HEALTH PLANS: UPDATE FOR EMPLOYERS AND EMPLOYEES

Transcription

1 DID YOU GET YOUR BADGE SCANNED? HEALTH PLANS: UPDATE FOR EMPLOYERS AND EMPLOYEES #TaxLaw #FBA Username: taxlaw Password: taxlaw18

2 Health Plans: Update for Employers and Employees Kevin Knopf, Senior Technician Reviewer (TEGE), Internal Revenue Service Helen Morrison, Principal, Ernst & Young Spencer Walters, Partner, Ivins Phillips & Barker Ryan Montgomery, Associate, Morgan Lewis & Bockius (Moderator) Page 2 Tax legislative and policy update

3 Legislative update Page 3 Tax legislative and policy update

4 Recap: 2017 Congressional health care timeline March 24: Vote on the American Health Care Act (AHCA) canceled May 4: House votes in favor of AHCA July 13: Senate releases updated BCRA proposal July 27: Senate defeats effort to repeal ACA Sept Graham-Cassidy push in the Senate results in a no-vote Nov 1: ACA Open Enrollment Dec 21: Congress passes stopgap spending bill Jan Feb March April May June July Aug Sept Oct Nov Dec January-March: ACA repeal/replace process proceeds April 7-24: House, Senate spring recess June 22: Senate releases draft health care proposal, the Better Care Reconciliation Act (BCRA) July 31-Sept 5: Congress summer recess; Senate recess postponed Sept 30: Funding expires for CHIP, community health centers; last chance to use reconciliation for Housepassed health care bill Sept 7: Senate approved debt limit, government funding through Dec. 8 Sept 27: Insurers must file final rates for 2018 exchange Page 4 Tax legislative and policy update

5 2017 and 2018 Legislative accomplishments and priorities What got done in 2017? Tax Cuts & Jobs Act Individual mandate repeal Supreme Court seat Circuit Court judges Rollback of regulations Drilling in ANWR Disaster relief What s been done in 2018? Tax extenders for 2017 FY18-19 spending deal Delay in ACA taxes Debt limit (lifted into 2019) CHIP extension (10 years) Additional disaster relief Some TCJA omissions Deadline-driven items have mostly been addressed What s left to do in 2018? Tax extenders for 2018/2019 Tax technical corrections ACA stabilization Infrastructure investment Trade Immigration/DACA FAA (expires March 31) Farm bill Higher education Multiemployer pension plans Page 5 Tax legislative and policy update

6 Tax Cut and Jobs Act: Tax bill and a health bill Individual Provisions International Provisions Effective repeal of ACA Individual Responsibility Payment ( individual mandate ) starting in 2019 Several provisions change how the US taxes foreign operations as part of transition to territorial tax system Standard deduction and exemption increases could result in a disincentive for charitable giving due to less itemization Minimum tax imposes on certain foreign earnings and one-time transitional tax will impact earnings decisions Business Provisions Tax-Exempt Provisions Retains R&D and work opportunity credits while scaling down Orphan Drug credit Retains tax exemptions for private activity bones, but repeals advance refunding bonds Wide-ranging effects on health care from reduction in corporate tax rate, AMT repeal, expensing and NOL provisions, executive compensation and employee benefits pieces, and lack of pass-through applicability. 21% excise tax on executive compensation to any covered employee UBTI calculated separately for unrelated trade or businesses In the wake of the Tax Cuts and Jobs Act ACA Tax Provisions Cadillac tax Medical device excise tax Health insurance tax (HIT) Page 6 Tax legislative and policy update

7 Bipartisan Budget Act of 2018 Health Care Provisions CHIP, CHC, and MIECHV Extended; Opioid Funding Extends CHIP 1 for 10 years (to 2027) Boosts funding for CHCs 2 over two years ($~8b total) Extends funding for MIECHV 3 to 2022 The agreement also freed up $6 billion in funding to respond to the opioid crisis and $2 billion for the NIH Medicare Extenders and Improvements Repeals therapy caps and DME 4 speech rental caps Extends home health rural add-on Creates infusion and radiation transition payments Expands MA supplemental benefits Increase and addon ambulance fees Other Provisions Repeals IPAB 5 Incorporates the CHRONIC Care Act to extend use of telehealth and services for chronically ill Family services and supports programs Funds Reaching Health Centers for GME and the National Health Service Corps for two years Bill Bill Offsets Offsets X Increases drugmakers share of costs for patients in Part D coverage gap to 70% Cuts the ACA s Prevention Fund Updates physician fee schedule Reduces payment for therapy, home health, some ambulance service, and various other facilities, services Provisions not included in the bill include bipartisan efforts to stabilize the ACA s individual insurance marketplaces, and the CREATES Act, which blocks anti-competitive drug practices. 1. Children s Health Insurance Program. 2. Community Health Centers. 2. Maternal, Infant, and Early Childhood Visiting Program. 3. Durable Medical Equipment. 4. Independent Payment Advisory Board. Page 7 Tax legislative and policy update

8 2018 pre-election legislation March 24 th Omnibus package Alexander/Murray market stabilization provisions including reinsurance and cost sharing reduction subsidies Flexible spending account (FSA) over-the-counter provisions Health savings account (HSA) expansion Page 8 Tax legislative and policy update

9 Administrative and regulatory update Page 9 Tax legislative and policy update

10 Administration s Executive Orders Trump issues sweeping executive order on health care marketplaces* Association Health Plans: Looks to expand AHPs, broadening the ability of employers to join together to offer health insurance, likely exempting them from many ACA requirements. The administration is already working to reinterpret the Employee Retirement Income Security Act (ERISA), the federal law that governs many workplace benefits Short-term Limited Duration Insurance (STDI): Directs HHS to expand coverage through low cost STLDI plans from 3 months to a year, not subject to many ACA requirements. Historically, STLDIs have been used to circumvent insurance requirements, provide partial-year coverage Health Reimbursement Arrangements (HRAs): Aims to revise guidance for HRAs taxexempt, employer-funded group health plans that reimburse employees for health care expenses to allow more expansive employer use. Employers can already set aside pre-tax dollars to help cover employees health care costs, but the order w ould enable employers to help pay for the cost of individual health plan premiums. *Regulatory guidance will be a significant factor in determining the EO s impact on the market, and will be subject to public regulatory notice and comment process Trump ceases cost-sharing reduction (CSR) subsidy payments to insurers On Oct. 12, the Trump administration announced it would stop making CSR payments to insurers, citing legal grounds and lack of Congressional appropriation of funds Subsidies go to insurers who are required to offer reduced cost-sharing plans to low-income recipients A federal judge denied a request from 19 attorneys general to temporarily resume subsidies ACA marketplace premiums are set to rise substantially in 2018, but many people receiving premium tax credits will pay less than they did in 2017 Average increases of 17% for low-cost bronze, 35% for low-cost silver, and 19% for lowest-cost gold plans Page 10 Tax legislative and policy update

11 Association health plans Department of Labor issued proposed regulations Issued in response to October 12, 2017 Executive Order Proposed Regulations Broaden definition of the term group or association of employers in a manner to enable businesses in organizations that could offer a group health plan (an association health plan or AHP) Key components of the proposed rule Relaxed requirement that associations must exist for reason other than offering AHPs Requires associations or groups offering AHPs to have a formal organizational structure Broaden definition of working owners to include self-employed Includes health status nondiscrimination rules Page 11 Tax legislative and policy update

12 Short-term, limited duration insurance Department of Health and Human Services issued proposed regulations Issued in response to October 12, 2017 Executive Order Proposed Regulations Amend definition of short-term, limited duration insurance (STLDI) to a maximum coverage period of less than 12 months after effective date of the contract, which would increase the maximum coverage period by 9 months Key component of the proposed rule STLDI coverage is excluded from the definition of individual health insurance coverage subject to HIPAA, the ACA and other health care statutes Page 12 Tax legislative and policy update

13 Health Reimbursement Arrangements (HRAs) Term used for an arrangement under which an employer makes an amount available to an employee (without any salary reduction on the part of the employee) to pay for health expenses not covered by insurance. Like other employer-provided health benefits, reimbursements are excluded from employee s income and exempt from FICA tax. HRAs may be provided in conjunction with (or integrated with) comprehensive employer-provided coverage. Before the Affordable Care Act ( ACA ), HRAs could be offered without comprehensive employer-provided coverage ( standalone HRA), and terms of the HRA could provide for funds to be used to purchase coverage in the individual insurance market. Page 13 Tax legislative and policy update 13

14 Health Reimbursement Arrangements (HRAs) cont Administrative guidance issued by Treasury/IRS, DOL and HHS (e.g., Notice ) holds that stand-alone HRAs violate certain ACA group health plan requirements under the Internal Revenue Code, ERISA, and the Public Health Service Act, even if the employee covered by the HRA has ACA-compliant health insurance purchased in the individual market. Thus, an HRA cannot be integrated with individual market coverage for purposes of satisfying the ACA requirements. Violation can result in imposition on the employer of a $100 per day per employee excise tax. Position reflects, in part, concern that an employer could segment its workforce by providing healthier employees with comprehensive employer-sponsored coverage and sending less healthy employees to the individual insurance market, despite rules prohibiting discrimination based on health status. Page 14 Tax legislative and policy update 14

15 Health Reimbursement Arrangements (HRAs) cont Page 15 Legislation allowing qualified small employer health reimbursement arrangements (discussed below) was enacted in response to prohibition on stand-alone HRAs. Executive Order (October 12, 2017) addresses HRAs, as well as certain other health arrangements. Policy stated in E.O.: Expanding the flexibility and use of HRAs would provide many Americans, including employees who work at small businesses, with more options for financing their healthcare. Directive: Within 120 days of the date of this order, the Secretaries of the Treasury, Labor, and Health and Human Services shall consider proposing regulations or revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of HRAs, to expand employers ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage. Further developments awaited Tax legislative and policy update 15

16 Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) Enacted in late 2016 as part of the 21 st Century Cures Act in order to enable eligible small employers (those not subject to the employer mandate) to provide pretax funds that employees can use to purchase coverage in the individual market coverage. Includes measures to prevent segmentation of workforce: Employer may not offer other health coverage, Subject to certain exceptions, all employees must eligible for the QSEHRA and the QSEHRA must be provided on the same terms for all eligible employees. Reimbursements for a year are subject to dollar limits of, for 2018, $5,050 for self-only and $10,250 for family. Page 16 Tax legislative and policy update 16

17 Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) cont QSEHRA coverage is not minimum essential coverage for purposes of the individual mandate, and employee must provide proof of minimum essential coverage from another source. If employee receives reimbursements for any month when he/she does not have minimum essential coverage, the reimbursements are included in income. Before the beginning of a year in which a QSEHRA will be offered, the employer must provide employees with a notice containing certain information. Information about the QSEHRA must also be included on Form W-2. Includes rules to coordinate with an employee s eligibility for a premium assistance credit and with the Cadillac tax. Page 17 Tax legislative and policy update 17

18 Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) cont Guidance provided by Notice , which states that the guidance addresses the objectives in E.O (and intent to issue future guidance in response to the E.O.). Notice addresses-- Eligible employers Eligible employees Same terms requirement Dollar limits and reimbursements Notice and Form W-2 requirements Failure to satisfy QSEHRA requirements Request for comments on the guidance in anticipation of future regulations. Page 18 Tax legislative and policy update 18

19 Future of the individual and employer mandates Page 19 Tax legislative and policy update

20 Repeal of Individual Mandate Permanent reduction to $0 of penalty under IRC 5000A for failing to maintain minimum essential coverage MEC reporting under IRC 6055 (Form 1095-B and, for self-insured plans, Form 1095-C) no longer necessary, but not repealed Premium tax credits IRC 36B unchanged How will they adjust? Ivins, Phillips & Barker Chartered 20

21 Repeal of Individual Mandate Potential impacts on employers Reduced enrollment in employer plans by young and healthy employees/ dependents Reduced likelihood of shared responsibility penalties under IRC 4980H Continued importance of complying with COBRA continuation coverage requirements What s ahead? Potential for state laws that would retain individual mandate on a state level Future of employer shared responsibility requirements under IRC 4980H Ivins, Phillips & Barker Chartered 21

22 Employer Shared Responsibility Requirement (aka Employer Mandate ) An applicable large employer may be subject to a penalty if it fails to offer its full-time employees affordable minimum essential coverage that provides minimum value (that is, pays at least 60 percent of the cost of covered care). The Affordable Care Act provided for the employer mandate to apply as of 2014, but Treasury/IRS delayed its application until Applicable large employer is an employer with 50 or more full-time employees, with part-time employees converted to full-time equivalents and counted towards the threshold. An offer of employer-provided coverage meeting the affordability and minimum value requirements precludes an employee from receiving a premium assistance tax credit for coverage purchased on an Exchange, even if the employee does not enroll in the employer-provided coverage. 22

23 Employer Shared Responsibility Requirement (aka Employer Mandate ) cont An employer s liability for a penalty is triggered only if one or more full-time employees receive the premium assistance credit, not merely by the employer s failure to offer adequate coverage. If no full-time employee gets a credit, no penalty. Employer s liability for a penalty is determined on a monthly basis, using 1/12 of the applicable annual penalty amount and multiplied by a certain number of full-time employees. If an employer fails to offer any coverage to at least 95 percent of its full-time employees, the monthly penalty is 1/12 of $2,080 for 2015 ($2,260 for 2017) multiplied by the number of its full-time employee minus 30. If an employer offers coverage to at least 95 percent of its full-time employees, but the coverage fails either the affordability or minimum value requirement and any full-time employee receives a credit, the monthly penalty is 1/12 of $3,120 for 2015 ($3,390 for 2017) multiplied by the number of full-time employee who receive a credit. However, this penalty cannot exceed the amount of the penalty that would apply if the employer failed to offer coverage at all. 23

24 Employer Shared Responsibility Requirement (aka Employer Mandate ) cont Employers do not self-assess and pay employer mandate penalties. Instead, the IRS is to provide an initial notice (Letter 226-J) that the employer may be liable for a penalty. Initial notices with respect to penalties for 2015 were issued in late The initial notice, including the proposed penalty amount, is based on coverage information filed by the employer (on Forms 1094-C and 1095-C) and information from individual income tax returns filed by the employer s employees. The notice contains details on the employees who received a premium assistance credit and monthly penalty amounts. Accompanying the notice is an employer response form (Form 14764) to be used to consent to the penalty (and make payment) or to dispute the liability with an explanation of the basis for disagreement and any changes needed. 24

25 Excise Tax on High Cost Employer-Sponsored Health Coverage (aka Cadillac tax) Excise tax is 40 percent of the excess benefit. Excess benefit is the amount by which the aggregate cost of all types of applicable employer-sponsored coverage (e.g., major medical, out-of-pocket reimbursements) provided to an employee exceeds a threshold amount. The annual threshold amount consists of a dollar amount - initially determined under a statutory formula using specified dollar amounts ($10,200 for self-only coverage and $27,500 for family coverage) with a one-time health cost adjustment, then indexed for subsequent years, and with an age and gender adjustment and/or a retiree/high-risk profession adjustment in some cases. Excise tax is determined on a monthly basis, using the monthly aggregate cost of applicable employer-sponsored coverage for the month and 1/12 of the annual threshold amount. Excise tax is imposed on each coverage provider (employer, plan administrator or insurer, depending on type of coverage) in proportion to the coverage provider s share of the aggregate cost of applicable employer-sponsored coverage. 25

26 Excise Tax on High Cost Employer-Sponsored Health Coverage (aka Cadillac tax) cont In general, employer is responsible for calculating the amount of excess benefit allocable to each coverage provider and notifying each coverage provider (and the IRS) of the coverage provider s applicable share. Each coverage provider is then responsible for its share of the excise tax, i.e., 40 percent of its applicable share of the excess benefit. As originally enacted in the Affordable Care Act, excise tax was scheduled to apply as of At the end of 2015, the effective date was delayed to In the January 22, 2018, continuing budget resolution, the effective date was delayed to

27 MENTAL HEALTH PARITY Ivins, Phillips & Barker Chartered 27

28 Mental Health Parity and Addiction Act of 2008 (MHPAEA) Requires parity between mental health/substance use disorder benefits and medical/surgical benefits Financial parity (co-pays, deductibles, limits) Quantitative treatment limitations Non-quantitative treatment limitations Disclosure Enforcement: private right of action under ERISA, DOL penalty, and IRC excise taxes 1500 DOL investigations from , resulting in over 170 violations Ivins, Phillips & Barker Chartered 28

29 Mental Health Parity: Enforcement Activity Most common issue identified by DOL is nonquantitative treatment limitations: Source: EBSA Ivins, Phillips & Barker Chartered 29

30 Mental Health Parity: Enforcement Activity Non-quantitative treatment limitations Pre-authorization and pre-notice requirements Written treatment plans Progress & likelihood of improvement requirements Treatment attempt requirements Failure to comply with treatment plan Geographical and licensure limitations (scope, duration) Formulary design for prescription drugs Reimbursement rates & methods used to determine usual, customary, and reasonable charges Ivins, Phillips & Barker Chartered 30

31 Mental Health Parity: Regulatory Activity Application of MHPAEA to Eating Disorders 21st Century Cures Act 2017 FAQ and RFI Disclosure 2017 RFI regarding ways to improve MHPAEA disclosure (as required by the 21st Century Cures Act) Draft model form for requesting information from plans or issuers regarding NQTLs or obtaining documentation after an adverse benefit determination Ivins, Phillips & Barker Chartered 31

32 Mental Health Parity: Litigation Activity Seeming uptick in participant lawsuits alleging MHPAEA violations Common claims relate to availability of: Applied Behavior Analysis for treatment of Autism Spectrum Disorder Wilderness Therapy for treatment of mental health or substance use disorders Residential treatment for mental health or substance use disorders Ivins, Phillips & Barker Chartered 32

33 OTHER REGULATORY DEVELOPMENTS Ivins, Phillips & Barker Chartered 33

34 Wellness Plans: AARP v. EEOC AARP had challenged 2016 EEOC rules Rules took effect 1/1/17 and preliminary injunction request denied Court subsequently invalidated rules on grounds that EEOC did not provide sufficient reasoning to justify decision that incentives up to 30% would not violate ADA/GINA requirements that plans be voluntary Next steps EEOC status report due to court by March 30, 2018 Court backed away from requirement that EEOC must notify public by Aug. 31, 2018 if it plans to amend the rules Rules would be invalidated effective Jan. 1, 2019 Ivins, Phillips & Barker Chartered 34

35 Disability Claims Procedures April 1, 2018 applicability date of final rule for amending claims procedures for disability benefits Original Jan. 1, 2018 applicability date was delayed by DOL in Nov. 2017, along with request for comments DOL concluded that comments did not establish that final rule imposes unnecessary regulatory burdens or significantly impairs access to disability benefits Applies to disability benefit claims, whether or not under a disability plan Ivins, Phillips & Barker Chartered 35

36 Disability Claims Procedures Increased disclosure requirements in adverse benefit decisions Required notice and opportunity for participant to respond to new information used on appeal Expanded circumstances resulting in deemed exhaustion of claims procedures ACA culturally and linguistically appropriate manner standard for adverse benefit decisions Requirement that adverse decision include notice of limitations period for filing suit Ivins, Phillips & Barker Chartered 36