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Thursday, February 21, 2013

In one brief session at the recent TE/GE meetings, we heard from some of the IRS drafters of the PPACA shared responsibility/play or pay regulations under 4980H of the Internal Revenue Code.  They provided a few insights on upcoming guidance and raised one issue with which we disagree.

Employer Reporting. First, they said they are working on guidance on the employer reporting of health coverage to the IRS on Form 6056.  This is relevant to play or pay because they advised that the IRS intends to collect that information and compare it with who received premium tax credits and cost sharing reductions after the fact. (See our earlier discussion of the play or pay regulations to understand the interaction.)  Once they make that comparison, they will then pursue penalties.   This means that any play or pay penalties will not be assessed until 2015, at the earliest.

Special Employment Situations. Additionally, they advised that future guidance will address special employment situations.  In particular, they said to “stay tuned” for rules on adjunct professors, which will likely be out soon.

Mini-Med Plans and Transition Relief.  Finally, they noted that mini-med plans that have received a waiver from HHS/CCIIO generally should be eligible for the special transition relief for fiscal year plans, if they can survive into 2014 (more on that below).  For those unfamiliar, the regulations provided a special transition rule for plans that had a non-calendar plan year as of December 27, 2012 that, if all the conditions were met (we will describe the conditions in a future post), would allow the employer to not become subject to the play or pay penalty until the first day of the non-calendar plan year beginning in 2014.

However, one official questioned whether those mini-med plans could continue to exist after January 1, 2014.  Essentially, his view was that the HHS waiver expired at that time.  If so, then the plan would not be eligible for the special transition relief under the regulations.

At the outset, it is worth noting that the waiver guidance is not within the IRS’s purview.  And, as we have noted previously, all statements by government officials at these events are informal and non-binding, and thus cannot be relied upon as official guidance.  That said, there is a statement in the HHS guidance on waivers that could possibly be read, if read in isolation, to suggest the waivers may expire on January 1, 2014.

Even so, however, we believe there are good legal arguments, based on existing guidance, why the waivers should be effective for the entire plan year that crosses January 1, 2014.  First, the position that the waivers expire January 1, 2014 seems inconsistent with the application of the restricted annual limits that are detailed in the regulations setting forth the restricted annual limits ($2 million, for plan years beginning after September 23, 2013 and before January 1, 2014).  Under those regulations, a plan with a fiscal plan year that did not receive a waiver could have a $2 million annual limit for the fiscal plan year ending in 2014.

Additionally, when the regulations gave the Secretary of HHS the authority to grant waivers, they said the waivers could be “For plan years beginning before January 1, 2014” (emphasis supplied).

Finally, the waiver process is designed to allow plans with lower annual limits to continue in effect “if compliance with [the restricted annual limits, including the $2 million limit]…would result in a significant decrease in access to benefits under the plan…or would significantly increase premiums….”  In our view, for the waiver to provide appropriate relief from the restricted annual limits, it should apply during the same periods that the restricted annual limits apply.

As a result, we believe the better reading of the HHS guidance is that a waiver given to a plan with a non-calendar fiscal year plan year should afford relief through the end of the last fiscal plan year that begins before January 1, 2014.  Hopefully HHS will issue a clarification along those lines soon.

Disclaimer/IRS Circular 230 Notice

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