Last month, the Obama administration delayed two provisions of the Affordable Care Act relating to employers and the Internal Revenue Service provided guidance on several aspects of the ACA. This Alert will try to explain those actions.
ACA Reporting Requirements – Delayed
The ACA requires health insurance companies and self-insured employers to provide information to the IRS (on Forms 1094-B and 1095-B or 1094-C and 1095-C) and individuals (on Form 1095-B or 1095-C) about their medical-plan coverage, to help the IRS enforce the “individual mandate.” The ACA also requires “applicable large employers” (those with at least 50 “full-time-equivalent” employees) to provide information to the IRS (on Forms 1094-C and 1095-C) and full-time or covered employees (on Form 1095-C), to help the IRS enforce the “employer shared-responsibility” (or “play-or-pay”) rules.
On December 28, 2015, the IRS issued Notice 2016-4, delaying the due dates for the ACA reporting forms, as follows:
- The deadline for providing Form 1095-B or 1095-C to individuals for 2015 will be March 31, 2016 instead of February 1, 2016.
- The deadline for filing Forms 1094-B, 1095-B, 1094-C and 1095-C with the IRS will be May 31, 2016 instead of February 29, 2016 for paper (not electronic) filing. The deadline will be June 30, 2016 instead of March 31, 2016 for electronic filing. An employer filing at least 250 forms must file electronically.
This delay gives employers, and especially applicable large employers, a bit more time to gather the information necessary to complete, distribute and file the required forms. The IRS may impose a penalty of $250 for each Form that is not timely distributed to an affected individual or filed with the IRS.
ACA “Cadillac Plan” Excise Tax – Delayed
On December 18, 2015, President Obama signed the 2016 Consolidated Appropriations Act, which contained provisions delaying and modifying the “Cadillac plan” tax. That tax is intended, in part, to cover a portion of the cost of healthcare reform by imposing a 40% tax on the value of employer-sponsored health coverage above certain thresholds (generally, $850 per month for employee-only coverage and $2,291 per month for family coverage).
The new law delayed implementation of the Cadillac plan tax from January 1, 2018 to January 1, 2020. The new law also made such tax payments deductible. The delay gives employers (particularly employers with multiple-year collective bargaining agreements) more time to develop strategies for dealing with the potential for this tax.
ACA Clarifications – Consumer-Driven Healthcare
On December 16, 2015, the IRS issued Notice 2015-87, clarifying several ACA rules relating to consumer-driven healthcare (arrangements such as health flexible spending accounts, health reimbursement accounts and health savings accounts).
Some employers, perhaps driven by the ACA mandates for group health plans and the unavailability of the Small Business Health Options Program in Oregon, may have considered adopting a consumer-driven healthcare arrangement as its sole health plan. The IRS Notice demonstrates that this usually won’t be permissible.
The ACA requires employer-sponsored health plans to provide certain benefits on certain terms (such as certain preventive services without cost-sharing). A health FSA or HRA will not necessarily provide these benefits as required. The IRS Notice makes clear that such an FSA or HRA may not be “integrated” with an individual health insurance policy that the employee might buy with the FSA or HRA funds, so the consumer-driven healthcare program will violate the ACA. HRA funds may be used by former employees to buy individual coverage and by current employees to buy “excepted” benefits (such as dental insurance).
The Notice extends the rule requiring integration of HRAs with an employer-sponsored group health plan to employees’ family members. Thus, unless an employee’s family members are covered by an adequate group health plan, those family members’ health costs may not be paid or reimbursed by the employee’s HRA. A transition rule may postpone this requirement until plan years beginning in 2017.
Determining whether to offer and what to charge for COBRA continuation coverage of a health FSA was already complicated, and the Notice makes it more so. In general, the employer must offer COBRA for a health FSA if the amount available for reimbursement for the remainder of the year in which the qualifying event occurs is greater than the required COBRA premiums. The Notice clarifies that any amount carried over from a prior year (if the health FSA permits such carryovers) is included in the amount available for reimbursement but is not considered when determining the COBRA premium. This will tend to make it more likely that COBRA coverage must be offered.
ACA Clarifications – Play-or-Pay Rules
Notice 2015-87 also provided guidance relating to the play-or-pay rules for applicable large employers.
The play-or-pay rules are enforced by penalties that may be imposed upon ALEs that don’t offer affordable, minimum-value coverage to all of their full-time employees. There is the “(a)” (or “inadequate-offer”) penalty for ALEs that don’t offer minimum essential coverage to substantially all of their full-time employees and their dependents and the “(b)” (or “unaffordable-coverage) penalty for ALEs that offer coverage that either is unaffordable or fails to provide “minimum value.”
The Notice announced cost-of-living increases to both penalties. The “(a)” penalty was increased from $166.67 per month to $173.33 per month for 2015 and $180 per month for 2016. The “(b)” penalty was increased from $250 per month to $260 per month for 2015 and $270 per month for 2017.
The Notice clarified the rules for determining when coverage is affordable.
- Employer payments that an employee may take in cash or use for non-health benefits instead of applying them to pay for health coverage are treated as an additional employee cost of coverage for purposes of calculating affordability. For example, if an employer would pay employees $100 per month if they waive health coverage, that $100 is treated as part of the employee’s cost of coverage, in addition to whatever amount the employee would have been required to pay for employee-only coverage if the employee had not waived. A transition rule may postpone this provision until plan years beginning in 2017.
- New employer credits to an HRA for a year that may be used to pay for coverage may be subtracted from the required employee contribution to determine whether the coverage is affordable.
- New employer credits to a health FSA for year also may be subtracted from the required employee contribution to determine whether the coverage is affordable, but only if the employee may not opt for cash instead and may use the amount to pay for minimum essential coverage and only to pay for medical care.
- The affordability thresholds are subject to cost-of-living increases both for state health insurance exchanges and for the employer “safe harbors” for determining affordability. The original 9.5% threshold is increased to 9.56% for 2015 and 9.66% for 2016.
What to Do in Light of This New Guidance?
- Employers and insurers should keep working on their 1094 and 1095 Forms, but they can breathe a bit easier with the extended deadlines.
- Employers should keep thinking about cost-containing designs for their medical plans, but they now can have a more gradual move to such designs, given the delay of the Cadillac plan tax.
- Employers with HRAs or health FSAs may need to confirm that those arrangements are properly integrated with group health coverage, not only for employees but for employees’ family members as well.
Employers with health FSAs that permit carryover of unused amounts may have to revisit their rules regarding offering and pricing COBRA continuation of the FSA. Applicable large employers deciding whether to “play or pay” will want to take into account the inflation-adjusted penalties and affordability thresholds. In determining affordability, ALEs will need to take into account “opt-out” or similar payments, and consider the effect, if any, of credits to HRAs and health FSAs.This continues to be an area of law that is rapidly changing. We will report from time to time on new developments related to healthcare reform. Please feel free to contact us at any time about healthcare reform or other labor, employment, or benefits issues.