Congress kicks the can down the road

Cadillac Tax delayed (again); repeal effort maintains strong bipartisan support

On Monday, President Trump signed legislation that will fund the government for another three weeks, thereby ending the three-day government shutdown. The bill includes a provision which delays the effective date of the excise tax on high-cost employer-sponsored health plans for two additional years, until 2022.

Originally included as part of the Affordable Care Act, the tax was an attempt to discourage workers from over-consuming healthcare. The belief/rationale was that many were buying unnecessarily expensive plans; however, opponents argued that the 40% rate on employers offering those plans was too punitive. Initially set to take effect in 2018, it was then postponed until 2020.

The move to delay implementation of the Cadillac Tax yet again is viewed as crucial for maintaining strong employee benefits, because companies typically make health plan decisions well in advance (i.e. 18 to 24 months). This reprieve allows employers to  maintain the health coverage working families want and need.

TASC continues to believe that full repeal is the only real solution to this onerous tax, and looks forward to working with the Trump Administration and Congressional leaders…so employers aren’t forced to choose between paying the tax or reducing benefits.

Gonna Fly Now?

GOP still likely a long way away from achieving seven year campaign pledge

On May 4, 2017, Republicans completed the first step in the long journey to repeal and replace portions of the ACA with the passage of the American Health Care Act (AHCA) – temporarily salvaging their mission to overhaul the nation’s health system. Previously stalled due to objections, the bill mustered just enough votes in the House (217-213)* after the addition of amendments that would allow states to waive the ACA’s essential health benefits package and insurance requirements for individuals with pre-existing conditions.

There are a number of provisions contained within the final version of the bill that may be of importance to TASC Providers/Clients. Here’s a brief description…

Age 26: Retains the requirement that family policies cover grown children.

Cadillac Tax: Currently set to become effective in 2020, the effective date of the excise tax on high cost health plans will be pushed back until 2026.

Employer/Individual Mandates: Ends tax penalties on individuals who don’t purchase health insurance and on large employers who don’t offer coverage to their workers; allows insurers to apply a 30% surcharge to customers who’ve been uninsured for more than 60 days.

FSA Cap: The cap on employee contributions to a health FSA imposed under the ACA is eliminated for tax years after December 31, 2016.

HSA Catch-Up Contributions: The AHCA will permit both spouses to make additional catch-up contributions to a single HSA; effective for tax years after December 31, 2017.

HSA Contribution Limit: Under the AHCA, the maximum contribution to an HSA will be equal to the sum of the annual deductible and the out-of-pocket expense maximum for single or family coverage; effective for tax years after December 31, 2017.

HSA Distribution Tax:  The ACA increased the excise tax on distributions not used for qualified medical expenses from 10% to 20%. Under the AHCA, that additional tax will revert back to 10% for distributions made after December 31, 2016.

HSA Establishment:  Under current law/regulations, only medical expenses incurred after the establishment of an HSA are considered eligible for reimbursement. In an effort to addresses the administrative problems connected with this requirement, the AHCA provides that as long as the HSA is established within 60 days of the date of health coverage, any medical expenses will be considered eligible regardless of whether they were incurred prior to the establishment of the HSA. This provision will be effective with respect to coverage after December 31, 2017.

Over-the Counter Medicines:  The ACA provided that the only prescribed drugs/medicines or insulin would be considered qualified medical expenses eligible for reimbursement from a FSA, HRA or HSA.  This provision would be eliminated for amounts paid or expenses incurred after December 31, 2016.

The nonpartisan Congressional Budget Office (CBO) was unable to complete an updated analysis detailing the effects of the latest changes in time for last week’s vote…meaning GOP lawmakers acted on the bill without updated figures on how many people would lose coverage or how much it would cost.

The measure is expected to undergo a major overhaul in the Senate, as that body’s politics are expected to prove far dicier than those in the House (i.e. much smaller and quite diverse Republican majority). Plus, the upper chamber operates on procedural rules that may block numerous parts of the AHCA. Senate Majority Leader Mitch McConnell has established a working group of 13 Senators to develop the Senate’s bill.  The content and timing of the Senate’s version is not clear yet.

It’s important to remember that this legislation is still pending, and has not been signed into law. At this time, the ACA (including all associated regulations and penalties) is still the law of the land; compliance is still required. TASC will continue to update you as this legislation moves through the political process to ensure our Providers/Clients compliance with the law.

* The bill was passed under budget reconciliation authority, so many provisions of the ACA could not be addressed or completely repealed by this bill. 

Repeal & Replace: ACA remains law of the land

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.

ALERT: IRS delays some ACA reporting

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

Doctor’s note

Pending legislation would do away with “Letter of Medical Necessity” requirement

This week, the House of Representatives passed the Restoring Access to Medication Act (H.R. 1270), which would overturn a provision* of the ACA and restore the ability of plan participants to use FSAs, HRAs and HSAs funds to purchase over-the-counter drugs and medicines. The bill will now head to the Senate for further consideration.

The Administration says it strongly opposes the repeal effort because it “would create new and unnecessary tax breaks that disproportionately benefit high-income people, increase taxes for low and middle income people, and do nothing to improve the quality of or address the underlying cost of health care.” Thus signaling that if the President were presented with H.R. 1270, he would veto the measure.

TASC believes the idea is based on common sense principles and puts healthcare cost management back where it belongs – in the hands of the people. The Governmental Affairs team will continue to follow this topic and provide our Clients/Providers with status updates throughout the year.

*Section 9003

Stand-alone HRAs making a comeback?

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)

Obama’s Budget Proposal Tweaks Cadillac Tax

Administration’s outline also has a potential impact on Flex Plans

Last week, the Obama Administration released its (final) budget proposal for the 2017 fiscal year. And although presidential budgets are usually viewed as highly partisan documents, there are a few noteworthy provisions in this particular budget proposal that will be of interest to TASC Providers / Clients.

Cadillac Tax Changes                                                                                                   As ACA supporters attempt to ease the opposition toward this controversial policy item, which is unpopular with both political parties,* the administration is backing what they’ve dubbed “sensible improvements” in an effort to decrease the likelihood that employer plans will trigger the excise tax.

Health plan costs by geographic regions                                                                   Under the proposal, a health plan would be considered high cost and subject to the tax if it exceeded the greater of the current law threshold ($10,200 for individual coverage and $27,500 for family coverage) or a new “gold plan average premium” which would be determined/calculated and published for each state.** A family multiplier would be applied to this amount to create the family threshold. This reform is intended to protect employers from paying the tax only because they are in high-cost locales and ensure that the penalty remains targeted at the appropriate population (i.e. those with overly generous plans).

GAO study                                                                                                                     The President’s budget also requires that the Government Accountability Office (GAO) study the potential effects of the excise tax on entities with unusually sick employees…presumably leading to legislative measures if the study finds that such firms are adversely impacted.

FSA salary reduction                                                                                            Currently, each employee’s actual FSA salary reduction contribution is counted in determining whether the cost of coverage for that employee exceeds the limit and is subject to the excise tax. But under the new recommendations, employers would determine the average amount of FSA salary reduction contributions for similarly situated employees and use that average amount in determining the cost of coverage.

Elimination of Dependent Care FSAs                                                                          As part of the administration’s attempt to increase the child and dependent care tax credit and create a larger credit for taxpayers with children under the age of 5, dependent care FSAs would no longer be permitted.  The executive branch believes that the new credits would provide better assistance to families with children then is currently available through a dependent care FSA.

Of course, the budget request of a president in his final year in office – particularly one facing a hostile Congress – is unlikely to lead to enacted legislation. That said, this proposal at least offers an insight into some of the interesting options that the next president might pursue, depending on his/her political leanings.

Overall, these provisions simply fall short of the mark and do not address TASC’s core concerns; in fact, they seem to be just as – if not more – administratively complex than the rule it attempts to replace. While we appreciate recognition of the budget’s implicit acknowledgment that the excise tax is imposed inequitably on those who live in high-cost geographic areas, this adjustment completely disregards the other uncontrollable factors that are used to calculate the tax, as well as the detrimental effects the tax could have on employer-sponsored health care plans.

The Cadillac Tax does nothing to help reduce the cost of health care or improve its quality. Instead, it places unparalleled financial challenges on employers, siphoning off resources that otherwise could sustain or improve benefits for workers and their families. Therefore, TASC continues to support full repeal of the tax or at the very least a carve-out exempting contributions to FSAs, HRAs and HSAs from the tax’s calculation. 

* Clear bipartisan majorities of both the House and Senate have voted to repeal the tax, and ALL presidential hopefuls – including both Democratic candidates – have also publicly called for repeal.

** A “gold” level plan is a tier of coverage found on a state-based or federally-facilitated public marketplace; would be calculated based on a weighted average of the lowest cost (self-only) silver level plans, multiplied (by 8/7) to simulate the cost of an actuarially equivalent gold plan.

IRS Guidance: Notice 2015-87

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.

ALERT – Cadillac Tax & Transit Parity

Early this morning, Congressional negotiators reached an agreement on legislation to fund the federal government through September 2016 and to extend certain expiring tax breaks. The package deal contains at least two provisions that will have a positive impact on TASC’s Clients/Participants…first and foremost the ACA’s Cadillac Tax* has been delayed for two years (from 2018 to 2020), and secondly, parity has been permanently restored between qualified parking and transit benefits, meaning that the monthly limitations will now reflect equal dollar amounts.

The deal – which has bipartisan support – is expected to pass both the House and the Senate prior to December 22, when Congress will adjourn for the year.

We are continuing to review the language to see if any additional changes have been made to other TASC interests, but wanted to make you aware of these important items as soon as possible.

* The legislation also makes the excise tax deductible by businesses and calls for a study to determine suitable benchmarks for the age and gender adjustment that could result in an increase in the base thresholds.