Health Benefit Update
Regulators, insurers and others continue to tweak health insurance benefits due to changes brought by the Affordable Care Act. Here are just a few recent changes and clarifications you should be aware of.
“Cadillac Tax” Delayed. At the end of 2015, Congress gave a holiday gift to employers stressed out about the so-called Cadillac Tax—they delayed its implementation for two years. The tax, originally scheduled to go into effect in 2018, will now go into effect in 2020. Created by Section 9001 of the Affordable Care Act, the Cadillac tax will apply to sponsors of “high-cost” health plans. Section 9001 defines a high-cost plan on the basis of total premiums (or costs, for a self-insured plan).
IRS Notice 2015-87
IRS Notice 2015-87, issued in late 2015, provides several clarifications on affordability. The Notice provides significant guidance on the employer shared responsibility rules (or “play-or-pay”) and on information reporting requirements.
Cost of living adjustments. IRS Notice 2015-87 announced that cost-of-living adjustments will apply to the Affordable Care Act’s affordability percentage. The ACA requires large employers to offer their full-time employees health coverage that meets the “minimum essential coverage” and affordability standards. The law defined affordability as not exceeding 9.56 percent of a family’s household income for 2015 for self-only coverage. For 2016, this threshold will increase to 9.66 percent. Self-only coverage is used for this calculation, even for people with a spouse or dependents who would enroll in an individual plus spouse plan or a family plan.
Wellness program incentives: Employers sometimes give employees incentives to participate in wellness programs by reducing the amount of monthly premiums. The incentive amount will reduce the premium amount used to determine whether coverage is affordable only if it relates to tobacco use. Whether or not an employee actually completes these program incentives, the cost of premiums will be considered to be reduced by the incentive amount offered.
Health reimbursement arrangements (HRAs): When employers offer both a traditional employer-sponsored health plan and an integrated HRA, the employer’s contribution toward the HRA could count toward affordability. Newly made employer contributions to the HRA reduce the employee’s required contribution for the coverage under §§ 36B and 5000A. The HRA amount is taken into account as an employer contribution whether or not the employee uses the HRA to pay the employee share of contributions for the major medical coverage.
Cafeteria plans: If an employer offers traditional employer-sponsored health coverage and also contributes to a cafeteria plan, cafeteria plan contributions may count as reducing the amount of premiums for the traditional coverage for purposes of the affordability determination. In general, amounts an employer contributes to the cafeteria plan count as reducing the employee’s contribution only if they may be used to pay premiums for traditional coverage and employees cannot take these amounts as additional compensation or to pay for benefits other than health coverage.
IRS Notice 2015-87 affects other aspects of health plan administration; for more information, please contact us. In other changes:
Special enrollment period changes: In the individual and small group markets, insurers have complained that special enrollment periods have been abused. In the first half of 2015, the number of people who enrolled in a health plan through a special enrollment period exceeded 10 percent of the number who enrolled during regular open enrollment.
Special enrollment periods allow people who had not signed up for health insurance during the regular enrollment period to obtain coverage, if they have certain special circumstances. Those special circumstances include losing coverage due to job loss, transfer or move; childbirth, marriage or the gaining of citizenship or legal alien status. Some categories were open-ended, however, including special enrollment periods for “other exceptional circumstances.” The Centers for Medicare and Medicaid Services has eliminated six categories for special enrollment eligibility.
The changes should help control adverse selection. An insurance market’s health depends on enrolling a mix of healthy and unhealthy individuals. Adverse selection—and cost increases—occur when people who are most likely to use health services enroll in a plan, then drop coverage when they no longer need it.
We will continue to keep abreast of changes to the Affordable Health Act and other laws, regulations and court cases that affect your employee health plan. For more information, please contact us.
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