HRB 107: 1) HHS Benefit and Payment Parameters for 2016; and 2) Preview of Cadillac Tax Implementation (article)
HRB 107: 1) HHS Benefit and Payment Parameters for 2016; and 2) Preview of Cadillac Tax Implementation
Released March 3, 2015 I Download as a PDF
HHS Benefit and Payment Parameters for 2016
On February 27, 2015, the Department of Health and Human Services (HHS) published final rules, together with a Fact Sheet, relating to Benefit and Payment Parameters for 2016. These uniform standards are intended for health insurers and the marketplace to ensure health coverage options for consumers, as well as provide planning guidance for insurers and employers. Following are certain highlights of these rules that may be of interest to employers.
The Affordable Care Act imposes certain cost-sharing restrictions, such as deductible and out-of-pocket limits on health plans. These annual out of pocket limits apply to insured plans offered through the marketplace, and insured and self-funded plans offered outside marketplace. Below are cost sharing limitations for 2014 through 2016:
Other than Self-only Coverage
HHS Inflationary Percentage for 2016
The Affordable Care Act directs the Secretary of HHS to determine an annual premium adjustment percentage that is used to set the rate of increase for three parameters detailed in the law:
- The maximum annual limitation on cost sharing (as above);
- The required contribution percentage by individuals for minimum essential health coverage for purposes of determining eligibility for a hardship exemption under the individual shared responsibility requirement (IRC Section 5000A). One of these exemptions occurs if the cost to the individual to purchase coverage exceeds 8% (8.05% for 2015) of household earnings. In 2016, the required contribution percentage increases to 8.1% of household earnings for purposes of exemption from the individual shared responsibility requirement. 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.
- The assessable payment amounts under IRC Section 4980H(a) (the $2,000 excise tax penalty) and IRC Section 4980H(b) (the $3,000 excise tax penalty) relating to employer shared responsibility. This percentage is calculated based on the projections of average per enrollee employer-sponsored insurance premiums from the National Health Expenditures Accounts that is calculated by the CMS Office of the Actuary. For 2015, the percentage is 4.213431463%. In 2016, the inflationary adjustment jumps to 8.316047520%. What this means is that the potential penalty assessment pursuant to IRC Section 4980H(a) would increase from $2,080 in 2015 to $2,160 in 2016. The IRC Section 4980H(b) penalty would increase from $3,120 in 2015 to $3,240 in 2016.
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 was $63 per covered life, $44 per covered life in 2015; the 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 or the Small Health Options Program (SHOP) will run from November 1, 2015 through January 31, 2016.
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 remains the same.
Minimum Value Standard
These regulations affirm the November, 2014 guidance that in order to meet the minimum value (MV) standard, a plan must not only meet 60% medical expense reimbursement standard but also a benefit package standard pursuant to which the plan must cover hospitalization and physician services. This provision generally applies immediately to all employer-sponsored group plans, except for plans entered into November 4, 2014 with plan years beginning by March 1, 2015.
Health Plan Design
While these regulations primarily relate to plans offered through the marketplace, the above-referenced provisions are important for employers to understand. In addition, the regulations address some issues, while directed at qualified health plans offered through the marketplace, that are important conceptually for employers to be aware of. The regulations intend to ensure that individuals have fair access to health services.
In particular the rules finalize several standards relating to the 10 essential health benefits (EHB) to be included in base benchmark plan, including habilitative services, coverage of pediatric services, and prescription drug coverage.
- In particular, the rules provide for a uniform definition of habilitative services for purposes of differentiating these types of services with rehabilitative services. Further, plans required to provide EHB cannot impose limits on coverage of habilitative services that are less favorable than those limits imposed on coverage of rehabilitative services.
- The regulations address drug formularies with regard to the “exception process” pursuant to which a covered individual or his/her physician can request approval for clinically appropriate drugs not covered by the plan. This process must also include an expedited review process based on exigent circumstances such as when the individual has a serious health condition that may seriously jeopardize his/her life, health, or ability to regain maximum function, or the individual is undergoing a current course of treatment using a non-formulary drug. In addition, if a plan denies the exception request for the non-formulary drug, the plan must have a process for the individual or his/her physician to request an independent review organization to review the exception request and the plan’s denial of coverage.
The regulations caution against any plan design that expressly or implicitly discriminates against individuals by, for example, pushing high claimants into more expensive plans.
The regulations also address network and provider adequacy and reserve the right to provide future guidance on these matters. The take-away from all of this is that the government intends health plans to provide adequate services to individuals.
Preview of Cadillac Tax Implementation
On February 23, 2015, the Internal Revenue Service issued the first in what it anticipates being a series of notices relating to the Affordable Care Act’s IRC Section 4980I (“Cadillac” tax) provision. This guidance (IRS Notice 2015-16) is not law or regulation. What the government appears to be doing is issuing a series of notices to try to get a sense of how regulations should be written. After information is gathered, proposed regulations will be issued, presumably with a comment period, followed by final regulations. The IRS Notice addresses three subjects: applicable coverage, cost of coverage and annual statutory limits.
Beginning in 2018, the Cadillac tax imposes a 40% excise tax on the amount paid for high cost employer-sponsored health coverage that exceeds certain threshold limits. The type of coverage subject to the Cadillac tax would generally include all health coverage, whether insured or self-funded; but would generally not include excepted benefits. According to this Notice, applicable coverage would include employer contributions and salary contributions to flexible medical spending accounts, health savings accounts and medical savings accounts; but would not include after-tax contributions to such plans. Coverage would include on-site medical clinics; but the government is considering excluding on-site clinics that provide limited services such as de minimis medical care and occupational injury only.
As for the cost of coverage, it is anticipated that the COBRA methodology would be used to calculate the cost of coverage. The Notice (sort of) implies that the government might be finally looking at getting us rules on how to calculate COBRA premium using the past service and actuarial methods.
Finally, the Notice addresses the statutory limits. The annual statutory limit to which the Cadillac tax would be imposed is individual coverage exceeding $10,200, or $27,500 for family coverage. However, these numbers are only placeholders, as there would be various calculations that could increase these annual figures. Specifically, in 2018, the first year the tax would be imposed, a health cost adjustment percentage would be applied to the baseline dollar limit. In 2019 and beyond, a cost of living adjustment would be imposed.
Much could happen over the years before this provision takes effect. Again, this Notice is only an initial foray into how regulations might finally look.
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.