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.