Tag Archives: Health Care Reform

PCORI Fee Deadline Approaches

June 20, 2018


The annual Patient Centered Outcomes Research Institute (PCORI) fee is due by July 31, 2018. The fee was created by the Affordable Care Act to help fund the nonprofit Patient-Centered Outcomes Research Institute which supports clinical effectiveness research. Typically only employers with self-funded health plans, including health reimbursement arrangements (HRAs), must calculate and pay the fee. Health insurance companies will pay the fee on behalf of employers with fully-insured health plans.

Plan sponsors will use IRS Form 720 (Quarterly Federal Excise Tax Return) to report the fee. The fee amount changes annually and is tied to the plan year. The amount due each year is calculated by multiplying the applicable fee by the average number of covered lives in the plan. Employers have several methods available to calculate the average number of covered lives including the actual count method, snapshot method and Form 5500 method. For plan years ending in January 2017 through September 2017, the fee will be $2.26. For plans ending in October 2017 through December 2017, the fee will be $2.39.

For more information on how to calculate and pay the PCORI fee, please contact your service team.

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IRS Releases More Details on Letter 227 – Response to Appeal on Employer Shared Responsibility Payment

May 31, 2018


Late last year the IRS started sending employer potential penalty letters on the Employer Shared Responsibility requirements of the Affordable Care Act (ACA). The penalties were associated with the 2015 Forms 1094 C and 1095 C that employers submitted in 2016. Prior to releasing the penalty letters, the IRS posted guidance on how the penalty process would be managed. The guidance was reviewed in our article, IRS Employer Mandate Penalties.

Penalties are proposed to Applicable Large Employers (ALEs) in a Letter 226J. Included with the letter was a Form 14764.  This is the form ALEs would use to appeal all or a portion of the penalty assessed.

ALEs were given 30 days to respond to a Letter 226J.

The IRS responds to any Form 14764s that ALEs submit. The response is called Letter 227.  The IRS guidance indicated the IRS would create 5 different versions of the Letter 227 to address possible outcomes based on the employer’s appeal efforts.

The IRS recently posted more information about the different versions of Letter 227 on their website at https://www.irs.gov/individuals/understanding-your-letter-227

Different versions of the Letter 227 will either close the Shared Responsibility penalty issue or prompt employers to take additional steps. Additional steps may include paying the penalty or following the instructions provided in Letter 227 or Publication 5 to request a pre-assessment conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

The five different possible Letter 227s are as follows:

  • Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response. In this case, the employer agreed with the Shared Responsibility penalty that was assessed. The letter provides details on how the ALE can make the required payment. No response is required.
  • Letter 227-K acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS agrees with the ALE’s appeal and indicates the proposed penalty has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
  • Letter 227-L acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS revised the penalty amount based on the ALE’s appeal. The letter includes an updated Form 14765 (list of all FT employees purchasing subsidized coverage in the Marketplace by month) and revised calculation of the penalty. The ALE can agree and arrange to pay the penalty. The ALE can pursue the appeal further by request a meeting with the manager and/or office of appeals.
  • Letter 227-M acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS does not agree with the appeal and is assessing the penalty included in the Letter 226J. The letter provides an updated Form 14765 (list of all FT employees purchasing subsidized coverage in the Marketplace by month) and revised calculation table. The ALE can pursue the appeal further by request a meeting with the manager and/or office of appeals.The response to the IRS conference is Letter 227-N. It acknowledges the decision reached in Appeals and shows the penalty amount based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.

Concluding Thoughts The additional information on Letter 227 is helpful for employers to understand any response they receive to filing the Form 14764 to appeal the proposed penalty.

  • It will be interesting to see if the IRS continues to identify potential penalties from the 2015 Forms or if they start issuing penalty letters for 2016.
  • The IRS has sent several batches of penalty letters to ALEs across the country over the last six months. It is important that you respond to the letter within 30 days as indicated on the Letter 226J. In many cases, ALEs are successfully appealing substantial proposed penalties.
  • Only Letters 227-L and 227-M call for a response, which must be provided by the date stated in the letter. The Letter 227 is not a bill. The IRS will send Notice CP 220J to collect the employer shared responsibility penalties.
  • The last possible Letter 227 is issued after the ALE has participated in a pre-assessment conference with the IRS. This is the next step in appealing the potential 226J penalty if the IRS did not accept the first appeal submitted on the Form14764. ALEs must request this conference.
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Upcoming 1094/1095 Deadline

February 22, 2018


Two 1094/1095 deadlines are quickly approaching for applicable employers. Employers filing paper copies of Forms 1094/1095 have until February 28, 2018 to mail them in to the IRS. Only those employers filing less than 250 informational returns are allowed to file paper copies and it must be sent via First-Class mail. The forms must be sent in a flat mailing (not folded) with no paperclips or staples. If sending the forms in multiple packages, write the employer’s name on each package, number them consecutively and place Form 1094-C in the first package. Where to send the forms depend on where the employer’s principal business office or agency is located.

The second deadline is on March 2, 2018. Employers have until then to distribute copies of Forms 1095-B or 1095-C to individuals. This deadline was originally January 31st but the IRS extended it in December 2017. Employers can provide these forms electronically (email or posting on employer’s website) but employees must specifically consent to the electronic distribution. Consent may be given on paper or electronically. If consent is given on paper, the individual must confirm the consent electronically.

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What the 2017 Tax Reform Actually Means for Employers

January 5, 2018


On December 22nd President Trump signed the 2017 Tax Cuts and Jobs Act, marking his administration’s first successful modification to the Affordable Care Act (ACA). Two core aspects of the ACA are the employer mandate and in the individual mandate. The individual mandate requires U.S. citizens have minimum essential coverage for each month, qualify for an exemption, or face a tax penalty. Contrary to popular news, the tax act did not repeal the individual mandate. Rather, it took the teeth out of the law by making the individual mandate penalties $0 as of 2019. Individuals will still need to either have qualifying coverage or pay a penalty for the 2017 and 2018 filing seasons.

The employer mandate was left untouched by the bill. Applicable Large Employers (ALEs) will still need to offer affordable, minimum essential coverage providing minimum value to their full-time employees and their dependents. This means employers likely won’t be affected until 2019 when healthy individuals may decide to forgo coverage absent a penalty. Some speculate employers may have adverse enrollment effects as a result of losing healthier employees.

There’s been some uncertainty if Congress will launch another repeal effort in 2018. Senate Majority Leader Mitch McConnell suggested in late December that the Senate will give up ACA repeal efforts in 2018 due to the difficult odds of repealing and replacing with a 51-49 Senate party division. But other Republicans, including Senator Lindsey Graham (R-S.C.) and House Speaker Paul Ryan (R-Wis.) expressed support for another attempt at reform. Ultimately employers will need to wait to see if Congress will pass other changes to the ACA.

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IRS Gives an Early Present to 1094/1095 Filers

December 22, 2017


Today the IRS announced in Notice 2018-06 they will be extending due dates and good faith filing relief to 2017’s 1094/1095 reporting requirement. Under the Affordable Care Act, Applicable Large Employers (ALEs) are required to complete Form 1095-C for each of their full-time employees. In addition, issuers of coverage must report on all those enrolled in their plans with Form 1095-B. The original deadline to provide a copy of these forms to individuals was January 31, 2018. The IRS extended the deadline to provide the 1095-C and 1095-B forms to March 2, 2018. However, employers will still need to send copies with the IRS by February 28, 2018 or by March 31, 2018 if filing electronically. In addition, the 30 day extension will not be available to the new March 2, 2018 deadline but it will still be available for the IRS filing deadlines by using Form 8809.

As we’ve previously mentioned, the IRS will not require tax filers to submit copies of their Form 1095-B or 1095-C with their tax returns. Instead, filers will certify health insurance coverage by checking certain boxes on their returns.

The notice also extended the good faith filing relief that was available last year. This means the IRS will not impose penalties on reporting entities if they can show they made a good-faith effort to comply with the information-reporting requirements. This relief applies to incorrect and incomplete information reported on the forms. No relief is available to employers who do not timely file the forms.


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Health Care Reform Update

December 19, 2017


If you were unable to attend the Health Care Reform Update Webinar last Friday, you can view a recording of the presentation here. You can access the presentation slides via this link.

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IRS Employer Mandate Penalties

December 6, 2017


The IRS recently updated the Questions and Answers section of its website which addressed the employer shared responsibility requirements of the Affordable Care Act (ACA). These requirements are commonly referred to as the employer mandate.

Beginning in 2015, the ACA required employers to offer full-time employees health coverage or face two different potential penalties:

  1. No Coverage – $2,080 per full-time employee minus 30 full-time employees (in 2015, 80 FT employees could be excluded). This penalty applies if the employer fails to offer substantially all of its full-time employees and their dependent children minimum essential coverage (MEC) and at least one full-time employee purchases subsidized Marketplace coverage.
  2. No Minimum Value or Unaffordable Coverage – $3,120 for each full-time employee who receives a premium tax credit for Marketplace coverage. This penalty only applies if the employer offered the wrong type of coverage (it did not meet the Minimum Value or Affordability requirements) and that employee subsequently purchases subsidized coverage in the Marketplace.

The exposure under the “no coverage” penalty is significantly greater to most employers because the penalty is applied to all full-time employees less the first 30 (80 in 2015).  The “wrong type of coverage” penalty only applies to the individual full-time employee who is not offered Minimum Value/Affordable coverage, and who subsequently purchases subsidized coverage in the Marketplace.

Recently, the IRS announced that it would begin sending letters to employers notifying them of employer mandate penalties for 2015. The IRS expected to begin sending those letters in late 2017. The letters are the first step in the process for assessing the penalties. Each step in the process is outlined below.

  1. Issuance of the penalty letter, called Letter 226J. It will include two additional forms:
    • Form 14765 – A table that indicates all of the employer’s full-time employees who purchased subsidized coverage in the Marketplace.
    • Form 14764 – The employer response form. This allows employers to affirm or dispute the penalties being assessed. Employers have 30 days to respond to Letter 226J with this Form.
  2. If an employer submits Form 14764, they will receive a response Letter 227 from the IRS. There will be several versions of Letter 227 that will indicate whether the IRS plans to assess a penalty against the ALE.
  3. If the employer disagrees with the IRS response in Letter 227, it can follow the instructions provided in Letter 227 and Publication 5 to request a pre-assessment conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.
  4. If the employer fails to respond to Letter 226J or Letter 227, the IRS will automatically assess the applicable proposed penalty against the employer. The IRS will issue a notice and demand for payment (Notice CP 220J). That Notice will include a summary of the penalty, and will reflect payments made, credits applied, and the balance due, if any. The Notice will instruct the employer on the process to make a payment. Employers are not required to include the penalty on any tax returns or make any payments before receiving Notice CP 220J. Employers may have the ability to make payment installments, as described in Publication 594.

Employers need to keep an eye out for Letter 226J. It will likely be sent to the contact listed on the 2015 1094-C the ALE submitted in 2016.

 Letter 226J

The IRS has posted a full sample copy of Letter 226J online.

The first page will look like this:


The Proposed ESRP is the penalty amount the IRS calculated for the 2015 ACA employer mandate. The letter provides a description of both potential penalties and Forms 14765 and 14764, which will be included with the letter. The letter recommends that an ALE have their 2015 Forms 1094-C and 1095-Cs available, to use as a reference when reviewing the letter and accompanying forms.

The letter also provides further instructions:

An employer that agrees with the proposed penalty can indicate their agreement on Form 14764 and include payment (full or partial) when returning the form to the IRS. An employer that doesn’t pay the entire amount will receive a bill in the form of a notice and demand for payment.

An employer that does not agree with the proposed penalty must complete Form 14764 and include a signed statement to dispute all or a portion of the penalty. If corrections to the Employee PTC listing (Form 14765) are necessary, those changes must be identified in the signed statement.  Also, changes should directly be made on the Employee PTC listing by using the indicator codes one would use on Forms1094-C or 1095-C.  There is no requirement to file corrected statements (i.e., Forms 1094-C or 1095-C) with the IRS. Instead, those corrections should be noted in the signed statement and made on the PTC list.

Letter 226J will also include a table called the ESRP Summary Table that shows the months in which penalties apply and explains the penalty calculation:

Letter 226J provides a detailed explanation of each column in the summary table to help employers understand how the penalty amounts were calculated. It will include a number of references to IRS publications to aid in the employer in understanding the penalty determination.

Form 14765

Every Letter 226J should include Form 14765, a sample of which can be found online.

This form is called the Employee Premium Tax Credit Listing:

It will include all full-time employees who received a tax credit to purchase subsidized coverage in the Marketplace, whose 1095-C Form did not include a safe harbor code or any other relief code from the tax penalty.

The Letter 226J includes instructions on how to make changes to the Employee PTC listing:

The IRS reminds employers to ensure that their statement is signed and that the tax year and EIN are entered at the top of the form.

 Form 14764

Letter 226J should include Form 14764. A sample of the Form 14764 can be found here.

Employers should complete the ESRP Response Form (Form 14764) and indicate if they agree or disagree with all or part of the proposed penalty. The first part of the form includes the due date of the response. If an employer needs more time to respond, they may call the IRS to request additional time.  Employers should include the contact information and best times to reach an individual responsible for discussing the matter with the IRS.

If an employer disagrees with the penalty amount, they should include the following when returning the form to the IRS:

  • A signed statement explaining why the employer disagrees with all or a portion of the penalty.
  • Any additional documentation that supports the employer’s contention that penalties should not apply.
  • If an employer made corrections to the Employee PTC listing (Form 14765), include an explanation of the changes in the signed statement.

The Form also permits employers to pay all or a part of the proposed penalty. An employer can select “no payment”. An employer may also choose “partial payment” and the IRS will issue a demand for payment to the employer if there is an agreement that at least a portion of the penalty applies.

Finally, the form allows an employer to designate another authorized contact on page 2. This is optional. An employer may want to designate an additional contact if the primary contract is difficult to reach via phone.

Letter 227

At this point, the IRS has not released a sample of Letter 227. However, the Questions and Answers posted on the IRS website indicate that there will be at least five versions of Letter 227.  Letter 227 will be used as a response to an employer who disagrees with any penalty assessed.  It may also request more information that supports the employer’s position. The IRS, in Letter 227, may also disagree with the employer’s response and indicate that the IRS intends to levy the penalty.

Request for Conference

If the employer maintains the position that the penalty should not apply despite the IRS explanation in Letter 227, the employer can request a pre-assessment conference with the IRS Office of Appeals.

Letter 227 will include instructions for requesting a conference. The employer can also reference IRS Publication 5 for more details. The IRS Publication 5 can be found via this link.

Employers will have 30 days from the date of Letter 227 to request the conference with the Office of Appeals.

Concluding Thoughts

These penalty notices could not come at a worse time for most employers. Many are working through open enrollment issues, getting ready to issue W-2s, and 1095-Cs and preparing for the holidays.

It is critical that employers address this letter shortly after receiving it. Timing is tight.  Employers will have only 30 days to respond and may need that time to make specific arguments as to why a certain penalty amount may not apply.

It is also important to remember that a significant amount of transitional relief was available in 2015. It is not clear if the IRS will take this into consideration when proposing penalties.  However, employers can reference the transitional relief when challenging the penalty determination.

Be prepared to respond to IRS Letter 226J. The IRS did not provide any further details on when these letters would be mailed, other than late 2017.  Employers may want to make sure that they have access to their Forms 1094-C and 1095-C submitted to the IRS in 2016. These forms will be necessary when investigating any proposed penalties.





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2017 Tax Returns Require Filers to Certify Health Insurance

October 18, 2017


On October 13, 2017 the IRS announced that it will require tax filers to certify if they had health coverage for the year on their tax returns.  The IRS will not accept paper or electronic filings if the filer does not report full-year coverage, claim a coverage exemption or report a shared responsibility payment on the tax return.

Individuals with qualifying coverage for the entire year will check the “Full-year coverage” box on their federal income tax return. Those who are claiming a coverage exemption will file Form 8965 with their federal income tax return.  Those who owe a shared responsibility payment will report the payment on Form 1040 in the Other Taxes section and on the corresponding sections on Form 1040A and 1040EZ.

In previous years tax filers did not need to provide this certification despite the Individual Shared Responsibility Provision (aka, Individual Mandate) being in effect. The Individual Mandate requires individuals to have qualifying health care coverage (minimum essential coverage) for each month, qualify for an exemption or pay a penalty when filing their federal income tax return. Minimum essential coverage includes:

  • Most health coverage provided by your employer;
  • Health insurance purchased through the Marketplace;
  • Coverage under a government-sponsored program; and
  • Individual policies purchased from insurance companies.

Individuals have through Monday, April 16, 2018 to file their federal income taxes.

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Cost-Share Subsidies: Back Again?

October 17, 2017


*UPDATE: After announcing and praising – just yesterday – the deal struck by Republican Senator Lamar Alexander and Senator Patty Murray, the President tweeted this morning:

Continued uncertainty surrounding the payment of the cost share subsidies will likely drive premiums higher and frustrate insurers participating in the public exchanges. Which may be the point, as the President has repeatedly tweeted about watching the ACA implode after Congress failed to repeal the law this summer:


Last week, President Trump announced that his Administration would not pay the cost-share subsidies to insurance companies offering plans on the public exchanges. Today, however, the President announced a bi-partisan Senate deal that he said would fund the cost-share subsidies for “a year or two years.” The deal reportedly gives states “more flexibility in the variety of choices they can give to consumers.” It would also reportedly restore $106 million in ACA outreach funding that was cut by President Trump.

The deal would still need to be approved by Congress, which is not a given. It may face opposition in the House. House Speaker Paul Ryan, in particular, praised the President’s decision to end the subsidies last week.


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Discontinuation of Cost-Sharing Subsidies in the Marketplaces

October 13, 2017


Also on October 12, the Trump Administration indicated it will stop paying cost-sharing subsidies immediately to insurance carriers in the Marketplace.

The cost sharing subsidies are available to individuals making 250% or less of the Federal Poverty Level (FPL). They are designed to fund lower out of pocket cost for these lower-income individuals.  Insurance carriers that offer a silver plan in the Marketplace are required to offer 3 variations of that plan for individuals that qualify for cost sharing subsidies. The variations have lower cost-sharing than the standard silver plan option. This is required by the ACA.  The government reimburses the insurance carrier for the cost associated with the lower cost payments in the form of subsidies.

The Trump administration ended the subsidies, but insurance carriers are still obligated to offer the 3 other plans with lower cost sharing.  Carriers anticipated the loss of these subsidies and submitted two sets of rates for approval by the Marketplace. The rates assuming no cost-sharing subsidies are approximately 20% higher.

It is important to note, the premium subsidies are unaffected.  If an individual qualifies for a premium subsidy, the cost for coverage under the second lowest cost silver plan is set a percentage of the individual’s household income.  The Federal government pays the remaining premium.  The 20% premium hike will be paid by taxpayers for those that receive premium subsidies.  Accordingly, the by ending the cost-sharing subsidies, the Federal government will likely pay more to supplement the individual’s premium, rather than splitting the difference with the insurance companies. Approximately eighty-five percent of individuals purchasing coverage in the Marketplace receive a premium subsidy. Premium subsidies can still trigger employer mandate penalties.

The cost-share offsets are authorized by statute but payments are not appropriated annually, which was challenged by former Speaker of the House John Boehner in a lawsuit that is still ongoing. That lawsuit is currently being appealed, and several states have intervened and defended the subsidies. Those states will likely argue that the Trump Administration’s decision to stop paying the subsidies is invalid. Additionally, State Attorneys General from Kentucky, Massachusetts, Connecticut, California and New York have filed a separate lawsuit challenging the Administration’s decision.


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President Trump’s Executive Order on Health Care

October 13, 2017


On October 12, 2017, President Trump signed an Executive Order addressing some provisions of the Affordable Care Act (ACA). The Order was described as “Promoting Healthcare Choice and Competition Across State Lines.”

The Order is comprised of seven sections. Generally speaking, it directs various administrative entities to issue guidance related to the topics covered. The Order itself contains a only high level view of the goals to change specific aspects of the ACA.  Once the regulations are drafted and released, employers will have a better sense of how these changes may impact the market.  In addition, legal challenges to this Executive Order are anticipated.


The Order states that it should be the policy of the Executive Branch to the extent consistent with law, to facilitate the purchase of insurance across state lines. The Executive Branch should also facilitate the development and operation of a health care system that provides high quality care at affordable prices for the American people.

The Trump Administration will prioritize three areas of improvement in the near term:

  1. Association Health Plans (AHPs)
  2. Short-term Limited Duration Health Insurance
  3. Health Reimbursement Arrangements (HRAs)

The Administration will also focus on promoting competition in health care markets and limiting excessive consolidation throughout the healthcare system. To the extent consistent with law, government rules and guidelines affecting the U.S. healthcare system should:

  • Expand the availability of and access to alternatives to expensive, mandate-laden ACA insurance including AHPs, Short-term Limited Duration Health Insurance and HRAs
  • Re-inject competition into the healthcare markets by lowering barriers to entry, limiting excessive consolidation, and preventive abuses of market power
  • Improve access to and the quality of information that Americans need to make informed healthcare decisions, including data about health care pricing and outcomes, while minimizing the reporting burdens on affected plans, providers and payers

The policy section outlines near term goals of the Trump administration to improving healthcare access and affordability.

Expanded Access to Association Plans

The Order directs the Secretary of Labor to consider, within 60 days, proposing regulations or revising guidance in accordance with the law to allow more employers to form AHPs. The Secretary should also consider expanding the conditions that would define an employer under ERISA as well as ways to promote the AHP formation on the basis of common geography or industry.

The goal of promoting AHPs is to allow smaller employers to overcome the competitive disadvantage with large employees who are able to spread the risk among a larger pool of members. The Order also states securing coverage through an AHP will allow employers to avoid many of the costly requirements of the ACA.  However, the Order does not detail which specific requirement AHPs will avoid.

The Order does not provide details on expansion of AHPs. More details will like be included in the proposed regulations or revised guidance.

Expanded Availability to Short-Term Limited Duration Insurance

The Order directs the Secretaries of Treasury, Labor and Health and Human Services to consider, within 60 days, proposing regulations or revising guidance in accordance with the law to expand access to Short-Term Limited Duration Insurance (STLDI). The Secretaries should consider allowing these policies to cover longer periods of time and to be renewed by insureds.

The goal is to offer an appealing and affordable alternative to Marketplace coverage. The ACA regulations limit the coverage period under these plans to three months.

The EO did not include the details on the expanded availability of these plans. The details on this provision will significantly matter to insurance carriers.  STLDI policies are not obligated to comply with ACA coverage mandates.  This will allow policies to be sold that don’t have to coverage essential health benefits.  These policies may also be permitted to include annual and dollar lifetime maximums.

The effects of this provision of the Order are unclear. Depending the details, healthier individuals may gravitate to STLDI policies, while sicker individuals will remain in the comprehensive Marketplace policies. Insurance carriers could struggle to stay in the Marketplace as rates will increase to reflect poor experience.  Many carriers may choose to exit Marketplaces over concerns they will not be able to operate profitably with a split risk pool.

Expanded Availability and Permitted Use of Health Reimbursement Arrangements (HRAs)

The Order directs the Secretaries of Treasury, Labor and Health and Human Services to consider, within 120 days, proposing regulations or revising guidance in accordance with the law to increase the usability of HRAs. The guidance should expand an employer’s ability to offer HRAs to their employees and allow HRAs to be used in conjunction with non-group coverage.

The goal of this expansion is to allow employees, especially ones that work for small businesses, more options for financing their health care. Small employers, however, can take advantage of Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), which were included in the 21st Century Cures Act passed by the Obama Administration in 2016.

The Order does not include the details of this expansion of the HRA rules. HRAs are funded solely by employers and provide tax-favored funds to pay for eligible expenses not covered by the insurance plan.  The ACA has instituted significant limits on the use of HRAs.  In general, an HRA should only be provided to employees that are covered under the employer’s medical plan.  Loosening these rules may allow employers to fund HRAs that employees can use to purchase individual insurance coverage.

Bottom Line

The Order, by itself, does nothing to change existing law. It directs several federal agencies to consider and propose specific policy changes that, if implemented, would significantly change existing law. To change or implement new regulations, agencies must follow a notice and comment period. Agency regulations are subject to court review and a number of challenges to this Executive Order and any subsequent agency regulations should be anticipated.

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Interim Rules on Contraceptive Exemptions

October 10, 2017


On October 6, 2017 the Department of Health and Human Services (HHS) and the Department of the Treasury released interim rules expanding the exemptions from providing contraceptive coverage without cost sharing.


The Affordable Care Act (ACA) required coverage of certain preventive services without cost sharing. Congress granted the Health Resources and Services Administration (HRSA), a part of HHS, discretion to determine what was included in “preventive services” for women. HRSA concluded that preventive services included contraceptives. However, the Departments reserved authority to reevaluate the definition of “preventive services” and the accommodation/exemption rules.

On May 4, 2017 President Trump issued the “Presidential Executive Order Promoting Free Speech and Religious Liberty.” This directed various Departments to “consider issuing amended regulations, consistent with applicable law, to address conscience-based objections to the preventive care mandate…” This prompted federal Departments to release interim final rules on October 6th that expand the exemptions for religious and moral objections to contraceptive coverage.  Departing from tradition, these interim rules are effective immediately and not upon the issuance of final regulations. The Departments are holding a notice-and-comment period that expires December 5, 2017. It’s unknown when the government anticipates releasing final regulations.

Religious Objections

Previously, only nonprofit “religious employers” were eligible for an exemption from the contraceptive mandate. This was extended to closely held, for-profit employers with sincerely held religious objections after the Hobby Lobby Supreme Court decision.

The new rules expand the exemption to many non-governmental employers, issuers and individuals with sincerely held religious objections. The following are now eligible to claim a religious exemption:

  • For-profit corporations (regardless of size or if they are publically/privately held);
  • Churches, integrated church auxiliaries, church conventions or association and religious orders;
  • Nonprofit organizations; and
  • Higher education institutions.

Moral Objections

The interim rules also created a new exemption for certain non-governmental employers with sincerely held moral convictions against the contraceptive mandate. The following are now eligible to claim a moral exemption:

  • Nonprofit organizations;
  • Privately held for-profit employers;
  • Insurers; and
  • Higher education institutions.

How to Claim the Exemption

Under the interim rules, if an employer objects on either religious or moral ground they do not have to provide any kind of self-certification or notice to the government to claim the exemption. The existing accommodation process still exists; it’s just optional. However, ERISA plans will still need to follow employee notice procedures for changes in covered benefits. In addition, if information contained in the Summary of Benefits and Coverage (SBC) is materially changed, plans should send out a Summary of Material Modification (SMM) 60 days before adopting the reduction.

What’s Next?

There’s a lot of uncertainty around these interim rules. The interim rules request comments and suggestions around multiple aspects of the law including if the eligible parties should be expanded, if a formal procedure to claim the exemption should be added, how to determine if a religious or moral objection is “sincerely-held,” and how this will affect various types of corporate entities. To complicate matters, multiple lawsuits have already been filed that may halt the interim rules. The California Attorney General and the American Civil Liberties Union (ACLU) already filed suit and others are expected to follow.

In sum, employers should proceed with caution if claiming the religious or moral exemption due to the continued administrative process and ongoing litigation.

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