By Mike Baer
Affordable Care Act implementation continues to burden the employee administration process for applicable large employers, benefits lawyers said during an April 1 Bloomberg BNA webinar.
The possibility of the Supreme Court upholding a lower court ruling negating the legitimacy of federal health exchanges taking the place of state ones, the looming 40-percent “Cadillac” tax that is to apply in 2018 and the challenges of administering wellness programs without violating the Americans with Disabilities Act are having a profound impact on how employers meet the requirements of the law, according to James McElligott and Sally Doubet King, partners at McGuireWoods, LLP.
These issues are in addition to complex procedures covered employers are still trying to understand and implement for upholding the law's main implementation in 2015 and staying penalty-free.
The case before the Supreme Court (King v. Burwell, U.S., No. 14-114, review granted 11/7/14) may affect employers in the 37 states that do not have their own health exchanges, McElligott said.
The issue is whether “federally-facilitated state exchanges” in those states have been granted under the Treasury Regulations authority to provide tax-free subsidies to the people who bought health insurance through the exchange, he said. The court is expected to rule on whether the regulations were faithful enough to the law despite the lack of clarity that the federal exchanges could, indeed, act as a state exchange with regard to the subsidies. An additional argument is whether the regulations were construed in such a manner as to unconstitutionally coerce states into setting up their own exchanges so those getting health insurance could qualify for the subsidy, McElligott said.
To overturn the regulation would mean employers in 37 states likely will not be subject to penalty provisions under the ACA for failing to provide health insurance to full-time workers because employees must have purchased insurance from the exchange and received a premium subsidy in order to trigger the employer penalty, McElligott said.
Oral arguments March 4, 2015, showed Justice Kennedy the likely decider in a 5-4 decision, he said.
There are concerns that if the regulations are struck down, enforcement for the “play or pay” employer requirement would be undermined and millions of people will not receive the tax benefit granted under the law. McElligott said problems stemming from a decision rescinding the regulations can be remedied by Congressional legislation.
Employers cannot afford to wait on the decision in Burwell because “compliance is required now” for the employer requirements to provide to employees affordable health insurance options with a minimum value, King said.
This year, applicable large employers covered by the law need to already have developed tracking and recordkeeping systems to “back up the decision” made in terms of who gets covered under the employer's plan and when, King said. Employers need to constantly monitor applicable data on a monthly basis, she said. There are still areas of uncertainty in application, King said.
In particular, there are questions with regard to recording hours of service, the responsibilities of staffing agencies and their clients and covering employees who work variable hours as well as the distinction between seasonal worker and seasonal employee, which is used only for determining full-time equivalents, King said.
Many employers are using third parties to assist in this administration; however, employers need someone in the organization who can understand the requirements and ensure the third party is administering correctly, King said. Total responsibility for the requirements cannot be shifted to third parties, King said.
Notices from the IRS already are being sent out to employers, McElligott reported. Many of these notices are being sent out mistakenly, King said, adding that there is an appeal procedure for these new notices. The notices say that an employer's employee has received subsidized coverage through a health exchange and employers should determine whether the information on the notice is correct, King said.
Provisions of the ACA require employers to increase coverage to include wellness and preventive care components to their plans. The promotion of these programs has run afoul of the Equal Employment Opportunity Commission's stance under the Americans with Disabilities Act that employees should not be penalized for choosing to not participate in certain wellness programs offered by employers, King said. According to McElligott, the EEOC's position is that if an employer's incentive to participate is “rich enough,” such a program could be construed as penalizing those that choose not to participate and be considered nonvoluntary.
The EEOC has drafted regulations on the issue which are awaiting release, but these rules likely will follow the EEOC's position in several recent court filings that challenge the structure of wellness programs, McElligott said.
Insurance providers—which could include employers that self-insure—are to be subject to a 40-percent tax in 2018 on the aggregate cost of coverage exceeding $10,200 for an individual and $27,500 for covered families, McElligott said. The tax, often called the “Cadillac tax,” is on the excess amount and those subject to the tax vary depending on how the health plan is administered, and the thresholds are to be indexed starting in 2019, McElligott said.
The IRS issued preliminary guidance on the tax in Notice 2015-16 and seeks comments.
Under a plan sponsored by a health insurer, the health insurer is to pay the excess tax, but it likely will pass that cost on to employers, McElligott said. Self-insured employers are to pay the tax. Under a multi-employer plan, the plan administrators or trustees are to be liable for the tax, he said. Employers may also pay the tax is it is assessed against a health savings account arrangement or Archer Medical Savings Account, McElligott said.
Design changes are being made to plans in an effort to avoid paying the tax, McElligott said. Employers are adjusting co-pays and deductibles, and provisions in collective bargaining agreements are being included to reopen the issue should the plan trigger the tax, McElligott said. On-site medical clinics, which are used to reduce the cost of care overall, may need to be considered if they do not provide de minimis care. This could add to the cost evaluation for the excise tax, he said.
There is legislation to repeal the additional tax and the overall law, McElligott said. The Republicans in Congress have not formally introduced a plan to replace the ACA, but have issued information under the title of “The Patient Care Act” which is intended to continue the popular aspects of the ACA while eliminating others, he said.
Under the GOP plan, features of the ACA such as the elimination of prexisting condition requirements, the elimination of lifetime limits to coverage and the coverage of children up to age 26 under parents' coverage would be continued, McElligott said. There also would be tax credits provided to individuals with lower income who purchase insurance. The Cadillac tax would be eliminated and any federally run health-care sign up system would be eliminated, he said.
For more information, see Compensation and Benefits Library's “Tax Aspects of Health Plans Under the Affordable Care Act”
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