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December 11, 2014

HRB 104 - Year-End Wrap Up (article)

Released December 11, 2014 I Download as a PDF 

HRB 104 - Year-End Wrap Up

As 2014 draws to a close, a new Congress and continued court challenges should not deter efforts needed now to ensure compliance with the Affordable Care Act (ACA) as we know it.  While we know not what the new Congress will do, you can be sure that many aspects of the ACA will be considered.  In addition, the Supreme Court has agreed to review the King v. Burwell case on the issue of whether the premium tax credit, available to individuals whose household income falls below 400% of the federal poverty level, is obtainable in both the federal and state marketplaces.  The hearing of this case is expected to be held in early March, 2015.   Again, we know not how the Supreme Court will rule. 


In this interim, following are some recent updates and reminders relating to ACA compliance.


Recent ACA Guidance


Health plaans that fail to cover hospital or physician services (“skinny plans”) fail to meet minimum value standard 

On November 4, 2014, the Departments of Health and Human Services and Treasury issued guidance (IRS Notice 2014-69) clarifying that so-called “skinny plans” that fail to provide coverage for hospital services and/or physician services will not qualify as a minimum value plan. 


As a reminder, minimum value (MV) means that the plan covers at least 60% of the cost of medical services.  It is necessary that a plan meet minimum value in order to avoid the IRC Section 4980H(b) penalty.  The Notice goes on to state that an individual’s eligibility for premium assistance will not be jeopardized if the only coverage offered fails to meet MV standards.  Because these products have been promoted, the Notice provides that any products in place prior to November 4, 2014 will be honored through the end of the plan year.  However, any new plan implemented will put the employer at risk for a shared responsibility penalty.


Further, this Notice provides that any communication suggesting that this type of coverage would disqualify an individual from premium assistance must be proactively corrected, i.e., the summary of benefits and coverage or other plan communications must accurately reflect that a plan which fails to meet minimum value will not disqualify the individual from receiving premium assistance.


Employer Premium Payment Arrangements for Individual Coverage

On November 6, 2014, the Department of Labor’s Employee Benefit Security Administration released its 22nd set of implementation FAQs addressing several scenarios in which cash is offered by an employer, either to incent individuals to choose individual coverage over group coverage, or to otherwise attempt to satisfy the employer’s shared responsibility obligation.  Once again, the door is being closed and locked on these types of arrangements. 


As background, in September 2013, the government issued guidance prohibiting the use of tax-favored money for individual premium, whether purchased through the marketplace or outside the marketplace (see CBIZ Health Reform Bulletin, Impact of ACA on HRAs, Health Care FSAs, and Other Employer Health Care Arrangements, 9/20/13).  The guidance affirmed that no form of pre-tax contribution, whether through a health reimbursement arrangement, flexible medical spending account or other premium payment plan could be used to purchase individual coverage.


Then, on May 13, 2014, the IRS again came out with guidance, in an FAQ format, cautioning employers about the risk of violating the reimbursement of individual premium rules. 


In the newest FAQs, the DOL goes even further, clarifying that whether the cash is offered on a pre-tax or after-tax basis makes no difference.  If it is used to pay individual premium, it makes the individual policy an employer-sponsored plan subject to all of the requirements of the Affordable Care Act.  Since these products do not necessarily comply with all requirements, it puts the employer at risk for a $100 per day/per participant penalty for failure to offer a compliant plan.


In the second FAQ, the DOL addressed whether an employer could offer a high claimant cash as an incentive to decline the employer-sponsored coverage.  Once again, the answer is “No”.  As an aside, not only is the answer “No” from an ACA perspective, but would likely be “No” from an Americans with Disabilities Act’s perspective as well.


In the third FAQ, the government says, “No”, once again to a scenario whereby an IRC Section 105 plan is set up to which the employer contributes and the individual purchases coverage.


Individual Shared Responsibility Mandate

As a reminder, individuals must maintain a minimum level of coverage or be subject to a tax. The potential fees imposed on individuals for failing to maintain health coverage increases in 2015 to the greater of 2% of yearly household income; or, $325 per person ($162.50 per child under 18). 


Determining Affordability of Coverage

There are certain exemptions to the requirement to maintain minimum essential coverage (see CBIZ Health Reform Bulletin, Individual Minimum Essential Coverage, 2/6/13).   One of these exemptions occurs if the cost to the individual to purchase coverage exceeds 8% (8.05% for 2015) of household earnings (the government is proposing to increase the required contribution percentage to 8.13% of household income beginning in 2016).  This affordability standard is distinct from the employer’s shared responsibility affordability standard and distinct from the affordability standard for being entitled to premium assistance. 


On November 26, 2014, the IRS issued final regulations relating to minimum essential coverage (MEC) and hardship exemptions for purposes of the individual shared responsibility mandate.  Specifically, these regulations address the effects of employer contributions to a cafeteria plan or health reimbursement arrangement (HRA), and wellness program incentives for affordability purposes.  It remains to be seen whether these standards will be included in the premium tax credit affordability regulations.


  • Cafeteria Plan Contributions For purposes of determining affordability of coverage, amounts made available for the current plan year under a cafeteria plan will not be included in the employee’s cost if the amount: 1.    Cannot be taken as a taxable benefit, such as cash; 2.    Is only used to pay for MEC; and 3.    Is only used to pay for medical care, as defined in IRC Section 213(d).
  • Employer Contributions to HRAs Amounts newly made available for the current plan year under an HRA that an employee may use to pay premiums, or may use to pay cost-sharing or benefits not covered by the primary plan in addition to premiums, are counted toward the employee’s required contribution if the HRA is integrated with the employer-sponsored group health plan.  
  • Wellness Program Incentives For purposes of determining affordability, the final regulations clarify that wellness incentives, such as a discount or rebate, or imposition of a surcharge, unrelated to tobacco use are treated as unearned; while wellness incentives related to tobacco use are treated as earned. However, if there is an incentive for completing a program unrelated to tobacco use and a separate incentive for completing a program related to tobacco use, then the incentive related to tobacco use may be treated as earned.

Premium Tax Credit The following contribution percentages will be used to determine whether an individual is eligible for affordable employer-sponsored MEC in tax years beginning in 2015 and 2016:

Household income percentage of Federal poverty line)

Initial percentage


Final percentage


Initial percentage


Final percentage


Under 133%





Between 133% and 150%





Between 150% and 200%





Between 200% and 250%





Between 250% and 300%





Between 300% and 400%






ACA Provisions Effective in 2015


Cost-Share Limits

The 2015 out-of-pocket limits applicable to insured plans offered via the Marketplace, and insured and self-funded plans offered outside Marketplace are:

  • $6,600 for single coverage
  • $13,200 for coverage for more than one

As a reminder, the 2015 out of pocket limits applicable to high deductible health plans used in conjunction with a health savings account are $6,450 for individual; $12,900 for family.


Employer Shared Responsibility Requirement

  • Employers employing 100+ Employees could be subject to excise tax penalties under IRC Section 4980H(a) and (b) beginning 2015.  The penalty tax is based on number of employees employed in 2014; and, whether adequate affordable coverage is offered in 2015. 
  • Employers employing between 50 to 99 Employees in 2014 would not be subject to the employer shared responsibility requirement, generally, until their plan anniversary occurring in 2016, as long as:

1.    There has been no change in the plan year since February 9, 2014;

2.    The employer maintains its workforce size and average hours worked; and

3.    The employer maintains previously offered health coverage.  This means that:

  • The health coverage offered and the group to whom it is offered has not materially eliminated or reduced; and 
  • The employer contribution toward such coverage is maintained at the same or greater contribution level, or does not fall below 95% of the dollar amount contributed toward single coverage prior to February 9, 2014.
  • Employers employing fewer than 50 employees in 2014 are not subject to the employer shared responsibility requirement.  These employers have the option to apply and purchase coverage through the Small Health Options Program (SHOP).
  • For employers employing fewer than 25 employees, the IRS’ Small Business Tax Credit is available for a two-consecutive year period.  The credit only applies to SHOP coverage. For purposes of this credit, an eligible employer is one who employs fewer than 25 full-time employees whose average annual wages is less than $50,800 (indexed for 2015). Those employers employing fewer than 10 full-time employees whose average annual wage is less than $25,800 are also eligible for the credit.  The maximum credit is 50% of premiums paid by employer (35% for premiums paid by small tax-exempt employer).

Required Reporting and Disclosure

The ACA imposes new reporting requirements; these are found in IRC Sections 6055 and 6056.  Section 6055 reporting relates to who qualifies for minimum essential coverage (MEC).  Section 6056 reporting relating to the employer shared responsibility requirement will assist the government in determining which employers might be subject to a shared responsibility risk, as well assist in determining whether individual taxpayers are entitled to premium assistance. 


The forms for both of these reporting requirements are the Form 1094 transmittal and Form 1095 benefit statement.  IRC Section 6055 reporting is accomplished on the B series of the form; the employer shared responsibility reporting is accomplished on the C series.  A self-funded employer subject to shared responsibility can satisfy both its IRC Sections 6055 and 6056 reporting obligations by completing all parts of the Form 1095-C


The first reports will be required for the 2015 calendar year, due in 2016. The benefit statements must be provided to individuals listed in the reporting forms by January 31st of each year; the first report is due January 31, 2016. The report to the government will be due by February 28th of each year if filed by paper; by March 31st if filed electronically.


Thus far, the IRS has only issued draft versions of the forms and instructions; the final version of these forms is expected in the near future.


To assist our clients with these reporting requirements, CBIZ will be making an ACA Reporting Tool & Technology Platform available in 2015 to accommodate the collection, processing, and ongoing record-keeping of the required data.  Ask your CBIZ representative for information about the CBIZ ACA CheckPoint tool.


Background CBIZ Health Reform Bulletins on these reporting requirements:


Affordability Standard – Employer-Sponsored Coverage

Under an employer-sponsored plan, coverage is deemed affordable to a particular employee if his/her required contribution to the plan does not exceed 9.5% (indexed for 2014) of the employee’s household income for the taxable year, based on the cost of single coverage in the employer’s least expensive plan.  The household income threshold percentage increases to 9.56% for 2015; it is proposed to increase to 9.66% for 2016.  The employer shared responsibility regulations provide three safe harbors that can be used by employers to determine affordability (see Affordability Standard in the CBIZ Health Reform Bulletin, Exploring the Final Employer Shared Responsibility Regulations, 3/10/14).  Note, at this point, the safe harbors continue to be based on 9.5% household income standard.


Proposed Benefit and Payment Parameters for 2016

On November 26, 2014, the Center for Medicare and Medicaid Services (CMS) published proposed benefit and payment regulations addressing several issues applicable to the 2016 benefit year.  Following are some of the proposals contained in the regulations:

  • Transitional Reinsurance Fee.  The goal of a transitional reinsurance program is to stabilize premiums in the individual market to offset the expenses of the eligible individuals enrolling in the Marketplace. For 2014, the contribution rate is $63 per covered life, $44 per covered life in 2015.  The proposed amount for 2016 drops to $27 per covered life.
  • Annual Open Enrollment Period.  For the 2016 plan year, the annual open enrollment period for obtaining coverage through the Marketplace will run from October 1, 2015 through December 15, 2015.  CMS proposes to maintain the October 1st through December 15th enrollment period applicable in years thereafter.
  • Cost Sharing Limits.  In 2016, the proposed maximum annual limitation on cost sharing will be $6,850 for self-only coverage; $13,700 for other than self-only coverage.  CMS clarified that the annual cost-share limitation applies for the plan year and not the calendar year for non-calendar year plan.  In addition, insurers can, but are not required to, count out-of-network cost share amounts against the annual limit. 
  • Federal Exchange User Fees.  Insurers participating in the federal marketplace are subject to a user fee to help pay for the operational expenses of the Marketplace.  For 2014 and 2015, the user fee rate is 3.5% of the monthly premium charged by the insurer. Based on CMS’ enrollment and premium projections, the 3.5% user fee in 2016 is proposed to remain the same.

 Next Steps

  •  Employers subject to ACA shared responsibility requirement (50+ employees):
  • Assess your shared responsibility risk.
  • Amend health plan and cafeteria plan eligibility provisions (if necessary).  Be aware of two new status change events that were authorized for cafeteria plans specifically allowing a change in election due to a Marketplace open or special enrollment period and the other relating to a reduction in hours to less than 30 hours a week (see New Cafeteria Plan Status Change Events in the CBIZ Health Reform Bulletin, IRS Pronouncements, 10/6/14).  If a cafeteria plan intends to permit these status change events, make certain the plan is amended by the end of the 2015 plan year.
  • Measure all employees using monthly or look-back standard.
  • Establish a process to collect Social Security Numbers for employees (if insured); for employees and dependents (if self-funded).
  • Ensure that the monthly data required for the IRC Sections 6055 and 6056 reporting obligations is captured beginning January 1, 2015.
  •  Employers sponsoring plans of any size should review the terms and conditions of their plans, especially the eligibility provisions to ensure that they accurately meet the employer’s intent.  Of particular note, the definition of spouse should be reviewed as should employee eligibility.  Also note, the cafeteria plan status changes as described above are available to employer-sponsored cafeteria plans of any size.
  •  If your group health plan is self-funded, the deadline for submitting the transitional reinsurance form together with annual enrollment count and payment scheduled had been extended to December 5, 2014. 


Year-end Reminders

  • Summary of Benefits and Coverage Under ACA, all group health plans, including grandfathered plans, whether insured or self-funded, are required to provide a Summary of Benefits and Coverage (SBC) to plan participants within certain timeframes:

1.    Upon application;

2.    By the first day of coverage;

3.    Within 90 days of enrollment be special enrollees;

4.    Upon contract renewal; and

5.    Upon request.

  •  Marketplace Notice Obligation All employers subject to Fair Labor Standards Act were to provide the initial notice of marketplace options to all employees by October 1, 2013.  In addition, there is an on-going obligation to provide the Notice to all new hires within 14 days of hire.  The purpose of the Notice is to explain important information about the pros and cons of buying coverage through the marketplace.  The DOL provides model notices (in both English and Spanish) that can be used by employers who offer health coverage to some or all employees, and for those who do not offer coverage.
  •  Patient-Centered Outcomes Research Institute Fee The Patient Centered Outcome Research (PCOR) fee is required to be reported annually to the IRS on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.  The fee was $1 for the first year; $2 for the second year.  The fee increases to $2.08 for plan years ending between October 1, 2014 and October 1, 2015.  For additional information about the PCOR fee, see IRS webpage, questions and answers and chart of plans subject to the fees.


About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.



The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations.

This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.






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