Update: Reporting Information about Employer Coverage for Purposes of Shared Responsibility and Premium Assistance: Transitional Relief for 2014
Posted on July 23, 2013 | Comment (1)
On July 2, 2013, the Obama Administration posted a blog announcing a one-year delay (from 2014 to 2015) in implementing the shared responsibility provisions of the Affordable Care Act (ACA) applicable to large employers. The blog was followed by brief IRS policy guidance, as well as by a final HHS rule implementing the process by which Exchanges will ascertain the eligibility of individuals who apply for premium tax credits because they lack access to “affordable” employer-sponsored coverage that provides “minimum value.”
Previous Implementation Briefs have explored various aspects of the employer and individual responsibility provisions of the ACA, as well as the law’s provisions establishing eligibility for premium tax credits and cost-sharing assistance. This Update reviews these provisions and reports on recent developments.
The Affordable Care Act requires all non-exempt individuals who can afford to do so to maintain “minimum essential coverage” and imposes tax penalties on those who do not. In addition to the exemptions granted under the ACA, the law also grants certain exemptions from the tax penalty and empowers the HHS Secretary to grant exemptions based on hardship.
In order to make this requirement work in light of the large numbers of Americans who either have no coverage through the workplace or who are excluded from the individual market because of their health or the high cost of coverage — or both — the ACA reforms the health insurance marketplace to guarantee access regardless of health status. It also creates health insurance Exchanges (referred to by the Administration as “Health Insurance Marketplaces”). Through these Marketplaces, beginning in 2014, qualified individuals can obtain affordable health insurance coverage; they also can qualify for refundable premium tax credits for any month that their incomes fall between 100 and 400 percent of the federal poverty level (legal U.S. residents can qualify for premium tax credits even if their incomes do not meet the 100 percent threshold).
In order to qualify for refundable tax credits, the Act’s “anti-crowdout” provision requires that for any month in which the credit is claimed, an individual be ineligible either for public insurance (such as Medicaid or CHIP) or for employer-sponsored coverage that is “affordable” and provides “minimum value.” Thus, a worker whose income creates potential eligibility for a premium subsidy will qualify for a subsidy for any month in which one of the following is the case:
- the employer fails to offer minimum essential coverage to the worker and the worker’s dependents; OR
- the employer offers a plan, but the plan is considered “unaffordable” (defined under the law as having a cost to the employee for self-only coverage that exceeds 9.5 percent of household income); OR
- the employer offers an affordable plan, whose “minimum value” (that is, the plan’s actuarial value or medical-loss ratio) is less than 60 percent.
The ACA also imposes a “shared responsibility” obligation on certain large employers (those with 50 or more full-time “equivalent” employees). Beginning in 2014, these employers face a tax penalty if two conditions are present:
- First, at least one full-time employee (defined under the Act as an individual who works an average of 30 hours per week) is certified by the IRS to the employer as having obtained a premium tax credit through the Marketplace; and
- Second, the employer does not offer “minimum essential coverage” to its full-time employees and their dependents, OR offers a plan that is either “unaffordable” OR offers a plan that fails to provide “minimum value.”
Depending on whether a plan is not available at all or else is considered unaffordable or lacking in minimum value, large employers will incur various types of tax penalties.
Health Insurance Marketplaces have certain duties related to the administration of premium tax credits and the employer shared responsibility obligations. Specifically, they must transmit to the Treasury Department a list of individuals who cannot obtain an affordable health plan either through the Marketplace or their employer or otherwise are exempt from the individual responsibility requirement or the penalty for failing to maintain minimum essential coverage. The Marketplace also must send to the Treasury Department a list of individuals who are employees of an employer and who have been found eligible for a premium tax credit either because their employer either fails to provide minimum essential coverage or provides coverage that is either unaffordable or lacks minimum value.
To make the law work, the ACA establishes certain reporting requirements on large employers and the insurers and plan administrators that oversee their health plans. Because eligibility for premium tax credits is a month-by-month proposition, the employer reporting requirements are similarly designed to capture the ongoing, monthly information that is needed to determine whether tax credits should have been given to the individual that month (either because there was no minimum essential coverage offered or because the coverage offered that month was either unaffordable or lacked minimum value). The information specified under the Act encompasses the characteristics of the plan offered, its value, its monthly premium price, and how much the employer contributes on a monthly basis. The information also focuses, on a monthly basis, on which full-time employees and their dependents have been offered a plan and are in fact enrolled in the plan.
The IRS and HHS have worked since the law’s enactment to implement a reporting system that can capture the information needed on a monthly basis in accordance with the law’s premium assistance and shared responsibility provisions. In the case of information on employer coverage to be furnished to the Marketplaces by individuals, HHS standards assumed that individuals would obtain the needed information from their employers and would include the information as part of the application process. The IRS issued a proposed rule in January 2013, implementing the Act’s employer reporting requirements.
The Announced Delays by the IRS and HHS
In the face of ongoing employer resistance to both the reporting requirements, as well as to the underlying tax penalties for failing to cover full-time workers as defined in the law, the IRS posted a blog on July 2 entitled “Continuing to Implement the ACA in a Careful, Thoughtful Manner.” The blog announced that the Administration “will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.” The blog went on to state that:
We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments . . . for 2014. Accordingly, we are extending this transition relief to the employer shared responsibility payments. These payments will not apply for 2014. Any employer shared responsibility payments will not apply until 2015. During this 2014 transition period, we strongly encourage employers to maintain or expand health coverage. Also, our actions today do not affect employees’ access to the premium tax credits available under the ACA (nor any other provision of the ACA).
Based on estimates projected in a May 2013 report released by the Congressional Budget Office, the additional cost (in the form of penalty payments foregone) will amount to $10 billion in 2015 (when the majority of businesses file their taxes and would have been paying the penalty for 2014).
On July 9, 2013, the IRS published a Notice reiterating the availability of employer transition relief in 2014 and announced a new proposed rule in the Summer of 2013. The Notice clarified that the employer reporting requirements could not be implemented because employers would have no way of knowing how many of their employee received premium assistance and to what extent, given the structure of their plans, they owed a tax payment:
. . . [B]ecause an employer typically will not know whether a full-time employee received a premium tax credit, the employer will not have all of the information needed to determine whether it owes a payment under § 4980H. Accordingly, the employer is not required to calculate a payment with respect to § 4980H or file returns submitting such a payment. Instead, after receiving the information returns filed by applicable large employers under § 6056 and the information about employees claiming the premium tax credit for any given calendar year, the Internal Revenue Service (IRS) will determine whether any of the employer’s full-time employees received the premium tax credit and, if so, whether an assessable payment under §4980H may be due. . . . For this reason, the transition relief from § 6056 Information Reporting for 2014 is expected to make it impractical to determine which employers owe shared responsibility payments for 2014 under the Employer Shared Responsibility Provisions
Regulations published by HHS in the Federal Register on July 15, 2013 provided additional changes in reporting. The Preamble to the final regulations stated that in applying for premium assistance, individuals would be required to attest to their lack of access to minimum essential coverage or to coverage that was either affordable or that provided minimum value. HHS noted however, that because no electronic data on the availability or extent of employer coverage would be available, state Marketplaces would not be required to verify the attestation and that HHS would carry out sampling procedures to determine the nature of employer coverage.
- Will an employer reporting system be online in time for 2015? The one-year delay, according to the Administration, will allow officials to work with employers to come up with a system that can match their information on the nature and extent of the coverage they provide against information coming from the Marketplaces on which individuals actually have received premium credits for which months in any calendar year. Both types of information are essential to calculating which large employers may owe tax payments beginning in 2015, and for which employees, and how much. The system is extremely complex because it necessitates not a one-time snapshot but a rolling, monthly verification of income. But monthly verification systems exist in relation to other aspects of employment, such as payment of unemployment taxes and employer contributions to Social Security and Medicare. Once all parts of the system are working – the credit-granting component overseen by the Marketplaces as well as the employer reporting component – the routinization of reporting and calculation should be expected to grow.
- What happens to employees in states with no Medicaid expansion? The IRS and HHS have both stressed that full-time workers who lack employer coverage will be able to secure it through the Marketplace. But many of these full-time workers may have incomes that fall short of the income threshold for premium tax credits (100 percent of the federal poverty level unless they are legal U.S. residents) and may live in states that opt out of the 2014 Medicaid expansion. What happens to these workers and their families? Their children under 18 would be eligible, as would pregnant women and certain other family members with disabilities. But the workers themselves might find that they themselves are ineligible under the state’s traditional Medicaid eligibility rules.
- Will HHS be able to verify the information furnished by individuals who apply for premium subsidies, and will there be delays in coverage? In its July rule, HHS indicates that it will excuse state-based Marketplaces (i.e., Marketplaces administered by 16 states and the District of Columbia) from verification responsibility so that they can instead rely on applicant attestations until 2015. HHS further clarified that the Federally-facilitated Marketplace would attempt to contact employers but if employers do not respond, eligibility then would be based on attestation. Will the need for additional verification slow down enrollment?
- The power of attestation. Attesting to the absence of coverage when in fact coverage exists, if willful or negligent, results in potential fines of between $25,000 and §250,000. Given the enormous difficulties involved in understanding whether an employer offers a plan that is available to any particular employee, and if so, the plan’s value and affordability, would it be likely that employees who secure assistance would later be liable for penalty repayment? But will the fact of the potential, steep penalty itself deter employees from seeking aid and lead them instead to go without coverage?
- Will the delay further reduce employer incentives to offer coverage to all full-time workers? Much has been made of the fact that the opposition to the reporting system was not just to the system itself but also to the underlying requirement that coverage be offered to employees working 30+ hours per week and their families. According to a Kaiser Family Foundation report, although most employers offered health insurance even before the ACA requirement to do so, large employers with lower-wage or variable-hour employees may be most likely to delay offering coverage. Kaiser also notes that most low-wage workers are employed by companies that do not offer coverage at all, and therefore, that the delay in reporting may simply mean that their access to Marketplace coverage with tax subsidies grows clearer.
 ACA §§1401, 1501, and 1513. For the proposed rules on employers’ shared responsibility see 78 Fed. Reg. 218, Shared Responsibility for Employers Regarding Health Coverage; Proposed Rule (Jan. 2, 2013).
 PPACA §1501 adding IRC §5000A.
 IRC §5000A(d) provides exemptions for incarcerated individuals, individuals not lawfully present in the U.S. and certain religious exemptions.
 IRC §5000A(e). The exemptions cover individuals who cannot afford coverage, taxpayers with incomes below the filing threshold, members of Indian Tribes, and persons experiencing short gaps in coverage. Federal regulations implementing the exemption provisions were published in the Federal Register on July 1, 2013. 78 Fed. Reg. 39494-39529.
 IRC §5000A(e)(5). Guidance regarding exemptions based on hardship was issued on June 26, 2013. http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/exemptions-guidance-6-26-2013.pdf (accessed July 15, 2013).
 PPACA §§1001 and 1201.
 PPACA §1401 adding IRC §36B.
 IRC §36B(c)(2)(B) & (C).
 IRC §36B(c)(2)(C)(i)(II).
 IRC §36B(c)(2)(C)(ii).
 ACA §1513 adding IRC §4980H.
 IRC §4980H(c)(2). In accordance with the law, the IRS counts both full-time employees (30 hours/week or more) and part-time employees in determining “large employer.”
 IRC §4980H(c)(4).
 IRC §4980H(a).
 IRC §4980H(b).
 In the case of employers that do not offer a plan to their full-time employees, a monthly penalty of $2,000 (divided by 12) is assessed for the each full-time employee, less 30 (the penalty excludes the first 30 full-time employees). If an employer fails to offer affordable coverage or coverage that fails to provide minimum value, a monthly penalty of $3,000 (divided by 12) is assessed for each employee who receives a tax credit.
 PPACA §1311 (d)(4)(I).
 ACA §1502 adding IRC §6055 and ACA §1514, adding IRC §6056.
 http://www.reginfo.gov/public/do/PRAViewIC?ref_nbr=201302-0938-004&icID=205692 (accessed July 15, 2013).
 78 Fed. Reg. 218 (January 2, 2013).
 http://www.treasury.gov/connect/blog/Pages/Continuing-to-Implement-the-ACA-in-a-Careful-Thoughtful-Manner-.aspx (accessed July 5, 2013).
 Congressional Budget Office, Effects on Health Insurance and the Federal Budget for the Insurance Coverage Provisions in the Affordable Care Act—May 2013 Baseline (May 2013). Available at: http://cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf (accessed July 15, 2013).
 Treasury Department, Internal Revenue Service. Notice 2013-45, Transition Relief for 2014 Under §§ 6055 (§6055 Information Reporting), 6056 (§6056 Information Reporting) and 4980H (Employer Shared Responsibility Provisions). (July 9, 2013).
 78 Fed. Reg. 42160 (July 15, 2013).
- The rule provided additional information regarding the administration's decision to delay the employer shared responsibility requirement. In order to determine if an individual is eligible for federal subsidies, the Exchange must be aware as to whether or not the individual has access to affordable health insurance from his or her employer. As a result of the delay, the Exchange will have no comprehensive database or official records reporting if an individual has access to affordable coverage, and thereby determine subsidy eligibility. The Exchange will therefore rely upon applicant self-reported information, verification against other information sources such as tax returns, and sampling of a group of applicants in which the Exchange will manually call the applicant's employer.
- Individuals who are deemed eligible for a subsidy based upon their applications will receive subsidies during the time in which their eligibility review is being conducted. The audit period is reported to last for 90 days.
- CMS outlined how the Exchange should coordinate with state Medicaid and CHIP officials to determine who is eligible for these programs.
- The rule also describes key provisions of the Alternative Benefits Plan, Medicaid's benchmark plan for states that expanded Medicaid. In addition, the rule updates the cost-sharing and premium regulations for Medicaid plans. Specifically, states are now permitted to charge higher cost-sharing for prescription drugs and non-urgent visits to the emergency room.
- CMS clarified that cost-sharing of plans offered on the Exchange must be considered in determining whether or not it would be cost effective to offer this plan to Medicaid beneficiaries through the premium assistance model.