Affordable Care Act Review

Affordable Care Act Review

Supreme Court Subsidy Review: Maybe Sooner than Expected

Posted in Affordable Care Act, Exchanges, Insurers and Brokers, Taxes

Michael Carvin’s October 14 brief for prompt Supreme Court review of the www.healthcare.gov subsidy authority dispute is making news, focused on this forceful opening:

In 2011, the Eleventh Circuit became the first Circuit to invalidate the ACA’s individual mandate.  Although that provision had survived other parallel challenges and was not even scheduled to take effect for more than two years, the Government recognized the imperative to “put these challenges to rest.”  It therefore eschewed en banc review and asked this Court for definitive resolution. Drawn-out litigation over the legality of a central plank of this landmark legislation, the Government understood, would paralyze the Nation and disserve its citizens.

So too here. Indeed, the subsidies that the IRS has illegally expanded have already begun to flow, meaning billions of taxpayer dollars are pouring out of the Treasury absent congressional authorization and millions of Americans are ordering their lives around an impugned regulation. Yet the Government is content to leave the spigots of cash open and the Nation in limbo in the hopes that (i) the en banc D.C. Circuit reverses the Halbig panel, and (ii) no other Circuit enforces the Act’s plain text. All to avoid this Court’s scrutiny.

***

The question is therefore not whether the Court should resolve this issue, but when. It can do so now, thus minimizing potential unfairness, providing maximum clarity to those subject to the Act, and preserving the integrity of federal expenditures. Or it can do so in 2016 or 2017, after tens of billions of Treasury funds are irretrievably spent, after the insurance industry restructures to adapt to the new regime, after employers lay off countless workers (or cut their hours) to avoid the employer mandate, and after millions of Americans buy insurance because they believe it will be subsidized (or because they are forced to under an individual mandate from which they are properly exempt).

The Supreme Court’s docket indicates that the question of prompt review may be resolved in an October 31 conference.

MOOP and Reference-Based Pricing

Posted in Affordable Care Act, Coverage Mandates, Grandfathered Status, Insurers and Brokers, Providers - For Profit, Providers - Not-for-Profit

With group health plan premium increases limited by market and regulatory forces, insurers and self-insurers have raised deductibles, co-insurance, co-pays and other cost-shifting provisions, subject to the ACA’s 2015 maximum out-of-pocket (“MOOP”) limits – $6,600 per individual, $13,200 per family.  But “reference-based pricing” complicates MOOP enforcement.  In Frequently Asked Questions (“FAQ”) guidance issued October 10, 2014, DOL, HHS and IRS revealed their current views on the subject.

A typical group health plan pays substantially more for services rendered by a network provider than for the same services rendered by an out-of-network provider.  Reference-based pricing can be viewed as an alternative to provider network designation.  The insurer sets a price that it will pay for a certain service in a certain market.  All who provide the service for the reference price are, in effect, network providers. Providers who charge more can collect only the reference price from the insurer, leaving their patients exposed to balance billing.

Suppose that the normal covered cost of a procedure in your market is $26,600, and that a non-grandfathered, large group plan subject to the ACA’s 2015 individual MOOP limit therefore would pay at least $20,000.  What if, instead, the plan sets a reference price of $16,600? Is that equivalent to an unlawful, $10,000 individual MOOP provision?  And what if the reference price is so low that it’s accepted only by a single, over-booked surgeon 150 miles away?  Should that be treated the same as a traditional plan’s network adequacy problem?  Summarized briefly, here are major points emphasized in this FAQ guidance.

  • Reference-based pricing should apply only to services that can be delayed long enough to permit patients to shop around.  If reference-based pricing is applied to emergency services, balances paid must count toward the MOOP limit.
  • If the number or quality of providers of the service for the reference price would not meet applicable, functionally equivalent state network adequacy standards, PHS Act § 2707(b) won’t be satisfied, either.
  • Insurers should pay more than the reference price if the service is not reasonably available for the reference price from a high quality provider in the relevant area.

Finally, if the plan uses reference-based pricing, PHS Act § 2707(b) requires these disclosures (quoted verbatim):

Disclosure. Plans should provide the following disclosures regarding reference-based pricing (or similar network design) to plan participants free of charge.

a.  Automatically.  Plans should provide information regarding the pricing structure, including a list of services to which the pricing structure applies and the exceptions process. (This should be provided automatically, without the need for the participant to request such information, for example through the plan’s Summary Plan Description or similar document.)

b.  Upon Request.  Plans should provide:

  i.  A list of providers that will accept the reference price for each service;

  ii.  A list of providers that will accept a negotiated price above the reference price for each service; and

  iii.  Information on the process and underlying data used to ensure that an adequate number of providers accepting the reference price meet reasonable quality standards.

Final Rules for Excepted Benefits

Posted in Affordable Care Act

The Departments of Labor, Health and Human Services (HHS) and the Treasury (Departments) have jointly issued final regulations that address the treatment of dental and vision benefits and employee assistance programs (“EAP”s) as limited excepted benefits, which are generally exempt from the Affordable Care Act’s (ACA) market reform requirements.

The final rules clarify that limited scope vision and dental benefits do not have to be offered in connection with a separate offer of major medical or “primary” group health benefits to meet the statutory “not an integral part” requirement. Under the final regulations, limited-scope dental and vision benefits are not considered to  be an “integral part” of the group health plan (whether they are provided through the primary plan, separate from it, or as the only coverage offered) if participants may decline coverage or if claims for the benefits are administered under a separate contract from other plan benefits.

The final rules also provide guidance with respect to EAPs.  In 2013, the Departments stated that they intended to amend the excepted benefits rules with respect to EAPs.  This was necessary because if EAP programs were not recognized as excepted benefits, medical care benefits provided through an EAP (such as mental health treatment) would generally be subject to the requirements of the ACA governing health insurance and could, in theory, leave a covered employee ineligible for premium tax credits through an exchange.  The final rules address the issue.

The final rule permits employee assistance programs to be recognized as excepted benefits if they meet four requirements.

  • They must not provide significant benefits in the form of medical care. For this purpose, the amount, scope, and duration of covered services are taken into account.  For example, short-term outpatient counseling for substance abuse disorders may not be considered to provide significant benefits; while a program that provides disease management services (such as laboratory testing, counseling, and prescription drugs) for individuals with chronic conditions, would provide significant benefits.  Further guidance on the significant benefit requirement may be forthcoming. It should be noted that, unlike the proposed rule, the final rule does not impose numerical limits on EAP sessions.
  • EAP benefits may not be coordinated with group health plan benefits. The final regulations, however, do not include a prohibition against funding the EAP through the group health plan that was in the proposed rule.
  • No employee premiums or contributions can be required for participating in an EAP.
  • An EAP that is an excepted benefit may not impose cost-sharing requirements.

The final rules are effective as of January 1, 2015, and until then reliance on the earlier proposed regulations is permitted. The final regulations do not apply to individual coverage.

The Look-Back Measurement Consequences of Job Changes

Posted in Affordable Care Act, Coverage Mandates, Government Employers, Private Employers, Taxes

For plan eligibility purposes, ongoing employees, and those hired without expectation of full-time service, may have their ACA “full-time employee” status determined under a “look-back measurement method.”  Employers have a number of measurement configuration options and may designate different measurement and stability periods for employees in different states, for salaried / hourly employees, for union / non-union employees, and for employees represented by different unions.  Employer members of a corporate controlled group have no legal duty to coordinate their selections and may, within limits, change selections previously made.  Nevertheless, the employer mandate and waiting period regulations did not prescribe the consequences of employer rule changes or employee transfers between jobs with materially different look-back measurement rules.  The IRS just solved most of that problem in Notice 2014-49.  We say “most” of the problem because the guidance given is good only through calendar year 2016.  But we now have written IRS “examples” of how the rules apply to six common situations.  They’re long enough without our elaboration, so we simply quote them below.

Example 1: Ongoing employee. For Position 1, the employer uses 12-month standard measurement and stability periods beginning January 1. For Position 2, the employer uses 12-month standard measurement and stability periods beginning July 1.

Employee A is a long-time employee in Position 1 and so is not in an initial measurement period during the relevant periods. Employee A continues working in Position 1 and averages less than 30 hours of service per week during the period from January 1, 2015 through December 31, 2015. Employee A averages 30 or more hours of service per week during the period from July 1, 2015 through June 30, 2016.

On August 15, 2016, Employee A transfers from Position 1 to Position 2. At the date of the transfer, Employee A is in a stability period under Position 1 under which Employee A is treated as a non-full-time employee because Employee A averaged less than 30 hours of service per week during the measurement period applicable to Position 1 beginning January 1, 2015 and ending December 31, 2015. For the period from August 15, 2016 through December 31, 2016 (the end of the stability period for Position 1 during which the transfer occurs), Employee A retains his status as a non-full-time employee (although the employer may choose to nonetheless extend an offer of coverage to the employee).

As of January 1, 2017 (the date immediately following the end of the stability period for Position 1), Employee A’s status is determined under the look-back measurement method applicable to Position 2. Employee A is a full-time employee starting January 1, 2017, because Employee A averaged 30 or more hours of service per week in the measurement period for Position 2 beginning July 1, 2015 and ending June 30, 2016 (which has a stability period of July 1, 2016 through June 30, 2017). Employee A remains a full-time employee through the end of that stability period (in other words, through June 30, 2017). After June 30, 2017, Employee A’s status continues to be determined using the applicable measurement period for Position 2.

Example 2: New variable hour employee in initial measurement period transfers to position in which employee has completed initial measurement period. For Position 1, the employer uses 12-month standard measurement and stability periods beginning January 1 and a 12-month initial measurement period beginning on each employee’s start date. For Position 2, the employer uses 6-month standard measurement and stability periods beginning January 1 and July 1 and a 6-month initial measurement period beginning on an employee’s start date.

The employer hires Employee B into Position 1 as a new variable-hour employee on January 1, 2015. Employee B averages 30 or more hours of service per week during the period from January 1 through June 30, 2015. On October 1, 2015, at which time Employee B is in the initial measurement period for Position 1, Employee B transfers from Position 1 to Position 2.

At the date of the transfer, Employee B is not in a stability period for Position 1 because Employee B has not been employed for a full initial measurement period or a full standard measurement period. Accordingly, Employee B’s status is determined under the measurement method applicable to Position 2 as of the date of transfer, taking into account Employee B’s hours of service in Position 1.

Employee B is a full-time employee from the date of transfer (October 1, 2015) through the end of the applicable stability period for Position 2 (December 31, 2015) because Employee B averaged 30 or more hours of service per week during the applicable measurement period for Position 2 ending June 30, 2015 (for Employee B, the initial measurement period and standard measurement period ran simultaneously from January 1, 2015 through June 30, 2015). After December 31, 2015, Employee B’s status continues to be determined using the applicable measurement period for Position 2.

Example 3: New variable hour employee in initial measurement period transfers to position in which employee is also in initial measurement period. For Position 1, the employer uses a 3-month initial measurement period that begins on the first day of the month following the start date and, if the employee is full-time during the initial measurement period, a 6-month stability period immediately following the initial measurement period. For Position 2, the employer uses a 12-month initial measurement period beginning on each employee’s start date, applies an administrative period that runs from the end of the initial measurement period until the end of the month in which that date falls, and uses a one-year stability period starting the day after the end of the administrative period.

The employer hires Employee C into Position 1 as a new variable-hour employee on February 15, 2015. On May 1, 2015, Employee C transfers from Position 1 to Position 2. Employee C is not reasonably expected to average 30 or more hours of service per week in Position 2 (and thus the transfer from Position 1 to Position 2 does not constitute a change in employment status for purposes of §54.4980H-3(d)(3)(vii)). Employee C does not average 30 or more hours of service per week during the period from February 15, 2015 through February 14, 2016.

As of the date of transfer, Employee C had not been employed for the full initial measurement period for Position 1 and so, as of the date of transfer, Employee C is not in a stability period. Accordingly, Employee C’s status is determined using the measurement method applicable to Position 2 (February 15, 2015 through February 14, 2016).

Employee C continues to be treated as a new variable hour employee from the date of transfer through February 28, 2016 (the end of the initial measurement period and associated administrative period for Position 2). For the stability period beginning March 1, 2016, Employee C’s status is determined on the basis of Employee C’s average hours of service in the initial measurement period for Position 2, taking into account the hours of service in Position 1. Employee C is not a full-time employee for the stability period from March 1, 2016 through February 28, 2017.

Example 4: New variable hour employee in initial measurement period transfers to new position and has a change in employment status. Same facts as Example 3, except that as of the date of transfer Employee C is reasonably expected to average 30 or more hours of service per week in Position 2.

Because Employee C had not been employed for the full initial measurement period for Position 1, Employee C is not in a stability period as of the date of transfer. Accordingly, Employee C’s status is determined using the measurement method for Position 2.

Because as of the date of transfer to Position 2, Employee C is reasonably expected to average more than 30 hours of service per week in Position 2, the rules set forth in §54.4980H-3(d)(3)(vii) for changes in employment status during the initial measurement period apply.

Example 5: Transfer of employee during administrative period. For Position 1, the employer uses a 12-month standard measurement period starting January 1 for ongoing employees and an 11-month initial measurement period starting on the first day of the month following the start date combined with a one-month administrative period for new variable hour, part-time, and seasonal employees. With respect to Position 2, the employer uses 6-month standard measurement and stability periods beginning January 1 and July 1.

The employer hires Employee D into Position 1 on March 15, 2016 as a new variable hour employee. For the 11-month initial measurement period from April 1, 2016 through February 28, 2017, Employee D averages 30 or more hours of service per week. On March 10, 2017, during the administrative period for Position 1 from March 1, 2017 through March 31, 2017, Employee D transfers from Position 1 to Position 2.

The date of transfer occurs during the administrative period following the completion of Employee D’s initial measurement period applicable to Position 1. Employee D’s status must be determined using the initial measurement method applicable to Position 1 and applied from the start of the stability period following the end of the administrative period through the end of that stability period.

Accordingly, for the 12-month stability period starting April 1, 2017, Employee D is a full-time employee because Employee D averaged 30 or more hours of service per week in the associated initial measurement period ending February 28, 2017. After the completion of the stability period (March 31, 2018), Employee D’s status as a full-time employee is determined using the measurement method applicable to Position 2.

Example 6: Employer-initiated change in measurement periods. Starting January 1, 2015, the employer determines the full-time employee status of employees covered by a particular collective bargaining agreement (CBA) using 6-month measurement and stability periods each starting April 1 and October 1 and determines the status of employees not covered by the CBA using 12-month measurement and stability periods each starting January 1.

On April 1, 2017, the employer changes the look-back measurement method for employees not covered by the CBA to be the same as that used for employees covered by the CBA.

For a transition period following the date of this change, the status of employees not covered by the CBA must be made in a manner consistent with this notice, treating each employee who is subject to the measurement method applicable to employees not covered by the CBA as if on April 1, 2017, that employee had transferred from a position subject to the original measurement method to a position subject to the revised measurement method.

Accordingly, each employee subject to the measurement method applicable to employees not covered by the CBA who is in a stability period as of April 1, 2017 retains his or her status as a full-time employee or non-full-time employee, as determined under the original measurement method for the remainder of the 12-month stability period applicable to that employee. Each such employee who is not in a stability period as of April 1, 2017 has his or her status determined as of April 1, 2017 in accordance with the 6-month measurement method.

Expanded Cafeteria Plan Election Changes

Posted in Affordable Care Act, Exchanges

Yesterday, the IRS issued Notice 2014-55 which expanded the permitted change rules for health coverage under cafeteria plans.  The Notice added two specific situations under which an individual can make changes to their health coverage outside of open enrollment.  It is important to note that these two additions do not apply to flexible spending arrangements.  The two situations are as follows:

  1. Employee who normally works at least 30 hours a week whose hours are reduced to less than 30 (regardless of whether this results in loss of eligibility for coverage).  In order to make a change as a result of a reduction in hours, two criteria must be met:
    1. The change in coverage must coincide with intended enrollment of the employee (and any covered dependents) into another plan that provides minimum essential coverage.
    2. The new coverage must be effective no later than the first day of the second month following the month that includes the date original coverage was revoked.
  2. Employee becomes eligible to enroll in the Marketplace either through a special enrollment period or open enrollment.  In order to make the change to elect Marketplace coverage, two criteria must be met:
    1. The change in coverage must coincide with intended enrollment of the employee (and any covered dependents) into the Marketplace.
    2. The new coverage must be effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

The Notice also clarified that it is not the responsibility of the employer to “police” the coverage change. In other words, employers do not have to require employees to prove that alternative coverage was elected once they ceased to participate in the employer’s plan.

The IRS will be modifying Section 125 in light of these recent changes.  While these modifications are pending, the changes in the Notice are effective as of the date of the Notice (September 18, 2014).  Plans will have to be amended to reflect these recent changes.

Automatic Enrollment?

Posted in Affordable Care Act, Government Employers, Insurers and Brokers, Private Employers

ACA § 1511 added new § 18A to the Fair Labor Standards Act, 29 U.S.C. § 218A, requiring employers of more than 200 full-time employees to “automatically enroll new full-time employees in one of the plans offered (subject to any waiting period authorized by law) and to continue the enrollment of current employees in a health benefits plan offered through the employer,” with an accompanying notice of employee opt-out rights, (here’s the catch) “[i]n accordance with regulations promulgated by the Secretary . . .” [of Labor].  Four and a half years later, no regulations have been proposed.  Not that you’re eagerly awaiting more ACA rules.

On December 22, 2010, DOL issued a set of answers to “Frequently Asked Questions” (FAQ), forecasting rule publication “by 2014.”   But, in Technical Release 2012-01, it delayed that forecast indefinitely, citing the need to coordinate any enrollment rules with the employer mandate and waiting period rules then being written.  Both were issued in final form early this year.  Still, no auto enrollment rules.

According to DOL’s web site, T.R. 2012-01 drew 40 public comments, most directed to the details of new hire full-time status testing under the expected look-back measurement method.  These suggestions also were made by important organizations:

  • Adopt a 1,200 hour, cumulative hours of service standard as a compliance safe harbor for auto enrollment, waiting period and employer mandate purposes (Business Roundtable);
  • Allow twelve months between rule publication and compliance (America’s Health Insurance Plans);
  • Ignore summer break months when determining the full-time status of school employees (National Education Association);
  • Don’t use a retirement plan enrollment model; new hires may be enrolled in other coverage already and may lose provider access if auto-enrolled in new plans (Retail Leaders Industry Association).

In early 2013, so-called “skinny med,” minimum essential coverage plans hit the market, causing concern that automatic enrollment in such plans could render employees ineligible for ACA Exchange subsidies.  Murmuring against § 18A became calls for its repeal, embodied in S. 2546, The Auto Enroll Repeal Act, endorsed by a July 22, 2014 letter to Sen. Johnny Isakson (R – Georgia) signed by a long, impressive list of national employers and trade organizations. Assigned to the Senate H.E.L.P. Committee (chaired by Tom Harkin, D-Iowa) , it languishes there today.   As best we can tell, that’s why we lack even  proposed automatic enrollment rules in the fifth year after ACA passage.

 

Avoid Employer Mandate Myopia

Posted in Affordable Care Act, Coverage Mandates, Government Employers, Grandfathered Status, Insurers and Brokers, Private Employers, Taxes

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):

  1. 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?”
  2. Should there be an alternative that tests only coverage availability?
  3. How this relates to employer and individual mandate taxation.
  4. Which employee groups might be tested separately.
  5. Which separate employer locations might be tested separately.
  6. Safe harbor options.
  7. Aggregation of “substantially similar” coverages.
  8. Application to expatriate employees.
  9. Application to multi-employer plans.
  10. Testing, or not, of after-tax coverages provided to the highly compensated.
  11. Treatment of voluntary waivers of employer coverage.
  12. Treatment of corporate mergers, acquisitions and similar transactions.
  13. 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.

Cumulative Hours of Service Eligibility

Posted in Affordable Care Act, Coverage Mandates, Government Employers, Insurers and Brokers, Private Employers, Taxes

IRS maximum waiting period rules are in effect and employer mandate taxes will begin accruing January 1, 2015.    Much has been written, here and elsewhere, about how to administer group health plan eligibility for both purposes.  Briefly, here are the options we have covered in prior posts.

  • Treat all employees as eligible, eliminating the full-time / part-time distinction, with insurer consent, and observe the maximum waiting period rules for new hires;
  • Create a DMZ between employees who are very part-time and those who are very full-time; allow no one near the border and observe the maximum waiting period rules for new hires;
  • Track full-time eligibility manually, using the look-back measurement method for all but full-time new hires;
  • Acquire and use ACA employer compliance software to do the same, either with or without associated benefit administration services.

We saved this deep dive into the cumulative hours of service (“CHOS”) option because of a difficult ambiguity, hoping for clarification that hasn’t arrived.  The question is whether a CHOS requirement (up to 1,200 hours) that complies with the PHS Act § 2708  waiting period rules also avoids employer mandate tax assessments under Code § 4980H.

The math is simple.  An employee averaging 30 weekly hours of service would reach 1,200 hours in 40 weeks – about three times the maximum waiting period for someone hired full-time.  One would have to exceed 90 weekly hours to hit 1,200 within the 90-day waiting period. So, we doubt that the IRS will waive § 4980H assessments because an employer applied a CHOS eligibility test to an employee hired to work full-time.  But does the IRS consider the CHOS test a § 4980H alternative to the look-back measurement period for part-time, variable hour and seasonal employees?  If you need simplicity, stop reading now.

The look-back measurement method is discussed in the employer mandate rules and in the waiting period rules, but only the waiting period rules discuss the CHOS option expressly. 

(ii) Cumulative service requirements. If a group health plan or health insurance issuer conditions eligibility on an employee’s having completed a number of cumulative hours of service, the eligibility condition is not considered to be designed to avoid compliance with the 90-day waiting period limitation if the cumulative hours-of-service requirement does not exceed 1,200 hours.

See 79 Fed. Reg. 10,307, 311-12, 316-17 (Feb. 24, 2014), codified at 26 CFR § 54.9815-2708(c)(3)(ii) (Example 8); 29 CFR § 2590.715-2708(c)(3)(ii) (Example 8) and 45 CFR § 147.116(c)(3)(ii) (Example 8).  The reader is warned that waiting period compliance won’t necessarily avoid employer mandate tax assessments.

(h) No effect on other laws. Compliance with this section is not determinative of compliance with any other provision of State or Federal law (including ERISA, the Code, or other provisions of the Patient Protection and Affordable Care Act). See e.g., § 54.9802-1, which prohibits discrimination in eligibility for coverage based on a health factor and section 4980H, which generally requires applicable large employers to offer coverage to full-time employees and their dependents or make an assessable payment.

79 Fed. Reg. 10,308, 312, 317.  So far, it’s not looking good for the CHOS test as a § 4980H tax avoidance maneuver.

To determine the § 4980H tax exposure, employers must consult the employer mandate final rule, § 54.4980H-3(c)(2) of which, describing full-time employees under the monthly measurement method, states:

(2) Employee first otherwise eligible for an offer of coverage. The rule in this paragraph (c)(2) applies with respect to an employee who, in a calendar month, first becomes otherwise eligible to be offered coverage under a group health plan of an employer using the monthly measurement method with respect to that employee. For purposes of this paragraph (c)(2), an employee is otherwise eligible to be offered coverage under a group health plan for a calendar month if, pursuant to the terms of the plan as in effect for that calendar month, the employee meets all conditions to be offered coverage under the plan for that calendar month, other than the completion of a waiting period, within the meaning of § 54.9801-2, and an employee is first otherwise eligible if the employee has not previously been eligible or otherwise eligible for an offer of coverage under a group health plan of the employer during the employee’s period of employment. An employer is not subject to an assessable payment under section 4980H(a) with respect to an employee for each calendar month during the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage no later than the first day of the first calendar month immediately following the three-month period if the employee is still employed on that day. If the coverage for which the employee is otherwise eligible during the three-month period, and which the employee actually is offered on the day following that three-month period if still employed, provides minimum value, the employer also will not be subject to an assessable payment under section 4980H(b) with respect to that employee for the three-month period. This rule cannot apply more than once per period of employment of an employee. If an employee terminates employment and returns under circumstances that would constitute a rehire as set forth in paragraph (c)(4) of this section, the rule in this paragraph (c)(2) may apply again.

79 Fed. Reg. 8584 (Feb. 12, 2014) (emphasis ours.)  Section 54.9801-2 takes us back to the waiting period rules, where we read that “[w]aiting period means waiting period within the meaning of § 54.9815-2708(b).”  Flipping there, we learn that it “is the period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of a group health plan can become effective.” 

We’ve now come full circle, back to the place in the waiting period rules where we read that a CHOS test isn’t one.  Indeed, the maximum waiting period may be added to the CHOS.   See 26 CFR § 54.9815-2708(c)(3)(ii) (Example 8).   In short, intertwined sets of rules suggest that a lawful CHOS requirement may delay both the accrual of waiting period penalties and employer mandate tax assessments.  But can that be squared with the “no effect on other laws” language quoted above?

IRS Notice 2012-59 (August 2012), the immediate predecessor to the waiting period proposed rules, approved by example an employee working from January 3 until December 15 before reaching the 1,200 CHOS eligibility threshold, without comment regarding the § 4980H consequences.  The proposed rules, issued seven months later, added this footnote on the same point:

While a cumulative hours-of-service eligibility condition up to 1,200 hours may be permissible under PHS Act section 2708, an applicable large employer’s denial of coverage to a full-time employee may, nonetheless, give rise to an assessable payment under section 4980H of the Code and its implementing regulations.

78 Fed. Reg. 17,316, n. 8 (March 21, 2013).  Eleven months later, that footnote was dropped from the relevant section of the final rules’ preambleSee 79 Fed. Reg. 10,298 (Feb. 24, 2014).  Three months after that, the CHOS portion was omitted entirely from the preamble to the final rule amendment adding a one-month orientation period See 79 Fed. Reg. 35,944 (June 25, 2014).   Is the IRS telling employers that a CHOS test has no relevance to § 4980H assessments or only that a CHOS test, like the look-back measurement method, cannot be imposed on full-time new hires so as to delay their coverage offers longer than 90 days?  The implications are anything but clear.

Two ACA employer compliance issues – automatic enrollment and plan discrimination – are puzzles because the rules have not been published.  Others are difficult because their complex rules require careful study.  This is a regulatory encounter of the third kind.  Close study actually augments the confusion.  The IRS Chief Counsel’s office referred us to the PR staff.  If we get a helpful response, we’ll update this post.

Draft Instructions for ACA Forms Released

Posted in Affordable Care Act, Uncategorized

A few months ago, the Internal Revenue Service released draft versions of Forms 1094-B, 1095-B, 1094-C and 1095-C (Click here for our prior post).  The final versions of these forms are expected later this year.  Pursuant to Code Section 6055, health insurance issuers, plan sponsors of self-insured health plans, government agencies that administer government-sponsored health insurance programs and all entities that provide minimum essential coverage are required to report coverage information to the IRS and covered individuals on Forms 1094-B and 1095-B.  Code Section 6056 mandates that Forms 1094-C and 1095-C be used by ALEs subject to Code Section 4980H.

As with most things ACA related, the forms themselves are quite complicated and initially left a lot of unanswered questions.  Last week, the IRS issued very voluminous and equally complex instructions for these forms, which reflect the true complexity of this new reporting requirement.  Instructions for Forms 1094-B and 1095-B can be found here, and instructions for Forms 1094-C and 1095-C can be found here.  The instructions walk you through the reporting process and information necessary to complete the forms.

While both the forms and the instructions clearly state not to rely upon them as changes may be made, it is highly unlikely that the changes will be significant.  Also, these forms are not required to be filed for 2014 but may be voluntarily filed in 2015.  The forms will be required to be filed in 2016 (for the 2015 year).  Despite the “draft” status and seemingly far-off deadline, it is important to go ahead and start reviewing the forms and instructions and discussing with any third parties who aid in tax reporting.  This is because the information needed to complete these forms must be recorded on a monthly basis starting in January of 2015.

First Look at ACA Employer Compliance Software

Posted in Affordable Care Act, Government Employers, Private Employers, Taxes

As we explained last month, employers who want to use the “look-back measurement method” of full-time employee identification should be shopping for IT solutions.  Here are four that we think deserve consideration.  None requires bundling all HR, payroll and benefits functions.  Instead, each pulls data from widely-used payroll and time management systems.  Some integrate ACA compliance with other HR or benefit features, such as uploading or preparing 834 files for upload to insurers.  All show how employees are trending in relation to ACA full-time eligibility rules; some also will pre-populate Form 1095-B and Form 1095-C.  All block some user choices that would produce compliance errors.  We especially like the fact that these vendors appear to appreciate their need for current, competent, continuing legal advice.  We assume, as should you, that there are others equally worthy of your attention.  If you find them, please tell us.  For the present, here are four that we like, listed in alpha order, by URL.

What You Get . . .

http://www.afullcirclesolution.com/

Full disclosure: Arc Technologies, based in Ridgeland, Mississippi, is a Balch client.  We believe that the ACA compliance module of its HRIS platform, “Eight,” would have made this list regardless. We especially like the automated audit trails and the default settings that favor eligibility unless authorized users make contrary designations in light of the data. Demos have gone well and existing “Eight” users have provided real world scenarios and suggestions during beta testing.  Arc got its start solving data management problems for restaurant franchisees and has one of the better Form I-9 compliance modules that we have seen. The phone number is (601) 991-1160.

http://www.fivepointsict.com

Five Points, based in Franklin, Tennessee, offers a suite of HR and benefit administration solutions.  Our web-based demo was hosted by presenters who seemed to have studied the underlying ACA rules especially well.  We were most impressed with the graphics-based dashboard; it should be a valuable management tool.  Five Points started by solving problems for schools and hospitals, so they should handle those benefit issues especially well.  The toll-free line is (800) 435-5023.

https://goempyrean.com/

Houston-based Empyrean brings significant, large group enrollment administration expertise to this project. “SAFEHARBOR” is a variable hour employee eligibility tracker but Empyrean also offers interlocking IT solutions for enrollment and IRS reporting, plus support and enrollment services. However, bundling is not required; SAFEHARBOR is available separately.  Our web-based demo was helpfully handled by people familiar with ACA issues.  The toll-free number is (800) 934-1451.  A video introduction is posted at https://safeharbor.goempyrean.com/content/charting-course-pay-or-play-compliance-episode-1.

http://www.worxtime.com/

Worxtime, from a unit of Visual Benefit Communications, Inc., Huntsville, AL, builds on the vendor’s decades of benefit administration and support services to a wide range of employers.  Like Five Points, the graphics-based dashboard is very helpful.  Unusually, some back office concerns are up front, such as alerts about possibly corrupt data files and utilities designed to facilitate data import from many payroll and attendance programs, in any field order.  Mandated ACA reports are automated, but users may configure a wide range of other reports and e-mail alerts.  Some critical reports are coupled with support center phone calls to designated managers, just in case alert e-mails are trapped in a spam filter.  The toll-free number is (800) 374-8787.

What You Pay . . .

We built and culled our list based on expected functionality, including our assessment of the vendor’s capacity to improvise and optimize as this shakes out, relying mainly on the sort of web demonstration that the vendor would give a potential customer.  We did not consider or even request pricing information.  We suspect that increased competition and improving functionality will narrow any pricing gaps that may exist, but you should compare costs of all suitable systems.