American Benefits Council
Benefits Byte


March 10, 2015

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Final HHS 2016 Benefit and Payment Parameters Notice Addresses Maximum Out-of-Pocket, Minimum Value Requirements

The U.S. Department of Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) published its final 2016 Notice of Benefit and Payment Parameters on February 27. Although the bulk of these requirements apply to the individual insurance market and health exchange operations, the regulations also include certain clarifications that apply to employer-sponsored group health plans. These include the application of the Patient Protection and Affordable Care Act’s (PPACA) cost-sharing limits to individuals with coverage other than self-only and a requirement that a plan cover in-patient hospitalization in order to satisfy the 60 percent minimum value (MV) standard.

The 2016 annual limitation on cost-sharing under PPACA for self-only coverage is $6,850. For non-self-only coverage, the out-of-pocket limit will be $13,700. The preamble to the new notice states that HHS is finalizing the language in its prior proposal, which states that “the annual limitation on cost sharing for self-only coverage applies to all individuals regardless of whether the individual is covered by a self-only plan or is covered by a plan that is other than self-only.” HHS notes that “[w]e believe that this clarification is an important consumer protection, as we are aware that some consumers have been confused by the applicability of the annual limitation on cost sharing in other than self-only plans.” The preamble further states that “[w]hile cost sharing incurred towards the deductible must count towards the annual limitation on cost sharing for EHB, the deductible limit is not regulated in the same manner as the annual limitation on cost sharing. Therefore, family high-deductible health plans that count the family’s cost sharing to the deductible limit can continue to be offered under this policy.” This clarification effectively requires that “embedded” annual limitations on cost-sharing (maximum out-of-pocket limits) apply to all plans.

The February 27 notice also finalized regulations clarifying that, to provide MV, employer-sponsored plans must satisfy the existing quantitative 60 percent MV standard and must also provide “substantial coverage of inpatient hospital services and physician services.” HHS had proposed regulations to formalize guidance provided in IRS Notice 2014-69 (released on November 4) addressing the HHS MV calculator (See the Council's November 4, 2014, Benefits Byte story for more details.) The calculator is intended to be used to determine whether an employer-sponsored plan provides 60 percent MV. According to HHS and Treasury, the online MV calculator was improperly qualifying certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services. (See the November 24, 2014, Benefits Byte for more details.)

In written comments on the proposed regulations (See the December 23, 2014, Benefits Byte), the Council expressed significant concerns with the proposed expansion of the MV definition, arguing that such expansion was unsupported by the statute and could establish a precedent to impose essential health benefit (EHB) mandates on employer-sponsored group health plans in order for such plans to be considered to provide “minimum value” to avoid the employer shared responsibility payments. In the preamble to the February 27 notice, HHS maintains that “Employer-sponsored plans in the large group market and self-insured employers continue to have flexibility in designing their plans. They are not required to cover all EHB. Providing flexibility, however, does not means that these plans can offer whatever benefits they choose and automatically meet MV requirements. A plan that excludes substantial coverage for inpatient hospital and physician services is not a health plan in any meaningful sense….” According to the February 27 notice, HHS intends to provide further clarity on the requirement to provide “substantial coverage.”

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

Senate Finance Committee Focuses on Simplification of Tax Code

The U.S. Senate Finance Committee continued its examination of possible tax reform in a March 10 hearing on ways to reduce complexity in the tax system. During the hearing, Tax Complexity, Compliance, and Administration: The Merits of Simplification in Tax Reform, witnesses offered suggestions on ways in which the tax code could be simplified without reducing tax revenue, including measures affecting retirement savings, such as creating uniformity of regulations on required minimum distributions and early withdrawal penalties across different types of retirement plans.

In his opening statement, Chairman Orrin Hatch (R-UT) noted that there are many causes of complexity in the tax code, including the use of tax incentives to advance social and economic policies, the interaction of federal tax laws with state laws, the complexities in the international tax system and the various “credits, deductions, exclusions, exemptions, fees, and excise taxes, all of which were presumably intended by their proponents for good,” but contribute to the overall complexity of the tax system. He said that despite the tension between simplicity and fairness, reducing complexity in the tax system should be a priority.

Ranking Democratic member Ron Wyden (D-OR) in his opening statement, noted that due to the complexity of the tax code, taxpayers increasingly have to rely on possibly risky software and preparers to help them file, which is why he introduced the Taxpayer Protection and Preparer Proficiency Act of 2015 (S. 137), which would give the Secretary of the U.S. Department of the Treasury the authority to regulate tax return preparers. He also stressed that simplicity and fairness do not have to be at odds and encouraged the committee’s bipartisan approach to tax reform.

The committee heard testimony from the following witnesses:

  • Carol Markman, certified public accountant and tax director at EP Caine & Associates CPA, LLC, outlined several areas that could be changed to both simplify and increase fairness in the tax code, including retirement plans.

She noted that there are several different types of retirement plans and that many Americans have several types of plans when they begin to be required to take an annual required minimum distribution (RMD) at age 70½. She suggested that instead of requiring RMDs from different types of plans to be taken separately from each type of plan, taxpayers should be permitted to take their entire RMD from a single retirement account. Markman also suggested that the exemptions to the 10 percent penalty on early retirement account withdrawals be made uniform across all plan types.

  • Mihir Desai, professor of finance and law at Harvard University, commented on the excessive complexity of certain areas in the code, including Individual Retirement Accounts (IRAs). He suggested combining the multitude of available tax preferred savings accounts into two accounts, “one for retirement savings and one for everything else.” He also advocated for a territorial tax system, where domestic income is taxed but not foreign income, over the U.S. current worldwide system, where corporations headquartered in the U.S. must pay corporate income tax on all income, regardless of whether it is earned in the U.S. or overseas.
  • Bruce Bartlett, former deputy assistant secretary for economic policy for the U.S. Department of the Treasury, testified that much of the tax system’s growing complexity comes from the changing economy, which in turn is changing the nature of income. He cited contract workers as an example, as they have to file with the same complex returns as small businesses. He noted that a consumption-based tax, where money spent on goods and services is taxed, has potential to simplify the tax system. He also suggested consolidating “the many tax subsidies for education, retirement saving and other worthwhile purposes.”
  • Keith Fogg, professor of law and director of the Villanova University School of Law Federal Tax Clinic, commented on the difficulties low-income taxpayers face with simply trying to file their taxes correctly. He emphasized that the focus should be on getting the return filing process right and that return preparers should be regulated to protect low income taxpayers.

During the question-and-answer session, Senator Maria Cantwell (D-WA) asked whether they needed to be focusing more on retirement savings and investing in research and development. Bartlett agreed that any policy that helps increase savings is good and encouraged that the research and development credit be made permanent.

Wyden asked whether taxing income from wages and investments at the same rate would diminish complexity. Bartlett responded that an issue with that is that individuals can choose when, or if, to realize capital gains, which can create a “lock-in” effect, and he suggested the way Europe deals with this issues, where a rate of return on investments is estimated and taxed without those capital gains needing to be withdrawn.

Sen. Ben Cardin (D-MD) asked about the simplification that would be created by moving from an income based tax system to a consumption-based system, to which the witnesses responded with optimism, although Markman expressed concern about its effect on low-income taxpayers.

Sen. Sherrod Brown (D-OH) expressed skepticism that comprehensive tax reform could be achieved and instead suggested a set of discreet reform packages, based on the committee’s working groups on tax reform (see the January 15 Benefits Byte).

In response to a question from Sen. Thomas Carper (D-DE) on where the committee can find common ground on an issue, Bartlett noted that some complexity is derived from having so many incentives that attempt to achieve the same purposes, especially in the areas of retirement savings and education. Fogg responded to another question from Carper that one way to both simplify the tax code and increase compliance would be to fix the filing system by having the IRS wait to send refunds until after they received third party data verifying returns and if the IRS sent taxpayers the data they already have.

This latest hearing is the fourth in the Senate Finance Committee’s series of hearings on tax reform. The committee’s previous hearings have discussed the process leading to the Tax Reform Act of 1986, ways to promote growth in wages, jobs and the economy and fairness in the tax code. For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, or Diann Howland, vice president, legislative affairs, at (202) 289-6700. 

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).