Healthcare Reform Update - August 14, 2014

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Affordability Percentages Increased

On August 5, 2014, the IRS released Revenue Procedure 2014-37 which increased the threshold percentage for determining whether health coverage offered by an employer to an employee is considered affordable from 9.5% to 9.56%. As a result of the increase, coverage offered to an employee for 2015 will be considered affordable if the employee’s contribution for self-only coverage does not exceed 9.56% of the employee’s household income for the taxable year. The Patient Protection and Affordable Care Act (“PPACA”) provides that this statutory definition of affordability will be indexed beginning with plan years starting in 2015; therefore, the increase put forth by the IRS was expected.

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IRS Clarifies Calculation for Determining Applicable Large Employer Status

In informal guidance released in May 2014, the IRS provided additional clarification on how to count full-time employees for purposes of determining who is an applicable large employer. This is important because the employer shared responsibility mandate only applies to “applicable large employers,” which are defined as employers with 50 or more full-time and full-time equivalent employees.

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Courts Split on Whether IRS Can Provide Premium Tax Credits Through Federally-Facilitated Marketplaces

On July 22, 2014, two federal appellate courts issued opposing decisions on whether the IRS has authority to provide premium tax credits through Marketplaces established by the federal government. In Halbig v. Burwell, the United States Court of Appeals for the District of Columbia, in a 2-1 ruling, decided that the language of PPACA does not give the IRS authority to provide premium tax credits through federally-facilitated Marketplaces. The Fourth Circuit Court of Appeals in King v. Burwell, however, decided unanimously that the IRS does have the ability to provide premium tax credits through federally-facilitated Marketplaces. Both cases have already been appealed. The central issue of these cases, whether the IRS can provide premium tax credits through federally-facilitated Marketplaces, is significant and necessary for the attainment of one of PPACA’s major goals – to assist low income individuals with purchasing health insurance. Without premium tax credits, low income individuals in states with federally-facilitated Marketplaces must pay for health coverage at full cost. This split appears likely to be resolved by the Supreme Court, which is fresh off of another PPACA-related case with the Hobby Lobby decision.

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IRS Releases Draft Forms for Section 6055 and 6056 Reporting

In July 2014, the IRS released draft forms for Sections 6055 and 6056 reporting, which certain employers will need to file to demonstrate compliance with PPACA. Section 6055 reporting is needed to administer the Individual Mandate whereas Section 6056 is required to administer the Employer-Shared Responsibility mandate. The first required Section 6055 and 6056 reporting is due in 2016 for the 2015 calendar year and will continue annually thereafter. However, voluntary reporting is encouraged in 2015 for the 2014 plan year.

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FAQ Provides Notice Guidance Following Hobby Lobby Decision

In July 17, 2014, Departments of the federal government issued a single FAQ providing that plans of closely-held for-profit corporations that decide to cease providing coverage for some or all contraceptive services mid-plan year must provide relevant ERISA notices as a result of the material reduction in services or benefits. The release marks the twentieth set of FAQs regarding the implementation of PPACA.

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Final Rules: Small Employer Tax Credit
In June 2014, the IRS issued the final regulations on the tax credit available to certain small employers who offer health coverage to their employees. The final rule, in large part, adopts the 2013 proposed rule and implements several changes effective for the 2014 tax year.

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Questions and Answers for Employers

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