IRS Releases Letter 227 Guidance
On May 25, 2018, the IRS released helpful guidance on the various types of 227 letters, which are acknowledgement letters sent to close an employer shared responsibility payment (ESRP) inquiry (see the Nov. 15, 2017 , and March 8, 2018 , editions of Compliance Corner for more information on that process) or provide the next steps to the applicable large employer (ALE) regarding the proposed ESRP. To clarify, at this stage the IRS uses the information the ALE provided in response to the initial Letter 226-J to review their ESRP. The Letter 227 version that the ALE receives will explain the outcome of that review and the next steps to take to fully resolve the ESRP.
There are five different 227 letters:
- Letter 227-J acknowledges receipt of the signed agreement Form 14764 (ALE's response to a proposed ESRP) and that the ESRP will be assessed. After issuance of this letter, the case will be closed. The IRS says no response is required.
- Letter 227-K acknowledges receipt of the information provided and shows the ESRP has been reduced to zero. After issuance of this letter, the case will be closed. The IRS says no response is required.
- Letter 227-L acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 (list of employees receiving premium tax credit (PTC)) and revised calculation table. The ALE can agree or request a meeting with the manager and/or request an appeal.
- Letter 227-M acknowledges receipt of information provided and shows that the ESRP didn't change. The letter provides an updated Form 14765 (PTC listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or request an appeal.
- Letter 227-N acknowledges the decision reached in appeals and shows the ESRP based on the appeals review. After issuance of this letter, the case will be closed. The IRS says no response is required.
The ALE should carefully read the letter for the next steps available and information on how the case will be resolved. If appropriate, the ALE should complete the response Form 14764, indicating their agreement or disagreement. If the ALE disagrees with the proposed ESRP, they must provide an explanation of why they disagree and/or indicate changes needed on Form 14765. The ALE should return all documents as instructed in the letter by the response date. If they agree with the proposed ESRP, they should follow the instructions to sign the response form and return it with full payment in the envelope provided by the IRS. In a situation similar to other assessed taxes, the ESRP will be subject to an IRS lien and the IRS may levy enforcement actions.
Considering what we've seen in regards to these ESRP assessments, there are some compliance responsibilities ALEs should keep in mind for future filings. ALEs should make sure that offers of coverage are documented every year during open enrollment and that signed waiver forms are collected from any FTEs who decline the group health coverage. Additionally, employers should keep important records, such as payroll records, variable-hour tracking calculations, signed enrollment forms and copies of enrollment materials showing employee costs and coverage options.
Finally, ALEs should carefully consider and select a vendor, if appropriate, to populate and file Forms 1094-C and 1095-C. They also shouldn't assume the vendor will correctly populate the forms without any employer oversight. Generally, this means the ALE should ensure all IRS instructions for completing the forms are properly followed, that the indicator codes used in Lines 14 and 16 are correct before filing any 1095-C forms with the IRS and that filing and employee distribution are completed by the IRS deadlines each year. While a vendor may assist an employer with its reporting requirements, the responsibility and liability for such compliance remain with the employer.
IRS Publishes the ACA's Affordability Percentage and Individual's Premium Tax Credit Table for 2019
On May 22, 2018, the IRS published Rev. Proc. 2018-34, which provides the 2019 premium tax credit (PTC) table and the employer contribution percentage requirements applicable for plan years beginning after Dec. 31, 2018.
As background, the ACA's employer-shared responsibility rules (also known as the "employer mandate") require an employer to provide affordable, minimum value coverage to its full-time employees. The IRS's required contribution percentage is used to determine whether an employer-sponsored health coverage offers an individual "affordable" coverage, and the affordability percentage is adjusted for inflation each year. In addition, the ACA also provides a refundable PTC, based on household income, to help individuals and families afford health insurance through affordable insurance exchanges. The IRS provides the PTC percentage table for individuals to calculate their PTC.
For 2019, the ACA's affordability percentage will increase to 9.86 percent (up from 9.56 percent in 2018). For the employer mandate and affordability, this means that an employee's required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.86 percent of the federal poverty line or of an employee's W2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon).
The 2019 PTC table used to determine an individual's eligibility for PTCs is provided below:
|Household Income Percentage of Federal Poverty Line||Initial Percentage||Final Percentage|
|Less than 133%||2.08%||2.08%|
|At least 133%, but less than 150%||3.11%||4.15%|
|At least 150%, but less than 200%||4.15%||6.54%|
|At least 200%, but less than 250%||6.54%||8.36%|
|At least 250%, but less than 300%||8.36%||9.86%|
|At least 300%, but not more than 400%||9.86%||9.86%|
The revenue procedure is effective for plan years beginning on and after Dec. 31, 2018.
Employers should be mindful of the upcoming 2019 affordability percentages and make sure that the premium offerings for 2019 continue to be affordable for full-time employees, so as to avoid any employer-shared responsibility penalties. The penalties related with employer shared responsibility remain the law (despite the fact that the ACA's individual mandate will be repealed beginning in 2019).
DOL's Report to Congress on Self-Insured Group Health Plans
In March 2018, the DOL issued its annual report to Congress related to self-insured group health plans. The report is based on data filed on the Forms 5500 (through 2015). The first such report was provided to Congress in March 2011.
Approximately 54,500 group health plans filed a Form 5500 in 2015, which is up 6 percent over 2014. Of those, 22,900 were self-insured, covering a total of 34 million participants with $84 billion in plan assets. Another 3,900 were mixed insured (including both fully insured and self-insured coverages) covering a total of 26 million participants with $135 billion in plan assets.
Interestingly, 1,100 of the self-insured plans were multiemployer plans (and 500 of the mixed insurance plans). The majority of self-insured and mixed insured plans are funded through general assets versus a trust.
Currently, small self-insured unfunded plans are exempt from filing a Form 5500 (along with small fully insured plans, church plans and governmental plans). The DOL estimates that in 2015 there were 2.2 million small self-insured plans. The report discusses the DOL's 2016 proposal to require ERISA plans of all sizes to file a Form 5500. Further, self-insured plans would be required to submit information regarding stop-loss coverage premiums and attachment points. The DOL states that this would "significantly enhance the department's ability to describe the full universe of self-insured plans and how they compare to fully-insured health plans."
Must we continue to offer health coverage to employees who take leave to serve in the U.S. armed forces?
The Uniformed Services Employment and Reemployment Rights Act (USERRA) provides certain protections for employees who must be absent from work due to uniformed service. These protections include re-employment rights, protection from discrimination and the right to the continuation of group health coverage.
Specifically, when an employee is absent due to uniformed service, the employer must satisfy USERAA obligations for continuation of group health coverage with respect to that employee. Namely, an employee who is absent from work due to uniformed service is entitled to continue his/her group health coverage for a period of 24 months.
If the leave of absence is to be 30 days or less, the employer should pay its normal share of premiums. If the leave of absence is expected to be 31 days or more, the employer isn't required to pay its normal share of premiums (not even for the first 30 days). However, the applicable premium cannot be more than 102 percent of the normal cost of coverage.
If the employer is also subject to COBRA, then a leave of absence to serve in the armed forces would likely also be considered a COBRA triggering event. So, when an employee leaves for deployment, the employer should offer the employee continued coverage under USERRA and COBRA. To that end, the COBRA election notice can be modified to include USERRA language.
Also keep in mind that if the employee returns and is rehired after his or her service, USERRA requires that the employer allow the employee to re-enter the group health plan. This is true whether the employee continued coverage under COBRA or USERRA or not.
Coverage for Telehealth Services
On April 26, 2018, Gov. Matt Bevin signed SB 112 into law, requiring health insurers in Kentucky to pay for covered services delivered by telehealth or telemedicine technology as long as the services and providers are otherwise covered.
"Telehealth" means the delivery of health-care services by health-care providers licensed in Kentucky to plan participants through face-to-face encounters using real-time interactive audio and video technologies or store-and-forward services provided via asynchronous technologies as the standard practice of care where images are sent to specialists for evaluation. Telehealth doesn't include email, text messaging, fax transmissions or audio-only telephone calls.
These services will be subject to annual deductibles and coinsurance, and other terms and conditions of coverage, in the same way already established for the same services when not provided via telemedicine or telehealth.
This law is effective for plans issued or renewed on or after July 1, 2019.
Local Paid Leave Laws Still in Effect
Building upon our previous Compliance Corner articles, we wanted to remind employers that New Jersey cities, towns and counties may continue to enforce paid sick leave requirements upon private employers until Oct. 29, 2018, when the New Jersey Paid Sick Leave law goes into effect. The following counties have their own paid leave laws:
- East Orange
- Jersey City
- New Brunswick
Employers should be mindful of the city requirements and continue to comply until the state's paid sick and safe leave law becomes effective Oct. 29, 2018. Once in effect, the New Jersey Earned Sick Leave law preempts any such ordinance, resolution, law, rule or regulation adopted by a city, town or county.
New Paid Sick and Safe Rules
On May 11, 2018, the Rhode Island Dept. of Labor and Training issued final regulations concerning the Healthy and Safe Families and Workplaces Act (HSFWA), the state's mandatory paid sick and safe time law. The HSFWA requires employers with 18 or more employees in Rhode Island to provide paid sick and safe time. Employers with fewer than 18 employees must provide unpaid leave.
As background, the HSFWA goes into effect July 1, 2018, and requires employers to allow employees to accrue and use paid sick and safe leave time for themselves as well as to assist family members. The final regulations are nearly identical to the proposed regulations that were discussed in the April 19, 2018 edition of Compliance Corner. The original enactment of S 290 was discussed in the November 1st, 2017 edition.
Employers should review the HSFWA and consult with outside counsel to confirm that their employee handbook and corresponding procedures in place comply with the new law.
Drug Importation Law
On May 16, 2018, Gov. Scott signed S 175 to facilitate the state's importation of prescription drugs from Canada. The new law directs the Vermont Agency of Human Services (VAHS) to design a wholesale prescription drug importation program that complies with existing federal drug importation laws. To take effect, the VAHS must submit the program to the HHS for certification by July 2019.
As background, the FDA provides that a state program of importation of drugs from foreign countries is effective only if HHS certifies to Congress that the program will pose no additional risk to public health and safety and will result in a significant reduction in the cost of covered products to the American consumer. The HHS has yet to certify an importation program.
It's unclear whether this law will bring down drug costs, but the idea is that importation will increase competition to bring down costs. There are also concerns about drug safety when not taken through FDA channels. Vermont is the first such state to pass a drug importation law. This law builds upon a previously enacted state law that requires drug manufacturers to submit reports to the state justifying their price increases for certain drugs.
The new Vermont law contains no new employer obligations. But employers should be interested in the law as it relates to drug prices, which could impact their plan costs. We'll continue to monitor the progress of this Vermont law and other states' efforts that try to counter rising drug prices. Employers should work with their carriers or TPAs to address specific questions related to prescription coverage and cost.
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.
Industry news topics covered in the Compliance Corner are chosen based on general interest to most employers and may include articles about services not available through PPI.
Must we continue to offer health coverage to employees who take leave to serve in the U.S. armed forces?