Monthly Benefits Alert - February 2015
March 5, 2015
By Hrishi Shah
Health & Wellness Plans
Anthem Data Breach Requires Plan Sponsor Attention
On January 29, 2015, Anthem Inc., one of the largest managed health care companies in the country, disclosed that the sensitive personal data of almost 80 million current and former participants in its network was breached in a cyber attack. This breach also impacted health plan participant data of plans that use the Blue Cross Blue Shield network of health providers. In some states, Anthem administers certain aspects of Blue Cross’s network. Those states include California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia, and Wisconsin. Accordingly, health plans that have participants who received care in those states through the Blue Cross network are likely to be impacted.
The breach included personal information including names, addresses, health care ID numbers, birth dates, e-mail addresses, and in some cases, Social Security numbers. Information that is considered protected health information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and Health Information Technology for Economic and Clinical Health (HITECH) Act may also have been compromised.
Employers that sponsor self-insured plans and use Anthem or Blue Cross should carefully consider what steps they are required to take under HIPAA and various state data security breach notification laws. In some circumstances, HIPAA business associate agreements will allocate responsibilities for breach notification to Anthem and/or Blue Cross, but there are nevertheless steps that plan sponsors may need to take in light of the breach.
Supreme Court Hears Oral Arguments in Challenge to ACA Premium Subsidies
On March 4, 2015, the United States Supreme Court heard oral arguments in King v. Burwell, in which the plaintiffs are challenging the Internal Revenue Service’s (IRS) interpretation of certain statutory language in the Affordable Care Act regarding the availability of tax subsidies to purchase insurance coverage on federally-facilitated insurance marketplaces/exchanges. As we wrote in a previous alert, the plaintiffs are arguing that the statutory language limits the availability of tax subsidies only to insurance marketplaces established by states, not those established by or run in partnership with the federal government.
Over 30 states have insurance marketplaces that are either maintained entirely by the federal government or run in partnership between the state and federal government (such as Illinois). If the Supreme Court rules in favor of the plaintiffs, millions of individuals would no longer be eligible for tax subsidies to purchase marketplace coverage. This could have an enormous impact on the health insurance markets in those states with federal marketplaces.
In addition, penalties under the ACA’s employer shared responsibility (“employer mandate”) rules are only triggered if a full-time employee who has not been offered certain types of employer-based coverage purchases marketplace coverage and receives a tax subsidy for that coverage. If the Court strikes down the tax subsidies in states with federal marketplaces, employers in such states may no longer need to be concerned about triggering employer mandate penalties. The outcome of this case is therefore of critical importance to employers and health insurers, among other interested parties. The Court’s decision is expected in late June.
IRS Releases Preliminary Guidance on “Cadillac Plan” Tax under ACA
The IRS released Notice 2015-16, which represents the first piece of guidance issued by a regulatory agency on the excise tax on high cost employer-sponsored health coverage, colloquially known as the “Cadillac plan” tax. The Cadillac tax was a key, and particularly controversial, provision in the Affordable Care Act. The Cadillac tax, which is found in Internal Revenue Code Section 4980I, imposes on plan sponsors and insurers an excise tax of 40 percent of the “excess” total cost, i.e. amounts exceeding a statutory dollar limit set by the IRS, of employer-sponsored coverage. Although insurers of fully insured plans are responsible for paying the tax, the cost of the tax will almost certainly be passed on to plan sponsors of fully insured plans. The tax will be assessed beginning January 1, 2018.
As provided in Code Section 4980I, the Cadillac tax applies to any group health coverage that is excludable from the employee’s gross income pursuant to Code Section 106; the tax also applies to health coverage provided to retirees. Both employer- and employee-paid amounts count towards the Cadillac tax limit. The new guidance lists several types of coverage whose costs are counted for Cadillac tax purposes, including Health Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), multiemployer plan coverage, and on-site medical clinics that provide more than de minimis first aid. The guidance also states that the IRS expects to issue future guidance providing that the costs of executive physical programs and Health Reimbursement Accounts (HRAs) count towards the Cadillac tax limit.
Similarly, the guidance also lists several types of benefits that are not subject to the Cadillac tax, such as coverage provided under a separate insurance policy or contract that is not excludable from an employee’s gross income. The guidance seeks comments on the treatment of on-site medical clinics that provide more than de minimis first aid (and would therefore be subject to the Cadillac tax), and on whether to exclude limited scope dental and vision benefits from the tax.
Code Section 4980I contains sparse guidance on how the cost of coverage is to be calculated for Cadillac tax purposes; the statute merely states that the cost shall be determined under an approach “similar” to the rules used to calculate COBRA coverage premiums. The new guidance invites comments on potential approaches for determining coverage costs. Under the approach proposed in the guidance, an employer could calculate coverage costs by initially aggregating “each group of similarly situated employees” electing the same benefit package offered by the employer, then subdividing each group of employees pursuant to mandatory disaggregation rules (based on self-only coverage and coverage other than self-only), and further subdividing based on other permissive disaggregation rules. For self-insured plans, the guidance proposes the same two cost calculation methods for Cadillac tax purposes that are currently used for COBRA premium purposes (actuarial basis method and past cost method), and invites comments on both. In addition, the guidance also invites comments on cost calculation approaches other than those used for COBRA that would be consistent with Code Section 4980I.
The current statutory dollar limits provided in Code Section 4980I for 2018 are $10,200 for self-only coverage, and $27,500 for coverage other than self-only. These dollar limits are subject to health cost adjustments for subsequent years, age and gender, qualified retirees, and high-risk professions. The guidance also invites comments on such dollar limit adjustments.
IRS Provides Temporary Enforcement Relief for Small Employers Offering Employer Payment Plans
The IRS issued guidance providing enforcement relief through June 30, 2015 for small employers who offer employer payment plans to their employees. In the guidance, the IRS reiterated its stance that an employer payment plan—an arrangement where an employer provides pre-tax reimbursements to employees to apply towards the cost of individual health insurance coverage—is considered a group health plan for ACA purposes. According to the IRS, such an arrangement is impermissible, and is subject to excise taxes under Code Section 4980D, unless it complies with the ACA’s market reforms.
The enforcement relief applies through June 30, 2015, to employers who are not considered Applicable Large Employers (ALEs) for ACA purposes (i.e., generally have fewer than 50 full-time employees) for 2014 and the first half of 2015.
IRS Issues Final ACA Coverage Reporting Forms and Instructions
The IRS has issued final versions of the forms and accompanying instructions to be used by employers for health coverage information reporting required under the ACA’s employer mandate rules. These information reporting rules are set forth under Code Sections 6055 and 6056.
As we wrote in a previous alert, Code Section 6055 requires health insurers and employers (regardless of size) that sponsor self-insured health plans to report information regarding individuals covered under their health plans. This information must be reported using Form 1095-B, indicating the months for which each family member had health coverage during the previous calendar year. Each primary insured person or employee must also be provided a copy of Form 1095-B with his/her pertinent information. All Forms 1095-B must be transmitted to the IRS using Form 1094-B as a transmittal form. The final instructions for Forms 1094-B and 1095-B can be found here.
Code Section 6056 requires employers with 50 or more full-time employees to report certain information regarding offers of “minimum essential coverage” to their employees and their dependents, including the months for which coverage was offered, and the lowest monthly cost for self-only coverage. Employers must report this information using Form 1095-C and provide each employee with a copy of Form 1095-C with his/her pertinent information. All Forms 1095-C must also be transmitted to the IRS using Form 1094-C (which also requests additional information regarding other members of the reporting employer’s controlled group) as a transmittal form. The final instructions for Forms 1094-C and 1095-C can be found here.
Employers with 50 or more full-time employees who provide self-insured coverage may use the “C” series forms to satisfy all of their reporting obligations, and need not file separately using the “B” series forms. In addition to the final versions of the reporting forms, the IRS also published a short guide summarizing the reporting requirements applicable to large employers.
The first required reporting under Code Sections 6055 and 6056 is for the 2015 calendar year, and must be submitted in early 2016.
SEC Issues Rule 482 No-Action Relief to Non-ERISA 403(b), 457 Plans
The Securities and Exchange Commission (SEC) issued a no-action letter extending relief to certain investment-related information provided to participants in non-ERISA 403(b), 457(b), and other qualified participant-directed retirement plans. This would include, for example, 403(b) plans sponsored by public school districts or church-related organizations, some private-sector 403(b) plans in which the employer has minimal involvement, 457 plans, and other non-ERISA defined contribution plans. In October 2011, the SEC had issued a no-action letter in which it agreed to treat investment information provided under ERISA’s participant-level fee disclosure requirements as complying with the requirements of Rule 482 of the Securities Act of 1933, which sets forth certain content requirements for investment-related advertising. In this most recent no-action letter, the SEC extended this relief to fee disclosures made to non-ERISA plan participants, even though the fee disclosure requirements do not apply to non-ERISA plans.
Practically speaking, this development means that non-ERISA plans that have chosen to provide, or wish to provide, the participant-level fee disclosures that are generally required for ERISA-covered defined contribution plans will not be in violation of SEC Rule 482.
Please let us know if you have any questions on these items or any other recent developments.