House Votes to Repeal the Cadillac Tax

On July 17, 2019, the U.S. House of Representatives voted across bipartisan lines to repeal the ACA’s Cadillac Tax. The final vote in the House was 419-6 in favor of repeal. The tax was designed as a penalty tax on high-value health coverage, to convince health plan sponsors to reduce benefits and keep costs down by discouraging overly generous plans. However, both employers and union groups opposed the tax.

 

This repeal is good news for plan sponsors but the measure still has to pass the Senate. One of the challenges to Senate passage is that the tax was originally included to help finance the ACA. Repealing the tax without replacing it with some other revenue source arguably leaves a sizable hole in the federal budget. It is estimated by the Congressional Budget Office that repealing the tax will cost the government approximately $196.9 billion over 10 years. 

 

The Cadillac Tax, originally slated to go into effect in 2018, has been delayed by Congress repeatedly. After several delays, the 40% excise tax on the cost of health coverage that exceeds predetermined threshold amounts goes into effect in 2022. Currently, those thresholds, which will be updated prior to 2022, are $10,200 for individual coverage and $27,500 for family coverage.

 

Diversified Group will keep you up to date on any additional action on this topic.

Diversified Group State Mandate Update: New Jersey

Pre-Tax Transportation Fringe Benefits:

On March 1, 2019, New Jersey becomes the first state to require employers to offer pre-tax transportation benefits to employees. A pre-tax transportation fringe benefit is a benefit that allows an employee to set aside wages on a pre-tax basis, which is then only made available to the employee for the purchase of certain eligible transportation services, including transit passes and commuter highway vehicle travel (vanpooling).

• Every employer in the State of New Jersey that employs at least 20 employees is required to offer transit benefits to all employees who are not currently covered by a collective bargaining agreement (however employers with collectively bargained employees will be required to offer this benefit to them once the bargaining agreement in effect as of March 1, 2019 expires);
• An employee is identified as anyone hired or employed by the employer and who reports to the employer’s work location. This mirrors the definition used in New Jersey’s unemployment compensation law;
• There is no exception for non-profits or state and local governmental employers;
• If an employer has less than 20 employees, there is no requirement to offer the benefit at this time;
• Employers must provide pre-tax election transportation benefits that provide commuter highway vehicle and transit benefits at the maximum benefit level allowed under federal law (Section 132(f)(2)). For 2019, the maximum benefit level is $265/month for commuter highway benefits and any transit pass combined, as well as $265/month for qualified parking;
• The law is effective 3/1/19 but penalties for non-compliance will not be assessed until the earlier of March 1, 2020 or the effective date of any implementing rules and regulations;
• Non-compliance, when enforced, will be a penalty of not less than $100 and not more than $250 for the first violation of failure to offer transit benefits. The employer will then have 90 days to offer the employees the benefit if a penalty is imposed;
• Associated program costs are not deductible from federal corporate income tax. Employers will need to discuss any New Jersey tax-favored status with their tax advisers.

For now, employers should monitor developments and news regarding the program. The New Jersey Transit Corporation, in conjunction with the New Jersey Turnpike Authority and the South Jersey Transportation Authority will be conducting public awareness campaigns encouraging the public to contact employers about the benefit. Additionally, employers may want to start talking to third party administrators who can administer the transportation fringe benefit program.

Diversified Group can assist you in the administration of Section 132 Parking and Transportation benefits. Please call Jamie Fazio for a quote at 800-322-2524 Ext. 391.

Health Insurance Mandate:

In 2018, New Jersey Governor, Phil Murphy signed into law The New Jersey Health Insurance Market Preservation Act. This law requires all New Jersey residents to have health insurance or pay a penalty. Lawmakers in New Jersey drafted this legislation in response to the decision to eliminate the ACA individual mandate with the passage of the Tax Cuts and Jobs Act of 2017. Although the law focuses primarily on the individual market, there will be reporting requirements on employers that provide health insurance coverage to New Jersey residents staring for the 2019 tax year. Visit www.nj.gov for instructions on reporting (anticipated to be posted by mid-2019).

Individual penalties will mirror the ACA individual mandate penalties; the greater of 2.5% of an individual’s income or $695. The penalty will be capped at the average annual premium for bronze level plans in New Jersey (currently $3,012 per year). Revenue collected (estimated to be between $90M and $100M annually) will be used to fund New Jersey’s reinsurance pool.

The New Jersey law will require certain entities—employers that offer job-based coverage, insurers, and the New Jersey Department of Human Services—to comply with new reporting standards. Under the law, entities that provide MEC to a New Jersey resident will be required to submit a return to the state treasurer. Employers must provide the same information (Form 1094-C and Form 1095-C or Form 1094-B and Form 1095-B) for New Jersey that they currently provide to taxpayers and the IRS. Employers who already use Forms 1094-C or B, and Forms 1095-C or B, to report health coverage information federally, will be required to remit copies of these documents to the New Jersey Division of Taxation on or before February 15th following the close of each calendar year, beginning in 2020.

Out-of-State Employers of New Jersey Residents
Out-of-State employers that withhold and remit New Jersey Gross Income Tax for New Jersey residents have the same filing requirements as businesses located in New Jersey.

Adult Children
Under the federal Affordable Care Act, adult children up to the age of 26 may be covered by their parents’ health plan. New Jersey does not require Forms 1095-B or 1095-C be provided separately to children who are covered by their parents’ health plans, regardless of their residency, beyond the current requirement under 26 U.S.C. s.6055, as that section was in effect and interpreted on December 15, 2017. It is recommended employers advise employees to provide a copy of any Form 1095-B or 1095-C containing coverage information to their children residing in New Jersey.

Proposals on Many Wish Lists

Now that the makeup of the new Congress has been decided, many employers are hoping Washington can work together to address a few of their important concerns. High on many lists, especially those belonging to large employers, would be doing away with the Cadillac Tax on high-cost health plans once and for all. While implementation has been delayed until the 2022 tax year, the law will require insurers and large employers to pay a 40% excise tax on the costs that exceed $11,100 for employee-only coverage and $29,750 for family coverage.

Other items that employers have been talking about for a long time include making HSAs considerably more user friendly and easing ACA reporting requirements to allow employee statements to be provided electronically rather than by mail.

IRS Publishes PCOR Fees through September 2019

The Patient-Centered Outcomes Research Trust Fund fee is a fee on issuers of health insurance policies and plan sponsors of self-insured health plans that helps to fund the Patient-Centered Outcomes Research Institute (PCORI), which was established by the Affordable Care Act (ACA). The institute assists, through research, patients, clinicians, purchasers and policy-makers, in making informed health decisions by advancing the quality and relevance of evidence-based medicine. The institute compiles and distributes comparative clinical effectiveness research findings. Under the ACA, all medical plans are responsible for paying the Patient-Centered Outcomes Research fee to the IRS, based on the number of plan participants. If the plan is insured, the insurance carrier pays the fee on behalf of the policyholder. If the plan is self-insured, the employer/plan sponsor must file the Form 720 for the second quarter and pay the fee to the IRS directly.

The IRS recently published its PCOR fee for policy and plan years ending January through September 2019 and the applicable dollar amount is $2.45, which is multiplied by the number of covered lives determined for the appropriate period.

The PCOR program will sunset in 2019. The last payment will apply to plan years that end by September 30, 2019 and that payment will be due in July 2020. There will not be any PCOR fee for plan years that end on October 1, 2019 or later.

The PCOR fee is paid by the health insurer for fully insured plans. All self-insured medical plans, including health FSAs and HRAs must pay the fee unless they are considered an excepted benefit:

• • A health FSA is an excepted-benefit as long as the employer does not contribute more than $500/year to the accounts and offers another medical plan with non-excepted benefits.
  • An HRA is an excepted-benefit if it only reimburses for excepted-benefits (e.g., limited-scope dental and vision expenses or long-term care coverage) and is not integrated with the group medical plan.

The PCOR fee is calculated off the average number of lives covered during the policy year. That means that all parties enrolled will have to be accounted for such as dependents, spouses, retirees, and COBRA beneficiaries. Depending on when the plan starts and ends also can determine the fee per form. Participating employees and dependents are counted as covered lives. For HRA and health FSA plans, just count each participating employee as a covered life.

Clients who have elected to have Diversified Group assist with the PCOR fee calculation can expect an email in June 2019 which will include a copy of the completed Form 720 and a PCOR calculation worksheet with supporting documentation. For the current year, clients will need to file the Form 720 by July 31, 2019.

Despite Recent Court Ruling – ACA Enforcement Is Still the Law of the Land… For Now

On December 14^th, the U.S. District Court for the Fifth Circuit in Texas ruled the Affordable Care Act (ACA) unconstitutional in light of the Tax Cuts and Jobs Act of 2017 which eliminated the tax penalty under the individual mandate. The district court sided with 20 Republican state attorneys general that argued since the individual mandate was eliminated, the entire law was invalidated. The ruling went further and also ruled that all of the consumer protections under the ACA were tied to the individual mandate and they were also unconstitutional. These include the prohibition against insurers charging patients more for pre-existing conditions, allowing children to stay on their parent’s plans until age 26, and removal of caps on coverage.

What’s Next?

The judge in the case did not rule the law has to be enjoined immediately, however, it is unclear when the ruling would take effect. Sixteen Democratic state attorneys general and the District of Columbia filed a motion asking the court to clarify the impact of the ruling and confirm that the ACA “is still the law of the land.” Additionally, a series of appeals will most likely keep the ruling from being enacted anytime in the near future… thus:

• People can still enroll in ACA health plans in states with extended deadlines (without an extension, exchange enrollment ended on December 14^th.);
• There is no impact on 2019 plans that people may have recently enrolled in. Immediately following the ruling, Seema Verma, Administrator of the Centers for Medicare & Medicaid Services, stated the ruling “has no impact on current coverage or coverage in a 2019 plan;”
• Employers still face IRS deadlines to file forms 1095-B and 1095-C. (1095-B and 1095-C forms must be delivered to individuals by March 4, 2019. The 1094 and 1095 B & C forms must be filed with the IRS by February 28^th if filing paper and April 1^st if filing electronically);
• The Employer Mandate is still in force, penalties have been and will continue to be assessed for failure to file these returns;
• With the Employer Mandate still in force, Applicable Large Employers (ALEs) should continue to follow the Employer Shared Responsibility Rules (ESR) to avoid a penalty. This means offering a plan that meets minimum value and affordability to at least 95% of your full time employees (defined as those working at least 30 or more hours per week).

The case will most likely make its way to the U.S. Fifth Circuit Court of Appeals and then to the U.S. Supreme Court before any definitive action can be considered.

IRS Releases Adjusted PCOR Fee

The Patient-Centered Outcomes Research Trust Fund fee is a fee on issuers of health insurance policies and plan sponsors of self-insured health plans that helps to fund the Patient-Centered Outcomes Research Institute (PCORI), which was established by the Affordable Care Act (ACA). The institute assists, through research, patients, clinicians, purchasers and policy-makers, in making health decisions by advancing the quality of evidence-based medicine. The institute compiles and distributes comparative clinical effectiveness research findings. Under the ACA, all medical plans are responsible for paying the Patient-Centered Outcomes Research fee to the IRS, based on the number of plan participants. If the plan is fully-insured, the insurance carrier pays the fee on behalf of the policyholder. If the plan is self-insured, the employer/plan sponsor must file the Form 720 for the second quarter and pay the fee to the IRS directly.

The IRS recently published its PCOR fee for policy and plan years ending:  January through September 2018 the applicable dollar amount is $2.39, which is multiplied by the number of covered lives determined for the appropriate period. For policy and plan years ending October through December 2018, the applicable dollar amount is $2.45.

All self-insured medical plans, including health FSAs and HRAs must pay the fee unless they are considered an excepted-benefit:

• A health FSA is an excepted-benefit as long as the employer does not contribute more than $500/year to the accounts and offers another medical plan with non-excepted benefits.
• An HRA is an excepted-benefit if it only reimburses for excepted-benefits (e.g., limited-scope dental and vision expenses or long-term care coverage) and is not integrated with the group medical plan.

The PCORI fee is calculated off the average number of lives covered during the policy year. That means that all parties enrolled will have to be accounted for such as dependents, spouses, retirees, and COBRA beneficiaries. For HRA and health FSA plans, just count each participating employee as a covered life.

Payment of the PCOR fee for the calendar 2018 plan year — the last year the fee applies — will be due by July 31, 2019 (payments may extend into 2020 for non-calendar-year plans).

Clients who have elected to have Diversified Group assist with the PCOR fee calculation can expect an email in June 2019, which will include a copy of the completed Form 720 and a PCOR calculation worksheet with supporting documentation. Clients will need to file the Form 720 by July 31, 2019.

Maine is Reinstituting the Per Member Per Month Assessment to Fund the Maine Guaranteed Access Reinsurance Program

Section 1332 of the Affordable Care Act (ACA) permits a state to apply for a State Innovation Waiver to pursue innovative strategies for providing their residents with access to high quality, affordable health insurance while retaining the basic protections of the ACA. Recently several states have applied for waivers and have been approved. Among these is the State of Maine, which sought to reestablish the Maine Guaranteed Access Reinsurance Association – MGARA (originally established in 2012 but later suspended in light of the ACA’s transitional reinsurance program which expired in 2016). Maine’s Section 1332 waiver to reestablish MGARA was approved by the Department of Health and Human Services earlier this year. MGARA is a state instituted reinsurance program that automatically cedes high-risk enrollees with one of eight conditions (including various types of cancer, congestive heart failure, HIV and rheumatoid arthritis) and voluntary cedes other high-risk enrollees to the pool in an attempt to help stabilize individual medical premiums by about 9 percent each year beginning in 2019. The program is slated to initially run from January, 2019 through December, 2023. The Governor’s Office pushed to get the program up and running by January, 2019 in an attempt to substantially lower premiums in the individual market.

One of the funding sources supporting MGARA’s operations is a quarterly assessment due from each insured and self-insured plan that writes or otherwise provides medical insurance in Maine (other than federal or state government plans) beginning in 2019 at $4.00 per month for each covered person enrolled under each such policy or plan. Only federal and state employees are exempt from the assessment. The 2019 Quarterly Assessment will apply to policies and plans initiated or renewed on or after January 1, 2019, with the first assessment due on May 15, 2019, and 45 days from the end of each calendar quarter thereafter. Self-funded plans using a Third Party Administrator (TPA) will be assessed and reported through their TPA similar to other state assessments.

Diversified Group will collect and report the MGARA on behalf of our self-insured clients who have members residing in Maine.

House Passes Two Bills to Expand HSA Coverage

Yesterday, the House passed two bills that would expand HSA coverage:

The Restoring Access to Medication and Modernizing Health Savings Accounts Act of 2018 (HR 6199)

This Act would:

• Allow plans flexibility in providing first dollar coverage up to $250 for a single and $500 for a family for additional services, such as those related to treatment of chronic conditions and telehealth services.
• It would also make certain OTC drugs a qualified medical expense.
• Allow HSA funds to pay for direct primary care up to $150 per month for an individual and $300 per month for a family.
• Expand HSAs to allow physical activity, fitness and exercise related services (i.e., gym memberships, sports equipment) to be qualified medical expenses (up to $500 for an individual and $1,000 for a family).
• It would also loosen some of the contribution restrictions on spouses who have a flexible spending account (FSA) at their employer.
• Allow employees, at the employer’s discretion, to convert their FSA and HRA balances into an HSA contribution upon enrolling in a high deductible health plan with an HSA. The conversion amount is capped at $2,650 for an individual and $5,300 for family coverage.

Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018 (HR 6311)

This Act would:

• Increase the maximum contribution to health savings accounts (HSAs) to $6,650 for an individual and $13,300 for a family.
• Allow both spouses to make catch-up contributions to the same health savings account. Under current law, if both spouses are HSA-eligible and age 55 or older, they must open separate HSA accounts for their respective “catch-up” contributions.  This provision would allow both spouses to deposit their catch-up contributions into one account.
• Allow working seniors enrolled in Medicare Part A to contribute to an HSA.
• Allow individuals in a bronze or catastrophic health plan to contribute to an HSA.
• Allow balances on flexible savings accounts to be carried over.
• Allow HSAs opened within 60 days after gaining coverage under a HDHP as having been opened on the same day as the HDHP. This would give a grace period between the time coverage begins through an HDHP and the establishment of an HSA.  Currently, HSA funds can only be used for qualified expenses after the HSA has been established.
• It would also delay the Affordable Care Act’s health insurance tax for another two years to 2021.

There are a handful of other healthcare related bills yet to be taken up by the House. It is unclear if they will act prior to the August break (beginning July 30^th). Both of the above Acts will most likely be taken up by the Senate after the break.

Diversified Group will be following the progress of these bills closely and will provide updates as they are received.

Association Health Plans Final Rules Released

On June 19, 2018, the U.S. Department of Labor released the final rule on Association Health Plans (AHPs). The rule seeks to expand health coverage among small employer groups and self-employed individuals. It will make it easier for small business to join together to purchase health insurance without the myriad of regulations individual states and the Affordable Care Act (ACA) imposes on smaller fully insured employers. AHPs are not required to provide the essential health benefits (EHBs) package included in the ACA. The plans have been intended to provide less expensive options for small businesses, regional collectives, and industry groups that may not be able to purchase insurance through the public exchanges.

The rule broadens the definition of an employer under the Employee Retirement Income Security Act of 1974 (ERISA), to allow more groups to form association health plans and bypass rules under the Affordable Care Act. ERISA is the federal law that governs health benefits and retirement plans offered by large employers. Below is a comparison of the original proposed rule and the final rule just released.

The final rules confirm that self-insured Association Health Plans are considered Multiple Employer Welfare Arrangements (MEWAs) and does not curtail a state’s ability to regulate self-insured AHPs. This means that self-insured AHPs will be subject to MEWA laws in each state where coverage is offered/where members are located. Self-insured AHPs will have to follow the MEWA rules of the state with the most restrictive rule on an issue by issue basis. The final rule did leave an opening for future self-insured AHPs with the following language on page 96 of the 198 page regulation: “a potential future mechanism for preempting State insurance laws that go too far in regulating self-insured AHPs…” But for now, there is not anything in the final regulation designed to help self-insured AHPs thrive.

ACA Affordability Percentage for 2019

On May 21, 2018, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-34 which indexes the contribution percentages for 2019 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA).  For plan years beginning in 2019, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.86 percent of the employee’s household income for the year for purposes of the employer shared responsibility rules. This is an increase from the 2018 affordability threshold percentage of 9.56%. The 2019 increase in the affordability percentage for employer shared responsibility purposes means that employers will be able to charge employees a slightly higher price for their health benefits and still  meet the “affordability” test.

Since an employer would not know an employee’s household income, IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages if they use one of three affordability safe harbor methods. The three safe harbors to measure affordability are Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual. The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.

Below is an example of how the percentage change impacts an employer’s monthly affordable amount using the three safe harbor tests.  The example assumes an employee earns $10/hour.

Safe Harbor	$10 / hour
	2018	2019
W-2 Income	$165.71	$170.91
Rate of Pay	$124.28	$128.18
Federal Poverty Line*	$96.72	$99.75

*Based on Jan. 2018 FPL of $12,140

Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit from the Exchange. This is significant because the ACA’s employer shared responsibility penalty for applicable large employers (ALEs) is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.