e3 Financial News Archive For May / June 2012
Supreme Court Largely Upholds Patient Protection and Affordable Care Act (PPACA)
Jun 28, 2012
Today, the U.S. Supreme Court upheld the individual mandate and most of the Patient Protection and Affordable Care Act (PPACA). As expected, it was a close decision -- 5-4 -- with Chief Justice Roberts and Justices Breyer, Ginsburg, Kagan and Sotomayor agreeing that the individual mandate is a permissible tax. Because the individual mandate was found to be acceptable, most of the rest of the law (including the exchanges and the requirement that larger employers provide minimum coverage or pay penalties of their own) automatically stands. For additional information on the decision, CLICK HERE.
Because PPACA has been upheld, employers need to move forward with implementing the changes required by the law. The most immediate requirements are:
- All group health plans, regardless of size, must provide "summaries of benefits coverage" (SBC) with the first open enrollment beginning on or after Sept. 23, 2012. The content and format of these SBCs must meet strict guidelines, and the penalties for not providing them are high (up to $1,000 per failure). Insurers will be expected to provide the SBCs for fully insured plans, while self-funded plans will be responsible for preparing their own.
- Employers that issued 250 or more W-2s in 2011 must report the total value of each employee's medical coverage on their 2012 W-2 (which is to be issued in January 2013).
- High income taxpayers (those with more than $250,000 in wages if married and filing jointly, or more than $200,00 if single) must pay additional Medicare tax, and employers will be responsible for deducting a part of the tax (an additional 0.9 percent on the employee's wages in excess of $200,000) from the employee's pay beginning in 2013.
- The maximum employee contribution to a health flexible spending account (FSA) will be $2,500 beginning with the 2013 plan year.
- The Patient Centered Outcomes fee (also called the comparative effectiveness fee) is due July 31, 2013. The fee is $1 per covered life for the 2012 year. Insurers will remit the fee on behalf of the plans they cover, while self-funded plans will pay the fee directly.
Politically, while House Republicans have pledged to repeal PPACA, it is unlikely a repeal bill would pass the Senate, and it would be vetoed in any event by President Barack Obama. The fall elections, of course, could result in a change in control of Congress and/or the White House, and Republican victories would likely re-energize efforts to repeal PPACA or to discontinue funding needed to implement various parts of the law.
The opinion is long (193 pages) and complex, and we will provide additional details -- through both written alerts and a webinar -- once there has been more time to study the opinion.
Preparing for the Supreme Court Decision on Health Care Reform
Jun 20, 2012
The U.S. Supreme Court is expected to publish its decision on the legality of the Patient Protection and Affordable Care Act, or PPACA (also called health care reform, HCR and ACA), by the end of June. What they will decide is anyone's guess. Here are the possibilities (in no particular order), and a brief overview of what the decision would mean to employers that sponsor group health plans. For additional information on the issues the Court is considering, Click Here.
Entire Law is Constitutional
If the Court decides that all parts of the law are constitutional, employers will need to move forward with implementing the changes that the law requires. For 2012 and 2013, these include:
- Providing summaries of benefits coverage with the first open enrollment on or after Sept. 23, 2012
- Reporting the value of medical coverage on the 2012 W-2 (for employers filing more than 250 employee W-2 forms)
- Reducing the maximum health flexible spending account (FSA) contribution to $2,500 (beginning with the 2013 plan year)
- Paying the Patient Centered Outcomes fee (due July 31, 2013)
Note: Details on these requirements are included in recent Employer Compliance Alerts.
Part of the Law is Constitutional and Part is Not
The Court could decide that the requirement that individuals obtain health coverage or pay a penalty (the "individual mandate") exceeds Congress' authority but that other parts of the law are permissible. They could then either specify which parts should stay and which should go, or they could send the case back to a lower court to determine the details. Either way, employer obligations to comply with the law would continue, and the actions needed for 2012 and 2013 would continue to apply.
Entire Law is Unconstitutional
The Court could decide that the entire law is flawed, in which case employers will not need to implement the changes that were to take effect for 2012 and later. There would be some uncertainty (and choices) with respect to the parts of the law that have already been implemented. Keep in mind that if the plan or policy has been amended or written to include the 2010 and 2011 changes, the plan document or policy will need to be revised to remove the changes -- the mere fact that the law is unconstitutional will not void the changes in the plan or policy.
Several carriers -- Aetna, Humana and UnitedHealthcare -- have stated that they will continue to administer their policies to include many of the changes that have already been implemented, even if that is not legally required. Employers that have self-funded plans will need to decide -- and those who have fully insured plans may need to decide -- if they want to roll back changes such as:
- Covering dependent children to age 26 (there will be tax issues with this unless the IRS provides a waiver)
- Elimination of lifetime and annual maximums for most benefits
- Elimination of pre-existing condition limitations for dependents under age 19
- First-dollar coverage for preventive care
- Excluding over-the-counter prescription drugs for health FSA and health savings account (HSA) coverage
The Supreme Court decision is unlikely to end the debate over PPACA, particularly with the fall congressional and presidential elections looming. If the Supreme Court upholds the law, House Republicans have pledged to introduce legislation to repeal it, but they likely do not have the votes in the current Congress to prevail.
IRS Eases Health Care Reform Law’s $2,500 Limit for Non-Calendar Year FSA plans
Jun 01, 2012
The IRS on Wednesday provided regulatory relief for health care flexible spending account (FSA) participants and also said it is reconsidering its longtime use-it-or-lose-it rule for FSAs.
Employer benefits lobbying groups, including the American Benefits Council (ABC) had complained that the new $2,500 annual limit set to go into effect on January 1, 2013 would effectively force noncalendar-year plans to comply with the rule before the statutory effective date. For example, an employee in an FSA with a fiscal year that begins on July 1, 2012, elected to contribute $3,600 during that plan year, making contributions of $300 a month from July 1, 2012, through June 30, 2013. If the employee elects to contribute $2,500 for the next plan year starting July 1, 2013, the employee would violate the $2,500 annual limitation for 2013, the ABC noted, because the employee would have contributed $300 a month for the first six months of 2013 and $208.33 for the last six months of 2013 (a total of $3,050 during 2013).
In Notice 2012-40, the IRS said participants in noncalendar-year plans can still make the maximum contributions to their FSAs during the first year that a mandated FSA contribution cutback goes into effect under the health care reform law.
In addition, the IRS made clear that amounts that remain in so-called grace period FSAs can be rolled over to the next year without those funds counting against the $2,500 limit. Grace period FSAs -- allowed by the IRS under a 2005 rule -- are those in which unused balances from the prior plan year can be used to pay expenses that are incurred during the first 2.5 months of the next plan year.
The guidance also addresses plan grace periods and provides relief for "certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer." Further, the notice clearly establishes that the limit in PPACA does not does not apply to certain employer nonelective contributions (sometimes called flex credits), nor does it apply to non-healthcare FSA contributions, HSAs, HRAs or health plan premium payments made under a Section 125 plan.
Finally, in a development that stunned benefit experts, the IRS also disclosed that it considering "modifying" its 28-year-old use-it-or-lose-it rule. If use it or lose it were eliminated, FSAs would become even more popular. The fear of losing unused contributions is a disincentive for some employees to participate, and others contribute less than they would in the absence of the requirement, experts said.
IRS Proposes Methods for Valuing Employer Health Coverage
May 10, 2012
The IRS has just issued three notices concerning key aspects of the 2010 Affordable Care Act (ACA). Notice 2012-31 proposes three different methods by which sponsors of self-funded health plans could value the coverage they provide to plan participants and their dependents. Notice 2012-32 and Notice 2012-33 then solicit comments on two related employer reporting requirements.
This process for valuing and reporting employer health coverage goes to the heart of the ACA's individual and employer mandates. It will also help target a tax credit designed to help low-income individuals pay premiums for health insurance purchased through a state-wide insurance exchange.
"Minimum Essential Coverage" Versus "Essential Health Benefits"
The "individual mandate" (the constitutionality of which is now under review by the U. S. Supreme Court) refers to the ACA requirement that most U.S. citizens either have "minimum essential coverage" or pay a penalty on their federal income tax return. The emphasis here is on "minimum." This requirement may be satisfied through virtually any type of health coverage - individual or group, private or governmental, generous or stingy.
Minimum essential coverage should be contrasted with "essential health benefits," another ACA-created term. This refers to the type of comprehensive health coverage that must be offered by any insurer whose individual or small-group policy is sold through an exchange. Essential health benefits must include at least a benchmark level of coverage for each of ten specific categories of benefits. Notice 2012-31 makes clear that self-funded employer health plans (as well as insured plans maintained by larger employers) need not meet this higher standard.
New Employer Reporting Requirements
To help enforce the individual mandate, a new Section 6055 of the Tax Code will require all providers of minimum essential coverage to report to the IRS on the individuals who receive that coverage. In Notice 2012-32 the IRS indicates that final regulations under Section 6055 will likely make a health insurer responsible for reporting minimum essential coverage under any insured employer health plan, relieving the sponsoring employer of that obligation. In the case of a self-funded employer plan, however, this reporting obligation will fall on the employer. The IRS anticipates that this Section 6055 reporting would be done on an employee's Form W-2.
A separate reporting requirement will apply only to "large employers" (generally defined as those having 50 or more full-time employees). Under Code Section 6056, a large employer must report the information needed to administer two other provisions of the ACA. These are (1) a premium tax credit available to low-income individuals for the purchase of health insurance through an exchange, and (2) the "shared responsibility" penalty to be assessed against large employers that fail to offer health coverage meeting a "minimum value" standard, or that offer such coverage but charge a premium that is not "affordable." Notice 2012-33 solicits comments on this Section 6056 reporting requirement.
Importance of "Minimum Value" Determination
Under the ACA, an employer plan fails to provide "minimum value" if "the plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs." Citing a fall 2011 report by the Department of Health and Human Services (HHS), the IRS notes that approximately 98% of the individuals currently covered by employer-sponsored health plans receive coverage that meets this minimum value standard.
This minimum value determination is important to both employees and large employers. An employee may not claim the premium tax credit for the purchase of health insurance through an exchange if the employee (or a family member) is eligible to enroll in an employer-sponsored health plan that meets this minimum value standard - unless the premium for that coverage is not "affordable" (a determination to be made on the basis of the employee's household income). This premium tax credit is also unavailable to any employee who is actually enrolled in an employer plan - even if that plan fails to provide minimum value or is not affordable.
If any full-time employee of a large employer receives this premium tax credit - either because the employer plan fails to provide minimum value or because it charges a premium that is not affordable - that employer may be assessed a "shared responsibility" penalty. As explained in our May 2011 article, the formula used in calculating the amount of this penalty will depend on whether the "minimum value" standard has been met. For this reason, large employers will need to value the coverage provided through their plans.
Proposed Valuation Methods
In Notice 2012-31, the IRS proposes the following three valuation methods:
- MV Calculator. HHS intends to develop a minimum value (MV) calculator that would allow sponsors of self-funded health plans to input a limited set of information on the benefits offered under a plan, including specified cost-sharing features such as deductibles, co-insurance, and out-of-pocket maximums. The IRS expects that this information would be required for the following four "core" categories of benefits: physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services. According to the fall 2011 HHS report, these four categories of benefits are the greatest contributors to a health plan's value.
- Safe-Harbor Checklists. Rather than using the MV calculator, an employer whose plan provides benefits in all four of the core categories described above could rely on any of several "safe-harbor checklists" to be developed by HHS and the IRS. Each such checklist would describe the cost-sharing attributes applicable to each of the four core categories of benefits. An employer-sponsored plan would be treated as providing minimum value if its cost-sharing attributes are at least as generous as those shown in any of the safe-harbor checklists.
- Actuarial Certification. Plans with "nonstandard" features, such as quantitative limits on any of the core benefits (e.g., a limit on the number of physician visits or covered hospital days), could start by using the MV calculator and then have a certified actuary make the valuation adjustments needed to reflect the nonstandard features. In certain cases, an employer would even have the option of engaging a certified actuary to make the entire calculation.
Under any of these three valuation methods, an employer could take into account any of its current-year contributions to an employee's health savings account, or any amounts first made available during the year under a health reimbursement arrangement. Doing so should make it easier for the employer's comprehensive health plan to satisfy the minimum value standard.
Requests for Comments
All three of these Notices solicit comments. Unfortunately, the deadline for submitting those comments is June 11, 2012. This is likely to be before the Supreme Court has issued its ruling on the constitutionality of the individual mandate - and perhaps the entire ACA.
IRS Announces 2013 Amounts for Health Savings Accounts (HSA) and High Deductible Health Plans (HDHP)
May 09, 2012
On April 27, the IRS issued Revenue Procedure 2012-26, announcing the 2013 inflation-adjusted dollar limitations applicable to Health Savings Accounts (HSAs) and qualifying High-Deductible Health Plans (HDHPs).
The maximum HSA contribution for an individual with self-only coverage under an HDHP will increase to $3,250 - up from $3,100 in 2012. The maximum HSA contribution for an individual with family HDHP coverage will be $6,450 - up from $6,250 in 2012. The "catch-up contribution" limit, for individuals who will attain age 55 by the end of the year, will remain at $1,000.
To qualify as an HDHP, a plan must specify a minimum annual deductible amount, with that amount based on whether the coverage is self-only or family. Those deductibles have also been adjusted for inflation. For self-only coverage, the annual deductible must be no less than $1,250 - up from $1,200 in 2012. For family coverage, the annual deductible must be no less than $2,500 - up from $2,400 in 2012.
Finally, to qualify as an HDHP in 2013, the total annual out-of-pocket expenses (deductibles, copayments, and other amounts - but not premiums) may not exceed $6,250 for self-only coverage or $12,500 for family coverage.
Sponsors of HSA arrangements and/or HDHPs will want to incorporate these new dollar amounts into their 2013 open enrollment materials.
Please contact your e3 Financial Client Service Team with any questions.