CMS just announced that, beginning in 2016, all Healthcare.gov exchanges will start to notify certain employers if one or more of their employees has received an advance payment of premium tax credits. As discussed previously here, an unintended consequence of this is that, if not properly handled, the employer’s receipt of these notices could increase the risk of a retaliation claim against employers under the ACA. Talk to your counsel about how you can segregate the information you receive in these notices from HR decision-makers, and whether you ought to respond if you learn an employee is getting a premium tax credit that you don’t think they should be eligible for (based on the coverage you are offering them).
Health Care Coverage Information Returns – Update
Final Versions of 2015 Health Care Information Reporting Forms Now Available
The Internal Revenue Service has released the final versions of two key 2015 forms and the related instructions that employers and insurers will send to the IRS and individuals this winter to report health care coverage they offered or provided. The IRS published these forms in 2014 and released draft forms and instructions for 2015 earlier this summer. The final forms and instructions for 2015 are largely unchanged from the previously released drafts.
The 2015 version of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and instructions used by employers with 50 or more full-time employees are now available on IRS.gov.
Form 1095-B, Health Coverage, and instructions primarily used by insurers and health coverage providers, including employers that sponsor self-insured plans, have been released as well.
The related document transmittal Forms 1094-B and 1094-C are also available on IRS.gov.
The health care law requires certain employers and providers to submit the 2015 forms to the IRS and individuals in early 2016. Though the forms were available for voluntary use in tax-year 2014, the upcoming tax season will be the first time that reporting is mandatory.
Now is the Time to Determine ALE Status
Employers that are applicable large employers should be taking steps now to prepare for the coming filing season. You must determine your ALE status each calendar year based on the average size of your workforce during the prior year. If you had at least 50 full-time employees, including full-time equivalent employees, on average during 2014, you are most likely an ALE for 2015.
In 2016, applicable large employers must file an annual information return – and provide a statement to each full-time employee..
If you will file 250 or more information returns for 2015, you must file the returns electronically through the ACA Information Reports system. You should review draft Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns, now for information on the communication procedures, transmission formats, business rules and validation procedures for returns that you must transmit in 2016.
Final Rules Regarding Religious Accommodation of Contraceptive Coverage Mandate
On July 14, 2015 the IRS, DOL and HHS will jointly issue final rules regarding no additional cost preventive services, including contraceptive services, under the Affordable Care Act.
The final rules maintain the existing accommodation for eligible religious nonprofits, but also finalizes an alternative pathway for eligible organizations that have a religious objection to covering contraceptive services to seek an accommodation from contracting, providing, paying, or referring for such services. The rules allow these eligible organizations to notify HHS in writing of their religious objection to providing contraception coverage, as an alternative to filling out the form provided by the Department of Labor (EBSA Form 700) to provide to their issuer or third-party administrator. HHS and the DOL will then notify insurers and third party administrators of the organization’s objection so that enrollees in plans of such organizations receive separate payments for contraceptive services, with no additional cost to the enrollee or organization, and no involvement by the organization.
The alternative notice must include:
- the name of the eligible organization and the basis on which it qualifies for an accommodation;
- its objection based on sincerely held religious beliefs to covering some or all contraceptive services, as applicable (including an identification of the subset of contraceptive services to which coverage the eligible organization objects, if applicable);
- the plan name and type; and
- the name and contact information for any of the plan’s third party administrators and health insurance issuers.
The departments issued a model notice to HHS that eligible organizations may, but are not required to, use.
Nothing in this alternative notice process (or in the EBSA Form 700 notice process) provides for a government assessment of the sincerity of the religious belief underlying the eligible organization’s objection.
In addition, the final rules provide certain closely held for-profit entities the same accommodations. Relying on a definition used in federal tax law, the final rules define a “closely held for-profit entity” as an entity that is not publicly traded and that has an ownership structure under which more than 50 percent of the organization’s ownership interest is owned by five or fewer individuals, or an entity with a substantially similar ownership structure. For purposes of this definition, all of the ownership interests held by members of a family are treated as being owned by a single individual. The rules finalize standards concerning documentation and disclosure of a closely held for-profit entity’s decision not to provide coverage for contraceptive services.
The final rules also finalize interim final rules on the coverage of preventive services generally, with limited changes.
COBRA, FMLA and the ACA Employer Mandate
Let’s assume you have diligently designated initial and standard measurement and stability periods to take advantage of the opportunities provided by the final employer mandate regulations to minimize the risk of incurring employer mandate penalties under the ACA (if you have not, let’s do it now – better late than never). But you may not yet have figured out how these designations may impact your FMLA and COBRA administration. To help you do that, let me tell you a story….
Joe Blow worked as a full-time employee for Acme, Inc. for several years. As such, he and his family were covered by Acme’s medical plan. In 2014, Acme designated a November 1 – October 31 standard measurement period, and a January 1 – December 31 standard stability period for ongoing employees such as Joe. In November 2014, Joe was diagnosed with cancer and went out on FMLA leave. In accordance with its long-standing practice, Acme continued Joe’s coverage under the medical plan while Joe was on FMLA leave, until the later of February 28, 2015 (the end of the month in which the 12 week FMLA leave period ended), or the date Joe indicated he would not return to work.
In January 2015, Joe let Acme know that he would return to work on March 1, 2015, but that due to his medical condition he could only work 20 hours per week. Joe was a valuable employee, and Acme wanted Joe to return to work in whatever capacity they could have him. So Acme welcomed Joe’s return.
Now, before the ACA, Acme would have:
- terminated Joe’s medical coverage upon his return to work,
- retroactively collected from Joe the employee portion of the premium for his coverage for the FMLA leave period, and
- offered Joe and his qualified beneficiaries COBRA coverage. The COBRA period would have started running as of March 1, 2015 (the end of the FMLA leave period).
What about after the ACA? When Joe returns to work in March 2015, Acme can no longer terminate his employee coverage, because Joe worked full time during the measurement period that ran from November 1, 2013 to October 31, 2014 (and therefore he satisfies the requirement to be considered a full-time employee for the stability period that runs from January 1, 2015 to December 31, 2015). This would remain true, even if Acme had extended Joe’s leave beyond the FMLA period, into March and April 2015. For example, if Acme had agreed to extend Joe’s leave through April 1, 2015 as an accommodation under the ADA, or if Acme had voluntarily permitted Joe to extend his leave (without terminating employment) through April 1, 2015, Acme would still not be able to terminate Joe’s coverage at the end of the FMLA leave, because of its ACA measurement and stability period designations. Acme needs to continue offering Joe coverage under the Plan through the end of 2015.
What about COBRA after the ACA? Joe works 20 hours per week for the remainder of 2015. Therefore, he does not work sufficient hours during the November 1, 2014 – October 31, 2015 measurement period to be considered a full time employee for the stability period that runs from January 1, 2016 to December 31, 2016, and Acme terminates Joe’s employee coverage as of January 1, 2016.
Under COBRA, the coverage period runs from the date of the qualifying event that leads to a loss of coverage (not from the date of the loss of coverage). Therefore, Joe’s standard 18 month COBRA period would end on August 31, 2016 (18 months after March 1, 2015). So under COBRA, Acme cannot terminate Joe’s COBRA coverage before August 31, 2016.
Alternatively, Acme could design its medical plan to start the COBRA period as of the date coverage is lost (as opposed to the date of the qualifying event). Here, that would give Joe 18 months of COBRA after January 1, 2016. Before it does so, however, Acme needs to make sure that its stop loss insurer is on board (Acme’s plan is self-funded, with a stop loss policy).
As this little tale teaches, regardless of whether Acme’s plan is self-insured or fully insured, and regardless of whether it decides to run the COBRA period from the original qualifying event, or from the loss of coverage at the end of the stability period, Acme should make sure that its insurance policies, plan documents, summary plan descriptions, medical plan eligibility administration, COBRA administration, and leave policies all account for the implications of its designated measurement and stability periods.
Class Action Lawsuit Accusing Employer of Reducing Employees’ Hours to Avoid Providing ACA Health Coverage
A May 8, 2015 class action lawsuit filed in New York alleges restaurant chain Dave & Buster’s, Inc. violated ERISA Section 510, which prohibits interfering with an employee’s attainment of an employee benefit under an ERISA benefit plan, when it converted up to 10,000 employees from full-time to part-time status in 2013 in an effort to right-sized its work force in response to the Affordable Care Act (ACA). This is one of the first lawsuits we are aware of making this allegation.
The Complaint alleges Dave & Buster’s made numerous public statements that the reason they reduced employees’ hours of employment was to avoid the increased costs of providing health benefits to their full-time employees after the ACA. If those allegations are proven true, the restaurant chain will have a difficult time defending their actions.
And worse is yet to come. As we began warning employers back in September 2013 and October 2013, the risk of lawsuits challenging workforce restructuring and reductions in force is greater since the employer mandate and the individual mandate went into effect, due to anti-retaliation provisions included in the ACA, which prohibit any adverse employment action in retaliation for receiving subsidized coverage through the Marketplace. As we explained back in 2013:
Imagine that Employee A … receives a federal subsidy for his marketplace coverage,…. [a few months later], your company determines it needs to conduct a reduction in force due to a business slowdown. Your HR manager works with senior management to carefully select RIF participants based on their skills, length of service with your company and the expected needs of your business.
The HR manager makes sure the RIF does not disproportionately impact people based on all of the protected classifications (race, nationality, sex, age, disability, etc.). …. Employee A is laid off ….
Employee A files a claim against your company with the Occupational Safety and Health Administration, alleging that your company chose Employee A for the RIF because he received subsidized coverage through the marketplace.
Employee A can establish a case of retaliation under the Affordable Care Act merely by providing evidence that his receipt of a subsidy was a “contributing factor” in the RIF decision. And under the OSHA rules that have been proposed to enforce the retaliation prohibition, Employee A will be able to meet his burden merely by showing that the HR manager knew he was receiving a subsidy at or near the time he was laid off.
The burden then shifts to your company to establish by clear and convincing evidence (which is a high bar to clear) that it would have laid Employee A off even if he had not received the subsidy.
Inside Tucson Business, October 25, 2013.
The lessons to draw from all of this include:
- If you are planning a RIF (or any other adverse employment action), consider whether anyone making the employment decisions knows that any of the affected employees is or has received subsidized coverage through the marketplace.
- If so, address it like you would for other protected classifications like age, race, sex, national origin and disability status (by documenting your reasons for the decision before you take the action).
- If not, include that fact in the documentation you create before taking the adverse employment action.
- And above all, don’t shoot yourself in the foot by proclaiming to the world that you are reducing employees’ hours because you are trying to reduce your risk of incurring the employer mandate.
King v. Burwell – Oral Argument Audio and Transcript
You can listen to the Supreme Court oral arguments in King v. Burwell – the case challenging provision of subsidies in states that have not established their own health care Marketplaces – here.
IRS Proposes Various Approaches to Cadillac Tax Implementation
IRS released Notice 2015-16 on February 23, 2015. The notice describes potential approaches the IRS may take in developing regulations to implement the Cadillac Tax, which imposes a 40% excise tax on high cost employer-sponsored health coverage in excess of a statutory dollar limit. The tax applies if the cost of coverage is in excess of $10,200 per employee for self-only coverage and $27,500 per employee for other than self-only coverage. The issues addressed in Notice 2015-16 primarily relate to:
(1) defining the coverage to which the tax applies,
(2) determining the cost of applicable coverage, and
(3) applying the annual statutory dollar limit to the cost of applicable coverage.
Significant for many employers: the cost of applicable coverage will most likely include amounts made available under a Health Reimbursement Arrangement (HRA), as well as both employer and employee salary reduction contributions to Health Flexible Spending Accounts (Health FSAs), Health Savings Accounts (HSAs), and Archer MSAs. In addition, Notice 2015-16 describes various potential approaches where an employee is covered by both individual coverage (for example an employee may have self-only major medical coverage and supplemental coverage (such as an HRA) that covers the employee and the employee’s family. The notice invites comments on various potential approaches to these and other issues raised by the Cadillac Tax.
Calculating and Paying the Excise Tax for Violating the ACA Market Reforms
Code Section 4980D imposes an excise tax equal to $100 per day per individual (theoretically, $36,500 per year per person) for not complying with the ACA market reforms. For employers with “employer payment plans” that do not satisfy the ACA market reforms, this penalty theoretically could be imposed for every employee who receives reimbursement of insurance premiums. In addition to the transition relief discussed in a prior post the tax can be reduced, or potentially eliminated entirely, if it was due to reasonable cause and not willful neglect.
No Tax If No-One Knew or Should Have Known About the Failure
First, the penalty could be avoided entirely for any period that the employer could show that no-one at the employer knew, or exercising reasonable diligence would have known, that the failure occurred. Code Section 4980D(c)(1). It is not clear what evidence a taxpayer would need to support taking this position. The Excise Tax return used to report the tax (Form 8929) permits tax payers to calculate the tax as $0 by claiming this exemption without submitting anything other than the Form 8928 claiming the exemption. See the form 8928 here and the Form 8928 Instructions here
No Tax If Failure Was Due to Reasonable Cause and Is Corrected Within 30 Days
Second, the penalty could be avoided if the employer could show that (1) the failure was due to reasonable cause and not willful neglect, and (2) the failure is corrected within 30 days after the employer learned of the failure. Code Section 4980D(c)(2). Correction means the failure is retroactively undone to the extent possible and each beneficiary of the plan is put in the same financial position they would have been in if the failure had not occurred.
It is not clear how one would correct a failure to satisfy the market reforms. In the case of employer re-imbursement plans, options to consider include (1) undo the premium reimbursement arrangement by requiring the recipients to return the re-imbursement; (2) make the reimbursements taxable and then provide additional taxable compensation to all employees so that all employees receive the same amount of additional taxable compensation (either as a percentage of their base, or as a dollar amount); or (3) determine whether anyone was subject to an annual limit or preventative care cost sharing provision under the individual policy (i.e. the market reforms applicable to group plans) that they would not have been subject to had those policies complied with the group policy mandates in that regard, and then provide them additional reimbursement to cover the costs of those services. Each of these options has potential problems and none of them is specifically approved. We recommend employers consult their counsel regarding their particular facts and circumstances before fashioning a correction.
The Tax is Limited to 10% of the Premiums paid.
Finally, for a single employer plan the maximum penalty in the case of a failure that was due to reasonable cause and not willful neglect, is 10% of the amount paid for the group health plan by the employer for the year. In the case of a n employer reimbursement plan, this would be 10% of the mount of the premiums paid or reimbursed by the employer. Code Section 4980D(c)(3).
Filing Requirements for IRS Forms 1094 and 1095
The IRS has released final Forms 1094 and 1095, which will be used to enforce the ACA employer mandate penalties and the individual mandate and tax credit eligibility rules. These forms must first be filed by employers and insurers in early 2016, for the 2015 calendar year. Filing is optional in 2015 for the 2014 calendar year. While we do not recommend voluntary filing, we do recommend employers review the forms and the instructions so they are aware of what filing in 2016 will involve because they need to be gathering the information to report now.
IRS Announces Transition Relief for Employer Payment Plans (IRS Notice 2015-17)
IRS Notice 2015-17 provides transition relief for employers that are not Applicable Large Employers (“ALEs”) (i.e. those with less than 50 FTEs) that pay, or reimburse employees for individual health policy premiums. These “employer payment plans” do not satisfy the ACA market reforms, which exposes the employers to excise taxes under Code § 4980D ($100 per day per affected individual), as of January 1, 2014. Notice 2015-17 provides that the excise tax will not be asserted (1) for 2014 against employers that are not ALEs for 2014 , and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015. After June 30, 2015, such employers may be liable for the Code § 4980D excise tax.
Our subsequent post about reporting and paying the excise tax