| IRS Releases Final Forms and Instructions for Affordable Care Act Reporting

SIG Alert

In February 2015, the IRS released final forms and instructions related to information reporting under the Affordable Care Act (the “ACA”). These forms include Form 1095-B, Health Coverage, Form 1094-B, Transmittal of Health Coverage Information Returns, Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage.

The issuance of the final forms is a critical step in implementing the ACA’s reporting requirements, which enable the government to track compliance with the individual and employer mandates, and to determine eligibility for premium tax credits used to purchase health insurance coverage through a Health Insurance Marketplace (the “Marketplace”). Although these forms are not required to be provided to employees and filed with the IRS until early 2016, the reporting requirements are complex and require reporting detailed coverage and employment information for the 2015 calendar year. In preparation for these rapidly-approaching deadlines, employers should consider taking the following steps as soon as possible:

  • review the forms and instructions to become familiar with the reporting requirements;
  • identify where the required data is collected and stored in their financial and information systems;
  • develop systems to collect any data that is not currently captured in existing systems and aggregate this data to prepare the required forms;
  • coordinate with health plan insurers or third-party administrators and payroll providers, and examine whether assistance is needed from an outside vendor; and
  • consult with legal counsel.


The ACA added Sections 6055 and 6056 to the Internal Revenue Code (the “Code”). These new sections require employers, plans, and health insurance issuers to report health coverage information to the IRS and to participants annually. The Section 6055 reporting requirements apply to insurers, employers that sponsor self-insured group health plans, and other entities that provide minimum essential coverage (such as multiemployer plans). The Section 6056 reporting requirements apply to “applicable large employers” or “ALEs” (generally, employers with 50 or more full-time employees, or 100 or more full-time employees in 2015 only) and require reporting of health care coverage provided to the employer’s full-time employees.

Reporting under Sections 6055 and 6056 will be conducted on one or both of two sets of forms – the “B Forms” (Forms 1094-B and 1095-B) and the “C Forms” (Forms 1094-C and 1095-C). Each set of forms includes a transmittal form (Forms 1094-B and 1094-C), which serves as a cover page and provides aggregate information, and an individualized form (Forms 1095-B and 1095-C) for each employee for whom the employer is required to report. The B Forms are used to report whether individuals are covered by minimum essential coverage and, therefore, are not liable for the individual shared responsibility payment. The C Forms are used to report information about offers of health coverage and enrollment in health coverage for employees, to determine whether an employer owes an employer shared responsibility payment, and to determine the eligibility of employees for the premium tax credit.

The forms that must be filed and distributed depend on whether the employer is an ALE and the type of coverage provided. The following chart summarizes the filing and distribution requirements for the relevant reporting entities:

Self-Insured Plan

Fully-Insured Plan

Non-ALE Forms 1094-B and 1095-B Not required to file
ALE Forms 1094-C and 1095-C for employeesEither Forms 1094-B and 1095-B or Forms 1094-C and 1095-C for non-employees Forms 1094-C and 1095-C (Part III generally will not be completed)
Insurance Provider Not applicable Forms 1094-B and 1095-B

Also included in the group of new tax forms for ACA reporting is Form 1095-A. Form 1095-A is provided by the Marketplace to individuals who receive coverage through the Marketplace. Although Forms 1095-B and 1095-C are not required in 2015 (for 2014 coverage), some tax preparers are asking individuals for Forms 1095-B and 1095-C, who are then asking employers for these forms. These forms are not required to prepare an individual’s tax return for 2014. If the individual had Marketplace coverage in 2014, he or she will receive a Form 1095-A from the Marketplace that can be used to reconcile premium tax credits.

A general overview of the C Forms and the technical reporting requirements and a discussion of notable changes to the final instructions for these forms are provided below.

Forms and Instructions

The IRS issued initial drafts of the B Forms and C Forms on July 24, 2014, and draft instructions for these forms on August 28, 2014. Frequently Asked Questions (FAQs) and revised draft forms followed. Reporting entities and their advisors and service providers quickly concluded that compliance with the reporting requirements would be difficult and significant resources would need to be dedicated to the reporting process, especially in the implementation phase. Numerous comments to the draft forms and instructions were sent to the IRS for consideration. The final set of forms are nearly identical to earlier drafts, quashing hopes of simpler reporting requirements, although changes in the final instructions answered some questions and clarified certain requirements.

The final forms and related instructions are technically for the 2014 calendar year (reporting is voluntary for 2014), but instructions addressing transition relief that is available for the 2015 calendar year suggest that the IRS intends to use these forms and instructions for 2015. Final forms and instructions for reporting 2015 coverage will be provided by the IRS later this year. The IRS has stated informally that it expects to release FAQs that will answer additional questions on the reporting requirements, although a publishing date has not been determined.

Reporting entities must file the returns and transmittal forms with the IRS by February 28 of the year following the calendar year of coverage (March 31 if filing electronically) and provide the returns to individuals by January 31. Reporting entities filing 250 or more information returns (Form 1095-B or 1095-C) are required to file the returns and transmittal forms electronically. The IRS will grant short-term relief from accuracy-related penalties for reports filed and furnished in 2016 (for 2015 coverage) if the reporting entity can show a good faith effort to comply with the reporting requirements and the reports are timely filed and furnished, although the reasonable cause standard applies for those that fail to meet the timeliness requirement.


We anticipate that many challenges will arise in the implementation of the reporting requirements for employers that are members of a controlled group, employers that intend to use third parties to prepare and file reports on their behalf, and employers that contribute to multiemployer plans (read here “Contributing Employers to Multiemployer Plans Are Not Off the Hook – Tracking the Full-Time Status of Employees” on Proskauer’s ERISA Practice Center Blog, Nov. 11, 2014). The instructions make clear that each employer is responsible for satisfying its reporting obligation, regardless of its use of third parties to assist with the reporting process.

More Information on Forms 1094-C and 1095-C

As noted above, the C Forms consist of a transmittal form and an individualized form. Form 1094-C is the transmittal form, and provides a summary of aggregate, employer-level data to the IRS. For ALEs that are members of a controlled group, separate transmittal forms must be filed for each ALE member that is required to report. Separate transmittal forms for one ALE member may also be filed for different employee groups (e.g., union employees, non-union employees, salaried employees, hourly employees, etc.). However, if there are multiple transmittal forms for ALE employee groups, one form must be designated as the “authoritative” form for the ALE member, which will include aggregate information for the ALE member. Non-authoritative transmittal forms need to include only employer information and the number of individual forms being submitted with that transmittal. Much more information is required in the authoritative transmittal form for an ALE member, including:

  • employer information and information on the ALE member’s controlled group;
  • whether the employer is using simplified reporting methods (discussed below) or transition relief for 2015 from the employer mandate under Code Section 4980H;
  • information about whether an offer of coverage was made to 70% of full-time employees and their dependents (95% beginning for 2016 coverage);
  • total number of Forms 1095-C issued to employees;
  • full-time employee count by month; and
  • total employee count by month.

Form 1095-C is the individual, employee-specific return to be filed with the IRS and distributed to employees. This form reports information about the employer’s offer of, and the employee’s enrollment in, coverage. The operative portion of Form 1095-C is Part II, which requires employers to insert specified codes describing the type of offer, if any, made to an employee, and other information about the coverage. To complete Part II, employers will need the following information for each month:

  • whether the employee was a full-time employee;
  • whether the employee received an offer of minimum essential coverage providing minimum value, and whether that offer was also extended to his or her spouse and/or dependents, if any;
  • whether the individual enrolled in the coverage;
  • the employee’s share of the monthly premium for lowest-cost self-only minimum value coverage;
  • the affordability safe harbor used by the employer; and
  • whether other relief from the employer mandate applies for an employee.

Note that if the employer sponsors a self-insured plan, Part III of Form 1095-C must be completed to report information that would otherwise be reported on the B Forms. As this information must be reported for all covered individuals, employers sponsoring self-insured plans must complete the C Forms for enrolled part-time employees as well as for full-time employees.

A significant portion of the instructions relate to the requirements for employers to use simplified reporting methods. The benefits of these simplified reporting methods, however, are limited given the detail and complexity of the reporting requirements. By way of summary, these simplified reporting methods include the following alternative methods and transition relief:

  • Qualifying Offer Method. This reporting method allows for simplified reporting for employees who receive a qualifying offer (generally, an offer of minimum value coverage that costs no more than 9.5% of the single individual federal poverty line and includes an offer to the employee’s spouse and children). If the qualified offer method applies for the full year, employers are not required to report the cost of coverage on Form 1095-C. Also, employers may provide an alternative statement in lieu of Form 1095-C if the employee receives a qualifying offer for the entire calendar year and is not covered under a self-insured plan. The alternative statement, however, is of limited use for employers sponsoring self-insured plans as the employer must still file the Form 1095-C to report coverage information (which would otherwise be reported on the B Forms) to the IRS.
  • 2015 Qualifying Offer Method Transition Relief. For 2015, employers making a qualifying offer to 95% of their full-time employees for one or more months may use the alternative statement method for all employees.
  • 98% Offer Method. Employers that offer affordable, minimum value coverage to at least 98% of the employees (and their dependents) for whom it is required to report on the C Forms may certify the offer to such percentage without identifying which employees are full-time. This allows employers to report on an employee without identifying the employee’s full-time or part-time status. Employers must still file the Form 1095-C with the IRS and furnish it to employees.

Updates to Final Instructions

As noted above, the final instructions for the forms are substantially similar to the draft instructions, although a few notable changes and clarifications were made. These include the following:

  • Employees in Limited Non-Assessment Period. The final instructions clarified that an employer is not required to file a Form 1095-C for an individual who, for each month of a calendar year, is not a full-time employee of the employer or is an employee in a limited non-assessment period. The instructions note that the employee is still included in the total employee count reported on Form 1094-C for any month that the employee was employed. Also, if the employee actually enrolled in coverage under a self-insured plan during the limited non-assessment period, the employer must file a Form 1095-C for the employee in order to report coverage information for the year.
  • Reporting Enrollment for Non-Employees. If an employer has enrollees in its self-insured plan who are classified as non-employees for the full year, the employer may use Form 1094-C and Part III of Form 1095-C, rather than the B Forms, to report coverage for those individuals and other family members. (Employers choosing to report on the C Forms must still complete Parts I and II of Form 1095-C for non-employees.) These non-employees may include non-employee directors, retirees after the year of retirement, former employees on COBRA after the year of termination, and non-employee COBRA beneficiaries. Employers will want to determine which reporting alternative they will use to file and distribute reports for non-employees and consider this decision in their preparations.
  • Aggregated Applicable Large Employer Groups. If a full-time employee works for more than one employer member of an aggregated ALE group during a month, only one member of the group is treated as the employer and that member reports for that employee for that month. The other employer member is not required to report for that employee for that month. The employee is treated as an employee of the employer for whom the employee worked the greatest number of hours for that month. Employer members of aggregated groups must coordinate which employer will report for an employee who works for more than one member of the group in the same month. As the reporting employer is determined on a monthly basis, employees may receive multiple Forms 1095-C for a year.
  • Offer of Spousal Coverage. For reporting purposes, an offer to a spouse includes an offer that is subject to a reasonable, objective condition, regardless of whether the spouse meets the condition. For example, an offer of coverage available to a spouse only if the spouse certifies that the spouse does not have access to health coverage from another employer is treated as an offer of coverage to the spouse for reporting purposes.
  • Total Employee Count. As noted above, employers must report their total number of employees on Form 1094-C, including full-time employees, part-time employees, and employees in a limited non-assessment period. Employers must count the number of employees on the first day or last day of the month, on the first day of the first payroll period that starts during the month, or on the last day of the first payroll period that starts during the month as long as the last day falls within the same month that the payroll period starts.
  • Employee Offer of Coverage. An employer reports offering health coverage for a month on Form 1095-C only if the employer offers coverage for every day of that month. But, if an employee terminates employment and the coverage offer ends before the last day of the month of termination, the employer is treated as having offered the coverage for the full month if the employee would have been eligible had he or she remained employed the whole month.

More to Come?

With the release of the final forms and instructions, employers and reporting entities should undertake preparations to meet the reporting requirements early next year. We anticipate that many questions will come up as reporting requirements are analyzed, data is gathered, and reports are prepared. Some examples of items that require clarification include:

  • reporting for COBRA coverage;
  • the use of third parties to prepare forms. For example, the current forms do not include a place for a third-party preparer to sign the form; and
  • information-sharing between entities in the multiemployer plan context. For example, collective bargaining agreements may prevent the exchange of information between the plan and the employer that is required to complete the forms.

Although some questions may be answered by the IRS in the form of FAQs and, possibly, through updated instructions for the 2015 calendar year, it appears that the final forms and instructions for 2014 will provide the bulk of the guidance on reporting requirements.

This information is intended to provide an overview of the ACA reporting requirements. If you have questions on the information described in this client alert, please contact feel free to contact us.

| FMLA Eligibility for Same-Sex Spouses Effective March 27

SIG Alert

Effective March 27, 2015, a final rule from the U.S. Department of Labor (DOL) will extend the protections of the federal Family and Medical Leave Act (FMLA) to all eligible employees in legal same-sex marriages, regardless of where they live.

Under the FMLA, an eligible employee of a covered employer (50 or more employees in at least 20 workweeks in the current or preceding calendar year) is entitled to take unpaid, job-protected leave for specified family and medical reasons, including to care for the employee’s spouse who has a serious health condition.

The U.S. Supreme Court’s decision in United States v. Windsor struck down the federal Defense of Marriage Act provision that interpreted “marriage” and “spouse” to be limited to opposite-sex marriage for purposes of federal law. In response, the DOL revised its agency guidance, effective as of June 26, 2013, to clarify the definition of “spouse,” for purposes of the FMLA, to mean a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including “common law” marriage and same-sex marriage.

Final Rule
The final rule significantly changes previous FMLA guidance by defining “spouse” based on the law of the place where the marriage was entered into, sometimes referred to as the “place of celebration” (currently, the FMLA regulatory definition of “spouse” only applies to same-sex spouses who reside in a state that recognizes same-sex marriage, referred to as the “state of residence” rule). This new definition of “spouse” expressly includes individuals in lawfully recognized same-sex and common law marriages, as well as same-sex marriages entered into abroad that could have been entered into in at least one state.

The definitional change means that eligible employees, regardless of where they live, will be able to:

  • Take FMLA leave to care for their lawfully married same-sex spouse with a serious health condition;
  • Take qualifying exigency leave due to their lawfully married same-sex spouse’s covered military service;
  • Take military caregiver leave for their lawfully married same-sex spouse; or
  • Take FMLA leave to care for their stepchild (child of the employee’s same-sex spouse) or stepparent who is a same-sex spouse of the employee’s parent, even if certain in loco parentis requirements are not met.

More information is available on the DOL’s FMLA Final Rule Website, which includes links to the DOL’s fact sheet and frequently asked questions.

| Advisory on OOP Limits

SIG Alert

New HHS Regulations “Clarify” that Health Plans Covering Families Must Have “Embedded” Individual Cost-Sharing Limits

On February 27, 2015, the Department of Health and Human Services (HHS) released its final HHS Notice of Benefit and Payment Parameters for 2016.  The lengthy regulation covers a wide range of topics affecting group health plans, including minimum value, determination of the transitional reinsurance fee, and qualified health plan rates and other market reforms applicable to the group and individual insurance markets.

Within the portion of the regulation’s Preamble explaining insurance issuer standards under the Affordable Care Act (“ACA”), HHS formally adopted a “clarification” to the application of annual cost sharing limitations.  By way of background, the ACA requires that all non-grandfathered group health plans adopt an annual cost sharing limit for covered, in-network essential health benefits for self-only coverage ($6,600 in 2015 and $6,850 in 2016) and other than self-only coverage ($13,200 in 2015 and $13,700 in 2016).  Until HHS’s clarification, many group health plan administrators applied a single limitation depending on whether the employee enrolled in self-only or other than self-only coverage (e.g., “family” coverage).  That is, if an employee enrolled in family coverage, the higher limit applied to the family as a whole, regardless of the amount applied to any single covered individual.

HHS, however, now requires group health plans to embed an individual cost sharing limit within the family limit.  For example, suppose an employee and his or her spouse enroll in family coverage with an annual cost sharing limit of $13,000, and during the 2016 plan year, $10,000 of cost sharing payments are attributable to the spouse and $3,000 of cost sharing payments are attributable to the employee.  Prior to the HHS’s clarification, the full $13,000 would be payable by the covered individuals because the $13,000 plan limit had not been reached on an aggregate basis.  However, with the new embedded self-only limitation, the cost sharing payments attributable to the spouse must be capped at the self-only limit of $6,850, with the remaining $3,150 being covered 100% by the group health plan.  The employee would still be subject to cost sharing, however, until the $13,000 plan limit is reached.

The HHS clarification is not effective until plan years beginning on or after January 1, 2016.  It is important to note that, at the moment, it is unclear whether the HHS clarification is intended to apply to self-insured plans.  The 2016 Benefit and Payment Parameters are rules related to the group and individual insured market, including the Marketplace, and the Preamble section under which the clarification is found is titled “Health Insurance Issuer Standards under the Affordable Care Act, Including Standards Related to Exchanges.”  Additionally, all previous cost sharing guidance applicable to self-insured plans have been issued jointly by the HHS, Department of Treasury and Department of Labor.  As of the date of this blog entry, the Departments of Treasury and Labor have not issued a similar clarification.  Nevertheless, although the HHS clarification is potentially unenforceable with respect to self-insured plans, employers and plans sponsors with self-insured plans should be prepared to adopt an embedded cost sharing limit should the other two agencies follow suit.

Peter Marathas, Esq.

Compliance Director

| IRS Releases First Guidance on ACA’s So-Called "Cadillac Tax"

 SIG Alert

March 4, 2015

Last week, the IRS released Notice 2015-16, available here, in an effort to begin developing regulatory guidance for the Affordable Care Act’s excise tax on high-cost health coverage (the “Excise Tax”), which will become effective beginning as early as 2018. The Excise Tax, which is commonly referred to as the “Cadillac Tax,” imposes a 40% nondeductible excise tax on the aggregate cost of “applicable employer-sponsored coverage” (including employer-sponsored group health plan and multiemployer plan coverage) in excess of certain statutory limits. Although the Notice does not provide any definitive answers to the many questions raised, it is still welcome news in that it identifies a number of issues that could be addressed in forthcoming guidance and, in some cases, indicates the direction in which the IRS is headed. This can help many employers and plan sponsors as they now consider steps to mitigate possible exposure to the Excise Tax. This is especially true for employers contributing to multiemployer health plans who bargain benefit levels, as they may have only one more opportunity at the bargaining table to adjust benefits before the Excise Tax applies.

The Notice offers a number of initial ideas and proposed approaches on how various Excise Tax issues may be resolved. The Notice also requests comments from practitioners on specific parts of the Excise Tax, as well as related issues under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Notably, the Notice does not provide further guidance on which party will be liable for the Excise Tax in the case of self-funded coverage – i.e., whether that is the plan sponsor, the third-party administrator, or the plan administrator listed on the plan’s Form 5500. In addition, the Notice does not indicate whether there are any circumstances under which the Excise Tax may be paid from plan assets.

The Notice focuses on three major issues affecting administration of the Excise Tax, namely:  what types of coverage constitute “applicable employer-sponsored coverage” potentially subject to the Excise Tax; how the “cost” of applicable coverage is determined; and how the annual dollar limits are applied.

What Constitutes Applicable Coverage Subject to Excise Tax

  • The Notice confirms that “applicable employer-sponsored coverage” otherwise subject to the Excise Tax is determined without regard to whether the employer or the employee pays for the coverage, whether the coverage is paid for on a pre- or post-tax basis, or whether the coverage is insured or self-insured.
  • The Notice acknowledges an issue regarding self-insured dental and vision coverage that was a particular concern for many employers. Under the statute, only insured dental and vision benefits are specifically excluded from the Excise Tax. As has been widely anticipated, the Notice indicates that the IRS is considering adopting an approach under which both insured and self-insured dental and vision benefits are excluded from the Excise Tax, provided that the benefits are offered under stand-alone plans that otherwise satisfy the revised rules on excepted benefits; a position that would be in accord with the recently issued excepted benefit regulations.
  • The Notice confirms that applicable coverage includes, but is not limited to, health FSAs, HSAs and Archer MSAs, coverage for on-site medical clinics, and multiemployer plans. Some related Excise Tax issues being considered by the IRS include the following:
    • HSAs and MSAs. The IRS anticipates that future proposed regulations will provide that employer contributions to HSAs and Archer MSAs, including salary reduction contributions, will be included in applicable coverage, and after-tax contributions will be excluded.
    • On-site medical clinics. The IRS is considering excluding from applicable coverage on-site medical clinics that offer only de minimis medical care (e.g., first aid) to employees. The IRS requested comments on this approach, particularly with respect to on-site medical clinics that provide certain services beyond (or in lieu of) de minimis care, such as immunizations, injections of antigens, provision of nonprescription pain relievers, and treatment of work injuries (beyond first aid). This is an important issue for employers, especially those who have historically offered robust on-site medical clinics for their employees.

The Cost of Applicable Coverage

A central provision of the Excise Tax provides that the cost of applicable coverage is determined under rules similar to the rules that apply for purposes of determining the applicable premiums under COBRA. As a result, the Excise Tax rules and the rules under COBRA for determining the cost of applicable coverage are now somewhat linked. The Notice addresses the COBRA rules that are likely to inform the IRS as it proposes rules applicable to the Excise Tax, while at the same time indicating possible changes to the rules under COBRA.

  • Under COBRA, the applicable premium is based on the cost of coverage for similarly situated non-COBRA beneficiaries. The Notice indicates that the IRS will adopt a similar standard for purposes of the Excise Tax, and invites comments on an approach under which a group of similarly situated employees would be determined by starting with all employees covered by a particular benefit package, then subdividing that group based on mandatory disaggregation rules (based on whether an employee is enrolled in self-only coverage or other-than-self-only coverage), and then allowing further subdivision based on permissive disaggregation rules (based on the number of individuals covered in addition to the employee, and, potentially, other distinctions traditionally made in the group insurance market).
  • Regarding permissive disaggregation, the IRS is considering whether disaggregation should be permitted based on (a) a broad standard (such as a bona fide employment-related distinction like job category or nature of compensation, or (b) a more specific standard (such as a list of specific categories for which disaggregation is allowed). If a more specific standard is preferable, the IRS invited comments on which specific criteria should be permitted.
  • Notably, the IRS confirmed that the Excise Tax rules do not require that the cost of coverage be determined separately based on the number of individuals who are receiving coverage in addition to the employee. Therefore, the IRS is considering an approach whereby employers would be permitted to use just one cost of coverage for other-than-self-only coverage (even if the actual cost of such coverage varies depending on how many individuals other than the employee are covered). The approach being considered by the IRS appears to suggest that it would be permissible to have only two costs of coverage for purposes of the Excise Tax (self- and other-than-self-only), even if under COBRA the costs of the same coverage were broken down further into how many individuals other than the employee were covered (e.g., employee plus one, employee plus two, family, etc.).
  • The COBRA regulations provide two methods for self-insured plans to use when developing the COBRA-applicable premium – the actuarial basis method and the past cost method. Concerned about the possibility of abuse in a plan that switches between these methods frequently, the IRS is considering, for purposes of the COBRA regulations and the Excise Tax, rules that would generally require a plan to use its chosen valuation method for at least five years. The IRS invites comments on whether these approaches should be adopted for the Excise Tax.

The Notice also addresses a number of other issues concerning the cost of applicable coverage:

  • The Notice clarifies that the applicable cost of applicable coverage refers to coverage in which an employee is enrolled, and not coverage that is merely offered to the employee.
  • The Notice confirms that any coverage under a multiemployer plan is treated as other-than-self-only coverage for purposes of the Excise Tax.
  • The Notice confirms that the cost of applicable coverage for health FSAs equals the sum of salary reduction contributions and also any reimbursements under the arrangement in excess of the salary reduction contributions, such as employer flex credits.
  • The IRS also indicated that a Health Reimbursement Arrangement (HRA) constitutes applicable coverage. The IRS is considering various methods of determining the cost of coverage for HRAs, including: (i) basing it on the amounts made newly available to a participant each year; (ii) adding together all claims and administrative expenses attributable to HRAs for a particular period and dividing that sum by the number of employees covered for that period; and (iii) using the actuarial basis method. Comments also were requested on issues relating to whether the cost of applicable coverage should not include (i) an HRA that can be used only to fund the employee contribution toward coverage, and/or (ii) an HRA that can be used to cover a range of benefits, some of which would not be applicable coverage.
  • The IRS also invited comments on whether alternative methods for calculating the cost of applicable coverage would be consistent with the statute. This is response to certain stakeholder suggestions that the cost of applicable coverage be determined by reference to similar coverage elsewhere (e.g., on the Health Insurance Marketplace).

The Applicable Dollar Limit

There are two applicable dollar limits – self-only coverage (estimated at $10,200 in 2018) and other-than-self-only coverage (estimated at $27,500 in 2018). In Notice 2015-16, the IRS addresses certain related issues:

  • Acknowledging the potential for an employee simultaneously to have different types of coverage to which different dollar limits apply, the IRS is considering determining the applicable dollar limit based on whether an employee’s primary coverage/major medical coverage (i.e., the type of coverage that accounts for the majority of the aggregate cost of applicable coverage) is self-only or other-than-self-only coverage. Alternatively, a composite dollar limit could be determined by prorating the dollar limits for each employee according to the ratio of the cost of the self-only coverage and the cost of the other-than-self-only coverage. The IRS invited comments on these approaches.
  • Under the statute, an additional amount is added to the dollar limits for an individual “who participates in a plan sponsored by an employer the majority of whose employees covered by the plan are engaged in a high-risk profession or employed to repair or install electrical or telecommunication lines” (including a retired employee who satisfied these requirements for at least 20 years). The IRS requested comments on how to determine whether the majority of employees covered by the plan are so engaged, what the term “plan” means for this purpose, how to make the 20-year determination, and whether further guidance on the definition of a “high-risk profession” is needed.
  • Under the statute, the applicable dollar limits may be increased by an age and gender adjustment if the age and gender characteristics of a particular employer are less favorable than the national workforce. The IRS invited comments on whether it would be desirable or possible to develop safe harbors to assist employers in adjusting the dollar limits for their particular workforce.

Although the Notice does not provide a great deal of concrete guidance, it does offer a considerable degree of insight into the IRS’s thinking with respect to a number of issues concerning the Excise Tax, and also presents a significant opportunity for practitioners to provide comments to the IRS for consideration. Public comments on these issues are due by May 15, 2015

| March 4- Round Three: Oral Arguments in King v. Burwell

SIG Alert

On March 4 the Supreme Court was once again the venue for the third (but probably not the last) round in the ongoing boxing match that is the Affordable Care Act (“ACA”).

The rubber match is King v. Burwell. For those few of you who are not familiar with King, click here.

For 85 minutes the attorneys-Michael Carvin for the petitioners and Solicitor General Donald Verrilli for the government-dodged and weaved as questions were thrown at them by the justices: as is de rigueur for bouts in this forum, the lawyers spent more time answering hard questions thrown at them by eight members of the Court than actually arguing their respective cases.
Clients, colleagues, reporters and even our kids ask for a prediction. But I refuse. Experience proves that you simply cannot read too much into the questions posed at oral argument.

With that in mind, here are some observations based on my review of the oral argument transcript:

    • The Questioners. Bolo punches were thrown by the four liberals (Ginsburg, Breyer, Kagan and Sotomayor) and two conservatives (Scalia and Alito), with each asking questions that revealed their political leanings. Chief Justice Roberts asked few questions and those he asked seemed simply to facilitate discussion. Not surprisingly, Justice Kennedy asked questions from both sides of the issue, but one series of questions (discussed below) has left the prognosticators atwitter with predictions of a major victory by the administration.
  • Standing. In the run up to the March 4 oral arguments, there were claims that the petitioners did not have the proper standing to bring the lawsuit. The government had never challenged standing before, but standing-a person’s right to sue-can be raised at any time, even at the Supreme Court.       Standing addresses whether the petitioners will suffer an injury from the claimed harm. Since the Supreme Court does not provide “advisory opinions” there always has to be real controversy between litigants for the Court to actually hear and decide a case. Justice Ginsburg led the charge on this one, but her roundhouses hit nothing but air. I never thought this was a serious concern. And based on the questioning by the rest of the Court, none of them did either. Oddly, Justice Ginsberg was relatively quiet after her parry into this standing issue.
  • Context.   The government’s main argument is that while the four word ACA provision at the heart of the controversy only mentions “state” run exchanges, in the context of the rest of the statute, this really means something along the lines of “exchanges at the state level run by either the state or federal government.” The questioning revealed either skepticism (Justice Scalia reminding Verrilli that Congress is quite capable of writing dumb laws but that doesn’t mean the Supreme Court should fix them) or agreement (Justice Kagan using an analogy click here) to demonstrate that the context always matters (frankly, an odd departure for her from a fairly recent case where she channeled her inner Dr. Seuss to argue basically that a fish is a tangible thing). In the end, jabs were thrown by both sides but apparently no knockout punch was delivered. Nothing surprising here.
  • Federalism.     With the reminder that no one can predict outcomes based on questions asked, Justice Kennedy, who is traditionally viewed as the potential swing vote on these issues, worked a line of attack with Justice Sotomayor that have many speculating (some hopefully) has put the petitioners on the ropes. Justice Kennedy moved away from the context issue and arguments about statutory construction and interpretation to focus on whether the petitioners’ position raises “serious constitutional problems of coercion.” If the petitioners’ reading of the statute is correct – that subsidies only apply to state-run exchanges – then, Justice Kennedy pointed out, the “states are being told either create your own exchange, or we’ll send your insurance market into a death spiral.” The betting seems to be that this could potentially prove too much for the petitioners-a majority of the court could find that if the petitioners’ reading results in a reading of the statute that raises significant Constitutional issues, they might opt to choose the reading that avoids the constitutional dilemma. Of course, it is equally true that a different majority of the Court could find this coercion intended and unconstitutional, just as they did in 2012 with Medicaid Expansion. Some may disagree, but I score this about even.

So, to summarize, the advocates went a solid twelve rounds and pound-for-pound they came out about even. Both Carvin and Verrilli are seasoned fighters at this level and no one expected either to deliver a TKO on the issue. However, the questions asked (and answers given) will provide us all with much to talk about until June. One item to note: Justice Alito may have presented a way for the Court to rule against the Administration but not disrupt the markets when he indicated that any ruling could be stayed pending an agreement between President Obama and the Congress. In other words, if the case comes out the wrong way for the government they may be saved by the bell, if only they can find a way to put down the gloves and start talking to each other.

| From Top 10 to Number 1: SIG Wellness Director Awarded Top Health Promotion Professional In The Country!


Rachel Druckenmiller, MS, INHC, CNE, Wellness Director at SIG, has been named WELCOA’s (The Wellness Council of America) Top Health Promotion Professional in the country.

The contest was an effort to identify the Top 100 Health Promotion Professionals in the country. The 210 entries were scored by an elite panel of judges who, along with peer voting, determined who should be considered one of the Top 100 Health Promotion Professionals in the country. Rachel was awarded the number one spot on the list based on her commitment to professional development, demonstrated success, innovation, leadership and compelling vision.

One judge said, “Rachel is spot on…Wellness is not something we can simply ‘do’ to people. We need to find what motivates them in order to get them to MOVE and really seek change.”

With Rachel’s leadership, SIG has created a wellness program that’s educational, interactive, entertaining and refreshing to HR professionals, leadership teams and their employees. As a leader in the field, Rachel is helping to shift the focus away from ROI and toward culture and well-being. The key is equipping people with the skills and tools they need to be well and surrounding them with a supportive environment.

To learn more about SIG’s wellness program and ways we can help you engage and energize your employees, visit www.silbs.com.

| SIG’s Wellness Director Named One of WELCOA’s Top 10 Health Promotion Professionals In the Country

Rachel Druckenmiller, MS, INHC, CNE and Wellness Director at SIG, has been named to WELCOA’s (The Wellness Council of America) Top 10 Health Promotion Professionals in the country.

From an inspiring group of 210 peer-selected nominees nationwide, 100 were selected as “the best of the best,” and Rachel was handpicked by a panel of industry experts as one of the Top 10.  The finalists were chosen based on peer voting and on the empirical review of a distinguished judging panel. It was  Rachel’s vision for the future of the wellness industry, her desire for leadership, and her innovative approach to her work that set her apart.

Rachel has led the wellness efforts at SIG since 2007, guiding both SIG and their clients to receive local and national wellness awards, including the most recent WELCOA Well Workplace Award, a designation held by no other benefits consulting firm in Maryland.

In her role, she guides SIG and their clients to “do wellness” differently with a focus on building a culture of health and teaching nutrition education and healthy cooking in a way that is refreshing, positive, interactive and fun.  With nearly a decade of experience in health and wellness and a transformational personal story, Rachel leads and teaches with enthusiasm, energy, and passion for being well in a way that is inspiring and motivating.

Rachel is certified as a Wellness Culture Coach, Integrative Nutrition Health Coach (INHC), and Culinary Nutrition Expert (CNE). She has a Master’s degree in Health Science and a Bachelor’s degree in Psychology.

Rachel writes a healthy living blog called Rachel’s Nourishing Kitchen and shares delicious, energizing and nourishing recipes, tips and tricks for healthy living, and inspirations to nudge you to be bold about what is truly possible in your life. Visit www.rachelsnourishingkitchen.com to learn more.


| SIG is named one of the Best Places to Work by Baltimore Magazine!



Every year, Baltimore Magazine rounds up the best places to work in the Baltimore region. SIG won the “Best Places to Work” honor based on a combination of factors, according to Baltimore Magazine: a positive and healthy environment, a devotion to helping employees advance in their careers, great benefits, bonuses and a generous 401K, employee-and-family-friendly policies like a R.O.W.E. work environment and an inspiring and engaged leadership.

This award is designed to identify, recognize and honor the best employers in Baltimore as the employees see it.

Employers from all over Baltimore entered their companies into the survey process to determine the Best Places to Work. The survey consisted of evaluating each nominated company’s workplace policies, practices, philosophy, systems and demographics, as well as a measure of the employee experience.

SIG’s “Best Places to Work” recognition follows a similar recognition by The Baltimore Business Journal and Business Insurance. Those publications also named SIG a best place to work in 2014. The ranking of the Best Places to Work is published in the February issue of Baltimore Magazine.

| Congress Gets to Work on Affordable Care Act Amendments

The 114th Congress with its 247 Republican Representatives and 54 Republican Senators appears to be fulfilling its promise to take a fresh look at the Affordable Care Act (ACA). Two bills introduced in the first work week in January demonstrate how quickly they want to do this.

The first is “The Hire More Heroes Act of 2015″ (Heroes Act) which was introduced to both houses of Congress on January 6. The Heroes Act would amend the ACA to provide that veterans who are eligible for health care coverage from the U.S. Department of Veterans Affairs or Tricare are not counted for purposes of determining whether an employer is an “Applicable Large Employer” (ALE) for purposes of the ACA. Only ALE’s-those with 50 or more full time equivalents-are subject to the play or pay requirements of the ACA. (In 2015, the play or pay or requirements won’t apply to most employers with between 50 and 99 full time equivalents.)

The bill is aimed at small employers and encourages them to hire veterans without risk of tripping into ALE status under the ACA.  This creates an instant advantage to veterans because many small employers have been limiting their hiring to avoid being subject to the rigorous requirements of the play or pay mandates. The Congressional Budget Office has indicated that this bill would cost the government (by reducing revenue) approximately $858M over a ten year period beginning in 2015. But less than a billion dollars over ten years might seem a small price to pay for a program that will (i) encourage smaller employers to hire new employees and (ii) make our returning veterans even more attractive hires for these employers. The former is attractive because job growth for small employers has been perceived by many to be stagnant since the passage of the ACA and anecdotal evidence abounds to support that view. The latter has the obvious appeal of better positioning those who have provided service the ability to re-enter civilian life. It also makes common sense because these new hires, by definition, are not the hires the ACA is concerned with since they are already eligible for federally-supported insurance coverage.

Not surprisingly, the Heroes Act passed easily in the House. As of January 10, 2015, it is under consideration in the Senate and should pass easily there. It appears that the President might sign this bill into law when it reaches his desk.

On Thursday, January 8, 2015, the House passed The Save American Workers Act (40 Hours Act), on a 252 to 172 vote.   The 40 Hours Act would amend the ACA to redefine the definition of a full-time employee from 30 hours a week to 40 hours a week.

The 40 Hours Act is supported broadly by business groups and associations and employers across the country as it would re-establish the traditional 40-hour workweek as the standard for American business.

The Congressional Budget Office, among others, has indicated that this provision of the ACA would result in a major shift of the American workforce to “part-time” (i.e., less than 30 hours per week), as employers over the next ten years would seek to cut costs by reducing hours below 30.

The 40 Hours Act now goes to the Senate. It appears that the bill has the Democratic votes it will need to avoid a Democratic filibuster.  Senators Joe Donnelly of Indiana and Joe Manchin III of West Virginia, both Democrats, are co-sponsors of the bill and other Democrats are on record as supporting the measure.

However, the 40 Hours Act has little real chance of being passed into law. President Obama has vowed to veto the bill. A 2/3rds vote in both chambers of Congress is needed to override a veto. It is unlikely that this bill-which would reflect a major change to the ACA and would likely even require a further delay in enforcement of the play or pay mandates because of the impact on regulations and employer and vendor systems-will receive the support it would need to override the President’s veto.  Historically, Congress has overridden fewer than ten percent of all presidential vetoes.

| Advantages and Disadvantages of Self-Funded Insurance Plans

Some businesses provide health or disability benefits to their employees through a self-funded plan, also referred to as Administrative Services Only (ASO). In this type of plan, instead of paying fixed monthly premiums for insurance coverage to an insurance company, the employer uses company funds to pay each claim as it is incurred. In essence, the employer stands in the shoes of the insurer.

This type of arrangement is not for every business, and works best for those that have more than 50 employees but more prevalent with groups over 100. Companies with fewer employees may decide it could work for them, but they must have sufficient cash flow to make a self-funded plan viable.

In order to assist employers to decide whether or not it would be in their interest to have a self-funded plan, they need to evaluate their existing plan and review past claims experience if available, specifically large claimant information. They also need to weigh the advantages and disadvantages to such a plan before making the final decision to transition from a fully insured plan to a self-funded one.

Advantages To Employers


  • Improvement of cash flow: Self-funded plans only pay submitted claims and can reserve the funds that normally would have been used to pay for a fully insured plan to accumulate interest and increase cash flow.
  • Ability to avoid state mandates: Self-funded plans are regulated by ERISA, which is federal law, and not controlled by the individual state’s insurance laws.
  • Flexibility in benefit design: Employers can choose what benefits to provide as opposed to insurance companies which must provide coverage consistent with the plan provisions they have filed with the state.
  • Flexibility with plan components: Employers can select vendors, such as plan administrators, health care providers and others with whom to contract to best serve the specific needs of their employees.
  • State tax savings: Self-funded plans save about two to three percent on every dollar since they only pay taxes on the Stop-Loss coverage they purchase, not on the total cost of a fully funded plan.
  • Savings on insurance carrier risk charges: Claims processing by employers is less expensive than the cost of fully insured plans.
  • Rebates for prescription drugs: The plan may be able to receive a portion of pharmaceutical rebates
  • Claims data access: Employers of self-funded plans have access to claims data they do not have access to under fully-insured plans due to HIPAA privacy requirements. This helps them analyze and predict future plan costs.
  • Cost of plan administration: This may be slightly less expensive than a fully-funded plan.

Disadvantages To Employers


  • Potential for higher costs: There is always the chance that the actual costs will be greater than the prediction and that could mean the self-funded plan was actually more expensive than a fully-funded one.
  • Need to purchase stop-loss insurance: In order to limit employer liability for catastrophic events, employers purchase stop-loss insurance.
  • Budgeting problems: The amount needed to pay claims varies from week to week, making it difficult to budget.
  • Employer becomes a fiduciary as plan administrator.
  • Privacy requirements of HIPAA: Employers must develop procedures for protecting the privacy of the health records of their employees.
  • Cost of drafting plan documents: Employers are responsible for all plan documents including a plan summary and description.
  • Requirement to have an appeals process: This must be in place so employees have recourse if their claims are denied.
  • Must meet IRS non-discrimination requirements: If these requirements are not met, there may be a substantial penalty imposed.

The major issue employers who are considering self-funded programs must consider is that in the self-funded plan, the employer is the one at risk for paying the claims. For companies with fewer than 50 employees, self-funded plans may not be the best option, although it is possible to reduce the risk somewhat by purchasing excess-risk coverage.

For small business employers, it is recommended they make this decision after consulting with SIG and providing the company with as much information as possible concerning the type of work force and past claims. This will make it easier for SIG to help the business owner assess whether or not to choose a fully insured or self-funded benefit plan.