Compliance Corner

Healthcare Reform

IRS Releases Updated Form 720 and Instructions

May 24, 2022

The IRS recently released an updated Form 720, Quarterly Federal Excise Return, and instructions. The new versions reflect the PCOR fee applicable rate increase announced in IRS Notice 2022-4.

Specifically, the form and instructions now indicate that the PCOR fee for policy and plan years ending on or after October 1, 2021, but before October 1, 2022, is increased to the applicable rate of $2.79, multiplied by the average number of lives covered under the policy or plan. The fee for policy and plan years ending on or after October 1, 2020, but before October 1, 2021, remains at the applicable rate of $2.66, multiplied by the average number of lives covered under the policy or plan.

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 for retiree-only plans. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.

Affected employers should be aware of the availability of the updated form and instructions and ensure they file and pay the applicable fee by the July 31 deadline.

Instructions for Form 720 »
Form 720 »

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HHS Issues 2023 Notice of Benefits and Payment Parameters Final Rule

May 10, 2022

On April 28, 2022, CMS released the Final Benefit and Payment Parameters for 2023, along with an accompanying fact sheet. The regulations are primarily 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 1, 2022.

These annual parameters specify the uniform standards for health plans subject to the Affordable Care Act (ACA). The guidance also describes related regulatory and reporting issues. Accordingly, the guidance can serve as a useful planning tool for insurers and employers.

Overall, the 2023 regulations cover a range of topics, including standardized plan options requirements for issuers in the marketplaces, marketplace network adequacy standards, special enrollment period verifications, a framework for discriminatory benefit design, and indirect quality improvement activity (QIA) exclusions from medical loss ratio (MLR) calculations.

For the standardized plan options requirement, CMS requires issuers in the marketplaces to offer standardized plan options for every product network type, at every metal level, and throughout every service area where they offer non-standardized options in plan year 2023. For example, if an issuer offers a non-standardized gold HMO plan in a particular service area through a marketplace, the issuer needs to also offer a standardized gold HMO plan set by CMS in the same service area. Further, beginning for plan year 2023, CMS will evaluate plans sold in many of the marketplaces for compliance with quantitative network adequacy standards based on time and distance standards. CMS will use this information to add appointment wait time standards in plan year 2024.

Additionally, the 2023 regulations confirmed that issuers’ expenditures for activities that improve health care quality (a.k.a., quality improvement activity (QIA)) that can be included in the MLR formula and that would improve the MLR ratio must be restricted to only direct QIA expenses, such as salaries of the staff performing QIA functions and not indirect expenses, such as issuers’ IT infrastructure expenditures.

CMS did not finalize the proposed changes that would have amended the ACA guaranteed-availability regulations to explicitly bar discrimination based on sexual orientation and gender identity across a range of requirements. Those changes will be deferred to future rulemaking on Section 1557 of the ACA.

Employers may find this annual guidance helpful in designing their plan benefit offerings.

2023 Benefit and Payment Parameters Final Rule »
2023 Benefit and Payment Parameters Fact Sheet »

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HHS Extends Public Health Emergency an Additional 90 Days

April 26, 2022

On April 13, 2022, the HHS renewed the COVID-19 pandemic Public Health Emergency (PHE) for an additional 90 days, effective April 16, 2022. With this extension, the PHE is now set to expire on July 15, 2022. The PHE is being extended for the ninth time since it was initially declared in January 2020, when the coronavirus pandemic began. The Biden Administration has said that it will give states a 60-day notice before the PHE expires. The PHE impacts several important benefits for employer sponsored plans, including coverage of COVID-19 testing and treatment.

Private insurers have been required to cover the full cost of COVID-19 tests and vaccines for the duration of the PHE. Beginning January 15, 2022, this requirement expanded to include up to eight over-the-counter at-home COVID-19 tests authorized or approved by the FDA per covered member per month. Once the PHE is ended, private insurers can charge co-pays or other costs so that COVID-19 tests and vaccines will no longer be free for insureds. The federal government has been paying for tests, vaccines and certain treatments for those covered by its Medicare and Medicaid health insurance programs.

Employers should be aware of the latest PHE extension and monitor the developments as the current July PHE ending date approaches to assess the impacts on their plans, including COVID-19 tests and vaccine coverage.

HHS: Renewal of Determination That a Public Health Emergency Exists »

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Fifth Circuit Upholds ACA Risk-Adjustment Program

April 12, 2022

On March 17, 2022, in Vista Health Plan, Inc. v. US Department of Health & Hum. Servs., the US Court of Appeals for the Fifth Circuit ruled in favor of the Department of Health and Human Services’ (HHS) risk-adjustment program.

The ACA prohibits health insurers from denying coverage or charging higher premiums based on someone’s health status. To disincentivize these prohibited practices, HHS administers the risk-adjustment program by redistributing enrollees’ actuarial risk among health insurers. Plans with healthier enrollees in any given state pay fees into a pool from which funds are distributed to plans insuring sicker individuals in that same state.

Several small health insurers around the country have unsuccessfully argued that risk-adjustment calculation favors larger insurers. In this case, Vista Health Plan, Inc., a small insurer in Texas, was assessed risk-adjustment fees that exceeded its premium revenue, causing it to cease operations in 2019. After Vista sued HHS, this advanced many constitutional, statutory interpretation, and administrative procedure arguments challenging the program.

The Fifth Circuit’s decision to uphold the program serves less as an assessment of HHS’s risk-adjustment calculation but rather more of an analysis of the administrative process the government undertook to implement the program. Although this case is focused on carriers, employers should be aware that the risk-adjustment program will remain a fixture in health insurance markets, having survived yet one more test by judicial review. This is especially important in the small group market, where premiums are community rated and stabilized in part by the risk-adjustment program.

Vista Health Plan, Inc. v. US Department of Health & Human Services »

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IRS Issues Proposed Rule on Affordability of Employer Coverage for Family Members

April 12, 2022

On April 5, 2022, the IRS and Treasury Department announced a proposed rule to fix the “family glitch” in eligibility rules for the ACA premium tax credit (PTC). In a press statement, the Biden administration reported the “family glitch” affects about 5 million people.

A PTC for purchasing health insurance on the ACA’s marketplace is available to people who do not have access to “affordable” coverage through their jobs. Under current regulations, spouses and children are ineligible for the PTC if an employee’s access to employer-sponsored coverage is deemed affordable (for 2022 plan years, less than 9.61% of household income) based on the cost of self-only coverage, without considering any additional cost of family coverage.

To increase access to the PTC for low-income families, the proposed rule applies a separate PTC affordability standard for family members based on the full cost of family coverage. As a result, an employee’s family may qualify for the PTC even if the employee does not. Importantly, the proposed rule does not increase exposure to employer shared responsibility penalties. Penalties will continue to be triggered only by an employee’s receipt of a marketplace PTC, not their spouse’s or dependents’ PTC. However, employers may see an indirect impact with more families dropping employer-sponsored coverage for newly subsidized ACA marketplace coverage.

As part of the rulemaking process, comments may be submitted through June 6, 2022. If finalized, the new PTC affordability standard would take effect on January 1, 2023.

Proposed Rule »
Fact Sheet »

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CMS Extends Nonenforcement of ACA-Compliance for Certain Policies

March 29, 2022

On March 23, 2022, CMS announced an extension of its nonenforcement policy for specific ACA compliance requirements for certain non-grandfathered individual and small group coverage known as “grandmothered” policies. Under the latest extension, states may permit insurers that have continually renewed eligible grandmothered policies since January 1, 2014, to renew that coverage again for a policy year beginning on or before October 1, 2022. The nonenforcement policy remains in effect until the agency announces that coverage renewed under this policy must comply with the relevant requirements.

On November 14, 2013, CMS issued a letter outlining a transitional policy concerning health care reform mandates for coverage in the individual and small group markets. Under the policy, state authorities could allow health insurance issuers to continue certain coverage that would otherwise have been canceled for failure to comply with the ACA requirements.

This initiative allowed individuals and small businesses to elect to re-enroll in such coverage. Specifically, the nonenforcement policy provided relief from the following market reforms:

  • Community rating
  • Guaranteed issue and renewability of coverage
  • Prohibition of coverage exclusions based on pre-existing conditions
  • Nondiscrimination based on health status
  • Nondiscrimination regarding health care providers
  • Comprehensive coverage (i.e., coverage of essential health benefits and the application of maximum out-of-pocket limits)
  • Coverage for participation in clinical trials

Since the initial announcement, the nonenforcement policy has been continually extended, thus permitting grandmothered policies to maintain an exemption from the above-mentioned requirements.

Although the CMS bulletin allows for the temporary continuation of these noncompliant plans at the federal level, it is important to note that the practice must still be approved by state regulators for policies to be available in a particular state. Insurers will then have a choice as to whether to keep offering the policies. The bulletin includes a notice that insurers can use in the event they issue coverage cancellation notices and will now provide the policyholder with the option to continue the coverage.

Accordingly, small employers who are currently covered by such grandmothered policies should be aware of the most recent nonenforcement extension. These employers should work with their advisors and insurers regarding the possible renewal of the coverage.

CMS Bulletin »

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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 »

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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 »

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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 »

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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.

REG-109128-21 »

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