IRS Releases Draft Instructions for 2019 ACA Reporting Forms
On November 13, 2019, the IRS published a draft version of the instructions for 2019 reporting forms 1094-B and 1095-B, which are used by insurers and small self-insured employers to report that they offered MEC. The IRS also published a draft version of the instructions for 2019 reporting Forms 1094-C and 1095-C, which are used by applicable large employers to comply with Section 6056 reporting under the ACA. These drafts are for informational purposes only but employers should familiarize themselves with the forms in preparation for 2019 plan year filings.
This year’s forms feature a few new changes. They show that while the penalty for the failure to file a correct information return remains $270 for each incorrect return, the penalty cap is raised to a total of $3.339 million for a calendar year, up from a cap of $3,275,500 in 2018. In addition, the updated draft 1095-C form shows that the affordability safe harbor percentage threshold is 9.86% in 2019, up from the 9.56% threshold in 2018.
Although many anticipated that instructions pertaining to the individual mandate would be removed since the mandate was eliminated effective 2019, those instructions remain. They can be found in Section III of the drafts for both Forms 1095-B and 1095-C.
As a reminder, the forms must be filed with the IRS by February 29, 2020, if filing by paper and March 31, 2020, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by January 31, 2020. As noted above, the penalty for failure to comply is $270 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to an employee/individual would be at risk for a $540 penalty.
IRS Reminder: Health Insurance Tax Returns for 2020
On November 15, 2019, the IRS revised its webpage related to the Health Insurance Providers Fee with a reminder that the fee was suspended in 2019, but will be in effect for 2020. The Health Insurance Providers Fee is commonly referred to as the Health Insurance Tax (HIT). It applies to insured medical, dental, and vision policies. It does not apply to self-insured plans.
The fee is paid by the insurer, but may be passed on to the employer as the policyholder in the premiums charged. Employers may then pass along the fee to participating employees by considering it in their employee premium calculation. The amount of the fee varies based on the insurer’s ratio of net premiums compared to net premiums for all US health insurance policies. The amount passed along to group policyholders is generally considered to be 3% to 5% of the policy’s premium.
There is no action required from employers. It is just a reminder that the fee will be back in effect in 2020, so employers may notice a line item on their premium invoice detailing the fee if the insurer chooses to itemize. Otherwise, the insurer may simply add the fee to the premium without itemizing on the invoice.
Proposed Health Care Transparency Rule Requires New Cost-Sharing Disclosures
On November 15, 2019, the Departments of Health and Human Services (HHS), Treasury, and Labor (the "Departments") released the Transparency in Coverage proposed rule that imposes new cost-sharing disclosure requirements upon employer sponsored group health plans and health insurers. The proposal followed Executive Order 13877, issued on June 24, 2019, which instructed the Departments to determine how health plans, insurers, and providers should make information regarding out-of-pocket health care costs more accessible to consumers.
As background, the Trump administration has focused on promoting greater price transparency in order to provide individuals with necessary cost-sharing data to make informed health care decisions. Under recently issued final rules effective in 2021, hospitals will soon be required to disclose standard charges for products and services, including negotiated rates with insurers. The Transparency in Coverage proposed rule builds upon these regulatory initiatives and is applicable to non-grandfathered group health plans (including self-insured plans) and health insurance issuers. Account-based plans such as health reimbursement arrangements and flexible spending accounts would not be subject to the new requirements.
The proposed rule encompasses two approaches. First, the health plans and issuers would be required to make personalized out-of-pocket cost information for all covered health care items and services available through an online self-service tool and in paper format (upon request). This individualized disclosure is designed to provide participants with estimates of their cost-sharing liability with different providers, allowing them to better understand and compare health care costs prior to receiving care. The format could be similar to an Explanation of Benefits and would include actual negotiated rates, out-of-network allowed amounts, real-time accumulated amounts towards deductibles and out-of-pocket maximums and treatment limitations. Any prerequisites for coverage, such as prior authorization, would also need to be referenced. The rules do not require disclosure of balance billing amounts for out-of-network providers, but provide for a disclaimer to alert participants of a potential balance bill.
Second, these entities would be required to publicly disclose negotiated rates for in-network providers and historical out-of-network allowed amounts in standardized files on their website. These machine-readable files would need to be updated regularly, and are intended to encourage price comparison and innovation.
Additionally, the proposal offers medical loss ratio (MLR) credits to insurers that offer new plans that encourage participants to shop for lower-cost, higher-value providers and share in the resulting savings. According to HHS, this provision was included to ensure that issuers would not be required to pay rebates for innovative plan designs that benefit participants, but are not currently factored into the MLR calculation.
The Departments are seeking public comments regarding all aspects of the proposed rule. They are also formally requesting information on whether to require price and cost-sharing information to be included in a publicly available forum through the use of certain technology that enables software to connect and exchange information. In addition, feedback is sought regarding whether provider quality measurements should be required with the cost-sharing information.
These disclosure obligations are proposed to apply to plan years beginning one year from or following finalization of the rule. However, the MLR provision would be applicable beginning with the 2020 MLR reporting year.
Employers should be aware of the proposed rules and new requirements. They also may want to discuss the potential disclosure obligations with their insurance carriers and/or third party administrators. However, it is important to understand that no immediate changes are necessary because the proposed rule is not currently in effect and may be modified prior to finalization. Additionally, some carriers may challenge the requirement to disclose negotiated rates, which they consider to be confidential information.
DOL, IRS, and PBGC Publish Advance Copies of 2019 Form 5500
On November 18, 2019, several agencies (DOL, IRS, and PBGC) published advance copies of the 2019 Forms 5500, and several related schedules. There are no major changes to the forms or schedules, but there are some modifications that are worth noting:
- Form 5500, Line 2d: The instructions provide additional clarifications on reporting the plan sponsor’s code for multi-employer plans.
- Schedule H, Part III (relating to the Accountant’s Opinion): The instructions have been revised to align with the language in the related, generally accepted auditing standards, AU-C 700, Forming an Opinion and Reporting on Financial Statements , and AU-C 705, Modifications to the Opinion in the Independent Auditor’s Report .
- Administrative Penalties: The instructions reflect the updated increased penalty amount at $2,194 per day (as the maximum civil penalty amount assessed under ERISA, which is applicable for civil penalties assessed after January 23, 2019, for violations that occurred after November 2, 2015).
- Schedule SB Mortality Tables: Line 23 was revised to eliminate mortality table options that are not available after 2018.
- Schedule R: A new line 20 has been added to help gather information related to PBGC reporting requirements resulting from unpaid minimum required contributions (only PBGC-insured single employer plans are required to provide this additional information).
- Form 5500-SF: Related to Schedule R, a new line 11b has been added to Form 5500-SF which parallels the new Schedule R, line 20, for PBGC-insured, single-employer plans that file the Form 5500-SF instead of the Form 5500.
Importantly, the advance copies are informational only, and they cannot be used to file a 2019 Form 5500 or schedule. The agencies will eventually finalize the forms for actual use; when those forms are finalized, we will announce it in Compliance Corner . So, for now, there is nothing for employers to do other than familiarize themselves with the advance copy forms and changes.
If an employee or their dependent relocates to another city, state, or country, is that a qualifying event for the employee to change their election mid-year?
Assuming that the plan is subject to the Section 125 qualifying event rules (by virtue of employees being able to pay their premiums on a pre-tax basis), an employee or dependent simply moving would not allow the employee to make a mid-year change to their coverage. As background, Section 125 requires that employees be able to elect their coverage annually, and their elections cannot be changed mid-year without a qualifying event.
While there is a change in status qualifying event that includes a change in residence, that qualifying event is only permissible when that change in residence affects the participant’s or dependent’s eligibility for coverage. So unless the relocation makes the moving individual ineligible or newly eligible under the plan, the move would not be considered a change in status qualifying event.
On the other hand, there would likely be a qualifying event if the relocation resulted in the employee or dependent moving outside of a network that would provide service (for example if the plan were an HMO and the employee or dependent moved out of the HMO service area and therefore couldn't receive any coverage where they lived).
But if the employee or dependent is eligible under the plan before and after the move (which is often the case for PPO or HDHP plans with a national network), then change in residence is not a qualifying event. As such, the employer could not allow the employee to change their election mid-year absent some other qualifying event (like a marriage, birth, or divorce). Doing so would risk the disqualification of the entire plan (meaning that neither the employer nor employees could pay for their coverage on a pre-tax basis).
Now, there could be other qualifying events that would apply given the circumstances. For example, a cafeteria plan may permit a qualifying event for a loss of coverage under any group health coverage sponsored by a governmental or educational institution, including a foreign government group health plan. So if the relocating dependent has coverage through their government and will lose it by virtue of moving to the US, then that could make the move a qualifying event.
Keep in mind, though, that both the change in status and loss of coverage under a governmental health plan are permissible qualifying events, meaning that the plan document has to allow for them. Additionally, these events do not apply to health FSAs, so the employee could not change their health FSA election on account of either of those qualifying events.
Coverage for Standard Fertility Preservation Services
On October 12, 2019, Gov. Newsom signed SB 600 into law. The new law requires insurers to provide coverage for standard fertility preservation services when a covered treatment may cause iatrogenic infertility for a participant. Iatrogenic infertility is defined as infertility caused indirectly or directly by surgery, chemotherapy, radiation, or other medical treatment. For example, if a participant with cancer has received chemotherapy, standard fertility preservation services would be a covered basic health care service and could not be declined as an infertility expense. The law is effective January 1, 2020.
Cost-Sharing Limit for Air Ambulance Services
On October 7, 2019, Gov. Newsom signed AB 651 into law. Effective for policies issued or renewed on or after January 1, 2020, participants shall pay no more than the in-network cost sharing amount for services received from a non-network air ambulance.
Telemedicine Parity Required
On October 13, 2019, Gov. Newsom signed AB 744 into law. Effective for policies issued or renewed on or after January 1, 2021, the insurer shall pay benefits for the diagnosis, consultation, or treatment provided through telehealth on the same terms as it pays for in-person services. This includes applying the same copayments, coinsurance, deductibles, and out-of-pocket maximums.
Task Force Formed to Study Implementation of Family Medical Leave Insurance Program
On May 30, 2019, Gov. Polis signed SB19-188 (the FAMLI Family Medical Leave Insurance Program) into law. This law creates a study of the implementation of a paid family and medical leave program in Colorado, including a task force comprised of members appointed by the governor and the legislature to analyze the costs and administration of a paid leave program for all employees in Colorado and to make a recommendation for a FAMLI program in time for the 2020 Colorado Legislative session.
Since the task force’s recommendations have not yet been considered and a FAMLI program not yet implemented, employers don’t need to worry too much about this yet. However, employers should be mindful of potential requirements such as reporting requirements and premium contributions.
New Administrative Rules Clarify Paid Sick and Safe Leave Law
On October 3, 2019, the Duluth City Council updated its administrative rules relating to Ordinance No. 10571, which the council adopted on May 30, 2018, and which takes effect on January 1, 2020. The ordinance requires private employers to provide paid sick and safe leave to employees.
The new administrative rules clarify some of the language in the ordinance. The Duluth city ordinance requires private employers with at least five employees to provide employees with one hour of paid leave off for every 50 hours on the job, for up to 64 leave hours a year for employees that: 1) work in Duluth more than 50% of their working time in a 12-month period; or 2) are based in Duluth, spend a substantial part of time working in Duluth, and don't spend more than 50% of work time in a 12-month period in any other particular place.
The rules clarify that a “substantial part of time” means more than 50% of work time. The rules also clarify that commuting to work, as well as time worked at home, counts as hours worked in Duluth.
In addition to these clarifications, the rules create a six-factor test to determine whether a worker is an employee (who is eligible) or an intern (who is not eligible) and defines seasonal employee. They also expand on the ordinance’s treatment of substantially equivalent leave policies maintained by employers, including non-traditional paid leave policies such as unlimited leave.
The rules go on to formalize existing FAQ postings by the city concerning the accrual of sick and safe time while a worker works overtime, or takes vacation time or sick and safe time. The rules also provide more detail on how employers provide notice of the ordinance, as well as procedures a worker should follow when requesting sick and safe leave or when they notify the employer that they are taking the leave, including appropriate supporting documentation.
In addition, the rules state violations may incur administrative penalties or the suspension or revocation of city-issued licenses. Finally, the rules state that the leave can run concurrently with other state or federal leave law, such as FMLA.
Since the effective date for the ordinance is fast-approaching, employers should make sure that their leave policies reflect this new guidance.
New Leave Law for Victims of Domestic and Sexual Violence
On August 1, 2019, then-Governor Rossello signed Act No. 83 of 2019 into law. This law allows employees up to 15 days of unpaid leave per year because the employee or a member of the employee’s family was a victim of gender or domestic violence, child abuse, sexual assault, sexual harassment at work, lewd acts, or aggravated stalking. The law also allows employees to request reasonable work accommodations for the same reasons.
Employers cannot discriminate against employees who take leave under Act 83, nor can they use such leave as a basis for terminating employment or taking other adverse employment actions. Employers who fail to comply with the law can face penalties of up to $5,000 as well as damages.
Employers with employees in Puerto Rico should review their leave policies. If necessary, employers should consult with outside counsel to update those policies to comport with Act 83’s extensive requirements.
San Antonio Paid Sick Leave Law Halted
On November 22, 2019, a Bexar County judge blocked San Antonio’s paid sick leave ordinance from going into effect on December 1.
As background, the San Antonio ordinance covers employees who work within the city limits and those who work more than 240 hours within the city limits in a year. The size of the employer does not matter. Those covered employees accrue one hour of sick leave for every 30 hours worked, up to a maximum of 56 hours a year.
Those in opposition to the ordinance argue that it would violate the Texas Minimum Wage Act, while those in favor argued that the paid leave is a benefit, not a wage, which is allowed under the federal Fair Standards Labor Act. The judge’s injunction is temporary, and the ordinance may become effective either after the litigation concludes or if the parties in favor of the ordinance successfully appeal this injunction. The judge ordered a full trial on the merits but did not set a date.
Since the ordinance is the subject of a lawsuit, it may be overturned at the district level or on appeal. In the meantime, employers with employees who would be subject to the new ordinance should consult with counsel concerning their obligations to offer leave in compliance with the ordinance.
Reproductive Health Care Barriers
On May 13, 2019, Gov. Inslee signed the SB 5602, which takes effect in pertinent part on January 1, 2020. The law revises provisions regarding coverage for contraceptive drugs and devices by prohibiting discrimination in the provision of reproductive health care services based upon the covered person’s gender identity or expression. The law also requires health plans issued in the state to provide contraceptive services and devices to participants in the plans regardless of their gender or sexual orientation, and those plans may not require copayments, deductibles, or other forms of cost sharing when providing those devices and services through an in-network pharmacy or provider. An exception is made for health savings account (HSA) plans, which may apply a deductible for over-the-counter contraceptive supplies or services, but it cannot be more than the minimum deductible for a HSA-qualified plan, which is $1,350 per individual.
In addition, plans must provide coverage for: 1) screenings for physical, mental, sexual, and reproductive health care needs that arise from a sexual assault, 2) medically necessary services and prescription medications associated with the treatment of physical, mental, sexual, and reproductive health care needs that arise from a sexual assault; and 3) the following reproductive health-related over-the-counter drugs and products approved by the Federal Food and Drug Administration: prenatal vitamins for pregnant persons; and breast pumps for covered persons expecting the birth or adoption of a child.
These changes are effective for health plans issued or renewed on or after January 1, 2021.
Paid Family and Medical Leave Program
Beginning January 1, 2020, employees in Washington can take leave and collect benefits under the state’s new Paid Family & Medical Leave program (PFML). Under the new program, Washington employees who qualify will be eligible for a maximum of 12 weeks of partially paid leave. This leave runs concurrently with FMLA. To qualify for leave, an employee must have worked 820 hours within a 12 month period of the qualifying life event that gives rise to the leave. The employee must be qualified before taking the leave.
The state’s PFML program is like an insurance program whereby employers and employees split the premiums. Employers can withhold up to 63.33% of the premium from employee wages and the employer portion is 36.67%. Employers with fewer than 50 employees are not obligated to pay a portion; however, they are required to remit the employee’s portion as well as other information about the employee’s wages and hours worked.
An employer who fails to make required reports under the PFML program is subject to penalties. For the second occurrence, the penalty is $75. For the third occurrence, the penalty is $150. For the fourth and each subsequent occurrence, the penalty is $250.
An employer who fails to remit the full amount of premiums when they are due is liable for the full amount of premiums plus interest. In addition, the employer may be subject to liens, loss of a bond, or injunctions.
Employers have the option to create their own plans for paid family leave, called voluntary plans. They must meet or exceed PFML requirements, maintain certain records to ensure portability of the benefit between employers, and obtain state approval.
Employers with employees in State of Washington should be mindful of these requirements, and work with outside counsel to incorporate them into their leave policies.
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.
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If an employee or their dependent relocates to another city, state, or country, is that a qualifying event for the employee to change their election mid-year?