Updated December 21 to reflect that the bill has been signed into law.
On December 20, 2019, the House and Senate, with the final signature from President Trump, passed a bipartisan legislative package of spending bills to avoid a government shutdown. This package of bills is collectively referred to as the Further Consolidated Appropriations Act, 2020 (the “Act”). The Act includes a permanent repeal of three Affordable Care Act (ACA) taxes: the tax on high-cost health plans (the so-called “Cadillac Tax”), the Health Insurance Tax (HIT tax), and the medical device tax. Overall, the repeal of these ACA taxes may result in at least $300 billion in lost revenue to the government; however, the bill brings relief to employers and consumers, who may have experienced tax payments, increased health premiums and other costs. The repeal of the HIT tax is effective as of January 1, 2021, and the medical device tax is repealed as of January 1, 2020. The Cadillac Tax was already delayed until 2022, and thus will never take effect. The Patient-Centered Outcomes Research Institute (PCORI) fee has also been extended to 2029 (i.e., it will apply to plan years ending on or before September 30, 2029).
PCORI Fee Extension
The PCORI fee is now extended to plan years ending on or before September 30, 2029. PCORI fee extensions have been discussed frequently and have been included in previously introduced bills, such as the Protecting Access to Information for Effective and Necessary Treatment and Services Act (PATIENTS Act) that was approved by the House Ways and Means Committee in June 2019. The amount due per life covered under a policy will be adjusted annually, as it has been previously. Insurers of fully insured health plans and employers with self-funded group health plans will continue to have to pay this fee until 2029 or 2030 (depending on plan year).
The PCORI was established as part of the ACA to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose, or prevent illness or injury. The research considers both the effectiveness of the treatment, as well as an individual’s decisions and outlook regarding the treatment.
The Cadillac Tax
The Cadillac tax is a 40% tax on the cost of health coverage offered by employers that exceeds a certain amount. For 2019, those thresholds were $11,200 for single and $30,100. If the total cost of coverage (including pre-tax FSA/HSA/HRA contributions) exceeded the
threshold, the 40% tax would apply. The Cadillac Tax was intended to raise revenue for the ACA, while encouraging employers to offer less generous benefits that would purportedly lead to wage increases. It was also meant to help lower healthcare costs and overutilization by offering less robust coverage. The tax has been repeatedly delayed since the inception of the ACA. It was originally intended to be effective in 2018 but was delayed twice, first until 2020 then until 2022. Therefore, it will never take effect. Both Republicans and Democrats alike have moved for repealing the Cadillac Tax.
With the repeal of the Cadillac tax, employers offering generous health plans no longer have to be concerned with being subject to a tax after a certain point. Likewise, the tax could have disproportionately affected lower-income employees as well as unions, as more generous benefits are often negotiated instead of pay raises. Similarly, states where insurance is more expensive in general—such as Alaska—would have also seen a greater negative effect if the Cadillac tax moved forward.
The HIT Tax
The Health Insurance Tax—also known as the HIT Tax (the “t” being redundant)—is essentially a sales tax on insurance. The tax was in effect from 2014 – 2016 and in 2018 but was suspended in 2017 and 2019 as a result of lobbying. It is repealed effective as of January 1, 2021. Therefore, it is in effect for 2020. In general, the HIT tax is an annual fee charged to insurance companies that provide medical, dental, or vision policies. The tax is divided among the insurers, based on their value and market share of business, focusing on the premium amount. When passed through to employers, the HIT tax was typically in the range of 2% to 4% premium.
With the repeal of the HIT tax, insurers can focus on providing benefits and charging premiums that are not related to having a tax associated with how much is made from the premium amount. While this may not have a direct correlation with premium increases, there could be some reprieve associated with the repeal of this particular tax.
The Medical Device Tax
The ACA’s medical device tax is a 2.3% excise tax on medical devices—such as hospital beds or an MRI machine—that are sold within the United States. The tax is imposed on the manufacturer, producer, or importer of the device. The Act repeals the medical device tax effective January 1, 2020. The tax was in effect from 2013 to 2015 and has been suspended from 2016 through 2019.
The medical device tax had bipartisan support for repeal, caused by concerns that the tax would chill research efforts, increase the price of devices in order to recover lost profit, and discourage certain sales. There was also a concern that the tax could cause lost jobs, due to
Congress Passes Spending Bill that Repeals Three Major ACA Taxes, Extends PCORI
Updated December 21 to reflect that the bill has been signed into law.
On December 20, 2019, the House and Senate, with the final signature from President Trump, passed a bipartisan legislative package of spending bills to avoid a government shutdown. This package of bills is collectively referred to as the Further Consolidated Appropriations Act, 2020 (the “Act”). The Act includes a permanent repeal of three Affordable Care Act (ACA) taxes: the tax on high-cost health plans (the so-called “Cadillac Tax”), the Health Insurance Tax (HIT tax), and the medical device tax. Overall, the repeal of these ACA taxes may result in at least $300 billion in lost revenue to the government; however, the bill brings relief to employers and consumers, who may have experienced tax payments, increased health premiums and other costs. The repeal of the HIT tax is effective as of January 1, 2021, and the medical device tax is repealed as of January 1, 2020. The Cadillac Tax was already delayed until 2022, and thus will never take effect. The Patient-Centered Outcomes Research Institute (PCORI) fee has also been extended to 2029 (i.e., it will apply to plan years ending on or before September 30, 2029).
PCORI Fee Extension
The PCORI fee is now extended to plan years ending on or before September 30, 2029. PCORI fee extensions have been discussed frequently and have been included in previously introduced bills, such as the Protecting Access to Information for Effective and Necessary Treatment and Services Act (PATIENTS Act) that was approved by the House Ways and Means Committee in June 2019. The amount due per life covered under a policy will be adjusted annually, as it has been previously. Insurers of fully insured health plans and employers with self-funded group health plans will continue to have to pay this fee until 2029 or 2030 (depending on plan year).
The PCORI was established as part of the ACA to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose, or prevent illness or injury. The research considers both the effectiveness of the treatment, as well as an individual’s decisions and outlook regarding the treatment.
The Cadillac Tax
The Cadillac tax is a 40% tax on the cost of health coverage offered by employers that exceeds a certain amount. For 2019, those thresholds were $11,200 for single and $30,100. If the total cost of coverage (including pre-tax FSA/HSA/HRA contributions) exceeded the threshold, the 40% tax would apply. The Cadillac Tax was intended to raise revenue for the ACA, while encouraging employers to offer less generous benefits that would purportedly lead to wage increases. It was also meant to help lower healthcare costs and overutilization by offering less robust coverage. The tax has been repeatedly delayed since the inception of the ACA. It was originally intended to be effective in 2018 but was delayed twice, first until 2020 then until 2022. Therefore, it will never take effect. Both Republicans and Democrats alike have moved for repealing the Cadillac Tax.
With the repeal of the Cadillac tax, employers offering generous health plans no longer have to be concerned with being subject to a tax after a certain point. Likewise, the tax could have disproportionately affected lower-income employees as well as unions, as more generous benefits are often negotiated instead of pay raises. Similarly, states where insurance is more expensive in general—such as Alaska—would have also seen a greater negative effect if the Cadillac tax moved forward.
The HIT Tax
The Health Insurance Tax—also known as the HIT Tax (the “t” being redundant)—is essentially a sales tax on insurance. The tax was in effect from 2014 – 2016 and in 2018 but was suspended in 2017 and 2019 as a result of lobbying. It is repealed effective as of January 1, 2021. Therefore, it is in effect for 2020. In general, the HIT tax is an annual fee charged to insurance companies that provide medical, dental, or vision policies. The tax is divided among the insurers, based on their value and market share of business, focusing on the premium amount. When passed through to employers, the HIT tax was typically in the range of 2% to 4% premium.
With the repeal of the HIT tax, insurers can focus on providing benefits and charging premiums that are not related to having a tax associated with how much is made from the premium amount. While this may not have a direct correlation with premium increases, there could be some reprieve associated with the repeal of this particular tax.
The Medical Device Tax
The ACA’s medical device tax is a 2.3% excise tax on medical devices—such as hospital beds or an MRI machine—that are sold within the United States. The tax is imposed on the manufacturer, producer, or importer of the device. The Act repeals the medical device tax effective January 1, 2020. The tax was in effect from 2013 to 2015 and has been suspended from 2016 through 2019.
The medical device tax had bipartisan support for repeal, caused by concerns that the tax would chill research efforts, increase the price of devices in order to recover lost profit, and discourage certain sales. There was also a concern that the tax could cause lost jobs, due to cutting back on staff in order to compensate for having to pay for the tax. One study indicated that 29,000 jobs were lost while the tax was in effect.
What to Expect Next
With the repeal of these taxes, there will need to be recalculations on the cost of administering the ACA, as well as overall effect on the tax system within the United States. The repeal of these taxes come as a relief to many; however, the upcoming election in 2020 could have an effect on where the nation goes from here. Next year may bring additional legislation regarding surprise billing or drug pricing reform.
About the Authors. This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com
The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.
© 2019 Marathas Barrow Weatherhead Lent LLP. All Rights Reserved.
The expansion of presumption laws is just one of the predictions made by speakers at a recent workers’ comp conference.
Medical billing fraud, presumption laws, drug formularies, medical marijuana, magic mushrooms and opioids are expected to command the attention of various state and federal legislators in 2020, according to speakers at the recent National Workers’ Compensation and Disability Conference in November 2019 in Las Vegas, Nev.
1 Medical Billing Fraud
The medical billing coding error rate in 2018 was 8.1%. While not all errors are related to fraud, many have a fraud element to them, including miscoding for lack of proper documentation and invalid diagnoses, up-coding to increase payouts, making up codes and mismatching services.
2 Presumption Laws
In many states, presumption laws, such as cancer presumption laws, exist to benefit first responders, such as firefighters, police officers and EMTs. They shift the burden of proof of medical causation so that the disease is “presumed” to be work-related in absence of compelling evidence to the contrary. These laws, thought by some to be more the creation of politics than science, are typically the largest cost drivers of workers' compensation for public employees.
Now presumption laws are starting to expand into other industries and professions, such as fire truck mechanics, school teachers and jail guards.
One new trend, implemented in Georgia and Colorado, for dealing with public employees is to offer a lump-sum payout to offset medical costs rather than treating their occupational cancer or PTSD through the comp system.
3 Drug Formularies
More states are creating, refining and updating their drug formularies. CompPharma estimates $1.1 billion has been saved using drug formularies over the past eight years, as a result of (1) specifying that only certain drugs should be prescribed, (2) using set time frames, (3) enforcing dosage limitations and (4) restricting dangerous interaction with other drugs.
4 Marijuana
There are several issues facing legislators throughout the country:
• States continue to expand legal access, including looking to allow marijuana for all medical uses.
• Research continues on medical uses and side effects.
• States are reviewing the legality of home cultivation and deciding on open container laws.
• Marijuana is still illegal at the federal level.
5 Magic Mushrooms
Petitioners and some legislators in several states, including California, Colorado, Iowa and Oregon, are trying to legalize magic mushrooms, psilocybin and ibogaine and ecstasy. While unclear about its use for treating anxiety and depression, research has shown that magic mushrooms can be used successfully in smoking cessation programs.
6 Opioids
Prescribing rates for opioids have dropped, according to the CDC and the Workers Compensation Research Institute. The number of prescriptions per 100 patients fell from 81.3 in 2012 to 28.7 in 2018 while the cost of opioids decreased from 22% to 13% from 2015 to 2018.
Several state legislatures have bills pending relating to minimizing opioid prescriptions.
At the federal level, in the Senate’s Judiciary Committee, the pending John McCain Opioid Addiction Prevention Act will “establish registration requirements for practitioners who are licensed to prescribe controlled substances…. Specifically, a practitioner must agree to limit the supply of opioids prescribed for the initial treatment of acute pain, as a condition of obtaining or renewing a registration through the Drug Enforcement Administration. An opioid that is approved and prescribed for the treatment of addiction is not subject to the limit.”
Here’s a look at the advantages and disadvantages.
Many employers offer employees access to indemnity health insurance as a way to fill gaps in their health coverage. Now, as heath care plan costs increase, some employers who are priced out of the cost of traditional major medical coverage are turning to indemnity health insurance as a way to provide some type of health care coverage.
An indemnity health insurance plan often is referred to as a “fee for service” plan because it pays a set amount for services to health professionals and health facilities — but usually after a deductible is paid. The deductible is the amount an employee is required to pay for a service before policy benefits are provided.
Once the employee covers the deductible, the plan pays the remainder of health insurance costs up to the policy limit. Employees also might have to pay a co-insurance, which is a percentage of the remaining charges after the deductible is paid. Some indemnity health policies, though, set a maximum limit on how much an insured person must pay as co-insurance.
For example, if the provider’s bill is $800 and the employee has a $200 deductible, the remaining $600 would be paid by insurance less the co-insurance, which in addition to the deductible would be the employee’s responsibility If the co-insurance is 20 percent, the employee would be required to pay $120; a total of $320.
Advantages
For employers who want to offer — or who are required by the Affordable Care Act to offer — coverage and cannot afford that coverage, indemnity insurance offers a low-cost alternative to traditional insurance premiums.
In addition, many indemnity plans allow insured members to choose any doctor, specialist or hospital willing to accept that reimbursement. Members do not have to choose a primary care doctor and they can choose any specialists they think they need without having to get a referral.
The ability to choose any provider is particularly helpful to members who want access to particular specialists who are not covered by Health Maintenance Organization (HMO) or Preferred Provider Organization (PPOs) plans in their area.
Disadvantages
While employers and employees can save money on fixed indemnity health plan premiums, they may have significant out-of-pocket costs since the carrier will only pay a set amount for each covered service.
Some indemnity health insurance plans may not cover preventative services, such as annual exams and other routine office visits that are designed to prevent illnesses.
Also, many indemnity policies require that insured members pay the hospital or doctor’s office costs up front when the service is received. The employee would then have to submit a claim and wait to receive reimbursement from the insurance company.
Indemnity health insurance may also not meet the requirements of the ACA, still leaving employers subject to ACA penalties.
With fixed indemnity plans, the burden of researching costs rests on insured members. With health care networks, the providers have agreed on certain reimbursements. But doctors and specialists who are not in a network are free to set their own costs — which might be higher than in-network costs.
If you are seeking low-cost plans for health coverage for your employees, work with a qualified broker to discuss different coverage options, including fee for service amounts; whether preventative services are included; and which services count towards your deductible.
The FMLA has been law since 1993 but employers can still find the rules confusing.
The Family and Medical Leave Act’s (FMLA) paid leave and leave stacking rules aren’t new, but they can sometimes trip employers up. FMLA rules generally apply to employers who have 50 or more employees within a 75-mile radius, and only to employees who have been employed for 12 months and worked at least 1250 hours during the past year.
The FMLA allows employees to take 12 weeks of leave in a 12-month period for certain medical reasons. Employees also can use FMLA leave to take care of critically ill family members or for the birth or adoption of a child. Leave can be taken all at once, intermittently or on a reduced schedule. Special rules apply to service members with a serious injury or illness, or their family members caring for them.
FMLA leave generally is unpaid, although employers can require employees to run FMLA at the same time as other leaves. Running the leaves concurrently prevents “leave stacking” where employees use all of their unpaid and paid leaves to be away from the workforce for more than 12 weeks.
Paid Leave Exceptions
Employers can require employees to use earned vacation, sick time or paid time off (PTO) time concurrently with FMLA leave. However, employers are not obligated to allow an employee to substitute paid sick leave for unpaid FMLA leave in order to care for a child with a serious health condition when the employer’s normal sick leave rules only allow employees to take off work for their own illness.
There is an exception regarding paid leave. The Department of Labor (DOL) states that, “Leave taken under a disability leave plan or as a workers’ compensation absence that also qualifies as FMLA leave due to the employee’s own a serious health condition may be designated by the employer as FMLA leave and counted against the employee’s FMLA leave entitlement. Because leave under a disability benefit plan or workers’ compensation program is not unpaid, the provision for substitution of accrued paid leave does not apply.”
However, the DOL adds that if state law permits it, employees can use accrued paid leave to supplement the paid plan benefits, such as in a case where a plan only provides replacement income for two-thirds of an employee’s salary.
Year-End Considerations
If you track FMLA leave according to a calendar year, you might end up with a situation where an employee who is giving birth or adopting late in the year can take 12 weeks at the end of the year through Dec. 31 and then on or after Jan. 1 take off another 12 weeks for a total of 24 weeks in less than 12 months. Called leave stacking, it is allowed by federal regulations. Employers are not obligated to help employees maximize their leave duration, but they must provide employees with accurate and truthful information about FMLA.
If you want to avoid leave stacking, you can use a rolling FMLA year. This allows employers to review the previous 12 months and determine how much FMLA leave the employee has used and how much remains,
Employers are permitted by federal law to change their FMLA year to a rolling FMLA year if they give all employees at least 60 days’ notice of the change. Any employee on FMLA at that time must be transitioned in a way that provides the employee with the full benefit of their leave.
State laws vary. For example, employers in Wisconsin must use the calendar year when determining FMLA leave.
Please email us at info@aleragroup.com if you have any questions about FMLA specific to your state or region.
The Internal Revenue Service (IRS) has released Notice 2019-63, which extends the deadline for furnishing 2019 Forms 1095-B and 1095-C to individuals from January 31, 2020 to March 2, 2020. The Notice also provides penalty relief for good-faith reporting errors and suspends the requirement to issue Form 1095-B to individuals, under certain conditions.
The due date for filing the forms with the IRS was not extended and remains February 28, 2020 (March 31, 2020 if filed electronically).
The draft instructions to Forms 1094-C and 1095-C allow employers to request a 30-day extension to furnish statements to individuals by sending a letter to the IRS with certain information, including the reason for delay. However, because the Notice’s extension of time to furnish the forms is as generous as the 30-day extension contained in the instructions, the IRS will not formally respond to requests for an extension of time to furnish 2019 Forms 1095-B or 1095-C to individuals.
Employers may still obtain an automatic 30-day extension for filing with the IRS by filing Form 8809 on or before the forms’ due date. An additional 30-day extension is available under certain hardship conditions. The Notice encourages employers who cannot meet the extended due dates to furnish and file as soon as possible and advises that the IRS will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause.
Relief from Furnishing Form 1095-B to Individuals
Due to the individual mandate penalty being reduced to zero starting in 2019, an individual does not need the information on Form 1095-B in order to complete his or her federal tax return. Therefore, the IRS is granting penalty relief for employers who fail to furnish a Form 1095-B to individuals, provided that the reporting entity:
Note that Applicable Large Employers (ALEs) are still required to furnish Form 1095-C to their full-time employees. They must also complete Part III if the employee is enrolled in self-insured coverage. The relief from furnishing Form 1095-B does not extend to IRS reporting. Forms 1095-B must still be submitted to the IRS, as applicable.
In general, this relief from furnishing Form 1095-B applies to insurers, and non-ALEs that sponsor self-insured plans, as they complete Form 1095-B for covered participants.
Extension of Good-Faith Relief
As with calendar year 2015 – 2018 reporting, the IRS will not impose penalties on employers that can show that they made good-faith efforts to comply with the requirements for calendar year 2019. In determining good faith, the IRS will consider whether employers have made reasonable attempts to comply with the requirements (e.g., gathering and transmitting the necessary data to an agent or testing its ability to transmit information) and the steps that have been taken to prepare for next year’s reporting.
Note that the relief applies only to furnishing and filing incorrect or incomplete information, and not to a failure to timely furnish or file. However, if an employer is late filing a return, it may be possible to get penalty abatement for failures that are due to reasonable cause and not willful neglect. In general, to establish reasonable cause the employer must demonstrate that it acted in a responsible manner and that the failure was due to significant mitigating factors or events beyond its control. The IRS has been enforcing late filing penalties via Letter 972CG, which may include penalties based on failed to file electronically (when required), or failure to file with correct TIN information.
As in past years, individuals can file their personal income tax return without having to attach the relevant Form 1095. Taxpayers should keep these forms in their personal records, even though the federal individual mandate penalty is not applicable for the 2019 filing year.
About the Authors. This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.
The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.
© 2019 Marathas Barrow Weatherhead Lent LLP. All Rights Reserved.
