Do you sometimes wonder if our society has made substantial progress over the last 20 years in routing factual information into the hands of educated consumers? While we can point to areas of vast improvement in certain markets, other areas leave us scratching our heads. One of those is the realm of the Affordable Care Act. As a benefits consultant, I come across all sorts of ACA mythologies every day. Yes, some of those are conspiracy-based, and others are political in nature, but most of the time, it’s just wrong information.
Fear not – together, let’s clear up 13 of the most common inaccuracies:
1. Myth: The out-of-pocket limits applicable to qualified high-deductible health plans (a.k.a. health savings account-compatible plans) are the same as the ACA limits imposed on health plans.
Truth: Confusingly, the limits applicable to qualified high-deductible health plans are slightly lower than the ACA limits. Thus, a plan sponsor using the ACA limits will generally disqualify the enrollees in the qualified high-deductible health plan from contributing to health savings accounts. Be careful.
2. Myth: When the regulators say 90 days regarding the maximum waiting period and the maximum administrative period, what they really mean is three full months.
Truth: Apparently, some of our lawmakers may have missed the lesson in grade school regarding Galileo’s discoveries. Or, maybe they believe that our solar calendar has exactly 360 days, I’m not sure. In any event, regarding the ACA, 90 days means 90 days. Complicating matters, 2016 is a leap year!
3. Myth: Large employers that do not offer health benefits or that qualify for 2015 transitional relief do not have to file the 2015 Form 1095-C/1094-C.
Truth: All employers that averaged 50 or more full-time employees plus full-time equivalents during calendar year 2014 must file these forms. Now’s the time to finalize your preparation/distribution/e-filing strategy. Please see these 10 ACA employer shared-responsibility reporting tips.
4. Myth: Treasury will not mind if an employer declares a higher full-time employee plus full-time equivalent count to its health insurer to escape the age-banded rates of the Fair Health Insurance Premium rules while simultaneously declaring a lower full-time employee plus full-time equivalent count to Treasury to escape the penalties of ACA employer shared responsibility.
Truth: Seriously? Prudent employers task their accountants with this calculation and report the correct amount to all parties.
Cadillac tax myths
One of my colleagues often astutely points out that because we don’t have any guidance on the Cadillac tax, most everything is conjecture at this point. Specifically, the two IRS Notices issued this year (IRS Notice 2015-16, IRS Notice 2015-52) do “not provide guidance . . . upon which taxpayers may rely.” However, they do provide a window into how Treasury is thinking about thinking about this massively complex excise tax. Thus, while we don’t have regulation, we at least know what Treasury is not thinking about:
5. Myth: The Cadillac tax only applies to large employers that are subject to ACA employer shared responsibility.
Truth: The Cadillac Tax applies to all employers that offer health plans. Now’s the time to make your Cadillac tax hurricane preparations.
6. Myth: We know what the 2018 Cadillac tax thresholds will be.
Truth: We know that the 2018 placeholders are $10,200 single/$27,500 family. However, per IRS Notice 2015-16, the actual 2018 thresholds will increase by a to-be-determined health-cost-adjustment percentage. Further, certain employers may see a further upward adjustment based upon age/gender ratios, retiree populations and high-risk professions. If your favorite class in high school was algebra, check out Treasury’s current line of thinking in Section VI of IRS Notice 2015-52.
7. Myth: Treasury has indicated that the Cadillac tax will begin accruing at the beginning of the 2018 plan year.
Truth: As it stands, it looks like this excise tax will begin accruing Jan. 1, 2018. Therefore, employers sponsoring non-calendar year plans will likely need to make their final mitigation adjustments when their 2017 plan year begins. In theory, these employers could make midyear changes on Jan. 1, 2018, but that strategy opens up another can of worms.
8. Myth: U.S. expatriate plans are completely exempt from ACA rules.
Truth: While qualifying plans are exempt from certain market reform rules, and hours worked overseas do not accrue toward shared responsibility full-time employee calculations, the Cadillac tax is scheduled to apply to these plans.
9. Myth: Our lawmakers are surprised that contributions toward flexible spending accounts, health reimbursement arrangements, and health savings accounts might count toward the Cadillac tax.
Truth: No one who read the original 2010 bill was surprised. Congress clearly stated its intention five years ago. Section V.E of IRS Notice 2015-52 quotes this specific language, if you’re interested (“Zack, do you really think all of our lawmakers read this bill?” you ask).
Employer shared responsibility myths
10. Myth: The 2015 annual 4980H(a) “no coverage” penalty is $2,000 per full-time employee (less the first 80) and the 2015 annual 4980H(b) “inadequate/unaffordable” penalty is $3,000 per impacted full-time employee.
Truth: These penalties actually accrue monthly and increased to $173.33 and $260.00 per month, respectively, for calendar year 2015. If the penalties apply for each and every month, the annualized amounts are $2,080 and $3,120, respectively.
11. Myth: The employer shared responsibility affordability safe harbor increased to 9.56% from 9.50% for 2015.
Truth: While the 2015 household affordability measure is 9.56%, the three available safe harbors for employers (Box 1 W-2, Rate of Pay, FPL) remain at 9.50% for 2015. Prudent employers continue to leave a margin of error when setting employee contribution rates.
12. Myth: If an employer chooses a 12-month initial stability period, it must choose a 12-month initial measurement period.
Truth: Treasury first condoned the coupling of a 12-month initial stability period with an 11-month initial measurement period in Notice 2012-58. While this structure wasn’t mentioned in the final regulations, there seems to be consensus that it is permissible. Check with your attorney. This structure allows plan sponsors an extra month to run reporting and to offer, when applicable, coverage to the newly eligible. However, because certain lawmakers seemed to reject Galileo’s assertions that our planet revolves around the sun, this structure will create a few dates during the year that run afoul of the 90-day maximum administrative period rule. Be careful.
13. Myth: Employers that averaged between 50-99 full-time employees plus FTEs in 2014 automatically qualify for 2015 transitional relief.
Truth: Three requirements must be met in order to quality for this transitional relief. Please see Question #34 from Treasury’s Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act for the details. Many employers do not qualify for this relief.