ACA – ERISA Benefits Law

Employee Benefits Relief in the Year-End COVID-19 Stimulus Legislation

The Consolidated Appropriations Act, 2021 (H.R. 133) (the “Act”) was passed by both houses of Congress on December 21, 2020, and signed into law by the President on December 27, 2020. The Act is an incredible 5,593 pages long and contains both an omnibus spending bill to fund the government through September 30, 2021 and a COVID-19 stimulus package that provides approximately $900 billion in emergency relief to individuals and businesses.

The Act contains numerous provisions that impact employee benefit plans. The principal takeaways from the Act that plan sponsors must consider are summarized below. In contrast to the length of the Act itself, this alert is intended to provide a high level summary. Please reach out to us if you have specific questions about the Act.

Health and Welfare Plan Related Provisions

This is the largest health care legislative package since the Affordable Care Act and the Act includes almost a dozen new patient protections with quickly approaching effective dates, which will result in significant new regulation being issued in 2021.

FSA Flexibility

The Act provides for significant additional flexibility for both health care flexible spending arrangements (“FSA”) and dependent care FSAs. These provisions are optional, not required, and employers will need to amend their plans to provide the new rights, if they choose to offer them.

Carryover. Any unused funds in FSAs from a plan year ending in 2020 or 2021 may be carried over and used at any time in the next plan year. These carryovers will be allowed under rules similar to the existing carryover rules for health FSAs (but without the dollar limit on carryovers).

Grace Periods. FSAs with grace periods may extend those grace periods to up 12 months for plan years ending in 2020 or 2021. Normally, grace periods have a maximum 2 ½-month period.

Post-Termination Reimbursement. If an employee terminates participation during calendar year 2020 or 2021, FSAs may also reimburse for otherwise eligible expenses incurred through the end of that year (plus any grace period).

Dependent Care Post-Age 13 Coverage. For dependent care FSAs, if a dependent became too old to have their care expenses reimbursed (age 13) due to the pandemic, any unused funds may be used for the remainder of the plan year in which they aged out. Further, if any funds remain unused at that time, those funds can be used until the child turns 14.

Prospective Changes Permitted. For plan years ending in 2021, employees may prospectively change their FSA contributions without incurring a permitted election change event.

“No Surprise” Medical Billing Provisions

Under a section titled the “No Surprises Act,” the Act includes several provisions to regulate surprise medical billing from certain non network providers, air ambulances and for emergency services. These provisions concern bills from out-of-network providers requiring more money from the patient after the health plan has paid its part. This can happen in an emergency setting or where a patient goes into an in-network hospital, but is treated there by an out-of-network provider.

Generally, the Act provides that individuals covered by a group health plan or individual/group health insurance receiving non-emergency services at a network facility cannot be balance billed by a non-network provider, unless the non-network provider provides notice to the individual and the individual consents. An exception exists for “ancillary services”, such as anesthesiology, pathology, and radiology, and the Act also fleshes out associated details, such as payment timelines and dispute resolution processes.

The agencies are required to begin finalizing implementing regulations regarding the methodology for making payments by July 1, 2021, with the rest to come by December 31, 2021. These provisions become effective January 1, 2022.

These rules replace the current Affordable Care Act rules governing the payment of emergency services and apply to both grandfathered and non-grandfathered plans.

Additional Health Plan Provisions

ID Card Information. ID cards for group health plans (physical or electronic) must include, in clear writing, the deductible, out-of-pocket limits, and consumer assistance information.

Continuity of Care. Patients undergoing treatment for a serious and complex condition, who are pregnant, receiving inpatient care, scheduled for non-elective surgery or terminally ill must be notified if their provider leaves the network and given the opportunity to continue care (at an in-network rate) for 90 days.

Cost Comparison Tools. Plans and carriers will be required to offer cost comparison tools (via phone or the internet) starting with plan years beginning on or after January 1, 2022.

Gag Clauses Prohibited. “Gag” clauses will be prohibited. These clauses prevent health plans from sharing provider-specific reimbursements and information. Prohibiting these clauses facilitates the creation of the cost-comparison tools.

Provider Directories. Group health plans must update provider directories at least every 90 days and establish a system to respond to inquiries about the network status of a provider within one business day.

Mental Health Parity. Plans will be required to analyze the nonquantitative treatment limitations that they apply to mental health and substance use disorder benefits to show that the limitations are comparable to those that are used for medical/surgical benefits.

Retirement Plan Related Provisions

Partial Plan Terminations. The Act provides for temporary relief from the 100% vesting requirement for partial plan terminations caused by employee turnover under Code section 411(d)(3) if the turnover is due to COVID-19. A qualified plan will not incur a partial termination during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.

Coronavirus-Related Distributions. The Act extends the COVID-19 in-service distribution relief under the CARES Act to money purchase pension plans.

Disaster Relief (Not Including COVID). The Act provides special disaster related distribution and loan rules (similar to prior natural disaster relief, including a distribution right, increase in loan limits, loan suspensions, etc.) for FEMA declared disasters (other than COVID-19) from January 1, 2020 through 60 days after enactment of the Act.

Consolidated Appropriations Act, 2021

Departments of Labor, HHS and Treasury Clarify Application of Drug Manufacturer Coupons to Annual Cost Sharing Limitations

The recent final HHS Notice of Benefit and Payment Parameters for 2020 (2020 NBPP Final Rule), addresses how direct support offered by drug manufacturers to enrollees for specific prescription brand drugs (drug manufacturers’ coupons) count toward the annual limitation on cost sharing.

Under that guidance, for plan years beginning on or after January 1, 2020, plans and issuers are explicitly permitted to exclude the value of drug manufacturers’ coupons from counting toward the annual limitation on cost sharing when a medically appropriate generic equivalent is available.

Background

Public Health Service (PHS) Act section 2707(b), as added by the Affordable Care Act, provides that all nongrandfathered group health plans, including non-grandfathered self-insured and insured small and large group market health plans, shall ensure that any annual cost sharing imposed under the plan does not exceed certain limitations (in 2020: $8,150 for self-only coverage and $16,300 for other than self-only coverage).

The 2020 NBPP Final Rule amended 45 CFR Section 156.130 by adding paragraph (h) to read as follows (emphasis added):

§ 156.130 Cost-sharing requirements.
* * * * *
(h) Use of drug manufacturer coupons. For plan years beginning on or after January 1, 2020:
(1) Notwithstanding any other provision of this section, and to the extent consistent with state law, amounts paid toward cost sharing using any form of direct support offered by drug manufacturers to enrollees to reduce or eliminate immediate out-of-pocket costs for specific prescription brand drugs that have an available and medically appropriate generic equivalent are not required to be counted toward the annual limitation on cost sharing (as defined in paragraph (a) of this section).
https://www.federalregister.gov/documents/2019/04/25/2019-08017/patient-protection-and-affordable-care-act-hhs-notice-of-benefit-and-payment-parameters-for-2020

Previously, the federal regulations were silent as to this issue. The problem arises due to a combination of (1) competition between drug manufacturers in the specialty drug categories, and (2) cost control steps recently taken by plan sponsor (and insurers). As CVS explains in describing its “True Accumulation” program:

As competition in specialty therapy classes grows, manufacturers have been increasingly using tools common in the traditional brand drug market — such as copay coupons — to build consumer loyalty, increase sales, and bypass payor cost-control strategies. Copay cards — those not based on financial need — help encourage the use of more expensive therapies by negating the impact of higher cost-sharing tiers on member out-of-pocket (OOP) cost. Payors seeking more aggressive control of their specialty spend can combine the tiered specialty approach with a True Accumulation feature, which ensures only true member cost share (non-third party dollars) is applied toward deductibles or OOP caps. The accumulator automatically adjusts member OOP costs when specialty copay cards are billed by a CVS Specialty pharmacy. The amount subsidized by the copay card does not count toward the member’s deductible or annual OOP maximum. True Accumulation may also be used independent of the specialty tier design and will cover all specialty drugs that offer a non-needs-based copay card.
https://payorsolutions.cvshealth.com/insights/a-foundational-approach-to-specialty-cost-management

The 2020 NBPP Final Rule was clearly designed to encourage programs suhc as CVS’s True Accumulation, but it could potentially be read to create a conflict with the rules for high deductible health plans (HDHPs) that are intended to allow eligible individuals to establish a health savings account (HSA). Specifically, Q&A-9 of IRS Notice 2004-50 states that the provision of drug discounts will not disqualify an individual from being an eligible individual if the individual is responsible for paying the costs of any drugs (taking into account the discount) until the deductible of the HDHP is satisfied.

Thus, Q&A-9 of Notice 2004-50, requires an HDHP to disregard drug discounts and other manufacturers’ and providers’ discounts in determining if the minimum deductible for an HDHP has been satisfied and only allows amounts actually paid by the individual to be taken into account for that purpose.

So the HDHP rules and the 2020 NBPP Final Rule could put the sponsor of an HDHP in the position of complying with either the requirement under the 2020 NBPP Final Rule for limits on cost sharing in the case of a drug manufacturer coupon for a brand name drug with no available or medically appropriate generic equivalent or the IRS rules for minimum deductibles for HDHPs, but potentially being unable to comply with both rules simultaneously.

Recognizing this tension, the Departments issued som FAQs on August 26, 2019 indicating that:

Their initial interpretation (in the 2020 NBPP Final Rule) of how drug manufacturers’ coupons apply with respect to the annual limitation on cost sharing is ambiguous
They intend undertake rulemaking to clarify this in the forthcoming HHS Notice of Benefit and Payment Parameters for 2021.
Until the 2021 NBPP is issued and effective, the Departments will not initiate an enforcement action if an issuer of group or individual health insurance coverage or a group health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost sharing, including in circumstances in which there is no medically appropriate generic equivalent available.

See https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-40.pdf

Final Rules Expand Availability of Health Reimbursement Arrangements and Other Account-Based Group Health Plans

On June 13, 2019 the U.S. Departments of Health and Human Services, Labor, and the Treasury (the Departments) issued final rules that the Departments stated “will provide hundreds of thousands of employers, including small businesses, a better way to provide health insurance coverage, and millions of American workers more options for health insurance coverage.”

Summary of the Final Rules

The final rules expand opportunities for employers to establish Health Reimbursement Arrangements (HRAs) and other account-based group health plans under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code). Specifically, the final rules:

Allow employers to integrate HRAs and other account-based group health plans with individual health insurance coverage or Medicare, if certain conditions are satisfied (an individual coverage HRA).
Set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits.
Provide rules regarding premium tax credit (PTC) eligibility for individuals offered an individual coverage HRA.
Clarify rules to provide assurance that the individual health insurance coverage for which premiums are reimbursed by an individual coverage HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain safe harbor conditions are satisfied
Provide a special enrollment period (SEP) in the individual market for individuals who newly gain access to an individual coverage HRA or who are newly provided a QSEHRA.

The stated goal of the final rules s is to expand the flexibility and use of HRAs and other account-based group health plans to provide more Americans with additional options to obtain quality, affordable healthcare. The final rules generally apply for plan years beginning on or after January 1, 2020.

Implications for Employers

Employers can contribute as little or as much as they want to an Individual Coverage HRA. However, Employers that offer an Individual Coverage HRA, must offer it on the same terms to all individuals within a class of employees, except that the amounts offered may be increased for older workers and for workers with more dependents.

An employer cannot offer an Individual Coverage HRA to any employee to whom you offer a traditional group health plan. However, you can decide to offer an individual coverage HRA to certain classes of employees and a traditional group health plan (or no coverage) to other classes of employees.

Employee Classes

Employers may make distinctions, using classes based on the following status:

Full-time employees,
Part-time employees,
Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region),
Seasonal employees,
Employees in a unit of employees covered by a particular collective bargaining agreement,
Employees who have not satisfied a waiting period,
Non-resident aliens with no U.S.-based income,
Salaried workers,
Non-salaried workers (such as hourly workers),
Temporary employees of staffing firms, or
Any group of employees formed by combining two or more of these classes.

To prevent adverse selection in the individual market, a minimum class size rule applies if an employer offers a traditional group health plan to some employees and an Individual Coverage HRA to other employees based on:

full-time versus part-time status;
salaried versus non-salaried status; or
geographic location, if the location is smaller than a state.

Generally, the minimum class size rule also applies if you combine any of these classes with other classes. The minimum class size is:

Ten employees, for an employer with fewer than 100 employees,
Ten percent of the total number of employees, for an employer with 100 to 200 employees, and
Twenty employees, for an employer with more than 200 employees.

Also, through a new hire rule, employers can offer new employees an Individual Coverage HRA, while grandfathering existing employees in a traditional group health plan.

ACA Employer Mandate

An offer of an Individual Coverage HRA counts as an offer of coverage under the employer mandate. In general, whether an applicable large employer that offers an Individual Coverage HRA to its full-time employees (and their dependents) owes a payment under the employer mandate will depend on whether the HRA is affordable. This is determined under the premium tax credit rule being issued as part of the HRA rule and is based, in part, on the amount the employer makes available under the HRA.

The Internal Revenue Service is expected to provide more information on how the employer mandate applies to Individual Coverage HRAs soon.

Administrative Requirements

Individual Coverage HRAs must provide a notice to eligible participants regarding the Individual Coverage HRA and its interaction with the premium tax credit. The HRA must also have reasonable procedures to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare, while covered by the HRA.

Employees must also be permitted to opt out of an Individual Coverage HRA at least annually so they may claim the premium tax credit if they are otherwise eligible and if the HRA is considered unaffordable.

Employers generally will not have any responsibility with respect to the individual health insurance itself that is purchased by the employee, because it will not be considered part of your employer-sponsored plan, provided:

An employee’s purchase of any individual health insurance is completely voluntary.
The employer does not select or endorse any particular insurance carrier or insurance coverage.
The employer does not receive any cash, gifts, or other consideration in connection with an employee’s selection or renewal of any individual health insurance.
Each employee is notified annually that the individual health insurance is not subject to ERISA.

More….

The Final Rules can be found here

DOL FAQs can be found here

HHS Proposes to Revise ACA Section 1557 Nondiscrimination Rules

The U.S. Department of Health and Human Services (HHS) is issuing a proposed rule to revise regulations implementing and enforcing Section 1557 of the Affordable Care Act (ACA). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs or activities.

PURPOSE OF THE PROPOSED RULE

The proposed rule would maintain vigorous civil rights enforcement of existing laws and regulations prohibiting discrimination on the basis of race, color, national origin, disability, age, and sex, while revising certain provisions of the current Section 1557 regulation that a federal court has said are likely unlawful. The proposal also would relieve the American people of $3.6 billion in unnecessary regulatory costs over five years, mainly by eliminating the mandate for entities to send patients and customers “notice and tagline” inserts in 15 foreign languages that have not proven effective at accomplishing their intended purpose. Covered entities report that they send billions of these notices by mail each year.

BACKGROUND

Section 1557 is a civil rights provision in the ACA that prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs or activities. Congress prohibited discrimination under Section 1557 by referencing four longstanding federal civil rights laws:

1. Title VI of the Civil Rights Act of 1964 (Title VI) (prohibiting discrimination on the basis of race, color, and national origin).

2. Title IX of the Education Amendments of 1972 (Title IX) (prohibiting discrimination on the basis of sex).

3. Section 504 of the Rehabilitation Act of 1973 (Section 504) (prohibiting discrimination on the basis of disability).

4. Age Discrimination Act of 1975 (Age Act) (prohibiting discrimination on the basis of age).

HHS proposes to ensure the scope of the regulation matches the text of Section 1557 with respect to:

(1) Any health program or activity, any part of which is receiving federal financial assistance (including credits, subsidies, or contracts of insurance) provided by HHS;

(2) Any program or activity administered by HHS under Title I of the ACA; and

(3) Any program or activity administered by any entity established under that Title.

Thus, for example, the rule would apply to federally facilitated and state-based health insurance Exchanges created under the ACA, and the qualified health plans offered by issuers on those Exchanges.

Section 1557 has been in effect since its enactment in 2010, and Congress directed the HHS Office for Civil Rights (OCR) to enforce the provision.

Although Congress prohibited discrimination on the basis of sex in 1972 (Title IX), and Section 1557 applied that law to healthcare and the Exchanges established under the ACA, HHS’s 2016 Section 1557 regulation redefined discrimination “on the basis of sex” to include gender identity and termination of pregnancy and defined gender identity as one’s internal sense of being “male, female, neither, or a combination of male and female.” As a result, several states and healthcare entities filed federal lawsuits against HHS. On December 31, 2016, the U.S. District Court for the Northern District of Texas issued an opinion in Franciscan Alliance, Inc. et al. v. Burwell, preliminarily enjoining HHS’s attempt to prohibit discrimination on the basis of gender identity and termination of pregnancy as sex discrimination in the Section 1557 regulation. This federal court concluded the provisions are likely contrary to applicable civil rights law, the Religious Freedom Restoration Act, and the Administrative Procedure Act. The preliminary injunction applies on a nationwide basis. A separate federal court in North Dakota agreed with the reasoning of the Franciscan Alliance decision, and stayed the rule’s effect on the plaintiffs before it.

Consequently, HHS has concluded that it does not have legal authority to implement the provisions on gender identity and termination of pregnancy in light of the court’s injunction which remains in full force and effect.

SUMMARY OF THE PROPOSED RULE

WHAT THE PROPOSED RULE KEEPS IN PLACE

HHS Would Continue to Vigorously Enforce Civil Rights in Healthcare: Under the proposed rule, HHS would continue to vigorously enforce all applicable existing laws and regulations that prohibit discrimination on the basis of race, color, national origin, disability, age, and sex based on HHS’s longstanding underlying civil rights regulations.
Protections for Individuals with Disabilities: The proposed rule would retain protections in the current Section 1557 regulation that ensure physical access for individuals with disabilities to healthcare facilities, and appropriate communication technology to assist persons who are visually or hearing-impaired.
Protections for Individuals with Limited English Proficiency: HHS proposes to retain the current Section 1557 regulation’s qualifications for foreign language translators and interpreters for non-English speakers, and its limitations on the use of minors and family members as translators or interpreters. HHS also proposes to include standards from longstanding LEP guidance in the regulation to ensure meaningful access to health programs and activities for LEP individuals and flexibility in meeting such obligation.
Assurances of Compliance: Under the proposed rule, regulated entities would still be required to submit to HHS a binding assurance of compliance with Section 1557.

PROPOSED RULE REVISIONS

HHS proposes to revise various provisions that are not statutorily supported, are unnecessary, or are duplicative of existing regulations. HHS also proposes to remove costly and unjustified regulatory burdens, to conform the scope of the regulation to HHS’s own implementation of the statutory limits set by Congress, and to implement the regulation consistent with all applicable federal civil rights laws.

Revise Provisions Preliminarily Enjoined Nationwide in Federal Court

Under the proposed rule, HHS would apply Congress’s words using their plain meaning when they were written, instead of attempting to redefine sex discrimination to include gender identity and termination of pregnancy. These redefinitions were preliminarily enjoined because a federal court found they were unlawful and exceeded Congress’s mandate. The proposed rule would not create a new definition of discrimination “on the basis of sex.” Instead HHS would enforce Section 1557 by returning to the government’s longstanding interpretation of “sex” under the ordinary meaning of the word Congress used. HHS also proposes to amend ten other regulations, issued by the Centers for Medicare & Medicaid Services, implementing the prohibition on discrimination on the basis of sex, to make them consistent with the approach taken in the proposed Section 1557 rule.

HHS proposes to ensure its Section 1557 and Title IX regulations include language Congress enacted that protects religious entities, and that prevents Title IX from requiring performance of, or payment for, abortions.

Remove Costly and Unnecessary Regulatory Burdens

The proposed rule would eliminate burdens imposed by the 2016 regulation’s requirement that regulated health companies distribute non-discrimination notices and “tagline” translation notices in at least fifteen languages in “significant communications” to patients and customers. These notices have cost the healthcare industry billions of dollars (a cost which is ultimately passed on to consumers and patients), and data does not show that the notices have yielded the intended benefit for individuals with limited English proficiency.

Revise an Enforcement Structure That Created Legal Confusion

Section 1557 applies multiple civil rights statutes to healthcare settings. As Congress explicitly recognized in Section 1557, HHS has regulations in place for each of those statutes. HHS intends to enforce all those pre-existing statutes and regulations. The 2016 regulation, however, imposed a new single enforcement structure for every type of discrimination claim. Multiple federal courts have rejected various legal theories amalgamated into the 2016 regulation, such as the assertion of private rights of action for Title VI disparate impact claims. HHS proposes to return to the enforcement structure for each underlying civil right statute as provided by Congress and also proposes to remove portions of the 2016 regulation that are duplicative of, or inconsistent with, its longstanding regulations implementing Title VI, Title IX, Section 504, and the Age Act.

Revise the Scope of HHS’s Enforcement of Section 1557

HHS proposes to revise the 2016 regulation’s interpretation of Section 1557 as applying to all operations of an entity, even if it is not principally engaged in healthcare. The proposed rule would, instead, apply Section 1557 to the healthcare activities of entities not principally engaged in healthcare only to the extent they are funded by HHS. For example, the proposed rule would generally not apply to short-term limited duration insurance, because providers of those plans are not principally engaged in the business of healthcare, and those specific plans do not receive federal financial assistance.

Comply with All Applicable Federal Civil Rights Laws, Including Conscience and Religious Freedom Protections

In addition to ensuring consistent enforcement of longstanding regulations for Title VI, Title IX, Section 504, and the Age Act as passed by Congress and implemented by their HHS regulations, HHS proposes to add a regulatory provision stating that Section 1557 shall be enforced consistent with the ACA’s healthcare conscience protections (Section 1303 concerning abortion and Section 1553 concerning assisted suicide); healthcare conscience laws set forth in the Church, Coats-Snowe, Weldon, Hyde, and Helms Amendments; the Religious Freedom Restoration Act; and the First Amendment to the Constitution.

The Proposed Rule

IRS Posts Explanation and Forms of Letters Used to Close Employer Mandate Inquiries

The IRS has posted an explanation of the various Letters 227, which the IRS will use to acknowledge the closure of an Employer Shared Responsibility Payment (ESRP) inquiry, or to provide the next steps to the Applicable Large Employer (ALE) regarding the proposed ESRP. There are five different 227 letters:

Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response, and that the ESRP will be assessed. After issuance of this letter, the case will be closed. No response is required.
Letter 227-K acknowledges receipt of the information provided and shows the ESRP has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
Letter 227-L acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 (PTC Listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
Letter 227-M acknowledges receipt of information provided and shows that the ESRP did not change. The letter provides an updated Form 14765 (PTC Listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
Letter 227-N acknowledges the decision reached in Appeals and shows the ESRP based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.

IRS Releases Sample Notice CP 220J Notice of Assessment of Employer Mandate Penalty

The IRS has released a sample of Notice CP 220J, which the IRS will use to notify applicable large employers (ALEs) that it has charged them an employer mandate penalty under Code § 4980H for failure to offer adequate health coverage to full-time employees and their dependents.

The release of Notice CP 220J follows last year’s release of Letter 226J (the initial letter that the IRS will use to notify employers of the assessment of proposed employer mandate penalties) and Forms 14764 (Employer’s response to proposed penalties) and 14765 (list of employees receiving premium tax credit). Employers may use Form 14765 to change information previously reported to the IRS, which could potentially reduce or eliminate employer mandate penalties.

Employers receiving a Notice CP 220J will have three choices:

Pay the assessment
File a claim for refund on Form 843, Claim for Refund and Request for
Abatement.
If you want to take your case to court immediately, include a written request to issue a Notice of Claim Disallowance. Employers will then have two years from the date of the notice of disallowance to file suit in the United States District Court that has jurisdiction or the United States Court of Federal Claims.

Cadillac Tax Delayed to 2022

The legislation passed by Congress and signed by President Trump on January 23, 2018 to continue funding the government through February 8, 2018 also delays the “Cadillac Tax” another two years.

The Cadillac Tax is now not scheduled to become effective until 2022. While it is likely future Congresses will continue to delay, or perhaps eliminate the tax entirely, employers and others that sponsor Cadillac plans should continue to monitor the situation and have contingencies to deal with it if the tax does in fact go into effect.

See our prior post on this related topic: IRS Proposes Various Approaches to Cadillac Tax Implementation

Tax Cuts and Jobs Act Includes Employee Benefits Changes and Elimination of ACA Individual Mandate Penalty

The Tax Cuts and Jobs Act, which the President signed into law on December 22, 2017 enacts significant tax reforms that include a number of employee benefits changes. Significant employee benefits changes include:

Individual Mandate Repeal.

Effective in 2019, the Act will reduce to zero the individual shared responsibility (individual mandate) penalty. This will inevitably lead to more people deciding not to purchase health insurance. Coupled with guaranteed issue, which remains the law, this will contribute to the potential “death spiral” in the individual insurance market.

Extended Rollover Period for Qualified Plan Loans.

If a participant’s account balance in a qualified retirement plan is reduced to repay a plan loan and the amount of that offset is considered an eligible rollover distribution, the offset amount can be rolled over into an eligible retirement plan. Under current law, the rollover must occur within 60 days. The legislation extends the 60-day deadline until the due date (including extensions) for the participant’s tax return for the year in which the amount is treated as distributed. Plan loan offset amounts qualifying for this extended deadline are limited to loan amounts that are treated as distributed solely by reason of either termination of the plan or failure to meet the loan’s repayment terms because of a severance from employment.

New Employer Tax Credit for Paid Family and Medical Leave.

The Act creates a new tax credit for eligible employers providing paid family and medical leave to their employees. To be eligible, employers must have a written program that pays at least 50% of wages to qualified employees for at least two weeks of annual paid family and medical leave.

Eligible employers paying 50% of wages may claim a general business credit of 12.5% of wages paid for up to 12 weeks of family and medical leave a year. The credit increases to as much as 25% if the rate of payment exceeds 50%. The provision is generally effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020. Leave provided as vacation, personal leave, or other medical or sick leave is not considered to be family and medical leave eligible for this credit.

Moving Expense Deduction Eliminated.

For an eight-year period starting in 2018, most employees will not be able to exclude qualified moving expense reimbursements from income or deduct moving expenses. During that period, the exclusion and deduction are preserved only for certain members of the Armed Forces on active duty who move pursuant to a military order.

Qualified Transportation Plans Eliminated.

The Act eliminates the employer deduction for qualified transportation fringe benefits and, except as necessary for an employee’s safety, for transportation, payments, or reimbursements in connection with travel between an employee’s residence and place of employment.

The tax exclusion for qualified transportation fringe benefits is generally preserved for employees, but the exclusion for qualified bicycle commuting reimbursements is suspended and unavailable for tax years beginning after 2017 and before 2026.

Other Fringe Benefits Deductions Eliminated.

Effective for amounts paid or incurred after 2017, the Act repeals the rule under Code § 274 that previously allowed a partial deduction for certain entertainment, amusement, and recreation expenses (including expenses for a facility used in connection with such activities) if those expenses are sufficiently related to or associated with the active conduct of the taxpayer’s business.

Also, effective after 2017, the deductibility of employee achievement awards is limited by a new definition of “tangible personal property” that denies the deduction for cash, cash equivalents, and gift cards, coupons, or certificates, except when employees can only choose from a limited array pre-selected or pre-approved by the employer.

Other nondeductible awards include—vacations, meals, lodging, theater or sports tickets, and securities.

Inflation Adjustments.

Beginning in 2018, many dollar amounts in the Code—including some benefit-related amounts—that are currently adjusted for inflation using the Consumer Price Index for All Urban Consumers (“CPI-U”) will instead be adjusted using the Chained Consumer Price Index for All Urban Consumers (“C-CPI-U”). According to the Bureau of Labor Statistics (which determines and issues the CPI), the C-CPI-U is a closer approximation to a true cost-of-living index for most consumers, and it tends to increase at a lower rate than the CPI-U.

IRS Will Begin Assessing 2015 Employer Shared Responsibility Payments in Late 2017

The Internal Revenue Service has issued some updated Q&As explaining how it will notify employers that it intends to assess employer mandate penalties for 2015. The new Q&As (#55-58, set forth below) are part of a larger set of Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.

Tip for employers: be on the lookout for Letter 226J from the IRS, because if you receive one of these letters you have 30 days to respond. That will not leave you much time to consult with legal counsel and formulate a response. Failure to respond will make it difficult or impossible to contest the assessment of the penalties.

The new Q&As are set forth below:

How does an employer know that it owes an employer shared responsibility payment?

The general procedures the IRS will use to propose and assess the employer shared responsibility payment are described in Letter 226J. The IRS plans to issue Letter 226J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).

Letter 226J will include:

a brief explanation of section 4980H,
an employer shared responsibility payment summary table itemizing the proposed payment by month and indicating for each month if the liability is under section 4980H(a) or section 4980H(b) or neither,
an explanation of the employer shared responsibility payment summary table,
an employer shared responsibility response form, Form 14764, “ESRP Response”,
an employee PTC list, Form 14765, “Employee Premium Tax Credit (PTC) List” which lists, by month, the ALE’s assessable full-time employees (individuals who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief (see instructions for Forms 1094-C and 1095-C, Line 16), and the indicator codes, if any, the ALE reported on lines 14 and 16 of each assessable full-time employee’s Form 1095-C,
a description of the actions the ALE should take if it agrees or disagrees with the proposed employer shared responsibility payment in Letter 226J, and
a description of the actions the IRS will take if the ALE does not respond timely to Letter 226J.

The response to Letter 226J will be due by the response date shown on Letter 226J, which generally will be 30 days from the date of Letter 226J.

Letter 226J will contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.

Does an employer that receives a Letter 226J proposing an employer shared responsibility payment have an opportunity to respond to the IRS about the proposed payment, including requesting a pre-assessment conference with the IRS Office of Appeals?

Yes. ALEs will have an opportunity to respond to Letter 226J before any employer shared responsibility liability is assessed and notice and demand for payment is made. Letter 226J will provide instructions for how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility payment or disagreeing with part or all or the proposed amount.

If the ALE responds to Letter 226J, the IRS will acknowledge the ALE’s response to Letter 226J with an appropriate version of Letter 227 (a series of five different letters that, in general, acknowledge the ALE’s response to Letter 226J and describe further actions the ALE may need to take). If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility payment, the ALE may request a pre-assessment conference with the IRS Office of Appeals. The ALE should follow the instructions provided in Letter 227 and Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree, for requesting a conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

If the ALE does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J.

How does an employer make an employer shared responsibility payment?

If, after correspondence between the ALE and the IRS or a conference with the IRS Office of Appeals, the IRS or IRS Office of Appeals determines that an ALE is liable for an employer shared responsibility payment, the IRS will assess the employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J. Notice CP 220J will include a summary of the employer shared responsibility payment and will reflect payments made, credits applied, and the balance due, if any. That notice will instruct the ALE how to make payment, if any. ALEs will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment. For payment options, such as entering into an installment agreement, refer to Publication 594, The IRS Collection Process.

When does the IRS plan to begin notifying employers of potential employer shared responsibility payments?

For the 2015 calendar year, the IRS plans to issue Letter 226J informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017.

For purposes of Letter 226J, the IRS determination of whether an employer may be liable for an employer shared responsibility payment and the amount of the potential payment are based on information reported to the IRS on Forms 1094-C and 1095-C and information about full-time employees of the ALE that were allowed the premium tax credit.

Qualified Employer Health Reimbursement Arrangements Permitted for Small Employers

The House and the Senate recently passed, and President Obama has signed, the “21st Century Cures Act”, which includes a provision exempting small employer health reimbursement arrangements (HRAs) from the Affordable Care Act’s (ACA’s) group plan rules, and from the excise tax imposed under Code Section 4980D for failure to comply with those rules. See our prior posts on the Section 4980D excise tax here, here and here.

Background

HRAs typically provide reimbursement for medical expenses (which can include premiums for insurance coverage). HRA reimbursements are exclude-able from the employee’s income, and unused amounts roll over from one year to the next. HRAs generally are considered to be group health plans for purposes of the tax Code and ERISA.

The ACA market reforms, which generally apply to group health plans, include provisions that a group health plan (including HRAs) (1) may not establish an annual limit on the dollar amount of benefits for any individual; and (2) must provide certain preventive services without imposing any cost-sharing requirements for these services. Code Section 4980D imposes an excise tax on any failure of a group health plan to meet these requirements.

The IRS has previously distinguished between employer-funded HRAs that are “integrated” with other coverage as part of a group health plan (and which therefore can meet the annual limit rules) and so called “stand-alone” HRAs. A “stand alone” HRA almost certainly does not meet the ACA group coverage mandates.

The New Law

The 21st Century Cures Act provides relief from the Section 4980D excise tax effective for tax years after December 31, 2016 for small employers that sponsor a qualified small employer HRA. In addition, previous transition relief for small employers, i.e. those that are not an Applicable Large Employer (ALE) under the ACA, is extended through December 31, 2016.

Therefore, for plan years beginning on or before December 31, 2016, HRAs maintained by small employers with fewer than 50 employees will not incur the Section. 4980D excise tax even if the plans are not qualified small employer HRAs. For tax years after December 31, 2016, small employer HRAs will need to satisfy the requirements of a qualified small employer HRA.

Qualified Small Employer HRA

A qualified small employer HRA must meet all of the following requirements:

(1) Be maintained by an employer that is not an ALE (i.e., it employs fewer than 50 employees), and does not offer a group health plan to any of its employees.

(2) Be provided on the same terms to all eligible employees. For this purpose, small employers may exclude employees who are under age 25, employees have not completed 90 days of service, part-time or seasonal employees, collective bargaining unit employees, and certain nonresident aliens.

(3) Be funded solely by an eligible employer. No employee salary reduction contributions may be made under the HRA.

(4) Provide for the payment of, or reimbursement of, an eligible employee for expenses for medical care (which can include premiums) incurred by the eligible employee or the eligible employee’s family members.

(5) The amount of payments and reimbursements do not exceed $4,950 ($10,000 if the HRA also provides for payments or reimbursements for family members of the employee). These amounts will be adjusted for cost of living increases in the future. An HRA can vary the reimbursement to a particular individual based on variations in the price of an insurance policy in the relevant individual health insurance market with respect to: (i) age or (ii) the number of family members covered by the HRA, without violating this requirement that the HRA be provided on the same terms to each eligible employee.

Coordination With Other Rules

If an employee covered by a qualified HRA does not maintain “minimum essential coverage” within the meaning of Code Section 5000A(f), they will be subject to the individual mandate tax penalty under existing law. Under the new law, their HRA reimbursements will also be taxable income to them.

In addition, for any month that an employee is provided affordable individual health insurance coverage under a qualified HRA, he is not eligible for a premium assistance tax credit under Code Section 36B.

Employer Reporting Requirements

For years beginning after December 31, 2016, an employer funding a qualified HRA must, not later than 90 days before the beginning of the year, provide a written notice to each eligible employee that includes:

(1) The amount of the employee’s permitted benefit under the HRA for the year;

(2) A statement that the eligible employee should provide the amount of the employee’s permitted benefit under the HRA to any health insurance exchange to which the employee applies for advance payment of the premium assistance tax credit; and

(3) A statement that if the employee is not covered under minimum essential coverage for any month, the employee may be subject to the individual mandate tax penalty for such month, and reimbursements under the HRA may be include-able in gross income.

For calendar years that begin after December 31, 2016, employers also have to report contributions to a qualified HRA on their employees’ W-2s.

More… text of the 21st Century Cures Act.