Two New IRS Notices That Will Impact Group Health Benefits

Two New IRS Notices That Will Impact Group Health Benefits

During July, the Internal Revenue Service (IRS) issued two pieces of guidance that will impact many group health plans.  Revenue Procedure 2019-29 is vital for all businesses that offer health insurance to understand.  Notice 2019-45 could have an impact on any health plan that includes a health savings account option.

Revenue Procedure 2019-29 sets the federal “affordability” percentage for employer-sponsored coverage at 9.78 percent of household income for 2020.  The Patient Protection and Affordable Care Act (ACA) establishes that anyone offered health coverage at work only qualifies for subsidized individual market coverage if their job-based coverage is “unaffordable.”  Each year, the IRS sets a percentage of household income to determine if an employee’s coverage meets this “affordability test.”  All businesses that offer health insurance benefits need to have this information, both to inform employees and for a multitude of compliance purposes.

In 2019, the rate was 9.86 percent of household income, but for 2020, it will drop to 9.78 percent.  This means when establishing premium contribution rates for 2020, some companies will need to raise their contribution to keep their coverage “affordable.”

Applicable large employers (ALEs) subject to the ACA’s employer shared responsibility provisions (employer mandate) are the most affected by the annual affordability rate percentage.  For ALEs, if any full-time employee’s premium costs do not pass the “affordability test,” then the ALE has tax penalty liability.  To pass, an employee’s share of the single employee premium for the lowest cost minimum value plan must be less than the year’s affordability percentage. The single employee rate is always used for the calculation, regardless of what coverage option the employee selects.

Understanding the rate upfront also helps ALEs determine which affordability safe harbor to use for employer reporting purposes.  Since employers generally do not know their employees’ comprehensive household incomes, the IRS has created three safe harbors for employers to use.  Employers can either apply the affordability percentage to the federal poverty level or use employee’s hourly rate of pay or their W-2 wages and gain safe harbor protection against employer mandate liability.  Companies can use different safe harbors for different classes of employees (such as hourly versus salary), provided they do so on a uniform and consistent basis for all employees in a category.  ALEs must report the safe harbor(s) they select on their Forms 1094/1095 C.  Kistler Tiffany Benefits will work with ALE clients on their affordability safe harbor selections.

The second piece of recent IRS guidance is Notice 2019-45, which could affect any business offering employees a qualified high deductible health plan (HDHP) paired with a health savings account (HSA). The notice expands the list of preventive care benefits that may be covered by an HDHP before the application of the deductible.  Now HDHP plans may consider some specific treatments as preventive care for people who suffer from certain chronic diseases.

To legally pair with an HSA, HDHPs must subject all benefits to a minimum deductible, except for preventive care as defined by the IRS.  Previously, the IRS excluded any medical care considered treatment from the list of preventive care services for HDHP purposes.  With Notice 2019-45, the IRS expands its view and lists 14 specific types of care for individuals diagnosed with conditions like asthma, congestive heart failure, diabetes and high blood pressure that can be considered preventive care.

To qualify, a person must have a diagnosis of one of the specific conditions listed in the notice, and the guidance only applies to the particular treatments listed. People who have other chronic conditions, people who are being treated in a different way for a listed chronic disease, and people who may be receiving one of the services on the list for another purpose, do not qualify.  Their care and services will be subject to the HDHP deductible.

The effective date of the notice is July 17, 2019, but that doesn’t mean that all qualified HDHPs will cover these treatments before the application of the deductible right away. In fact, the IRS leaves it optional for plans to consider these treatments as preventive care for deductible purposes at all.  Carriers and third-party administrators will need time to establish revised claims procedures and plan designs.

The expansion of the list of preventive care services for HDHP purposes also has nothing to do with the ACA requirement that all non-grandfathered health plans cover a specific range of preventive services on a first-dollar basis.  This expanded list only impacts what qualified HDHPs may consider preventive care before the application of the deductible. Also, any medical care previously recognized by the IRS as preventive care for HDHP purposes may still be treated as preventive care by a health plan.  Furthermore, any care explicitly excluded by the IRS previously, such as male sterilization, continues to be excluded from the preventive care list.  The IRS plans to review its list every 5-10 years and make updates as needed.

Kistler Tiffany Benefits is in close communication with all of the carriers and claims administrators in our service area to determine how they will approach Notice 2019-45 moving forward.  As soon as more details are known, we will pass them on to our clients.