HRB 150 - 1) Final CMS Benefit and Payment Parameters for 2021; and 2) Annual PCORI Fee and Filing (article)
HRB 150 - 1) Final CMS Benefit and Payment Parameters for 2021; 2) Annual PCORI Fee and Filing Reminders
Issued May 15, 2020 I Download as a PDF
HHS Benefit and Payment Parameters for 2021
On May 14, 2020, the HHS’ Centers for Medicare & Medicaid Services (CMS) published Final Benefit and Payment Parameters for 2021, together with a Fact Sheet. These uniform standards, as required under the Affordable Care Act (ACA), 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. These regulations take effect on July 13, 2020.
Following are highlights of the final rules:
The ACA 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 2020 and 2021:
Other than Self-only Coverage
As a reminder, the out-of-pocket (OOP) limits applicable to high deductible health plans (HDHP) used in conjunction with health savings accounts (HSA) differ from these ACA-imposed cost sharing limits. For 2020, the OOP limit for HDHP plans is $6,900 for single coverage; $13,800 for family coverage. The 2021 limits applicable to HSA-compatible HDHP coverage have not been issued by the IRS yet.
Affordability Standard – Individual Coverage
The required contribution percentage by individuals for minimum essential health coverage (MEC) for purposes of determining eligibility for a hardship exemption under the individual shared responsibility requirement (IRC Section 5000A) occurs if the cost of purchasing coverage exceeds a certain percentage of the individual’s household earnings. The affordability standard for individual coverage is increased slightly in 2021 to 8.27% of household earnings (up from 8.24% in 2020).
This affordability standard is distinct from the employer’s shared responsibility affordability standard, and distinct from the affordability standard for purposes of entitlement to premium assistance. For 2020, coverage under an employer-sponsored plan is deemed affordable to a particular employee if the employee's required contribution to the plan does not exceed 9.78% of the employee's household income for the taxable year, based on the cost of single coverage in the employer’s least expensive plan. To date, the IRS has not announced the employer’s shared responsibility affordability standard for 2021.
Employer Shared Responsibility Penalties
The CMS inflationary percentage contained in the final 2021 benefit and payment parameter standards is used for calculating the cost share limits and the individual coverage affordability standard as described above. This percentage is also used for purposes of calculating the potential penalty assessments applicable to the employer shared responsibility provisions. Using this percentage calculation contained in the 2021 benefit and payment parameters, the estimated ‘no coverage’ excise tax pursuant to IRC Section 4980H(a) is estimated to increase from $2,570 in 2020 to $2,700 in 2021. The estimated ‘inadequate or unaffordable’ excise tax pursuant to IRC Section 4980H(b) is estimated to increase from $3,860 in 2020 to $4,060 in 2021. However, it is important to note that until these inflationary adjusted penalty amounts are officially released by IRS, the 2021 limits are estimated amounts only.
Update: Prescription Drug Coupons and Cost Sharing
Consistent with the walk-back of the guidance in last year’s final regulations (see FAQ Guidance Clarifies Cost Sharing - Prescription Drugs, CBIZ HRB 145), CMS re-considered the matter, and states that insurers and health plans be permitted, but not required to, apply pharmaceutical manufacturer direct support, including prescription drug coupons and other cost cutting mechanisms, toward the annual limitation on cost sharing without regard to whether a medically appropriate generic equivalent is available. As a reminder, a couple of the concerns with what was proposed last year related to discouraging the use of generic prescription drugs.
Further, the impact of drug manufacturer direct support, including coupons, on HSA eligibility remains unclear. The IRS and Department of Treasury may provide guidance in the future. In the meantime, plans intended to be HSA-compatible HDHPs should ensure that the required HSA required minimum statutory deductible, which for 2020 are $1,400 for individual coverage or $2,800 for family coverage, is satisfied.
Although no specific disclosure is required by insurers and group health plans relating to the effects of drug manufacturer direct support cost sharing limitations, CMS encourages transparency with regard to how direct manufacturer support amounts count towards the annual limitation on cost sharing. For example, CMS encourages this type of information to be prominently displayed on insurer websites, as well as include the information in brochures, plan summary documents, and other collateral material provided to enrollees and participants. As a reminder, ERISA requires clear and accurate communications. Thus, plans subject to ERISA should make certain that any impact resulting from drug manufacturer subsidies be clearly communicated to participants.
Also keep in mind that some state insurance laws have rules applicable to insured contracts that would dictate how prescription drug coupons and the like would apply to cost accumulator programs.
Excepted-Benefit HRA – Notice Obligation
These regulations impose a new notice obligation for sponsors of excepted benefit health reimbursement arrangements (EB-HRA). As background, beginning January 1, 2020, an EB-HRA can be established and made available to individuals who are eligible for comprehensive group health coverage. An EB-HRA provides up to $1,800 in benefits per year (subject to inflationary indexing) to reimburse expenses for excepted benefits.
Under the final benefit and payment parameter rules, for EB-HRA plan years beginning in January 2021, EB-HRA plan sponsors must provide a notice that describes eligibility requirements, annual or lifetime caps, or other limits on benefits under the plan, together with a description or summary of the benefits. This notice must be provided no later than 90 days after an employee enrolls in the EB-HRA, and annually thereafter.
Method of providing notice. For plans subject to ERISA, this notice obligation is accomplished by way of their existing required communications, such as the requirement to provide the summary plan description. For plans exempt from ERISA such as state and local governments, the EB-HRA notice must be provided under similar timing and distribution methods as required by ERISA. For these entities, procedures will be developed by HHS and presumably set forth in future guidance.
QSEHRA - Special enrollment periods
These rules extend the same special enrollment opportunity currently available under individual coverage HRAs to qualified small employer HRAs (QSEHRA). As such, individuals who newly gain access to a QSEHRA have 60 days to enroll in individual market coverage (either on or off the marketplace), or change plans, under a special enrollment period.
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. The amount for state-based exchanges utilizing the federal platform for 2021 retains the current 2.5% user fee rate of the monthly premium charged by the insurer as applicable in 2020.
Annual PCORI Fee and Filing Reminder
As a reminder, the Further Consolidated Appropriations Act, 2020 enacted last December extends the Patient-Centered Outcomes Research Institute (PCORI) fee obligations for ten years (see Repeal and Extension of Certain ACA Taxes in CBIZ HRB 149). While it was set to expire for policy/plan years ending on or after October 1, 2019, the fee will continue to be assessed through 2029.
Payment of the annual PCORI fee together with the Form 720 filing deadline is approaching. The PCORI fee is assessed on the average number of lives covered under the policy or plan. For policy and plan years ending between October 1, 2018 and September 30, 2019, the fee is $2.45 per covered life. The fee is to be paid in connection with filing the IRS Form 720, Quarterly Federal Excise Tax Return. For insured plans, the insurer is obligated to file the Form 720 by July 31 following the close of the policy year. For self-funded plans, the plan sponsor is obligated to file the Form 720 by July 31 of the calendar year following the plan year end.
To date, the IRS has not released the PCORI fee amount for plan years extending beyond September 30, 2019. Further, while several IRS tax form filings have been extended due to the coronavirus situation, there has been no extension announced for filing the Form 720. Thus, entities subject to the PCORI fee must file the Form 720 filing and pay the PCORI fee by July 31, 2020. Affected entities are encouraged to monitor the IRS’s dedicated webpage for PCORI updates and developments.
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.