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 »
Another Federal District Court Invalidates the Current Section 1557 Rules
October 27, 2020
On September 2, 2020, the US District Court for the District of Columbia issued an injunction against HHS, stopping the agency from enforcing its amendments to its rule implementing Section 1557 of the ACA. The specific amendments subject to the injunction are those that scale back the rule’s prohibition against discriminating on the basis of gender identity or sexual orientation, as well as the insertion of a religious exemption allowing religious organizations to opt out of following the rule when doing so would be inconsistent with their religious beliefs. This is the second federal district court to block these new amendments.
The amendments to the rule implementing Section 1557 were discussed in the June 23, 2020, edition of Compliance Corner.
In this case, Whitman-Walker Clinic v. HHS, a group of organizations that provide healthcare and other services to the LGBTQ community filed suit against HHS within days of the publication of its final rule. The plaintiffs alleged that the agency acted in an arbitrary and capricious way when implementing the amendments to the rule, and that these amendments conflict with Section 1554 of the ACA by creating unreasonable barriers and impeding access to healthcare services to members of the LGBTQ. The plaintiffs also alleged that the final rule violates the First Amendment’s right to free speech, the Fifth Amendment’s guarantees of equal protection and substantive due process, and the Establishment Clause. As a preliminary matter, the plaintiffs asked the court to enjoin the agency from enforcing its final rule while litigation proceeded.
The court considered whether the plaintiffs would likely succeed on the merits of their case. The court concluded that they were likely to both succeed on the merits and suffer irreparable harm on the allegations that HHS acted arbitrarily and capriciously when it stripped out language regarding sexual orientation and gender identity from the definition of “discrimination of the basis of sex.” Although the court did not agree that “gender identity” was included in the original regulation, it did agree that discrimination based upon “sex stereotyping” was prohibited. The court additionally found that the agency improperly incorporated the religious exemption established in Title IX of the Civil Rights Act of 1964 into the final rule. Accordingly, the court issued its injunction. The injunction is effective nationwide.
This ruling is part of ongoing litigation and could be appealed, so the ultimate disposition of the final rule is unknown. It should be noted that this is the second federal district court to enjoin this rule. The first case, Walker v. Azar, was discussed in the August 18, 2020, edition of Compliance Corner. Employers that would operate their plans in a manner consistent with the final rules should consult with legal counsel about the implications of this decision. We will keep an eye on developments in this area to see how they may affect the benefits employers provide to their employees.
Whitman-Walker Clinic v. HHS »
President Issues Executive Order on Healthcare
October 27, 2020
On September 24, 2020, President Trump issued the Executive Order on An America-First Healthcare Plan, providing a summary of efforts made regarding the efficiency and quality of healthcare in the US, and directives aimed at lowering healthcare costs for Americans.
In an effort to lower healthcare costs, the order directs HHS to:
- Maintain and improve upon actions to expand access to affordable prescription drugs, including allowing the importation of drugs from abroad.
- Work with Congress on a solution to end surprise medical billing by December 31, 2020. If there is no legislative solution by December 31, 2020, HHS must take administrative action to prevent patients from receiving reasonably unforeseen bills for out-of-pocket expenses.
- Update the Medicare.gov Hospital Compare website to provide information regarding billing quality. This includes whether the hospital is in compliance with the Hospital Price Transparency Final Rule (effective January 1, 2021), provides patients with itemized receipts upon discharge, and how often the hospital pursues legal action against patients.
In addition, HHS is directed to continue to maintain and improve upon existing processes to reduce waste, fraud and abuse in the healthcare system and to advance the quality of delivery of care for veterans, while continuing to promote medical innovations of conditions impacting Americans (such as COVID-19 and Alzheimer’s disease, among others).
Further, in response to the order, HHS issued a final rule from the Food and Drug Administration and related guidance, among other items, as noted in its September 24, 2020, press release. The final rule permits importation of certain drugs from Canada in an effort to lower patient drug costs and explains the process for states who wish to do so.
While the order does not directly impact group health plans, employers should be aware of these developments.
Executive Order on An America-First Healthcare Plan »
FDA Final Rule on Importation of Prescription Drugs »
FDA Guidance on Importation of Prescription Drugs »
HHS September 24, 2020 Press Release »
IRS Releases Publication 5164, Test Package for 2020 Electronic ACA Filers
October 13, 2020
The IRS recently released an updated version of Publication 5164, entitled “Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR),” for tax year 2020 (processing year 2021). The publication describes the testing procedures that must be completed by those filing electronic ACA returns with the IRS, specifically Forms 1094-B, 1095-B, 1094-C and 1095-C. As a reminder, those who are filing 250 or more forms are required to file electronically with the IRS.
Importantly, the testing procedures apply to the entity that will be transmitting the electronic files to the IRS. Thus, only employers who are filing electronically with the IRS on their own would need to complete the testing. If an employer has contracted with a software vendor who’s filing on behalf of the employer, then the testing and this publication would not be utilized by the employer, but the software vendor instead.
The IRS provides scenarios for each form type (see pages 12-13) for reporting year 2020. Each scenario contains all the information needed to prepare the XML. The scenarios test the functionality of the business rules and each test submission must match the scenarios exactly to pass tests. Correction scenarios are also provided (see pages 15-16), but those are not required in order to pass testing.
As a reminder, electronic filing of 2020 returns will be due March 31, 2021. Employers that are filing on their own will need to review the updated testing requirements in Publication 5164. Large employers that are required to file electronically, and would like information on third-party vendors who can assist, can contact their advisor for more information.
IRS Publication 5164 »
AIR Program »
Once Again, IRS Extends ACA Reporting Deadlines and Offers Penalty Relief
October 13, 2020
On October 2, 2020, the IRS released Notice 2020-76, extending the deadlines for distributing ACA reporting forms to individuals.
As background, 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.
This relief is consistent with that offered in previous years. As the IRS has done for the previous reporting years, 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.
Despite this relief, the IRS may still seek penalties on employers who fail to comply with the deadlines. The IRS also indicates that employers can no longer request an automatic extension of the due date by which they must distribute the forms to individuals, as the extension they have provided is just as generous. In fact, the IRS will not respond to any such request for an extension. 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.
The IRS also continues to recognize good faith efforts made by employers that file the 2020 forms. Specifically, employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C will not be subject to penalties if the information is incorrect or incomplete. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the ACA Information Return Program electronic submission process.
Since the intention of this good faith relief was to be transitional relief, the IRS states that this is the last year they intend to provide such relief. Note that this relief does not apply to a failure to timely furnish or file a statement or return, and it does not extend to employer mandate penalties (for large employers that did not offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).
Notably, similar to last year, this notice also provides penalty relief for employers which will allow them to forego distributing the Form 1095-B to individuals. As a reminder, this resulted from the IRS accepting comments on the necessity of the Form 1095-B now that the individual mandate penalty has been zeroed out. So, as long as employers post a notice on their website that the document is available upon request, and then fulfill any such request within 30 days, they can choose not to distribute the Forms 1095-B to covered individuals.
However, employers should note that the penalty relief pertaining to the Form 1095-B is not available for Form 1095-C, but can be applied to employees who are not full-time and only receive a Form 1095-C to meet the Form 1095-B reporting requirement. In other words, those employees who are only receiving a Form 1095-C because the employer uses Part III to comply with Section 6055 no longer have to be provided a Form 1095-C. (Self-insured applicable large employers must still provide and file Form 1095-C to full-time employees and complete Part III of the Form, indicating the covered spouses and dependents of the full-time employees.)
Although the IRS provided similar relief in the past, the agency explains that unless they receive comments to explain why relief related to furnishing statements under Sections 6055 and 6056 continues to be necessary, no relief will be granted in future years. Comments must be submitted by February 1, 2021 (Notice 2020-76 provides instructions on how to do so).
Employers should keep this guidance in mind as they are preparing their ACA filings and distributions for 2020.
IRS Notice 2020-76 »