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Oct. 15th Deadline Nears for Medicare Part D Coverage Notices

August 30 - Posted at 3:00 PM Tagged: , , , , , , ,

Prior to each year’s Medicare Part D annual enrollment period, plan sponsors that offer prescription drug coverage must provide notices of creditable or noncreditable coverage to Medicare-eligible individuals.

The required notices may be provided in annual enrollment materials, separate mailings or electronically. Whether plan sponsors use the federal Centers for Medicare & Medicaid Services (CMS) model notices or other notices that meet prescribed standards, they must provide the required disclosures no later than Oct. 15, 2018.

Group health plan sponsors that provide prescription drug coverage to Medicare Part D-eligible individuals must also disclose annually to the CMS—generally, by March 1—whether the coverage is creditable or noncreditable. The disclosure obligation applies to all plan sponsors that provide prescription drug coverage, even those that do not offer prescription drug coverage to retirees.

Background

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors that provide prescription drug coverage to disclose annually to individuals eligible for Medicare Part D whether the plan’s coverage is “creditable” or “noncreditable.” Prescription drug coverage is creditable when it is at least actuarially equivalent to Medicare’s standard Part D coverage and noncreditable when it does not provide, on average, as much coverage as Medicare’s standard Part D plan. The CMS has provided a Creditable Coverage Simplified Determination method that plan sponsors can use to determine if a plan provides creditable coverage.

Disclosure of whether their prescription drug coverage is creditable allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D during the Part D annual enrollment period. Individuals who do not enroll in Medicare Part D during their initial enrollment period (IEP), and who subsequently go at least 63 consecutive days without creditable coverage (e.g., they dropped their creditable coverage or have non-creditable coverage) generally will pay higher premiums if they enroll in a Medicare drug plan at a later date.

Who Gets the Notices?

Notices must be provided to all Part D eligible individuals who are covered under, or eligible for, the employer’s prescription drug plan—regardless of whether the coverage is primary or secondary to Medicare Part D. “Part D eligible individuals” are generally age 65 and older or under age 65 and disabled, and include active employees and their dependents, COBRA participants and their dependents, and retirees and their dependents.

Because the notices advise plan participants whether their prescription drug coverage is creditable or noncreditable, no notice is required when prescription drug coverage is not offered.

Also, employers that provide prescription drug coverage through a Medicare Part D Employer Group Waiver Plan (EGWP) are not required to provide the creditable coverage notice to individuals who are eligible for the EGWP.

Notice Requirements

The Medicare Part D annual enrollment period runs from Oct. 15 to Dec. 7. Each year, before the enrollment period begins (i.e., by Oct. 14), plan sponsors must notify Part D eligible individuals whether their prescription drug coverage is creditable or non-creditable. The Oct. 14 deadline applies to insured and self-funded plans, regardless of plan size, employer size or grandfathered status

Part D eligible individuals must be given notices of the creditable or non-creditable status of their prescription drug coverage:

  • Before an individual’s IEP for Part D.
  • Before the effective date of coverage for any Medicare-eligible individual who joins an employer plan.
  • Whenever prescription drug coverage ends or creditable coverage status changes.
  • Upon the individual’s request.

According to CMS, the requirement to provide the notice prior to an individual’s IEP will also be satisfied as long as the notice is provided to all plan participants each year before the beginning of the Medicare Part D annual enrollment period.

Model notices that can be used to satisfy creditable/non-creditable coverage disclosure requirements are available in both English and Spanish on the CMS website. Plan sponsors that choose not to use the model disclosure notices must provide notices that meet prescribed content standards.

Notices of creditable/non-creditable coverage may be included in annual enrollment materials, sent in separate mailings or delivered electronically. Plan sponsors may provide electronic notice to plan participants who have regular work-related computer access to the sponsor’s electronic information system. However, plan sponsors that use this disclosure method must inform participants that they are responsible for providing notices to any Medicare-eligible dependents covered under the group health plan.

Electronic notice may also be provided to employees who do not have regular work-related computer access to the plan sponsor’s electronic information system and to retirees or COBRA qualified beneficiaries, but only with a valid email address and their prior consent. Before individuals can effectively consent, they must be informed of the right to receive a paper copy, how to withdraw consent, how to update address information, and any hardware/software requirements to access and save the disclosure. In addition to emailing the notice to the individual, the sponsor must also post the notice (if not personalized) on its website.

In Closing

Plan sponsors that offer prescription drug coverage will have to determine whether their drug plan’s coverage satisfies CMS’s creditable coverage standard and provide appropriate creditable/noncreditable coverage disclosures to Medicare-eligible individuals no later than Oct. 15, 2018.

Oct. 15th Deadline Nears for Medicare Part D Coverage Notices

August 29 - Posted at 5:14 PM Tagged: , , , , , , , ,

Prior to each year’s Medicare Part D annual enrollment period, plan sponsors that offer prescription drug coverage must provide notices of creditable or noncreditable coverage to Medicare-eligible individuals.

The required notices may be provided in annual enrollment materials, separate mailings or electronically. Whether plan sponsors use the federal Centers for Medicare & Medicaid Services (CMS) model notices or other notices that meet prescribed standards, they must provide the required disclosures no later than Oct. 15, 2017.

Group health plan sponsors that provide prescription drug coverage to Medicare Part D-eligible individuals must also disclose annually to the CMS—generally, by March 1—whether the coverage is creditable or noncreditable. The disclosure obligation applies to all plan sponsors that provide prescription drug coverage, even those that do not offer prescription drug coverage to retirees.

Background

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors that provide prescription drug coverage to disclose annually to individuals eligible for Medicare Part D whether the plan’s coverage is “creditable” or “noncreditable.” Prescription drug coverage is creditable when it is at least actuarially equivalent to Medicare’s standard Part D coverage and noncreditable when it does not provide, on average, as much coverage as Medicare’s standard Part D plan. The CMS has provided a Creditable Coverage Simplified Determination method that plan sponsors can use to determine if a plan provides creditable coverage.

Disclosure of whether their prescription drug coverage is creditable allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D during the Part D annual enrollment period. Individuals who do not enroll in Medicare Part D during their initial enrollment period (IEP), and who subsequently go at least 63 consecutive days without creditable coverage (e.g., they dropped their creditable coverage or have non-creditable coverage) generally will pay higher premiums if they enroll in a Medicare drug plan at a later date.

Who Gets the Notices?

Notices must be provided to all Part D eligible individuals who are covered under, or eligible for, the employer’s prescription drug plan—regardless of whether the coverage is primary or secondary to Medicare Part D. “Part D eligible individuals” are generally age 65 and older or under age 65 and disabled, and include active employees and their dependents, COBRA participants and their dependents, and retirees and their dependents.

Because the notices advise plan participants whether their prescription drug coverage is creditable or noncreditable, no notice is required when prescription drug coverage is not offered.

Also, employers that provide prescription drug coverage through a Medicare Part D Employer Group Waiver Plan (EGWP) are not required to provide the creditable coverage notice to individuals who are eligible for the EGWP.

Notice Requirements

The Medicare Part D annual enrollment period runs from Oct. 15 to Dec. 7. Each year, before the enrollment period begins (i.e., by Oct. 14), plan sponsors must notify Part D eligible individuals whether their prescription drug coverage is creditable or non-creditable. The Oct. 14 deadline applies to insured and self-funded plans, regardless of plan size, employer size or grandfathered status

Part D eligible individuals must be given notices of the creditable or non-creditable status of their prescription drug coverage:

  • Before an individual’s IEP for Part D.
  • Before the effective date of coverage for any Medicare-eligible individual who joins an employer plan.
  • Whenever prescription drug coverage ends or creditable coverage status changes.
  • Upon the individual’s request.

According to CMS, the requirement to provide the notice prior to an individual’s IEP will also be satisfied as long as the notice is provided to all plan participants each year before the beginning of the Medicare Part D annual enrollment period.

Model notices that can be used to satisfy creditable/non-creditable coverage disclosure requirements are available in both English and Spanish on the CMS website. Plan sponsors that choose not to use the model disclosure notices must provide notices that meet prescribed content standards.

Notices of creditable/non-creditable coverage may be included in annual enrollment materials, sent in separate mailings or delivered electronically. Plan sponsors may provide electronic notice to plan participants who have regular work-related computer access to the sponsor’s electronic information system. However, plan sponsors that use this disclosure method must inform participants that they are responsible for providing notices to any Medicare-eligible dependents covered under the group health plan.

Electronic notice may also be provided to employees who do not have regular work-related computer access to the plan sponsor’s electronic information system and to retirees or COBRA qualified beneficiaries, but only with a valid email address and their prior consent. Before individuals can effectively consent, they must be informed of the right to receive a paper copy, how to withdraw consent, how to update address information, and any hardware/software requirements to access and save the disclosure. In addition to emailing the notice to the individual, the sponsor must also post the notice (if not personalized) on its website.

In Closing

Plan sponsors that offer prescription drug coverage will have to determine whether their drug plan’s coverage satisfies CMS’s creditable coverage standard and provide appropriate creditable/noncreditable coverage disclosures to Medicare-eligible individuals no later than Oct. 15, 2017.

 

The American Health Care Act Passes the House of Representatives

May 05 - Posted at 4:18 PM Tagged: , , , , , , , , , , , , ,

Yesterday (May 4, 2017) , the House of Representatives narrowly passed the American Health Care Act of 2017 (AHCA), which contains major parts that would repeal and replace the Affordable Care Act (commonly referred to as Obamacare or ACA).  The next obstacle the bill faces is making it through the Senate, which proves to be a formidable challenge.


The nonpartisan Congressional Budget Office has not had time yet to analyze the current version of the bill, but this is expected next week. The bill must now pass the Senate and could get pushed back to the House if it sees changes in the upper chamber.

In the meantime, here are some highlights we know about the bill based on how it is written today and how it would work:


  • The AHCA bill would eliminate the requirement that people buy health insurance (known as the individual mandate).  
  • The bill would eliminate penalties for large employers (50+ employees) that do not provide insurance to their employees.
  • The bill would impose a penalty for people who don’t maintain continuous health insurance. The AHCA would create a penalty for people who have a gap in their health insurance of more than 63 days.  People buying insurance in the individual market who have a gap of 63 days or longer could be charged a “late enrollment penalty” by the carriers that could be up to 30% of the premium price.
  • The bill would end Medicaid expansion.
  • The bill would cut Medicaid spending.
  • The bill would change how subsidies to buy health insurance are allocated.
  • The bill keeps requirements that insurers must sell coverage to everybody.
  • The bill would allow states to change which benefits insurers are required to provide to people who buy plans on their own. The AHCA would allow states to waive the current requirements of “Essential Health Benefits” (aka EHB) under Obamacare that are imposed on plans or allow states to set up their own list of EHBs that insurers must cover in the individual market.
  • The bill would allow insurers to charge older people more than under the current law. The ACA limits insurers to charging older customer to 3 times a much as younger customers in the individual market. The AHCA expands that ratio to allow insurers to charge older customers 5 times as much as younger customers (it was 10 times prior to Obamacare).
  • The bill would allow states to let insurers charge older people even more. Under the AHCA, states could seek a waiver from the federal government regarding the age ratios which would let them set their own ratios above the 5 times ratio set by the government.
  • The bill would allow states to end requirements that insurers cover pre-existing conditions.
  • The bill could lead to states setting up special insurance programs for high cost patients. The main requirements for a waiver on pre-existing conditions is that states must set up some kind of program to cover the most costly customers (aka high risk pools).
  • The bill could impact the benefits covered by employer sponsored insurance.
  • The bill would keep the insurance exchanges in place.
  • The bill would allow kids to stay on their parent’s plan until age 26.
  • The bill would repeal multiple taxes that helped fund the ACA.
  • The bill would cut federal spending by hundreds of billions of dollars.
  • The bill would return over the counter medications to the list of qualified medical expenses for the 2017 tax year.
  • The bill would reduce the tax penalty on health savings accounts from 20% to 10% for distributions that are not used for qualified expenses.
  • The bill would repeal the limitation of $2500 on health FSA contributions.
  • The bill would increase H.S.A. contributions for a year to equal the maximum on the sum of the annual deductible and out of pocket expenses.
  • The bill would allow both spouses to make catch up contributions in one H.S.A.


We will continue to keep you up to date on the bill as it progress through legislation.

Oct. 14th Deadline Nears for Medicare Part D Coverage Notices

August 29 - Posted at 9:19 PM Tagged: , , , , , , ,

Prior to each year’s Medicare Part D annual enrollment period, plan sponsors that offer prescription drug coverage must provide notices of creditable or noncreditable coverage to Medicare-eligible individuals.


The required notices may be provided in annual enrollment materials, separate mailings or electronically. Whether plan sponsors use the federal Centers for Medicare & Medicaid Services (CMS) model notices or other notices that meet prescribed standards, they must provide the required disclosures no later than Oct. 14, 2016.


Group health plan sponsors that provide prescription drug coverage to Medicare Part D-eligible individuals must also disclose annually to the CMS—generally, by March 1—whether the coverage is creditable or noncreditable. The disclosure obligation applies to all plan sponsors that provide prescription drug coverage, even those that do not offer prescription drug coverage to retirees.

Background

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors that provide prescription drug coverage to disclose annually to individuals eligible for Medicare Part D whether the plan’s coverage is “creditable” or “noncreditable.” Prescription drug coverage is creditable when it is at least actuarially equivalent to Medicare’s standard Part D coverage and noncreditable when it does not provide, on average, as much coverage as Medicare’s standard Part D plan. The CMS has provided a Creditable Coverage Simplified Determination method that plan sponsors can use to determine if a plan provides creditable coverage.


Disclosure of whether their prescription drug coverage is creditable allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D during the Part D annual enrollment period. Individuals who do not enroll in Medicare Part D during their initial enrollment period (IEP), and who subsequently go at least 63 consecutive days without creditable coverage (e.g., they dropped their creditable coverage or have non-creditable coverage) generally will pay higher premiums if they enroll in a Medicare drug plan at a later date.


Who Gets the Notices?

Notices must be provided to all Part D eligible individuals who are covered under, or eligible for, the employer’s prescription drug plan—regardless of whether the coverage is primary or secondary to Medicare Part D. “Part D eligible individuals” are generally age 65 and older or under age 65 and disabled, and include active employees and their dependents, COBRA participants and their dependents, and retirees and their dependents.


Because the notices advise plan participants whether their prescription drug coverage is creditable or noncreditable, no notice is required when prescription drug coverage is not offered.


Also, employers that provide prescription drug coverage through a Medicare Part D Employer Group Waiver Plan (EGWP) are not required to provide the creditable coverage notice to individuals who are eligible for the EGWP.


Notice Requirements

The Medicare Part D annual enrollment period runs from Oct. 15 to Dec. 7. Each year, before the enrollment period begins (i.e., by Oct. 14), plan sponsors must notify Part D eligible individuals whether their prescription drug coverage is creditable or non-creditable. The Oct. 14 deadline applies to insured and self-funded plans, regardless of plan size, employer size or grandfathered status


Part D eligible individuals must be given notices of the creditable or non-creditable status of their prescription drug coverage:


  • Before an individual’s IEP for Part D.
  • Before the effective date of coverage for any     Medicare-eligible individual who joins an employer plan.
  • Whenever prescription drug coverage ends or creditable     coverage status changes.
  • Upon the individual’s request.


According to CMS, the requirement to provide the notice prior to an individual’s IEP will also be satisfied as long as the notice is provided to all plan participants each year before the beginning of the Medicare Part D annual enrollment period.


Model notices that can be used to satisfy creditable/non-creditable coverage disclosure requirements are available in both English and Spanish on the CMS website. Plan sponsors that choose not to use the model disclosure notices must provide notices that meet prescribed content standards.


Notices of creditable/non-creditable coverage may be included in annual enrollment materials, sent in separate mailings or delivered electronically. Plan sponsors may provide electronic notice to plan participants who have regular work-related computer access to the sponsor’s electronic information system. However, plan sponsors that use this disclosure method must inform participants that they are responsible for providing notices to any Medicare-eligible dependents covered under the group health plan.


Electronic notice may also be provided to employees who do not have regular work-related computer access to the plan sponsor’s electronic information system and to retirees or COBRA qualified beneficiaries, but only with a valid email address and their prior consent. Before individuals can effectively consent, they must be informed of the right to receive a paper copy, how to withdraw consent, how to update address information, and any hardware/software requirements to access and save the disclosure. In addition to emailing the notice to the individual, the sponsor must also post the notice (if not personalized) on its website.


In Closing

Plan sponsors that offer prescription drug coverage will have to determine whether their drug plan’s coverage satisfies CMS’s creditable coverage standard and provide appropriate creditable/noncreditable coverage disclosures to Medicare-eligible individuals no later than Oct. 14, 2016.

Reminder: Medicare Part D Creditable Coverage Notice

September 15 - Posted at 2:00 PM Tagged: , , , , , , , ,

Employers must provide a creditable or non-creditable coverage notice at least once a year to all Medicare eligible individuals who are covered under, or who apply for, the group’s prescription drug plan. This notice must be provided to both active employees and retirees who are eligible for Medicare Part D.


The Medicare Modernization Act mandates that all employers offering prescription drug coverage disclose to all Medicare eligible individuals with prescription drug coverage under the plan whether the coverage is “creditable”. This information is essential to the Medicare eligible’s decision whether to enroll in a Medicare Part D prescription drug plan.


Employers are required by the Centers for Medicare and Medicaid Services (CMS) to provide creditable coverage at least once a year and at the following times:


  • Prior to the Medicare Part D Election Period beginning October 15th of each year
  • Prior to the individual’s initial enrollment period
  • Prior to the effective date of coverage for any Medicare-eligible individual that joins your plan
  • Whenever prescription drug coverage ends or changes


This notice does not need to be a separate mailing and can be included with other plan information materials either printed or electronic. Employers are required to provide this notice and to provide CMS with your plan’s creditable or non-creditable coverage status annually via online form within 60 days of the beginning of each plan year.


Please contact our office for assistance in determining if your prescription drug plan is considered creditable or non-creditable coverage or if you need a copy of the model notice for employees.

Employers must provide a creditable or non-creditable coverage notice at least once a year to all Medicare eligible individuals who are covered under, or who apply for, the group’s prescription drug plan. This notice must be provided to both active employees and retirees who are eligible for Medicare Part D.

 

The Medicare Modernization Act mandates that all employers offering prescription drug coverage disclose to all Medicare eligible individuals with prescription drug coverage under the plan whether the coverage is “creditable”. This information is essential to the Medicare eligible’s decision whether to enroll in a Medicare Part D prescription drug plan.

 

Employers are required by the Centers for Medicare and Medicaid Services (CMS) to provide creditable coverage at least once a year and at the following times:

 

  • Prior to the Medicare Part D Election Period beginning October 15th of each year
  • Prior to the individual’s initial enrollment period
  • Prior to the effective date of coverage for any Medicare-eligible individual that joins your plan
  • Whenever prescription drug coverage ends or changes

 

 

This notice does not need to be a separate mailing and can be included with other plan information materials either printed or electronic. Employers are required to provide this notice and to provide CMS with your plan’s creditable or non-creditable coverage status annually via online form within 60 days of the beginning of each plan year.

 

Please contact our office for assistance in determining if your prescription drug plan is considered creditable or non-creditable coverage or if you need a copy of the model notice for employees.

Can corporations shift targeted workers who have known high medical costs from the company health plan to public exchange (aka Marketplace/SHOP) based coverage created by the Affordable Care Act? Some employers are beginning to inquire about it and some consultants are advocating for it.

 

Health spending is driven largely by those patients with chronic illness, such as diabetes, or those who undergo expensive procedures such as an organ transplant. Since a large majority of big corporations are self-insured and many more smaller employers are beginning to research this as an option to help control their medical premiums, shifting even one high-cost member out of the company health plan could potentially save the employer hundreds of thousands of dollars a year by shifting the cost for the high-cost member claims to the Marketplace/SHOP plan(s).

 

It is unclear if the health law prohibits this type of action, which opens a door to the potential deterioration of employer-based medical coverage.

 

An employer “dumping strategy” can help promote the interests of both employers and employees by shifting health care expenses on to the public through the Marketplace.

 

It’s unclear how many companies, if any, have moved any of their sicker workers to exchange coverage yet, which just became available January 1, 2014, but even a few high-risk patients could add millions of dollars in claim costs to those Marketplace plans. The costs could be passed on to customers in the next year or two in the form of higher premiums and to taxpayers in the form of higher subsidy expenses.

 

A Possible Scenario

 

Here’s an example of how an employer “dumping-situation” it might work:

 

At renewal, an employer reduces the hospital/doctor network on their medical plan to make the company health plan unattractive to those with chronic illness or high cost medical claims. Or, the employer could raise the co-payments for drugs or physician visits needed by the chronically ill, also making the health plan unattractive and perhaps nudging high-cost workers to examine other options available to them.

 

At the same time, the employer offers to buy the targeted worker a high-benefit “platinum” plan in the Marketplace. The Marketplace/SHOP plan could cost $6,000 or more a year for an individual in premiums, but that’s still far less than the $300,000 a year in claim costs that a hemophilia patient might cost the company.

 

The employer could also give the worker a raise so they could buy the Marketplace/SHOP policy directly.

 

In the end, the employer saves money and the employee gets better coverage. And the Affordable Care Act marketplace plan, which is required to accept all applicants at a fixed price during open enrollment periods, takes over the costs for their chronic illness/condition.

 

Some consultants feel the concept sounds too easy to be true, but the ACA has set up the ability for employers and employees to voluntarily choose a better plan in the Individual Marketplace which could help save a significant amount of money for both.

 

Legal but ‘Gray’

 

The consensus among insurance and HR professionals is that even though the employer “dumping-strategy” is technically legal to date (as long as employees agree to the change and are not forced off the company medical plan), the action is still very gray. This is why many employers have decided this is not something they want to promote at this time.

 

Shifting high-risk workers out of employer medical plans is prohibited for other kinds of taxpayer-supported insurance. For example, it’s illegal to persuade an employee who is working and over 65 to drop company coverage and rely entirely on the government Medicare program. Similarly, employers who dumped high-cost patients into temporary high-risk pools established originally by the ACA health law are required to repay those workers’ claims back to the pools.

 

One would think there would be a similar type of provision under the Affordable Care Act for plans sold through the Marketplace portals, but there currently is not.

 

The act of moving high-cost workers to a Marketplace plan would not trigger penalties under ACA as long as an employer offers an affordable medical plan to all eligible employees that meets the requirements of minimum essential coverage, experts said.  If  workers are offered a medical plan by their employer that is affordable coverage and meets the minimum essential coverage requirements, workers cannot use tax credits to help pay for the Marketplace-plan premiums.

 

Many benefits experts say they are unaware of specific instances where employers are shifting high-cost workers to exchange plans and the spokespeople for AIDS United and the Hemophilia Federation of America, both advocating for patients with expensive, chronic conditions, said they didn’t know of any, either.

 

But employers are becoming increasingly interested in this option.

 

This practice, however, could raise concerns about discrimination and could cause decreased employee morale and even resentment among employees who are not offered a similar deal, which could end up causing the employer more headaches and even potential discrimination lawsuits.

 

Many believe that even though this strategy is currently an option for employers, in the end, it may not be a good idea. This type of strategy has to operate as an under-the-radar deal between the employer and targeted employee and these type of deals never work out. Most legal experts who focus on employee benefits do not recommend this strategy either as it just opens the door of discrimination claims from employees.

 

Please contact our office for assistance in reviewing all of the benefit options available to your company and employees under ACA.

The Patient Protection and Affordable Care Act (the “ACA”) adds a new Section 4980H to the Internal Revenue Code of 1986 which requires employers to offer health coverage to their employees (aka the “Employer Mandate”). The following Q&As are designed to deal with commonly asked questions.  These Q&As are based on proposed regulations and final regulations, when issued, may change the requirements.

Question 2: Who Is Eligible for a Premium Tax Credit or Cost-Sharing Subsidy?

As noted in Part 1, failing to offer full-time employees minimum essential coverage, or coverage that meets the affordability or minimum value requirements, is not enough to trigger liability under the Employer Mandate. Two additional things must occur before any penalty will be assessed:

 

  1. one of the full-time employees must enroll in health coverage offered through an Exchange.

     

  2. one of the full-time employees must also receive an Exchange subsidy (a premium tax credit or cost-sharing subsidy).

 

 

Thus, an employer should consider which employees are potentially eligible for an Exchange subsidy when deciding how to comply with the Employer Mandate. It is important to note that the employee must qualify for the Exchange subsidy. An employee’s dependent receiving an Exchange subsidy (i.e. an adult child who is not a tax dependent of the employee) will not cause an Employer Mandate penalty.

Coverage Through an Exchange

In order to be eligible to receive an Exchange subsidy, an individual must enroll in health coverage offered through the Exchange. Under the ACA, an Exchange will be established in each state, either by the state or by the federal government (or a combination of the two). An Exchange is a governmental entity or nonprofit organization that serves as a marketplace for health insurance for individuals and small employers. Health insurance offered through the Exchanges must cover a minimum set of specified benefits and must be issued by an insurer that has complied with certain licensing and regulatory requirements.

Eligibility for an Exchange Subsidy

There are two Exchange subsidies available:

 

  • The premium tax credit- This is intended to help individuals purchase health coverage through the Exchange. The credit is available only to legal U.S. residents whose household income is 100% - 400% of the federal poverty line (“FPL”). Legal resident aliens also qualify for the credit if their household income is below 100% of the FPL since they are not eligible for Medicaid. Individuals who are eligible for Medicaid or Medicare, or certain other government-sponsored coverage (like CHIP or VA health care), are not eligible for premium tax credits.

    An employee is not eligible for a premium tax credit if the employee is either (i) enrolled in an employer-sponsored plan or (ii) eligible for an employer-sponsored plan that meets the affordability and minimum value requirements.

 

  • The cost-sharing subsidy- Cost-sharing subsidies, which reduce cost-sharing amounts such as co-pays and deductibles, are available to individuals who have a household income no greater than 250% of the FPL and enroll in “silver-level” coverage through the Exchange. An employee whose household income is 200% of the FPL may as a result be eligible for a premium tax credit to help defray the cost of monthly insurance premiums, and a cost-sharing subsidy to help reduce the amount of out-of-pocket cost (like co-pays and deductibles) to which the Exchange-enrolled employee otherwise would be subject to.



“Certification” of Eligibility for an Exchange Subsidy to Employer

The Employer Mandate penalty applies only when the employer has first received “certification” that one or more employees have received an Exchange subsidy. The IRS will provide this certification as part of its process for determining whether an employer is liable for the penalty. This penalty will occur in the calendar year following the year for which the employee received the Exchange subsidy (i.e. the employer would receive the penalty in 2015 for a employee Exchange subsidy beginning in 2014). Under IRS issued procedures, employers that receive notice of certification will be given an opportunity to contest the certification before any penalty is assessed.

In addition, Exchanges are required to notify employers that an employee has been determined eligible to receive an Exchange subsidy. The notification provided will identify the employee, indicate that the employee has been determined eligible to receive an Exchange subsidy, indicate that employer may be liable for an Employer Mandate penalty, and notify the employer of the right to appeal the determination. These notices will be useful in giving employers an opportunity to correct erroneous Exchange information and protect against erroneous penalty notices from the IRS. These notices will also be useful in budgeting for any penalties that may be owed.

Planning Consideration
The Employer Mandate penalty applies only to an employer failing to offer health coverage if one or more of its full-time employees enrolls in insurance coverage through an Exchange, and actually receives either a premium tax credit or a cost-sharing subsidy. Unless a full-time employee enrolls in an Exchange and obtains the tax credit or subsidy, the employer is off the hook. This can lead to some surprising exemptions from the penalty.

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