Important Affordable Care Act Deadline: Employee Notices of the Health Insurance Marketplace (Exchange) Due by October 1, 2013

May 22nd, 2013 | No Comments |
Category: CDHC, COBRA, Compliance and Regulatory, DOL, Health Care Reform, IRS, PPACA, Taxes, Uncategorized

On May 8, 2013, the Employee Benefits Security Administration of the U.S. Department of Labor (“DOL”) issued Technical Release No. 2013-02 (“Release”) providing important guidance under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act”), with regard to the requirement that employers provide notices to their employees of the existence of the Health Insurance Marketplace (“Marketplace”), previously referred to as the “Exchange.” These employee notices must be provided to existing employees no later than October 1, 2013. This deadline is intended to correspond to the open enrollment period for the Marketplace commencing October 1, 2013, for coverage through the Marketplace beginning January 1, 2014. The Release includes temporary guidance and two model employee notices of the Marketplace upon which employers may rely. Additionally, the Release provides an updated model election notice for group health plans for purposes of the continuation coverage provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) to include information of the health coverage options offered to individuals through the Marketplace for comparative purposes.

Employee Notice of the Marketplace. The Affordable Care Act amended the Fair Labor Standards Act (“FLSA”) to require employers to issue to employees a notice of the health coverage options available under the Marketplace. The FLSA requirement was supposed to have been satisfied on or before March 1, 2013; however, given the regulatory delays in establishing and approving the Marketplace, the DOL extended the deadline. The guidance under the Release is temporary through the applicability date of October 1, 2013, but may be relied upon until future guidance and regulations are issued.

Which Employers Are Required to Comply with the Notice Requirements?

Whether or not they are required to “pay or play” under the Affordable Care Act, all employers subject to the FLSA must provide their employees with notice. The FLSA generally applies to employers that employ one or more employees and are engaged in, or produce goods for, interstate commerce. The FLSA also covers, among other things, hospitals; schools; institutions of higher education; and federal, state, and local government agencies. To determine whether an employer is subject to the FLSA, the DOL provides an Internet assistance tool at http://www.dol.gov/elaws/esa/flsa/ scope/screen24.asp.

Which Employees Must Receive the Notice?

Employers must provide the employee notice to each of their employees, whether or not an employee has part-time or full-time status. It does not matter whether the employee is enrolled or eligible to enroll in a group health plan. A separate notice is not required for dependents or other individuals who may become eligible for coverage under the plan but are not employees.

What Information Must the Notice Contain?

The employee notice must contain the following information: •the existence of the Marketplace; •the contact information and description of services offered on the Marketplace; •a statement that the individual may be eligible for a premium tax credit if the employee purchases a qualified plan on the Marketplace; and •a statement that, if the employee purchases a qualified plan on the Marketplace, the employee may lose the employer contribution to any health benefit plan offered by the employer and all or a portion of employer contributions may be excluded from federal income.

What Are the DOL Model Notices?

The DOL has provided two model employee notices, which are available on its website, one for employers that do not offer a health plan and one for employers that offer a health plan to some or all employees. The Release provides that employers may use the model notice(s), provided that the notice(s) include(s) the information described above.

The model employee notice for employers that do not offer health coverage includes the information described above, as well as an explanation of the impact of the availability of employer health coverage on the employee’s eligibility for subsidies on the Marketplace. The model employee notice does not require the employer to provide specific contact information for the Marketplace in the state where the employee resides, but rather refers the employee to the healthcare.gov website for contact information for the Marketplace in the employee’s area. This model employee notice requires the employer to provide contact information for the employer, including the employer’s EIN (Employer Identification Number). This is the information that an employee will need to include in an application for a premium subsidy on a Marketplace.

The model employee notice for employers that do offer health coverage, while generally including the same information as the model employee notice for employers that do not offer health coverage, also requires the employer to provide contact information to obtain more information about the employer’s health care coverage. The disclosure section requires the employer to state whether the health care coverage is offered to all employees and, if not to all employees, a description of those employees eligible for health care coverage. This model employee notice further requires the employer to state whether it offers dependent coverage and which dependents are eligible. Finally, the employer is required to disclose whether the health care coverage offered meets the minimum value standard and that the cost of coverage is intended to be affordable. The Department of Treasury and Internal Revenue Service recently issued proposed guidance to assist employees in assessing whether the coverage offered provides minimum value. (For more information, see the Epstein Becker Green Health Employment And Labor blog post by Michelle Capezza entitled “New Proposed Guidance for Determining Whether Employer-Sponsored Health Plan Provides Minimum Value.”)

In addition, the model employee notice for employers that offer health coverage includes optional information that an employer may provide to employees based on the Marketplace Employer Coverage Tool to help them better understand their coverage choices, including whether an employee is eligible in the next three months for employer coverage, whether the employer offers a health plan that meets the minimum value standard, the premium for employee-only coverage under the lowest-cost plan that meets the minimum value standard if the employee received the maximum discount for any tobacco cessation program, and what changes the employer will make for the next plan year. Although this information is optional, it may be to an employer’s benefit to demonstrate, where appropriate, that its plan is providing minimum value and is affordable.

When Must the Employee Notice Be Provided, and What Are the Acceptable Delivery Methods?

Current employees who are employed before October 1, 2013, must be provided with the notice no later than October 1, 2013. Beginning October 1, 2013, the employer must provide each new employee with the notice at the time of hire, which will be considered timely in 2014 if it is provided within 14 days of the employee’s start date.

The employee notice must be provided free of charge, in writing, and in a manner calculated to be understood by the average employee. The employee notice may be provided by first class mail or electronically if done in accordance with the DOL’s electronic disclosure safe harbor.

What Is the COBRA Model Notice?

Under COBRA, an individual who was covered by a group health plan the day before a qualifying event occurred may be eligible to elect COBRA continuation coverage. These qualified beneficiaries must be provided with an election notice within 14 days after the plan administrator receives notice of a qualifying event. The COBRA election notice is required to include specific information.

The DOL updated its model COBRA election notice to provide information about the Marketplace for the purposes of informing qualified beneficiaries that they may also be eligible for a premium tax credit to pay for coverage offered through the Marketplace. The model COBRA election notice also includes a clarification on the limit on pre-existing condition exclusions beginning in 2014. Such information is not specifically required under the Affordable Care Act and should have no impact on whether an employer is subject to the employer responsibility penalties if, in fact, a former employee obtains coverage on the Marketplace.

The Release provides that the use of the model COBRA election notice, if completed appropriately, will be considered good faith compliance with the COBRA election requirements. The model COBRA election notice does not provide a specific deadline or compliance date. Employers may wish to review their existing COBRA election notices for changes relating to the Affordable Care Act.

Conclusion

Employers have long been waiting for specific guidance from the DOL on their employee notice requirements. Now that it is here, compliance should be addressed well before the October 1, 2013, deadline.

For more information about this Advisory, please contact:

Gretchen Harders New York 212-351-3784 gharders@ebglaw.com Michelle Capezza New York 212-351-4774 mcapezza@ebglaw.com

This Advisory has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. The information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.

IRS Circular 230 Disclosure

To ensure compliance with certain IRS requirements, we inform you that any tax advice contained in this publication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.

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DOL Releases Model Notice and Guidance on PPACA’s Exchange Notice Requirement

May 22nd, 2013 | No Comments |
Category: Compliance and Regulatory, DOL, Health Care Reform, PPACA, Uncategorized

On May 8, 2013, the DOL issued Technical Release No. 2013-02, which includes temporary guidance and a model notice relating to the notice to employees of coverage option (known as the “Exchange Notice”) requirement under PPACA. As background, PPACA requires employers subject to the FLSA to provide each employee with a written notice that describes information about the state health insurance exchanges (also referred to as “marketplaces”), including the availability of premium tax credits and the implications relating to purchasing coverage through the exchanges. Originally, PPACA required employers to distribute the notice by March 1, 2013; but earlier this year the DOL delayed that effective date. Technical Release No. 2013-02 makes clear that employers must distribute the exchange notice to all current employees by Oct. 1, 2013. In addition, after Oct.1, 2013, employers must provide the exchange notice to new hires within 14 days of the employee’s start date.

Importantly, the notice must be distributed regardless of whether the employee is full-time or part-time and regardless of whether the employee is actually eligible for coverage. For this purpose, Technical Release No. 2013-02 provides two model notices to assist employers in providing the required information: Notice for Employers Without Health Plans and Notice for Employers With Health Plans. The former includes (among other things) a brief description of the exchanges, the circumstances under which a premium tax credit may be available, and a link to a website for further information and an exchange enrollment application. The latter includes all of that information, as well as specific information relating to the employer’s health plan (e.g., whether the plan meets the minimum value standard, whether the coverage is affordable, etc.).

Now that the model notices are available and the effective date is known, employers should begin preparations for drafting and distributing the notices. Employers should review the model notices and determine what plan-specific language, if any, it should include in the notices.

Technical Release No. 2013-02

http://www.dol.gov/ebsa/newsroom/tr13-02.html

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The ACA – What you need to do NOW

May 10th, 2013 | No Comments |
Category: CDHC, Compliance and Regulatory, DOL, ERISA, Health Care Reform, IRS, PPACA, Taxes, Uncategorized

By Robert J. Lowe

May 10, 2013

The Patient Protection and Affordable Care Act includes many requirements applicable to employer group health plans. Some of these requirements are already effective but some of the most significant requirements will become effective in 2014. Employers should now be considering what they need to do to comply with ACA requirements that will become effective in 2014.

ACA provisions that are already effective

Employer group health plan should already be complying with the following requirements that are already effective:
■Coverage for young adults to age 26
■Deletion of lifetime and annual dollar limits
■Limits on pre-existing condition exclusions and rescission of coverage
■Medical loss ratio rebates paid by insurance companies
■Summary of benefits and coverage provided to participants explaining the terms of the plan
■W-2 reporting of cost of coverage
■$2,500 limit on health care flexible spending accounts

In addition, plans that do not have “grandfathered” status under ACA, as a result of changes to the plans adopted since enactment of the Act, are already subject to the following rules:
■Modified claims and appeals rules including external review requirements
■No cost preventative care
■Non-discrimination rules for insured plans (although these rules are not being enforced currently pending release of regulations)

What happens in 2014

Effective in 2014, employers that are treated as “applicable large employers” under ACA will have to comply with one of the central requirements of the Act, the requirement to offer employees health plan coverage that complies with ACA requirements or otherwise become subject to penalties under the Internal Revenue Code, referred to as “assessable payments.”

Assessable payment rules

There are two types of assessable payment under ACA.

Under one type of assessable payment, if an “applicable large employer” offers health coverage to all employees who work 30 or more hours a week and their dependents but the coverage does not qualify as “minimum essential coverage” or the employer offers coverage that is not “affordable” or does not provide “minimum value” and at least one employee enrolls in a plan offered through a state health insurance exchange for which a premium tax credit or cost sharing reduction is allowed, then the employer subject to “assessable payment” of up to $3,000 for each affected employee per year.

Compliance is determined on a monthly basis with a $250 assessable payment (one-twelfth of $3,000) due for each month for which the affected employee is entitled to a premium tax credit or cost sharing reduction as a result of the purchase of coverage on the exchange. Not all employees will be eligible for the premium tax credit or cost sharing for purchase of this insurance. Only employees earning less than four times the federal poverty limit will be entitled to these benefits. However, employers will not have to make this determination. If the IRS determines that the employee is entitled to these benefits, it will issue the assessment to the employer. This assessable payment is determined only with respect to those employees who purchase the insurance on the exchange and are eligible for the premium tax assistance or cost sharing.

Another type of assessable payment applies if the applicable large employer fails to offer minimum essential coverage at all to 95 percent of its employees who work 30 or more hours per week and their dependents, regardless of whether it is “affordable” or provides “minimum value” and at least one employee purchases coverage through a state health insurance exchange for which a premium tax credit or cost sharing reduction is allowed. Under these rules, the employer can be assessed a penalty equal to $2,000 per year, but multiplied by the number of full time employees employed by the employer reduced by 30.

Who is an “applicable large employer”

As in initial matter, it will be very important for each employer to determine if it is an “applicable large employer.” For this purpose, an employer is an “applicable large employer” if the employer employed an average of at least 50 full-time employees on business days during the preceding calendar year. The parent-subsidiary and brother-sister controlled group rules of the Internal Revenue Code apply in making this determination. Thus, for example, in determining whether the 50-employee test has been met, all subsidiaries that are at least 80 percent owned directly or indirectly, by the parent corporation will be treated as a single employer with the parent corporation. Also, two part-time employees who work an average of at least 15 hours a week are considered a single full time employee for purposes of making this determination.

There is an exception to the definition of “applicable large employer” for employers whose work force exceeded 50 full time employees only because of “seasonal workers” employed for 120 or fewer days during calendar year.

The determination for a particular calendar year is based on the employer’s average number of employees during the prior calendar year using the entire prior year for that purpose. However, for 2014 only there is a special transitional rule that allows an employer to determine if it is an applicable large employer using any period of six consecutive calendar months during calendar year 2013 rather than using the entire year.

What is affordable coverage

If the employer determines that it is an applicable large employer, it will also be necessary to determine if the coverage it is offering is “affordable.” If the coverage is not affordable, and an employee obtains coverage on an exchange for which it obtains a premium tax credit or cost sharing benefit, the employer will be liable for an assessable payment for that employee.

Coverage is affordable if the employee’s required contribution does not exceed 9.5 percent of the employee’s household income for the year. The coverage to which this rule applies is the employee portion of the self-only premium for the employer’s lowest cost coverage that provides minimum value. Thus, the employer can charge higher amounts for spouse or dependent coverage without having the coverage cease to be treated as affordable for this purpose.

The IRS regulations offer a variety of methods for determining the employee’s household income. However, most employers will find it easiest to make this determination using the safe harbor method based on Form W-2 wages as set forth in box 1 of the W-2.

Determining if an employee is full-time

In most cases it will be clear if an employee is a full time employee or not. However, in some cases, it will be difficult for an employer to make this determination.

The basic definition is that a full time employee for this purpose is an employee who is employed on average at least 30 hours of service per week. However, in some cases, the employer will not know in advance if an employee will satisfy that requirement. For this purpose, the IRS proposed regulations provide special rules for “variable hour employees” if it cannot be determined when the employee begins work if the employee is reasonably expected to work 30 hours per week.

Also, under a special transitional rule for calendar year 2014 only, a new employee who is expected to work initially at least 30 hours per week may also be a variable hour employee if, based on the facts and circumstances at the start date, the employee is expected to work 30 or more hours per week but the period of employment at more than 30 hours per week is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week during the entire initial measurement period. However, effective January 1, 2015, such a limited duration employee will have to be treated as a full time employee.

To determine whether coverage is required for these variable hours employees, the IRS provided the option to use a “look back/stability period” safe harbor. Under this approach, the employer “looks back” at a period of three to twelve months to determine if during the measurement period the employee averaged at least 30 hours per week.

If the employee is determined to be full-time during the measurement period, the employee is treated as full-time during a subsequent stability period of six to twelve months, regardless of the number of hours worked during the stability period.

There can also be an “administrative period” of up to 90 days under certain circumstances between the end of the measurement period and the beginning of the stability period.

Variable hour employee examples

These rules can be illustrated by the following example of use of the look-back/stability period rules for ongoing employees:

Assumptions:
■Employer uses a look-back period of 12 months ending October 15 and a stability period of the calendar year.
■During the period from October 16, 2012 through October 15, 2013, an employee is tested to determine if he or she satisfies the full-time employee requirements.

If the employee works an average of 30 hours per week during the look back period, the employee would be entitled to coverage effective with the stability period beginning January 1, 2014. Coverage would be available for all of 2014 regardless of hours worked in 2014 as long as the employee remains employed. If, however, the employee does not work an average of 30 hours per week during the look back period, then the employer does not have to treat the employee as a full time employee for the entire stability period of 2014 regardless of the number of hours worked in 2014 and no assessable payment could be due with respect to the employee for that period.

Similar rules are applicable with respect to new employees as illustrated by the following example applicable to use of the look-back/stability period rules for new employees:

Assumptions:
■Employer uses a 12-month initial measurement period from date of hire and 12-month stability period.
■Administrative period from end of measurement period to end of first calendar month beginning after the measurement period.

If an employee has a date of hire of February 10, 2013, the measurement period would end twelve months later on February 9, 2014.

If the employee worked an average of 30 hours per week during this measurement period, the employee would be treated as full-time and would be entitled to coverage for the stability period from April 1, 2014 through March 30, 2015. If the employee did not work an average of 30 hours per week during that measurement period, the employee would not be treated as a full time employee during the stability period.

In addition, the employee would have to be tested as an ongoing employee as well. Therefore, using the look-back/stability period rules discussed above for ongoing employees and using the same assumptions as set forth above, then the employee would also have to be tested for the measurement period from October 16, 2013 through October 15, 2014 (applicable to ongoing employees) to determine calendar 2015 coverage. If the employee was treated as a full time employee during the look back period beginning on the date of hire, but not during the look back period beginning October 16, 2013, the employee would be entitled to coverage for the period from April 1, 2014 through March 30, 2015, but would not be treated as a full time employee for the balance of 2015.

Conclusion

Employers who wish to avoid liability under the assessable payment rules that become effective in 2014 should be analyzing their health plans and employee populations to determine if they already comply with the new rules and, if not, what changes they will have to make before January 1, 2014.

Robert J. Lowe is a partner in the employee benefits practice of Mitchell Silberberg & Knupp. He can be reached at rlo@msk.com or 310-312-3180.
This Legal Alert is intended only for educational purposes and is not meant as specific legal advice.

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Clarification by Treasury and IRS Relaxes Election Change Rules

April 4th, 2013 | No Comments |
Category: CDHC, Cafeteria Plans, Compliance and Regulatory, HHS, Health Care Reform, IRS, PPACA, Section 125 Plans, Uncategorized

So employers and employees can take advantage of the health insurance Exchanges starting January 1, 2014, regulators issued some exceptions to the permitted election changes rule for cafeteria plans.

Beginning in October 2013 individuals will have the opportunity to enroll in State Exchanges throughout the country for coverage starting January 1, 2014. These dates coincide with a large number of employers’ benefit plans who offer health insurance coverage. Their health plan years end December 31 and employees may enroll at an Exchange for the 2014 plan year. However, because of the cafeteria plan change of election rules, it would not be easy for employers who run their benefits on fiscal plan years.

When participants enroll in a cafeteria plan, even just for taking health insurance premiums pretax, the election is irrevocable unless they sustain a qualified reason to change their election. The availability of health coverage through an Exchange does not constitute a change in status. Participants in cafeteria plans that do not end on December 31 would be unable to change their salary reduction elections in the middle of their cafeteria plan year and purchase coverage through an Exchange.

In January 2013, the IRS published their latest Affordable Care Act (ACA) proposed rule entitled “Shared Responsibility for Employers Regarding Health Coverage.” This publication also included instructions for employers whose benefit plans operate on a fiscal year. To help employees who participate in fiscal cafeteria plan years, the Treasury Department and the IRS will allow a one-time transition period whereby participants may change from employer-sponsored health insurance to a State Exchange plan for applicable large employers whose benefit plans are on a plan year that does not start on January 1.

Affected large employers may, at their discretion, amend their written cafeteria plans to permit either or both of the following changes in salary reduction elections.

• An employee who elected to salary reduce through the cafeteria plan for accident and health plan coverage with a fiscal plan year beginning in 2013 is allowed to prospectively revoke or change his or her election with respect to the accident or health plan once, during the plan year, without regard to whether the employee experienced a change in status event described in the change of status regulations 1.125-4; and
• An Employee who failed to make a salary reduction election through his or her employer’s cafeteria plan, for accident and health plan coverage with a fiscal plan year beginning in 2013 before the start of the cafeteria plan year beginning in 2013, is allowed to make a prospective salary reduction election for accident and health coverage on or after the first day of the 2013 plan year of the cafeteria plan year, without regard to whether the employee experienced a change in status event described in 1.125-4.
Why is it so important to allow employees to seek coverage on the Exchange? First, ACA was written to assure that employees and individuals could purchase insurance coverage through State Exchanges. And secondly, employers want what’s best for themselves and their employees. For instance, if an employee is not enrolled in health insurance, they need to get coverage. However, employers can be penalized if one employee chooses coverage from the Exchange and receives premium credits. This is call “Shared Responsibility.” Employers would prefer to allow all their employees the opportunity to choose coverage at the same time.

Shared Responsibility for applicable large employers means they are subject to a specific “assessable payment” starting January 2, 2014 if they either:

• fail to offer full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored health plan and any full-time employee is certified as having received a premium tax credit or cost-sharing reduction; or
• offer full-time employees (and their dependents) minimum essential coverage that meets minimum value and affordability directives and one or more employees are certified as having received a premium tax credit or cost-sharing reduction.

An applicable large employer is an employer that employed an average of at least 50 full-time employees, or full-time equivalents based on hours of service, on business days during the preceding calendar year. This is welcome clarification and remediation for employers with fiscal year cafeteria plans, however it is not mandatory that employers offer this option to their employees. This proposed rule also included an expanded timeframe for adopting this one-time change in status amendment to cafeteria plans. Cafeteria plans may be amended retroactively to implement these transition rules. The retroactive amendment must be made by December 31, 2014, and can be retroactive to the date of the first day of the 2013 cafeteria plan year.

This amendment is only for accident and health coverage offered through a cafeteria fiscal year plan beginning in 2013 and does not apply to any other qualified benefits offered through the cafeteria plan, such as health flexible spending accounts. It is also temporary and only applicable to cafeteria plans that began in 2013.

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New Benefits Coordinator’s Failure to Provide COBRA Election Notice Leads to Stiff Penalties for Employer

November 12th, 2012 | No Comments |
Category: COBRA, Compliance and Regulatory, DOL, ERISA, Uncategorized

From the November 08, 2012 EBIA Weekly

[Evans v. Books-A-Million, 2012 WL 5379351 (N.D. Ala. 2012)]

Available at http://www.gpo.gov/fdsys/pkg/USCOURTS-alnd-2_07-cv-02172/pdf/USCOURTS-alnd-2_07-cv-02172-1.pdf

The terminated employee in this case sued her former employer for, among other things, not providing her a COBRA election notice for its group dental plan. The employer did not dispute that the employee was entitled to a COBRA notice but contended that its failure was an “innocent mistake.” Members of the employer’s benefits staff described a complicated process involving three different reports that had to be cross-referenced in order to identify terminated employees who were entitled to receive a COBRA notice. The staff members, including a new benefits coordinator who had only been at the job a few weeks, were unable to prove that a notice had been provided and offered conflicting reports as to how they had responded when the employee called to request an election notice.

The court determined that there were too many “contradictions and evasions and disingenuous answers” to conclude that the employer’s failure to mail the notice was inadvertent. In particular, the court noted that the employer had failed to provide a notice despite being given multiple opportunities to do so—first when the employee was terminated, again when she called and requested a notice, and finally when she filed her lawsuit. As a result, the court concluded that the employer intentionally withheld the notice and calculated penalties accordingly. The court imposed penalties from the 45th day after the employee’s termination through the end of the 18-month coverage period that the employee could have elected under COBRA. Based on the employer’s bad faith and “intentional withholding of the COBRA notice,” the court set the penalty at $75 per day, for a total of $37,950 plus over $45,000 in attorneys’ fees and costs. The court noted that the employer, as a large, national company, would be able to satisfy the fee award and that the statutory penalty alone might not be a sufficient deterrent against further misconduct.

This case serves as a stark reminder to employers and administrators to make sure they have COBRA notice procedures in place—and to make sure they are followed. The court’s opinion also provides an enlightening discussion of the factors that may be considered when determining the penalty amount for a COBRA notice failure. While the COBRA statute sets a maximum penalty amount of $110 per day, the actual amount of the daily penalty—and the number of days for which the penalty is assessed—is left to the court’s discretion. The court also has discretion regarding the amount of attorneys’ fees awarded, and, as illustrated by this case, may use the attorneys’ fees as a further penalty or deterrent.

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Who is Eligible for New Health Insurance Premium Tax Credits?

September 23rd, 2012 | No Comments |
Category: Compliance and Regulatory, Health Care Reform, IRS, Medicare, PPACA, Taxes, Uncategorized

What premium tax credits and cost-sharing subsidies are available to individuals in 2014 and who is eligible for them?

To assist individuals and families who do not qualify for Medicare or Medicaid and are not offered affordable health coverage by their employers, a refundable tax credit (the “premium tax credit”) and a cost sharing subsidy will be available beginning in 2014 to help pay for insurance purchased through an Exchange. Generally, taxpayers with income between 100% and 400% of the federal poverty line (FPL) who purchase insurance through an Exchange will qualify them, as provided in Code Section 36B. and Section 1402 of the Patient Protection and Affordable Care Act (“PPACA”).

A premium assistance tax credit will be provided monthly to lower the amount of premium the individual or family must pay for their coverage. Cost sharing subsidies will limit the plan’s maximum out-of-pocket costs, and for some individuals will also reduce other cost sharing amounts (i.e., deductibles, coinsurance or copayments) that would otherwise be charged to them by their coverage.

Both types of assistance will be tied in some way to the value of the coverage available in the Exchanges. Four levels of plans will be offered by insurers in the exchanges. All the plans must offer a set of essential health benefits. The four plan levels vary in the total value of coverage they must provide. This amount is sometimes called “actuarial value” and represents the proportion of health insurance expenditures for covered benefits that, for an average population, would be paid by the plan. Section 1302(d)(1) of PPACA requires that the actuarial value be 60% for “bronze” plans, 70% for “silver” plans, 80% for “gold” plans and 90% for “platinum” plans. In addition, the out-of-pocket maximum for any of these plans may not exceed a limit that is determined annually. For 2013, the limit is $6,250 for individual coverage and $12,500 for family coverage. It will be adjusted higher for 2014.

Who is eligible for the premium tax credit and cost sharing subsidy?

Citizens and legal residents in families with incomes between 100% and 400% of poverty who purchase coverage through a health insurance exchange are eligible for a premium tax credit cost sharing subsidy to reduce the cost of coverage. individuals eligible for public coverage are not eligible for premium assistance in Exchanges. In states without expanded Medicaid coverage, individuals with incomes less than 100% of poverty will not be eligible for Exchange subsidies, while those with incomes at or above poverty will be.

Would an individual be eligible for premium tax credits and cost-sharing subsidies in the Exchange if he or she is offered “minimum essential coverage” by his or her employer in that it is both affordable and provides minimum value, but declines it and obtains coverage in the Exchange?

No. As a general rule, if an eligible employer-sponsored plan constitutes “minimum essential coverage” in that it is both affordable and provides minimum value merely being eligible for the plan will make an individual ineligible for the tax credit. In Treasury Regulation Section 1.36B-2(c)(3)(iii)(A), the IRS indicates that an eligible employee who declines enrollment in such a plan remains ineligible for the tax credit for each month in the coverage period related to the enrollment period (e.g., for the full plan year in the case of an annual enrollment period).

Would an individual be eligible for premium tax credits and cost sharing subsidies in the Exchange if he or she is enrolled coverage offered by his or employer that is either unaffordable and does not provides minimum value?

If an employee actually enrolls in an eligible employer-sponsored plan, the tax credit is not available-even if the plan does not meet the affordability and minimum value conditions, as provided in Code Section 36B(c)(2)(C)(iii). Employees who are automatically enrolled in an eligible employer-sponsored plan have a grace period to unwind the enrollment to maintain their eligibility for the tax credit, as provided in Treasury Regulation Section 1.36B-2(c)(3)(vii)(B). An employee is not considered eligible for minimum essential coverage (i.e., may qualify for the tax credit) during any required waiting period before coverage becomes effective under an eligible employer-sponsored plan. The IRS is expected to provide a safe harbor under which an employer would not have to pay the shared responsibility tax penalty under Code § 4980H for failing to offer coverage for at least the first three months after an employee’s hire date, as provided in Department of Labor Technical Release 2012-01, Q/A-3.

Individuals who meet these thresholds for unaffordable employer-sponsored insurance are eligible to enroll in a health insurance exchange and may receive tax credits to reduce the cost of coverage purchased through the exchange.

What are the amounts of the premium tax credit and cost- sharing subsidies to be provided?

Under Code Section 36B(b), the amount of the tax credit that a person can receive is based on the premium for the second lowest cost silver plan in the Exchange . A silver plan is a plan that provides the essential benefits and has an actuarial value of 70%. (A 70% actuarial value means that on average the plan pays 70% of the cost of covered benefits for a standard population of enrollees.)

Under Code Section 36B(b)(3), the amount of the tax credit varies with income such that the premium that the premium a person would have to pay for the second lowest cost silver plan would not exceed a specified percentage of their income (adjusted for family size), as follows:

Household Income (as percentage of Federal Poverty Line (FPL)
Premium as a Percentof Household Income

Up to133%
2% of income

133-150%
3-4% of income

150-200%
4-6.3% of income

200-250%
6.3-8.05% of income

250-300%
8.05-9.5% of income

300-400%
9.5% of income

In addition, Section 1402(b) of PPACA limits the total amount that people must pay out-of-pocket for cost sharing for essential benefits. Generally, the limits are based on the maximum out-of-pocket limits for Health Savings Account-qualified health plans ($6,250 for single coverage and $12,500 for family coverage in 2013), which will be indexed to the change in the Consumer Price Index until 2014 when the provision takes effect.

After 2014, the limits will be indexed to the change in the cost of health Coverage. Individuals with incomes at or below 400% of federal poverty line have their out-of-pocket liability capped at lower levels, as follows:

Household Income (as percentage of Federal Poverty Line (FPL)
Reductionin

Out-of-PocketLiability

100-200%
Two-thirds of the maximum

200-300%
One-half of the maximum

300-400%
One-third of the maximum

The limits on out-of-pocket maximum amounts means that a person with income of 150% of poverty purchasing coverage in the exchange would have the limit on their out-of-pocket spending reduced to at least two-thirds of the generally applicable maximum value (for example, if the provision were in effect in 2013, the out-of-pocket maximum for single coverage for such a person would be about $2,083 for single coverage and $4,166 for family coverage).

In addition, Section 1402(c) of PPACA provides that federal payments will be made to health insurers to increase the actuarial value of the plan for individuals with household incomes under 250% of the federal poverty line. For example, for individuals with household incomes between 100% and 150% of federal poverty line, the actuarial value of the plan will be increased to 94%. That means that in addition to keeping within the lower out of pocket maximums established above, insurers must make other changes to increase the actuarial value of the coverage. Most likely this will mean reducing plan deductibles, coinsurance or copayments in order to meet the higher actuarial value requirements.

For individuals with household incomes over 250% of federal poverty line, the actuarial value of their plan may not exceed 70%, which is the basic value of the silver plan even for those who receive no financial assistance. This means that, for some individuals, some cost sharing amounts could increase. That would happen if their out of pocket maximum was decreased to keep within the required lower maximum, because the deductibles, copayments or coinsurance that would otherwise apply would have to be increased to keep the actuarial value at 70%.

The last cost sharing subsidy is summarized below:

Household Income (as percentage of Federal Poverty Line (FPL)
Net Value of the Subsidy (% of Actuarial Value)

Out-of-PocketLiability

100-150%
94%

150-200%
87%

200-250%
73%

250-400%
70%

Who determines an individual’s eligibility for the premium tax credit and the cost-sharing subsidies?

Under 45 CFR Section 155.300, HHS is requiring the Exchanges to establish a system of coordinated eligibility and enrollment so that an individual can simultaneously apply for enrollment in a Qualified Health Plan (“QHP”), as well as Insurance Affordability Programs (“IAPs”), including the premium tax credit and cost-sharing reductions. Under Treasury Proposed Regulation Section 301.6103(l)(21). The IRS is permitted to disclose income and other specified information about an individual taxpayer to HHS for purposes of making eligibility determinations for advance payments of the premium tax credit or the cost-sharing reductions.

When an individual purchases a Qualified Health Plan how are any credits and subsidies applied?

Under the Actuarial Value and Cost-Sharing Reductions Bulletin (released by HHS), when an individual receives covered essential health benefits, the provider would collect from the individual only the amount of cost-sharing specified in the silver plan variation in which the individual is enrolled. The federal government would pay in advance to the insurer amounts estimated to cover the cost-sharing reductions associated with the specific silver plan variation. HHS intends to propose that this advance cost-sharing reduction payment to the insurer would occur monthly, and that after the end of the calendar year, the federal government would reconcile the advance payments to actual cost-sharing reduction amounts.

The Exchange must report to the IRS and to each taxpayer required information for the Qualified Health Plan in which the employee (or a member of the employee’s family) is enrolled through the Exchange, as provided in Treasury Regulation Section 1.36B-4. In turn, individuals who receive advance payments of the premium tax credit must file an income tax return for that taxable year, as provided in Treasury Regulation Section 1.36B-5.

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