Each year employers must provide a written notice to Medicare-eligible employees who are covered under their group health plan. The notice must include information about the creditable coverage status of the prescription drug benefit. In other words, the notice tells employees if the prescription drug benefit on the group health plan is at least as good as the standard Medicare Part D plan. 

Anyone who is eligible for Medicare but delays enrollment in a Part D plan is subject to a late enrollment penalty unless they have creditable coverage elsewhere. The late enrollment penalty is 1% of the  base beneficiary premium  for every full month a Medicare-eligible person is without creditable coverage and forgoes enrollment in Part D. The base beneficiary premium for 2020 is $32.74  according to the Centers for Medicare and Medicaid Services (CMS).  The notice  provided to Medicare-eligible employees helps them understand if they may be subject to a late enrollment penalty if they delay enrollment in Part D. 

One of two notices must be provided to Medicare-eligible employees. A creditable coverage notice should be provided when the drug benefit is at least as good as the standard Medicare Part D plan.  A noncreditable coverage notice should be provided when the drug benefit isn’t as good as the standard Part D plan. Most prescription drug benefits included under a group health plan are creditable, but CMS has provided a Simplified  Determination document to help employers figure out the creditable coverage status in the event that’s unknown.  

The notice must be distributed prior to October 15th (meaning it must be distributed by October 14th) which is when the Medicare Advantage and Part D annual enrollment period begins.  The annual enrollment period will run through December 7th. The notice must also be distributed at other times, such as when creditable coverage status changes or when a Medicare-eligible employee first joins the plan. 

Additionally, the notice should be provided to any covered dependents who are eligible for Medicare, including those who become eligible for Medicare due to a disability. COBRA beneficiaries and covered retirees who are eligible for Medicare should also be provided a notice. As a best practice, employers may want to provide this notice to everyone covered under their group health plan. 

Model Part D notices have been provided by CMS and are available in English and Spanish.

The Centers for Medicare & Medicaid Services (CMS) announced earlier this month that plans sold on the Health Insurance Marketplace (Marketplace) will receive quality ratings using a five-star system (with 5 stars representing the highest quality plan). CMS has been piloting the five-star rating system for plans sold on the Marketplace in Michigan, Montana, New Hampshire, Virginia and Wisconsin, and it will expand it to all plans sold on the Marketplace for the coverage year beginning in 2020. 

The intent of the new quality rating system is to help consumers more easily pick a plan that meets their needs. Plans will be rated based on three categories:

1.  Member experience – Based on surveys of member satisfaction with:

• Their health care and doctors
• Ease of getting appointments and services

2.  Medical care – Based on how well the plans’ network providers manage member health care, including:

• Providing regular screenings, vaccines, and other basic health services
• Monitoring some conditions

3.  Plan administration – Based on how well the plan is run, including:

• Customer service
• Access to needed information
• Network providers ordering appropriate tests and treatment

All health plans ratings will be calculated the same way, using the same information sources. However, in some cases, a plan sold on the Marketplace may not have a rating. This doesn’t necessarily mean the plan has a  low-quality  rating. The  lack of a star rating may be the  result of the plan being newly offered or having low enrollment. 

It’s no surprise that more and more employers are offering qualified high deductible health plans (HDHPs) to their employees, and some employers are combining Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) to alleviate a portion of the deductible and/or out-of-pocket expenses that employees are exposed to. However, you have to be very careful with the HRA plan design  in order to preserve HSA eligibility for employees. 

In 2020, HSA-eligible health insurance plans (i.e. HDHPs) must have a minimum deductible of $1,400 for single coverage and $2,800 for family coverage. Per HSA guidelines, the HDHP cannot provide any coverage prior to the minimum deductible being satisfied (with an exception for preventive care). The guidelines also prohibit any other plan or program from reimbursing or covering some or all of the minimum deductible amounts. 

For an employer to provide employees access to both an HRA and HSA, the HRA must be structured so that reimbursements are not available until the minimum deductible for an HDHP has been satisfied.¹ We refer to this as a post-deductible HRA. 

In 2020, this means the HRA should not provide reimbursement to an employee with single coverage until they have satisfied at least a $1,400 deductible. Similarly, this means the HRA should not provide reimbursement to an employee with family coverage until they have satisfied at least a $2,800 deductible.

It is noteworthy to comment further on the family deductible. Some plans have aggregate deductibles where there is a shared deductible that applies to the family, and the medical expenses of all family members are applied against that shared deductible. Other plans have embedded deductibles where each family member is responsible for their own deductible. 

Regardless of whether the deductible is structured as aggregate or embedded, a minimum deductible of $2,800 must be satisfied to preserve HSA eligibility.

Employers need to be careful when the HDHP has an embedded deductible. As an example, a plan with an embedded deductible of $1,400 per family member wouldn’t allow an employee to establish and HSA. The embedded deductible for each family member would have to be at least $2,800. Employers need to take this into consideration when establishing their HRA plan design.  It’s easy to overlook this requirement and not realize until a later date that a mistake had been made in the plan design.

¹HRAs which only reimburse dental and/or vision expenses will also preserve HSA eligibility. 

Senator Susan Collins (R-ME) submitted an inquiry to the Internal Revenue Service (IRS) earlier this year asking  two  very specific questions. She wanted to know if penalties related to the Employer Mandate could be reduced or waived if it would cause a hardship on an employer. She also wanted to know if the IRS would extend the transition relief that was previously available to employers with 50-99 employees. Previous transition relief exempted most employers of this size from the Employer Mandate during its first year of implementation in 2015.

The IRS responded to Senator Collins in Information Letter 2019-0008.  In summary, the IRS  said the law does not allow for a reduction or a waiver of any Employer Mandate penalty. The IRS also recognized that transition relief was previously available, but no  transition has been available since 2017. Therefore, employers with 50-99 employees must continue to comply with the Employer Mandate requirements or risk penalties. The letter also indicates that it would take legislative action from Congress for provisions related to the Affordable Care Act (ACA), including the Employer Mandate, to change.

That means the Employer Mandate will continue to exist and be enforced as we know it today. In 2019, the Employer Mandate has the following requirements:
 

• Requirement  #1:  An applicable large employer (ALE), defined as one with 50 or more full-time equivalent employees in the previous year, must offer minimum essential coverage to at least 95% of its full-time employees. 
• Penalty  #1:  If the offer requirements are not  satisfied and  at least one full-time employee receives a premium tax credit on the Health Insurance Marketplace, the employer is assessed a penalty of  \$2,500 multiplied by the number of full-time employees in excess of 30.

Assuming an employer meets the offer requirements, they will avoid the most significant penalties under the Employer Mandate. However, another requirement also needs to be considered to avoid all penalties related to the Employer Mandate.

• Requirement  #2:  An  ALE  must  offer  minimum  essential  coverage  that  is  affordable  and  has minimum value  to  every full-time employee. Coverage is considered affordable if an employee has to pay no more than 9.86% of their income for the lowest-priced, self-only coverage plan. Minimum value is coverage that would be considered equivalent to or better than a bronze plan offered on the Health Insurance Marketplace. 
• Penalty #2: The employer is charged a penalty of $3,750 for every full-time employee who isn’t offered coverage that has minimum value and is affordable, but the penalty only applies to those full-time  employees  who  receive  a  premium  tax  credit  for  a  plan  purchased on  the  Health Insurance Marketplace.  

The Internal Revenue Service recently released Revenue Procedure 2019-29  which included details on the affordability percentage related to the Employer Shared Responsibility provisions of the Affordable Care Act (ACA), also known as the Employer Mandate. In 2020, an applicable large employer (ALE) will be considered to offer affordable coverage to its full-time employees if the cost of coverage is 9.78% or less of the employee’s household income. This is a decrease from the 2019 affordability percentage which is currently set at 9.86%.

Most employers don’t know the household income of their employees, and employers can continue to use one of the three safe harbor methods when determining if coverage is affordable: W-2 method, monthly rate of pay method, and the federal poverty level method. 

Additionally, earlier this year the Department of Health and Human Services (HHS) released the 2020 Notice of Benefit and Payment Parameters. This is a ruling that is issued each year which addresses changes to the ACA, including inflation adjustments. 

The inflation adjustment percentage that is utilized for the Employer Mandate implies the penalty under Code Section 4980H(a), sometimes referred to as the failure to offer penalty, will be increased to $2,570 multiplied by the number of full-time employees in excess of 30 (assuming at least one full-time employee receives a subsidy on the Exchange). In 2019, the failure to offer penalty is $2,500 multiplied by the number of full-time employees in excess of 30 (assuming at least one full-time employee receives a subsidy on the Exchange).

Assuming an ALE meets the offer requirements but coverage is either unaffordable or does not provide minimum value, the inflation adjustment percentage that is utilized for the Employer Mandate implies the penalty under Code Section 4980H(b) will be increased to $3,860 for each full-time employee who receives subsidized coverage on the Exchange. This is an increase from $3,750 in 2019. 

The penalties under the Employer Mandate started at $2,000 under Code Section 4980H(a) and $3,000 under 4980H(b). The affordability percentage started at 9.5%. Each year these numbers are adjusted with the penalties increasing and the affordability percentage changing upwards or downwards.

The new Individual Coverage Health Reimbursement Arrangement (ICHRA) will become an option for employers to offer employees effective January 1, 2020.

Here are 5 key things to know about the ICHRA:

1. The  ICHRA  lets  employers  reimburse  employees  for  individual  health  insurance  premiums,  Medicare insurance premiums and out-of-pocket medical expenses. Reimbursements are tax-free, and the employer determines the maximum reimbursement limits. 
2. Employees  must  have  individual  coverage  to  be  eligible  for  reimbursement  under  the  ICHRA.  Individual coverage  includes  grandfathered  plans,  grandmothered  plans,  ACA  regulated  plans  (on-  or  off-Exchange), insured  student  health  plans,  Medicare  or Medicare  Advantage  plans.  Coverage  through  a  short-term medical plan, a spouse’s group health plan or a healthcare sharing ministry will not qualify.
3. Employers cannot offer the same class of employees a choice between a group health or the ICHRA. They can,  however,  offer  one  class  a  group  health  plan  and  a  separate  class  an  ICHRA.  Permissible  classes  of employees  include  full-time,  part-time,  salaried,  non-salaried,  seasonal,  union, temporary, employees  in a waiting  period,  employees  working  in  different  geographic  locations,  non-resident  aliens  with  no  U.S. income or the combination of two or more of these classes. 
4. Employers  must  offer  the  ICHRA  under  the  same  terms  to  the  same  class  of  employees.  Reimbursement limits may only vary based on age and/or family size. Age-based variations cannot exceed a 3:1 ratio. 
5. A special enrollment period  (SEP) will be created upon the establishment date of the ICHRA. The SEP is a 60-day period before or after the plan establishment date.

The ICHRA may be a valuable option for the following employers:

• Employers who do not currently offer a group health plan due to cost or participation requirements
• Employers who want to extend a benefit to a specific class of employees, such as part-time employees
• Employers who receive a large premium increase at renewal
• Employers who are only offering coverage because of the Employer Mandate

Another  thing  to  point  out  is  that  other  types  of  group  health  plans  can  be  offered  alongside  the  ICHRA.  For example,  the  employer  can  use  the  ICHRA  as  their  medical  benefit  offering  while  making  group  dental,  vision  or Flexible Spending Account (FSA) coverage also available. Many employers may turn to this option as a simpler way of providing benefits to employees.

President  Donald  Trump  issued  an  executive  order  last  month  aiming  to  improve  price  and  quality transparency  in  the  healthcare  industry.  Among  other  things,  the  executive  order  called  for  the Department  of  Treasury  to  issue  regulations  that  would  allow  qualified  high  deductible  health  plans (HDHPs) to provide low-cost preventive services  for individuals with chronic medical conditions  prior to the deductible being satisfied.  Coverage for these services  prior to the deductible being satisfied  would not disqualify an individual from establishing and contributing to a  Health Savings Account  (HSA)  like it has in the past.

On July 17, 2019, the Department of Treasury issued  Notice 2019-45  which has expanded the types of services  an HDHP can cover  prior to the deductible being satisfied.  These services are in  addition  to the preventive  care  benefits  which  are  currently  allowed.  A summary of  the  new  services  which  can  be covered before the deductible is outlined below:

The Departments  of Labor, Health and Human Services and the Treasury (collectively, the Departments) released new guidance on June 13, 2019 which permit a new type of Health Reimbursement Arrangement, referred to as an Individual Coverage Health Reimbursement Arrangement (ICHRA). 

ICHRAs allow employers of all sizes to reimburse employees for individual health insurance coverage and other out-of-pocket medical expenses.  Employees must be enrolled in an individual health insurance plan  (on-  or off-Exchange) or Medicare to be an eligible participant under the ICHRA. The Departments estimate 800,000 employers will offer ICHRAs to 11 million employees and their family members. 

The ICHRA must be offered under the same terms to all eligible employees; however, reimbursement limits may vary  based  an  age  or  the  number  of  dependents.  Employers  determine  the  maximum  reimbursement  limits. Employers will not be able to provide employees within the same classification a choice between a traditional group health plan and an ICHRA. It’s one or the other, but employers can offer one classification of employees a traditional group health plan and another classification of employees an ICHRA. Employers may make distinctions using the following classifications:

• Full-time employees
• Part-time employees
• Employees working in the same geographic location 
• Seasonal employees
• Employees in a unit of employees covered by a collective bargaining agreement
• Employees who have not satisfied a waiting period
• Non-resident aliens with no U.S. based income
• Salaried workers
• Non-salaried workers (such a hourly workers)
• Temporary employees of staffing firms
• Any group of employees formed by combining two or more of these classes

Applicable large employers (ALEs) can satisfy the Employer Mandate requirements by offering an ICHRA, but the new regulations do not address how to determine if the ICHRA constitutes affordable coverage. The Internal Revenue Service (IRS) intends to issue guidance around this matter soon.

While the ICHRA is receiving most of the attention, the new guidance also creates a new Excepted Benefit HRA. This new Excepted Benefit HRA has the following features:

• Annual contributions must be limited to $1,800 (indexed for inflation).
• The HRA must be offered in conjunction with a traditional group health plan, but employees need not be enrolled in the traditional group health plan.
• Reimbursements will be limited to premiums for COBRA, dental, vision and short-term medical plans.
• The HRA must be uniformly available to all similarly situated individuals. 

ICHRAs and the new Excepted Benefit HRAs can be established starting January 1, 2020. The final rule,  news release  and  FAQ can be accessed by clicking on the appropriate hyperlink.

The Employer Mandate requires applicable large employers (ALEs), which are those employers with 50 or more full-time equivalent employees in the preceding year, to offer health insurance to full-time  employees (generally, at least 95% of employees must be offered health insurance). Additionally, the Employer Mandate requires this coverage to provide minimum value and be affordable. Minimum value means the coverage is as good as or better than a Bronze-like plan sold on the Exchange. Affordability  means the cost for single-only coverage is not more than 9.86% (in 2019) of the employee’s household income. Employers risk penalties for failing to meet these requirements for any full-time employee.

ALEs are supposed to file forms with the Internal Revenue Service (IRS) each year so that the IRS can confirm compliance with the Employer Mandate or determine if penalties are owed. These forms are known as Form 1094-C and 1095-C, but what if an ALE doesn’t file these forms? How is the IRS to know if a penalty is due?

The IRS is starting to address this issue. The IRS is starting to send a notice to employers for which it believes may be an ALE and who did not file Forms 1094-C or 1095-C. This notice is referred to as Letter  5699. It appears the IRS is starting to identify these employers based on the number of W-2s an employer filed. 

Employers will have 30 days to respond to Letter 5699. The letter will identify the specific year that is in question. In essence, employers will have to explain to the IRS why they weren’t an ALE for the year in  question, provide copies of the Forms 1094-C and 1095-C if indeed they were filed, or indicate to the IRS when they will be filed. 

It should be noted that in addition to the penalties associated with the Employer Mandate, there are penalties for not filing Forms 1094-C and 1095-C or filing late. For the 2018 reporting year, these penalties can be as high as $540 per employee. This means employers can be hit with penalties for noncompliance with the Employer Mandate and non-compliance with the reporting requirements, resulting in a much more costly experience for non-compliance.

Health Reimbursement Arrangements (HRAs) have been on a roller coaster the past five years. Some laws and  regulations  have  limited  the  types  of  HRAs  that  an  employer  can  offer  whereas  other  laws  and regulations have created new HRA options for employers to offer. Below is a summary of the types of  HRAs employers can offer to employees.

As a result of regulations supplementing the Affordable Care Act (ACA), employers were limited to offering 3 types of HRAs.

• (1) Integrated HRAs  –  This  type of HRA requires employees to also be covered by a group major medical plan. It generally reimburses out-of-pocket medical expenses. 
• (2) Retiree HRAs – This type of HRA only provides reimbursements to retirees.
• (3) Dental/Vision  HRAs  –  This  type  of  HRA  limits  reimbursements  to  only  dental  and/or  vision expenses. 

As a result of the 21st Century Cures Act, a fourth type of HRA became available in 2017.

• (4) Qualified Small Employer HRA (QSEHRA) –  This type of HRA is only available to employers who are  not  subject  to  the  Employer  Mandate  (i.e.  less  than  50  employees).  The  maximum reimbursement  is  limited  to  $5,150  for  single  coverage  and  $10,450  for family  coverage.  The primary  intent  of  a  QSEHRA  is  to  allow  for  the  reimbursement  of  individual  health  insurance premiums,  but  other  out-of-pocket  expenses  can  be  reimbursed.  Other  rules  and  restrictions apply.

As a result of recent regulatory guidance issued by the Trump administration, a fifth and sixth HRA option will become available in 2020.

• (5) Individual Coverage HRA (ICHRA)  –  This  HRA is almost like  a hybrid of the Integrated HRA and QSEHRA. It will be available to employers  of all sizes, and it requires employees to be covered by an individual health insurance plan or Medicare to  be eligible for reimbursements.  The primary intent of  the  ICHRA is to allow for the reimbursement of individual health insurance premiums, but  other  out-of-pocket  expenses  can  be  reimbursed.  The  employer  determines  the reimbursement limits, and other rules and restrictions apply.
• (6) Excepted Benefit HRA – This type of HRA will allow for the reimbursement of COBRA premiums, short-term medical plan premiums, dental and vision expenses. Annual reimbursement limits will be capped at $1,800 (adjusted for inflation).