Under the Patient Protection and Affordable Care Act “PPACA,” certain types of health insurance arrangements are required to pay the Comparative Effectiveness Research Fee, which is also known as the PCORI fee because the monies are used to help fund the Patient-Centered Outcomes Research Institute. The types of arrangements subject to the fee are:
The fee is reported and remitted to the IRS via Form 720 and is due by July 31st of the year following the last day of the plan year.
The fee is based on the average number of covered lives during the plan year. Covered lives include the covered employees of the plan sponsor and all other covered dependents. The IRS has prescribed various methods for determining the average number of lives.
The amount of the fee is $2 per covered life for policy years ending on or after Oct. 1, 2013, and before Oct. 1, 2014; and $2.08 per covered life for plan years beginning on or after Oct. 1, 2014 and ending before Oct. 1, 2015.
In fully insured arrangements, the insurance companies are required to pay the fee and submit Form 720. Self-insured plan sponsors are required to both pay the fee and submit Form 720. Unlike other aspects of the Act, the PCORI fee requirement is applicable to all affected plans, regardless of employer size.
The IRS recently released yet another notice (2015-17) related to health coverage reimbursements for small employers. Small employers (those with 50 or fewer employees or full-time employees in 2014) will be glad to know that this new notice actually brings some good news, as the preceding related notices generally have not.
Under the Affordable Care Act (ACA), virtually all health coverage premium arrangements that are not integrated with an employer sponsored group health plan are deemed “group health plans” on their own. Group health plans are subject to the various ACA rules and the associated penalties for non-compliance. Standalone reimbursement arrangements, by their very nature, are generally not expected to comply with the ACA requirements and will be subject to a fine of $100 per employee per day, capped at $36,500.
Often, the cost of a group health insurance plan does not make fiscal sense for small employers. In lieu of this benefit, many employers provided premium reimbursements to their employees. Employers got a deduction for such reimbursements and employees did not have to include the reimbursements as taxable wages. This worked very well for employers and employees alike for many years. Effective January 1, 2014, these arrangements basically became obsolete. Initially, there was great mystery regarding what arrangements would or would not be deemed a health plan and subject to the ACA requirements. Vendors and employers alike proposed various work-arounds only to be rebuffed by both the IRS and DOL. Further guidance also came out indicating that arrangements whereby employees included reimbursements as taxable wages would also be deemed a health plan, further restricting the use of this technique. In the end, it was determined that, effective January 1, 2014, employers could give employees additional taxable compensation to offset premium expenses but it could not be specifically linked to the payment of health insurance premiums.
Notice 2015-17 provides penalty relief for small employers who have a reimbursement plan in 2014 through June 30, 2015. For now employers can deduct premium and expense reimbursements while excluding them from employee’s taxable income up until June 30, 2015.
While the relief is minor, small employers should enjoy it while they can!
Please contact Mark Flanagan of Aronson’s compensation and benefits practice at 301.231.6257 to further discuss the impact of this relief under the Affordable Care Act.
Beginning January 1, 2014, as a result of Patient Protection and Affordable Care Act (ACA), most individuals are required to have health insurance coverage.
The ACA requires that an applicable individual and any dependent must maintain a “minimum essential coverage” (MEC) for each month during 2014. Most individuals who now have coverage through an employer-sponsored plan (including COBRA coverage) or a government-sponsored program (e.g., Medicare, Medicaid, TRICARE, Children’s Health Insurance Program, etc.) will meet the MEC requirements. However, those individuals without MEC can purchase it in the Marketplace (formerly referred to as the “Exchange”).
Certain individuals are exempt from the ACA coverage requirements:
For some exemptions to be recognized, an application with supporting documentation must be submitted to the Marketplace to obtain an exemption code required for 2014 tax return filing.
Individuals that do not have MEC coverage and do not qualify for one of the above exemptions will be subject to the shared responsibility payment (“penalty”), which is reported and due with the 2014 tax return of such individuals. For 2014, the penalty is the greater of:
The maximum penalty cannot exceed the annual premium cost of the national average bronze-level health plan. For 2014, the average annual premium for a bronze-level health plan available through the Marketplace is $2,448 per individual ($204 per month per individual), and $12,240 for a family with five or more members ($1,020 per month).
For more information on how the Affordable Care Act affects your tax situation, please contact your Aronson advisor or Anatoli Pilchtchikov of Aronson’s Personal Financial Services Group at 301.231.6200.
The IRS released fact sheets 2014-09 discussing the Affordable Care Act (ACA) as it pertains to individuals, and 2014-10 discussing the ACA as it pertains to employers. These fact sheets provide a helpful overview in gaining a broad understanding of essence of the ACA.
In short, all individuals, with very limited exceptions, must have insurance meeting minimum standards, and all employers with 50 or more full-time employees must offer affordable insurance. Businesses with part-time employees should be especially cautious to compute the number of full-time equivalent employees, which could very well push the business over the compliance threshold.
Due to the complexity of the ACA, professional guidance should be sought. One misstep can result in significant penalties. For further information or to discuss your specific situation, please contact your Aronson tax advisor at 301.231.6200.