The U.S. Supreme Court has concluded hearing arguments about the constitutionality of various parts of the federal health care reform law known as the Patient Protection and Affordable Care Act (PPACA). The Court’s decision on the fate of the law is expected by the end of June, when the Court’s current session ends. At issue in the case is PPACA’s “individual mandate” which requires nearly all individuals in the United States to maintain health insurance or pay a penalty, collected by the IRS.

The first issue argued before the Court was whether these legal challenges are barred by a federal law known as the Anti-Injunction Act. The Anti-Injunction Act requires that anyone challenging the imposition of a tax must first pay the tax, and then bring the legal challenge. Because the individual mandate and its penalty don’t take effect until 2014, if the Justices agree that the Anti-Injunction Act applies, this challenge couldn’t be heard until 2014, or later, when an individual actually was assessed the penalty for failing to maintain health insurance. According to most court observers, the Justices didn’t seem inclined to rule this way.

The next arguments concerned whether Congress had the power to impose the individual mandate, and if not, whether the mandate could be severed from the rest of the law—i.e. can the rest of the law stand without the mandate, or must the entire law be struck down? Also, if the individual mandate could be severed from the rest of the law, are there other provisions that are so dependent on the individual mandate that they too must be stricken from the law as a whole? While there is much speculation about how the Justices will rule, based on political affiliations and the content of their questions during oral argument, the outcome is really anybody’s guess. None of the PPACA provisions that most directly affect employers were at issue, however, so it will be only if the Court strikes the law down in its entirety that employers will be majorly impacted by the Court’s decision. Vigilant will keep members updated—stay tuned!

The Departments of Health and Human Services (HHS), Treasury (IRS) and Labor (DOL) have jointly issued new guidance on a variety of topics under the federal Patient Protection and Affordable Care Act (PPACA) (IRS Notice 2012-17 and 77 Fed Reg 8668). Key points include:

• Automatic enrollment: DOL has concluded that it will not be able to issue guidance on PPACA’s automatic enrollment provision by 2014 as previously anticipated, and it reaffirmed its previous position that employers need not comply with automatic enrollment until guidance is issued. 
• Affordability of coverage: IRS confirms that it plans to permit employers to use employees’ Form W-2 wages as a safe harbor in determining the affordability of employer coverage for purposes of the employer “shared responsibility” penalties that go into effect in 2014.
• 90-Day waiting period limitation: IRS plans to issue guidance to address the intersection of the 90-day maximum waiting period limitation (effective 2014) and the employer shared responsibility penalties by providing that employers will not incur a penalty for employees who are uncovered during their up-to 90-day waiting period.
• Definition of full-time employee: IRS will issue guidance on how to determine whether a newly-hired employee is a full-time employee for purposes of the employer shared responsibility penalties. Under certain circumstances, IRS expects to give employers up to six months to determine the full-time status of newly hired employees.
• Summary of Benefits and Coverage (SBC): HHS/IRS/DOL issued a final rule containing the content and distribution requirements for the four-page SBC, which must be provided by carriers and plan administrators. The SBC must first be distributed to participants on the first day of the first open enrollment period that begins on or after September 23, 2012. The final rules also contain a sample SBC template and instructions and illustrations of how to properly complete the SBC. 

Vigilant will update its members as further guidance is issued. If you have questions about health care reform and how it affects your business, contact Kristine Bingman at Vigilant (1-800-733-8621).

Do you have lingering questions about how to report the value of employees’ employer-provided health coverage on their 2012 Forms W-2? The IRS recently released IRS Notice 2012-9, offering clarification and additional guidance on how to report, including:

• Employers that are federally recognized Indian tribal governments are not subject to the reporting requirement, nor are tribally chartered corporations wholly-owned by a federally recognized Indian tribal government (Q/A-3).
• Clarifies the reporting requirement for related employers not using a common paymaster (Q/A-7).
• If an employee makes pre-tax contributions under a health flexible spending arrangement (FSA) and no employer contributions are made to the FSA, there is no reporting requirement for the FSA coverage (Q/A-19).
• Explains how to calculate the reportable amount for employers who charge a composite rate (Q/A-28).
• Employers are not required to report the cost of coverage under an employee assistance program (EAP), wellness program or on-site clinic if the employer does not charge a premium for those benefits (Q/A-32).
• Employers may voluntarily report the cost of coverage under plans that are not required to be reported, such as contributions to a health reimbursement arrangement (HRA) (Q/A-33).
• A Form W-2 provided by a third-party sick pay provider is not subject to reporting (Q/A-39).

The IRS also restated that the reporting requirement does not make the coverage taxable, and that employers who were required to file fewer than 250 Forms W-2 for 2011 are not required to report on 2012’s Form W-2. Have questions? Contact Kristine Bingman.

Question: Can we avoid some of the upcoming health care reform compliance issues, such as the “play or pay” penalties, by carving our company up into smaller corporate entities?

Answer: No. Some of the mandates included in the federal Patient Protection and Affordable Care Act (PPACA), apply only to employers of a certain minimum size. The “play or pay” penalties, for example, (also known as the “shared responsibility” mandate) penalize employers of 50 or more full time equivalents (FTEs) if they do not provide minimum essential health benefit coverage to all full time employees and their dependents.  This has prompted many employers to look at how they might change their business structure or strategies so that they fall under this 50 FTE threshold by 2014, when the penalties go into effect. Unfortunately, however, there are a set of “controlled group” rules established by the IRS that treat related business entities as a single corporate entity for many purposes, including the mandates of PPACA. The rules define the extent of common ownership necessary to be considered a single entity in situations of parent-subsidiary ownership, as well as “brother-sister” controlled groups of corporations. These rules apply based on the degree of common ownership of the companies, regardless of whether the businesses are in related or unrelated industries. Contact your benefits advisor for more information on how these rules might impact your company.

A second appeals court has weighed in on the legality of the “individual mandate” contained in the federal health care reform law known as the Affordable Care Act (ACA), this time ruling that the mandate is unconstitutional.  The ACA’s individual mandate is the requirement that by 2014 nearly all U.S. citizens must maintain health insurance coverage, or face a financial penalty. The constitutionality of this provision of the ACA has been the subject of much heated debate, with the Sixth Circuit U.S. Court of Appeals upholding its constitutionality last month. Now, the Eleventh Circuit, ruling on an appeal filed by several state attorneys general, has found that the individual mandate exceeds Congress’s power to regulate the states, and therefore is unconstitutional. However, unlike the district court decision at the trial level, the Eleventh Circuit found that the mandate was severable from the rest of the ACA, and therefore the entire law did not need to be struck down as unconstitutional (State of Florida v. U.S. Dept. of Health and Human Services, 11th Cir, Aug. 2011).

Tips: The U.S. Supreme Court will almost certainly hear this case, or another like it challenging all or part of the ACA, possibly as early as this fall. Vigilant will keep members updated as new developments occur. In the meantime, the ACA is the law of the land and employers should be aware of how it will affect them and take any necessary steps toward compliance. If you have questions about how health care reform will affect your business, contact Kristine Bingman at Vigilant (800-733-8621 or k.bingman@vigilantcounsel.org).

A rule issued jointly by the Department of Health and Human Services, IRS and the Department of Labor, pursuant to the Affordable Care Act (ACA), will require non-grandfathered health plans to cover contraceptive services for women with no copayment (76 Fed Reg 46621, Aug. 3, 2011). The ACA requires non-grandfathered plans to cover recommended preventive services without any copay or other cost-sharing requirement. These include services such as routine immunizations and preventive care and screenings for children and women as provided for in the guidelines of the Health Resources and Services Administration (HRSA), the U.S. Preventive Services Task Force and the Centers for Disease Control and Prevention. This latest rule expands the preventive services that must be covered with no cost sharing to include contraceptive services for all women. This mandate goes into effect for the first plan year beginning on or after August 1, 2012. This means January 1, 2013 for calendar year plans.

Tips: Check out HealthCare.gov, for a list of all the preventive services required to be covered with no cost sharing.

A recent survey by an online business journal, McKinsey Quarterly, indicates that as many as 30 percent of employers will “definitely” or “probably” stop offering employer-sponsored health insurance after 2014. Among the other surprising findings, the survey results indicate that this figure rockets up to nearly 60 percent among employers who have a higher awareness of health care reform, including the burdens it will place on employers and the availability of health coverage alternatives to lower-income employees.  The survey concludes that around 30 percent of businesses would actually gain economically from discontinuing health coverage, even if they increase employees’ compensation to make up the difference, and somewhat surprisingly, the survey finds that the vast majority—more than 85 percent—of employees would remain at their jobs even if their employer stopped offering health coverage.

Tips: Like it or not, health care reform is here to stay, whether on the state or the federal level, and it will impact the way you do business. While there remain many unknowns, now is the time to start evaluating what steps your company may take to respond to future changes. Vigilant will keep its members informed of new developments and trends.

Although the restriction on FSA or HRA reimbursement of over-the-counter (OTC) drugs and medications went into effect on January 1, 2011, you have until June 30, 2011 to amend your plan document to reflect this change, so if you haven’t yet done so, now is the time. The federal health care reform law known as the Affordable Care Act (ACA) prohibits health flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs) from reimbursing expenses for over-the-counter (OTC) medications and drugs obtained without a prescription (IRS Notice 2010-59), as of January 1, 2011. IRS guidance clarifies that expenses incurred for medicines or drugs now may be reimbursed by an employer’s FSA or HRA only if: 1) the medicine or drug requires a prescription; or 2) the medicine or drug is available without a prescription but the individual obtains a prescription for it; or 3) the drug is insulin.

Tips: A "prescription" means a written or electronic order for a medicine or drug that meets the legal requirements of the state in which the medical expense is incurred, and that is issued by an individual who has prescription authority in that state. When a participant submits a claim for an OTC medicine or drug for which they obtained a prescription, he or she must provide the plan administrator with a copy of the prescription in order for the expense to be reimbursable. Other OTC items that are not medicines or drugs, such as crutches, bandages and diagnostic devices, are unaffected by the ACA and remain reimbursable according to the terms of the employer’s plan. If Vigilant administers your FSA, your plan is already written to conform to this requirement and need not be amended.

Good news for employees who cover their nondependent adult children on their employer’s health plan: thanks to the passage of AB 36, the value of the health benefits is no longer subject to state income tax. AB 36 brings California tax law in line with federal law, which has permitted tax-free benefits for adult children (through the end of the year in which the child turns 26) since March 30, 2010. Previously, dependent benefits were only tax-free if the child was under 24, a fulltime student, maintaining the same principal residence as the parent for at least half of the year and receiving more than one half of his or her annual financial support from the parent. (Children who are permanently and totally disabled, regardless of age, could also receive benefits tax-free to the employee.) The changes brought about by AB 36 apply retroactively to March 30, 2010, which means that employers who have been reporting imputed income will now need to make amended tax filings for 2010. California’s Employment Development Department has posted online guidance for employers. Consult your payroll or tax adviser with questions.

Despite the legal challenges and vocal opposition on the federal scene, the state of Washington is marching forward with plans to implement the federal health care reform law known as the Affordable Care Act (ACA). Among the state’s preparations is the recent passage of several bills by the Washington state legislature to make various parts of the ACA a reality, including a bill to set up a state health insurance exchange. These bills make the state eligible to receive federal funding to help implement the ACA, while allowing the state to design its health care system as it sees fit. SB 5445 sets up the basic framework for the health insurance exchange, but many details remain to be sorted out. Vigilant will update its members on further developments (2011 Wash Laws Chap 317).