Short Term Policies No ACA Panacea

An insurance product that many thought would become extinct with implementation of the ACA can’t be counted out – yet. Short term health insurance policies have been an attractive short-term option for many years. While the policies generally offer limited benefits, the ability to purchase a plan for 30 days or 6 months or even 360 days has had an appeal for people who needed to bridge an insurance gap.

While these policies are attractively priced, they may come with an unexpected cost. Short-term medical plans are limited coverage and, as such, the coverage does not count as MEC (minimum essential coverage) for ACA purposes. So, despite having health coverage, an enrollee in a short-term plan will still be subject to the individual responsibility penalty. And, with the penalty for 2016 now at $695 or 2.5% of household income above the filing threshold, the short-term plan may not be the bargain a consumer planned for.

What are some of the distinctions between short-term plans and ACA compliant plans?

Short-Term Plan                ACA Compliant Plan

No                                                Yes                          Coverage for pre-existing conditions

No                                                Yes                          Preventive care without cost sharing

Yes                                                No                           Enrollment at any time

No                                                 Yes                          Guaranteed renewable

Yes                                                 Yes                          Sold by respected health insurers

Brokers who sell this line of coverage apprise their consumers of the limitations on these policies, especially the possibility of incurring the individual tax penalty. These limited policies may be an option to consider when someone has missed the ACA open enrollment period or has some other temporary need. But, it’s important that consumers understand the limitations and the consequences of this insurance product.

Employer Reporting When Employee Waives Coverage

Many employers are struggling with the ACA’s employer reporting requirements. It’s hard enough to know what to report when an employee enrolls in coverage. But, what is the proper way to report that an employee has waived coverage?

Line 16 becomes very important in this scenario. If the employer has adopted an affordability safe harbor, the code for the chosen safe harbor will appear in line 16.

There are three (3) safe harbor affordability codes. These are:

  • 2F The W-2 safe harbor (Box 1 of the W-2)
  • 2G The Federal Poverty Line safe harbor
  • 2H The rate of pay safe harbor.

The example below shows code 2F. However, depending on the employer and the employee class, the safe harbor method used may vary. Of particular importance, the W-2 safe harbor must be used for all months of the calendar year for which the employee was offered health coverage.

For an IRS FAQ that describes the safe harbors see question 19 here.

If an employer has not opted to use a safe harbor, line 16 would be left blank (assuming no other codes are applicable such as transition relief). By doing so, the employer is indicating to the IRS that the employer and/or the employee may be subject to a penalty.

If an employer offers a self-funded plan, Part III of form 1095-C would also be left blank when an employee has waived coverage.

Given the penalties that employers may face if an employee does not have coverage or is not offered coverage , the importance of documenting that an employee has been offered coverage and declined it becomes even more important. Employers should obtain a signed waiver from any employees that waive coverage. In the event that an employee does not return a signed waiver, employers should note in enrollment materials that failure to respond by a certain date will be assumed to be a waiver of coverage.

Example when Employee Waived an Offer of Coverage

Facts of Assumptions:

  • Employer offers insured plan
  • Coverage for lowest cost employee premium per month is $150
  • The employee, spouse and dependents were offered coverage for all 12 months
  • The employer has offered affordable coverage using the W-2 safe harbor
  • The employee has waived coverage for everyone in the family.

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Coping with COBRA… and Employer Reporting!

Employer reporting is hard enough! But, employer reporting when there has been a COBRA qualifying event revives images of coiled snakes striking out.

Final 2015 instructions for completing forms 1094-C and 1095-C changed some of the rules related to reporting COBRA offers of coverage.

Example for Termination at end of month

 Facts or Assumptions:

  • Employer offers insured plan
  • Coverage for lowest cost employee premium is $300
  • Offer of COBRA to employee who lost coverage as a result of termination on last day in February and former employee enrolled in coverage
  • Assumes MEC/MV coverage was also offered to former employee’s spouse and dependents as well as the former employee and only the former employee enrolled.

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Example for Termination during month

 Facts or Assumptions:

  • Employer offers insured plan
  • Coverage for lowest cost employee premium is $300
  • Offer of COBRA to employee who lost coverage as a result of termination mid-February and former employee enrolled in coverage
  • Assumes MEC/MV coverage was also offered to former employee’s spouse and dependents as well as the former employee and only the former employee enrolled.

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Reporting Delay Shouldn’t Cause Consumer Filing Delays

The delay in reporting deadlines announced by the IRS in late December has given many employers much needed breathing room. IRS Notice 2016-4 issued on December 28, 2015 extending the filing deadlines for ACA reporting.

Employers subject to the reporting requirements face a deadline of March 31, 2016 to furnish 1095-C statements to each full-time employee. The original deadline was February 1, 2016. Information returns are due to the IRS by May 31, 2016 if filed by paper and June 30,    2016 if filed electronically. The original filing dates were February 28, 2016 for paper and March 31, 2016 for electronic filing.

The delay in filing means that employees may not have received the forms 1095-C from their employers. CMS Fact Sheet on Preparing for Tax Season notes:

 This year, many consumers with coverage from a non-Marketplace source will receive a new form in the mail called a Form 1095-B or a Form 1095-C, describing the coverage they had for the year. This form will be sent by their employer, insurance company, or the government program that provides their coverage, such as Medicare or Medicaid. Consumers do not need to attach this information to their tax return or wait to receive the form before filling their tax return. If consumers do receive one of these forms, they should keep it in a safe place with their other tax records.

The CMS Fact Sheet can be found here.

Those employers who take advantage of the filing delay should expect that some employees, or former employees, will have questions regarding tax filing. The CMS Fact Sheet may be worth sharing with them.

 Employers should note that the IRS views these delayed filing dates as the sole extensions for this year’s filings. Notice 2016-4 specifically warns that provisions regarding automatic extensions or permissive extensions will not apply to the extended due dates. The notice further warns that employers or other coverage providers that do not comply may be faced with penalties. Notice 2016-4 can be found here.

In a separate notice, penalties for late filing have been increased – again. Civil penalties that apply for ACA reporting purposes are subject to adjustment for inflation. The penalties for ACA reporting are governed by section 6721 and 6722 of the Internal Revenue Code.

The increases were announced in Revenue Procedure 2016-11 for taxable years beginning in 2015. The new amounts are:

Failure to file correct, complete statements on time
$260 per form, not to exceed $3,178,500

$50 per form if corrected within 30 days of filing
$100 per form if corrected within 60 days on or before August 1, 2016


$520 per form for intentional disregard with no limit cap


The Revenue Procedure 2016-11 can be found here.

 

New IRS Notice 2015-87 Announces Increase in Employer Shared Responsibility Penalties

Whatever a broker or employer knows about the ACA is subject to change with little notice. This has been the case since the ACA was enacted into law in 2010. And, the tradition continues with IRS Notice 2015-87.

IRS Notice 2015-87 is only 31 pages long. But, many of those pages warrant careful review.

Of immediate interest and concern is that the IRS has adjusted the amounts of the employer mandate penalties for 2015 and 2016. Employers who have relied on penalties remaining the same – forever – guess again!

 Question 13 of Notice 2015-87 provides the adjusted amounts of the employer mandate penalties for 2015 and 2016.

2015- Penalty A is $2,080, Penalty B is $3,120

2016- Penalty A is $2,160, Penalty B is $3,240

Question 12 states that the IRS will amend the employer mandate regulations so that the employer affordability safe harbors are adjusted for inflation to coordinate with the affordability measure used by the exchange. The question states that employers may relay on the 9.56 percent affordability safe harbor for plan years beginning in 2015 and 9.66 percent for plan years beginning in 2016. The previous affordability rate was 9.5 percent.

 

The IRS notice can be read in its entirety here.

 

ACA Terms and Acronyms Brokers Need to Know

There are a handful of terms and acronyms that relate to the ACA that health insurance brokers need to understand as readily as they understand texting’s LOL! In some respects, the ACA has caused brokers to learn a new language.

ALE         Pronounced as each letter – A-L-E or like the beer – ale

An ALE is an “applicable large employer.” To be an ALE, an employer must have 50 or more full-time and full-time equivalent employees based on the prior calendar year.

FTE

FTE refers to full-time equivalents. This can be a catch all term that would include full-time and full-time equivalent employees or it can be referring solely to full-time equivalent employees. It is important to understand how the term is being used, particularly when determining ALE status. FTEs are calculated by adding the number of hours of service for each employee each employee who was not a full-time employee during a month, up to a maximum of 120 hours and dividing by 120.

MV

MV stands for minimum value. Minimum value is a plan’s share of the “total allowed costs of benefits provided under the plan” and includes co-pays deductibles and out-of-pocket limits. An employer plan must meet or exceed 60% of such costs to be MV.

A” Penalty — the Sledgehammer Penalty

The A penalty refers to the section of the Internal Revenue Code, Section 4980H(a), that addresses the employer shared responsibility requirements. The A penalty applies to ALEs that do not offer minimum essential coverage to full-time employees and their dependents. Whether an employer offers coverage that meets minimum value and is affordable is not relevant to the A penalty.

The A penalty is also called the sledgehammer penalty because the penalty is $2,000 times the number of full-time employees if at least one full-time employee receives a premium assistance tax credit.IRS Notice 2015-87 announced an increase in the A penalty to $2,080 in 2015 and $2,160 in 2016.

An employer is considered to offer coverage if coverage is offered to 95% of full-time employees (70% in 2015). The penalty assessment allows an employer to subtract the first 30 workers when calculating their tax liability.

This is a broad overview of the penalty. The IRS FAQs on employer shared responsibility can be found at https://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Liability .

B” Penalty — the Tack Hammer Penalty

The B penalty refers to the section of the Internal Revenue Code, Section 4980H(b), which addresses the employer shared responsibility requirements. This is the tax that is assessed at $3,000 times the number of full-time employees who receive a tax credit from the marketplace as a result of their employer not offering coverage that is unaffordable or does not provide minimum value. IRS Notice 2015-87 announced an increase in the B penalty to $3,120 in 2015 and $3,240 in 2016.

Because this tax is expected to apply in fewer instances for an employer, if at all, it is also called the tack hammer penalty. As importantly, the assessment for the B penalty is capped at an employer’s potential tax under the A penalty.

This is a broad overview of the penalty. The IRS FAQs on employer shared responsibility can be found at https://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Liability .

MEC – Minimum Essential Coverage

MEC is a term that has multiple meanings depending on different provisions in the law. In several cases, MEC does not refer to the content or comprehensiveness of coverage.

The individual mandate requires that a person have MEC or face a penalty unless they qualify for an exception to the individual mandate. This coverage may be that purchased in the individual market, coverage through an employer or other coverage, including government sponsored programs such as Medicare or Medicaid.

Employers are required to offer MEC to meet the employer shared responsibility requirements under Section 4980H (a).

MEC plans refer to products that have been developed in response to the ACA. A MEC plan is generally a preventive services only plan. These plans are often self-funded. A MEC plan is not typically designed to meet the minimum value requirement. These plans are generally offered as part of an employer’s strategy to avoid the A penalty.

 

 

Revised 12/18/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 ACA Reporting Reminders and Tips

  1. Small employers with insured health plans do not have to provide reports to their employees or to the IRS.
  2. Employers with 50 or more full-time and full-time equivalent employees must report for this year. Transition relief does not apply for reporting purposes.
  3. Employers who will file 250 or more information returns must do so electronically using the AIR system. https://www.irs.gov/for-Tax-Pros/Software-Developers/Information-Returns/Affordable-Care-Act-Information-Return-AIR-Program
  4. Employers who are ALEs will report offers of coverage made to all full-time employees whether the employees enrolled in coverage, waived coverage or are in a waiting period.
  5. Form 1094-C provides information that helps the IRS determine whether an employer may be subject to the 4980H(a) penalty (the “no offer” penalty). Form 1095-C, particularly lines 14-16, helps the IRS determine whether an employer may be subject to the 4980H(b) penalty which may be assessed if a plan does not meet minimum value and/or affordability.
  6. Employers who are part of a controlled or affiliated group are each responsible for reporting on their own employees. These employers are not liable for reporting of any other entity in the controlled group although they will list other entities in the controlled group on the1094-C form, Part IV.
  7. Employers subject to the reporting requirements are required to furnish the 1095-C statements to each full-time employee by January 31 of the year following the calendar year for which reporting relates. Since January 31, 2016 is on a Sunday, the statements are due by February 1, 2016. As a late Christmas gift, the IRS issued Notice 2016-4 on December 28, 2015 extending the filing deadline to March 31, 2016.
  8. Information returns must be filed with the IRS by February 28, 2016 if filed by hard-copy; March 31, 2016 if filed electronically. As a late Christmas gift, the IRS issued Notice 2016-4 on December 28, 2015 extending the filing deadline to May 31, 2016 if filing by paper and June 30, 2016 if filing electronically.
  9. Self-insured employers – whether large or small – are subject to the reporting requirements that would otherwise apply to insurers (detailed in Section 6055).
  10. A “good faith compliance” effort is required by employers to avoid non-compliance penalties which, if assessed, can be sizeable.

Spousal Carve-Outs Gaining Traction?

A simple internet search for the term “spousal carve outs” turns up dozens of links. The surfeit of links underscores the interest that employers are showing for measures that may reduce health coverage costs.

Implementing a spousal carve-out or spousal surcharge is no small task. Employers need to consider a host of issues, not the least of which are whether there are state laws, insurance contracts or other impediments to doing so.

A prelude to changing the terms of the health plan that also is likely to save money would be undertaking a dependent eligibility audit. A dependent eligibility audit ensures that enrolled dependents – children and spouses – are eligible under the rules of the employer’s plan. A survey by a business group found that on average 7% of dependents are found ineligible. Whether these averages are solid, there is no doubt that plan sponsors have a fiduciary duty to administer the plan in the interest of the eligible participants.

Employers should weigh the pros and cons of changing the eligibility of spouses before taking action. NAHU’s Compliance Corner White Paper Spousal Exclusions and Surcharges – Considerations and Caveats discusses the administrative and legal steps to implement a spousal carve-out or exclusion.

Dig Deeper for PCORI Fees Next Year

IRS Notice 2015-60 brought some bad news to employers with health plans. The notice announced the PCORI fee will increase for health plan years that end on or after October 1, 2015 and before October 1, 2016.

The fee is rising from $2.08 per covered life to $2.17 per covered life, an increase of 4.3 percent. PCORI fee payments are due July 31 of each year. The fee is slated to expire for plan years ending by October 1, 2019.

The amount of the PCORI fee is “equal to the average number of lives covered during the policy year” multiplied by the fee amount. It’s important to note that the PCORI fee is based on “belly buttons” not the employee count. An employer and dependent child count as two (2) covered lives.

More information on the PCORI fee is available on the IRS website.

Affordable Care Act’s Employer Reporting Deadlines Loom!

Employers are facing the impending deadlines for the ACA’s employer reporting requirements. As of today there are only 116 calendar days left until employers have to file statements to full-time employees! Employers who are required to report are generally those who meet the definition of “applicable large employer” or ALE.

ALEs are employers with 50 or more full-time and full-time equivalent employees. For a refresher on calculating ALE status see our August 13, 2015 blog post.

Form 1095-B and form 1095-C statements must be furnished to covered individuals or full-time employees, as applicable, on or before January 31. In 2016, the deadline is February 1, 2016 since January 31st is on a Sunday.

An ALE must file Form 1094-C and Form 1095-C with the IRS on or before February 28 (March 31 if filed electronically). In 2016, the deadline is February 29 since the 28th is a Sunday.

Employers who need extra time to file their reports, may find some relief. Employers needing more time to file can apply for an automatic 30 day extension. They must file Form 8809 by the filing deadline. This is the same form that an employer would use to request an extension of the deadline for filing the Form W-2. http://www.irs.gov/pub/irs-pdf/f8809.pdf

It’s important to note, however, that the automatic extension of time to file will only extend the due date for filing the information returns with the IRS. It does not extend the due date for furnishing statements to recipients.

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