1. Healthcare Reform:
2014 and Beyond
WEB- NY Network Event
February 20,2014
Christine L. Keller
Principal
Groom Law Group
1701 Pennsylvania Avenue, N.W.
Washington, DC 20006-5811
(202) 861-9371
ckeller@groom.com

2. Agenda
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Employer shared responsibility
requirements...NEW final regulations
Waiting period rules and penalties
Health insurance 6055/6056 reporting
PCORI and Reinsurance Fees
Excepted Benefit Proposed
Regulations
HRAs, FSAs & cafeteria plan elections
2

3. Employer Shared
Responsibility – Big Picture
Employer Mandate; new section 4980H of the
Internal Revenue Code

Requires large employers (with at least 50 employees)
to either:
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offer minimum essential coverage to full-time employees
(average of 30 hours per week) and their dependents or
pay an excise tax if at least one full-time employee
receives federal assistance to purchase health coverage
on an Exchange.
The excise tax is significantly lower if the minimum essential
coverage is affordable and provides minimum value.
3

4. 4980H - Statute

Two penalties:
 IRC 4980H(a) – “The Big Penalty”
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Penalty for large employers that fail to offer minimum
essential coverage to full-time employees and their
dependents and at least 1 employee receives tax credit/cost
sharing subsidy
$2,000 x every full-time employee (minus 30)
IRC 4980H(b) – “The Lesser Penalty”

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Penalty for large employers that offer minimum essential
coverage to full-time employees and their dependents, but
an employee receives tax credit/cost sharing subsidy
because the coverage is either not affordable or does not
provide minimum value
Generally, $3,000 x each full-time employee receiving
premium assistance
4

5. 4980H – Regulatory
Developments
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Proposed Rule issued in January 2013
In July 2013, IRS/Treasury delayed the penalties until
2015
Final Rule issued February 10, 2014
Key issues addressed under the final and proposed
rules:
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How to determine who is a “large” employer
How to determine who is a “full-time” employee (e.g., how
to count hours, particularly for part-time employees)
How to determine if coverage is “affordable”
Rules are very complex
5

6. 4980H
Proposed Regulations
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“Substantially all” standard – avoid Big Penalty if offer
coverage to at least 95% of full-time employees and
their dependents (not spouse)
Look-Back Measurement Method
 Measurement Period – track employees’ hours
 Optional Admin Period – count hours/enroll in
coverage
 Stability Period – time period must offer/not offer
coverage
Different rules for ongoing employees, new FT
employees, and new variable hour/seasonal employees
Rehire/break in service rules – 26 week rule
Transition Relief
6

7. 4980H
Proposed Regulations

Affordability Safe Harbor: Coverage is
affordable if required employee contribution
for self-only coverage for the lowest cost
option that provides minimum value does not
exceed 9.5% of:
 W-2 Wages for that calendar year
 Hourly rate of pay x 130 or monthly salary
(does not apply if wages reduced)
 The most recently published federal
poverty level for a single individual
7

8. 4980H Final Regulations
Measurement Methods
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Adds new monthly measurement method for
employers not using look-back method
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Keeps look-back measurement method
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FT status determined on a monthly basis
3 month rule for newly eligible employees
Specifies factors to determine if variable hour employee
Defined seasonal employee – customary employment 6
months or less
New category of part-time employee
Must use same method for all employees in same
category (salary v. hourly ok)
Provides complex rules for transferring between
types of measurement methods
8

9. 4980H Final Regulations
Key Changes
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“Dependent” doesn’t include foster
children, stepchildren, and certain non-U.S. citizen
children
No special rules for interns or short-term employees
employed more than 3 months
26 week break in service rule shortened to 13 weeks
Kept affordability safe harbors, with some changes
Clarified offers of coverage rules
Extended most transition relief and added new relief
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95% “substantially all” lowered to 70% for 2015 plan year
Shorter measurement period in 2014 for longer 2015
stability period
Fiscal year plans – offer coverage by first day of 2015
plan year rather than January 1, 2015
9

10. Waiting PeriodsBig Picture
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Group health plan or insurer may not apply any
waiting period that exceeds 90 days.
“Waiting period”: period that must pass before
coverage for an employee or dependent who is
otherwise eligible to enroll under the terms of a
group health plan can become effective.
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Plan eligibility conditions generally permitted, such as job
classification or licensure requirement
Eligibility conditions based solely on lapse of time
cannot extend past 90 days
Part-time cumulative hour requirements cannot
exceed 1,200 hours
10

11. Waiting PeriodsRegulatory Developments
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Waiting period rules apply for plan
years beginning on or after January 1,
2014
Proposed Regulations issued March 21,
2013
Final Regulations will be issued in very
near future
11

12. Waiting Periods
Proposed Regulations
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Interaction with Look-Back (New Hires)
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If eligibility for the plan is based on a newly-hired employee
working a specified numbers of hours per period or being “fulltime,”
but it is unclear whether the employee will work the specified
hours during that period (the “variable hour” employee),
then employer can take a “reasonable period of time” to
determine whether employee is eligible for benefits,
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This time period may include a measurement period up to 12
months
so long as coverage is made effective no later than 13 months
from employee’s start date
An employer can use this rule even if it is not a large employer
subject to employer mandate
12

13. Waiting Period- Penalties
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Rule is an “insurance market reform”
rule under the Affordable Care Act
Incorporated into Code section 9815
Subject to excise tax provisions under
Code section 4980D of $100 per
failure up to statutory maximum
Self-reporting of violations on Form
8928 is required.
13

14. Health Insurance
Reporting- the Big Picture
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Section 6055 Reporting
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Applies to insurers and employers that provide minimum
essential coverage
Must report information to the IRS and covered
individuals about the type and period of coverage
Forms due to IRS and individuals in 2016
Required to administer individual mandate
Section 6056 Reporting
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Applies to employers with 50 or more full-time equivalent
employees
Report offer of employer-provided health coverage
Forms due to IRS and individuals in 2016
Required to administer employer mandate and tax credit
14

15. 6055/6056 ReportingRegulatory Developments
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In July, IRS/Treasury issued transition relief
for 2014
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Reporting is optional for 2014
Mandatory reporting for 2015
Proposed regulations issued in September
Final regulations expected in 2014; precise
timing uncertain
15

16. 6055 - Who is Required to
Report?
Type of Coverage
Reporting Entity
Individual Exchange
None
SHOP
Issuer
Insured group
Issuer
Insured individual
Issuer
Self-insured group health plan
Plan sponsor
• Single er plan – employer
• Multi er plan – trustees
Under government program
(e.g., Medicare, Medicaid)
Executive dept or agency of a
govt that provides the coverage
Other MEC
Entity providing the coverage
16

17. 6055 - What Must Be
Reported to IRS?
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Name, address & EIN of reporting entity
Name, address & TIN of “responsible
individual”
Name, address & TIN of each individual
covered
For each covered individual, the months for
which, for at least one day, the individual was
enrolled
If coverage offered through SHOP
Any other info specified in forms, instructions,
etc.
17

18. IRC 6055 - What Must Be
Furnished to Individuals?
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Contact phone number for the reporting entity
Policy number, if applicable
Same information reported to the IRS,
including employer information, if applicable
A truncated TIN may be used
18

19. 6055 - Manner of Filing
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Return with IRS
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Due by Feb 28 if filing paper
Due by March 31 if filing electronically
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Statement to Responsible Individuals
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Must file electronically if files at least 250 returns of any
type during the calendar year
Due by Jan 31
Can furnish electronically if individual consents
Use of substitute forms is permitted
Rules for extension of time to file return
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No extension for providing statement to individuals
19

20. 6056 - Who is Required to
Report?
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Applicable large employer members
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Any employer that is a “large” employer for
employer responsibility purposes
Controlled group rules apply
Can use third party but employer remains
responsible
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Special rule that allows governmental units to
delegate
Multiemployer plan can report bifurcated manner
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1 return for employees in multiemployer plan
1 return for all other employees
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21. 6056 - What Must Be
Reported to the IRS?
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General method:
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Name, address, EIN of employer
Name and telephone # of ALE’s contact person
Certification as to whether employer offered its FT employees
& their dependents the opportunity to enroll in MEC, by
calendar month
Months during the calendar year that coverage was available
Each FT employee’s share of the lowest cost self-only
monthly premium for MV coverage offered to that FT
employee, by calendar month
# of FT employees for each month of calendar year
Name, address, and TIN of each FT employee during the
calendar year and the months employee was covered
Any other info in forms or instructions
21

22. 6056 - What Must Be
Reported to the IRS?
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Non-statutory info IRS anticipates will be reported
includes:
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Info as to whether coverage offered to employees and
dependents meets MV and whether spouse could enroll
Total # of employees, by calendar month
Whether an employee’s effective date was affected by a WP
If the employer was not conducting business during any
particular month, by month
If employer expects that it will not be an employer the
following year
Info regarding whether employer is member of an aggregated
group and the name and EIN of each employer member in
the group
Certain info from ALEM contributing to multiemployer plans
22

23. 6056 – What Must Be
Furnished to Individuals?
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Name, address, and EIN of employer
Info required to be shown on the 6056 return
filed with the IRS with respect to that fulltime employee
A truncated TIN may be used
23

24. 6056 - Manner of Filing
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Return with IRS
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Due by Feb 28 if filing paper
Due by March 31 if filing electronically
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Statement to full-time employees
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Must file electronically if files at least 250 returns of any
type during the calendar year
Due by Jan 31
Can furnish electronically if certain notice, consent, and
hard/software requirements are met
Use of substitute forms is permitted
No specific rules for extension of time to file return –
final rule will cross-ref 6055 rules
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Can request extension to furnish statement to FT
employees for good cause
24

25. 6056 - Indicator Codes
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Certain info may be reported to IRS and furnished to FT
employee through indicator codes, including:
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Info regarding the offer of MEC
Reasons why coverage was not offered to the employee
Whether the applicable large employer member met one
of the IRC 4980H affordability safe harbors with respect to
the employee
25

26. 6056 - Simplified Reporting
Methods
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For certain employees, using codes on Form W-2 to report
monthly $ amount of the required employee contribution for
the lowest cost MV self-only coverage offered to the
employee and a letter to describe
If MV coverage offered to all potentially full-time employees,
the employer could provide reporting that doesn’t identify the
# of full-time employees and does not specify whether a
particular employee offered coverage is a full-time employee
If an employer provides no-cost mandatory MV coverage
under a self-insured GHP to an employee, an employee’s
spouse and dependents, the employer could file/furnish only
the IRC 6055 return, a code on Form W-2 and the summary
info on the IRC 6056 transmittal form.
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27. 6055 and 6056 - Penalties
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IRC 6721 Failure to file a correct information return (section
6721)
IRC 6722 Failure to furnish correct payee statements (section
6722)
Penalties are $100 per return/statement not to exceed $1.5M
per entity per calendar year
Both penalties may be waived if the failure was due to
reasonable cause and not to willful neglect under IRC 6724(a)
27

28. PCORI and
Reinsurance Fees
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PCORI Fee- $2 per covered life for
2013, paid 7/31/14 on IRS Form 720
Reinsurance Fee- $63 per covered life
for 2014, payable 1/14/15
Fees apply to insurers and self-funded
plans, but reinsurance fee does not
apply to self-funded and selfadministered plans.
28

29. Fees - PCORI
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Patient-Centered Outcomes Research
Institute Fee (“PCORI”) aka
“comparative effectiveness fee”
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For plan years ending after 9/30/12 $1/covered life (actives, retirees &
dependents)
For plan years ending after 9/30/13 –
increases to $2/covered life
Fee does not apply for plan years
ending after 9/30/19
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30. Fees - PCORI
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Fee is structured as an excise tax
New Code §§ 4375-4377
IRS Guidance: Final Regulations on
December 6, 2012
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Requires fees to be reported and paid on
Form 720, Quarterly Federal Excise Tax
Return, but only once a year, on July 31st
Return will cover policy/plan years that
end during the preceding calendar year
30

31. Fees - PCORI
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Fee applies to both insured and selffunded plans
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Applies to insurer with respect to
insurance policy (Code § 4375)
Applies to plan sponsor with respect to
self-funded plans (Code § 4376)
Does not apply to “excepted benefits”
such as dental or vision only plans, most
health FSAs, EAPs, disease management
programs or wellness programs
31

32. Fees - PCORI
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Methods of Counting Covered Lives
Final Regulations set forth permissible
methods
For self-funded plans, permissible
methods include:
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Actual count method (daily)
Snapshot method (quarterly)
Form 5500 method (beginning and end-of
year Form 5500 count multiplied by 2)
32

33. Fees: Reinsurance
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Fee applies in 2014 to health insurers
and administrators of self-insured
health plans on behalf of self-insured
health plans
Fee is known as a “reinsurance
contribution”
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Contribution funds state transitional
reinsurance program to help stabilize
premiums for coverage in the individual
health insurance market from 2014-2016
33

34. Fees: Reinsurance
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Fee is not structured as a tax
Fee will be collected annually by HHS
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HHS guidance: Final Regulations on
March 11, 2013
Fee does not apply to plans that
consist solely of “excepted benefits”
(e.g., dental/vision only; most health
FSAs)
34

35. Fees: Reinsurance
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Fees will likely result in significant
additional costs to employer plan
sponsors
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Under ACA, fees need to fund reinsurance
payments of $10 billion in 2014, $6 billion
in 2015 and $4 billion in 2016
Actuarial estimates are that this could
result in a cost for a self-funded plan of
$60-$100 per covered life
35

36. HRA Integration
Notice 2013-54
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ACA Market Reform Provisions
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Annual and Lifetime Dollar Limit Prohibition
Preventative Services Requirements
Previous HRA guidance
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Preamble to annual limit regulations
Tri-agency FAQs
New Rules: IRS Notice 2013-54 and DOL
Tech Release 2013-03
36

37. What Arrangements Does the
Guidance Apply To?
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HRAs
“Employer payment plans” (EPPs)
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group health plans under which an employer
reimburses an employee for premium expenses
for an individual health insurance policy
arrangements under which the employer uses
its funds to directly pay the premium for an
individual health insurance policy covering the
employee
Health FSAs
EAPs
37

38. Arrangements No Longer Viable
Type of Arrangement
Meet Requirements?
HRA used to purchase coverage in the
individual market
No
HRA used to purchase individual coverage
through a public or private exchange
No
Premium-only plans for individual coverage
(employees pay a portion of premiums pre-tax
through cafeteria plan)
No
Arrangement where employer uses its funds to
directly pay the premium on an excludable
basis for an individual health insurance policy
covering the employee
No
Non-excepted benefit health FSA
• Insurance market reforms, including
preventative services - no
• Annual limit prohibition – n/a if offered
through a cafeteria plan
Pre-tax premium arrangement through a
cafeteria plan to pay for coverage on an
exchange
No, except for small employers offering
coverage through the SHOP
38

39. Arrangements Still Viable
Type of Arrangement
Meet Requirements?
HRA used to purchase coverage under a group
health plan
Yes, if integrated
HRA used to purchase group coverage in a
private exchange
Yes, if integrated
Stand-alone retiree-only HRA
Yes
After-tax premium reimbursement
arrangement
Yes
Premium-only plans for group coverage
(employees pay a portion of premiums pre-tax
through cafeteria plan)
Yes
Payroll practice of forwarding post-tax wages
to a health insurer without a group health plan
Yes, if DOL voluntary benefit safe harbor is
met.
Excepted benefit health FSA
• Insurance market reforms, including
preventative services – yes
• Annual limit – n/a
EAP
Yes, if does not provide significant medical
care/treatment benefits
39