Affordable Care Act Review

Affordable Care Act Review

“CBO Says . . .”

Posted in Affordable Care Act, Coverage Mandates, Exchanges, Taxes

It’s a Capitol Hill game. Anything that has any significant budgetary consequence may be lauded or condemned based on the Congressional Budget Office forecast of that consequence. So what has the CBO said about ACA subsidy payments, individual mandate and employer mandate penalties? We compared the CBO’s April 2014 Baseline with its January 2015 Baseline and its March 2015 Baseline for fiscal years 2015, 2016 and 2017, looking at just three of the ACA’s budgetary consequences.

Exchanges subsidies by fiscal year (in billions of dollars)

April 2014 Baseline:               17 – 36 – 77

January 2015 Baseline:          32 – 66 – 87

March 2015 Baseline:            28 – 53 – 72

Individual mandate penalties paid by fiscal year (in billions of dollars)

April 2014 Baseline:               0 – 2 – 4

January 2015 Baseline:          2 – 4 – 4

March 2015 Baseline:            2 – 3 – 4

Employer penalties paid by fiscal year (in billions of dollars)

April 2014 Baseline:               0 – 0 – 8

January 2015 Baseline:          0 – 7 – 11

March 2015 Baseline:            0 – 9 – 13

We don’t question the quality of the CBO’s work; rather, we assume that these are the best available estimates. Nevertheless, note the 65% increase in forecast 2015 subsidy outlays. What will be will be, but we’re not likely to know until it is what it is.

HDHP Family Coverage Cost Sharing Limit Put Simply

Posted in Affordable Care Act, Coverage Mandates, Insurers and Brokers

The HHS 2016 Notice of Benefit and Payment Parameters was the usual grab bag of regulatory minutiae, but some things were more easily grabbed than others. So, HHS has published a good, simple explanation of how the annual cost sharing limit applies to high deductible health plan coverage of a family. We quote it here, in full.

The final 2016 Notice of Benefit and Payment Parameters (2016 Payment Notice) (80 FR 10750) clarified that the self-only annual limitation on cost sharing applies to each individual regardless of whether the individual is enrolled in a self-only or other than self-only plan. As a result, how can issuers offer a family high deductible health plan (HDHP) with a $10,000 family deductible?

In the 2016 Payment Notice, CMS established that starting in the 2016 plan year, the self-only annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in other than self-only coverage, including in a family HDHP. Under the requirements for an HDHP, except for preventive care, a plan may not provide benefits for any year until the deductible for that year has been met.  As discussed in IRS Notice 2004-2 (, in the case of family coverage, a plan is an HDHP only if, under the terms of the plan and without regard to which family member or members incur expenses, no amounts are payable from the HDHP until the family has incurred annual covered medical expenses in excess of the minimum annual deductible for family coverage.

For example, an HDHP plan that has a $10,000 family deductible may provide payment for covered medical expenses for a member of the family if that member has incurred covered medical expenses during the year of at least $2,600 (the minimum deductible for a 2015 family HDHP). Under the policy finalized in the 2016 Payment Notice, this plan must also apply the annual limitation on cost sharing for self only coverage ($6,600 in 2015) to each individual in the plan, even if this amount is below the $10,000 family deductible limit.

As stated in the 2016 Payment Notice, while cost sharing incurred towards the deductible must count towards the annual limitation on cost sharing for essential health benefits (EHB), the deductible limit is not treated in the same manner as the annual limitation on cost sharing under 45 CFR §156.130. Therefore, family HDHPs that count the family’s cost sharing to the deductible limit can continue to be offered under this policy, as long as the self-only annual limitation on cost sharing is applied to each individual in the plan.

King v. Burwell Oral Argument – First Read of the Omens

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

Apologizing to our readers for having advertised live audio that wasn’t, you really can find the Wall Street Journal’s live blog entries here.    The Court’s official audio and transcript may be available as early as March 6, according to some early estimations.  Based on accounts of observers who are commenting immediately, here are our first impressions of likely positions when we read the opinion, probably in late June.

Justice Ginsburg dug in early, questioning whether the people bringing the case have legal “standing” to sue. As expected, their counsel had reasonable answers.

Justice Kennedy, later joined by Justice Sotomayor, suggested that, if the subsidy language were read as the plaintiffs propose, it might exceed the power of Congress to coerce states by means of federal spending.  A similar concern won a 7-2 majority back in 2012 in the individual mandate case, NFIB v. Sebelius.

Justices Breyer and Kagan suggested that the government’s reading of the subsidy language – availability through all ACA Exchanges, no matter whether state or federal – is the only practical reading. Justice Alito turned one such comment around in amusing fashion.

Counsel were given longer than the usual time, but it wasn’t enough. The argument went into the Supreme Court equivalent of double overtime, with Chief Justice Roberts trying to keep just one person talking at a time during the spirited debate.

Update March 4 (pm):  To hear an excellent, in-depth, same day discussion of the King v. Burwell oral argument by Prof. Jonathan Adler, click here.  Professor Adler agrees with us that, if the Government wins, federalism concerns voiced by Justice Kennedy will motivate the likely majority.  And, if the Government loses, the Court might delay its mandate, perhaps for the remainder of 2015.  Still, too close to call.

Update March 9 (am):  The oral argument audio has been posted here.  The transcript is here.

Final HHS Notice of Benefit and Payment Parameters for 2016

Posted in Affordable Care Act, Coverage Mandates, Exchanges, Insurers and Brokers

This is an annual regulatory publication that covers many Exchange and market reform initiatives. The early release that we read for this article was 474 pages long. You can read the more compact (129-page) Federal Register version here. These are our top ten take-aways.

10.  The 2016 annual cost sharing limits will be $6,850 for self-only coverage and $13,700 for other than self-only coverage.

9.  The 2016 reinsurance contribution rate will be $27 per enrollee, and may be paid entirely in January, rather than split between January and the following November.

8.  The 2016 Exchange annual open enrollment period will run from November 1, 2015 through January 31, 2016.

7.  Certain plan terms will be suspected of unlawful discrimination – e.g., restricting broadly needed services to certain age groups or placing drugs needed to treat a particular condition on a higher cost sharing tier.

6.  Plans no longer may require all drugs to be mail-ordered. If a health plan denies a drug on a standard (72 hour turnaround) or expedited (24 hour) basis, it must make available an external review process.

5.  HHS will require 2016 QHP issuers to add a pharmacy and therapeutic (P&T) committee process to their prescription drug formulary development and to keep their online listings updated and machine readable, to facilitate download and automated comparison by reviewers.

4.  QHP issuers must offer Essential Community Providers contracts on the same terms as other providers and must offer a contract to at least one ECP in each category in each county of the service area.

3.  Quality Improvement Strategy (QIS) reporting will begin to be phased-in for QHP issuers that participated in an Exchange in 2014 and 2015. Each such QHP issuer insurer will have to explain what it has done in at least one QIS area listed in ACA section 1311(g).

2.  Network provider directories must meet tighter adequacy standards, including currency and accessibility. For example, the directory must be offered in a machine readable format to facilitate download and comparative use by reviewers.

1.  Plans without “substantial” hospitalization and physician coverage will be deemed to offer less than “minimum value,” regardless of whether EHB rules apply and no matter how they pushed through the 2015 AV Calculator.  MEC they might be, but not MAV.

IRS Floats Cadillac Tax Enforcement Balloons

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

Beginning in 2018, relatively generous group health plans will begin accruing non-deductible excise tax liabilities equal to 40% of the “excess benefit” provided to beneficiaries. Codified at 26 U.S.C. § 4980I, it’s better known as the “Cadillac plan” tax. Widespread disapproval may explain why it was delayed eight years after the ACA’s passage. Nevertheless, get ready, here it comes. So says IRS Notice 2015-16, which also gives us the first practical hints about how the tax will be calculated.

Notice 2015-16 is not a set of rules. It is the first step in a rulemaking process that will have at least four steps – (1) Notice 2015-16, soliciting comments by May 15, 2015; (2) another Notice, based on those comments; (3) publication of proposed rules, after consideration of the further comments; (4) final rule publication, reflecting any adjustments due to comments on the proposed rules. In this first phase, the IRS identifies matters apparently left to its discretion and describes the options under consideration, in some cases telling us which option seems preferable. The Notice covers 24, single-spaced pages – far too long for comprehensive coverage here.   Here are some highlights.

The “cost of coverage” used to calculate the excess benefit may differ from the cost of coverage that employers currently must report annually on Form W-2. “However, Treasury and IRS anticipate that to the extent guidance under § 4980I provides improved methods for determining the cost of applicable coverage, consistent rules may be issued for purposes of § 6051(a)(14),” – i.e., W-2 reporting. In other words, if IRS writes different rules for the Cadillac tax, the W-2 rules might be revised accordingly.

The “cost of coverage” used to calculate the excess benefit probably will include –

  • executive physical programs;
  • Health Reimbursement Arrangements (HRAs);
  • Employer pre-tax contributions to Health Savings Accounts (“HSAs”) and Archer MSAs;
  • Expenses for on-site medical clinics that offer more than de minimis medical care; and, maybe,
  • Employee Assistance Programs that do not qualify as “excepted benefits” under 26 CFR § 54.9831-1(c)(3)(vi).

Further as to cost of coverage, and quoting (with omissions) from the Notice –

[F]or any specific type of applicable coverage, the cost of that applicable coverage for an employee will be based on the average cost of that type of applicable coverage for that employee and all similarly situated employees. Under the potential approach that Treasury and IRS are considering, each group of similarly situated employees would be determined by starting with all employees covered by a particular benefit package provided by the employer, then subdividing that group based on mandatory disaggregation rules, and allowing further subdivision of the group based on permissive disaggregation rules. [ . . . ] The employees enrolled in each different benefit package would be grouped separately. Benefit packages would be considered different based upon differences in health plan coverage; there may be more than one benefit package provided under a group health plan. Employees would be grouped by the benefit packages in which they are enrolled, rather than the benefit packages they are offered. Thus, for example, if employees are provided a choice between a standard and a high option (such as an option with lower deductibles and copays), employees covered under the high option would be grouped separately from those covered under the standard option. [ . . . ] After aggregating all employees covered by a particular benefit package, under this potential approach, the employer would then be required to disaggregate the employees within the group covered by the benefit package based on whether an employee had enrolled in self-only coverage or other-than-self-only coverage. For example, in a benefit package allowing employees to choose between self-only and family coverage, employees receiving self-only coverage would be grouped separately from those receiving family coverage. [ . . . ] [And] Treasury and IRS are considering whether disaggregation should be permitted based on (a) a broad standard (such as limiting permissive disaggregation to bona fide employment-related criteria, including, for example, nature of compensation, specified job categories, collective bargaining status, etc.) while prohibiting the use of any criterion related to an individual’s health), or (b) a more specific standard (such as a specified list of limited specific categories for which permissive disaggregation is allowed). A more specific standard, for example, could permit groups of similarly situated employees enrolled in a single benefit package to be disaggregated only into current and former employees and/or to be disaggregated based on bona fide geographic distinctions, such as an employee’s residence in or a business’s location in different states or metropolitan areas and/or, for an employee receiving other-than-self-only coverage, based on the number of individuals covered in addition to the employee (that is, different rating units).

The Notice cautions us not to assume that the COBRA and Cadillac tax aggregation / disaggregation rules will match.

The Notice merely references the statute when commenting briefly on the “health cost adjustment percentage” and other adjustments to the 2018 annual dollar limits of $10,200 for self-only coverage and $27,500 for other coverage. We’ll have to wait for guidance on those important points.

Want to submit your comments? Here’s how:

Public comments should be submitted no later than May 15, 2015. Comments should include a reference to Notice 2015-16. Send submissions to CC:PA:LPD:PR (Notice 2015-16), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2015-16), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044, or sent electronically, via the following e-mail address: Please include “Notice 2015-16” in the subject line of any electronic communication. All material submitted will be available for public inspection and copying.






The Stand-Alone HRA Is Undead!

Posted in Affordable Care Act, Business Organizations, Coverage Mandates, Private Employers, Taxes

Sort of, temporarily, for some of you.  It’s complicated.  You’ll want to read this to the end.

The enforcement agencies (DOL, HHS, IRS) have warned, repeatedly and consistently, that employer pre-tax reimbursement of individual employee health insurance premiums, standing alone, will violate ACA market reforms added to the Public Health Service (“PHS”) Act. That is, until this week, when several “transitional relief” exceptions were announced in IRS Notice 2015-17, along with a new threat to wage bump offsets.

Normally, a group health plan that fails to comply with an applicable PHS Act mandate is subject to the excise tax imposed by 26 U.S.C. § 4980D(b)(1) – “$100 for each day in the noncompliance period with respect to each individual to whom such failure relates.” Ouch. Notice 2015-17 –

provides that the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by employer payment plans that pay, or reimburse employees for individual health policy premiums or Medicare part B or Part D premiums (1) for 2014 for employers that are not ALEs for 2014, and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015. After June 30, 2015, such employers may be liable for the Code § 4980D excise tax.

And –

For determining whether an entity was an ALE for 2014 and for 2015, an employer may determine its status as an applicable large employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2013 calendar year for determining ALE status for 2014 and during the 2014 calendar year for determining ALE status for 2015, as applicable (rather than by reference to the entire 2013 calendar year and the entire 2014 calendar year, as applicable).

And –

Employers eligible for the relief described in this Q&A-1 that have employer payment plans are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having such arrangements for the period for which the employer is eligible for the relief.

But, “This relief does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums.”

Similarly, the agencies are reconsidering how the PHS Act amendments should apply to employer pre-tax reimbursement of owners’ health insurance premiums. So –

Until such guidance is issued, and in any event through the end of 2015, the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement. Further, unless and until additional guidance provides otherwise, an S corporation with a 2-percent shareholder-employee healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.

The tax treatment of such arrangements remains subject to Notice 2008-1 until further notice.

What if the employee’s health insurance is Medicare or TRICARE? Under prior guidance, reimbursing the employee’s premiums with pre-tax money would violate the PHS Act because those programs are not treated as related, employer-sponsored group health plans. Here’s the limited relief now offered regarding Medicare premiums:

[A]n employer payment plan that pays for or reimburses Medicare Part B or Part D premiums is integrated with another group health plan offered by the employer for purposes of the annual dollar limit prohibition and the preventive services requirements if (1) the employer offers a group health plan (other than the employer payment plan) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value; (2) the employee participating in the employer payment plan is actually enrolled in Medicare Parts A and B; (3) the employer payment plan is available only to employees who are enrolled in Medicare Part A and Part B or Part D; and (4) the employer payment plan is limited to reimbursement of Medicare Part B or Part D premiums and excepted benefits, including Medigap premiums. Note that to the extent such an arrangement is available to active employees, it may be subject to restrictions under other laws such as the Medicare secondary payer provisions.

And here’s the relief offered for TRICARE:

[A]n HRA that pays for or reimburses medical expenses for employees covered by TRICARE is integrated with another group health plan offered by the employer for purposes of the annual dollar limit prohibition and the preventive services requirements if (1) the employer offers a group health plan (other than the HRA) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value; (2) the employee participating in the HRA is actually enrolled in TRICARE; (3) the HRA is available only to employees who are enrolled in TRICARE; and (4) the HRA is limited to reimbursement of cost sharing and excepted benefits, including TRICARE supplemental premiums. Note that to the extent such an arrangement is available to active employees, employers should be aware of laws that prohibit offering financial or other incentives for TRICARE-eligible employees to decline employer-provided group health plan coverage, similar to the Medicare secondary payer rules.

So far, so good, but the IRS saved the worst for last. Prior guidance appeared to allow an employer to raise an employee’s taxable wages to offset the cost of buying individual health insurance – for example, if the employer decided to drop its group health plan. Notice 2015-17 narrows that opening, thusly:

[A]n arrangement under which an employer provides reimbursements or payments that are dedicated to providing medical care, such as cash reimbursements for the purchase of an individual market policy, is itself a group health plan. Accordingly, the arrangement is subject to the market reform provisions of the Affordable Care Act applicable to group health plans without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will fail to satisfy PHS Act §§ 2711 (annual limit prohibition) and 2713 (requirement to provide cost-free preventive services) among other provisions.

Notice 2015-17 may send many small employers back to the ACA compliance drawing board.

The End.


Except the Unexcepted (Benefits, That Is)

Posted in Affordable Care Act

On February 13, 2015, new “FAQs” (there was only one question, but it was still pluralized) were prepared jointly by the Departments of Labor, Health and Human Services, and the Treasury (collectively the “Departments”) to once again address confusion related to excepted benefits. Excepted benefits are generally not subject to Affordable Care Act (ACA) mandates. Excepted benefits plans provide benefits that include health coverage that is not medical coverage (dental, vision, long-term care) or benefits that are not coordinated with medical benefits (specific disease coverage, fixed dollar indemnity coverage).

As we mentioned earlier, there was only one question on the new FAQs:

Can health insurance coverage that supplements group health coverage by providing additional categories of benefits, be characterized as supplemental excepted benefits?

As with most ACA-related questions, the answer is “it depends”. The Departments had previously provided a safe harbor for certain insurance products. Products that are specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles would be considered supplemental. The updated guidance provides that in addition to the applicable regulations and four criteria that were identified in the prior guidance, the Departments intend to propose regulations clarifying when supplemental insurance products that do not fill in cost-sharing under the primary plan are considered to fill gaps in primary coverage and thus be supplemental coverage. One issue that is being looked at is that additional categories of coverage would be considered to be designed to “fill in the gaps” only if the benefits covered by the supplemental insurance product are not an essential health benefit (EHB) in the State where it is being marketed.

The guidance provides that until the proposed regulations are finalized, the Departments will not initiate an enforcement with respect to health insurance coverage that:

(1) provides coverage of additional categories of benefits that are not an EHB in the applicable State;

(2) complies with the applicable regulatory requirements and meets all of the criteria in the existing guidance on “similar supplemental coverage”; and

(3) has been filed and approved with the State (as may be required under State law).


2014 Forms 1094-B, C and 1095-B, C Good to Go

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

Because the IRS needs data to verify subsidy eligibility and to enforce the individual and employer mandates, the ACA added § § 6055 and 6056 to the Internal Revenue Code, requiring insurers and large employers to report that data to the IRS and to beneficiaries. The IRS published final rules in March 2014 and released early draft Forms in August. The final Forms for (voluntary) 2014 reporting were published February 9, 2015. Mandated reporting begins in early 2016, for 2015 coverage months.

The preamble to the Code § 6055 rules explains more clearly than the regulations, Forms or Instructions the relationship between insurer reporting (Forms 1094-B, 1095-B) under Code § 6055 and large employer (Forms 1094-C, 1095-C) reporting under Code § 6056:

An applicable large employer member that sponsors a self-insured plan will report on Form 1095–C, completing both sections to report the information required under sections 6055 and 6056. An applicable large employer member that provides insured coverage also will report on Form 1095–C, but will complete only the section of Form 1095–C that reports the information required under section 6056. Section 6055 reporting entities that are not applicable large employer members or are not reporting as employers, such as health insurance issuers, sponsors of multiemployer plans, and providers of government-sponsored coverage, will report under section 6055 on Form 1095–B.

 79 Fed. Reg. 13,225 (March 10, 2014) (preamble to 26 CFR § § 1.6055-1, 1.6055-2).   An accompanying e-flyer, IRS Pub. 5196, provides a helpful overview, especially the bullet-point lists of the data needed to complete each “C” form.   Note: Employers, regardless of size, offering self-insured group health coverage will have basically the same obligations under Code § 6055 that large employers have under § 6056. The only employers getting a complete pass are small employers with fully-insured group health plans or no group health plans.

Form 1094-C, 1095-C and their instructions are complex. Form 1094-B, Form 1095-B and the Instructions for Forms 1094-B and 1095-B are relatively simple. For that reason, and because the “B” Forms have changed little, we highlight below just a few “C” Form and Instruction changes since August 28, 2014.

Forms 1094-C and 1095-C

The Forms appear to be approved for use.  The first “early release drafts” came with sheets headed, “Caution: DRAFT – NOT FOR FILING,” and bore watermarks reading, “DRAFT AS OF August 28, 2014 DO NOT FILE.”  The new releases lack watermarks.  They are titled, “Form 1094-C (2014),” and “Form 1095-C (2014).”  Form 1094-C is otherwise substantially unchanged.

Form 1095-C Part I (employee and employer identification data), takes up slightly less vertical space and Part II, “Employee Offer and Coverage,” has the same data cells but they too are shorter.  Part III, where large self-insurers identify each covered individual, gets the vertical space that Parts I and II surrendered.  Maybe IRS anticipates that many self-insurers will complete the Form manually. We hope that our readers have selected software solutions.

The Instructions for Recipient on the back of Form 1095-C add only two pieces of new information that employees might use. The opening sentence now tells the employee that his or her employer had to deliver the Form because it is an Applicable Large Employer subject to the ACA’s employer mandate.   The paragraph closes by explaining that an employee of more than one large employer should expect to a Form 1095-C from each of them.

Instructions for Forms 1094-C and 1095-C

Here we see the same indicators that the Forms are no longer in preliminary draft status, and we see many more substantive modifications and additions.  About 15% of the February 9 text seems to be new or modified, compared to the August 28 text.  These fourteen, two-column, single-spaces pages are where the action is.  We lacking room and you lacking tolerance for a page-by page analysis, we’ll briefly and too simply flag just four change areas – Designated Government Entity (DGE) reporting (pages 2-3, 9), self-insurer reporting (pages 2, 4, 10), Minimum Value definition (page 11) and multiemployer plan reporting (pages 5, 7-8, 10-11).

DGE Reporting:  DGE’s were referenced in the first draft instructions but their coverage bulked-up in the final release. A DGE is, “a person or persons that are part of or related to the Governmental Unit that is the ALE Member and that is appropriately designated for purposes of these reporting requirements.”  Nevertheless, “the Governmental Unit must ensure that among the multiple Forms 1094-C filed by or on behalf of the Governmental Unit transmitting Forms 1095-C for the Governmental Unit’s employees, one of the filed Forms 1094-C is designated as the Authoritative Transmittal and reports aggregate employer-level data for the Governmental Unit, as required in Parts II, III, and IV of Form 1094-C.”  Here’s the given example:

County is an ALE made up of ALE Members School District, Police District, and County General Office.  School District designates the state to report on behalf of the teachers and reports for itself for its remaining full-time employees. In this case, either the School District or the state must file an Authoritative Transmittal reporting aggregate employer-level data for all full-time employees of the School District.

Self-Insurer Reporting:  The instructions direct self-insured employers to review and use Forms 1094-B and 1095-B and specify when Form 1095-C is a permitted or required alternative.  For example, small, self-insured employers use the “B” Forms, because the “C” Forms are for “Applicable Large Employers.”  Large employers with fully-insured plans need not complete, file and deliver a Form 1095-C for an employee who was, in the relevant year, only employed in a “limited non-assessment” status (even though the employee is included in the census reported on Form 1094-C), but employees enrolled in a large employer’s self-insured plan despite that status must have a Form 1095-C (listing all covered individuals in Part III). Although it’s not clear on first reading, it appears to us that large employers offering self-insured coverage to non-employees (for example, corporate directors) may report “covered individuals” data on Form 1095-C Part III, but must report their self-insurer status on Form 1095-B.

Minimum Value Definition:  The instructions add these italicized words to the Minimum Value definition – “A plan provides minimum value if the plan pays at least 60 percent of the costs of benefits for a standard population.”  Reading “for a standard population,” in light of IRS Notice 2014-69 and the January 15, 2015 HHS release of the 2016 Minimum Value Calculator, we interpret this as reiterated hostility toward Minimum Essential Coverage (MEC) plans lacking hospitalization coverage.

Multiemployer Plan Reporting:  We have worried aloud that the IRS and DOL might treat leased employee coverage arrangements as multiemployer plans, perhaps even applying punitive MEWA rules not written for that purpose.  The reason for severe MEWA penalties is put simply on the DOL/EBSA web site:

Through MEWAs, unrelated employers, typically small businesses, seek to provide health care and other benefits to their workers at what is represented to be a lower cost than other traditional forms of coverage.

The promoters, marketers and operators of MEWAs often have taken advantage of gaps in the law to avoid state insurance regulations, such as a requirement to maintain sufficient funding and adequate reserves to pay the health care claims of workers and their families. In the worst situations, operators of MEWAs have drained their assets through excessive administrative fees or outright embezzlement, resulting in harm to participants and their families. In some cases, individuals incur significant medical bills before they learn that claims are not being paid – and that they are liable and need to pay their medical bills themselves. The Affordable Care Act includes provisions designed to remedy these gaps.

This is a real problem justifying regulatory reaction. Worrying about over-reaction, we scoured these instruction changes for clues that leased employer coverage might be treated as a MEWA.

Under the employer mandate rules, 26 CFR § 54.4980H-4, employers of certain leased employees, under certain circumstances, may claim credit for qualifying coverage offers made to those workers by their staffing company employer.  This accommodating language survived from the original draft of these instructions:

An employer offers health coverage to an employee if it, or another employer in the Aggregated ALE Group, or a third party such as a multiemployer or single employer Taft-Hartley plan, a multiple employer welfare arrangement (MEWA), or, in certain cases, a staffing firm, offers health coverage on behalf of the employer.

The “employee” definition properly was changed to match the § 54.4980H-1 employee definition, which excludes, “a leased employee within the meaning of section 414(n) of the Code . . ….”  Code § 414(n) describes people leased in full-time status for a year or more.  Discussing how an employer reports on Form 1095-C an offer of credit made by another, the instructions say –

The information related to whether the full-time employee was offered coverage (generally meaning the employee was eligible for coverage under the plan) must be accurate to facilitate administration of the premium tax credit, including in the case of coverage offered by a plan such as a multiemployer plan or a plan sponsored by a staffing firm or similar entity for which the client employer pays an additional amount for enrolled employees. The alternative reporting methods may be applied to the offer of coverage to the extent the employer is otherwise eligible to use these methods. For example, if a multiemployer plan represents to a contributing employer that the full-time employee on behalf of whom the employer contributed was eligible for coverage that is a Qualifying Offer for all 12 months, the contributing employer may use the alternative reporting method related to such a Qualifying Offer. See the sections of these instructions related to the Qualifying Offer Method, including the 2015 Qualifying Offer Method Transition Relief.

Emphasis ours.  The closest “relief” code is Code 2E, “multiemployer interim rule relief.”  Other sorts of relief get detailed treatment on page 13 of the instructions, but “multiemployer arrangements” guidance consists of a reference back to the definition of “offer of health coverage.” There (page 11, right column), we read this:

An employer offers health coverage to an employee if it, or another employer in the Aggregated ALE Group, or a third party such as a multiemployer or single employer Taft-Hartley plan, a multiple employer welfare arrangement (MEWA), or, in certain cases, a staffing firm, offers health coverage on behalf of the employer.

Emphasis ours.   IRS seems to be saying that staffing firm offers are one type of arrangement entitled to “multiemployer interim rule relief.”  Consistently, the preamble to the employer mandate final rules describes staffing firm offers as a “similar arrangement” to a MEWA or other multiemployer plan.  79 Fed. Reg. 8,566 (Feb. 12, 2014).  Though staffing company plans are omitted from the preamble’s “Interim Guidance With Respect to Multiemployer Arrangements,” 79 Fed. Reg. 8,576, the rule text, 26 C.F.R. § 54.4980H-4(b)(2), discusses them in abutting sentences, adding that –

For an offer of coverage to an employee performing services for an employer that is a client of a staffing firm, in cases in which the staffing firm is not the common law employer of the individual and the staffing firm makes an offer of coverage to the employee on behalf of the client employer under a plan established or maintained by the staffing firm, the offer is treated as made by the client employer for purposes of section 4980H only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll in health coverage under the plan.

Subsection (b) is headed, “Offer of coverage.”  We hope that IRS is not saying that claiming credit for a staffing company’s coverage offer exposes an employer to MEWA rules, but it’s a bit close for comfort. Because DOL has MEWA enforcement authority, it could provide sub-regulatory assurance that claiming Form 1095-C, Code 2E, multiemployer interim rule relief, based on coverage offers made to leased workers by staffing firms, will not expose those plans and employers to ERISA regulation of Multiple Employer Welfare Arrangements.  Let’s hope DOL reads this and responds helpfully.


Hotel Can You Ever Leave?

Posted in Affordable Care Act, Coverage Mandates, Exchanges, Taxes

All of us over a certain age know the lyric from the Eagles’ Hotel California – “You can check out any time you like, but you can never leave.”  We’re receiving anecdotal reports that something similar may be true of  Most recently, we heard from a former executive who left her corporate job to launch a related consulting practice, happily so, until she tried to substitute an individual policy, purchased outside the Exchange, for the policy that she had bought through

This should be a simple, seven-step process, according to the web page:

How do I cancel my Marketplace plan for everyone on my application?

If everyone in your household becomes eligible for coverage from another source, like Medicaid or CHIP, you’ll need to cancel your Marketplace plan. Follow these steps to end coverage for everyone enrolled in a plan you bought through the Marketplace:

  • Log in to your Marketplace account
  • Select My applications & coverage from the menu on the right side of the page
  • Select your application under Your existing applications
  • On the left side of the screen, select My plans & programs
  • Scroll down and select the red button that says End all coverage
  • Select an effective date to end your coverage that’s at least 14 days in the future
  • Select the red End/Terminate Coverage button

A red Terminated status should appear above the plan you ended.

You can also cancel your plan by phone. Contact the Marketplace Call Center.

For our informant, it was anything but simple.  Here’s what she experienced, as told to us:

  • Trying without success to cancel her policy as instructed, she eventually reached an enrollment counselor by phone;
  • Instead of explaining how to cancel coverage, the counselor –
    • Stated that re-enrollment would be automatic, and that,
    • Terminating coverage would subject the caller to the individual mandate tax;
  • Then, the counselor hung up.

This seems extreme, but not implausible.  Automatic 2015 re-enrollment of 2014 insureds is standard operating procedure.  There have been plenty of media reports – for example, here, here and here -  of difficulties cancelling policies through, but we thought those 2013-14 “glitches” actually were glitches.  Of course, it’s true that, if an insured, without an applicable exemption, were to cancel her policy without substituting other qualifying coverage, she would be assessable for the 2015 coverage months without coverage.  And maybe the back end of pings the IRS and triggers an assessment if, for any reason, a policy is canceled.

We’re trying to determine whether the recent reports are outliers or if, maybe, cancellation difficulties are a system design element.  So, we ask our readers, are you aware of similar situations involving self-employed professionals? Do you know someone who canceled a 2014 policy online by following the web page instructions? Please let us know.

Pre-Tax Reimbursement of Employee Health Care Expenses

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

Santa Claus.  The Easter Bunny.  Bigfoot.  Pre-tax reimbursement of employee health care expenses by employers that don’t also provide ACA-compliant group health plan coverage.  We want them to be true, so each is used to great marketing advantage.  None will survive IRS scrutiny.  Just try claiming Bigfoot as a dependent.

Most recently, the IRS reiterated its position on pre-tax reimbursement in Information Letter 2014-0037 and Information Letter 2014-0039.  Together, they remind employers of these points:

  1. Strictly speaking, the ACA did not repeal the exclusion from employee income of employer reimbursement of employee health care expenses;
  2. However, such arrangements, if subject to an annual cap, violate the ACA’s annual limit prohibition, inviting imposition of associated penalties;
  3. Therefore, pre-tax reimbursement arrangements are lawful only if they are integrated with ACA-compliant group health plans;
  4. In other words, the ACA outlawed stand-alone HRAs.

Practically speaking, employers may raise employees’ taxable wages to help employees pay for their health care, but may not provide pre-tax reimbursements or advances.