HRB 122 - 1) 2017 Inflationary Adjustments; 2) Final Rules: Excepted Benefits, Lifetime and Annual Limits, and Short-Term, Limited Duration Insurance; and 3) Whistleblower and Retaliation Protections
Released November 14, 2016 I Download as a PDF
2017 Inflationary Adjustments
In Revenue Procedure 2016-55, the IRS released 2017 inflationary or cost of living adjustments relating to several types of benefits, as follows:
- Small Business Tax Credit (SBTC). Small businesses and tax-exempt employers who provide health care coverage to their employees under a qualified health care arrangement are entitled to a tax credit, as established by the Affordable Care Act. To be eligible for the small business tax credit, the employer must employ less than 25 full-time equivalent employees whose average annual wages are less than $52,400 (indexed for 2017; the wage ceiling in 2016 was $51,800).
The tax credit phases out for eligible small employers when the number of its full-time employees (FTEs) exceeds 10; or, when the average annual wages for the FTEs exceeds $26,200 in the 2017 tax year (the phase-out wage limit for 2016 was $25,900).
As a reminder, only qualified health plan coverage purchased through a SHOP marketplace is available for the tax credit, and only for a 2-consecutive year period.
- Individual Shared Responsibility Penalty. The Affordable Care Act imposes a penalty for individuals who fail to maintain minimum essential coverage (MEC). For 2017, the flat dollar penalty amount for failure to maintain MEC remains unchanged from 2016 ($695). Thus, the penalty is calculated based on the greater of 2.5% of family income; or $695 per adult, $347.50 per child (family maximum: $2,085).
- Premium Tax Credit for Coverage under a Qualified Health Plan. Individuals who buy coverage through the marketplace and meet certain income criteria may be eligible for an advance credit payment wherein a portion of the premium is made directly to the insurer to cover the cost of coverage. The amount of an individual’s premium tax credit is reduced by the amount of any advance credit payments made during the year. If the advance credit payment for a taxable year exceeds the premium tax credit limit, the individual would owe the excess as additional tax, subject to certain inflationary limits.
For tax years beginning in 2017, the limitation on tax imposed for excess advance credit payments is determined using the following table (note, these amounts are the same as 2016 limits):
(as percent of poverty line)
Limitation amount for unmarried individuals
(other than surviving spouse and health of household)
Limitation amount for all other taxpayers
Between 200% and 300%
Between 300% and 400%
- Increase in Tax Information Reporting Penalties
The IRS can assess penalties when certain tax information is not provided on a timely basis. Specifically, penalties may be assessed for failure to file information returns or provide payee statements, such as the Form W-2 and Form 1099, and notably, the Affordable Care Act’s Forms 1094 and 1095, or related payee statements. Beginning in 2017, these penalties will increase, as follows:
- The penalty for failure to file a correct information return is $260 for each return for which the failure occurs, with the total penalty cap of $3,218,500 for a calendar year.
- The penalty for failure to provide a correct payee statement is $260 for each statement for which the failure occurs, with the total penalty cap of $3,218,500 for a calendar year. Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to file the returns and furnish the required statements.
- Sunset of AGI Threshold Exemption for Itemized Medical ExpensesAmong the many provisions of the Affordable Care Act, the law increased the percentage threshold for itemized deductions of unreimbursed medical expenses. Beginning in the 2013 tax year, the threshold increased from 7.5% of an individual’s adjusted gross income (AGI) to 10%. The ACA provided for a temporary exemption of the increased AGI threshold for individuals aged 65 or over. This exemption applies to tax years beginning after December 31, 2012 and ending before January 1, 2017. Thus, beginning next year, the 10% itemization threshold will apply to taxpayers aged 65 and over. Currently, there are some legislative proposals moving through the halls of Congress to revoke the increased threshold for all tax payers which would also include those in the 65 and over bracket. We will keep you informed if any of these proposals are enacted.
- Patient-Centered Outcomes Research Institute FeeThe 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. For plan years ending between October 1, 2015 and October 1, 2016, the fee was $2.17. The fee increases to $2.26 for policy and plan years ending between October 1, 2016 and October 1, 2017, according to IRS Notice 2016-64. For additional information about the PCOR fee, see IRS webpage, questions and answers and chart of plans subject to the fees.
Final Rules: Excepted Benefits, Short-Term Limited-Duration Insurance, and Lifetime and Annual Limits – Essential Health Benefits
The tri-agency governance of the ACA (Departments of Labor, Treasury and Health and Human Services) released final rules on October 31, 2016 addressing excepted benefits, lifetime and annual limits, and short-term limited duration insurance. These regulations make certain clarifications to the proposed rules issued this summer (see CBIZ HRB 120 - Proposed Regulations, 7/13/16), as follows.
- Excepted Benefits. Certain types of health plans are excepted from the provisions of the ACA. The final regulations address supplemental coverage and travel insurance as excepted benefits.
- Supplemental coverage. The final regulations clarify that to be excepted, supplemental coverage must be specifically designed to fill gaps in the primary coverage, such as cover cost sharing (coinsurance or deductibles), non-essential health benefits or both. These plans cannot be dependent on coordination.
- Travel Insurance. The final regulations affirm that certain travel-related insurance products are deemed to be excepted benefits and thus, exempt from ACA market provisions. 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. 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.
- Short-term, limited-duration insurance is generally intended to fill temporary coverage gaps when individuals transition between coverages. The final regulations affirm the proposal of limiting short term coverage to a period of less than 3 months to coordinate with the one-time exemption from the minimum essential coverage (MEC) requirement. These types of plans must also provide notification in application and enrollment materials that such coverage does not meet the requirements of MEC and thus, the individual may be subject to individual shared responsibility penalty. The regulations provide model language for notification purposes:
“THIS IS NOT QUALIFYING HEALTH COVERAGE (“MINIMUM ESSENTIAL COVERAGE”) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.”
- Essential Health Benefits (EHB) – Lifetime and Annual Dollar Limits For purposes of the essential health benefit calculation, these regulations affirm 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. Now that states have selected their benchmark plans, the number of options have been reduced to some degree. Details about each state’s particular benchmark plan can be found on the Center for Consumer Information & Insurance Oversight’s website (http://www.cms.gov/cciio/resources/data-resources/ehb.html). 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.
These regulations do not finalize certain other topics addressed in the proposed regulations, specifically the fixed indemnity policies covering specified disease or illness and expatriate health coverage. The government continues to mull over how best to handle these types of arrangements.
Effective date. These final regulations become effective on December 30, 2016, and apply to group health plans and insurers beginning on the first day of the first plan year beginning on or after January 1, 2017.
Whistleblower and Retaliation Protections
The ACA includes a whistleblower provision to protect employees from adverse employment action or retaliation from either obtaining government assistance through premium assistance or a cost share by participating in the marketplace, as well as affording protection from alleged violations of ACA compliance by employers. To this end, the Department of Labor’s Occupational Safety and Health Administration (OSHA) is charged with handling and enforcing these protections on behalf of individuals. On October 13, 2016, OSHA released final rules relating to whistleblower protections and procedures for filing complaints that clarify the interim rules issued several years ago (see HRB 67, Whistleblower Protections for ACA Violations, 2/28/13).
As background, the whistleblower provisions are intended to protect employee rights to benefits such that an employee cannot be punished or retaliated against for challenging an employer’s compliance with the market reform provisions of the ACA. Included among these provisions are:
Further, the whistleblower law protects individuals from retaliation for seeking government assistance, which would come in the form of health coverage premium assistance or a cost share by purchasing coverage through the marketplace. Individuals who fall below 400% of the federal poverty level may be entitled to such government assistance if their employers do not offer adequate coverage at an affordable rate.
For this purpose, an adverse employment action or retaliation includes anything that affects any of the terms, conditions or privileges of employment, including the provision of benefits. Examples of retaliation include threatening or refusing to hire or re-hire; firing; demoting; reducing hours, or denying employee benefits.
The final OSHA regulations revise some of the procedures that an individual would follow for purposes of filing a complaint. The complaint, whether oral or written, must be filed with OSHA within 180 days of alleged retaliation; the complaint can be submitted online via OSHA’s website (http://www.osha.gov/whistleblower/WBComplaint.html). OSHA then has 60 days to respond to the complaint and issue a preliminary order to correct a deemed violation. Both parties to the complaint would then have 30 days to file an objection and request a hearing before an administrative law judge. If no hearing is requested, the provisions of the preliminary order stand.
It should also be noted that these rules do not, in any way, limit an individual’s rights under other laws, such as ERISA Section 510 that prohibits interference with one’s protected rights.
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.