“Pay or Play” Penalty – Transition Relief for Fiscal Year Plans

Health Care Reform Legislative Brief

Effective Jan. 1, 2014, the Affordable Care Act (ACA) imposes a shared responsibility penalty on large employers that do not offer minimum essential coverage to substantially all full-time employees and their dependents. Large employers that offer coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value.

On Jan. 2, 2013, the Internal Revenue Service (IRS) released long-awaited proposed regulations on ACA’s employer shared responsibility provisions. Although the proposed regulations are not final, employers may rely on them until further guidance is issued. The proposed regulations contain important transition relief for plans that do not operate on a calendar year basis (fiscal year plans).

PLAN YEAR SELECTION

The proposed rules state that the plan year must be 12 consecutive months, unless a short plan year of less than 12 months is permitted for a valid business purpose. A plan year may begin on any day of a year and must end on the preceding day in the immediately following year (for example, a plan year that begins on Nov. 1, 2014, must end on Oct. 31, 2015). A calendar year plan year is a period of 12 consecutive months beginning on Jan. 1 and ending on Dec. 31 of the same calendar year.

Once established, a plan year is effective for the first plan year and for all subsequent plan years, unless changed, provided that such change will only be recognized if made for a valid business purpose. Note that a change in the plan year is not permitted if a principal purpose of the change in plan year is to avoid the employer shared responsibility requirements.

CONCERNS FOR FISCAL YEAR PLANS (NON-CALENDAR YEAR PLANS)

ACA’s pay or play penalty goes into effect on Jan. 1, 2014, for both employers with calendar year plans and employers with fiscal year plans. Because it may be difficult to make mid-year changes to a plan’s terms, employers with fiscal year plans should evaluate whether they need to make plan changes for the 2013 plan year to avoid an ACA penalty.

To minimize the impact of ACA’s shared responsibility provisions on 2013 plan years, the proposed regulations include transition relief for employers that, as of Dec. 27, 2012, offered coverage under fiscal year plans. Transition relief is provided for:

  • Individuals who would be eligible for coverage as of the first day of the 2014 plan year under the plan’s eligibility terms in effect on Dec. 27, 2012; and
  • Other employees if a significant percentage of the employer’s workforce was eligible for coverage under one or more fiscal year plans.

TRANSITION RELIEF

Eligible Individuals

The proposed regulations provide transition relief with respect to employees who would be eligible for coverage as of the first day of the 2014 plan year (that is, the plan year starting in 2014) under the plan’s eligibility terms in effect on Dec. 27, 2012. If these employees are offered affordable, minimum value coverage no later than the first day of the 2014 plan year, the large employer will not be liable for a penalty with respect to these employees for the period prior to the 2014 plan year. This relief gives employers with fiscal year plans additional time to make sure their plan’s coverage is affordable and provides minimum value.

Other Employees

The proposed regulations also provide transition relief for employers that have a significant percentage of their employees eligible for or covered under one or more fiscal years plans that have the same plan year as of Dec. 27, 2012. This relief gives employers with fiscal year plans additional time to expand their plans’ eligibility rules. To qualify for this relief:

  • The fiscal year plan (including any other fiscal year plans that have the same plan year) must cover at least one-quarter of the large employer’s employees as of Dec. 27, 2012; OR
  • At least one-third of the large employer’s employees must have been offered coverage under the fiscal year plan or plans during the most recent open enrollment period before Dec. 27, 2012.

If the transition relief applies, the employer will not be liable for a penalty for any period prior to the 2014 plan year with respect to employees who are offered affordable, minimum value coverage no later than the first day of the 2014 plan year and who would not have been eligible for coverage under any calendar year group health plan maintained by the employer as of Dec. 27, 2012.

For example, if during the most recent open enrollment period before Dec. 27, 2012, an employer offered coverage under a fiscal year plan with a plan year starting on July 1, 2013, to at least one-third of its employees, the employer could avoid liability for a shared responsibility payment if, by July 1, 2014, it expanded the plan to offer coverage satisfying ACA’s shared responsibility provisions to the full-time employees who had not been offered coverage.

For purposes of this transition relief, a large employer may determine the percentage of its employees covered under the fiscal year plan or plans as of the end of the most recent enrollment period or any date between Oct. 31, 2012, and Dec. 27, 2012.

MORE INFORMATION
For more information on ACA’s pay or play requirements, please contact The Noble Group.

© 2013 Zywave, Inc.All rights reserved.

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HCR Final Rule on Workplace Wellness Programs

Benefits Buzz July 2013

The Affordable Care Act (ACA) includes provisions to encourage appropriately designed, consumer-protective wellness programs in group health coverage.

Effective for plan years beginning on or after Jan. 1, 2014, ACA essentially codifies the existing HIPAA nondiscrimination requirements for health-contingent wellness programs, while also increasing the maximum reward that can be offered under these programs.

Changes for health-contingent wellness programs include an increase in the permissible reward for meeting a health related standard to 30 percent of the total cost of employee-only coverage (or 50 percent, if the program is designed to prevent or reduce tobacco use).

The final regulations formally adopt the proposed nondiscrimination rules for these programs, such as giving individuals an opportunity to qualify for the reward each year and providing an alternative standard or waiver for individuals with health conditions.

The rules also divide these programs into two categories—activity-only wellness programs and outcome-based wellness programs.

The final rules will also continue to support participatory wellness programs, which are generally available without meeting a health related standard.

These programs include programs that reimburse for the cost of membership in a fitness center, that provide a reward to employees for attending a monthly, no-cost health education seminar, or that reward employees who complete a health risk assessment, without requiring them to take further action.

© 2013 Zywave, Inc.All rights reserved.

IRS Updated Form 720 for PCORI Fees

Health Care Reform Legislative Brief

The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute (Institute) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is to be funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans. These fees are widely known as Patient-Centered Outcomes Research Institute fees (PCORI fees), although they may also be called PCOR fees or comparative effectiveness research (CER) fees.

Issuers and plan sponsors will be required to pay the PCORI fees once a year on IRS Form 720 (Quarterly Federal Excise Tax Return). Form 720 and full payment of the research fees will be due by July 31 of each year. It will generally cover plan years that end during the preceding calendar year. Thus, the first possible deadline for filing Form 720 is July 31, 2013.

On May 28, 2013, the IRS released an updated Form 720 that includes a section where issuers and plan sponsors will report and pay the PCORI fee. The IRS also released updated instructions along with the revised form.

The PCORI fees apply for plan years ending on or after Oct. 1, 2012, but do not apply for plan years ending on or after Oct. 1, 2019. For calendar year plans, the fees will be effective for the 2012 through 2018 plan years.

REPORTING PCORI FEES ON FORM 720

Issuers and plan sponsors will file Form 720 annually to report and pay the PCORI fee no later than July 31 of the calendar year following the policy or plan year to which the fee applies. The PCORI fee applies separately to “specified health insurance policies” and “applicable self-insured health plans” and is based on the average number of lives covered under the plan or policy.

Using Part II, Number 133 of Form 720, issuers and plan sponsors will be required to report the average number of lives covered under the plan separately for specified health insurance policies and applicable self-insured health plans. That number is then multiplied by the applicable rate for that tax year, as follows:

  • $1 for plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans).
  • $2 for plan years ending on or after Oct. 1, 2013 and before Oct. 1, 2014.
  • For plan years ending on or after Oct. 1, 2014, the rate will increase for inflation.

The fees for specified health insurance policies and applicable self-insured health plans are then combined to equal the total tax owed.

Issuers or plan sponsors that file Form 720 only to report the PCORI fee will not need to file Form 720 for the first, third or fourth quarter of the year. Issuers or plan sponsors that file Form 720 to report quarterly excise tax liability for the first, third or fourth quarter of the year (for example, to report the foreign insurance tax) should not make an entry on the line for the PCORI tax on those filings.

Source: Internal Revenue Service

© 2013 Zywave, Inc. All rights reserved.

Health Insurance Exchanges – Employer Coverage Tool

Health Care Reform Legislative BriefThe Affordable Care Act (ACA) calls for the creation of state-based competitive marketplaces, known as Affordable Health Insurance Exchanges (Exchanges), for individuals and small businesses to purchase private health insurance. ACA requires the Exchanges to become operational in 2014. According to the Department of Health and
Human Services (HHS), the Exchanges will allow for direct comparisons of private health insurance options based on price, quality and other factors, and will coordinate eligibility for premium tax credits and other affordability programs.

On April 30, 2013, HHS released three simplified and shortened versions of Exchange applications that will be used by individuals seeking to enroll in health insurance coverage through an Exchange in 2014. HHS has also included an Employer Coverage Tool that Exchanges will use to verify employer-sponsored coverage.

Click Health Insurance Exchanges – Employer Coverage Tool to read the full Health Care Reform Legislative Brief.

© 2013 Zywave, Inc.All rights reserved.

Large Employer Calculator

full time employeeThis calculator is designed to help you determine if your organization is considered an Applicable large Employer (ALE) in regards to the employer shared responsibility penalties mandated by the Affordable Care Act (ACA).  ALEs are those that employed, on average, at least 50 full-time employees (including full-time equivalents) during the prior calendar year. Full-time employees are those who had, on average, 30 hours of service per week (or 130 hours in a calendar month).

Large Employer Calculator

What is a Grandfathered Health Plan?

person sitting on question mark

A grandfathered health plan is any health insurance plan which was in existence on or prior to March 23, 2010.

The Health Reform Bill makes exceptions for plans that meet the grandfathered requirement. Specifically, health plans that maintain grandfather status will not have to meet several provisions of the new insurance requirements, including:

    • the coverage of adult children up to age 26,
    • first-dollar benefits for preventive care, and
    • inclusion of “essential health benefits” required in 2014.

To maintain grandfathered-status, a health plan must not:

    • significantly cut or reduce benefits,
    • raise co-insurance charges,
    • significantly raise co-payment charges,
    • significantly raise deductibles,
    • significantly lower employer contributions,
    • add or tighten an annual limit on what the insurer pays, and
    • change insurance companies.

Agencies Issue Final Wellness Program Rules

wellnessEffective for plan years beginning on or after Jan. 1, 2014, the Affordable Care Act adopts existing nondiscrimination rules for health-contingent wellness programs and increases the maximum reward that can be offered under these programs. On May 29, 2013, final regulations were released that implement these changes. Specifically, the regulations retain the proposed nondiscrimination rules, although they divide health-contingent wellness programs into activity-only wellness programs and outcome-based wellness programs and apply the rules differently in some cases. The final rules also increase the maximum reward to 30 percent of the cost of health coverage in general, and 50 percent for programs designed to prevent or reduce tobacco use.

The regulations apply to both grandfathered and non-grandfathered group health plans and group health insurance coverage for plan years beginning on or after Jan. 1, 2014.

Click Overview of the Final Rules on Workplace Wellness Programs to learn more.

© 2013 Zywave, Inc. All rights reserved.