July 30, 2015
- IRS Releases Second Notice Requesting Comment on Implementation Approaches to 40 Percent Excise Tax
- Council Submits Letter to CMS on HIPAA Health Plan Identifier Requirement
- PBGC Proposes Changes to Annual Financial, Actuarial Information Reporting Requirements
- Senate Approves Transportation Funding Measure with Extension of Section 420 Transfers
IRS Releases Second Notice Requesting Comment on Implementation Approaches to 40 Percent Excise Tax
On July 30, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) published Notice 2015-52, their second notice requesting comment on possible approaches for implementation of Code section 4980I, the 40 percent excise tax to be imposed on high-cost health coverage under the Patient Protection and Affordable Care Act (PPACA). Issues addressed in Notice 2015-52 include the identification of the taxpayers who may be liable for the excise tax, employer aggregation, the allocation of the tax among the applicable taxpayers, and matters concerning payment of the applicable tax. Additional issues related to the cost of applicable coverage and age and gender adjustment are also addressed. The deadline for comments to be submitted to the IRS is October 1, 2015.
Starting in 2018, PPACA will impose a nondeductible 40 percent tax on health plan costs exceeding certain thresholds ($10,200 for self-only, $27,500 for family). The tax was included in PPACA as a “revenue raiser” to pay for other aspects of the law, including federal subsidies for coverage for low-income individuals, and also to address perceived over-consumption of health care coverage.
The IRS previously issued Notice 2015-16, requesting comment on issues related to defining applicable coverage and determining cost of coverage for purposes of the 40 percent tax. The Council submitted extensive comments on Notice 2015-16 covering the definition of applicable coverage that could fall under the excise tax, determination of its cost, and application of the annual statutory dollar limit to the cost of applicable coverage. Notice 2015-16 also indicated that a second notice would be issued prior to publication of proposed regulations.
Notice 2015-52 requests specific comments on issues and possible approaches related to:
Liability for the 40 percent tax. The statute provides that the “coverage provider” is liable for any applicable tax.. Under the statute, in the case of applicable coverage provided under an insured group health plan, the coverage provider is the health insurance issuer. With respect to coverage under a Health Savings Account (HSA) or an Archer Medical Savings Account (Archer MSA), the coverage provider is the employer. For all other applicable coverage, the coverage provider is “the person who administers the plan benefits,” which is not defined in the statute.
Notice 2015-52 sets out two alternative approaches for determining the “person who administers the plan.” Under one approach, the person who administers the plan benefits would be the person responsible for performing the day-to-day functions,, such as receiving and processing claims for benefits, responding to inquiries, or providing a technology platform for benefits information. Treasury and IRS anticipate that this person generally would be a third-party administrator for benefits that are self-insured, except in the rare circumstance in which the employer or plan sponsor performs these functions, or owns the entity performing these functions.
Under the second approach, the person who administers the plan benefits would be the person who has the ultimate authority or responsibility under the plan or arrangement with respect to the administration of the plan benefits (including final decisions on administrative matters), regardless of whether that person routinely exercises that authority or responsibility. Comments are requested on whether the person who administers the plan benefits would be easy to identify under the second approach.
Employer Aggregation. Treasury and IRS invite comments on the practical challenges presented by the application of employer aggregation rules including for employees taken into account for the age and gender adjustment; adjustment for employees in high risk professions or who repair and install electrical or telecommunications lines.
Cost of Applicable Coverage. Issues related to the taxable period, determination period, and exclusion from cost of applicable coverage of amounts attributable to the 40 percent tax are discussed. This latter issue is of particular concern since, as explained in the Notice, if a person other than the employer is the coverage provider (for example an insurer or Third Party Administrator), that person may pass through all or part of the amount of the tax to the employer in some instances. If the coverage provider does pass through the excise tax and receives reimbursement for the tax, the reimbursement will be additional taxable income to the coverage provider. Treasury and IRS are considering whether some or all of the income tax reimbursement could be excluded from the cost of applicable coverage. Notice 2015-52 also sets out approaches for:
- Allocation of contributions to HSAs, Archer MSAs, Flexible Savings Accounts (FSAs), Health Reimbursement Accounts under which contributions would be allocated on a pro-rata basis over the plan year, regardless of timing of contributions during that period; and
- A possible safe harbor related to FSAs with Employer Flex Credits.
According to Notice 2015-52, IRS and Treasury anticipate formulating and publishing tables to be used for facilitating and simplifying calculation of the age and gender adjustment. The Notice 2015-52 also invites further comments on prior Notice 2015-16, specifically noting commenters’ concerns about the interaction between Code section 4980H, which imposes employer shared responsibility penalties and the 40 percent tax.
After considering the comments on both notices, Treasury and IRS intend to issue proposed regulations implementing the 40 percent tax. The proposed regulations will provide further opportunity for comment, including an opportunity to comment on the issues addressed in the preceding notices.
Additional information and analysis of Notice 2015-52 will be provided in a future Benefits Blueprint and webinar for Council members. Working with the Obama Administration and Congress to lessen the impact of the excise tax on employers remains a top priority for the Council as detailed in the July 28 Benefits Byte announcing the launch of the Fight the 40 Alliance.
The Council will be submitting comments on Notice 2015-52. For more information, contact Katy Spangler, senior vice president, health policy, or Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
Council Submits Letter to CMS on HIPAA Health Plan Identifier Requirement
In July 28 written comments to the Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services (HHS), the Council urged the agency to eliminate the Health Plan Identifier (HPID) requirement in HIPAA administrative transactions. CMS requested input on the HPID rule, after having delayed enforcement of the requirement in October 2014
An HPID is a standard, unique health plan identifier that must be obtained by health plans that are “controlling health plans”, including self-insured health plans. Under September 2012 final regulations, these health plans were required to obtain an HPID by November 5, 2014, until HHS announced it would delay enforcement of the regulations until further notice. At that time, the National Committee on Vital and Health Statistics (NCVHS), an advisory body to HHS, had already recommended that HHS “rectify in rulemaking that all covered entities (health plans, healthcare providers and clearinghouses, and their business associates) not use the HPID in the HIPAA transactions.”
CMS issued a Request for Information (RFI) on May 29, 2015, “to collect perspectives from all segments of the industry on the current HPID policy in order to determine future policy directions.” Specifically, the RFI sought information from the health care industry regarding the HPID enumeration structure outlined in the HPID final rule, the use of the HPID in HIPAA transactions in conjunction with the Payer ID, and whether changes to the nation's health care system, subsequent to the issuance of the final regulations, have altered stakeholder perspectives about the function of the HPID.”
The Council comment letter supported the NCVHS recommendation that the HPID requirement not be implemented, noting 2014 NCVHS hearing testimony regarding:
- the lack of clear business need and purpose for using HPID and Other Entity Identifier (OEID) in health care administrative transactions;
- confusion about how the HPID and OEID would be used in administrative transactions; challenges faced by health plans with respect to the definitions of “controlling health plan” (CHP) and “sub-health plan” (SHP);
- use of HPID for group health plans that do not conduct HIPAA standard transactions; and
- cost to health plans, clearinghouses and providers if software has to be modified to account for the HPID.
If the Department, however, does move forward with the HPID rule despite the NCVHS recommendations, the Council requested that CMS eliminate HPID requirements for plans that do not conduct standard transactions, eliminate the concept of “CHP” and “SHP”, and simplify the process of obtaining an HPID.
The Council also recommended that CMS revisit its rulemaking on the certification process for certain standard transactions, taking into consideration public comments on the RFI.
For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700
PBGC Proposes Changes to Annual Financial, Actuarial Information Reporting Requirements
On July 27, the Pension Benefit Guaranty Corporation (PBGC) published a proposed rule to amend its Annual Financial and Actuarial Information Reporting regulation under section 4010 of ERISA and incorporate applicable provisions from the 2012 changes to law made by the Moving Ahead for Progress in the 21st Century (MAP-21) Act and the Highway Transportation and Funding Act of 2014 (HATFA).
The proposed regulation will change the financial information filing requirements that defined benefits plan sponsors must follow. ERISA Section 4010 authorizes the PBGC to require certain underfunded defined benefit plans to report on specific financial and actuarial information. The agency said the changes were needed because the current rule “results in critical information not being reported. As a result, PBGC’s ability to timely intervene to protect potentially troubled plans, participant benefits, and the pension insurance system is significantly undermined.”
Under current law, “4010 disclosures” must be filed regarding any defined benefit plan (as measured on a controlled group basis) that is less than 80 percent funded, or has missed contributions or with funding waivers of greater than $1 million.
Under the proposed rule, the requirement to file based on the 80 percent funding threshold would be waived if underfunding is less than $15 million, but only for plans of 500 or fewer participants. The requirement to report based on missed contributions, or on the basis of a funding waiver of more than $1 million, is waived if those amounts were reported to the agency in accordance with its regulation under ERISA Section 4043.That provision of ERISA requires the reporting of a variety of corporate and plan events, by the due date for the Section 4010 filing. In order to avoid the requirement to file, large defined benefit plans could consider making additional contributions or waiving their credit balances.
The proposed effective date of the change would be for information years beginning after December 31, 2015. The proposed regulation invites comments due to the PBGC by September 25, 2015.
For more information or to share comments, contact Diann Howland, vice president, legislative affairs, or Lynn Dudley, senior vice president, global retirement and compensation policy. Both can be reached at (202) 289-6700.
Senate Approves Transportation Funding Measure with Extension of Section 420 Transfers
On Thursday, July 30, by a vote of 91 – 4, the United States Senate passed H.R. 3236, a three-month extension of the highway fund, which had been passed by the House of Representatives on July 29. The legislation now moves to the president for his signature. The revenue provisions in H.R. 3236 remain the same as under the previously-passed House of Representatives’ five-month extension of the highway fund (H.R. 3038) (see the July20 Benefits Byte for details). Among the revenue raisers for the bill is an extension of the Internal Revenue Code Section 420 transfers of excess defined benefit pension plan assets to retiree health and life insurance accounts. Under current law this provision would expire in 2021. Under the highway fund extension, the expiration is extended until 2025.
Section 420, originally enacted in 1990, permits the transfer of assets from plans with assets in excess of either 120 percent or 125 percent of liabilities (depending on the type of transfer) to pay for retiree health care costs. The Council has consistently argued that Section 420 transfers helps facilitate the continuation of retiree health insurance, without negative implications for pension funding, since it only applies to substantially overfunded plans. The expansion of Section 420 to permit transfers to pay the costs of retiree life insurance also provides additional financial security for seniors.