PPACA Compliance and the Onion Layers

The Deadlines for some of the most of major provisions of Patient Protection and Affordable Care Act (PPACA) or “Obama Care” are currently looming very close on the horizon,  and as an advisor I have begun to notice that many of the companies that I speak to still feel a level of unease and confusion when it comes to how they will navigate the impending changes. This unease is exacerbated by the lack of formal guidance by the government on several provisions of the law.

One thing that has been painfully obvious is that the guidance is being released like layers of an onion. The pattern has shown to be as follows: first a high-level comment, then some corrections and clarifications, then they get a little more detailed and so on. The problem is we don’t know how many layers there are to this onion. This is even more problematic when you take into account how much time has to pass between the government making the initial comment to get our attention, and the final guidance on compliance. If you have been following the maturation of the act you have seen many instances in the last year where the final regulations had to be changed from the initial proposal.

We are now about six months away from 2014 and we still have advisors, brokers, and agents preaching the “wait and see” game. Many have gone so far as to come up with creative solutions that help buy their clients and prospects time until “things get hashed out”. One such suggestion I’ve heard time and again is the shifting of enrollment dates forward to be able to take advantage 2013 rules. What is worrisome here, is with six months to go, we still don’t know about many of the notice requirements.

Among the PPACA compliance issues that employers are still trying to get their arms around are:

Automatic enrollment

Employers with 200 or more employees still do not know how they will comply with the automatic enrollment provision in the healthcare reform law.

Under the law, employers are required to notify employees about automatic enrollment and give them an opportunity to opt out of a plan in which they are automatically enrolled. However, regulators have said the automatic enrollment rules will not be published until 2014.

• Exchange notices

Employers are required to notify employees about the availability of public health insurance exchanges, but they have been uncertain about how to do so because the Department of Health and Human Services has yet to issue guidance on how those notices must be worded, as well as whether the exchange information must be communicated electronically or in print. The Department of Labor’s Employee Benefits Security Administration finally issued technical guidance in early May 2013 to assist employers in complying with this statutory notice requirement.  The guidance includes references to model notices.  One model is recommended for employers who do not offer a health plan, and another model is recommended for employers who offer a health plan to some or all employees.  (If using a model, only Part A is required for distribution; Part B is optional.)

The notice must inform employees of the exchanges’ existence, describe the services provided by the exchanges, and identify the manner in which the employee may contact an Exchange for assistance.  The notice also must inform employees that they may be eligible for a premium tax credit if they purchase coverage through an exchange.  Finally, the notice must inform employees that by purchasing such coverage, they may lose the employer contribution (if any) for any employer health coverage for which they are otherwise eligible, and that such an employer contribution may be excludable from federal income tax.

Employers must provide individualized notice to all employees, regardless of whether they are part-time or full-time, or whether they are eligible for any employer health plan.  Employers must provide the notice to all current employees by no later than October 1, 2013.  For those hired after that date, employers must provide the notice within 14 days of the hire date.  Inclusion within “new hire” paperwork is recommended.

There is no codified penalty for non-compliance at this time.  The Department of Labor has not yet promulgated regulations related to exchange notices.

On Jan. 23, federal officials announced that the notification requirement’s effective date is postponed indefinitely until regulations are issued and “become applicable.”

• Self-funded plan reporting

Self-funded employers remain uncertain about how to comply with a requirement that takes effect in 2015 that they report details of their group health plans to the Internal Revenue Service. Among other things, self-funded employers are required to report to the IRS the identities of all individuals enrolled in their plan, the dates for which those individuals were covered, and any contributions made to the total cost of benefits provided.

In particular, employers need clarity about how to determine individual plan members’ coverage effective dates and how to handle the coordination of information with the third-party administrators and insurers that administer their plans. Employers also have raised the issue of potential redundancies with other reporting requirements stipulated by the healthcare reform law.

On June 3, 2013, the IRS posted on its website an updated Form 720, as well as accompanying instructions. The new form now contains in Part II (lines marked “IRS No. 133”) a section for reporting the Patient-Centered outcomes Research Institute (PCORI) fee. The fee for 2013 is $1 per covered life, which is due on July 31, 2013, for calendar-year plans

Unfortunately, the new Form and instructions raise a few questions. The instructions state that the PCORI fee associated with insured plans should be added to the fee for self-insured plans and the total reported on line 133. It is unclear how this is supposed to work, since two different parties (insurers for insured plans and plan sponsors for self-insured plans) are responsible for the fees. Up to this point it was assumed that insurers and plan sponsors would file their own Form 720, and it is hard to see how that could be otherwise. Note also that the revised Form shows a revision date of April 2013, which is a bit odd because the Form 720 posted on the IRS website between April 2013 and June 3, 2013 also showed a revision date of April 2013, but did not address the PCORI fee at all.

• Excise tax on high-value plans

Employers still have time to comply with rules on the excise tax provision for “Cadillac plans,” because it does not go into effect until 2018. However, some employers already have started projecting the likelihood that their plans will become subject to the 40% tax on premium costs that exceed $10,200 for single coverage and $27,500 for family coverage. This provision has been pushed way down on the list as critics have pointed out that today the average cost of healthcare runs about $9,400. Considering how quickly healthcare costs are rising, this could make virtually all plans a “Cadillac” plan by next year.

Under the law, insurers will pay the tax on the plans they insure, while third-party administrators will pay the tax on behalf of self-insured plans. Insurers and third-party administrators are expected to recover the taxes they pay from employer plans.

• Full-time employee definition

A notice issued by the IRS in December gives employers a bit more flexibility than had been expected in determining which of their employees must be offered coverage under the federal healthcare reform law, experts say.

Employers that intend to utilize the safe harbor look-back method for coverage beginning January 1, 2014, must begin their  measurement periods during 2013.  The proposed regulations provide a special transition rule for 2013.  Specifically, if an employer intends to use a 12-month stability period which begins in 2014, it may use an “abbreviated” measurement period  that (1) runs at least 6 months but less than 12 months, (2) begins on or before July 1, 2013, and (3) ends no more than 90 days before the first day of the plan year that begins on or after January 1, 2014.   For example, an employer that offers a calendar-year plan and intends to use a 12-month stability period beginning on January 1, 2014, will have to begin a 6-month measurement period no later than July 1, 2013.

Under the notice, which will remain in effect at least through 2014, employers can use a retrospective measurement period lasting between three and 12 months to determine whether an employee’s hours meet the definition of “full-time.”

Even though the IRS has issued this notice, many employers are having a difficult time with the complex nature of the calculations involved. When one considered that using the wrong look-back period can cost a company thousands of dollars it is easy to understand why many business have been reeling and pushing this off.

• Transitional reinsurance fee

For 2014 there is an additional “transitional reinsurance fee” which will be assessed by Health and Human Services (HHS) to “stabilize premiums in the individual health insurance market during the initial years of the state and federal exchanges”. The fee for 2014 is expected to be $63 per covered life. We still not have seen guidance in this matter, however we expect it as we get closer to 2014.

There are some questions about whether this fee violates ERISA if it is assessed by the states. The Employee Retirement Income Security Act precludes states from regulating self-funded employee benefits plans.

• Defining minimum essential benefits

On February 1, 2013, the Treasury Department and the Department of Health and Human Services (HHS) published three proposed and final rules under the Affordable Care Act addressing several issues that are important to plan sponsors of group health plans. As background, Section 5000A(f) of PPACA defines minimum essential coverage as one of the following: (1) coverage under a specified government sponsored program, (2) coverage under an eligible employer-sponsored plan, (3) coverage under a health plan offered in the individual market within a state, (4) coverage under a grandfathered health plan, and (5) other health benefits coverage that the Secretaries of HHS and the Treasury recognize for purposes of section 5000A(f). This proposed rule addresses option (5) by providing criteria and a process by which these other types of coverage may be designated as minimum essential coverage. In addition, HHS proposes that state high risk pools initially be designated minimum essential coverage, but reserves the right to assess and reevaluate this decision. To this end, the agency is seeking comments on whether state high risk pools should automatically be designated as minimum essential coverage, or whether they should be required to follow the process outlined in other sections of the proposed rule for being recognized as meeting the necessary requirements.

Now if that doesn’t get your head spinning, they are not doing you any favors with nebulous terms such as ‘minimum essential coverage’ ‘minimum value’ and ‘essential benefits.’ Confusion arises because the terms are so easily interchangeable.

As a result, there are a lot of employers who don’t know what minimum essential coverage really is. There are a variety of possibilities. We know it’s got to provide coverage for typical medical plan services including inpatient, outpatient services and prescription drugs, as noted above. Could it be a mini-med plan? A limited medical plan looks like it could satisfy the definition. Another possibility is preventive-only coverage bolted to an indemnity plan that provides catastrophic coverage.

Application of 105(h) nondiscrimination rules

The IRS also has yet to issue regulations on how employers must apply the 105(h) nondiscrimination rules to fully insured health plans to ensure they do not discriminate against lower-paid employees. The Affordable Care Act (“ACA”) provides that non-grandfathered, fully-insured health plans will also be subject to rules “similar” to Code Section 105(h). It is not clear when this rule will become effective for such plans. The rule was supposed to have become effective in 2011, but the federal government delayed its effective date until an unknown date in the future. Note that the delayed effective date only applies for fully-insured health plans – self-funded health plans are currently subject to the rule, as they have been for several decades. The is even more troublesome for those industries that have traditionally had a management group that bought into the benefits while other lesser compensated employees chose to opt out and not participate, such as restaurants and other hospitality and service sectors.

We are now 6 months out from game time, and in many cases it can take that long just to ensure a smooth transition for those employers not subject to the mandate who had never offered it in the past. If you are wanting to sit on the sidelines and wait it out – DON’T! that time has passed. Although there are still some parts of the act that are not set in stone, there is enough guidance out there to start taking action. Get with an advisor that is knowledgeable and proficient in PPACA and work with them to put together a viable strategy for your company.