Nov. 26, 2013 – The Department of Health and Human Services (HHS) recently announced that online enrollment for small employers who wish to purchase employee health coverage through the federally facilitated Small Business Health Options Program (SHOP) Marketplace has been delayed one year. The online enrollment option is expected to be available November 2014.
Until online enrollment for the SHOP is available, small business employers with 50 or fewer full-time equivalent employees who wish to purchase coverage through the SHOP Marketplace, may work with an independent agent to select and enroll employees in a qualified health plan utilizing a “direct enrollment” process.
With the “direct enrollment” process, employers do not have to apply for SHOP eligibility before enrolling or using HealthCare.gov. Agents can enroll employees and can help the employer fill out a paper application for SHOP eligibility. This application is only necessary for employers who believe they may qualify for the small business health care tax credit.
For more information on the enrollment process for the federally facilitated SHOP Marketplace you may review these frequently asked questions and answers or contact your independent agent.
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Nov. 26, 2013 – The Departments of Labor, Health and Human Services and the Treasury on Nov. 8, 2013 jointly issued a final rule increasing parity between mental health/substance use disorder benefits and medical/surgical benefits in group and individual health plans.
The final rule issued implements the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act, and ensures that health plan features like copays, deductibles and visits limits are generally not more restrictive for mental health/substance abuse disorders benefits than they are for medical/surgical benefits.
This action also includes specific additional consumer protections, such as:
• Ensuring that parity applies to intermediate levels of care received in residential treatment or intensive outpatient settings;
• Clarifying the scope of the transparency required by health plans, including the disclosure rights of plan participants, to ensure compliance with the law;
• Clarifying that parity applies to all plan standards, including geographic limits, facility-type limits and network adequacy; and
• Eliminating an exception to the existing parity rule that was determined to be confusing, unnecessary and open to abuse.
In January, as part of the President and Vice President’s plan to reduce gun violence, the administration committed to finalize this rule as part of a larger effort to increase access to affordable mental health services and reduce the misinformation associated with mental illness. As the President and Vice President have made clear, mental illness should no longer be treated by our society – or covered by insurance companies – differently from other illnesses.
The Affordable Care Act builds on the Mental Health Parity and Addiction Equity Act and requires coverage of mental health and substance use disorder services as one of ten essential health benefits categories. Under the essential health benefits rule, individual and small group health plans are required to comply with these parity regulations.
“New efforts are underway to expand coverage to the millions of Americans who have lacked access to affordable treatment for mental and substance use disorders,” said Labor Secretary Thomas E. Perez. “These rules will increase access to mental health and substance abuse treatment, prohibit discriminatory practices and increase health plan transparency. Ultimately, they’ll provide greater opportunities for affordable, accessible, effective treatment to Americans who need it.”
“This final rule breaks down barriers that stand in the way of treatment and recovery services for millions of Americans,” said Health and Human Services Secretary Kathleen Sebelius. “Building on these rules, the Affordable Care Act is expanding mental health and substance use disorder benefits and parity protections to 62 million Americans. This historic expansion will help make treatment more affordable and accessible.”
“Americans deserve access to coverage for mental health and substance use disorders that is on par with medical and surgical care,” said Treasury Secretary Jacob J. Lew. “These rules mark an important step in ending the disparities that exist in insurance plans, and will provide families nationwide with critical coverage and protections that fulfill their health needs.”
The final Mental Health Parity and Addiction Equity Act rule was developed based on the departments’ review of more than 5,400 public comments on the interim final rules issued in 2010.
By Bonnie Bochniak
Vice President, Government Relations
MBPA/MFBA
Nov. 26, 2013 – The office of Governor Rick Snyder has submitted the waiver amendment needed to expand Michigan’s Medicaid eligibility, capturing individuals with incomes up to 133 percent of the federal poverty level, which is roughly $15,000 a year for a single person. This waiver also fosters healthy behaviors to help decrease the rate of chronic diseases and to encourage overall health.
Background:
What kind of coverage will be provided?
Coverage will include access to primary care doctors, preventative care and routine checkups.
How much will it cost Michigan?
There is no net cost to the state over the next 21 years, and Michigan will save $320 million in uncompensated care costs by 2022 and $206 million in General Fund costs in 2014 alone.
Who will pay for the expansion?
Federal funds will cover 100% of the cost of Medicaid expansion from 2014 to 2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019 and 90 percent in 2020 and subsequent years. With the Medicaid expansion, the federal government will cover expenses Michigan pays for today, saving the state $206 million in in General Fund costs in 2014 alone. The proposed budget deposits $103 million of those savings into a new health savings fund to cover Michigan’s future health care liabilities.
Will Michiganders who already have insurance benefit?
Yes. Today, uninsured citizens often turn to emergency rooms for non-urgent care because they don’t have access to primary care doctors – leading to crowded emergency rooms, longer wait times and higher cost. By expanding Medicaid, those without insurance will have access to primary care, lowering costs and improving overall health.
Will businesses benefit?
Yes. Under the Affordable Care Act, the federal government is mandating that businesses either provide health care to their employees or pay a $2,000-per-employee penalty. By expanding Medicaid, Michigan can provide an affordable option that will help businesses stay open.**
Michigan’s Medicaid Expansion will provide eligibility to about 450,000 people state-wide, once it is enacted on April 1, 2014. Michigan Community Health Director Jim Havemen said the state department had been holding discussions with the Center for Medicare and Medicaid Services (CMS) since August and is confident of its approval before the end of this calendar year. CMS is an arm of the U.S. Health and Human Services (HHS) Department, tasked with administering sections of the Affordable Care Act.
The State of Michigan will soon provide information to the public through websites and toll-free numbers in the upcoming weeks. Michiganders eligible to sign up will begin receiving benefits on April 1st, 2014, and in the meantime, may utilize an employer sponsored plan, or the federal exchange.
As always, MBPA’s legislative team will keep you up to date as more information is announced. Please feel free to contact our team with any questions at 586-393-8800 or by email: BBochniak@michbusiness.org
*Information provided by Michigan.gov/MiBudget2014
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President Obama announced on November 14, 2013 that the Administration will allow health insurers to continue certain coverage in the individual and small group market which would have not otherwise met the market reform requirements of the Affordable Care Act (ACA). This change raises significant questions and operational problems for issuers, providers, employer sponsors of health plans, and other organizations operating in the health care industry.
In conjunction with the President’s announcement, the Centers for Medicare & Medicaid Services of the Department of Health and Human Services (CMS) has issued a letter to state insurance commissioners (CMS Letter) detailing the Administration’s new “transitional policy” in regard to this issue. The CMS Letter provides some guidance regarding health insurance policies that now may be continued, and specifies the necessary conditions under which these policies may be continued. However, there remains much uncertainty as to whether issuers will be able to continue to offer these policies, as well as the overall impact on the insurance market.
Every state is still making their determination on how the announcement will affect them, On Nov. 22, 2013 Governor Rick Snyder announced that he will allow the President’s ACA fix on existing health plans in the State of Michigan. This announcement allows carriers to decide if they are able to do this as the ACA plans are being implemented.
MBPA President and CEO Jennifer Kluge noted that the Association supports the Governor’s action and hopes that “small business can keep their coverage. The question becomes, is it feasible for the carriers to turn the ship around without negatively impacting rates. If not, it might be best for some small businesses/individuals to keep the new ACA compliant plans.”
Summary of the CMS Letter
The transitional relief described in the CMS Letter applies to health insurance coverage in the individual and small group market that is renewed for a policy year between January 1, 2014 and October 1, 2014 and “associated group health plans of small businesses.” In order to take advantage of the relief, the following conditions must be met:
•The coverage must have been in effect on October 1, 2013, and the relief applies only to individuals and small businesses with coverage under the policy as of that date. In other words, if a policy is extended under the relief, it cannot be sold or offered to new insureds.
•The issuer sends a new notice to all individuals and small businesses that received (or would have received) a cancellation notice with respect to the coverage, informing them of the following: (1) any changes in the options that are available to them; (2) which of the specified market reforms would not be reflected in any coverage that continues; (3) their potential right to enroll in a qualified health plan offered through an Exchange and possibly qualify for financial assistance; (4) how to access such coverage through an Exchange; and (5) their right to enroll in health insurance coverage outside of an Exchange that complies with the specified market reforms.
If individuals or small businesses have already received a cancellation notice, the issuer must send this notice as soon as reasonably possible. If the cancellation notice has not yet been sent, the issuer must send the notice by the time it would have otherwise had to have sent the cancellation notice.
Under the relief, eligible policies will not have to comply with the following market reforms which otherwise would be mandated by the ACA for 2014:
•the prohibition on using factors other than rating area, actuarial value, age, tobacco use, and individual/family status to determine premium rates;
•guaranteed availability of coverage;
•guaranteed renewability of coverage;
•the prohibition of pre-existing condition exclusions or other discrimination based on health status, with respect to adults (except with respect to group coverage);
•the prohibition of discrimination against individual participants and beneficiaries based on health status (except with respect to group coverage);
•the prohibition of discrimination against health care providers acting within the scope of their license and state laws;
•the requirement to provide essential health benefit packages;
•the prohibition on discriminating against an individual who requires treatment for cancer or another life-threatening condition because the individual chooses to participate in a clinical trial.
Note that this list does not encompass all of the market reforms under the ACA; for example, the relief does not extend to the prohibition on waiting periods that exceed 90 days, or the prohibition against establishing lifetime or annual limits on the dollar value of benefits.
The CMS Letter states, at its conclusion, that “State agencies responsible for enforcing the specified market reforms are encouraged to adopt the same transitional policy with respect to this coverage.” In other words, while the CMS Letter reflects the Obama Administration’s policy, CMS acknowledges that state insurance regulators will dictate whether this relief will be available for any particular state.
Takeaways
My initial reactions to the Administration’s announcement and the CMS Letter are as follows:
•The threshold question is whether state insurance regulators will be willing, or able, to let insurers take advantage of the relief.
The transitional relief is only available to the extent state insurance regulators are willing to go along with the Administration’s proposed policy. This will be determined on a state-by-state basis, based at least in part on political considerations. The status of Exchange enrollment within the state may also be a factor.
Initial reaction to the proposed relief has been mixed. According to press reports, regulators in Florida, Hawaii, Kentucky, North Carolina, Ohio, and Texas have indicated that they are receptive to allowing insurers to continue eligible plans. Rhode Island, Vermont, and Washington have already stated they will not allow insurers to continue non-compliant policies, regardless of the Administration’s position. Other states are apparently reviewing the proposal. However, it seem likely that some states will adjust their initial positions based on their success in enrolling individuals on the Exchanges. States with low enrollment may be more likely to allow for the continuation of otherwise non-compliant policies in the hopes that it will lower the number of individuals with no coverage at all.
There are other problems at the state level. A number of states have adopted laws mirroring the ACA market reforms, effective as of January 1, 2014. Insurance regulators in these states may not have the flexibility to allow non-compliant policies to be renewed, absent action by the state legislature to amend the relevant laws. At least one state, California, has entered into contracts with issuers offering Exchange products requiring them to discontinue non-grandfathered coverage that does not comply with ACA market reforms. Such contracts would also have to be modified.
•Even if the states are willing to “play ball,” insurers are under no obligation to continue these policies. Insurers will have to take into account significant business and logistical considerations in deciding how to proceed.
Under the current guidance, a health care insurer has no obligation to continue any particular health insurance policy, regardless of whether it is eligible for the transitional relief. If the policy is potentially eligible to be extended, the issuer will have to take into account a number of factors in determining whether it is feasible to continue a policy that it anticipated terminating. First, the issuer will have to make a business decision regarding whether it is in its financial interest to continue the policy, given the changes in the insurance market. Many issuers have significantly altered their internal programming for administering claims in anticipation of the implementation of the market reforms, and they will have to determine if they can now modify that programming to accommodate the reinstatement of these other policies. Also, since the carriers did not anticipate the existence of these policies, they presumably have not filed for the appropriate premium rates. That will require the carrier to take the time to determine what premiums are appropriate and then file the policies with the appropriate state regulators for approval. Finally, issuers will have to comply with the notice requirements set forth in the CMS Letter and do so in a timely manner, and give policyholders ample time to decide whether to renew their policies. Working through all of these issues will pose challenges for many issuers.
•Not every policy that is non-compliant with the ACA market reforms can be “saved” by this relief. Notably, it appears “mini-med” policies cannot take advantage of the relief and therefore are no longer viable.
While the CMS Letter would allow the continuation of some policies that otherwise would be out of compliance with the market reforms, the excepted “specified market reforms” as laid out in the transitional relief are not inclusive of all the market reforms in the ACA. As a result, at present it appears that certain policies simply cannot be saved, regardless of the relief. Most notably, it appears that “mini-med” policies, which provide for inexpensive premiums but typically cap benefits at a relatively low annual limit, are not eligible for the relief, since the elimination of annual limits is not one of the excepted “specified market reforms” set forth in the CMS Letter.
•A number of entities are raising concerns about how this new relief could affect the health insurance risk pools. Further guidance addressing this issue is likely.
Health insurance industry leaders are already expressing the concern that the continuation of non-ACA compliant health insurance policies will result in healthier (lower-cost) individuals retaining less expensive coverage that otherwise would have been canceled, while less healthy (higher-cost) individuals will purchase coverage on the Exchanges. That could result in the premiums that were approved for Exchange coverage not covering the cost of providing benefits for this population. The CMS Letter acknowledges this issue, stating, “though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.” The risk corridor program is a temporary program that HHS will implement during 2014 through 2016. Under the risk corridor program, funds are distributed from those qualified health plans sold in the Exchanges that have better than expected experience to the qualified health plans with worse experience, in order to stabilize risk. Concerns about disruption of the risk pools are likely to continue, and further guidance addressing this issue is likely to be forthcoming as well.
•The CMS Letter leaves open the possibility that the transitional relief could be extended.
Notably, the CMS Letter states, “We will consider the impact of this transitional policy in assessing whether to extend it beyond the specified timeframe [eligible coverage renewed for a policy year starting between January 1, 2014, and October 1, 2014].” This suggests that CMS could extend the relief into future policy years. Of course, legislation is also under consideration in Congress that could also affect whether these policies will continue to be viable
Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.
From: BenefitsPro By Kathryn Mayer, October 31, 2013
Nov. 26, 2013 – Use-it-or-lose-it is no more.
The U.S. Department of the Treasury and the IRS on Thursday issued a notice modifying the longstanding “use-or-lose” rule for health flexible spending arrangements. Participants now can carry over up to $500 of their unused balances
remaining at the end of a plan year.
The rule will go into effect for the 2014 plan year.
Effective immediately, employers that offer FSAs that don’t include a grace period will have the option of allowing employees to roll over up to $500 of unused funds at the end of this plan year.
An employer cannot offer a FSA carryover provision and an FSA grace period at the same time, officials said.
For nearly 30 years, employees eligible for FSAs have been subject to the use-it-or-lose-it rule, meaning any account balances remaining unused at the end of the year are forfeited.
FSAs allow employees to contribute pre-tax dollars to pay for out-of-pocket health care expenses – including deductibles, copayments, and other qualified medical, dental or vision expenses not covered by the individual’s health insurance plan.
Health savings accounts, on the other hand, are similar vehicles, but allow participants to build up savings over time.
The move, the departments announced, is making “FSAs more consumer-friendly and provide added flexibility.”
“Across the administration, we’re always looking for ways to provide added flexibility and commonsense solutions to how people pay for their health care,” Treasury Secretary Jacob Lew said in a statement. “Today’s announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year.”
The change responds directly to more than 1,000 public comments the Treasury fielded. Employers and employees complained about the difficulty for employees to predict future needs for medical expenditures. Many FSA users said they scrambled at year end to spend the remaining amounts, often buying unnecessary medical supplies.
IRS officials said they believe a $500 rollover cap is appropriate because most employees who lost money under the rule lost far less than that amount.
Bob Natt, executive chairman of Alegeus Technologies, a health and benefits payments firm, said he’s grateful the administration has “eliminated the most significant barrier to FSA participation – namely consumers’ fear of losing their money.”
He said that though more than 85 percent of large employers offer FSAs, only about 20 percent of eligible employees actually enroll, mainly for “fear of forfeiting unused funds at the end of the plan year.”
“With this new provision in effect, there is really no reason for eligible employees not to enroll and contribute to an FSA,” Natt said. “All contributions are tax-free, the employee’s full election is available on the first day of the plan year, and now unused funds up to $500 can be rolled over to the next plan year.”
Alegeus Technologies has been lobbying for four years to modify the use-it-or-lose-it provision, he said.
Wageworks, a benefits management provider of consumer-directed benefits, has also been pushing the administration for flexibility on FSA provisions. The company’s CEO, Joe Jackson, said it’s a very “positive change” and a long time coming.
“The timing of this change could not be better, as most companies are now in their open enrollment period,” Jackson said. “We encourage all eligible employees to take advantage of this change and sign up for an FSA and lower their health care expenses.”
The rule will have far-reaching effects: An estimated 14 million families participate in FSAs.
Under the Patient Protection and Affordable Care Act, the amount an employee can set aside in an FSA dropped to $2,500 this year. The $500 carryover won’t reduce the $2,500 maximum a worker can contribute to a FSA each year, Treasury officials said.
By Bonnie Bochniak
Vice President, Government Relations
MBPA/MFBA
Oct. 29, 2013 – The Internal Revenue Service (IRS) and the United States Department of Labor (DOL) have recently sent up a flare to warn businesses who try to avoid the Affordable Care Act (ACA) penalties by classifying employees as “independent contractors.” Due to the penalties that are forthcoming in 2015 for businesses with 50 or more full-time employees that do not offer healthcare coverage or offer healthcare that is not affordable, some businesses may consider reclassifying their common law employees as independent contractors. The IRS and DOL are stating that the scrutiny over worker classification will be very thorough as to make certain those that intentionally reclassify will be penalized. Since there are more good apples than bad ones, both departments want to also educate business owners on how each classification is defined, to avoid a truly accidental misclassification.|
When classifying workers as employees or independent contractors a fact intensive inquiry must take place in order to properly count the number of employees a business has. This “count” is very important when calculating for the purposes of the Affordable Care Act, as indicated by the IRS. IRS says businesses must use the traditional common law test for determining employment status. The common law classification rules require that the employer examine 20 factors in determining employment status, and every employee counts. The factors focus on the degree of control that the employer exercises over the worker’s performance. Simply put, does the employer have the right to control what work will be done, and how it will be accomplished?
Important factors in analyzing employee status:
1. The worker is required to follow the business owner’s instructions;
2. Any training requirements are imposed upon the workers by a business owner;
3. Work is performed on the business owner’s premises;
4. There is continuing relationship between the worker and the business owner;
5. The worker’s travel expenses are paid by the business owner;
6. The business owner pays for administrative support; and
7. The work-related tools are provided by the business owner.
It is more critical now than ever to make certain business owners know the rules on how to classify their workers. The penalties for misclassification of workers as independent contractors have always been hefty, but with the additional ACA penalties the stakes are high. Please feel free to contact the MBPA legislative and agent relations team with any questions. Our association has the tools to help navigate you through the waters of the ACA, we look forward to your feedback.
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On Oct. 23, 2013, the Obama administration announced that as long as people obtain health insurance by March 31, 2014, they will not face tax penalties for being uninsured during those first three months of 2014. An earlier interpretation had some people thinking they needed to sign up by Feb. 15, 2014 to avoid a penalty; however, the Obama administration realized it made more sense for the deadline to coincide with the end of open enrollment, as well as meet the expectations of consumers who were under the impression signing up for coverage by March 31 kept them in compliance with the law.
Source: New York Times, “White House to Tweak Tax-Penalty Deadline,” Oct. 23, 2013
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By Bonnie Bochniak
Vice President, Government Relations
MBPA/MFBA
October 1, 2013 – In an attempt to better streamline reporting requirements, on September 5, 2013, the Internal Revenue Service (IRS) issued two proposed regulations to implement the information reporting requirements for insurers and certain employers under the Affordable Care Act (ACA). One proposed rule would require large employers to report to the IRS information regarding the health care coverage offered to full-time employees. The second proposed rule would require insurers, self-insured employers, government-sponsored programs, and entities that provide minimum essential coverage to report information on this coverage to the IRS and to covered individuals. If you are a stakeholder or interested party, you are able to view the proposed regulations by connecting through the links provided below. After your review, you are able to submit your comments directly to the IRS. MBPA is encouraging those who have a vested interest to please offer your suggestions. Comments are due November 8, 2013.
This Technical Release provides guidance on the application of certain provisions of the Affordable Care Act(1) to the following types of arrangements: (1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan; (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, 1961-2 CB 25, or arrangements under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan); and (3) certain health flexible spending arrangements (health FSAs). This Technical Release also provides guidance on section 125(f)(3) of the Internal Revenue Code (Code) and on employee assistance programs or EAPs.
The Departments of the Treasury (Treasury Department), Health and Human Services (HHS), and Labor (DOL) (collectively, the Departments) are continuing to work together to develop coordinated regulations and other administrative guidance to assist stakeholders with implementation of the Affordable Care Act. The guidance in this Technical Release is being issued in substantially identical form by the Treasury Department, and guidance is being issued by HHS to reflect that HHS concurs in the application of the laws under its jurisdiction as set forth in this Technical Release.
II. Background
A. Health Reimbursement Arrangements
An HRA is an arrangement that is funded solely by an employer and that reimburses an employee for medical care expenses (as defined under Code § 213(d)) incurred by the employee, or his spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27, up to a maximum dollar amount for a coverage period. IRS Notice 2002-45, 2002-02 CB 93; Revenue Ruling 2002-41, 2002-2 CB 75. This reimbursement is excludable from the employee’s income. Amounts that remain at the end of the year generally can be used to reimburse expenses incurred in later years. HRAs generally are considered to be group health plans within the meaning of Code § 9832(a), § 733(a) of the Employee Retirement Income Security Act of 1974 (ERISA), and § 2791(a) of the Public Health Service Act (PHS Act) and are subject to the rules applicable to group health plans.
B. Employer Payment Plans
Revenue Ruling 61-146 holds that if an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income under Code §106. This exclusion also applies if the employer pays the premiums directly to the insurance company. An employer payment plan, as the term is used in this Technical Release, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage. Individual employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL’s regulation at 29 C.F.R. §2510.3-1(j) are met.
C. Health Flexible Spending Arrangements (Health FSAs)
In general, a health FSA is a benefit designed to reimburse employees for medical care expenses (as defined in Code § 213(d), other than premiums) incurred by the employee, or the employee’s spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27. See Employee Benefits-Cafeteria Plans, 72 Fed. Reg. 43938, 43957 (August 6, 2007) (proposed regulations; to be codified, in part, once final, at 26 C.F.R. §1.125-5); Code §§ 105(b) and 106(f). Contributions to a health FSA offered through a cafeteria plan satisfying the requirements of Code § 125 (a Code § 125 plan) do not result in gross income to the employee. Code § 125(a). While employees electing coverage under a health FSA typically also elect to enter into a salary reduction agreement, employers may provide additional health FSA benefits in excess of the salary reduction amount. See Employee Benefits-Cafeteria Plans, 72 Fed. Reg. 43938, 43955-43957 (August 6, 2007) (proposed regulations; to be codified, in part, once final, at 26 C.F.R. §§1.125-1(r), 1.125-5(b)). For plan years beginning after December 31, 2012, the amount of the salary reduction is limited by Code §125(i) to $2,500 (indexed annually for plan years beginning after December 31, 2013). See IRS Notice 2012-40, 2012-26 IRB 1046, for more information about the application of the limitation. Additional employer contributions are not limited by Code §125(i).
The Code, ERISA, and the PHS Act impose various requirements on group health plans, but certain of these requirements do not apply to a group health plan in relation to its provision of excepted benefits. Code § 9831(b), ERISA § 732(b), PHS Act §§ 2722(b) and 2763. Although a health FSA is a group health plan within the meaning of Code §9832(a), ERISA § 733(a), and PHS Act § 2791(a), a health FSA may be considered to provide only excepted benefits if other group health plan coverage not limited to excepted benefits is made available for the year to employees by the employer, but only if the arrangement is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). 26 C.F.R. §54.9831-1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. §146.145(c)(3)(v).
D. Affordable Care Act Guidance
1. Market Reforms – In General
The Affordable Care Act contains certain market reforms that apply to group health plans (the market reforms).(2) In accordance with Code § 9831(a)(2) and ERISA §732(a),the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year, and, in accordance with Code §9831(b), ERISA § 732(b), and PHS Act §§2722(b) and 2763, the market reforms also do not apply to a group health plan in relation to its provision of excepted benefits described in Code §9832(c), ERISA §733(c) and PHS Act §2791(c).(3) Excepted benefits include, among other things, accident-only coverage, disability income, certain limited-scope dental and vision benefits, certain long-term care benefits, and certain health FSAs.
The market reforms specifically addressed in this Technical Release are:(4)
(a) PHS Act § 2711 which provides that a group health plan (or a health insurance issuer offering group health insurance coverage) may not establish any annual limit on the dollar amount of benefits for any individual-this rule does not prevent a group health plan, or a health insurance issuer offering group health insurance coverage, from placing an annual limit, with respect to any individual, on specific covered benefits that are not essential health benefits(5) to the extent that such limits are otherwise permitted under applicable law (the annual dollar limit prohibition); and
(b) PHS Act § 2713 which requires non-grandfathered group health plans (or health insurance issuers offering group health insurance plans) to provide certain preventive services without imposing any cost-sharing requirements for these services (the preventive services requirements).
2. Prior Guidance on the Application of the Market Reforms to HRAs
The preamble to the interim final regulations implementing the annual dollar limit prohibition states that if an HRA is integrated with other coverage as part of a group health plan and the other coverage alone would comply with the annual dollar limit prohibition, the fact that benefits under the HRA by itself are limited does not fail to comply with the annual dollar limit prohibition because the combined benefit satisfies the requirements. Further, the preamble states that in the case of a standalone HRA that is limited to retirees, the exemption from the requirements of the Code and ERISA relating to the Affordable Care Act for plans with fewer than two current employees means that the retiree-only HRA is not subject to the annual dollar limit prohibition. 75 Fed. Reg. 37188, 37190-37191 (June 28, 2010).
On January 24, 2013, the Departments issued FAQs that address the application of the annual dollar limit prohibition to certain HRA arrangements (HRA FAQs).(6) In the HRA FAQs, the Departments state that an HRA is not integrated with primary health coverage offered by an employer unless, under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage that is provided by the employer and that meets the annual dollar limit prohibition. Further, the HRA FAQs indicate that the Departments intend to issue guidance providing that:
(a) for purposes of the annual dollar limit prohibition, an employer-sponsored HRA cannot be integrated with individual market coverage or with individual policies provided under an employer payment plan, and, therefore, an HRA used to purchase coverage on the individual market under these arrangements will fail to comply with the annual dollar limit prohibition; and
(b) an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in the coverage, and any HRA that credits additional amounts to an individual, when the individual is not enrolled in primary coverage meeting the annual dollar limit prohibition provided by the employer, will fail to comply with the annual dollar limit prohibition.
The HRA FAQs also state that the Departments anticipate that future guidance will provide that, whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before January 1, 2014 consisting of amounts credited before January 1, 2013, and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013, may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without causing the HRA to fail to comply with the annual dollar limit prohibition. If the HRA terms in effect on January 1, 2013 did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.
3. Prior Guidance on the Application of the Market Reforms to Health FSAs
Under the interim final rules implementing the annual dollar limit prohibition, a health FSA, as defined in Code § 106(c)(2), is not subject to the annual dollar limit prohibition. See 26 C.F.R. §54.9815-2711T(a)(2)(ii), 29 C.F.R. §2590.715-2711(a)(2)(ii), and 45 C.F.R. §147.126(a)(2)(ii). See Q&A 8 of this Technical Release limiting the exemption from the annual dollar limit prohibition to a health FSA that is offered through a Code § 125 plan.
4. Prior Guidance on the Application of Code §§ 36B and 5000A
Section 36B of the Code allows a premium tax credit to certain taxpayers who enroll (or whose family members enroll) in a qualified health plan (QHP) through an Affordable Insurance Exchange (referred to in this Technical Release as an Exchange, and also referred to in other published guidance as a Marketplace). The credit subsidizes a portion of the premiums for the QHP. In general, the premium tax credit may not subsidize coverage for an individual who is eligible for other minimum essential coverage. If the minimum essential coverage is eligible employer-sponsored coverage, however, an individual is treated as eligible for that coverage only if the coverage is affordable and provides minimum value or if the individual enrolls in the coverage.
Coverage provided through Code § 125 plans, employer payment plans, health FSAs, and HRAs are eligible employer-sponsored plans and, therefore, are minimum essential coverage, unless the coverage consists solely of excepted benefits. See Code § 5000A(f)(2) and Treas. Reg. §1.5000A-2, 78 Fed. Reg. 53646, 53658 (August 30, 2013).
Amounts newly made available for the current plan year under an HRA that is integrated with an eligible employer-sponsored plan and that an employee may use to pay premiums are counted for purposes of determining affordability of an eligible employer-sponsored plan under Code § 36B. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25914 (May 3, 2013) (proposed regulations; to be codified, in part, once final, at 26 C.F.R. §1.36B-2(c)(3)(v)(A)(5)). Amounts newly made available for the current plan year under an HRA that is integrated with an eligible employer-sponsored plan are counted toward the plan’s minimum value percentage for that plan year if the amounts may be used only to reduce cost-sharing for covered medical expenses and the amount counted for this purpose is the amount of expected spending for health care costs in a benefit year. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25916 (May 3, 2013) (proposed regulations; to be codified, in part, once final, at 26 C.F.R. §1.36B-6(c)(4), (c)(5)). See Q&A 11 of this Technical Release for more explanation of the application of these rules to HRAs and other arrangements.
III. Guidance
A. Guidance on HRAs and Certain other Employer Healthcare Arrangements, Health FSAs, and Employee Assistance Programs or EAPs Under the Joint Jurisdiction of the Departments
1. Application of the Market Reform Provisions to HRAs and Certain other Employer Healthcare Arrangements
Question 1: The HRA FAQs provide that an employer-sponsored HRA cannot be integrated with individual market coverage, and, therefore, an HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition. May other types of group health plans used to purchase coverage on the individual market be integrated with that individual market coverage for purposes of the annual dollar limit prohibition?
Answer 1: No. A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the annual dollar limit prohibition.
For example, a group health plan, such as an employer payment plan, that reimburses employees for an employee’s substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.
Question 2: How do the preventive services requirements apply to an HRA that is integrated with a group health plan?
Answer 2: Similar to the analysis of the annual dollar limit prohibition, an HRA that is integrated with a group health plan will comply with the preventive services requirements if the group health plan with which the HRA is integrated complies with the preventive services requirements.
Question 3: The HRA FAQs provide that an employer-sponsored HRA cannot be integrated with individual market coverage, and, therefore, an HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition. May a group health plan, including an HRA, used to purchase coverage on the individual market be integrated with that individual market coverage for purposes of the preventive services requirements?
Answer 3: No. A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the preventive services requirements.
For example, a group health plan, such as an employer payment plan, that reimburses employees for an employee’s substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However, the employer payment plan will fail to comply with the preventive services requirements because (1) an employer payment plan does not provide preventive services without cost-sharing in all instances, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.
Question 4: Under what circumstances will an HRA be integrated with another group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements?
Answer 4: An HRA will be integrated with a group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if it meets the requirements under either of the integration methods described below. Pursuant to this Technical Release, under both methods, integration does not require that the HRA and the coverage with which it is integrated share the same plan sponsor, the same plan document or governing instruments, or file a single Form 5500, if applicable.
Integration Method: Minimum Value Not Required
An HRA is integrated with another group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if (1) the employer offers a group health plan (other than the HRA) to the employee that does not consist solely of excepted benefits; (2) the employee receiving the HRA is actually enrolled in a group health plan (other than the HRA) that does not consist solely of excepted benefits, regardless of whether the employer sponsors the plan (non-HRA group coverage); (3) the HRA is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the employer sponsors the non-HRA group coverage (for example, the HRA may be offered only to employees who do not enroll in the employer’s group health plan but are enrolled in other non-HRA group coverage, such as a plan maintained by the employer of the employee’s spouse); (4) the HRA is limited to reimbursement of one or more of the following-co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care (as defined under Code § 213(d)) that does not constitute essential health benefits; and (5) under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA. This opt-out feature is required because the benefits provided by the HRA generally will constitute minimum essential coverage under Code § 5000A (see Q&A 10 of this Technical Release) and will therefore preclude the individual from claiming a Code § 36B premium tax credit.
Integration Method: Minimum Value Required
Alternatively, an HRA that is not limited with respect to reimbursements as required under the integration method expressed above is integrated with a group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if (1) the employer offers a group health plan to the employee that provides minimum value pursuant to Code § 36B(c)(2)(C)(ii); (2) the employee receiving the HRA is actually enrolled in a group health plan that provides minimum value pursuant to Code § 36B(c)(2)(C)(ii), regardless of whether the employer sponsors the plan (non-HRA MV group coverage); (3) the HRA is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the employer sponsors the non-HRA MV group coverage (for example, the HRA may be offered only to employees who do not enroll in the employer’s group health plan but are enrolled in other non-HRA MV group coverage, such as a plan maintained by an employer of the employee’s spouse); and (4) under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.
Example (Integration Method: Minimum Value Not Required)
Facts. Employer A sponsors a group health plan and an HRA for its employees. Employer A’s HRA is available only to employees who are either enrolled in its group health plan or in non-HRA group coverage through a family member. Employer A’s HRA is limited to reimbursement of co-payments, co-insurance, deductibles, and premiums under Employer A’s group health plan or other non-HRA group coverage (as applicable), as well as medical care (as defined under Code § 213(d)) that does not constitute essential health benefits. Under the terms of Employer A’s HRA, an employee is permitted to permanently opt out of and waive future reimbursements from the HRA both upon termination of employment and at least annually.
Employer A employs Employee X. Employee X chooses to enroll in non-HRA group coverage sponsored by Employer B, the employer of Employee X’s spouse, instead of enrolling in Employer A’s group health plan. Employer A and Employer B are not treated as a single employer under Code § 414(b), (c), (m), or (o). Employee X attests to Employer A that he is covered by Employer B’s non-HRA group coverage. When seeking reimbursement under Employer A’s HRA, Employee X attests that the expense for which he seeks reimbursement is a co-payment, co-insurance, deductible, or premium under Employer B’s non-HRA group coverage or medical care (as defined under Code § 213(d)) that is not an essential health benefit.
Conclusion. Employer A’s HRA is integrated with Employer B’s non-HRA group coverage for purposes of the annual dollar limit prohibition and the preventive services requirements.
Example (Integration Method: Minimum Value Required)
Facts. Employer A sponsors a group health plan that provides minimum value and an HRA for its employees. Employer A’s HRA is available only to employees who are either enrolled in its group health plan or in non-HRA MV group coverage through a family member. Under the terms of Employer A’s HRA, an employee is permitted to permanently opt out of and waive future reimbursements from the HRA both upon termination of employment and at least annually.
Employer A employs Employee X. Employee X chooses to enroll in non-HRA MV group coverage sponsored by Employer B, the employer of Employee X’s spouse, instead of enrolling in Employer A’s group health plan. Employer A and Employer B are not treated as a single employer under Code § 414(b), (c), (m), or (o). Employee X attests to Employer A that he is covered by Employer B’s non-HRA MV group coverage and that the coverage provides minimum value.
Conclusion. Employer A’s HRA is integrated with Employer B’s non-HRA MV group coverage for purposes of the annual dollar limit prohibition and the preventive services requirements.
Question 5: May an employee who is covered by both an HRA and a group health plan with which the HRA is integrated, and who then ceases to be covered under the group health plan that is integrated with the HRA, be permitted to use the amounts remaining in the HRA?
Answer 5: Whether or not an HRA is integrated with other group health plan coverage, unused amounts that were credited to an HRA while the HRA was integrated with other group health plan coverage may be used to reimburse medical expenses in accordance with the terms of the HRA after an employee ceases to be covered by other integrated group health plan coverage without causing the HRA to fail to comply with the market reforms. Note that coverage provided through an HRA, other than coverage consisting solely of excepted benefits, is an eligible employer-sponsored plan and, therefore, minimum essential coverage under Code § 5000A.
Question 6: Does an HRA impose an annual limit in violation of the annual dollar limit prohibition if the group health plan with which an HRA is integrated does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits (but limits the coverage to the HRA’s maximum benefit)?
Answer 6: In general, an HRA integrated with a group health plan imposes an annual limit in violation of the annual dollar limit prohibition if the group health plan with which the HRA is integrated does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits and limits the coverage to the HRA’s maximum benefit. This situation should not arise for a group health plan funded through non-grandfathered health insurance coverage in the small group market, as small group market plans must cover all categories of essential health benefits, with the exception of pediatric dental benefits, if pediatric dental benefits are available through a stand-alone dental plan offered in accordance with 45 C.F.R. §155.1065.(7)
However, under the integration method available for plans that provide minimum value described under Q&A 4 of this Technical Release, if a group health plan provides minimum value under Code § 36B(c)(2)(C)(ii), an HRA integrated with that group health plan will not be treated as imposing an annual limit in violation of the annual dollar limit prohibition, even if that group health plan does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits and limits the coverage to the HRA’s maximum benefit.
2. Application of the Market Reforms to Certain Health FSAs
Question 7: How do the market reforms apply to a health FSA that does not qualify as excepted benefits?
Answer 7: The market reforms do not apply to a group health plan in relation to its provision of benefits that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits if the employer also makes available group health plan coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).(8) See 26 C.F.R. §54.9831-1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. § 146.145(c)(3)(v). Therefore, a health FSA that is considered to provide only excepted benefits is not subject to the market reforms.
If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. Because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements.(9)
The Departments understand that questions have arisen as to whether HRAs that are not integrated with a group health plan may be treated as a health FSA as defined in Code §106(c)(2). Notice 2002-45, 2002-02 CB 93, states that, assuming that the maximum amount of reimbursement which is reasonably available to a participant under an HRA is not substantially in excess of the value of coverage under the HRA, an HRA is a health FSA as defined in Code § 106(c)(2). This statement was intended to clarify the rules limiting the payment of long-term care expenses by health FSAs. The Departments are also considering whether an HRA may be treated as a health FSA for purposes of the exclusion from the annual dollar limit prohibition. In any event, the treatment of an HRA as a health FSA that is not excepted benefits would not exempt the HRA from compliance with the other market reforms, including the preventive services requirements, which the HRA would fail to meet because the HRA would not be integrated with a group health plan. This analysis applies even if an HRA reimburses only premiums.
Question 8: The interim final regulations regarding the annual dollar limit prohibition contain an exemption for health FSAs (as defined in Code § 106(c)(2)). See 26 C.F.R. §54.9815-2711T(a)(2)(ii), 29 C.F.R. §2590.715-2711(a)(2)(ii), and 45 C.F.R. §147.126(a)(2)(ii). Does this exemption apply to a health FSA that is not offered through a Code § 125 plan?
Answer 8: No. The Departments intended for this exemption from the annual dollar limit prohibition to apply only to a health FSA that is offered through a Code §125 plan and thus subject to a separate annual limitation under Code § 125(i). There is no similar limitation on a health FSA that is not part of a Code § 125 plan, and thus no basis to imply that it is not subject to the annual dollar limit prohibition.
To clarify this issue, the Departments intend to amend the annual dollar limit prohibition regulations to conform to this Q&A 8 retroactively applicable as of September 13, 2013. As a result, a health FSA that is not offered through a Code § 125 plan is subject to the annual dollar limit prohibition and will fail to comply with the annual dollar limit prohibition.
3. Guidance on Employee Assistance Programs
Question 9: Are benefits under an employee assistance program or EAP considered to be excepted benefits?
Answer 9:The Departments intend to amend 26 C.F.R. §54.9831-1(c), 29 C.F.R. §2590.732(c), and 45 C.F.R. §146.145(c) to provide that benefits under an employee assistance program or EAP are considered to be excepted benefits, but only if the program does not provide significant benefits in the nature of medical care or treatment. Excepted benefits are not subject to the market reforms and are not minimum essential coverage under Code § 5000A. Until rulemaking is finalized, through at least 2014, the Departments will consider an employee assistance program or EAP to constitute excepted benefits only if the employee assistance program or EAP does not provide significant benefits in the nature of medical care or treatment. For this purpose, employers may use a reasonable, good faith interpretation of whether an employee assistance program or EAP provides significant benefits in the nature of medical care or treatment.
B. Guidance Under the Sole Jurisdiction of the Treasury Department and the IRS on HRAs and Code § 125 Plans
Question 10: Is an HRA that has fewer than two participants who are current employees on the first day of the plan year (for example, a retiree-only HRA) minimum essential coverage for purposes of Code §§ 5000A and 36B?
Answer 10: Yes. The Treasury Department and the IRS understand that some employers are considering making amounts available under standalone retiree-only HRAs to retired employees so that the employer would be able to reimburse medical expenses, including the purchase of an individual health insurance policy. For this purpose, the standalone HRA would constitute an eligible employer-sponsored plan under Code §5000A(f)(2), and therefore the coverage would constitute minimum essential coverage under Code §5000A, for a month in which funds are retained in the HRA (including amounts retained in the HRA during periods of time after the employer has ceased making contributions). As a result, a retiree covered by a standalone HRA for any month will not be eligible for a Code § 36B premium tax credit for that month. Note that unlike other HRAs, the market reforms generally do not apply to a retiree-only HRA and therefore would not impact an employer’s choice to offer a retiree-only HRA.(10)
Question 11: How are amounts newly made available under an HRA treated for purposes of Code § 36B?
Answer 11: An individual is not eligible for individual coverage subsidized by the Code § 36B premium tax credit if the individual is eligible for employer-sponsored coverage that is affordable (premiums for self-only coverage do not exceed 9.5 percent of household income) and that provides minimum value (the plan’s share of costs is at least 60 percent). If an employer offers an employee both a primary eligible employer-sponsored plan and an HRA that would be integrated with the primary plan if the employee enrolled in the plan, amounts newly made available for the current plan year under the HRA may be considered in determining whether the arrangement satisfies either the affordability requirement or the minimum value requirement, but not both. Amounts newly made available for the current plan year under the HRA that an employee may use only to reduce cost-sharing for covered medical expenses under the primary employer-sponsored plan count only toward the minimum value requirement. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25916 (May 3, 2013) (proposed regulations, to be codified, in part, once final, at 26 C.F.R.§1.36B-6(c)(4), (c)(5)). Amounts newly made available for the current plan year under the HRA that an employee may use to pay premiums or to pay both premiums and cost-sharing under the primary employer-sponsored plan count only toward the affordability requirement. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25914 (May 3, 2013) (proposed regulations; to be codified, in part, once final, at 26 C.F.R. §1.36B-2(c)(3)(v)(A)(5)).
Even if an HRA is integrated with a plan offered by another employer for purposes of the annual dollar limit prohibition and the preventive services requirements (see Q&A 4 of this Technical Release), the HRA does not count toward the affordability or minimum value requirement of the plan offered by the other employer. Additionally, if an employer offers an HRA on the condition that the employee does not enroll in non-HRA coverage offered by the employer and instead enrolls in non-HRA coverage from a different source, the HRA does not count in determining whether the employer’s non-HRA coverage satisfies either the affordability or minimum value requirement.
For purposes of the Code § 36B premium tax credit, the requirements of affordability and minimum value do not apply if an employee enrolls in any employer-sponsored minimum essential coverage, including coverage provided through a Code §125 plan, an employer payment plan, a health FSA, or an HRA, but only if the coverage offered does not consist solely of excepted benefits. See 26 C.F.R.§1.36B-2(c)(3)(vii). If an employee enrolls in any employer-sponsored minimum essential coverage, the employee is ineligible for individual coverage subsidized by the Code § 36B premium tax credit.
Question 12: Section 125(f)(3) of the Code, effective for taxable years beginning after December 31, 2013, provides that the term “qualified benefit” does not include any QHP (as defined in ACA § 1301(a)) offered through an Exchange.(11) This prohibits an employer from providing a QHP offered through an Exchange as a benefit under the employer’s Code §125 plan. Some states have already established Exchanges and employers in those states may have Code § 125 plan provisions that allow employees to enroll in health coverage through the Exchange as a benefit under a Code §125 plan. If the employer’s Code §125 plan operates on a plan year other than a calendar year, may the employer continue to provide the Exchange coverage through a Code §125 plan after December 31, 2013?
Answer 12: For Code § 125 plans that as of September 13, 2013 operate on a plan year other than a calendar year, the restriction under Code § 125(f)(3) will not apply before the first plan year of the Code § 125 plan that begins after December 31, 2013. Thus, for the remainder of a plan year beginning in 2013, a QHP provided through an Exchange as a benefit under a Code § 125 plan will not result in all benefits provided under the Code § 125 plan being taxable. However, individuals may not claim a Code § 36B premium tax credit for any month in which the individual was covered by a QHP provided through an Exchange as a benefit under a Code § 125 plan.
IV. Applicability Date and Reliance Period
This Technical Release applies for plan years beginning on and after January 1, 2014, but the guidance provided in this Technical Release may be applied for all prior periods. If legislative action by any State, local, or Indian tribal government entity is necessary to modify the terms of a pre-existing HRA, a health FSA that does not qualify as excepted benefits, an employer payment plan, or other similar arrangement, sponsored by any State, local, or Indian tribal government entity, as an employer, to avoid a failure to comply with the market reforms (including action to terminate such arrangement) and such action may only be taken by a State, local, or Indian tribal government entity legislative body, the applicability date of the portions of this Technical Release under which such arrangement would otherwise fail to comply with the market reforms is extended to the later of (1) January 1, 2014, or (2) the first day of the first plan year following the first close of a regular legislative session of the applicable legislative body after September 13, 2013.
V. For Further Information
The Departments have coordinated on the guidance and other information contained in this Technical Release. The guidance in this Technical Release is being issued in substantially identical form by the Treasury Department, and guidance is being issued by HHS to reflect that HHS concurs in the application of the laws under its jurisdiction as set forth in this Technical Release. Questions concerning the information contained in this Technical Release may be directed to the IRS at 202-927-9639, the DOL’s Office of Health Plan Standards and Compliance Assistance at 202-693-8335, or HHS at 410-786-1565. Additional information for employers regarding the Affordable Care Act is available at www.healthcare.gov, www.dol.gov/ebsa/healthreform, and at www.business.usa.gov.
________________________________________ Footnotes
1. The “Affordable Care Act” refers to the Patient Protection and Affordable Care Act (enacted March 23, 2010, Pub. L. No. 111-148) (ACA), as amended by the Health Care and Education Reconciliation Act of 2010 (enacted March 30, 2010, Pub. L. No. 111-152), and as further amended by the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (enacted April 15, 2011, Pub. L. No. 112-10).
2. Section 1001 of the ACA added new PHS Act §§ 2711-2719. Section 1563 of the ACA (as amended by ACA §10107(b)) added Code §9815(a) and ERISA § 715(a) to incorporate the provisions of part A of title XXVII of the PHS Act into the Code and ERISA, and to make them applicable to group health plans and health insurance issuers providing health insurance coverage in connection with group health plans. The PHS Act sections incorporated by these references are sections 2701 through 2728. Accordingly, these referenced PHS Act sections (i.e., the market reforms) are subject to shared interpretive jurisdiction by the Departments.
3. See the preamble to the Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act, 75 Fed. Reg. 34538, 34539 (June 17, 2010). See also Affordable Care Act Implementation FAQs Part III, Question 1, available at http://www.dol.gov/ebsa/faqs/faq-aca3.html and at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs3.html.
4. The Departments previously addressed HRAs and the requirements under PHS Act § 2715 (summary of benefits and coverage and uniform glossary). See 77 Fed. Reg. 8668, 8670-8671 (February 14, 2012); see also Affordable Care Act Implementation FAQs Part VIII, Question 6, available at http://www.dol.gov/ebsa/faqs/faq-aca8.html and at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs8.html and see page 1 of the Instruction Guide for Group Coverage, available at http://www.dol.gov/ebsa/pdf/SBCInstructionsGroup.pdf.
5. See ACA § 1302(b) for the definition of “essential health benefits”.
6. See Affordable Care Act Implementation FAQs Part XI, available at http://www.dol.gov/ebsa/faqs/faq-aca11.html and at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html.
7. Small group market plans will not be considered to fail to meet qualified health plan certification standards based solely on the fact that they exclude coverage of pediatric dental benefits that are otherwise required under ACA § 1302(b)(1)(J) where a stand-alone dental plan is also available. See ACA § 1302(b)(4)(F) and Question 5, CMS QHP Dental Frequently Asked Questions, May 31, 2013, https://www.regtap.info/uploads/library/PM_QHP_DentalFAQsV2_5cr_060313.pdf.
8. An HRA is paid for solely by the employer and not provided pursuant to salary reduction election or otherwise under a Code § 125 plan. IRS Notice 2002-45, 2002-02 CB 93.
9. Under the interim final rules implementing the annual dollar limit prohibition, a health FSA is not subject to the annual dollar limit prohibition, regardless of whether the health FSA is considered to provide only excepted benefits. See 26 C.F.R. §54.9815-2711T(a)(2)(ii), 29 C.F.R. §2590.715-2711(a)(2)(ii), and 45 C.F.R. §147.126(a)(2)(ii). See Q&A 8 of this Technical Release regarding the restriction of the exemption from the annual dollar limit prohibition to a health FSA that is offered through a Code § 125 plan.
10. See the preamble to the Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act, 75 Fed. Reg. 34538, 34539 (June 17, 2010).
11. This rule does not apply with respect to any employee if the employee’s employer is a qualified employer (as defined in ACA § 1312(f)(2)) offering the employee the opportunity to enroll through an Exchange in a qualified health plan in a group market. See Code § 125(f)(3)(B).
https://michbusiness.com/wp-content/uploads/2023/08/MichBusiness_logo_horizontal.png00michbusinesshttps://michbusiness.com/wp-content/uploads/2023/08/MichBusiness_logo_horizontal.pngmichbusiness2013-09-30 17:00:002015-10-08 00:00:00Dept. of Labor Releases Guidance on HRAs, Health FSAs, Certain Other Employer Healthcare Arrangement Options
By Evie Zois Sweeney
Muchmore Harrington Smalley & Associates
Senior Lobbyist
August 20, 2013
Although it’s been a relatively quiet summer in Lansing, the hottest and really only legislative topic in town dominating the political landscape continues to be the potential expansion of Medicaid coverage to able bodied Michigan residents between 100%-133% of the Federal Poverty Level.
You will recall, one of the provisions under the 2010 Patient Protection and Affordable Care Act provides for the expansion. The Governor has been exceptionally public and vocal in his support and has been urging the Michigan Senate to follow the lead of the Michigan, which passed a bill in June.
In response, the Senate Majority Leader created a bipartisan Senate work group that was charged with reviewing and “improving” HB 4714, the House version of Medicaid expansion. Although two subsequent, separate proposals by two conservative Senators have also been introduced and passed out of committee, it is widely speculated that the Senate substitute to HB 4714 (S-7) that also passed out of the Senate Government Operations Committee recently is the only viable option, garnering enough support from the Administration and Democratic Senators whose votes will be imperative in passing the legislation. For that reason, this discussion is limited to HB 4714 (S-7). Senate work group members considered this legislation an opportunity to implement long-needed, overall reforms to Michigan’s Medicaid system, as such, the newest version of the bill proposes to:
Require the Michigan Department of Community Health (DCH) to seek a waiver from the U.S. Department of Health and Human Services (HHS) to expand Medicaid coverage. Eligible individuals would be placed into a contracted health plan where money from any source, including an enrollee and an enrollee’s employer could be deposited to pay for incurred health expenses, including co-pays.
The enrollee will be required to remit the average co-pay amount each month. The co-pay amount shall be adjusted periodically to reflect changes in the enrollee’s co-pay experience. The DCH will also pursue consequences for enrollees who consistently fail to meet their cost-sharing requirements.
Require enrollees with annual incomes between 100%-133% of the federal poverty guidelines to contribute not more than 5% of income for cost sharing requirements. Required contributions at a minimum shall be 2% of income. Notwithstanding this minimum, contributions can be reduced if the enrollee completes a health risk assessment identifying unhealthy characteristics, including alcohol and tobacco use, obesity and immunization status.
By April 1, 2015, develop incentives for enrollees and providers who assist DCH in detecting fraud and abuse in the medical assistance program.
By September 30, 2016, DCH shall implement a pharmaceutical benefit that utilizes co-pays to encourage the use of high-value, low-cost prescriptions, such as generic and 90-day prescription supplies.
Requires the Department of Insurance and Financial Services to examine financial reports of health insurers and evaluate the impact expanding coverage has had on rates. The department shall consider the evaluation in the annual approval of rates.
The DCH shall explore and develop innovations and initiatives to improve the effectiveness of the program and to lower overall health care costs in the state. The innovations shall include at a minimum: the identification of private sector, primarily small business, health coverage benefit differences compared to the medical assistance program services and justification for the differences; identification of private sector initiatives used to incent individuals to comply with medical advice; the minimum measures and data sets required to effectively measure the medical assistance program’s return on investment for taxpayers.
Require DCH to seek an additional waiver from HHS that would require individuals who are between 100%-133% of the federal poverty guidelines and who have received 48 cumulative months of coverage to choose one of the following options:
a) Change their eligibility status to be considered eligible for federal advance premium tax credit and cost-sharing subsidies to purchase private insurance coverage through an American Health Benefit Exchange without financial penalty to the state.
b) Remain in the medical assistance program, but increase cost-sharing requirements up to 7% of income.
If this waiver is not approved, medical coverage for these individuals is no longer provided. If the waiver is not approved by December 31, 2015, then by January 31, 2016, DCH shall notify enrollees that the program will be terminated on April 30, 2016.
The Senate is expected to return to Lansing the week of August 26, where a vote could come as early as Tuesday, August 27. The House would have to approve the Senate changes as well. Although it’s been a tumultuous battle, often pitting colleagues of the same party against one another and their Governor, should the legislation pass, many Lansing pundits would consider this one of the most significant legislative reforms in decades. August may have ushered in a slow legislative month, but it’s poised to end with a bang!
https://michbusiness.com/wp-content/uploads/2023/08/MichBusiness_logo_horizontal.png00michbusinesshttps://michbusiness.com/wp-content/uploads/2023/08/MichBusiness_logo_horizontal.pngmichbusiness2013-08-20 17:00:032015-10-08 00:00:00The Next Chapter – The Dialogue on Medicaid Expansion Continues