1 Updates to Affordable Care Act: Law, Regulatory Explanation and Analysis, 2014 Chapter 2. Individuals 205. Individual Health Insurance Mandate In December 2013, the Administration announced that individuals whose health insurance plans are cancelled and who cannot afford to purchase new plans have the option of obtaining a hardship exemption from the individual health insurance mandate. An individual in this situation can purchase a catastrophic plan. The IRS has issued proposed regulations that identify types of limited benefit government health coverage that do not qualify as minimum essential coverage, along with transition relief for individuals who signed up for 2014 before knowing that such coverage is not minimum essential coverage. The proposed regulations provide a way to qualify for the hardship exemption without obtaining hardship certification. They also provide that employer contributions to health reimbursement accounts and wellness plan incentives for cutting tobacco use count when determining an employee s required contribution for coverage (NPRM REG , Notice ). The IRS has provided the 2014 monthly national average premium for qualified health plans that have a bronze level of coverage. Individuals use this amount to determine the penalty for failing to maintain minimum essential health coverage. The monthly national average premium is $204 per individual and $1,020 for a family with five or more non-exempt members (Rev. Proc ). The Department of Health and Human Services has provided criteria for federally-run Exchanges to determine whether an individual has experienced a hardship (HHS Guidance, Guidance on Hardship Exemption Criteria and Special Enrollment Periods (June 26, 2013)) Health Insurance Premium Assistance Refundable Credit The IRS issued an exception for certain victims of domestic abuse to the requirement that married taxpayers must file a joint return when claiming the health insurance premium assistance credit (Notice ). The IRS issued final regulations governing the requirement that exchanges report to the IRS and to taxpayers certain information necessary to compute the health insurance premium assistance credit, to reconcile the credit with advance payments, and to administer the credit generally (T.D. 9663). The IRS released temporary regulations and other guidance addressing the circumstances in which a married taxpayer may claim a premium tax credit on a separate return, the indexing of the applicable percentages that determine the credit amount, special circumstances involving dependency exemptions, and the interaction of the credit with the Code Sec. 162(l) deduction for self-employed taxpayers (T.D. 9683; NPRM REG ; Rev. Proc ; Rev. Proc ). Chapter 3. Businesses 305. Employer Mandate to Provide Health Insurance The IRS issued final regulations and new transition relief for employer shared responsibility payments for large employers (otherwise known as the employer mandate). The transition relief exempts most employers with 50 to 99 full-time employers from having to make shared responsibility payments for 2015 (including months in 2016 that fall within non-calendar 2015 plan years). Most employers are not required to comply with the dependent coverage mandate until Employers that are subject to the mandate in 2015 only have to offer qualifying coverage to 70 percent (as opposed to 95 percent) of their full-time employees to avoid shared responsibility payments for not offering coverage Small Employer Health Insurance Credit An employer is a small employer for purposes of the small employer health insurance credit if it has 25 or fewer full-time equivalent employees, and the average annual wages of those employees is not greater than twice the applicable dollar amount, which is $25,000, adjusted for inflation for tax years beginning in calendar years after The IRS has announced that the adjusted amount for tax years beginning in calendar year 2014 is $25,400 (Rev. Proc ).
2 On December 2, 2013, the Administration announced that it is delaying the start of its health insurance marketplace for small businesses until November Business owners in states that are using the federally facilitated SHOP marketplace can use a direct enrollment process (see Section 512), and still qualify for the small employer health insurance credit. Under this process, employers go directly to an agent, broker or to an insurance company that offers plans through the SHOP Marketplace. They pick an insurer that has agreed to offer direct enrollment in SHOP coverage and that can conduct enrollment according to CMS standards, and select a select a Qualified Health Plan. The agent, broker or insurer will help the employer fill out a paper application for SHOP eligibility and send it in to the Federally Facilitated SHOP Marketplace. This application is required to determine eligibility for the small employer health insurance credit. However, employers are not required to wait to hear back before enrolling or allowing their employees to enroll. This new process and the new rules for credit eligibility, apply only to employers in states that are using the federally facilitated SHOP marketplace. Employers in a state operating its own marketplace must use the state s enrollment processes. The IRS has issued transition relief allowing small businesses to take advantage of the employer health insurance credit even though they are unable to offer a qualified health plan (QHP) in 2014 through a Small Business Health Options Program (SHOP) Exchange because there are no QHPs available in the county in which they have their primary business address. The relief applies to specified counties in Washington and Wisconsin (Notice ). The IRS has issued final regulations for the Small Employer Health Insurance Credit (Code Sec. 45R). These regulations apply to tax years beginning on or after January 1, 2014 (T.D. 9672, June 26, 2014). However, previously issued proposed regulations (REG , August 26, 2013), which are substantially identical to the final regulations, may also be relied upon for the 2014 tax year. The final regulations add guidance relating to the effect of extra premium charges for tobacco use and the reduction in premium charges for participation in a wellness program. Additional rules explain how to apply the uniform percentage requirements if an employer offers coverage to an employee s dependents that does not also cover the employee (SHOP dependent coverage) Health Flexible Spending Accounts Offered in Cafeteria Plans For plan years beginning after 2012, health flexible spending arrangements offered as part of cafeteria plans must limit contributions to $2,500, adjusted for inflation after The IRS has announced that the inflation-adjusted amount remains $2,500 for 2014 (Rev. Proc ) Fee on Manufacturers and Importers of Prescription Drugs The IRS has released final and proposed regulations, and new temporary regulations, that provide guidance on the annual fee imposed on manufacturers and importers of branded prescription drugs. The final regulations generally apply on and after July 28, 2014 (T.D. 9684, NPRM REG ). The IRS has issued a notice that provides guidance on the branded prescription drug fee for each fee year. The notice addresses: (1) the submission of Form 8947, Report of Branded Prescription Drug Information, (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting error reports for the dispute resolution process, and (4) the time for notifying covered entities of their final fee calculation (Notice ). Chapter 4. Information Reporting Requirements 410. Health Care Coverage Reporting The IRS issued final regulations governing health insurance provider reporting. The final regulations retain the streamlined approach of the proposed regulations, but with the following enhancements: (1) combined reporting is permitted for self-insured applicable large employers that also have to report as applicable large employers; and (2) high-filer status for purposes of mandatory electronic filing kicks in at 250 health insurance provider returns (as opposed to 250 returns of any type) (T.D. 9660). The IRS has released draft instructions for Forms 1095-A, 1094-B, 1095-B, 1094-C and 1095-C. These forms are used for reporting medical care coverage Reporting of Employer Health Insurance Coverage The IRS issued final regulations governing applicable large employer reporting. The final regulations provide the following changes or enhancements compared to the proposed regulations: (1) combined reporting is permitted for applicable large employers that are self-insured and also have to report as health coverage providers; (2) simplified alternative reporting methods for qualifying employers; (3) reporting guidance for third party facilitators; (4) high filer status for purposes of mandatory electronic filing kicks in at 250 health applicable large employer returns (as opposed to 250 returns of any type) (T.D. 9661).
3 Chapter 5. Health Care Exchanges and Other Provisions Governing Health Care Plans 510. Exchange Requirements American Health Benefit Exchanges In December 2013, the Department of Health and Human Services (HHS) announced that individuals have until December 24 (originally December 23), instead of December 15, to enroll in coverage to start January 1, In addition, they announced that insurers are required to accept payments until December 31, 2013, for coverage to begin January 1, 2014, and are encouraged to accept payments later. According to HHS, many insurers will accept payments as late as January 10, The Department of Health and Human Services has provided a special enrollment period for persons eligible for COBRA and COBRA beneficiaries through July 1, 2014.This enrollment period applies to persons seeking to enroll in qualified health plans through a federally maintained exchange. However, state-based marketplaces are encouraged to offer similar special enrollment periods Small Business Health Options Program (SHOP Exchange) On December 2, 2013, the Administration announced that it is delaying the start of its health insurance marketplace for small businesses until November Employers in states using the federally facilitated marketplace who want to buy marketplace plans for their workers now will need to go through an agent, broker or insurance company to buy coverage for 2014, instead of using a government website. Employers in states running their own marketplaces will go through those marketplaces. In conjunction with this delay, the Centers for Medicare and Medicaid Services (CMS) announced a new directly enrollment process for small business owners in states that are using the Federally Facilitated SHOP Marketplace. Employers using this new process can qualify for the small employer tax credit that is only available for insurance purchased through a SHOP exchange. Under the new enrollment process, an employer will go directly to an agent, broker or an insurance company that offers plans through the SHOP Marketplace. The insurer must be one that has agreed to offer direct enrollment in SHOP coverage and that can conduct enrollment according to CMS standards. Working with an agent, broker, or insurer, the employer selects a Qualified Health Plan. The agent, broker or insurer helps the employer fill out a paper application for SHOP eligibility and send it in to the Federally Facilitated SHOP Marketplace. Alternatively, the employer can submit the application itself, directly to the SHOP. The SHOP will send the employer an eligibility determination after it receives a completed application, and will also send employee enrollment information to the IRS to ensure that, if otherwise eligible, the employer can claim the tax credit for tax year The employer can wait to enroll employees until it receives the official notice of eligibility from the Federally Facilitated SHOP. However, it is not required to do so. The application is needed only for qualifying for the tax credit. The insurance company can tell the employer exactly how much coverage will cost and can enroll employees directly into the plan. If the SHOP later determines that the business is ineligible to participate in the SHOP Marketplace, the employer would lose eligibility for the credit, but the insurance company is not required to terminate the coverage. According to CMS, employers and employees will be able to apply and enroll in SHOP coverage online starting in November 2014, for coverage that takes effect in January That s also when employees will have the option to offer employees a choice of Qualified Health Plans and be able to make a single monthly payment to insurers, no matter how many plans an employer s employees have selected. The Department of Health and Human Services has provided a special enrollment period for persons eligible for COBRA and COBRA beneficiaries through July 1, 2014.This enrollment period applies to persons seeking to enroll in qualified health plans through a federally maintained exchange. However, state-based marketplaces are encouraged to offer similar special enrollment periods Market Reforms and Improved Coverage The President and the Department of Health and Human Services announced that individuals and small businesses with insurance policies that do not satisfy certain market reforms such as the new modified community rating and the essential health benefits package standards may choose to continue coverage that would otherwise be terminated or cancelled, and may choose to re-enroll in this coverage. Under this transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between January 1, 2014, and October 1, 2014, and associated group health plans of small businesses, will not be considered out of compliance with the market reforms if the coverage was in effect on October 1, 2013, the health insurance issuer sends a notice to all individuals and small businesses that received a cancellation or termination notice or to all individuals or small business that would otherwise receive a cancellation or termination notice that informs them of any changes in the options that are available to them, which or the market reforms would not be reflected in any coverage that continues, their potential right to enroll in a qualified health plan offered through a Marketplace and possibly qualify for financial assistance, how to access coverage through a Marketplace, and their right to enroll in coverage outside a Marketplace that complies with the market reforms. When individuals or businesses have already received a cancellation or termination notice, the issuer must send this notice as soon as reasonably possible. When individuals or businesses have already received a cancellation or termination notice, the issuer must send the notice by the
4 time it sends the cancellation or termination notice. The market reforms covered by the termination notice are the rules on fair health insurance premiums, guaranteed availability of coverage, guaranteed renewability of coverage, the prohibition of pre-existing condition exclusions or other discrimination on the basis of health status with respect to adults, except with respect to group coverage, discrimination in health care, comprehensive health coverage, and coverage for individual participating in clinical trials. The IRS has issued proposed reliance regulations that make it easier for employers to treat stand-alone dental and vision plans, limited wraparound coverage, and employee assistance programs as excepted benefits not subject to market reforms (NPRM REG ). The IRS has finalized the regulations providing guidance on waiting periods. Like the proposed regulations, the final regulations provide that group health plan, and a health insurance issuer offering group health insurance coverage, must not apply any waiting period that exceeds 90 days. If, under the terms of a plan, an individual can elect coverage that would begin on a date that is not later than the end of the 90-day waiting period, this requirement is considered satisfied. Accordingly, in that case, a plan or issuer will not be considered to have violated the rule solely because individuals take, or are permitted to take, additional time (beyond the end of the 90-day waiting period) to elect coverage (T.D. 9656). The IRS has also issued proposed regulations that would provide that one month is the maximum allowed length of any reasonable and bona fide employment-based orientation period. During an orientation period, the IRS envisions that an employer and employee could evaluate whether the employment situation was satisfactory for each party, and standard orientation and training processes would begin. Under these proposed regulations, one month would be determined by adding one calendar month and subtracting one calendar day, measured from an employee s start date in a position that is otherwise eligible for coverage. If a group health plan conditions eligibility on an employee s having completed a reasonable and bona fide employment-based orientation period, the eligibility condition would not be considered to be designed to avoid compliance with the 90-day waiting period limitation if the orientation period did not exceed one month and the maximum 90-day waiting period would begin on the first day after the orientation period. Compliance with these proposed regulations will constitute compliance with the statutory requirements at least through the end of To the extent final regulations or other guidance with respect to the application of the 90-day waiting period limitation to orientation periods is more restrictive on plans and issuers, the final regulations or other guidance will not be effective prior to January 1, 2015, and will provide plans and issuers a reasonable time period to comply (NPRM REG ). The IRS has provided a temporary safe harbor for covered entities that report direct premiums written for expatriate plans on a Supplemental Health Care Exhibit. The safe harbor applies if the direct premiums written include coverage of at least one non- United States health risk. Under the safe harbor, a covered entity can treat 50 percent of certain premiums written for expatriate plans as being attributable to non-united States health risks. The excluded amount under the safe harbor is used in reporting direct premiums written on Form (Notice ). The IRS has finalized the regulations governing orientation periods. Effective for plan years beginning on or after January 1, 2014, plans and issuers cannot impose waiting periods for enrollment in coverage that exceed 90 days after the employee becomes otherwise eligible to enroll. Eligibility to enroll is generally triggered when an employee is hired, transferred, or promoted into an eligible job classification, achieves a job-related licensure requirement, or satisfies an orientation period (not to exceed one month). This requirement applies to grandfathered plans (T.D. 9671). The Supreme Court held that the government must provide an accommodation to for-profit employers whose owners strongly object to providing coverage for contraceptives on religious grounds. The Court noted that the government already provides an accommodation for non-profit religious employers, and indicated that something along those lines must also be offered to forprofit businesses as well. The current accommodation allows the employer to exclude contraceptives from its coverage, while requiring the insurer to provide coverage for free to affected employees (Burwell v. Hobby Lobby Stores, Inc., S.Ct, USTC 50,341). In response, the government has issued proposed regulations extending the accommodation to certain forprofit closed corporate employers. Obtaining the religious accommodation requires the employer to notify HHS and the employer may do so using EBSA Form 700, but the employer is not required to use any particular form as long as the employer states its religious objection and the basis for the accommodation, identifies itself and its health insurance provider and administrator, provides all contact information, and states the type of plan it is Fee on Health Insurance Providers The IRS has issued final regulations relating to the annual fee imposed on covered entities in the business of insuring U.S. health risks. The final regulations generally adopt the regulations as proposed, and apply to any fee that is due on or after September 30, 2014 (T.D. 9643). The IRS has provided various deadlines in connection with the health insurance provider s fee. Each covered entity must file its
5 Form 8963, Report of Health Insurance Provider Information, by April 15 of each fee year. The IRS will mail each covered entity a notice of its preliminary fee calculation by June 15 of the fee year. The covered entity then has until July 15 of the fee year to submit to the IRS a corrected report. The covered entity makes the error correction report by completing a new Form The IRS will notify each covered entity of its final fee calculation by September 30 of the fee year (Notice ). The IRS has ruled that amounts a health insurance company collects from policyholders to offset the cost of the annual fee on health insurance providers are included in gross income (Rev. Rul ). The IRS has announced that the applicable dollar amount used to calculate the fees imposed by Code Secs and 4376 for policy and plan years that end on or after October 1, 2014, and before October 1, 2015, is $2.08. The applicable dollar amount was $2 for the prior year. The fees, used to fund the Patient-Centered Outcomes Research Institute (PCORI), are calculated by multiplying the average number of lives covered under the health insurance policy or self-insured health plan by the applicable dollar amount. For any policy year ending in any federal fiscal year beginning on or after October 1, 2014, an adjusted applicable dollar amount is used, which is based on the percentage increase in the projected per capita amount of the National Health Expenditures published by Health and Human Services. Chapter 6. Net Investment Income Tax and Additional Medicare Tax 605. Net Investment Income Tax for Individuals The IRS issued final regulations covering the net investment income tax. They generally apply for tax years beginning after December 31, 2013, but can be relied on for The final regulations clarify the treatment of dual resident and dual status taxpayers, and provide an additional election opportunity for couples electing resident status for both spouses for the tax year in which the non-resident spouse becomes a resident (T.D. 9644) Net Investment Income Tax on Estates and Trusts The IRS issued final regulations covering the net investment income. These rules generally apply for tax years beginning after December 31, 2013, but can be relied on for The final regulations make one change that is effective for 2013, and it is relevant to trusts. For charitable remainder trusts (CRTs), the final regulations adopt rules for categorizing net investment income based on the existing CRT category and classification system rather than impose an additional classification system as did the 2012 proposed regulations (T.D. 9644). The IRS issued new proposed reliance regulations on December 2, 2013, which include guidance with respect to CRTs with income from certain controlled foreign corporations or passive foreign investment companies. In addition, they propose an election allowing use of the generally criticized classification method found in the 2012 proposed regulations regarding income recipients of CRTs with a view towards seeing if that method should be retained as an option in addition to the method outlined in the final regulations (NPRM REG ) Net Investment Income Tax: Net Investment Income Defined The IRS issued final regulations covering the net investment income tax, which generally apply for tax years beginning after December 31, 2013, but can be relied on for The final regulations are far more taxpayer friendly. They include relief for real estate professionals, self-charged rent, self-charged interest, net operating loss carryovers, and suspended passive losses. They make it easier to effectively allocate losses and other deductions against investment income in arriving at net investment income (T.D. 9644). The IRS issued new proposed reliance regulations on December 2, 2013, which include re-proposed rather than finalized rules regarding the calculation net gain from the disposition of an active interest in a partnership or S corporation. They also include proposed guidance on the treatment of guaranteed payments to partners for capital, and payments to retiring or deceased partners, as well as guidance regarding capital loss carryovers (NPRM REG ) Additional Medicare Tax on Wages and Self-Employment Income The IRS issued final regulations on the additional Medicare tax on wages and self-employment income that generally follow the proposed regulations. Where the proposed regulations provided that the additional Medicare tax will not be collected from an employer that failed to deduct it from an employee s wages but the employee subsequently paid the amount owed, the final regulations further provide that the employer is not relieved of its liability unless it can show that the tax has been paid by the employee. The IRS also clarified that in the case of wages repaid by an employee that were originally received by the employee in a prior year, the employer cannot make an adjustment or file a claim for refund; the employee is instead entitled to file an amended return on Form 1040X (T.D. 9645).