The annual Patient-Centered Outcomes Research Institute (“PCORI”) fee is due by July 31, 2018. By way of background, ACA imposes PCORI fees on health insurers and self-funded plan sponsors for plan years ending on or after October 1, 2012 and before October 1, 2019. The fee is due by July 31 of the calendar year immediately following the last day of the plan year in which the applicable plan ended.
For plan years ending on or after October 1, 2016, and before October 1, 2017, the fee is $2.26 multiplied by the average number of lives (employees and dependents) covered under the plan for the plan year. For plan years ending on or after October 1, 2017, and before October 1, 2018, the fee is $2.39 multiplied by the average number of lives (employees and dependents) covered under the plan for the plan year.
For ease of reference, the following chart outlines the applicable fees that must be paid in 2018 and 2019 based on the plan year start dates.
Please note that the IRS does not appear to have released the most recent Form 720 (Quarterly Federal Excise Tax Return), which is the form used by plan sponsors of group health plans to report and pay the annual PCORI fee. (Please note that while Form 720 is filed quarterly for several other federal excise taxes, the PCORI fee is only required annually, on the second-quarter filing. Accordingly, if a plan sponsor files Form 720 only to report PCORI fees, a Form 720 should not be filed for the first, third, or fourth quarter.)
Nonetheless, below are the links to the prior Form 720 and corresponding instructions:
The plan sponsor completing Form 720 must report the average number of covered medical lives (employees and dependents) under its plan(s) subject to the PCORI fee. The instructions with respect to PCORI are contained beginning on page 8 of the Instructions for Form 720 under Part II (the first portion of the instructions apply to health insurance policies, as opposed to self-funded health plans). In a nutshell, these instructions briefly reference the alternative methods for calculating the average number of lives covered by a plan for the applicable plan year, and how to complete the Form 720.
With respect to the Form 720 itself, the line item for the PCORI fee to be reported is referenced at the beginning of Part II (line 133). This line item is divided between “Specified health insurance policies” and “Applicable self-insured health plans.” The form then requires the plan sponsor to list the average number of covered lives for its self-funded plan, which in turn is multiplied by either $2.26 or $2.39 (depending on the plan year) for a final dollar amount to be paid to the Federal government.
Please note and as discussed above, plan sponsors must pay the annual PCORI fee via the Form 720 by July 31, 2018.
In Rev. Proc. 2018-30, the IRS released the inflation adjusted amounts for 2019 relevant to HSAs and high deductible health plans (HDHPs). The table below summarizes those adjustments and other applicable limits.
* After reducing the cap $50 in Rev. Proc. 2018-18 in March 2018 due to changes made by the Tax Cuts and Jobs Act, the IRS granted relief in Rev. Proc. 2018-27, restoring the limit back to the original 2018 level. We do not anticipate that the 2019 HSA annual family contribution limit will change as it did for this year.
Out-of-Pocket Limits Applicable to Non-Grandfathered Plans
The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have increased for 2019.
Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage, if the family out-of-pocket limit is above $7,900 (2019 plan years) or $7,350 (2018 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). A one-year extension of transition relief was recently announced extending the transition relief to policy years beginning on or before October 1, 2019, provided that all policies end by December 31, 2019.
Next Steps for Employers
As employers prepare for the 2019 plan year, they should keep in mind the following rules and ensure that any plan materials and participant communications reflect the new limits:
- HDHPs cannot have an embedded family deductible that is lower than the minimum HDHP family deductible of $2,700.
- The out-of-pocket maximum for family coverage for an HDHP cannot be higher than $13,500.
- All non-grandfathered plans (whether HDHP or non-HDHP) must cap out-of-pocket spending at $7,900 for any covered person. A family plan with an out-of-pocket maximum in excess of $7,900 can satisfy this rule by embedding an individual out-of-pocket maximum in the plan that is no higher than $7,900. This means that for the 2019 plan year, an HDHP subject to the ACA out-of-pocket limit rules may have a $6,750 (self-only)/$13,500 (family) out-of-pocket limit (and be HSA-compliant) so long as there is an embedded individual out-of-pocket limit in the family tier no greater than $7,900 (so that it is also ACA-compliant).
On May 21, 2018, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-34 to index the contribution percentages in 2019 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2019, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:
- 9.86 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
- 8.3 percent of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance).
These updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2019. This is a significant increase from the affordability contribution percentages for 2018. As a result, some employers may have additional flexibility with respect to their employee contributions for 2019 to meet the adjusted percentage.
Overview of the Affordability Requirement
- The employer shared responsibility penalty for applicable large employers (also known as the pay or play rules or employer mandate);
- An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage; and
- The premium tax credit for low-income individuals to purchase health coverage through an Exchange.
Although all of these provisions involve an affordability determination, the test for determining a plan’s affordability varies for each provision.
The IRS previously adjusted the affordability contribution percentage for 2015 in Rev. Proc. 14-37, for 2016 in Rev. Proc. 14-62, for 2017 in Rev. Proc. 16-24, and for 2018 in Rev. Proc. 17-36. The adjusted affordability contribution percentage for purposes of the individual mandate exemption is separately announced in the Notice of Benefit and Payment Parameters final rule for each year.
This chart illustrates the adjusted affordability percentages for each purpose since 2014. Each provision is described in more detail following the chart.
Affordable Employer-sponsored Coverage
Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit. This is significant because the ACA’s employer shared responsibility penalty for applicable large employers (ALEs) is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.
To determine an employee’s eligibility for a tax credit, the ACA provides that employer-sponsored coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income for the tax year. After 2014, this required contribution percentage is adjusted annually to reflect the excess of the rate of premium growth.
Employer Shared Responsibility Rules
The ACA’s employer shared responsibility or pay or play rules require ALEs to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The affordability of health coverage is a key point in determining whether an ALE will be subject to a penalty.
These rules generally determine affordability of employer-sponsored coverage by reference to the rules for determining premium tax credit eligibility. Therefore, for 2014, employer-sponsored coverage was considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage did not exceed 9.5 percent of the employee’s household income for the tax year.
This affordability contribution percentage was adjusted to:
For 2019, Rev. Proc. 18-34 increases the affordability contribution percentage to 9.86 percent. This means that employer-sponsored coverage for the 2019 plan year will be considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage does not exceed 9.86 percent of the employee’s household income for the tax year.
Employers may use an affordability safe harbor to measure affordability of their coverage. The three safe harbors measure affordability based on Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual. IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages for 2015 and future years.
The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.
Individual Mandate Exemption
The ACA’s individual mandate requires most individuals to obtain acceptable health coverage for themselves and their family members or pay a penalty. However, individuals who lack access to affordable minimum essential coverage are exempt from the individual mandate. For purposes of this exemption:
- Coverage is affordable for an employee if the required contribution for the lowest-cost, self-only coverage does not exceed 8 percent of household income (as adjusted).
- Coverage is affordable for family members if the required contribution for the lowest-cost family coverage does not exceed 8 percent of household income (as adjusted).
This affordability contribution percentage was adjusted to 8.05 percent for plan years beginning in 2015, 8.13 percent for plan years beginning in 2016, 8.16 percent for plan years beginning in 2017, and 8.05 percent for plan years beginning in 2018.
The tax reform bill, called the Tax Cuts and Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective beginning in 2019. As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage. However, the 2019 Notice of Benefit and Payment Parameters final rule notes that individuals may still need to seek this exemption for 2019 and future years (for example, in order to be eligible for catastrophic coverage).
As a result, the final rule increases the required contribution percentage in 2019. For 2019, an individual qualifies for this affordability exemption if he or she must pay more than 8.3 percent of his or her household income for minimum essential coverage.
Premium Tax Credit
The ACA provides premium tax credits to help low-income individuals and families afford health insurance purchased through an Exchange. The amount of a taxpayer’s premium tax credit is determined based on the amount the individual should be able to pay for premiums (expected contribution).
The expected contribution is calculated as a percentage of the taxpayer’s household income, based on the FPL. This percentage increases as the taxpayer’s household income increases and is indexed each year after 2014, as follows:
The Department of Labor (DOL) has provided new resources to promote compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA), including an updated self-compliance tool. The DOL has also identified examples of nonquantitative treatment limitations (NQTLs) that may violate the MHPAEA.
The MHPAEA requires parity between mental health and substance use disorder (MH/SUD) benefits and medical and surgical benefits.
Employers should work with their issuers and benefit administrators to confirm that their health plan’s coverage of MH/SUD benefits complies with the MHPAEA, including any NQTLs. Employers should consider using the DOL’s resources to understand the MHPAEA’s requirements and review their plan designs.
The due date for the Patient-Centered Outcomes Research Institute Fees (PCORI fees) is just around the corner.
By July 31, 2018, issuers and plan sponsors will be required to pay the PCORI fees for plan years ending in 2017 on IRS Form 720.
Please contact HealthSure for additional information on PCORI fees.