On June 13, 2019 the Department of Labor, the Department of Health and Human Services, and the Treasury Department (the “Departments”) released the final rule concerning health reimbursement arrangements (HRA) for individual market coverage and excepted health benefits. The rule, based on an executive order from President Trump in 2017, is intended to increase choice in plan options, which could lead to greater flexibility in choice and provide more affordable healthcare. The final rule impacts many different entities and individuals, including employers, health plan issuers, employees, plan sponsors, and those who purchase individual health plans. This rule is effective for plan years starting January 1, 2020. Background An HRA is an account-based health plan that allows employers to reimburse employees for medical care expenses. It is funded solely by employer contributions. Amounts reimbursable under an HRA are typically limited to a certain amount during a certain period (for example, $500 for expenses incurred during a calendar year). Under prior IRS rules issued as part of Affordable Care Act (ACA) implementation, HRAs offerings were limited to an extent. Under those rules, an employer may offer an HRA to employees only if the HRA is “integrated” with a qualifying group health plan. Under the new final rule, some of the restrictions have been eliminated, and the Departments have determined that other types HRAs can be integrated with individual market coverage and Medicare in a way that meets statutory requirements. Notably, under the final rule, an employer of any size could offer an Individual Coverage HRA that can be used to pay for Medicare (e.g., Parts B and D) and Medicare Supplement premiums, as well as other medical care expenses, without violating the Medicare Secondary Payer rules. […]
At the end of May, the Department of Health and Human Services (HHS) released a proposed rule to revise regulations previously released under Section 1557 of the Affordable Care Act (ACA). The HHS goal with the proposed rule is to remove what the department views as redundancies and inconsistencies with other laws, as well as reduce confusion.
Changes in Compliance with Section 1557 Proposed Rule
ACA Section 1557 applies to “covered entities” – i.e., health programs or activities that receive “federal funding” from HHS (except Medicare Part B payments), including state and federal Marketplaces. Examples include hospitals, health clinics, community health centers, group health plans, health insurance issuers, physician’s practices, nursing facilities, etc.
Under current rules, “covered entities” include employers with respect to their own employee health benefit programs if the employer is principally engaged in providing or administering health programs or activities (i.e., hospitals, physician practices, etc.), or the employer receives federal funds to fund the employer’s health benefit program. Group health plans themselves are subject to the rule if they receive federal funds from HHS (e.g., Medicare Part D Subsidies, Medicare Advantage). In other words, employers who aren’t principally engaged in providing health care or health coverage generally aren’t subject to these rules directly unless they sponsor an employee health benefit program that receives federal funding through HHS, such as a retiree medical plan that participates in the Medicare Part D retiree drug subsidy program.
The most prominent proposed change is to the provision in Section 1557 which provides protections against discrimination on the basis of race, color, national origin, sex, age, and disability in certain health programs or activities. HHS’ proposed regulation would revise the definition of discrimination “on the basis of sex” that […]
Do you want to be selective and treat employees differently for purposes of group health plan benefits? For example, some employers may consider implementing the following plan designs:
- A health plan “carve-out” that insures only select groups of employees (for example, a management carve-out);
- Different levels of benefits for groups of employees; or
- Employer contribution rates vary based on employee group.
In general, employers may treat employees differently, as long as they are not violating federal rules that prohibit discrimination in favor of highly compensated employees. These rules currently apply to self-insured health plans and arrangements that allow employees to pay their premiums on a pre-tax basis. The nondiscrimination requirements for fully insured health plans have been delayed indefinitely.
Employers should also confirm that any health plan rules do not violate other federal laws that prohibit discrimination. In addition, employers with insured plans should confirm that carve-out designs comply with any minimum participation rules imposed by the carrier.
Health Plan Design – General Rules
In general, a health plan will not have problems passing any applicable nondiscrimination test when the employer treats all of its employees the same for purposes of health plan coverage (for example, all employees are eligible for the health plan, and the plan’s eligibility rules and benefits are the same for all employees). However, treating employees differently may make it more difficult for a health plan to pass the applicable nondiscrimination tests. Examples of plan designs that may cause problems with nondiscrimination testing include:
- Only certain groups of employees are eligible to participate in the health plan (for example, only salaried or management employees);
- The health plan has different employment requirements for plan eligibility (for example, waiting periods and entry dates) for different employee groups;
- Plan benefits or contribution rates vary based on employment classification, years of service or amount of compensation (for example, management employees pay a lower premium or receive additional benefits); or
- The employer maintains separate health plans for different groups of employees.
Before implementing one or more of these plan designs, employers should confirm that the arrangement will comply with any applicable rules that prohibit discrimination in favor of highly compensated employees. Under currently applicable law, if a health plan is discriminatory, highly compensated employees will lose certain tax benefits under the plan. […]
A federal judge ruled on March 28, 2019 that parts of the Trump administration’s 2018 final rule on association health plans (AHPs) were invalid. The court directed the Department of Labor (DOL) to reconsider how the remaining provisions of the final rule are affected.
In its ruling, the court stated that the final rule was an “end-run” around the Affordable Care Act (ACA) and that the DOL exceeded its authority under ERISA.
The court specifically struck down two parts of the rule:
- The provision defining “employer” to include associations of disparate employers; and
- The provision expanding membership in these associations to include working owners without employees
Employers and business owners without employees that have joined an AHP, or are considering doing so, should review how their plans may be affected by the court’s ruling. These employers can also monitor developments from the DOL on any changes made to the rule. […]
The Internal Revenue Service (IRS) began issuing enforcement letters related to employers’ compliance with the employer shared responsibility rules under the Affordable Care Act (ACA) for the 2016 calendar year. These letters, known as Letter 226-J, inform employers of their potential liability for an employer shared responsibility penalty, if any, for 2016.
The IRS only sends these letters to employers that are subject to the employer shared responsibility rules, known as applicable large employers (ALEs). The determination of whether an ALE may be liable for a penalty, and the amount of the proposed penalty in Letter 226-J, are based on information from Forms 1094-C and 1095-C filed by the ALE and the individual income tax returns filed by the ALE’s employees.
What You Need To Do
Employers that receive a Letter 226-J must respond to the letter, either agreeing with the proposed penalty or disagreeing with part or all of the proposed amount. The IRS provides an employer response form, Form 14764, for employers to use for this purpose. The IRS maintains a website on understanding Letter 226-J for employers who receive an enforcement letter.
The ACA’s employer shared responsibility rules require ALEs to offer affordable, minimum value health coverage to their full-time employees or pay a penalty. These rules, also known as the “employer mandate” or “pay or play” rules, only apply to ALEs, which are employers with, on average, at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.
The employer shared responsibility rules took effect for most ALEs beginning on Jan. 1, 2015. However, some ALEs may have had additional time to comply with these requirements. An ALE may be subject to a penalty only if one or more […]
On Friday, December 14, a federal judge in Texas issued a partial ruling that strikes down the entire Affordable Care Act (ACA) as unconstitutional. The White House has stated that the law will remain in place, however, pending the appeal process. The case, Texas v. U.S., will be appealed to the U.S. Court of Appeals for the Fifth Circuit in New Orleans, and then likely to the U.S. Supreme Court.
The plaintiffs in Texas (a coalition of twenty states) argue that since the Tax Cuts and Jobs Act zeroed out the individual mandate penalty, it can no longer be considered a tax. Accordingly, because the U.S. Supreme Court upheld the ACA in 2012 by saying the individual mandate was a legitimate use of Congress’s taxing power, eliminating the tax penalty imposed by the mandate renders the individual mandate unconstitutional. Further, the individual mandate is not severable from the ACA in its entirety. Thus, the ACA should be found unconstitutional and struck down.
The court in Texas agreed, finding that the individual mandate can no longer be fairly read as an exercise of Congress’s Tax Power and is still impermissible under the Interstate Commerce Clause—meaning it is unconstitutional. Also, the court found the individual mandate is essential to and inseverable from the remainder of the ACA, which would include not only the patient protections (no annual limits, coverage of pre-existing conditions) but the premium tax credits, Medicaid expansion, and of course the employer mandate and ACA reporting.
Several states such as Massachusetts, New York and California have since intervened to defend the law. They argue that, if Congress wanted to repeal the law it would have done so. The Congressional record makes it clear Congress was voting only […]
The Internal Revenue Service (IRS) has released Notice 2018-94, extending the deadline for furnishing 2018 Forms 1095-B and 1095-C to individuals from January 31, 2019 to March 4, 2019, as well as penalty relief for good-faith reporting errors.
The due date for filing the forms with the IRS was not extended and remains February 28, 2019 (April 1, 2019 if filed electronically). Despite the repeal of the “individual mandate” beginning in 2019 as part of the Tax Cuts and Jobs Act, the ACA’s information reporting requirements remain in effect, as the IRS uses the reporting to administer the employer mandate and premium tax credit program. The IRS is studying whether and how the reporting requirements under section 6055 (relating to insurance companies and self-insured plans) should change, if at all, for future years.
The instructions to Forms 1094-C and 1095-C allow employers to request a 30-day extension to furnish statements to individuals by sending a letter to the IRS with certain information, including the reason for delay. However, because the Notice’s extension of time to furnish the forms is as generous as the 30-day extension contained in the instructions, the IRS will not formally respond to requests for an extension of time to furnish 2018 Forms 1095-B or 1095-C to individuals.
Employers may still obtain an automatic 30-day extension for filing with the IRS by filing Form 8809 on or before the forms’ due date. An additional 30-day extension is available under certain hardship conditions. The Notice encourages employers who cannot meet the extended due dates to furnish and file as soon as possible and advises that the IRS will take such furnishing and filing into consideration when determining whether to abate penalties […]
On November 15, 2018, the Internal Revenue Service (IRS) released Revenue Procedure 2018-57, which raises the health Flexible Spending Account (FSA) salary reduction contribution limit by $50 to $2,700 for plan years beginning in 2019. The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain sections of the Internal Revenue Code.
Qualified Commuter Parking and Mass Transit Pass Monthly Limit Increase
For 2019, the monthly limits for qualified parking and mass transit are $265 each (up $5 from 2018).
Adoption Assistance Tax Credit Increase
For 2019, the credit allowed for adoption of a child is $14,080 (up $270 from 2018). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $211,160 (up $4,020 from 2018) and is completely phased out for taxpayers with modified adjusted gross income of $251,160 or more (up $4,020 from 2018).
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase
For 2019, reimbursements under a QSEHRA cannot exceed $5,150 (single) / $10,450 (family), an increase of $100 (single) / $200 (family) from 2018.
Reminder: 2019 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits
Earlier this year, the IRS announced the inflation adjusted amounts for HSAs and high deductible health plans (HDHPs).
|2019 (single/family)||2018 (single/family)|
|Annual HSA Contribution Limit||$3,500 / $7,000||$3,450 / $6,900|
|Minimum Annual HDHP Deductible||$1,350 / $2,700||$1,350 / $2,700|
|Maximum Out-of-Pocket for HDHP||$6,750 / $13,500||$6,650 / $13,300|
The ACA’s out-of-pocket limits for in-network essential health benefits have also increased for 2019. Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage if the family out-of-pocket limit is above $7,900 (2019 plan years). Exceptions to the ACA’s out-of-pocket limit rule are also […]
Medical Loss Ratio Rebates Under the Affordable Care Act
The U.S. Department of Health and Human Services (“HHS”) has provided guidance on the Affordable Care Act’s (“ACA’s”) medical loss ratio (“MLR”) rule, which requires health insurers to spend a certain percentage of premium dollars on claims or activities that improve health care quality or provide a rebate to policyholders. HHS has released amended and final regulations (the “Regulations”), which govern the distribution of rebates by issuers in group markets. At the same time, the U.S. Department of Labor (“DOL”) issued Technical Release 2011-04 (“TR 2011-04”), which clarifies how rebates will be treated under the Employee Retirement Income Security Act of 1974 (“ERISA”).
Medical Loss Ratio Rule
The MLR rule requires health insurance companies in the group or individual market to provide an annual rebate to enrollees if the insurer’s “medical loss ratio” falls below a certain minimum level—generally, 85 percent in the large group market and 80 percent in the small group or individual market. For these purposes, the numerator of the MLR equals the insurer’s incurred claims and expenditures for activities that improve health care quality, and the denominator equals the insurer’s premium revenue minus federal and state taxes and licensing and regulatory fees.
Defining Group Size
For purposes of the MLR rule, the Affordable Care Act defines “small” and “large” group markets by reference to insurance coverage sold to small employers or large employers. The Affordable Care Act defines a small employer as one that employs 1-100 employees and a large employer as one that employs 101 or more employees. However, states are permitted to limit the definition of a small employer to one that employs 1-50 employees.
Rebates under ERISA
TR 2011-04 clarifies that insurers must provide any […]
DOL Releases Final Rule Expanding Association Health Plans
The U.S. Department of Labor (DOL) has issued a final rule expanding the opportunity of unrelated employers of all sizes (but particularly small employers) to offer employment-based health insurance through Association Health Plans (AHPs). Significantly, the final rule applies “large group” coverage rules under the Affordable Care Act (ACA) to qualifying AHPs.
The final rule confirms that AHPs may be formed by employers in the same trade, industry, line of businesses, or profession. They may also be formed based on a geographic test such as a common state, city, county or same metropolitan area (even if the metropolitan area includes more than one State).
The final rule contains staggered effective dates:
- All associations (new or existing) may establish a fully insured AHP beginning September 1, 2018.
- Existing associations that sponsored an AHP on or before the date the final rule was published may establish a self-insured AHP beginning January 1, 2019.
- All other associations (new or existing) may establish a self-insured AHP beginning April 1, 2019.
We will expand upon these issues in future alerts. In the meantime, highlights of the final rule are as follows:
- Existing bona fide associations may continue to rely on prior DOL guidance. The final rule provides an additional mechanism for AHPs to sponsor a single ERISA-covered group health plan.
- AHPs may self-insure under the final rule; however, the DOL anticipates that many AHPs will be subject to state benefit mandates. States retain the authority to adopt minimum benefit standards, including standards similar to those applicable to individual and small group insurance policies under the ACA, for all AHPs.
- The primary purpose of the association may be to offer health coverage to its members; […]