Source: https://eforerisa.wordpress.com/category/affordable-care-act/
Timestamp: 2019-04-21 00:19:04+00:00

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If you are in the benefits business you have already heard about a December 14, 2018 ruling by a federal trial court judge in Texas, that the entirety of the Affordable Care Act is unconstitutional. The following 5 takeaway points put the ruling into context and provide some indications of where things could head from here.
1. For now, the ACA remains in effect.
The ruling did not stop the government, via “injunction,” from continuing to enforce the ACA as it currently stands. Instead it reached a legal conclusion (holding) that (a) the individual mandate (which imposed a tax on individuals who failed to secure coverage) was integral to the whole ACA (“the ACA keystone”), that (b) the individual mandate was constitutional because it fell within Congress’s power to levy taxes (as determined by the Supreme Court in NFIB v. Sebelius), and that (c) the reduction of the tax imposed under the individual mandate to $0 (via the 2017 Tax Cut and Jobs Act) rendered the individual mandate, and hence the entire ACA, unconstitutional. The Departments of Health and Human Services (“HHS”) and the IRS were defendants in the Texas court case, supporting the ACA, and following the ruling the Trump Administration issued a statement that HHS “will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision.” As one consequence, applicable large employers (ALEs) must continue to comply with employer shared responsibility rules (both offers of coverage, and ACA reporting due in early 2019).
2. The ruling is not the last word on the ACA’s fate.
As mentioned the ruling is at the trial court level in the federal court system. It almost certainly will be appealed to the Fifth Circuit Court of Appeals and then possibly to the Supreme Court. Legal scholar Nicholas Bagley has opined that the Fifth Circuit Court may have little patience for the court’s holding. The appeals process could take months, in any event.
3. The ruling creates uncertainty re: the ACA’s fate.
The ACA has survived two Supreme Court challenges, plus two years of full control of Congress and the White House by its most severe opponents. It had seemed to reach safe ground in recent months; indeed, some ACA concepts such as no pre-existing condition exclusions and coverage of dependents to age 26 had broad appeal in the mid-term elections, including among some Republicans. With the Texas court’s ruling, the ACA’s fate is back in watch and wait mode. Resolution of the uncertainty will have to await completion of the legal processes described in Point No. 2. Generally speaking, uncertainty is not good for employers, insurers, or the general economy, so eyes will be on how these sectors react in the wake of the ruling.
4. The political landscape has changed since the last time the ACA’s constitutionality was in question.
As mentioned, some ACA provisions now appear to be “baked in” to the public’s concept of government entitlements. Unlike in prior years, elected officials are now loathe to align themselves with the law’s total repeal. (Even the HHS notice regarding continued enforcement of the ACA expressly mentioned the ban on pre-existing condition exclusions.) So reaction to the ruling from known ACA foes has been measured, if made at all. Prior legal setbacks for the ACA have become political footballs, but public debate over the issues hopefully will have a more civil tone, this time around.
5. As the ACA’s fate hangs in the balance, more radical health care reform proposals are just around the corner.
Some of the newly empowered Democratic winners of the mid-term elections are entering Washington, D.C. with ideas for health care reform that go far beyond what the ACA accomplished, including single payer systems. Single payer systems, including, for instance, a major expansion of the Medicaid program, would disrupt the nexus between healthcare and employment that exists for many Americans. These concepts first got broad national attention in the last presidential campaign and you can expect buzz around them to increase as the next presidential election in 2020 approaches.
Now that summer is here, there are only a few more months until benefit plan open enrollment for 2019 gets underway. Employers who maintain a wellness program that includes biometric testing, health risk assessments (HRAs), or medical questionnaires need to think now about how they will design their plan in the new year, as changes to the rules governing these wellness features go into effect. This post outlines the changes and discusses the new design landscape for 2019.
During 2017 and 2018, final regulations under the Americans with Disabilities Act (ADA) limit the financial incentive employers may offer in exchange for participating in biometric testing, HRAs or medical questionnaires, to an amount equal to 30% of the cost of individual coverage (both the employee and employer portions.) The same limit applies to surcharges or penalties for not taking part. Companion regulations under Title II of the Genetic Information Nondiscrimination Act (GINA) apply the same cap to completion of an HRA or medical questionnaire by an employee’s spouse, because manifestation of a disease or disorder in a family member comprises genetic information on the employee. The ADA regulations also disallow the 20% additional incentive tied to tobacco use, if the wellness program includes a blood test for nicotine or cotinine. The ADA and Title II of GINA apply to employers with 15 or more employees. We discussed the ADA and GINA rules in a prior post.
The American Association of Retired Persons (AARP) challenged the 30% incentive limit in court on the grounds that the Equal Employment Opportunity Commission (EEOC) failed to prove that this cap was necessary in order for participation in the biometric testing or health risk assessment (HRA) to be “voluntary” and not coercive, which is an ADA requirement.
A federal court agreed with the AARP, and vacated the 30% incentive cap effective January 1, 2019. (Other provisions of the ADA regulations, including notification and confidentiality rules, remain in effect.) The court also lifted a requirement that the EEOC publish new proposed regulations on the voluntary standard by August 31, 2018. The EEOC may issue regulations in the future (and could appeal the court decision), but wellness program design for 2019 must get underway in the absence of clear guidance on the voluntariness standard.
The chart below illustrates the wellness rule landscape effective January 1, 2019 for employers that are subject to the ADA. Wellness regulations under HIPAA and the ACA will continue to apply, but they do not impose any limit on incentives (or penalties) for biometric testing or HRAs that are “participation only” i.e., that do not require physical activity, or specific health outcomes.
Despite the vacated EEOC standard, employers should exercise caution in setting financial incentives for biometric testing, HRAs or medical questionnaires. Even prior to issuing regulations, the EEOC had challenged wellness programs in several court actions, ranging from a program that conditioned biometric testing and completion of an HRA on a $20 per paycheck surcharge, to one that conditioned 100% of the premium cost on taking part in an HRA. Although the cases generally were resolved in favor of the employer, they make clear that EEOC may view even modest incentives as failing the voluntary standard.
Employers should also make sure that their wellness program follows up after gathering health data through biometric testing, HRAs or medical questionnaires, with information, advice, or programs targeted at health risks. A wellness program that fails to do so would not qualify as an employee health program under the ADA and the voluntary wellness program exceptions would not be available.
1) Eliminating biometric testing/HRAs/medical questionnaires altogether.
2) Keeping biometric testing/HRAs/medical questionnaires, but removing any financial incentive or penalty that applied to them.
3) Offering smoking cessation programs that request self-disclosure as a tobacco user (no blood test for nicotine, cotinine).
Limiting financial incentives/penalties for biometric testing/HRAs/medical questionnaires to an amount that does not exceed 10 – 15% of the individual premium is another option. This range is just high enough to encourage participation, but it is under 20%. In AARP v. EEOC, the court’s August 2017 ruling on summary judgment cited a RAND study noting that “high powered” incentives of 20% or more may place a disproportionate burden on lower-paid employees.
What about different incentive levels for different groups of employees? First, this may be administratively impractical, and second, it might run afoul of the HIPAA/ACA requirement that the full wellness incentive or reward be made available to all “similarly situated” individuals. Groupings of employees for this purpose must be based on bona fide, employment-based classifications that are consistent with the employer’s usual business practice, such as between full-time and part-time employees, hourly and salaried, different lengths of employment, or different geographic locations. For many employers, these criteria may not always neatly overlap with different compensation levels.
In sum, employers who do not wish to eliminate biometric testing and HRAs/medical questionnaires from their wellness programs should anticipate living with some uncertainty about whether their financial incentives meet ADA standards. Engaging in careful planning in the coming weeks, together with benefit advisors and legal counsel, can help keep the risk to a minimum.
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Although the Dynamex ruling is limited to classification of workers under the California wage orders, it’s practical effect is likely to be much broader, as employers are unlikely to use one definition of employee for wage and hour purposes, and another definition for, say, reimbursement of business expenses, or benefit plan eligibility.
Speaking of which, what is the likely impact of the Dynamex ruling on employee benefit plans? Will employers have to offer coverage retroactively to the hire date of the now-reclassified independent contractors? Must they offer coverage going forward?
ERISA plans look to the federal definition of common law employee, which in turn looks to federal case law and an IRS multi-factor test. So the Dynamex decision does not itself create eligibility under an ERISA plan. What if individuals who were reclassified as employees under the ABC test were to claim retroactive eligibility under an ERISA plan, however? As a starting point, it is helpful to look at how most plan documents currently define “eligible employee” and how they treat the issue of workers who were engaged as independent contractors, but later are classified as common law employees.
Most prototype 401(k) plan documents – and some health plan documents in use by “self-insured” employers – contain what is commonly referred to as “Microsoft language” — under which plan eligibility will not extend retroactively to individuals who are hired as independent contractors, even if they later are classified as employees. The language came into common use after the Ninth Circuit ruling in Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997), cert. denied.522 U.S. 1098 (1998), which held that long-term, “temporary” workers, hired as independent contractors, were employees for purposes of Microsoft’s 401(k) and stock purchase plan.
(1) any individual who is a signatory to a contract, letter of agreement, or other document that acknowledges his status as an independent contractor not entitled to benefits under the Plan or any individual (other than a Self-Employed Individual) who is not otherwise classified by the Employer as a common law employee, even if such independent contractor or other individual is later determined to be a common law employee; and (2) any Employee who is a resident of Puerto Rico.
The Microsoft language, if present, may resolve the issue of retroactive coverage. What about coverage going forward? If a worker has provided services as an independent contractor but cannot retain that status under the ABC test, and is hired as a common-law, W-2 employee, does the first hour of service counted under the plan begin the day they become a W-2 employee, or the date they signed on as an independent contractor? The Microsoft provisions quoted above would suggest that service would start only when the common-law relationship starts, however employers are cautioned to read their specific plan documents carefully and to consult qualified employment and benefits law counsel for clarification. If the desire is to credit past service worked as an independent contractor, it may be advisable to seek IRS guidance before doing so, as fiduciary duties require that plan sponsors act in strict accordance with the written terms of their plan documents.
Employers that are “applicable large employers” under the Affordable Care Act must count individuals who have been re-classified as common-law employees under the ABC test toward the group of employees to whom they offer minimum essential coverage; this group must comprise all but 5% (or, if greater, all but 5) of its full-time employees. Unfortunately, there is potential ACA liability for failing the 95% offer on a retroactive basis. Public comments on the final employer shared responsibility regulations requested relief from retroactive coverage when independent contractors were reclassified as common-law employees, but the Treasury Department specifically failed to grant such relief, noting in the preamble to the final regulations that doing so could encourage worker misclassification. Whether the customary 3-year tax statute of limitations would apply in such situations is not entirely clear; also unclear is whether employers could successfully argue that workers that fail the ABC test still somehow could classify as non-employees for federal common-law purposes.
Bottom line? Every California employer paying workers other than as W-2 employees should be re-examining those relationships under the ABC test and should be consulting qualified employment law counsel, and benefits law counsel, about the consequences of any misclassification, both on a retroactive basis (particularly with regard to the ACA), and going forward (all benefit plans).
 Another Ninth Circuit case, Burrey v. Pacific Gas & Elec. Co., 159 F.3d 388 (9th Cir. 1998), essentially followed the Microsoft ruling, but with specific regard to “leased employees” as defined under Internal Revenue Code § 414(n). A discussion of leased employees is beyond the scope of this post.
Employers value flexibility in designing their group health benefits so as best to attract and retain qualified personnel. One issue that remains perpetually murky, in this regard, is the legality of management carve-outs, whereby an employer offers certain group health insurance options or classes of coverage only to management or other highly paid groups. The following true or false discusses some of the rules that come into play.
The ACA contains a rule that restricts employers’ ability to offer different insured group health benefits to highly compensated employees, than to other employees.
TRUE: Under Section 2716 of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA), non-grandfathered, insured group health plans generally must satisfy nondiscrimination rules similar to those that apply to self-insured group health plans under Section 105(h) of the Internal Revenue Code (“Code”). These rules generally require some measure of parity between higher-paid employees, and non-highly paid employees. Limited scope dental or vision plans provided under policies separate from group medical coverage are excepted.
However, the IRS is not currently enforcing the ACA nondiscrimination rules for insured group health plans.
TRUE: In 2011 the IRS postponed enforcement of these rules, pending publication of regulations that will guide employers as to how to comply. As we approach the ACA’s eighth anniversary in March 2018, regulations have yet to issue. When regulations do issue they will apply on a prospective (going forward) basis.
Therefore employers have free reign to offer different benefits to management employees or other highly-compensated groups of employees.
FALSE: Although there are some circumstances in which employers may offer different and/or better group health insurance to management or other highly-paid employee groupings, the Section 125 cafeteria plan rules do impose some design restrictions. These rules will apply to employers that have any type of Section 125 cafeteria plan arrangement, including premium-only plans (e.g., employees’ share of premiums are paid on a pre-tax basis, with no other cafeteria plan features) and to employers with other cafeteria plan features such as a health flexible spending account or dependent care flexible spending account. The rules are explained in the questions that follow.
All management employees are “highly-compensated employees” for cafeteria plan testing purposes.
Spouses or dependents of any of the above.
If I maintain just a premium-only plan and all employees can participate and elect the same salary reductions for the same benefits, the premium only plan is nondiscriminatory.
TRUE. Proposed cafeteria plan regulations that issued in 2007 provide this safe harbor rule. Employers may rely on the proposed rules.
If I maintain just a premium-only plan and don’t meet the requirements of the safe harbor, the POP is automatically discriminatory.
FALSE. Under these circumstances your premium-only plan will not satisfy the safe harbor mentioned above, but it could still pass other applicable nondiscrimination tests. There is some uncertainty, under the 2007 proposed regulations, as to whether the only applicable test applies to eligibility, or whether there is a benefits component of the test. It may be best to consult a seasoned third party administrator, or benefits attorney, if you have questions.
If my cafeteria plan fails all types of nondiscrimination testing, all is lost.
FALSE. The 2007 proposed regulations permit “disaggregation” – breaking up one plan into separate component plans – one benefitting participants who have completed up to three years of employment, and another benefitting those with three or more years of employment. Each component plan must separately pass cafeteria nondiscrimination rules applicable to eligibility, and contributions and benefits. Plans that fail nondiscrimination testing as a whole may pass testing after permissive disaggregation. The proposed regulations did not discuss whether plans may be disaggregated based on factors other than length of employment, and further guidance on this point would be welcome.
The IRS does not audit cafeteria plans so it doesn’t matter anyway.
FALSE. Although audits specific to a cafeteria plan are seldom seen, the IRS could expand a payroll audit or other business or benefit plan audit to encompass operation of a cafeteria plan, even a premium-only plan. Therefore it is important to comply with the cafeteria plan nondiscrimination rules.
Our company pays 100% of health premiums for highly compensated individuals directly to the carrier (or the employees pay themselves on an after-tax basis), so there is no cafeteria plan nondiscrimination issue.
TRUE. However, any insured group health plan design that provides better treatment for higher paid employees may fall afoul of the ACA nondiscrimination regulations mentioned in questions 1 and 2, when they issue; although the regulations will apply prospectively, neither employers nor their highly compensation staff should assume that preferential health plan designs are more than temporary.
A “Simple” Cafeteria Plan is exempt from Section 125 nondiscrimination rules.
TRUE. A nondiscrimination safe harbor applies to “simple” cafeteria plans under Code Section 125(j), however those plans are subject to other design restrictions that may prove unworkable for many employers, including mandated employer matching or non-elective contributions. They are also limited to employers with 100 or fewer employees on business days during either of the two preceding years.
Under the ACA, Applicable Large Employers (ALEs) must comply with annual reporting and disclosure duties under Section 6056 of the Internal Revenue Code (“Code”). These include filing, with the IRS, a Form 1094-C transmittal form, together with copies of Form 1095-C individual statements that must also be furnished to full-time employees (and to part-time employees who enroll in self-insured group health plans).
Additionally, the IRS extended, for another year, the transition relief that has been in place since ACA reporting duties first arose in 2015. Under the transition relief, the IRS will not impose penalties on employers who file Forms 1094-C or 1095-C for 2017 that have missing or inaccurate information (such as SSNs and dates of birth), so long as the employer can show that it made a good faith effort to fulfill information reporting duties. There is no relief granted for ALEs who fail to meet the deadlines (as extended) for filing or furnishing the ACA forms, or who fail to report altogether.
This news is be welcome given that all U.S. employers will be grappling with new income tax withholding tables early in 2018 given the passage of the Tax Cuts and Jobs Act of 2017, which President Trump signed in to law on December 22, 2018. We’ll be providing more information on the Act’s impact on employment benefits after the Christmas holiday.
The IRS is rolling out enforcement of the large employer “pay or play” penalty tax for 2015, with preliminary penalty calculation letters anticipated to begin to be issued between now and the end of 2017. This will potentially impact employers who, over 2014, averaged 100 or more full-time employees, plus full-time equivalents, and who in 2015 either did not offer group health coverage to at least 70% of its full-time employees, or offered coverage that was “unaffordable,” as defined under the ACA, and for whom at least one full-time employee qualified for premium tax credits on a health exchange.
The sample penalty summary table the IRS has just circulated leaves space for a six-figure annual penalty amount, so substantial amounts of business revenue could be at stake in the collection process. Below is a timeline beginning with receipt of a notice from the IRS of a preliminary penalty calculation (Letter 226J), which includes the penalty summary table; the timeline is based on recently-updated IRS FAQs on the penalty collection process. Employers must respond by the date set forth in the Letter 226J, which generally will be 30 days from the date of the letter. However due to habitually slow IRS internal processing, employers may have less than two weeks from date of actual receipt, to prepare a response. ACA reporting vendors may not be equipped to assist with responses to preliminary penalty assessments, so employers who receive a Letter 226J identifying a preliminary penalty amount should look to ERISA or other tax counsel, or an accountant with knowledge of the ACA, in order to best protect their interests. Not all IRS communication forms referenced below had been released as of the date of this post but it will be updated as the forms become available.
The start point is an employer who is an ALE for 2015 (based on 2014 headcount) and who has one or more FT employees who obtain premium tax credits for at least one month in 2015, as reflected in ACA reporting (and an affordability safe harbor or other relief was not available).
The ALE receives Letter 226J with enclosures, including the penalty summary table, Form 14764 Employer Shared Responsibility Payment (ESRP) Response, and Form 14765 Premium Tax Credit (PTC) List, identifying employees who potentially trigger ACA penalties.
The ALE has until the response date set forth on Letter 226J to submit Form 14764 ESRP Response and backup documentation. The deadline will generally be no more than 30 days from date of Letter 226J but internal IRS processing may cut in to that time budget.
The IRS will acknowledge the ALE’s response, via one of five different versions of Letter 227.
the ALE requests a pre-assessment conference with IRS Office of Appeals, in writing, within 30 days from the date of Letter 227, following instructions set forth in Letter 227 and in IRS Publication 5, Your Appeal Rights.
If ALE fails to respond to Letter 226J or Letter 227, the IRS will assess the proposed ESRP payment amount and issue Notice CP 220J, notice and demand for payment.
Notice CP 220J will include a summary of the ESR payment amount and reflect payments made, credits applied, and balance due, if any; it will instruct ALE how to make payment. Installment agreements may be reached per IRS Publication 594.
You Just Formed a New Business Entity. What Could Possibly Go Wrong?
What if a somewhat arcane area of tax law had potentially serious ramifications for attorneys and other tax advisors across a broad range of practices, but was not consistently identified and planned for in actual practice? That is an accurate description of the rules surrounding “controlled group” status between two or more businesses, which I have seen arise in business formation/transactions, estate planning, employment and family law settings. The purpose of this overview is to briefly survey controlled group rules for non-ERISA practitioners, so that they can become aware of the potential complications that controlled group rules can create.
Why Do Controlled Groups Matter?
The main reason they matter is because the IRS treats separate businesses within a controlled group as a single employer for almost all retirement and health benefit plan purposes. In fact, annual reporting for retirement plans (and for health and welfare plans with 100 or more participants) requires a statement under penalty of perjury as to whether the employer is part of a controlled group. Therefore controlled groups are most frequently a concern where business entities have employees and particularly when they sponsor benefit plans, whether retirement/401(k), or health and welfare plans. Note, however, that creation of a business entity that has no employees can still create a controlled group issue when it acts as a conduit to link ownership of two or more other entities that do have employees.
Being part of a controlled group does not always mean that all employees of the member companies have to participate in the same benefit plan (although it can sometimes mean that). However it generally means that separately maintained retirement plans have to perform nondiscrimination testing as if they were combined, which not infrequently means that one or more of the plans will fail nondiscrimination testing. This is an event that usually requires the employer sponsoring the plan to add more money to the plan on behalf of some of the additional counted employees, or to pay penalty taxes in relation to same. Similar complications can arise in Section 125 cafeteria or “flexible benefit plans,” and for self-insured group health plans, which are subject to nondiscrimination requirements under Code § 105(h). Nondiscrimination rules are meant to apply to insured group health plans under the Affordable Care Act (“ACA”), so additional complications could arise in that context when and if the rules are enforced by the IRS, following publication of regulatory guidance.
Controlled group status can also mean that several small employers together comprise an “applicable large employer” subject to the ACA “pay or play rules,” and related annual IRS reporting duties. Small employer exceptions under other laws, including COBRA and the Medicare Secondary Payer Act, reference controlled group status when determining eligibility for the exception.
How Do I Identify a Controlled Group?
Determining controlled group status requires synthesizing regulations and other guidance across multiple Internal Revenue Code (“Code”) provisions and therefore is a task for a specialized ERISA or tax practitioner. What follows are very simplified definitions aimed at helping advisors outside that specialized area flag potential controlled group issues for further analysis.
Strictly speaking, the term “controlled group” refers to shared ownership of two or more corporations, but this article uses the term generically as it is the more familiar term. “Ownership” in this context means possession of the voting power or value of corporate stock (or a combination thereof). Shared ownership among other types of business entities is described as “a group of trades or businesses under ‘common control.’” Ownership in this context refers to ownership of a capital or profits interest in a partnership or LLC taxed as a partnership. Controlled groups can also arise in relation to tax-exempt entities, for instance if they own 80% or more of a for-profit entity, or even between two tax-exempt entities where there is substantial overlap of board membership or board control.
Complex interest exclusion rules mean that not all ownership interests are counted towards common control; exclusion may turn on the nature of the interest held (e.g., treasury or non-voting preferred stock) or on the party holding the ownership interest (e.g, the trust of a tax-qualified retirement plan).
The two main sub-types of controlled group are: parent-subsidiary, and “brother-sister,” although a combination of the two may also exist. A parent-subsidiary controlled group exists when one business owns 80% or more of another business, or where there is a chain of such ownership relationships. As that is a fairly straightforward test, I will focus on the lesser known, but more prevalent, brother-sister type of controlled group.
A brother-sister controlled group exists when the same five or fewer individuals, trusts, or estates (the “brother-sister” group) have a “controlling interest” in, and “effective control” of, two or more businesses.
A controlling interest exists when the brother-sister group members own, or are deemed to own under rules of attribution, at least 80% of each of the businesses in question.
The controlled group attribution rules are quite complex and can only be touched on here. Very generally speaking, an ownership interest may be attributed from a business entity to the entity’s owner, from trusts to trust beneficiaries (and to grantors of “grantor” trusts as defined under Code § 671-678), and among family members. Stock options can also create attributed ownership under some circumstances. The attribution rules can have surprising consequences. For instance, a couple, each with his or her wholly-owned corporation, will be a controlled group if they have a child under age 21 together, regardless of their marital status, because the minor child is attributed with 100% of each parent’s interests under Code §1563(e)(6)(A). Community property rights may also give rise to controlled group status. Careful pre-marital planning may be necessary to prevent unintended controlled group status among businesses owned separately by the partners to the marriage.
This is the first part of a two-part discussion that was first published as an article in the Santa Barbara Lawyer Magazine for October 2017. The second half will address a variation of these rules that are specific to businesses formed by doctors, dentists, accountants, and other service providers.
E is for ERISA · Information of use to benefits advisers and benefit plan sponsors.

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