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ACA Penalty Assessments Place Focus on ACA Reporting
By: Jason Lacey
Late last year, the IRS began issuing “226J” letters to employers with proposed ACA penalty assessments for 2015. Employers that received these letters often saw eye-popping penalty amounts. Most assessments were at least $100,000, with reports of assessments well into seven figures.
But the news has not been all bad. Employers who have engaged with the IRS have generally found the IRS willing to work with them to provide additional time to evaluate the assessments and prepare a response. Some employers have succeeded in securing significant reductions in the assessed penalties.
A consistent theme among employers who received penalty assessment letters has been a problem with their reporting on Forms 1094-C and 1095-C. Many of the proposed penalty assessments can be traced directly to errors in the forms that were filed for 2015.
For example, employers who failed to answer the question on Form 1094-C about whether they offered coverage to enough of their full-time employees were presumed not to be offering coverage. Problems with the month-by-month codes used on Form 1095-C, such as for months during which an individual was not employed, also have been a source of issues.
All of these notifications point to at least one clear conclusion: Getting the ACA reporting correct makes a difference. Reporting is not just an academic exercise. The IRS      Continue Reading...
Congress Repeals ACA's Auto-Enrollment Requirement
By: Jason Lacey

Need something to add to your list of things to be thankful for this year?

As part of the Bipartisan Budget Act of 2015, Congress has repealed the auto-enrollment requirement under Section 18A of the Fair Labor Standards Act (FLSA), which was added by the Affordable Care Act. This provision would have required an employer that has more than 200 full-time employees to automatically enroll any new full-time employee in one of the employer's health plans, unless the employee affirmatively opted out of coverage.

Implementation of this requirement had been indefinitely delayed, pending the issuance of interpretive guidance. As such, employers will not feel any immediate impact from this legislation. But the auto-enrollment requirement raised a number of sticky issues that were likely to present challenges, so the repeal is a welcome development for regulation-weary employers.


Supreme Court Upholds ACA Tax Credits in Federal Exchanges
By: Jason Lacey

In its much-anticipated decision in King v. Burwell, the Supreme Court has upheld the availability of the ACA's premium assistance tax credits for individuals purchasing insurance through a federally facilitated exchange, including the exchanges maintained for residents of Kansas and Missouri.

Background. This case addressed a seemingly simple proposition: Whether the phrase "an Exchange established by the State" meant only exchanges actually established and operated by one of the 50 states or the District of Columbia or whether it also included exchanges operated by the federal government in states that declined to establish their own exchanges. If the language meant only exchanges actually established and operated by one of the 50 states or the District of Columbia, the ACA's premium assistance tax credits would not be available to the residents of the 34 states that did not establish their own exchanges. This would have a ripple effect under the ACA by potentially limiting the impact of the individual mandate and the employer mandate and impairing the operation of the individual insurance market.

The Court's Analysis. The Supreme Court concluded that the statutory language (“an Exchange established by the State”) was ambiguous and that its meaning should be interpreted in the context of the broader structure of the ACA. It then held that the overall statutory scheme of the ACA compelled the conclusion that the tax credits should be available to individuals purchasing coverage through federally facilitated exchanges. Otherwise the individual insurance market would be destabilized in states with federally facilitated exchanges, likely leading to      Continue Reading...

New IRS Q&As Clarify ACA Reporting Issues
By: Jason Lacey

The IRS has updated two sets of Q&As on its website to clarify a variety of issues related to ACA reporting on Forms 1094-C and 1095-C. Here are some highlights:

  • ALE With No Full-Time Employees. An employer that qualifies as an "ALE member" does not have to report under Code Section 6056 if the employer does not have any full-time employees for any month of the year. This might happen, for example, if an entity is part of a larger group of entities that collectively employ 50 or more FTEs, but the particular entity in question has no full-time employees. This clarification would allow the employer to avoid filing Forms 1094-C and 1095-C, unless the employer actually provides coverage to one or more part-time employees under a self-insured plan sponsored by the employer.
  • Hand Delivery of Form 1095-C. An employer that is required to distribute Form 1095-C to an employee may hand deliver the Form 1095-C. It was unclear under prior guidance whether the only permitted distribution methods were first class mail and electronic delivery (with consent). 
  • Employee's SSN Required for Form 1095-C. When reporting individuals to whom coverage is provided (either on Form 1095-B or Part III of Form 1095-C), there is an option to use an individual's date of birth if the individual has not provided an SSN. However, when providing Form 1095-C to an employee, the employer must      Continue Reading...
New ACA FAQs Clarify the Preventive Care Mandate
By: Jason Lacey

A new set of tri-agency FAQs has clarified several issues related to the preventive care mandate. Among the highlights:

  • BRCA Testing. A plan subject to the preventive care mandate must cover (without cost-sharing) BRCA genetic testing for women who have had a prior non-BRCA-related breast cancer or ovarian cancer diagnosis, even if those women are currently asymptomatic and cancer-free and even if there is no family history of BRCA-related cancer. 
  • Contraception. A plan subject to the preventive care mandate must cover (without cost-sharing) at least one form of contraception in each of the 18 distinct categories of contraceptive methods identified by the FDA. A plan may use reasonable medical management techniques to encourage use of specific services or FDA-approved items within a particular category (such as steering individuals toward generic prescription drugs), so long as the plan maintains an accessible and expedient exceptions process to allow for coverage (without cost-sharing) of a particular service or item determined by an individual's attending provider to be medically necessary for that individual. 
  • Well-Woman Preventive Care for Dependents. If a plan subject to the preventive care mandate covers dependent children, such children must be provided (without cost-sharing) the full range of recommended preventive services applicable to them based on their age group and health condition. This may include, for example, covering services for prenatal care of a pregnant dependent child.
  • Colonoscopy      Continue Reading...
An ACA Anniversary
By: Jason Lacey

It should not go without notice that today marks the fifth anniversary of the enactment of the Affordable Care Act. 

Love it or hate it, it is difficult to imagine a single piece of federal legislation in the last 30 years that has dominated the landscape in the way the ACA has. It has been to the Supreme Court three times in its short life, with the outcome of the third visit still in question. It has spawned thousands of pages of complex regulations that affect insurers, employers, and individuals. It has implemented reforms that have already substantially changed both the individual and group markets for health insurance. And we're just getting started. 

What will the next five years bring? A wholesale repeal seems unlikely, but can never be totally ruled out. On many of the elements that have already been implemented, a shift from interpretation to enforcement may start to occur. But there will also be countless further pages of interpretive guidance to digest. And one more big piece of the puzzle likely will be snapped into place with the implementation of the "Cadillac" tax in 2018. 

Whatever may come, the ACA seems certain to provide a continued source of conversation and complexity that will impact all of us. So raise a glass (or a finger) to acknowledge the moment and look forward (or not) to what may lie ahead. It's sure to be interesting. 

Federal Legislation Would Clarify Wellness Plan Treatment Under ADA and GINA
By: Jason Lacey

Federal legislation has been introduced that would clarify the treatment of employer wellness plans under the ADA and GINA. It is styled as the "Preserving Employee Wellness Programs Act." Under the act, any wellness plan that meets the requirements imposed by regulations issued under HIPAA and the ACA would not be treated as violating the ADA or Title I or Title II of GINA solely because the plan provides a reward. 

The legislation would respond to confusion over the EEOC's position on how employer obligations under the ADA and GINA intersect with the HIPAA and ACA rules that allow providing a reward (or penalty) to employees who participate in a "health-contingent" wellness program. Although the EEOC has never taken a formal regulatory position on the issue, it has sued several employers over their wellness programs, including at least one program that appeared to satisfy the requirements under HIPAA and the ACA (see prior articles here, here, and here). 

The EEOC is said to be working on a set of regulations to address this issue that may be near release. Employers will want to keep an eye on both these legislative and regulatory developments, as they could have an important (and hopefully helpful) impact on wellness plan design.

A copy of Senate Bill 620, the Preserving Employee Wellness Programs Act, is here

ACA Back in Front of the Supreme Court
By: Jason Lacey

The Supreme Court heard oral arguments this week in King v. Burwell, the latest challenge to the Affordable Care Act.

At issue in the case is whether the tax credits that are available to subsidize the cost of health insurance coverage are available in all of the public exchanges or just exchanges that are operated by states. If the credits are only available in state-based exchanges, that would severely limit access to the credits, because most states (37 of them) have some form of an exchange operated by the federal government.

This could have an impact beyond individual access to the tax credits. For example, whether and to what extent large employers may be subject to penalty under the "play-or-pay" rules depends on whether and to what extent employees of those employers are able to qualify for tax credits. If tax credits aren't available to employees because the exchange in their state is a federally operated exchange (as in Kansas), the employer might avoid penalties, even if it is not offering the type of coverage required by the play-or-pay rules. 

It's hard to predict how the case will come out. The court is expected to break along the typical ideological lines, with the result depending on how the "swing" votes go. We should have an answer sometime this summer.

A transcript of the oral arguments is here.

IRS Provides Preliminary Cadillac Tax Guidance
By: Jason Lacey

The IRS recently issued Notice 2015-16, which represents the first step in yet another significant ACA guidance project that will unfold over the next two years. This project will flesh out the scope and mechanics of so-called “Cadillac” tax enacted as part of the ACA. Here is an overview of the initial guidance.


Beginning in 2018, a 40% excise tax will be imposed on the value of “applicable employer-sponsored coverage” provided to an employee each year, to the extent that value exceeds a threshold amount. The statutory thresholds are $10,200 for self-only coverage and $27,500 for other-than-self-only coverage. There are some potential upward adjustments to the threshold amounts, including for cost of living, although the thresholds are not anticipated to adjust as quickly as the growth in healthcare costs.

Items Included in Applicable Coverage

Notice 2015-16 begins to clarify the coverage that will (and will not) be included in “applicable employer-sponsored coverage” for purposes of the Cadillac tax, in addition to major medical coverage.

  • Executive Physicals and HRAs. Executive physical programs and HRAs will be included.
  • HSAs. Employer contributions to HSAs and employee salary-reduction contributions to HSAs will be included. Employee after-tax contributions (i.e., employee contributions made outside a cafeteria plan) will not be included.
  • On-Site Clinics. Coverage through on-site clinics generally will be included, but the IRS is considering an exception for on-site clinics that offer only “de      Continue Reading...
IRS Provides Limited Penalty Relief for Tax Credit Overpayments
By: Jason Lacey

Individuals who obtained premium tax credits to offset the cost of purchasing insurance through a public exchange during 2014 must reconcile those credits when they file their 2014 tax returns. If it turns out they received more credits than they were entitled to receive, they must pay back some or all of the excess.

Tax Problems. This repayment obligation could trigger a couple of tax problems for the individual. First, they may end up with a tax liability on their return when they were otherwise expecting a refund (or at least not expecting to pay anything). Second, they could owe a penalty for underpaying estimated taxes (not paying their tax liability soon enough).

Limited Penalty Relief. The IRS has provided penalty relief for 2015 (relating to the 2014 tax year) to address these two problems. However, the relief is limited to certain penalties associated with reconciliation of the premium tax credit. There is no relief for penalties associated with underpayments due to responsibility for the individual mandate penalty.

Late Payment Relief. The tax code imposes a delinquency penalty for late payment of taxes that are due. This penalty will be abated for 2014 for taxpayers who (1) are otherwise current with filing and payment obligations, (2) have a balance due for 2014 due to excess premium tax credits, and (3) report the excess tax credits on a timely filed (including extensions) 2014 tax return.

Estimated Tax Penalty Relief. The tax code also imposes a penalty for underpayment of estimated taxes. This penalty will be      Continue Reading...

The Save American Workers Act
By: Jason Lacey

Congress is already at work in early 2015 and attempting to make changes to the Affordable Care Act.  The House passed legislation to change the definition of full-time employment from 30 hours per week to 40 hours per week.  Now its up to the Senate to pass a similar measure.  While Congress seems intent on making changes to the Affordable Care Act, the White House isn't likely to sign off on such a measure.  Stay tuned for further developments as the measure works its way through the Senate.  The introduction of this legislative proposal is likely to be just the first of many actions Congress will take in the coming months.

IRS and HHS Rein in Minimum Value Plans
By: Jason Lacey

New guidance from the IRS and HHS aims to quickly scuttle the use of health plans designed to push the limits of minimum value. These plans (sometimes referred to in the market simply as “minimum value plans,” “MVPs,” or “MV lite”) aimed to reduce cost by excluding coverage for key benefits, such as physician services or inpatient hospitalization, but were nonetheless said to provide minimum value because they qualified under the MV calculator.

The Concept. The idea behind MVPs was to create a plan that would allow a large employer to avoid all penalties under the ACA’s employer shared responsibility mandate at relatively low cost. As minimum essential coverage that provided minimum value, an MVP would allow a large employer to avoid all penalties, so long as the plan was affordable. And due to the relatively low cost, employers could make MVPs affordable with little or no premium subsidy.

But the effect of MVPs was not limited to penalty avoidance by employers. Employees who are offered coverage under an affordable, minimum value plan are ineligible for premium tax credits (PTCs) through state and federal exchanges, even if they turn down the employer-sponsored coverage. And with MVPs, this meant employees could be knocked out of PTC eligibility with an offer of coverage under a plan that intentionally excluded a significant category of benefits (e.g., inpatient hospitalization). This may well have been their undoing.

MV Calculator. Why did this seem to work? It all came down to the MV calculator. Final HHS regulations and      Continue Reading...

CMS Indefinitely Delays HPID Implementation
By: Jason Lacey

On the eve of the deadline for large controlling health plans (CHPs) to obtain an HPID, CMS has announced that it is indefinitely delaying enforcement of the regulations that require obtaining an HPID and using the HPID in covered transactions. The announcement is effective October 31, 2014 and applies “to all HIPAA covered entities, including healthcare providers, health plans, and healthcare clearinghouses.”

What Does This Mean for Large Health Plans? The immediate impact of this announcement appears to be that large CHPs are no longer required to obtain an HPID by the November 5, 2014 deadline. Whether or when they may be required to do so in the future will depend on when (or if) CMS decides to begin enforcing the regulations again.

What Does This Mean for Small Health Plans? The deadline for small CHPs to obtain an HPID was November 5, 2015. Technically, that deadline has been suspended as well, although with a year between now and then, it’s possible that CMS could reverse course and begin enforcing the rule again before then. So small plans should monitor the status of the rule, but likely will not want to attempt to obtain an HPID until further notice.

Where Did This Come From? The CMS announcement references a September 23, 2014 report from the National Committee on Vital and Health Statistics (NCVHS). In that report, the NCVHS unequivocally recommended that covered entities not begin using an HPID in transactions involving health plans. The report argues that there is already a      Continue Reading...

CMS FAQs Clarify HIPAA Health Plan Identifier (HPID) Requirement
By: Jason Lacey

Health plans, including some employer-sponsored plans, face a looming deadline to obtain a HIPAA health plan identifier (HPID). There have been many questions surrounding this requirement, particularly as it applies to employer-sponsored plans. Recent FAQ guidance from CMS (here) has provided some key clarifications, although questions remain. Here's what you need to know.

Background. HIPAA requires health plans and other covered entities to engage in certain covered transactions in a standardized way. This is sometimes referred to as the HIPAA "transactions rule." The details of that rule are beyond what can be addressed here. But the key thing to understand is that the ACA amended the transactions rule to require health plans to obtain a specific identifier (the HPID) to be used in connection with covered transactions.

Deadline. For plans that are required to get an HPID, the deadline is November 5, 2014, unless the plan is a "small" health plan, in which case the deadline is November 5, 2015.

Small Health Plan. A small health plan is a plan that has $5 million or less in annual receipts. The CMS FAQs tell us that annual receipts mean premiums paid during the last full fiscal year, in the case of fully insured plans, and health care claims paid during the last full fiscal year, in the case of self-insured plans. Plans that are partially insured and partially self-insured combine the premiums and health care claims paid to determine their total annual receipts.

Stop-Loss Premiums. It's not clear whether annual receipts are intended to      Continue Reading...

New 125 Plan Election Change Addresses Key ACA Concern
By: Jason Lacey

Employers considering the look-back measurement method to identify full-time employees for purposes of the ACA’s employer shared responsibility mandate have expressed concern about the impact on employees who are treated as full-time for a stability period but experience a reduction in actual hours of service.

Locked-In Status. Employers recognize that these employees may prefer to drop employer-sponsored coverage upon the reduction in hours. But employers that want to avoid penalty exposure under the ACA must continue to make these employees eligible for coverage, because they are recognized as full-time. And because there is no loss of eligibility, the employees cannot make a voluntary decision to drop coverage in the middle of the year. There is no change in status that will support an election change under the existing 125 plan regulations. The employees are locked-in.

New Election Change. A recent notice from the IRS provides important relief from this problem by adding a new election-change event to the cafeteria-plan rules. An employee can now make a mid-year election to revoke health plan coverage (not including health FSA coverage) upon a reduction in hours of service, if the following conditions are satisfied:

  1. The employee has been in a full-time position and changes to a position that is reasonably expected to average less than 30 hours of service per week, even if that change does not result in a loss of health plan eligibility.
  2. The employee represents to the employer that the employee      Continue Reading...
PCORI Fee Increases Slightly
By: Jason Lacey

The IRS has announced that, for plan years ending on or after October 1, 2014 and before October 1, 2015, the Patient Centered Outcomes Research Institute Trust Fund tax (or "PCORI fee") will be $2.08 per covered life, up slightly from the rate of $2.00 per covered life that applied for plan years ending on or after October 1, 2013 and before October 1, 2014.

For insured plans, the PCORI fee is paid by the insurance carrier, but for self-insured plans, the plan sponsor (typically the employer) is responsible for calculating and paying the fee. Payment of the fee is due by July 31 of the year following the calendar year in which the plan year ends. Thus, for example, for plan years ending in 2014, the PCORI fee is due by July 31, 2015. IRS Form 720 must be filed along with payment of the fee.

The announcement (Notice 2014-56) is available here.

Halbig Decision Shouldn't Change Employer Planning for ACA Implementation
By: Jason Lacey

The recent decision by the Court of Appeals for the D.C. Circuit in Halbig v. Burwell (here) is certainly a major development in the ongoing saga of health care reform implementation. If it holds up, it would have a significant impact on the ACA as a whole, since both the employer and individual mandates are affected by the presence (or absence) of premium-assistance tax credits.

But this likely isn't the end of the line for tax credits in federally facilitated exchanges (which currently includes the Kansas exchange). The result in the case was not unexpected, given the makeup of the 3-judge panel. And there is a further expectation that the case will be given reconsideration by the full D.C. Circuit, which may lean the other way. (The government's lawyers have already requested such reconsideration.) So the decision could be short-lived.
Even if the decision stands, the Fourth Circuit's opposing decision in King v. Burwell (here) creates a "circuit split" on the issue, making the issue ripe for Supreme Court review. And we know the Supreme Court has been creative in its interpretation of things related to the ACA, like what is or isn’t a “tax." Concluding that the statutory reference to state-based exchanges really means either a state-based exchange or a federally facilitated exchange might not be a big stretch.
It's also unclear what immediate precedential impact (if any) the case has. The ruling would be controlling in the D.C. Circuit, but it may have limited impact outside of the circuit,      Continue Reading...
New ACA FAQ Addresses Elimination of Contraceptive Coverage
By: Jason Lacey

A new FAQ (Part XX in the series) addresses the disclosure obligations of an employer that elects to eliminate contraceptive coverage in light of the Supreme Court's Hobby Lobby decision. It describes obligations under ERISA and, specifically, the employer's obligation to update its SPD by adoption of a new SPD or summary of material modifications (SMM).

60-Day Deadline. SMMs generally must be provided by 210 days after the end of the plan year in which a plan modification occurs. However, a modification that is a material reduction in covered services or benefits under a group health plan must be provided within 60 days after the date the modification is effective. The FAQ indicates that a decision to reduce or eliminate contraceptive coverage would be considered a material reduction in covered services or benefits, thereby requiring notice within 60 days.
What About SBCs? Interestingly, the FAQ makes no reference to the summary of benefits and coverage (SBC). In general, if there is a mid-year plan modification that affects the content of a previously provided SBC, notice of the modification must be provided at least 60 days in advance of the effective date of the change.
Perhaps the failure to address this obligation reflects a conclusion that elimination of all or a portion of contraceptive coverage would not affect the content of the SBC and, therefore, does not trigger the advance-notice requirement. (A review of the sample SBC on the DOL's website shows no reference to contraception or other preventive care.) But any employer considering      Continue Reading...
Considering the Scope and Impact of the Supreme Court's Hobby Lobby Decision
By: Jason Lacey
The Supreme Court's Hobby Lobby decision answered the question whether certain for-profit employers may, on religious grounds, avoid complying with the ACA's contraception mandate. But in doing so, it raised a number of other questions regarding the scope and impact of its decision.
Background. The Hobby Lobby case involved three for-profit corporations (Hobby Lobby, Mardel, and Conestoga Wood Specialties) whose owners objected, on religious grounds, to fully complying with the portion of the ACA's preventive-care mandate that requires most health plans to provide coverage (without cost-sharing) for all FDA-approved contraceptive methods for women. Specifically, these owners objected to a subset of contraceptive methods that they believed to be abortive - drugs such as "Plan B" and devices such as IUDs.
Ruling in favor of these employers, the court held that a separate federal statute, the Religious Freedom Restoration Act (RFRA), prevented enforcement of the contraception mandate against these employers because doing so would violate a sincerely held religious belief of the employers and because the mandate to provide coverage was not the "least restrictive means" of implementing the government's interest in ensuring access to these contraceptive methods.
Which Employers? One question that remains after the court's decision is which employers might be able to obtain a similar reprieve from compliance with the mandate. On its face, the decision applies to closely held for-profit corporations whose owners have sincerely held religious beliefs that are shared by the corporation. But many definitional issues remain.
Closely Held. What does it mean for an organization to be closely      Continue Reading...
IRS Provides Final Guidance on Play-or-Pay Requirements
By: Jason Lacey

On February 12, 2014, the IRS published its long-awaited final regulations on the employer play-or-pay mandate under health care reform (here). Although the final regulations do not make significant wholesale changes to the proposed regulations, they do provide some important clarifying rules and transitional guidance that will help smooth the path to full implementation of the employer shared responsibility mandate.

Background. By way of brief background, the employer shared responsibility (pay-or-play) mandate under health care reform requires an "applicable large employer" (generally an employer with 50 or more full-time-equivalent employees) to offer affordable, minimum value health insurance coverage to its full-time employees (defined as employees working an average of 30 or more hours per week). Applicable large employers that fail to offer minimum essential coverage to at least 95% of their full-time employees generally face an annual penalty of $2,000 per full-time employee, if at least one of the employer's full-time employees obtains subsidized coverage through the public insurance exchange. Applicable large employers that offer minimum essential coverage to at least 95% of their full-time employees but do not ensure that the coverage is both affordable and provides minimum value generally face a penalty of $3,000 per full-time employee that obtains subsidized coverage through the public exchange. Key issues under these rules include determining who is an applicable large employer, who is a full-time employee, and whether coverage offered to an employee is affordable.

Details, Details. The specific provisions of the final regulations touch on many different areas to a degree      Continue Reading...

HHS Proposes 2015 Reinsurance Contribution Amount and Plan Maximums
By: Jason Lacey

HHS has issued is proposed Notice of Benefit and Payment Parameters for 2015 (here). It is frankly a pretty mind-numbing piece of regulatory handiwork, but it includes a few interesting nuggets for employers.

Transitional Reinsurance Program. The notice discusses the transitional reinsurance program at some length but has three proposals that are particularly noteworthy.

(1) 2015 Contribution Rate. The proposed contribution rate for 2015 is $44 per covered life, as compared to $63 per covered life for 2014.

(2) Change in Payment Schedule. The payment schedule is proposed to change so that the fee would be paid in two installments instead of one. The first installment will generally be due in January following the benefit year, and the second installment will generally be due in November or December following the benefit year. Both installments will be based on the same enrollment count.

For the 2014 benefit year, it is anticipated that this will result in the $63 fee being paid as follows: $52.50 in January 2015 and $10.50 in late 2015. For the 2015 benefit year, it is anticipated that this will result in the proposed $44 fee being paid as follows: $33 in January 2016 and $11 in late 2016.

(3) Exclusion for Self-Administered Self-Insured Plans. Several groups that sponsor self-insured plans (notably multiemployer self-insured plans) have been lobbying for an exemption from the transitional reinsurance fee. (There is some merit to their arguments, since the transitional reinsurance program will not benefit them, but that's beside the point here.) While this proposed notice does      Continue Reading...

White House and CMS Announce Administrative Delay in ACA Insurance Mandates
By: Jason Lacey

Yielding to growing political pressure, the White House (here and here) and CMS (here) announced yesterday an administrative delay in enforcement of insurance market reforms under the Affordable Care Act, thereby allowing insurance carriers to retain non-conforming policies for one more year. This addresses concerns over the "keep what you've got" issue.

Insurers had been in the process of announcing the termination or cancelation of policies that did not meet all the requirements that are scheduled to apply to insurance policies beginning January 1, 2014. This includes the requirements to cover all "essential health benefits" and provide first-dollar preventive care coverage. Policy holders facing cancelation had expressed frustration after believing enactment of the ACA would not deprive them of their coverage.

The delay does not affect all policies - just those issued in the individual and small group markets. (Many policies issued in connection with employer sponsored plans are large group policies and will not be affected. Similarly, self-insured health plans are not affected.) Also, the delay is not automatic. The administrative guidance authorizes state insurance commissioners to allow carriers to maintain non-conforming policies, but it is up to each state to decide whether it will provide that flexibility. And even in states that grant carriers the right to maintain their policies, it is up to the carriers to decide whether a policy will be retained. So the guidance is far from a universal solution. 

In many cases, states and insurance carriers have already taken significant steps toward complying with      Continue Reading...

New Hardship Exemption from Individual Mandate
By: Jason Lacey

In the wake of the troubled rollout of the public exchanges, which has delayed the ability of many individuals and small businesses to enroll in coverage offered through the exchanges, HHS has announced (here) a new hardship exemption from the individual mandate. Anyone who enrolls in coverage through an exchange by the end of the initial exchange enrollment period (March 31, 2014) will be exempt from the individual mandate during the period in 2014 before the date the exchange-based coverage becomes effective.

Background. The individual mandate is the rule that requires most Americans to maintain health insurance coverage or pay a penalty. It takes effect January 1, 2014. But there are a number of exemptions available. Those who qualify for an exemption will not owe a penalty even if they fail to maintain insurance coverage. One exemption category is for "hardships," as defined by the government. 

Exchange Enrollment Period and Coverage Effective Date. The initial exchange enrollment period began October 1, 2013 and runs through March 31, 2014. No coverage under the exchange becomes effective before January 1, 2014. Beginning in December, those who enroll in coverage on or before the 15th of the month will have coverage that becomes effective on the first day of the next month. Those who enroll after the 15th of the month will have coverage that becomes effective on the first day of the second following month.

For example, an individual who enrolls for coverage on January 10, 2014 will have coverage effective as of February      Continue Reading...

It's Exchange Day
By: Jason Lacey

If you're looking at a list of the milestones for implementation of health care reform, you'll see that we've just reached a big one: the opening of the public insurance exchanges.

Ok, so the day is largely symbolic. Nothing really takes effect today. It just happens to be the first day we can go take a look at what's available through these new marketplaces and begin the process of enrolling for coverage if we want. Coverage purchased through the exchanges between now and December 15 won't be effective until January 1, 2014. But it still feels like there has been a lot of anticipation in the run-up to the opening of the exchanges.

I happened to be awake after midnight last night, so I decided to try out the portal for the Kansas exchange. We don't have a state-based exchange (the federal government is running one for us), so I went to the federal exchange website (www.healthcare.gov) and starting working my way through the process.

I didn't get very far. One of the first things you have to do is set up an account. This requires selecting a user name and password and also answering a series of three security questions, so you can retrieve your user name and password later if you forget. The user name and password part worked fine. And the interface would allow me to answer the security questions, but it wouldn't tell me what the questions were.

It felt a little like that bit Johnny Carson used to do      Continue Reading...

Exchange Notice Reminder - Due by October 1
By: Jason Lacey

Just a reminder that the employer exchange notice must be distributed to existing employees (all employees) by October 1.

  • Read prior coverage here and here.
  • Links to the DOL model notices are here and here.
  • Links to DOL guidance are here and here.
New Guidance Will Limit HRAs and Employer Use of Individual Market Coverage
By: Jason Lacey

A continuing area of uncertainty under health care reform has been the treatment of health reimbursement arrangements (HRAs) and other arrangements that might be used to allow employees to purchase health insurance through individual policies with the employer subsidizing some or all of the cost. A new notice from the IRS, HHS, and DOL (here) provides some clarity on these - and some related - issues.

Employer Payment Plans. As a preliminary matter, this guidance gives us a new term: "employer payment plan." This refers to an arrangement by which an employer provides payment or reimbursement of individual market insurance premiums in the manner described in an old Revenue Ruling (Rev. Rul. 61-146). Historically, these employer payment plans have been permissible and have allowed employers to provide pre-tax subsidies of individual market coverage.

Integration of Plans with Individual Market Coverage. A concern with HRAs and employer payment plans is that they may be treated as violating two key health care reform mandates: the prohibition on annual limits and the requirement to provide no-cost preventive care services. Previous FAQ guidance (see coverage here) said that HRAs would be treated as satisfying the annual limit rule if they were "integrated" with other coverage that satisfies the annual limit rule.

This guidance effectively confirms that treatment and provides a similar rule for preventive care. But the guidance goes on to say that HRAs and employer payment plans may not be treated as integrated with individual market coverage. Thus, an HRA or employer payment plan      Continue Reading...

No Penalty for Failure to Provide Exchange Notice
By: Jason Lacey

In a single FAQ posted to its website this week, the DOL acknowledged that "there is no fine or penalty under the law" for failing to provide the notice to employees describing the public insurance exchanges (or "Marketplaces"). Many of us had come to this conclusion already, so it was not entirely a new development. But at a minimum it provides some further comfort that there will not be a serious consequence to employers who might foot-fault on the requirement (e.g., overlook an employee when distributing the notice). 

Does this lack of a penalty give employers license to willfully ignore the notice requirement? It could be interpreted that way. After all, if the police said they would no longer issue speeding tickets, would anyone feel compelled to pay attention to the signs?

But I don't recommend taking it too far. Here are at least three reasons complying with the requirement may be important even in the absence of an express penalty.

  1. The DOL will still be looking for evidence of compliance with the requirement. We won't know this for sure until after October 1, but I suspect when the EBSA folks at DOL open an audit and send out their standard (and quite lengthy) list of documents to be reviewed in connection with the audit, the exchange notice will be on the list. If you can't produce evidence that you distributed it, you are likely to receive a stern talking-to. Worse still, if the failure appears to be      Continue Reading...
IRS Clarifies Impact of Preventive Care Services on HDHPs
By: Jason Lacey

The IRS has provided an expected, but welcome, clarification (see Notice here) regarding the impact of providing no-cost preventive care services under a high-deductible health plan. 

Background. To be eligible to contribute to a health savings account (HSA), an individual must be covered under a qualifying high-deductible health plan (HDHP) and must not be covered under any low-deductible coverage, other than permitted coverage. Permitted coverage incudes coverage for preventive care services within the meaning of Internal Revenue Code Section 223(c)(2)(C). 

Health Care Reform. Under health care reform, non-grandfathered health plans are required to offer specified preventive care services without cost sharing. This rule applies to non-grandfathered plans that otherwise meet the requirements to be an HDHP. But the preventive care services required under health care reform are not quite the same as preventive care services described in guidance under Code Section 223(c)(2)(C). And, of course, there cannot be a deductible. So we have wondered: Will compliance with the preventive care mandate under health care reform risk causing a plan to no longer qualify as an HDHP?

Guidance. The assumption has been that the IRS would not view preventive care services provided in accordance with health care reform as impermissible low-deductible coverage. Otherwise HDHPs could effectively no longer exist, unless they remained grandfathered.

That assumption has now been confirmed: "[A] health plan will not fail to qualify as an HDHP under section 223(c)(2) of the Code merely because it provides without a deductible the preventive care health services required under section 2713 of the PHS Act to      Continue Reading...

Final Regs Make Few Changes to Contraception Mandate
By: Jason Lacey

Final tri-agency regulations were released recently on the religious employer exemption from health care reform's contraception mandate, and there is little change from the approach outlined in the proposed regulations (see discussion here). In short, the regulations finalize a moderate expansion of the definition of "religious employer," but continue to require religiously affiliated nonprofit organizations to seek an "accommodation" that allows individuals covered under their plans to obtain contraception coverage at no cost through an insurance carrier.

Applicability Date. A key piece of the final regulations is the effective-date provision, which provides nonprofit organizations some additional time to comply with the accommodation requirement. The regulations generally apply for plan years beginning on or after January 1, 2014, rather than applying for plan years beginning on or after August 1, 2013, as previously expected. Nonprofit organizations that had been relying on a one-year safe harbor from application of the mandate (see description here and here) may continue relying on the safe harbor until the first plan year beginning on or after January 1, 2014. CMS has updated its guidance on the nonenforcement safe harbor (here). 

Definition of Religious Employer. The definition of religious employer is unchanged from the proposed regulations. Although not intended to expand the number of organizations that qualify as religious employers, the change is intended to clarify that religious employers providing educational, charitable, and social services may qualify for the exemption even though some of their constituents or employees may not be of the same      Continue Reading...

Play-or-Pay Delayed
By: Jason Lacey

It’s been a big week for employee benefits law, starting with the Supreme Court’s Windsor decision on DOMA last Wednesday, the administration’s release of a final rule on the religious employer exemption to the contraception mandate, and now a surprise temporary reprieve for employers from the play-or-pay penalties that were scheduled to take effect in 2014.

Transition Relief. In a blog post published quietly on Tuesday afternoon, a senior Treasury Department official said that the administration had been listening to concerns raised by employers about the time needed to implement various aspects of the health care reform law and would be publishing formal guidance within the next week delaying enforcement of the employer shared responsibility (or “play-or-pay”) mandates until 2015. However, the post affirmed that qualifying individuals purchasing health insurance coverage through exchanges in 2014 would continue to have access to premium assistance tax credits. And a related post on the White House Blog asserted that exchange implementation is proceeding "full steam ahead" and is "on target."

What Does the Delay Mean? We won’t know all the specifics until the formal guidance is released (and even then there are likely to be questions). But in broad terms, it appears that large employers will not need to be ready to comply with the play-or-pay requirements until at least January 1, 2015. So, for example -

  • It may not be necessary to implement the look-back measurement period regime until later this year, or perhaps even 2014.
  •      Continue Reading...
PCORI Trust Fund Tax is Deductible
By: Jason Lacey

An internal IRS memorandum released this week provides informal guidance clarifying that the PCORI trust fund tax is generally deductible for income-tax purposes when paid by an insurer or the sponsor of a self-insured plan.

By way of brief background, the PCORI trust fund tax is a $1 (increasing to $2) tax on the average number of covered lives under a health insurance policy or self-insured health plan. It funds the Patient Centered Outcomes Research Institute, which studies the comparative effectiveness of medical treatment options.

Given the relatively small dollar amount of the tax when calculated for a single employer, the ability to deduct the tax will not make a huge difference. But it is a welcome clarification just the same.

Reminder. For plans with plan years ending after October 1, 2012 and on or before December 31, 2012, the tax must be paid and a return filed by July 31, 2013. The IRS recently published drafts of the Form 720 and related instructions that must be used to pay the tax.

Employer Exchange Notice: DOL Guidance and Model Notice
By: Jason Lacey

A new technical release from the DOL provides important guidance for employers on the obligation to give employees a notice regarding health coverage available through the public exchanges.

Effective Date. As discussed in a prior post, this notice obligation was scheduled to become effective March 1, 2013, but was delayed until guidance was issued. Under this new guidance, notice must be given to all current employees by October 1, 2013, and must be given to each new employee hired on or after October 1, 2013, within 14 days of the start date.

Covered Employers. Although this notice requirement was enacted as part of health care reform, it applies to employers through the FLSA. So all employers to which the FLSA applies are required to provide the notice. It does not matter whether the employer offers health coverage to employees or whether the employer is subject to the play-or-pay mandates.

Who Gets the Notice? The notice must be given to all employees, whether full-time or part-time and whether or not covered under the employer's health insurance plan. However, notice is not required to be given to dependents or other individuals who may be covered under the employer's plan.

Content Requirements and Model Notice. The notice must provide employees with information about the public exchanges and inform them that they may be eligible for a tax credit to subsidize coverage obtained through the exchange. But the notice must also advise that employees who choose to obtain coverage through the exchange will lose any employer      Continue Reading...

Minimum Value Regulations Clarify Treatment of Wellness Incentives
By: Jason Lacey

Buried deep within new regulations on the arcane "minimum value" requirement is important new guidance on how employer wellness incentives will impact both the minimum value and affordability analysis with respect to employer-provided health coverage.

Most Wellness Impact is Disregarded. The rule described in the regulation is fairly simple, although not favorable to employers. For purposes of determining whether health coverage is affordable to employees, any reward associated with participation in a wellness program (other than related to tobacco use) is ignored. This generally has the effect of increasing the amount the employee is treated as contributing toward the cost of coverage, thereby making the coverage less affordable.

Example. Assume, employees generally are required to pay $200 per month for employee-only coverage. But if the employees participate in a health risk assessment and basic biometric screening, they receive a discount of $50 per month (making the monthly cost $150). For purposes of determining whether the coverage is affordable, the employees are treated as having to pay $200 per month for coverage, even though they may actually qualify to pay only $150 per month.

There is a similar rule for minimum value, to the extent the wellness incentive impacts the cost-sharing structure of the plan (deductible, coinsurance, or copayments). Non-tobacco wellness programs are ignored in determining the plan's cost sharing, which impacts the determination whether the plan provides minimum value. For example, if a plan has a $2,000 deductible but provides a $500 reduction for participating in a non-tobacco-related wellness plan, the plan      Continue Reading...

More ACA FAQs: Mini-Med Plans and Clinical Trials
By: Jason Lacey

We are now up to Part XV of the tri-agency FAQs providing guidance on various ACA-related issues.

The most important guidance in these FAQs relates to the treatment of mini-med plans that obtained a waiver from the prohibition on annual limits. But the FAQs also acknowledge, in so many words, that there are some issues on which further guidance simply will not be provided before 2014, so we're going to have to use our best judgment.

Changing the Plan Year on Mini-Med Plans. Employers and insurance carriers offering mini-med plans were required to obtain a waiver from the prohibition on annual limits. Under the waiver program, plans were allowed to continue until the end of the plan year ending in 2014. Creative employers and carriers began exploring whether they could change their plan years now and effectively extend waiver through most of 2014. For example, a plan with a plan year ending June 30 might change to a plan year ending November 30 and rely on the waiver until November 30. 

These FAQs provide, unequivocally, that a change in the plan year will not be effective to extend a plan's waiver. The waiver only applies until the end of the plan year ending in 2014, based on the plan year the plan was using when it applied for the waiver.

In other words, nice try.

Why would this matter? Well, it now appears that mini-med coverage extending into 2014 will be sufficient to allow employers with fiscal year plans to avoid some of the      Continue Reading...

New SBC Guidance and Templates
By: Jason Lacey

The latest set of Affordable Care Act FAQs (Part XIV) announces the release of updated templates for the SBC and uniform glossary. The updated templates are designed to provide employers and insurers with tools to comply with the SBC requirement for the second year of applicability.

Note that many fiscal-year plans may not yet have begun their first year of applicability for the SBC requirement, which essentially begins with the first open-enrollment period beginning on or after September 23, 2012.

Limited Template Changes. The updated templates reflect only two significant changes. They add language for describing whether the coverage does (or does not) provide minimum essential coverage (MEC), and they add language for describing whether the coverage does (or does not) provide minimum value (MV). There is no change in the language describing whether benefits are (or are not) subject to annual limits, and the template keeps the same two coverage examples (childbirth and diabetes).

Extended Enforcement Relief. Perhaps the most significant guidance in the FAQs is an extension of much of the helpful enforcement relief that was provided through previous FAQs. For example:

  • Compliance emphasis. IRS, DOL, and HHS will continue to emphasize "assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the new law" (Part VIII, Q2) and "will not impose penalties on plans and issuers that are working diligently and in good faith to comply" (Part IX, Q8).
  •      Continue Reading...
2013 ACA Deadlines: What Employers Should be Thinking About Right Now
By: Jason Lacey

2013 is a relatively light year in the overall scope of health care reform implementation. Few mandates or requirements have 2013 effective dates. And so much will be happening in 2014 that it tends to overshadow 2013. But employers still have a number of things to be thinking about this year. Here are ten items to consider putting on your checklist.

1. SBCs. The requirement to distribute a summary of benefits and coverage (SBC) in connection with open enrollment applies to open-enrollment periods beginning on or after September 23, 2012. So employers with fiscal-year plans may still be getting ready for their first covered open-enrollment periods. For employers that have already distributed SBCs, any mid-year change in plan terms that affects the content of the SBC must be described in a notice of modification given at least 60 days in advance of the effective date of the modification. Also, distribution of the SBC is not a one-time event. It may be required annually or even more frequently, such as in connection with special enrollments or upon request.

2. W-2 Reporting. Currently, only large employers are required to comply with the obligation to report the aggregate cost of applicable employer-sponsored coverage in box 12 (code DD) of an employee’s W-2. Large employers generally are employers that issued 250 or more W-2s in the preceding calendar year. So whether an employer is subject to this requirement can change from year to year, depending on changes in the number of employees and W-2s issued. Employers      Continue Reading...

PPACA Waiting Period Rules: 90 Days Means 90 Days
By: Jason Lacey

HHS, DOL, and IRS recently proposed regulations interpreting the health care reform mandate limiting health plan waiting periods to no more than 90 days. The guidance is fairly straightforward, but does not include one clarification we were anticipating: 3 months cannot be used as a substitute for 90 days. 90 days means 90 days. Period.

What is a waiting period? Under the rules, a waiting period is any period of time that must pass before coverage may become effective for anyone who has otherwise satisfied the plan's eligibility criteria. Eligibility criteria that are based solely on the lapse of a time period count as part of the waiting period. So, for example, if a plan requires employees to work in a particular job classification to be eligible for coverage, time spent working in an ineligible job classification does not count as a waiting period, and the 90-day period may be imposed once an employee moves to an eligible job classification. But if a plan merely requires 60 days of full-time employment to become eligible, those 60 days of employment count toward the waiting period, so another 90 days may not be imposed.

Variable-hour employees. We know from the regulations on the look-back measurement method (see coverage here) that we may need some time (up to 12 months or so) to determine whether a variable-hour employee meets an eligibility requirement relating to average hours worked. These proposed regulations clarify that the period during which a variable-hour employee's hours of service are being measured      Continue Reading...

Domino's Founder Not Required to Comply with Contraception Mandate
By: Jason Lacey

I have left this topic alone for awhile because it can be a real hot-button. But it’s hard to ignore the latest news, which adds to the growing number of conflicting opinions on whether private businesses may seek an exemption from the ACA’s contraception mandate on grounds of religious freedom.

The latest case involves Domino’s Farms, a private business owned by Thomas Monaghan, the founder of Domino’s Pizza. He is a devout Roman Catholic and offers his employees a health plan that does not cover contraceptives or abortions.

A federal court in Detroit has granted a preliminary injunction (here) preventing the federal government from enforcing the contraception mandate against Domino’s Farms. This is significant because Domino’s Farms is a private business and not a church or church-affiliated non-profit organization, so it would otherwise be required to provide contraceptive coverage at no cost under its health plan or face a steep penalty.

As I’ve written about previously on this blog (here), Hobby Lobby stores sought the same relief from a court in Oklahoma late last year, but were denied on the basis that private business entities cannot hold religious beliefs.


New ACA FAQ Guidance Addresses Cost Sharing, Preventive Care, and Expatriate Plans
By: Jason Lacey

Two more sets of tri-agency FAQs have been released, providing additional interpretive guidance on the Affordable Care Act. They are Part XII and Part XIII in the series.

Cost-Sharing Limitations. Part XII includes two important clarifications on the cost-sharing limitations that will apply to group health plans beginning in 2014.

(1) Deductible. The rule that limits the annual deductible under a plan to $2,000 for self-only coverage and $4,000 for family coverage will apply only to non-grandfathered plans in the individual and small-group markets. Grandfathered plans and large-group plans will be permitted to impose higher deductibles. This may be important for large-group plans that want to offer an option with a high deductible that meets the minimum requirements for a 60% actuarial value plan.

(2) Out-of-pocket maximum. The rule that limits overall cost-sharing under a plan to $5,000 for self-only coverage and $10,000 for family coverage will apply to all non-grandfathered plans. So even large-group plans will be limited.

Preventive Care. Part XII also provides detailed guidance on miscellaneous issues related to the requirement for non-grandfathered plans to offer preventive-care services without cost-sharing. Some highlights:

(1) Out-of-network services. Plans generally are permitted to impose cost-sharing with respect to preventive-care services obtained out of network. However, if a service that is required to be covered by the plan is not available through any in-network provider, the plan must cover the out-of-network service without cost-sharing.

(2) Over-the-counter items. Some of the covered preventive-care items include over-the-counter drugs and devices, such as aspirin. A plan is only      Continue Reading...

DOL Updates Health Plan Self-Compliance Tools
By: Jason Lacey

The DOL has updated the self-compliance tools it makes available to group health plans to include a new checklist relating to health care reform.

The health care reform checklist goes through a series of detailed questions that will help a plan sponsor confirm that it is in compliance with the key group market reforms, such as coverage of dependent children to age 26 and cost-free preventive care. There are particularly extensive provisions addressing grandfathered plan status and the SBC requirement.

A second checklist relates to the HIPAA portability provisions and related requirements for group health plans, including mental health parity. (See related prior coverage here.)

Plan sponsors or administrators would be well-advised to go through these lists once a year or so to determine if there are any areas in which their plans are deficient. It is always easier to correct problems that are identified before the DOL finds them.

The Landscape Becomes Clearer for State Insurance Exchanges
By: Jason Lacey

Employers are not directly affected by the establishment of state insurance exchanges under health care reform, but understanding the exchange landscape helps clarify the bigger picture of health care reform and how employers fit within that.

So here's where we are today: The deadline ran last Friday for states to file applications to run an exchange in partnership with the federal government for 2014. Some did that, but as I've written about previously (here), the response has been underwhelming. States that do not have their own exchanges and do not partner with the federal government will default to having a federally facilitated exchange. 

The Kaiser Family Foundation has an interesting graphic (here) that illustrates what's going on in each state. It reflects that only 17 states (plus the District of Columbia) will run their own exchanges, 7 states will have partnership exchanges, and 26 states will default to the federal exchange.

Depending on your political view, that's either a good first step toward national uniformity in the health insurance market or a lot of federal involvement.

Either way, a lot of questions remain, including whether and how these exchanges will be fully functional by October (when they need to begin enrollment for 2014) and what the exchange interface will look like. The federal government continues to believe it is on track (see here), but there is a lot of ground to cover between now and then.

Health Care Reform and Full-Time Employees - Part 8: Putting It All Together
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Let's review what we know from the previous posts in this series.

(1) It's important to identify full-time employees, because if we want to avoid the play-or-pay penalties, we have to make sure all full-time employees are offered appropriate coverage. 

(2) In many cases, we can determine whether an employee is full-time or not by looking at hours worked over a prior period, known as the measurement period.

(3) An employee's status for a measurement period remains the same during a stability period associated with that measurement period.

(4) We can utilize a brief administrative period between a measurement period and a stability period to allow time for such things as making enrollment elections and allowing coverage to become effective at the beginning of a month or year.

(5) When applying the look-back measurement method, it's useful to distinguish between new hires and ongoing employees. New hires that are reasonably expected to be full time upon hire must be offered coverage within 3 months. New hires that are variable hour or seasonal employees do not have to be offered coverage until the end of an initial measurement period,      Continue Reading...

Agencies Propose Changes to Contraception Mandate for Religious Employers
By: Jason Lacey

The IRS, DOL, and HHS have proposed two key changes in the rules that exempt certain religious employers from complying with the mandate to cover all FDA-approved contraception and sterilization procedures for women (see proposed rules here). 

1. Definition of Religious Employer

Employers that are "religious employers" are wholly exempt from compliance with the mandate. The new rules would modify the definition of religious employer slightly. The definition would still be limited to houses of worship (churches, synagogues, mosques, and the like) and religious orders. But the change would clarify that those organizations will not fail to be religious employers even if they also provide educational, charitable, or social services, without regard to whether the persons served share the same religious values.

Example. A church with a parochial school that employs teachers or serves students who are not necessarily of the same religious faith may still qualify as a religious employer.

2. Broader Accommodation for Non-Profit Religious Organizations

A non-profit organization that is not a church or religious order but that meets specified criteria would be provided an "accommodation" exempting the organization from directly providing contraceptive coverage. The criteria are:

  • The organization opposes some or all of the required contraceptive coverage on religious grounds
  • The organization is a non-profit entity
  • The organization holds itself out as a religious organization
  • The organization self-certifies that it meets the first three criteria

This change is intended to exempt organizations such as religious-affiliated non-profit institutional health care      Continue Reading...

New Health Care Reform FAQs Answer Some Questions and Raise Others
By: Jason Lacey

The IRS, DOL, and HHS have released their 11th series of FAQs (here) addressing various issues related to health care reform implementation.

Exchange Notice Requirement. In a helpful clarification, the agencies confirmed that employers will not have to provide a notice to employees regarding insurance exchanges until “regulations are issued and become applicable.” By statute, the notice is required to be distributed by March 1, 2013. This guidance effectively allows employers to delay compliance until further notice.

Stand-Alone HRAs. Three of the FAQs address issues related to health reimbursement arrangements (HRAs). The technical clarifications are as follows:

(1) An HRA cannot be treated as “integrated” with individual insurance coverage.

(2) An HRA can only be treated as “integrated” with major-medical coverage if participation in the HRA is conditioned on being enrolled in that major-medical coverage.

(3) Most amounts credited to an HRA before January 1, 2014, will continue to be available for reimbursements on and after January 1, 2014 without causing the HRA to violate the annual-limit rules under Section 2711 of the Public Health Service Act.

While all of this seems straightforward enough, the proverbial elephant in the room is the fundamental question whether stand-alone HRAs will be deemed to violate the prohibition against annual and lifetime limits under Section 2711 of the Public Health Service Act. These FAQs are the strongest indication yet that future guidance will say they do violate the prohibition, effectively eliminating stand-alone HRAs. 

Plan sponsors that maintain stand-alone HRAs - or are considering implementing one for 2014 - will want      Continue Reading...

What's Up With This Transitional Reinsurance Fee Anyway?
By: Jason Lacey

A fundamental insurance-market reform under the Affordable Care Act is that, beginning in 2014, insurance carriers that want to sell individual policies will be required to make those policies available to all applicants (guaranteed issue) and will be required to set the premiums for those policies based on a "community" rating, with variations based only on the tier of coverage purchased (individual or family), age of the insured, geographic area, and tobacco use by the insured. This is intended to ensure that individuals have access to health insurance without regard to health factors that might otherwise make insurance prohibitively expensive or simply unavailable.

That all sounds pretty good, unless you're the insurance carrier trying to figure out how to absorb the additional risks associated with having to cover people at a set price without regard to how much health care expense they may consume. But the Affordable Care Act makes some provision for them too. For 2014, 2015, and 2016, there will be a transitional reinsurance program through which insurers may offload some of the additional risk assumed in connection with these policies. And it's a pretty big program - $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016.

So who's going to pay for that? Answer: Group health plans.

Beginning in 2014, group health plans will be required to pay a fee for each individual covered under the plan that will be used to fund the transitional reinsurance program. The fee is paid once a year. Plans will      Continue Reading...

Health Care Reform and Full-Time Employees - Part 7: Rehires and Changes in Job Classification
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Now that we’ve got a handle on the general rules - measurement periods, stability periods, new hires, and ongoing employees - let’s look at a couple of nuanced points: rehired employees and employees who change job classifications.

Rehires - General Rule. Here’s the basic question with a rehired employee: Should the employee be treated as a new hire (meaning she starts over on plan eligibility) or should the employee retain the classification she had when she terminated?

For better or worse, the rule on this is pretty clear. If the period of time between termination and rehire is at least 26 weeks, then the employee is treated as a new hire. If not, then the employee generally retains the same classification she had when she terminated, at least for the remainder of that stability period.

Example 1. A long-term employee terminates employment on February 10, 2014. At the time of termination, the employee was being treated as a full-time employee for a 12-month standard stability period that began January 1, 2014. The employee is then rehired on June 30, 2014. Because the rehire date is less      Continue Reading...

Employers and Exchanges: What Do You Want to Know?
By: Jason Lacey

Each year the American Bar Association’s Joint Committee on Employee Benefits (JCEB) holds a conference where regulators from the IRS, Treasury, DOL, and HHS are invited to join with private lawyers and advisors for an open discussion on current topics. It’s both an opportunity to learn and an opportunity to share ideas.

This year’s conference is in March, and I’ve been invited to help facilitate a session on the state and federal insurance exchanges that will go into effect later this year. As I’m preparing, I’m thinking specifically about how the exchanges will relate to employers and employer-provided group health coverage. And I’m wondering what questions employers might have about the exchanges and how they will be affected.

So what are your thoughts and questions? Send me an email if you’ve got something on your mind. I can’t promise I’ll get you an answer, but I will try to work your feedback into my presentation, and who knows - maybe we’ll have some opportunity to shape the regulators’ thinking on how the exchanges will or should impact employers. 

Health Care Reform and Full-Time Employees - Part 6: Ongoing Employees
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

As we’ve noted, these rules on full-time employees apply differently depending on whether the employee in question is a new hire or an “ongoing employee,” and we've looked previously at the impact on new hires. So let’s look at them in the context of ongoing employees. Here's the good news: It’s pretty straightforward.

Ongoing Employee Defined. We first need to start with a definition of “ongoing employee,” so we know how to distinguish them from new hires. An ongoing employee is an employee who has been employed for one full standard measurement period. That’s it. So once you know what your standard measurement period is, you know how to identify your ongoing employees.

Test Everyone, Every Period. All ongoing employees will be tested for full-time status during each standard measurement period. It doesn’t matter whether they were previously full-time or not. At the end of each standard measurement period we’ll look back at the hours worked by each ongoing employee during that period and determine whether they averaged 30 or more hours per week. If so, they must be treated as full-time for the associated      Continue Reading...

Health Care Reform Timeline on HHS Website
By: Jason Lacey

HHS has posted a health care reform timeline to its website (here). Although it covers more than just the employer-related features of the law - and, in fact, doesn’t directly address all of the group health plan mandates and other issues affecting employers - it provides a helpful overview if you want to quickly see what’s been implemented already or what’s yet to come.

See also: Health Care Reform Calendar (covering August 1, 2012 through July 31, 2013)

IRS Proposes Comprehensive Regulations on PPACA’s Play-or-Pay Penalties
By: Jason Lacey

The IRS has released important new guidance on the play-or-pay penalties under Internal Revenue Code Section 4980H in the form of proposed regulations (here) and a set of FAQs (here). The guidance comprehensively addresses a number of key issues regarding the penalties and steps that may be taken to avoid them. For the sake of brevity, only a few highlights will be noted here.

Covered Employers. All common-law employers that are “applicable large employers” (generally 50 or more FTEs) are subject to the penalty rules, including tax-exempt and governmental entities.

Entity Aggregation. The Code's entity-aggregation rules (relating to controlled groups and affiliated service groups) apply for purposes of determining whether an entity is an “applicable large employer.” However, in an important clarification, the regulations confirm that each member of a controlled or affiliated group is allowed to determine separately whether it will comply with the requirements of Section 4980H or pay the penalty, and non-compliance by one group member will not be imputed to other group members.

"All" Full-Time Employees Means 95%. The requirement to offer minimum essential coverage to all full-time employees will be satisfied if the employer offers coverage to at least 95% of its full-time employees (or, if less, all full-time employees but five). This is a welcome interpretation of the statutory language that, at a minimum, will provide some protection against inadvertent failures to comply.

Dependents. The regulations confirm that Section 4980H requires offering coverage to both full-time employees and their dependents. However, the rules define “dependent” to      Continue Reading...

Health Care Reform and Full-Time Employees - Part 5: New Hires
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Prior posts in this series have addressed the structural rules that will apply to the process of determining which employees are full-time employees - things like measurement, stability, and administrative periods. Now it’s time to start looking at how these rules will apply to some specific classifications of employees.

Employees may be initially sorted into one of two groups: new hires and ongoing employees. This post will discuss the treatment of new hires. I’ll discuss ongoing employees in the next post in this series.

New hires will be treated one of two ways.

1. New Full-Time Employees. If, based on the facts at the time of hire, the new employee is reasonably expected to work full time right away (average of 30 or more hours per week) and is not a seasonal employee, the employee must be treated as a full-time employee immediately. Employees hired as full-time employees must be offered coverage within 3 months to avoid penalty exposure.

2. New Variable-Hour Employees. If, based on the facts at the time of hire, it cannot be determined whether the employee will be full time because the employee’s      Continue Reading...

Fiscal Cliff: Taxing Employer-Sponsored Health Coverage
By: Jason Lacey

Almost as soon as the Affordable Care Act passed in March 2010, the emails began coming, and they all said something like this: Obamacare increases your taxes by making your employer-provided health coverage taxable to you. Some even referenced a specific provision of the Affordable Care Act as authority.

True or false?

False. Or at least mostly so.

The kernel of truth was a reference to the provision of the Affordable Care Act that requires employers to report the value of employer-provided health coverage on the employees' W-2s. But it is only an information-reporting requirement. There is no increase in taxable income as a result.

Fast-forward 2-1/2 years, however, and we find ourselves in the midst of frantic politicking to attempt to avert the so-called fiscal cliff. Desperate times lead to desperate measures, and it seems that even the most sacred of sacred cows are now being considered for slaughter.

Today's news brings a report that this includes the long-standing tax exclusion for employer-provided health coverage.

It is an enormous tax expenditure for the federal government. Eliminating it would reportedly raise as much as $150 billion in additional revenue in one year.

But it has also been a linchpin of the employment-based health-care-financing scheme in this country. To encourage employers to provide health coverage to their employees, we allow the employers to claim a tax deduction for the cost of that coverage, but we do not tax the employees on it. We also allow employees to pay their share of the cost of coverage with pre-tax      Continue Reading...

Short Stay at Supreme Court for Contraception Mandate
By: Jason Lacey

The women's health preventive-care mandate - specifically the obligation for non-grandfathered plans to cover all FDA-approved contraceptive methods without cost-sharing - had a short stay at the Supreme Court this week.

Hobby Lobby stores, and a related company named Mardel, had requested a preliminary injunction preventing the government from enforcing the mandate against them (see prior coverage here and here). They were denied relief by both a federal district court in Oklahoma and the Tenth Circuit Court of Appeals in Denver, so they asked the Supreme Court to grant the injunction.

In a brief opinion, Justice Sotomayor denied the request, concluding that the company had not met the very high standard for relief. The company needed to show its legal rights in the matter were "indisputably clear" in order to obtain an injunction before the lower courts had ruled on the merits of the case. The Supreme Court has not previously decided whether a closely held for-profit corporation may hold and exercise religious beliefs, and prior rulings on the issue by lower courts have been inconsistent, so the law is not "indisputably clear."

The ruling is largely procedural and does little to address the merits of the underlying claims. Hobby Lobby may continue challenging the mandate, but it will be required to comply with the mandate (or pay a penalty), unless and until a court rules in its favor.

The mandate becomes effective January 1, 2013, for most calendar-year, non-grandfathered plans.

HHS Releases List of Conditionally Approved State Insurance Exchanges
By: Jason Lacey

HHS has released a list of the state insurance exchanges that have received conditional approval for operation in 2014 (with open enrollment beginning in October 2013) - and the list is short.

States receiving conditional approval for state-based exchanges:

  1. Colorado
  2. Connecticut
  3. District of Columbia 
  4. Kentucky
  5. Maryland
  6. Massachusetts
  7. Minnesota
  8. New York
  9. Oregon
  10. Rhode Island
  11. Washington

States receiving conditional approval for state partnership exchanges:

  1. Delaware

This could leave as many as at least 39 states (including Kansas) in which qualified health plans will be available in 2014 only through a federally facilitated exchange.

States still have until February 15, 2013 to file declaration letters and applications to establish a state partnership exchange.

For additional background on exchanges and exchange implementation, see here, here, and here.

IRS Provides Guidance on New Medicare Taxes
By: Jason Lacey

The IRS has released several guidance items on the new Medicare taxes that take effect beginning January 1, 2013:

  • Proposed regulations on 0.9% additional Medicare tax on earned income (here).
  • Updated Questions and Answers for the Additional Medicare Tax (here).
  • Proposed regulations on the new 3.8% Medicare tax on net investment income (here). 
  • Net Investment Income Tax FAQs (here).

There is considerable detail in all of this, but here are a few highlights:

Additional Medicare Tax on Wages

  • The employer must begin withholding the 0.9% after $200,000 in taxable wages paid. The employee may not opt out of withholding, even if the employee will not owe the tax.
  • Withholding by an employer may not be sufficient to cover all tax actually due by an employee, so the employee may be required to make estimated-tax payments. This can occur when, for example, two married individuals have combined wages that exceed the threshold amount, but neither individual's wages exceed $200,000.
  • If an employer employs two married individuals, the employer is not required to withhold the additional tax from either employee unless and until that employee's wages exceed $200,000. This is the case even if the combined wages paid to the two employees exceed $250,000 (meaning the employees will be subject to the tax).
  • If wages are paid to a single employee by two or more related      Continue Reading...
Final Regulations Released on PCORI Trust Fund Tax
By: Jason Lacey

The IRS has released its final rule on the Patient-Centered Outcomes Research Institute (PCORI) trust-fund tax.

Background on the tax and the proposed regulation released earlier this year is here.

The final regulation does not make significant changes to the proposed rule. It is mostly significant for it is confirmation of certain positions that health insurers and health-plan sponsors had sought relief on, including:

  • Retiree-Only Plans. The tax applies to retiree-only plans, even though those plans are generally exempt from the group-market reforms enacted as part of the Affordable Care Act.
  • COBRA Coverage. Individuals receiving COBRA coverage under a plan are counted as covered lives for purposes of the tax.
  • Integrated Insured and Self-Funded Coverage. The tax applies to both the insured and self-funded portions of a plan or arrangement, when the same individual is covered under both portions. For example, if a plan provides fully insured high-deductible coverage integrated with a self-funded HRA, the tax applies to both the insured portion and the self-funded HRA. However, if a plan includes an insured option and a self-funded option as alternatives (i.e., an individual may be covered under one or the other but not both), the tax may be calculated separated for each option under the plan, meaning individuals receiving only insured coverage do not have to be counted for purposes of calculating the tax on the self-funded coverage.
  • HRAs and Health FSAs. There is no blanket exclusion for      Continue Reading...
Proposed Regulations Sketch Out Framework for Identifying Essential Health Benefits
By: Jason Lacey

New proposed regulations from HHS have outlined a framework for identifying the package of "essential health benefits" (EHB) that must be offered by certain health plans beginning in 2014.

Affected Plans. The plans directly affected by the rules include "qualified health plans" (or "QHPs") that will be offered through an exchange, and any other non-grandfathered individual and small-group insurance policies, whether or not offered through an exchange.

Defining Essential Health Benefits. Rather than defining a package of essential health benefits that must be covered by all affected plans, the regulations propose that essential health benefits be determined on a state-by-state basis by reference to an "EHB-benchmark plan" identified by each state (or identified by default, if the state does not make an affirmative designation). The benchmark plan may be selected from one of the following:

  1. The largest plan by enrollment in any of the 3 largest small-group insurance products in the state.
  2. Any of the largest 3 state employee health benefit plans by enrollment.
  3. Any of the largest 3 national health plan options available to Federal employees under the Federal Employees Health Benefit Program.
  4. The largest insured commercial HMO operating in the state.

An Appendix to the proposed regulations lists, for each state, the plan that the state has already designated as its benchmark plan or that will be the default plan, if the state does not make an affirmative designation.

List of Largest State Small-Group Products. Earlier this year, HHS      Continue Reading...

Agencies Release Joint Proposed Regulation on Wellness Plans
By: Jason Lacey

The IRS, DOL, and HHS have issued a joint proposed regulation addressing wellness plans and the wellness exception to the HIPAA nondiscrimination rules. 

Background. Section 2705 of the Public Health Service Act, as added by the Affordable Care Act, provides statutory affirmation of the wellness-plan rules that have existed by regulation for several years as part of the HIPAA nondiscrimination rules (rules that prohibit, among other things, discrimination on the basis of health factors). It also gives the relevant governmental agencies (IRS, DOL, and HHS) express authority to issue further rules on wellness plans that increase the permissible reward or penalty to as much as 50% of the cost of associated heath-plan coverage.

Proposed Regulations. The proposed regulations largely follow the structure of the existing wellness-plan regulations, requiring, among other things, that wellness programs requiring a particular health outcome (e.g., smoking cessation, biometric screening results, minimum BMI, etc.) provide reasonable alternatives and limit the reward or penalty offered or imposed in connection with the plan. However, there are a couple of points worth highlighting:

  • Participation v. Health-Contingent. The proposed regulations label wellness programs as either "participatory" or "health-contingent." It is only the health-contingent programs that are subject to more rigorous regulation under the proposed rules. Participatory programs include fitness-club memberships, general health education, and other similar programs that do not provide for a reward or include any conditions based on satisfying a standard related to a health factor.
  • Size of Reward. The requirements that must      Continue Reading...
Task Force Releases Two New Draft Preventive-Care Recommendations
By: Jason Lacey

The U.S. Preventive Services Task Force has posted new draft recommendations addressing screening for HIV and hepatitis C. The recommendation for HIV is to screen all individuals ages 15-65. It is proposed as a “grade A” recommendation. The recommendation for hepatitis C is to screen high-risk adults. It is proposed as a “grade B” recommendation.

These recommendations are of interest to non-grandfathered group health plans. If finalized, they would add to the menu of preventive-care services required to be covered without cost-sharing.

Under regulations issued in 2010, any “items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force” are required to be covered. However, a new recommendation does not apply until the first plan year beginning on or after the date that is one year after the recommendation becomes effective.

Health Care Reform and Full-Time Employees - Part 4: Administrative Periods
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

As we have already seen, an employer may use a measurement period to determine whether an employee is a full-time employee, and any such full-time employee must be offered health-plan coverage during the following stability period, if the employer wants to avoid an automatic penalty for that employee. But, of course, enrollment can take some time. The employee may have multiple coverage options to consider and enrollment forms to fill out. And the employer will almost certainly need time to calculate the employee's hours of service during the measurement period. So it wouldn't work very well if the stability period had to begin immediately after the measurement period.

A Time For Transition. Recognizing this, the IRS’s guidance allows employers to use an "administrative period" in connection with their measurement and stability periods. This allows for a reasonable transition period between the measurement and stability periods. It also allows the initial measurement period to begin at a convenient time, such as at the beginning of a month or payroll cycle.

Ground Rules. Like the measurement and stability periods, employers have flexibility in defining the administrative period, but      Continue Reading...

Government Wins a Round on the Contraception Mandate
By: Jason Lacey

In the tally of recent cases involving the women’s health preventive-care mandate and for-profit employers (see, for example, here, here, and here), mark one down in the government’s column.  Earlier this week, a federal court in Oklahoma ruled against Hobby Lobby (prior coverage here), concluding that the company (as distinct from its owners) did not have religious views or freedoms that would be infringed by enforcement of the mandate.

Hobby Lobby has already appealed the decision to the Tenth Circuit court of appeals, so we may soon have a higher court weighing in on the issue.

Additional coverage of both the decision and the appeal is available here and here.

Another Court Blocks Enforcement of the Contraception Mandate
By: Jason Lacey

This case, involving a for-profit bible-publishing company (prior coverage here), is very similar to two others decided recently (see here and here). The court concluded that enforcement of the women's health preventive-care mandate was likely to violate the employer's free-exercise of religion, so it temporarily barred enforcement of the mandate (court's order here).

The Washington Times has further coverage here.

There is considerable analysis in the court's opinion in this case on the issue of whether a corporation can hold or exercise religious rights. Although the court concludes a corporation does have that right, it is a very fact-specific analysis that may not lend itself to broad applicability. 

It should also be noted that the view adopted by this court and others that have ruled similarly is not universally held. In October, a Missouri federal court ruled that the mandate did not limit a for-profit employer's free-exercise of religion to a degree that warranted barring enforcement of the mandate. So judges may differ in their view and application of these standards, and how that ultimately will be resolved may not be known unless and until these cases work their way to the Supreme Court.

HHS Grants 11th Hour Second Extension of State Exchange Deadline
By: Jason Lacey

In a letter from HHS secretary Kathleen Sebelius released late yesterday, HHS has given states another month to file the Declaration Letter necessary to show their intent to establish a state-based insurance exchange for 2014. The deadline is now December 14, 2012.  A state's Blueprint Application for a state-based exchange will be due the same time.

The original deadline for filing both the Declaration Letter and the Blueprint Application was November 16, 2012 (see here).

Last week, HHS extended the deadline for filing the Blueprint Application to December 14, 2012, but left the November 16 deadline in place for the Declaration Letter (see here).

HHS also previously extended until February 15, 2013 the deadline for filing a Declaration Letter and Blueprint Application for states that want to establish state partnership exchanges, rather than full-blown state-based exchanges (see here). That deadline remains in place.

Health Care Reform and Full-Time Employees - Part 3: Stability Periods
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

So we know it’s important to identify which employees are full-time (and which are not), and we know we can use a measurement period of up to 12 months to collect the data we need to make the determination about full-time status. The next question then is what that means going forward. How long do the determinations we make during the measurement period last? That’s where the stability period comes in.

Stability Period Related to Measurement Period. Each measurement period (whether an initial measurement period or a standard measurement period) will have an associated stability period. If an employer determines that an employee did not work full-time during a measurement period, the employer is permitted to treat the employee as a part-time employee during the following stability period. Similarly, employees determined to be full-time during the measurement period are treated as full-time during the following stability period.

Actual Facts Don't Change the Current Period. The key is that an employee’s status during the stability period remains the same, regardless of how many hours the employee actually works during the stability period. For example, if an employee      Continue Reading...

HHS Extends Deadlines for States to Make Exchange Decisions
By: Jason Lacey

HHS has released a fact sheet extending a key deadline for states to take the steps necessary to establish either a state-based insurance exchange or a state partnership exchange. This modifies the timetable set out in HHS's previously released Blueprint for establishing an insurance exchange (see coverage here). The highlights:

  • State-Based Exchange. To create a state-based exchange, states still must file a Declaration Letter by November 16, 2012, but they will now have until December 14, 2012 to complete the required Blueprint Application.
  • State Partnership Exchange. To create a state partnership exchange, states have until February 15, 2013 to file a Declaration Letter and Blueprint Application. They must indicate in those documents what roles they intend to fill in the partnership exchange (plan management functions, consumer assistance functions, or both).
  • 2015 Deadlines. States that want to adopt a different exchange model for 2015 than they use in 2014 must submit a Declaration Letter by November 18, 2013 and a Blueprint Application by December 16, 2013.

Kansas Governor Sam Brownback recently affirmed his position that Kansas will not participate in the exchange system at any level for 2014 (his signature is necessary for the state to file a Declaration Letter), so Kansas residents will be covered by a federally facilitated exchange for 2014, absent a change in position before the February 15, 2013 deadline to apply for a state partnership exchange.

Federal Court in Michigan Halts Enforcement of Contraception Mandate Against For-Profit Company
By: Jason Lacey

A federal district court in Michigan has entered an order temporarily halting the government's ability to enforce the women's health preventive-care mandate against a for-profit company on the basis that the mandate would violate the company's free-exercise of religion. As explained by the court:

"Plaintiffs argue that the HRSA Mandate, which forces them to choose between providing health insurance that includes contraception without cost-sharing or incurring a financial penalty, substantially burdens their free exercise of religion. Under the Religious Freedom Restoration Act, Plaintiffs seek a preliminary injunction to prohibit the Government from enforcing the HRSA Mandate against them."

Weighing the relative risks to the government and the company in blocking enforcement of the mandate, the court observed:

"The harm in delaying the implementation of a statute that may later be deemed constitutional must yield to the risk presented here of substantially infringing the sincere exercise of religious beliefs. The balance of harms tips strongly in Plaintiffs' favor.  A preliminary injunction is warranted."

This case and others like it (see here, here, and here) are of interest because they provide, or seek to provide, a targeted exemption for certain for-profit employers from the mandate, even though the government's regulations would exempt only non-profit organizations, and even then only those that are engaged directly in religious activity, not just guided by religious beliefs or principals. The issue sets up considerable tension at the intersection of religious freedom and women's health and could represent the ticket for PPACA's next trip to the Supreme      Continue Reading...

Health Care Reform and Full-Time Employees - Part 2: Measurement Periods
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

We know a critical issue in looking at the play-or-pay penalties is determining which employees are full-time and which are not. An initial step in that process is identifying the period to be used for making that determination.

Looking Back vs. Looking Forward. For employees who work varying schedules and hours, it can be difficult to predict whether or when those employees will average 30 or more hours per week. So Notice 2012-58 allows an employer to look back over a defined period to make that determination. This look-back period is referred to as a “measurement period.” As the name suggests, it is the period over which the employer will measure an employee’s hours worked and determine whether the employee was above or below the 30-hour threshold.

Two Types. There are two types of measurement periods: an “initial measurement period” and a “standard measurement period.” They are conceptually similar, but operate differently and serve slightly different functions.

Initial Measurement Period. The initial measurement period applies to newly hired variable-hour and seasonal employees. Although the length of the initial measurement period must be the same for all      Continue Reading...

Health Care Reform and Full-Time Employees - Part 1: The Problem
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Background. The play-or-pay penalties essentially penalize applicable large employers that do not provide adequate, affordable group health coverage to full-time employees. So for employers that want to either ensure they avoid penalty exposure or assess their potential exposure to penalties, a critical issue is determining which employees are full-time employees.

The law generally defines "full time" for this purpose as working an average of 30 or more hours per week. Guidance from the IRS indicates that this may be determined on a monthly basis, in which case employees working an average of 130 or more hours per month are treated as full time.

Month-by-Month Determination. The structure of the penalty rules contemplates a month-by-month determination and calculation. An employer that decides to "pay" rather than "play" must calculate for each month in the year the number of full-time employees it had for that month and the corresponding penalty amount that is due.

But for employers that intend to offer group health coverage to employees so they can avoid most or all of the penalties, making a month-by-month determination is largely impractical. This could literally result in      Continue Reading...

Bible Publisher Files Lawsuit Over Contraception Mandate
By: Jason Lacey

In the ongoing saga over the contraception rules under health care reform's preventive-care mandate (see prior coverage here and here), the Washington Times has a recent article reporting that a for-profit Bible publisher is suing to obtain relief from the law. It claims it is a "religious employer" and should be exempt from the requirement to provide free access to contraception. HHS's regulations limit the religious-employer exemption to non-profit organizations engaged in ecclesiastical functions (essentially houses of worship) and, thus, categorically deny exemption for any for-profit employer.

This aspect of health care reform has proven especially controversial and contentious, because it touches on two hot-button issues: (1) the line between government regulation and religious freedom, and (2) the ability of women to access certain health-care products and services. Given the battle lines that have been drawn already, the issues seem unlikely to be resolved soon.

One Week Until D-Day for SBCs
By: Jason Lacey

One week from today - September 23 - is a key date in compliance with the obligation to provide health plan participants with the four-page summary of benefits and coverage (SBC). Plans holding open-enrollment periods on or after September 23, 2012 generally are required to provide the SBC to eligible employees at the same time enrollment materials are distributed.

Most calendar-year plans will not be holding open enrollment until October or November, so they will not need to distribute the SBC yet. But it's not too soon to begin confirming who will prepare the SBC, who will send it out, and how it will be sent.

For a primer on the SBC requirements, see here. For other prior coverage related to the SBC, see here and here.

Women's Preventive Care Mandate Continues to Draw Challenges
By: Jason Lacey

Another lawsuit has been filed by a private employer challenging the health care reform mandate regarding coverage of women's preventive care.The Washington Post is reporting that Hobby Lobby stores has filed a lawsuit in Oklahoma City seeking relief from the mandate on the grounds that it unconstitutionally interferes with the company's deeply held religious beliefs (or at least those of its owner). The company specifically objects to the requirement that its health plan cover the "morning-after pill" and other similar drugs or devices that can prevent the implantation of a fertilized egg, which the company views as tantamount to abortion.

According to the article, Hobby Lobby maintains a calendar year, non-grandfathered, self-insured health plan covering more than 13,000 eligible employees nationwide. This means that, absent relief from the court, the company will be required to offer the full range of women's preventive care services under its plan by January 1, 2013, or it will face a penalty of as much as $1.3 million per day ($100 per participant) for each day the plan fails to comply.

Our discussion of a similar lawsuit filed in Colorado is here. A general description of the women's-preventive-care mandate is here. Other coverage on the mandate is here.

IRS Will Not Enforce Individual Mandate
By: Jason Lacey

The New York Times has an article reporting that the IRS will not use its agents or other resources to enforce the individual mandate under health care reform once it goes into effect in 2014.

Individuals who fail to maintain appropriate health coverage will be subject to a penalty beginning in 2014. The penalty is to be paid in the same manner as a tax. This presumably will require an addition to the individual income tax return (Form 1040) where taxpayers will certify whether they have the required coverage. If they do not have the coverage, the penalty will be added to the tax due, meaning it will either be offset against any refund or will need to be paid along with any other tax due with the return.

But the law specifically exempts the penalty from the provisions of the tax code relating to enforcement and collection - things such as the IRS's ability to impose a lien or levy to assist with collection. So the IRS has apparently decided that it will not even look for non-compliant taxpayers, since it would not have the tools to compel payment of the penalty anyway.

The Times article refers to some projections that only 1% of Americans will even be subject to the penalty for failing to maintain insurance. So on a large-scale basis, the IRS simply may not view the risks of noncompliance as serious enough to warrant devoting resources to enforcement.

Health Care Reform Calendar
By: Jason Lacey

Here is a summary of key compliance dates for health care reform mandates over the next 12 months or so.

August 1, 2012

  • Women's Preventive Care. Non-grandfathered plans must cover women's preventive care services without cost sharing for plan years beginning on or after August 1, 2012. 

September 23, 2012

  • SBC. A summary of benefits and coverage (SBC) must be provided in connection with any open-enrollment period beginning on or after September 23, 2012.

October 1, 2012

  • PCORI Trust Fund Tax. The PCORI trust fund tax ($1 per covered individual) is due with respect to plan years ending on or after October 1, 2012.

January 1, 2013

  • Health FSA Cap. The maximum employee contribution to a health FSA is limited to $2,500 for plan years beginning on or after January 1, 2013.
  • Medicare Tax. Additional Medicare tax of 0.9% must be withheld with respect to wages paid on or after January 1, 2013, to the extent wages exceed $200,000 for the calendar year. (Additional Medicare tax of 3.8% on net investment income of high-income taxpayers also applies beginning January 1, 2013.)

January 31, 2013

  • W-2 Reporting. Large employers (issued 250 or more W-2s in 2011) must issue W-2s for 2012 showing the aggregate cost of applicable employer-sponsored health coverage (report in Box 12, Code DD).

March 1, 2013

  • Insurance Exchange Notice. Employers must distribute to all current employees by March 1, 2013 a notice describing      Continue Reading...
IRS, DOL, and HHS Issue Joint Guidance on 90-Day Waiting Period Limitation Under PPACA
By: Jason Lacey

Notice 2012-59 provides guidance on the requirement under Section 2708 of the Public Health Service Act (added by PPACA) that a group health plan not apply any waiting period that exceeds 90 days. The rule applies for plan years beginning on or after January 1, 2014.

Among the clarifications offered by the guidance:

  • Definition of Waiting Period. A "waiting period" is defined as a period of time that must pass before coverage can become effective for an individual who is otherwise eligible to enroll under a plan. Eligibility conditions based solely on the lapse of time cannot exceed 90 days, but other eligibility conditions (e.g., working full time or working in a covered job classification) are permissible, even if they have the effect of excluding an individual from coverage under the plan for more than 90 days.
  • Determining Full-Time Status for Variable-Hour Employees. If a plan limits coverage to full-time employees, it may take a reasonable period of time to determine whether a newly hired employee meets the full-time standard, if it is not clear on the date of hire that the employee will work the required number of hours (e.g., 30 hours per week). In general, this determination must be made within a year after the employee is hired, and if the employee satisfies the eligibility requirements, coverage must be offered beginning within 13 months after the date of hire. Otherwise, the plan may be treated as indirectly avoiding the 90-day-waiting-period requirement.

This notice      Continue Reading...

IRS Provides Important Guidance on Full-Time Employees and the Play-or-Pay Penalties
By: Jason Lacey

Beginning in 2014, employers may be subject to the play-or-pay penalties under health care reform if they fail to offer health coverage to full-time employees, so it will be important to understand which employees are considered "full time" under those rules. In general, "full time" means working an average of 30 or more hours per week. 

In some cases it will be clear that an employee is (or is not) a full-time employee. But in other cases, an employee's work hours may be expected to vary over time, making it difficult to know whether the employee will be working an average of 30 or more hours per week.

It would be an administrative nightmare to determine a variable-hour employee's eligibility for health plan coverage on a weekly or even monthly basis, depending on the hours worked by the employee during that period. This would also be largely impractical, since it often would not be known until the end of a period whether the employee worked enough hours during that period to have been eligible for coverage.

Recognizing this, IRS Notice 2012-58 provides a framework for employers to make eligibility determinations for variable-hour employees over longer periods (up to 12 months) and rely on those determinations for a specified future period without regard to actual hours worked. These determinations will be respected both for purposes of plan eligibility and for purposes of applying the play-or-pay penalties. In other words, by following the framework established in Notice 2012-58, employers can better quantify which employees      Continue Reading...

House Committee Pressure IRS Over Health Care Reform Premium Subsidies
By: Jason Lacey

The House Oversight and Government Reform Committee has sent a letter to IRS commissioner Douglas Shulman asking the IRS to produce background information and analysis supporting the final premium-tax-credit regulations released in May. The tax credit is the federal subsidy provided by PPACA for insurance coverage purchased by qualifying individuals through an exchange.

The issue underlying this brouhaha is the IRS's position that the tax credit is available to qualifying individuals for coverage purchased through any exchange, including an exchange established and operated by the federal government in a state that has declined to establish its own exchange. (For a summary of the different ways in which exchanges may be established, click here.) Some have argued that this position is not supported by the statutory language in PPACA and the Internal Revenue Code, which says the tax credit is available for coverage purchased through an exchange established by a state.

It is unlikely the House Committee's inquiry will amount to much more than political theater. But it will highlight what has become a popular line of attack on the health-care-reform law since it was upheld by the Supreme Court in June.

HHS Provides Enforcement Safe Harbor for Claim-Denial Notices by Governmental Plans
By: Jason Lacey

The Department of Health and Human Services (HHS) has issued an enforcement safe harbor relating to the content of benefit-claim denial notices issued by non-federal governmental health plans.

Under health care reform, all non-grandfathered group health plans are required to follow the DOL's rules and regulations regarding the content of notices of adverse benefit determinations. Among other things, those rules require providing (1) a statement about a participant's right to bring suit under ERISA, and (2) contact information for the federal Employee Benefits Security Administration (EBSA) or a state insurance department.

Non-federal governmental plans are not subject to ERISA, so participants do not have the right to sue under ERISA to seek recovery of benefits. In addition, participants in non-federal governmental plans are not provided services by the EBSA, because they do not have rights under ERISA. 

The enforcement safe harbor clarifies that non-federal governmental plans can exclude ERISA right-to-sue language and EBSA contact information from their benefit-denial notices and they will not be treated as violating the health-care-reform mandates. Contact information is not required to be provided for a state insurance department either, unless the plan actually uses an insurance policy issued by a carrier subject to regulation by a state insurance department.

There are some nuances to the safe harbor, so HHS's notice should be carefully reviewed by any non-federal governmental plan intending to rely on the safe harbor. But on the whole this should come as a welcome (and practical) clarification for affected plans.

HHS Clarifies Enforcement Safe Harbor for Contraceptive Coverage
By: Jason Lacey

HHS has updated its enforcement safe harbor relating to required contraceptive coverage and non-profit organizations that object to such coverage for religious reasons. The updated safe harbor clarifies three items:

  1. The safe harbor is available to non-profit organizations with religious objections to some but not all contraceptive coverage.
  2. Organizations that took some action as of February 10, 2012 that was intended to limit or exclude contraceptive coverage but that was unsuccessful are not, solely for that reason, precluded from relying on the safe harbor.
  3. Organizations that are not sure whether they qualify for the broader religious-employer exemption may utilize the safe harbor without prejudicing their ability to rely on the religious-employer exemption in the future.

With regard to item 1, the specific language of the revised notice says that since February 10, 2012, the plan must have "consistently not provided all or the same subset of the contraceptive coverage otherwise required at any point . . . ." Although this language will not win any awards for clarity, it appears to mean that the safe harbor is not an all-or-nothing rule. An employer may be able to offer some types of contraceptive coverage but exclude others on religious grounds and remain within the safe harbor.

With regard to item 2, the guidance does not provide any examples of situations where, despite its best efforts, an employer might be unable to exclude contraceptive coverage. Perhaps it contemplates a case such as one where      Continue Reading...

HHS Releases "Blueprint" for Approval of Insurance Exchanges
By: Jason Lacey

The Department of Health and Human Services (HHS) has released a "Blueprint" describing the process by which states must apply to obtain approval to operate an insurance exchange beginning in 2014. The document also details the features and activities an exchange will be required to offer.

Although the finer points of this document are primarily of interest to states that will be seeking to operate an exchange (either alone or in partnership with the federal government), it provides employers some sense of how and when the exchanges will come together. Among the highlights:

  • There are three exchange models: (1) state-based exchanges (operated largely by the states); (2) state partnership exchanges (operated largely by the federal government but with some state involvement); and (3) federally facilitated exchanges (operated almost exclusively by the federal government).
  • States wanting to participate under any of these models must receive approval or conditional approval from HHS by January 1, 2013. A "declaration letter" and "exchange application" must be submitted no later than November 16, 2012.
  • An exchange must be operational for an open-enrollment period beginning October 1, 2013.
  • Required exchange activities will include (1) providing consumer support for coverage decisions; (2) facilitating eligibility determinations for individuals; (3) providing for enrollment in qualified health plans (QHPs); (4) certifying health plans as QHPs; and (5) operating a Small Business Health Options Program (SHOP).

From this we can see that the exchange landscape will be better defined by      Continue Reading...

Health Care Reform and the Debate Over "Affordability"
By: Jason Lacey

Now that PPACA has been largely upheld and we steam full-speed-ahead toward 2014, one issue we are likely to hear a lot more about is "affordability" - specifically, what is the maximum amount an employee should be required to pay for employer-sponsored health coverage before the employee will be allowed to opt out of the employer plan and obtain federally subsidized health coverage through an exchange. This seemingly innocuous issue is turning into something of a multi-headed monster, as illustrated by an article in today's New York Times.

The rule at the center of this is disarmingly simple to state: If an employee is required to pay more than 9.5% of household income to obtain group health coverage through an employer-sponsored plan, the employee can instead obtain coverage through an exchange and receive a premium subsidy tax credit that will bring the out-of-pocket cost down to 9.5% of household income (or even less).

But then things get complicated.

  • What does the 9.5% amount relate to? Employers typically offer multi-tier coverage under their plans, with options ranging from employee-only coverage to full family coverage (and often two tiers in between). Is the threshold 9.5% of the cost of employee-only coverage or something else?
  • If a large employer has employees that obtain subsidized coverage through an exchange, the employer may be subject to a $3,000/year penalty for each such employee. Can an employer that wants to avoid all penalties structure its plan so that the plan is      Continue Reading...
Employers Consider What to do With MLR Rebates
By: Jason Lacey

The New York Times has an article today illustrating a practical problem for employers that receive MLR rebates with respect to their group health plans.

Employers have several options for using the portion of the rebate attributable to employee premium contributions, including: pay it back in cash, reduce future premiums, or enhance future benefits. But there are some nuances and administrative considerations that accompany each option, and in any case the employer may have a fiduciary obligation to use that portion of the rebate in a fair and reasonable manner for the benefit of the covered employees. So many employers are proceeding with due deliberation in their decision-making.

At the same time, however, the covered employees have all received notices from the insurance carrier that a rebate was paid (see our prior coverage of this notice rule here), and they're wondering where their money is. So the problem is that employers need a little time to figure out the right thing to do, but the longer they take, the more employees suspect something nefarious is going on.

Employers don't have a firm legal deadline for deciding what to do with the MLR rebate (although many will need to do something within three months to avoid a compliance issue with the ERISA trust rule). But the practical pressure from employees may weigh in favor of doing something sooner rather than later. For prior coverage on considerations related to the MLR rebate, see here and here.

DOL Adds An FAQ on SBCs and Medicare Advantage Plans
By: Jason Lacey

The DOL has posted one additional FAQ to its website addressing the narrow question whether a summary of benefits and coverage (SBC) must be provided with respect to a Medicare Advantage benefit option under a group health plan. The DOL takes a nonenforcement position, meaning a group health plan that offers a Medicare Advantage benefit option will not be treated as failing to satisfy the SBC requirement if it does not provide an SBC with respect to the Medicare Advantage option.

* Reminder: SBCs generally must be provided in connection with a plan's first open-enrollment period beginning on or after September 23, 2012. For prior coverage of SBCs, see here.

Federal Government Prepares to Run Health Insurance Exchanges in Many States
By: Jason Lacey

Health insurance exchanges - marketplaces for the purchase of insurance policies - are a key piece of the health care reform legislation. The law contemplates that each state will operate its own exchange or will form regional exchange partnerships. But it is becoming increasingly apparent that many states (including Kansas) cannot or will not have exchanges in place by 2014, when that piece of the law goes into effect.

The New York Times is reporting that as many as half of the states will not have their own exchanges in place by 2014, leaving it to the federal government to set up and operate an exchange for residents of those states. And very little is known at this point about what the federal exchange will look like or how it will function.

Although the exchanges are viewed largely as a marketplace for individuals to purchase insurance coverage, there will be many important ways in which employers will interact with them. Small employers (generally 100 or fewer employees) will be able to purchase group coverage through the "SHOP" portion of an exchange. Employers will be sharing information with exchanges, so the employers will know whether any employees are receiving subsidized exchange-based coverage and the exchanges will know whether individuals have affordable coverage available to them through their employers. And employers will be required to provide employees with information about their right to obtain exchange-based coverage and the consequences of doing that.

Colorado Federal Court Bars Enforcement of Required Coverage for Contraception
By: Jason Lacey

The health care reform mandate to provide no-cost coverage for women's contraception and sterilization (see our prior coverage here) has proven  controversial. Now a federal court in Colorado has issued an order preventing the government from enforcing the requirement against a private employer that objects to the requirements on religious grounds. Although several organizations across the country have sued to bar the enforcement of this requirement, the Colorado case is the first in which a court has ruled that the requirement may not be enforced. Other courts have dismissed challenges to this requirement.

The substantive and procedural legal background to this case is fairly complex.  But boiled down, the court concluded the employer stood a good chance of proving that the contraception mandate would violate the Religious Freedom Restoration Act - a federal statute that is intended to ensure there is no substantial burden placed by the government on the free exercise of religion. Based on the likelihood of harm to the employer, the court temporarily barred the government from enforcing the requirement.

There are several unique aspects to this case.

  • The employer is a private employer, not a church or religious-oriented non-profit organization. But its owners have taken very specific steps to provide that the business will be operated in a manner consistent with the owners' religious beliefs, which the court found persuasive in evaluating whether the contraception requirement might burden the free exercise of religion.
  • The employer's group health plan is not a grandfathered plan, and      Continue Reading...
It's Almost August. Do You Know Where Your MLR Rebate Is?
By: Jason Lacey

I have an article in the July edition of the ABA Health eSource (an online publication of the American Bar Association Health Law Section) discussing various considerations for group health plans that receive MLR rebates. It expands on some of our prior coverage on MLR rebates (see, for example, here) and addresses both ERISA and tax issues. Rebates are due from insurers by August 1, so employers with insured group health plans could be seeing checks any day now.

IRS Posts FAQs on New Medicare-Tax Withholding
By: Jason Lacey

The IRS has posted a set of FAQs to its website that provide guidance on withholding the new 0.9% Medicare tax that will apply beginning in 2013.

The new tax was enacted as part of health care reform and goes into effect with respect to wages paid on or after January 1, 2013. The tax is an additional 0.9% on all wages received in excess of a threshold amount. The threshold amount is $200,000 in the case of a single individual and $250,000 in the case of a married individual who files a joint tax return. But regardless of an employee's marital status or household income, employers are required to begin withholding the tax once they have paid an employee $200,000 in wages during a year.

Example. An employee has received $180,000 in wages during 2013 and then receives a bonus of $50,000 in December 2013. In addition to all other required tax  withholding, the employer must withhold the new 0.9% Medicare tax on $30,000 of the bonus.

Some of the clarifications provided in the FAQs:

  • The obligation to withhold the new tax only applies once an employee has received $200,000 in wages and only to the extent wages for the year exceed $200,000. 
  • Non-cash taxable fringe benefits provided to an employee who has received at least $200,000 in other taxable wages are subject to the new tax, even though not paid in cash.
  • The withholding requirement does apply to tipped employees who      Continue Reading...
Ten Things Employers Should Know About the SBC
By: Jason Lacey

We have put out an Issue Alert describing ten basic considerations for employers regarding the new Summary of Benefits and Coverage (SBC) required as part of health care reform. The Issue Alert has more details, but the bottom line is that many employers will need to begin complying with this requirement in the next few months. Now that we know health care reform is sticking around for a while, it's time to begin thinking about things like who will be responsible for preparing the SBC and how (and when) it will be distributed to plan participants and beneficiaries.

HHS Updates MLR Guidance
By: Jason Lacey

The Department of Health and Human Services (HHS) has issued three new Q&As updating its guidance on the medical loss ratio (MLR) rules. Although the guidance is directed primarily at insurance carriers, it provides some helpful information to employers and participants in insured group health plan about new notices they may be receiving in the near future.

  • For plans that will be receiving MLR rebates, the carrier must provide a rebate notice to all "subscribers," which includes all current plan participants. Those participants should be receiving notices on or before August 1, 2012.
  • For insurers that meet the MLR standard, a notice to that effect must be provided to all plan participants with the first "plan document" distributed on or after July 1, 2012. The guidance clarifies that the notice may be provided separately (i.e., distributed before any plan documents are distributed). The guidance also provides examples of documents that constitute "plan documents" for this purpose.

For our prior coverage of MLR rebates and the important considerations that apply under ERISA if and when a rebate is received, click here.

Health Care Reform Mandates: Women's Preventive Health Care
By: Jason Lacey

Now that the dust has settled some on the Supreme Court's decisions regarding health care reform (see our prior coverage here and here), it's time to begin thinking about some of the new mandates that are coming online in the next few weeks and months. First up: coverage of women's preventive-health-care services by non-grandfathered plans, which may be required as soon as August 1, 2012.

Although some of the regulatory guidelines on this mandate were released as recently as February and March of this year, it seems like an eternity ago with all that's happened in the meantime. So here's a refresher.

  • For plan years beginning on or after August 1, 2012, non-grandfathered plans are required to cover women's preventive-health-care services without cost sharing, as part of the plan's general coverage of preventive-care services.
  • The services required to be covered are based on guidelines issued by the Health Resources and Services Administration (HRSA). They include: (1) well-woman visits; (2) screening for gestational diabetes; (3) breastfeeding support, supplies, and counseling; and (4) all FDA-approved contraceptive methods and sterilization procedures.
  • Certain religious employers are exempt from the requirement to cover contraceptive services, but the exemption is a narrow one. For this purpose a religious employer is one that (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is      Continue Reading...
Supreme Court Upholds Health Care Reform Law
By: Jason Lacey

In its much-anticipated decision yesterday, the Supreme Court upheld the Patient Protection and Affordable Care Act (PPACA), putting an end to the constitutional challenges that have threatened the law since the day it was enacted.

The manner in which the law was upheld came as a surprise to many. Rather than conclude that the law reflected a constitutional exercise of Congress's commerce power, the Court seized upon the government's back-up argument and upheld the law as a valid exercise of Congress's taxing power. And in a further twist, it was Chief Justice John Roberts, generally viewed as a political conservative, who cast the decisive vote, siding with four justices who are generally considered political liberals.

Although the legal underpinnings of the Court’s decision are somewhat complex, the bottom line for employers is clear: Nothing has changed. The law that went into effect March 23, 2010, and has been in effect ever since, remains intact.

In theory, this means employers should not need to do anything more than maintain business as usual, continuing their efforts to implement the law as its provisions become effective.  But in reality many employers will have been sitting on the sidelines, waiting to see how the case would be resolved.  Those employers may now find themselves playing catch-up.

In the short term, employers need to be preparing to comply with new measures that are coming into effect in the next few months—things like the uniform summary of benefits and coverage (SBC), the PCORI trust-fund taxes, W-2 reporting, and the $2,500      Continue Reading...

The Supreme Court's Decision on Health Care Reform Looms
By: Jason Lacey

Sometime in the next two weeks or so, we expect to see the much-anticipated ruling from the Supreme Court on the constitutionality of PPACA.  What that ruling will look like remains anybody's guess. But from the issues that were argued at the Court, we can identify some possible outcomes and begin to consider what that might mean for employers.

The Issues

At its core, the litigation over health care reform involves the constitutionality of one small piece of the law: the individual mandate. The question is whether Congress has the power to require Americans to obtain health insurance or pay a penalty.

The case also touches on two related points that are relevant in considering possible outcomes. (1) Does an arcane tax statute called the Anti-Injunction Act prohibit the Court from even considering the case before the individual mandate goes into effect in 2014? (2) If the individual mandate is unconstitutional, can it be "severed" from the rest of the legislation and tossed aside by itself, or does the whole law fail?

The Possible Outcomes

Given these issues, there are at least four possible outcomes for the case.

  1. Wait and See. The Court could decide the Anti-Injunction Act applies, thereby precluding a decision at least until 2014. (Most people following the case think this outcome is unlikely, but it remains a possibility.)
  2. Full Speed Ahead. The Court could decide the individual mandate is valid, leaving the law fully intact.
  3. Partial Invalidity. The Court could decide the      Continue Reading...
IRS Provides Guidance on $2,500 Health FSA Cap
By: Donald Berner

The IRS issued Notice 2012-40 yesterday (click here for the notice), providing a number of important clarifications regarding the $2,500 cap on health FSA contributions that applies beginning in 2013.  The most surprising development is the IRS's interpretation that the cap applies on a plan-year basis, rather than a calendar-year basis.  This is important for employers with fiscal-year plans.  They will be able to wait until the first plan year beginning after December 31, 2012, to implement the cap, rather than using the transition rule or early implementation of the cap to ensure contributions during the 2013 calendar year do not exceed the cap, as was previously thought necessary.

Other key guidance points include:

  • Clarification that unspent amounts carried over during a grace period will not count against the cap for the plan year in which the grace period occurs.
  • Confirmation that the cap only applies to employee salary-reduction contributions to a health FSA.  Employer contributions (e.g., flex credits) and salary-reduction contributions to dependent-care FSAs do not count, nor do amounts credited to HSAs or HRAs.

In addition to interpretive guidance, the Notice provides a limited correction rule that will allow fixing some good-faith mistakes.  If a mistaken election to contribute more than $2,500 to a health FSA in a year is properly corrected, the error will not jeopardize the plan's status as a qualifying cafeteria plan. 

Of academic interest, the Notice also requests comments on the use-it-or-lose-it rule.  The implication is that the $2,500 cap may be low enough      Continue Reading...

DOL FAQ's Update Guidance on the Summary of Benefits and Coverage (SBC)
By: Donald Berner

The Department of Labor (DOL) recently posted a new set of FAQs (click to here to read the FAQ) to its website providing additional guidance on the requirement under health care reform to give health plan participants a four page uniform summary of benefits and coverage (SBC).  Some highlights include:

  • A new electronic-distribution safe harbor that specifically allows for distribution of the SBC with online enrollment materials.
  • A transition rule for arrangements that are partly insured and partly self-funded (e.g., an insured high deductible plan with integrated self-insured HRA) that allows using two or more partial SBCs for the first year of applicability.
  • A non-enforcement rule for expatriate coverage during the first year of applicability, effectively suspending the requirement to provide an SBC for expatriate coverage during the first year.
  • Assurance that penalties will not be imposed during the first year of applicability on employers "that are working diligently and in good faith to comply" with the rules.

The detailed requirements for preparation and distribution of the SBC are described in final regulations issued by the IRS, DOL, and HHS earlier this year.  (Click here to see the final regulation.)  The requirement to distribute an SBC generally applies to the first open enrollment period beginning on or after September 23, 2012.

Premium Refunds from Health Insurers May Trigger ERISA Issues
By: Donald Berner

As part of the insurance-market reforms enacted by the Patient Protection and Affordable Care Act (PPACA), insurance carriers are required to spend a minimum percentage of premiums (generally 85%) on medical care and quality improvement.  If this percentage -- the "medical loss ratio" -- is not satisfied, premiums must be returned to the policyholder to the extent necessary to reach the required percentage.

A recent report by the Kaiser Family Foundation (read here) estimates that under this rule, carriers nationwide will be rebating as much as $1.3 billion in total premiums collected during 2011.  Of that, employer-sponsored plans are expected to receive approximately $900 million, and at least some rebates are expected in every state except Hawaii.

When a rebate is received with respect to an ERISA-covered plan, care must be taken to determine whether some portion of the rebate is a "plan asset".  If so, it must be treated in a manner that complies with the ERISA fiduciary obligations that apply to handling plan assets.  The Department of Labor (DOL) has provided some specific guidance on this issue (read here).  The guidance instructs that the rebate generally must be allocated between the employer and the plan participants.  The portion allocable to the participants is a plan asset and must either be returned to the participants or used exclusively for their benefit.

The facts of each arrangement must be considered, but a rebate generally will be allocated between the employer and the plan participants based on their relative contributions to the premiums      Continue Reading...

IRS Regulations Describe New Health Plan Fee
By: Donald Berner

Recent IRS regulations provide guidance to employers and insurers on the calculation and payment of a new fee on health plans.  The fee is part of health care reform and will be used to fund the Patient Centered Outcomes Research Institute.  The first fee payments will be due by July 31, 2013, and relate to plan years ending on or after October 1, 2012. 

Employers are responsible for calculating and paying this fee with respect to any self-insured health plans they sponsor.  Insured plans are subject to the fee also, although the insurance carrier is responsible for calculating and paying the fee.  The fee is $1 (increasing to $2 in the second year), multiplied by the average number of lives covered under the plan during the year. 

A key issue in calculating the fee is determining the average number of lives covered by a plan during a year.  (Covered lives include not only covered employees, but also spouses, dependent children, COBRA beneficiaries, retirees, and any other persons with coverage under the plan.)  The regulations give employers four options for calculating this number.  Two of the options involve counting the actual number of covered lives under the plan as of certain dates during the plan year.  A third option uses a formula based on "snapshots" of the number of employees in the plan at various points during the plan year, and the fourth option uses a formula based on the number of participants shown on the Form 5500 for the plan.

The fee applies to all self-insured      Continue Reading...


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