Yellow Light: IRS Delays Reporting Requirements Again!

Earlier today, the IRS announced an extension of the due dates for IRS Forms 1094 and 1095. In IRS Notice 2016-4, the IRS states that employers are not required to furnish individuals with either Form 1095-B or 1095-C until March 31, 2016. The deadline was previously February 1, 2016. In addition, employers are not required to file Form 1094-B or Form 1094-C with the IRS until May 31, 2016 if filing paper returns, or June 30, 2016 if filing electronically. The prior deadlines were February 29, 2016 (paper) and March 31, 2016 (electronic).

This is now the second delay of the ACA reporting requirements. On July 2, 2013 (coincidentally, also adjacent to a national holiday), the U.S. Department of the Treasury issued a blog post that announced a delay of the ACA shared responsibility penalties and the accompanying reporting requirements until the 2015 taxable year. A copy of my summary of the prior delay is available here.

The IRS now anticipates that many people will now file their individual tax returns (Form 1040) prior to receiving the Form 1095-B or 1095-C from their employers or other coverage providers. Accordingly, the IRS will allow individuals to rely on other information from their employers or other coverage providers for purposes of filing their returns in 2015.

As most large employers are well aware, the IRS Forms 1094-C and 1095-C are complicated and impose significant administrative burdens. Any delay or simplification of these forms is welcome news. However, at this point, the IRS has lost all credibility on ACA matters, after insisting that there would be no delay of the 2015 reporting deadlines. It is now manifestly clear that the IRS is struggling with the ACA shared responsibility rules as much as the rest of the country.

Please consult your attorney or contact Jim Hamilton at Bose McKinney & Evans with any questions on this issue.

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Proposed EEOC Rules Address Wellness Programs

Authored by John Westercamp

On April 20, 2015, the Equal Employment Opportunity Commission (“EEOC”) published proposed regulations addressing wellness programs.  The EEOC estimates that approximately 400,000-600,000 employers offer wellness programs which are regulated by the Americans with Disabilities Act (“ADA”).  Smoking cessation programs, weight loss initiatives and health classes are examples of such wellness programs.  The proposed regulations aim to provide timely guidance to employers concerning how to navigate the law while administering wellness programs.

The EEOC proposed these regulations because of tension among the ADA, the Health Insurance Portability and Accountability Act (“HIPAA”) and the Affordable Care Act (“ACA”).  In the proposed regulations, the EEOC states that “it has a responsibility to interpret the ADA in a manner that reflects both the ADA’s goal of limiting employer access to medical information and HIPAA’s and the Affordable Care Act’s provisions promoting wellness programs.”

A policy underlying HIPAA is to protect the confidentiality of individuals’ health information, while a policy of the ACA is to promote wellness.  The ADA generally prohibits employers from medically examining employees or asking questions about employees’ disabilities.  The ADA also generally prohibits employers from discriminating against employees based on disability.  These different public policies potentially conflict when an employer rewards an employee based on achieving certain health goals.  In order to administer the wellness program, the employer may need some medical information about the employee.  Moreover, if a wellness program rewards participants based on outcome, this program could be discriminatory against individuals with disabilities.

Voluntary wellness programs are an exception in the ADA to the general prohibition against medical examinations.  Therefore, it is critical for employers to understand the definition of “voluntary” to comply with the law.  The proposed regulations offer such a definition for employers to consider.

A program is voluntary if it satisfies four requirements: a) the employer does not require employee participation, b) the employer does not deny the employee health plan coverage for not participating, c) the employer does not retaliate against an employee who does not participate or coerce an employee into participating, and d) if the wellness program is part of a health plan, the employer must disclose what medical information of the employee will be shared along with who the information will be shared.  If the program meets each of the four requirements, the EEOC considers it “voluntary.”  Obviously, voluntarism is only one aspect of compliance with the law.

Wellness programs must also be “reasonably designed to promote health or prevent disease.”  A wellness program which is overly burdensome fails this standard.  Similarly, a program which is an end run to the ADA or is highly suspect also fails the standard the EEOC proposes.  The EEOC likely adopted a “reasonableness” approach to prohibit employers from introducing extreme, novel or questionable wellness programs.

Even if a program reasonably promotes health or prevents disease, the proposed regulations limit the amount of incentives employers may offer employees.  If a program involves disability-related inquiries or medical examinations, the program may offer incentives or penalties of up to 30% of the cost of employee-only coverage.  A smoking cessation program that merely asks employees whether or not they use tobacco is not an employee health program that includes disability-related inquiries or medical examinations.  Accordingly, employers generally may offer rewards of up to 50% of the cost of employee coverage for smoking cessation programs.

Applying the ADA in the wellness program context, employers must make reasonable accommodations to individuals with disabilities so that they may participate in the program and receive the same reward unless the accommodation would be an undue hardship for the employer.  Therefore, employers should consider how they can ensure all employees the opportunity to participate in wellness programs.  The 2013 final regulations issued by the Departments of Labor, Treasury, and Health and Human Services may be helpful to employers who wish to address this issue.

To protect address the confidentiality of employees’ health information, the EEOC proposes to limit employers’ receipt of employee medical information collected through a wellness program through aggregation.  Through aggregation, the information received should not disclose or be likely to disclose individuals’ identities.  However, if individualized information is necessary to administer health plans, then the proposed regulation provides an exception.

The proposed regulation also restricts the uses of such medical information.  For instance, employee health information collected through a wellness program may not be used to limit insurance eligibility.  The EEOC suggests that the best practice to administer a program is to have a person without hiring and firing authority manage the program.  This could be achieved through a third party or someone within the company who does not have the ability (or temptation) to fire an individual based on his or her knowledge of the individual’s medical information.  These rules and guidance attempt to balance the needs of employer to administer a wellness program against the interest of employees in keeping their medical information confidential.

The proposed regulation is complex, but attempts to resolve the tension among the ADA, HIPAA and the ACA.  Clearly the EEOC is attempting to balance the policy of prohibiting discrimination while permitting employers to have flexibility to encourage healthy lifestyles.  The proposed regulations have not been finalized and are subject to a comment period; however, the proposed regulations offer employers insight into how the EEOC is currently thinking about enforcement of HIPAA and the ADA.

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U.S. Supreme Court hears ACA employer mandate case

Following is a news release issued March 4, 2015 from the Attorney General of the State of Indiana:

U.S. Supreme Court hears ACA employer mandate case 
Outcome will impact case brought by Indiana, 39 schools

INDIANAPOLIS – A case of interest and importance to state government and 39 Indiana school corporations was argued today in the United States Supreme Court and its outcome will have direct bearing on a separate lawsuit Indiana and the schools filed challenging the tax penalties of the employer mandate.

The Supreme Court today heard oral argument in King v. Burwell, an appeal from the 4th Circuit in which petitioners contend the Internal Revenue Service is improperly interpreting the Affordable Care Act to require tax credits and employer mandate penalties in the 27 states that do not operate a health-insurance purchasing exchange. The King petitioners argued the plain language of the ACA says the tax credits and employer mandate penalties apply only in those states that have established an exchange – and don’t apply in states that opted against establishing one where the federal government operates an exchange.

The Supreme Court’s eventual decision in King v. Burwell will have a direct bearing on the lawsuit the State of Indiana and 39 school corporations as government employers filed against the IRS to negate the burdensome ACA employer mandate penalties of $2,000 per employee for every worker their organization employs.  That case, State of Indiana et al. v. IRS et al., was argued last Oct. 9 in the U.S. District Court for the Southern District of Indiana, and further proceedings in the case have been stayed until after the Supreme Court rules on King v. Burwell.  Although not parties to the King case, the State and 39 schools on Dec. 29 filed an amicus brief in the Supreme Court offering legal arguments in support of the petitioners’ side.

“Whether the IRS’s actions have exceeded the authority granted it under the act Congress passed is a legal question of great importance that only the U.S. Supreme Court can answer.  As government employers with personnel management responsibilities over large numbers of public employees, the State and schools need clarity on whether we will be subject to the employer mandate tax penalties; so we are pleased the justices heard the King case and we hope the Supreme Court will render a decision that resolves clearly this question of the IRS’s interpretation,” Indiana Attorney General Greg Zoeller said.

The Attorney General’s Office represents state government in the Indiana v. IRS case; it does not represent private employers or private individuals.  The 39 school corporations are represented by a private law firm, Bose McKinney & Evans LLP.  In their complaint in the Indiana v. IRS case and in their joint amicus brief in the King case, Indiana and the schools do not ask the Supreme Court to cancel private insurance policies obtained with tax credits and do not ask for repayment of tax credits already paid.  Instead, the complaint and amicus brief both note the ACA employer mandate would be a direct tax on the State and its political subdivisions, in violation of intergovernmental tax immunity.

At the oral argument today in the Supreme Court in the King v. Burwell case, the justices directed questions at both sides.  The Court is expected to rule by the end of June.  Further proceedings in the Indiana v. IRS case in federal court in Indianapolis will await the outcome of that ruling.

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Federal Insurance Office Releases Report on Global Reinsurance Market

Here is another useful post from our friends at the Bose Insurance Blog:

Back in December, the Federal Insurance Office released its first report on the global reinsurance market, creatively titled “The Breadth and Scope of the Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States.”

At 47 pages, it’s a surprisingly quick read. (Spoiler alert: the global reinsurance market is big and plays a critical role in supporting insurance in the U.S.) What’s more, it provides a nice overview of the history of reinsurance and its various forms. So, no more citing to Second Circuit opinions for that background stuff.

I know many in the industry were–and still are–very concerned about just what the Federal Insurance Office will actually do. If reports like this are any indication of what the FIO will be doing, I don’t think we have anything to worry about…


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Transitional Reinsurance Reporting Deadline Extended

The Center for Medicare & Medicaid Services (“CMS”) granted a last minute extension for filing the Annual Enrollment and Contributions Submission Form as part of the Affordable Care Act’s Transitional Reinsurance Program. On Friday, November 14th, CMS announced that the reporting deadline of November 15th is extended until 11:59 pm on December 5, 2014. This extension gives health insurance issuers and certain self-funded group health plans a little more time to complete the Submission Form which can be found on the website. The payment deadlines are unchanged. The deadlines for payment of the transitional reinsurance fee remain as January 15, 2015 and November 15, 2015.

The CMS announcement as well as the revised reinsurance contribution deadlines for the 2014 benefit year can be viewed here.

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Skinny Plans Do Not Provide Minimum Value Coverage

In an announcement made November 4th, the Internal Revenue Service (IRS) issued guidance indicating that “skinny plans” will not help employers avoid all of the “play or pay” penalties under the Affordable Care Act.  In Notice 2014-69, the IRS states group health plans that do not offer substantial coverage for in-patient hospitalization services or for physician services (or both), do not provide the minimum value intended by the minimum value requirement.  Consequently, employees covered by those plans will be eligible for premium tax credits for coverage through the Health Insurance Marketplace beginning in 2015.

The IRS, along with the Department of Health and Human Services, anticipates issuing final regulations by March 1, 2015, to provide that plans failing to provide in-patient hospitalization services or physician services do not provide minimum value.  The regulations will apply to all plans (other than Pre-November 4, 2014, plans) on the date the regulations become final.  There is limited grandfathering available for Pre-November 4th plans.  For an employer who has entered into a binding written commitment to offer one of these Non-Hospital/Non-Physician Services Plans, or started enrolling employees in one of these plans, by November 4, 2014; then the employer will not be subject to the employer mandate penalties in 2015.  However, to be eligible for this relief, the plan year must begin no later than March 1, 2015.

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Delay of HPID Regulations Announced by CMS

With the November 5th deadline looming, the Centers for Medicare & Medicaid Services (“CMS”) announced that effective October 31, 2014, the enforcement of the regulations pertaining to the use of the Health Plan Identifier (“HPID”) is delayed until further notice.  This enforcement delay applies to all HIPAA covered entities, including healthcare providers, health plans, and healthcare clearinghouses.  As a result, HIPAA covered entities will not be penalized for failing to obtain an HPID number.

The stated reason for the delay is to give CMS time to review recommendations from the National Committee on Vital and Health Statistics (“NCVHS”), an advisory board to the U.S. Department of Health and Human Services.  In a September 23, 2014 letter, NCVHS outlined some of the committee’s concerns regarding the lack of benefit and value in the use of reporting of HPIDs in health care transactions. Some of the concerns expressed by NCVHS in the September 23rd letter include the following:

  • Lack of clear business need and purpose for using HPID and Other Entity Identifier (“OEID”) in health care administrative transactions;
  • Confusion about how the HPID and OEID would be used in administrative transactions, including strong concerns that HPID might replace the current Payer ID;
  • Challenges faced by health plans with respect to the definitions of controlling health plan and sub-health plan;
  • Use of HPID for group health plans that do not conduct HIPAA standard transactions; and
  • Cost to health plans, clearinghouses, and providers if software has to be modified to account for the HPID.

The NCVHS offered two recommendations.  First, that all covered entities will not use HPID in administrative transactions and that the current Payer ID will not be replaced with HPID.  Second, that HHS should further clarify when and how the HPID would be used in health plan compliance certification and if there will be a connection with the Federally-facilitated Marketplace.  The enforcement delay will allow time for HHS to review NCVHS’s recommendations and consider any next steps.  Text of the CMS announcement can be found here.

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State and 39 schools ask court to spare them from employer mandate

Below is a news release issued from the Office of the Indiana Attorney General:

Thursday, October 9, 2014

State and 39 schools ask court to spare them from employer mandate
AG:  Federal court hears arguments in legal challenge to ACA tax penalties

INDIANAPOLIS – Today in U.S. District Court, attorneys for the State of Indiana and 39 school corporations argued their case in their legal challenge asking the court to strike down the “employer mandate” tax penalties of the Affordable Care Act or ACA.

U.S. District Court Judge William T. Lawrence heard oral argument from the State and schools and from the federal government defendants in the lawsuit State et al. v. IRS et al., one of several legal challenges to the ACA’s employer mandate currently pending before the nation’s federal courts.

“Before we plaintiffs accept the federal government’s claim that it can impose burdensome employer mandate penalties on state government and schools, we first must ask whether the federal law truly authorizes that – and the court is the proper place to bring that question to be answered. We appreciate the opportunity for the state and schools to present our arguments,” Indiana Attorney General Greg Zoeller said.

The Attorney General’s Office represents the state government plaintiffs in the legal challenge filed against the Internal Revenue Service last year; the 39 school corporations in Indiana who are co-plaintiffs are represented by a private law firm, Bose McKinney and Evans LLP.

The Affordable Care Act mandates that employers with 50 or more full-time workers provide employer-sponsored health insurance; if employers don’t, then they face a tax penalty if even one of their workers obtains insurance with tax credits using the new healthcare purchasing exchanges.  Under the ACA, the IRS tax penalty employers face for noncompliance is equal to $2,000 per employee for every employee in the organization, even if only one worker were misclassified for benefits and obtained insurance with tax credits through the exchanges.

In their lawsuit, the State and schools contend that under the 10th Amendment, the federal government cannot impose such employer penalties on state and local government employers which are separate levels of government; such penalties would be an unconstitutional tax.  Moreover, the plaintiffs contends the IRS is interpreting the Affordable Care Act incorrectly, and that the wording of the ACA that Congress passed allows the IRS to impose tax penalties only in those states where healthcare purchasing exchanges are operated by the state government, and not elsewhere.

Sixteen states and the District of Columbia operate state-run exchanges and eight states have joint federal-and-state-run hybrid exchanges. Indiana is one of 26 states that opted not to establish its own state-operated insurance purchasing exchange, meaning the federal government operates an exchange for Indiana residents.  The plaintiffs’ lawsuit contends the plain wording of the ACA statute is clear:  That without a state-operated exchange, Indiana therefore is exempt from the employer mandate tax penalties of the ACA, the IRS cannot penalize the state government or school corporations and the IRS’s broad interpretation of the ACA – applying the mandate to all states – exceeds its authority and violates the Administrative Procedures Act.

Zoeller noted the employer mandate penalties are not merely a nuisance or inconvenience.  Many schools rely upon part-time employees such as bus drivers, cafeteria workers and coaches who would not qualify for full-time employee insurance, but a single mistake in health benefits classification could trigger Draconian tax fines for a small public school corporation.  For state government itself, with 28,000 executive branch workers, a similar error in misclassifying just one full-time employee for benefits as part-time could potentially trigger $56 million in IRS tax penalties, if the IRS’s interpretation of the ACA were implemented.  In light of the risk to their resources, the plaintiffs urge the U.S. District Court to declare the employer mandate does not apply in exempt jurisdictions such as Indiana where purchasing exchanges aren’t state-operated.

At today’s oral argument, Indiana Solicitor General Thomas M. Fisher argued for the state government and attorney Andrew McNeil argued for the 39 school co-plaintiffs.  Neither the state’s nor schools’ attorneys represent private employers or private individuals in this lawsuit. The IRS and other federal defendants were represented by attorneys from the U.S. Department of Justice.  Judge Lawrence took the arguments under advisement and will rule on motions for summary judgment at a later date.

The State et al. v. IRS et al. case is one of several legal challenges questioning whether the IRS correctly interprets the ACA as passed by Congress.  On September 30, a separate federal district court in Oklahoma considering a similar case struck down the insurance tax credits in that state, on the grounds that the ACA did not authorize them in a state without a state-run exchange.  An appeal of that case is expected.  A similar ruling in July by a three-judge federal appeals panel in Washington D.C. awaits review by the full appeals court.  Yet another federal appeals court in Virginia allowed subsidies via federal exchanges, and that case has been appealed to the U.S. Supreme Court.

NOTE:  More information about the State et al. v. IRS et al. lawsuit is at this link.  
Additional details are at this link:


Bryan Corbin
Public Information Officer
Office of the Indiana Attorney General

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The IRS Acknowledges Reality

On September 18, 2014, the IRS issued a technical notice related to election changes under cafeteria plans. IRS Notice 2014-55 specifically permits a cafeteria plan to allow an employee to revoke his or her election under a cafeteria plan for coverage under the employer’s group health plan if the employee’s hours of service are reduced to less than 30 hours per week. Prior to this notice, it would not have been permissible for a cafeteria plan to permit revocation of a cafeteria plan election under these circumstances. This notice is significant because: (a) the IRS is formally acknowledging that employee hours are being cut under 30 to avoid ACA shared responsibility penalties; and (b) the cuts are so significant that the IRS feels it is necessary to issue a formal notice on the topic.

Following is a link to the notice:  Notice 2014-15

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“Piling On”: IRS Issues Instructions on ACA Reporting Requirements

On August 28, 2014, the IRS issued draft instructions on the reporting requirements for employers subject to the employer shared responsibility provisions. The draft instructions for Forms 1094-C and 1095-C are thirteen pages in length, filled with mind-numbing complexity that will cause fits for all large employers.

Employers with at least fifty full-time employees (including full-time equivalent employees) will be required to utilize IRS Forms 1094-C and 1095-C to report information to the IRS regarding offers and enrollment in health coverage. Form 1094-C must be used to report to the IRS summary information for each employer and to transmit Forms 1095-C to the IRS. Form 1095-C is used to report information about each employee.

The Form 1094-C requires an employer to certify the eligibility of full-time employees for health coverage. The instructions describe the various types of transition relief that are available to applicable large employers for 2015.   This form must be filed by the employer under penalties of perjury.

The Form 1095-C requires large employers to provide the name, address, social security number, months of coverage and the employee’s share of the lowest cost monthly premium for health coverage.

Large employers are required to file Forms 1094-C and 1095-C by February 28 following the calendar year if the employer is filing paper copies. If the employer files electronically, the forms are due by March 31. In general, employers that are filing 250 or more Forms 1095-C during the calendar year must file the returns electronically. The first returns will be due in 2016; however, the IRS is permitting employers to file voluntarily in 2015. I am not quite sure why any employer would voluntarily file in 2015.

In addition, large employers will be required to provide each full-time employee with Form 1095-C. The employer generally must mail the statement to the employee’s last known permanent address. It is also permissible to furnish the statement electronically if the employer obtains affirmative consent from the employee.

The IRS will not impose penalties under Internal Revenue Code §§ 6721 and 6722 for 2015 returns and statements filed and furnished in 2016 on employers that can show that they have made good faith efforts to comply with the information reporting requirements. This reprieve may represent the only real piece of good news that came from this most recent IRS publication.

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