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 »
CMS Issues 2022 Notice of Benefit and Payment Parameters
May 11, 2021
On May 5, 2021, CMS released the Final Benefit and Payment Parameters for 2022, along with an accompanying fact sheet. The regulations are intended for health insurers and the marketplace but include important information that also affects large employers and self-insured group health plans. The effective date is July 6, 2021.
For 2022, the out-of-pocket maximum applicable to insured and self-insured plans is $8,700 for self-only coverage (up from $8,550) and $17,400 for family coverage (up from $17,100). This limit is distinct from the 2022 IRS out-of-pocket maximums applicable to HSA-compatible high deductible health plans (HDHPs), which are $7,050 for self-only coverage (up from $7,000) and $14,100 for family coverage (up from $14,000).
As previously reported in the 2021 Benefit and Payment Parameters Rule, effective with the 2022 MLR reporting year, insurers are to deduct prescription drug rebates and any other price concessions received by the insurer (or any entity providing pharmacy benefit management services to the insurer) from the incurred claim amount. The 2022 final rules clarify that prescription coupons, rebates and other concessions received directly by the insured are excluded for this purpose as they did not benefit the insurer.
HHS has long had a policy that provides a special enrollment period in the health insurance marketplace for an individual who loses a COBRA premium subsidy. The final rules codify this practice, which applies not only to the current ARPA COBRA subsidies but also to an employer-provided subsidy. The individual will have a 60-day period following the end of the subsidy to enroll in individual coverage both on and off the marketplace.
Interestingly, CMS did not finalize a proposed rule that would have required all health insurance exchanges to verify at least 75% of new enrollments coming through a special enrollment period. The reasoning provided was that it was believed to be overly burdensome on consumers and the state exchanges. Similarly, CMS stated that they will not take enforcement action against state exchanges that do not perform random certification of employer-sponsored coverage for individuals applying for individual coverage and a premium tax credit. This is required by the statute and regulations, but CMS will continue the nonenforcement policy through at least 2022.
Employers may find this annual guidance helpful in designing their plan benefit offerings.
2022 Benefit and Payment Parameters Final Rule »
2022 Benefit and Payment Parameters Fact Sheet »
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 »