Another recent proposal of the Trump Administration would allow employers to fund tax-exempted Health Reimbursement Arrangements to help pay for an employee’s individual health insurance premiums. In addition, the proposal would also allow employers that offer group health coverage to fund an HRA of up to $1,800 to reimburse employees for “qualified” medical expenses. Easing restrictions in this manner is seen by many as a big boost for small businesses that are unable to provide employer-sponsored healthcare. Comments are being accepted through December 28, 2018 and if approved, the new rules would apply for plan years beginning on or after January 1, 2020.
Newly released IRS Notice 2015-87 clarifies certain aspects of the Affordable Care Act’s pay or play provisions, including the application of the adjusted 9.5% threshold to the affordability safe harbors and adjusted penalty amounts for calendar years 2015 and 2016.
Adjusted Affordability Threshold
Under previously released guidance, for plan years beginning in 2015 employer insurance is considered affordable for purposes of qualifying for the premium tax credit if the portion of the annual premium an employee must pay for self-only coverage is 9.56% (up from 9.5%) or less of his or her household income. For plan years beginning in 2016, this percentage is increased to 9.66%. However, references to 9.5% in the pay or play regulations regarding penalties for failing to offer health coverage and use of the affordability safe harbors were not previously updated to reflect the increases.
Accordingly, the new guidance provides that the references to 9.5% are adjusted to 9.56% for plan years beginning in 2015, and 9.66% for plan years beginning in 2016. The Treasury and IRS intend to amend the applicable regulations under pay or play and under section 6056 (regarding information reporting) to reflect that the applicable percentage in the affordability safe harbors should be adjusted consistent with the premium tax credit, so that employers may rely upon the 9.56% for plan years beginning in 2015 and 9.66% for plan years beginning in 2016.
Adjusted Penalty Amounts
While the pay or play provisions provide that penalty amounts are adjusted for inflation, the IRS did not release the specific dollar amounts used to calculate the penalties that apply for 2015 or 2016. Instead, the 2015 and 2016 amounts could be derived from statutory formulas using the premium adjustment percentages previously announced by the U.S. Department of Health and Human Services.
However, the new guidance confirms that for calendar year 2015, the adjusted $2,000 dollar amount (for employers not offering coverage) is $2,080 and the adjusted $3,000 dollar amount (for employers offering coverage that is not affordable or does not provide minimum value) is $3,120. For calendar year 2016, the adjusted $2,000 dollar amount is $2,160, and the adjusted $3,000 dollar amount is $3,240. The Treasury and IRS anticipate that adjustments for future years will be posted on the IRS.gov website.
Effect of Certain Employer HRA Contributions, Flex Credits, or Opt-Out Payments on Affordability
The guidance also addresses how certain HRA contributions, flex credits, or opt-out payments are taken into account for purposes of determining whether an employer has made an offer of affordable minimum value coverage under an eligible employer-sponsored plan. In some cases, transition relief is provided for employers that treat these amounts differently for purposes of reporting their employees’ required contributions under section 6056.
For additional details, please review IRS Notice 2015-87 in its entirety and consult a knowledgeable benefits attorney or tax specialist for specific guidance.
According to consultants Towers Watson, enrollment has nearly doubled in the last two years alone for account-based health plans when paired with a tax-preferred HSA or HRA account having individual deductibles of $1,000 or more. Data from 2012 indicates that nearly 30 percent of Americans have one of these options in place and more than two-thirds of employers have implemented these plans. Surveys even show that more than 10 percent of employers have made account-based plans their only offering, which is an increase from just over 7 percent in 2010. Continue reading
We Just Received a 20% Health Insurance Rate Increase.
Health insurance has been my life for the past 35 years and in insurance, like life, we have choices. For example, I may be fat, but you might be ugly, and I can always choose to diet. Therefore, when my health insurance agent presented an “ugly” group health insurance renewal with more than a 20% increase, I knew that I would have choices. First, he is a very good agent and he understands that I take the responsibility of providing insurance to my staff seriously. Secondly, I have made it clear to him that I expect that his renewal package will not only include the incumbent’s renewal package, but that he will also provide alternative carrier quotes. Finally, he knows that in order to continue to earn the privilege of handling my small account, he will have to earn his commissions, which are substantial and equal to 5% of the total premium. Yes, it is a privilege and if your agent does not act like it, find a new one! Continue reading