ACA Declared Invalid: Nothing Happens Yet

A Texas Court found the individual mandate within the Affordable Care Act ‘unconstitutional’ this week, rendering the Act itself invalid.

What does this ruling mean for people who have ‘Obamacare’? In the short term, it means nothing. The decision will be appealed (first to the 5th Circuit, and then to the Supreme Court, which may or may not agree to hear the case). As The Department of Health and Human Services noted on December 17:

“The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time.”

Employers should continue all efforts to file 1094-C and 1095-C forms on time in 2019, and should not anticipate any changes to existing applicable law at this time.


Year in Review: Compliance and Legislation 2018

2018 was another busy year for lawmakers and IRS officials, as employer penalty notices came out in bundles and regulations flowed.

Health Care Reform

  • Section 4980H Employer Mandate

    • There are no ‘new’ mandates to prepare for in the approaching 2019 calendar year, but the employer mandate is still in effect and being actively enforced by the IRS.

    • Calendar year 2016 penalty notices under both ‘A’ and ‘B’ of the mandate are circulating, so HR departments still need to watch the mailbox for any communications from the IRS.

    • To avoid a penalty in 2019, large employers should offer coverage that is affordable (no more than 9.86% of income or wages using a safe harbor method) and is of minimum value.

    • The failure to do so, along with any employee qualifying for a subsidy to purchase insurance on the Health Exchange, will result in a penalty equal to $3,750 x the number of full time employees that receive a subsidy to purchase insurance on the Health Exchange.

  • Section 5000 Individual Mandate

    • The Individual Mandate will be equal to $0 as of January 1, 2019. Taxpayers will still need to report coverage when they file their 2018 returns, and will still be assessed a penalty for the present year for any MEC failure that last more than 3 months.

  • Cadillac Tax

    • The so-called ‘Cadillac tax’ on plans exceeding certain cost thresholds was delayed earlier this year for another time, making it effective for plan years beginning in 2022. The 40% excise tax on high cost plans will be assessed on carriers, who will then pass it down to employer plan sponsors beginning with calendar year 2022.

  • ACA Fees

    • The PCORI fee for all calendar year plans will be $2.45 in July, 2019.

    • This will be the final PCORI payment for all November, December, and calendar year plans. Non- calendar year plans beginning in Feb, March, April, May, June, July, August, September or October will pay $2.39 in July 2019, and will pay $2.45 per employee in July, 2020).

    • The Health Insurer Industry Tax (‘HIT’) was due in 2018, but will not be due for plans in 2019. This applies to fully insured plans only.

  • Religious Accommodation

    • Entities objecting to covering certain contraceptives under the preventive care mandate of the ACA have more options under finalized rules. Any accommodation made whereby a TPA provides the contraceptive coverage to employees will now be optional, and can be revoked with notice in the following plan year.

SCOTUS

  • Labor Unions

    • An important decision for labor unions was rendered in late June, when the Court ruled that unions could not force government workers who didn't join a union to finance union activities. This decision is hypothesized to further reduce the effectiveness of existing labor unions.

  • New Justice

    • The retirement announcement from Justice Kennedy created a vacancy on the bench. Brett Kavanaugh was confirmed amidst one of the most contentious debates in US history. Kavanagh clerked for Justice Kennedy, and also served 12 years on the U.S. Court of Appeals for the D.C. Circuit. The impact the new bench will have on upcoming cases will play out in the next few months.

State Law

  • New York

    • Pursuant to the state budget signed into law in April 2018, New York employers are now required to conduct annual anti-sexual harassment training, and have a written policy. The requirement took effect in October, 2018. New hires must be given this training within 30 days of their hire date.

    • As of 12/31/18, the Overtime thresholds and minimum wage across New York will increase:

      • The minimum wage increases to $15 per hour (NYC employers with 11+ employees), $12 per hour (Nassau/Suffolk/Westchester Counties), and $11.10 per hour (all other locations in New York State).

      • The minimum salary for exemption as an “administrative” or “executive” employee increases from $975 per week/$50,700 annually, to $1,125 per week/$58,500 annually for NYC employers with 11+employees.

    • NY Paid Family Leave (PFL) became effective in 2018. In 2019, the employee paid premium increases from a maximum of $85 to $107 annually, and the benefit payment and time off increases as well. The list below outlines the growth of PFL over the next few year:

      • 2018 - 8 weeks of leave - 50% of wages, up to 50% of State Average Weekly Wage *in 2018, max weekly benefit of $652.96

      • 2019 - 10 weeks or 50 days of leave - 55% of wages, up to 55% of State Average Weekly Wage *in 2019, max benefit of $746.41

      • 2020 - 10 weeks of leave - 60% of wages, up to 60% of State Average Weekly Wage

      • 2021 - 12 weeks - 67% of wages, up to 67% of State Average Weekly Wage

  • New Jersey

    • As of October, 2018, NJ employers must offer paid sick leave to all employees (including temporary and part time employees). Employers can front load 40 hours to all employees at the beginning of the plan year, or track 1 hour of paid sick leave for every 30 hours worked.

    • Beginning in 2019, New Jersey will impose a mandate for all NJ resident to carry health insurance or pay a penalty (similar to the Federal ACA individual mandate that will now be repealed).

  • Massachusetts

    • Beginning July 1, 2019, Massachusetts employers will begin taking payroll taxes from employees to fund a paid family and medical leave program. Benefits under the new program will be effective as of January, 2021.

The Agencies

  • The DOL published final rules on Association Health Plans (AHPs) expanding ERISA’s definition of ‘employer’ and allowing small employers, sole proprietors and others to come together with the purpose of offering health insurance to members. AHPs will still be largely regulated by state law, so the exact logistics of the new framework’s effect on the market remain to be seen.

  • The Departments released the final rule on short term health plans, increasing their availability for those who may lose employer coverage. Short term health policies are now available. Individuals will now have the ability to purchase short-term, limited-duration insurance policies that:

    • Are less than 12 months

    • Have designated language to help them understand the short duration and limited scope of the coverage

    • May be renewed for up to 36 months.

  • HHS fined the University of Texas MD Anderson Cancer Center $4.3 million for a HIPAA breach in June, that resulted from the theft of a laptop, as well as the loss of unencrypted thumb drives with PHI for thousands of patients. This is among the largest HIPAA breach penalties in history.

  • CMS can impose a penalty of $1,000 per day for employers who receive a Medicare Data Match survey and fail to respond by the state deadline. There has been indication that this will be enforced more stringently in the future, so employers should be on the lookout for this notice and should ensure they respond promptly with all requested information.

  • The IRS released indexed account contribution and out of pocket limits for the upcoming year. The FSA limit is still yet to be announced.

2019 Limits

  • HDHP minimum deductible amount - $1,350/ $2,700

  • HDHP Maximum OOP Limit (determined by IRS) - $6,750/ $13,500

  • NON-HDHP Maximum OOP Limits (determined by HHS in accord with ACA) - $7,900/ $15,800

  • HSA Maximum Contribution Amount - $3,500/$7,000

  • FSA Maximum Contribution Amount - $2700

  • Transit - $265


The Bipartisan HSA Improvement Act

New legislation aimed at increasing the ease and value of Health Savings Accounts (HSAs) has
been proposed, and if passed, would be a welcomed improvement for many employees
currently enrolled in high deductible health plans (HDHPs).

HSAs are employee owned accounts, which have no annual ‘use it or lose it’ rule, and have
annual contribution limits set much higher than traditional FSAs. In order to open or contribute to
an HSA, an employee must be enrolled in a high deductible health plan, meaning there is no
first dollar coverage prior to satisfying the plan’s deductible (for 2018, the minimum deductible
for a plan to be qualified as an HDHP is $1350 for an individual tier, and $2,700 for a family tier).

The proposed legislation would make several changes to HSA plans, such as:

  • Allowing HSA-qualified plans to offer pre-deductible coverage of health services at onsite employee clinics and retail health clinics
  • Allowing the use of HSA funds for wellness benefits like gym memberships
  • Making it clear that telehealth (such as Teladoc), will not affect employees’ HSA eligibility
  • Ensuring that an FSA enrollment by an employee’s spouse will no longer disqualify the employee from HSA enrollment and contributions

The increased flexibility offered by this proposed legislation would be a welcome change for
many employees, as the number of HDHPs offered by employers grows every year.

DOL​ ​Proposes​ ​a​ ​ ​Rule​ ​on​ ​Association​ ​Plans

Following the President’s October 2017 Executive Order, the DOL released its proposed rule on Association Health Plans January 5. The proposed rule expands who may be considered an ‘employer’ within the meaning under ERISA. Specifically, the rule:

“...would broaden the criteria under ERISA section 3(5) for determining when
employers may join together in an employer group or association that is treated
as the “employer” sponsor of a single multiple-employer “employee welfare
benefit plan” and “group health plan” as those terms are defined in Title I of
ERISA”

If passed, small employers will be able to join together and form a ‘small business health plan’ (also called an association plan) based on geographic location or shared industry. Association plans will also be permitted to be sold across state lines. Self-employed individuals will be able to join small business health plans. The premiums for these plans cannot vary based on health factors, nor can enrollment in the plan be denied on the basis of an individual's health factors. Comments on the rule are due by March 6, after which time the DOL will release a final rule and effective date.

A Holiday Gift: Tax Reform Passes the House & Senate

The House and Senate have passed the Tax Cuts and Jobs Act, which is most similar in content to the Senate's version of tax reform. Significantly in the Health Care Reform landscape, the Bill repeals the individual mandate (but leaves the Section 4980H ‘employer mandate’ and obligation to report via Forms 1094 and 1095 intact). Individuals who do not enroll in minimum essential coverage will no longer face a penalty beginning in 2019.

Notedly, the Cadillac tax remains largely unchanged by the Bill. The only adjustment in this area is the index which tracks the amount that will trigger the tax. As of now, the threshold amounts are $10,200 for single coverage, and $27,500 for all tiers other than single. But these amounts will be indexed to the Chained CPI for 2020 when the tax becomes applicable. Plans exceeding these amounts will be taxed at 40% of the amount by which they exceed the limit.

Employers should continue preparing their 1094 and 1095 forms for filing early in 2018, and their future planning for the Cadillac Tax on health plans that exceed certain thresholds by 2020.

While most elements of the Bill exceed the scope of this alert, the Bill in its entirety can be viewed here.

Compliance Alert: Executive Orders Don't Change Anything Yet

The Administration has been busy this week. First, an interim rule expanding employer's ability to opt-out of the contraceptive mandate was released. Importantly, the rule still requires a health plan  to cover contraceptives at no cost share when no ‘regulatory recognized object exists’ by the employer sponsoring the health plan. This means that the new rules offer an exemption to employers or insurers who object based sincerely on religious beliefs to offering the coverage, and those who have ‘moral convictions’ against it.

Exemptions granted for ‘moral objections’ will only be an option for nonprofit employers, or for-profit employers with no publicly traded ownership interests. It is not a blanket reversal of the contraceptive mandate.

Next, on October 12, an executive order making significant changes to the current insurance market was signed, followed later that evening with an announcement that an end to the Marketplace subsidies was imminent. It is important to note these changes are not presently applicable, as further department action is required before the orders become ‘law’. As the New York Times reported on October 12:

“Most of the changes will not occur until federal agencies write and adopt regulations implementing them. The process, which includes a period for public comments, could take months. That means the order will probably not affect insurance coverage next year, but could lead to major changes in 2019.”

Following the executive order, the President announced an end to Marketplace subsidies, which again will not be effective for quite some time. For the time being, employers should continue to prepare their 1094 and 1095 reports and proceed with open enrollment plans with all presently effective ACA mandates and penalties in mind. As the departments act to implement the orders in the coming months (likely not until next year), all changes and related courses of necessary action will be outlined and communicated.

In the meantime, here is a brief summary of the main elements of the October 12 executive order:

  • Facilitate the purchase of insurance across state lines

  • Expanded access to association health plans

  • Make improvement in three areas in the near term:

    • association health plans (AHPs),

    • short-term, limited-duration insurance (STLDI), and

    • health reimbursement arrangements (HRAs) by expanding the permitted use

New Interim Rule on Contraceptive Mandate

The Departments have released an interim final rule following the President’s recent action regarding the contraceptive mandate under the ACA.

“These interim final rules expand exemptions to protect religious beliefs for certain entities and individuals whose health plans are subject to a mandate of contraceptive coverage through guidance issued pursuant to the [ACA]”

It is worth noting that the ACA itself does not contain the provision mandating contraceptive coverage with no cost share, rather this was a mandate found in guidance issued by HHS, which implemented aspects of the ACA.

Importantly, the rules still require a health plan  to cover contraceptives at no cost share when no ‘regulatory recognized object exists’ by the employer sponsoring the health plan. This means that the new rules offer an exemption to employers or insurers who object based sincerely on religious beliefs to offering the coverage, and those who have ‘moral convictions’ against it.

Exemptions granted for ‘moral objections’ will only be an option for nonprofit employers, or for-profit employers with no publicly traded ownership interests. It is not a blanket reversal of the contraceptive mandate.

The comment period for the proposed rule is open through early December. At that time, more information about the necessary steps for employers objecting to the mandate to take will be available.

The full text of the rule is available here.

New York Paid Family Leave: Revised Regulations May, 2017

The latest round of edits made to the New York Paid Family Leave Law were released, and the comment period will end by June 24th. At that time, expect to see a finalized version. As a reminder, beginning in January, 2018, eligible employees will be able to take 8 weeks of paid leave (at 50% of their weekly salary up to a maximum based on average state weekly wage) funded by a payroll tax of no more than $1.65 per week. This leave can be used to care for close family members with a serious illness, bond with a new child, or ease certain circumstances arising from active military service. NY PFL will be offered as a bundled product with current New York DBL policies.

The key changes or clarifications are summarized below:

  1. A new provision stating that “[a]n employer covered by the FMLA that designates a concurrent period of family leave under [the PFLL] may charge an employee’s accrued paid time off in accordance with the provisions of the FMLA.” (meaning employers may require exhaustion of accrued PTO before the leave is then payable under PFL, if that’s their current FMLA/PTO policy). But note this only applies when PFL is running concurrently with an FMLA leave. If an employee takes PFL, and the employer is not subject to FMLA, then PTO exhaustion can be mandated.

  2. Employees who regularly work fewer than 20 hours a week (ie part time employees) will be eligible for paid family leave on the 175th day of work, and employees who work 20 or more hours a week (ie full time employees) will be eligible on their 26th consecutive work week.

  3. An employee may not receive more than 26 combined weeks of DBL (for their own medical condition) and PFL benefits during the same 52 consecutive week period.

  4. If an employee takes FMLA leave for their own medical condition, it does not reduce the amount of PFL leave that same employee is entitled to in the same year

American Health Care Act: What Does it Mean

The Committee on Ways and Means released proposed legislation titled the American Health Care Act in an effort to provide anticipated changes to the present Health Care Law. The legislation includes recommendations to repeal many taxes and penalties under the Affordable Care Act (such as health insurer tax, tanning bed tax, employer mandate penalty under IRC 4980H, individual mandate penalty, and the Cadillac Tax to name a few).

Additionally, the following changes are highlights from the proposed legislation:

  • Repeal of premium tax credits, as well as small business tax credit beginning in 2020
  • Repeal of the limit on FSA contributions beginning for years after December 2017
  • Increase in HSA contribution limits to align with the maximum out of pocket costs and deductible amounts for High Deductible Health Plans
  • Repeal of the additional 0.9% Medicare tax increase under ACA, beginning in 2018
  • Creation of an advanceable, refundable tax credit for purchase of medical insurance when no employer or government insurance is available in amounts as follows:
    • Under age 30: $2,000
    • Between 30 and 39: $2,500
    • Between 40 and 49: $3,000
    • Between 50 and 59: $3,500
    • Over age 60: $4,000

The legislation is still in proposed form at this time. Additionally, none of the proposed changes take place immediately, so employers should not make any changes to their current benefit programs in anticipation of this legislation.

To view the complete text of the Committee report, click here.

 

 

 

When are Voluntary Benefits Subject to ERISA?

Much confusion exists regarding the ERISA status of voluntary benefits offered to employees, such as life insurance, accident and disability insurance. Generally, there are three requirements of the voluntary plan safe harbor:

  • The benefit plan must be completely voluntary and 100% employee paid, with no employer contributions
    • Note that salary contributions made on a pre-tax basis through a Section 125 plan are employer contributions, so all employee contributions must be after-tax to meet this element of the safe harbor)
  • Employer must not endorse the plan
    • Actions taken by an employer to endorse a plan include selecting the insurer, negotiating the terms of the plan, limiting coverage to select groups or classification of employees, and assisting your employees with making claims for benefits.
    • Endorsement does not include making the plan available to employees or publicizing the availability of the plan, collecting premiums through payroll on an after-tax basis and submitting the premium payments to the insurer.
  • Employers cannot receive any compensation that exceeds ‘reasonable reimbursement' for collecting and remitting premium payments.

If the above three criteria are not met, the voluntary plans are subject to ERISA, and as such, must follow the numerous ERISA requirements such as 5500 filing, summary plan description distributions, and fiduciary obligations.

 

Where Do We Stand: the ACA as of January 2017

President Trump wasted no time and signed an Executive Order on January 20th, which, among other things, directs the Agencies to:

“....exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications; provide greater flexibility to States and cooperate with them in implementing healthcare programs; and encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.”

What Does This Mean?

Immediately, no action is required by anyone, and nothing happens yet. The heads of CMS, IRS, DOL, & HHS need to be in place and then act before anything specific will happens regarding directive for individuals and employers under the ACA. We expect more information in the coming months.

Employers should continue to prepare for, and comply with the February and March 1095 and 1094 distribution and filing deadlines set by the IRS.

Congress Passes the CURES Act

Congress passed the CURES Act, which permits employers with fewer than 50 employees, who do not offer a health plan, to offer a stand alone HRA to their employees, as long as it meets certain requirements.

These HRAs may be used by employees to purchase individual plans and pay for medical expenses only up to:

  • $4,950 for employee only plans, and
  • $10,000 annually for family plans

Additionally the Cadillac Tax will apply to such plans. They must be 100% employer funded, and offered to all full time employees on the same terms.

Employers that have fewer than 50 employees who would like to consider eliminating a group health plan altogether and instead offering an employer-funded HRA to employees should consult their benefits advisors and counsel to ensure all facts and circumstances are considered.

Section 4980H ‘Pay or Play’ Employer Mandate

A major component of the Affordable Care Act (ACA) is the so-called ‘Employer mandate’, a penalty applicable to employers with at least 50 employees who fail to offer coverage to full time workers meeting certain requirements. Beginning January 1, 2015 the agencies began enforcement of this mandate, will full implementation effective in 2016. As 2017 fast approaches, the stakes are even higher as the applicable penalty figures increase.

Requirements under Section 4980H

1. Employer must offer minimum essential coverage to 95% of all full time employees that has a minimum actuarial value of 60%, AND

2. Coverage must be affordable; safe harbor indicates coverage is affordable if the employee share of premium for single coverage is 9.66% (2016); 9.69% (2017) or less of employee’s W-2 Box 1 wages or rate of pay

Grounds for employer penalty

1. (A) If Employer does not offer coverage to 95% of its full time employees, and one employee receives a subsidy to purchase insurance on the Health Exchange, the Employer is subject to a penalty equal to $2,160 x every full time employee in 2016 (minus 30), or $2,260 x every full time employee in 201 (minus 30)

OR

2. (B) If employer offers coverage that is unaffordable (more than 9.66% (2016) or 9.69% (2017) of employee household income) or doesn’t offer minimum value, and any employees qualify for a subsidy to purchase insurance on the Health Exchange, the employer is subject to a penalty equal to $3,240 (in 2016) x the number of full time employees that receive a subsidy/ $3,390 (in 2017)

Depending on the size of the workforce, it is easy to see how these penalties can quickly become large. The IRS is only now beginning to collect penalties from the 2015 plan year, so employers who may be affected in 2016 will have over a year to wait anxiously for a dreaded notification. Presently, a good indication that a penalty will apply can be inferred if an employer received a marketplace notification, informing them that any full time employees were receiving subsidies to purchase their coverage for 2015. Employers receiving such notices should be careful to appeal any unwarranted subsidy allocation within 60 days of receipt of the notice. Doing this may prevent the IRS from imposing a penalty in the coming months.

After the Election

After the most tumultuous election season in recent memory, a top question on employee and employer minds alike is focused on health care and what to expect in the coming months.  While nothing will be swift, we can certainly expect to see changes ahead. A good predictor of what's to come may be the 2015 Congressional budget reconciliation that was vetoed, which would have done away with several components of the Affordable Care Act.

Taxes under the ACA

The 40% excise tax on health care plans above certain threshold costs (the so called Cadillac Tax), the medical device tax, and recently increased Medicare taxes on certain individuals making above a threshold amount of salary would likely fall away

Mandates and Reporting

The individual mandate (section 5000) and employer mandates (section 4980h(a) and (b)) would likely fall away, which would take with them the reporting requirements under 6055 and 6055 (ie Forms 1094 and 1095)

Cost sharing and premium subsidies available in the public marketplaces would likely be removed, meaning coverage in the exchanges would be drastically more expensive for those currently insured here

Medicaid

Mandatory Medicaid expansion was already struck down in one of the first Supreme Court challenges to the legislation, and after Trump is in office, all states that elected Medicaid expansion will likely cease since the funding associated with such expansion would be repealed

Employers should keep in mind nothing happens swiftly, and all reporting deadlines for 2016 (due in early 2017) will proceed as currently scheduled. All health plan decisions should be made with current legislative framework in mind.