A dangerous notion is afoot – that an employer too small for “employer mandate” taxation under 26 U.S.C. § 4980H is therefore “exempt from Obamacare,” as we have heard it said too often. That’s wrong for many reasons. Every employer sponsoring a group health plan is obligated to comply with applicable coverage, cost sharing and anti-discrimination mandates, whether or not the employer is required to offer coverage at all. Here’s one example that’s currently getting too little attention.
By adding new § 2716 to the Public Health Service Act, the ACA directed DOL, HHS and IRS to adopt for fully-insured plans non-discrimination rules like those already applicable to self-funded plans. Violations would subject the plan to ERISA suits and to Code § 4980D taxes or PHS Act civil money penalties of $100 per day per non-highly compensated individual. About six months later, the IRS renewed the warning in Notice 2010-63, inviting, “comments on what additional guidance relating to the application of section 105(h) (2) would be helpful with respect to insured group health plans.”
In Notice 2011-1 (December 2010), the IRS warned again that, “if a self-insured plan fails to comply with § 105(h), highly compensated individuals lose a tax benefit; if an insured group health plan fails to comply with § 2716, the plan or plan sponsor may be subject to an excise tax, civil money penalty, or a civil action to compel it to provide nondiscriminatory benefits,” adding that grandfathered, fully-insured plans will be exempt from the new rules. Notice 2011-1 also told us that -
compliance with § 2716 should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued under § 2716. In order to provide insured group health plan sponsors time to implement any changes required as a result of the regulations or other guidance, the Departments anticipate that the guidance will not apply until plan years beginning a specified period after issuance. Before the beginning of those plan years, an insured group health plan sponsor will not be required to file IRS Form 8928 with respect to excise taxes resulting from the incorporation of PHS Act § 2716 into § 9815 of the Code.
Comments were invited on these thirteen topics (summarized briefly here):
- What “benefits” should be tested? “For example, is the rate of employer contributions toward the cost of coverage (or the required percentage or amount of employee contributions) or the duration of an eligibility waiting period treated as a “benefit” that must be provided on a nondiscriminatory basis?”
- Should there be an alternative that tests only coverage availability?
- How this relates to employer and individual mandate taxation.
- Which employee groups might be tested separately.
- Which separate employer locations might be tested separately.
- Safe harbor options.
- Aggregation of “substantially similar” coverages.
- Application to expatriate employees.
- Application to multi-employer plans.
- Testing, or not, of after-tax coverages provided to the highly compensated.
- Treatment of voluntary waivers of employer coverage.
- Treatment of corporate mergers, acquisitions and similar transactions.
- Penalty application.
The anticipated rules next were referenced next in a set of proposed rules on “wraparound” plans, published on Christmas Eve, 2013. See 78 Fed. Reg. 77,740, to be codified at 26 CFR § 54.9831-1(c)(3)(vi). Neither the rule text nor the preamble gave any further hint about the content of the coming rules. See 79 Fed. Reg. 77,636.
Then, news broke in January 2014 that the IRS would delay issuance of related ACA rules until after the November 2014 elections, perhaps well into 2015. That caused many employers to tune out.
We suspect that existing rules for self-funded plans are being reconsidered and perhaps rewritten to match the new rules for fully-insured plans. If so, the new rules could make a big splash with small employers who have adopted self-funded plans to escape the ACA’s impact on their insurance markets. A lot is happening that deserves the attention of employers large and small. Don’t get caught napping.