New ACA Guidance Warrants Another “Checkup” of Employer Health Plans

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New ACA Guidance Warrants Another “Checkup” of Employer Health Plans

Author, Laura R. Westfall, New You are able to, 1 212 556-2263, [email protected]

On December 16, 2015, the government issued Notice 2015-87 (the “Notice”), which supplies “question-and-answer” guidance concerning how various Affordable Care Act (the “ACA”) provisions affect employer-provided group health plans. Amongst other things, the Notice provides additional rules regarding the use of the ACA’s market reforms (like the ACA’s annual dollar limit) to health reimbursement plans (“HRAs”), including integration issues, and provides additional clarification regarding the use of COBRA to carryovers of unused funds from year upon year in healthcare flexible spending accounts (“FSAs”). The Notice offers penalty relief for information reporting needs underneath the ACA. Employers must be aware the guidance provided within the Notice may need additional changes to employer health plans, including HRAs and health FSAs-even when such plans were already in compliance with prior ACA guidance. Generally, the guidance within the Notice applies for plan years beginning on after December 16, 2015 (e.g., Jan. 1, 2016, for twelve months plans), even though some transition relief can be obtained.

The ACA’s HRA Integration Needs

HRAs must generally be “integrated” along with other group health plan coverage to conform using the ACA’s annual dollar limit prohibition and preventive services needs. In Notice 2013-54, the government established standards that, if satisfied, would qualify an HRA as “integrated” having a group health plan (and for that reason considered to conform with your ACA needs). An HRA that isn’t integrated-i.e., a “stand-alone” HRA-will normally trigger penalties of the routine sponsor to fail to conform with your needs.

However, Notice 2013-54 was silent around the few who should be covered underneath the group health plan and also the HRA to ensure that the HRA to become “integrated.” The Notice clarifies that the HRA is going to be regarded as “integrated” by having an employer’s group health plan coverage for purpose of the use of the ACA insurance market reforms “only regarding the people who are signed up for both HRA and also the employer’s other group health plan.” Thus, the amount of coverage that the worker elects under a built-in HRA, i.e., self-only, self 1, family, etc., must match the amount of coverage underneath the group health plan that the HRA is integrated. The Notice’s clarification addresses an evident concern from the IRS that the worker would use their HRA to compensate medical expenses suffered by their loved ones people, whether or not individuals family people were taught in employer’s other group health plan.

  •  INSIGHT. The Notice appears to suggest the group health plan coverage being integrated should be provided by exactly the same employer that provides the HRA (i.e., that for a spouse’s medical expenses to become reimbursed from your employee’s HRA account, the spouse should be included in such employee’s group health plan coverage). However, IRS representatives have informally clarified that as long as the spouse is included by group health plan coverage (for example coverage provided by the spouse’s employer), the employee’s HRA would become qualified as “integrated” as long as another integration needs are met. Regardless of this clarification, plan managers associated with a HRA that will probably be “integrated” might want to make sure their systems permit them to see whether a request reimbursement from such HRA pertains to a cost of a relative who’s included in a qualifying group health plan.

Transition relief within the Notice provides that Treasury and also the IRS won’t treat an HRA readily available for the price of family people not signed up for the employer’s other group health arrange for plan years beginning before The month of january 1, 2016, as neglecting to be integrated by having an employer’s other group health arrange for plan years beginning before The month of january 1, 2016. Further, transition relief can be obtained for plan years beginning before The month of january 1, 2017, as long as the HRA and group health plan would certainly be integrated in line with the the plan by December 16, 2015 (i.e., the only real noncompliant part of the HRA by that date was the HRA’s coverage of expenses of family people which were not also signed up for the employer’s other group health plan (or any other qualifying group health plan coverage). Employers should note they have until the very first day of the 2017 plan year to amend the HRA to conform using the Notice’s requirement.

In line with previous guidance, the Notice claims that an HRA covering active employees cannot compensate participants for the price of premiums for medical health insurance policies acquired around the individual market. However, an HRA may compensate premiums for medical health insurance policies acquired around the individual market, when the health insurance plan covers only “excepted benefits” (i.e., dental or vision insurance plans). Additionally, the Notice reiterates that retiree-only HRAs continue to be allowed to compensate retirees for the price of premiums for individual medical health insurance policies, whether or not such coverage is acquired within the private market or around the exchange. (A retiree HRA is definitely an HRA that covers under two active employees.)

Resolution of a worker’s Price of Coverage for that ACA’s Affordability Rules

Underneath the ACA, the affordability of employer-provided coverage of health affects whether employees as well as their family people will get insurance premium tax credits or cost-discussing subsidies from public exchanges, which can trigger penalties underneath the ACA’s employer “pay or play” mandate. Waiving affordable employer coverage of health also can result in individual-mandate assessments for workers as well as their family people who remain uninsured. Underneath the ACA’s employer “pay or play” mandate, an relevant large employer won’t be needed to pay for a problem if substantially all the employer’s full-time workers are offered affordable, minimum-value coverage of health. Underneath the ACA, coverage is “affordable” if the employee’s needed contribution for self-only coverage (i.e., the “price of coverage”) underneath the employer’s cheapest-cost major medical plan doesn’t exceed 9.5% (adjusted yearly) from the employee’s household earnings.

  •  INSIGHT. The quantity of a worker’s needed contribution for coverage under a company-backed plan’s employed for two purposes through the ACA: first, to find out if the employer is going to be susceptible to penalties underneath the “pay or play” mandate, and 2nd, for that ACA’s reporting needs under Sections 6055 and 6056 (on Forms 1094-C and 1095-C).

Previous ACA guidance addressed how various health plan features affect affordability determinations for people, but didn’t how such features affected employers. The Notice addresses the result of HRA contributions, cafeteria plan “flex credits” and opt-out payments on affordability determinations for purpose of the ACA’s employer “pay or play” mandate.

Adjustments For Inflation

To assist employers determine affordability, IRS safe harbors provided in prior ACA guidance offer three affordability “safe harbors” to make use of rather of household earnings within the calculation of whether coverage is “affordable” (e.g., the shape W-2, rate of pay, and federal poverty level safe harbors). The Notice provides the IRS will adjust the 3 affordability safe harbors yearly for inflation. Consequently, employers could use 9.56% for plan years starting in 2015 and 9.66% for plan years starting in 2016.

Employer HRA Contributions

Within the situation of HRAs, amounts provided for that current plan year that the worker could use to pay for premiums to have an qualified employer-backed plan (and, when the HRA permits it, that the worker might also use for cost-discussing and/or other health advantages not included in that plan additionally to premiums), are counted toward the employee’s price of coverage (therefore lowering the amount of money from the employee’s needed contribution). This is actually the situation both substantively, as well as for purpose of reporting on Form 1095-C. For instance, when the employee’s needed contribution for group coverage of health provided by Employer ABC is $200/month, and Employer ABC yearly provides $1,200 under an HRA (e.g., $100/month) that the worker may use to pay for the employee’s needed contribution for such coverage, the employee’s needed contribution for such coverage is $100/month (e.g., $200 contribution – $100 HRA contribution).

Cafeteria Plan “Flex Credits”

Frequently, cafeteria plans are funded both by salary reductions by employer “flex contributions” (e.g. “flex credits”). Final rules applying the ACA’s individual mandate provide that the flex credit cuts down on the employee’s price of coverage if and just if:

  • The worker might not choose to get the amount like a taxed benefit (e.g., as cash) and
  • The worker are only able to make use of the flex credit to cover minimum essential coverage or tax-excludible health care (e.g., not for just about any nonmedical or taxed benefits).

A contribution under an agreement that satisfies the above mentioned criteria is called a “health flex credit.” The Notice extends the last IRS assistance with health flex credits to employers’ affordability determinations: the Notice claims that any adverse health flex credit reduces a worker’s price of coverage dollar-for-dollar, which on the other hand, a company flex credit that isn’t any adverse health flex credit doesn’t reduce a worker’s price of coverage. Thus, for instance, if the employer flex credit that’s available to cover healthcare can also be available to cover any non-healthcare benefits (e.g., dependent care or group term existence insurance), that credit isn’t a health flex credit and, consequently, doesn’t lessen the employee’s price of coverage.

The Notice provides transition relief for existing plans: for plan years beginning before Jan. 1, 2017, employers can treat flex credits in position by 12 ,. 16, 2015, as reducing a worker’s price of coverage, even when individuals flex credits don’t become qualified as health flex credits underneath the Notice. This relief isn’t available if the employer adopts or considerably increases its non-health flex credits after 12 ,. 16, 2015. Additionally, the Notice provides that for coverage for plan years beginning before The month of january 1, 2017, a company may reduce the quantity of the employee’s price of coverage by the quantity of most non-health flex credits for purpose of the ACA’s Section 6056 information reporting needs.

Opt-Out Plans

Within an opt-out arrangement, a company provides an worker additional compensation in return for the employee’s waiver of employer-provided group coverage of health. Opt-out plans could be either unconditional (i.e., an agreement supplying for any payment conditioned exclusively with an worker declining coverage) or conditional (e.g., an agreement that needs the worker to supply evidence of coverage supplied by a spouse’s employer). Prior ACA guidance hadn’t addressed whether opt-out payments affected employers’ affordability determinations. The Notice claims that Treasury and also the IRS anticipate issuing additional guidance later on, that will likely require employers to improve the price of coverage to employees by the quantity of any “unconditional” opt-out payment.

Example. A company offers employees group coverage of health via a Section 125 cafeteria plan, requiring employees who elect self-only coverage to lead $200/month toward the price of that coverage. The business also provides yet another $100/month in taxed wages to anybody who waives such coverage. The $100/month “opt-out” payment has got the economic aftereffect of effectively growing a worker’s price of coverage to $300/month: not just must the worker who elects coverage pay $200/month in salary reductions toward the price of that coverage, the worker should also forgo $100/month in compensation.

The Notice claims that before the issuance of further guidance, an opt-out payment made pursuant to the arrangement adopted just before December 17, 2015 doesn’t need to be reported on Form 1095-C and won’t, by itself, cause a company to become susceptible to a problem underneath the ACA’s employer “pay or play” mandate. The Notice also claims that before the issuance of further guidance, an opt-out payment made pursuant to some conditional opt-out arrangement adopted anytime doesn’t need to be reported on Form 1095-C and won’t, by itself, cause a company to become susceptible to a problem underneath the ACA’s employer “pay or play” mandate. Employers must be aware the Notice anticipates that unconditional opt-out plans which are adopted after December 16, 2015 will not be qualified for just about any transition relief.

Inflation Adjustment of Employer “Pay or Play” Mandate Penalties

The Notice provides the penalties underneath the employer mandate (generally, $2,000 per full-time worker to fail to provide coverage, and $3,000 to fail to provide affordable, minimum value coverage) is going to be adjusted for inflation in a long time after 2014. Accordingly, for 2015 the penalty amounts is going to be $2,080 and $3,120, as well as for 2016 the penalty amounts is going to be $2,160 and $3,240, correspondingly.

Penalty Relief for ACA Information Reporting

Underneath the Notice, penalty relief can be obtained concerning the ACA’s information reporting rules (Code Section 6056) from penalties for incomplete or incorrect returns filed or worker statements presented to employees in 2016 for coverage offered during 2015. The Notice provides the IRS won’t impose penalties (under Code Sections 6721 and 6722) on large employers that may show they’ve made good belief efforts to fulfill the ACA’s information reporting rules. However, the relief is unavailable if the employer does not timely file an info return or give a statement, even though the Notice notes that giant employers may be qualified for penalty relief involving reasonable cause standards. (Similar relief had recently been provided under prior ACA guidance regarding reporting on coverage under Code Section 6055.)

  • INSIGHT. Employers should observe that IRS Notice 2016-04, issued at the end of December 2015, gives employers a 2-month extension to furnish the government Forms 1095-B and 1095-C to employees (producing a deadline of March 31, 2016 rather from the original deadline of Feb 1, 2016), along with a three-month extension to file for the 1094/1095 forms using the IRS (producing a deadline of May 31, 2016, if the employer isn’t filing digitally, and June 30, 2016, if filing digitally).

Hrs and services information: Full-Time Worker Status

For purpose of the ACA’s employer “pay or play” mandate, an individual’s status like a full-time worker is calculated according to that person’s “hrs and services information.Inch Prior ACA guidance contained some ambiguities concerning the crediting of hrs and services information in a few conditions. The Notice clarifies that in figuring out whether an hour or so and services information should be credited, a repayment for services are considered to make by (or due from) a company, whether or not (i) the payment is created through the employer directly, or perhaps is made not directly through, among other sources, some insurance company or trust fund that the business contributes or pays premiums, or (ii) contributions which are made or because of some insurance company, trust fund, or any other entity are generally for the advantage of particular employees, or with respect to several employees within the aggregate. Which means that periods that an worker didn’t perform services, but gets payments because of short-term or lengthy-term disability, will normally be counted as “hrs and services informationInch as the recipient remains an worker, unless of course the debts are paid from your arrangement that the business didn’t lead directly or not directly.

  •  INSIGHT. In line with the guidance within the Notice, periods where an worker has gone out on sick leave like a payroll practice, or perhaps is on disability and it is receiving payments from your insured or self-insured employer-backed disability plan, will normally be needed to become counted as “hrs and services informationInch for purpose of the ACA’s employer “pay or play” mandate.

Next Steps for Employers

Employers should immediately review their current and considered plan designs considering the extra guidance supplied by the Notice to find out whether any changes to individuals plan designs are essential. Additionally, employers may decide to review their Section 125 cafeteria intends to see whether any flex credits become qualified as “health flex credits” or else satisfy the conditions for transition relief established within the Notice see whether you will find any opt-out plans in position which may be impacted by the anticipated future ACA guidance pointed out within the Notice and think about the way the indexed affordability percentages established within the Notice will modify the employer’s “safe harbor” calculations.


“Cadillac Tax” Delayed: The so-known as “Cadillac tax” is really a provision from the ACA that imposes a 40% excise tax on the need for group coverage of health presented to an worker more than a particular threshold. Employers must be aware the Consolidated Appropriations Act, 2016, signed into law by President Barack Obama on December 18, 2015, delays the imposition from the “Cadillac tax” until 2020, and helps make the tax deductible.

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