IRS Announces More ICHRA Codes for 2020 Form 1095-C
February 17, 2021
On February 2, 2021, the IRS announced that it added two more codes that can be used when reporting offers of ICHRAs for 2020. These codes are:
- 1T. Individual coverage HRA offered to employee and spouse (no dependents) with affordability determined using employee's primary residence location ZIP code.
- 1U. Individual coverage HRA offered to employee and spouse (no dependents) using employee's primary employment site ZIP code affordability safe harbor.
These codes were previously reserved from Code Series 1 on Form 1095-C, line 14.
To determine affordability, the employee’s cost for the lowest cost self-only silver coverage in the rating area in which they live minus the employer’s ICHRA contribution must be no greater than 9.78% (for 2020, 9.83% in 2021) of the employee’s earnings. CMS maintains a list of lowest cost, self-only silver coverage plans, here.
If the state of residence or employment has its own exchange, then that exchange will have tools to help determine the affordability calculation.
Employers who must report on their ICHRA offers for ACA compliance purposes should be aware of this development.
IRS Announcement »
Biden Administration Withdraws Support for Court Challenge to ACA
February 17, 2021
On February 10, 2021, the Department of Justice filed a letter with the US Supreme Court, in which the United States stated that it has reconsidered its position in the pending case challenging the ACA, Texas v. California. Under the Trump Administration, the United States joined several Republican-led states in challenging the ACA’s individual mandate as unconstitutional. In a previous case, the Supreme Court held that the individual mandate was constitutional because Congress exercised its power to tax when it imposed a penalty upon people who did not obtain health coverage and gave people a choice between paying the penalty and buying insurance. In 2017, Congress reduced the penalty to $0, and several Republican-led states argued that by doing so Congress took away the choice and left an unconstitutional requirement to purchase insurance. Although the United States initially joined the case in defense of the law, it switched positions during the case’s appeals.
In this letter, the Biden administration states that the United States no longer supports the argument against the individual mandate. Its new position is that the individual mandate is constitutional because Congress did not remove the choice to purchase insurance or not, but simply removed the negative consequence of choosing not to purchase insurance.
The case remains active. The Supreme Court heard oral arguments in November but it has yet to issue a ruling. Although the United States stated in its letter that it did not believe additional briefing was necessary, it is possible that the Court will ask for more from the United States.
We previously reported on this case in Compliance Corner, such as in the March 3, 2020, edition. We will keep an eye on further developments in the case and report them as they happen.
Department of Justice Letter »
Biden Administration Issues Executive Order to Strengthen the ACA and Create a Special Enrollment Period
February 02, 2021
On January 28, 2021, the president signed an executive order instructing federal agencies to examine their regulations in order to find ways to strengthen the ACA. In addition, this order will create a special enrollment period (SEP) in the federal health insurance marketplace, from February 15, 2021, to May 15, 2021.
The order directs agencies to review:
- Policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19.
- Demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements.
- Policies that undermine the Health Insurance Marketplace or other markets for health insurance.
- Policies that make it more difficult to enroll in Medicaid and the ACA.
- Policies that reduce affordability of coverage or financial assistance, including for dependents.
The order also revokes Executive Order 13765, which announced the Trump Administration’s intent to repeal the ACA. That order was discussed in the January 24, 2017, edition of Compliance Corner. The order also revoked Executive Order 13813, which encouraged agencies to expand access to AHPs and allow coverage sales across state lines. That order was discussed in the October 17, 2017, edition of Compliance Corner. Finally, the order requires agencies to review any policies and regulations issued as a result of those two orders and consider repealing, revising or rescinding them.
While the creation of the SEP will affect individuals that will enroll on the marketplace, employers should be mindful of this extension in case there are employees who seek to drop coverage under their plans to take advantage of the SEP. Specifically, the permissible qualifying event for a revocation due to enrollment in a qualified plan will allow an employee to drop their employer’s plan mid-year if they intend to enroll in the marketplace.
Since this order includes directives to agencies to act, details regarding implementation have not yet been worked out. We will keep an eye on developments and report them as they occur.
Executive Order »
IRS Issues Final Rules Applying Employer Mandate and Nondiscrimination Rules to ICHRAs
January 20, 2021
On January 10, 2021, the Department of the Treasury released final regulations related to Individual Coverage HRAs (ICHRAs) and the application of the employer mandate and nondiscrimination. The final regulations contain only minor changes from the proposed rules and guidance.
Under the rules, an employer of any size may use an ICHRA to pay for or reimburse the cost of employees' individual health policies. The employer cannot offer any group health plan to the same classification of employees being offered the ICHRA, although an employer could also offer a dental only or vision only plan to those employees. The same terms and reimbursements must apply within the same classification, though the employer may increase the maximum reimbursement based on family size and age.
The ICHRA is subject to COBRA and ERISA, which means it is subject to the SPD, Form 5500, and fiduciary requirements. The individual policies themselves are not subject to ERISA. Expenses must be substantiated before reimbursement.
A notice relating to the ICHRA must be provided to eligible employees at least 90 days before the beginning of each plan year or no later than the date an employee is first eligible to participate in the ICHRA. The notice must include specific and detailed information. A model notice is available on the DOL site.
An ALE may use an ICHRA to satisfy its obligations under the employer mandate. The minimum value standard can be met through the substantiation of qualifying individual coverage. The cost of individual coverage must be affordable to the employee. In order to be affordable, the employee’s cost for the lowest cost self-only silver coverage in the rating area in which they live minus the employer’s ICHRA contribution must be no greater 9.83% (for 2021) of the employee’s earnings. There are two safe harbors relevant to this calculation.
- Location safe harbor. The employer may use employment location as the rating area, rather than the employee’s residence. However, if an employee does not normally work at the employment location (for example, they normally work from home), the employment location cannot be used. The final rules clarify that the employer should use the address that is expected to be permanent or indefinite when determining location. In other words, temporary changes in location would be disregarded.
- Look-back month safe harbor. A calendar year ICHRA may use the rates of January of the previous year. A non-calendar year ICHRA may use the rates of January of the current year for the entire plan year. Also, an employer may use an employee’s age at the start of the plan year for the entire plan year.
Employers who have already adopted ICHRAs may want to review the preamble of the regulations as it has detailed information about administration. Employers interested in learning more about ICHRAs should contact their consultant.
Final Regulations »
DOL Updates FFCRA FAQs
January 05, 2021
On December 31, 2020, the DOL updated its FAQs for the FFCRA by adding FAQ numbers 104 and 105. These new FAQs concern issues relating to the fact that employers are no longer required to provide EPSL and EFMLA after December 31, 2020.
FAQ 104 asks whether an employee, who was eligible to take leave under the FFCRA but did not take any of that leave in 2020, was entitled to that leave after December 31. The DOL states that employers no longer must provide such leave; however, they can voluntarily provide the leave. Although recent legislation did not extend the time that covered employers must provide the leave, it did allow employers who opt to voluntarily provide that leave to obtain tax credits for granting the leave until March 31, 2021.
FAQ 105 asks whether a covered employer must pay an employee for any outstanding leave granted under EFMLA, to which she was entitled, once the leave provisions under FFCRA expired. The employee in question used six weeks of FFCRA leave before the end of the year, but her employer has not paid her for the last two weeks of that leave. The DOL stated that there is a statute of limitations for violations of the FFCRA that runs from two years from the date of the alleged violation (it is three years for willful violations). The agency will investigate and enforce complaints related to the FFCRA made within this time. So, employers are still obliged to pay outstanding wages owed under that law (and under the example above, the employee would be entitled to the last two weeks of pay).
Employers should be aware of these new FAQs, now that the obligation to provide leave under the FFCRA has expired.
DOL FFCRA FAQs »
IRS Issues Guidance Confirming that Premium Tax Credit Unaffected by Repeal of Individual Mandate
December 22, 2020
On December 1, 2020, the IRS released final regulations clarifying that when Congress zeroed out the personal exemption deduction (provided for meeting the individual mandate) for taxable years beginning after December 31, 2017, and before January 1, 2026, it did not prevent individuals from claiming the premium tax credit when enrolling in a health plan on the Marketplace.
The premium tax credit is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance bought through the Health Insurance Marketplace. Among other requirements, a person can obtain the credit by establishing a household income for the taxable year that is at least 100% but not more than 400% of the federal poverty line for the taxpayer’s family size for the taxable year. The individual’s family size is determined by the number of personal deductions that the person makes on their individual tax returns.
Although the Tax Cuts and Jobs Act of 2017 (TCJA) ended the personal exemption for the years 2018 – 2025 by effectively making it zero, the TCJA also made clear that this should not be considered when determining whether an individual qualified for the deduction in other parts of the IRS Code. The new regulations make clear that an individual’s family, for purposes of obtaining the credit, include the person’s spouse and any other individual from whom the applicant can claim a personal exemption deduction, regardless of whether the applicant could claim that deduction under the TCJA. Similarly, a person who would be the subject of another person’s claim for a personal exemption cannot obtain the premium tax credit.
The new regulations also govern how to distribute advance payments of the premium tax credit in light of this clarification, as well as income tax return filing requirements related to the premium tax credit.
Employers should be aware of this development and how it may affect employees’ ability to obtain and use the premium tax credit.
IRS Guidance and Final Regulations »
Agencies Finalize Rules to Enhance Flexibility for Grandfathered Group Health Plans
December 22, 2020
On December 11, 2020, the DOL, HHS and IRS issued final rules that amend certain requirements for grandfathered group health plans to maintain their grandfather status. The rules provide such plans with greater flexibility to make changes in response to increases in health coverage costs.
As background, the ACA allows certain group health plans that existed as of the law’s enactment on March 23, 2010, to be treated as grandfathered health plans. This treatment exempts the plans from some ACA mandates. To preserve grandfather status, these plans are restricted in their ability to make plan design changes or increase cost sharing. The 2015 grandfathered plan rules outline these limitations.
The final rules follow July 15, 2020, proposed rules, which have been adopted without substantial change. The 2015 existing regulations are modified in two respects.
First, the rules provide an alternative method of measuring permitted increases in fixed amount cost sharing. Under the existing regulations, increases for fixed amount cost sharing other than copayments (e.g., deductibles and out-of-pocket maximums) cannot exceed thresholds based upon the Consumer Price Index measure of medical inflation. Specifically, the 2015 rules define the maximum increase as medical inflation (from March 23, 2010) plus 15 percentage points. However, this component of the CPI index includes price changes for Medicare and self-pay patients, which are not reflected in grandfathered group health plan costs.
The alternative standard relies upon the premium adjustment percentage, rather than medical inflation. The premium adjustment percentage is published by HHS in the annual notice of benefit and payment parameters and reflects the cumulative historic growth in private health insurance premiums from 2013 through the preceding calendar year. As a result, this measure may better reflect increases in underlying costs for grandfathered group health plans.
This new measurement method does not replace the current standard. Rather, an employer can use the method that yields the greater result. Therefore, grandfathered plans are allowed to increase these out-of-pocket costs at a rate that is the greater of the medical inflation adjustment percentage or premium adjustment percentage, plus 15 percentage points.
Second, the final rules permit a grandfathered group HDHP to increase fixed-amount cost-sharing requirements, such as deductibles, to the extent necessary to maintain HDHP status without losing grandfather status. This change was designed to ensure that participants enrolled in such coverage remain eligible to contribute to an HSA.
Employers who sponsor grandfathered plans should be aware of these final rules, which will be applicable beginning on June 15, 2021.
Grandfathered Group Health Plans »
Grandfathered Group Health Insurance Coverage »
PCOR Fee Increased for 2020-2021 Plan Years
December 08, 2020
On November 24, 2020, the IRS released Notice 2020-84, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after October 1, 2020, and before October 1, 2021, is $2.66. This is a $0.12 increase from the $2.54 amount in effect for plan and policy years ending on or after October 1, 2019, but before October 1, 2020.
As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee does not apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives and is reported and paid on IRS Form 720 (which has not yet been updated to reflect the increased fee).
It is expected that the form and instructions will be updated prior to July 31, 2021, since that is the first deadline to pay the increased fee amount for plan years ending between October and December 2020. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.
The PCOR fee requirement has been extended and is in place through the plan years ending after September 30, 2029.
IRS Notice 2020-84 »
IRS Releases Updated Publication 5165 for Electronically Filing ACA Information Returns
December 08, 2020
The IRS recently released a revised version of Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters, for tax year 2020 (processing year 2021). This publication outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the ACA Information Return System (AIR). The updated version of this publication contains no major changes. The AIR system itself is quite technical; for example, the forms must be filed using the Extensible Markup Language (XML) schemas outlined in the publication.
Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C or 1095-C should review the latest guidance and make any necessary adjustments to their filing process. Because of the complexity, most employers partner with a payroll or software vendor to assist them with the electronic filing. Those employers still have a responsibility to review the forms for accuracy before submission to the IRS and distribute the forms to employees. Employers filing fewer than 250 forms may file with the IRS by paper.
As a reminder, the IRS previously announced a slight adjustment to the 2020 filing due dates (due in early 2021). Based on that announcement, Forms 1095-B and 1095-C would need to be distributed to employees by March 2, 2021 (instead of January 31, 2021), and those forms along with the Forms 1094-B and 1094-C would need to be filed with the IRS by March 31, 2021, if filing electronically and by March 1, 2021 (since the February 28, 2021, due date falls on a Sunday), if filing by paper.
Publication 5165 »
IRS Releases 2020 ACA Reporting Forms and Instructions
October 27, 2020
The IRS recently published the final versions of the 2020 reporting Forms 1094-B and 1095-B, 2020 reporting Forms 1094-C and 1095-C, and instructions for those forms. Forms 1094-B and 1095-B are used by insurers and small self-insured employers to report that they offered MEC. Forms 1094-C and 1095-Cs are used by ALEs to report that they offered minimum value, affordable coverage to their full-time employees. These forms are filed with the IRS, and copies of Forms 1095-B and 1095-C are also distributed to individuals.
This year’s forms feature a few new changes. The Plan Start Month section of Form 1095-C must now be completed. In addition, the penalty for the failure to file a correct information return increased to $280 per return (up from $270 for each incorrect return), and the penalty cap is raised to a total of $3.392 million for a calendar year, up from a cap of $3.339 million in 2019. Finally, the updated draft 1095-C form shows that the affordability safe harbor percentage threshold is 9.78% in 2020, down from the 9.86% threshold in 2019.
The 2020 forms and instructions also require employers to include information concerning Individual Coverage Health Reimbursement Arrangements (ICHRAs), if applicable. The instructions for Form 1094-C state that offers of ICHRA coverage count as offers of minimum essential coverage and both Forms 1095-B and 1095-C have new codes for information concerning ICHRAs offered to employees. Line 8 of Form 1095-B has a new Code G, which identifies ICHRAs as the type of employer-sponsored coverage. Form 1095-C’s Line 14 now has codes to identify the full-time or part-time status of the employee offered an ICHRA, whether the ICHRA was offered to a full-time employee’s spouse or dependents, whether the ICHRA is affordable, and whether the affordability was based upon where the full-time employee lives or works (the ZIP code of the full-time employee’s residence or place of work can be entered on Line 17, if the employee was offered an ICHRA). The employee’s contribution is recorded on Line 15.
As a reminder, the date by which employers must distribute Forms 1095-B or 1095-C to individuals has been extended. 2020 forms must now be distributed to individuals by March 2, 2021 (instead of January 31, 2021). Even though this extension is provided, employers are encouraged to furnish the 2020 statements as soon as they are able. Further, as in prior years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. That said, reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by March 1, 2021 (as February 28, 2021, falls on a Sunday) if filing by paper, and March 31, 2021, if filing electronically. As noted above, the penalty for failure to comply is $280 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 $560 penalty.
Form 1094-B »
Form 1095-B »
Form 1094-C »
Form 1095-C »
Instructions for Forms 1094-B and 1095-B »
Instructions for Forms 1094-C and 1095-C »