Navigate New Legislation: The Road Into 2017

Navigate New Legislation:
The Road Into 2017
Larry Grudzien
Attorney at Law

• Delay of Overtime Rules
• Form 1095-C
• Qualified Small Employer HRAs
• Extend Enhanced Procedures Rules For Disability Benefits
• Premium Credits and Delays on Affordability Implications of Opt-Out Payments
• Final Notice of Benefit and Payment Parameters for 2018
• Court Blocks Enforcement of Section 1557 Nondiscrimination Regulations on Gender
Identity and Termination of Pregnancy
• Annual Adjustment to Penalties
• Additional Guidance Issued On HRA Integration
• First Series of Trump Executive Orders
• Tax Treatment of Benefits Paid by Fixed-Indemnity Health Plan
• Second set of Trump Executive Orders
Copyright 2016 – Not to be reproduced without express permission of Benefit Express Services, LLC 2
Agenda

A federal judge issued a nationwide injunction blocking a
sweeping regulation set to qualify millions more Americans
for overtime pay Dec. 1.
The rule would require employers to start paying overtime to
workers earning salaries of less than $47,476 a year-a
threshold the business community and many states say is
too big a jump from the current $23,660 last updated in
2004.
Nationwide Injunction Issued

• Even without court action, the fate of the rule has been far from
assured as it also faces a possible strong challenge from Donald
Trump, the president-elect who has vowed to roll back business
regulations.
• The lawsuit originally filed by the states alleged that a mechanism
in the rule that automatically will increase the overtime threshold
every three years was finalized without going through a rule-
making process plaintiffs contend is required by law.
• The plaintiffs said that step -- an unprecedented move made by the
Labor Department-means stakeholders won't have the chance to
provide their input before the massive changes take effect.
Nationwide Injunction Issued

The deadline for furnishing Forms 1095-B and 1095-C to
individuals is extended by 30 days, from January 31 to
March 2, 2017.
Due to this automatic extension, no further extension may
be obtained by application to the IRS, and the IRS will not
formally respond to any previously submitted deadline
extension requests relating to 2016 statements.
Deadline Extended for Furnishing

• The notice does not extend the due date for filing Forms
1094-B and 1094-C (and accompanying Forms 1095) with
the IRS.
• The deadline remains February 28, 2017 for paper filings,
and March 31, 2017 for electronic filings. (Electronic filing
is mandatory for entities required to file 250 or more Forms
1095.)
• Filers may obtain an automatic 30-day extension by filing
Form 8809 on or before the regular due date.
Due Date for Filing with IRS

• The IRS will again provide penalty relief for entities that can show they have
made good faith efforts at compliance.
• No penalties will be imposed on entities that report incorrect or incomplete
information—either on statements furnished to individuals or returns filed with
the IRS—if they can show they made good faith efforts to comply with the
reporting requirements.
• The notice specifies that the relief applies to missing and inaccurate taxpayer
identification numbers and dates of birth, as well as other required information.
• Penalty relief is not available to entities that fail to furnish statements or file
returns, miss an applicable deadline, or are otherwise not making good faith
efforts to comply.
• Evidence of good faith efforts may include gathering necessary data and
transmitting it to a third party to prepare the required reports, testing the ability
to transmit data to the IRS, and taking steps to ensure compliance for 2017.
Good Faith Effort

Employers may adopt this HRA plan design starting
with plan years that begin on or after January 1,
2017.
Effective Date

For an employer to qualify to offer this plan design, an
employer must:
• Employ less than 50 full time employees and full time
equivalent employees (determined in the previous
calendar year)
• Not offer a group health plan
• Offer the HRA on the same terms to all eligible employees
Eligible Employers

Employers may design this plan to exclude certain employees
from participating.
They are:
• Employees who have not completed 90 days of service
• Part-time (less than 35 hours) and seasonal employees (work
less than 9 months)
• Employees under age 25
• Union employees
• Certain non-resident aliens
Excludible Employees

• $4,950 for single
• $10,000 for family per plan year
• Prorated for those employees who work part of the year
• Just employer contributions – no Salary reductions are allowed
• The employer can vary the amount of reimbursements available under the
arrangement based on age of the eligible employee (and family members if
the arrangement covers family members) or the number of family members of
the employee covered under the arrangement.
• Any such variation must be made in accordance with the variation in price of
an insurance policy in the relevant individual health insurance market.
• For this purpose, any variation must be determined by reference to the same
insurance policy with respect to all eligible employees.
Reimbursement Limit & Proration

This HRA may be designed to reimburse for all
Code Section 213(d) medical expenses and/or
individual health insurance premiums.
Reimbursable Expenses

• An employee must show proof that they are covered under a
minimum essential health plan when enrolling.
• After enrollment, the employee must provide the following as proof
of continued coverage in order to receive tax-free reimbursement:
• Explanation of Benefits (EOB) for Code §213(d) medical expenses
• Monthly Premium bill for Individual health insurance premium
expenses
• Participants may be taxed on their reimbursements if the
participant is not covered by their minimum essential coverage for
any month during the plan year.
Condition to Receive Tax-Free Reimbursements

• An employer must provide an annual written notice 90 days in
advance of the plan year or the employee’s initial eligibility date.
• This notice must be provided to all eligible employees.
• The notice must:
 Contain the amount of HRA benefit available
 Instruct employees to provide the amount of HRA benefit available to the
public exchange if the employee is applying for a premium tax credit
 Warn employees that their reimbursements may be taxable if the employee
does not have minimum essential coverage for any month
• Failure to provide this notice can trigger a penalty of $50 per
employee, up to $2,500 per year.
Notice Requirement

• An employee who is provided this HRA is not eligible for a
premium tax credit if this HRA is “affordable.”
• Affordability for this purpose is computed in a manner
similar for other employer coverage.
• This HRA is considered affordable for a month if excess of
the self-only premium under the second lowest cost silver
plan offered in the relevant individual health insurance
market over 1/12 of the employee’s permitted benefit
under this HRA does not exceed 1/12 of 9.69 percent of
the employee’s household income.
Coordination with Premium Tax Credits

Extended Enhanced Procedures Rules for
Disability Benefits

• Denial notices must explain the reason for not following a
disability determination made by the Social Security
Administration, but in a change from the proposal, no
explanation is needed for not following determinations by other
disability benefit payers.
• Denial notices must discuss the basis for disagreement with
advice obtained on behalf of the plan from medical or vocational
experts, regardless of whether the advice was relied on in
making the benefit determination.
• A requirement added a requirement that a notice of denial on
appeal must describe any plan-imposed deadline for filing a
lawsuit—including specifying the expiration date.
Notice of Adverse Benefit Determination

Reflecting comments noting that vocational experts often
play a role similar to that of medical or health care
professionals in analyzing disability claims, the final
regulations add vocational experts to the list of individuals
who must be insulated from conflicts of interest.
The preamble notes that the need for independence and
impartiality is not limited to final decision-makers; rather, it
includes others who may support the benefit denials.
Independence and Impartiality

Premium Credits and Delays on
Affordability Implications of Opt-Out
Payments

• Final regulations clarify and expand on the existing exception to the
affordability requirement if an employee intentionally or recklessly
disregards the facts in providing information about employer coverage to
an Exchange in order to receive an advance payment of the premium tax
credit.
• The IRS will enforce the intentional or reckless disregard standard during
the examination of an individual’s return, and will apply it where the
individual knowingly provides inaccurate information to the Exchange or
makes little or no effort to determine whether the information provided is
accurate under circumstances that “demonstrate a substantial deviation
from the standard of conduct a reasonable person would observe.”
• An individual is only responsible for the information that he or she
provides to the Exchange and is not liable for inaccurate information
provided by third parties, such as an employer.
Inaccurate Affordability Information

• Employees are considered eligible for affordable, minimum
value coverage under an employer-sponsored plan (and
are ineligible for premium tax credits) if they have an
annual opportunity to enroll.
• Individuals who decline to enroll in employer-sponsored
coverage are considered eligible for the coverage only for
the remainder of that plan year.
• If not provided another opportunity to enroll at the end of
the plan year, they are no longer considered eligible for
employer-sponsored coverage and become eligible for the
premium tax credit.
No Annual Enrollment Opportunity

• The regulations do not finalize the proposed rules on the affordability
implications of arrangements under which employers make available
additional compensation to employees who decline the employer’s
health plan coverage (referred to as “opt-out payments”).
• If employer coverage is not affordable because the amount of the
available opt-out payment increases the employee’s required
contribution, more employees can become eligible for premium tax
credits, thus exposing more ALEs to potential Code § 4980H(b)
penalties.
• The IRS is still examining the issues raised by opt-out arrangements
and expects to finalize those proposed regulations separately.
• Meanwhile, the transition relief outlined in IRS Notice 2015-87 and the
preamble to the proposed regulations continues to apply.
Opt-Out Arrangements

Final Notice of Benefit and Payment
Parameters for 2018

HHS has increased the maximum annual limitation
on cost-sharing for 2018 to $7,350 for individual
coverage and $14,700 for family coverage
(compared to $7,150 and $14,300, respectively, for
2017).
Increased Annual Cost-Sharing Limits 2018

HHS has added an Exchange standardized plan
option at the bronze level of coverage that qualifies
as an HSA-eligible high-deductible health plan
(HDHP).
HHS did not add standardized HDHP options at
other levels of coverage, but may do so in the
future if there is significant demand.
Standardized HDHP Coverage

Court Blocks Enforcement of Section 1557
Nondiscrimination Regulations on Gender
Identity and Termination of Pregnancy

• A Texas federal trial court has issued a nationwide
preliminary injunction blocking enforcement of a portion of
the May 2016 HHS regulations implementing health care
reform’s Section 1557.
• Section 1557 prohibits discrimination in certain “health
programs and activities” on the basis of race, color,
national origin, sex, age, or disability.
• It applies broadly to a variety of federally assisted entities,
although the regulations apply only to health programs and
activities funded or administered by HHS.
What is Section 1557?

• In the lawsuit, eight states and three private health care
providers argued that the regulations’ interpretation of
discrimination “on the basis of sex” as including “gender
identity” and “termination of pregnancy” exceeded HHS’s
authority,
• In addition this portion of the regulations violated the Religious
Freedom Restoration Act (RFRA) as applied to the providers
because of the substantial burden on their exercise of religion.
• The states and providers requested a preliminary injunction,
and the court held a hearing before year-end because the
regulations are generally applicable for plan or policy years
beginning on or after January 1, 2017.
What Was Argued

• The court held that the term “sex” in Section 1557 of the health care
reform law referred to the biological differences between males and
females, and that the definition of “sex discrimination” in the
regulations to include gender identity went beyond Congress’s intent.
• In addition, the court that HHS’s failure to include religious and
abortion exemptions rendered the portion of the regulations prohibiting
discrimination based on termination of pregnancy contrary to law.
• The court also held that the government had failed to show that
exempting the providers pursuant to their religious beliefs would
frustrate the goal of ensuring “nondiscriminatory access to health care
and health coverage,” noting that less restrictive means were available
to provide access and coverage for gender transition and abortion
procedures.
What the Court Decided

Annual Adjustment to Penalties

The maximum penalty for failing to file Form 5500
(which must be filed by most ERISA plans)
increases from $2,063 to $2,097 per day that the
Form 5500 is late.
Form 5500

• The maximum penalty for failing to provide the summary of
benefits and coverage (SBC) required under health care
reform increases from $1,087 to $1,105 per failure.
• Violations of the Genetic Information Nondiscrimination Act
(GINA), such as establishing eligibility rules based on
genetic information or requesting genetic information for
underwriting purposes
• Failures relating to disclosures regarding availability of
Medicaid or children’s health insurance program (CHIP)
assistance may result in penalties of $112 per participant
per day, up from $110.
Group Health Plans

• For plans with automatic contribution arrangements, penalties
for failure to provide the required ERISA § 514(e) preemption
notice to participants increase from $1,632 to $1,659 per day.
• Penalties for failing to provide blackout notices (required in
advance of certain periods during which participants may not
change their investments or take loans or distributions) or
notices of diversification rights increase from $131 to $133 per
day.
• The maximum penalty for failure to comply with the ERISA §
209(b) recordkeeping and reporting requirements remains at
$28 per employee.
401(k) Plan

Penalties for failure to meet applicable filing
requirements, which include annual Form M-1
filings and filings upon origination, increase from
$1,502 to $1,527.
Multiple Employer Welfare Arrangements (MEWAs)

Additional Guidance Released on HRA
Integration

Family HRA can be integrated with a non-HRA group health
plan sponsored by the employer of an employee’s spouse if
that non-HRA covers all of the individuals who are covered
by the HRA.
For this purpose, the employer sponsoring the HRA may
rely on its employees’ reasonable representations that they
and the other individuals covered by their family HRAs are
also covered by non-HRA group health plans that meet the
applicable integration requirements.
Family Members Covered

Family HRA can be integrated with a combination of
• self-only coverage for the employee under a non-HRA group
health plan sponsored by the employer that sponsors the HRA,
and
• coverage for the other individuals under a non-HRA group
health plan sponsored by the spouse’s employer.
Although all individuals covered by a family HRA must also have
non-HRA coverage, the integration rules do not require that those
individuals be enrolled in the same non-HRA group health plan or
that the HRA and non-HRA group health plan share the same
sponsor.
How an HRA Can Be Integrated

Trump’s First Series of Executive Orders

President Trump has issued an executive order regarding
his administration’s intent to seek the prompt repeal of the
Patient Protection and Affordable Care Act, as amended
(PPACA, or the ACA)—i.e., health care reform, as enacted
and administered under the Obama administration.
In addition, a separate memorandum informs federal
department and agency heads of President Trump’s plan for
managing the regulatory process at the outset of his
administration.
What was issued?

The order states that pending the ACA’s repeal, the
executive branch must act to minimize the law’s
unwarranted economic and regulatory burdens.
The HHS Secretary and other agency heads with
responsibilities under the ACA are directed to exercise their
authority and discretion to waive, defer, grant exemptions
from, or delay the implementation of any ACA requirements
that impose costs, fees, taxes, penalties, or other burdens;
to provide greater flexibility to the states; and to cooperate
with the states in implementing health care programs.
Executive Order

• The memorandum directs all federal department and agency heads not to
submit regulations for publication in the Federal Register (and to withdraw
regulations that have been submitted but not published) until the regulations
have been reviewed and approved by a department or agency head appointed
by President Trump.
• Department and agency heads are further directed to postpone the effective
date of regulations that have been published in the Federal Register but have
not yet taken effect until 60 days after the date of the memorandum, for the
purpose of reviewing questions of fact, law, or policy raised by the regulations.
• Following the effective date delay, agencies are to notify the Office of
Management and Budget Director of regulations that “raise substantial
questions of law or policy.”
• The memorandum notes that it also applies to “guidance documents”—i.e.,
agency statements “of general applicability and future effect” that establish
policies on statutory, regulatory, or technical issues or interpretations of
statutory or regulatory issues.
Memorandum

Tax Treatment of Benefits Paid by Fixed-
Indemnity Health Plan

In IRS Chief Counsel Memo 201703013, the IRS indicates
that to the extent amounts received through employer-
provided accident or health insurance are paid without
regard to the amount of expenses incurred by the employee
for medical care, the amounts are not excluded from gross
income because the amounts are not paid to reimburse
expenses incurred by the employee for personal injuries and
sickness.
Payments

• Amounts received through accident or health insurance for personal
injuries or sickness are excluded from gross income under Code
Section 104(a)(3).
• This exclusion does not apply, however, if the amounts are either:
 attributable to contributions by the employer that were not includible in the
gross income of the employee
 paid by the employer
• See Treasury Regulation Section 1.104-1(d); for this purpose, salary
reduction under a cafeteria plan is treated as an employer
contribution, and not an employee contribution.
Salary Reduction Contributions

Because the premiums for the fixed indemnity health plan
are paid with amounts that are not included in the
employee's gross income and wages, the exclusions under
Code Sections 105(b) and 104(a)(3) do not apply to the
payments and any amount paid by the plan are included in
the employee's gross income and wages, regardless of the
amount of any medical expenses incurred by the employee
upon which the payment is conditioned.
Conclusion

Trump’s Second Series of Executive
Orders

• The order directing that, for the fiscal year already
underway, when a federal department or agency proposes
a new regulation, it generally must identify at least two
existing regulations to be repealed.
• The order also provides, with limited exceptions, that the
total incremental cost of all new regulations (including
repealed regulations) to be finalized in the current fiscal
year must be no greater than zero.
• Any incremental cost of a new regulation must be offset by
the costs of regulations being repealed.
What does the order do?

The order instructs the Office of Management and Budget
(OMB) Director to issue implementation guidance, including
processes for determining the cost of regulations, as well as
standards for what qualifies as new and offsetting
regulations and the circumstances that justify waivers.
For future fiscal years, departments and agencies must
submit an annual regulatory cost analysis to OMB, with
costs to be managed and controlled through a budgeting
process.
What action does it require?

Larry Grudzien
Attorney at Law
(708) 717-9638
larry@larrygrudzien.com
www.larrygrudzien.com
Copyright 2017 – Not to be reproduced without express permission of Benefit Express Services, LLC
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