HRB 120 - Proposed Regulations: Expatriate Health Plans, Excepted Benefit Plans, Essential Health Benefits Relating to Lifetime and Annual Limits, and Individual Shared Responsibility Requirements (article)
Released July 12, 2016 I Download as a PDF
The tri-governing agencies (Departments of Labor, Health and Human Services and Treasury) of the Affordable Care Act (ACA) released proposed reliant regulations on June 10, 2016. These regulations provide clarifications relating to expatriate health plans, excepted benefit plans, and essential health benefits relating to lifetime and annual limits, as discussed below.
Expatriate Health Plans
The Expatriate Health Coverage Clarification Act of 2014 “EHCCA” (Public Law 113-235, enacted December 16, 2014) made expatriate health plans exempt from certain Affordable Care Act (ACA) mandates that apply to health plans (see HRB 105, Expatriate Plans Exempt from ACA, 1/8/15). In order for the exemption to apply, the expatriate plan must meet certain criteria as to eligibility including dependent coverage, the types of covered benefits and services, and the ability to meet the minimum essential coverage standards. While certain ACA mandates may not apply, expatriate health coverage remains subject to ACA provisions such as the employer shared responsibility (ESR) provisions including the Section 6055 and 6056 reporting obligations. As a reminder, individuals with no U. S. sources of income are not counted for purposes of the ESR obligation.
According to the proposed rules, an expatriate health plan must satisfy certain requirements, as follows:
- Substantially all, i.e., 95% of employees covered under the plan, excluding those living in their home country, must be qualified expatriates. Generally, there are three types of qualified expatriates:
- Category A expatriates are those employees who have been transferred or assigned to the United States by their employer for a specific or temporary purpose or assignment.
- Category B expatriates are U. S. nationals who work outside the United States for a period of at least 180 days in a consecutive 12-month period that overlaps with the plan year.
- Category C expatriates are members of a group of similarly situated individuals travelling or relocating internationally for certain tax-exempt purposes, such as non-profit or charitable service.
- An expatriate health plan must provide coverage for inpatient hospital services, outpatient facility services, physician services, and emergency services. Coverage for such services must be available in certain countries depending on the type of qualified expatriates covered by the plan. Less than 5% of the benefits provided under an expatriate health plan can be so-called “excepted benefits” (see the discussion of Excepted Benefit Plans, below).
- The plan sponsor must reasonably believe that benefits provided by the plan satisfy the minimum value standard, i.e., the plan covers a minimum of 60% of the total allowed cost of benefits expected to be incurred under the plan.
- If an expatriate health plan provides dependent coverage of children, such coverage must be available until the child attains age 26, unless the child is already receiving dependent coverage.
Both entities issuing expatriate health insurance (insurer or issuer) as well as administrators of self-insured expatriate health plans are required to:
Maintain network provider agreements for direct claims payments with health care providers in eight or more countries;
Maintain call centers in three or more countries, and accepts calls from customers in eight or more languages;
Process a minimum of $1 million in claims in foreign currency equivalents during the preceding calendar year;
Have global evacuation/repatriation coverage available;
Maintain legal and compliance resources in three or more countries; and
Have licenses or other authority to sell insurance in more than two countries, including the United States.
Excepted Benefit Plans
Certain types of health plans are excepted from the provisions of the ACA including:
Accident-only insurance plans, including accidental death and dismemberment;
Disability income coverage;
Liability insurance, including general liability or automobile liability insurance;
Workers’ compensation or similar insurance;
Coverage for on-site medical clinics; and
Limited scope dental benefits, vision benefits, or long term care benefits, if they are provided under a separate policy or contract, and are otherwise not an integral part of a group health plan.
The proposed regulations make clarifications as to what types of plans are deemed to be excepted, as follows:
Hospital indemnity or other fixed indemnity insurance policies covering specified disease or illness, hospital indemnity insurance, or fixed dollar indemnity insurance as long as certain conditions are met. The proposed regulations specifically address these types of plans and revise the conditions necessary for hospital indemnity and other fixed indemnity insurance in the group market to be considered “excepted benefits”. Specifically, during the application or enrollment process, individuals must be notified that this type of coverage is not considered to be major medical coverage. This would not qualify as minimum essential coverage (MEC) for individual shared responsibility purposes. This means that unless the individual has other MEC or is exempt from the requirement, the individual could become subject to the individual shared responsibility penalty. The regulations include model language that can be used by group health plans and insurers to satisfy the notice requirement.
With regard to hospital and fixed indemnity policies that only reimburse a fixed amount per period such as day or weeks, the proposed regulations clarify that the amount of benefits provided under these policies must be determined without regard to the type of items or services received. In addition, a policy that provides benefits in varying amounts based on the type of procedure or item received would not satisfy the condition that benefits be provided on a per day (or per other time period, such as per week) basis. Further, hospital indemnity or other fixed indemnity insurance policy that provides benefits for certain services at a fixed amount per day, but in varying amounts depending on the type of service, would not meet the condition that benefits be provided on a per day (or per other time period, such as per week) basis.
Short-term, limited-duration insurance is generally intended to fill temporary coverage gaps when individuals transition between coverages. The regulations propose to limit short term coverage to a period of three months or less to coordinate with the one-time exemption from the minimum essential coverage requirement. These types of plans must also provide notification in application and enrollment materials that such coverage does not meet the requirements of minimum essential coverage, and thus the individual may be subject to individual shared responsibility penalty.
Travel Insurance. These regulations clarify that certain travel-related insurance products are deemed to be excepted benefits. For this purpose, travel insurance means coverage for personal risks incident to planned travel, which may include interruption or cancellation of a trip or event, loss of baggage or personal effects, damages to accommodations or rental vehicles, and sickness, accident, disability, or death occurring during travel, provided that the health benefits are not offered on a stand-alone basis and are incidental to other coverage. For this purpose, travel insurance does not include major medical plans that provide comprehensive medical protection for travelers with trips lasting 6 months or longer, including, for example, those working overseas as an expatriate or military personnel being deployed.
Essential Health Benefits (EHB) – Lifetime and Annual Dollar Limits
For purposes of the essential health benefit calculation, these regulations propose to slightly modify the methodology for determining a benchmark plan. As a reminder, a self-funded plan can use any of the 51 state-based benchmark plans, or the Federal Employee Health Benefit Plan-based benchmark plan, to make its EHB determination. The EHB determination is important for compliance with the no annual or lifetime limit, as well as for the cost share restrictions of the ACA.
Comments on these proposed regulations must be submitted to the tri-agencies by August 9, 2016. These regulations proposed to become applicable for plan or policy years beginning January 1, 2017; however, these regulations can be relied upon now.
Proposed Regulations – Individual Shared Responsibility
On July 8, 2016, the IRS released proposed regulations addressing certain aspects of the individual shared responsibility requirements of the ACA. Generally, these regulations do not directly impact employers; however, several provisions warrant consideration by employers subject to the ACA’s employer shared responsibility provisions in that they impact the employer’s offer of coverage.
Annual Offer of Health Coverage. All individuals must maintain a minimum level of coverage or be subject to tax penalties. Employers subject to the employer shared responsibility provisions (one who employs 50+ employees) must annually offer full-time employees (those working 30 or more hours per week) health coverage that is adequate and affordable or risk an excise tax. These regulations emphasize the importance of the annual offer of minimum essential coverage (MEC). In order to avoid the risk of an excise tax, an offer of MEC must be made every year. As an example, if an individual has declined the offer of coverage in Year 1, in which case, the individual would be denied premium assistance, but if an offer is not made in Year 2, then the individual would be entitled to premium assistance; thus, putting the employer at risk. The moral of the story is to offer coverage every year.
Excepted Benefits. The regulations affirm that an employer’s offer of excepted benefits (see page 2 of this HRB for examples of excepted benefits), even if the individual enrolls in the excepted benefit, would not preclude the individual’s eligibility for premium assistance. The moral of this story is that an offer of only excepted benefits puts the employer at risk of an employer’s shared responsibility penalty.
Opt-outs of Coverage. In December, 2015, IRS Notice 2015-87 addressed a cash-out arrangement for purposes of determining affordability, pursuant to which an employer offers health coverage, and if the employee declines the coverage, the employee would receive cash (see CBIZ HRB 116, Year-end Wrap-Up). These proposed regulations build on this scenario as follows:
An unconditional opt-out arrangement, i.e., one in which the employee can decline the employer’s offer of coverage and take cash would result in affordability being determined by combining the employee’s cost of coverage plus the cash pay-out, without regard to proof of other coverage. For example, the employee’s cost of coverage is $100; the employee receives $200 for declining coverage. In this scenario, the affordability determination would be based on $300.
If the offer of coverage is conditional, i.e., contingent on proof of other coverage, the cash-out portion is not included in the affordability calculation, according to these regulations, but only if the conditional opt-out qualifies as an eligible opt-out. What this means is that the individual must attest to the fact that he/she and his/her “tax family”, i.e., all of whom the taxpayer is responsible for ensuring health coverage such as the spouse and/or dependents, have, in fact, other minimum essential coverage (MEC). The other MEC cannot be individual coverage or marketplace coverage. In effect, it must be, for example, coverage from a spouse’s employer.
As a reminder, the only way to offer a choice between qualified benefit, such as employer’s contribution toward health coverage and cash is through the terms of a written IRC Section 125 (cafeteria) plan. What this means that any opt-out arrangement must be documented in a Section 125 plan.
Effective Date. Written comments on these proposals must be received by September 6, 2016.
IRS Releases Draft 2016 1094/1095 Series Forms
The Internal Revenue Service (IRS) issued draft 2016 forms for the annual reporting that will be due in 2017 by employers subject to the Affordable Care Act’s shared responsibility requirements, as well as by plans providing minimum essential coverage (MEC):
These forms are used to satisfy the IRC Section 6055 and 6056 reporting requirements. The Form 1094-B and 1095 B-series is used for reporting MEC; and the Form 1094 and 1095-C series is used for reporting employer provided coverage by employers subject to the ACA’s shared responsibility requirement. It is important to note that these forms are drafts only and subject to change. At this point, it appears that these draft forms are substantially similar to the 2015 forms. As soon as these forms and the relevant instructions are finalized and released by the IRS, we will provide additional information.
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.