Compliance Newsletter

January 2017 Edition

The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010, bringing many changes for employers and health plans. The law continues to evolve as regulations are released. This monthly alert brings you information on the major provisions and regulations coming from Washington, connects you to valuable tools in understanding and complying with the law, and keeps you informed of Michigan legislation enacted in response to PPACA.

On Friday, January 20, 2017, President Trump signed his first Executive Order, titled "Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal."

The Executive Order instructs the Secretary of the Department of Health and Human Services (HHS) and the heads of all other executive departments and agencies with authority, or responsibility, under the Patient Protection and Affordable Care Act (ACA) to exercise all authority and discretion to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the ACA that would impose a fiscal burden on any state, or cost a fee, tax, penalty, or regulatory burden on individuals, families, health care providers, health insurers, patients, recipients of health care services, purchasers of health insurance, or makers of medical devices, products, or medications.

44North recommends that employers wait for confirmation from various federal agencies that regulations they are in the process of complying with (notably, ACA-related reporting) are on hold for the time being. Without confirmed Cabinet members for the Secretary of HHS, the Secretary of the Treasury, and the Secretary of Labor, there will likely be a lag in information directly from any one agency. President Trump's Chief of Staff also sent out a memo that essentially put a regulatory freeze on all agencies until presidential appointments are confirmed. We are, unfortunately, in a "wait and see" period.

44NORTH REMINDER

Benefit Enrollment Reminder

44North has received notifications from carriers that they are restructuring their timelines for changes/corrections on employee benefits. This means that 44North staff and clients must be more efficient in providing timely and accurate information to each other.

The carriers are now only allowing a 30-day window for corrections and changes. A signed letter from the group as to the delay in the processing of the enrollment is now required.

44North would like to take this time to encourage you to review your policy on obtaining and submitting documents and how to proceed going forward. Below are some general guidelines on how to handle any adds, terminations and/or changes to coverage:

Set a specific day of the week to submit all changes or submit daily, either way is fine. It is more about the best option for your office.
Ensure that COBRA communicators are being sent when an employee terminates, is on lay-off, retires, and/or is no longer eligible for benefits (i.e., reduction in hours). Large employer should be sure eligibility is based on ACA's Pay or Play Rule. This will help 44North get COBRA paperwork to the employee in a timely manner.
Make sure enrollment forms are completed with accurate information. Reading it back to the employee to make sure they are in agreement with the changes may help reduce confusion and errors.

We thank you for your attention to this matter and look forward to serving you in the coming year.

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MICHIGAN HICA TAX

Health Insurance Claims Assessment Extended

"The Health Insurance Claims Assessment (HICA) is a broad-based tax on paid health care claims. The tax was originally designed to replace the 6% tax imposed on the use or consumption of medical services provided by Medicaid Health Maintenance Organizations and Prepaid Inpatient Health Plans (referred to as the " HMO Use Tax"). Replacing the HMO Use Tax was necessary due to longstanding concerns that federal "matching" funds available for the State Medicaid program may be reduced by revenues generated by the tax. The HICA was therefore enacted as a means for the State to finance its Medicaid obligation without reducing matching funds available from the federal government.

HICA revenues, however, fell short of the amount needed to fully fund the Medicaid program. As a result, the State revised its plan to finance its Medicaid obligations through legislation which included a reduction to the HICA tax rate from 1.0% to .75% and a temporary reinstatement of the HMO Use Tax. The HMO Use Tax was reinstated pending a formal position from the federal government regarding the merits of the tax under the provisions of the Social Security Act. In this regard, the amending legislation contained a contingency provision whereby the HICA rate would automatically revert to 1.0% if the federal government informed Michigan that Medicaid matching funds would be reduced by HMO Use Tax revenues.

The federal government has since informed Michigan that the revenue collected from the HMO Use Tax will not be federally reimbursed. This determination has resulted in several noteworthy changes to both HICA and the HMO Use Tax."

Continue

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FIXED INDEMNITY HEALTH PLANS

IRS Memo on Fixed Indemnity Benefits Tax Treatment

On January 20, 2017, the IRS released a Memorandum on the tax treatment of benefits paid by fixed indemnity health plans that addresses two questions:

Are payments to an employee under an employer-provided fixed indemnity health plan excludible from the employee's income under Internal Revenue Code §105?
Are payments to an employee under an employer-provided fixed indemnity health plan excludible from the employee's income under Internal Revenue Code §105 if the payments are made by salary reduction through a §125 cafeteria plan?

The IRS concluded that an employer may not exclude payments under an employer-provided fixed indemnity health plan from an employee's gross income if the coverage's value was excluded from the employee's gross income and wages. Further, an employer may not exclude payments under an employer-provided fixed indemnity health plan if the plan's premiums were made by salary reduction through a §125 cafeteria plan.

Background

A fixed indemnity health plan pays a specific amount of cash for certain health-related events (for example, $40 per office visit or $100 per hospital day). The amount paid is neither related to the medical expense incurred, nor coordinated with other health coverage. Further, a fixed indemnity health plan is considered an "excepted benefit."

Under HIPAA, fixed dollar indemnity policies are excepted benefits if they are offered as "independent, non-coordinated benefits." Under the Patient Protection and Affordable Care Act (ACA), excepted benefits are not subject to the ACA's health insurance requirements or prohibitions (for example, annual and lifetime dollar limits, out-of-pocket limits, requiring individual and small-group policies to cover ten essential health benefits, etc.) This means that excepted benefit policies can exclude preexisting conditions, can have dollar limits, and do not legally have to guarantee renewal when the coverage is cancelled.

Further, under the ACA, excepted benefits are not minimum essential coverage so a large employer cannot comply with its employer shared responsibility obligations by offering only fixed indemnity coverage to its full-time employees.

Some examples of fixed indemnity health plans are AFLAC or similar coverage, or cancer insurance policies.

Analysis

Generally, the Internal Revenue Code imposes taxes on wages paid with respect to employment. For federal income tax withholding, the Internal Revenue Code generally requires every employer who pays wages to deduct and withhold taxes on those wages.

In the context of an employer-provided fixed indemnity health plan, when the employer's payment for coverage by the fixed indemnity plan is excluded from the employee's gross income, then the payments by the plan are not excluded from the employee's gross income.

In contrast, when the premiums are paid with after-tax dollars, the payments by the plan are excluded from the employee's gross income.

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COVERAGE REPORTING

IRS Q&A on Form 1094-C and Form 1095-C Updated

Under the Patient Protection and Affordable Care Act (ACA), individuals are required to have health insurance, while applicable large employers are required to offer health benefits to their full-time employees. For the Internal Revenue Service (IRS) to verify that individuals and employers have met their requirements under the ACA, employers with 50 or more full-time or full-time equivalent employees and insurers are required to report on the health coverage they offer.

Recently, the IRS updated its longstanding Q&A guidance on codes that employers should use when completing Forms 1094-C and 1095-C. This Advisor describes the IRS' updated guidance, including COBRA reporting information that had been left pending in earlier versions of the IRS guidance for the past year.

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COMPLIANCE RECAP

December 2016

December was a relatively busy month for new laws and administrative rulemaking in the employee benefits world.

IRS Reminders and Summaries

In December 2016, the IRS issued a reminder about its extension of the 2017 due date for employers and coverage providers to furnish information statements to individuals. The due dates to file those returns with the IRS are not extended. This IRS chart describes the upcoming deadlines. The IRS also issued two summaries: Information Reporting by Providers of Minimum Essential Coverage and Information Reporting by Applicable Large Employers.

IRS Q&As about Coverage Reporting (Forms 1094-C and 1095-C)

In December 2016, the IRS updated its longstanding Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C that provides information about:

Basics of Employer Reporting
Reporting Offers of Coverage and other Enrollment Information
Reporting for Governmental Units
Reporting Offers of COBRA Continuation Coverage and Post-Employment Coverage
Reporting Coverage under Health Reimbursement Arrangements

The Q&A describes when and how an employer reports its offers of coverage and provides examples to illustrate the codes that employers should use. The updated Q&A provides information on COBRA reporting that had been left pending in earlier versions of the Q&A for the past year.

IRS Premium Tax Credit Regulation VI

On December 19, 2016, the IRS issued final regulations relating to the health insurance premium tax credit.

If an individual declines enrollment in affordable, minimum value employer-sponsored coverage for a year, and the individual is not given an opportunity to enroll in employer-sponsored coverage for one or more succeeding years, the individual is not disqualified from premium tax credits for the succeeding years. For purposes of the employer shared responsibility penalty, a large employer may be treated as not having offered coverage for those succeeding years.

On a separate issue, although the proposed rule addressed the effect of payments made available under opt-out arrangements on an employee's required contribution for purposes of premium tax credit eligibility and an exemption from the section 5000A individual shared responsibility provision, the final regulations do not finalize regulations on the effect of opt-out arrangements on an employee's requirement contribution.

Per the final regulations, the Treasury Department and the IRS continue to examine the issues raised by opt-out arrangements and expect to finalize regulations later. Until final regulations are applicable, individuals and employers can continue to rely on the proposed rule and the guidance provided in Notice 2015-87.

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HR CORNER

REMINDER: Updated Michigan Minimum Wage Poster

Michigan's minimum wage increased on 1/1/2017. All Michigan employers subject to the Michigan Workforce Opportunity Wage Act should have updated their workplace posters to reflect the new state minimum wage. The poster is available free of charge on the Michigan Department of Licensing and Regulatory Affairs website. Copies of the poster are available in English, Spanish and Arabic.

The start of a new year is also a good time to review all workplace poster for compliance. 44north has developed a chart summarizes the various workplace related posters and contains links to the actual poster for printing.

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The information in this newsletter is based on 44North's review of the national healthcare reform legislation and is not intended to impart legal advice. Interpretations of the reform legislation vary, and efforts will be made to present and update accurate information. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Analysis is ongoing and additional guidance is also anticipated from the Department of Health and Human Services.

Questions or comments? Please email us at [email protected] .