Tag Archives: employer mandate

IRS Set to Nail Employers on ACA

The Internal Revenue Service is acting to help individuals who are eligible for Patient Protection and Affordable Care Act (Obamacare) health subsidies and who live in regions where exchange insurers do not offer bronze (lowest-cost) coverage, even as it moves ahead to nail employers failing to comply with Obamacare’s employer shared responsibility rules (commonly referred to as the “employer mandate”).

IRS New Individual Obamacare Relief

Notice 2017-74  will provide that individuals who are not eligible for coverage under an eligible employer-sponsored plan and who lack access to affordable coverage should not be denied the use of the affordability exemption under § 5000A(e)(1) of the code and § 1.5000A-3(e) of the regulations merely because they reside in an area served by a marketplace that does not offer a bronze-level plan. Consequently, for purposes of the affordability exemption under § 5000A(e)(1) and § 1.5000A-3(e), if an individual resides in a rating area served by a marketplace that does not offer a bronze plan, the individual generally should use the lowest-cost metal-level plan available in the marketplace serving the rating area in which the individual resides.

Notice 2017-74 will be in IRB 2017-51, dated Dec. 18, 2017.

See also: Optimizing Financing in Healthcare  

Employers Still Face Obamacare Penalties

While the IRS has issued limited relief for individuals from the ACA’s individual mandate penalties, so far it has remained steadfast in its refusal to grant employers corresponding relief from the ACA employer-shared responsibility penalties or other ACA penalties. Instead, IRS officials continue to make clear that the IRS intends to enforce the ACA employer-shared responsibility rules against employers with 50 or more full-time employees (including full-time equivalent employees).

Under the Obamacare employer mandate rules, covered employers face significant federal tax penalties for (1) failing to offer minimal essential coverage to substantially all full-time employees and their dependents (the “A Penalty”), or (2) offering coverage that is either “unaffordable” or does not provide “minimum value” (the “B Penalty”) if a full-time employee enrolls in the health insurance marketplace and receives a premium tax credit.

While many employers assumed President Trump’s Jan. 20, 2017, executive order “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” would insulate them against enforcement of the employer mandate and other Obamacare penalties, the IRS doesn’t see the executive order as barring its enforcement of Obamacare against sponsoring employers or their group health plans. In an April 14, 2017, IRS Chief Counsel letter, for instance, the IRS announced it does not interpret its discretionary authority under Obamacare to allow waiver of the employer mandate tax imposed under Internal Revenue Code Section 4980H against covered employers that fail to provide the affordable minimum essential coverage required by the employer mandate. In keeping with this interpretation, the IRS has announced that it will begin enforcement of the employer mandate tax liability for plan years after 2015 against covered employers that failed to meet the employer mandate.

Of course, the employer mandate is not the only Obamacare provision that employers and their health plans need to worry about. In addition to the employer mandate, Obamacare imposed a host of patient protection and other federal mandates upon employer-sponsored plans, most of which apply to plans covering two or more employees. In addition to any benefit and other administrative penalties that otherwise arise under the Employee Retirement Income Security Act or the Social Security Act for violating these mandates, employers sponsoring plans that violate any of 40 listed mandates imposed by Obamacare or certain other federal laws also become liable under Internal Revenue Code Section 6039D to self-identify, self-assess, report on Form 8928 and pay an excise tax equal to $100 per person per uncorrected violation. The IRS, Department Of Labor and Department Of Health and Human Services have taken the position that the Jan. 20 executive order also does not bar enforcement of those Obamacare penalties. Accordingly, employers and their group health plans continue to face potentially substantial liability if their group health plan does not comply with Obamacare.

See also: U.S. Healthcare: No Simple Insurtech Fix  

In the face of these exposures, employers and their group health plan should carefully review their plans and their administration for compliance before the end of the plan year so as to be able to take appropriate and timely corrective action before penalties attach and while stop loss or other insurance is available to help mitigate the cost of these corrections. Employers preparing for health plan renewals also should review their group contracts and conduct due diligence to verify their group health plans terms and operations meet the mandates as they initiate new plan years. Employers also generally will want to review their compliance and take action to address any deficiencies against any vendors or advisers who may have culpability in the defective health plan design or administration. Prompt action against vendors who may be culpable for the design or administration defects is necessary to preserve potential claims for deceptive trade practices or other causes of action that an employer might have under state contract, tort or other law. Employers and health plan fiduciaries should consider engaging experienced legal counsel to conduct this review on behalf of the employer or other plan sponsor within the scope of attorney-client privilege so as to assess and address these potential risks on a timely basis.

How a GOP Congress Could Fix Obamacare

Republicans are primed to take over Congress. A new FiveThirtyEight.com projection gives the GOP a 60% chance of winning the Senate this fall. And, according to RealClearPolitics, there’s virtually no chance Democrats will take the House.

If the GOP succeeds, public displeasure with Obamacare may be why. A recent poll from Bankrate.com found that more than two-thirds of voters say that Obamacare will play a role in how they vote in the coming election. Nearly half said it would influence them “in a major way.”

Of course, the next Congress has little hope of repealing Obamacare outright. The president would just issue a veto. Overriding it — though technically possible — would be difficult with an intransigent Democrat minority.

A GOP majority should instead focus on incremental reforms with bipartisan support — like tax cuts, regulatory reforms and repeal of some of Obamacare’s most unpopular mandates. That’s the most effective way for lawmakers to move our health care system toward one that puts markets and patients at its center.

Step one? Repeal Obamacare’s medical-device tax. This 2.3% excise charge on all device sales is expected to collect $29 billion over the next decade, according to government data.

Device firms are compensating by cutting jobs. Stryker, for instance, has cut 5% of its workforce — about 1,000 people. Zimmer Holdings has chopped 450 jobs. In total, Obamacare’s device tax could kill 43,000 jobs, according to Diana Furchtgott-Roth, an economist at the Hudson Institute.

Getting rid of the tax is a no-brainer. In March 2013, 79 senators — including 34 Democrats — approved a non-binding resolution calling for its repeal. It’s time to make that vote binding.

Second, a GOP-controlled Congress should strengthen health savings accounts. These financial vehicles allow patients to stow away money tax-free for medical expenses. HSAs are typically coupled with high-deductible health insurance. Patients bear the cost of routine care, and coverage kicks in when needed, like in the event of a medical emergency.

HSAs give patients a financial incentive to avoid unnecessary medical expenses. Converting someone to HSA-based insurance drops her annual health expenses by an average of 17%.

This year, 17.4 million people are enrolled in HSA-eligible plans — a nearly 14% increase over 2013. Among large employers, 36% now offer HSA/high-deductible plans, up from 14% five years ago.

Annual HSA contributions are currently capped at $3,350 for an individual and $6,550 for a family. Congress should raise them to $6,250 and $12,500, respectively. And patients with HSA coverage through the exchanges should be eligible for a one-time, $1,000 refundable tax credit to be deposited directly into their account.

Third, the new Congress should reform medical malpractice. Frivolous lawsuits and the threat of baseless litigation are increasing health costs and degrading quality of care.

Excessive malpractice suits drive “defensive” medicine, in which doctors order unnecessary procedures and tests simply to shield against accusations of negligence. This practice costs the country an estimated $210 billion every year, according to PricewaterhouseCoopers. Injecting common sense into the medical tort system would bring down that bill.

Earlier this year, the House Energy and Commerce Committee passed a bill that restricted lawsuits against doctors by, among other things, limiting non-economic damage judgments to $250,000. It was effectively ignored once it moved out of committee. Republicans should dust it off and pass it.

Finally, the GOP should repeal Obamacare’s employer mandate, which slaps midsize and large companies with a fine if they don’t provide sufficiently “robust” health coverage to full-time employees.

The mandate is destroying jobs. Employers are holding off on hiring and ratcheting back workers’ hours to avoid additional insurance costs. A Gallup poll found that 85% of businesses are not looking to hire. Nearly half cited rising healthcare costs.

There’s ample political support for repealing the employer mandate. The administration has already unilaterally — and maybe illegally — delayed its implementation. Several prominent backers have openly called for repeal.

All of these reform ideas are imminently actionable. They could find broad bipartisan backing and avoid a veto. Most importantly, they would move U.S. healthcare closer to a consumer-driven system, with patients empowered to control their own spending and market forces pushing costs down.

Why Employers Should Practice Complying With an Obamacare Mandate

The Affordable Care Act (ACA) requires large employers (those with at least 50 full-time equivalent employees) to provide qualifying health care coverage to substantially all full-time employees and their dependent children or pay a monthly “Employer Shared Responsibility” penalty.  The employer mandate was set to take effect in 2014 but was delayed until 2015.  But, even without the threat of tax penalties in 2014, employers should practice complying with the mandate during the 2014 transition period.

Here is a blueprint for implementing a compliance strategy: 

1. Amend health plans to comply with the ACA requirements that were NOT delayed.  Required changes include eliminating annual dollar limits on essential health benefits; eliminating pre-existing condition exclusions for all enrollees; offering coverage to dependents to age 26 who are eligible for other employer coverage; and limiting benefit waiting periods to no more than 90 days.  Non-grandfathered plans also must prohibit discrimination based on participation in a clinical trial; abide by cost-sharing limits; and prohibit discrimination against any health care provider acting within the scope of that provider's license or certification under applicable state law. 

2. Determine whether the employer mandate applies.  In general, the employer mandate applies to “large” employers that employed an average of at least 50 “full-time” equivalent employees on business days during the prior calendar year.  A full-time employee is one that averages at least 30 “hours of service” per week (or 130 hours per month).  All entities in a controlled group are treated as a single employer to determine large employer status.

3. If an employer is determined to be a large employer, assess financial risks under the employer mandate.  A large employer that chooses not to offer minimum essential coverage (MEC) will be penalized $2,000 per full-time employee (minus the first 30) if one full-time employee receives a federal subsidy for Health Insurance Marketplace coverage.  This is often called the “sledgehammer” penalty.  If a large employer offers MEC, but the MEC fails to provide minimum value (60%+ of total allowed costs) or affordability (employee’s contribution toward the premium is ≤9.5% of household income), the employer will be penalized the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 per full-time employee (minus the first 30).  This is known as the “tack-hammer” penalty.  Most employer-sponsored group health coverage is MEC, including, apparently, so-called “skinny” plans that cover only ACA-required preventive services with no cost-sharing and with no annual or lifetime dollar limits on benefits.

4. For a large employer that wants to avoid the sledgehammer and/or tack-hammer penalty in 2015, rehearse employer mandate compliance in 2014.  Finalize plan designs and amend plans now to conform to MEC, minimum value and affordability requirements.  Offer coverage to employees performing 30 hours of service or more per week during a month and, at a minimum, their dependent children to age 26.  If large numbers of variable-hour or seasonal employees make it difficult to track and manage full-time status, establish ACA-compliant “measurement periods” to determine whether these employees actually work enough hours to be offered coverage.  Maintain detailed records, because informational reporting about the coverage and to whom it is offered must be provided to the Internal Revenue Service beginning in 2016. 

Details of each employer’s situation are unique.  But all employers should accelerate and simplify this complex compliance project.  Many independent, third-party administrators can be an invaluable resource for navigating the employer mandate rules and penalties and other complexities of health care reform.

Why Obamacare Is Unraveling

President Obama’s announcement during a Nov. 14 press conference that he would like to see insurance carriers extend non-complying health coverage after Jan. 1 may be the event that unravels the Affordable Care Act (ACA).  Carriers and health plans have worked hard for several years, have spent millions of dollars complying with ACA, have fought with insurance department regulators getting policies approved and, in many cases, have notified consumers of the need to terminate non-compliant policies. Now, carriers and health plans have a new wrinkle thrown their way.  What is going to happen next?

Some of the key principles of ACA are:

  • Clear definition of Essential Health Benefits (i.e., EHB)
  • Clear definition of metallic or metal level plans based upon the actuarial value of the benefit plan
  • Restrictions on premium format and methods to derive premium rates
  • Rigorous rate review and approval process coordinated by a combination of state insurance departments and federal oversight
  • Mandates for participation in some type of health coverage
  • Large number of taxes and fees to help fund ACA
  • Assumption that there would be a reasonable risk pool so carriers could appropriately price and predict future costs of care

Minimum loss ratio requirements to ensure that a reasonable portion of the premium rate goes toward the payment of claims

Carriers have worked hard to comply with the new regulations, which for many have involved significant shifts in the methods used to conduct business.  The rate development process for a typical carrier follows this process:

  • Review of prior claims experience and profitability
  • Determination of what rate increase will be required to maintain a profitable product offering
  • Development of proposed rate for various rate cohorts with competitive comparisons
  • Potential benefit redesign to meet regulatory changes or competitive pressures in the marketplace
  • Obtaining independent actuarial certification regarding proposed rates as a reasonableness test (e.g., Section 1163 required in California)
  • Filing of rates with regulators for approval and follow-up with regulators until rates are formally approved
  • Communication of rates to those insured, and implementation of the new rates

This process can require four to six months to complete.  It is actuarially complex and requires careful analysis of many factors and variables. 

As ACA emerged, carriers had to adjust benefits covered in prior products where they failed to meet the minimum EHB required.  In some cases, products were terminated because they did not meet either the EHB or the minimum actuarial value of 60%.  Carriers worked hard to develop replacement products, filed these with regulators and started to present these to their customers. 

It was obvious that some customers would be concerned about the impact of rate changes associated with ACA-approved benefit programs.  Rates would increase for a variety of reasons:

  • Health care inflation continues
  • Mandated benefits required broader coverage than previously purchased
  • Elimination of gender rating generally increased rates for insured males
  • Minimum Actuarial Values (i.e., > 60% AV) raised benefits for some insureds
  • Assumed average risk score for the individual market was higher than in the past because medical underwriting is no longer appropriate, and, in some cases, carriers raised the average assumed health status built into the rates to reflect the enrollment of additional Medicaid- or Medicaid-like lives.
  • Age rating was affected, requiring higher rates at younger ages to offset some of the reductions at the older ages (i.e., 3:1 limits on age rating curve).

The concerns expressed by the public on higher rates, the concerns expressed about policy cancellations, the delays caused by website challenges, the continued frustrations about ACA all combined into a situation where a large portion of public were frustrated with ACA.  The president’s announcement was a response to many of these concerns and frustrations.

However, there are several complications facing the carrier community as a result of this suggestion or proposal to the insurance departments and affected carriers.

  • Rates for terminated programs were not updated for 2014.  Rates can’t be extended without adjustment because rates were established for a previous time period, and there has been inflation.  Updating would require a minimum of 4 – 6 months.  The software implemented by the federal government and used at the local insurance department level is built around the new ACA requirements and would likely reject restored versions of terminated policies.
  • The risk pool for all of the ACA-approved rates will be changed significantly if individuals are able to continue their prior programs.  Selection bias issues would be significant.
  • The individual mandate for credible health coverage would be compromised if individuals continued their prior, non-compliant coverage.  The anticipated tax base would be jeopardized with the continued offering of non-compliant coverage if penalties were forgiven.
  • The disruption to the insurance industry involved in the exchanges would be significant and potentially would permanently damage the risk pool.
  • More importantly, the public’s perception of the benefit of ACA to them will be affected as changes were required, then they weren’t, then they will be, etc.

Although there are many features of ACA that potentially provide value to the public, the flawed rollout, the delays in implementation and now radical changes to the structure of the ACA program very likely start to unravel the viability of the program.  Only time will tell.

As Obamacare's 'Compassionate' Reality Sets In, Companies 'Cruelly' Cut Health Benefits

Employees of shipping giant United Parcel Service recently got an unexpected delivery. The company announced that it would stop offering health coverage to the spouses of 15,000 workers.

UPS’s workers and their families can thank Obamacare for this special delivery. And UPS isn’t alone. American businesses are discovering each and every day that the president’s signature law will raise health costs for them and their employees in short order.

In a memo explaining the decision to employees, UPS stated that increasing medical costs “combined with the costs associated with the Affordable Care Act, have made it increasingly difficult to continue providing the same level of health care benefits to our employees at an affordable cost.”

One day before UPS’s big announcement, the University of Virginia announced that it would cut benefits for spouses who have access to health care through jobs of their own. The rationale was similar.

Delta Airlines recently revealed that Obamacare will directly increase its direct health costs by $38 million next year. After taking into account the indirect costs of the law, the company is looking at a 2014 health bill that’s $100 million higher.

Increasingly, large employers who aren’t dropping spousal health benefits are requiring their employees to pay monthly surcharges in the neighborhood of $100 per spouse.

Many small businesses are dropping family coverage altogether because they expect that Obamacare’s new tax on insurers will be passed on to them in the form of higher premiums. One Colorado-based business received notice from its insurer that the tax would increase premiums more than 20 percent.

The story is similar in Massachusetts. One new report concludes that over 45,000 small businesses in the Bay State will see premium increases in excess of 30 percent. In all, more than 60 percent of firms in the state will see their premiums go up.

Last month in California, the largest insurer for small businesses — Anthem — declared that it would not participate in the state’s small-business health insurance “marketplace,” Covered California. Only two years ago, Anthem covered one-third of small businesses in California.

Anthem’s exit represents one less choice for consumers — and a sign that competition may not be as robust in the exchanges as the Obama Administration promised.

Small businesses are responding to these higher premiums by trimming their labor costs in other ways. That’s not good news for workers.

Seventy-four percent of small employers plan to have fewer staff because of Obamacare, according to a recent U.S. Chamber of Commerce survey. Twenty-seven percent are looking to cut full-time employees’ hours, 24 percent to reduce hiring, and 23 percent to replace full time with part-time employees.

One in four small companies say that Obamacare was the single biggest reason not to hire new workers. For almost half, it’s the biggest business challenge they face.

These findings are consistent with a recent Gallup Poll showing that 41 percent of small businesses have already stopped hiring because of Obamacare. Another 19 percent intend to make job cuts because of the law.

All this tumult in the labor market is fueled by more than the increase in premiums engendered by Obamacare. The law effectively encourages companies to cut full-time jobs.

Obamacare requires employers with 50 or more workers to provide health insurance to all who are on the job for 30 or more hours per week. The law originally called for this “employer mandate” to take effect in 2014, but the Administration decided in July to delay enforcement of the mandate until 2015.

Employers are responding by doing just enough to avoid Obamacare’s dictates.

Administrators at Youngstown State University in Ohio recently told adjunct instructors, “[Y]ou cannot go beyond twenty-nine work hours a week. . . . If you exceed the maximum hours, YSU will not employ you the following year.” A week prior the Community College of Allegheny County in Pittsburgh made a similar announcement.

Hundreds of employees at Wendy’s franchises have seen their hours reduced for the same reason.

Meanwhile, companies with fewer than 50 employees are thinking twice about expanding — and thus being ensnared by Obamacare’s requirement that they provide health insurance.

The cost of each additional employee could be staggering. A firm with 51 employees that declined to provide health coverage would face $42,000 in new taxes every year — and an additional $2,000 tax for each new hire. Providing coverage, of course, would be even more expensive.

Meanwhile, as private firms large and small grapple with Obamacare-fueled cost increases, one large employer — the federal government — has been quietly exempting itself from portions of the law.

Top congressional staffers like their current benefits under the Federal Employee Health Benefits Plan (FEHBP), wherein the government pays up to 75 percent of the premiums.

But the law requires those who work in lawmakers’ personal offices to enter the exchanges. And in many cases, staffers  make too much to qualify for health insurance subsidies through the exchanges. So they’d be facing a hefty cut in their compensation.

Fearing a mass exodus of congressional staffers from Capitol Hill, the Obama Administration fudged the law to permit lawmakers’ employees to receive special taxpayer-funded subsidies of $4,900 per person and $10,000 per family.

Yet only three months ago, Senate Majority Leader Harry Reid (D-Nev.) claimed that Congress wouldn’t make exceptions for itself.

President Obama no doubt knows that these congressional favors won’t go over well with ordinary Americans. So he’s called on his most popular deputy — former President Bill Clinton — to try to sell the law to the public once again.

But unless the former president can lower employer health costs with little more than the power of his words, his sales pitch will likely fall flat.

This article was first published at Forbes.com.