The 2016 limits and penalty amounts.
It has been a busy quarter and now that we are past part one of 2015 filing, we are diligently preparing for the IRS filing of Form 1094-C. In addition, we are working with clients to ensure they have their 2016 data loaded monthly and know where they stand regarding the 95% compliance regulation and adhering to all mandates in preparation for 2016 reporting.
Below are the major updates and information you will need to continue to manage the Affordable Care Act (ACA) for your organization in 2016.
Medicaid Expansion States as of February 24, 2016
Thirty-two states, including Washington, D.C., have chosen to expand Medicaid. As part of the ACA’s broader effort to ensure health insurance coverage for all U.S. residents, the federal government will pay to expand Medicaid eligibility in every state if chosen. From 2014 to 2017, the federal government will pay 100% of the difference between a state’s current Medicaid eligibility level and the ACA minimum. Federal contributions to the expansion will drop to 95% in 2017 and remain at 90% after 2020, according to the law.
The graphic above identifies those expansion states. Health e(fx) is tracking these states and the minimums to ensure affordability is calculated for each employee at the mandated level.
NOTE: As of March 13, Utah is moving forward with partial coverage expansion.
The 2016 limits and penalty amounts have been announced and approved.
At the end of 2015, just before the IRS announced the delay in reporting, they released Notice 2015-87. This notice gave a range of compliance issues, of course including a number of areas requesting comments that the IRS will address in future guidance. The list of broad topics as presented in the Notice are summarized for your convenience below. Please refer to https://www.irs.gov/pub/irs-drop/n-15-87.pdf for more detail.
HRA Market Reforms
Retiree Only HRA: A retiree only HRA is not subject to the market reforms under the ACA that generally apply to group plans. This applies even if the HRA contains amounts credited during the time that the retiree was a current employee covered by a group plan with an integrated HRA. This allows for a retiree-only HRA to reimburse individual market premiums, and it is not required to be integrated with a group health plan. This DOES NOT apply to HRAs that cover current employees.
HRAs Integrated with Self-Only Coverage
An HRA integrated with self-only coverage cannot be used to reimburse expenses of a spouse or dependent (yet, transitional relief does apply for plan years starting before January 1, 2017).
Employer Payment Plans – Reimbursement for Individual Market Coverage
Reimbursement of individual health plan premiums through a cafeteria plan, via salary reduction or employer contribution, or through an HRA, is considered an employer payment plan that will fail to comply with the ACA reform requirements. Therefore, these are NOT allowed unless the coverage consists of ONLY excepted benefits (for example, stand-alone dental or vision coverage).
Affordability Safe Harbor Percentage
As shown in the chart above, 2016 Limits, the IRS stated that it will amend regulations to allow the employer affordability safe harbor percentage (9.5% per regulations) to adjust in accordance with the affordability percentage used to determine subsidy eligibility for an individual purchasing health coverage through the public exchange (9.66% in 2016).
Other Affordability Issues
Amounts made available for the current plan year under an integrated HRA that an employee may use to pay premiums for an eligible employer-sponsored plan are counted as an employer contribution—and reduce the dollar amount of the employee’s required contribution to determine a plan’s affordability.
Health Flex Contributions to Section 125 Plans
Any employer contributions that are limited to health expenses (flex contributions) under a Cafeteria plan will also reduce the dollar amount of an employee’s contribution. For the amount to be considered a health flex contribution, the employee:
- May NOT opt to receive the amount as a taxable benefit;
- May use the amount to pay for minimum essential coverage (MEC); and
- May use the amount only to pay for medical care, within the meaning of Section 213.
Transition Relief for Non-health Flex Contributions
For the purposes of Section 4980H(b) penalties for plan years beginning before January 1, 2017, employer flex contributions (even those that do not meet the definition of a health flex contribution) will be treated as reducing the dollar amount of an employee’s contribution. This relief is NOT available with respect to a non-health flex contribution that is adopted after December 16, 2015, or that substantially increases the amount of the flex contribution after December 16, 2015.
The IRS has made previous statements regarding opt-out payments and their “dislike” of these plans. Notice 2015-87 states that the IRS plans to issue rules specifying that unconditional opt-out payments will need to be considered for purposes of affordability. Employers will need to include the value of the opt-out incentive in determining whether a plan is affordable. The regulations will also request comments on those opt-outs that place conditions upon the receipt (that is, proof of other health coverage), and on whether such conditional opt-outs should also be considered for affordability purposes.
Fringe Benefits Offered Under the SCA or DBRA
Employer contributions made for health coverage as a fringe benefit under the McNamara-O’Hara Service Contract Act (SCA) or the Davis-Bacon Act (DBRA) are not considered employer contributions, and therefore do not reduce the amount of the employee contribution for the purpose of eligibility for premium tax subsidies or compliance with the individual mandate. The Treasury and IRS will continue to consider how the requirements of the SCA, DBRA, and 4980H may be coordinated. Until further guidance, for any plans beginning before January 1, 2017, the employer may treat contributions toward fringe benefits that may be used to cover MEC as reducing the employee’s contribution, but only to the extent that the payment does not exceed the amount required to satisfy the fringe benefit payment under the SCA or DBRA.
Transition Relief for Employer Reporting
Employers may report the reduction of the amount of the employee contribution in accordance with the transition relief noted, but employers are strongly encouraged not to do so as this may impact their ability to receive a subsidy when enrolling for health coverage through a public Exchange. Rather, the IRS would prefer that employers report on Line 15 of Form 1095-C accurately, without use of the transition relief, and reconciliation would be allowed and potential penalties forgiven if applicable. For any employers using the transition relief, they are encouraged to notify employees that they may obtain accurate information about their required contribution by contacting the employer directly.
Hours of Service
Notice 2015-87 made clarification with regard to counting hours of service for a leave of absence. The current guidance provides:
- Definition of Hour of Service: An hour of services DOES NOT include a) an hour for which an employee is paid during a period in which no duties are performed, if such payment is made under a plan maintained for the purpose of complying with worker’s compensation, unemployment, or disability insurance laws; or b) an hour of service for a payment that reimburses an employee for medical or medically related expenses incurred.
- Short- and Long-Term Disability: Periods during which an individual is not performing services but is receiving payments due to STD or LTD result in hours of service for any part of the period during which the recipient retains status as an employee unless the payments are made from an arrangement to which the employer did not contribute directly (for example, employee is paid with after-tax contributions).
Educational Organizations and the 26-Week Break in Service Rule
Educational organizations (public and private schools and universities) must treat a rehired or returning employee as an ongoing employee if the employee’s non-employment period was 26 weeks or less. For other employers, this maximum threshold is 13 weeks. The IRS has been made aware that some educational institutions are or may be hiring workers from staffing agencies and applying the 13-week service break rule instead of the 26-week rule. The Notice states that the IRS plans to amend existing final regulations to apply the 26-week period not only to employees of educational organizations, but also to any employees who provide services primarily to educational organizations and who are not offered a meaningful opportunity to provide services during the entire year.
Other Miscellaneous Provisions
- TRICARE: If an employee is offered coverage under TRICARE for any month, the employer is treated as having offered such employee minimum essential coverage for that month.
- COBRA and HFSA Carry-Over amounts: Notice 2015-87 explains how COBRA continuation rules coordinate with unused Health FSA amounts that carry over from one plan year to the next.
- HSA eligibility and veteran benefits: Notice 2015-87 allows for the contribution to an HSA for individuals who are receiving medical benefits from the Department of Veterans Affairs.
The reporting extension for Form 1095-C is March 31, 2016, for the employee receipt of the first tax form. As shown in the chart above, 2016 Limits, the IRS has made it clear that penalties for employees not receiving their annual form are $260 per form, to a maximum of $3,178,000. Failure to then file Form 1094-C with the IRS by the June 30, 2016, deadline will result in the same penalties, so in essence, there is the potential of paying the penalty twice. Note that there are additional penalties, which speak directly to the need for accurate and timely receipt of HR, Payroll, and Benefits data each month of the year on an ongoing basis. For any forms that must be corrected due to material changes, any form corrected on or before 30 days after the filing date has the potential for a $50 per form penalty or if corrected after the 30th day but on or before August 1 (in 2016 this is extended to November 1), the potential penalty is increased to $100 per form.
The IRS released Notice 2016-4 stating that the IRS may consider penalty waivers if the employer has errors or incomplete data but can demonstrate a good faith effort to comply. If an employer does not meet the extended due dates, they are encouraged to still furnish the forms to their employees and file with the IRS. The IRS will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause. If an employer can show the effort to prepare for reporting the required information (such as gathering and transmitting the necessary data to an agent, such as Health e(fx), to prepare the data for submission), the IRS will take this into account when considering penalty abatement. Also, the IRS has stated it will take into account the extent to which the employer is taking steps to ensure that it is available to comply with the reporting requirements for 2016.
Health e(fx) customers have all gone to print for Form 1095-C and Form 1095-B (for non-employees and COBRA participants), and we are pleased to report that more than 4.2 million forms have been processed prior to the March 31 deadline. We have successfully tested with the IRS and are ready to begin the Form 1094 process for IRS filing for each of your ALE members. In the coming week, you will receive information on the Form 1094 submission process, including step-by-step instructions, weekly webinar training, and an updated employer user guide. The Form 1094 process and review will be released to production on March 30, 2016, in time for the opening of the IRS filing period.
In the meantime, it is critical that all first quarter data is true and correct and accepted into Health e(fx). This includes all January plan year rate information. If you are having any issues with transmitting and loading your data, please contact your Client Services Manager as soon as possible. As you know, beginning on January 1, 2016, the member compliance percentage has increased to the offer of coverage to at least 95% of your full-time employees and their dependents.
2016 – What Next?
Of course, there is no rest for us after a busy open enrollment, holiday and tax season! On February 26, 2016, the Department of Labor issued proposed revisions to the Summary of Benefits and Coverage (SBC) and related documents. As you are well aware, the ACA requires SBCs be distributed to ALL participants at the time of enrollment and prior to a plan’s annual enrollment period. Plan administrators and plan sponsors are responsible for issuing these to participants in a timely manner. The new proposed template, glossary, and instructions are for plan years beginning on or after April 1, 2017. As is customary, public comments will be requested. Some of the proposed changes are as follows:
- The SBC template is a total of 5 pages instead of 8.
- A new heading guides participants to the glossary and a statement about premium costs and out-of-pocket expenses.
- A section on new questions, with better clarity on what is and is not included in out-of-pocket maximums.
- A revised section, “Limitations, Exceptions, and Other Important Information.”
- Disclosure statements with a simple “Yes” or “No” identifying if the plan provides MEC and if the plan meets MV. It explains the individual tax consequences of not enrolling in MEC coverage and eligibility for premium tax credits if not offered a MV plan.
- New and improved coverage examples.
- New instructions for providers and administrators for completing the SBC.
- A new uniform glossary.
We cannot forget what 2016 will bring: a new President. The ACA has been a major talking point over the last 6 years and as the candidates have jockeyed for position over the past months, but there are other issues should be kept in mind as we head toward the general election. These issues are workplace related and can have an impact on ACA determination of eligibility and affordability:
- Overtime Regulations: Proposed changes to federal overtime regulations would increase the pool of workers eligible for overtime pay and in turn would amount to additional take-home pay and higher income.
- Family Leave: Paid family leave is a hot topic and President Obama called for the mandating of paid maternity leave for all employees in his 2015 State of the Union. While this is not seen as viable on one side of Congress, many major companies have instituted such a workplace policy and it has garnered a great deal of attention.
- The Cadillac Tax: The excise tax has been delayed until 2020, and is still drawing a great deal of opposition and talk of full repeal, but until further guidance, employers must be diligent in preparing for the potential of the 40% nondeductible tax on health plans that provide benefits of more than $10,200 for individuals and $27,500 for families.
Looking Ahead: Out-of-Pocket Maximums for Non-Grandfathered Plans
March 2016 brought an announcement from the Department of Health and Human Services (HHS) regarding the finalized 2017 out-of-pocket maximums for non-grandfathered health plans. The limits are: $7,150 for self-only coverage and $14,300 for all other tiers, including family. Remember, the 2016 regulation will apply requiring all self-only maximums be applied to any individual, regardless of whether the tier is self-only or family coverage.
2015 was an exciting and challenging year and we are ready for the regulations and any changes that will come in 2016 and beyond with a new President. The new leader will most definitely influence the ongoing need for change in the healthcare space and workplace policies. As always, as changes in regulation are proposed or finalized, Health e(fx) will keep you informed and keep you compliant.