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IRS Confirms Delay of Nondiscrimination Rules for Fully Insured Health Plans

Click to read full article: IRS Confirms Delay of Nondiscrimination Rules for Fully Insured Health Plans

The Affordable Care Act (ACA) requires non-grandfathered fully insured health plans to satisfy nondiscrimination rules regarding eligibility to participate in the plan and eligibility for benefits. This requirement was originally set to take effect for plan years beginning on or after Sept. 23, 2010. However, in late 2010, the IRS announced that the nondiscrimination requirement for non-grandfathered fully insured plans is delayed indefinitely, pending the issuance of regulations (or other administrative guidance) on how to comply with the requirement.

The IRS has still not issued regulations (or other administrative guidance) on the ACA’s nondiscrimination requirement for non-grandfathered fully insured plans. Because the nondiscrimination requirement has been delayed indefinitely pending the issuance of regulations, IRS officials have confirmed that the requirement will not be enforced this year.

Nondiscrimination Requirement

The ACA requires non-grandfathered fully insured plans to follow many of the same nondiscrimination rules that currently apply to self-funded plans.

Specifically, non-grandfathered fully insured plans will have to satisfy rules similar to those of Internal Revenue Code section 105(h)(2), which prohibits discrimination in favor of highly compensated individuals. This section generally provides that plans must pass two separate nondiscrimination tests—the eligibility test and the benefits test.

When the ACA’s nondiscrimination requirement for fully insured plans takes effect, certain plan designs will likely be prohibited, such as plans that only provide coverage to management or executive employees.

Also, after the effective date, employers that violate the ACA’s nondiscrimination requirement may face penalties of up to $100 per day for each affected individual.

Effective Date Delayed Indefinitely

The ACA’s nondiscrimination requirement for non-grandfathered fully insured plans was originally scheduled to take effect for plan years beginning on or after Sept. 23, 2010.

However, on Dec. 22, 2010, the IRS released Notice 2011-1, which delays the effective date until after the IRS issues regulations.

Click to read full article: IRS Confirms Delay of Nondiscrimination Rules for Fully Insured Health Plans

White House Announces Transition Policy for Canceled Health Plans

Quick Facts
• Many key ACA reforms will take effect in 2014 and require health plan changes.
• Due to these reforms, health insurance issuers have been sending cancelation notices to consumers.
• Responding to pressure from consumers and Congress, the White House announced a transition policy for 2014, which may allow individuals and small businesses to keep their coverage for another year.

The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies, beginning in 2014. For example, effective for 2014 plan years, the ACA imposes new modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.

Over the last few months, millions of Americans have received notices informing them that that their health insurance plans are being canceled because they do not comply with the ACA’s reforms. President Obama has received criticism that these cancelations go against his assurances that if consumers have a plan that they like, they can keep it. Both Republican and Democrat members of Congress have been advocating changes to the ACA to resolve the cancelation issue.

Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a new transition policy for 2014. Under the new policy, individuals and small businesses whose coverage has been canceled (or would be canceled) because it does not meet the ACA’s standards may be able to re-enroll or stay on their coverage for an additional year.

However, this one-year reprieve may not be available to all consumers. Because the insurance market is primarily regulated at the state level, state governors or insurance commissioners will have to allow for the transition relief. Also, health insurance issuers are not required to follow the transition relief and renew plans, and have expressed concern that the change could disrupt the new risk pool under the federal and state Health Insurance Marketplaces.

Transition Relief Policy

The Department of Health and Human Services (HHS) outlined the transition policy in a letter to state insurance commissioners.

For 2014, health insurance issuers may choose to continue coverage that would otherwise be terminated or canceled due to the ACA’s reforms, and affected individuals and small business may choose to re-enroll in the coverage.

Under this transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be considered to be out of compliance with specified ACA reforms if certain conditions are met.

According to HHS, it will consider the impact of the transition relief in assessing whether to extend it beyond the specified timeframe.

The transitional relief is not available to grandfathered plans because these plans are not subject to most of the ACA’s market reforms. According to President Obama, the transition relief is an extension of the grandfathered plan rules to additional health insurance policies.

Specified ACA Reforms

The specified ACA reforms subject to the transition relief are the following reforms that are scheduled to take effect for plan years starting on or after Jan. 1, 2014:

  • Modified community rating standards;
  • Guaranteed availability and renewability of coverage;
  • Prohibition of pre-existing condition exclusions or other discrimination based on health status, except with respect to group coverage;
  • Nondiscrimination in health care;
  • Coverage for clinical trial participants; and
  • Coverage of the essential health benefits package.

Requirements for Transition Relief

The transition relief only applies with respect to individuals and small businesses with coverage that was in effect on Oct. 1, 2013. It does not apply with respect to individuals and small businesses that obtain new coverage after Oct. 1, 2013. All new plans must comply with the full set of ACA reforms.

Also, the health insurance issuer must send a notice to all individuals and small businesses that received a cancelation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancelation or termination notice with respect to the coverage).

Notice Requirements

The notice to individuals and small businesses must provide the following information:

  • Any changes in the options that are available to them;
  • Which of the specified ACA reforms would not be reflected in any coverage that continues;
  • Their potential right to enroll in a qualified health plan offered through a Marketplace and possibly qualify for financial assistance;
  • How to access such coverage through a Marketplace; and
  • Their right to enroll in health insurance coverage outside of a Marketplace that complies with the specified market reforms.

Where individuals or small businesses have already received a cancelation or termination notice, the issuer must send this notice as soon as reasonably possible.

Where individuals or small business would otherwise receive a cancelation or termination notice, the issuer must send this notice by the time that it would otherwise send the cancelation or termination notice.

IRS Clarifies Transition Relief for Cafeteria Plan Elections

Notice 2013-71 clarifies that transition relief is available to an employer with a cafeteria plan that has a non-calendar plan year beginning in 2013, whether or not the employer is an applicable large employer.

Quick Facts:

  • Relief is available to employers with a cafeteria plan that have a non-calendar plan year beginning in 2013, regardless of the size of the employer.
  • On Oct. 31, 2013, the IRS released Notice 2013-71 to clarify a transition rule allowing amendments to a cafeteria plan to permit certain changes in salary reduction elections.

Many employers offer health plans to employees through salary reduction under a section 125 cafeteria plan. Generally, cafeteria plan elections must be made before the start of the plan year and are irrevocable during the plan year (except for a narrow set of circumstances).

In December 2012, the Internal Revenue Service (IRS) issued proposed regulations that included a transition rule for health plan coverage elected under a cafeteria plan with a non-calendar year plan year. Under the transition rule, an applicable large employer could amend its cafeteria plan to permit certain mid-year changes in salary reduction elections.

On Oct. 31, 2013, the IRS released Notice 2013-71 (Notice), which clarifies the scope of the transition rule. The Notice clarifies that relief is available to an employer with a cafeteria plan that has a non-calendar plan year beginning in 2013, whether or not the employer is an applicable large employer or applicable large employer member.

The clarifications apply beginning on or after Dec. 28, 2012 (the date on which the proposed regulations were issued).

Cafeteria Plan Elections

Generally, cafeteria plan elections must be made before the start of the plan year and are irrevocable during the plan year, with limited exceptions, including certain changes in status. However, the availability of health plan coverage through an Affordable Insurance Exchange beginning with calendar year 2014 does not constitute such a change in status.

The individual mandate and the availability of coverage through an Exchange are both effective as of Jan. 1, 2014. This date may raise issues for plans that do not have a Jan. 1 plan year, which the IRS calls “fiscal year plans.”

An employee who is eligible to enroll in an employer’s plan, but did not do so, may wish to enroll in the employer’s plan in the middle of the plan year to meet the individual mandate requirements. (On June 26, 2013, the IRS issued Notice 2013-42 to provide transition relief from the individual mandate for certain months in 2014 to individuals who are eligible to enroll in employer-sponsored fiscal year plans.)

An employee who is already covered under a fiscal year plan might wish to discontinue coverage under that plan and enroll in an Exchange plan in the middle of the plan year.

The Transition Rule

Under the proposed regulations, an applicable large employer may choose to amend its cafeteria plan to permit either (or both) of the following changes in salary reduction elections, which apply regardless of whether employees experience a change of status event under the cafeteria plan regulations:

  • An employee who made a salary reduction election through his or her employer’s cafeteria plan for health plan coverage with a fiscal year beginning in 2013 can prospectively revoke or change his election regarding the plan during that plan year.
  • An employee who did not make a salary reduction election under his employer’s cafeteria plan for health plan coverage with a fiscal deadline beginning in 2013 (before the applicable deadline under the cafeteria plan regulations) can make a prospective salary reduction for coverage on or after the first day of the cafeteria plan’s 2013 plan year.

These changes are permitted only once during the plan year, and only with respect to accident and health plan coverage offered under a fiscal year plan.

Clarification

The Notice clarifies the scope of a transition rule under the employer mandate “pay or play” provision for health plan coverage elected under a section 125 cafeteria plan.

Although the transition rule refers specifically to applicable large employer members, the Notice clarifies that relief is available to an employer with a cafeteria plan with a non-calendar plan year beginning in 2013, whether or not the employer is an applicable large employer or applicable large employer member.

The Notice also states that any cafeteria plan amendment adopted under this transition rule may be more restrictive than the amendments described in the rule, but may not be less restrictive. For example, an employer may amend its cafeteria plan to allow an employee to prospectively revoke or change his or her election once during a limited period (for example, the first month of 2014 only, rather than the entire plan year), regardless of whether the employee experienced a change in status event under the cafeteria plan rules.

Other Issues in the Notice

The Notice also relaxes the “use-or-lose” rule for health FSAs. Under the relaxed rule, an employer, at its option, is permitted to amend its section 125 cafeteria plan document to allow up to $500 of unused funds remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year. The plan may specify a lower amount as the permissible maximum (and has the option of not permitting any carryover at all).

This modification applies only if the plan does not also incorporate the grace period rule.

More Information

Please contact Robert C Placak & Associates Insurance Services for more information on the transition relief for cafeteria plans or the “use-or-lose” rule for health FSAs.

White House to Announce a One Year Delay in Implementation of the Pay or Play Rules

Around 3:00 P.M. Pacific Daylight Time, the Department of Treasury posted a bulletin on its blog announcing the White House’s decision to delay the full implementation of the Pay or Play Rules.

The Treasury report states that employers and insurers will be exempt from the reporting disclosure requirements on welfare plans and eligibility rules until 2015, effectively postponing the Pay or Play requirements under IRC Section 4980H for 2014. These reporting requirements are the tool employers are to use to demonstrate compliance with the Pay or Play requirements. The Treasury report also indicates that the official guidance will be issued later this week!

The driving force behind the delay is feedback from employers on the issues they have to meet the original 2014 implementation deadlines.

It also appears that all other Patient Protection and Affordable Care Act (ACA) provisions, including the PCORI fees remain in effect.

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