HRB 81 - Guidance and Updates
Released September 11, 2013I Download as a PDF September 11, 2013 --
As October 1st fast approaches, the government is busy issuing a plethora of guidance. October 1st is an important date in that it is the date the marketplace, sometimes referred to exchange, is open for business. What this means is that individuals and small businesses can begin to enroll in health coverage through these newly implemented vehicles. Coverage purchased through these marketplaces will become effective January 1, 2014, at the earliest.
Distribution of Marketplace Notice to Employees
One of the most immediate matters for employers to attend to is distribution of the market place notice (see CBIZ HRB October 1st Deadline Reminder: Notice to Employees of Marketplace Coverage Options, 8/28/13). The DOL’s Employee Benefit Security Administration has just issued a new set of Frequently Asked Questions relevant to this notice.
Specifically, this sub-regulatory guidance affirms that a third party can distribute the marketplace notice on behalf of the employer. This might make sense, for example, for a multi-employer plan to distribute the notice to individuals covered by the multi-employer plan. If an employer’s employees participate in a multi-employer plan, a notice distributed by the multi-employer plan would satisfy the employer’s obligation. However, it is very important for the employer to remember that it must provide the notice to all of its other employees who do not receive the notice from the multi-employer plan.
Another example might be a third party administrator distributing the notice to all individuals covered by the plan it administers. Again, the employer must remember that the marketplace notice must be provided to all employees; therefore, the employer would be obligated in this situation to distribute the notice to those who do not receive it from a third party.
90-day Waiting Period
On the first plan anniversary occurring on or after January 1, 2014, the maximum waiting period that can be imposed by any plan is 90 days (see CBIZ HRBs 90 Day Wait and Other Updates (3/26/13) and Guidance Issued Relating to 90-day Waiting Period and Defining Full-time Employee (9/4/12)).
A newly issued FAQ affirms that substantive eligibility provisions that are not directed at avoiding the 90-day restriction are permissible. The example used in the FAQ is a multi-employer plan that defines eligibility based on hours worked in a quarter for one or more employers. Based on these hours worked, the individual would qualify for coverage for the subsequent quarter. This FAQ affirms that this type of eligibility provision is permissible.
Individual Shared Responsibility – Final Regulations
The ACA imposes an individual shared responsibility requirement. This requirement mandates that beginning January 1, 2014, virtually all individuals residing in the U.S. must maintain a minimum level of coverage, or risk a shared responsibility payment (see CBIZ HRB, Individual Minimum Essential Coverage, 2/6/13).
On August 30, 2013, the IRS and Treasury Department issued final regulations, together with a Fact Sheet, relating to the individual shared responsibility requirement. Following are highlights of these regulations.
- Employer Coverage Qualifies as MEC. While these regulations do not have significant importance for employers, they do affirm that generally employer health coverage, whether insured or self-funded, will constitute minimum essential coverage (MEC). Similarly, COBRA and retiree coverage qualifies as MEC as long as the individual is actually covered.
- Third Party Coverage. Of great interest to employers who use third party coverage, the preamble to the regulations affirms that third party coverage, such as coverage through a professional employer organization (PEO), a leasing company, or by a multi-employer plan, qualifies as MEC. The preamble does go to great lengths to affirm that this in no way implicates who the employer is. In other words, the employer-employee relationship is governed by existing law and contractual relationship, and is not impacted by this determination.
- Liability for Dependent Coverage. These regulations require the individual to maintain coverage for him/herself and his/her dependents. For purposes of these regulations, dependents are those as defined by IRC Section 152, including the taxpayer’s biological child, step child, adopted child or foster child, up to age 26, as well as a dependent who meets the definition of qualifying child or qualifying relative of the taxpayer. The individual would be liable for the shared responsibility payment attributable to the dependent's lack of coverage regardless of whether the taxpayer claims the individual as a dependent on a Federal income tax return for the taxable year.
- Transition Relief. There is transitional relief for 2014 for individuals whose employers maintain non-calendar year plan years (see the Transition Relief discussion in the CBIZ HRB, Employer Shared Responsibility Reporting Requirements Delayed and Final Exchange Regulations, 7/3/13). If the individual is eligible for an employer plan for which the anniversary is different from the calendar year, the individual will not be subject to individual shared responsibility requirement until the plan anniversary occurring on or after January 1, 2014.
Employer Appeals in Marketplace Eligibility Determinations
On August 28, 2013, the HHS” Center for Consumer Information & Insurance Oversight issued final rules, together with a Fact Sheet, relating to exchange (marketplace) program standards. Of particular note, these rules address how individuals and employers can appeal eligibility decisions rendered by the marketplaces, including determinations rendered through the small business health options program (SHOP). This would include instances in which an individual’s eligibility for premium tax credits or cost-sharing reductions is denied, or a determination that an employer’s plan does not provide minimum essential coverage that meets both minimum value and affordability standards.
Small Business Tax Credit (SBTC) Updates
The Affordable Care Act includes a small employer health insurance tax credit that has been in effect for several years now (see CBIZ HRB Additional Guidelines to the Small Business Tax Credit (12/22/10) and The Small Business Health Care Tax Credit (5/20/10)). On August 26, 2013, the IRS issued proposed regulations relating to this tax credit.
Following are highlight of these proposed regulations. These changes begin January 1, 2014.
- Eligible Employers. Employers entitled to the credit remain the same. To be eligible, the employer must employ fewer than 25 full-time equivalent employees whose average annual wages are less than $50,000 (adjusted for inflation beginning in 2014). In addition, the small employer must cover at least 50% of the cost of single (not family) health care coverage for each employee.
- Qualifying Coverage. The credit is only available for qualified health plan (QHP) coverage purchased through the Small Business Health Options Program (SHOP) and is only available for 2 consecutive years. The small employer does not relinquish its right to the credit by not taking it immediately. In other words, the employer could decide to claim the credit in 2017 and 2018, even though it may have qualified for the credit earlier.
- Amount of Credit. For tax years beginning in 2014 and beyond, the maximum credit will increase from 35% to 50% of premiums paid by small business employer, and from 25% to 35% paid by small tax-exempt employers.
- Uniform Contributions. To be eligible for the credit the employer must make a uniform contribution toward health coverage. The regulations give several examples of how to determine a uniform percentage:
Example1. An eligible small employer (Employer) offers a QHP on a SHOP Exchange, Plan A, which uses composite billing. The premiums for Plan A are $5,000 per year for self-only coverage, and $10,000 for family coverage. Employees can elect self-only or family coverage under Plan A. Employer pays $3,000 (60% of the premium) toward self-only coverage under Plan A and $6,000 (60% of the premium) toward family coverage under Plan A. In this example, the Employer's contributions of 60% of the premium for each tier of coverage satisfy the uniform percentage requirement.
Example 2. Same scenario as Example 1, except that Employer pays $3,000 (60% of the premium) for each employee electing self-only coverage under Plan A and pays $3,000 (30% of the premium) for each employee electing family coverage under Plan A. In this example, the Employer's contributions of 60% of the premium toward self-only coverage and the same dollar amount toward the premium for family coverage satisfy the uniform percentage requirement, even though the percentage is not the same.
- Transition Relief. If a small employer health plan year is different from a taxable year, the employer would be able to take the full 50% credit in 2014 even if it does not offer QHP coverage though a SHOP until its plan anniversary occurring in 2014, as long as:
- As of August 26, 2013, the small employer offers coverage in a plan year that begins on a date other than the first day of its taxable year;
- The employer offers coverage during the period before the first day of the plan year beginning in 2014 that would have qualified the employer for the credit under the rules otherwise applicable to the period before January 1, 2014; and
- The employer begins offering coverage through a SHOP as of the first day of its plan year that begins in 2014.
Additional information relating to the SBTC, including a tax credit estimator, FAQs, and forms for claiming the credit can be found on the IRS’ dedicated webpage.
Preventive Care – Health Saving Accounts
On September 9, 2013, the IRS issued Notice 2013-57 affirming that a qualified high deductible health plan (HDHP) used in conjunction with a health savings account (HSA) remains HSA-qualified despite providing first dollar coverage for preventive services mandated by ACA. As background, an HSA must be paired with a qualified HDHP. The HDHP can only reimburse expenses after a certain minimum statutory deductible has been satisfied. The ACA requires that non-grandfathered health plans cover preventive services without any cost-sharing, including the imposition of a deductible. This ruling affirms that the preventive services mandated by the ACA can be covered by the qualified HDHP used in conjunction with an HSA without requiring satisfaction of a deductible.
Internal Claims, Appeals and External Review: Update on Providing Culturally and Linguistically Appropriate Notices
The ACA requires that documents provided to individuals in a claim denial and external review process be provided in a culturally and linguistically appropriate manner, i.e., in the appropriate language of the claimant (see CBIZ HRB, Modifications to Claims and Appeals, and External Review Processes, 7/11/11). The determination of what language to provide information to claimants is based on the number of non-English speakers residing in a particular geographic area. The threshold percentage for group health plans requires language appropriate notices when at least 10% of a county’s population speaks a particular non-English language and who do not speak English “very well”. The HHS’ Center for Consumer Information & Insurance Oversight has recently issued updated step-by-step instructions for calculating the 10% threshold in order to provide the appropriate documents in the appropriate languages.
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. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.