IRS and HHS Technical Clarifications
The IRS and HHS have issued a variety of updates and clarifications over the past two weeks, much of which are quite technical. The guidance is summarized below.
Premium Stabilization (including Transitional Reinsurance Fee)
On Oct. 30, 2013, HHS published a final Premium Stabilization Rule. The final rule largely follows the proposed rule, and confirms:
- All marketplaces must be self-sustaining by 2015. Assessments and user fees are listed as examples of funding mechanisms. (For 2014 a user fee of 3.5% of premium will apply in the federal marketplace and FF-SHOP.)
- A single risk pool must be used in the individual and small group markets for all non-grandfathered plans, regardless of whether the plan is through or outside the marketplace. States have the option to combine the small group and individual markets; in those states that choose to combine the individual and small group markets, a single risk pool will be in place for those markets.
- "Small employer" is defined as an average of 1 to 100 employees on business days in the prior calendar year, with at least one employee on the first day of the current plan year. States may use 1 to 50 employees as the definition of small employer for 2014 and 2015. (All states have chosen to use 50 as the definition of small employer for 2014.)
In general, the state's current definition of who is considered an "employee" will apply until 2016. However, regardless of the state's definition, the FF-SHOP is now defining "employee" with the same rules as for the play or pay requirement (i.e., any common law employee who averages 30 or more hours per week is considered full-time for the month, with part-time employees counted pro rata as "full-time equivalent employees").
- For purposes of guaranteed availability, the large and small group markets are separate, meaning that products offered in one market do not need to be offered in the other.
- For purposes of guaranteed renewal, if an employer grows or shrinks, it can remain in its current plan and market for the rest of the year and also at renewal. (Other rules that are based on employer size, like the single risk pool adjustments, are not affected by this interpretation of the guaranteed renewability rules.)
- All non-grandfathered individual plans will move to a calendar year basis starting in January 2015 (meaning that 2014 renewals may be for less than 12 months for non-calendar year policies).
With respect to the transitional reinsurance fee (TRF):
- The fee only applies to major medical coverage. A definition of "major medical" will be provided later. In the meantime, if several policies together create major medical coverage, the carrier that covers the bulk of inpatient hospital claims is responsible for the fee. If major medical is provided by one carrier or vendor and other coverage, like prescription, is provided separately, only one fee is due, from the major medical provider. (This is intended to ensure that only one fee is charged per person - which is unlike the PCORI fee rule.)
- HHS intends to propose that the reinsurance and administration fee will be collected at the beginning of the year and the treasury portion of the fee at the end of the year. This would seem to mean that about $52.50 of the $63 fee for 2014 will be due in January 2015 and the remaining $10.50 in late 2015.
- HHS intends to exempt self-administered, self-funded plans from the TRF fee for 2015 and 2016. It will be due from these plans for 2014. There are no additional details about this proposal at this time. As most private self-funded plans are administered by TPAs, it does not appear that this change will affect many private plans. Multiemployer plans more often self-administer, so these plans may be exempt from the TRF fee after 2014.
- HHS intends to issue additional guidance clarifying that a plan that provides major medical coverage will not owe the TRF payment if the person also has individual coverage or if the plan provides secondary coverage.
- Records relating to TRF payments must be kept for 10 years.
Individual Mandate Extension for Some
On Oct. 28, 2013, HHS issued a Q&A that provides that if an individual submits an enrollment for the health marketplace by March 31, 2014, the individual will not be subject to the individual mandate penalty for 2014 (assuming the person maintains coverage for the rest of the year) even though their marketplace coverage actually will not begin until May 1. The guidance fills a gap that exists because coverage does not begin until the first day of the second month following enrollment if the person enrolls in the marketplace after the fifteenth of the month. However, under PPACA a person is subject to penalties if they go without coverage for three or more consecutive months. HHS is treating this situation as a hardship exemption, which means the person can claim the exemption when they file their tax return.
Additional Coverage Considered Minimum Essential
Most individuals in the United States must have minimum essential coverage or pay a penalty. PPACA recognizes most government programs, employer-sponsored plans, individual policies, and grandfathered plans as minimum essential coverage. The regulations add several other types of coverage - self-insured student health (for 2014 only), refugee medical assistance, Medicare Advantage plans, and state high-risk pools (for 2014 only). On Oct. 31, 2013, HHS issued a Bulletin that addresses other types of coverage that will qualify as minimum essential coverage.
Non-citizens who are lawfully in the U.S. are required to have coverage, as are U.S. citizens who spend part of the year abroad. The Bulletin provides that coverage under either an insured plan regulated by a foreign government or a self-funded plan located abroad will be considered minimum essential coverage for an individual if the foreign coverage covers services provided in the U.S. Coverage under a foreign policy will be adequate minimum essential coverage for a U.S. citizen who is abroad. An employer/plan sponsor that chooses to offer this type of coverage must provide a notice to affected U.S. employees stating that the coverage is considered minimum essential coverage and include it in its information reporting to the IRS. (A model notice is not available.)
The Bulletin also clarifies that employer-sponsored coverage will be considered minimum essential coverage for non-employee business owners covered under the plan (such as sole proprietors, LLC members and partners) and their covered dependents. An employer/plan sponsor that covers these individuals must provide a notice to affected owners stating that the coverage is considered minimum essential coverage and include it in its information reporting to the IRS. (A model notice is not available.)
Other types of plans may apply to be recognized as minimum essential coverage. These plans must meet substantially all of the requirements that apply to fully insured individual policies. Application must be made through the CMS Health Insurance Oversight System portal. Additional instructions are included in the Bulletin. Issuers or employers interested in applying for recognition of their plans are encouraged to apply as soon as possible. CMS will not rule on whether plans that appear to fall within one of the pre-approved categories in fact offer minimum essential coverage.
Third Party Payment of Marketplace Premium
On Nov. 4, 201, HHS issued a Q&A on whether third parties (such as hospitals) may make premium payments on behalf of individuals covered by the marketplace. HHS said that it discourages this practice, and encourages carriers to reject these third party payments. If HHS believes this practice is wide-spread it will take further action to limit or prohibit it.
Transportation Fringe Benefits
For 2014, the monthly limit for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass will be $130, which is a decrease from the $240 limit for 2013. The fringe benefit exclusion amount for qualified parking will be $250, which is an increase from the $245 limit for 2013. (The 2014 limits reflect the expiration of the modifications to Section 132(f)(2) of the Internal Revenue Code by the American Taxpayer Relief Act.) These limits are in Revenue Procedure 2013-35.