages to each employee who declines the coverage…the employee contribution for the group health plan effectively would be $300 ($200 + $100) per month, because an employee electing coverage under the health plan must forgo $100 per month in compensation in addition to the $200 per month in salary reduction.

To read Notice 2015-87 click here.

Importantly, this calculation of affordability applies to all employees whether they elect the opt-out arrangement or not.

 A conditional opt-out is excluded from the affordability calculation but, it is more administratively burdensome. The regulations deem a conditional opt-out arrangement to be an “eligible opt-out arrangement.”

The proposed regulations define an “eligible opt-out arrangement” as an arrangement under which the employee’s right to receive the opt-out payment is conditioned on:

(1) The employee declining to enroll in the employer-sponsored coverage and

(2) The employee providing reasonable evidence that the employee and all other individuals for whom the employee reasonably expects to claim a personal exemption deduction for the taxable year or years that begin or end in or with the employer’s plan year to which the opt-out arrangement applies (employee’s expected tax family) have or will have minimum essential coverage (other than coverage in the individual market, whether or not obtained through the Marketplace) during the period of coverage to which the opt-out arrangement applies.

Employers must obtain an employee’s attestation that other coverage is in place before the coverage period begins. If an employer “knows or has reason to know” that an employee or family member isn’t covered, then the employee cannot make an opt-out payment.

An employer is not required to ascertain that any alternative coverage is ongoing during the plan year. But, an employee must provide an attestation or evidence of coverage every plan year.

There are a number of other nuances to the opt-out rules including transition relief for collectively bargained plans. The text of the rules can be found here.

Employers may also wish to keep an eye on the courts. A recent court case found that opt-out payments must be included for overtime pay purposes under the FLSA (Fair Labor Standards Act). The court case is binding only in the state of: Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, N. Mariana Islands, Oregon and Washington. Other courts in other jurisdictions may make similar judgments.

Employers who have adopted cash-in-lieu programs or who are considering such programs would be wise to seek legal guidance in advance of implementing or renewing these options. Employers who have been offering these types of arrangements on an informal basis should also seek legal advice.

 

 

Telemedicine — A Growing Benefit Offer

Employers and insurers are increasingly turning to telemedicine programs to save employees money and increase productivity. With a doctor visit only a phone call away, employees don’t have to take time off the job to sit in a doctor’s office when a remote visit will do the trick.

Employers who wish to learn more about telemedicine from a medical practice perspective may find that the FAQs on the American Telemedicine Association website are helpful. The FAQ page is here.

Health insurers have been slow to adopt telemedicine programs. That appears to be changing. But, as a result, employers have adopted stand-alone telemedicine programs. As a stand alone program that is not integrated into the overall health plan, compliance issues may need to be considered. This is especially true if the employer offer a high deductible health plan (HDHP) that is health savings account (HSA) compatible.

There is an ongoing debate in the benefits arena regarding whether a telemedicine program meets the definition of a “group health plan” for ERISA, HIPAA and IRS purposes.  Since most telemedicine programs provide medical care, a conservative interpretation would define these plans as meeting the “group health plan” definition.

If one accepts that the telemedicine plan is a “group health plan” then the plan is subject to COBRA and provisions of the ACA. This exposes the plan to the market reforms such as covering dependents to age 26, and preventive services in-network without cost to the patient. Therefore, a plan should be structured to provide these benefits.

Some telemedicine providers or benefits consultants have argued that these plans  should be characterized as excepted benefits, an employee assistance plan (EAP) or a non-insurance based program. As such, these plans would not be subject to ACA, ERISA or other compliance requirements. Unless an employer has specific legal guidance in this regard, employers should adopt a more conservative approach by treating these programs as “group health plans.”

 One of the bigger concerns regarding telemedicine plans is whether and how to integrate these plans with high deductible health plans (HDHPs) coupled with HSAs. It’s a bigger concern because many employers have offered telemedicine programs to help address the employee exposure to larger and larger deductibles. The idea is that employees have a benefit for the more common medical expenses without having to meet the deductible.

That’s also where the problem with HSAs arises. IRS publication 969 establishes the rules for HSAs. To be eligible and qualify for an HSA you must meet the following requirements:

  • You must be covered under a high deductible health plan (HDHP), on the first day of the month.
  • You have no other health coverage except what is permitted under “Other health coverage”
  • You are not enrolled in Medicare
  • You cannot be claimed as a dependent on someone else’s 2015 tax return.

Publication 969 can be found here.

A telemedicine plan’s benefits are often structured to provide health care without regard to whether or not someone has met their HDHP deductible. If this is the case, there is a strong argument that a person with a telemedicine plan does not qualify for an HSA.

 A plan could be structured so that the beneficiary pays the “fair market value” as a fee whenever a service is rendered. In this type of arrangement an employer could offer the coverage and likely pay for it without disqualifying someone from an HSA. But, paying a fee for each service and coordinating this with a beneficiary’s deductible so there is a benefit of value is difficult, if not impossible.

It is clear that some of the services that can be provided through a telemedicine program can be considered preventive services. However, limiting a plan to only preventive services would make the telemedicine program far less appealing.

Employers could also consider offering telemedicine as a voluntary benefit. Voluntary benefits are not governed by ACA’s myriad rules. To avoid complications and ERISA compliance concerns, employers would have to follow the safe harbor for voluntary plans.

A plan is voluntary and usually not an ERISA plan if:

  • The employer doesn’t contribute to the cost of the plan
  • Participation is voluntary
  • The employer’s involvement in limited and the employer does not “endorse” the plan
  • The employer isn’t compensated for collecting and remitting premiums.

With more and more employers offering telemedicine plans, the questions regarding HSA eligibility, ERISA, HIPAA and other compliance concerns related to employee benefits will not go away. An employer is wise to avoid making assertions regarding taxes or other issues unless the employer has obtained legal or tax advice. And, the employer should ask that the telemedicine provider provide sufficient information to ensure that an employer’s in compliance with ERISA, HIPAA, COBRA and any other relevant laws.

 

Trade Adjustment Act Health Tax Credit Hardship Exemption Announced by IRS

The special health care tax credit for individuals and their families receiving trade adjustment assistance (TAA) or receiving payments from the Pension Benefit Guaranty Corporation was reinstated in 2015, retroactive to 2014. It had previously expired in 2013.

The Trade Preferences Extension Act of 2015 extended and modified the expired tax credit. This credit provided advanced payments for health insurance coverage for eligible individuals and families. The health care tax credit (HCTC) will now be available for coverage through 2019. General information including who can claim the tax credit is provided by the IRS here.

The previous process to claim the tax credit was also expected to be reinstated and be in operation by July 2016. Guidance released on August 12, 2016 asserts that reinstatement of the credit process is not yet operational. The guidance describes a “limited interim process” for the remainder of 2016 with the expectation that the full process will be implemented by January 2017.

As a result of this delay, individuals will be required to pay the full amount of any qualifying health coverage. Since payment of the full premium may be a hardship, the IRS has allowed that any eligible individual who is not enrolled in HCTC-qualified coverage for one or more months between July and December 2016 will be entitled to claim a hardship exemption from the individual shared responsibility requirement for months for which they were eligible for the HCTC. Further guidance detailing how to claim this exemption on individual tax returns will be forthcoming.

The full IRS announcement can be read here.

“To Fee or Not to Fee” — Considerations and Concerns

Brokers have been buffeted by the myriad changes occurring at record pace over these past few years. The Affordable Care Act (ACA) has had a dramatic impact on the types of health insurance products available, the scope of benefits offered and how brokers are compensated for the valuable services they provide.

Many brokers have transformed their practices with an emphasis on becoming a consultant to their clients – individual and group. As a consultant, brokers are expanding the scope of the traditional sales-related assistance.

Recent guidance from CMS clarified that brokers can charge fees in the Federal marketplace for the extra value that they are providing to clients. The guidance, in the form of a Q& A, establishes that brokers must clearly disclose the amount and reason for a fee while also informing consumers that they can apply for coverage on their own without a fee through Healthcare.gov. Here is the full-text of the guidance.

A broker wishing to establish a fee-based practice must consider a number of other factors before implementing this change. Chief among these is whether state law allows a broker to charge a fee, the rules surrounding the charging of fees and whether a separate consulting license is required. NAHU has compiled a chart that provides some information on a state-by-state basis regarding relevant state laws. It is recommended that a broker verify whether fees may be charged and any related requirements through their insurance commissioner before taking steps.

Why are some brokers considering fee-based practices? Some are adding valuable services that exceed the selection and placement of insurance coverage. Others see a fee-based business as a reaction to changing commission structures, providing more predictability to revenue streams.

Determining how much to charge and what the scope of services the fee will purchase isn’t easy. For many consultants, fee setting is one of the more difficult decisions to make. Then, becoming accustomed to discussing fees and services with clients is another hurdle. Some considerations for fee setting, if allowed by law, include:

  • Fees plus commission on commissionable products
  • Fees only on non-commissionable products
  • Reflection of hours worked
  • Past revenue basis
  • Increased revenue basis
  • Loss leader
    • Nominal fee
    • Profits made in follow-on sales of products or services.

“To fee or not to fee” is a decision that can’t be made lightly and it must be made after reflection and planning. For products where commissions have been the practice, one must be able to make the case to the consumer that the services provided exceed those of the other brokers who have maintained a traditional commission-based practice.