On March 4, 2015, the Supreme Court of the United States heard oral arguments in King v. Burwell, the highest profile challenge to the Affordable Care Act (ACA) since the Supreme Court’s 2012 decision to uphold the law. The oral arguments featured sharp questioning of both sides. A decision is anticipated in June to determine whether the high court will maintain the status quo with respect to the availability of premium tax credits to lower-income exchange customers in all states.
The Internal Revenue Service (IRS) published final forms and instructions addressing information reporting requirements applicable to employers and insurers under Internal Revenue Code Sections 6055 and 6056. The reporting requirements are effective for tax years beginning in 2015, with the first report due in 2016 for 2015 coverage.
The Affordable Care Act (ACA) generally requires individuals (with limited exceptions) to maintain minimum essential coverage or pay an individual shared responsibility payment with their annual federal income tax return. The IRS will use the information reported by employers and insurers under the information reporting requirements of the ACA to determine individual compliance with the individual shared responsibility requirements and to determine individual eligibility for premium tax credits.
Reporting of Minimum Essential Coverage
Code Section 6055 imposes annual information reporting requirements on insurers, employers that self-insure group health plans and certain other providers of minimum essential health insurance coverage. These entities are required to file annual returns reporting information about the entity and specific information for each individual for whom minimum essential coverage is provided. Covered entities will report the required information to the IRS and to covered individuals on Form 1095-B (click here for instructions). Entities should use Form 1094-B to transmit Form 1095-B to the IRS.
Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans
Code Section 6056 imposes annual information reporting requirements on applicable large employers (generally defined as employers with 50 or more full-time employees) that are subject to the employer shared responsibility provisions of Code Section 4980H. These large employers are required to report to the IRS the health insurance or self-insured health care coverage the employer provides to its full-time employees. The return filed with the IRS will describe the health care coverage the employer provides to its full-time employees, including a list of full-time employees, the coverage offered to each full-time employee and the months to which the coverage applied. Entities will report the required information to the IRS on Form 1095-C (click here for instructions), and to each of their full-time employees. Entities should use Form 1094-C to transmit Form 1095-C to the IRS.
Next Steps
Employers sponsoring group health plans should prepare for compliance with the ACA’s information reporting requirements by reviewing their systems to ensure they are able to capture the necessary information to be reported to the IRS based on the above forms.
This article provides a list of 2014 and 2015 health and welfare compliance initiatives that require action by employers, including preparation for upcoming fees and penalties under the Affordable Care Act, filing of required forms and distribution of relevant notices.
The Affordable Care Act (ACA) imposes reporting requirements on certain employers offering minimum essential coverage and those large employers subject to the employer shared responsibility requirements. Recently issued draft forms indicate how employers will comply with these reporting requirements.
The full U.S. Court of Appeals for the D.C. Circuit has vacated the 2-1 panel decision issued July 22, 2014, in Halbig v. Burwell, which struck down the Internal Revenue Service (IRS) Rule providing for Affordable Care Act (ACA) premium tax credits to be available to lower income exchange customers, regardless of their state of residence. The plaintiffs’ brief is due October 3, 2014, and the government’s opposing brief is due a month later on November 3, 2014, to precede oral arguments on December 17, 2014. It is likely that the full D.C. Circuit would not render its opinion before mid- to late Spring 2015. This has the effect of preserving the status quo with respect to the availability of premium tax credits, at least until the full D.C. Circuit renders its decision.
Meanwhile, the plaintiffs have sought review by the Supreme Court of the United States in King v. Burwell, Halbig’s sister case in which the U.S. Court of Appeals for the Fourth Circuit upheld that same IRS Rule. The Clerk of the Supreme Court has granted the government an extension until October 3, 2014, to respond to the petition for certiorari. The plaintiffs have urged the highest court render its decision as quickly as possible to resolve the circuit split. If the Supreme Court accepts King for review before mid-January, it could issue a ruling in the current term, which is scheduled to end in late June 2015.
Among the highest profile legal challenges to the ACA, Halbig and King seek to invalidate a May 2012 IRS Rule providing that health insurance premium tax credits will be available to all taxpayers nationwide, regardless of whether they obtain coverage through a state-based exchange or a federally facilitated exchanges (FFE). The plaintiffs (represented by the same lawyers in both cases) argued that the plain language of the ACA limits the availability of premium tax credits to only those taxpayers who reside in the 14 states (plus the District of Columbia) that set up their own exchanges, and thus nullifies the IRS Rule’s application to the 36 states operating exchanges through the FFE. Plaintiffs’ argument is based on language providing that premium tax credits are only available for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].” ACA § 1401(a), enacting 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added). The government counters that other provisions of the ACA make clear that the subsidies are to be made available in the FFE states as well.
There are also two similar cases awaiting decisions by federal trial courts on motions for summary judgment. First, in Pruitt v. Burwell, pending in federal district court in Muskogee, Oklahoma, the state complains that the availability of the premium tax credit in FFE states forces the state to choose between the costs of providing coverage to its employees or paying the IRS a significant financial penalty. Second, in Indiana v. IRS, pending in federal district court in Indianapolis, the state and 39 of its public school districts argue that the IRS Rule directly injures the [...]
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As the mid-way point of 2014 approaches, employers should actively turn their attention to several upcoming compliance obligations for the health and welfare benefit plans they sponsor. Following is a checklist of upcoming health and welfare compliance initiatives that require action by employers, including preparation for upcoming fees and penalties under the Affordable Care Act, the filing of required forms and distribution of relevant notices.
The U.S. Court of Appeals for the District of Columbia struck down the Internal Revenue Service (IRS) rule providing for federal tax credits for health insurance purchased through federal exchanges, while the U.S. Court of Appeals for the Fourth Circuit upheld the same IRS rule. If en banc review in the appeals courts does not resolve the circuit split, the matter likely will go to the Supreme Court of the United States for review. Tax subsidies under the IRS rule should remain available until such review, which is not expected before June 2015.
The Supreme Court of the United States ruled 5–4 in its highly anticipated Hobby Lobby decision that closely held for-profit corporations do not have to comply with the contraception mandate under the Affordable Care Act if doing so would violate their religious beliefs. The Supreme Court based its decision on the Religious Freedom Restoration Act, which protects “persons” from government actions that substantially burden their exercise of religion, unless those government actions are the least restrictive means of furthering a compelling government interest, and determined that because the contraception mandate is not the least restrictive means available to the government, it cannot apply to closely held for-profit corporations that religiously object to the contraception mandate.
On May 2, 2014, the U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) issued proposed regulations which seek to amend the notice requirements under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The changes are intended “to better align the provision of guidance under the COBRA notice requirements with the Patient Protection and Affordable Care Act (ACA) provisions already in effect, as well as any provisions of federal law that will become applicable in the future.”
Under COBRA, a group health plan must provide participants with a general COBRA notice and COBRA qualified beneficiaries with an election notice. These notices describe a qualified beneficiary’s right to continue coverage under a group health plan. On May 8, 2013, DOL issued Technical Release 2013-02, which included a series of model COBRA notices (see “Notice of Coverage Options Available Through the Exchanges” for more information). These model notices include references to the ACA, noting that some qualified beneficiaries (1) may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the ACA exchanges and (2) may also be eligible for a premium tax credit to help pay for the cost of coverage.
The proposed regulations eliminate the current versions of the model notices. However, until the regulations are finalized and effective, the DOL will consider appropriately completed use of the model notices that are currently available on its website to constitute good faith compliance with the notice content requirements of COBRA. Once the current notices are available, they will be posted at the following links:
Note: Use of the model notices is not required.
The Centers for Medicare & Medicaid Services’ Final Notice of Benefit and Payment Parameters for 2015 contains numerous alterations to premium stabilization programs, cost-sharing requirements and employee counting provisions to account for lower-than-anticipated enrollment through the Exchanges and the Obama Administration’s decision to permit individuals to “keep their current plan” through 2016. All of these changes and the fluid regulatory environment create significant challenges for issuers, who must operationalize these changes, some of which are effective in 2014, and prepare for the 2015 benefit year.
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