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Earlier this week, the IRS issued Notice 2019-63, which extends both: (1) the filing deadline for Forms 1095-C and 1095-B; and (2) the good-faith reporting relief. But this year, there’s more. In limited circumstances, the IRS will not penalize entities for the failure to furnish information to individuals using Form 1095-B, and in some cases, Form 1095-C (see discussion of Section 6055 Relief below).
Notice 2019-63 extends the due date for reporting entities to furnish 2019 Forms 1095-C and 1095-B to individuals from January 31, 2020 to March 2, 2020. These forms must also be filed with the IRS (along with the applicable transmittal statement) by February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically). Reporting entities may, however, request individual extensions to file these forms with the IRS.
The IRS may impose penalties of up to $270 per form for failing to furnish an accurate Form 1095-C or 1095-B to an individual and $270 per form for failing to file an accurate Form 1095-C or 1095-B with the IRS. As in prior years, the IRS indicated in Notice 2019-63 that it would not impose these penalties for incomplete or inaccurate forms for the 2019 calendar year (due in 2020), if the reporting entity can show that it “made good-faith efforts to comply with the information-reporting requirements.” This good-faith reporting relief does not apply to forms that were untimely furnished to individuals or filed with the IRS.
Under Section 6055 of the Internal Revenue Code (the “Code”), providers of minimum essential coverage must furnish certain information to “responsible individuals” about enrollment in the minimum essential coverage during the previous calendar year. The purpose of this reporting requirement is to assist the IRS enforce compliance with the “individual mandate” penalty under the ACA.
Under the Tax Cuts and Jobs Act of 2017, the individual mandate penalty was not repealed, but the penalty amount was reduced to zero. This makes reporting under Section 6055 of the Code irrelevant. As a result, Notice 2019-63 provides limited relief from the reporting requirements under Section 6055 of the Code.
Here is a brief summary of the Section 6055 reporting requirements:
Notice 2019-63 provides relief with respect to Forms 1095-B and limited relief with respect to Forms 1095-C. For insurers and small self-funded employers, the entity must still prepare and file the Forms 1095-B with the IRS. However, these entities are not required to furnish individuals with a copy of the Form 1095-B as long as the entity satisfies both of the following requirements:
Notice 2019-63 generally does not extend this relief to large self-funded employers, except for Forms 1095-C that are prepared on behalf of individuals who are not full-time employees for the entire 2019 calendar year. A large employer sponsor of a self-funded plan may file a Form 1095-C on behalf of an individual who was enrolled in the self-funded plan during the 2019 calendar year, but was not a full-time employee during any month of the calendar year. (For these individuals, the “all 12 months” column of line 14 is completed using the code “1G.”) Examples of where this relief may extend to Forms 1095-C are: (1) former employees who terminated employment before 2019 but were enrolled in the self-funded plan under COBRA or retiree coverage; and (2) employees who were part-time during all of 2019, but were enrolled in the self-funded plan because the plan sponsor extended eligibility for the self-funded plan to part-time employees.
While the filing deadline extension and the extension of the good-faith reporting relief is likely welcome news to insurers and employers alike, it’s probably not surprising. And, while the Section 6055 reporting relief is likely surprising, it’s probably only meaningful to insurers.
In a proposed regulation, federal agencies suggest a rule that would require employer-sponsored group health plans to provide plan enrollees with estimates of their out-of-pocket expenses for services from different health care providers. Plans would make this information available through an online self-service tool so enrollees could shop and compare costs for services before receiving care.
Comments are due by Jan. 14, 2020, on the transparency-in-coverage rule issued by the departments of Health and Human Services, Labor and the Treasury. The unpublished rule was released on Nov. 15, when the agencies also posted a fact sheet summarizing the proposal.
Some feel that the rule, if finalized, would be the most dramatic expansion of disclosure obligations for group health plans since the ERISA was passed in 1974.
The proposal is part of the Trump administration’s attempt to create price competition in the health care marketplace. It follows the November release of a final rule requiring hospitals to publish their prices online for standard charges, including negotiated rates with providers. That rule, to take effect Jan. 1, 2021, is expected to be challenged in court by hospital industry groups.
The new proposal would apply to all health plans except those that are grandfathered under the Affordable Care Act. Among other obligations, group health plans and health insurance carriers would be required to do the following:
Information about employees’ out-of-pocket expenses and cost-sharing under employer plans is already disclosed in pre-service and post-service benefit claim determinations. However, “the proposed rules would take these disclosure requirements a step further by requiring individually tailored cost estimates prior to the receipt of services,” noted Susan Nash, a partner at law firm Winston & Strawn in Chicago.
While transparency in health care pricing is generally welcomed by employers, she observed, “employers may balk at the cost of preparing the online or mobile app-based cost-estimator tools, or purchasing such tools from vendors.”
In addition, because much of the information required to be disclosed is specific to the participant and the benefit option in which the participant is enrolled, the disclosures “will require greater coordination among employers and third-party administrators, pharmacy benefit managers, [and] disease management, behavioral health, utilization review, and other specialty vendors and will require amendments to existing agreements,” Nash explained.
The rules around public disclosure will likely be opposed by health insurance carriers who view their price negotiation as confidential and part of the service that they provide as carriers, and insurers are likely to challenge them in court, as hospital systems are expected to do with the final rule on disclosing their prices.
Health Reimbursement Arrangements (HRAs) are account-based health plans funded with employer contributions to reimburse eligible participants and dependents for medical expenses. Prior to the Affordable Care Act, HRAs were not uncommon.
After the ACA, however, HRAs – which were classified as group health plans (GHPs) – had to satisfy the ACA’s market reform requirements, such as the prohibition against annual limits. Thus, unless an HRA was integrated with a GHP, HRAs usually could not satisfy these requirements alone.
On June 13, the Departments of Treasury, Labor, and Health and Human Services issued final regulations regarding HRAs, which will be effective on January 1, 2020. The regulations discuss two types of HRAs: (1) the individual coverage HRA (ICHRA); and (2) the expected benefit HRA.
An ICHRA can satisfy GHP requirements by integrating the HRA with individual market coverage or Medicare. The expected benefit HRA permits an employee to obtain excepted benefits like dental, vision, or short-term limited-duration insurance with an HRA. This article will focus on ICHRAs.
In order to offer an ICHRA, employers must ensure that a number of requirements are satisfied. For example, all individuals covered by the HRA need to be enrolled in individual health insurance or Medicare. Additionally, before any reimbursements are made, the employer must substantiate such enrollment with documentation from a third party or the participant’s attestation. An attestation, however, must be disregarded, if the employer has actual knowledge that the individual is not enrolled in eligible coverage.
Additionally, HRA coverage must be offered uniformly on the same terms and conditions to all employees in the class. Classes will be discussed in more detail below, but the regulations permit an employer to increase the maximum benefit for (1) older participants if that increase applies to all similarly aged participants in that class, and (2) participants with more dependents.
Further, being covered by an ICHRA will make an individual ineligible for a Premium Tax Credit (PTC). For this reason, the regulations have numerous notice requirements. First, employers must provide notice to eligible ICHRA employees 90 days before the beginning of a plan year that their participation in the ICHRA will make them ineligible for a PTC. For newly eligible employees, the notice must be provided no later than the date they are first eligible to participate. Moreover, there must be an opt-out provision at least annually and upon termination.
The ICHRA regulations make it possible for employers to offer an HRA to a certain class of employees and a traditional GHP to another class. It is important to note that an employer may not offer the same class of employees the option of an ICHRA or a traditional GHP.
The regulations also provide strict rules regarding how to define classes. The classes must be of a minimum size based on the number of employees the employer has:
Additionally, the classes must be based on named classes in the regulations which are based on objective criteria:
The regulations also clarify that employers may still offer retiree-only HRAs and they will not be subject to the ICHRA rules.
Given that there is a notice requirement and that open enrollment for plans that begin January 1, 2020 will generally begin in the fall, employers that would like to implement an ICHRA would likely have to start making plan design decisions soon. Even though the concept of an HRA may be familiar to many employers, these new regulations are nuanced, and employers will likely need assistance to navigate them.
Since the IRS began enforcing the Affordable Care Act (ACA), it has been lenient in its enforcement of the penalties associated with the ACA particularly with regard to late and incorrect Forms 1094-C and 1095-C. This position appears to have changed with regard to the 2017 reporting season. Recently, a number of employers received a Notice 972CG from the IRS. The Notice 972CG proposes penalties under IRC section 6721 for late or incorrect filings. The focus of this is to explain the Notice 972CG and the basic steps employers who receive this letter should follow.
Typically, the employer received a Letter 5699 inquiring why the employer had not filed the Forms 1094-C and 1095-C for the 2017 reporting season. The reasons the employer had not filed timely have varied but most employers filed the Forms 1094-C and 1095-C with the IRS well past the original due date, but well within the parameters discussed in the Letter 5699. Afterwards, these employers reported they then received a Notice 972CG from the IRS.
The Notice proposes penalties under IRC section 6721 for each late Form 1095-C filed by the employer. For the 2017 tax year, the penalty for each section 6721 violation is $260 per return. Therefore, if an employer filed 200 Forms 1095-C late, the Notice 972CG has proposed a penalty of $52,000.
The proposed penalty amounts in the Notice can be smaller than $260 per return if the employer filed the return within 30 days of the original due date (March 31 if the Forms were filed electronically not factoring in the automatic extension). If an employer filed within 30 days of the original March 31 due date, the penalty is $50 per return. If the employer’s returns were filed after 30 days of the original due date but prior to August 1 of the year in which the Forms were due, the employer’s penalty will be $100 per return. Each of these scenarios is unlikely if the employer filed after receiving the Letter 5699 as the IRS did not send these Letters out by the August 1 cutoff to allow employers to mitigate the potential penalties under section 6721.
An employer has 45 days from the date on the notice to respond to the IRS. A business operating outside of the United State has 60 days to respond to the Notice 972CG. If an employer does not respond within this time frame, the IRS will send a bill for the amount of the proposed penalty. Therefore, a timely response to the Notice 972CG is mandatory if an employer wishes to abate or eliminate the proposed penalty.
An employer has three courses of action when responding to the Notice 972CG. First, the employer could agree with the proposed penalty. If an employer agrees with the proposed penalty, box (A) should be checked and the signature and date line below box (A) should be completed. Any employer selecting this option should follow the payment instructions provided in the Notice.
Alternatively, an employer can disagree in part with the Notice’s findings or an employer can disagree with all of the Notice’s findings. If an employer disagrees in part with the Notice, the employer will check box (B). If an employer disagrees entirely with the Notice, the employer will check box (C). If box (B) or (C) are checked, the employer will be required to submit a signed statement explaining why the employer disagrees with the Notice. An employer should include any supporting documents with the signed statement. Any employer who partially disagrees with the Notice should follow the payment instructions provided in the Notice.
An employer checking box (B) or (C) in its response will have to convince the IRS that the employer’s late filing (or incorrect filing) of the Forms 1094-C and 1095-C was due to a “reasonable cause.” The Code discusses what may constitute a “reasonable cause” in exhaustive regulations that must be reviewed thoroughly before any employer responds to a Notice 972CG with box (B) or (C) checked. For an employer to establish a “reasonable cause” the employer will have to establish “significant mitigating factors” or that the “failure arose from events beyond the filer’s control.” Furthermore, to prove “reasonable cause” the employer will have to show that it acted in a “responsible manner” both before and after the failure occurred. An employer should craft its response using the template roughly outlined in the IRS regulations and Publication 1586.
Any employer who receives a Notice 972CG must take action immediately. An employer should consult an attorney or tax professional familiar with its filing process and the pertinent rules, regulations, and publications. Moving forward, it is imperative that employers file the Forms 1094-C and 1095-C in a timely, accurate fashion.
On July 22, 2019, the IRS announced that the ACA affordability percentage for the 2020 calendar year will decrease to 9.78%. The current rate for the 2019 calendar year is 9.86%.
As a reminder, under the Affordable Care Act’s employer mandate, an applicable large employer is generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 9.78% for the 2020 calendar year.
Employers now have the tools to evaluate the affordability of their plans for 2020. Unfortunately, for some employers, a reduction in the affordability percentage will mean that they will have to reduce what employees pay for employee only coverage, if they want their plans to be affordable in 2020.
For example, in 2019 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $153.81 ($12 X 130= 1560 X 9.86%) per month for employee-only coverage. However in 2020, that same employer can only charge an employee earning $12 per hour $152.56 ($12 X 130= 1560 X 9.78%) per month for employee-only coverage, and still use that safe harbor. A reduction in the affordability percentage presents challenges especially for plans with non-calendar year renewals, as those employers that are subject to the ACA employer mandate may need to change their contribution percentage in the middle of their benefit plan year to meet the new affordability percentage. For this reason, we recommend that employers re-evaluate what changes, if any, they should make to their employee contributions to ensure their plans remain affordable under the ACA.
As we have written about previously, employers will sometimes use the Federal Poverty Level (FPL) safe harbor to determine affordability. While we won’t know the 2020 FPL until sometime in early 2020, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. This means employers can use the 2019 FPL number as a benchmark for determining affordability for 2020 now that they know what the affordability percentage is for 2020.
The Patient-Centered Outcomes Research Institute (PCORI) fee for 2018 is due by July 31, 2019. For groups whose plan year ended December 31, 2018 this will be the final PCORI payment they will have to make. Health plans whose plan year ended after December 31, 2018, but before October 1, 2019, will still have one final PCORI payment that will be due by July 31, 2020.
The PCORI fee is imposed under the Affordable Care Act (ACA) on issuers of certain health insurance policies and self-insured health plan sponsors to help fund the research institute. The fee amount is based on the average number of covered lives under the policy or plan, and the total (along with the fee) must be reported annually on the second quarter IRS Form 720 (Quarterly Federal Excise Tax Return) and paid by July 31. The fee due July 31, 2019 is calculated as $2.45 per covered life. Plan sponsors must pay the PCORI fee by July 31 of the calendar year immediately following the calendar year in which the plan year ends.
For fully insured health plans, the insurance carrier files Form 720 and pays the PCORI fee. So, employers with fully insured health plans have no filing requirement (but will be charged by the carrier for the fee). Employers that sponsor self-insured health plans are responsible for filing Form 720 and paying their due PCORI fee. For self-insured plans with multiple employers, the named plan sponsor is generally required to file Form 720.The fee may not be paid from plan assets, so it must be paid out of the sponsor’s general assets. According to the IRS, however, the fee is a tax-deductible business expense for employers with self-insured plans.
As has been reported in various news outlets, new rules issued last year now require hospitals to post their standard charges for various services on their websites. This is part of a move toward greater hospital pricing transparency in the health care provider market. The requirement to post these amounts comes from the Affordable Care Act.
However, the posted prices are likely to be of limited use. First, the amounts on their websites are the “full price” amounts, sometimes referred to as “rack rates” or the “chargemaster”, but almost no one actually pays these prices. Insurance companies and third-party administrators negotiate discounts off of these prices. Furthermore, consumers who are covered by insurance may only pay a portion of these rates through copayments or coinsurance. Even uninsured consumers may negotiate discounts off of these prices.
In many cases, the items or services listed on their websites are given highly technical, often confusing names. Even an experienced health care professional may have trouble understanding them. Additionally, a single hospital procedure may involve multiple services and therefore include several listed amounts, so the total charge for a procedure or visit may require some sleuthing around on the website to figure it out.
It seems unlikely that most employees will get much use out of these posted hospital prices. However, to the extent employers receive questions from their employees, the employers should be prepared to respond. Specifically, employers should point out that the charges on the website do not reflect the discounts negotiated by their insurance carrier or TPA.
If an employee wants to know what he or she will be charged for an item or service, the employer should suggest that they contact the carrier with their questions. Many carriers are also offering price transparency tools that reflect the discounts of the employer’s plan. If those tools are available, the employer may want to mention that as well.
The IRS recently released final forms and instructions for the 2018 employer reporting. The good news is that the process and instructions have not changed significantly from last year. However, the IRS has started to assess penalties on the 2015 forms. For that reason, employers should make sure they complete the forms accurately.
The final 2018 forms and instructions can be found at:
Employers with self-funded plans can use the B forms to report coverage for anyone their plan covers who is not an employee at any point during the year. The due dates for 2018 are as follows:
Be sure to file these forms on time. The IRS will assess late filing penalties if you file them after they are due. The instructions explain how to apply for extensions if you think you may miss the deadlines.
The 1095 C form can be sent to employees electronically with the employee’s consent, but that consent must meet specific requirements. The consent criteria include disclosing the necessary hardware and software requirements, the right to request a paper copy, and how to withdraw consent. They are the same consent requirements that apply to the W-2.
Employers must submit the forms electronically if they file 250 or more 1095 Cs. The instructions explain how to request a waiver of the electronic filing requirement.
The Trump administration announced a proposed rule today that would allow businesses to give employees money to purchase health insurance on the individual marketplace, a move senior officials say will expand choices for employees that work at small businesses.
The proposed rule, issued by the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of Treasury, would restructure Obama-era regulations that limited the use of employer-funded accounts known as health reimbursement arrangements (HRA). The proposal is part of President Donald Trump’s “Promoting Healthcare Choice and Competition” executive order issued last year, which tasked the agencies with expanding the use of HRAs.
Senior administration officials said the proposed change would bring more competition to the individual marketplace by giving employees the chance to purchase health coverage on their own. The rule includes “carefully constructed guardrails” to prevent employers from keeping healthy employees on their company plans and incentivizing high-cost employees to seek coverage elsewhere.
That issue was a primary concern under the Obama administration, which barred the use of HRAs for premium assistance. The 21st Century Cures Act established Qualified Small Employer Health Reimbursement Accounts (QSEHRA), but those are subject to stringent limitations.
Under the new rule, HRA money would remain exempt from federal and payroll income taxes for employers and employees. Additionally, employers with traditional coverage would be permitted to reserve $1,800 for supplemental benefits like vision, dental and short-term health plans.
Officials estimate 10 million people would purchase insurance through HRAs, including 1 million people that were not previously insured. Most of those people would be concentrated in small and mid-sized businesses.
The proposed change would “unleash consumerism” and “spur innovation among providers and insurers that directly compete for consumer dollars,” one senior official said. Officials expect 7 million people will be added to the individual marketplace over the next 10 years.
The rule does not change the Affordable Care Act’s employer mandate, which requires employers with 50 or more employees to offer coverage to 95% of full-time employees. Administration officials expect the proposal will have the biggest impact on small businesses with less than 50 employees.
However, the rule could scale back the use of premium subsidies. If the HRA is considered “affordable” based on the amount provided by the employer, the employee would not be eligible for a premium tax credit. If the HRA fails to meet those minimum requirements, the employee could choose between a premium tax credit and the HRA.
Overall, the rule will “create a greater degree of value in healthcare and the health benefits marketplace than we would otherwise see,” one official said.
The regulation, if finalized, is proposed to be effective for plan years beginning on and after January 1, 2020.