Released August 5, 2015 I Download as a PDF
Additional IRS Approaches to Cadillac Tax
As most are aware, the ACA includes a provision, known as the Cadillac tax, that will impose a nondeductible excise tax on health plans that exceed certain limits. This provision of the law takes effect in 2018. Thus far, no guidance has been issued on the Cadillac tax. However, on February 23, 2015, the IRS issued Notice 2015-16 in which the government began contemplating how it intends to frame the law (see CBIZ HRB 107, Preview of Cadillac Tax Implementation, 3/5/15)
On July 30, 2015, the IRS released a second pronouncement (IRS Notice 2015-52) which like the first, does not carry the weight of the law or regulation, but rather is an effort to test the waters to see how the law should be formulated. The new guidance expands the discussion with regard to identifying taxpayers liable for the excise tax, employer aggregation, allocation of the tax, payment of the applicable tax and determining the cost of applicable coverage.
For an insured group health plan, the insurer would be liable for the tax. If the health coverage is used in conjunction with a health savings account (HSA) or an Archer MSA, the employer is liable for the tax applicable to the particular investment account. For all other applicable coverage, the entity who administers the plan benefits would be the payer. This means for self-funded group health plans, generally, it would be the plan sponsor unless the plan is administered by a third party administrator or claims payer. From this Notice, it appears that the government is contemplating who should be responsible – the day-to-day claims payer or the entity who is ultimately responsible.
With regard to aggregation of employers for purposes of determining the tax, the control group rules apply, i.e., all employers § 414(b), (c), (m), or (o) are treated as a single employer. The government is recognizing the challenges that may arise relating to control groups and is considering ways to handle this.
For purposes of determining the cost of coverage for a taxable period, the IRS indicates that the tax due will be based on the calendar year, without regard to plan year. The government is recognizing the challenges that may exist relating to the potential timeframe discrepancies and is looking at ways to handle this. The cost of coverage can be adjusted for age and gender characteristics. According to this Notice, the government is considering a “snap shot day”, which could be the first day of the plan year to make this calculation. This date would be different from the tax year/calendar year over which the tax would be assessed.
With regard to account-based plans such as HSAs, Archer MSAs, flexible medical spending account (FSA) plans and health reimbursement arrangements (HRAs), the IRS is working on how to balance the impact of the tax on these types of account based plans. They are considering an approach under which contributions to account-based plans would be allocated on a pro-rata basis over the period to which the contribution relates (generally, the plan year), regardless of the timing of the contributions during the period. Specific to account-based plans, such as FSA plans that allow a carry forward, consideration is begin given on how to avoid double counting.
For reporting the excess amounts and paying the tax, the IRS is contemplating using the Form 720, Quarterly Federal Excise Tax Return (which is also used to pay the Patient Centered Outcome Research Institute fees).
Comments on these proposals must be submitted to the IRS by October 1, 2015.
Transitional Reinsurance Fee Process for 2015 Benefit Year
In preparation for reporting and paying the transitional reinsurance fees for the 2015 benefit year, the Centers for Medicare and Medicaid services released an overview of the process and procedures.
As background, the ACA imposes a transitional reinsurance fee, the goal of which is to help stabilize premiums in the individual market due to enrollment of higher risk individuals in the marketplace beginning in 2014. All insurers and plan sponsors of self-funded plans are required to contribute to this reinsurance fund over a three year period from 2014 through 2016.
The entities responsible for submitting the relevant information and paying the fees are insurers of fully insured plans and plan sponsors of self-funded plans (though, third party administrators (TPA) can facilitate the process on behalf of plan sponsors), referred to as “reporting entities”. However, certain self-funded, self-administered plans who do not use a TPA may be exempt from making contributions in 2015 and 2016.
The reporting and payment of fees is based on the type of plan issued by the insurer or plan sponsor. Virtually all-sized health plans, such as major medical plans and high deductible health plans used in conjunction with a health savings account (HSA), are subject to these fees.
The steps for counting covered lives, completing the ACA Transitional Reinsurance Program Annual Enrollment Contributions Submission Form, uploading the supporting documentation and paying the fee via pay.gov website are the same as required last year (see CBIZ HRB, Completing the Transitional Reinsurance Fee Form, 11/21/14). However, the supporting documentation is only required for 2015 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form submissions with four or more contributing entities.
The contribution rate for the 2015 benefit year 2015 is $44 per covered life. Contributions can be made in one payment of $44 per covered life (combined collection); or, made in two-part payment of $33 per covered life (first collection) and $11 per covered life (second collection).
w If making one payment of the fee, the 2015 ACA Transitional Reinsurance Program Annual Enrollment Contributions Submission Form must be submitted by November 16, 2015; the full fee must be paid by January 15, 2016.
w If opting to make two payments, the Form must be filed by November 16, 2015; the first part of the two payments must be paid by January 15, 2016; the second payment is due by November 15, 2016.
CMS will again be hosting training webinars to assist entities in the process and procedures. Reporting entities are encouraged to register for these trainings through REGTAP (https://www.REGTAP.info).
State Innovation Waivers
The Affordable Care Act includes a provision that takes effect in 2017 which would allow a state to apply for an innovation waiver; pursuant to which the state could be relieved from certain aspects of the ACA. As long as a state could prove that the primary goals of the ACA could be achieved under its plan and such plan would provide adequate coverage to a comparable number of people in an economically efficient manner, then certain ACA provisions would be waived such as the requirements to:
w Establish qualified health plans;
w Provide consumer choices and insurance competition through the marketplaces; and
w Provide for premium tax credits and cost-sharing reductions for plans offered within the marketplaces.
In addition, a state may be able to design a program that would allow it to forego the individual and employer shared responsibility provisions.
To apply for an innovation waiver, the state completes an application and submits it for review by the Secretary of Health and Human Services. The CMS’ Center for Consumer Information & Insurance Oversight issued a Fact Sheet highlighting the application process together with FAQs primarily directed at states that might be interested in seeking an innovation waiver. If a state files for an innovation waiver, there will be a comment period before it is approved. No innovation waiver will be granted with an effective date prior to January 1, 2017.
Applicability of ACA’s Employer Shared Responsibility Provisions
On July 31, 2015, President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236; now Public Law 114-41). This law provides that for purposes of determining whether an employer is an applicable large employer with regard to employee enrollment in minimum essential health coverage under an eligible employer sponsored plan, individuals covered for medical care under TRICARE or the Veterans Administration are not counted. This provision applies retroactively for months beginning January 1, 2014.
Native American Tribes
A recent lawsuit challenged the applicability of the ACA’s employer shared responsibility mandate to a Native American tribe. Currently, members of a federally-recognized Indian tribe or those eligible for services through the Indian Health Services are exempt from the ACA’s individual shared responsibility mandate, i.e., they are not required to pay a fee for not maintaining health coverage. However, there is no similar exemption under the employer shared responsibility mandate for Native American Tribes or Tribal employers.
In the case of Northern Arapaho Tribe v. Burwell (Case No. 14-CV-247 SWS, D. Wyo. July 2, 2015), the Tribe sought to be exempt from the ACA’s employer shared responsibility mandate. The Tribe employs over 900 individuals to work on its reservation in operating a casino, convenience store, gas station, and grocery store. The Tribe had intended to provide subsidies to its employees for them to purchase health coverage through the Wyoming marketplace rather than provide employee health coverage. The U.S. District Court of Wyoming ruled that if the Tribe provides subsides to its employees for purchasing health coverage through the marketplace, it was acting in the role of an employer and thus, would not be exempt from the employer shared responsibility requirement.
On a related note, Senator Steve Daines (R-MT) and Representative Ryan Zinke (R-MT) introduced legislation, The Tribal Employment and Jobs Protection Act (S.1771/H.R. 3080) on July 15, 2015; which, if enacted, would exempt Native American tribes and tribal employers from the ACA’s employer shared responsibility provisions.
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 Kansas City 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.