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.

Beginning in 2020, employers of all sizes may implement a new HRA design – an individual coverage HRA (ICHRA) – to reimburse their eligible employees for insurance policies purchased in the individual market or Medicare premiums.

Final rules released by the Departments of Labor, Health and Human Services (HHS) and the Treasury (Departments) permit employers to offer an ICHRA as an alternative to traditional group health plan coverage, subject to certain conditions. One of these conditions is that employees and dependents who are covered by an ICHRA must be enrolled in individual insurance coverage or Medicare coverage for each month they are covered by the ICHRA. Also, employers that sponsor ICHRAs must comply with an annual notice requirement.

Employers may allow employees to pay for off-Exchange health insurance on a tax-favored basis, using a Section 125 cafeteria plan, to make up any portion of the premium that is not covered by the employer’s ICHRA.

background

An HRA is a type of account-based group health plan that is funded solely by employer contributions and reimburses eligible employees for medical care expenses, up to a maximum dollar amount for a coverage period.

HRAs are an attractive option for employers and employees due to their tax-favored status. Employers may take a federal income tax deduction for HRA contributions. Any reimbursements that employees receive from their HRAs for medical care are excludable from the employees’ income and wages for federal income and employment tax purposes.

HRA Design – ACA Changes Most HRAs cannot satisfy certain Affordable Care Act (ACA) market reforms on their own, such as the ACA’s coverage requirement for preventive health services and its ban on annual limits. To avoid violating the ACA, HRAs must be integrated with other health plan coverage that complies with these mandates. Prior to the new rules for ICHRAs, HRAs were only permitted to integrate with other group health plan coverage and Medicare (in limited situations). Before ICHRAS become available in 2020, employers cannot use HRAs to reimburse employees for individual health insurance premiums without violating the ACA and risking exposure to excise taxes of $100 per day for each applicable employee. This restriction does not apply to HRAs that are exempt from the ACA’s reforms, such as QSEHRAs, retiree-only and HRAs that only reimburse excepted benefits (such as limited-scope dental and vision coverage).

On June 13, 2019, the Departments issued final rules that expand the usability of HRAs. Effective for plan years beginning on or after Jan. 1, 2020, the final rules allow HRAs to be integrated with individual insurance policies (or Medicare) for purposes of satisfying the ACA’s reforms.

This means that, effective for 2020, HRAs may be used to reimburse employees for the cost of individual health coverage (or Medicare coverage) on a tax-free basis, subject to certain conditions.

new type of hra – ICHRA

Beginning in 2020, employers may use ICHRAs to reimburse employees for their individual health insurance premiums (or Medicare premiums), subject to the conditions outlined below. Most of these conditions are intended to mitigate the risk that health-based discrimination could increase adverse selection in the individual market. The final rules also create a new special enrollment period for the individual market for individuals who newly gain access to an ICHRA.

Although the Departments expect that ICHRAs will be most popular with small and mid-sized employers, employers of all sizes may offer an ICHRA.

Eligible Expenses

An ICHRA may provide for reimbursement of expenses for medical care, as defined under Internal Revenue Code (Code) section 213(d). An employer has discretion to specify which medical care expenses are eligible for reimbursement from its ICHRA.

An employer may allow an ICHRA to reimburse all medical care expenses, may limit an ICHRA to allow reimbursements only for premiums, may limit an ICHRA to allow reimbursements only for non-premium medical care expenses (such as cost-sharing) or may designate specific medical care expenses that will be reimbursable.

Although not required, it is expected that most employers will use ICHRAs to reimburse premiums for individual health insurance coverage or Medicare (including Medicare Part A, B, C or D, as well as premiums for Medigap policies). 

Enrollment Requirement

An employee who is covered by an ICHRA must be enrolled in individual health insurance coverage (or Medicare coverage) for each month that he or she is covered by the ICHRA. This coverage requirement also applies to any family members (such as spouses and children) who are covered by the ICHRA.

All individual health insurance policies, except for individual health insurance coverage that consists solely of excepted benefits or short-term, limited-duration insurance (STLDI), will satisfy this enrollment requirement. For example, individual insurance coverage includes:

• Individual insurance coverage purchased on an ACA Exchange;
• Individual insurance coverage purchased outside of an ACA Exchange (including coverage purchased through a private exchange model);
• Student health insurance coverage; or
• Catastrophic health insurance coverage.

Medicare coverage includes Medicare Parts A and B or Part C.

If any individual ceases to be covered by individual health insurance coverage (or Medicare coverage), the ICHRA cannot reimburse medical care expenses incurred by that individual after the coverage ceases.

Substantiation Requirement

The ICHRA must implement (and comply with) reasonable procedures to substantiate that participants and each dependent covered by the ICHRA are (or will be) enrolled in individual health insurance coverage or Medicare coverage for the plan year. Reasonable substantiation procedures may consist of documentation by a third party (for example, an insurance card or explanation of benefits document) or a participant’s attestation.

In general, the deadline for providing this substantiation cannot be later than the first day of the plan year. After this initial substantiation, the ICHRA must require participants to substantiate this individual insurance coverage prior to each expense reimbursement.

The Departments have provided a model substantiation form for employers to use.

Cannot Offer Traditional Group Health Plan to Same Employees

If an employer offers an ICHRA to a class of employees, the employer cannot also offer a traditional group health plan to the same class of employees. A traditional group health plan refers to a group health plan other than an account-based group health plan or a group health plan that consists solely of excepted benefits. This means that an employer cannot offer a choice between an ICHRA and a traditional group health plan to any employee or dependent.

Same Terms

Employers can contribute as little or much as they want to an ICHRA. However, an employer must offer the ICHRA on the same terms to all employees within a class of employees, subject to a few specific exceptions, described below. Unused amounts may be carried forward from year to year, as long as the carryovers are provided on the same terms to all employees within a class.

Employers cannot vary their ICHRA contributions based on a percentage (for example 80%) of employees’ individual health insurance premiums. Also, employers cannot offer a more generous ICHRA benefit based on an employee’s adverse health factor, such as diabetes, chronic illnesses or cancer. This type of “benign discrimination” is prohibited by the final rules.  
Employee Classes

Employers with ICHRAs may make distinctions between different groups of employees, using the following employee classes:

Full-time employees;Part-time employees;Employees who are paid on a salary basis;Non-salaried employees (for example, hourly employees);Employees whose primary site of employment is in the same rating area; Seasonal employees;

Employees who are covered by a collective bargaining agreement (CBA); Employees who have not satisfied a waiting period for coverage; Non-resident aliens with no U.S-based income; Temporary employees of staffing firms; and Any group of employees formed by combining two or more of these classes.

The final rules clarify that the classes of employees are determined based on the employees of a common law employer, rather than the employees of a controlled group of employers.

Also, if an employer offers an ICHRA to former employees, a former employee is considered to be a member of the same class of employees that he or she was in immediately before separation from service. Keep in mind that employers may continue to offer retiree-only HRAs, which are not subject to the ACA’s market reforms or the rules for ICHRAs.

Minimum Class Size

A minimum class size requirement applies if an employer offers a traditional group health plan to some employees and an ICHRA to other employees based on the following classes: full-time versus part-time status; salaried versus non-salaried status; or geographic location if the location is smaller than a state. The minimum class size requirement also applies if an employer combines any of these classes with other classes, except this requirement does not apply to a group of employees that is a combination of one of these classes and a class of employees who have not satisfied the waiting period.  

The minimum class size is determined prior to the start of the ICHRA plan year and depends on the employer’s size, as follows:

• Employers with fewer than 100 employees: at least 10 employees
• Employers with 100-200 employees: at least 10% of the total number of employees
• Employers with more than 200 employees: at least 20 employees

Whether a class of employees satisfies the minimum class size requirement for a plan year is based on the number of employees in that class who are offered the ICHRA as of the first day of the plan year.

Special Rule for New Hires

To help employers transition from offering a traditional group health plan to an ICHRA, the final rules include a special rule that permits employers to offer new employees an ICHRA, while grandfathering existing employees in a traditional group health plan. An employer may set the new hire date prospectively for a class of employees as any date on or after Jan. 1, 2020. The ICHRA must be offered on the same terms to all participants in the new hire subclass.

Example: For 2021, an employer offers all employees a traditional group health plan. For 2022, the employer offers all employees hired on or after Jan. 1, 2022, an ICHRA on the same terms and continues to offer the traditional group health plan to employees hired before that date.

Opt-out Requirement

Employees must be permitted to opt out of an ICHRA so they may claim the premium tax credit under the ACA, if they are otherwise eligible for the premium tax credit and the ICHRA is considered unaffordable. An employer may establish timeframes for enrollment in (and opting out of) the ICHRA but, in general, the opportunity to opt out must be provided in advance of the first day of the plan year. 

Annual Notice Requirement

Employers with ICHRAs must provide a notice to eligible participants regarding the ICHRA and its interaction with the ACA’s premium tax credit. In general, this notice must be provided at least 90 days before the beginning of each plan year. For participants who are not eligible at the beginning of the plan year (such as new hires), the notice must be provided by the time the participant is first eligible to participate in the ICHRA.

The Departments provided a model notice for employers to use to satisfy this notice requirement.

An individual who is eligible for an ICHRA is not eligible for an ACA premium tax credit for any month when the individual is enrolled in the ICHRA or the individual opts out of the ICHRA but the ICHRA is considered “affordable” under the ACA’s rules. HHS expects that, by November 2019, it will provide resources to help individuals determine their eligibility for a premium tax credit when they are offered an ICHRA.

Employee Pre-tax Contributions

If the ICHRA does not cover employees’ full premiums for individual insurance coverage, the employer may permit employees to pay the balance of the premiums on a pre-tax basis through its Section 125 cafeteria plan. However, the Internal Revenue Code (Code) prohibits employers from allowing employees to pay for Exchange coverage on a pre-tax basis. This prohibition does not apply to coverage that is purchased outside of an ACA Exchange. 

HSA eligibility

Employees who have individual insurance coverage under a high deductible health plan (HDHP) may want to make contributions to a health savings account (HSA). Employers may offer a choice between an ICHRA that is compatible with an HSA and an ICHRA that is not HSA-compatible to a class of employees without violating the final rules. An HSA-compatible ICHRA may reimburse individual insurance premiums and other medical expenses after the HDHP deductible has been satisfied, but cannot reimburse first-dollar cost-sharing under the HDHP.

erisa compliance

In general, an ICHRA is a group health plan that is subject to ERISA. This means that the ICHRA is subject to ERISA’s reporting and disclosure rules (for example, the SPD requirement and Form 5500) and its fiduciary requirements. The final rules provide that the individual insurance policies are not considered part of the employer’s ERISA plan if the following safe harbor criteria are met:

• An employee’s purchase of any individual health insurance is completely voluntary;
• The employer does not select or endorse any particular insurance carrier or insurance coverage;
• The employer does not receive any cash, gifts or other consideration in connection with an employee’s selection or renewal of any individual insurance coverage;
• Each employee is notified annually that the individual health insurance coverage is not subject to ERISA. (The model notice for ICHRAs includes this notification.)

Employer shared responsibility rules

The ACA’s employer shared responsibility rules, also known as the employer mandate or “pay or play” rules, require applicable large employers (ALEs) to offer minimum essential coverage that is affordable and provides minimum value to their full-time employees, or pay a penalty.

According to the Departments, an offer of coverage under an ICHRA counts as an offer of coverage under the ACA’s employer mandate rules. In general, whether an ALE that offers an ICHRA to its full-time employees (and their dependents) owes a penalty under the employer mandate rules will depend on whether the ICHCRA is considered affordable. This means that, to avoid a penalty, ALEs with ICHRAs will need to contribute a sufficient amount for the ICHRA offer of coverage to be considered affordable to their full-time employees. The IRS expects to provide more guidance on how the employer mandate applies to ICHRAs in the future.

Analysts expect millennials to make up 75% of our workforce by 2025. Because of this, much attention has been given to them in analytics and speculation.

These young employees bring with them new attitudes, expectations, and needs for which employers need to be prepared.

What makes millennials unique is they are the first generation raised with technology–at least the way we know modern technology. Most of them can’t remember a time without the internet, and as a result, 93% of them expect their employees to be up-to-date with technology, making this one of the most important aspects of the workplace.

Most millennials aren’t going to be satisfied with mere “up-to-date” technology but will expect “newer and faster” on a frequent basis. They want flexible work environments that will meet the needs of both their professional and personal lives. Many employers are trying to meet these needs by providing pet insurance, extended leave, counseling service, and financial education.

But is just offering these benefits enough? Not if the employees don’t pay attention to them. Millennials have gone on record stating that they may not know as much about their benefit plan as former generations and tend to be less engaged with this element of their job. This young, healthy generation is much more likely to list time off as the most important benefit than they are health insurance.

When you add all this up, it’s easy to see that millennials tend to not understand the value of their benefits, much less the details of their plan. And because of this they may not utilize their benefits as much as some of their older colleagues. For instance, a millennial might be more likely to use an ER visit for a routine medical issue rather than using a low-cost primary care physician.

To make sure the millennial workforce understands and values their benefits, business owners need to focus on engaging them with education and communication. And since millennials are already the most tech-savvy of your employees, you can take advantage of this by educating and communicating with them through these mediums.

Aside from reaching them through the company intranet and text messages, inviting them to take part in surveys and to join committees to help form HR processes and offerings appeals to their sentiment about health and wellness. Engaging them like this will lead to a deeper understanding of benefits and hopefully an empathy for the employer’s financial contributions toward their well-being.

Business owners need to understand their employee workforce, determine the best communication channels to reach them, and utilize those mediums to educate them. If this is done properly, they’ll see higher use of benefits, keep their employees engaged, and maybe even keep them on board longer.

Empowerment of the individual broadens the control of insurance cost on an enterprise level, which is always high on the CFO’s priority list.

Modernizing your approach to gain the trust of millennials’ can help increase use and engagement, control costs, and ensure success into the future.

Patient Protection and Affordable Care Act reporting was crazy for many Fortune 1000 employers in the first year.

The number one challenge to businesses was data as they tried to meet ACA requirements. According to a survey by Hager Strategic, ACA-reporting vendors saw that their clients (over 4,000 employers) were hampered by a variety of data gathering, accuracy and reporting hurdles in 2015. That’s not surprising. Data gathering for ACA reporting is complicated. Most employers are forced to bring together information related to benefit enrollment, hours worked, and contributions from contrasting systems, which leads to inefficient organizational methods and high compliance costs.

Penalties approach for non-compliance.

The word on the street is that the IRS is only getting started. The question is not whether  the IRS will impose billions of dollars in fines, but rather when they will do it. They already have the infrastructure ready to enforce ACA regulations and they project these fines will total $164 billion over the next decade.

Failure to deliver statemetns and filings may result in a $260 fine per each required form. This can total up to $3 million annually. And as for employers who do not offer coverage to 95% of their full-time employees, they face even more drastic fines–up to $2,000 per full-time employee.

End-to-End Compliance is the Key

Large employers are now turning to third-party solutions to meet these ACA requirements and deadlines. This also allows them to comply with the employer shared reporting stipulation.

Several benefits exist for employers who are willing to implement the right ACA reporting solution. Employers will see reduced costs, improved accuracy, and year-to-year repeatability. In order to cut down reliance on internal resources, eliminate rework, and avoid the variable hard and soft costs of using internal staff, many employers are looking to automate the process of data collection, application of regulations, and content determination for IRS forms.

There are a few things, going into this, that employers want to make sure they can do effectively:

1. Gather and aggregate data from disparate systems.
2. Review and validate the data to ensure accuracy.
3. Identify full-time employees under the ACA rules.
4. Determine affordability of coverage.
5. Keep up with changing regulations from the IRS to assign accurate codes for lines 14 and 16.
6. Deliver forms to employees on time.
7. Manage the administrative burdens of the filing obligations with the IRS.

So if you’re a business looking to overcome the hurdles of ACA reporting, we’re here to help. Here are five tips you can employ to ensure the smoothest possible experience with these new regulations.

1. Use a Database to Unify Data and Consolidate Employee Records.

The problem for employers is that the data they need is disparate but it’s also essential. This data must be managed properly for pin-point calculations, as well as IRS filings and employee statements. One issue with this is that the information is not typically kept in one spot. Usually employers will use separate systems to house data for payroll, benefits administration, plan data and other functions. There has never been a reason for data standardization before.

To counter this, businesses should find a way to securely accept a monthly feed of employee eligibility, enrollment and plan data, extracted from their systems. This data should be archived and consolidated into a master employee record database (encrypted, of course).

2. Know Your Time Frames and Deadlines!

Employers must get their statements out to participants by January 31, 2017 and file electronically to the IRS by March 31, 2017. Here are a few things employers should do to keep these deadlines:

1. Gather data during the year so you can avoid the year-end stresses of trying to meet the deadline.
2. Test regularly for quality and review sample statements based on data from part of the year to make sure you’re ready for the year-end statements.
3. Have a demonstrated process for printing and mailing a high volume of statements of participants in a short timeframe to meet compliance deadlines.

3. Calculate Your Data Monthly.

Businesses should validate data and then apply business rules to figure out eligibility and affordability at least once per month. They can then generate reports that watch compliance and benefit planning during the year.

4. Provide Live Support to Help Answer Tax Questions from Employees.

If you aren’t looking for ways to provide support to your employees, you’re missing out. They are going to have a horde of questions about tax statements and you should be ready to answer them and fulfill their requests in an efficient manner. This will free your staff up to think strategically in other areas.

5. Integrate Electronic Consent and Distribution.

By getting your employees’ consent to receive their 1095 forms electronically, they will receive their forms more quickly and provide a postage savings to the employer as well.

Large employers are meeting ACA reporting regulations with solutions that include data gathering and integration, tax reporting, form generation, call center support, and print distribution and fulfillment. By employing the very best practices for simplifying the reporting process, businesses are effectively reducing risk, frustration, and wasted resources. And even more importantly, businesses are solving ACA issues once and for all.