Category Archives: Affordable Care Act

Automatic Enrollment: Another Bone in the ACA Graveyard?

UPDATE:  President Barack Obama signed into law H.R. 1314, the Bipartisan Budget Act of 2015 described below, on November 2, 2015.

In the five years since the Affordable Care Act was enacted, a number of its provisions have died the legislative death known as repeal.  If enacted, the Bipartisan Budget Act of 2015 currently pending in Congress would add another bone to the ACA graveyard, in that it would repeal Section 1511 of the Affordable Care Act, which, through amendment of the Fair Labor Standards Act, would have required employers with more than 200 full-time employees to automatically enroll new full-time employees in their group health plans, subject to later opt-out.  The original effective date of this provision was unclear, but the Department of Labor put its enforcement on hold until regulations issued.  No regulations were issued, and now it looks like this provision, which was never a high-priority ACA item for the government, may never go into effect.

Other ACA measures that have previously been repealed include the mandated expansion of the definition of a “small employer,” for small group market purposes, from 50 to 100 employees. Although originally slated to take effect nationally for plan or policy years beginning on or after January 1, 2016, the PACE Act of 2015 made expansion of the definition is now a state-by-state decision (and as we discussed earlier, California’s expansion is slated to go into effect for 2016).

Another prior ACA casualty of note to employers was repeal of the cap on annual deductible amounts for health plans in the small group market, which happened (essentially retroactively) under the Protecting Access to Medicare Act of 2014.   (The repealed limits would have been $2,000 for an individual and $4,000 for a family.)  The ACA continues to cap annual maximum out-of-pocket amounts, and further requires that, effective for 2016 plan years, that a separate individual out-of-pocket maximum (an “embedded” maximum) applies to each person covered under family coverage, even before the family maximum is reached.

In the ACA’s earlier days, legislators put a stake in the heart of the free choice voucher provisions, which would have required employers who offered a group health plan to provide vouchers to certain employees to enable them to purchase exchange coverage.  The first major ACA casualty was and the public long-term care insurance program for employees, (“CLASS Act”), which was repealed, without ever having gone into effect, in the American Taxpayer Relief Act of 2012.

The last two ACA provisions that employers would most like to see repealed are the Cadillac tax, slated to go into effect in 2018, and nondiscrimination rules for fully-insured group health plans. Plans to implement the Cadillac tax, set forth in Internal Revenue Code § 4980I, appear to be progressing forward, as the IRS has issued two pieces of guidance this year, in the form of Notices 2015-16 and  2015-52, proposing interpretations of the rule and soliciting public comments on a number of points.  The fate of the nondiscrimination rule for insured plans, codified at Public Health Service Act § 2716, and incorporated into the Code via Section 9815, is less certain.  The rule is intended to provide, for non-grandfathered insured plans, a parallel to the nondiscrimination rules applicable to self-insured plans under Code § 105(h). In general terms, such a rule may make certain plan designs, including many executive/management “carve outs” such as special coverage tiers and accelerated plan entry, difficult or impossible to sustain.  In 2011, the IRS delayed enforcement of the rule until regulations were issued and no regulations have issued to date.  And since then, it has not included the rule on its annual list of priority tax guidance projects, including the most recent version for the fiscal year ending June 30, 2016, as updated for the first quarter of that period.  The IRS could still issue nondiscrimination guidance any time, however, and employers with non-grandfathered, insured plans should not assume that repeal will rescue them from this additional compliance burden.

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Filed under Affordable Care Act, Benefit Plan Design, California AB 1083, California Insurance Laws, California SB 125, Health Care Reform, Health Insurance Marketplace, Nondiscrimination Rules for Insured Health Plans, Small Group Coverage, Small Group Expansion

California Scheduled to Expand Small Group Definition Despite PACE Act

On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act which repeals provisions of the Affordable Care Act, and the Public Health Service Act, that effective January 1, 2016 would otherwise mandate expansion of the definition of “small employer” subject to insurance market reforms, from employers with 1 to 50 employees, to those with up to 100 employees. (This is actually a “look-back” test based on employee headcounts over the prior calendar year).  As discussed in this prior post, the market reform provisions, including modified community rating to determine premiums, and prohibitions on dollar limits on essential health benefits, are expected to significantly increase the cost of coverage for employers with 51 to 100 employees who will be joining the small group market for the first time.

Although the PACE Act repeals the federally-mandated expansion of the “small employer” definition, it leaves states the discretion to expand the definition on their own schedule.  As previously reported, California already enacted legislation in 2012, A.B. 1083, that expands the definition of small employer to employers with 1 to 100 employees, effective for plan or policy years beginning on or after January 1, 2016.  And in S.B. 125, earlier this year, California also adopted the use of the ACA’s full-time and full-time equivalent method of counting employees towards the small employer threshold.  When enacting S.B. 125, California had the opportunity to postpone small group expansion but did not do so.  Therefore the California small group market expansion will occur in 2016 unless California legislators take quick action by the end of the year to repeal the expansion, now codified in the California Insurance and Health and Safety Codes, or extend its effective date.  Of course, if is possible that the California legislature will not make any changes to the small employer definition, and small group expansion will occur in 2016.

We will continue to monitor developments on this topic.

Please note that an additional provision of S.B. 125 – changing open enrollment under the California state health exchange – Covered California, to match the November 1 – January 31 open enrollment period used by the federally-facilitated exchange, is scheduled to take effect November 1, 2015.

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Filed under Affordable Care Act, Benefit Plan Design, California Insurance Laws, California SB 1034, California SB 125, Covered California, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace, PACE Act of 2015, PPACA, Small Group Coverage, Small Group Expansion, State Exchange

IRS Proposes Revisions to ACA Reporting for Health Reimbursement Arrangements

As addressed in our prior post, IRS Notice 2015-68, issued on September 17, 2015, describes and requests comments on a number of ACA reporting issues, including several that that the IRS and Treasury Department plan to address in amended or new proposed regulations. Among the points addressed is avoiding duplicate reporting for multiple sources of MEC provided to the same individual (“supplemental coverage”). The Notice describes the current rule for reporting supplemental coverage as “confusing” and outlines a more streamlined alternative. Examples in the Notice describe how it will apply to Health Reimbursement Arrangements (“HRAs”) that are offered together with group health coverage.  Note:  MEC reporting generally is not required for HRAs, but per recent informal comments by the IRS on a payroll industry conference call, applicable large employers (ALEs) may have to report on HRA coverage that constitutes MEC via Part III of IRS Form 1095-C, under some circumstances.

The proposed new anti-duplication rules, which will apply month-by-month and individual-by-individual, will provide that if an individual is covered by multiple MEC plans or programs provided by the same provider, reporting is required for only one of them. Under this proposed rule, if an individual is enrolled in a self-insured group health plan for a given month and also is takes part in an HRA sponsored by the same employer, the employer, again via Section III of Form 1095-C, is required to report only one type of coverage for that individual (which most likely would be the self-insured group health plan) for that month. If an employee is covered under both arrangements for some months of the year but is covered only under the HRA for other months (for instance, because he or she retires or otherwise drops coverage under the self-insured group health plan), the employer must report coverage under the HRA for those months when it was the only MEC provided.

Under the second proposed anti-duplication rule, reporting generally is not required for MEC for which an individual is eligible only if the individual is covered by other MEC for which MEC reporting is required, so long as the two types of coverage are sponsored by the same employer. This describes the typical “integrated” HRA setting, in which an employer offers an HRA only to employees and dependents who enroll in the employer’s group health plan.  In this setting, a self-insured employer can take advantage of the first anti-duplication rule, and need not report the HRA as MEC for months in which an employee is enrolled in both plans.  However, an employer that is an ALE and sponsors an insured plan may have a reporting duty.  An insured employer that is an ALE need not provide MEC reporting in relation to the HRA for those months in which the employees and dependents are enrolled in the insured plan. However, if an employee is enrolled in an employer’s HRA and in a spouse’s employer’s group health plan, the employee’s employer – if it is an ALE,  must provide MEC reporting for the HRA via Form 1095-C, Section III (and the spouse’s employer separately must provide MEC reporting for its group health plan), by completing Forms 1095-B and 1094-B.  Notably, this duty to report MEC coverage provided to non-employees under an integrated HRA applies even to an employer that is not an “applicable large employer” and need not report offers of coverage on Forms 1095-C and 1094-C.

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Filed under Affordable Care Act, Health Care Reform, Health Reimbursement Arrangements, Minimum Essential Coverage Reporting, Plan Reporting and Disclosure Duties, PPACA, Self-Insured Group Health Plans

ACA Reporting Update: New Procedures for Requesting Family Member SSNs

In Notice 2015-68, issued September 17, 2015, the IRS has modified the steps that must be followed by insurance carriers and self-insured employers to demonstrate a “reasonable effort” to obtain Social Security Numbers or other Tax Identification Numbers (collectively, TIN) for family members enrolled in Minimum Essential Coverage (MEC), and has requested public comment on further adjustments to the requirements. Pending future guidance, following the new procedures will entitle the reporting party to “reasonable cause” relief from penalties for late or incomplete tax returns and employee statements.

Internal Revenue Code § 6055 requires that, among other information, TINs for individuals who are enrolled in MEC be reported by MEC providers. Insurance carriers (issuers) report to insureds via IRS Form 1095-B and self-insured employers report to full-time employees on Section III of IRS Form 1095-C. (Forms 1095-B and 1095-C are transmitted to the IRS under Forms 1094-B and 1094-C, respectively. The IRS issued final 2015 versions of these forms, and instructions for same, also on September 17, 2015.) If the reporting party follows the “reasonable effort” steps to obtain a family member SSN/TIN without success, it may report a date of birth for that individual on the applicable form without penalty.

The new steps required to be followed in order to demonstrate that a reasonable effort has been made to obtain an enrolled family member’s SSN/TIN are as follows:

  1. The initial request is made at the time the individual first enrolls or, if the person is already enrolled on September 17, 2015, the next open enrollment period;
  2. The second request is made at “a reasonable time thereafter” and
  3. The third request is made by December 31 of the year following the initial request.

This sequence replaces the sequence described in the preamble to final regulations under Code § 6055: initial request made when an account is opened or a relationship established, first annual request made by December 31 of the same year (or, if the initial request was made in December, by January 31 of the following year), and second annual request made by December 31 of the following year. The Notice states that that this sequence, which was lifted directly from regulations under Code § 6724, the “reasonable cause” relief statute, prompted concerns among reporting parties that it was not practical in the context of MEC reporting.

Until further guidance, it remains the case that reporting a date of birth in one year does not eliminate the need to make the necessary follow-up requests as described in the Notice.

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Employer Shared Responsibility, Minimum Essential Coverage Reporting, Plan Reporting and Disclosure Duties, Self-Insured Group Health Plans

SCOTUS Rulings Highlight ACA Paradox

The two landmark rulings by the Supreme Court last week – one upholding the ability of the federal health exchange to award premium tax credits, and one upholding the right of same-sex couples to be married in all 50 states – would not appear to be interrelated.  However the back-to-back rulings highlight an unusual paradox in the ACA regarding access to premium tax credits.  Specifically, by marrying and forming “households” for income tax purposes, individuals may lose eligibility for premium tax credits that they qualified for based only on their individual income.  This has always been the case for married couples – both opposite-sex and same-sex — but it may come as news to same-sex couples now seeking to marry in states that prohibited such unions prior to the Supreme Court ruling.

To understand this ACA paradox – that married status may reduce or eliminate premium tax credit eligibility – some background is helpful.

Since January 1, 2014, state health exchanges and the federal exchange have made advance payments of premium tax credits to carriers on behalf of otherwise eligible individuals with household income between 100% and 400% of the federal poverty level (FPL).  For a single individual this translates to annual household income in 2015 between $11,770 – $47,080.  (For individuals in states that expanded Medicaid under the ACA, premium tax credit eligibility starts at 133% (effectively 138%) of FPL, which translates to $16,243.)

For these purposes, “household income” is the modified adjusted gross income of the taxpayer and his or her spouse, and spouses must file a joint return in order to qualify for premium tax credits except in cases of domestic abuse or spousal abandonment.  A taxpayer’s household income also includes amounts earned by claimed dependents who were required to file a personal income tax return (i.e., had earned income in 2015 exceeding $6,300 or passive income exceeding $1,000).   Generally speaking, same-sex adult partners will not qualify as “qualifying relative” tax dependents, in the absence of total and permanent disability.

Therefore, adult couples sharing a home in the absence of marriage or a dependent relationship will be their own individual households for tax purposes and for purposes of qualifying for advance payment of premium tax credits.  Conversely, adult couples who marry must file a joint tax return save for rare circumstances, and their individual incomes will be combined for purposes of premium tax credit eligibility.  By way of example, two cohabiting adults each earning 300% of FPL in 2015 ($35,310) will separately qualify for advance payment of premium tax credits in 2015, presuming their actual income matches what they estimated during enrollment.  However once the couple marries, their combined household income of $70,620 will exceed 400% of FPL for a household of two ($63,720), and they will lose eligibility for premium tax credits.

The rules for figuring tax credit eligibility for a year in which a couple marries or separates are quite complex.  The instructions to IRS Form 8962, Premium Tax Credit return, provide some guidance but the advice of a CPA or other tax professional may be required.

Before the Supreme Court’s ruling last week, the Department of Health and Human Services instructed the exchanges to follow IRS guidance recognizing persons in lawful same-sex marriages as “spouses” for purposes of federal tax law, in accordance with the Supreme Court’s 2013 ruling in United States v. Windsor.  That ruling recognized same-sex marriages under federal law provided that they were lawfully conducted in a state or other country, but fell short of declaring same-sex marriage as a Constitutional right that must be made available in all U.S. states.   It is likely that HHS will update guidance to the exchanges to reflect the recent, more expansive ruling on this issue.

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Filed under 401(k) Plans, Affordable Care Act, Employer Shared Responsibility, Federally Facilitated Exchange, Fringe Benefits, Health Care Reform, Health Insurance Marketplace, Premium Tax Credits, Same-Sex Marriage

California Adopts FT/FTE Counting Method to Determine Small Group Market Eligibility

Update:  Governor Jerry Brown signed SB 125, discussed below, on June 17, 2015.

In 2016, when California’s small group insurance market expands to include employers of up to 100 employees, employers in the state will use the same method of counting full time and full-time equivalent employees towards that threshold, as is required under the ACA’s employer shared responsibility rules.  This will be the effect of Senate Bill 125, which has been enrolled and sent to Governor Brown for signature.  It is expected that he will sign the bill into law, and the bill is effective upon enactment.

Current California Insurance and Health and Safety Code provisions define a “small employer” as an employer that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one, but no more than 50, ‘eligible employees,’ the majority of whom were employed within California.”   An “eligible employee” is in turn defined as “any permanent employee who is actively engaged on a full-time basis  . . . with a normal workweek of an average of 30 hours per week [or at least 20, at the employer’s option] over the course of a month” at the employer’s regular place of business, and who has met any applicable waiting period requirements.”   When it first enacted ACA-compliant measures in the 2011-2012 legislative session (AB 1083), California opted to postpone expansion of this definition — from employers of up to 50, to up to 100 employees — until January 1, 2016, which is the latest expansion date that the ACA allows.

Notably, the current manner of counting employees towards the 100 employee threshold does not take into account full-time equivalent (FTE) employees, which are counted towards the definition of an Applicable Large Employer (ALE) subject to ACA employer shared responsibility (or “pay or play”) duties, as set forth in Internal Revenue Code § 4980H, and final regulations thereunder.  FTEs are determined by totaling hours of service worked in a month by employees (including seasonal workers) who average under 30 hours of service per week (but not exceeding 120 hours/month for any single employee), and dividing the total by 120, such that 10 employees averaging 15 hours per week would result in 5 FTEs.  ACA health exchange regulations require that the ACA definition apply for purposes of policies that are sold on the small group exchange (SHOP) but not with regard to non-exchange policies.  SB 125 makes the ACA counting method applicable to all small group market policies sold in the state, whether or not offered on SHOP:

“For plan years commencing on or after January 1, 2016, the definition of small employer, for purposes of determining employer eligibility in the small employer market, shall be determined using the method for counting full-time employees and full-time equivalent employees set forth in Section 4980H(c)(2) of the Internal Revenue Code.”

California Insurance Code § 1357.600(q)(3); California Health and Safety Code § 1357.500(k)(3), both as amended by SB 125.  Both measures apply only to nongrandfathered health plans.

As a result, and with one important exception noted below, California employers will only need to do one set of calculations to be able to determine their status as Applicable Large Employers subject to ACA pay or play rules, and their status with regard to California’s small or large group markets.

The exception is with regard to counting employees of related entities.  Both California Code provisions amended by SB 125 require employers to count employees employed by “affiliated companies” that are eligible to file a combined tax return for purposes of state taxation.  However, the test for joint filing under the California Revenue and Taxation Code is not the same as “controlled group” status under federal law, which is expressly incorporated into the employee counting rules in Code Section 4980H(c)(2).  It is possible that this was an unintended drafting discrepancy that future guidance will resolve, but in the meantime, California employers with related entities should consult their state and federal law tax advisors to make sure they are counting employees properly for California small group eligibility and ACA shared responsibility purposes.

This exception aside, SB 125 brings welcome simplification at a time when employers with between 51 and 100 employees are calculating the likely costs and complications of losing access to large group coverage, and entering a market subject to rating restrictions and mandated coverage of essential health benefits.  Although legislative measures are afoot to allow states to further postpone, past 2016, the expansion of the small employer definition, California is unlikely to adopt any such change, should it become available.

SB 125, which was sponsored by California Senator Ed Hernandez (D-West Covina) also changes the annual open enrollment period for California’ state health exchange, Covered California™ , from October 15-December 7 of the year preceding the coverage year, to November 1 of the year preceding the coverage year, through January 31 of the new coverage year.  This is also consistent with the ACA, specifically with the Final HHS Notice of Benefit and Payment Parameters for 2016.  The new open enrollment period will first apply on November 1, 2015 through January 31, 2016, for the 2016 coverage year.

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Filed under Affordable Care Act, California AB 1083, California Insurance Laws, Covered California, Employer Shared Responsibility

Agency FAQs Address a Variety of Preventive Care Questions

On May 11, 2015, the Departments of Labor, Treasury, and Health and Human Services issued the 26th in a series of Frequently Asked Questions on implementation of the Affordable Care Act.  The FAQs provide needed clarification on several aspects of no-cost preventive health services required to be provided under the Act.  Key points are summarized below.

Expanded BRCA Genetic Testing and Counseling

  • The FAQ extends BRCA genetic testing and counseling without cost sharing to women who do not have a family history of the specified cancers, but who themselves have had breast, ovarian, or other cancer that was not diagnosed as BRCA-related. Medical studies cited in the FAQ found that these women show an increased risk of gene mutation, even in the absence of a family history of cancer, such that genetic testing could identify and prevent later disease. No-cost genetic testing and counseling for these women, even when asymptomatic and cancer free, is thus a logical extension of current preventive care guidelines triggered by family disease history.

Dependent Access to Well-woman Preventive Care

  • Dependent children may receive recommended preventive care services without cost sharing under non-grandfathered group health plans and individual policies; the ACA defines “dependent” as children up to age 26. Accordingly, female dependents may receive well-woman preventive services through age 25, including preconception care and prenatal care, where those services are determined to be age- and developmentally appropriate. Dependent coverage need not be extended to the child of a child receiving dependent coverage.

Access to Sex-Specific Preventive Care

  • Sex-specific preventive care and screening must be provided at no cost whenever an individual’s attending provider determines that it is medically appropriate, irrespective of the individual’s sex assigned at birth, gender identity, or recorded gender. In the example given, a transgender man with residual breast tissue would qualify for a mammogram with no cost sharing if other criteria for the preventive service, and for coverage, are met.
    • Note: “attending provider” includes licensed individual healthcare providers to the patient in question, and does not include plans, issuers, hospitals or HMOs.

Clarification re: No-Cost Coverage of Contraceptive Methods

  • Group health plans and issuers must cover, without cost sharing, at least one form of each of the 18 methods of birth control methods for women that are identified in, among other sources, the current version of the FDA Birth Control Guide. The no-cost coverage of the contraception method must also include related clinical services, such as patient education and counseling.
  • This rule takes effect for plan or policy years beginning on or after July 10, 2015; the delayed effective date allows time for changes to be made by plans and issuers who reasonably interpreted prior guidance as not requiring that at least one form of contraception in each of the 18 methods be offered without cost sharing.  Based on this principle, it is not permitted to cover oral contraceptives with no cost sharing, while imposing cost sharing on other FDA-identified hormonal contraceptive methods such as emergency contraception or the contraceptive patch.
  • Within each of the 18 methods of contraception, plans and issuers may use reasonable medical management techniques and impose cost sharing to encourage use of specific services or FDA-approved items within that method. For instance, a plan could provide generic birth control pills at no cost and impose cost sharing for brand name pills. However, the plan would need to make exceptions, and waive cost sharing for name brand drugs, for women for whom it was medically inadvisable to take the generic version.
  • When multiple medically appropriate services and FDA-approved items exist within a given contraceptive method, plans and issuers may use reasonable medical management techniques to encourage use of some services and methods over others. However, if a woman’s attending provider recommends a specific service or item based on medical necessity, the plan or issuer must cover the service or item without cost sharing.
    • “Medical necessity” in this context may take into account the severity of side effects, differences in permanence and reversibility of contraceptives, and the ability to adhere to the appropriate use of the item or service, as determined by the attending provider.
  • In either instance (exception to medical management technique, or recommendation of specific service or item) the process for obtaining coverage must be efficient, transparent, easily accessible and not unduly burdensome to the patient, her attending provider, or other authorized representative, and the plan or issuer must defer to the determination of the attending provider regarding medical necessity. In addition, the plan or issuer must determine the claim within the time periods, and in the manner, applicable to a pre-service, post-service, or urgent care claim, as is appropriate under the circumstances. (Requests that involve urgent care must be resolved as soon as possible, but no later than 72 hours after receipt.)
  • Note that group health plans established by or maintained by religious employers (generally limited to “steeple” churches or other houses of worship) are exempt from the requirement to cover contraceptive services, and accommodations are available to group health plans maintained by certain nonprofit organizations founded on religious principle.  Guidance related to the religious exemption is summarized here.

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Filed under Affordable Care Act, GINA/Genetic Privacy, Health Care Reform, PPACA, Preventive Care