IRS Revisits Minimum Value Lite Plans: Transition Relief Expires on Dec. 31, 2015, for Calendar Year Plans

Posted by on August 31, 2015 | Be the First to Comment

The Internal Revenue Service (IRS) has revisited its fascination with so-called Minimum Value (MV) Lite plans that, as originally designed, claimed to satisfy the Affordable Care Act’s (ACA’s) minimum value health plan standard without covering inpatient hospitalization or physician services. The IRS condemned these plans in Nov. 2014, providing a narrow transition window for plans that were, essentially, already in effect for 2015. Under new proposed rulemaking, plans that relied on transition relief for 2015 won’t meet the minimum value standard for 2016 unless the coverage is “substantial” for both inpatient hospitalization and physician services. The IRS has yet to define “substantial,” but has asked for comments on this issue.

Background

The ACA requires larger employers to satisfy a two-pronged employer mandate, or risk penalties. The first prong requires the employer to offer at least bare bones “minimum essential coverage” (MEC) to 70 percent or more (95 percent or more after 2015) of its full-time employees and their children. An employee that enrolls in this coverage, even though it might be so skimpy as to offer only preventive care, satisfies the ACA’s individual mandate.
The second prong of the employer mandate requires the employer to up the ante a bit, and ensure its coverage offer to full-time employees – never mind the children at this stage – has at least a 60 percent actuarial value (known as minimum value, or MV for short) and doesn’t cost the employee more than 9.56 percent of his or her household income, for employee-only coverage. If the employer offers MV/affordable coverage, the employee is frozen out of subsidies in the exchanges, even if he or she declines the employer’s offer.
To help employers and insurers determine whether a coverage offering meets the MV standard, the U.S. Department of Health and Human Services (HHS) released an actuarial value calculator. Employers and insurers could plug their plan design details into the Excel-based calculator, and the calculator generated a government-approved actuarial value reading. A glitch in the data underlying the calculations allowed health plans to attain a 60 percent (or better) actuarial value reading without offering inpatient hospitalization benefits

2014 IRS Guidance and Transition Relief

Last year the IRS indicated that programs must provide “substantial coverage” for inpatient hospitalization services and physician services to meet the ACA’s minimum value criteria. (For a refresher, see our Alert on this topic.) Thankfully, the 2014 guidance provided transition relief for employers who, as of Nov. 3, 2014, either:
1. Had already enrolled or had begun enrolling their employees in an MV Lite plan, or
2. Had entered into a binding written commitment to adopt one.
In the 2014 guidance, the IRS allowed MV Lite offerings meeting these conditions to insulate the employer from penalties under the second prong of the employer mandate, through the end of a plan year beginning on or before March 1, 2015. For example, an employer with a calendar year plan was insulated through the end of its 2015 plan year (Dec. 31, 2015). In addition, the IRS didn’t view the employer’s offer of MV Lite coverage as disqualifying the employee from subsidies in a public health insurance exchange.

Lockton Comment: The draft instructions to the 2015 IRS Forms 1094-C and 1095-C make no mention of this MV Lite transition relief. We hope the final version of the instructions will contain a special code that affected employers can enter on line 16 to demonstrate they qualify for this transition relief.

New IRS Rulemaking

The new proposed rulemaking largely reiterates IRS’s transition relief discussed in the 2014 guidance, but adds a couple clarifications:
• The 2014 IRS transition insulates the employer from penalties under the second prong of the employer mandate, through the plan year that begins on or before March 1, 2015. For this purpose, the plan year is the plan year in effect under the terms of the plan on November 3, 2014.
• For purposes of determining if a binding written contract is in place (#2 above), a binding written commitment exists when an employer is contractually required to pay for an arrangement, and a plan begins enrolling employees when it begins accepting employee elections to participate in the plan. In this respect, the IRS proposed rulemaking matches a passage from the preamble to HHS proposed regulations issued in Nov. 2014 (see our Alert).
The HHS Excel-based calculator and accompanying methodology discussion have not been updated to discuss this topic.

What’s Next?

The IRS has solicited comments on when coverage is “substantial” for both inpatient hospitalization and physician services. The guidance’s conspicuous absence of any definition of substantial and the lack of any further transition relief – or safe harbor – appears to indicate that employers will need to proceed at their own risk when designing MV Lite coverage.

Agencies Define the Closely Held, For-Profit Employers That May Invoke Accommodations for Religious Objections to Contraception

Posted by on July 22, 2015 | Be the First to Comment

In regulations dated July 14, 2015, federal agencies took the next step in addressing religious objections to coverage of contraceptives by issuing final regulations under which certain closely held, for-profit businesses may avoid a requirement that their health plans cover contraceptives.

Non-grandfathered group health plans generally must provide contraceptive coverage in order to comply with the Affordable Care Act (ACA) preventive care mandate. Under that mandate, group health plans must cover a long list of preventive care – including contraception – when it is delivered in-network and cannot require deductibles, copayments, coinsurance or other cost sharing. As explained in our Alert, the agencies previously proposed to extend an accommodation process for avoiding the contraceptive mandate to closely held, for-profit entities, but did not propose a definition for such entities. The July 14 regulations finalize availability of the accommodation and supply that definition.

The new regulations make the accommodation available to a for-profit entity that is closely held (see the discussion below of the requirements for claiming the accommodation). Closely held, for this purpose, means:

  • No ownership interest in the for-profit entity is publicly traded; and
  • More than 50 percent of the value of the for-profit entity is owned directly or indirectly by five or fewer individuals (or a “substantially similar” ownership structure applies).

This change is effective for plan years beginning on or after September 14, 2015.

The Contraceptive Controversy

FDA-approved contraceptive methods for women, as prescribed by a healthcare provider, were first added to the list of preventive care services for which coverage is mandated in 2011, and the requirement was effective for plan years beginning on or after August 1, 2012. (See our Blog for details on required coverage of contraceptives.) Since the 2011 advent of the contraceptive mandate, there has been a steady stream of controversies and developments concerning religious objections to the requirement. That history is reviewed in our Alert, and generally involves employers contending that the “religious employers” exempted from the requirement should be defined more broadly.

Lockton comment: “Religious employers” (generally, churches, associations or conventions of churches and religious orders) are the only employers whose plans are entirely exempt from the contraceptive mandate. The exemption also applies to an insurance policy issued to a religious employer. Such employers need not take any action to become exempt, nor provide any notice to their employees. The final regulations make no changes to this definition or exemption.

The Accommodation Solution

Rather than expand the definition of a religious employer, the agencies crafted a series of delays and, finally, an “accommodation” for plans sponsored by certain non-profit employers with religious objections to some or all contraceptives. Speaking generally, the accommodation allows a qualifying employer to notify its insurer or third-party administrator (TPA) or, since August 2014, the U.S. Department of Health and Human Services (HHS), that it has religious objections to coverage of some or all of the mandated contraceptives. The employer’s plan would then provide no contraceptive coverage, and the insurer or TPA would provide that coverage, notify participants of its availability and offset the cost of that coverage against other tax liabilities owed to the federal government. (See our Alert for details on insurers’ and TPAs’ responsibilities in implementing the accommodation.)

Hobby Lobby and the Accommodation

The accommodation was initially created for non-profit organizations, but in June 2014, the U.S. Supreme Court ruled in Burwell v. Hobby Lobby Stores, Inc., that the federal government cannot compel closely held, for-profit corporations to offer contraceptive coverage through their health plans, if doing so conflicts with a sincerely held religious belief of the corporation’s owners. (See our Alert.) The Supreme Court’s opinion appeared to suggest that the contraceptive mandate could be applied to such corporations if the accommodation for non-profit organizations was extended to closely held businesses with religious objections. The agencies quickly moved in that direction (see our Alert), and have now fully implemented this approach by defining the closely held businesses that can use the accommodation.

New Regulations Define Closely Held

As noted above, a business is closely held for this purpose, if no ownership interest in the business is publicly traded and more than 50 percent of the value of the business is owned by five or fewer individuals or a “substantially similar” ownership structure applies. The first part – not publicly traded – is determined under federal securities laws governing public trading of securities. The second part – more than 50 percent owned by five or fewer – may become confusing because the regulations require use of attribution rules including the following:

  • If another entity (such as a corporation, partnership, estate or trust) owns all or part of a business, that entity’s ownership interests are considered owned proportionately by its shareholders, partners or beneficiaries.

Example: Company A is a wholly owned subsidiary of Company B, and Company B has eight shareholders, each owning 12.5 percent of Company B. Each of those shareholders is considered to own 12.5 percent of Company A for purposes of determining whether Company A is a closely held business.

  • If a nonprofit entity owns all or part of a business, the nonprofit entity is considered a single owner.

Example: Company C, a nonprofit organization, owns 25 percent of Company D, a for-profit company. Company D is considered to be 25 percent owned by a single individual for purposes of determining whether Company D is a closely held business.

  • An individual is considered to own whatever parts of the business are owned, directly or indirectly, by or for that individual’s spouse, lineal descendants (children, grandchildren, great-grandchildren, etc.), ancestors (parents, grandparents, great-grandparents, etc.), siblings and half-siblings. According to the agencies, this means that “the family members count as a single owner” for this purpose.
  • An individual who holds an option to purchase all or part of a business is considered to own as much of the business as is subject to the option.

The agencies note that the test is intended to be more flexible than it appears at first glance in order to make sure that businesses with unusual ownership structures may qualify for the accommodation because they have substantially similar ownership structures. The agencies note that an entity that has 49 percent of its value owned directly by six individuals could also qualify as a closely held for-profit entity because its ownership structure is substantially similar to the 5/50 rule noted above.

A for-profit business may, but is not required to, seek further information about whether it qualifies for the accommodation by sending a letter describing its ownership structure to accommodation@cms.hhs.gov. If there is no response from HHS within 60 calendar days, the business will be considered to qualify for the accommodation as long as it maintains the structure described in the letter.

Demonstrating a Sincerely Held Religious Belief

To establish that a closely held for-profit employer has sincere religious objections to contraception, the agencies require that the employer’s highest governing body (such as a corporation’s board of directors) adopt a resolution or take other similar action in the case of businesses that are not corporations, stating the owners’ religious objection to providing some or all contraceptive coverage. This resolution of other action need not be provided to the federal government or to any other party in order for the business to use the accommodation. The fact of the decision set out in the resolution or other action is communicated to the insurer, TPA or HHS in order to claim the accommodation, but no particular documentation need be provided. Documentation of the resolution or other action must be retained according to ERISA record retention requirements (even if the plan is not subject to ERISA).

Invoking the Accommodation

To claim the accommodation so that contraceptive coverage can be excluded from its plan, a closely held, for-profit entity would notify its insurer or TPA of its objections using EBSA Form 700. As explained in our Alert, the employer has the alternative of notifying HHS, and may use a model form for doing so or may send the following information to HHS without using that form:

  • The employer’s name and the basis on which it qualifies for an accommodation
  • The employer’s objection based on sincerely held religious beliefs to covering some or all contraceptive services, including identification, if applicable, of the subset of contraceptives to which the employer objects
  • The name of the plan for which the accommodation is claimed and whether it is a church plan
  • The name and contact information for the plan’s TPAs and health insurance issuers.

Giving the notice that triggers the accommodation does not automatically remove contraceptive coverage from the employer’s plan. The employer should formally amend its plan to remove that coverage and also provide notice to participants as required. For example, dropping contraceptive coverage may be considered a material change in the information required in a summary of benefits and coverage. If such a change occurs mid-year, 60 days advance notice of the change would be required.

A Few Tweaks to the Preventive Care Mandate

While issuing final regulations on the business entities that can use the accommodation process, the agencies also made a few changes to clarify obligations under the preventive care mandate.

  • The guidance related to the preventive care mandate has always provided that, if a plan has a network, the mandate applies only to preventive care obtained from in-network providers. The final regulations clarify that, if a plan’s network does not have a provider who can provide a particular required preventive service, the plan must cover the item with no cost sharing when obtained from an out-of-network provider.
  • The list of required preventive services changes from time to time based on changes in various organizations’ recommendations. When items are added to the list, plans have at least a year to begin providing them. When items are dropped from the list, plans generally must continue to provide them through the end of the plan year in which they were dropped. The final regulations provide an exception, allowing a plan to drop coverage of an item mid-year if the organization recommending it downgrades it to a “D” rating or if the item is subject to a safety recall or an applicable federal agency determined that there are significant safety concerns. As with the elimination of contraceptive coverage, elimination of such preventive services may require a formal plan amendment and notice to plan participants.

 

IRS Issues Interim Guidance on New Expat Law and Invites Comments

Posted by on July 6, 2015 | Be the First to Comment

Buried in the budget law signed by the President last December is the Expatriate Health Coverage Clarification Act of 2014. Known as EHCCA, this act exempts some expat coverage from several thorny Affordable Care Act-related requirements, and treats the coverage as adequate for both the individual and employer mandates, but only if the coverage meets several specific and potentially difficult requirements. The new rules and their potential accommodations apply to insurance contracts issued or renewed on or after July 1, 2015. (For more information, please see an earlier blog post.)

On the cusp of the law’s effective date, the IRS issued a notice indicating insurers and employers will be given more time to bring their expat plans into compliance with the new law. Until such time as the regulatory agencies (the IRS, Department of Labor and Health and Human Services) issue proposed regulations, the agencies will allow insurers and employers to use a reasonable good faith interpretation of the law.

Importantly, the reasonable good faith standard does not apply to:
• ACA tax reporting requirements (the so-called “Section 6055/6056 reporting rules” will apply to expat coverage beginning in calendar year 2015). However, the new law allows the IRS tax forms to be supplied electronically to the enrollee (expat) without consent, unless the enrollee explicitly refuses electronic delivery. In contrast, the standard ACA reporting rules only allow for electronic delivery to the employee if the recipient affirmatively consents.
• PCORI fee payment. Until further notice, the IRS has indicated that the PCORI fee won’t apply if the plan or policy is designed and issued specifically to cover primarily employees a) who are working and residing outside the United States, or b) who are not citizens or residents of the United States but who are assigned to work in the United States for a specific and temporary purpose or who work in the United States for no more than six months of the policy year or plan year.

The latest IRS notice applies to insurance contracts issued or renewed on or after July 1, 2015. The IRS also invites comments on the new law in advance of the agencies’ issuance of proposed regulations.

New Trade Bill Escalates ACA Reporting Penalties, Resuscitates Health Coverage Tax Credit

Posted by on July 2, 2015 | Be the First to Comment

The trade bill signed into law this week included provisions steeply increasing the penalties related to employers’ Affordable Care Act (ACA) reporting (e.g., reporting required to be done on Forms 1094-C and 1095-C).

The bill also reinstated the trade-related Health Coverage Tax Credit (the “HCTC”), which had expired on Dec. 31, 2013. We previously thought the HCTC’s 2013 demise was permanent. Like an insufficiently dismembered zombie, however, it is once again active. Moreover, it’s slated to remain available through the end of 2019.

Lockton Comment: The HCTC is a seldom-encountered health insurance subsidy program entirely different from the subsidies available through the insurance exchanges under the Affordable Care Act. The interaction of the HCTC with the exchange subsidies and COBRA administration is discussed below.

The High Cost of Noncompliance Keeps Going Up

Employers probably didn’t need an additional incentive for doing their best to comply with the ACA reporting requirements (most employers will complete, provide and file Forms 1094-C and 1095-C for this purpose). But just in case an additional incentive was needed, the trade bill made steep increases in the penalties for reporting failures. These increased penalties also apply to other information returns and filings, such as W-2s, and are effective for reporting required to be filed or furnished after 2015. For example, the increased penalties would apply to the first year’s filings under the ACA, which relate to 2015, but are due in early 2016.

  • The general penalty for failure to file a required information return with the IRS (which is subject to reduction, waiver or increase for various reasons) will increase from $100 per return to $250 per return.
  • The cap on the total amount of penalties for such failures during a calendar year will increase from $1,500,000 to $3,000,000.
  • If a failure relates to both an information return (e.g., a Form 1095-C required to be filed with the IRS) and a payee statement (e.g., that same Form 1095-C required to be furnished to the individual), these penalties are doubled.
  • If a failure is caused by intentional disregard, the new $250 penalty noted above is doubled to $500 for each failure, and no cap applies to limit the amount of penalties that can be applied with respect to that calendar year.

As you consider these increases, keep in mind that these do not affect the IRS’s enforcement policy for the first year of ACA filing. Specifically, the IRS will not penalize employers “that can show they make good faith efforts to comply with the [ACA] reporting requirements.” So, we still have the “good faith efforts” standard, but the penalties that will apply if that standard is not met are much more severe.

What are good faith efforts? If the employer attempts to complete the forms, but the information reported is incorrect or incomplete, that reporting failure may be excused under the IRS enforcement policy. If, however, the employer does not file or provide a required form by the deadline, it seems that the good faith standard would not apply.

Remember the HCTC

The HCTC is a tax credit available to certain workers who lose their jobs due to foreign competition. For those who qualify, it covers 72.5 percent of eligible healthcare costs. Since most employers have absolutely no compliance issues related to the HCTC, many benefits professionals have never encountered it.

The HCTC sometimes affects employers’ health plans because COBRA coverage is one type of coverage for which a qualifying individual can receive the HCTC. Those effects might include:

  • Unless the employer is virtually certain that none of its employees will become eligible for the HCTC, it should include information regarding the HCTC in the COBRA election notices it provides.
  • In some cases, a former employee who was offered COBRA following his trade-related termination of employment but did not elect it must be allowed a second opportunity to elect COBRA upon becoming eligible for the HCTC.
  • An individual who qualifies for the HCTC may receive it by paying premiums for COBRA or other eligible coverage and then claiming the HCTC with respect to those payments on his or her individual tax return. Such employees may ask the former employer or the plan for documents showing their premium payments.
  • Alternatively, if the plan providing the eligible COBRA coverage elects to participate in the “HCTC Program” (there’s no requirement for the plan to do so), the federal government will provide the HCTC by paying part of the qualifying individual’s health coverage premiums as they come due.
  • Unless the plan has elected to participate in the HCTC program, the HCTC seldom affects day-to-day COBRA administration under employer plans.

It’s All Coming Back…With a Few Tweaks

Under the HCTC as reinstated,all of the COBRA interactions noted above remain the same. Because there have been a number of changes in other laws, however, employers’ compliance concerns in connection with the HCTC have also changed since it was last in effect.

  • The ACA now prohibits all preexisting condition exclusions and limitations, so a previous HCTC rule bridging 63- day or longer breaks in creditable coverage no longer applies.
  • HCTC rules requiring that employers provide extended periods of COBRA coverage to certain HCTC recipients were not extended beyond their Dec. 31, 2013, expiration date.
  • A new provision explains that a qualifying individual cannot receive the HCTC with respect to coverage purchased through an insurance exchange. It also explains the adjustments that an individual will make on his tax return if he receives the HCTC and also receives a subsidy through an insurance exchange.

With the 2014 advent of federally subsidized health insurance through the insurance exchanges, we thought that the HCTC might have exited permanently at its Dec. 31, 2013 expiration. Apparently, both the HCTC and the exchange subsidy are needed because they function differently (for example, the HCTC is available regardless of income and there is no employer penalty related to an individual qualifying for the HCTC).

Submitting Your Own ACA Reporting Forms? The IRS has Homework for You!

Posted by on July 1, 2015 | Be the First to Comment

The steady drumbeat announcing the coming leviathan of Affordable Care Act-related employer reporting continues to grow louder, even as we wait for the IRS to issue the final forms and instructions that will be used for reporting 2015 information in early 2016.

This week the IRS provided additional information on the process for submitting reporting forms to the IRS and opened up the second step in the process for obtaining the necessary credentials to file. The electronic filing system known as the ACA Information Return (AIR) system is significantly more complex than merely uploading a PDF file containing the pertinent information and will require a concerted effort to comply with parameters established by the IRS.

Lockton Comment: As detailed in our Alert, insurers and employers with 50 or more full-time and full-time equivalent employees are required to file information returns with the IRS to show which individuals complied with the ACA’s individual mandate and which employers complied with the employer mandate. This reporting is accomplished through IRS Forms 1094-B, 1094-C, 1095-B, and 1095-C (Reporting Forms).

Reporting Forms reflecting 2015 information are due to the IRS by February 29, 2016, or March 31, 2016, if the Reporting Forms are submitted electronically. Employers that are required to file at least 250 Reporting Forms are required to file electronically, though the IRS encourages all employers to electronically file.

Employers submitting their own Reporting Forms, third parties submitting Reporting Forms on behalf of others, and developers of filing software (combined, Submitting Entities) are required to complete the following steps prior to being able to electronically submit any Reporting Forms:

  1. Register with the IRS’s e-services website (Note: This process requires submission of personal information about the person registering for the Submitting Entity);
  2. Obtain an AIR Transmitter Control Code (TCC), a unique identifier authorizing each Submitting Entity to submit the Reporting Forms, and
  3. Pass a series of technical/system tests to ensure that Reporting Forms will be properly submitted when due.

Submitting Entities are now able to complete the first two steps, and we anticipate the third step will become available later this year.

Conflicting guidance suggests that employers submitting their own paper Reporting Forms may need to complete the first two steps but not the third step. This seems like unnecessary work for employers submitting paper forms, and we hope future guidance provides additional clarity.

We expect that most employers will not need to complete this process, because they will rely on a third party to submit on their behalf. Frankly, avoiding the need to complete this process is one more good reason for employers to use a third-party vendor to help populate and submit the Reporting Forms.

For those employers that plan to electronically submit on their own Reporting Forms, we see wisdom in waiting until later this year to begin the registration and testing process. The process is brand new, and like the HPID and TRF processes before it, we expect that changes will be made and additional guidance will become available over the next several weeks and months. Further, while the IRS has indicated that there will be no delay for reporting, we are still hopeful that the IRS will change its tune and issue a delay later this year.

The IRS has developed a website for those Submitting Entities that want to get an early start on the registration process. Among other information, this site contains links to the e-services registration page, a tutorial for obtaining a TCC and draft publications discussing the anticipated technical/system requirements for submission.