ACA Penalties Will Continue

A new round of penalty letters are expected to be sent out later this year. More than 300,000 proposed-penalty letters were sent by the IRS this summer and late last year for alleged violations of the ACA’s employer mandate in 2015. Employers can expect to see 2016 assessment letters before the end of 2018. Employers need to be prepared.

Penalties Are Proposed, Not Final

The proposed-assessment letters, called Letters 226J, are preliminary employer shared responsibility payment (ESRP) assessments, these are not final assessments. Some employers incorrectly assume that the IRS cannot be challenged, the IRS proposed assessment can and should be challenged if based on erroneous information.

Most assessments relate to errors on reporting forms, and the IRS has been willing to reduce the penalties if the employer provides an explanation to the IRS regarding the errors.

Under the ACA, employers with 50 or more full-time employees must submit Form 1094-C to the IRS, along with Form 1095-C; these forms contain information about their employees’ health coverage. Form 1095-C also is sent to full-time employees. A reporting error on one of these forms may result in a proposed penalty.

The IRS may provide the employer with a list of employees who, in the absence of being offered minimum essential coverage from the employer, received a premium tax credit. The list shows the months for which a premium tax credit was received and what codes were reported on Form 1095-C for each of these employees.

Often, employers realize that the employees on the premium tax credit list were simply assigned incorrect codes for certain months on Form 1095-C. For example, an employer may have failed to put in a code showing that an employee was not a full-time worker in a certain month. In response to the assessment letter, employers can provide correct codes for the premium tax credit listing, making a reduction in penalties more likely, they said.

The IRS is not asking for information on every one of a large employer’s full-time employees, just those on the premium tax credit list, they added.

Penalties Are Here for Now

Some believe they can ignore the assessment notices because they believe they are not subject to the penalty or that the ACA will be repealed. This is a mistake. Failing to timely respond to a notice will result in the IRS making the assessment based on the information it has. Ignoring the IRS assessment is not an effective strategy.

Employers that received an assessment notice for 2015 should look at their 2016 and 2017 reporting to see if they can expect additional notices.

The IRS continues to refine this penalty process, and it doesn’t look like the assessment letters are going away anytime soon, so being aware of them is important.

 

 

Source: https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Pages/more-ACA-penalties.aspx?utm_source

Tax Act Repeals the Penalties for the Individual Mandate

The employer mandate (a/k/a employer shared responsibility payment) has not been modified by the Tax Act, but the individual mandate penalty has been reduced to zero for years after 2018.  Thus, effective for years after December 31, 2018, the Tax Act effectively eliminates the individual mandate penalties.  Accordingly, beginning in 2019, the government will no longer attempt to collect the individual mandate penalties if an individual or family does not obtain healthcare coverage in 2019 and thereafter.  The elimination of the penalties does not technically remove the requirement to obtain healthcare coverage.  But without penalties there will be no enforcement and, in effect, no practical mandate to obtain coverage for 2019 and later years.

Reporting

The IRS requires an employer or insurance company to report on Form 1095 whether an individual had ACA compliant coverage for the tax year.  Employer reporting on Form 1095 was not eliminated by the new Tax Act. For 2018, nothing has changed with respect to the ACA individual mandate or reporting on IRS Form 1095.  Employers that fall above the threshold of 50 full-time and full-time equivalents should still report for the 2018 year.

Definitions for Health Plans

  • Self-Funded Plan: Employer pays fixed costs (administrative fees and stop-loss premium) and claims costs incurred by covered persons and receives reimbursements if claims costs exceed levels set in the policy.
  • Fully Insured Plan: (traditional insurance plan) Company pays premiums, insurer collects premiums and pays health care claims based on policy purchased by employer.
  • Grandfathered Plan: plan in existence on March 23, 2010 that has not been changed in ways that substantially cut benefits or increase costs for consumers as long as employers notify employers that the plan is grandfathered and they have continuously covered at least one person continuously since March 23, 2010.

Notification to employees of existence of Health Marketplace:

Effective October 1, 2013.  Notify new hires within 14 days of their employment. Template available on DOL website at https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/model-notice-for-employers-who-offer-a-health-plan-to-some-or-all-employees.pdf

Waiting Periods

Can’t be more than 90 days after employee becomes eligible. Can condition eligibility on completion of specified number of hours (no more than 1,200), completion of orientation period (not more than 30 days) or attaining job-specific certification/licensure.

Comply with W-2 Reporting Requirements

Employers must report cost of health coverage on employees’ W-2 forms, beginning Jan 2012 for large employers (those filing 250 or more W-2’s), optional for anyone with fewer than 250 employees until further guidance comes from the IRS.

Affordable Care Act Annual Adjustment

On May 21, the IRS announced in Revenue Procedure 2018-34 the 2019 shared-responsibility affordability percentage. Based on the ACA’s affordability standard as adjusted for inflation, health coverage will satisfy the requirement to be affordable if the lowest-cost self-only coverage option available to employees does not exceed 9.86 percent of an employee’s household income, up from 9.56 percent in 2018.

Employers should not overlook the Affordable Care Act’s annual inflation-adjusted shit in cost-sharing limits for group health plan coverage. Steep penalties for failing to provide affordable coverage under the ACA’s shared-responsibility provisions.

An Annual Adjustment

The affordability standard is the highest percentage of household income an employee can be required to pay for monthly plan premiums, based on the least-expensive employer-sponsored plan offered that meets the ACA’s minimum essential coverage requirements.

2019 FPL Safe Harbor

Many employers use the FPL safe harbor to develop employee contributions for self-only coverage to avoid ACA penalties under Section 4980H(b).

“Using the FPL safe harbor also simplifies ACA reporting and coding of Form 1095-C,” which plan sponsors file with the IRS for each employee offered ACA-compliant health coverage, wrote Richard Stover and Leslye Laderman, consultants with Conduent HR Services, in their recent analysis.

For 2019, the maximum monthly premium contribution that meets the FPL safe harbor will be 9.86 percent of the prior year’s federal poverty level ($12,140 in most states for 2018) divided by 12, or $99.75.

Affordability Safe Harbors

Since employers don’t know their workers’ household incomes, to which the affordability threshold applies, the ACA created three safe harbors, any of which can be used in place of household income:

  • The employee’s W-2 wages—as reported in box 1—generally as of the first day of the plan year (see IRS Questions and Answers).
  • The employee’s rate of pay—hourly wage rate multiplied by 130 hours per month—as of the first day of the plan year.
  • The individual federal poverty level as of six months prior to the beginning of the plan year, since the FPL isn’t published for a given year until January.

2019 FPL Safe Harbor

  • The IRS can impose a shared-responsibility penalty when an employer with 50 or more full-time or equivalent employees—known as an applicable large employer (ALE)—”fails to offer minimum essential coverage to substantially all of its full-time employees and their dependent children during a month and at least one full-time employee receives a premium tax credit” through the ACA’s public marketplace exchange. An ALE satisfies the “substantially all” standard for any given month if it offered coverage to at least 95 percent of its full-time employees and their dependent children during that month.
  • For 2019, Stover and Laderman noted that actuaries estimate that the Section 4980H(b) penalty for failure to offer affordable, minimum-value coverage will be $3,750 per employee (or $312.50 per month), up from $3,480 (or $290 per month) in 2018.

Given the repeated failures to repeal or even improve upon the major shortcomings of the Patient Protection and Affordable Care Act (ACA), employers should continue to report on the offer of health coverage to their full-time employees.

 

Elimination of the ACA Individual Mandate Effective 2019

One of the significant updates for the Affordable Care Act, is the elimination of the Affordable Care Act’s individual mandate, effective 2019.

Under the current ACA regulations, the individual mandate requires most Americans to purchase a minimum level of health coverage. Those who fail to do so are liable for a penalty of $695 for an adult or 2.5 percent of household income, whichever is greater. The new Act accomplished the elimination of the individual mandate by reducing the penalty amounts to $0 and zero percent, respectively.

Employer Mandate and Other ACA Features Still in Place

The Act leaves many aspects of the ACA intact, including the individual marketplace, premium subsidies for those earning between 100% and 400% of the federal poverty rate, the ban on insurers charging more or denying coverage based on health factors, and Medicaid expansion.

Most significantly for employers, however, is the employer mandate and reporting requirements, which remain in force. Accordingly, applicable large employers will need to plan around the Code section 4980H(a) (“A”) penalty — which can apply if an employer does not offer minimum essential coverage to at least 95% of its full-time employees and at least one full-time employee buys subsidized marketplace coverage — and the Code section 4980H(b) (“B”) penalty — which can apply if an employer offers full-time employees coverage that is not affordable or does not meet minimum value requirements.

In 2018, A penalty is $2,320 (or $193.33 per month) multiplied by the total number of full-time employees (minus 30). The B penalty is $3,480 (or $290 per month) for each full-time employee who buys subsidized marketplace coverage (capped by the amount of the A penalty).

 

Important Deadlines and Penalties for Employers

Distribution of Form 1095C to Employees

  • 1095C Form must be provided to employees no later than January 31st, 2018
  • Forms can either be provided to the employee directly or mailed. Forms being mailed must be postmarked by January 31st. Employers must obtain affirmative consent to furnish a statement electronically.
  • Penalty: Failure to provide employees with a timely and accurate 1095c can result in penalties of up to $260.00 per form.

Filing of Forms 1094c and 1095c with the IRS

  • The IRS established two separate deadlines for the 1094C and 1095C Forms to be filed.
  • Returns filed on paper must be postmarked by February 28th, 2018. Only companies filing fewer than 250 forms are eligible to file the returns on paper.
  • Penalty: Companies filing more than 250 forms can be penalized up to $260.00 for each additional paper form.
  • Returns that are filed electronically must be e-filed by April 2nd, 2018.

Important Forms and Instructions on Reporting for 2017

The Affordable Care Act reporting requires employers with 50 or more Full Time Equivalent Employees to report on the offer of health coverage to full-time employees and their family member, as well as when the offer was made. Additional reporting such as if the coverage offered was affordable and whether the employees enrolled in the offered health care coverage.

Small employers with fewer than 50 full-time employees are exempt from some, but not all of the ACA’s reporting requirements. For example, self-insured small employers must complete and file Forms 1095B and 1094B with the IRS, as well as provide full-time employees with a copy of Form 1095-B.

Below are the links to the final forms and instructions on the IRS website:

Congress Reaches Tentative Deal on ACA Cost-Sharing Reduction Payments

President Donald Trump announced via executive order on Oct. 12 that he was ending payments to insurers for subsidizing low-income market participants, saying the payments are illegal because Congress hasn’t appropriated the money. These so-called cost-sharing reduction (CSR) payments, which subsidized health plans purchased on the ACA’s Marketplace exchanges, are sometimes called “extra savings” and are distinct from the premium tax credits that also subsidize policies purchased through an exchange.

Trump’s executive order does not affect the penalties that large employers are subject to when a full-time employee is not offered ACA-compliant coverage and receives a premium tax credit for a policy purchased through a Marketplace exchange.

Shortly after the executive order was issued, a bipartisan agreement was brokered on the Senate Health, Education, Labor and Pensions Committee by Sens. Lamar Alexander, R-Tenn., and Patty Murray, D-Wash. The agreement, if passed by Congress in new legislation, would restore CSR payments to insurance companies for two years and would give states more flexibility from ACA regulations.

Trump and some GOP congress members have indicated that they want any legislative fix to allow for a wider range of plans to be made available under the ACA, among other changes that might sink the deal if Democrats remain opposed.

ACA Penalty Updates

Under the ACA, a large employer must offer “affordable” medical coverage to at least 95%of its full-time employees and their dependent children, age 26 or younger or face stiff penalties.

  • A penalty of $2,260 per full-time employee (minus the first 30) if the employer fails to offer minimum essential coverage to 95 percent of its full-time employees and their dependents and any full-time employee obtains coverage on the exchange.
  • A penalty of $3,390 per full-time employee (minus the first 30) if a full-time employee receives a premium tax credit because the employer offered coverage that was unaffordable or did not provide minimum value.

These penalties, which took effect Jan. 1, 2016, go up in 2018 to $2,320 for the first penalty and $3,480 for the second. An employer may be subject to one of these penalties, not both. Employers that previously defined a full-time employee based on 40 hours of service have had to adjust their definition of full-time to 30 hours to comply with the employer mandate.

Executive Order re: Health Care Plan Options

On October 12th 2017, President Donald Trump signed an Executive Order which directed federal agencies to review regulations surrounding three health care plan options:

  • Association plans
  • Short-term limited-duration insurance (short term health plans)
  • Health reimbursement arrangements (HRA).

This Order does not create any new regulations.  It does not include any specific directive on any of these health options.  It simply instructs federal agencies to review existing regulations and to consider proposing new regulations and guidance.

In particular, the Order requests the agencies to focus on the following:

  • Expanding rules that pertain to association plans so more employers are eligible to participate;
  • Lengthening the period of coverage for short-term health plans and allowing for their renewal; and
  • Offering additional flexibility in how Health Reimbursement Arrangement (HRA) funds can be used, including with non-group coverage.

There is existing law addressing these subjects.  When developing new regulations or guidance, agencies are bound by current law. Given the potential conflict between federal and state law, there is also the possibility of legal challenges arising.  Therefore, developing new regulations surrounding these topics will not be immediate and can take up to a year or longer. Nothing in current law has changed.  The Order merely asks agencies to review existing regulations and develop proposals within the confines of the law.

The executive orders does not make any changes to the employer mandate or the ACA reporting obligations. Employers with 50 or more full-time equivalent employees should continue preparations for 2017 ACA annual reporting.

Congress to Repeal the “Cadillac Tax”

President Donald Trump announced that he will not continue federal subsidies, known as cost-sharing reduction (CSR) payments, to insurance companies that reduce health care costs for low-income enrollees. Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) announced that they have reached a bipartisan agreement to stabilize the Affordable Care Act (ACA) markets.

The bill, known as the Bipartisan Health Care Stabilization Act, would provide CSR payments for two years and would allow states to obtain Section 1332 waivers through a streamlined approval process. These waivers would not exempt states from:

  • covering the minimum ACA requirements
  • guaranteed renewability of coverage
  • elimination of pre-existing condition restrictions
  • coverage of dependent children to age 26
  • the prohibition on annual and lifetime limits

The Bipartisan Health Care Stabilization Act appears to have the necessary 60 votes in the Senate for passage, but it is unclear whether it will be considered by the full Senate absent support from Trump.

As Congress continues negotiations on the CSR payments, this week the U.S. District Court for the Northern District of California heard arguments for a temporary restraining order that would have forced the Trump administration to keep making the payments while a lawsuit works its way through the courts. On October 25, the court ruled against the emergency order, denying the motion for an injunction. To date, more than 10 million Americans are enrolled in the ACA exchanges, and nearly 6 million people receive the CSR subsidies.

Lastly, Speaker Paul Ryan (R-WI) announced earlier this week that House efforts to repeal and replace the ACA are over for the year.

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