• Issue Brief- IRS Issues Guidance on ACA Research Fees for Health Plans

IRS Issues Guidance on ACA Research Fees for Health Plans

April 2012

Introduction

The IRS has issued proposed rules addressing the comparative effectiveness research fees imposed by the Affordable Care Act (ACA) on health insurance carriers and plan sponsors of self-insured health plans. The IRS is taking comments on the proposed rules for 90 days and is expected to issue final regulations shortly thereafter.

Background

The ACA creates a nonprofit corporation, the Patient-Centered Outcomes Research Institute, to conduct and promote clinical effectiveness research. The Institute will be funded by a Patient-Centered Outcomes Research Trust Fund. The Trust Fund will be funded in part by fees to be paid by issuers of health insurance policies and sponsors of self-insured health plans.

The ACA imposes fees on “specified health insurance policies” and “applicable self-insured health plans” based on the average number of lives covered under the policy or plan. The fees are effective for plan years ending after September 30, 2012. Thus, for employer sponsored plans that begin on the first day of the month, the first plan year subject to the fees will be plan years beginning November 1, 2011 (which will end October 31, 2012). The fee no longer applies for plan years ending after September 30, 2019.

The fee equals to $1.00 (one dollar) per year, multiplied by the average number of lives covered under the plan for plan years ending before October 1, 2013, and $2.00 (two dollars) per year for plan years ending after that date.  Beginning in 2014 the fee will be adjusted based on a formula that takes into account the increase in national health care expenditures. Covered employees, spouses, and dependents will be included in the total number of covered lives.

IRS Guidance

The IRS previously issued a request for comments regarding the fees in IRS Notice 2011-35 released in June 2011. The proposed rules address a number of outstanding issues included in the request for comments.

Who pays the fee?

For fully insured plans the fee will be paid by the health insurance carrier (referred to as the issuer in the regulations).  For self-insured plans, the fee must be paid by the plan sponsor (generally the employer in the case of a single-employer plan).

The IRS had requested comments regarding the possibility of allowing third parties, such as the employer claims administrator, to pay the fee on behalf of a self-funded employer.  Unfortunately, the IRS has decided that the fee for self-funded plans must be paid directly by the plan sponsor/employer.

Plans subject to the fee

The fee applies to “specified health insurance policy” including self-funded plans, which is defined as any accident or health insurance policy (including a policy under a group health plan) issued with respect to individuals residing in the United States.  The fee does not apply to plans that are treated as excepted benefits under HIPAA (i.e. limited scope dental and vision plans).

  • The effect of the fee on a Health Reimbursement Arrangement (HRA) will depend on if the HRA is integrated with a self-funded or fully-insured health plan.
    • Under the proposed rule, multiple self-insured arrangements maintained by the same employer with the same plan year are subject to a single fee. Thus, a health reimbursement arrangement (HRA) is not subject to a separate fee as long as the HRA is integrated with a self-insured health plan.
    • However, an HRA offered in conjunction with a fully-insured health plan will be considered a self-funded plan and will be subject to the fee.
  • No fee will apply to a Health Flexible Spending Account (HFSA) that satisfies the HIPAA definition of an “excepted benefit”.
  • An employee assistance program, disease management program, or wellness program will generally not be considered a plan subject to the fee as long as the plan does not provide significant medical care benefits.

Calculating and paying the fee

The fee will be based on the average number of lives covered under the policy or plan. To determine the average number of lives covered under a self-funded health plan during a plan year, a plan sponsor must use one of the following methods:

  • The actual count method
    • The average number of lives covered under a plan for a plan year is determined by adding the totals of lives covered for each day of the plan year and dividing that total by the number of days in the plan year.
  • The snapshot dates method
    • A plan sponsor may determine the average number of lives covered under a plan by adding the totals of lives covered on one date in each quarter (or more dates if an equal number of dates are used for each quarter) and dividing that total by the number of dates on which a count was made.
    • For this purpose, the date for each quarter must be the same (for example, the first day of the quarter, the last day of the quarter, the first day of each month, etc.).
  • The 5500 method
    • A plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of reportable participants on the plan’s 5500.
    • If the plan covers individuals other than the employee (e.g. spouses and dependents) as most employer plans do, the average number of lives covered under the plan equals the sum of total participants reported in the 5500 covered at the beginning plus the number at the end of the plan year.
      • This methodology was created to address the fact that the fee includes spouses and dependents covered by the plan but those spouses and dependents are not included in the count of participants on the 5500. Adding the number of 5500 “employee” participants at the beginning of the year to the number at the end of the year to determine the participant count essentially estimates that there are approximately 2 “covered individuals” to every participant reported on the 5500.

Plan sponsors of self-funded plans will report and pay the fees once a year on IRS Form 720, which will be due by July 31 of each year. The Form 720 will cover plan years that end during the preceding calendar year. For example, an employer with a plan year ending December 31st, 2012 will need to report and pay the fee by July 31, 2013, while an employer with a plan year ending January 31, 2013 will not need to report and pay the fee until July 31, 2014.

Summary

Obviously employers who sponsor only fully insured plans have little to do since the insurance carrier is responsible for paying the fee.  Assumedly, the fee will be reflected in the premiums paid by the employer to the carrier. Note however that employers who sponsor a fully insured health plan, but also offer an HRA, will need to report and pay the fee for the HRA plan.

Employers who sponsor self-funded health plans have some work to do.  They must first determine which method they plan to use to calculate the fee.  It is also possible that different allowable methods will result in different fee amounts due, so employers may want to calculate the fee each way to determine the lowest amount due.

A copy of the IRS guidance which includes examples of the different types of participant calculation methods can be found at http://www.irs.gov/pub/irs-drop/n-11-35.pdf.

 

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

 

• Issue Brief- The Supreme Court Rules the Affordable Care Act is Constitutional

The Supreme Court Rules the Affordable Care Act is Constitutional

June 2012

In what may be the most anticipated decision in at least a generation, the Supreme Court has upheld the constitutionality of the so called “individual mandate” contained in the Affordable Care Act (ACA).  In a split 5-4 decision, the court has ruled that it is constitutional for the government to require individuals to maintain health insurance or pay a tax if they fail to do so.  Since the individual mandate was held to be constitutional the court did not need to rule on issues related to the rest of the law.  Consequently, by taking this position on the individual mandate, the court has affirmed that the entire ACA is constitutional, other than a particular provision related to Medicaid expansion explained below.

Medicaid Expansion

The ACA expands Medicaid eligibility to anyone with an income of less than 138% of the Federal Poverty Level (FPL). The federal government will initially pay 100% of the costs of newly Medicaid eligible individuals.  States will be responsible for 10% of those costs in future years.  Under current ACA rules, states are required to accept expanded Medicaid eligibility or risk losing all federal Medicaid funding.

In a separate portion of the decision, the court ruled that the federal government cannot deny existing Medicaid funds to states that choose not to participate in the Medicaid expansion.  This creates an opportunity for individual states to opt out of the expansion without losing existing federal Medicaid funding.

Effect on Employer Sponsored Plans

The decision by the court means that the elements in the ACA which directly impact employer sponsored plans remain in force.  Employers will need to implement requirements such as distribution of the new Summary of Benefits and Coverage (SBC), and the limit on health FSA elections scheduled to go into effect in the upcoming months.  We also expect regulatory agencies to move forward with pending guidance such as the IRS’s proposed alternative definition of full time status.

Obviously the results of the elections this fall have the potential to alter the course of health reform.  However, it is now clear that employers need to continue to prepare for the impact the ACA will have on their plans, with an eye toward being ready to implement changes to benefit strategies beginning in 2013 if necessary.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

 

 

• Issue Brief- IRS Full-time Employee Guidance

Guidance Issued on the Definition of Full-time Employees and 90 day Waiting Period Rules

September 2012

On Friday, August 31st the IRS released Notice 2012-58 which includes much anticipated guidance related to the definition of full-time employees for the purpose of the employer shared responsibility rules and related penalties contained in the Affordable Care Act (ACA).  On the same day the Departments of Labor, Health and Human Services, and the Treasury (the Departments) released coordinated guidance on the ACA’s 90 day waiting period limit in Notice 2012-59.

This guidance is of particular importance to employers which have employees with variable work hours or seasonal employees.  The safe harbor described in Notice 2012-58 will allow many of these employers to limit the number of variable hour and seasonal employees who must be considered full-time.

Background

Beginning in 2014 “applicable large employers” may be required to pay a penalty (technically called an assessable payment) under two circumstances:

(1)   The employer does not offer minimum essential coverage to all full-time employees, and at least one employee receives a premium tax credit or cost-sharing reduction (referred to collectively as a subsidy) when purchasing individual coverage through an Exchange.

(2)   The employer offers its full-time employees the opportunity to enroll in coverage, however, an employee receives a subsidy because the employer’s coverage either is “unaffordable”, or does not provide minimum value.

  • Coverage under an employer-sponsored plan is considered affordable if an employee’s required contribution does not exceed 9.5% of the employee’s household income.
  • Coverage provides minimum value if the plan has an actuarial value of at least 60%.

Since the ACA coverage requirements apply only to full-time employees, this definition is critical to defining plan eligibility rules and determining an employer’s risk for penalties.  Unfortunately, the ACA statutory language is brief and leaves many questions unanswered.  The ACA provides only that a full-time employee, for any given month, is an employee who works at least 30 hours per week.

Since the ACA was passed, employers have been looking for additional guidance to help determine exactly how this rule will be applied.  Notice 2012-58 goes a long way toward clarifying the definition of full-time employee, but still leaves some questions unanswered.

Full-time Status Based on a “Look Back Measurement Period”

In Notice 2012-58 the IRS describes an optional safe-harbor employers may use to determine an employee’s full-time status.  Under the safe harbor, 130 hours of service in a calendar month will be treated as the equivalent of 30 hours of service per week.  Furthermore, employers may base an individual employee’s fulltime status on a look back measurement period as described below.  Use of this approach is not required; rather it is an option employers may consider when determining health plan eligibility based on an employee’s full-time status.

Measurement Periods

Employers will have the option to determine an employee’s full-time status based on the employees average hours worked over the course of a measurement period of between 3 – 12 months.  If the employee has not worked an average of 30 hours per week (or 130 hours per month) for the entire measurement period, that employee would not be considered full-time.

Stability Periods

Once an employee has attained full-time status the employer must continue to treat the employee as full-time for a corresponding stability period, regardless of the average number of hours worked during the stability period.  The stability period must be at least as long as the measurement period, but can be no shorter than 6 months.

Administrative Period

Since employers will need some time for administrative purposes between the date an employee qualifies as full-time and the date coverage must be offered, the rules allow for an administrative period of up to 90 days between the end of the measurement period and the beginning of the stability period.

Example

The following example from the IRS notice illustrates the use of 12 month measurement and stability periods:

ABC Company health plan eligibility rules state that only employees who work full-time during the measurement period are offered coverage.  The company defines its relevant periods as follows:

  • A 12-month stability period that begins January 1 to coincide with its health plan year.
  • A 12-month measurement period that runs from October 15th to October 14th the following year.
  • An administrative period between the end of the standard measurement period (October 14) and the beginning of the stability period (January 1)
    • The administrative period allows the employer time to determine which employees worked full-time during the measurement period and notify them of their eligibility for the stability period/plan year beginning January 1.

Effect of the rule on two different employees:

  • Employee A worked full-time during the measurement period 10/15/2012 thru 10/14/2013, and for all prior years.  Employee A must be offered coverage for the entire 1/1/2014 – 12/31/2014 stability period/plan year, even if the employee A’s average hours are reduced to less than full time during 2014.
  • Employee B also worked full-time in prior years, but does not work full-time during the entire measurement period 10/15/2012 thru 10/14/2013.  Employee B is not required to be offered coverage for the stability period in 2014.

Rules Apply to Variable Hour and Seasonal Employees Only

Importantly, the optional approach to defining full-time status only applies to “variable hour employees” and “seasonal employees”.  If an employee meets the definition of a variable hour or seasonal employee, then full-time status can be made contingent on meeting the requirements of the measurement period described above.

If, however, at hire date an employee is expected to work 30 hours per week for the entire initial measurement period, that employee must be treated as full-time, and the measurement period rules would not apply.  For these regular full-time employees, the 90 day waiting period limit applies.

Variable Hour Employee Defined

According to the guidance a new employee is a variable hour employee if:

  • Based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work at least 30 hours per week.
  • A new employee who is expected to work 30 hours per week may still be a variable hour employee if their  period of employment is expected to be of limited duration, and it cannot be determined that the employee is expected to work full-time over the initial measurement period.
    • Example: a retail worker hired at more than 30 hours per week for the holiday season who is expected to continue working after the holiday season, but is not expected to work at least 30 hours per week after the holiday season

Seasonal Employees

The ACA addresses the meaning of seasonal worker in the context of whether an employer meets the definition of an applicable large employer; however, the statute does not address how the term “seasonal employee” might be defined for purposes of determining the amount of any assessable payment.  Due to this, the IRS states that “through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term seasonal employee for purposes of (these rules)…”  It is expected that the IRS will release additional guidance on seasonal employees in the future.

Other Important Elements of the Full-Time Employee Rules

Special Rules Apply to New Employees

For new employees, the measurement period and the administrative period combined may not extend beyond the last day of the first calendar month on or after the one-year anniversary of the employee’s start date.  In other words, the stability period (and coverage) must begin no later than 13 plus a fraction of a month after the employee’s hire date.

Various Categories of Employees

The rules allow an employer to apply different full-time definitions for various categories of employees:

(1)   Collectively bargained employees and non-collectively bargained employees

(2)   Salaried employees and hourly employees

(3)   Employees of different entities

(4)   Employees located in different States

90 Day Waiting Period

The ACA provides that, for plan years beginning on or after January 1, 2014, a group health plan may not apply a waiting period that exceeds 90 days.  In Notice 2012-59, the Departments clarify that the waiting period limit applies only to employees eligible for coverage as a full-time employee.  Consequently, if an employer conditions eligibility on meeting full-time status during a measurement period as described above, the waiting period would not begin until the employee qualifies as a full-time employee.

Remember, however, that for new variable hour employees, coverage must begin no later than 13 months (plus a fraction of a month) after the hire date, so an employer could not impose a 12 month measurement period plus a full 90 day waiting period.

If a new full-time employee does not qualify as a variable hour or seasonal employee then the employer may not impose any more than a 90 day waiting period.

Summary and Open Issues

Notices 2012-58 and 2012-59 provide valuable guidance on employers’ options for defining full-time status, however, a number of questions remain to be answered. The IRS has requested comments on a number of these issues including how the measurement period approach may (or may not) be applied to high turnover positions.  Under the current guidance it does not appear that an employer is allowed to impose a measurement period on newly hired full time employees just because the position has a high-turnover rate.

Obviously if an employer’s workforce is made up principally of full-time employees with very little variability in work hours, these rules will be of little use or interest.  However, many employers with a significant number of variable hour or seasonal employees will find the safe harbor described here to be of utmost importance.  Careful definition of full-time status could result in a significant reduction in the number of employees required to be offered coverage, and a decrease in the risk of potential employer penalties.

Copies of Notice 2012-58 can be found at www.irs.gov/pub/irs-drop/n-12-58.pdf, and Notice 2012-59 at www.irs.gov/pub/irs-drop/n-12-59.pdf.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- HHS Releases Small Group Insurance Regulations and AV Calculator

HHS Releases Small Group Insurance Regulations and AV Calculator

November 2012

On Tuesday, November 20, The Department of Health and Human Services (HHS) released two sets of proposed regulations related to provisions of the Affordable Care Act (ACA) important to individual and fully-insured small group health plans.  Rules were released regarding essential health benefits, plan actuarial valuation, and small group rating and underwriting rules.

While the group health plan guidance is specific to the small group market, some provisions will be of interest to all employers.  Notably:

  • HHS has released a calculator which may be helpful for employers attempting to estimate the actuarial value (AV) of a plan.
  • The underwriting and rating rules could apply to fully-insured large employers beginning in 2017 if a state opens its exchange to the large group market.

Important Background Notes for Employer Sponsored Group Plans

The ACA defines the small group market as employers with 100 or fewer employees, however, states have the option to define small groups as 50 or fewer until 2016.  Beginning with plan years starting 1/1/2016, all employers with 100 or fewer employees will be included in the small group market rules.

  • The insurance rating and underwriting rules apply to all fully-insured small group plans offered both through a state or Federal exchange, and also to plans sold outside, or separate from, an exchange.  While a health insurance carrier may offer different plan designs in or out of the exchange, they will not be able to apply different underwriting or rating rules.
  • The essential health benefits rules apply only to fully-insured small group health insurance plans.  Fully-insured large group plans, and self-funded plans are not required to offer plan designs which meet the essential health benefit set requirements.
  • Most of the rating and underwriting requirements described in the rules apply directly to the health insurance “issuer” (the term used in the regulations for the health insurance carrier).  Consequently, small employers will not be directly responsible for the implementation of, and compliance with, most of these rules.  However, the group health plans which will be available for purchase by small employers beginning in 2014 will be dramatically impacted.

Rules of Particular Interest to Employers

Executives and product managers at health insurance carriers will be very busy redesigning their small group plans to meet a wide range of new requirements beginning in 2014.  In particular, carriers will need to redesign many plans to provide all essential health benefits as defined by the HHS and each state’s specific requirements.  The regulations contain detailed and extensive rules controlling how carriers will design and rate small group plans.  Following is a more detailed description of a couple of issues of particular interest to small employers.

Limit on deductibles

Beginning in 2014 the ACA limits plan deductibles in the small group market to no more than $2,000 for self-only coverage and $4,000 for nonself-only coverage (indexed in future years).  In the preamble to the rules HHS recognized that it may not be practical to design a 60% “bronze plan” as required by the law, while still maintaining the $2,000 deductible maximum.

In a welcome development for small employers the proposed rules allow carriers to offer plan designs with a higher deductible if necessary to offer a 60% plan.  While detailed plan designs will vary from carrier to carrier, it is expected that due to this rule some carriers will offer “bronze” small group plans with deductibles exceeding $3000.

“Modified Community Rating” Rules

Health insurance issuers may vary premiums based on a very limited set of specified factors:

(1)   Whether the plan or coverage applies to an individual or family

(2)   Rating areas within a state

(3)   Age, limited to a variation of 3:1 for adults

(4)   Tobacco use, limited to a variation of 1.5:1

All other rating factors are prohibited.  Consequently, small employer rates may not be based on the group’s claims experience.  The rules permit the use of both age banded and composite rating, and employers are allowed to set required employee contributions based on either approach.

Actuarial Value Calculator

The ACA requires carriers to offer different level plans, referred to as the metal tiers (bronze, silver, gold, and platinum).  Plans in each tier must meet an actuarial value within a specific range (e.g. 60% for bronze, 70% for silver, etc.).  HHS has released an actuarial value (AV) calculator to assist health insurance issuers in determining the value of different plan designs.  The calculator will be used by carriers to make sure a specific plan design falls within the allowed value ranges for each metal tier.

What about large and self-funded employers?

A separate section of the ACA (the shared responsibility or “pay or play” rules) requires large fully insured and self-funded employers, to offer a “minimum value” plan to all full time employees, or face the risk of paying an employer penalty.  Minimum value (MV) is defined as an actuarial value of at least 60% (similar to a “bronze” plan in the small group market).

The AV calculator released with this guidance uses assumptions and claims data specific to the small group market, thus it does not directly address the MV requirement for large employers.  However, in a separate section of the guidance, HHS states they will also be releasing a minimum value calculator for large and self-funded employers to use, and that the MV calculator will be very similar to the existing AV tool for carrier use.

Until the large employer MV calculator is released, employers can get at least a rough estimate of their plans by using the new HHS AV calculator.  Once the MV calculator is released, employers can more accurately verify their plan’s status using that tool.  The rules also allow an employer to obtain an actuarial valuation by a qualified actuary to determine plan value.  The HHS AV calculator can be found at http://cciio.cms.gov/resources/regulations/index.html#pm under the “Plan Management” section of the page.

Summary

This new guidance primarily provides health insurance companies with many of the rules they need to begin to design their 2014 plan offerings in the individual and small group market.  It is widely expected that the regulatory agencies will be releasing a large volume of additional ACA related guidance in the coming months applicable to all employer sponsored health plans.  Stay tuned!

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• Issue Brief- DOL Delays Exchange Notice Requirement

DOL Delays Exchange Notice Requirement

January 2012

As anticipated, based on prior informal comments, the Department of Labor (DOL) has delayed the employer requirement to send a “Notice of Exchange” to employees.

The Affordable Care Act (ACA) amended the Fair Labor Standards Act (FLSA) requiring employers to send a notice describing certain elements of exchanges and subsidy eligibility to employees by March 1st, 2013.  However, citing a number of factors, the DOL has delayed the requirement until after guidance is issued later in 2013.

In an FAQ on the department’s website, the DOL states that it expects notice distribution will be required late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.  The announcement also states that the DOL plans to release model language, or additional guidance regarding the format and content of the notice.

So for now, employers need not worry about meeting the March 1, 2013 notice deadline, but should stay tuned for future guidance and details regarding an updated distribution date later this year.

Text of DOL Announcement

Notice of Coverage Options Available Through the Exchanges

Section 18B of the Fair Labor Standards Act (FLSA), as added by section 1512 of the Affordable Care Act, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, an applicable employer must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice:

  • Informing the employee of the existence of Exchanges including a description of the services provided by the Exchanges, and the manner in which the employee may contact Exchanges to request assistance;
  • If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through an Exchange; and
  • If the employee purchases a qualified health plan through an Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Q1: When do employers have to comply with the new notice requirements in section 18B of the FLSA?

Section 18B of the FLSA provides that employer compliance with the notice requirements of that section must be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].” Accordingly, it is the view of the Department of Labor that, until such regulations are issued and become applicable, employers are not required to comply with FLSA section 18B.

The Department of Labor has concluded that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, we are committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability date that ensures that employees receive the information at a meaningful time. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.

The Department of Labor is considering providing model, generic language that could be used to satisfy the notice requirement. As a compliance alternative, the Department of Labor is also considering allowing employers to satisfy the notice requirement by providing employees with information using the employer coverage template as discussed in the preamble to the Proposed Rule on Medicaid, Children’s Health Insurance Programs, and Exchanges: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes for Medicaid and Exchange Eligibility Appeals and Other Provisions Related to Eligibility and Enrollment for Exchanges, Medicaid and CHIP, and Medicaid Premiums and Cost Sharing (78 FR 4594, at 4641), which will be available for download at the Exchange web site as part of the streamlined application that will be used by the Exchange, Medicaid, and CHIP. Future guidance on complying with the notice requirement under FLSA section 18B is expected to provide flexibility and adequate time to comply.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments

• Issue Brief- IRS Releases Premium Tax Credit for Families

IRS Releases Premium Tax Credit for Families

January 2013

The IRS has issued an amendment to final regulations originally issued May 23, 2012 regarding qualification for a premium tax credit (premium assistance) when purchasing individual health insurance through a public exchange. In the case of family members who are eligible for an employer sponsored insurance (ESI), affordability for family members will be based on the employee’s required contribution for self-only coverage (i.e. employee only coverage), not the required contribution for family coverage.

In a separate set of guidance issued the same day, the IRS clarified exemptions from the “individual mandate” tax beginning in 2014. Taking the opposite approach to the qualification or the tax credit described above, family members eligible for an employer sponsored plan will be exempt from the tax if the required contribution for family coverage is “unaffordable”.

Qualification for Premium Tax Credits

Beginning in 2014, individuals with incomes of 100% – 400% of federal poverty level may qualify for premium assistance when purchasing individual health insurance through a public (state or federal) exchange.  However, individuals who are eligible for “affordable” ESI are not eligible for the premium assistance.  In May of 2012, the IRS released final regulations clarifying the definition of affordable ESI as it relates to an employee. An employee whose required contribution to participate in an employer plan is no more than 9.5% of their household income is not eligible for the premium assistance.

The May final regulations delayed ruling on affordability as it applied to family members. Many expected the IRS to make a family member’s qualification for premium assistance contingent on the required contribution for family coverage in the employer’s plan. However, this guidance clarifies that the premium assistance will only be available to family members if the employee’s required contribution for self-only (i.e. employee only) coverage is more than 9.5% of the family household income.

Liability for Individual Mandate Tax

In separate guidance, the IRS released additional rules regarding the shared responsibility payment for individuals who do not maintain minimum essential coverage (commonly referred to as the individual mandate tax). A family member who is eligible for ESI which is “unaffordable” will not be liable for the individual mandate tax.

The definition of “affordable” for the purpose of the mandate tax is different from what is considered affordable for premium assistance. In the case of individual mandate tax liability, an individual is generally exempt from the tax if the coverage available costs more than 8.0% of their household income.

How will this Rule Impact Employer Plans?

A family member’s qualification for premium assistance does not affect an employer liability under the ACA employer shared responsibility rules. Potential employer penalties in this context are based only on an employee qualifying for premium assistance.

However, family member qualification for premium assistance will have an impact on employer plan enrollment rates. Had the IRS ruled that family members could qualify for premium assistance based on the cost of family coverage, employers may have seen a decrease in the number of employees electing family coverage, especially employers with a significant number of lower income employees.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Guidance Issued on Transition Rules for Plans with Fiscal Plan Years

Guidance Issued on Transition Rules for Plans with Fiscal Plan Years

February 2013

The IRS has proposed regulations regarding transition relief for compliance with the shared responsibility rules cited in ACA section 4980H in terms of “applicable large employers’” fiscal (non-calendar) plan years. These proposed regulations may be relied upon for guidance pending the issuance of final regulations or other applicable future guidance.

For those applicable large employers with existing fiscal plan years as of December 27, 2012, the proposed transition relief is provided to (a) avoid the need to administer a change mid-plan year, and (b) assist those employers choosing to use the look-back measurement period for determining full-time status. The employer’s plan must have already been in effect on December 27, 2012 if the employer is to take advantage of the transition relief.

Transition Relief Application

The transition relief applies so that employer penalties under 4980(H) would not apply relative to employees who would be eligible for coverage as of the first day of the 2014 fiscal plan year. However, the transition relief is provided only for those applicable large employers with a significant percentage of their employees eligible or covered under the fiscal year plans. Specifically, the transitional relief applies only if:

  1. At least one-quarter of the company’s employees are covered under the  fiscal plan years (as of the end of the most recent enrollment period or any date between October 31, 2012 and December 27, 2012), or
  2. One-third or more of the company’s employees were offered coverage under those plans during the most recent open enrollment period before December 27, 2012.

No penalties shall be due prior to the first day of the 2014 fiscal plan year with respect to employees who are offered affordable, minimum value coverage no later than the first day of the 2014 fiscal plan year.

Additional rules apply to employers who sponsor multiple health plans with different plan years. Employers with these structures should seek the advice of a qualified advisor before assuming the transition relief would apply to any particular plan.

Measurement Periods

For those employers choosing to use the optional look-back measurement method for determining full-time status and using a 12-month stability period for the 2014 fiscal plan year, it will be necessary to begin their measurement periods in 2013.

Typically, the measurement period is required to match the chosen stability period. However, for ease of administration in determining full-time status for the 2014 fiscal plan year, the employer may adopt a transition measurement period that is shorter than 12 months, but that is no less than 6 months. In addition, the transition measurement period must begin no later than July 1, 2013 and end no earlier than 90 days before the first day of the 2014 plan year.

For example, an employer with a fiscal plan year beginning April 1, 2014 who elected a 90-day administrative period could use a measurement period from July 1, 2013 through December 31, 2013 (6 months), followed by an administrative period ending on March 31, 2014. Keep in mind, an employer with a fiscal plan year beginning July 1, 2014 or later must use a measurement period longer than 6 months in order to comply.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Small Employer “Choice Option” Delayed on Federal SHOP Exchange

Small Employer “Choice Option” Delayed on Federal SHOP Exchange

April 2013

The Department of Health and Human Services (HHS) has announced that one of the options planned for small group insurance purchased through federally operated exchanges will be delayed until 2015. Under what is referred to as the “choice option,” small employers will be able to select a level of coverage (i.e. bronze, silver, gold, or platinum coverage tier), and participating employees would be allowed to choose from any carrier offering coverage within that tier.

Small employers will still be able to purchase small group plans through the federal exchange, but for 2014 all participating employees would be covered by the particular plan chosen by the employer. Also, beginning in 2014 the federal tax credit (of up to 50% of the employer’s cost) offered to some small employers is available only if an eligible employer purchases group coverage through a public (state or federal) exchange. Generally, the tax credit is available to employers with fewer than 25 employees who meet certain compensation and contribution requirements.

State-operated exchanges are still allowed to offer a choice option to small employers, and a number of states have announced that this model will be available in 2014. In addition, in most states, health insurance carriers will continue to offer small group health insurance policies to employers outside the public exchanges. So far only Vermont and the District of Columbia plan to require all small group plans to be sold through the state exchange.

This delay has no effect on individual health insurance plans sold through a public exchange. It also does not affect the availability of subsidies (i.e. premium tax credits and cost sharing reductions) beginning in 2014, for individuals who qualify and purchase individual health insurance policies through a public (state or federal) exchange. The federal government has already announced plans to make available at least two individual health insurance options nationwide through both federal and state operated exchanges.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Final Rules for Wellness Plans Released

Final Rules for Wellness Plans Released

June 2013

Background

The Departments of Health and Human Services, Labor, and Treasury (The Departments) have issued final wellness program rules. The new final rules are based on the existing HIPAA wellness rules and the requirements contained in proposed rules issued in November 2012,

Wellness programs are divided into two categories: “participatory wellness programs” and “health-contingent wellness programs.”  Participatory wellness programs are permissible under the HIPAA nondiscrimination rules, as amended by the Affordable Care Act (ACA), provided they are available to all similarly situated individuals regardless of health status. Health-contingent wellness programs are permissible under the rules provided they meet the five specific criteria described below.

 These final regulations regarding wellness plans generally apply for plan years beginning on or after January 1, 2014.

 Types of Wellness Programs

 Participatory Wellness Programs

Participatory wellness programs are defined as “programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor.”  The rules do not impose a limit on incentives or rewards for participatory programs.

Examples described in the guidance include:

(1)   a program that reimburses employees for all or part of the cost of membership in a fitness center;

(2)   a diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes; and

(3)   a program that provides a reward to employees for attending a monthly, no-cost health education seminar.

Health-Contingent Wellness Programs

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. This standard may be performing or completing an activity relating to a health factor, or it may be attaining or maintaining a specific health outcome. Under the final regulations, health-contingent wellness programs are further divided into activity-only wellness programs and outcome-based wellness programs.

In an important change from previous guidance, some programs that previously have been considered participatory programs, such as a walking program, are now classified as a activity health contingent program.

  • Activity-only health contingent wellness program – A program where an individual is required to perform or complete an activity related to a health factor in order to obtain a reward, but is not required to attain or maintain a specific health outcome. Examples include walking, diet, or exercise programs.

Some individuals participating in an activity-only wellness program may be unable to participate in or complete (or have difficulty participating in or completing) the program’s prescribed activity due to a health factor, so these individuals must be given a reasonable alternative opportunity to qualify for the reward.

  • Outcome-based health contingent wellness program – A program where an individual must attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward.

As with the activity based programs, individuals who do not attain or maintain the specific health outcome must be offered an alternative to earn the reward. An activity based option may be offered as an alternative to the outcome based program to achieve the same reward.

5 Criteria for Health-Contingent Wellness Programs 

  1. Frequency of Opportunity to Qualify. Individuals eligible for the program must be given the opportunity to qualify for the reward at least once per year.
  1. Size of Reward. The maximum reward offered to an individual with respect to a group health plan cannot exceed 30% of the total cost of employee-only coverage under the plan. This percentage is increased to 50% for any programs designed to prevent or reduce tobacco use.

The combined incentive for a program that includes both outcomes based rewards, and a reward related to tobacco, may not exceed 50% of the cost of coverage. For example, an combined program could provide a outcomes based reward equal to 30% of the plans premium with a tobacco based reward worth another 20% of premium for a total reward of 50%.

In addition, if dependents may participate in the wellness program, the reward cannot exceed 30% (or 50% for tobacco-related programs) of the total cost of the coverage in which the employee and any dependents are enrolled.

  1. Reasonable Design. “A wellness program is reasonably designed if it has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease.”

To be considered reasonably designed, an outcome-based wellness program must provide a reasonable alternative standard to qualify for the reward for all individuals who do not meet the initial standard that is related to a health factor. More detail on the reasonable standard requirement is included below.

  1. Uniform Availability and Reasonable Alternative Standards. The full reward must be available to all similarly situated individuals, and individuals who qualify by satisfying a reasonable alternative standard in place of the otherwise applicable standard. The reasonable standard requirements in the final regulations are significantly more detailed than prior HIPAA wellness rules guidance, and will require new procedures be adopted by many existing wellness programs. Additional detail on the reasonable alternative standard is included below
  1. Notice of Availability of Reasonable Alternative Standard. Plans are required to disclose the availability of a reasonable alternative standard to qualify for the reward in all plan materials describing the terms of a health-contingent wellness program. The disclosure must include; (i) contact information for obtaining the alternative, and (ii) a statement that recommendations of an individual’s personal physician will be accommodated. For outcome-based wellness programs, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard.

Model notice language was provided in the guidance:

“Your health plan is committed to helping you achieve your best health. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.”

If plan materials merely mention that a wellness program is available, without describing the wellness program terms, this disclosure is not required in that material.

Reasonable Alternatives

In arguably the most significant change to prior guidance, the final regulations impose considerable new requirements related to the offer of an alternative standard to allow individuals to receive an incentive.

Plans are not required to establish a reasonable alternative standard in advance of an individual’s request, and can provide the same reasonable alternative standard for an entire class of individuals, or provide the reasonable alternative standard on an individual basis.

All facts and circumstances are taken into account in determining whether a plan has provided a reasonable alternative standard, including but not limited to factors listed in the final regulations:

  • If the reasonable alternative standard is completion of an educational program, the educational program must be made available at no cost to the individual.
  • The time commitment required must be reasonable.
  • If the reasonable alternative standard is a diet program, the membership or participation fee must be paid by the plan (but not the cost of food).
  • If an individual’s physician states that a plan standard is not medically appropriate, a reasonable alternative standard must be provided that accommodates the recommendations of the physician.

Some of the requirements apply differently depending on whether the program is an activity-only, or an outcome-based wellness program:

Activity-only wellness programs

  • The program must allow a reasonable alternative standard for any individual for whom it is either unreasonably difficult due to a medical condition, or for whom it is medically inadvisable to attempt to satisfy the standard.
  • The plan is permitted to seek verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult or medically inadvisable for the individual to satisfy the standard.

Outcome-based wellness programs

  • The program must allow a reasonable alternative standard for obtaining the reward for any individual who does not meet the initial standard based on a measurement, test, or screening.
  • In another notable expansion of earlier requirements, a program consisting solely of a measurement, test, or screening must provide a reasonable alternative to earn the incentive to individuals who do not meet the initial standard.
    • If the alternative standard is to meet a different (easier) level of the same standard, reasonable additional time must be given to meet the new alternative.
    • An individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard to meeting the reasonable alternative standard defined by the plan.
    • In a change to previous guidance, plans are not allowed to require verification, such as a statement from the individual’s physician, that a health factor makes it unreasonably difficult or medically inadvisable for the individual to satisfy the outcomes based standard. However, if a plan or issuer provides an activity-only wellness program as an alternative to the measurement, test, or screening of the outcome-based wellness program, then verification may be requested with respect to the activity-only component of the program.

Summary

While the amount of an incentive employers can provide has been significantly increased, the final rules contain new requirements that will require employers to redesign many existing wellness programs that include “health contingent” components. Employers must also remember that recent guidance has clarified that the “affordability” of a plan, for the purposes of determining employer penalties under the ACA shared responsibility rules, will be based on the employee contribution level associated with non-participation in wellness programs.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Employer Shared Responsibility Rules Delayed until 2015

Employer Shared Responsibility Rules Delayed until 2015

July 2013

In what is easily the most significant health reform development for employers since the passage of the Affordable Care Act (ACA), the employer shared responsibility rules (often called the “employer mandate” or  “pay or play rules”) have been delayed until 2015.

On July 2nd the Treasury Department announced that it is delaying employer reporting requirements, and more importantly, also delaying the requirement that “applicable large employers” must provide coverage to all full time employees or pay a penalty.

Because of the delay:

  • Employers can continue existing employee health plan eligibility and coverage rules through 2014 plan years without the risk of paying a penalty under the ACA 4980(H) shared responsibility rules.
  • Employers will not be required to provide health insurance coverage to employees with 30 hours of service per week.
  • There will be no need for large employers to consider implementing a measurement and stability approach to defining full time employees in 2014.

Importantly, the announcement does not affect other significant areas of the ACA:

  • State and federal exchanges will still begin offering coverage to individuals and small employers beginning in 2014.
  • Small group underwriting and rating rules will go into effect for plan year beginning in 2014
  • The individual mandate that requires most individuals to carry health insurance in 2014 or pay a tax will still apply.
  • Subsidies will still be available to certain eligible individuals who purchase individual health insurance policies through public exchanges.
  • Other health plan requirements such as the 90 day maximum waiting period, cost sharing limits and child coverage to age 26 are not affected by this delay.

One significant question remains…when will the fully insured non-discrimination rules take effect? The ACA requires the IRS to develop non-discrimination rules for fully insured plans that will be similar to the existing 105(h) rules currently applicable to self-funded health plans. It was widely expected that the ACA non-discrimination rules would go into effect in conjunction with the employer shared responsibility rules in 2014. With this delay will the IRS also delay the effective date of the non-discrimination rules? Hopefully the IRS will answer this question very soon

The Treasury Department also stated that it expects to release more formal guidance regarding the delay very shortly. We will continue to monitor this important development and will release more details as additional information is released.

 

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.