While it seems like the 2014 open enrollment period just ended, the 2015 open enrollment period, which begins on November 15, is in fact only four and a half months away. On June 26, 2014, the Department of Health and Human Services released a proposed rule addressing eligibility redeterminations for 2015. Together with the proposed rule, HHS issued a guidance describing how the federally facilitated exchange intends to redetermine eligibility, as well as draft standard notices for health plans to use when discontinuing or renewing plans in the individual and small group market and instructions for completing those notices.
On the same date, the Internal Revenue Service released final rules governing the small employer tax credit program. This post will discuss these rules and guidances, as well as another court decision rejecting a challenge to the individual mandate and another spate of FAQs on the SHOP exchange program.
Rules governing redetermination of eligibility for premium tax credits and cost-sharing reduction payments and reenrollment in qualified health plans (QHPs) have been in place for over two years. The goal of these procedures has always been to ensure that once an individual is determined eligible to receive premium tax credits and enrolled in a QHP, reenrollment should be as automatic and painless as possible, consistent with respecting enrollee free choice of plan and accuracy of eligibility determinations. The hope is that the millions of individuals enrolled in coverage for 2014 will remain covered in 2015 if they remain eligible for coverage, while millions more are added to their ranks for 2015.
The proposed rule addresses both the eligibility redetermination process and the QHP reenrollment process. The guidance focuses on the redeterminations, while the notices are directed at reenrollments.
The proposed rule preserves much of the current eligibility redetermination process. Under the current regulation, the exchanges must provide 2014 enrollees with a notice of the 2015 open enrollment period and the 2015 redetermination of eligibility in a single notice. For individuals who requested an eligibility determination for the insurance affordability programs for 2014 and authorized the exchange to obtain their most recent tax return information from the IRS for future redeterminations, this notice will include a projected eligibility determination for the following year based on the tax information and all other eligibility information on file with the exchange regarding income and family size; it will also include projected plan premiums for the individual’s QHP and information on the benchmark plan.The process set out in the current rule allows individuals enrolled in a QHP that remains available through the exchange to renew coverage for the following year without having to reapply or take other actions.
Changes from current regulations. The biggest change in the proposed rule is to provide for two new redetermination processes in addition to the one set out in the 2012 rule. The first of these is an alternative procedure that will be specified by HHS in guidance for the applicable plan year. This gives HHS the discretion to adapt and fine tune eligibility processes from year to year. The June 26 guidance discussed below sets out the process that the FFE will use in 2015 and that state-based exchanges may use as well.
Second, exchanges may propose alternative eligibility redetermination processes that can be approved by HHS if they facilitate continuous enrollment, provide clear information to enrollees on their responsibilities, and adequately protect program integrity.
The proposed rule includes three additional amendments to eligibility redetermination and reenrollment processes. First, the current rule would be amended to provide that individuals who request an eligibility determination for insurance affordability programs must report all changes in their income within 30 days at redetermination time, but that individuals who have not requested eligibility determinations for premium tax credits cannot be required to report changes that would have affected eligibility had they requested assistance.
Second, the amendments would provide that exchanges can refuse to accept reporting of changes by mail in circumstances affecting eligibility. HHS recognizes that eligibility redetermination is often a dynamic and iterative process, where a change in one factor may affect or reveal others. Notifications by mail will often require follow-up phone calls; thus, HHS has concluded it is better to conduct the entire process by phone, although online and in-person communications are also permitted. If this proposal is finalized, the federal exchange will cease accepting change reporting by mail.
Third, the proposed rule would clarify the reenrollment process. Under current rules, if individuals are enrolled in a QHP for one year, they are automatically reenrolled unless they terminate coverage or switch plans. The proposed rule addresses the question of what will happen, however, if the plan an individual is enrolled in is no longer available.
Plans Versus Products. To understand the rule one must understand the distinction HHS draws between plans and products. A product is a discrete package of benefits offered by an insurer using a particular product network type (HMO, PPO) within a particular service area. A product can consist of multiple plans, which have separate cost-sharing structures (metal tiers) and service areas.
The proposed rule creates a hierarchy in which the enrollee is reenrolled: .
- in the same QHP if it remains available;
- if the enrollee’s current QHP is not available, in a plan at the same metal level as the enrollee’s current QHP in the same product;
- if the enrollee’s product no longer includes a plan at the same metal level as the current QHP, in a plan that is one metal level higher or lower than the enrollee’s current QHP in the same product; and
- If no plan is available in the same product one metal level higher or lower than the enrollee’s current QHP, in any other plan offered through the exchange by the QHP insurer in which the enrollee is eligible to enroll.
If the product that includes the QHP plan in which the individual is enrolled is no longer available, the insure may, if permitted by state law, reenroll the enrollee in a plan in its most similar product:.
- at the same metal level;
- if no plan is available at the same metal level in the next level higher or lower in its most similar product;
- if no plan is available in the next metal level, in any other exchange plan offered by the insurer; and
- if the QHP insurer offers no other plans through the exchange, the insurer may reenroll the enrollee in a similar product outside the exchange. The exchange would not handle such a reenrollment and the enrollee would not be eligible for premium tax credits or cost-sharing reduction payments.
Insurers are not required to reenroll enrollees in plans or products that are no longer available for renewal. Obviously, enrollees who are reenrolled in a plan or product significantly different than the one they had chosen for 2014 are well advised to go back to the exchange and start shopping.
The proposed rule also expands and clarifies the content of the renewal or discontinuation notices that health insurers must send to their enrollees in the individual market prior to the first day of an open enrollment period. Under the proposed rule, these notices must contain: .
- premium and premium tax credit information sufficient to inform enrollees of expected monthly premium payments under the renewed coverage;
- an explanation of the requirement that enrollees report changes that might affect eligibility to the exchange, the timeframe and channels through which changes can be reported, and the implications of not reporting changes;
- for enrollees with premium tax credits, a description of the advance tax credit reconciliation process; and
- for enrollees who receive cost-sharing reductions if the enrollee is being renewed in a QHP at a non-silver metal level, an explanation that, unless the enrollee selects a new silver-level plan, cost-sharing reductions will not be provided for the upcoming year.
The six standard notices in the guidance that accompanies the rule incorporate these requirements, adapted to various circumstances. They address plan nonrenewals and discontinuances in the individual market inside and outside of the exchange, and they include notices to employers (but not employees) in the small group market. In the small group market, renewal notices will be sent 60 days prior to the new plan year, as small group plan years need not be calendar years. Discontinuance notices must be sent 90 days before discontinuance. States may, without CMS approval, adopt alternative notices as long as they are at least as protective as the federal standard notices.
Federally Facilitated Marketplace 2015 procedure. The June 26 eligibility redetermination guidance sets out in some detail the procedure that the FFM intends to use for eligibility redeterminations for 2015. It is basically an elaboration rather than a fundamental change in the current rule procedure, but it deviates from the current rule in some important respects. The implementation of the guidance is dependent on the adoption of the final rule.
The guidance procedure begins with the exchange requesting updated tax data from the IRS on persons who are currently receiving insurance affordability payments and who authorized the release of their tax data for redetermination purposes in their initial application. This is different from the current rule, under which information would be requested not just from the IRS but also from Social Security and other current income data sources and would be requested on all qualified individuals who had requested an eligibility determination earlier, even if they never enrolled in a QHP. The new guidance procedure is thus simpler and more focused.
Under the guidance procedure, the exchange will provide three types of notices based on information it receives on a particular enrollee; the notices can be combined where appropriate. These notices must be provided together with the notice of open enrollment and must be sent no later than November 15, 2014. The exchange can follow up these notices with additional notices or with telephone contacts. Notices must meet language and disability accessibility standards.
The first type of notice contains a description of the annual redetermination and renewal process, including notice of:
- the requirement to report changes to eligibility information and the timeframe and channels for reporting changes;
- the fact that plan selection must be made by December 15, 2014 for continuous coverage beginning January 1, 2015 and that February 15, 2015 is the last day of open enrollment;
- for enrollees who authorized the exchange to request updated tax return information for eligibility redetermination;
- and who are receiving tax credits, a description of the reconciliation process;
- and for whom tax credits or cost-sharing reductions are being provided and who are not enrollees who will be sent the special notice described below, an explanation that if they do not contact the Exchange to obtain an updated eligibility determination by December 15, the Exchange will establish 2015 eligibility identical to the enrollee’s most recent eligibility determination for 2014, including the exact dollar amount of tax credits and category of cost-sharing reduction, and an explanation that in order to obtain the most accurate eligibility determination from the Exchange, including APTC that may increase or decrease, an enrollee should contact the Exchange; and
- for enrollees who did not authorize the Exchange to request updated tax return information for use in the annual redetermination process, and who are receiving tax credits or cost-sharing reduction payments (reportedly about 100,000 individuals), an explanation that unless they contact the Exchange to obtain an updated eligibility determination by December 15, 2014, their tax credits and cost-sharing reduction payments will end on December 31, 2014 and the Exchange will renew their coverage in a QHP for 2015 without tax credits or cost-sharing reduction payments, if coverage is otherwise renewable.
Exchanges could also include premium information in this notice, but the federally facilitated exchange will not do this but rather have insurers provide premium information for 2015.
A second income-based outreach notice will be sent by the exchange to individuals who authorized the exchange to request updated tax data for the redetermination and who meet one of the following criteria:
- No updated tax return information is provided by IRS in response to the exchange’s request;
- The most recent Marketplace eligibility determination for 2014 reflects household income in excess of 350% of the federal poverty level; or
- The IRS provides updated household income information from tax data that, together with the family size used for the enrollee’s most recent eligibility determination for 2014, reflects household income above of 350% of the poverty level; an increase or decrease in household income of greater than 50%, compared to the 2014 eligibility level; and household income that meets other criteria established by the exchange.
This income-based outreach notice will also include the standard notice information as set out above and will strongly encourage the enrollee to contact the exchange to update eligibility information.
Third, a special notice will be sent to a small number of individuals receiving tax credits or cost-sharing reduction payments who authorized access to their tax information where the tax information shows them as having household income in excess of 500 percent of the poverty level, which would seem to make them clearly ineligible. These individuals will also receive the information in the standard notice. They will be told, however, that if they do not contact the exchange to update their information they will be terminated from tax credits and cost-sharing reduction payments and be reenrolled in their qualified health plan without assistance if the plan is renewable.
Individuals must report eligibility changes within 30 days and must verify eligibility information.
The guidance separates individuals who received tax credits or cost-sharing reduction payments in 2014 and whose eligibility is redetermined for 2015 into three categories:
- The first group consists of qualified individuals or enrollees who contact the exchange to update eligibility information, authorize the exchange to request updated tax return information for use in the annual redetermination process (either in their initial application or at the time of redetermination) and authorize the exchange to adjust their level of tax credits or select a new QHP. The Marketplace will redetermine eligibility for these individuals using updated (2014) poverty level thresholds, the applicable benchmark plan based on 2015 premium data, and applicable percentages that are indexed for 2015. This redetermination would include an assessment or determination, as applicable, of eligibility for Medicaid and CHIP.
- The second group consists of individuals who authorized the exchange to redetermine their eligibility in an earlier application but did not respond to the exchange’s request for updated information and did not receive the special notice. These individuals will have their eligibility for tax credits redetermined at the exact dollar amount they received in 2014 and their cost-sharing reduction payments redetermined based on this level. These individuals will in all likelihood receive less than they would have had they contacted the exchange, as they will not be compensated for increases in benchmark premium levels of changes in their age-based premiums as their age increases.
- The third group consists of individuals who do not authorize the exchange to obtain their tax data or who got the special notice because their reported income exceeds 500 percent of poverty. If these individuals do not contact the exchange and provide information for an updated eligibility determination, their eligibility for premium tax credits and cost-sharing reduction payments will end on December 31. They will be reenrolled in their QHP if it is available, but without assistance.
Although the goal of the revised procedure is to simplify and streamline as much as possible the redetermination and reenrollment process for 2015, the process is inevitably going to be a challenge.
A report released by Avalere Health in June 26, 2014 illustrates one problem. During 2014, two-thirds of individuals who enrolled in silver plans enrolled in the first or second lowest-cost plan. Based on premiums reported to date, in six of the nine states analyzed by Avalere, the second-lowest cost benchmark plan for 2014 will change for 2015. In seven of the states, the lowest cost plan will change as well. Enrollees who stick with their 2014 plan in 2015 may well see their premiums increase substantially as their plan loses benchmark status. Their premium tax credits will not increase to cover these premium increases but will rather be pegged to their income and the benchmark plan.
The standard notice that insurers must send out will tell enrollees what their 2015 premium will be and inform enrollees that they may change plans and that the open enrollment period lasts through February 15. We should expect a great deal of movement among plans during this time period.
Although the open enrollment period lasts through February 15, 2015, to ensure continuous coverage, individuals must have their eligibility redetermined by December 15, 2014. During the 30 days between November and December 15, the exchanges will be receiving and verifying eligibility information from millions of individuals, many of whom are changing plans at the same time. Some of these individuals will change plans again during the remainder of the open enrollment period once they realize that their 2014 plan is no longer the cheapest plan. Their premium tax credit amount will need to be recalculated again when they do so.
This process is going to present a massive technological challenge. I hope that the agencies are up for it, and that, as they approach 2015 open enrollment, they are totally transparent about the challenges they anticipate.
Small Employer Tax Credit Final Rule
On June 26, 2014, the Internal Revenue Service released the final small employer tax credit rule. It is puzzling that the rule would have been released at this late date, since the program has been in operation now for four years, operating under earlier notices and a 2013 proposed rule.
The small employer tax credit was created by Congress to encourage the employers least likely to offer employee coverage — very small employers with low-wage employees — to offer coverage. Although it has in fact been a help to some employers and their employees, the program is narrowly targeted and has reached a relatively small number of employers.
The final rule basically repeats the proposed rule, and in fact the statute itself, with few changes or elaborations. The small employer tax credit is available to employers with 25 or fewer full-time equivalent employees and who pay average annual wages that do not exceed $50,000 in 2013 dollars ($50,800 for 2014). In fact the tax credit begins to phase out for employers with more than 10 FTEs or with annual wages averaging $25,000 or more, and only employers below these lower thresholds receive the full tax credit. Employers who make a uniform nonelective contribution of not less than 50 percent of the premium cost for employees who enroll in a qualified health plan can qualify to receive a tax credit.
The tax credit will cover half of the employer’s actual aggregate contributions (35 percent if the employer is a tax exempt organization), or, if less, half (or 35 percent for tax exempts) of the amount the employer would have spent for the average premium for QHPs in the small group market in the rating area in which the employer is located. As of 2014, employers can only receive the tax credit if their employees enroll in a QHP through a SHOP exchange, subject to certain exceptions discussed below. Also, for plans beginning in 2014, the tax credit is only available for two consecutive years.
The final rules fill in some of the details in this scheme. All related employers that are treated as a single employer under IRS aggregation rules are considered a single employer under these rules. Employers cannot split themselves up to meet size requirements. Size is determined by counting full-time equivalent employees, calculated by adding total hours of service of all employees and dividing by 2080.
Leased employees are counted as employees for determining FTEs and average annual wages. Ministers who are common law employees can be counted as employees. Owners of or partners in businesses and their family members do not qualify as employees. Premiums paid for coverage for former employees may be counted in determining the amount of the tax credit, but the former employee must then be counted as an employee. Hours include paid hours of service, including, for example, paid holidays and vacations. Seasonal employees who work fewer than 120 days are not counted when determining FTEs or average annual wages.
Tax exempt organizations do not pay income tax and thus cannot claim a tax credit against income tax. Instead, they collect their 35 percent credit by holding onto income and Medicare taxes that they withhold from their employees and using these funds for premiums. Their tax credit cannot, therefore, exceed the amount of taxes they would otherwise withhold. Employees are, of course, credited by the IRS for the full amount of withholding the IRS would otherwise have received.
Beginning in 2014, a small employer can only claim the tax credit in two consecutive years. The first year will be the first year in which an employer files Form 8941 claiming the tax credit, even if it is not for a full year. Employers should, therefore, only file the form if they can claim a full year of tax credit eligibility. Only premiums paid for insurance by an employer qualify for the credit — not amounts contributed to an HSA, HRA, or through a salary-reduction agreement to an FSA.
Beginning in 2014, only premiums paid through a SHOP exchange (including premiums for stand-alone dental plans) qualify. The final rule provides a transitional rule, however, for 2014: employers that offered coverage as of August 26, 2013 under a plan that would have qualified for the credit as of that time, and who switch to a SHOP exchange plan as of the first day of its next plan year that begins in 2014, may claim the 50 percent credit (35 percent for nonprofits) for the entire 2014 year. Under an earlier Notice, the tax credit is also available for plans outside the exchange for certain counties in Washington and Wisconsin where SHOP plans are not available for 2014.
To qualify for the premium tax credit, an employer must make a uniform contribution of not less than 50 percent of premium for all employees who enroll in QHP coverage. This rule causes complications when employees are allowed to enroll in more than one QHP or tier of coverage, where the employer is billed on a “list bill” basis under which a separate premium is calculated for each employee rather than on a “composite bill” basis for an average premium, and where the employer offers family coverage in addition to employee-only coverage. The rule only requires that covered employees receive uniform contributions and does not require that any particular employee or class of employees be offered coverage.
The uniform contribution rules are complicated and will not be fully explained here. Basically the rules ensure that regardless of whether the employer is billed on a composite- or list-billed-basis, or offers multiple plan tiers (employee-only, family, etc.), each employee should be entitled to receive the same amount or percentage of premiums covering not less than 50 percent of the cost of employee-only coverage. Employers who are list billed can create their own employer-computed composite rate to determine the premiums paid by all employees. If employers offer “SHOP dependent coverage” — coverage for dependents only not including an employee — the uniformity requirement does not apply but no premium tax credit will be available. If an employer offers multiple plans, the employer can satisfy the uniform percentage requirement for each plan or can designate a reference plan and meet the requirement for that plan.
The final regulations specify that amounts paid for the tobacco surcharge are not included in the premium for applying the uniform percentage requirement and are not eligible for premium tax credits. Employer contributions for employees who participate in wellness programs are not taken into account for determining the uniform contribution requirement (employers must contribute not less than 50 percent of premiums even for employees who do not participate) but are taken into account in determining the amount of the tax credit. If state law requires employers to make higher contributions for low wage employees, the employer does not have to increase contributions for all other employees to meet the uniformity requirement if the 50 percent requirement is otherwise met for all.
If state tax credit programs contribute additional funding for employer coverage, the employer can generally claim the state contribution as part of the employer contribution for purposes of calculating the amount of the federal tax credit as long as the amount of federal tax credit the employer receives does not in fact exceed the amount the employer contributed. For example, if the cost of the premium was $100 and the state paid $40 and the employer paid $40 (leaving $20 to the employee), the 50 percent credit would be based on the $80 payment and the employer would get a $40 federal credit.
On June 25, 2014, Judge Colleen Kollar-Kotelly of the United States District Court for the District of Columbia dismissed a lawsuit brought by Jeffrey Cutler against HHS. Cutler, an elected township official in Pennsylvania, claimed that his prior insurance had been cancelled and that he did not wish to purchase ACA-compliant insurance, even though he could afford it. Cutler claimed that Congress lacked the authority to enact the individual mandate, that the religious exemption violated the establishment clause, and that alterations in the law since it passage were illegal.
The court dismissed the suit, finding that Cutler had no standing to bring it either as an elected official or as a private citizen. The court found that Cutler stated only a general grievance about the conduct of governance, not injury to himself as an individual. Although the court found that Cutler had no standing to bring the case, it went on to hold that if he would have had standing, the court would have ruled against him on the religion issue in any event. Courts have long recognized the ability of Congress to grant religious exemptions to laws if the exemption has a secular legislative purpose, has a primary effect that neither advances nor inhibits religion, and does not excessively entangle the state in religion. The court noted that this standard was met by the ACA.
Under the federal rules, courts may grant financial sanctions against attorneys who file frivolous cases or cases that serve no other purpose than harassment. If lawsuits continue to proliferate challenging the ACA that have no legal merit (as opposed to cases that do raise new colorable claims), the courts should consider imposing such sanctions.
Finally, on June 27, 2014, CMS released 28 new FAQs at its REGTAP.info website on SHOP exchange issues. Most of these deal with highly technical SHOP issues, but a few offer additional insight into how the SHOP exchange is shaping up. For example, FAQ 2415 provides that the federal SHOP will not cover children above age 26 unless required by state law. FAQ 2418 provides that dependent-only policies will not be offered through the FF-SHOP unless an employee also enrolls. A separate FAQ states that the federal SHOP will not offer child-only plans.
FAQ 2423 states that if an employer misses its initial premium payment deadline it cannot have coverage reinstated but will have to reapply for a future month. Under FAQ 2428, if an employer cancels a plan, notice will be sent to all subscribers but not to all their family members. According to FAQ 2429, employers may not select a plan and make a payment and then prior to effectuation date change plans. Whether deductibles and out-of-pocket maximums reset every January or when a plan renews will depend under FAQ 2436 on whether the plan, according to state law, if filed and approved based on a calendar or contract year.