Archives for July 2019

OVERVIEW

On July 17, 2019, the IRS released Notice 2019-45 to add care for a range of chronic conditions to the list of preventive care benefits that can be provided by a high deductible health plan (HDHP) without a deductible.

Individuals who are covered by an HDHP generally may establish and make contributions to a health savings account (HSA). To qualify as an HDHP, the plan cannot provide benefits for any year until a minimum deductible is satisfied. However, an HDHP may provide benefits for preventive care without imposing a deductible.

IRS Notice 2019-45 classifies certain medical care services and items, including prescription drugs, for chronic conditions as preventive care for individuals with those chronic conditions.

ACTION STEPS

This guidance makes it easier for HDHP participants to receive benefits for medications and other care to treat their chronic conditions. Employers with HDHPs should review their plan documents and consult with their carriers and benefit administrators, if necessary, to determine how their plans cover preventive care benefits.

HDHP – Preventive Care

To be eligible to establish an HSA and make contributions, an individual must be covered under an HDHP and have no disqualifying health coverage. An HDHP is a health plan that satisfies requirements for minimum deductibles and out-of-pocket maximums.

Except for preventive care benefits, no benefits can be paid by an HDHP until the minimum annual deductible has been satisfied. An HDHP may apply a low deductible (or no deductible) to its coverage of preventive care.

The IRS has provided guidance on permissible preventive care benefits for HDHPs. These benefits include, for example, periodic health exams (such as annual physicals), routine prenatal and well-child care, immunizations and screening devices and tests (such as cancer screenings).

As a general rule, preventive care generally does not include any service or benefit intended to treat an existing illness, injury or condition. For cost reasons, individuals with chronic conditions may not obtain necessary medical care, leading to consequences that require considerably more extensive medical intervention (for example, amputation, blindness, heart attacks, and strokes). 

Executive Order

On June 27, 2019, President Donald Trump signed an executive order aimed at improving price and quality transparency in health care. The order directs federal agencies to issue guidance in several areas regarding health care costs. Specifically, the executive order directs the Treasury Department and IRS to expand the ability of patients to select HSA-compatible HDHPs that cover low-cost preventive care, before the deductible, that helps maintain health status for individuals with chronic conditions. The IRS issued Notice 2019-45 in response to this executive order.

Expanded Preventive Care for Chronic Conditions

Notice 2019-45 provides that certain medical care services and items, including prescription drugs, for certain chronic conditions should be classified as preventive care under the HDHP rules for individuals with those chronic conditions.

If an individual is diagnosed with more than one chronic condition, all listed services and items applicable to the two or more conditions are preventive care. However, services and items not listed above that are for secondary conditions or complications that occur are not considered preventive care for HDHP purposes. In addition, Notice 2019-45 clarifies that its guidance does not impact the definition of preventive care under the Affordable Care Act (ACA). Under the ACA, non-grandfathered health plans must cover specific preventive care services without any participant cost-sharing.

OVERVIEW

The Affordable Care Act (ACA) requires health insurance issuers and self-insured plan sponsors to pay Patient-Centered Outcomes Research Institute fees (PCORI fees). The fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return). The PCORI fees do not apply for plan years ending on or after Oct. 1, 2019. Therefore, the 2018 plan year was the last plan year that these fees were effective.

Issuers and plan sponsors are generally required to pay the PCORI fees annually by July 31 of each year. As a result, the final PCORI fee payment for plan years ending in 2018 is due July 31, 2019. However, for non-calendar year plans ending between Jan. 1, 2019, and Sept. 30, 2019, a final PCORI fee payment will be due July 31, 2020.

ACTION STEPS

To assess their compliance obligations, employers should:

• Determine which plans are subject to the research fees;

1. Assess plan funding to determine whether the issuer or the employer is responsible for the fees; and

• For self-insured plans, select an approach for calculating average covered lives.

Overview of PCORI Fees

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. Therefore, the 2018 plan year is the last plan year that these fees will be effective, for calendar year plans.

Issuers and plan sponsors must pay PCORI fees annually on IRS Form 720 by July 31 of each year. The fee generally covers plan years that end during the preceding calendar year. For plans ending in 2018, the final PCORI fees are due by July 31, 2019.

Because the PCORI fees do not apply for plan years ending on or after Oct. 1, 2019, these are the final PCORI fees that will be due for plans ending in 2018. However, a final PCORI fee payment will be due July 31, 2020, for non-calendar year plans ending between Jan. 1, 2019, and Sept. 30, 2019.

Reporting and Paying PCORI Fees on Form 720

In general, the PCORI fees are assessed, collected and enforced like taxes under the Internal Revenue Code. Issuers and plan sponsors must report and pay the research fees annually on IRS Form 720 (Quarterly Federal Excise Tax Return). 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 are 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.

• $2.08 for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015 (see Notice 2014-56).

• $2.17 for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2016 (see Notice 2015-60).

• $2.26 for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017 (see Notice 2016-64).

• $2.39 for plan years ending on or after Oct. 1, 2017, and before Oct. 1, 2018 (see Notice 2017-61).

• $2.45 for plan years ending on or after Oct. 1, 2018, and before Oct. 1, 2019 (see Notice 2018-85).

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.