Category: Articles

sept2015Published in The Self-Insurer, Sept. 2015

Presently, many employers are understandably overwhelmed by Section 4980H Employer Shared Responsibility requirements under the Patient Protection and Affordable Care Act (PPACA) and are diligently working to ensure compliance this year. There is, however, another excise tax that many employers may have overlooked but need to be aware of when considering their compliance requirements and potential excise tax exposure: Internal Revenue Code 26 USC §4980D, which assesses an excise tax on employers for failure to meet certain group health plan requirements found under USC Chapter 100.

Unlike 4980H, the 4980D excise tax is not limited to large employers. It is assessed against any employer, regardless of size, that is sponsoring a group health plan and fails to comply with the requirements under Chapter 100 of the Health Insurance Portability and Accountability Act (HIPAA). At this time, the only group health plans completely exempt from 4980D are those sponsored by the federal government. There is a carve out for small employers (2-50) who are offering a fully insured product that fails to comply and there are also some penalty exceptions for church plans, however, it is important to remember that church plans are subject to 4980D.

While applicable employers are just now seeing the potential enforcement and impact of the excise tax under 4980H, the Chapter 100 requirements for group health plans and the corresponding section 4980D excise tax for non-compliance have been around since 1996.

The 4980D excise tax of $100 per affected individual, per day, is assessed against an employer for failure to comply during a non-compliance period (which begins the date the failure occurs and lasts until the date the failure is corrected) and, as you can imagine, can add up very quickly. The potential 4980D excise tax can greatly exceed the potential tax under 4980H and employers can be subject to excise taxes under both code sections. In addition, the Internal Revenue Service (IRS) also imposes a higher penalty, from $2,500.00 to $15,000.00, for those employers that have failed to self-report and receive a notice of examination.

Chapter 100 group health plan requirements have since been amended by PPACA and now include, but are not necessarily limited to the following:

  • Providing coverage of adult children until age 26;
  • Prohibiting rescission of coverage (unless caused by fraud or intentional misrepresentation);
  • Prohibiting annual or lifetime dollar limits;
  • Prohibiting pre-existing condition exclusions;
  • Prohibiting a waiting period in excess of 90 days;
  • Prohibiting health related discrimination;
  • Providing preventative care coverage;
  • Providing patient protections – allowing patients to select their primary care provider or pediatrician from any available participating provider;
  • Prohibiting preauthorization referral requirements for obstetrical, gynecological and emergency services;
  • Requiring that out-of-network emergency care be adjudicated in accordance with in-network benefit terms;
  • Requiring plans to have a claims appeals process including internal appeals and external review processes;
  • Providing for non-discrimination;
  • Providing women’s preventative care services in network (some exceptions are available for religious employers);
  • Providing coverage for approved clinical trials;
  • Requiring compliance with maximum deductible limits and out-of-pocket maximums;
  • Prohibiting discrimination against a provider acting within the scope of license when service is covered under the plan; and
  • Providing for multiple notification requirements for participants regarding plan amendments, patient protections, claims appeals procedures and a Summary of Benefits and Coverage (SBC).

Until 2009, there had never been a method for self-reporting the excise tax under section 4980D and the IRS had not historically imposed these excise taxes as part of an audit. However, with the implementation of the PPACA market reforms, enforcement of this section was necessary to ensure compliance. Form 8928 was created by the IRS shortly before PPACA was signed into law as a way for employers to selfreport their 4980D violations.

Section 4980D does limit exposure for unintentional violations by reducing and/or eliminating the excise tax in certain circumstances including: 1) a correction with 30 days; 2) if the employer failed to discover the violation but did exercise reasonable diligence; and 3) if no willful negligence occurred on the part of the employer, capping the tax at a certain amount depending on how large the employer is. It is important to note that the excise tax assessed by 4980D is limited to compliance with Chapter 100 requirements and does not apply to violations of other areas of HIPAA privacy, security or electronic data interchange rules, or the breach notification requirements of the Health Information Technology for Economic and Clinical Health Act (HITECH).

PPACA’s most significant amendments to the Chapter 100 requirements include a prohibition on annual or lifetime dollar limits and a requirement to provide preventative care to participants without cost sharing. This posed a problem for those employers who chose not to offer group health plans and instead created arrangements to pay or reimburse an employee’s premiums for major medical coverage purchased in the individual market. In 2013, the IRS released Notice 2013-54, which gave guidance to employers regarding 4980D and included information regarding “Employer Payment Plans” (EPPs). It stated that pre-tax payment or reimbursement arrangements (e.g., HRAs) for employee’s individual market premiums are considered market reforms and that they do not comply with the dollar limit or preventative care requirements under Chapter 100.

Employers who maintained standalone HRAs for their employees questioned this rationale, claiming the individual policies their employees obtained satisfied market reforms; thus, the excise tax should not apply to them. However, the Notice addressed this issue, stating that an HRA must be integrated with primary health care coverage provided by the employer to be considered in compliance with section 4980D.

It is important to remember that PPACA’s market reforms generally do not apply to those group health plan’s that have “fewer than two participants who are current employees on the first day of the plan year.” Therefore, while HRAs are considered group health plans for the purposes of Section 4980D, an exception may exist for a standalone retiree-only HRA.

Fortunately, in March of 2015, the IRS released Notice 2015-17, which provides clarification and transition relief for employers with EPPs. Specifically, for those smaller employers not subject to the requirements of 4980H, no penalty would be assessed before June 30, 2015, giving them time to remedy their 4980D violations without having to complete Form 8928 and pay the penalty for non-compliance. However, unfortunately, this period has since passed. Employers need to be sure their group health plan is in compliance with Chapter 100 requirements.

It is important to remember that under 4980D, the requirements are imposed on each plan individually. Each group health plan offered by an employer must satisfy the requirements set forth in Chapter 100, as amended, or the employer may be subject to the $100 per day, per affected individual, excise tax. A distinction from 4980H, where only one plan being offered to full-time employees and their dependents needs to satisfy the requirements of 4980H to avoid the potential excise tax.

Yet another opportunity for TPAs to educate their clients and assist them in ensuring compliance. It is also important for TPAs to make sure their Administrative Service Agreements address the respective responsibilities and liabilities with regard to 4980D and 4980H and the potential excise taxes arising therefrom.


Category: Articles

mayAs published in The Self-Insurer, May 2015

Some much anticipated guidance and some temporary relief, has been received from the IRS recently in the form of Notice 2015-17. IRS Notice 2015-17 elaborates on the IRS’s position with regard to the application of Code Section 4980D to certain types of reimbursement arrangements. Code Section 4980D of the Internal Revenue Code sets forth the excise tax, above and beyond the ‘pay or play’ penalties, that may apply to failures by an employer sponsored group health plan to comply with specific coverage mandates and prohibitions as set forth in the Patient Protection Affordable Care Act (PPACA).

The Notice reiterates previous guidance that employer payment plans are group health plans and therefore subject to the market reforms set forth in the PPACA. Employer payment plans, as referenced in Notice 2013-54, refer to any arrangement whereby employers reimburse employees for some or all of the premium expenses incurred for an individual health insurance policy or directly pay premium expenses for an individual health insurance policy.

Notice 2015-17 was released in late February of this year to supplement and clarify some of the vagueness associated with Notices 2013-54 and 2013-40 that were released two years ago. The new guidance applies to: transition relief for small employers from the applicable excise tax under Code Section 4980D; payment plans established by S-Corps for employees who also hold 2% or more in shares; Medicare premium reimbursement arrangements; TRICARE related HRAs; salary increases to assist employees with coverage in the marketplace; and tax treatment of employer payment plans.

Transition Relief for Small Employers

It has not been uncommon for certain employers to offer reimbursement of health care costs to their employees, or at least certain employees. In Notice 2013-54, the IRS held that these employer payment plans are not in compliance with PPACA and employers will therefore be subject to an excise tax until compliance is established. These employers will also be required to file IRS Form 8928, essentially detailing their violations (self-reporting requirement).

However, this latest notice from the IRS gives small employers only a very welcome transitional relief until June 30, 2015, providing them extra time to essentially eliminate the varied employer payment plans and replace them with an option that complies with PPACA and avoid any tax consequence and the self-reporting requirement. Please Note: This transition relief does not apply to Applicable Large Employers (ALEs).

According to the regulators, a suitable alternative, the SHOP Marketplace, is up and running for small employers. The IRS realizes that these changes take a significant amount of time to understand, let alone implement and are holding off on the penalty phase to allow small employers to transition. Unless we hear otherwise, beginning July 1, 2015, full enforcement of this provision of PPACA will become effective and small employers will be treated as the ALEs are being treated today.

Treatment of S-Corporations

As it currently stands, if an S-Corp pays or reimburses premiums for individual health care coverage of an employee who is also a 2% or more shareholder, the payment counts as income, but this amount is deductible under Code Section 162(l).

The IRS mentions in Notice 2015-17 that “[t]he Departments are contemplating” whether or not to make this particular activity subject to any market reforms. For the moment a (quick) sigh of relief may be in order, as least through the end of 2015, as they’ve acknowledged no excise tax will be assessed for failure to satisfy the market reforms simply because they have this 2% shareholder-employee healthcare arrangement.

The Notice reiterates the single-employee exception under Code Section 9831(a)(2), which provides that if a group health plan has fewer than two participants who are current employees on the first day of the plan year, it generally is not subject to market reforms. The IRS mentions this to set the foundation for its clarification that if an S-Corp has more than one employee and a healthcare reimbursement arrangement is available for each employee, even if only one of those employees is a 2% shareholder, the reimbursement arrangement for the employees actually constitutes a group health plan subject to market reforms.

The IRS goes on to state that if an employee is covered as a spouse or dependent of another employee, the arrangement would be considered as covering only one employee. (For example, if an employer has two employees and has implemented a healthcare reimbursement arrangement for both, they get a two-for-one deal so long as one employee is covered under the plan of the other as a spouse or dependent).

Medicare Premium Reimbursement Arrangements

Under Notice 2013-54, reimbursement or payment by an employer for Medicare Part B and/ or D (all or in part) premiums are considered employer payment plans. Additionally, these employer payment plans cannot be integrated with Medicare in hopes of complying with PPACA because Medicare is not considered a group health plan. If an employer payment plan is set up for more than two employees, the employer again has a situation where a group health plan is formed and is subject to market reforms.

However, Notice 2015-17 ensures employers that under certain circumstances, employer payment plans that reimburse Medicare Part B and/or D premiums are considered integrated with a group health plan and therefore permissible if:

  1. The employer offers a group health plan (other than the employer payment plan and/or excepted benefit coverage only) to the employee that provides minimum value;
  2. The participating employee is actually enrolled in Medicare Parts A and B;
  3. The employer payment plan is available only to those enrolled in Medicare Part A and Part B or Part D; and
  4. The employer payment plan limits reimbursement to Medicare Part B or Part D premiums and excepted benefits, including Medigap premiums.

Please Note: The Medicare Secondary Payer Regulations still apply.

TRICARE Related HRAs

Similarly, for integration purposes, an employer payment plan cannot be integrated with TRICARE in hopes of complying with PPACA because TRICARE is not considered a group health plan. Payments or reimbursements made by an employer for some or all of the medical expenses for employees covered by TRICARE will be considered a Health Reimbursement Account (HRA) and subject to market reforms if covering two or more active employees. Notice 2015-17 provides, however, the HRA arrangement will satisfy the market and healthcare reforms under the following conditions:

  1. The employer offers a group health plan (other than the HRA and/or excepted benefit coverage only) to the employee that provides minimum value;
  2. The employee is actually enrolled in TRICARE;
  3. The HRA is only available to those enrolled in TRICARE; and

4. The HRA is limited to reimbursement of cost sharing and excepted benefits, including TRICARE supplemental premiums. Please Note: Similar to the Medicare Secondary Payer Regulations, employers are prohibited from offering incentives to employees to decline employer-sponsored group health coverage.

Salary Increases for Employees

In an attempt to circumvent many of the issues set forth above, employers have been increasing salaries for their employees in an effort to assist in the payment of coverage in the individual market. However, according the Notice 2015- 17, this type of arrangement will not be considered an employer payment plan if and only if the increase in salary is not dependent upon the employee purchasing coverage. If the employer demands proof of purchase or pays for the coverage directly, however, that action does constitute an employer payment plan.

Tax Treatment Revenue Ruling

61-146 allows, under certain conditions, the reimbursement of premiums (directly or indirectly) for non-employer sponsored coverage to be excluded from the employee’s gross income. However, it is important to remember that this Revenue Ruling has a narrow focus. As set forth in Notice 2015-17, arrangements whereby employers are providing reimbursements and/ or payments (pre or post tax) will likely be considered employer payment plans, group health plans and therefore subject to the market reform provisions of PPACA as well as the potential excise tax under Code Section 4980D.


Category: Articles

marchAs published in The Self-Insurer,
March 2015

Many employers and their TPAs are still working through the 26 USC § 4980H analysis (Shared Responsibility for Employers Regarding Health Coverage) and whether the coverage being offered is good

enough  so as to avoid excise taxes. However, it is already time to start contemplating and preparing for the Cadillac Tax and the analysis of whether the coverage being offered is too good  so as to avoid excise taxes.

Beginning January 1, 2018, the Patient Protection and Affordable Care Act (PPACA) will impose the Cadillac Tax. The Cadillac Tax is an excise tax on applicable employer-sponsored health coverage that provides benefits to employees (current and former employees) and other covered individuals that exceeds specific pre-determined thresholds (“excess benefits”.) The excise tax was intended to be a permanent, non-deductible tax touted to help slow the growth rate of health costs (particularly premium growth), reduce health care usage, encourage employers to offer cost-effective benefits, encourage employee engagement and practically speaking – to help finance the expansion of health coverage under PPACA.

Final regulations have not been issued and we are anticipating further guidance on many unanswered questions. However, based on our current understanding the applicable coverage to be taken into account to determine if a plan meets the qualifications includes all applicable employer-sponsored health coverage including, but not limited to, coverage provided for medical, prescription drugs, dental, vision, health FSA, HRA, HSA and on-site clinics. Dental and vision may be excluded if provided to employees under a separate plan, as well as “excepted benefits.”

The Cadillac Tax will be imposed on the cost of the applicable employer-sponsored health coverage that exceeds the yearly allowable pre-determined threshold. The cost of coverage is the sum of the employee and employer shares, which includes premiums paid by the employee and employer, as well as the employee and employer contributions to health FSAs, HRAs, HSAs, on-site clinics and any other applicable coverage.

To calculate the Cadillac Tax, all monthly excess benefit amounts must be aggregated to determine the yearly amount of excess benefits. The aggregated excess benefit amount is then multiplied by 40%. For planning purposes and for 2018, the threshold amounts are expected to be $10,200 for single coverage ($850 per month) and $27,500 for family coverage ($2,291.67 per month) which will likely increase each year based on increases in health care costs, cost-of-living adjustments, as well as age and gender adjustments. The annual threshold amounts will also be adjusted for high-risk professions and qualified retirees.

Example

Company XYZ offers a comprehensive, self-funded medical plan to its full-time employees in 2018. The total cost of coverage (employee share and employer share) for each employee covered on the plan electing self-only coverage is $12,000 and the total cost of coverage for each employee covered on the plan electing family coverage is $30,000.

exampleEmployers are ultimately responsible for calculating the excise tax for the applicable employer-sponsored health coverage regardless if they are fully insured or self-funded and in either case, the employer and/or plan size is irrelevant.

Although many observers are hoping for repeal, the Cadillac Tax is expected to be a significant source of revenue to assist in keeping the PPACA programs alive. Many of the funding mechanisms for PPACA have already been delayed or set aside and many argue that it may not survive another financial hit.

Is the Cadillac Tax a “tax” or is it simply the elimination of an existing tax break?

Advocates contend that the excise tax is necessary due to the long- standing unequal tax benefit that has existed for decades. Employers receive a tax incentive for offering health benefits to their employees in lieu of wages and the benefits are provided to the employee on a tax-free basis. Some advocates have argued that the higher paid employees receive a higher level of income due to the tax-free value of the health benefits provided to them. By excluding the full value of employer-sponsored health insurance from individuals’ taxable income, one estimate is that the federal government is currently providing Americans with more than $250 billion each year in tax subsidies. Since both employers and employees presently benefit from the tax incentives currently in place, any attempt to eliminate them has been met with significant opposition.

Critics of the Cadillac Tax claim that employers, in their quest to obey the law but avoid an additional excise tax, may make changes resulting in decreased benefits provided to their employees and will likely attempt to impose significant changes in cost-sharing differentials. By increasing deductibles and co-payments, employers may shift a larger portion of the cost of health care on to the employee which may result in increased individual debt and/or deferred medical treatment. It is not too soon for TPAs to begin consulting with their respective clients in contemplation of developing a long- term deliberate health care strategy for the employer. Employers should be considering, at a minimum:

  1. Will the current offering be subject to the Cadillac Tax?
  2. What would the amount of the excise tax be?
  3. What thresholds does the plan currently qualify for?
  4. What are the current cost-drivers for the health plan?
  5. What cost-containment strategies could be implemented now and over the next several years, to significantly impact claim costs.

One method of managing excess benefits provided to employees is managing the cost of the health plan. Effective cost-containment strategies may allow employers to manage plan costs while continuing to provide high quality benefits. Some examples of these strategies include, but by no means are limited to: case management and disease management intervention opportunities for those individuals identified as having a chronic condition; travel benefits (domestically and internationally) to obtain high quality low cost treatment; reference- based pricing strategies; incentivized wellness programs; custom network arrangements with preferential rates; implementation of narrow networks; and detailed auditing programs. If it hasn’t already occurred, now is the time for TPAs to assist employers in exploring cost-containment strategies that are appropriate for a particular employer’s population.

The industry eagerly awaits regulations that will provide more specific information and guidance and whether the Cadillac Tax will survive is a hotly debated topic. In the meantime, it is important that employers and TPAs work together to control the cost of health coverage for their employees in order to minimize or avoid any excise tax that may apply. TPAs are perfectly positioned to assist their clients through this analysis, assist their clients with the calculation and with any subsequent reporting. Failure to properly plan ahead could significantly impact an employer and the viability of its benefit offering.


Category: Articles

januaryAs published in The Self-Insurer,
January 2015

The National Association of Insurance Commissioners (NAIC) held its fall meeting in the Nation’s Capital in November. They have been working diligently for months on a proposal to update the 1996 Managed Care Plan Network Adequacy Act (Model Act). This task supposedly grew out of the concern of a growing trend of narrow networks, tiered networks and similar network designs. The Affordable Care Act (ACA) requires that health plans participating in the Health Insurance Marketplace provide enrollees access to a suffi cient number of in-network providers, including primary care and specialty physicians and access to necessary care needs to be available to all enrollees without unreasonable delay. The NAIC has since revealed their draft proposed changes to the Model Act and are accepting comments until January 12, 2015.

Most states have pretty broad standards requiring health plans in the insurance market to have a “robust” or “sufficient” network. In an attempt to help states set more standardized network adequacy, accessibility, transparency and quality standards, the NAIC has released their draft proposed changes titled “Health Benefit Plan Network Access and Adequacy Model Act” (Draft Model Act) and, once finalized, may be adopted by the States and may have far reaching implications for health plans and provider networks.

The Draft Model Act would apply to “health carriers” which is defined as follows:

“[A]n entity subject to the insurance laws and regulations of this state, or subject to the jurisdiction of the commissioner, that contracts or offers to contract, or enters into an agreement to provide, deliver, arrange for, pay for or reimburse any of the costs of health care services, including a sickness and accident insurance company, a health maintenance organization, a nonprofit hospital and health service corporation, or any other entity providing a plan of health insurance, health benefits or health services.”

Single employer, self-funded group health plans governed by ERISA will not necessarily be directly impacted by this Draft Model Act. However, the networks they may be accessing may very well be. Insured plans, Multiple Employer Welfare Arrangements (MEWAs) and non-federal governmental plans will need to become familiar with the Draft Model Act and determine its applicability, particularly if it is likely to be adopted in their jurisdiction(s).

The Draft Model Act requires health carriers providing network plans to, inter alia:

  1. Maintain a network that is sufficient in numbers and types of providers to assure that all services to covered persons will be accessible without unreasonable delay; emergency services will be available 24 hours per day, 7 days per week; and “sufficiency” of the network shall be determined using reasonable criteria, including:
    • Provider-covered person ratios by specialty;
    • Primary care provider-covered person ratios;
    • Geographic accessibility;
    • Geographic population dispersion;
    • Waiting times for visits with providers;
    • Hours of operation;
    • New health care service delivery system options (i.e. telemedicine); and
    • Volume of technological and specialty services available for covered persons requiring technologically advanced or specialty care.
  2. Have a process to assure a covered person can obtain a covered benefit at an in-network level of benefits from a nonparticipating provider if:
    • A certain type of participating provider is not available; and
    • An insufficient number or type of participating provider is available to the covered person.
  3. Establish and maintain adequate arrangements to ensure reasonable access of participating providers to the business or personal residence of covered persons.
  4. Monitor, on an ongoing basis, the ability, clinical capacity, financial capability and legal authority of participating providers to furnish contracted covered benefits to covered persons.
  5. File an Access Plan with the State Insurance Commissioner.
  6. Establish a mechanism where the participating provider will be notified of the specific covered services, including limitations or conditions on services.
  7. Establish certain contract requirements with the participating provider including a hold harmless provision protecting covered persons, specific termination provisions, no balance billing and standards for tiering providers.
  8. Develop a written disclosure or notice to covered persons advising them (at time of pre-certification, if applicable) that services provided by a provider at an in-network hospital may not be treated as a participating provider.
  9. Post an online directory of all current providers for each network plan and update the directory at least monthly.

This, the Draft Model Act, on the heels of the October 10, 2014, Department of Labor (DOL) FAQ addressing factors the Departments will consider when evaluating whether a plan, that utilizes Reference Based Pricing or similar network design, is using a reasonable method to ensure that it provides adequate access to quality providers for purposes of complying and enforcing the requirements in PHS Act section 2707(b).

Although we are patiently awaiting additional guidance from the Departments on this particular issue, the factors that will be utilized in the interim include the following:

  1. Type of Service – Standards should be established to ensure that the network is designed to enable the plan to offer benefits from high-quality providers at reduced costs.
  2. Reasonable Access – Procedures should be established to ensure that an adequate number of providers accepting the reference prices are available to participants.
  3. Quality Standards – Procedures should be established to ensure that the providers meet reasonable quality standards.
  4. Exceptions Process – Develop an easily accessible exceptions process to address out-of network allowances.
  5. Disclosure – Automatically provide information regarding pricing structure, list of services to which the pricing structure applies and the exception process and further disclosure, upon request, a list of providers that will access the reference price; a list of providers that will accept a negotiated price above the reference price; and well as information on the process and underlying data used to ensure that adequacy and quality exist.

Carriers, PPOs, TPAs and group health plans need to determine the extent of the applicability of the Draft Model Act as well as the anticipated guidance by the DOL on Reference Based Pricing. Some entities are considering the following:

  1. Evaluating cost sharing levels for care that can only be obtained out-of-network to prevent unexpected and often prohibitively costly medical bills.
  2. Engaging the PPOs to determine applicability, network adequacy, quality measures and ability to comply.
  3. Evaluating Reference Based Pricing models that are currently in place.
  4. Engaging in a dialogue with Insurance Commissioners and regulators.

Regardless if your organization and/or your clients may be directly or indirectly impacted by one or both of the foregoing, I would strongly encourage engaging in a dialogue with all applicable entities and providing input to try and educate and offer clarity to avoid any unintended consequences that may result therefrom.


Category: Articles

decemberAs published in The Self-Insurer,
December 2014

The final regulations regarding the Mental Health Parity and Equity Act (MHPAEA) were published on November 13, 2013, and are generally applicable for plan years beginning on or after July 1, 2014. The MHPAEA does not mandate coverage of any mental health and/or substance use disorder benefits. However, if a plan chooses to provide coverage for mental health and/or substance use disorders, it must do so in compliance with the applicable Federal and/or State laws.

The following plans are subject to MHPAEA: group health plans offering medical and surgical benefits and mental health or substance use disorder benefits; a health insurance issuer offering health insurance coverage for mental health and/or substance use disorder benefits in connection with a group health plan; and a health insurance issuer offering individual health insurance coverage.

There are limited exemptions allowed for certain plans: small employer group health plans (those employing 50 or fewer employees); self-funded non-federal governmental plans (those employing 100 or fewer employees) if they choose to “opt out;” retiree only plans; an employer that can qualify for the increased cost exemption; and plans that provide only “excepted benefits.”

The MHPAEA prohibits certain group health plans and health insurance issuers offering coverage from imposing financial requirements and treatment limitations that are more restrictive for mental health or substance use disorders than the predominant requirements or limitations applied to substantially all medical and surgical benefits.

In determining parity, plans must review several benefit classifications in order to evaluate the financial requirements and treatment limitations between medical and surgical and mental health and/or substance use disorder benefits. To wit:

  • Inpatient, in-network
  • Inpatient, out-of-network
  • Outpatient, in-network
    • Office visits and
    • All other outpatient items and services
  • Outpatient, out-of-network
    • Office visits and
    • All other outpatient items and services
  • Emergency Care
  • Prescription Drugs

These classifications cannot be combined and no other classifications are permitted, and the determination must be made separately for each classification of benefits.

If a plan provides mental health and/or substance use disorder benefits in any classification, the coverage must be provided in all classifications where medical and surgical benefits are provided.

Financial Requirements

As a general rule, financial requirements include deductibles, co-payments, co-insurance and out-of-pocket maximums, and plans may not apply separate cost-sharing arrangements to mental health or substance use disorder benefits.

Treatment Limitations

Treatment limitations may include annual, episodic, and lifetime day and visit limits, as well as other similar limits, and in determining if a plan provides parity, the MHPAEA requires plans to meet treatment limitation thresholds in two categories: Quantitative Treatment Limitations (QTLs) and Non-Quantitative Treatment Limitations (NQTLs).

Generally speaking, QTLs are expressed numerically and are permissible where a limitation or provision applies to at least 2/3 of the benefits in a classification and the predominant limitation applies to more than 50% of the benefits in the classification. NQTLs, which otherwise limit the scope or duration of benefits for treatment under a plan or coverage, are distinct from the numerical analysis for QTLs and may be more difficult to evaluate.

Plans have the flexibility to determine to what extent medical management techniques and other NQTLs apply. However, it is important to understand that the plan processes, strategies, evidentiary standards or any other factors used in applying an NQTL to mental health and/or substance use disorder benefits must be comparable to, and applied no more stringently than, the plan processes, strategies, evidentiary standards or any other factors used in applying the limitation to medical and surgical benefits in the classification. This holds true both under the terms of the plan as written, as well as in the administration and operation of the plan.

Below is an illustrative list of NQTLs from the final regulations:

  • Medical Management standards limiting or excluding benefits based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative;
  • Formulary design for prescription drugs;
  • For plans with multiple network tiers (such as preferred providers and participating providers) network tier design;
  • Standards for provider admission to participate in a network, including reimbursement rates;
  • Plan methods for determining usual, customary and reasonable charges;
  • Refusal to pay for higher-cost therapies until it can be shown that a lower-cost therapy is not effective (also known as fail-first policies or step therapy protocols);
  • Exclusions based on failure to complete a course of treatment; and
  • Restrictions based on geographic location, facility type, provider specialty, and other criteria that limit the scope or duration of benefits for services provided under the plan or coverage.

By way of example, it is permissible for a plan to require prior authorization that a treatment is medically necessary for all inpatient medical and surgical benefits and for all inpatient mental health and/or substance use disorder benefits. However, if in practice, inpatient benefits for medical and surgical conditions are routinely approved for seven days, and for inpatient mental health and/or substance use disorder benefits routine approval is given only for one day, the application of a stricter NQTL for mental health and substance use disorder benefits would likely violate the MHPAEA.

Likewise, a plan may require prior approval to determine medical necessity for medical/surgical, mental health and/or substance use disorders benefits, and use comparable criteria in determining such. However, failure to obtain prior approval for mental health and/or substance use disorders will result in no benefits being paid, yet failure to obtain prior approval for medical/surgical only results in a 25% reduction in benefits would likely violate the MPHAEA. Although the same NQTL applies to both medical/surgical and mental health and/or substance use disorders, that being medical necessity, it is not applied in a comparable way.

In comparison, for a plan applying concurrent review to inpatient care where there are high levels of variation in length or stay (as measured by a coefficient of variation exceeding 0.8), the application of which affects 60 percent of mental health conditions and substance use disorders, but only 30 percent of medical/surgical conditions, would likely be compliant with the MHPAEA due to the fact that the evidentiary standard utilized by the plan is applied no more stringently for mental health and/or substance use disorders than for medical/surgical benefits, even though the overall results differ in the application.

It is important for TPAs and those administering medical management services to clearly understand the MHPAEA regulations as they apply to these NQTL standards. It is fairly easy to review the terms of a plan document and determine if there is parity upon initial observation, but in large part, when it comes to the NQTLs, parity is determined by the application of policies and procedures that are not defined in the plan but in the administration and operation thereof.


Category: Articles

septemberAs published in The Self-Insurer,
September 2014

Enacted in 1996, the original HIPAA administrative simplification statute required the adoption of a standardized system for identifying employers, health care providers, health plans, and individuals. The intent was to have the same identifier on a national basis so that all electronic transmissions of health information would be uniform. More than a decade later, Section 1104(c)(1) of the Patient Protection and Affordable Care Act (PPACA) mandated that the Secretary issue rules adopting the health plan identifier (HPID). The Office of E-Health Standards and Services (OESS) developed the final rule and the Department of Health and Human Services (HHS) published final regulations on September 5th, 2012, which require that all health plans, fully-insured health plans and self-insured health plans, that are subject to HIPAA, obtain a HPID.

Some important dates to remember! For self-insured health plans, the Plan Sponsor or Plan Administrator must apply for and obtain the HPID. Fully-insured and self-insured health plans have until November 5th of 2014 to obtain a HPID – which is right around the corner!! Small health plans, which have been identified as plans with annual receipts of $5 million or less, have until November 5th of 2015 to obtain a HPID. At this point, ‘annual receipts’ is understood to be receipts of paid claims prior to stop loss reimbursements and exclusive of administrative fees and stop loss premiums.

As of November 7th of 2016, all health plans and other covered entities submitting electronic ‘standard transactions’ under HIPAA must begin using their unique identifier. The purpose of requiring standard unique identifiers is to increase the efficiency and accuracy of the standard transactions. Currently, the industry has varying identifiers and going forward the HPID will be a standardized unique 10-digit identifier for each health plan, all utilizing the same format.

During the comment period following the proposed regulations, numerous comments suggested that self-insured group health plans should not be required to obtain a HPID since most self-insured plans do not engage in the submission of HIPAA transactions themselves. HHS responded by stating, inter alia, “we believe it is important that the requirement to obtain an HPID extend to any entity that meets the definition of CHP. Therefore, we require self- insured group health plans to obtain an HPID to the extent they meet the definition of CHP.” Furthermore, the preamble to the final regulations acknowledged that “very few self- insured group health plans conduct standard transactions themselves; rather, they typically contract with third-party administrators (TPAs) or insurance issuers to administer the plans. Therefore, there will be significantly fewer health plans that use HPIDs in standard transactions than health plans that are required to obtain HPIDs…”

It is anticipated that TPAs and other entities will each have their own HPID which they will use in administering standard transactions for their health plans clients. These non-health plan entities may also need to be identified in HIPAA standard transactions as the entities often perform functions on behalf of health plans and may be identified currently in standard transactions in the same fields as health plans. These entities will be permitted, but not required, to obtain a unique Other Entity Identification Number (OEID) for use in standard transaction, and entities that are required to obtain an HPID are not eligible for an OEID.

It is important to note that the final regulations do not impose any new requirements for when to identify a health plan that has an HPID in standard transactions. It merely requires the use of the HPID where the health plan is identified. The two basic HPID requirements are:

  1. The health plans must obtain an HPID even if the TPA is conducting the transaction standards on behalf of the health plan.
  2. When health plans are named in standard transactions, they must use their HPID in the HIPAA transactions.

Although all self-insured health plans are required to obtain HPIDs, there is an important distinction between a “controlling health plans” (CHPs) and “sub-health plans” (SHPs). CHPs are health plans that control their own business activities, actions or policies; or are controlled by entities that are not health plans (i.e. self-insured plan controlled by Plan Sponsor/Plan Administrator). SHPs are health plans whose business activities, actions, or policies are directed by a CHP. SHPs are eligible but not required to obtain a HPID.

So where do we begin? Entities should apply for their unique identifier through the Health Plan and Other Entity Enumeration System (HPOES) within the Health Insurance Oversight System (HIOS), which can be accessed through the CMS Enterprise Portal. The online application to obtain the HPIDs is managed by CMS and is anticipated to take 20-30 minutes to complete the entire process.

Unfortunately, some entities have expended resources obtaining HPIDs that were not issued through the HPOES. However, the final rule requires that HPIDs only be obtained from the HPOES to ensure that HHS oversees the issuance of these unique identifiers. HHS fears that grandfathering in any identifier that was not obtained through the HPOES would simply cause more confusion.

The required data to apply for an HPID is limited to: 1) company name, employer identification number (EIN) and domiciliary address; 2) name, title, phone number and e-mail address of authorizing official (which must be a senior officer or executive); and 3) National Association of Insurance Commission (NAIC) number (for fully-insured health plans) or ‘payer ID’ used in standard transactions. The same information is required for an OEID with the addition of the entity’s business classification.

In theory, the adoption of the HPIDs and the OEIDs will increase standardization within HIPAA standard transactions and provide a platform for other regulatory and industry initiatives.

However, for some it is yet another administrative expense and burden. According to the final regulations, providers will likely yield the most benefit from standardizing the identification process while health plans will bear most of the cost.

So what’s next in the ‘administrative simplification’ process?

In January of this year HHS published a proposed rule, the Certification Rule, to implement the PPACA requirement that health plans “certify” compliance with the rules for the HIPAA standard transactions. Health plans will be required to certify compliance with the rules for eligibility, claim status, electronic funds transfers and electronic remittance advice.

Health plans will certify compliance by obtaining one of two credentials from the Council for Affordable Quality Healthcare Committee on Operating Rules for Information Exchange (CAGQ CORE). In anticipation of a final rule, health plans should access their IT systems and begin identifying gaps in compliance and their ability to obtain the appropriate credentials.


Category: Articles

august-articleAs published in The Self-Insurer,
August 2014

As we get mired down in implementing newly enacted regulations sometimes we forget about those that have been around for some time, and how their application and interpretation over more than a couple decades may impact our day-today operations.

The Americans with Disabilities Act of 1990 (ADA) is a civil rights law that prohibits disability-based discrimination in employment, transportation, public accommodations, telecommunications and governmental activities.

It is important that Third Party Administrators and employers understand the thorny issues that exist when dealing with the interplay between the ADA and employee benefits. Most employers typically think of “reasonable accommodation” issues when they think of the ADA. However, the regulations are much broader than that, and they are inextricably intertwined with the world of benefits.

It is not ostensibly apparent that the ADA applies to employee benefits but that is in fact the case. Title I of the ADA prohibits covered employers from discriminating against qualified disabled individuals with regard to job application procedures, hiring, advancement, discharge, compensation, job training, and “other terms, conditions, and privileges of employment” which includes “[f]ringe benefits available by virtue of employment, whether or not administered by the [employer].” 29 C.F.R. 1630.4(f). Employee benefits, including group health plans provided by an employer, are fringe benefits available by virtue of employment.

The Department of Labor (DOL), along with four other federal agencies, enforces the ADA. The Department of Justice (DOJ), the Federal Communications Commission (FCC), the Department of Transportation (DOT) and the Equal Employment Opportunity Commission (EEOC).

The EEOC enforces Title I employment provisions of the ADA and has created a framework for analyzing ADA claims under Section 501(c), and in 1993 published Interim Enforcement Guidance on the application of the ADA to disability-based distinctions in employer provided health insurance.

It is important to remember that to be protected by the ADA an individual must meet the definition of “disability.” For the purposes of the ADA, a disability is a physical or mental impairment that substantially limits one or more major life activities; a record of such impairment exists; or an individual is regarded as having an impairment. In some instances, the same diagnosis may be considered a disability for one individual but may not be considered a disability for another.

In determining if an employee benefit health-related term or provision violates the ADA, the first issue to analyze is whether the challenged plan term or provision is a “disability-based distinction.” According to the EEOC a plan term or provision will be considered disability-based if it singles out a particular disability, a discrete group of disabilities, disability in general (all conditions that substantially limit a major life activity), or a treatment or procedure used exclusively or nearly exclusively to treat a particular disability. If it is determined that the challenged plan term or provision is a disability-based distinction then we need to consider whether the distinction is within the protective ambit of Section 501(c) of the ADA.

To fall within the protective ambit of Section 501(c), a determination must be made as to whether the plan meets Section 501(c)’s two prong test: 1) the plan is either a bona fide insured health plan that is not inconsistent with state law or is a bona fide self-insured health plan; and 2) the disability-based distinction is not a subterfuge. If these two prongs can be met, it will be determined that the challenged disability-based distinction is within the protective ambit of Section 501(c) and does not violate the ADA. (Section 501(c) is only available to health plans with disability based distinctions that do not totally exclude coverage to a category or categories of disabled individuals.)

To satisfy the first prong the plan is only required to prove that the plan pays benefits, and that its terms have been accurately communicated to covered employees. To satisfy the second prong the plan is required to prove that the plan is not using the provision as a subterfuge to evade the purpose of the ADA. A subterfuge exists when the provision is not justified by the risks or costs. There are several ways to prove this, including looking at similar conditions, actuarial data, actual or reasonably anticipated experience, legitimate risk assessments, underwriting, traditional insurance classification and administration practices.

Disability-based limitations or exclusions will not be considered a subterfuge and therefore do not violate the ADA if:

  • They are based on legitimate actuarial data, or actual or reasonably anticipated experience, and apply equally to conditions with comparable actuarial data and/or experience; or
  • They are necessary because no alternative to a disability-based distinction is available to prevent an “unacceptable” change such as:
    • A drastic increase in premiums, co-payments or deductibles;
    • A drastic alteration in the scope of coverage or level of benefits; or
    • Other changes that would make the plan unavailable to a significant number of other employees, or so unattractive that the employer could not compete in recruiting and maintaining qualified workers due to the superiority of benefits offered by other employers in the community, or so unattractive as to result in significant adverse selection.

Disability-based distinctions involving dependents are protected under the ADA as well. However, the ADA does not require that the coverage accorded dependents be the same in scope as the coverage accorded the employee; the ADA does not require that dependents be accorded the same level of benefit as accorded the employee; and the ADA does not require equal coverage for every type of disability.

As we know, TPAs, employers, and group health plans are always at risk for being challenged by an employee or dependent that is unhappy. Employers simply need to weigh the risks and make sure they are aware of any potential exposure. This is yet another great opportunity for TPAs to assist in educating their clients and ensuring that their benefits are drafted in such a way that they are protected or at least aware of potential challenges, and in doing so, it is always prudent to encourage employers to review and consider any other governing documents that might exist that would impact their decision, including but not limited to Human Resource policies and/or procedures, Employee Handbooks, and any Collective Bargaining Agreements.


Category: Articles

july-articleAs published in The Self-Insurer,
July 2014

Mssed part I of the series? Read it now.

In March of 2014 the Internal Revenue Service and Treasury issued final regulations providing guidance to those entities that are subject to the information reporting requirements of sections 6055 and 6056 of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act (PPACA).

This article will focus on section 6056 which requires applicable large employers to report to the IRS information about the health care coverage, if any, that is being offered to its full-time employees in order to administer the employer shared responsibility provisions of section 4980H. Section 6056 also requires applicable large employers to furnish related statements to employees that may be used to determine whether, for each calendar month of the year, they may claim a premium tax credit, under section 36B, on their individual tax return.

By way of background, applicable large employers may be subject to one of two potential excise taxes imposed under Internal Revenue Code Section 4980H if the employer fails to offer a full-time employee (and their dependent children) health insurance coverage that satisfies certain requirements prescribed in Section 4980H, during a month, and a full-time employee receives a premium subsidy for health insurance in the Marketplace during a month.

 

Who is required to report?

Section 6056 requires “applicable large employers” to comply with the section 6056 reporting requirement. As a general rule, an applicable large employer is an employer that employed, on average, at least 50 full-time employees on business days during the preceding calendar year, and for purposes of this calculation, full-time employees include both full-time employees and full-time equivalents.

Applicable large employer status is determined on a controlled group basis as set forth in sections 414(b), 414(c), 414(m) or 414(o). All employer members of the controlled group will be treated as a single employer. However, section 6056 reporting requirements apply only on an employer-by-employer basis. Thus, the determination of whether an employer is an applicable large employer is made at the aggregated group level of a controlled group and the section 6056 reporting requirement determination is made at the individual employer member level.

Although liability may not transfer, the applicable large employers are permitted to contract with third parties to facilitate the filing of the returns and furnishing the employees with the requirement statements.

 

When and how must the information be reported?

Section 6056 reporting originally was to apply to coverage provided on or after January 1, 2014. However, the IRS provided transition relief for reporting for one year as set forth in Notice 2013-45. Under the final regulations, reporting is now required beginning in early 2016, for coverage that was provided in 2015, and annually thereafter. In the interim, the IRS is encouraging voluntary compliance and reporting prior to the effective date.

A reporting entity must file a return (1095-C) for each employee, along with a transmittal form (1094-C) on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage was provided. Electronic filing is required for high-volume filers (250 or more returns under section 6055). For the first reporting year, since the 2016 deadline falls on a Sunday, the first returns and transmittal forms will be due by March 1, 2016 (unless filed electronically).

All applicable large employers with self-funded group health plans may use a combined Form 1095-C to satisfy the 6055 and 6056 reporting requirements.

Statements must be furnished to full-time employees on or before January 31st of the following year. For the first reporting year, since the 2016 deadline falls on a Sunday, the first statements will be due by February 1, 2016.

Statements must be mailed first class to the last known permanent address on file for the full-time employee and must include the following:

  • Name, address and contact information of the applicable large employer; and
  • Information required to be shown on the section 6056 return with respect to the full-time employee.

Although not required, the final regulations indicate that the applicable large employer may choose to provide the full-time employee with a copy of the return that was provided to the IRS to satisfy the statement requirement. The applicable large employer may furnish these required statements to the full-time employee within the same mailing as the W-2.

The final regulations also permit furnishing the statements to the full-time employee electronically so long as the proper consent has been received from the individual to receive electronic notices. A general consent to receive statements electronically will not be sufficient. Detailed requirements must be met in order to satisfy the electronic disclosure rules.

 

What information must be reported?

We are still waiting patiently for the required forms and instructions that are to be utilized in complying with section 6056 reporting requirements. The returns will require the following information:

  • Name, address, and taxpayer identification number (TIN) of the applicable large employer;
  • Calendar year for which the information is being reported;
  • Name and telephone number of the applicable large employer’s contract person;
  • Certification (by calendar month) as to whether the applicable large employer offered its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan;
  • Number of full-time employees, for each calendar month during the calendar year, by calendar month;
  • For each full-time employee, the months during the calendar year for which minimum essential coverage was available;
  • Each full-time employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value offered to a full-time employee under an eligible employer sponsored plan, by calendar month; and
  • Name, address and TIN of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer sponsored plan.

The final regulations also set forth additional information that is required to be reported under section 6056. However, the following information will be reported through indicator codes:

  • Information as to whether the coverage offered to full-time employees (and dependents) under and employer-sponsored plan provides minimum value and whether the employee had the opportunity to enroll his/her spouse in the coverage;
  • Total number of employees, by calendar month;
  • Whether an employee’s effective date of coverage was affected by a permissible waiting period under 4980H, by calendar month;
  • Whether the applicable large employer had non employees or otherwise credited any hours of service during any particular month, by calendar month;
  • Whether the applicable large employer is a person that is a member of an aggregated group, determined under the controlled group rules, and, if applicable, the name and TIN of each employer member of the aggregated group on any day of the calendar year for which the information is reported;
  • Name, address and identification number of an appropriately designated person if reporting on behalf of the applicable large employer that is a governmental unit or any agency or instrumentality thereof;
  • If an applicable large employer is a contributing member of a multiemployer, whether, with respect to a full-time employee, the employer is not subject to an assessment payment under 4980H due to the employer’s contributions to the multiemployer; and
  • If a third party is reporting for the applicable large employer, the name, address and TIN of the third party (in addition to the name, address, and TIN of the applicable large employer already required under the regulations).

“In an effort to simplify and streamline the section 6056 reporting process” (seriously…) the following information will also need to be reported with respect to each full-time employee for each calendar month utilizing indicator codes:

  • Minimum essential coverage meeting minimum value was offered to 1) the employee only, 2) the employee and the employee’s dependent’s only, 3) the employee and the emmployee’s spouse only, or 4) the employee and the employee’s spouse and dependents;
  • Coverage was not offered to the employee and 1) any failure to offer coverage will not result in a payment under 4980H(a) or (b), 2) the employee was not a full-time employee, 3) the employee was not employed by the applicable large employer during that month, or 4) no other code or exception applies;
  • Coverage was offered to the employee for the month although the employee was not a full-time employee for that month;
  • The employee was covered under the plan; and
  • The applicable large employer met one of the affordability safe harbor tests with respect to the employee.

 

Alternative Reporting Methods?

Eligibile applicable large employers may utilize an alternative reporting method if the employer is unlikely to be subject to a penalty under 4980H given that its employees will likely be ineligible for a premium tax credit.

1. Reporting Based on Certification of Qualifying Offers:

Applicable large employers may certify on 1094-C that for all months during the year in which the employee was a full-time employee a “qualifying offer” was made: an offer of minimum value coverage providing employee-only coverage at a cost of no more than 9.5% of the federal poverty level and an offer to the employee’s spouse and dependents. The IRS anticipates that applicable large employers utilizing this method will be allowed simplified information reporting depending on the circumstances of the qualifying offer.

For 2015, only applicable large employers certifying that it made qualifying offers to at least 95% of its full-time employees (and their spouses and dependents) will be able to utilize the simplified reporting method for the entire workforce and will also be permitted to furnish simplified statements to the full-time employees.

2. Reporting without Separate Identification of Full-Time Employees (98% Offer Rule):

Applicable large employers may certify on 1094-C that it offered affordable minimum value coverage to at least 98% of reportable employees. The applicable large employer is not required to identify or specify the number of full-time employees. If a full-time employee later reports a premium tax credit there would likely by follow-up with the applicable large employer so adequate recordkeeping is important.

 

Penalties for non-compliance?

Failure to comply with these reporting requirements could result in penalties ranging from $100 per return up to $1.5 million in a calendar year. In an effort to provide short-term relief from penalties, the IRS will not impose penalties where it can be shown that a good faith attempt to comply has been made but only for incorrect and/or incomplete information. No relief will be provided where a reporting entity does not make a good faith effort to comply or for failure to file timely returns or furnish the requisite statements, and penalties could exceed $1.5 million for a reporting entity that intentionally disregards the requirement.

 

Next Steps?

January 2016 will be here before we know it and between now and then many systems may need to be designed or refined to capture the relevant data elements that will enable reporting entities to streamline the 6055 and 6056 reporting requirements. Reporting entities and/or their TPA partners will need to look at current processes and assess the operational impact complying with these requirements will have.

Will TPAs be educating their clients on the requirements? Will this be a service that TPAs offer to their clients? It is important that employers understand that for those that wish to utilize the IRS safe harbors for variable-hour employees, they need to start strategizing now to identify which employees will be treated as full-time employees in 2015 for the 2016 deadline.

The initial hurdle may very well still be obtaining the required TINS, however, for some it may be the initial task of determining whether an employer is an applicable large employer under the applicable controlled group rules.


Category: Articles

As published in The Self-Insurer,
June 2014

In March of 2014 the Internal Revenue Service and Treasury issued final regulations providing guidance to those entities that are subject to the information reporting requirements of sections 6055 and 6056 of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act (PPACA).

This article will focus on section 6055 which requires health insurance issuers, certain employers, governments, and others that provide minimum essential coverage (MEC) to report annually to the IRS by filing the requisite returns and transmittal forms and to report annually to responsible individuals by providing the requisite statements.

By way of background, individuals who fall below 400% of the federal poverty level and do not have access to MEC that meets the minimum value and affordability thresholds may be entitled to a premium tax credit. The reporting requirements set forth in section 6055 are intended to facilitate the determination for the IRS, as well as individuals, on who might be eligible for a premium tax credit and who might be assessed a penalty pursuant to the individual mandate.

As a general rule, MEC includes any eligible employer sponsored plan, fully insured or self-funded, including COBRA and retiree coverage as well as coverage purchased in the individual market, a qualified health plan offered in the Marketplace, Medicare Part A, most Medicaid coverage, CHIP and TRICARE. MEC does not include, and reporting is therefore not required for, limited and/or excepted benefits such as a stand-alone vision or dental plan, accident or disability policies, workers’ compensation or limited Medicaid coverage, and likewise, section 6055 reporting is not required for coverage that merely supplements MEC such as HRAs, on-site medical clinics, or wellness programs.

 

Who is required to report?

Section 6055 requires insurers, plan sponsors and other entities providing MEC to an individual during a calendar year to comply with this reporting requirement. For self-funded plans, the plan sponsor is responsible for the reporting. In the case of a self-funded multiple employer welfare arrangement (MEWA), the plan sponsor is each participating employer with respect to its own employees. In the case of a self-funded multiemployer plan, the plan

sponsor is the association, committee, board, or similar group representative who maintains and administers the plan.

When and how must the information be reported?

Section 6055 reporting originally was to apply to coverage provided on or after January 1, 2014. However, the IRS provided transition relief for reporting for one year as set forth in Notice 2013-45. Under the final regulations, reporting is now required beginning in early 2016, for coverage that was provided in 2015, and annually thereafter. In the interim, the IRS is encouraging voluntary compliance and reporting prior to the effective date. The IRS is hopeful reporting entities will use this delayed effective date as a ‘real-world’ testing period resulting in a smoother transition come 2016.

A reporting entity must file a return (1095-B) for each individual to whom MEC was provided, along with a transmittal form (1094-B) on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage was provided. Electronic filing is required for high-volume filers (250 or more returns under section 6055). For the first reporting year, since the 2016 deadline falls on a Sunday, the first returns and transmittal forms will be due by March 1, 2016 (unless filed electronically).

Statements must be furnished to the responsible individual on or before January 31st of the following year. For the first reporting year, since the 2016 deadline falls on a Sunday, the first statements will be due by February 1, 2016.

Statements must be mailed first class to the last known permanent address on file for the responsible individual, and although not required the final regulations indicate that plan sponsors may choose to provide the responsible individual with a copy of the return that was provided to the IRS to satisfy the statement requirement. The plan sponsor may furnish these required statements to the responsible individual within the same mailing as the W-2.

The final regulations also permit furnishing the statements to the responsible individual electronically so long as the proper consent has been received from the individual to receive electronic notices. A general consent to receive statements electronically will not be sufficient. Detailed requirements must be met in order to satisfy the electronic disclosure rules.

 

What information must be reported?

We are still waiting patiently for the required forms and instructions that are to be utilized in complying with section 6055 reporting requirements. At a bare minimum, the returns will require the following:

  • Name, address, and taxpayer identification number (TIN) of the primary insured (the “responsible individual”);
  • Name, address, TIN (or date of birth) of each additional individual (spouses and dependents) obtaining coverage under the policy;
  • Dates during which the individual was covered during the calendar year; and
  • Name, address, and employer identification (EIN) of the employer maintaining the plan.

Statements that must be provided to the responsible individuals must generally contain the same information as set forth in the returns as well as contact information of the individual filing the return.

 

Penalties for non-compliance?

Failure to comply with these reporting requirements could result in penalties ranging from $100 per return up to $1.5 million in a calendar year. In an effort to provide short-term relief from penalties, the IRS will not impose penalties where it can be shown that a good faith attempt to comply has been made but only for incorrect and/or incomplete information. No relief will be provided where a reporting entity does not make a good faith effort to comply or for failure to file timely returns or furnish the requisite statements, and penalties could exceed $1.5 million for a reporting entity that intentionally disregards the requirement.
Next Steps?

January 2016 will be here before we know it and between now and then many systems may need to be designed or refined to capture the relevant data elements that will enable reporting entities to streamline the 6055 reporting requirements. Reporting entities and/or their TPA partners will need to look at current processes and assess the operational impact complying with these requirements will have.

Will TPAs be educating their clients on the requirements? Will this be a service that TPAs offer to their clients?

The initial hurdle, whether it is the TPA or the plan sponsor, is going to be gathering the TINs that are required. The final regulations require entities to make ‘reasonable efforts to obtain TINs” and it is anticipated in the regulations that reporting entities that don’t currently possess the required TINs will make an initial annual solicitation and a second solicitation if required in an attempt to satisfy the reasonableness test.

Complete TINs are going to be required on the returns, or dates of birth if reasonable attempts are unsuccessful in obtaining dependent TINs. Yet, there are challenges in providing complete TINs in the statements that are being provided to the responsible individuals. The final regulations clarify that reporting entities are permitted to use truncated TINs on the statements that are being provided to the responsible individuals.

The issues surrounding TINs is just one hurdle that needs to be considered over the next several months to assist in making the reporting requirement under sections 6055 and 6056 a streamlined process for those involved. Next month’s article will focus on section 6056 reporting requirements and the additional challenges that it may pose.

This article is intended for general informational purposes only. It is not intended as professional counsel and should not be used as such. This article is a high-level overview of regulations applicable to certain health plans. Please seek appropriate legal and/or professional counsel to obtain specific advice with respect to the subject matter contained herein.