Welfare Benefits Strategies For Small to Mid-Size Employers After The ACA

Lovitt & Touche’s Chris Helin has a great article out detailing two innovative approaches to dealing with the challenges posed to small and mid-sized businesses resulting from the continued rise in rates and coverage mandates under the Affordable Care Act (ACA).

Retention Accounting

Chris explains that “[w]hen you receive a quote from a carrier under a retention accounting contract instead of a fully insured contract, you are given the chance to share in the savings in a good claims year.” These contracts used to be available only to employers with more than 5000 people on their medical plan. They may now be an option even if you have as few as 100 employees on your plan.

Private Marketplace

The second approach is one on which Lovitt & Touche has taken a lead: the Private Marketplace. Not to be confused with the public exchanges, a private marketplace can be custom designed to deliver all of your welfare benefits, including medical, dental, vision, life, and disability. A private marketplace offers several innovations that employers may find attractive, including: (1) you can offer many more than just two or three plan designs within each insurance option; and (2) you can also use a defined contribution strategy and provide a specific dollar amount for each employee to spend.

Even if the ACA is repealed or significantly altered in 2017, these trends will likely continue, and they may be worth a look.

For more information read Chris’s article Here.

 

OSHA Issues Final Rules for Handling ACA Retaliation Claims

The Department of Labor’s Occupational Safety and Health Administration has published a final rule establishing procedures, time frames and burdens of proof for handling whistleblower complaints under the Affordable Care Act (ACA).

The ACA amended Section 18C of the Fair Labor Standards Act to protect employees from retaliation for receiving federal financial assistance when they purchase health insurance through an Exchange. It also protects employees from retaliation for raising concerns regarding conduct that they believe violates the consumer protections and health insurance reforms found in Title I of the ACA.

This rule establishes procedures and time frames for hearings before Department of Labor administrative law judges in ACA retaliation cases; review of those decisions by the Department of Labor Administrative Review Board; and judicial review of final decisions. Significant provisions in the final rule, and implications for employers include:

  • As with other retaliation claims, the complainant need not prove that the initial complaint, which they allege triggered the retaliation, pertained to an actual violation of law. They only need to show that they had a good faith belief that they were complaining about a violation of law.
  • To establish a prima facie case of retaliation for receiving a subsidy or premium assistance through an Exchange, an employee merely needs to show that an adverse action took place shortly after the protected activity.
  • This will be a very easy burden to meet where the employer has knowledge that the employee was receiving a subsidy or premium assistance. For example:
    • an employee might ask the employer about the coverage available through his employment, for the purpose of applying for a subsidy through the Exchange.
    • in addition, under the ACA, when an exchange provides a premium subsidy it is supposed to notify the employer. This will provide the employer specific notice that the employee has requested or is receiving a subsidy.
    • the employer’s knowledge of the above could prove fatal to the employer’s defense of a retaliation claim, unless the employer scrupulously segregates such knowledge from those making employment decisions.
  • Once a claimant establishes a prima facie case, the burden shifts to the employer to establish by clear and convincing evidence that it would have taken the adverse action even if the protected activity had not occurred. This is a very high standard.

More…

The Final Rule

OSHA’s Affordable Care Act fact sheet provides more information regarding who is covered under the ACA’s whistleblower protections, protected activity, types of retaliation, and the process for filing a complaint.

IRS Releases 2016-2017 Priority Guidance Plan

The IRS has published its 2016–2017 Priority Guidance Plan containing 281 projects that are priorities for allocation of its resources during the twelve-month period from July 2016 to June 2017.

Significant employee benefits issues prioritized for guidance in the next year include:

  • Additional guidance on the determination letter program, including changes to the pre-approved plan program.
  • Updates to the Employee Plans Compliance Resolution System (EPCRS) to reflect changes in the determination letter program and to provide additional guidance with regard to corrections.
  • Final regulations on income inclusion under §409A.
  • Guidance to update prior §409A guidance on self-correction procedures.
  • Final regulations under §457(f) on ineligible plans.
  • Guidance on issues under §4980H (the Employer Mandate).
  • Regulations under §4980I regarding the excise tax on high cost employer-provided coverage (the Cadillac Tax)
  • Regulations updating the rules applicable to ESOPs.
  • Regulations under §401(a)(9) on the use of lump sum payments to replace lifetime income being received by retirees under defined benefit pension plans.
  • Guidance regarding substantiation of hardship distributions.
  • Guidance on the §403(b) remedial amendment period.

Notably absent is any mention of guidance on the nondiscrimination rules applicable to fully-insured medical plans, which were included in the Affordable Care Act. The Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively, the Departments), previously determined in Notice 2011-1 that compliance with the nondiscrimination provisions will not be required (and thus, any
sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued. Therefore, for the foreseeable future fully insured plans can continue to discriminate in favor of highly compensated individuals in ways the self-insured plans cannot under Code Section 105(h).

IRS 2016–2017 Priority Guidance Plan

IRS Information Letters Provide Further Guidance on “Employer Payment Plans”

The IRS has released a series of information letters providing further guidance on the application of ACA group health plan market reforms to various types of employer health care arrangements. These information letters provide further definition to when the IRS will consider an arrangement to be an impermissible “employer payment plan” that does not satisfy the ACA market reforms. As previously discussed here and here and here, adopting an impermissible employer payment plan exposes employers to excise taxes under Code § 4980D ($100 per day per affected individual).

I. Opt-Out Arrangements. In Letter 2016-0023 the IRS indicated that if an employer pays additional taxable compensation to employees who forgo coverage under the employer’s group health plan (opt-out payments), due to having other coverage, the employer will not trigger the 4980D excise tax, as long as the amount of additional taxable compensation is unrelated to the cost of the employee’s other coverage.

II. Small Plans Exception. In Letter 2016-0005 the IRS allowed reimbursement of individual policy premiums provided that there is only one “active” employee in the plan. This is because the ACA market reform rules do not apply to a group health plan if the plan has less than 2 participants who are active employees.

III. Relief For S Corporations. Letter 2016-0021 explains that S Corporations may continue to pay for or reimburse premiums for their “2% shareholders-employees” without being subject to Code 4980D excise taxes, until further guidance is issued (this position was previously stated in Notice 2015-17). This relief does not, however, apply to S corporation employees who are not 2% owners.

IV. Beware of Promoters Promising They Can Structure a Plan to Allow Reimbursement of Individual Policy Premiums. In Letter 2016-0019 the Treasury explains that it has been made aware of a number of what it describes as “schemes”, whereby promoters are marketing products that they are claiming will allow employers to reimburse individual health policy premiums without violating the ACA market reforms. Treasury is looking at the information and warns that it disagrees with the promoters’ claims that their product does not impose an annual limit on essential health benefits. Consequently, their product fails to meet the market reforms.

IRS Publishes Affordable Care Act Estimator Tools

The IRS Taxpayer Advocate Service has posted several useful tools for individuals and employers to help determine how the ACA may affect them and to estimate ACA related credits and payments.

The Employer Shared Responsibility Provision Estimator helps employers understand how the Employer Mandate works and how the penalties for not complying with the Employer Mandate may apply. Employers can use the estimator to determine:

  • The number of their full-time employees, including full-time equivalent employees
  • Whether they might be an Applicable Large Employer (ALE)
  • If they are an ALE, an estimate of the maximum amount of the potential liability for the employer shared responsibility payment that could apply to them, based on the number of full-time employees that they report, if they fail to offer coverage to their full-time employees

Caution: this tool is only designed for use in 2016 and forward (it is not designed to estimate 2015 penalties). Moreover, the tool can only provide an estimate of the maximum amount of potential liability for the employer shared responsibility payment.

US District Court for DC Rules Payment of Some ACA Subsidies are Unconstitutional without Separate Appropriation

The U.S. District Court for the District of Columbia has ruled that certain Affordable Care Act subsidies designed to reduce deductibles, co-pays, and other means of “cost sharing” by insurers cannot be paid unless they are separately appropriated by Congress. U.S. House of Representatives v. Burwell, et al., (2016, DC DC), Civil Action No. 14-1967 (RMC).

The case involves two sections of the Affordable Care Act: 1401 and 1402. Section 1401 provides tax credits to make insurance premiums more affordable, while Section 1402 reduces deductibles, co-pays, and other means of “cost sharing” by insurers. Section 1401 is codified at 26 U.S.C. 36B (in the tax code) and was funded by adding it to a preexisting list of permanently-appropriated tax credits and refunds.

Section 1402 was not added to that list. The court ruled that Section 1402, which is codified in Title 42, which includes federal laws concerning “Public Health and Welfare” cannot be funded through the same, permanent appropriation as Section 1401. Instead, Section 1402 reimbursements must be funded annually.

The Court ruled that by paying out the subsidies without the necessary appropriation, the Administration violated Article I, Section 9, clause 7 of the U.S. Constitution, which provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . . .”

The Court enjoined payment of the reimbursements, but stayed its ruling pending appeal. Therefore, the short term effect is that that reimbursements will continue while the case is on appeal. A decision from the US Court of Appeals for the DC Circuit on appeal will likely take months.

More … U.S. House of Representatives v. Burwell, et al., (2016, DC DC), Civil Action No. 14-1967 (RMC).

IRS Notice 2015-87 Provides Further Guidance on the Application of ACA Market Reforms to Employer Payment Plans, Employer Mandate and COBRA

On December 16, 2015, the Department of Treasury and IRS issued Notice 2015-87 which provides further guidance on the application of the market reforms that apply to group health plans under the Affordable care Act (ACA) to various types of employer health care arrangements. The notice includes guidance that covers:

(1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan, and similar employer-funded health care arrangements; and

(2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan). The notice supplements the guidance provided in Notice 2013-54; FAQs about the Affordable Care Act Implementation (Part XXII) issued by the Department of Labor on November 6, 2014; Notice 2015-17; and final regulations implementing the market reform provisions of the ACA published on November 18, 2015.

iconsee our previous post on this topic.

Notice 2015-87 also clarifies certain aspects of the employer shared responsibility provisions of § 4980H, and clarifies the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years pursuant to Notice 2013-71, and conditions that may be put on the use of carryover amounts.

IRS Extends 2015 Deadlines for Health Information Reporting Returns

IRS announced today that it is extending the due dates for the 2015 information reporting requirements under sections 6055 and 6056 of the Code. Specifically, Notice 2016-4 extends the due date:

(1) for furnishing to individuals the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer Provided Health Insurance Offer and Coverage, from February 1, 2016, to March 31, 2016, and

(2) for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically.

The extensions of due dates provided by Notice 2016-4 apply only to section 6055 and section 6056 information returns and statements for calendar year 2015 filed and furnished in 2016 and do not require the submission of any request or other documentation to the IRS.

BACKGROUND

Section 6055 requires health insurance issuers, self-insuring employers, government agencies, and other providers of minimum essential coverage to file and furnish annual information returns and statements regarding coverage provided. Section 6056 requires applicable large employers (generally those with 50 or more full-time employees, including full-time equivalents, in the previous year) to file and furnish annual information returns and statements relating to the health insurance that the employer offers (or does not offer) to its full-time employees.

Section 6721 of the Code imposes a penalty for failing to timely file an information return or filing an incorrect or incomplete information return. Section 6722 of the Code imposes a penalty for failing to timely furnish an information statement or furnishing an incorrect or incomplete information statement. Section 6721 and 6722 penalties are imposed with regard to information returns and statements listed in section 6724(d) of the Code, and section 6724(d) lists the information returns and statements required by sections 6055 and 6056.

Final regulations, published on March 10, 2014, relating to the reporting requirements under sections 6055 and 6056, specify the deadlines for information reporting required by those sections. See our prior posts here and here.

The regulations under section 6055 provide that every person that provides minimum essential coverage to an individual during a calendar year must file with the Service an information return and a transmittal on or before the following February 28 (March 31 if filed electronically) and must furnish to the responsible individual identified on the return a written statement on or before January 31 following that calendar year. The Service has designated Form 1094-B and Form 1095-B to meet the requirements of the section 6055 regulations.

The regulations under section 6056 require every applicable large employer or a member of an aggregated group that is determined to be an applicable large employer (ALE member) to file with the Service an information return and a transmittal on or before February 28 (March 31 if filed electronically) of the year following the calendar year to which it relates and to furnish to full-time employees a written statement on or before January 31 following that calendar year. The Service has designated Form 1094-C and Form 1095-C to meet the requirements of the section 6056 regulations.

The preambles to the section 6055 and section 6056 regulations provide that, for 2015 coverage, the Service will not impose penalties under section 6721 and section 6722 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements, and that this relief applies only to furnishing and filing incorrect or incomplete information, including TINs or dates of birth, reported on a return or statement and not to a failure to timely furnish or file a statement or return. Notice 2015-87 reiterates that relief, and Notice 2015-68, provides additional information about that relief with regard to reporting under section 6055. The preambles also note, however, the general rule that, under section 6724 and the related regulations, the section 6721 and section 6722 penalties may be waived if a failure to timely furnish or file a statement or return is due to reasonable cause, that is, the reporting entity demonstrates that it acted in a responsible manner and the failure is due to significant mitigating factors or events beyond the reporting entity’s control.

PENALTIES

Employers or other coverage providers that do not comply with the extended due dates provided by Notice 2016-4 are subject to penalties under section 6722 or 6721 for failure to timely furnish and file. However, the Service is encouraging employers and other coverage providers that do not meet the extended due dates to furnish and file, and the Service will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause. The Service will also take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information to the Service and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the Service, or testing its ability to transmit information to the Service. In addition, the Service will take into account the extent to which the employer or other coverage provider is taking steps to ensure that it is able to comply with the reporting requirements for 2016.

Notice 2016-4

Cadillac Tax Delayed Until 2020

The 2016 omnibus spending bill unveiled by Congressional leaders on December 15 and signed by the President on December 18 includes a two year delay in the Cadillac Tax. In addition to delaying the Cadillac Tax until 2020, the bill makes the tax deductible for employers.

We will keep an eye on further developments in this field and will continue to update our readers as necessary. In the meantime, we recommend employers continue to monitor their glide-path toward implementation of the tax, so they can take appropriate steps to avoid incurring the tax, or minimize its impact. This includes obtaining an assessment of the likelihood of incurring the tax based on current plan design and participant behavior.

Consolidated Appropriations Act, 2016

Prior Post: IRS Proposes Various Approaches to Cadillac Tax Implementation

ACA Automatic Enrollment Repealed

There is good news for employers with more than 200 employees in the recently announced budget deal: The deal repeals the automatic enrollment requirement that was originally enacted as part of the Affordable Care Act.

Section 1511 of the ACA required employers with health coverage that have more than 200 employees to automatically enroll new employees in their plan. The act also required employers to give new employees notice and the opportunity to opt out of the automatic enrollment. The DOL had previously delayed implementation of the provisions. With this repeal, employers will no longer need to worry about implementing this particular ACA requirement.

HR 1314