IRS Issued New Health Care Reform Law Tests – Affordability and the Health Insurance Premium Tax Credit
Posted August 23, 2011 by admin
Employers/Plan Sponsors know that when 2014 comes around they’ll have to work hard to avoid paying various penalties as it relates to employer-sponsored health coverage. Most employers have already worked with (or are prepared for) the fact that they’ll have to offer coverage to employees working 30 hours per week and that coverage-waiting-periods greater than 90 days won’t be permitted. However, the coverage that is offered will also have to have value and be affordable. With the IRS’ latest guidance we gain a little more insight into how “value” and “affordable” will be calculated.
IRS: Minimum Value
PPACA requires that an employer-sponsored plan provide a minimum value (basically that the plan’s share of total allowed costs of benefits is less than 60% of those costs). While this current set of regulations does not offer guidance on the calculation of minimum value, it does state that HHS will issue regulations for “determining the percentage of ‘the total allowed costs of benefits’ provided under a group health plan or health insurance coverage that are covered by that plan or coverage.” These regulations are expected (later this year) along with HHS guidance about “essential health benefits.”
IRS: Affordability Safe Harbor for Employers
Employers have seen that the plans they offer will have to be made available at a value not to exceed 9.5% of family income. Many have written the IRS to complain that they don’t know what “family income” is and have no way of knowing or calculating it. Further, income is subject to change. Well the IRS has been listening and is promising to work on this matter further. On 8/17/2011, they wrote that future proposed regulations will be made available in this regard and that they will include an “Employer Safe Harbor.” They (the IRS) expect the safe harbor to permit an employer that meets all other criteria to “…not be subject to an assessable payment under section 4980H(b) with respect to an employee who receives a premium tax credit…for a taxable year if the employee portion of the self-only premium for the employer’s lowest cost plan (that provides minimum value) does not exceed 9.5% of the employees current W-2 wages from the employer.”
Under this anticipated safe harbor, employers/plan sponsors that meet these requirements will not be subject to the $3,000 penalty per subsidized employee. The IRS states that their goal is to provide a more workable and predictable method of facilitating affordable employer-sponsored coverage for the benefit of both the employers and the employees. Yet, they recognize that other things could be happening within the employee’s home that may affect that employee’s household income. Ultimately, the employee may qualify for a premium tax credit, but, under this anticipated safe harbor, employers/plan sponsors that meet these requirements will not be subject to the $3,000 penalty per subsidized employee.
Future guidance mentioned and anticipated
In the preamble of these proposed regulations, the IRS states that future guidance “will seek to further the objective of preserving the existing system of employer-sponsored coverage, but without permitting the statutory employer responsibility standards to be avoided.” It indicates that the agencies “also are contemplating whether to provide appropriate transition relief with respect to the minimum value requirement for employers currently offering health care coverage.” With regard to the Affordability Safe Harbor, which they specify will be the subject of additional regulations regarding exactly how the employer-safe-harbor will function and be calculated and applied, they also mention that “…future proposed regulations under section 5000A are expected to provide that the affordability test for purposes of the individual responsibility requirement…based on the employee’s required contribution for employer-sponsored family coverage.” There, the IRS is hinting that, while the initial Employer-Safe-Harbor will be based upon the current W-2 wages compared to the self-only coverage for the employer’s cheapest plan, that another analysis/comparison is envisioned for family coverage (at–what we must assume is at a higher percentage rate than 9.5% of household income).
For a copy of the full regulations, click here.
09/13/2011 Update: With IRS Notice 2011-73, the IRS is soliciting public input and comments on their proposed safe harbor rules. In particular they would like comments about:
1. Whether or how wages and employee contribution amounts would need to be determined for employees who are employed by an employer for less than a full year, employees who move between FT and part-time status, situations in which the plan year is not a calendar year, and other similar special circumstances.
2. Whether there are other possible safe harbor methods for determining the affordability of coverage under an employer-sponsored plan for purposes of calculating an employer’s potential assessable payment under §4980H(b).
3. How to coordinate any affordability safe harbor with the full-time employee look-back/stability safe harbor described in Notice 2011-36.
Comments must be submitted by December 13, 2011. Notice 2011-73.
Posted August 1, 2011 by admin
Today the US Department of Health and Human Services announced a massive expansion of “preventive services” for women that must be included without cost-sharing measures for all non-grandfathered plans. That means no co-payment, no co-insurance and no deductible can be charged for:
- well-woman visits;
- screening for gestational diabetes;
- human papillomavirus (HPV) DNA testing for women 30 years and older;
- sexually-transmitted infection counseling;
- human immunodeficiency virus (HIV) screening and counseling;
- FDA-approved contraception methods* and contraceptive counseling*;
- breastfeeding support, supplies, and counseling; and
- Domestic violence screening and counseling.
Effective date: First plan year after August 1, 2012. So, for most calendar year (1/1) plans, you will need to comply as of January 1, 2013. This is not applicable to grandfathered plans.
*There is an exemption for religious organizations.
- HHS Press release: http://www.hhs.gov/news/press/2011pres/08/20110801b.html
- Affordable Care Act FAQ-sheet: http://www.healthcare.gov/news/factsheets/womensprevention08012011a.html
- Comments may be sent, for the next 60 days, to the US Department of Labor using the Federal eRulemaking portal (http://www.regulations.gov/) or via E-mail to E-OHPSCA2713.EBSA@dol.gov.
- Frequency? When and how often should each preventive service be rendered? Guidance from HHS