Employer payment plans, which include arrangements where an employer pays, or reimburses an employee, for some or all of the premium expenses incurred for an individual health insurance policy, violate market reforms under the Affordable Care Act (“ACA”).
Notice 2015-17 is the latest in a series of IRS guidance on these arrangements (see our earlier post on this topic here). While it reiterates previous conclusions regarding the failure of the arrangements to satisfy the ACA, it also provides excise-tax transition relief for certain small employers.
Limited Transitional Relief for Non-ALEs
Noncompliant group health plans may be liable for a $100/day excise tax for failure to satisfy ACA market reforms. The new Notice, while reiterating that conclusion, provides that the tax will not be asserted under two conditions:
- Until June 30, 2015, if the plan is not sponsored by an Applicable Large Employer (“ALE”). An ALE, for a given calendar year, generally had an average of 50 or more full-time employees during the preceding calendar year. If the employer was not an ALE for 2014, no tax will be asserted for 2014. If the employer is not an ALE for 2015, no tax will be asserted for the period January 1 through June 30, 2015.
- Until further guidance is issued, where there is any failure to satisfy market reforms by an S corporation 2%+ shareholder-employee healthcare arrangement. The relief does not apply to such plans covering S corporation employees who are not 2%+ shareholders.
Employers eligible for this relief are not required to file IRS Form 8928 solely because they have the above-described arrangements during the relief-eligible period.
Caution: This relief does not extend to stand-alone Health Reimbursement Arrangements or other arrangements to reimburse employees for medical expenses other than insurance premiums.
What Can Employers Do?
The Notice provides that employers who increase an employee’s taxable compensation to assist with payments of individual market coverage do not violate the ACA provided the increase is not conditioned on the employee’s purchase of coverage. Even an after-tax employer payment plan will violates the ACA if it is conditioned on the employee’s purchase of coverage.
Special Rules re Medicare/Tricare Reimbursement
The Notice indicates that an employer arrangement paying/reimbursing two or more active employees’ Medicare Part B or Part D premiums is a prohibited HRA. However, such a plan may avoid violating the ACA if it is integrated under the following circumstances:
- The employer offers employees another group health plan that does not consist solely of excepted benefits and offers minimum value coverage;
- Employees participating in the HRA are actually enrolled in Medicare Parts A and B;
- The HRA is only available to employees enrolled in Medicare Parts A and B or Part D; and
- The HRA is limited to Medicare Part B or D premiums and excepted benefits, including Medigap premiums.
Likewise, a plan that reimburses two or more employees for TRICARE-related medical expenses violates the ACA unless it is integrated with another group health plan, under circumstances similar to those described above.
We thank our intern, Megan Lasswell, for her assistance in preparing this post.
Time flies when you’re having fun… or something like that?! Next month will mark the fifth year anniversary of the enactment of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act). This is a law of many names including the ACA, PPACA, health care reform, Obamacare (amongst others that we can’t in good conscience commit to writing – especially in a professional publication) and a law of many facets. As we approach the five year mark of living with this law, many questions have been answered (at least in part, right?). After all, numerous reports have recounted the staggering number of pages of guidance issued in connection with the ACA – remember Rep. Richard Hudson’s exaggeration that we have 33,000 pages of guidance and Senator Mitch McConnell’s estimate at 22,000 pages? And both these figures were announced in the first half of 2013.
Theatrics and dramatic page-counting aside, there is no doubt that many government agencies having been working on
all many cylinders to make sense of this transformative law. Even so, employers are only two months into the official employer mandate and there are countess questions still left unanswered on many ACA fronts.
The Republican-controlled Congress is hard-charging to repeal – or, more accurately, to repeal and replace – the law. If any version of the modification law makes it through the Senate and avoids a veto, that would inevitably undo much of our work (and most swiftly, perhaps, change the “full-time” definition as hinging on a 30-hour work week to a 40-hour week). Disregarding, for the moment, the political jockeying going on in Washington, for purposes of this check-in, we’ll discuss the law as it stands currently.
Since most large employers have (hopefully) worked through the kinks of the employer mandate and put systems in place to “pay or play” for 2015, we thought we’d step back and catalog some of the ACA issues that, five years after the law’s adoption, are still on the horizon for employers. Here is a partial list of the “biggies” we have on our radars:
- Information reporting (Code §§ 6055 and 6056) – requiring certain information reporting for insurers, sponsors of self-insured plans and other entities that provide “minimum essential coverage” and additional “large employer” information reporting. Mandatory reporting for applicable entities will be due Q1 2016.
- Nondiscrimination (PHSA §2716; Code §9815) – prohibiting insured group health plans from discriminating in favor of highly compensated individuals. While we expect some enforcement/compliance lag following this issuance of these rules, we expect the impact on current practices to be significant.
- Cadillac plan tax (Code §4980I) – imposing an excise tax on high cost employer-provided coverage. Effective in 2018, rich plans may trigger large excise tax penalties under the forthcoming regulations.
- Large plan automatic enrollment (FLSA §18A) – requiring an employer with more than 200 full-time employees to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law). This aspect of the law has been shoved aside and received little attention; however, once guidance is issued, this rule will impact how many large employers administer health plan enrollment. Implementation may be trickier than initially expected as the question will become whether the employer will (can?) require automatic enrollment in other health and welfare benefits aside from the mandatory group health plan.
- Final minimum value regulations (Code §36B) – regarding minimum value of eligible employer-sponsored coverage and other provisions relating to the health insurance premium tax credit. [Proposed regulations were published on May 3, 2013.] While this is unlikely to be an issue for insured plans since their insurers will have to make this determination, self-insured plans may be forced to tweak their assessments to ensure their plan provides MV.
Moral of the story? Whether it is the version of the law enacted by the Obama administration or some new replacement law adopted by the current Congress, employers are not “out of the woods” in terms of health care reform compliance. There’s more on the horizon, so stay tuned.
The facts surrounding the Anthem breach continue to evolve as does Anthem’s handling of the situation.
Based on the current status of the investigation, and Anthem’s current reactions to the incident, there are steps which group health plan sponsors should consider taking to fulfill their own HIPAA and fiduciary obligations with respect to group health plans affected by the Anthem breach. These steps include the following:
- Have business associate agreements and other relevant documents reviewed to assess the plan sponsor’s rights and obligations with respect to the breach.
- Request from Anthem:
- additional information about the breach;
- confirmation concerning the steps that will be taken to protect the plan sponsor’s employees and affected individuals;
- more extensive victim protection, client indemnification, and paid notification than Anthem is currently proposing to offer; and
- confirmation that any state notification requirements will be satisfied on behalf plans and plan sponsors.
In addition, plan sponsors should continue to monitor ongoing developments so they can modify their own response as appropriate to fulfill their obligations with respect to and protect plan participants.
If your 2015 New Year’s Resolution was to fully comply with all aspects of California’s New Paid Sick Leave Law, you may already be in trouble. Although the substantive portions of the law do not kick in until July 1, 2015, the deadline for certain notice requirements was January 1, 2015. So, if you haven’t already posted and provided the required notices, the following guidelines are for you:
Who Must Comply?
All employers who employ one or more employees who work at least 30 days within a year in California, including part-time, per diem, and temporary employees. (The law provides for some specific, limited exceptions including providers of publicly funded In-Home Support Services; employees covered by collective bargaining agreements with certain specific provisions, and individuals employed by an air carrier as a flight deck or cabin crew member, so long as they are already receiving compensated time off at least equivalent to the requirements of the new law.)
What Must Be Done?
Post the required paid sick leave poster in a conspicuous place at the workplace (the required poster can be found at http://www.dir.ca.gov/DLSE/Publications/Paid_Sick_Days_Poster_Template_(11_2014).pdf)
Provide every employee with an individualized notice to employee (Cal. Labor Code § 2810.5, a form of the notice can be found at http://www.dir.ca.gov/DLSE/Publications/LC_2810.5_Notice_(Revised-11_2014).pdf)
Revise company handbooks/policy manuals to include paid sick leave policy (also, revise related policies affected by the new law, including any domestic violence leave policy and possible revisions of FMLA/CFRA policies)
January 1, 2015 (so if it isn’t done, you’d better get moving)
Keep watching because in the next few weeks, we’ll be providing further direction on how to fully comply with the substantive portions of California’s new paid sick leave law—the Healthy Workplaces/Healthy Families of 2014.
In prior posts, we have described how coverage has to be “affordable” to avoid the ACA play or pay penalty. We’ve usually used the shorthand that the premium must be no more than 9.5% of an employee’s household income. However, that 9.5% is subject to periodic adjustments designed to approximate the difference between the growth in insurance premium costs and income. For 2015, that percentage has been adjusted to 9.56%.
However, there’s a catch here: the percentage applies to actual household income, which is something an employer is very unlikely to know. Recognizing this, the IRS has provided some safe harbors based on information more readily available to an employer. Those are the W-2, rate of pay, and Federal Poverty Line safe harbors. Without describing all the details, the general rule is that if the premium for an employer’s coverage is less than 9.5% of the employee’s W-2 income, rate of pay, or the Federal Poverty Line, it will be deemed to be affordable.
Here’s the subtle point: that 9.5% for the safe harbors is not adjusted. So even though “pure” affordability is increasing, the safe harbors do not. For now, the difference is a modest .06% of household income, but it will only grow in future years, unless the IRS revises the rules. Further, since all of the safe harbors are, in cases of two-earner families, almost assuredly going to be less than an employee’s household income, that makes the distinction between “pure” affordability and the safe harbors potentially even greater.
So if someone suggests to you that the safe harbor percentage is higher, you better double-check (or have someone double-check) the regulations to see if they have been revised. If they haven’t, then for you, 9.56% is still just 9.5%.
While we can’t profess to have read through all of the President’s recently released budget proposal (we are practicing lawyers, after all), much of the discussion on its retirement policies focuses on only a few select provisions. While many of them are unlikely to see the legislative light of day in a Republican-controlled Congress, it is interesting to note the parallels in some of these proposals to the Affordable Care Act and their perhaps unintended effects.
Below, we have set out a chart that lists a few of the items from the budget, compares them to similar provisions in the ACA, and gives a brief note on the likely effect
As has now been widely reported, Anthem, Inc. was the unfortunate target of a cyber-attack potentially impacting 80 million current and former customers. Some reports have indicated that the HIPAA breach notification rules will not apply to this breach. However, the information stolen appears to include individually identifiable information, potentially including health plan enrollment information. Enrollment information, in the hands of a health plan, is protected health information (PHI), so it is possible that the HIPAA data breach notification rules are applicable. As such, both insured and self-funded customers utilizing Anthem as their TPA should review information concerning the Anthem breach carefully before concluding that the HIPAA breach notification rules do not apply.
Additionally, given that claims for other Blue Cross Blue Shield customers may have been submitted through Anthem for employees and dependents in an Anthem service area, it is possible that Anthem has information on individuals who are not Anthem customers, but are customers of other Blue plans. Therefore, customers of any Blue Cross Blue Shield insurer should reach out to their contacts to ensure they are not affected.
If the HIPAA breach rules do apply, then Anthem and other Blue customers should also carefully review their applicable business associate agreements. Those agreements should outline the obligations of the Blue Cross entity and the plan administrator (which is often the company) in providing notification to affected individuals.
Finally, while we mostly focus on the benefits issues under federal law, it’s is also important not to neglect state law. States have their own data breach laws that could be applicable to this breach as well, as described in this short bulletin.
Mistakes on your plan’s Form 5500 create a nice target for the Internal Revenue Service’s auditors. In its February 2, 2015 edition of Employee Plans News, the Internal Revenue Service explains that entering incorrect information or leaving a blank in a required field increases the likelihood you’re your plan will be selected for a compliance check.
The IRS provides a helpful list of common mistakes on the Form 5500:
- Number of Participants – Sponsors leave this field blank or enter zero when there are in fact assets and participants in the plan.
- Plan Terminations – Sponsors mark the 5500 to show they terminated the plan or adopted a resolution to terminate it, but the plan is still in existence. While the resolution starts the termination process, the plan is not terminated for 5500 purposes until the plan has a zero balance. Many plans that checked the box showing they were terminated did not reflect zero assets on the last day of the year of termination.
- Fraud – On the line requesting whether the plan lost money due to fraud, many plan sponsors enter the amount of the fidelity bond held by the plan, when this line should (hopefully) be blank.
- Frozen Plans – Sponsors listed pension code 1l, which applies to frozen defined benefit plans, when the plan wasn’t a defined benefit plan or frozen.
- Read each item and then read the instructions for that line. Don’t assume you know what information is being requested.
- Do not copy information from the prior year’s 5500 without first reviewing each item carefully to ensure you didn’t put information in the wrong box, leave an entry blank that should have information, or use an incorrect code.
- If you rely on a third party to prepare the 5500, carefully review it before submitting it.
- Consult with a benefits professional to institute sufficient administrative procedures to prevent mistakes on the 5500 and other informational returns.
If you find a mistake on your Form 5500, file an amended return as soon as possible. Digging into the issues presented in the Form 5500 can also help uncover operational errors, which should also be fixed in accordance with the IRS’ Employee Plans Compliance Resolution System (EPCRS) as soon as discovered.
While not covered in the IRS publication, employers should also note that 5500 errors are a source of Department of Labor investigations as well. In our experience, this is most often conducted as a “desk investigation” where the DOL sends a letter asking for clarification or correction of the Form 5500, but can sometimes result in a full-scale investigation.
The bottom line: do not to give the IRS or DOL “easy meat” by filling out your 5500s incorrectly.
The death knell for the so-called “Yard-Man Inference” has sounded. If you think we’re being a little dramatic – OK, maybe you’re right – we have a tendency to get a little too worked up about employee benefits cases that make it to the Supreme Court. But, in any event, last week the Supreme Court resolved a circuit split and overturned the Yard-Man Inference with its decision in M&G Polymers USA, LLC v. Tackett.
The Yard-Man Inference is named for the important retiree benefits decision handed down in 1983 in International Union et. al. v. Yard-Man, Inc., 716 F.2d 1476. In that case, the Sixth Circuit applied a presumption of vesting of retiree medical benefits in the absence of a termination provision in a collective bargaining agreement. You can read more about the original Yard-Man case in our earlier post on the case.
In M&G Polymers, the Supreme Court found that Yard-Man improperly “plac[es] a thumb on the scale in favor of vested retiree benefits” and “distorts the intent to ascertain the intention of the parties” with respect to the collective bargaining agreement. The unanimous opinion authored by Justice Thomas held that the Sixth Circuit’s reliance on Yard-Man is “incompatible with ordinary principles of contract law.”
The collective bargaining agreement at issue provided for retiree health care benefits and provided that retirees with a certain level of service would receive a full company contribution toward the cost of health care benefits. The agreement also provided that “for the duration of [the] Agreement…the Employer will provide [medical benefits].” The duration of the agreement was three years.
The retirees alleged that the company had promised them lifetime health care benefits with no required contribution in the collective bargaining agreement, and that M&G had created a vested right to those benefits through the agreement. Once the case made its way to the Supreme Court, the Court was faced squarely with whether to approve or reject the Yard-Man presumption once and for all.
In the Supreme Court opinion, Justice Thomas noted that “[a]lthough ERISA imposes elaborate minimum funding and vesting standards for pension plans…it explicitly exempts welfare benefits plans from those rules…” He quoted the 2013 Heimeshoff opinion and noted that “…the rule that contractual provisions ordinarily should be enforced as written is especially appropriate when enforcing an ERISA welfare benefits plan” (internal citations omitted). Justice Thomas concluded that the Sixth Circuit court had improperly “…derived its assessment…from its own suppositions about the intentions of employees, unions, and employers negotiating employee benefits…” and had “…failed even to consider the traditional principle[s] that courts should not construe ambiguous writings to create lifetime promises…[and that] contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement” (internal citations omitted). The M&G case was remanded with directions for the reviewing court to apply “ordinary principles of contract law in the first instance.”
The concurrence authored by Justice Ginsburg and joined by Justices Breyer, Sotomayor and Kagan stressed that vesting does not require “clear and express” language, but rather may arise from “implied terms of the agreement.” The Sixth Circuit may “turn to extrinsic evidence – for example, the parties’ bargaining history,” she wrote, “if the [Court] concludes the contract is ambiguous.” Notably, Justice Thomas’ opinion did not make mention of the introduction of parol evidence in interpreting ambiguous contract terms, although such evidence is widely considered admissible when the terms of a contract are ambiguous. What, if anything, do you make of this? Please leave your comments below.
This decision from the High Court reiterates the benefit of clear language in contracts and plan documents with respect to vesting and/or possible termination of regarding retiree health and welfare benefits to help avoid litigation, even without the Yard-Man inference.