On Friday night, December 20, President Trump signed two spending
bills that keep the federal government funded until September 20, 2020.
One of the bills was called the Further Consolidated Appropriations
Act of 2020. This omnibus bill includes many provisions beyond keeping the
federal government running. For example, it extends the Work Opportunity
Tax Credit (WOTC); the federal tax credit for employers that provide paid
family and medical leave; and several immigration-related programs, including
E-Verify. The bill also provides several improvements in 401(k) rules.
However, this bill also addresses the Affordable Care Act in these
important ways:
The Cadillac tax is fully repealed and not kicked down the road beyond January 2022.
The excise tax on medical devices is repealed effective December 31, 2019.
The excise task in health insurers (some call this the ACA Market Share Fee or the Health Insurer Fee) is repealed effective January 1, 2021.
The PCORI fee, which was supposed to expire for plan years ending after September 30, 2019, has been extended for another 10 years. It will continue to have an inflation-adjusted mechanism.
Since the PCORI fee has not been a “big ticket” item, its
continuance will likely not require self-funded employers to revise their 2020
health budgets or rates.
We will continue to keep you advised as we learn more about the
impact of these spending measures.
Effective
January 1, 2020, employers can establish two new Health Reimbursement Accounts
(HRAs) — an Individual Coverage HRA (ICHRA) and an Excepted Benefit HRA (EBHRA).
This could be a significant development for employers sponsoring employee
health benefit plans — both insured and self-funded.
Questions Employers Should Ask
Employers should
consider the following questions regarding the impact of the new rules.
Will the
new HRA rules change how your organization delivers health benefits? If
so, how?
Do you
believe these new rules will facilitate more job mobility? If so, how will that
trend impact your ability to retain talent, or attract new associates?
How Did We Get to this Point?
You may recall that
in October 2018, proposed regulations were released by the Departments of
Health and Human Services, Labor, and Treasury to enable employers of all sizes
to use a Health Reimbursement Arrangement (HRA) to finance individually-purchased
health insurance on a tax-preferred basis.
Comments on the
proposed regulations were due by December 28, 2018. In June 2019, final
regulations were released and generally apply for plan years beginning on or
after January 1, 2020.
Individuals can
currently purchase health insurance from either the ACA Marketplace (i.e. the
public “exchange”) or directly from an insurer.
Employers with less than 50 full-time employees can currently reimburse an employee for individual health insurance premiums using a Qualified Small Employer HRA (QSEHRA). In 2019, the amounts an employer can contribute to a QSEHRA are limited to $5,150 for Single coverage or $10,450 for Family coverage.
What Changed?
Effective January 1,
2020, two new HRAs can be established.
Individual Coverage HRA (ICHRA)
As long as the individual purchases ACA-compliant health
coverage, the employer (of any size) can reimburse the employee for those
premiums subject to these rules:
The employer cannot also offer a traditional group health plan in addition to the ICHRA
Offering an ICHRA will satisfy the ACA employer mandate under Section 4980H so long as a) the affordability threshold is met; and b) the employer makes the ICHRA available to entire classes of employees, such as FTEs, or PTEs. However, there are minimum class sizes:
For those employers with less than 100 employees: minimum class of 10 employees
For employers with 100-200 employees: the minimum class is 10% of total employees
For employers with more than 200 employees: the minimum class is 20 employees
A notice of the availability of an ICHRA must be provided at least 90 days prior to the beginning of the plan year (a model notice accompanied the final regulations)
When an employee or their dependent gains access to an ICHRA, a Special Enrollment Period applies
The amounts contributed to the HRA must not favor highly compensated individuals—there are only two instances in which the employer’s HRA contributions can vary: a) older employees may receive higher amounts (but not to exceed a 3:1 age band); or b) employees with greater numbers of covered dependents may receive a higher amount
There is
no limit on the amount the employer can contribute to the ICHRA and
The
amount of the ICHRA reimbursement is not taxable to the employee
Excepted Benefit HRA (EBHRA)
Those employers
wishing to continue offering traditional health benefits (including PPOs, HMOs,
or qualified high deductible health plan/HSA plans) can offer an EBHRA to pay:
Out-of-pocket
medical expenses
Dental
benefits
Vision
benefits or
STLDI
premiums
Although these
reimbursements are also tax-exempt, the amount that can be contributed by the
employer is limited to $1,800 per year. This amount will be indexed for
inflation after 2020.
An employee could
opt-out of his/her employer-sponsored health plan and still be eligible for the
EBHRA. However, an employee cannot have both an ICHRA and
an EBHRA.
Now What?
A defined
contribution (DC) approach to employee health benefits is not new. A few
years ago, private health insurance exchanges were a hot topic. However,
they did not catch on for active employees, primarily because the insured
models were inefficient due to state premium taxes, ACA market share fees and
broker commissions. In addition, they had an unsatisfactory record in
providing long-term rate stability.
The ICHRA promises
to be more viable, assuming the individual health insurance market remains
healthy. Remember, the ACA still applies to the individual market in that
a person can’t be denied coverage due to pre-existing condition, or have his/her
premiums increased because of health status.
When HIPAA was
enacted in 1996, a key objective was to facilitate portability of health
insurance and end “job lock”. However, that goal was not fulfilled in an
employer-sponsored health benefits environment. But with individually-purchased
health insurance, portability is achieved. As a result, will employees be more
apt to change jobs and either look for employers with ICHRAs or negotiate
additional compensation to pay their health insurance premiums? If so, how
does this impact an employer’s employment value proposition, or their ability
to retain qualified talent?
Although the Trump
Administration believes these HRA rules will appeal mostly to small-to-medium
employers, it is likely larger employers looking for an effective DC approach
to health benefits will take a serious look at ICHRAs. Although health
care cost trends have moderated somewhat in recent years, they are still accelerating
at three times inflation. Any opportunity to budget health benefit
expenses on the same basis as wage and salary increases is very important to
all businesses.
Findley will
continue to follow HRA developments. To learn more about how these rules impact
your future health care strategy, appropriate employee communications, or
suitable HRA administrative arrangements, contact your Findley consultant or
Bruce Davis at bruce.davis@findley.com or 419. 327.4133.
As a
reminder, the ACA developed the Patient-Centered Outcomes Research Institute
(PCORI), whose mandate is to improve the quality and relevance of evidence
available to help patients, clinicians, caregivers, employers, insurers, and
policy makers make informed health decisions. In order to fund the comparative
effectiveness research, the ACA imposes an annual fee, which is paid to the
IRS. This year the due date is July 31, 2019.
If a plan is fully insured, then the health insurer is
responsible for paying the fee. For self-insured plans, the plan sponsor
(generally the employer) is responsible for paying the PCORI fee.
For
self-insured health plans, the fee is calculated using the average number of
total lives covered by the plan (both employees and dependents). The
requirement for calculating the total fee is to use one of the following three
calculation methods:
Actual count
method
Snapshot method
Form 5500 method
Plan Sponsors should review all three methods to
determine the lowest amount to be paid. The amount to pay depends on the plan
year end as outlined below:
Plan years ended
1/1/2018 – 9/30/2018:
$2.39 per covered life (including spouses and children)
Plan years ended
10/1/2018 – 12/31/2018: $2.45 per covered life (including spouses and children)
The PCORI
fee is set to expire for plan years that end before October 1, 2019, therefore
this will be the final PCORI filing for calendar year-end plans.
The PCORI fee is filed using IRS Form 720 (https://www.irs.gov/pub/irs-pdf/i720.pdf). The payment voucher (720-V) should indicate that the tax period for the fee is the “second quarter” to avoid the IRS’s software system marking this as a tardy filing notice.
For more information, contact Dave Barchet at 216.875.1914, Dave.Barchet@findley.com or John Lucas at 615.665.5329, John.Lucas@findley.com or the Findley consultant with whom you normally work with.
Regardless of what side of the political spectrum you
find yourself, you would probably agree that to say Washington, DC is in
gridlock is an understatement. We are not going to assign blame to any
particular party for the impasse. Instead, we’ll focus on how
employer-sponsored health benefits could be impacted in 2019-2020 and by the
results of the next Presidential election in November 2020.
.We will look at how the Trump Administration’s executive actions between now and then could shape the direction of employer-sponsored health benefits. We will also speak to how the makeup of the U.S. Supreme Court (SCOTUS) could impact the outcome of any related legal challenges.
On February 27, Representatives Pramila Jayapal (D-WA) and Debbie Dingell (D-MI) introduced the Medicare for All Act of 2019. This bill goes far beyond the Affordable Care Act (ACA) by eliminating employer-sponsored health plans. In fact, Healthcare.gov (i.e. the ACA Marketplace or Exchange) would also be eliminated as everyone is moved to Medicare within two years. Given the Democrats have a 235-197 majority in the House of Representatives (there are 3 vacancies), it’s quite possible the Medicare for All bill will pass. However, the Republican majority in the U.S. Senate (53-47) likely means this bill would not pass the Senate—if it ever makes it to the floor for a vote. Other health care-related bills passed by the Democrat-controlled House will likely be opposed by the Trump Administration and the Senate Republicans too.
The Trump Administration will continue issuing
healthcare-related Executive Orders (EO), such as the one which changed the
maximum coverage period for short-term limited duration insurance plans from 12
to 36 months. Another example is the EO that would allow organizations (beyond
churches and religious employers) to avoid the ACA’s contraceptive mandate
based on religious or moral grounds. Predictably, this EO was challenged by Attorneys
General from five states where the governor is a Democrat and/or the
legislatures are primarily controlled by Democrats. As a result, two federal
district courts have issued nationwide preliminary injunctions to block this
order.
The Trump
Administration is also likely to continue directing the DOL/HHS/Treasury
Departments to issue regulations or guidance that are consistent with its
objectives and policies to control healthcare costs and improve access to
affordable coverage. One example is the proposed rules to expand the use of
Health Reimbursement Arrangements (HRAs) by employers of any size to pay for
individual health insurance premiums. Another example is the possibility the
HHS Secretary could relax prescription drug importation rules to give Americans
the ability to purchase their prescriptions from abroad at a fraction of US
prices.
Although Democrats would probably not oppose prescription drug importation because it will help reduce costs for their constituents, they are likely to challenge the HRA measure. Democrats are concerned about their constituents losing comprehensive, ACA-compliant coverage through their employers (at least until they can get them moved on to Medicare) in exchange for a stipend that may not be sufficient to cover the premiums for an individual health insurance policy (probably with higher deductibles and a more narrow provider network). And speaking of challenges, you may recall that Attorneys General from eleven states and the District of Columbia filed suit to block the Administration’s endorsed DOL/HHS/Treasury regulations on Association Health Plans (AHPs), because they believe AHPs will undermine the ACA Marketplace and result in people being covered under non-ACA compliant plans.
Earlier, we mentioned the makeup of SCOTUS will
determine the fate of court challenges to the Trump Administration’s (and that
of future Administrations) healthcare-related EOs and regulations. Today, the
Administration enjoys an advantage with the recent appointments of Justices
Gorsuch and Kavanaugh. However, with Chief Justice Roberts showing a tendency
to be a more moderate voice, that advantage is narrow. What if President Trump
has the opportunity to appoint another conservative Justice before the November
2020 election and that nomination is approved by the Republican majority in the
Senate? If that happens, it’s more likely the Administration’s EOs and
regulations will be upheld in the future.
On December 14, 2018, the much-anticipated decision was issued in Texas v. United States in which the District Court found the Patient Protection and Affordable Care Act (ACA) unconstitutional given the current terms of the individual mandate.
From an employer perspective, this case does not require or even provide opportunities for change as the ACA continues to be the law of the land as the case works its way through the system. As such, employers should continue their health coverage strategies per the ACA and comply with all of its requirements.
The Case
The key issue in the case was the individual mandate. The plaintiffs in the case brought action arguing that the individual mandate was unconstitutional and, as a result, the ACA is unconstitutional due to the individual mandate not being severable from the remainder of the ACA. This case was essentially a result of the Tax Cuts and Jobs Act of 2017 (TCJA), as under the TCJA the individual mandate penalty under the ACA was reduced to zero (effectively eliminating the penalty).
United State District Court Judge Reed O’Connor spent a fair amount of time in the decision discussing the National Federation of Independent Business v. Sebelius case where the Supreme Court focused on the individual mandate penalty and found it in the nature of a tax. However, with the TCJA doing away with the penalty, the questions became (1) whether the individual mandate itself was constitutional with a zero dollar penalty (or tax) and (2) whether the entire ACA itself was constitutional in the event that the individual mandate was unconstitutional (i.e. the severability issue).
The Court’s two key findings in Texas v. United States (in the words of Judge O’Connor):
(1) “The Court today finds the Individual Mandate is no
longer fairly readable as an exercise of Congress’s Tax Power and continues to
be unsustainable under Congress’s Interstate Commerce Power. The Court
therefore finds the Individual Mandate, unmoored from a tax, is
unconstitutional.”
(2) “The Court finds the Individual Mandate ‘is essential
to’ and inseverable from ‘the other provisions of’ the ACA.”
Post-Decision Considerations
From a litigation perspective, the next step is an appeal to the Fifth Circuit (and the Supreme Court thereafter). We may be years from a resolution on this issue as the case makes its way through the legal system. Right now, the ACA continues to “live” as is.
Section 2713 of the Affordable Care Act (ACA) requires group health plans and health insurers to provide coverage for a variety of preventative care services without any cost sharing requirements (deductibles,coinsurance, and copayments). This list of preventative care receives yearly additions and modifications, which must be integrated into health plans within the following two years. These recommendations are made by organizations such as the U.S. Preventative Services Task Force, Bright Futures, and the Advisory Committee on Immunization Practices. Here are some of the recommendations that must be integrated into health plans for the 2019 calendar year:
Preeclampsia screening through blood pressure tests
Obesity screenings for children and adolescents 6 years and older
Vision screening in children ages 3 to 5 to detect amblyopia or its risk factors
Influenza vaccine for adolescents
Hepatitis B vaccine for adolescents
Human papillomavirus (HPV) vaccine for adolescents
This year’s updates appear to focus on improving women’s health during pregnancy and adolescent health in general. While the list above is not exhaustive, here area few resources if you would like to find out more:
A list of all recommendations from the U.S.
Preventative Services Task Force may be found here.
The approved Periodicity Schedule from Bright
Futures may be found here
ACIP Vaccine Recommendations and Guidelines may
be found here
Current preventative services for adults, women,
and adolescents may be found here
Questions? Contact the Findley consultant with whom you normally work or Kadin Llewellyn at 419.327.4103, Kadin.Llewellyn@findley.com.
On November 29, 2018, the IRS released Notice 2018-94 announcing an extension of furnishing 2018 Forms 1095-B and 1095-C, from January 31, 2019, to March 4, 2019. This extension is basically identical to the extension the IRS provided for furnishing the 2017 Forms 1095-B and 1095-C in Notice 2018-06. As they indicated last year, the IRS encourages employers and other coverage providers to furnish the Forms “as soon as they are able.”
Notice 2018-94 does not extend the due date for employers, insurers, and other providers of minimum essential coverage to file 2018 Forms 1094-B, 1095-B, 1094-C, and 1095-C with the IRS. The filing due date for these forms remains February 28, 2019 (April 1, 2019, if filing electronically).
In Notice 2018-94, the IRS once again indicates that good faith reporting standards will apply for 2018 reporting. This means reporting entities will not be subject to penalties for incorrect or incomplete information if they can show they have made good faith efforts to comply with the 2018 Form 1094 and 1095 information reporting requirements. This relief pertains to missing and incorrect taxpayer identification numbers, dates of birth, and other required return information. However, no relief is provided where there has not been a good faith effort to comply with the reporting requirements, or where there has been a failure to file an information return or furnish a statement by the applicable due date.
Note that due to the extension, a taxpayer may not receive his or her Form 1095-B or 1095-C by the time they file their 2018 tax return. The Notice states, that in such case, the taxpayer may rely on other information received from his or her employer or coverage provider for purposes of filing his or her return.
In addition, the Notice points out that the individual responsibility payment (tax) has been reduced to zero for the months beginning after December 31, 2018. As such, the Treasury and IRS are studying whether and how the reporting requirements should change (if at all) in the future.
As part of the Affordable Care Act, the fee to fund the Patient-Centered Outcomes Research Institute (PCORI) has been in effect since 2012, and by now, plan sponsors and insurers are very familiar with it. The fee itself was imposed as part of Sections 4375 and 4376 of the Internal Revenue Code, and is scheduled to be in effect for plan years ending after September 30, 2012 and before October 1, 2019. The amount of the PCORI fee is equal to the average number of lives covered during the plan year multiplied by the applicable dollar amount for the year. Of note, the applicable dollar amount is indexed each year.
The IRS has recently released Notice 2018-85; stating that for plan years ending on or after October 1, 2018, and before October 1, 2019, the fee will be increased from $2.39 to $2.45 per covered member. This will be the used to calculate the amount payable in July 2019 using the IRS Form 720. View the IRS notice directly by clicking here. Please also note that for calendar year plans, the 2018 plan year is the last year for which PCORI fees will apply given the sunset of the fees.
