New Year Brings Hospital Pricing Transparency

As has been reported in various news outlets, new rules issued last year now require hospitals to post their standard charges for various services on their websites. This is part of a move toward greater hospital pricing transparency in the health care provider market. The requirement to post these amounts comes from the Affordable Care Act.

However, the posted prices are likely to be of limited use. First, the amounts on their websites are the “full price” amounts, sometimes referred to as “rack rates” or the “chargemaster”, but almost no one actually pays these prices. Insurance companies and third-party administrators negotiate discounts off of these prices. Furthermore, consumers who are covered by insurance may only pay a portion of these rates through copayments or coinsurance. Even uninsured consumers may negotiate discounts off of these prices.

In many cases, the items or services listed on their websites are given highly technical, often confusing names. Even an experienced health care professional may have trouble understanding them. Additionally, a single hospital procedure may involve multiple services and therefore include several listed amounts, so the total charge for a procedure or visit may require some sleuthing around on the website to figure it out.

The Takeaway

It seems unlikely that most employees will get much use out of these posted hospital prices. However, to the extent employers receive questions from their employees, the employers should be prepared to respond. Specifically, employers should point out that the charges on the website do not reflect the discounts negotiated by their insurance carrier or TPA.

If an employee wants to know what he or she will be charged for an item or service, the employer should suggest that they contact the carrier with their questions. Many carriers are also offering price transparency tools that reflect the discounts of the employer’s plan. If those tools are available, the employer may want to mention that as well.

IRS Announces Filing Extension for 2018 Forms 1095-B and 1095-C and Continued Good Faith Transition Relief

Late last week, the IRS announced it was extending the deadline for getting Forms 1095-B and 1095-C to employees from January 31, 2019 to  March 4, 2019. Despite the extension, the IRS encourage employers to furnish the form as as possible.

The extension to provide employees with a copy of Form 1095-B and 1095-C DOES NOT extend the due date for employer, insurers, and other providers to file the 2018 forms with the IRS. The filing due date for these forms remains February 28, 2019 (or April 1, 2019 if filing electronically), unless the IRS announces they will extend the filing due date. 

In Notice 2018-94 released by the IRS, they reveled that while failure to furnish and file the Form timely may subject employers to penalties, they should still attempt to furnish and file even after the applicable due date as the IRS will take this action into consideration when determining if penalties will be assessed. 

Good faith reporting standards will apply once again for 2018 reporting. This means that reporting entities will not be subject to reporting penalties for incorrect or incomplete information if they can show that they have made good faith efforts to comply with the 2018 Form 1094 and 1095 requirements. This relief applies to missing and incorrect taxpayer identification numbers and dates of birth as well as other required return information. No relief is provided, however, where there has not been a good faith effort to comply with the reporting requirements.

Reminders for 2018 Annual Reporting of Health Coverage

The IRS recently released final forms and instructions for the 2018 employer reporting. The good news is that the process and instructions have not changed significantly from last year. However, the IRS has started to assess penalties on the 2015 forms. For that reason, employers should make sure they complete the forms accurately.

The final 2018 forms and instructions can be found at:

• Form 1094 C – https://www.irs.gov/forms-pubs/about-form-1094-c
• Form 1095 C – https://www.irs.gov/forms-pubs/about-form-1095-c
• Form 1094 B – https://www.irs.gov/forms-pubs/about-form-1094-b
• Form 1095 B – https://www.irs.gov/forms-pubs/about-form-1095-b

Employers with self-funded plans can use the B forms to report coverage for anyone their plan covers who is not an employee at any point during the year. The due dates for 2018 are as follows:

• Individual statement (1095 C), due to employees January 31, 2019
• Employer transmittal (1094 C and copies of each 1095 C), due to IRS by February 28, 2019 (paper) OR April 1, 2019 (electronically)

Be sure to file these forms on time. The IRS will assess late filing penalties if you file them after they are due. The instructions explain how to apply for extensions if you think you may miss the deadlines.

The 1095 C form can be sent to employees electronically with the employee’s consent, but that consent must meet specific requirements. The consent criteria include disclosing the necessary hardware and software requirements, the right to request a paper copy, and how to withdraw consent. They are the same consent requirements that apply to the W-2.

Employers must submit the forms electronically if they file 250 or more 1095 Cs. The instructions explain how to request a waiver of the electronic filing requirement.

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Proposal Announced To Expand Access to Affordable Health Coverage

The Trump administration announced a proposed rule today that would allow businesses to give employees money to purchase health insurance on the individual marketplace, a move senior officials say will expand choices for employees that work at small businesses.

The proposed rule, issued by the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of Treasury, would restructure Obama-era regulations that limited the use of employer-funded accounts known as health reimbursement arrangements (HRA). The proposal is part of President Donald Trump’s “Promoting Healthcare Choice and Competition” executive order issued last year, which tasked the agencies with expanding the use of HRAs.

Senior administration officials said the proposed change would bring more competition to the individual marketplace by giving employees the chance to purchase health coverage on their own. The rule includes “carefully constructed guardrails” to prevent employers from keeping healthy employees on their company plans and incentivizing high-cost employees to seek coverage elsewhere.

That issue was a primary concern under the Obama administration, which barred the use of HRAs for premium assistance. The 21st Century Cures Act established Qualified Small Employer Health Reimbursement Accounts (QSEHRA), but those are subject to stringent limitations.

Under the new rule, HRA money would remain exempt from federal and payroll income taxes for employers and employees. Additionally, employers with traditional coverage would be permitted to reserve $1,800 for supplemental benefits like vision, dental and short-term health plans.

Officials estimate 10 million people would purchase insurance through HRAs, including 1 million people that were not previously insured. Most of those people would be concentrated in small and mid-sized businesses.

The proposed change would “unleash consumerism” and “spur innovation among providers and insurers that directly compete for consumer dollars,” one senior official said. Officials expect 7 million people will be added to the individual marketplace over the next 10 years.

The rule does not change the Affordable Care Act’s employer mandate, which requires employers with 50 or more employees to offer coverage to 95% of full-time employees. Administration officials expect the proposal will have the biggest impact on small businesses with less than 50 employees.

However, the rule could scale back the use of premium subsidies. If the HRA is considered “affordable” based on the amount provided by the employer, the employee would not be eligible for a premium tax credit. If the HRA fails to meet those minimum requirements, the employee could choose between a premium tax credit and the HRA.

Overall, the rule will “create a greater degree of value in healthcare and the health benefits marketplace than we would otherwise see,” one official said.

The regulation, if finalized, is proposed to be effective for plan years beginning on and after January 1, 2020.

 

Association Health Plan Final Rule May Bring New Coverage Options for Small Businesses and Self-Employed

On June 19, 2018, the Trump administration took the first step in a three-part effort to expand affordable health plan options for consumers when the U.S. Department of Labor (DOL) finalized a proposed rule designed to make it easier for a group of employers to form and offer association health plans (AHP). A final rule relaxing rules around short-term, limited duration insurance and a proposed rule addressing health reimbursement arrangements are expected in the upcoming months. In cementing proposed changes to its January 2018 proposed rule, “Definition of ‘Employer’ Under Section 3(5) of ERISA — Association Health Plans,” the administration seeks to broaden health options for individuals who are self-employed or employed by smaller businesses. The final rule will be applicable in three phases starting on September 1, 2018. 

Overview of AHP Final Rule

Under the rule, it will be substantially easier for a group of employers tied by a “commonality of interest” to form a bona fide association capable of offering a single multi-employer benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). The rule outlines two primary bases for establishing this “commonality of interest”: (1) having a principal place of business in the same region (e.g., a state or metropolitan area), or (2) operating in the same industry, trade, line of business or profession. An association also may establish additional membership criteria enabling entities with a sufficient “commonality of interest” to participate in the AHP, such as being minority-owned or sharing a common moral or religious conviction, so long as the criteria are not a subterfuge for discrimination based on a health factor. Further, the final rule clarifies how the association must be governed and controlled by its employer-members in order to be considered a bona fide association capable of offering a single-employer health benefit plan.

Meeting the criteria for a bona fide group or association of employers in the final rule allows the AHP to be treated as a single-employer ERISA plan. Thus, assuming the association is comprised of employer-members with more than 50 total full-time employees, it will be considered a large group and exempt from key Affordable Care Act (ACA) market reforms, such as the essential health benefits requirements and modified community rating rules, that would otherwise apply to a health plan offered by any of its individual employer-members with less than 50 full-time employees. This is important because the ACA applies certain requirements only to small group (and individual) health insurance products and not to large group plans.
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PCORI Fee Payment Due July 31st

The Affordable Care Act (ACA) created PCORI to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. PCORI’s research is to be funded, in part, by fees paid by either health insurers or sponsors of self-insured health plans. These fees are widely known as PCORI fees. Health insurers and self-insured plan sponsors are required to report and pay PCORI fees annually using IRS Form 720 (Quarterly Federal Excise Tax Return). The report and fees are due on July 31st with respect to the plan year that ended during the preceding calendar year. For instance, for calendar year plans, the fee that is due July 31, 2018 applies to the plan year that ended December 31, 2017.

Reporting PCORI fees on Form 720

Form 720 and completion instructions are posted on the IRS’ website. Insurers and self-insured plan sponsors must report the average number of lives covered under the plan. For fully insured plans, the carrier is responsible for reporting and paying the fee on the employers behalf. For a self-insured plan, the plan sponsor (employer) enters information for “self-insured health plans.” The number of covered lives is then multiplied by the applicable rate based on the plan year end date. Form 720 that is due July 31, 2018, will reflect payment for plan years ending in 2017. The applicable rate depends on the plan year end date:

• $2.26 for plan years ending between January 1, 2017 and September 30, 2017
• $2.39 for plan years ending between October 1, 2017 and December 31, 2017

The applicable rate may increase for inflation in future years. However, the program ends in 2019 and PCORI fees will not apply for plan years ending after September 30, 2019. Insurers or self-insured plan sponsors that file Form 720 only for the purpose of reporting PCORI fees do not need to file Form 720 for the first, third or fourth quarter of the year. Insurers or self-insured plan sponsors that file Form 720 to report quarterly excise tax liability (for example, to report the foreign insurance tax) should enter a PCORI fee amount only on the second quarter filing. See below for more information about affected plans and methods for calculating the number of participants and amount of the required PCORI fee.
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IRS Clarifies “Letter 227” & Releases Sample Letters

The IRS has created a webpage on understanding Letter 227, which certain applicable large employers (ALEs) may receive in connection with the assessment of employer shared responsibility penalties (aka Pay or Play penalties). As background, the IRS uses Letter 226J to notify an ALE of a proposed penalty assessment. ALEs have 30 days to respond, using Form 14764 to indicate their agreement or disagreement with the proposed penalty amount. Letter 227 acknowledges the ALE’s response to Letter 226J and explains the outcome of the IRS’s review and the next steps to fully resolve the penalty assessment. There are five different versions of the letter (samples are provided of each version on the IRS website):

• Letter 227-J states that the proposed penalty amount will be assessed because the ALE agreed with the proposed penalty. No response is required to this version of the letter, and the case is deemed closed.
• Letter 227-K shows that the penalty amount has been reduced to zero. No response is required to this version of the letter, and the case is deemed closed.
• Letter 227-L shows that the proposed penalty amount has been revised. This version of the letter includes an updated Form 14765 (PTC listing) and revised calculation table. The ALE can agree with the revised penalty amount, request a meeting with the IRS, or appeal the determination.
• Letter 227-M shows that the penalty amount did not change. This version of the letter also includes an updated Form 14765 (PTC listing) and revised calculation table to the extent any data used in the computation of the proposed penalty amount changed based on information provided by the ALE. The ALE can agree with the revised penalty amount, request a meeting with the IRS, or appeal the determination.
• Letter 227-N acknowledges the decision reached by the IRS appeals office and shows the resulting penalty amount. No response is required to this version of the letter, and the case is deemed closed.

Only Letters 227-L and 227-M call for a response, which must be provided by the date stated in the letter. The IRS stresses that the Letter 227 is not a bill. Notice CP 220J is used to collect the employer shared responsibility penalty payment.

Affordability Threshold Set to Increase in 2019

Late last week, the IRS released Rev. Proc. 2018-34 which, among other items, set the affordability threshold for employers in 2019. In order to avoid a potential section 4980H(b) penalty (aka Pay or Play penalty), an employer must make sure one of its plans provides minimum value and is offered at an affordable price. An actuary will determine whether the minimum value threshold has been satisfied and this is generally not an issue for employers. However, an employer is in control as to whether the plan it is offering meets the affordability threshold.

A plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5 percent of the employee’s household income. This 9.5 percent threshold is indexed for years after 2014. In 2018 the affordability threshold decreased from 9.69 percent to 9.56 percent. However, similar to every other year, the affordability threshold is scheduled to increase in 2019. In 2019 the affordability threshold will be 9.86 percent. The significant increase compared to 2018 provides an employer who is toeing the line of the affordability threshold an opportunity to increase the price of its health insurance while continuing to provide affordable coverage.

An employer wishing to use one of the affordability safe harbors will use the 2019 affordability threshold of 9.86 percent when determining if the safe harbor has been satisfied. The first affordability safe harbor an employer may utilize is referred to as the form w-2 safe harbor. Under the form w-2 safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of that employee’s form w-2 wages (box 1 of the form w-2) from the employer for the calendar year.

The second affordability safe harbor is the rate of pay safe harbor. The rate of pay safe harbor can be broken into two tests, one test for hourly employees and another test for salaried employees. For hourly employee, an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the product of the employee’s hourly rate of pay and 130 hours. For salaried employees, an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the employee’s monthly salary.

The final affordability safe harbor is the federal poverty line safe harbor. Under the federal poverty line safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the monthly Federal Poverty Line (FPL) for a single individual. The annual federal poverty line amount to use for the United States mainland in 2019 is $12,140. Therefore, an employee’s monthly cost for self-only coverage cannot exceed $99.75 in order to satisfy the federal poverty line safe harbor.

When planning for the 2019 plan year, every employer should check to make sure at least one of its plans that provides minimum value meets one of the affordability safe harbors discussed above for each of its full-time employees. Should you have any questions on determining the affordability of a plan or any other questions related to the Forms 1094-C and 1095-C, please don’t hesitate to contact us.

 

Responding to IRS Employer Mandate Assessment Letters

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ACA Cadillac Tax Delayed

President Donald Trump signed the Federal Register Printing Savings Act of 2017 (the Act) on January 22 to end the two-day government shutdown. In addition to funding the government for two-and-a-half weeks, the Act delays the onset of the Affordable Care Act’s (ACA’s) “Cadillac Tax” by two more years. The Cadillac Tax was originally intended to go into effect in 2018, but President Obama delayed the effective date until 2020. The Act now delays the Cadillac Tax until 2022.

 The Act also extended the Children’s Health Insurance Program (CHIP) funding for six years.

The Cadillac Tax is a 40% tax on the value of employer-sponsored health coverage that exceeds certain benefit thresholds. It is widely unpopular with employer groups and, as we have previously reported, Congress has expressed a strong bipartisan desire to repeal the Cadillac Tax entirely.

In the meantime, the US Department of the Treasury has not issued guidance on the Cadillac Tax since before the initial delay, and therefore, it is likely that the Act will further delay any additional Cadillac Tax guidance.