Recent Legislation Impacts COBRA, HSAs, Expatriate Plans, ACA Reporting Penalties and the Employer Mandate

Practical Law Legal Update 5-617-8650 (Approx. 6 pages)

Recent Legislation Impacts COBRA, HSAs, Expatriate Plans, ACA Reporting Penalties and the Employer Mandate

by Practical Law Employee Benefits & Executive Compensation

Increased Penalties for ACA Information Reporting Violations under the TPEA

The TPEA substantially increased the penalties for reporting failures involving information reporting and individual statements under the Internal Revenue Code (Code) (26 U.S.C. §§ 6721 and 6722), including information reporting requirements added by the ACA (26 U.S.C. §§ 6055 and 6056). The increased penalties apply to ACA information returns and individual statements required after December 31, 2015.

For a discussion of the increased penalties as they apply to information reporting under Code Section 6055, see Practice Note, Information Reporting for Employers That Self-Insure and Insurers (Section 6055): Increased Penalties under Trade Preferences Extension Act of 2015.

Reinstated Health Coverage Tax Credit May Impact COBRA Election Notices

The TPEA also retroactively reinstated and extended, with changes, a federally funded tax credit known as the health coverage tax credit (HCTC), which was created under the Trade Adjustment Assistance Reform Act of 2002. Before expiring in 2014, the HCTC permitted certain individuals to receive a tax credit of up to 72.5% of the premiums paid for certain kinds of health insurance coverage, including payments for COBRA coverage (see Practice Note, COBRA Overview: Health Coverage Tax Credit) (26 U.S.C. § 35). The HCTC was available to certain individuals who either:

Lost their jobs because of the effects of international trade and who qualified for trade adjustment assistance (TAA) or alternate trade adjustment assistance (ATAA).
Were receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC).

Under the TPEA, the HCTC will be available retroactively, starting from 2014, and extending through the end of 2019.

Before recent revisions, the Department of Labor's (DOL) model election COBRA notice included a paragraph addressing trade adjustment assistance and HCTC issues (see Legal Update, DOL COBRA Election Notice Substantially Revised, Standard Document, COBRA Election Notice and Practice Note, COBRA Overview). However, that discussion was eliminated under the DOL's 2014 revised model COBRA notices. In light of the TPEA, the DOL may revise its model election notices to restore a discussion of the HCTC (as modified under the TPEA).

In addition, the IRS has launched a new HCTC webpage to address future developments involving the reinstated HCTC. The IRS is currently reviewing the TPEA and coordinating with the PBGC and DOL to issue guidance on the HCTC in the near future (including coordination issues involving the ACA's premium tax credit).

Changes to the HCTC under the TPEA

In reinstating the HCTC, the TPEA made several changes to how the credit operates. These changes include:

Coordination rules involving the HCTC and advance payment of the ACA's premium tax credit (26 U.S.C. § 36B).
An amendment to the definition of "qualified health insurance" for HCTC purposes to exclude, beginning in 2016, coverage that an individual is enrolled in through an ACA health insurance exchange.
A transition rule allowing eligible individuals to retroactively elect to claim the HCTC, using an amended return, for 2014 and through the TPEA's enactment date. This election is available until expiration of the three-year limitation period for the applicable tax year (26 U.S.C. § 6511(a)).

Also, the HCTC will not apply for a coverage month unless a taxpayer elects for it to apply. Except as Treasury may provide, an election for the HCTC to apply for an eligible coverage month:

Must be made by the due date (including extensions) for the tax return for that year.
Will apply for all subsequent eligible coverage months in the year and, once made, is irrevocable for those months.

Treasury also must establish a program for making advance payments on behalf of certified individuals to providers of qualified health insurance for these individuals (26 U.S.C. § 7527).

Expatriate Health Plans

The Expatriate Health Coverage Clarification Act of 2014 (EHCCA) (December 2014) (Pub. L. 113-235), provided an exemption from many ACA requirements for expatriate health plans. In 2015, the IRS issued initial guidance to implement EHCCA (IRS Notice 2015-43) (see Legal Update, IRS Enforcement Guidance Addresses Expatriate Health Plans and the ACA). Also, the three administrative agencies responsible for implementing the ACA (the DOL, Treasury and Health and Human Services (HHS)), plan to publish proposed regulations providing guidance on EHCCA's requirements for expatriate health insurers, expatriate health plans and employers (in their capacity as sponsors of expatriate health plans).

For a discussion of expatriate health plan issues under EHCCA and its implementing guidance, see Practice Note, Expatriate Health Plans under the ACA and EHCCA.

Code Amendments Regarding Health Coverage for Veterans

New legislation also includes provisions addressing health coverage for veterans, which impacts both the ACA's employer mandate and HSA eligibility.

Exemption for Veterans In Determining Large Employer Status under the ACA's Employer Mandate

Under the ACA, beginning in 2015 (but subject to transition relief), certain large employers may be assessed penalties for:

Failing to offer minimum essential coverage to full-time employees and their dependents.
Offering eligible employer-sponsored coverage that is affordable or does not provide minimum value, as defined under implementing guidance.

(26 U.S.C. § 4980H.)

For more information regarding the ACA's employer mandate, see Employer Mandate Toolkit and Practice Note, Employer Mandate under the ACA: Overview.

The employer mandate applies to large employers and "members" of a large employer (26 C.F.R. § 54.4980H-2(a)). For a given year, a large employer is an employer that employed on average at least 50 full-time employees, including full-time equivalent employees (FTEs), on business days during the prior year.

In July 2015, the Surface Transportation Act amended the Code to add an exemption for veterans involving the ACA employer mandate. Under the exemption, which applies in determining whether an employer is a large employer subject to the employer mandate for a particular month, an individual is not taken into account as an employee for the month if the individual has medical coverage for the month under:

The government's TRICARE program (that is, the health care program for military personnel, retirees and their dependents).
The Veterans Administration (VA).

(26 U.S.C. § 4980H(c)(2).)

This amendment applies for months beginning after December 31, 2013.

HSA Eligibility; Form 5500 Extensions

Another Surface Transportation Act provision amended the Code to provide that an individual will not fail to be treated as eligible for an HSA for a period because the individual receives hospital care or medical services under any law administered by the VA for a service-connected disability. This amendment applies for months beginning after December 31, 2015.

Also under the Surface Transportation Act, the maximum extension for filing Form 5500s will be an automatic three-and-a-half month period ending on November 15 for calendar year plans. (Currently, the maximum extension is two-and-a-half months.) As a result, a calendar year plan that applies for the extension will have until November 15 to submit its Form 5500 for the applicable year. The longer extension period applies to Form 5500s filed beginning after December 31, 2015.

IRS Proposed Regulations Addressing Age Discrimination

In August, the IRS issued proposed regulations to implement the Age Discrimination Act of 1975 (1975 Act). The 1975 Act, which prohibits discrimination on the basis of age in programs and activities that receive federal financial assistance, requires all agencies that extend such federal financial assistance to issue implementing regulations. Although the 1975 Act applies to all age levels, it includes exceptions that allow use of age distinctions and factors in certain cases.

The 1975 Act is related to another nondiscrimination provision enacted under the ACA. Specifically, Section 1557 of the Patient Protection and Affordable Care Act prohibits individuals from being excluded from participation in, being denied the benefits of, or being subject to discrimination under any health program or activity that receives federal financial assistance (including credits, subsidies or insurance contracts) based on grounds prohibited under the 1975 Act and the following three laws:

Title VI of the Civil Rights Act of 1964 (race, color or national origin).
Title IX of the Education Amendments of 1972 (sex).
Section 504 of the Rehabilitation Act of 1973 (disability).

For more information, see Legal Update, HHS Q&As Address Nondiscrimination Rules for Health Programs and Activities under the ACA.

Recent Legislation Impacts COBRA, HSAs, Expatriate Plans, ACA Reporting Penalties and the Employer Mandate | Practical Law