Compliance Updates (Benefit Minute)
This issue provides a summary of recent regulatory, judicial and legislative activity.
ACA Repeal and Replace
On May 4, 2017, the House of Representatives passed the American Health Care Act (AHCA) by a small margin.
The bill includes the following provisions:
- Retroactively reduce the individual and employer mandate penalties to zero;
- Repeal various fees and taxes, including the health insurance tax, the medical device tax and the tax on net investment income;
- Further delay the cadillac tax until 2026;
- Increase HSA annual contribution limits;
- Change the structure of premium tax credits; and
- Curtail Medicaid expansion by 2020.
On June 22, 2017, the Senate released a draft of their version of a repeal and replace bill called the Better Care Reconciliation Act (BCRA). The key provisions of the bill largely mirror the House legislation; however, Medicaid expansion is phased out more slowly but ultimate cuts are deeper than under the AHCA. The BCRA also allows establishment of small business association plans.
BCRA has been written as a reconciliation bill so that only a simple majority is needed for passage. Senate leadership had initially promised a vote before Congress recessed for the July 4th holiday, but later delayed it to have time to make further changes and secure additional votes. If passed, the two chambers of Congress will then have to resolve differences between their bills.
HSA Limits for 2018
The limits for qualified high deductible health plans (QHDHPs) and health savings accounts (HSAs) for plan years beginning in 2018 are set forth below.
- HSA Contribution Limit (individual) = $3,450
- HSA Contribution Limit (family) = $6,900
- QHDHP Minimum Deductible (individual) = $1,350
- QHDHP Minimum Deductible (family) = $2,700
- QHDHP Out-of-Pocket Max (individual) = $6,650
- QHDHP Out-of-Pocket Max (family – must include an embedded individual amount not to exceed $7,350) = $13,300
Church Plan ERISA Exemption
For health plans that are not QHDHPs, the out-of-pocket maximums for plan years beginning in 2018 are $7,350 (individual) and $14,700 (family – must include an embedded individual amount not to exceed $7,350).
ERISA has a specific exemption for employee benefit plans that are “established and maintained” by a church or by a convention or association of churches that is exempt from tax under section 501 of the Internal Revenue Code. This definition includes a plan maintained by an organization (such as an internal benefits committee) whose principal purpose is administering a benefit plan for employees of the church or the church-affiliated nonprofit organization, as long as the organization is controlled by or associated with a church. Several court cases have addressed whether benefit plans maintained by a church-affiliated hospital, university or service organization meet the church plan definition if such plans were not originally established by a church.
A recent Supreme Court case affirmed that employee benefit plans maintained by these church-affiliated organizations are exempt from ERISA. The Court reasoned that the category of plans “established and maintained” by a church includes plans maintained by a principal-purpose organization, so a plan maintained by a principal-purpose organization is an exempt church plan (whether or not established by a church). While the court cases in question related to retirement plans, the same analysis applies for welfare benefit plans. If the decision had gone the other way, plans of church-affiliated entities that have claimed the ERISA exemption would have had exposure for ERISA non-compliance.
Contraceptive Coverage Executive Order
President Trump recently issued the Promoting Free Speech and Religious Liberty Executive Order. Among other items, it directs the relevant government agencies to consider amending the ACA’s preventive services mandate to address conscience-based objections to the requirement that certain contraceptive coverage be provided by group health plans without cost-sharing.
Qualifying religious employers are exempt from this requirement. Nonprofit religious employers and closely-held for-profit employers with religious objections may follow an accommodation process to decouple the provision of the contraceptive coverage from the group health plan (while still making contraceptive coverage available to plan members directly through the insurer); however, the accommodation process itself is controversial. In response to the Executive Order, the agencies have reportedly drafted a regulation to expand the exemption from the requirement to provide free contraceptives. The regulation has not been released.
Wellness Program Payroll Tax Reduction Program
The IRS continues to disallow arrangements that purport to allow employees to receive tax-favored payments that avoid income and employment taxes. In one arrangement, employees pay a small after-tax premium to participate in specified no-cost wellness activities and receive tax-free cash payments for participation. All employees are expected to receive, and in practice do receive, payments in an amount in excess of the premium paid. Since the risk-shifting and risk distribution elements of insurance are not present in the arrangement and there is no reimbursement for medical care, the IRS concluded that payments in excess of the employee contributions must be included in income and are subject to income tax withholding and employment taxes.