CMS Issues Proposed Rule on the ACA 2023 Benefit and Payment Parameters
January 04, 2022
On December 28, 2021, HHS issued the proposed Notice of Benefit and Payment Parameters Rule for 2023. This notice is issued annually preceding the applicable benefit year and, once final, adopts certain changes. While the proposed rule primarily impacts the individual market and the Exchange, it also addresses certain ACA provisions and related topics that impact employer-sponsored group health plans. Highlights include:
- Annual Cost-Sharing Limits. As background, the ACA requires non-grandfathered group health plans to comply with an out-of-pocket maximum on expenses for essential health benefits. This maximum annual limitation on cost-sharing for 2023 is proposed to be $9,100 for self-only coverage and $18,200 for family coverage (an increase from $8,700 and $17,400 for self-only/family coverage respectively in 2022).
- Medical Loss Ratio Rebates. HHS proposes to clarify that Quality Improvement Activity (QIA) expenses that may be included for MLR reporting and rebate calculation are only those expenses that are directly related to activities that improve health care quality. The appropriate QIA expenses include salaries of the staff actually performing QIA functions. On the other hand, indirect expenses, such as a portion of overhead (e.g., holding group overhead), marketing office space, IT infrastructure and vendor profits that have no direct connection to QIA should not be included in QIA expenses.
- Premium Adjustment Percentage and Payment Parameters. HHS announced the premium adjustment percentage for the 2023 benefit year as 1.4408219719, which indicates an increase in employer-sponsored insurance premiums of approximately 44.1% over the period from 2013 to 2022. This premium adjustment percentage will also be used to index the Employer Mandate provision’s penalty amounts for the 2023 benefit year.
- Enhancing Options & Health Equity at Exchanges. HHS plans to conduct network adequacy reviews of plans in all federally facilitated Exchanges prospectively during the Qualified Health Plan (QHP) certification process. Moreover, HHS proposes to require issuers in the Exchanges to offer standardized plan options at every product network type, metal level, and throughout service area when insurers offer non-standardized options in plan year 2023. Additionally, HHS proposes to prohibit Exchanges, issuers, agents and brokers from discriminating against consumers based on sexual orientation and gender identity to increase access to health care, and align with the Executive Order released from the Biden Administration last January.
Once the regulations are finalized, employers should review them and implement any changes needed for the 2023 plan year.
Proposed Rules »
Fact Sheet »
2023 PAPI Parameters Guidance »
PCOR Fee Increased for 2021-2022 Plan Years
December 21, 2021
On December 21, 2021, the IRS released Notice 2022-4, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after October 1, 2021, and before October 1, 2022, is $2.79. This is a $.13 increase from the $2.66 amount in effect for plan and policy years ending on or after October 1, 2020, but before October 1, 2021.
As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee doesn’t 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 hasn’t yet been updated to reflect the increased fee). It’s expected that the form and instructions will be updated prior to July 31, 2022, since that’s the first deadline to pay the increased fee amount for plan years ending between October and December 2021. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.
The PCOR fee requirement was reinstated through the Further Consolidated Appropriations Act, 2020 and will be in place until the plan years ending after September 30, 2029.
IRS Notice 2022-4 »
IRS Releases Final Instructions for 2021 Forms 1094/1095-C and Forms 1094/1095-B
December 21, 2021
The IRS recently released the final instructions for Forms 1094/1095-C and 1094/1095-B for the 2021 reporting year. With these final instructions, employers and insurers now have all the IRS documents needed to complete the 2021 reporting.
The 2021 final instructions mostly mirror the draft instructions that were released in October. For more information about the draft instructions, general purposes of Forms 1094-B/C and 1095-B/C, and the recently proposed rules, see the article published on October 12, 2021, and the article published in the December 7, 2021, edition of Compliance Corner.
One of the key changes from 2020 reporting is the deadline for furnishing Forms 1095-B/C to individuals. The IRS has proposed that the deadline be permanently extended to 30 days after January 31, rather than the IRS extending the deadline each year. For 2021 reporting purposes, employers can rely on the proposed extension. Therefore, the date by which employers must distribute Forms 1095-B or 1095-C to individuals is now March 2, 2022, instead of the January 31, 2022 deadline. Keep in mind that the deadlines for employers to file the forms with the IRS remain the same. For filing by mail, the deadline is February 28, 2022. The deadline for electronic filing is March 31, 2022.
Another update from the prior years’ reporting is that the good faith penalty relief for incorrect or incomplete information was eliminated permanently starting from the 2021 reporting. Therefore, employers should focus on accuracy and thoroughly completing the Forms 1094/1095-B and C for 2021 reporting since filers can no longer rely on this relief. Additionally, employers should retain all the supporting documents that were used to complete the forms in case of a proposed assessment.
Moreover, the 2021 instructions added two new codes (1T and 1U) to report individual coverage HRAs (ICHRA). Code 1T applies to ICHRAs offered to the employee and spouse but not dependents, with affordability determined using the employee’s primary residence location zip code. Code 1U applies to ICHRAs using the employee’s primary employment-site ZIP code affordability safe harbor.
Finally, the instructions permit insurers to provide Forms 1095-B to individuals in the prescribed alternative way rather than mailing a Form 1095 to each individual so long as an insurer provides clear and conspicuous notice, in a location on its website that is reasonably accessible, which states that a copy of their statement is available upon request. The insurer must retain the notice in the same location on its website through October 17, 2022. Similarly, self-insured employers can use the alternative way to furnish Forms 1095-C to cover non-full-time employees and nonemployees. For the details of the alternative way of furnishing Forms 1095, please refer to the respective instructions.
Employers should be aware of the new forms and instructions.
2021 Instructions for Forms 1094-C and 1095-C »
2021 Instructions for Forms 1094-B and 1095-B »
2021 Form 1094-C »
2021 Form 1095-C »
2021 Form 1094-B »
2021 Form 1095-B »
IRS Proposes Regulations Regarding ACA Reporting
December 07, 2021
On November 22, 2021, the IRS released proposed rules that will provide an automatic 30-day extension each year for Forms 1095-B or 1095-C distribution to individuals. While the rule is currently proposed and not yet final, the IRS explains that these proposed regulations can be relied on for calendar years beginning after December 31, 2020, and before the date when the IRS decides to finalize the regulations. As such, for 2021 reporting purposes, the date by which employers must distribute Forms 1095-B or 1095-C to individuals is now March 2, 2022 (instead of the January 31, 2022 deadline).
The ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities that provide minimum essential coverage to report to the IRS and to covered individuals the months in which the individuals were covered. Section 6056 requires applicable large employers (under the employer mandate) to report to the IRS and full-time employees whether they offered minimum essential coverage that was affordable and minimum value.
Under the proposed rule, the date by which employers must distribute Forms 1095-B or 1095-C to individuals is automatically extended 30 days from the previous January 31 deadline. While the IRS has previously extended the deadline each year, this proposed rule amends the rules to permanently change the due date of the reporting. Specifically, Forms 1095-B and 1095-C furnished to individuals will be timely if provided no later than 30 days after January 31 of the calendar year following the reporting year (if the date falls on a weekend day or legal holiday, statements will be timely if provided on the next business day).
Further, the IRS has in the past recognized good faith efforts made by employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C. As a result, such employers have not been subject to penalties if the information filed was incorrect or incomplete. Since the intention of this good faith relief was to be transitional relief, the IRS stated last year that it was the last year they intended to provide such relief. Accordingly, the agency also proposes that the good faith relief should no longer apply.
The proposed rules do not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. Reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by February 28, if filing by paper, and March 31, if filing electronically. Employers may still request an automatic extension to file the Forms 1094-B/C and 1095-B/C with the IRS, as long as they submit a Form 8809 on or before the due date of those filings.
Employers should keep this guidance in mind as they prepare their ACA filings and distributions for 2021. We will monitor the status of the proposed rules and communicate any updates accordingly.
IRS Releases Draft 2021 1094 and 1095 Forms Instructions
October 12, 2021
The IRS recently released the drafts of general instructions for Forms 1094-B/C and 1095-B/C. Earlier this year, the IRS released the 2021 draft Forms 1094-B/C and 1095-B/C, as we reported in an article in the June 8, 2021, edition of Compliance Corner.
Forms 1094-C and 1095-C are filed by ALEs to provide information that the IRS needs to administer the employer mandate penalties and eligibility for premium tax credits, as required by the ACA under Section 6056. Forms 1094-B and 1095-B are filed by minimum essential coverage providers (e.g., insurers and self-insuring employers) to report coverage information in accordance with Section 6055.
Overall, the majority of the formats and rules remain the same as those in the previous year, with minor additions. The draft Form 1095-C and its instructions added two new codes (1T and 1U) to report individual coverage HRAs (ICHRA). Code 1T applies to ICHRAs offered to the employee and spouse but not dependents, with affordability determined using the employee’s primary residence location zip code. Code 1U applies to ICHRAs using the employee’s primary employment-site ZIP code affordability safe harbor.
For the 2021 reporting deadlines for applicable large employers (ALEs), an ALE must furnish a Form 1095-C to each full-time employee by January 31, 2022; and must file the Forms 1094-C and 1095-C with the IRS by February 28, 2022, or March 31, 2022, if filing electronically.
Importantly, the instructions do not mention an automatic extension to furnish statements to employees and other covered individuals. Instead, they explain how to request a discretionary 30-day extension. Moreover, the draft instructions do not discuss the good faith error penalty relief that was also provided in the prior years for reporting incomplete or incorrect information on the forms when reporting entities can show they made good-faith efforts to comply with the reporting requirements. Therefore, reporting entities should assume that the stated deadlines apply when preparing the required forms.
The draft instructions retain the same electronic filing threshold at 250 forms even though the IRS released the proposal recently to significantly reduce the filing thresholds so that more ALEs would be required to file electronically.
Keep in mind that the instructions and forms are still at the draft stage. Additional changes are possible in the final forms and instructions. We will keep you updated when the finalized 2021 forms and instructions are released in the future.
Draft Instructions for Forms 1094-C and 1095-C »
Draft Instructions for Forms 1094-B and 1095-B »
Draft Form 1094-B »
Draft Form 1095-B »
Draft Form 1094-C »
Draft Form 1095-C »
Agencies Announce Intention to Begin Rulemaking on Preventive Care Coverage
August 31, 2021
On August 16, 2021, the DOL, HHS and Treasury announced that they will begin the rulemaking process to amend the rules concerning moral and religious exemptions from the ACA requirement that certain preventive services be covered by plans and issuers without cost sharing. The agencies stated that recent litigation surrounding these exemptions warrant the amendments, although the announcement does not state what the agencies believe needs to be changed or how they propose to change it. The process is expected to begin within the next six months.
The ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost sharing. Under the ACA, certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process. In 2018, HHS finalized rules that expanded the religious exemption by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services.
These rules were challenged in the courts. Challengers asserted that HHS lacked the authority to promulgate the 2018 rules and that the agency failed to follow the required rulemaking process when it did so. On July 8, 2020, the Supreme Court disagreed with these challenges and remanded them back to the district level for further proceedings. The particular case challenging these exemptions was covered in this article in the July 21, 2020, edition of Compliance Corner.
Although no action is necessary at this point, employers should be aware of this development and expect more agency action in this area. We will follow and report developments as they occur.
FAQs About Affordable Care Act Implementation Part 48 »
Supreme Court Rules that ACA Challengers Lacked Standing
June 22, 2021
On June 17, 2021, the US Supreme Court issued its opinion in the latest legal controversy surrounding the ACA. In the opinion for California v. Texas, the Supreme Court determined that the challengers to the law lacked standing to bring the case to court. Accordingly, the case concludes without discussion of the legal challenges to the ACA, and the ACA remains the law of the land.
The plaintiffs in this case, including Texas and several other states, two individuals and the Trump Administration, challenged the individual mandate requirements under the ACA (which required US citizens to obtain healthcare coverage or face a penalty). Although previous challenges to the mandate resulted in a 2012 Supreme Court decision that the mandate was the lawful exercise of Congress’ taxing power, the plaintiffs stated that Congress waived that power when it reduced the penalty to $0 in 2017. The plaintiffs argued that without Congress exercising its power to tax, the mandate is unconstitutional. They went even further to say that since the mandate is unconstitutional, the entire ACA is unconstitutional too.
The ACA’s defenders, which included California and several other states and the District of Columbia, argued that the plaintiffs could not bring the case to court because they were not harmed by the mandate, particularly once the penalty was reduced to $0. Although the district and appellate courts disagreed and kept the case alive, the defendants asked the Supreme Court to consider the matter.
We have covered this case as it has made its way through the court system. You can find articles tracing its appellate history in the February 4, 2020, January 22, 2020, January 7, 2020, and January 8, 2019, editions of Compliance Corner.
The Supreme Court agreed with the defendants. For a case to be considered by a court, the plaintiffs must show that they were harmed by the allegedly unlawful acts of another. The individual plaintiffs argued that they were harmed because the mandate required them to pay for health coverage every month (with money that they would have spent on other things). The state plaintiffs argued that the mandate forced people to enroll in state-run medical insurance programs, directly and indirectly increasing the state’s costs to run those programs. However, the Supreme Court reasoned that the federal government lacked a way to enforce the mandate if the penalty was reduced to $0, so it could not act in a way that would harm the plaintiffs. The individual plaintiffs and the state residents could simply opt not to purchase insurance and experience no repercussions. The Supreme Court also pointed out that some of the administrative expenses that the states complained of were traceable to other sections of the ACA, not the mandate at issue in the case.
Because the plaintiffs could not show that the ACA’s mandate harmed them, the court reversed the lower courts’ judgment regarding standing, vacated the judgment and remanded the case back down to the lower courts with instructions to dismiss the case.
Since the Supreme Court did not rule on any of the underlying constitutional arguments regarding the mandate and other parts of the ACA, the law remains unchanged. For employers, that means continued compliance with the various requirements imposed by the ACA, including offering affordable coverage to all full-time employees (and the related employer reporting).
California, et al. v. Texas, et al. »
Agencies Issue FAQs Concerning 2022 Out-of-Pocket Limits
June 08, 2021
On June 4, 2021, the DOL, HHS and the Treasury (the agencies) issued two FAQs concerning the maximum out-of-pocket limit for plan years beginning January 1, 2022. In previous years, the limit was adjusted annually based upon the premium adjustment percentage described under the ACA. The method used in 2020 and 2021 relied upon estimates of private health insurance premiums for the private health insurance market (excluding Medigap and the medical portion of property and casualty insurance) as a measure of premium growth. Using this method, the maximum out-of-pocket limits for plan years beginning in 2021 are $8,550 for self-only coverage and $17,100 for other than self-only coverage. These limits were covered in an article in the May 27, 2020, edition of Compliance Corner.
However, continued use of this calculation would result in more rapid increases in consumer costs than would have occurred had HHS retained the method used to calculate the premium adjustment percentage prior to the 2020 plan year. Accordingly, the agencies adopted a method that utilizes estimates of employer-sponsored insurance premiums as a measure of premium growth. By applying this method, the maximum out-of-pocket limits for plan years beginning in 2022 will be $8,700 for self-only coverage and $17,400 for other than self-only coverage.
FAQs About Affordable Care Act Implementation Part 46 »
IRS Releases 2021 Draft Versions of 6055 and 6056 Informational Reporting Forms
June 08, 2021
On May 24, 2021, the IRS released the 2021 drafts of Forms 1094-C and 1095-C. Earlier in the month, the IRS released the 2021 drafts of Forms 1094-B and 1095-B. These forms are informational reporting forms that insurers and self-insured employers will use to satisfy their obligations under IRC Section 6055 and that large employer plan sponsors and health plans will use to satisfy their obligations under IRC Section 6056. These forms, once finalized, will be filed in early 2022 relating to 2021 information. All forms appear to be unchanged from their 2020 versions. (Note that 2021 draft instructions for these forms have not yet been released.)
The ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires insurers and small self-insured employers to report on Forms 1094-B and 1095-B that they provided minimum essential coverage to covered individuals during the year. Section 6056 requires applicable large employers (under the employer mandate) to report on Forms 1094-C and 1095-C that they provided affordable and minimum value coverage to full-time employees.
As a reminder, the forms must be filed with the IRS by February 28, 2022, if filing by paper, and March 31, 2022, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by January 31, 2022. The penalties for failure to file and report are $280 per failure. This means that an employer who fails both to file a completed form with the IRS and to distribute a form to an employee/individual would be at risk for a $560 penalty. Keep in mind that the IRS allows reporting entities not to distribute the Form 1095-B if certain conditions are met.
Employers should become familiar with these forms in preparation for filing information returns for the 2021 calendar year. However, these forms are only draft versions, and they should not be filed with the IRS or relied upon for filing. We will keep you updated of any developments, including release of the finalized forms and instructions.
Draft Form 1094-B »
Draft Form 1095-B »
Draft Form 1094-C »
Draft Form 1095-C »
HHS Will Enforce Section 1557 in Accordance with Bostock Decision
May 11, 2021
On May 10, 2021, HHS announced that they would interpret and enforce prohibitions on discrimination based on sex under the ACA’s Section 1557 and Title IX to include 1) discrimination on the basis of sexual orientation; and 2) discrimination on the basis of gender identity. They updated their enforcement policy in light of the decision rendered in Bostock v. Clayton County in June of 2020.
In Bostock, the US Supreme Court ruled that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. The majority opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.
However, the Bostock decision came only a few days after the Trump administration’s HHS issued a final rule amending Section 1557 of the ACA to scale back explicit protections based upon gender identity introduced by the Obama administration. At the time, the Trump administration argued that Bostock did not directly address Section 1557. This created a conflict between the judicial branch and executive branch that resulted in additional uncertainty in the area of benefits law. (We addressed the Bostock decision and Trump administration’s final Section 1557 rule in an article in the June 23, 2020, edition of Compliance Corner.)
HHS’ newest notice on this subject addresses this conflict head on and indicates their belief that the Bostock case and subsequent federal circuit decisions apply to ACA Section 1557 and Title IX. As such, HHS will interpret and enforce Section 1557’s prohibition of discrimination on the basis of sex, including discrimination on the basis of sexual orientation and gender identity.
HHS also clarified that in so doing, they will comply with all legal requirements, including the Religious Freedom Restoration Act. They will also comply with any applicable court orders that have been issued in cases concerning Section 1557.
While this decision returns HHS’ policy to the one furthered by the Obama administration and presented in Bostock, we anticipate additional challenges to Section 1557. Employers seeking to discriminate in their benefit plans on the basis of sexual orientation or gender identity should consult with legal counsel about their obligations under the law, as should any plans/entities that are subject to Section 1557.
Press Release »
Notification of Interpretation and Enforcement of Section 1557 of the ACA and Title IX »