September 19 Update: On September 18, 2014 the Internal Revenue Service issued a final rule and three revenue notices addressing Affordable Care Act topics. This rule and guidances are very technical and will only be described briefly here. Additionally, Marilyn Tavenner, the Administrator for the Centers for Medicare and Medicaid Services, gave an updated number for coverage through the Affordable Care Act health insurance exchanges in congressional testimony.
Deductibility by insurers of large compensation packages. The final rule implements an ACA provision limiting the business expense tax deductibility of compensation paid by health insurers to officers, directors, employees, or other individuals who provide services to the insurers to $500,000 per year. The final rule, 127 pages long including the preface, addresses in great detail the insurers, individuals, and compensation to which it applies. It will not be analyzed here, other than to note that the IRS states in the preface that it is still examining the question of when stop loss insurance might be considered health insurance for the ACA, an issue raised in a 2012 request for information. For the purposes of this rule, premiums paid for stop loss coverage to be health insurance premiums.
Section 125 plan election revocations. Notice 2014-55 expands the situations in which changes will be permitted in elections for coverage under Section 125 cafeteria plans to permit individuals to move from group to exchange coverage. Section 125 cafeteria plans allow employees to elect to use pretax compensation to pay for certain qualified benefits instead of taking the compensation as taxable income. Among the benefits that can be covered through Section 125 plans is the employee share of employer-sponsored group health insurance premiums. Normally an employee must make an election to do this at the beginning of a period of coverage, and the election remains irrevocable unless the plan allows a revocation for a reason that is permitted under the section 125 rules, such as where a change in the employee’s employment status results in a change in eligibility for employer coverage.
Notice 2014-55 permits plans to allow employees to revoke an election for a contribution to a Section 125 plan to cover group health plan premiums in two new circumstances. First, an employee who moves from full-time (30 hours or more of service per week) to part-time status (less than 30 hours), may revoke his or her election for coverage, even if he or she remains eligible for group coverage, as long as the individual enrolls in new minimum essential coverage (such as qualified health plan coverage through an exchange) no later than the first day of the second month after the month in which the election is revoked.
Second, an individual who qualifies for enrollment in a qualified health plan through an exchange, either under a special enrollment period or open enrollment period, may revoke an election of Section 125 plan coverage with the revocation effective immediately preceding the QHP coverage, so there is no gap in coverage. It should be noted that if the individual has an offer of affordable (costing not more than 9.5 percent of modified gross adjusted household income) and adequate (not less than 60 percent actuarial value) coverage from the employer, the individual would not qualify for premium tax credits or cost-sharing reduction payments from the exchange.
Measurement period changes. Notice 2014-49 proposes an approach to be used when an individual whose full- or part-time employment status is being determined through the use of the look-back measurement method transfers from a position in which one measurement period applies to a position where a different measurement period applies, or where a large employer changes the measurement method it has been using (from a six-month to a twelve-month period, for example).
Under the ACA, large employers must offer minimum essential coverage to full-time employees or face a tax, but they do not have to offer coverage to part-time employees. The problem then becomes determining when an employee is part- and when full-time.
One of the methods that can be used for this determination is the look-back measurement method. Under this approach, an employee whose full- or part-time status is not clear at the time of hiring is assigned to a measurement period during which employee’s hours are tracked to determine if the employee in fact works 30 or more hours a week. Once the measurement period is completed, the employee is assigned (after a permissible brief administrative period) to a stability period that must last at least as long as the measurement period during which the employee is considered full- or part-time, depending on the status identified during the measurement period.
An employer is allowed to use different measurement periods for different categories of employees. The employer can also change measurement periods. Under the approach proposed by the guidance, an employee who has been employed for a full measurement period at the time of transfer or change of measurement period, and thus has had his or her status as a full- or part-time employee determined for a stability period, retains his or her status through the end of the associated stability period. The status of an employee who is not yet in a stability period (or administrative period) at the time of transfer or change is determined using the measurement period applicable to the second position to which the individual transfers (or the new period the employer adopts), but including hours of service in the first position or approach in applying that measurement period. The guidance explains different complications of this basic approach and includes a number of examples. This guidance is currently only proposed, but employers can rely on it until a final guidance is published.
PCORI fees. Finally, Notice 2014-56 sets the fee that insured and self-insured must pay for the Patient-Centered Outcomes Research Institute (PCORI), for the period from October 1, 2014 until September 30, 2015, at $2.08 per covered life, an 8 cent increase over the prior year.
An update on exchange coverage. In one other development, CMS Administrator Marilyn Tavenner stated at a legislative hearing on September 18 that 7.3 million Americans were enrolled in qualified health plans through the health insurance exchanges as of August 15. Although CMS had announced in May that over 8 million individuals had chosen a plan through the exchanges, there was considerable speculation as to how many of these individuals actually paid their premiums and thus effectuated coverage and how many might have subsequently dropped coverage or lost coverage for failure to keep their premiums up.
The 7.3 million number presumably includes those who enrolled initially and have paid their premiums, plus individuals who have subsequently enrolled through special enrollment periods. It is below the initial 8 million number not only because some of those who signed up for plans initially did not pay their premiums, but also because some of the initial enrollees have subsequently become employed and obtained employer coverage or have moved to Medicaid because their income has decreased. Enrollment in the exchanges, however, remains quite healthy.
Original post: On September 15, 2014, the Centers for Medicare and Medicaid Services (CMS) announced a second deadline in its efforts to resolve data inconsistencies remaining from the 2014 open enrollment period. This second deadline is for the submission of documentation to resolve income inconsistencies for exchange enrollees. The first deadline was announced in August, when CMS sent final letters to about 310,000 federal marketplace (exchange) enrollees whose enrollments raised citizenship or legal-immigrant status issues, informing them that they must provide verification documents by September 5 or be terminated from coverage as of September 30.
CMS received hundreds of thousands of documents in response to the August request, reducing the number of individuals with citizenship and immigration data-matching issues from 966,000 as of May 31 to 115,000 as of September 14. These individuals will be terminated as of September 30, 2014, but under the revised bulletin 11, they will be reinstated retroactively if they subsequently produce the documents needed to verify their citizenship or legal alien status. They may also purchase insurance outside the exchange. Insurers are legally required to offer coverage to individuals who reside in their service area, regardless of citizenship or alien status.
Under the procedure announced on September 15, CMS is sending final notices to individuals enrolled through the federally facilitated exchange who still have income-related data-matching issues, informing them that they must send required information to verify their income as of September 30, 2014 or their premium tax credits and cost-sharing reduction payments will be modified to reflect information reflected in data sources otherwise available to CMS. For example, if an enrollee’s 2012 tax return reported income higher than that reported by the enrollee on his or her application for advance premium tax credits and cost-sharing assistance, and the enrollee failed to provide verification of the claimed income, the enrollee’s premium tax credits and cost-sharing reduction payments would be modified as of November 1 in accordance with the income reflected in the tax return. Read the rest of this entry »