IRS Issues New FAQs Relating to the Affordable Care Act's Employer Shared Responsibility Rules, Small Business Health Care Tax and Employer Health Care Arrangements

The IRS has issued several new FAQs relating to the Affordable Care Act (ACA), including updating series of questions and answers on its website relating to the employer shared responsibility rules. The new employer shared responsibility Q&As (Questions 48-56) address, among other things, the consequences for an employer covered by the employer shared responsibility rules if the employer offers health insurance coverage to all full-time employees but does not offer dependent coverage, and who certifies when an employer meets the minimum value requirements. In addition, the IRS released 16 Q&As (available at Determining-FTEs-and-Average-Annual-Wages) about the small business health care tax credit and determining full-time employees and average annual wages.

Finally, the IRS also issued a new FAQ ( Care-Arrangements) clarifying that reimbursing premiums paid by employees for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace) qualifies as an "employer payment plan" and is considered to be a group health plan subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. The IRS previously noted in Notice 2013-54 that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Code for failing to satisfy the market reform requirements.

Federal Court Holds Self-Funded Health Plan is not Prohibited under ERISA from Excluding Same-Sex Spouses from Plan Coverage

On May 1, 2014, a U.S. District Court in the Southern District of New York held in Roe v. Empire Blue Cross Blue Shield and St. Joseph Medical Center, 2014 WL 1760343, (S.D.N.Y May 1, 2014) that an employee had no claim under ERISA against the sponsor of  a private self-funded health plan that included an exclusion for same-sex spouses. The plaintiff, an employee of the plan sponsor who was legally married under New York law to a same-sex spouse, argued that the sponsor of the self-funded health plan violated ERISA section 510, which prohibits an employer from interfering with or discriminating against a participant or beneficiary for exercising any benefit rights under an employee benefit plan. The court rejected the employee's claim, finding that claims under ERISA section 510 are limited to instances involving adverse employer-employee actions, and is not an outright anti-discrimination provision. Notwithstanding the Supreme Court holding in U.S. v. Windsor, 133 S.Ct. 2675 (2013) striking down section 3 of DOMA, the court noted that ERISA gives employers broad discretion in writing terms of welfare benefit plans. Therefore, the court held that the same-sex spouse exclusion was not unlawful under ERISA, and because the plaintiff-employee suffered no adverse employment action (she was still employed by the plan sponsor), the employee had no claim under ERISA section 510.

COMMENT:  Roe v. Empire Blue Cross Blue Shield supports the conclusion that ERISA does not prohibit self-funded health and welfare plans from excluding same-sex spouses from plan coverage. However, until additional district courts and appeals courts have had an opportunity to further consider the implications of U.S. v. Windsor on health and welfare plans, sponsors of health and welfare plans that exclude same-sex spouses from coverage may still risk legal actions from employees. Additionally, the court specifically noted the exclusion of same-sex spouses in the plan. Accordingly, plans that do not cover same-sex spouses should consider including a specific exclusion in the plan document.