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Mercer

Despite last week’s cold snap, the bloom of cherry blossoms along Washington DC’s Tidal Basin is now under way – a peaceful sight that belies this stormy moment in Congress, where new healthcare legislation is being debated and the headlines seem to shift from moment to moment. However, one thing is for sure: any legislation affecting the US healthcare system must consider the impact on employer-sponsored health insurance – the source of coverage for 177 million Americans, 16 times the number enrolled in public exchanges.

 

That’s why the leadership of MMC companies Mercer and Oliver Wyman created a health policy group to help formulate MMC’s views on ACA repeal-and-replace legislation. Our efforts led to the issue of a policy paper that showcased original Mercer research on changing the tax treatment of employer-sponsored coverage.  

 

Last month, we took this research to the US House of Representatives to meet with policymakers actively working on the newly proposed American Health Care Act, or AHCA. We demonstrated that the excise tax on high-cost plans, currently law under the ACA, is not an effective method of penalizing rich “Cadillac” plans because plan design is only one factor affecting plan cost and often less important than location and employee demographics. 

 

This would also be true of a cap on the employee individual tax exclusion for employer-provided health benefits, a provision included in an early draft of the AHCA and favored by powerful voices such as House Speaker Paul Ryan (R-WI), House Ways and Means Chair Kevin Brady (R-TX) and new HHS head Tom Price. Mercer had also modeled the impact such a cap would have on the effective tax rates of Americans based on their income. The hardest hit, by far, would be lower-paid workers with families. Some staffers faced with this information for the first time were visibly struck.

 

When the bill was released for mark-up, the cap on the exclusion was not included, and the Cadillac tax was delayed until 2025 (and possibly 2026). But while we were pleased with this outcome, we also knew the bill was a long way from becoming law and the cap could easily resurface.  

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Last night’s vote was about change, but what will Donald Trump’s presidency mean for healthcare benefits?  The ACA will almost certainly change, although it is unclear if we will see full repeal or a major overhaul.  With that said, Republicans won’t want to risk the backlash of kicking 25 million constituents off their plans. The task at hand is to “fix” the parts of the ACA that are ineffective.  At this point, here’s what we think we know:

 

  • The popular features of the ACA will likely remain, such as expanded eligibility for dependent children to age 26; the ban on pre-existing condition limits; and the closed gap in Medicare prescription coverage
  • Repeal of the excise tax could become a reality -- but would a cap on the employee tax exclusion take its place?
  • We’ll see a laser focus on how to create new, competitive markets for individuals who don’t get coverage through their employer or public programs, with Trump favoring individual tax preferences
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The good news is that employer ACA reporting was delayed for 2014. The bad news is that your employees may be prompted for the new Form 1095 when they file their taxes for 2014. The Form 1040 will prompt filers to indicate whether they had health care coverage in 2014. While a recent press release from the Departments of Treasury and HHS states that, for many with employer-sponsored health insurance, indicating coverage status will be as easy as "checking the box,"  what makes it more complicated is the taxpayer documentation required in order to "check the box" and/or have on file in the event of an audit later.

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Last week I promised you more information about a topic that’s rising to the top of the priority list for every employer — ACA reporting. Here’s an overview of the purpose and types of reporting, along with the action items employers should address between now and January 1.

 

The ACA reporting requirements, despite being an administrative burden to employers, answer three important questions for IRS enforcement.

 

  • Did the employer offer the requisite coverage to satisfy the employer mandate?
  • Did the taxpayer have the requisite coverage to satisfy the individual mandate?
  • Was the taxpayer eligible for subsidized coverage?
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The recent US Supreme Court decision legalizing same-sex marriage seems likely to affect employer offerings of domestic partner (DP) coverage. Many employers that now offer DP benefits chose to do so because their employees did not have a legal right to marry their same-sex partners and thus could not qualify for dependent coverage. But more often than not, DP benefits are also extended to unmarried opposite-sex domestic partners, so a change in policy could affect those couples as well.

 

Offerings of DP coverage have been growing steadily. According to Mercer’s National Survey of Employer-Sponsored Health Plans, over the past five years offerings of domestic partner coverage have risen from 39% to 55% among large employers (500 or more employees). Among jumbo employers – those with 20,000 or more employees – 76% offer DP coverage. There is still a wide variation by geographic region, however. Fewer than half of all large employers in the South and Midwest provide DP benefits (46% and 45%, respectively), compared to solid majorities of large employers in the Northeast and West (60% and 78%, respectively).

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In light of the recent US Supreme Court decision in Obergefell v. Hodges legalizing same-sex marriage nationwide, employers should consider the following implications for benefit plans and employment policies:

 

  • Revisit your definition of “spouse.” Make sure the definition covers same-sex spouses in plan documents, insurance policies, trust and service agreements, beneficiary forms, required notices, and employment policies.
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Everyone is shifting into planning mode this month, thinking about open enrollment for 2016 benefits. Whether you are making major benefit plan changes, going out to bid for services, or keeping things status quo, here’s what you need to keep in mind relative to the ACA.

 

Reporting requirements. If you have not yet established processes for ACA reporting for 2015, you are not alone. Many employers are just now focusing on the requirements and looking for resources to support compliance. There are many third-party options available to help if your payroll or HRIS teams don't have the bandwidth. But it’s best to get started now.

 

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While it’s far from clear where the incoming administration and Congress will land on the “replace” part of “repeal and replace” with regard to the Affordable Care Act, they are signaling interest in promoting the use of health savings accounts by expanding eligibility and allowing funds to be used for more purposes. High-deductible HSA-eligible plans already feature in many employer health benefit programs. In 2016, 21% of all covered employees were enrolled in an HSA-eligible plan. Enrollment has been rising over the past decade as employers -- especially large employers (500+ employees) -- have added HSA-eligible plan choices to their health programs. The threat of the excise tax was a big motivator for employers to move employees into lower-cost plans; while the excise tax may go by the wayside, there is now discussion of capping the individual tax exclusion for employer-provided health coverage, which could still drive cost pressure on employer-sponsored health plans.

 

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As you finalize medical plan designs for 2016, make sure you consider these five compliance elements of the Affordable Care Act (ACA).

 

1. Embed individual out-of-pocket (OOP) limits. The ACA’s annual in-network OOP statutory limit for self-only coverage ($6,850) applies to all individuals, whether enrolled in self-only coverage or another tier (e.g., family). Be sure to confirm your medical carrier’s capabilities to adjudicate this benefit design feature. The penalty for non-compliance is $100 per day per individual.

 

 

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The ACA reporting deadlines for minimum essential coverage and employer shared responsibility occur in the first quarter of 2016. Individual statements (Form 1095-Cs) have a Monday, February 1, 2016, deadline and the IRS electronic transmittal due date (Form 1094-C) is Thursday, March 31, 2016.

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Raise your hand if you’ve recently had a thoroughly positive conversation about healthcare in America, like one where people were smiling and talking about how great it is. No one mentioned the soaring costs, 3-minute doctor visits, confusing bills, or any other negative experience.

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Time flies. We can finally see the light at the end of the tunnel for ACA compliance. But the last ACA requirement poses the biggest challenges for most employers, and that’s (drum roll) the excise tax slated to go into effect in 2018. Since today is the deadline for the second round of comment letters to the IRS, we thought it would be timely to kick off a series of posts on this important topic. What will follow over the coming days are pieces written by Mercer colleagues with a broad range of expertise, focusing on tax-avoidance strategies and how the excise tax may affect other HR and business objectives.

 

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