On January 13, 2017, Congress began the process of dismantling the Affordable Care Act (ACA), approving a budget resolution on a mostly party line vote (only nine Republicans voted against the measure and no Democrats voted for the measure). The Senate had previously passed the measure on long party lines as well (only one Republican voted against the measure and no Democrats voted for the measure). The process allows Republicans on Capitol Hill to use a process known as “budget reconciliation” to roll back major parts of the healthcare law.
Grandfathered and non-grandfathered plans
A group health plan or other health insurance coverage, under which an individual was enrolled on March 23, 2010, is referred to as a “grandfathered health plan.” The ACA does not require an individual to terminate coverage if they are enrolled under a grandfathered plan. It is important to note that new employees and their families, or the families of existing plan participants, may enroll in a grandfathered plan under the participation requirements that existed as of March 23, 2010 and the grandfathered health plan terms continue to apply, even if the individual enrolls after March 23, 2010.
Effective with the first plan year beginning on or after September 23, 2010, grandfathered and non-grandfathered health plans are subject to certain changes and limitations. Non-grandfathered health plans are subject to additional requirements discussed below:
- No preexisting condition exclusions may be applied to children aged 18 or under.
- Excessive waiting periods (more than 90 days) are prohibited.
- Lifetime and annual limits on benefits are prohibited.
- The plan cannot withdraw coverage, except for in cases of fraud.
- The plan must provide uniform benefits summary information.
- The plan must extend benefits to children up to age 26 (without regards to student status or marital status) – prior to January 1, 2014, coverage is only required if a dependent is not eligible to enroll in another employer health plan. Post January 1, 2014, coverage required to be extended without regards to other available coverage.
Regulations issued under the ACA set the guidelines for the changes that can be made to a grandfathered health plan and allow it to remain grandfathered. Compared to the plan in effect on March 23, 2010, a grandfathered health plan:
- cannot significantly cut or reduce benefits, for example, cannot discontinue coverage for a treatment covered on March 23, 2010
- cannot raise co-insurance charges
- cannot “significantly” raise co-payment charges, meaning it cannot be raised by more than the greater of $5 or a percentage equal to medical inflation plus 15% per year
- cannot significantly raise deductibles, meaning deductibles cannot be raised by more than a percentage equal to medical inflation plus 15% per year
- cannot add or tighten annual dollar limits
- may not significantly lower the employer’s contribution, meaning that the employer cannot reduce the percentage of premium that the employer pays by more than 5%.
The original proposed regulations prohibited employers from changing health insurers and retaining grandfather status. Revisions to regulations now allow employers to change insurance companies as long as there are none of the above six changes to the plan benefits and structure and the carrier change did not occur before November 15, 2010.
Other health plans
As of the first plan year after September 23, 2010, all non-grandfathered group health plans, including self-insured plans, are subject to the requirements discussed previously and to additional coverage improvement and reporting requirements. These include:
- covering certain preventive services, including immunizations, pediatric preventive care and screening and women’s health preventive care and screenings, without cost-sharing requirements (copays, deductibles, etc.)
- annual quality reporting to the Secretary of Health & Human Services, pursuant to reporting requirements to be developed by Department of Health & Human Services
- an appeals process for all claims denials that meets minimum federal requirements
- providing rebates to enrolled members if non-claims costs exceed a certain percentage of the plan’s total costs.
Effective for plan years after January 1, 2014, additional changes will be enforced, including:
- prohibition on discrimination based on health status (with some exceptions for health and wellness programs)
- annual cost-sharing limitations
- limitations on variations in health premiums based on:
- family structure
- tobacco use
- geographic-rating area
- no denial or termination of coverage based on pre-existing health conditions (individuals age 19 and over – with under 19 effective in 2010).
Pay or play requirements
Despite court challenges and legislative proposals, the employer mandate under the ACA is still in effect.
For large employers
According to the ACA, all “large” employers (those with 50 or more employees) must provide health insurance coverage that meets minimum essential benefits requirements to all full-time employees or they will be forced to pay penalties. For determining coverage of the ACA, “employee” is defined as either one of the following:
- an employee who works 30 or more hours per week
- a “full-time equivalent” employee, which is counted by dividing the total number of monthly hours worked by part-time employees by 130.
“Part-time” workers are counted towards determining ACA coverage but are not included for purposes of the pay or play penalties. Large employers could face two types of penalties, depending on whether or not they choose to offer health insurance coverage to employees. The two separate penalties are listed below.
- Do not offer coverage - Large employers that do not offer coverage and have at least one full-time employee receiving a premium tax credit from the government under the ACA must pay a penalty of $2,750 in 2022 per full-time employee (excluding the first 30 full-time employees).
- Do offer coverage - Large employers that do offer coverage, but have at least one full-time employee receiving a premium tax credit under the ACA because the employer offers coverage that is not adequate or affordable (meaning the plan covers less than 60% of costs or the employee’s contribution to the plan costs is greater than 9.5% of household income), must pay the lesser of $4,120 in 2022 per employee receiving a premium credit or $2,750 in 2022 per full-time employee.
“Large” employers will need to examine their options and determine whether it is better to offer coverage or to pay a penalty, which is discussed in detail below.
On June 30, 2014, in the decision of Burwell v. Hobby Lobby, the U.S. Supreme Court ruled that owners of closely held for-profit corporations cannot be forced under the ACA to provide certain contraceptives that offend their religious beliefs. To do so would violate the Religious Freedom Restoration Act (RFRA).
The Court in Hobby Lobby did not define a closely held corporation or state how many shareholders would fit the definition. The only guidance on the definition of a closely held corporation is to look to Hobby Lobby’s corporate structure. Hobby Lobby is owned and operated by a single family. There are approximately 600 stores with about 30,000 employees in the United States.
Based on Hobby Lobby’s corporate structure, a corporation owned and controlled by a single family could potentially qualify for a RFRA exemption regardless of its number of locations and employees. It is unclear whether the exemption would only be available for businesses held and run by a single family. Hobby Lobby is not opposed to all contraception methods. Instead, the company objects to the ACA birth control mandate, based on religious grounds, to pay for two forms of the morning-after pill and two kinds of IUDs because they could result in the destruction of a fertilized egg.
Based on the Hobby Lobby decision, may employers eliminate all forms of birth control from their company healthcare plans based on religious beliefs? The answer is a definitive maybe. The day after the Hobby Lobby decision was published, the U.S. Supreme Court vacated a decision by the Sixth Circuit in Autocam Corp. v. Burwell that had ruled against a company that objected to providing any contraceptives under its employee health plan. The case was remanded to the Sixth Circuit for “further consideration” in light of the Hobby Lobby decision. On remand, the Company was allowed to opt out of providing contraceptive based on religious grounds.
In response to the Hobby Lobby decision, on August July 14, 2014, the U.S. Departments of Health and Human Services (HHS), Treasury, and Labor (DOL) published final regulations providing a religious exemption to the ACA’s contraceptive mandate for closely held for-profit entities. Under the final regulations, the exemption is available for closely-held, for-profit companies that object to providing contraceptive coverage based on their owners’ religious beliefs. “Closely-held corporation” as a for-profit entity that is 50% owned (directly or indirectly) by five or fewer individuals or which has a substantially similar ownership structure. The Final Regulations expressly exclude publicly traded companies from eligibility for the exemption.
Many employers are unaware of the ACA whistleblower protections enforced by the Occupational Health & Safety Administration (OSHA). Under the interim regulations, employees are protected from retaliation by their employers for:
- reporting an ACA Title I violation
- refusing to participate in an activity that the employee reasonably believes to be in violation of Title I
- assisting or participating in a whistleblower proceeding
- receiving a tax credit or cost-sharing reduction as a result of participation in a Health Insurance Exchange or Marketplace.
Title I of the ACA relates to coverage protections, such as prohibitions on lifetime coverage limits, preexisting conditions exclusions, requirements to cover preventive services without cost sharing and prohibitions on using certain factors to set premium rates.
The anti-retaliation protections apply to group health plans and health insurance issuers offering group or individual health coverage. Therefore, employees are also protected from retaliation by the insurance carrier that provides them with coverage. For example, employees are protected from acts such as issuers limiting or canceling their health insurance coverage.
Employees who believe they are victims of retaliation may file a complaint with OSHA within 180 days of the alleged retaliation. An employee may withdraw the employee’s complaint from OSHA and sue in federal court if the agency does not act on the complaint within 210 days of filing.
Health insurance marketplaces
The purposes of the health insurance marketplaces are to make health insurance more affordable and easier to purchase for individuals and eventually small and large businesses. Through health insurance marketplaces, individuals and eventually businesses can compare the costs of various health plans and different types of health coverage benefits. Individuals meeting certain income standards can apply for federal subsidies and the application and qualification process is completed through the marketplace system.
States had the option to either create their own marketplace or have the federal government run a marketplace for their state. Only 14 states and the District of Columbia opted to have their own Health Insurance Marketplace.
Marketplace notice requirements
All employers that are subject to the federal Fair Labor Standards Act (FLSA) must provide written notice to current and former employees regarding the health insurance marketplace. The notice must identify the health insurance exchange for the state and how to contact it. If the employer-sponsored plan is not affordable or does not provide minimum value, the employer must notify its current and new employees of the availability of premium subsidies and cost-sharing reductions. The notice must also inform the employee that if the employee enrolls in a marketplace plan, then the employee may lose any employer subsidy in the employer-sponsored health plan.
The U.S. DOL has issued two model notices that employers may use to notify employees about healthcare exchanges. One model notice is for employers who do not offer health plans. The second model notice is for employers offering health coverage. Employers should consult with legal counsel prior to using the model notices, as the model notices contain more information than is required by the regulations. For instance, the model notices include an employer’s EIN, which is not required by the ACA.
Flexible spending and health savings arrangements
The ACA makes several changes to health flexible spending arrangements (FSAs) and to health savings arrangements (HSAs). Health FSAs will be limited to $2,750 in 2022. HSA contribution limits for 2022 will be $3,650 ($7,300 family) up $50 from 2021
HSA accounts can currently be used to reimburse medical expenses on a tax-free basis and to reimburse other expenses on a taxable basis. Currently, if an HSA distribution is made for non-medical purposes prior to age 65, a 20% excise tax is imposed.
Benefits reporting requirements
Under the ACA, employers are required to report the cost of the employee’s health insurance plan sponsored by the employer on the employee’s W-2. This is merely to inform the employee of the costs of their healthcare. Reporting the cost of the health insurance coverage on the Form W-2 does not have any impact on whether the coverage is taxable.
In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. In the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions. Employers are required to include on the W-2 the cost of major medical coverage, the health FSA value in excess of salary reduction contributions and hospital indemnity or specified illness paid through salary reduction or the employer. It is optional to include the cost of dental or vision coverage that is not integrated into the health plan or that provides employees the choice of declining coverage or paying an additional premium. The costs of an employee assistance program, on-site medical clinic benefits or wellness programs must be included if the employer charges a COBRA premium for such services, but reporting the costs of these benefits is optional if the employer does not charge a COBRA premium for them.
In addition to the W-2 requirements, the ACA added two significant reporting requirements to assist the IRS in enforcing the individual and employer shared responsibility requirements and to administer the premium assistance tax credit. Both reporting requirements are effective for coverage provided on or after January 1, 2015.
The IRS Form 1095-C supplies the information that the IRS needs to carry out enforcement efforts. IRS Form 1095-C, along with IRS Form 1094-C, the transmittal form for IRS Form 1095-C, will help the IRS determine:
- compliance with the individual mandate which requires that individuals obtain minimum essential coverage (MEC)
- individual eligibility for premium tax credits or cost-sharing reductions for coverage obtained on the Marketplace
- compliance with the employer mandate which requires employers with 50 or more full-time equivalent (FTE) employees to offer affordable minimum value coverage to full‐time employees and their dependent children.
Virtually all employers need to file IRS Forms 1094-C and 1095-C. Only small employers with less than 50 full-time equivalent employees offering no coverage or only fully insured coverage are exempt from reporting.
The IRS Form 1094-C is used to report employer summary information to the IRS. It serves as a cover sheet for IRS Form 1095. IRS Form 1095-C is used to report employee‐specific information. One is given to each full-time employee and each covered employee. Both forms are filed with the IRS and a copy of Form 1095 is provided to each covered under an employer’s health plan.
Individuals must receive IRS Form 1094-C on or before March 2, 2020. Individuals who were a full-time employee for at least one month during the reporting year should receive this form. The IRS must receive IRS Form 1094-C and IRS Form 1095-C by February 28, 2020, if filing on paper or April 2, 2020, if filing electronically. If an employer files 250 or more IRS Form 1095‐Cs, it is required to file IRS reports electronically.
Individual statements must be provided to employees by mail unless recipient affirmatively consents to receive the statement electronically. Statements can be provided by email or by information on how to access the statement on the employer’s website.
Steps employers should take
Employers should continue their ACA planning, here are a few methods we suggest to keep employers on track:
- Develop a mechanism in which payroll, Human Resources and benefits communicate to ensure newly eligible employees are given enrollment information.
- Determine which department is responsible for ACA reporting and how the information needed for the reporting will be gathered.
- If the company has a grandfathered plan, talk to the company’s current insurer during renewals to ensure that any plan modifications will not jeopardize ACA status.
- Review and update plan document and summary plan description as necessary.
- Review and update FSA and HSA plan documents as necessary.
- Review and update handbook policies.
- Develop talking points for meetings with employees to discuss health benefit options and ACA reporting.
- Develop a waiver form for any employees who decides not to participate in the company's sponsored health insurance.
Keep track of court and legislative action related to the ACA.
Individual coverage health reimbursement account
Effective January 1, 2020, employers of any size may sponsor an individual coverage health reimbursement account (ICHRA). ICHRAs reimburse employees’ premiums for major medical insurance purchased in the individual market and other qualified medical expenses. ICHRAs generally must be offered on the same terms and conditions to all employees within a class and cannot be offered to employees who are also offered coverage under a “traditional” group health plan. However, employers can offer traditional group health coverage to one class of employees and an ICHRA to another class – employees just can’t have an option between the two. Permitted classes of employees include full-time employees, part-time employees, salaried employees, hourly employees, temporary employees, employees covered by collective bargaining agreements and others.
To obtain reimbursement, employees must provide proof that they are (or will be) enrolled in either individual, nonexcepted benefit coverage purchased in the individual market or Medicare. ICHRAs are not subject to ERISA if the purchase of insurance is completely voluntary for participants and beneficiaries, the employer does not select or endorse any particular insurer or coverage or receive any consideration in connection with the employee’s selection or renewal of coverage, and participants are notified annually that the coverage is not subject to ERISA. Employers sponsoring an ICHRA must also provide a notice to eligible employees at least 90 days before the beginning of each plan year describing the terms of participation and other required information.