Guest Article

(From the May 21, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Voluntary Reporting by Employers Appears Critical to Exchanges

The ability of the new health insurance Exchanges to make efficient and accurate determinations regarding an individual's eligibility for advance payment of premium tax credits appears dependent on the voluntary disclosure of real-time information by employers. The Department of Health and Human Services is asking for comments from the public on how best to establish a voluntary reporting system—and whether alternative data sources exist—to verify whether an individual has access to employer-sponsored coverage. For 2014 and 2015, a limited verification process is being proposed.

Determining Eligibility for Premium Tax Credits

The reporting of certain key information by employers will be essential to the functioning of the Exchanges and the determination of whether an individual is eligible to receive advance payment of premium tax credits that will aid his or her purchase of a qualified health plan through the Exchange. Individuals will be eligible for premium tax credits only if they do not have access to minimum essential coverage, which includes employer-sponsored coverage that is both affordable and provides minimum value. Employer-sponsored coverage is "affordable" if the employee's premium contribution self-only coverage does not exceed 9.5 percent of household income. The IRS has proposed a safe harbor by which the coverage will be deemed "affordable" if the employee portion of the self-only premium for the employer's lowest-cost coverage that provides minimum value is not more than 9.5 percent of the employee's W-2 Box 1 wages. Employer-sponsored coverage provides "minimum value" if the plan's share of the cost of allowed benefits is at least 60 percent.

If an individual actually enrolls in employer-provided coverage, however, he or she is not eligible for the premium tax credit (regardless of whether the coverage is affordable or provides minimum value). Further, only individuals with household income up to four times the Federal poverty level (e.g., up to $92,200 for a family of four in 2012) are potentially eligible for the premium tax credit. If an individual qualifies for the premium tax credit, an advance payment of the credit is made monthly to the issuer of the qualified health plan in which the individual is enrolled through the Exchange, and the individual is responsible for paying the difference between the advance payment and the premium amount for the coverage. At year end, the individual is required to reconcile the advance payments with the actual amount of premium tax credit computed on his or her Federal tax return.

Individuals seeking advance payment of premium tax credits will need to provide the necessary information to the Exchange so it can determine eligibility. For purposes of determining whether the individual has access to minimum essential coverage (i.e., employer-sponsored coverage that is both affordable and provides minimum value) he or she will need to provide information on:

Verifying Access to Employer-Sponsored Coverage

In a recent Bulletin, the Department of Health and Human Services (DHHS) acknowledged that sources do not exist that will enable the Exchanges to verify the information about employer-sponsored coverage. Further, the Affordable Care Act does not require employers to report to Exchanges for that purpose. Until more comprehensive data sources are available, the DHHS proposes that an interim strategy be used in 2014 and 2015 for verifying employer-sponsored coverage. Under the proposal:

The bottom line is that the Exchanges could best perform this function if they could verify an individual's access to employer-sponsored coverage on a real-time basis during the enrollment process by accessing one or more authoritative data sources that capture information automatically. The Bulletin observes that employers and insurers are actually required to report most of the needed information under Code sections 6055 and 6056 that require detailed annual reports by issuers, self-insured health plans and large employers regarding the individuals enrolled. However, as the Bulletin points out, the reporting under Code sections 6055 and 6056 is annual and after-the-fact so does not provide real time information about an individual's access to employer-sponsored coverage.

DHHS is considering a Federally-managed verification service and data base. For example, one that would allow employers to voluntarily submit information directly to one or more private or public databases that an Exchange might access for the purposes of this verification. Comments are requested by the DHHS on: any potential data sources that could be used to verify employer-sponsored coverage; the options for an Exchange to obtain relevant data from employers, issuers, governmental agencies and other sources; and how the Exchanges could best achieve real time verification without burdening applicants or employers. The DHHS explains that its goal is straightforward: (1) to ensure access to affordable coverage, (2) to minimize the burden on individuals, employers and the Exchanges, and (3) to achieve accuracy in determining eligibility for advance payment of premium tax credits.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2012, Deloitte.