Healthcare Reform
Federal District Courts Enjoin Final Rules on Contraceptive Mandate Exemptions
Two federal district courts recently issued injunctions on the final rules providing exemptions from the ACA's contraceptive mandate. As background, the ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost-sharing. Under the ACA, certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process.
However, in October 2017, HHS published two interim final rules that significantly expanded the religious exemption (as outlined in our Oct. 19, 2017, article here ) by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services. The government went on to issue final versions of the rules (as outlined in our Nov. 15, 2018, article here ).
Following the publication of the interim final rules, a number of states filed lawsuits, challenging the new exemptions. They argued that the DOL had failed to follow the Administrative Procedures Act (APA) and that the new exemptions would harm their state residents and run afoul of the ACA. The federal district courts in Pennsylvania and California initially issued injunctions blocking enforcement of the interim final rules.
After government appeals, the courts again chose to enjoin the enforcement of the final rules. Specifically, on Jan. 13, 2019, the U.S. District Court for the Northern District of California enjoined the implementation of the final rules in the states of California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Minnesota, New York, North Carolina, Rhode Island, Vermont, Virginia, and Washington and the District of Columbia. In its decision, the court agreed that the states could succeed on their claims that the final rules violated the ACA and APA.
On Jan. 14, 2019, the U.S. District Court for the Eastern District of Pennsylvania issued an injunction that blocks implementation of the final rules nationwide. The Pennsylvania court also found that the states that filed (Pennsylvania and New Jersey) are likely to prevail on their claim that the final rules violate the APA.
We expect the government to continue to appeal these decisions, and it is also likely that the filing states will do the same should an appeals court rule in the government's favor. Ultimately this means that the future of these exemptions remains uncertain. For employers, neither the court decisions nor the final rules settle the issue. As such, employers wishing to claim any expanded religious exemptions to the ACA's contraceptive mandate should work with outside counsel to better understand the risks inherent in going forward with doing so.
2019 Federal Poverty Levels Announced
Earlier this month, HHS announced the 2019 federal poverty levels (FPL). The guidelines for the 48 contiguous states is $12,490 for a single person household and $25,750 for a four person household. The guidelines are different for Alaska ($15,600 and $32,190, respectively) and Hawaii ($14,380 and $29,620, respectively).
The FPL plays an important role under the ACA. Individuals who purchase coverage through the exchange may qualify for a premium tax credit if their household earnings are within 100 percent to 400 percent of the FPL. Employers wishing to avoid a penalty under the employer mandate may use the FPL affordability safe harbor, which means the cost of an employee's required contribution for employer sponsored coverage does not exceed 9.86 percent (for 2019), up from 9.56 percent (for 2018), of the single person FPL. This means that the FPL affordability safe harbor threshold in the 48 contiguous states for 2019 would be $102.62 per month, which is $12,490 divided by twelve and times 9.86 percent. As a reminder, the FPL safe harbor is only one of the affordability safe harbors; the other two are the rate of pay and Form W-2 safe harbors.
Employers should consider this adjustment to the FPL when determining whether their coverage is affordable, especially if they're using the FPL affordability safe harbor. The 2019 FPL is applicable beginning Jan. 11, 2019.
Federal Updates
DOL Announces Annual Inflation Adjustments to ERISA Penalties
On Jan. 15, 2019, the DOL published a pre-publication version of the final rule adjusting for inflation of civil monetary penalties under ERISA. (They were unable to publish an official version due to the lapse in funding for certain government agencies.) The pre-published version of the final rule is for informational purposes only until the official rule is published in the Federal Register. Thus, until the official version is published in the Federal Register, the effective date of the 2019 final rule is delayed.
As background, federal law requires agencies to adjust their civil monetary penalties for inflation on an annual basis. The DOL last adjusted certain penalties under ERISA in January 2018 (as discussed in the Jan. 11, 2018, article here ).
Among other changes, the EBSA is increasing the following penalties that may be levied against sponsors of ERISA-covered plans:
- The penalty for a failure to file Form 5500 will increase from a maximum of $2,140 per day to a maximum of $2,194 per day.
- The penalty for a failure to furnish information requested by the DOL will increase from a maximum of $152 per day to a maximum of $156 per day.
- The penalty for a failure to provide CHIP notices will increase from a maximum of $114 per day to a maximum of $117 per day.
- The penalty for a failure to comply with GINA will increase from $114 per day to $117 per day.
- The penalty for a failure to furnish SBCs will increase from a maximum of $1,128 per failure to a maximum of $1,156 per failure.
- The penalty for a failure to file Form M-1 (for MEWAs) will increase from $1,558 to $1,597.
- The regulations also increased penalties resulting from other reporting and disclosure failures.
These new amounts will go into effect following official publication in the Federal Register. Until then, employers should familiarize themselves with these unofficial penalty amounts for 2019.
For more information on the new penalties, including the complete listing of changed penalties, please review the pre-publication version of the final rule below.
IRS Publishes Updated Publication 502
The IRS recently released the updated version of Publication 502 (Medical and Dental Expenses). The publication has been updated for use in preparing taxpayers' 2018 federal income tax returns.
Publication 502 describes which medical expenses are deductible. For employers, Publication 502 provides valuable guidance on which expenses might qualify as IRC Section 213(d) medical expenses, which is helpful in identifying expenses that may be reimbursed or paid by a health FSA, HRA (or other employer-sponsored group health plan) or an HSA. However, employers should understand that Publication 502 does not include all of the rules for reimbursing expenses under those plans.
The recently released Publication 502 is substantially similar to prior versions. Dollar amounts have been updated, where appropriate, to account for inflation (e.g. the standard mileage rate for use of an automobile to obtain medical care).
Retirement Update
IRS Issues Revised Procedures for Determination Letters and Letter Rulings
On Jan. 2, 2019, the IRS issued Revenue Procedures 2019-01 and 2019-04. Rev. Proc. 2019-01 contains revised procedures for letter rulings and information letters issued by the various IRS departments, including the Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes). The guidance also identifies the different departments from which taxpayers can request advice. Other than updating some fees and making certain technical changes, Rev. Proc. 2019-01 is not that different from the guidance found in the preceding version (Rev. 2018-01).
Rev. Proc 2019-04 contains revised procedures for determination letters and letter rulings issued by the Commissioner, Tax Exempt Agreements Office (Employee Plans). This guidance reflects the 2017 changes made to the IRS determination letter process (discussed in the July 12, 2017, article found here ). This guidance also updates the fees required to submit pre-approved plans, participate in the Voluntary Correction Program (VCP) or request determinations for plan terminations. Other changes have been made that will affect how plans must engage with the IRS if they are requesting relief from retroactive disqualification.
Employers that hope to obtain determination letters or letter rulings from the IRS should consult these revenue procedures so that they understand how the new procedures differ from the 2018 procedures.
IRS Releases Final 2018 Form 5500-EZ
The IRS recently released the final 2018 IRS Form 5500-EZ. Though not much has changed, the 2018 form has an updated name to match the purpose of the form to include both a one-participant retirement plan and a foreign plan. The form name is now the "Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan." There was also an update to the plan characteristics codes for Line 8 (Part IV) to reflect the IRS changes for the pre-approved plans.
As background, IRS Form 5500-EZ is an annual filing requirement for retirement plans that are either a one-participant plan or a foreign plan. Form 5500-EZ is used by one-participant plans that are not subject to the requirements of IRC Section 104(a) and that are not eligible or choose not to file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, electronically to satisfy certain annual reporting and filing obligations imposed by the Code.
Applicable plan sponsors must file a Form 5500-EZ on or before the last day of the seventh month after their plan year ends. As a result, calendar-year plans generally must file by July 31 of this year (reporting for the 2018 plan year). Plans may request a two-and-a-half month filing extension by submitting a Form 5558, "Application for Extension of Time to File Certain Employee Plan Returns," by the plan's original due date.
Form 5500-EZ >>
Instructions for Form 5500-EZ >>
Form 5558 >>
IRS Releases 2018 Publication 590-A, Contributions to IRAs
The IRS recently released the 2019 Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), to be used in preparing 2018 returns. The instructions summarize the changes for 2018 including:
- An extended rollover period for qualified plan loan offsets
- No re-characterizations of conversions of a traditional IRA to a Roth IRA
- The modified adjusted gross income limits (AGI) for both traditional IRA and Roth contributions
The publication also details the modified AGI limits for 2019 contributions, which vary by marital status and type of IRA. Lastly, the publication reminds individuals that there is still qualified disaster tax relief for IRAs related to Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires. There is also relief for economic losses suffered as a result of disasters declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016.
Employers that offer Roth IRAs should familiarize themselves with this guidance.
Announcements
Form W-2 Cost of Coverage Reporting
Large employers must report the cost of group health coverage provided to employees on the Form W-2. The requirement applies to employers that filed 250 or more Forms W-2 in 2017. Employer aggregation rules do not apply for this purpose. In other words, the number of Forms W-2 is calculated separately without consideration of controlled groups. Indian tribes, self-funded church plans and employers contributing to a multiemployer plan are exempt from the Form W-2 reporting requirement.
FAQ
If an employee failed to establish an HSA in 2018, but was otherwise HSA-eligible in 2018, can the individual (or the employer on their behalf) make 2018 HSA contributions in 2019?
The short answer is yes. Generally speaking, contributions can be made to an HSA up until the due date of the individual's (employee's) federal income tax return for that particular year. That means for 2018 contributions, individuals can contribute to their HSA until April 15, 2019. Since employers (and other third parties) can contribute to an individual's HSA on their behalf, that rule includes both employer and employee/individual HSA contributions. So, either the individual or the employer on their behalf can make 2018 contributions up until April 15, 2019. The individual (or the employer on their behalf) should notify the HSA trustee/bank that the contributions relate to 2018. The general idea, though, is that the contributions should be allocated to 2018 (and therefore counted towards the individual's 2018 HSA contribution limit)--the contributions would not impact the individual's 2019 HSA contribution limit.
Digging a bit deeper into employer obligations, if the employer's HSA contributions are running through the cafeteria plan (as are most employer HSA contribution designs), then the employer's contribution design must not favor highly compensated employees per the Section 125 nondiscrimination rules. Making a 2018 contribution in 2019 for an employee who did not timely establish their HSA would not by itself favor highly compensated employees -- it would just be giving the employee the contribution they were otherwise entitled to in 2018. If the employer's HSA contributions are not running through the cafeteria plan, then the HSA comparability rules apply. Those rules also allow 2019 funding for contributions (plus interest) otherwise due in 2018, but the employer should have sent a notice to the employee at the end of 2018 notifying the employee of their obligation to open the HSA (by the last day of February 2019) before employer HSA contributions can be made. The IRS has a model notice for this notice requirement.
Importantly, regardless of whether the employer's HSA contributions are run through a cafeteria plan or not, employees may not reimburse themselves from the HSA for medical expenses incurred in 2018 since there was no HSA account set up. This relates back to the general rule on HSA reimbursements (also called "distributions") -- individuals may be reimbursed only for expenses that are incurred after the HSA is established. An HSA is established per state law, so the exact answer might vary. But generally speaking, an HSA is considered established when the employee (or employer on their behalf) completes the proper paperwork or application to create the HSA account and the HSA is funded (once money actually goes into the HSA). So, an employee who failed to take appropriate steps to establish the HSA in 2018 could not be reimbursed through an HSA for medical expenses incurred in 2018. Once the HSA is established and funded in 2019, though, the employee could use HSA reimbursements for any expenses incurred after the 2019 HSA establishment date.
State Updates
Massachusetts
Mandated Services for Child-Adolescent Mental Health Disorders
On Dec. 14, 2018, the Div. of Insurance and Dept. of Mental Health jointly issued Bulletin 2018-07 to clarify certain mandated benefits for child-adolescent services. Specifically, the bulletin describes the benefits required to treat and diagnose mental health disorders of children and adolescents and highlights the importance of providing such benefits on a non-discriminatory basis.
To clarify the coverage requirements, the bulletin highlights services for intermediate care and outpatient services, such as in-home behavioral therapy, family support and training, mobile crisis intervention and intensive care coordination. It also provides carriers two separate timelines for ensuring that any necessary changes to the evidence of coverage and other documents are timely implemented and accurately represent the benefits for child-adolescent services in a manner consistent with the bulletin. One timeline was provided for family support and training and therapeutic mentoring and another timeline encompasses all other applicable services.
The changes mandated by this bulletin must be incorporated into insured health plan certificates of coverage, utilization criteria or other rating/claims systems for plans issued or renewed on and after July 1, 2019. To assist carriers in the timely implementation of the rules, carriers are expected to file materials with the Div. of Insurance that confirm they are following the bulletin's timelines.
Employers in MA should make note of the carrier requirements detailed in this bulletin. Though the bulletin is directed at carriers, it might also impact the employer regarding the insurance mandate, coverage requirements, etc.
New Jersey
Updated NJ Health Insurance Mandate Information
Beginning Jan. 1, 2019, NJ requires its residents to maintain health insurance throughout 2019 and beyond (unless an exemption applies). NJ recently updated its website to detail the requirement of employers to verify the information provided by individual taxpayers.
As background, Gov. Murphy signed the Health Insurance Market Preservation Act on May 30, 2018, requiring every NJ resident to have health coverage or pay a penalty (shared responsibility payment). This state mandate mirrors the former federal individual mandate imposed by the ACA and intends to require NJ residents to purchase health care so that the NJ health insurance market will remain stable and provide more affordable rates of coverage.
Beginning in 2020, the NJ legislature will require employers with at least 50 employees to provide Form 1094-C, "Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns," and Form 1095-C, "Employer-Provided Health Insurance Offer and Coverage," that they currently provide to taxpayers and the IRS to the NJ Div. of Taxation. Copies of the forms must be submitted on or before Feb. 15 following the close of each calendar year. This NJ reporting requirement mirrors the current ACA reporting requirements, but if the federal government discontinues the use of Forms 1094-C or Forms 1095-B and 1095-C at some point in the future, then NJ will deploy similar forms for the ongoing filing requirement.
Similar to the federal requirement, NJ does not require dependent information, including adult children who are covered by their parents' plans. However, it is recommended that employers advise employees to provide a copy of any Form 1095-B or 1095-C containing coverage information to their children residing in NJ.
NJ employers should review the NJ website for the reporting requirements and make note of the Feb. 15 deadline to provide the Forms 1094-C and 1095-C starting in 2020. Please also note that this reporting requirement also applies to out-of-state employers that withhold and remit NJ gross income tax for NJ residents.
For more information, employers can visit the NJ Health Insurance Mandate website .
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.