IRS issues HDHP / HSA guidance; House votes to repeal Cadillac tax

The IRS rolled out new rules that could have major implications for people who have chronic diseases, but are also on the hook for thousands of dollars in medical bills. Notice 2019-45 expands the list of preventive care benefits that can be provided by a high deductible health plan (HDHP), on a no-deductible or low-deductible basis, without any adverse effect on HSA eligibility.

In general, “preventive” care does not include treatment for existing illnesses or conditions. Under the current HDHP/HSA rules, treatments of a non-preventive nature that are covered or reimbursed by a health plan without first satisfying HDHP conditions would generally disqualify a covered individual from HSA contribution eligibility.

However, the Administration now acknowledges that the cost barriers for care have resulted in some individuals who are diagnosed with certain chronic conditions failing to seek or utilize effective and necessary care that would prevent exacerbation of the chronic condition. Thus, these regulations are aimed at encouraging individuals to take more responsibility for their health care spending and become better health care consumers.

According to the notice, for services to be covered by an HDHP pre-deductible, they should be “low-cost” and demonstrate a high-impact. In addition, there must be strong evidence that the absence of the service will result in the condition worsening or the development of another serious medical issue. Those services and items, along with the conditions for which they must be prescribed to qualify as preventive care, are listed in an appendix to the guidance. The list includes 14 medical services or items for individuals with 11 specified chronic conditions (such as diabetes and high blood pressure).

While this new guidance is effective immediately, Treasury and HHS will periodically review the list to determine whether additional services or items should be added or removed. This exercise is expected to occur every five to ten years in an effort to promote stability and avoid confusion by participants in, or sponsors or providers of, HDHP arrangements.

Full text:  https://www.irs.gov/pub/irs-drop/n-19-45.pdf

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House Democrats and Republicans joined together in a rare show of unity last week, voting overwhelmingly (419-6) to repeal the ACA’s “Cadillac” tax on high cost health plans.

Delayed repeatedly by Congress, the tax would slap a 40% levy on the value of employer-provided health benefits that exceed $11,200 for individual coverage and $30,100 for family policies beginning in 2022. The idea was to reduce soaring health-care costs by discouraging employers from offering such generous plans.

Insurers and employers (like TASC) oppose the tax because they’d be the ones most exposed to its bite…shifting more costs to policyholders/employees as a result. About 160 million Americans are covered by workplace plans, still the largest source of coverage.

The House vote was aided by a new expedited procedure designed to force votes on measures that have wide bipartisan support (i.e. two-thirds majority). The 350+ cosponsors of HR 748 – titled the Middle Class Health Benefits Tax Repeal Act – not only include conservative Republicans, but members of the progressive wing of the Democratic Party as well…many of whom have championed replacing the current employer-based system with a “Medicare for All’ structure.

It’s unclear whether the Senate will tackle repeal, although a companion bill sponsored by Sen. Mike Rounds (R-SD) has collected 42 cosponsors.

Floor loss may go a long way in dictating the GOP’s ambitious Capitol Hill agenda

As you probably know, Congress decided not to proceed with a planned vote on the American Health Care Act (AHCA) last week, which would have repealed and replaced important elements of the Affordable Care Act (ACA).

The proposed legislation would have expanded HSA eligibility, increased HSA contribution amounts, and reversed some of the ACA provisions that were detrimental to consumer-directed health plans…such as the cap on employee contributions to FSAs and the prohibition on reimbursements for over-the-counter medications. The bill also delayed the effective date of the excise tax on high-cost health plans (commonly referred to as the “Cadillac Tax”).

Now what?

Plenty could still change regarding the ACA; legislative action was only part of the GOP’s plan. Another component – making changes to regulations and how the ACA is administered – doesn’t require Congress’ help.

For example, the Trump administration can’t do away with the mandate requiring individuals to have health insurance on its own, but it can greatly weaken it through the IRS. Both the individual and employer mandates are about tax incentives (i.e. get insurance or pay a fine), so the executive branch could simply decide not to enforce that penalty.* In fact, the President has already signed an executive order directing government agencies to begin unraveling portions of the healthcare law. The order encouraged department heads to “waive, defer, grant exemptions from or delay the implementation” of provisions aimed at imposing fiscal burdens on states, companies or individuals.

A looming push to overhaul the U.S. tax code could also include the repeal of ACA levies left intact by the collapse of the Republican measure. Tax Reform will be an important priority for those in the employee benefits space, as discussions are once again likely to include many of the same elements contained in the AHCA (see above)…along with potential changes to dependent care, transit and parking, or even the exclusion of employer provided health insurance.

Regardless of your political views, portions of the AHCA highlighted/recognized the importance of consumer-directed health accounts and TASC will continue to advocate for policies which support and expand these plans.

To be continued…

* The IRS has said it will not reject “silent returns” — tax returns on which a person declines to say whether they have insurance.

Following consultation with stakeholders, the agency has determined that a substantial number of employers, insurers, and other coverage providers may need additional time to prepare 2016 Forms 1095-B and 1095-C. As a result, the deadline for furnishing this information (to individuals) has been extended from January 31, 2017, to March 2, 2017.

Because some individuals may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2016 tax return, taxpayers may rely on other information received from their employer or coverage provider for the purposes of determining eligibility for premium tax credits and confirming that they had minimum essential coverage. Taxpayers do not need to wait to receive Forms 1095-B and 1095-C before filing their returns.

Note: This guidance does not extend the timeframe for submitting 2016 Forms 1094-B, 1095-B, 1094-C, or 1095-C to the IRS…those dates remain the same (February 28, 2017 or March 31, 2017, if filing electronically.)

Notice 2016-70: https://www.irs.gov/pub/irs-drop/n-16-70.pdf

Pending bill responds to agency action

Since its introduction, TASC has been actively monitoring a piece of legislation known as the Small Business Healthcare Relief Act with great interest. Last week the House of Representatives passed H.R. 5447 on a voice vote.

Sponsored by Rep. Boustany (R-LA) and Rep. Thompson (D-CA), this measure would greatly improve small business access to competitive health benefits by restoring the use of stand-alone HRAs that could be used to reimburse employees for qualified medical expenses and/or individual health insurance premiums. It is specifically aimed at those entities not subject to the ACA’s Employer Mandate (i.e. those with fewer than 50 full-time employees) and who do not offer a group health plan to their employees. To qualify, the maximum benefit provided under the plan would be capped at $5,130…or $10,260 if the HRA includes reimbursements for family members.* Employees covered under these arrangements would be prohibited from receiving a subsidies for health insurance purchased under the public marketplaces.**

For eligible employers, this bill would overturn guidance issued by the Internal Revenue Service and the Department of Labor that stated that these arrangements violated the ACA’s insurance market reforms.*** As a result of that previous interpretation, employers who continue to offer stand-alone HRAs today face the potential of a $100 per day, per employee penalty ($36,500 per year).

While it’s a good sign that this bi-partisan legislation passed the House with very little opposition, our work is not done. The measure now goes to the Senate where a companion bill – S. 3060 – has been introduced by Sen. Grassley (R-IA) and Sen. Heitkamp (D-ND).   Although similar legislation has received opposition in the past from members of the Democratic leadership in that body, we’re hopeful that it will be taken up this fall/winter as part of the year-end agenda.

This a common-sense solution ensuring that small businesses aren’t penalized for trying to do the right thing. HRAs are an affordable solution for both employees and employers to combat the escalating cost of health insurance. Since many small employers do not have human resource departments or benefits specialists, this change would provide them with the necessary flexibility to help their employees pay for health care.

TASC remains a strong supporter of both H.R. 5447 & S. 3060, and we will continue to advocate for their passage throughout the remainder of this Congressional session by engaging with Senators and their staff.

* Indexed for inflation

** H.R. 5447 also establishes a number of notice/reporting requirements and requires that employers report contributions on their employees’ W-2 forms.

*** Notice 2013-54 (dated Sept. 13, 2013)

Late yesterday, the IRS provided further guidance on the application of the market reforms that apply to group health plans (under the ACA) to various types of employer health care arrangements. Among other things, the notice covers (1) HRAs – including HRAs integrated with a group health plan, and similar employer-funded health care arrangements – and (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee.  This notice supplements the guidance provided in Notice 2013-54; FAQs Part XXII; Notice 2015-17; and the final regulations published on November 18, 2015.

TASC Governmental Affairs is currently in the process of reviewing this latest release in order to assess the effect–if any–on our NESP/NEFSA Plan. We will communicate further on this topic in the near future.