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New CMS Rule Keeps ACA Employer Mandate

The Center for Medicare and Medicaid Services (CMS) has issued a final ruling to expand short-term medical insurance options for Americas as part of the federal government’s continued campaign to abolish the Affordable Care Act (ACA). The new HHS Notice of Benefit and Payment Parameters for 2019 provides operational and technical guidance to insurers on what to offer as “Qualified Health Plans,” or QHPs in the Federally-Facilitated Marketplaces (FFM) for plan years beginning in 2019.

Untouched by the latest ruling is the ACA’s employer mandate that required employers with 50 or more full-time or full-time equivalent employees to offer minimum essential coverage to 95% of their employees and their dependents. Minimum essential coverage must be both affordable and meets minimum value or be assessed by the employer shared responsibility payments (ESRPs) as penalties for failing to comply with the healthcare law.

The IRS started issuing Letter 226J penalty notices at the end of the year, some containing ESRPs larger than $20 million, to employers out of compliance with the law in 2015 based on annual ACA informational filings provided to the IRS. The penalty notices are anticipated to be issued for 2016 before the end of the year.

In a previous article, we discussed the impacts of this year’s ACA Open Enrollment on insurance agents, now let’s review the CMS rule changes for your clients. The CMS rule will promote:

  • Aligning enrollment options for all dependents newly enrolling in the marketplace coverage through an AEP and are being added to an application with current enrollees, regardless of the SEP the dependent qualifies under (i.e., birth, marriage, etc.)
  • Providing additional flexibility to states on which type of EHBs (essential health benefits) they must provide. Starting in 2020, the states will be allowed to choose from one of 50 EHB plans that other states used for the 2017 plan year. This includes letting states replace one or more of the 10 required ACA benefits with the same categories of benefits in another state’s plans.
  • Amending the MLR (medical loss ratio) requirements to reduce the regulatory burden to stabilize insurance markets, increase insurer participation and expand choices for enrollees.
  • Making it easier for small businesses to enroll in coverage and lower costs by removing several regulatory requirements on small business health options programs (SHOPs). The change will allow SHOPs to eliminate the online enrollment process and will enable employers to enroll directly with a certified agent, broker, or issuer.
  • Increasing the primary role of state regulators in the rate review process, while reducing the burden of regulations for states and issuers, and providing more flexibility in increasing rates by increasing the default threshold for rate increases subject to review to 15% from 10%.

How to Help Your Clients

If you’re working with employer groups, now is a great time to reach out and verify the receipt of Letter 226J from the IRS. If they haven’t received the letter, you may recommend they consider reviewing the 1094-C and 1095-C forms filed with the IRS in 2015, 2016 and 2017 to determine if they may be at risk for the ACA penalty.

If you have a client who receives a Letter 226J, it’s crucial that the employer responds to the IRS by the date indicated, which generally will be 30 days from the date the letter was issued. The letter will also include the name and contact information for an IRS representative who will reply to questions. In responding, the employer should either agree with the proposed ESRP or disagree with part or all of the proposed penalty assessment. To prepare the response, review the information that was submitted as part of the employer’s 2015 ACA filing to identify any possible errors in either the completed forms or the underlying data. Once the response has been submitted, the client should expect to receive a second letter from the IRS. This will be Letter 227, which is a series of five different messages that the IRS is using to acknowledge responses to Letter 226J. The different versions describe additional actions that may be required of an employer to address its proposed ESRP. They are listed here in their order of preference:

Letter 227K: This is the letter that you hope your client receives. It means that the case has been resolved in the employer’s favor. Essentially, Letter 227K acknowledges that the information in the employer’s response to Letter 226J was accepted, the employer does not owe an ESRP and the IRS has closed its inquiry.

Letter 227L: While not as thrilling as receiving Letter 227K, receipt of this version of Letter 227 is still a plus. The IRS sends this version of the letter when it agrees with the employer that the amount of the ESRP owed should be reduced. While the employer will still have to make a payment, it won’t be as much as initially requested.

Letter 227M: This version of the letter is not one that you want your client to receive. This is the version the IRS sends when it disagrees with the employer’s response to Letter 226J and reiterates its demand for the original penalty assessment.

There are two other variants of Letter 227M, one in which the IRS partially disagrees with the recalculated ESRP submitted by the employer and proposes a revised penalty that is hopefully lower than the original and a version where the IRS seeks further clarification of the information provided by the employer and may request additional documentation.

After receiving the IRS’ response, if the client still disagrees with the proposed or revised penalties, the employer may request a pre-assessment conference with the IRS Office of Appeals. This is done by the instructions for requesting a meeting provided in Letter 227 and in IRS Publication 5, Your Appeal Rights and How to Prepare a Protest if You Don’t Agree. The meeting should be requested in writing by the response date shown on Letter 227, which will usually be 30 days from the date of the letter.

It’s essential for the client to respond to all IRS notices. Failing to reply to a Letter 226J or any of the variants of Letter 227 will likely prompt the IRS to formally assess the amount of the proposed ESRP and issue the employer notice and demand for payment, Notice CP 220J.

For further instruction, please reach out to Agent Pipeline’s Group Health sector by contacting us at 800-962-4693. You can also visit the official Center for Consumer Information & Insurance Oversight section of Resources for Agents and Brokers in Health Insurance Marketplaces.

You may also refer to the Employer Initiatives page for notices and appeals by clicking here.

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