Starting in 2015, the Affordable Care Act (ACA) requires applicable large employers to offer affordable, minimum value health coverage to their full time employees (and dependents) or pay a penalty. The employer penalty rules are also known as the employer mandate or the “pay or play” rules.
Effective in 2014, affordability of health coverage is used to determine whether an individual is:
On July 24, 2014, the IRS released Revenue Procedure 2014-37 to index the ACA’s affordability percentages for 2015.
For plan years beginning in 2015, an applicable large employer’s health coverage will be considered affordable under the pay or play rules if the employee’s requires contribution to the plan does not exceed 9.56 percent of the employee’s household income for the year. The current affordability percentage for 2014 is 9.5 percent.
Applicable large employers can use one of the IRS’ affordability safe harbors to determine whether their health plans will satisfy the 9.56 percent requirement for 2015 plan years, if requirements for the applicable safe harbor are met.
This adjusted affordability percentage will also be used to determine whether an individual is eligible for a premium tax credit for 2015. Individuals who are eligible for employer-sponsored coverage that is affordable and provides minimum value are not eligible for a premium tax credit in the Exchange.
Also, Revenue Procedure 2014-37 adjusts the affordability percentage for the exemption from the individual mandate for individuals who lack access to affordable minimum essential coverage. For plan years beginning in 2015, coverage is unaffordable for purposes of the individual mandate if it exceeds 8.05 percent of household income.
Employer Mandate
The pay or play rules apply only to applicable large employers. An “applicable large employer” is an employer with, on average, at least 50 full-time employees (including full-time equivalents) during the preceding calendar year. Many applicable large employers will be subject to the pay or play rules starting in 2015. However, applicable large employers with fewer than 100 full-time employees may qualify for an additional year, until 2016, to comply with the employer mandate.
Affordability Determination
The affordability of health coverage is a key point in determining whether an applicable large employers will be subject to a penalty.
For 2014, the ACA provides that an employer’s health coverage is considered affordable if the employee’s required contribution to the plan does not exceed 9.5 percent of the employee’s household income for the taxable year. The ACA provides that, for plan year beginning after 2014, the IRS must adjust the affordability percentage to reflect the excess of the rate of premium growth over the rate of income growth for the preceding calendar year.
As noted above, the IRS has adjusted the affordability percentage for plan years beginning in 2015 to 9.56 percent. The affordability text applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.
Affordability Safe Harbors
Because an employer generally will not know an employee’s household income, the IRS created three affordability safe harbors that employers may use to determine affordability based on information that is available to them.
The affordability safe harbors are all optional. An employer may choose to use one or more of the affordability safe harbors for all its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category.
The affordability safe harbors are:
Individual Mandate
Beginning in 2014, the ACA requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. This rule is often referred to as the “individual mandate”. Individual may be eligible for an exemption from the penalty in certain circumstances.
Under the ACA, individuals who lack access to affordable minimum essential coverage are exempt from the individual mandate. For purposes of this exemption, coverage is considered affordable for an employee in 2014 if the required contribution for the lowest-cost, self-only coverage does not exceed 8 percent of household income. For family members, coverage is considered affordable in 2014 if the required contribution for the lowest-cost family coverage does not exceed 8 percent of household income. This percentage will be adjusted annually after 2014.
For plan years beginning in 2015, the IRS has increased this percentage from 8 percent to 8.05 percent.
The Department of Health and Human Services (HHS) recently updated the Code Set Rules. The Code Set rules are part of the Health Insurance Portability and Accountability Act’s (HIPPA’s) Administrative Simplification Provisions. These rules create uniform electronic standards for common health plan administrative processes. Requiring health care providers and other stakeholders to use the same data formats for common transactions simplifies certain administrative aspects of providing and paying for health care.
Under the latest rules, self funded employers will need to apply for a Health Plan Identifier (HPID). Most employers will have to apply by November 5, 2014. This number will be used to ensure employers comply with certain Code Set rules requirements.
The Code Set Rules have affected covered entities for a number of years. However, certain aspects of these rules were not enforced in the past. In order to promote efficient health coverage, health care reform includes provisions to ensure health care stakeholders are complying with specific transaction and code set requirements.
Review of the HIPAA Code Set Rules
The final HIPAA Transaction and Code regulations published in August 2000 applied to most health plans as of October 16, 2003. They require covered entities conducting certain transactions electronically to use specific standards and code sets. Covered entities include:
Most of the applicable transactions occur between the health plan and health care providers covering areas like claims submission and payment, eligibility, and authorizations/referrals, however the enrollment and disenrollment transaction process generally involves the employer and the health plan.
New Requirements for a HPID for Self Funded Plans
The Code Set rules require all parties involved in the health care system to use an identifying number. Large group health plans (plans with an annual cost of $5 million or more) need to register for their Health Plan Identifier (HPID) number by November 5, 2014. Small group health plans (plans with an annual cost of less than $5 million) will have an extra year to obtain an HPID. Annual cost is based on paid claims before stop loss recoveries and excluding administrative costs and stop loss premiums.
Insurance carriers will likely apply for the 10-digit HPID number for all of their fully- insured group health plans. Employers will have to apply for their 10-digit HPID for self-funded medical plans. The health plan needs to use the HPID number for any of the standard transactions the Code Set rules cover.
Every health plan considered a covered entity must obtain an HPID. The regulations include delineations of group health plans including Controlling Health Plans (a health plan that controls its own business activities, actions and policies) and Subhealth Plan (a health plan whose business activities, actions or policies are directed by a Controlling Health Plan).
Employers are not really sure how the relationship between controlling health plans and subhealth plans would apply to employer-sponsored health plans and are awaiting further clarification from HHS on this issue.
All health plans, regardless of size, must use their HPIDs in standard transactions by November 7, 2016. A “standard transaction” is a CMS menu of transactions, like a claim payment, that must be coded with an HPID.
Employer must provide information about their organizations and health plans when they register for the HPID electronically. More information on applying for an HPID is available here.
Certification Requirements for Compliance with Standard Transaction Rules
Health plans must also verify with HHS that they comply with the Code Set rules. Health plans have been subject to these rules for almost a decade, however there has been little to no oversight on compliance with the common formats. HHS is now requiring a certification showing that the plan is using the standard formats. Initially, the certification will only be done on a few of the required transactions.
The health plan must first certify that they meet the Code Set requirements for eligibility, claim status and EFT and remittance advice transactions. Plans have two different options to certify they are complying. Both involve having specific vendors certify the plan uses the proper transaction formats. The two options are as follows:
The HIPAA Credential option involves testing the required transactions with at least three trading partners. Those three partners have to represent at least 30% of transactions conducted with providers. If it does not constitute 30%, then the plan must confirm it has successfully traded with at least 25%.
The Phase III Core Seal will require the Controlling Health Plan to test transactions with an authorized testing vendor.
All certifications will be filed with HHS. The first one will be due by December 31, 2015. Health insurance carriers and Third Party Administrators will most likely provide the certifications for employer-sponsored health plans, but employers will still need more details on the filing.
The second certification applies to other transactions the Code Set rules cover. Specifically, the second certification applies to claims information, enrollment, premium payments, claims attachments, and authorizations or referrals. HHS has not issued any guidance on these certifications yet. These second certifications are also due by December 31, 2015. However, because of the lack of specific guidance, it is very likely this due date may be delayed.
Action Plan
To register for an HPID, employers need to take the following steps:
1. Determine when the plan must obtain an HPID
2. If your plan if fully insured, contact your insurance carrier. It appears most insurance carriers will apply for the HPID for fully insured plans.
3. If your plan is self-funded, schedule time over the next several months to register for an HPID for your health plan. The registration is a CMS-managed online application process. The regulations estimate that it will take 20 -30 minutes to complete the application. Sponsors will be directed to an online enumeration system titled: Health Plan and Other Entity Enumeration System (HPOES).
Following the recent Supreme Court ruling regarding contraceptives in the Hobby Lobby Stores case, a new circuit decision now sets the stage for another possible Supreme Court decision on the ACA. On Tuesday (July 22, 2014), the U.S. Court of Appeals for the District of Columbia (in Halbig v. Burwell) and the U.S. Court of Appeals for the Fourth Circuit (in King v. Burwell) issued conflicting opinions regarding the IRS’ authority to administer subsidies in federally facilitated exchanges.
In general, the employer mandate requires that “applicable large employers” offer their full-time employees minimum essential coverage or potentially pay a tax penalty in 2015. However, according to the statutory text of the ACA, the penalties under the employer mandate are triggered only if an employee receives a subsidy to purchase coverage “through an Exchange established by the State under section 1311…” of the ACA. If a state elected not to establish an exchange or was unable to establish an operational exchange by January 1, 2014, the Secretary of HHS was required to establish a federal-run exchange under section 1321 of the ACA.
The appellants in each of these cases are residents of states that did not establish state run exchanges. Consequently, the appellants argue that the IRS does not have the authority to administer subsidies in their states because the exchanges were set up by HHS under section 1321 of the ACA and not under section 1311 as is the clear prerequisite for IRS authority to administer the subsidies.
In regulations implementing the subsidies, the IRS recognized this discrepancy and noted that “[c]ommentators disagreed on whether the language [of the ACA] limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans [QHPs] on State Exchanges."
The IRS, however, rejected these comments and stated that, “[t]he statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.”
In Halbig v. Burwell, the D.C. Circuit disagreed with the IRS’ interpretation and, in a 2-1 decision, held that the IRS regulation authorizing tax credits in federal exchanges was invalid. The court focused heavily on the text itself and concluded, “that the ACA unambiguously restricts the …subsidy to insurance purchased on Exchanges established by the state.”
In an opinion issued only hours following the D.C. Circuit decision, the 4th Circuit, in King v. Burwell, agreed with the IRS’ interpretation and upheld the subsidies by permitting the IRS to decide whether the premium tax credits should be available over the federal exchange. The justices argued that the text did not intend to create two unequal exchanges. Additionally, they argue that the ambiguous text of the act intended that the exchanges be operated as appendages of the Bureaucracy, and so under the directives of the IRS.
Currently, 36 states are using federally facilitated exchanges, including Florida. Further, roughly 85% of enrollees who signed up for health insurance receive subsidies allowing them to purchase coverage that would be otherwise unaffordable. If the subsidies allocated over the federal exchange were declared invalid, those individuals’ ability to receive subsidies to purchase coverage could be jeopardized. As a result, the average price of a health plan is projected to rise from $82 per month to $346 per month, making it more difficult to afford for approximately 5.4 M enrollees.
While the Halbig decision is a major setback to the ACA, it is almost certainly not the final word on this issue. Given the fact that two courts have reached different outcomes, the Supreme Court is more likely to weigh in on the decision. However, the Halbig decision is likely to be reviewed by the entire D.C. Circuit prior to any potential review by the Supreme Court.
For tax years 2010 to 2013, the maximum credit is 35% of medical premiums paid for small business employers and 25% of medical premiums paid for small tax-exempt employers, such as charities.
For tax years beginning in 2014 or later, there are changes to the credit:
Here’s what this means for you: If you pay $50,000 a year toward health care premiums for employees — and if you qualify for a 15% credit, you save… $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20%, your savings go from $7,500 a year to $10,000 a year.
Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.
There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability. Refund payments issued to small tax-exempt employers claiming the refundable portion of credit are subject to sequestration. For more information on sequestration, click here.
And finally, there may still be time to file an amended return to benefit from the credit this year. Generally, a claim for refund must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.
Can you claim the credit?
Now that you know how the credit can make a difference for your business, let’s determine if you can claim it.
To be eligible for the credit, you must:
How do you claim the credit?
You must use IRS Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. For detailed information on filling out this form, see the Instructions for Form 8941.
If you are a small business, include the amount as part of the general business credit on your income tax return.
If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don’t ordinarily do so.
As fall approaches, both state and federal Exchanges created by the Affordable Care Act (ACA) are preparing for potential opportunities and challenges they may face during the 2015 open enrollment period. The start date for the Exchange open enrollment has been delayed by a month, beginning on November 15, 2014, and will run through February 15, 2015. Those desiring coverage beginning January 1, 2015 must enroll by December 15, 2014.
This delay will help to ease some enrollment pressure points, but does not address some of the challenges associated with a new automatic renewal policy. Specifically, the Obama Administration and the Department of Health and Human Services (HHS) just announced a proposed rule to automatically renew existing Exchange health plans and premium subsidies for 2015 that individuals obtained in 2014.
Automatic Renewal Concerns
A key feature of the 2015 open enrollment period is implementation of the automatic renewal system. Consumers who do not return to the www.healthcare.gov website and change their plan or eligibility information will be automatically re-enrolled in their current plan from the previous enrollment period for the 2015 plan year. The overall goal is to relieve pressure on the Exchange website while allowing for roughly 95% of consumers to re-enroll in health plans. However, automatic re-enrollment raises issues with the subsidy programs operated by the Exchanges.
Beginning in 2015, the automatic re-enrollment function is likely to cause issues with consumers that have a different income levels than the previous year. With the automatic re-enrollment feature, most consumers may not report changes in their income, thus creating discrepancies in subsidy distributions. For instance, if someone experiences a decrease in income from the previous year, but the change is not reported due to the automatic re-enrollment, the consumer may not receive subsidies that he/she is eligible for, and vice versa if the consumer’s income increases. With roughly 87% of consumers enrolled in an Exchange plan receiving subsidy tax credits, resolving this issue will be key to the success of the upcoming enrollment period.
In addition, reports continue to surface that the IRS has not been able to document the reported income for several million Americans who enrolled an Exchange plan for the 2014 plan year. Therefore, hundreds of thousands of individuals may end up receiving subsidies for two different plan years, which they might not qualify for resulting in an unexpected tax burden, interest and penalties.
Open Enrollment Period Delayed
Despite the issues plaguing the Exchanges, a recent change in the date of the 2015 open-enrollment period may help alleviate some of the future website and enrollment strains. This spring, the Obama Administration announced a month-long extension of the 2015 open enrollment period until February 15, 2015. An initial delay was announced last fall that pushed back the start date from October 15 to November 15, 2014. As a result of these changes, insurance companies will benefit from the delay, consumers will have more time to enroll in an Exchange plan, and websites hope to have fewer technical and administrative hiccups. However, some have expressed concerns that the White House continues to make up the rules as they go along which violates normal regulatory protocols associated with a statutory-based initiatives like the ACA.
While the Exchanges prepare for the new open enrollment season, some problems from the previous open enrollment likely remain unresolved. As widely reported earlier, both www.healthcare.gov and its state-level Exchanges experienced a slew of technical issues and glitches in the 2014 open enrollment that hampered enrollment and significantly increased the wait time for enrollment activation for many.
Verifying Income Levels
Other technical issues have hampered enrollment, such as the lack of oversight in filling out applications on the Exchange websites. The delay in www.healthcare.gov’s verification requirement has led to chaos in the federal Exchange, as well as in states that use the federal Exchange, by implementing an “honor system” where individuals self-report their income without having to provide proof. As a result, HHS and the IRS must verify the incomes of a backlog of roughly 2 million individuals for federal subsidy eligibility.
AAG will continue tracking and reporting on key health care reform changes that will affect employers and individuals alike.
In the recent U.S. Supreme Court’s ruling in Burwell vs. Hobby Lobby, it was ruled that closely held for-profit companies have the right to refuse to offer insurance coverage for specific birth control methods if they conflict with the owner’s religious beliefs. Many benefits attorneys expect the impact of this ruling to limited for employers—despite what some political reps might suggest.
The June 30, 2014 ruling pertains to the Affordable Care Act (ACA) mandate that employers who provide medical coverage to employees must provide contraceptive coverage to female full-time employees with no cost-sharing. The U.S. Department of Health and Human Services (HHS) regulations had set forth an expansive interpretation of contraceptive coverage, including so-called “morning-after pills” and intrauterine devices (IUDs).
The ruling was limited to closely held companies (those with a limited number of shareholders) whose owners hold sincere religious beliefs, such as the firms that sued HHS in this case: Hobby Lobby, an arts and crafts chain that says it is run on biblical principles, and Conestoga Wood Specialties, a Pennsylvania cabinet-making company owned by a Mennonite family.
Few Employers Affected
“The Hobby Lobby ruling has a direct impact on a relatively small number of employers—as a percentage of total employers across the country there are very few that can be considered faith-based employers,” advised a recent alert from a law firm.
“Employers who do not have objections to the mandate are most likely able to continue with their plans without any changes merely because of this decision,” concurred another benefits attorney. “Employers who wish to take advantage of the ruling may want to amend their plans in order to make them clear about what is and is not covered.”
Why have there been apparently overwrought reactions to the ruling? Supreme Court decisions implicating any of the Affordable Care Act’s provisions are routinely used both by proponents and opponents of the act as evidence of the correctness of their position. Their positions are then picked up by and amplified in media coverage, often resulting in confusion on the part of the public.
Contraceptives Only
The opinion “seemed to limit itself to the contraceptive mandate only, likely quelling the concerns of many who argued a broader decision may put in jeopardy other items typically covered under group plans, such as vaccinations and blood transfusions,” according to a post by attorneys at Fisher & Phillips. In addition, the court warned that its decision should not be interpreted to provide a shield to employers to cover up illegal discrimination under the appearance of claimed religious beliefs (for example, companies claiming to object, on religious grounds, to same-sex marriage).
This decision on contraceptives likely will not seem to extend to larger corporations with diverse ownership interests. The court noted the difficulty of determining the religious beliefs of, for example, a large publicly traded corporation, and pointed out that the corporations in this case were all closely held corporations, each owned and controlled by a single family, with undisputed sincere religious beliefs.
Attorneys expect that “there may be relatively few employers that fit the exemption created by the court’s decision,” and that “HHS will likely draft new regulations to comply with [the] decision, and it remains to be seen whether new plaintiffs will challenge the contraception requirements or other requirements under the ACA on similar grounds.”
The Administration’s Options
The Supreme Court decision cited the federal Religious Freedom Restoration Act (RFRA) requirement that any laws that substantially burden a person’s exercise of religion must be justified by a compelling governmental interest and be the least restrictive approach to furthering the governmental interest. The majority opinion, written by Justice Samuel Alito and signed by three other justices, suggested that one “least restrictive” approach would be for the government to directly pay for contraceptives when an employer has religious objections to providing them.
A concurring opinion by Justice Anthony Kennedy suggested that the administration extend an accommodation already made available to religiously affiliated nonprofit organizations more broadly to private employers who claim that purchasing insurance that covers contraception, or certain types of contraception, would violate their religious beliefs.
The Hobby Lobby decision should stand as a reminder that while there may be differences of opinion about specific rules and requirements under the ACA, and some of those differences may be decided against the government, the law itself is not going away. Employers need to continue to monitor new developments and implement strategies for complying with the ACA.
The Department of Labor announced on June 20th a proposed rule that would allow an employee to take FMLA leave to care for their same-sex spouse, regardless of whether the employee lives in a state that recognizes their marital status. As expected, the DOL has adopted a “state of celebration” rule, in which a spousal status for purposes of FMLA is determined not on the state in which the employee currently resides (as currently stated in the FMLA regulations), but based on the law of the state where the employee was married. For example, if the employee was married in New York, but now resides with his same-sex spouse in Indiana, the employee will enjoy FMLA rights to care for his spouse as if he had resided in New York.
DOL’s Interpretation of FMLA after U.S. v. Windsor
The FMLA allows employees to take leave from work to care for a family member with a serious health condition. Before U.S. v. Windsor abolished certain portions of the Defense of Marriage Act (DOMA), same-sex couples were not allowed to take FMLA leave to care for a same-sex spouse, since DOMA did not recognize the relationship. After the Windsor decision but before the recent announcement, employees were eligible to take FMLA leave to care for a same-sex spouse only if they have resided in a state in which same-sex marriage is legal.
According to the DOL’s notification, the proposed new FMLA regulation includes the following highlights:
The proposed rule would mean that eligible employees, regardless of where they live, would be able to:
The DOL announced the proposed changes on Friday in a press release, stating, ”The basic promise of the FMLA is that no one should have to choose between succeeding at work and being a loving family caregiver … Under the proposed revisions, the FMLA will be applied to all families equally, enabling individuals in same-sex marriages to fully exercise their rights and fulfill their responsibilities to their families.”
The Notice is Not Unexpected
It was only a matter of time before this regulatory announcement became reality. In fact, the DOL foreshadowed the move when it issued Technical Release 2013-04 in September 2013, at which time the agency took the position that — at least with respect to employee benefit plans — the terms “spouse” and “marriage” in Title I of ERISA and its implementing regulations “should be read to include same-sex couples legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where they currently live.”
Next Steps
As with other proposed regulatory changes, the public will be given the chance to provide comment directly to the DOL on the proposed change before the agency issues a final rule on the issue. After the final rule is adopted, employers should review and amend their FMLA policy and procedures, as well as all FMLA-related forms and notices.
The IRS has released the 2014 Form 720 that plan sponsors of self-insured group health plans will use to report and pay the Patient Centered Outcomes Research Institute (PCORI) fee. The fee is due by July 31, 2014 for plan years ending in 2013.
The Affordable Care Act (ACA) imposes a fee on health insurers and plan sponsors of self-insured group health plans to help fund the Patient Centered Outcomes Research Institute. PCORI is responsible for conducting research to evaluate and compare the health outcomes and clinical effectiveness, risks, and benefits of medical treatments, services, procedures, and drugs.
The PCORI fee is assessed for plan years ending after September 30, 2012. The initial fee is $1 times the average number of covered lives for the first plan year ending before October 1, 2013 and $2 per covered life for the plan year ending after October 1, 2013 and before October 1, 2014. Fees for subsequent years are subject to indexing. The PCORI fee will not be assessed for plan years ending after September 30, 2019, which means that for a calendar year plan, the last plan year for assessment is the 2018 calendar year.
Plan sponsors must pay the PCORI fee by July 31 of the calendar year immediately following the last day of that plan year. All plan sponsors of self-insured group health plans will pay the fee in 2014, but the amount of the fee varies depending on the plan year.
The IRS has released the 2014 Form 720 with instructions for plan sponsors to use to report and pay the PCORI fee. Although the Form 720 is a quarterly federal excise tax return, if the Form 720 is filled only to report the PCORI fee, no filing is required in other quarters unless other fees or taxes have to be reported.
Please contact our office for information on the Affordable Care Act (ACA) and how it affects your business.
Many employers originally thought they could shift health costs to the government by sending their employees to a health insurance Exchange/Marketplace with a tax-free contribution of cash to help pay premiums, but the Obama administration has squashed this idea in a new ruling. Such arrangements do not satisfy requirements under the Affordable Care Act (ACA), the Obama administration said, and employers could now be subject to a tax penalty of $100 a day — or $36,500 a year — for each employee who goes into the individual Marketplace/Exchange for health coverage.
The ruling this month, by the Internal Revenue Service, prevents any “dumping” of employees into the exchanges by employers.
Under a main provision in the health care law, employers with 50 or more employees are required to offer health coverage to full-time workers, or else the employer may be subject to penalties.
Many employers had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing employer-sponsored health coverage directly to employees as they had in the past.
But the Obama administration has now raised objections in an authoritative Q&A document recently released by the IRS, in consultation with other agencies.
The health law, known as the Affordable Care Act (ACA), was intended to build on the current system of employer-based health insurance. The administration wants employers to continue to provide coverage to workers and their families and do not see the introduction of ACA as an eventual erosion of employer provided coverage.
Employer contributions to sponsored health coverage, which averages more than $5,000 a year per employee, are not counted as taxable income to workers. But the IRS has said employers could not meet their obligations under ACA by simply reimbursing employees for some or all of their premium costs from the marketplace/exchange.
Christopher E. Condeluci, a former tax and benefits counsel to the Senate Finance Committee, said the recent IRS ruling was significant because it made clear that “an employee cannot use tax-free contributions from an employer to purchase an insurance policy sold in the individual health insurance market, inside or outside an exchange.”
If an employer wants to help employees buy insurance on their own, Condeluci said, they can give the employee higher pay, in the form of taxable wages. But in such cases, he said, the employer and the employee would owe payroll taxes on those wages, and the change could be viewed by workers as reducing a valuable benefit.
A tax partner from a large accounting firm has also said the ruling could disrupt reimbursement arrangements used in many industries.
For decades, many employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs associated with their health coverage. The new federal ruling eliminates many of those arrangements, commonly known as Health Reimbursement Arrangements (HRAs) or employer payment plans, by imposing an unusually punitive penalty. The IRS has said that these employer payment plans are considered to be group health plans, but they do not satisfy requirements of the Affordable Care Act for health coverage.
Under the law, insurers may not impose annual limits on the dollar amount of benefits for any individual, and they must provide certain preventive services, like mammograms and colon cancer screenings, without co-payments or other charges.
But the administration has said that employer payment plans or HRAs do not meet these requirements.
This ruling was released as the Obama administration rushed to provide guidance to employers and insurers who are beginning to review coverage options for 2015.
The Department of Health and Human Services said it would provide financial assistance to certain insurers that experience unexpected financial losses this year. Administration officials hope the payments will stabilize medical premiums and prevent rate increases that are associated with the required policy changes as a result of ACA.
Republicans want to block these payments, however, as they see them as a bailout for insurance companies who originally supported the president’s health care law.
Stay tuned for more updates on ACA as they are released. Should you have any questions, please do not hesitate to contact our office.
May is Blood Pressure Month and everyone should understand what is high blood pressure and why it is dangerous.
Blood pressure measures the force of blood that travels through your arteries. If it is too high, it is a risk factor for heart disease, stroke, and other complication. High blood pressure is often referred to as the “silent killer” because most of the time, it has no symptoms. Blood pressure readings are recorded as a fraction, with systolic pressure over diastolic pressure (i.e. 120/80 mm Hg or 120 over 80).
Do you know what each pressure measures and its importance?Do you know what is considered “high” blood reading? Do you know what causes high blood pressure and can it be prevented?
If you have been diagnosed with high blood pressure, it can often times be treated through lifestyle modifications and sometimes even medications. Lifestyle changes include reaching and maintaining a healthy weight, following a DASH diet, limiting sodium intake, becoming more active, limiting alcohol intake, and quit smoking.
Educating employees on the importance of monitoring their blood pressure and ensuring they understand how it impacts their overall health can help ensure a healthy workforce. Please contact our office for a copy of a free blood pressure newsletter you can use to help educate your employees on living a healthy lifestyle.