This is the 36th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act).
Last week, the Department of the Treasury announced the postponement of certain requirements under the Act that were scheduled to take effect in 2014. See Installment No. 35 in our series on the Act as to the announcement. Earlier this week, in Notice 2013-45 (Notice), the Internal Revenue Service (IRS) issued formal guidance on the transition relief that was being provided as to the following requirements under the Act:
- The annual obligation under Section 6055 of the Internal Revenue Code (Code) for insurers, self-insuring employers and other parties that provide “minimum essential coverage” to provide certain information to the IRS
- The annual obligation under Code Section 6056 for applicable large employers to report to the IRS and to the employer’s full-time employees as to whether and what healthcare coverage is offered to such employees
- The requirement under Code Section 4980H for applicable large employers to offer healthcare coverage to full-time employees or pay penalties, commonly known as the “play-or-pay” penalties (POP)
Note: As to a calendar year, an “applicable large employer” is one who employed an average of at least 50 full-time employees on business days during the preceding calendar year. A “full-time employee” is one who, as to a month, is employed on average at least 30 hours of service per week.
The Notice postpones compliance with all of the above requirements until 2015.
Timing of Proposed Regulations for Information Reporting Requirements
According to the Notice, the IRS intends to propose regulations this summer for the information-reporting provisions under Code Sections 6055 and 6056 that will now be fully effective in 2015, as a result of the transition relief in the Notice. The IRS encourages employers, insurers and other reporting entities to voluntarily comply with the proposed rules for information reporting for 2014 and notes that testing of reporting systems and plan design through voluntary compliance in 2014 will help to ensure a smoother transition to the full implementation of the rules in 2015. However, the IRS will not assess penalties for failure to comply with these reporting provisions for 2014.
Interaction Between Information Reporting and POP Penalties
The information reporting required in Code Sections 6055 and 6056 is integral to the IRS’s enforcement and administration of the POP requirements under Code Section 4980H. POP penalties are triggered in the event one or more of an applicable large employer’s full-time employees are entitled to premium tax credits under Code Section 36B and the employer has not offered minimum essential coverage to substantially all of its full-time employees and their dependents. Penalties can also apply as to full-time employees who are entitled to premium tax credits and who have not been offered minimum essential coverage that is “affordable” and provides “minimum value.” According to the IRS, because an employer typically will not know whether a full-time employee has received such a tax credit, the employer will not have all the information needed to determine whether it owes a POP penalty. Thus, applicable large employers will not have to calculate POP penalties or file returns submitting payment for such penalties.
Instead, the IRS has indicated that after receiving the information returns filed by applicable large employers under Code Section 6056 and the information about employees claiming the premium tax credit for any given calendar year, it will determine whether any of the employer’s full-time employees received the premium tax credit and, if so, whether any POP penalty is due. The IRS will thus contact any applicable large employer if the employer owes a penalty, and the employer will have an opportunity to respond to the information provided by IRS before any penalty is assessed.
Comment: The Notice should not be read as implying that employer self-reporting of POP penalties is required by the Act and that the IRS, as a matter of administrative grace, was letting employers “off the hook” as to such self-reporting. Self-reporting is not contemplated by Code Section 4980H; instead, Code Section 4980H(d)(1) provides that “[a]ny assessable payment provided by this section shall be paid upon notice and demand by the Secretary [meaning the Secretary of the Treasury, acting through the IRS] and shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68 [of the Code].”
Impact of the Transition Relief on Employees’ Ability to Receive Premium Tax Credits
The Notice indicates that the transition relief will not affect an individual’s eligibility for a premium tax credit if he or she purchases health insurance through one of the health insurance exchanges being established under the Act. According to the IRS, participants in the exchanges will continue to qualify for premium tax credits if their household income is within the specified range and they are not eligible for other minimum essential coverage. Such other minimum essential coverage includes eligible employer-sponsored group health plans that are affordable and provide minimum value.
Impact of Transition Relief on Other Act Provisions
The Notice makes clear that the 2014 transition relief is limited and has no effect on the effective date or application of other provisions under the Act. For example, the transition relief has no effect on the provisions taking effect in 2014 as to premium tax credits or the requirements under Code Section 5000A for individuals to maintain healthcare coverage for themselves or pay penalties.
Comment: Employers sponsoring group health plans and administrators of such plans should be mindful of various provisions of the Act taking effect for plan years beginning on or after Jan. 1, 2014, including the following:
- Group health plans, whether or not “grandfathered” under the Act, may not impose dollar limits on “essential health benefits.”
- Non-grandfathered health insurance plans in the small group market must offer essential health benefits.
- Group health plans and health insurance issuers offering group health insurance coverage may not establish rules for eligibility (including continued eligibility) of any individual to enroll under the terms of the plan or coverage based on any of the following health status-related factors in relation to the individual or a dependent of the individual: health status; medical condition (including both physical and mental illnesses); claims experience; receipt of healthcare; medical history; genetic information; evidence of insurability (including conditions arising out of acts of domestic violence); and disability.
- Group health plans and health insurance issuers offering group health insurance coverage may not impose any preexisting condition exclusion as to such plans or coverage. This requirement applies to grandfathered plans as well.
- Group health plans cannot apply waiting periods for coverage that are greater than 90 days. This requirement applies to grandfathered plans and non-grandfathered plans. See Installment No. 31 in our series on the Act as to the waiting-period limitation.
- Non-grandfathered group health plans may not impose annual cost-sharing that exceeds the maximum out-of-pocket expense limits for health savings account-compatible high-deductible health plans.
- The general prohibitions against discrimination based on a health factor will be subject to exceptions for plan provisions that vary benefits (including cost-sharing mechanisms) or the premium or contribution for similarly-situated individuals in connection with a wellness program that satisfies certain requirements.