W-2 Health Coverage Value Reporting

More IRS Guidance on W-2 Reporting of Health Coverage:

Among the provisions contained in the 2010 Patient Protection and Affordable Care Act was a requirement that employers report, on each employee's IRS Form W-2, the value of any employer-provided health coverage.  As explained in our October 2010 article, this reporting requirement is optional for 2011, but mandatory for 2012 (that is, for W-2s to be provided in January of 2013).  The IRS issued an initial round guidance on this reporting requirement in Notice 2011-28 (as summarized in our April 2011 article), but that Notice left many questions unanswered.  A number of those questions have now been answered in Notice 2012-9.

Overview of Reporting Requirement

Before addressing the recent guidance, it is worth noting some key points that have not changed.  For instance, this reporting requirement remains optional for 2011, but then required for 2012.

Also preserved is a postponement of this requirement for "small" employers.  Any employer that is required to issue fewer than 250 W-2s for 2011 (or that would have been required to issue fewer than 250 W-2s had it not engaged an agent to handle this reporting) qualifies for this postponement.  The soonest such a small employer might be required to report the value of its employees' health coverage is January of 2014 (on the 2013 W-2).

Once this reporting requirement does apply, the value of employer-sponsored health coverage is to be reported in Box 12 of the W-2, using the code "DD."  Finally, this latest Notice reemphasizes that nothing in this new reporting requirement will cause an employee to be taxed on any employer-provided health coverage.

Calculating the Cost of Coverage

Although the Notice addresses numerous questions, most employers will simply want to know how to calculate the cost of the coverage to be reported on each W-2.  The amount to be reported should reflect both the employer and employee portions of that cost, with the annual amount equal to the sum of all monthly amounts (and under all plans sponsored by the same employer).

If a plan is insured, the amount to be reported should be the insurance premium charged for whatever level of coverage an employee received.  If a plan is self-funded, the general rule is to use the "applicable premium" calculated for COBRA purposes.  An example in the Notice makes clear that this does not include the additional 2% administrative fee allowed to be charged to COBRA beneficiaries.

Although these few rules should cover the vast majority of cases, the Notice does provide certain permissible alternatives.  For instance, a "modified COBRA premium method" may be used if an employer subsidizes a plan's COBRA premiums.  If an employer makes a good-faith estimate of the "applicable premium" - and then uses that estimate in calculating a subsidized COBRA premium - the employer may report the estimated amount as the cost of coverage on an employee's W-2.

Similarly, if an employer chose to continue charging a prior-year COBRA premium during the reporting year (and determines in good faith that the reporting year's cost of COBRA coverage was at least as large as the prior year's), the employer may use that prior-year COBRA premium (again, minus the 2% administrative fee) to satisfy this W-2 reporting mandate.

Finally, the Notice provides a number of permissible options if an employer charges a "composite" rate for active employees (such as the same amount for either employee-only or employee-plus-spouse coverage), but then calculates separate rates for COBRA purposes.  Subject to certain limitations, such an employer may report either the composite rate or the COBRA rate (minus the 2% administrative charge).

Employers wishing to rely on any of these special rules should read the Notice carefully for additional restrictions and limitations.

Recent Clarifications 
Among the recent clarifications contained in Notice 2012-9 are the following: 

• There is no need to report any employee contributions to a flexible spending account ("FSA").  However, if an employee allocates any employer "flex credits" to a health FSA, those employer amounts must be reported. 
   
• Whether the value of dental or vision coverage must be reported on a W-2 depends on whether that coverage constitutes an "excepted benefit" under the HIPAA portability and nondiscrimination rules.  In general, this would be the case if either (1) the coverage is offered under a separate policy, certificate, or contract of insurance, or (2) participants have the right to elect the dental or vision coverage and must pay an additional premium if they do so.  The value of such excepted benefits need not be reported. 
   
• An employee assistance program ("EAP"), wellness program, or on-site medical clinic may be subject to this reporting requirement if it constitutes a "group health plan."  However, the reporting of these benefits will be required only if the employer charges a separate premium for someone to receive COBRA coverage under these benefits. 
   
• Even if an employer is not required to report the value of certain types of health coverage - either the types listed immediately above, or coverage received under a health reimbursement arrangement ("HRA"), as noted in the prior guidance - the employer may choose to report these amounts.  For some employers, this approach may be more consistent with the systems in place to track the value of the various types of coverage provided to each employee.
   
• Pre-existing rules require an employer to provide a W-2 within 30 days of a request received from an employee who terminates during the calendar year.  Under this recent Notice, however, such a W-2 need not report the cost of any health coverage received by that employee.
   
• Moreover, if an employer waits until year-end to supply W-2s to terminated employees (the more usual case), those W-2s may report either the value of the coverage received only while an active employee or the value of the coverage received through the end of the year (thereby including the value of any COBRA coverage).  The employer must be consistent, however, in selecting one of these two approaches.
   
• In a bit of welcome news, the Notice provides that an employer need not report the value of health coverage received by any individuals who are not otherwise entitled to receive a W-2.  These might include COBRA beneficiaries, retirees, non-employee directors, or independent contractors.
   
• The IRS Form W-3 (which is used to transmit employee W-2 data to the IRS) need not report the cost of any health coverage.
   
• In general, this W-2 reporting requirement applies even to the value of any health coverage that must be included in an employee's taxable income.  This might include the value of coverage provided to an employee's domestic partner, or to a non-dependent child over age 27.  Contrary to the earlier guidance, however, it is not necessary to report the value of coverage that is taxable only because (1) a self-funded plan discriminates in favor of highly compensated individuals (in violation of Section 105(h) of the Tax Code), or (2) an employee is a 2% or more shareholder in a Subchapter S corporation.
   
• If a single plan provides both health coverage and non-health coverage (such as disability or life insurance), an employer may use any reasonable method to allocate the total cost of coverage between the two categories - and then report only the cost of the health coverage.  Alternatively, if either the health coverage or the non-health coverage is merely "incidental" to the other type of coverage, the employer may treat the plan as though it provided only the primary type of coverage.
   
• The value of the coverage provided to an employee may be determined on the basis of the facts known to the employer on December 31 of the reporting year.  Accordingly, any information learned after that date may be disregarded, even if that information results in the employee's coverage during the reporting year either increasing or decreasing in value.  The value might increase, for example, if an employee was allowed to retroactively add coverage for a newborn child who was born during the reporting year.  It could decrease if an employee retroactively dropped coverage for a former spouse in connection with a divorce.
   
• If the final pay period in a calendar year laps over into the following year, an employer may allocate the value of any health coverage received during that pay period between the two calendar years, based on a reasonable allocation of the days falling within each year.  Alternatively, so long as it is done consistently, the employer may allocate that entire pay period to either of the two calendar years.
   
• Although prior guidance suggested that both hospital indemnity insurance and coverage for a specific disease or illness were entirely exempt from this W-2 reporting requirement, the most recent Notice limits this exemption to plans under which an employee pays the full premium for that coverage on an after-tax basis.  If an employer pays any portion of the premium - or if an employee pays any portion of the premium on a pre-tax basis - the entire value of the coverage must be reported.  As a result, even some "voluntary insurance arrangements" (which are exempt from most requirements of ERISA) must be reported on a W-2 - that is, if employees pay their premiums on a pre-tax basis.

Although the first W-2s on which the value of health coverage must be reported are not due until January 31, 2013, employers will want to ensure that they are able to capture all the data they will need in order to comply with this reporting requirement.  For instance, they will need to know the type and level of coverage received by each employee during each month (or pay period) during 2012.  This may require that payroll software be reprogrammed in the very near term to preserve a record of these coverage levels.

The IRS expects to issue still further guidance on this reporting requirement.  According to Notice 2012-09, however, any such guidance will be prospectively effective only.  Moreover, it will apply only to calendar years beginning at least six months after that additional guidance is issued.  For this reason, employers who are subject to this W-2 reporting requirement in 2012 should assume that this is the final guidance they will receive before reaching their compliance deadline.

HCR Update: Form W-2 Guidance; State Exchanges

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IRS Issues Additional Guidance on Form W-2 Health Care Coverage Reporting Requirement
The U.S. Internal Revenue Service (IRS) has issued Notice 2012-9 to provide additional guidance on the informational reporting to employees of the cost of their employer-sponsored group health plan coverage on Form W-2.  The IRS requested public comments on the W-2 reporting requirement in Notice 2011-28. Notice 2012-9 responds to these comments and amends, restates and supersedes Notice 2011-28.  Specifically, the new notice includes guidance on the W-2 reporting as it relates to small employers, flexible spending accounts, dental and vision plans, COBRA and health reimbursement arrangements.

Health care cost information will have to be reported on 2012 W-2s, which will be issued in 2013. Under previous IRS guidance, smaller employers -- those that distribute fewer than 250 W-2s in 2011 -- are exempt from this requirement until at least 2014 and possibly longer.

The latest guidance, released Tuesday, makes clear that employers can -- but are not required to -- report contributions to health reimbursement arrangements in calculating health care costs.  In addition, the cost of providing coverage through employee assistance programs, wellness programs or on-site medical clinics is not required to be reported if the employer does not charge premiums for the coverage to COBRA beneficiaries.  The guidance also clarifies that the reporting requirement does not apply to Indian Tribal governments.

The latest guidance also reiterates numerous provisions in last year's guidance, including that that the cost of coverage that is taxable to employees, such as for a child over age 26, must be reported on the W-2, and that contributions employees make to flexible spending accounts are to be excluded from the health care cost figure.

The full 23-page text of the Notice can be found at:
http://www.irs.gov/pub/irs-drop/n-12-09.pdf.


CRS Analyzes Effect of Definition of Income in New Law on State Exchange Premium Credits A new law signed by President Barack Obama (P.L. 112-56) has changed the definition of modified adjusted gross income (MAGI) to include nontaxable Social Security income, for purposes of qualifying for both Medicaid and premium assistance for state exchanges that are being created as per the Patient Protection and Affordable Care Act (PPACA).  According to a report issued by the Congressional Research Service (CRS), this is expected to reduce Medicaid enrollment by between approximately 500,000 to one million people, starting in 2014, although, under the PPACA, certain groups are exempt from income eligibility determinations for Medicaid based on MAGI anyway, including:

• Foster children
• Those receiving Supplemental Security Income (SSI)
• The elderly
• The disabled 
• The medically needy
• Those enrolled in a Medicare Savings Program
• Also, prior to 2014, states are not required to use MAGI when determining Medicaid eligibility for the new mandatory Medicaid eligibility group created by the PPACA, which includes all nonelderly, non-pregnant individuals, such as childless adults, certain parents, and certain people with disabilities, who are not otherwise eligible for Medicaid and are also not entitled to or enrolled in Medicare Part A or Part B.

Those losing Medicaid eligibility could include many early retirees, as well as some people receiving survivor benefits or disability benefits.  Many of those people would, in turn, become eligible for premium assistance and cost sharing subsidies in the new state exchanges, although some people that would have been eligible for premium assistance prior to the enactment of P.L. 112-56 will now no longer be eligible.

The net effect of the new eligibility provisions is expected by the CBO and the Joint Committee on Taxation to increase enrollment in the health exchanges by about 500,000 in any given year between 2014 and 2021.  Changing the definition of MAGI to include all Social Security benefits, both taxable and non-taxable, was also estimated by the CBO to reduce the deficit by three billion dollars over the period of 2012-2016 and by approximately $13 billion from 2012 to 2012.
In its report, the CRS points out that it was the intent of the ACA to make Medicaid eligibility and premium credit eligibility more inclusive and consistent with other low-income programs.  The CRS is warning, however, that the inclusion of non-taxable income besides nontaxable Social Security income, which is something the government is considering, may be administratively cumbersome and expensive, because, unlike non-taxable Social Security income, not all nontaxable income is reported (for informational purposes) on tax returns.  Verification of income for MAGI purposes is streamlined at the moment, but attempting to verify multiple sources of other nontaxable income would presumably be administratively complex.

Employer Compliance Alert! Union Backed Election Rule Changes

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NATIONAL LABOR RELATIONS BOARD PASSES LIMITED VERSION OF UNION-BACKED ELECTION RULE CHANGES

On November 30, during a closely-watched session, National Labor Relations Board Chairman Mark Pearce and Member Craig Becker voted to proceed with preparation of a final rule modifying the Board's election procedures to speed up the process in certain circumstances.  Member Brian Hayes, the only Republican Board member, opposed the majority's effort as a mistake that would "ultimately cause harm to the agency and the constituencies we serve." The changes that ultimately were passed represent a substantially more limited version of what initially had been proposed by the Board's majority and are summarized as follows: Elimination of pre-election appeals to the Board from the actions of the Regional Director on an election petition, providing instead only for a single, discretionary appeal of pre-election and post-election issues after the votes are cast.  An appeal to the Board prior to the election is limited to issues that otherwise would escape Board review if not raised prior to the election.    Express direction that a pre-election hearing is to determine only whether a question concerning representation exists, and that the hearing officer has authority to limit evidence taken at the hearing where the evidence does not have relevance to a genuine issue of fact material to that issue.  This means that questions of individual voter eligibility (as opposed to appropriate bargaining unit composition) will be litigated after the election, as opposed to before.  Also, the hearing officer may decline requests of parties to submit post-hearing briefs, which right previously was guaranteed by the Board's rules. Elimination of the current requirement that the vote may not be held sooner than 25 days after the Board's Regional Director issues a Direction of Election.  As a result, some elections likely will be held sooner after the Direction of Election than was previously the case. The new rules were passed notwithstanding substantial criticism from the business community and others who viewed this move as an attempt by labor-friendly Board members to speed up the election process prior to the end of Member Becker's recess appointment that ends on December 31.  As a result of the criticism and the threat by Member Hayes to resign, which move would have left the Board with two members and would have divested the Board from authority to conduct its business, the majority watered down the original proposal, eliminating the following proposed changes: The requirement that a hearing be held within seven days of the filing of a union's representation petition. Allowing the union's petition to be filed electronically, rather than the current practice requiring filing by hand or regular mail. The requirement that the employer prepare and file a comprehensive "statement of position" on the union's election petition no later than the date of the hearing, together with the requirement that any issues not raised by the employer in its statement are waived by the employer and may not be raised later. The requirement that unions be given employees' email addresses and telephone numbers prior to the election. The requirement that the voter eligibility list ("Excelsior list") be given to the union within two work days of the Direction of Election, instead of the current rule allowing for seven work days. These additional proposals remain open to future debate and adoption by the Board.  However, with the impending expiration of Member Becker's recess appointment, the question of whether these additional proposals stand a chance of passing remains unclear. The Board will draft a final rule codifying the adopted changes. The final rule is intended to be issued prior to the expiration of Member Becker's term. Opponents of the changes are working to block even the more limited the changes via legislation (the Workforce Democracy and Fairness Act, H.R. 3094), and potentially through judicial action. Even though the new rule will have less impact on employers than the originally proposed rule, the new rule still substantially shortens the period from filing of the petition to the date of election from the current Board election target of 42 days.  Elections almost certainly will be held more quickly. The actual period will be determined by the circumstances of each case. The fact that elections will be held more quickly underscores the need of employers to remain constantly vigilant regarding potential union organizing efforts in order to address such efforts at the earliest possible opportunity.

Health Care Reform Update: Benefits Summary Deadline Delayed

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Employer Health Care Reform Law Communication Mandate Delayed
Employers have more time to comply with rules dictated by the health care reform law that will require them to revamp how they communicate and explain their health care plans.  In a notice published Nov. 17, the Department of Labor (DOL) said the reporting requirements would not go into effect until after final rules are published.   "It is anticipated that the...final regulations, once issued, will include an applicability date that gives group health plans and health insurance issuers sufficient time to comply," the Labor Department said.

At the time the proposed rules were issued by the Health and Human Services (HHS), Labor and Treasury departments, federal regulators said they would go into effect on March 23, 2012.  Among other things, the proposed rules would require employers to provide employees with an "easy-to-understand" summary of benefits and coverage (SBC) and, upon request, a glossary of commonly used health care coverage terms, such as deductible and copay.  Plus, the summary of benefits and coverage would have to include the portion of expenses a health care plan would cover in each of three situations: having a baby, treating breast cancer and managing diabetes.

Agencies Issue FAQs on Health Care Reform's SBC Requirement and on Mental Health Parity Implementation
The DOL, HHS, and IRS have jointly issued a new set of frequently asked questions (Part VII) addressing health care reform's summary of benefits and coverage (SBC) requirement plus mental health parity implementation (MHPAEA).   This new FAQ seems to confirm that the final regulations may be significantly different from the proposals and suggests that there may be relief as to the applicability date as well.  While no one can predict exactly what the final requirements will be and although general preparation for future compliance probably remains advisable, relying too closely on current proposals may not be the best use of time and resources. 

Also, plan sponsors and their advisors will want to study the mental health parity FAQs closely.  The agencies characterize these as "clarifying FAQs" and stress that they will continue to investigate complaints regarding the MHPAEA requirements and will take enforcement action for violations to ensure compliance (these requirements took effect with plan years beginning on or after July 1, 2010).

The full text is available at http://www.dol.gov/ebsa/faqs/faq-aca7.html.

Health Care Reform Update: Tax Credits; NAIC Broker Vote; Supreme Court's Plans

Small Business Tax Credit Finds Few Claimants
On Nov. 7, the Treasury's Inspector General for Tax Administration released a report regarding the small business tax credit.  The preliminary evidence is now in, and the results show that despite IRS efforts to inform 4.4 million taxpayers who could potentially qualify for the credit, the volume of claims for the credit has been extraordinarily low. As of mid-May 2011, the IRS reported that slightly more than 228,000 taxpayers had claimed the credit for a total amount of more than $278 million.  While some additional returns can be expected to continue to come in until the extension deadlines later this year, the Congressional Budget Office estimate that taxpayers would claim up to $2 billion in FY 2010 will be off by more than 500 percent.
The report cites the following reasons for the low take-up rate:

• The legislation concerning which taxpayers qualify for the credit and how to calculate the credit amount is complex.
• There are multiple steps to calculate the credit, and seven worksheets (http://www.irs.gov/pub/irs-pdf/i8941.pdf) must be completed in association with claiming the credit.
• The rules themselves are complex, making it difficult for taxpayers to follow.
• The credit is new so there's risk of errors or irregularities occurring when the credit is claimed or processed, as both taxpayers and IRS employees will need to acquaint themselves with the rules.
• The credit is refundable to tax-exempt taxpayers, which is a high-risk factor for erroneous refunds. 
• The IRS had to complete new programming to accommodate the new Form 8941 and identify potential compliance risks.
• Taxpayers have been slow to claim the credit, and both taxpayers and tax practitioners are making mistakes on Form 8941.
• Some claims contained errors or were incomplete.

The full report is available at http://www.treasury.gov/tigta/auditreports/2011reports/201140103fr.pdf.

NAIC to Vote on Agent and Broker Resolution on Nov. 22
The National Association of Insurance Commissioners (NAIC) announced its Plenary Committee will meet on Nov. 22 at 4 p.m. EST to vote on a proposed resolution, titled "Resolution Urging the U.S. Department of Health and Human Services to Take Action to Ensure Continued Consumer Access to Professional Health Insurance Producers." 
The measure calls on Congress to "expeditiously consider legislation amending the MLR provisions of the PPACA in order to preserve consumer access to agents and brokers."  It also asks HHS to "take whatever immediate actions are available to the Department to mitigate the adverse effects the MLR rule is having on the ability of insurance producers to serve the demands and needs of consumers and to more appropriately classify independent producer compensation in the final PPACA MLR rule."
The resolution has been sponsored by the insurance commissioners of 22 states: Alabama, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, Tennessee, Utah and Wisconsin.  NAHU has asked all members to encourage insurance commissioners in the other 28 states to support this measure. 

Supreme Court Will Hear PPACA Challenge This Spring
The U.S Supreme Court granted a writ of certiorari in the challenge that 26 states and the National Federation of Independent Businesses (NFIB) have raised against the Obama administration regarding the constitutionality of the Patient Protection and Affordable Care Act (PPACA).  Monday's announcement sets the stage for oral arguments by March and the potential for a decision in late June.  When setting the scope of its hearing on the case, the Supreme Court allowed for five and a half hours of oral arguments.  For the Supreme Court, this is a unprecedented amount of time. 
The information released by the court regarding their consideration is significant because it gives a number of key clues as to how the case will progress in the months going forward. 

• Even though the justices discussed five appeal challenges to PPACA (and are slated to consider a sixth challenge by the Commonwealth of Virginia next week), they decided to only grant certiorari to the 26-state/NFIB challenge.  This case was previously heard by the United States Court of Appeals for the 11th Circuit, in Atlanta, which has thus far been the only appeals court to declare the individual mandate provisions of PPACA unconstitutional.  However, the 11th Circuit declined to strike down the rest of PPACA as the plaintiffs requested, even though the law does not contain a "severability clause."  The 11th Circuit also upheld the law's expansion of the Medicaid program, rejecting the state's contention that that it also exceeded congressional authority.
• The court has agreed to hear arguments about not only the mandate, but also the law's Medicaid expansion, and whether or not certain provisions of the law, like the individual mandate, may be "severed" from the rest of it.  It's the contention of the NFIB and the states that if one provision is struck down, the entire law must be as well because the measure does not contain a "severability clause," and even the Obama administration has said publicly that it is "absolutely intertwined" with at least the insurance market reform provisions of the measure that make all policies guarantee issue and bar the consideration of preexisting conditions from 2014 on forward. 

The justices will also hear at least an hour of arguments as to whether a federal tax law, the Anti-Injunction Act, should apply in this case.  The Anti-Injunction Act prevents court action on a tax until it actually takes effect. The individual mandate penalties do not take effect until 2014, so if the court finds that the law applies, it would prevent review of the mandate until at least 2014.  However, in defending the constitutionality of the individual mandate up until this point, the Obama administration has repeatedly argued that the penalties are just that--penalties--and not a tax, so the commerce clause of the Constitution should not apply.  It would be hard for them to change their argument now and support a delay on a mandate ruling until 2014.

Health Care Reform Update: Marriage & Taxes

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Health Law May Undermine Marriage

The health reform law could undermine marriage because once people tie the knot, they may no longer be eligible for tax incentives for insurance.  The law links the tax credit to household income, so two people whose combined income goes above a certain level will not be able to get a tax credit if they are married and file together.  But if they get divorced or stay single they might, individually, be eligible for a premium credit.  Giving people pause about marriage could be a big "unintended consequence" of the law.

Under the law, families as well as individuals can qualify for subsidies on a sliding scale, up to 400 percent of the poverty level.  The proposed rule issued by the administration disqualifies a family from claiming the credit if either spouse is offered an insurance plan at work with an out-of-pocket premium less than 9.5 percent of household income for self-only coverage.

The proposed rule on tax credits is somewhat unclear on the issue of affordability for families with employer-sponsored insurance.  It could be interpreted to mean that if only one spouse receives insurance through his or her employer, the family could be forced to choose between: 

• a divorce and tax credits
• buying individual insurance without a premium subsidy, or
• paying a penalty and forgoing insurance.

Some experts believe HHS may issue further guidance about family affordability, but this would have consequences too: More people obtaining tax credits would drive up the overall cost of the law.

Lawmakers Urge IRS To Change Proposed Health Law Subsidies Rule

On Friday, 24 lawmakers sent a letter to the Commissioner of Internal Revenue pointing to the specific language in the health law (PL 111-148, PL 111-152) that says the tax credits would go to individuals who are enrolled in "an exchange established by the state."  The lawmakers say that the proposed rule "expands individuals' eligibility for tax credits beyond PPACA's explicit text to individuals enrolled in qualified health plans who reside in states in which the federal government has established an exchange."  They ask the commissioner "to amend the proposed rule's language to be consistent with the letter of the health law."

Health Care Reform Update: Co-Op Answers & ERRP Appeals

CMS Answers Questions on Consumer Operated and Oriented Plan Program The Center for Consumer Information and Insurance Oversight (CCIIO) of the Centers for Medicare and Medicaid Services (CMS) on Oct. 6 published a list of frequently asked questions and answers (FAQ) pertaining to the Consumer Operated and Oriented Plan (CO-OP) program, adding to a another FAQ published on Sept 7.

Among the topics the FAQs cover is clarification that after receiving Letters of Intent (LOI) to apply for CO-OP loans, CMS does not anticipate to publicly post the names or locations of organizations filing such LOIs. However, LOI applicants should remember that all materials submitted to CMS are subject to the Freedom of Information of Act (FOIA) and any FOIA request will be examined against exceptions such as trade secrets outlined in the Department's FOIA regulation. The CMS has stated that applicants may access the Department's FOIA guidelines at http://www.hhs.gov/foia/45cfr5.html.

Whether or not approval will be available for start-up loan modifications necessary to satisfy the capital requirements associated with unexpected rapid growth or high enrollment, the CMS states that applicants should estimate their funding needs as accurately as possible in the business plan submitted as a part of the application, and should not assume that loan modifications will be available to provide additional funding.

CMS also has stated that an organization may not partner with an existing health insurance issuer to develop a CO-OP, since, under the PPACA, if an organization is a health insurance issuer that existed on July 16, 2009, a related entity, or any predecessor of either, that organization is not eligible for loans under the CO-OP program and cannot become a CO-OP. Also, a third-party administrator (TPA) may not develop a CO-OP unless the TPA was also a licensed health insurance issuer on July 16, 2009.

Whether or not an existing nonprofit entity has to form a separate entity to apply for funds and become a CO-OP, the CMS reiterated that, first, as a statutory requirement under the ACA, a health insurance issuer that was in existence on July 16, 2009 cannot sponsor a CO-OP. Under the proposed rule, the applicant must be the entity that will eventually become a CO-OP. Unless the sponsor wants to become a CO-OP, it should form a separate entity.

Finally, the CMS stated that a CO-OP can be founded by a consumer-run nonprofit self-insured multiple employer welfare arrangement (MEWA) that does not have an insurance license, but that is currently licensed in its domiciliary state as a nonprofit, self-funded MEWA, because entities not licensed as issuers on July 16, 2009, may apply.

HHS Issues Guidance on Appeals Process for Early Retiree Reinsurance Program
The Department of Health and Human Services (HHS) has issued guidance regarding how plan sponsors participating in the Early Retiree Reinsurance Program (ERRP) would submit a request for appeal of an adverse reimbursement determination, and how the appeals process works.

Definition of adverse reimbursement determination

• An adverse reimbursement determination is a determination constituting a complete or partial denial of a reimbursement request.
• This includes a determination regarding whether a given individual whom the sponsor has submitted to the Centers for Medicare and Medicaid Services (CMS) as an early retiree in advance of a reimbursement request satisfies the substantive criteria for being an early retiree for the entire time period claimed by the sponsor or whether a claim submitted in advance of a reimbursement request is for a health benefit, as defined by the ERRP statute, regulation, and other ERRP guidance.

Appealable determinations are ones that CMS makes based on the plan sponsor's submissions to CMS. A plan sponsor may not appeal a reimbursement determination on the ground that:

• it neglected to include a given item or service in its reimbursement request; 
• it misstated data with respect to a given item or service; or
• CMS could not process an Early Retiree List, Summary Claim Data, a Claim List, or a reimbursement request due to the fact that it was not submitted in the correct manner or format.

The ERRP statute and regulations do not permit plan sponsors:

• to appeal CMS determinations to deny an ERRP application
• to refuse to accept an application for processing, or
• to terminate approval of an application.

The denial of an application, the refusal to accept an application, or the termination of an application approval are related to whether a plan sponsor may participate in the program, not a determination about reimbursement for participating plan sponsors.

Request for appeal

The ERRP regulations state that a sponsor has 15 calendar days from the date of receipt of an adverse reimbursement determination to submit an appeal. The 15-calendar day period does not begin to run until the sponsor receives the relevant email that notifies the plan sponsor about the adverse reimbursement determination. That email will describe the 15 calendar-day time limit for submitting an appeal.

Documentation to submit

A request for appeal must specify the findings or conclusions with which the plan sponsor disagrees and the reason(s) for the disagreement(s). In submitting a request for appeal, a plan sponsor should include all information and data necessary for the HHS Departmental Appeals Board to evaluate the request and CMS to respond to the appeal, including:

• a copy of the email notifying the plan sponsor about the adverse reimbursement determination
• the amount of reimbursement at issue
• the application ID number
• plan year
• information about the items and services at issue including dates of service, and
• information about the individuals to whom the items or services were provided

Because the Appeals Board is independent of CMS:

• the plan sponsor should not assume that the Appeals Board would have information that the plan sponsor submitted to CMS, such as the plan sponsor's Claim List
• the plan sponsor also may submit supporting documentation not previously submitted to CMS
• the plan sponsor should not submit any documentation that is related to individuals, items or services not previously included in the Early Retiree List or Claim List, to the extent the adverse reimbursement determination being appealed is directly related to the response files sent with respect to those lists

How and where to submit documentation

If a plan sponsor wishes to submit its request for appeal and/or supporting documentation electronically, the plan sponsor should call the Appeals Board at 202.565.0208 as soon as possible before the applicable deadline to ascertain whether the Board is able to accept the submission electronically and to obtain any instructions for submission. Any electronic submissions must be made using the DAB web portal. Requests for appeal and supporting documentation must be mailed to the Department of Health and Human Services Departmental Appeals Board, MS 6127 Appellate Division 330 Independence Ave., S.W. Cohen Building - Room G-644 Washington, D.C. 20201.