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Updates -Three ACA Taxes Repealed and 5th Circuit Decision in Two Major Events This Week

The week of Dec. 16, both chambers of Congress passed two year-end spending agreements to fund the federal government until Sept. 30, 2020 (H.R. 1158 and H.R. 1865). President Trump is expected to sign them into law before the Dec. 20 funding deadline. One of the agreements, H.R. 1865, the Further Consolidated Appropriations Act of 2020, included a full repeal of three taxes originally imposed by the Affordable Care Act (ACA): the 40% Excise Tax on employer-sponsored coverage (a.k.a. “Cadillac Tax”), the Health Insurance Industry Fee (a.k.a. the Health Insurer Tax), and the Medical Device Tax. Separately, on Dec. 18, the United States Court of Appeals for the Fifth Circuit ruled the ACA’s individual mandate is unconstitutional, but it did not invalidate the rest of the law. As a result, the rest of the law remains in effect. See below for more details.

Cadillac Tax

The Cadillac Tax would have imposed a 40% excise tax on coverage in excess of certain thresholds. When originally enacted in the ACA, the thresholds were $10,200 for self-only and $27,500 for family coverage with a 2018 effective date. The Cadillac Tax was delayed multiple times since passage of the ACA, and is now fully repealed, meaning it no longer exists and will never take effect.

Many employers, unions, insurers and industry groups have opposed the tax based on concerns around administrative and financial burdens for employers and adverse outcomes for employees.

Health Insurer Tax

H.R. 1865 also fully repeals the Health Insurer Tax, beginning in 2021. The $8 billion fee was implemented in 2014 and continued to increase each year. The fee only applied to insured business, including insured Medicare plans, based on each insurer’s share of the taxable health insurance premium base.

Due to the adverse impact on health insurance premiums, the fee was suspended in 2017 and 2019. It is important to note that the fee will be in effect for 2020 as no suspension was granted for that year; then, it will be repealed effective 2021.

Medical Device Tax

The Medical Device Tax imposed a 2.3% excise tax on U.S. medical device revenues. The tax was in effect over 2013-2015, and was suspended from 2016-2019. H.R. 1865 fully repeals the tax, effective Dec. 31, 2019.

Other notable items passed in the spending agreements include: legislation requiring the Administration to maintain certain policies (e.g., “silver loading”) for the individual Exchange markets to ensure consumers do not experience any disruptions for plan year 2021; legislation to prevent brand drug manufacturers from blocking access to samples of their products for generic drug development (a.k.a. the Creating and Restoring Equal Access to Equivalent Samples [CREATES] Act); and legislation to fund several expiring health programs until May 22, 2020. Read the final two-year spending package [PDF] for more details about these and other spending agreements.

Federal Appeals Court Ruling in Texas v. United States

A panel of the United States Court of Appeals for the Fifth Circuit ruled the ACA’s individual mandate is unconstitutional Wednesday. The court upheld the district court’s determination that the individual mandate is unconstitutional because it is no longer a tax with the zeroed-out penalty. In the district court ruling, Judge O’Connor further stated that because the mandate was essential to the law, it could not be severed (or separated) from the rest of the ACA, which meant the entire ACA was invalid. The appellate court did not resolve the severability issue or determine if any other provisions of the ACA should also be struck down. Instead, the panel remanded the case back to Judge O’Connor for further analysis of which other provisions of the ACA, if any, should be invalidated along with the individual mandate.

As a result of this new ruling, all remaining provisions of the law remain in effect – except for the newly repealed taxes listed above with their separate effective dates – while the legal process continues.

California Attorney General Xavier Becerra, who leads the 20 Democratic states that defended the ACA in this case, announced that the California Department of Justice is prepared to ask the U.S. Supreme Court to review the Fifth Circuit’s ruling. This is expected to be a long process and we will continue to keep you updated until there is a final resolution.

CARES Act, COVID-19 Relief Package, Signed into Law

This law strengthens the Federal Government and Health Care System’s Response.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The $2 trillion package provides economic relief to individuals, health care providers, small businesses, and heavily affected sectors of the economy, and is intended to strengthen the federal government and health care system’s response to the COVID-19 pandemic. The bill passed the Senate unanimously on March 25 and passed the House on March 27 with an overwhelming voice vote.

Key economic provisions of the CARES Act include:

  • Individual Stimulus Payments: Provides a one-time $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers), plus $500 per child under age 17. The payment phases out for those with adjusted gross incomes of $75,000 or more ($150,000 for joint taxpayers). The rebates would not be counted as taxable income for recipients.
  • $349 billion in Small Business Interruption Loans: Provides eight weeks of cash-flow assistance, from February 15, 2020, through June 30, 2020, for qualifying businesses (fewer than 500 employees, or the small business size standard associated with that industry, includes franchises, sole-proprietors, and self-employed), available through existing SBA-certified lenders. Details and instructions are expected to be released by the Small Business Administration in the next 15 days.
  • Allowable uses include costs related to group health care benefits and insurance premiums, and loan amounts are forgiven for amounts paid towards payroll costs, including payment of group health benefits.
  • $500 billion in Treasury Loans to Severely Stressed Sectors of the Economy: Provides the Treasury Secretary $500 billion to make loans, loan guarantees, and other investments to support heavily affected industries, States, and municipalities for direct or indirect losses as a result of the coronavirus. Details and instructions are expected to be released by the Treasury in the next 10 days.
  • Unemployment Insurance and Grants: Creates a temporary Pandemic Unemployment Assistance program through December 31, 2020, to provide payment to those not traditionally eligible for unemployment benefits. Provides up to $600/week to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.
  • Short-Term Compensation Programs: Provides $100 million in federal grant funding to support short-term compensation arrangements, where employers can reduce employee hours instead of laying off workers and impacted employees will receive a prorated unemployment benefit.
  • Payroll Tax Credit: For qualifying employers whose operations were fully or partially suspended, or whose gross receipts declined by more than 50%, provides a fully refundable payroll tax credit for 50% of wages paid up to $10,000 during the public health emergency.

Healthcare-related provisions include:

  • Aid to Health Care Institutions: $100 billion available to eligible health care providers and hospitals for healthcare-related expenses and lost revenues directly attributable to COVID-19. Eligible entities include public entities, Medicare or Medicaid suppliers and providers, and for-profit and not-for-profit entities as specified by the Secretary of Health and Human Services (HHS) that provide diagnoses, testing, and care for individuals with possible or confirmed cases of COVID-19.
  • COVID-19 Vaccine Coverage: Requires commercial insurers to cover any qualifying coronavirus preventive service (i.e., vaccines) defined by the U.S. Preventive Services Task Force. Requires Medicare and Medicare Advantage organizations to cover any COVID-19 vaccines with no cost-sharing.
  • COVID-19 Testing Coverage: Clarifies existing law requiring all COVID-19 testing to be covered by group health plans and individual market issuers without cost-sharing, including those tests without an emergency use authorization by the Food and Drug Administration (FDA).
  • In early March, Cigna voluntarily announced it would waive cost-sharing for COVID-19 testing and office visits related to testing for our members through May 31.
  • Payment of COVID Tests: Requires commercial insurers to pay either: (1) the rate specified in a contract between the provider and the insurer in effect before the public health emergency was declared, throughout the duration of the public health emergency; or (2) if there is no contract, a cash price posted on a public website by the provider, or the plan may negotiate a rate lower than the cash price. Imposes civil monetary penalties on providers that do not post the price on a public website.
  • 90-Day Fills and Refills: Requires Medicare Part D and Medicare Advantage plans to allow fills and refills of covered Part D drugs for up to 90-days during the public health emergency.
  • Telehealth Expansions: Provides $200 million to the Federal Communications Commission (FCC) to support the efforts of health care providers to provide telecommunication services, information services, and devices to enable telehealth services.
  • Telehealth and High-Deductible Health Plans (HDHPs): Establishes a safe harbor for HDHPs that provide benefits for telehealth and other remote care services before patients satisfy the applicable minimum deductible.
  • Over-the-Counter Medical Products and HDHPs: Allows patients to use health savings account (HSA) and flexible spending account (FSA) funds for over-the-counter medical products, including those needed for quarantine or social distancing, without a prescription from a physician.
  • Confidentiality and Disclosure of Records Covered by 42 CFR Part 2: Allows for additional care coordination by aligning 42 CFR Part 2 regulations, which govern the confidentiality of substance use disorder treatment records, with existing Health Insurance Portability and Accountability Act (HIPAA) privacy requirements, with initial patient consent.
  • Temporary Moratorium of Medicare Sequestration: Temporarily lifts the 2% Medicare sequester from May 1 through December 31, 2020.

The bill can be read in full here.

Colorado Passes Legislation Requiring Paid Sick Leave

Last week, the Colorado legislature passed SB20-205, the Healthy Families and Workplaces Act (HFWA). This legislation will require all Colorado employers to provide three types of paid sick leave:

  1. COVID-19 emergency paid sick leave
  2. Paid sick and safe time
  3. Public health emergency paid sick leave

Governor Polis is expected to sign the legislation into law. It will take effect immediately, but certain provisions will not take effect until 2021 or 2022, depending on the size of the employer. All three paid leave programs under the HWFA will apply to all private employers that have an employee who works in Colorado.

For the purposes of this legislation, an “employee” is any person, including a migratory laborer, performing labor or services for an employer’s benefit. The law does not apply to independent contractors or to employees subject to the federal Railroad Unemployment Insurance Act. The HWFA does not apply to employees covered by a CBA in effect on the law’s effective date if the CBA provides for equivalent or more generous paid sick leave for employees the CBA covers.

COVID-19 Emergency Paid Sick Leave (CO-EPSL)

  • This benefit will be in effect whenever the Governor signs the bill into law through December 31, 2020.
  • Employers with more than 500 or more employees will now be required to comply with the EPSLA but they will not receive any tax relief.
  • Employers with 499 or fewer employees that federal law allows excluding certain employees from the EPSLA will need to comply as well.

Paid Sick & Safe Time (PSST)

The PSST mandate will initially apply to employers with 16 or more employees beginning on January 1, 2021, and then apply to all employers on January 1, 2022. Among some of the guidelines of this benefit include but is not limited to:

  • Employees must accrue at least one hour of PSST for every 30 hours they work, up to a maximum of 48 hours per year.
  • Alternatively, at the beginning of the year, employers can provide an amount of PSST that meets or exceeds the law’s requirements. Unlike many paid sick and safe time laws, the HWFA does not address whether frontloading relieves employers of their carry-over obligation, so we hope the CDLE addresses this issue.
  • Generally, up to 48 hours of accrued, unused PSST hours carries forward to a subsequent year.
  • Employers with a paid leave policy are not required to provide additional paid sick leave to employees if they: 1) make available an amount of paid leave sufficient to meet the PSST, and 2) allow employees to use paid leave for the same purposes and under the same conditions as provided by the HWFA.
  • Employers must allow employees to use leave upon an employee’s request. That request may be made orally, in writing, electronically, or by any other means acceptable to the employer. An employer may provide a written policy that contains reasonable procedures for employees to provide notice but cannot deny leave based on non-compliance with the policy.
  • Employers must pay leave at the same hourly rate or salary and with the same benefits including health care benefits as the employee normally earns during hours worked.
  • Employers need not cash out unused PSST when employment ends.

Public Health Emergency Leave (PHEL)

In the event of a Public emergency, employers must supplement an employee’s PSST to ensure the employee may take the following amounts of leave:

  • For employees who normally work 40 hours or more per week: at least 80 hours
  • For employees who normally work fewer than 40 hours in a week: at least the greater of either the amount of time the employee is scheduled to work in a 14-day period or the amount of time the employee actually works during an average 14-day period.

Other guidelines of this benefit include but are not limited to:

  • An employer may count an employee’s unused PSST toward the PHEL. Employees are eligible for PHEL only once during the entirety of a public health emergency.
  • An employee may use PHEL until four weeks after the official termination or suspension of the public health emergency.

HHS Publishes Section 1557 Final Rule on Nondiscrimination in Health and Health Education Programs

On June 12, 2020, the Department of Health and Human Services’ (HHS’) Office for Civil Rights (OCR) published a prepublication version of a final rule on nondiscrimination in health programs and activities under Section 1557 of the Affordable Care Act (ACA). Section 1557 serves protected classes of individuals whose health coverage may not be denied, canceled, limited or refused on the basis of race, color, national origin, sex, age, or disability. Originally proposed in May 2019, this new final rule replaces the original final rule from 2016 and repeals or revises key provisions of that 2016 rule. The rule is effective Aug. 18, 2020, though legal challenges, particularly regarding gender identity and discrimination “on the basis of sex” following recent high court decisions, are expected that could impact when the rule takes effect.

Key provisions and updates from the 2016 rule include:

Repeal of prior regulation’s definition of discrimination on the “basis of sex”: The final rule repeals the 2016 rule’s expanded definition of “basis of sex” that included pregnancy termination, sex stereotyping, and gender identity. The new final rule continues to prohibit discrimination on the “basis of sex,” but under the prior interpretation of the word “sex” (i.e., as defined by gender assignment at birth). The final rule also amends regulations issued by the Centers for Medicare & Medicaid Services to ensure nondiscrimination on the “basis of sex” is consistently applied.

As it relates to how health benefits coverage may have been changed to comply with the 2016 rule, HHS clarifies that “nothing in this final rule prohibits a healthcare provider from offering or performing sex-reassignment treatments and surgeries, or an insurer from covering such treatments and procedures, either as a general matter or on a case-by-case basis.”

Narrowed scope of application: The final rule narrows the scope of application of Section 1557 so it only applies to health programs or activities, any part of which receives federal financial assistance, and any program or activity under Title I of the ACA (i.e., Exchanges) or entities established under that Title. In comparison, the 2016 final rule interpreted the regulation as applying to all operations of the covered entity, even if it is not “principally engaged” in health care.

This means that under the new rule, Section 1557 will generally not apply to self-funded group health plans under ERISA or short-term limited duration plans because the entities offering them are typically not principally engaged in the business of providing health care, nor do they receive federal financial assistance.

Removal of notice and tagline requirements: The final rule eliminates the notice and tagline provision that required covered entities to distribute nondiscrimination notices and taglines in at least fifteen languages with all “significant communications” to patients and customers.

Addition of a “four-factor analysis” for providing limited-English proficiency (LEP) individuals meaningful access: To ensure covered entities offer meaningful access for individuals with LEP, the final rule establishes a new four-factor analysis. The four factors include: 1) the number or proportion of LEP individuals eligible to be served, or likely to be encountered, in the eligible service population; 2) the frequency with which LEP individuals come in contact with the entity’s health program, activity, or service; 3) the nature and importance of the entity’s health program, activity, or service; and 4) the resources available to the entity and costs.

For more details on the final rule, review the information at these links:

Read the final rule [PDF]
Read the HHS fact sheet [PDF]

Final Rule Released on HRAs

On June 13, 2019, the Departments of Labor, Health & Human Services and Treasury released final rules concerning Health Reimbursement Arrangements (HRAs). The 497-page rule includes the creation of two new types of HRAs, the “Individual Coverage HRA” and the “Excepted Benefit HRA.”

Advantages of the Individual Coverage HRA include, but are not limited to:

  • Funds can be used to reimburse the employee’s premiums for an individual health insurance policy.
  • Reimbursements made to employees do not count towards the employee’s taxable wages.
  • The employer can choose to roll-over unused amounts into the following year.
  • Coverage can be offered to different classes of employees (e.g.; full-time, part-time, seasonal, salaried, hourly)
  • An offer of the Individual Coverage HRA represents an “offer of coverage” under the employer mandate, however, contributions must meet affordability guidelines. The IRS will release further guidelines regarding this later.

The Individual Coverage HRA also comes with restrictions and regulations including but not limited to:

  • An offer of an Individual Coverage HRA cannot be made to any employee that is offered a traditional group health plan.
  • If an offer of coverage is made to a class of employees, there is a minimum class size that is required. Size is typically 10% of that specific class of employees. For example, if an employer has 200 employees, a minimum of 20 employees would have to be in a specified class.
  • Contributions can be in any amount that the employer chooses, but contributions must be consistent for all employees in a specified class.
  • The employer must provide notice of the Individual Coverage HRA to employees.
  • The employer must be able to substantiate that the employee is enrolled in an individual plan or Medicare (model notices are available).
  • The employer must notify employees on an annual basis that the individual health insurance is NOT subject to ERISA.

The final rule also created the “Excepted Benefit HRA” which, starting in January of 2020, will permit employers to finance additional medical care. Employees can use the HRA without having to be enrolled in the group’s traditional health plan.

The requirements associated with the “Excepted Benefit HRA” include, but are not limited to:

  • The annual contribution is capped at $1,800.
  • It must be offered in conjunction with a group health plan, but there is no requirement for the employee to enroll in that plan.
  • The “Excepted Benefit HRA” cannot be used to fund group health or Medicare premiums.
  • It can fund premiums for dental, vision, or short-term limited duration insurance.

Employers who want to offer the “Individual Coverage HRA” for January 1, 2020, can do so but employees will need to enroll in an individual plan during the 2019 open enrollment period (November 1, 2019 – December 15, 2019).