The Internal Revenue Service (“IRS”) has released Notice 2018-94, which extends the due date for furnishing the 2018 Form 1095-B and Form 1095-C to individuals from January 31, 2019 to March 4, 2019.

This extension is automatic, and, as a result, the IRS will not formally respond to any pending extension requests for furnishing the forms to individuals. In addition, filers do not need to submit a request or documentation to take advantage of this extension. Despite the extension, the IRS is encouraging employers and other coverage providers to furnish the 2018 statements as soon as they are able.

Forms 1095-B are used to report whether individuals have minimum essential coverage (“MEC”) and, therefore, are not liable for the individual shared responsibility payment. Forms 1095-C are used to report information about offers of health coverage and enrollment in health coverage for employees, to determine whether an employer owes an employer shared responsibility payment, and to determine the eligibility of employees for the premium tax credit. Under the Affordable Care Act’s (“ACA’s”) employer mandate, applicable large employers (“ALEs”) (those employing on average at least 50 full-time employees and full-time equivalents in the prior calendar year), are required to offer MEC to at least 95% of their full-time employees (and their dependents) that is “affordable” and provides “minimum value” to avoid applicable penalties. [1]

Notice 2018-94 does not extend the due date for filing the Forms 1094-B, 1095-B, 1094-C and 1095-C with the IRS, with the due date remaining February 28, 2019, if not filing electronically, or April 1, 2019, if filing electronically. Employers may still obtain an automatic 30-day extension to file the required forms by filing a Form 8809 with the IRS on or before the forms’ due date. An employer may also receive an additional 30-day extension under certain hardship conditions.

Employers who fail to comply with the extended due dates for furnishing Forms 1095-B and 1095-C to individuals or for filing the Forms 1094-B, 1095-B, 1094-C and 1095-C are subject to penalties. However, an employer that fails to meet the relevant due dates should still furnish and file the required forms as soon as possible. The IRS will take such furnishing and filing of the forms into determining whether to decrease penalties for reasonable cause.

Below is a chart of the applicable deadlines for 2018 Forms and the applicable reporting entities:

Reporting Entity

No Plan

Fully-Insured Plan Self-Insured Plan

Deadline for 2018 Forms

Non-ALE

No filing required. No filing required. Forms 1094-B and 1095-B To individuals:

March 4, 2019

 

To the IRS:

February 28, 2019, if filing by paper; or

April 1, 2019, if filing electronically.

ALE

Forms 1094-C and 1095-C (except Part III; leave blank). Forms 1094-C and 1095-C (except Part III; leave blank). Forms 1094-C and 1095-C for employees.

Either B- or C-Series forms for non-employees.

Insurance Provider

No filing required. Forms 1094-B and 1095-B. Not applicable.

Extension of Good Faith Relief

Similar to the good-faith relief provided in 2015, 2016, and 2017, the IRS will not impose penalties on employers that can show that they made good-faith efforts to comply with the requirements for calendar year 2018. This relief is available only for incorrect and incomplete information reported on the statements or returns, such as missing and inaccurate taxpayer identification numbers and dates of birth. In determining good faith, the IRS will consider whether an employer made reasonable efforts to comply with the requirements (e.g., gathering and transmitting the necessary data to an agent or testing its ability to transmit information).

Good faith relief is not available to employers who have failed to timely furnish or file a statement or comply with the regulations. However, if an employer is late filing a return, it may be possible to get a penalty abatement for failures that are due to reasonable cause and not willful neglect. To establish reasonable cause, an employer must show that it acted in a responsible manner and that the failure was due to significant mitigating factors or events beyond its control.

Individual Mandate and Reporting In Future Years

Individuals do not need to wait to receive the Form 1095-C to file their 2018 tax returns, but should keep these forms for their records. They may rely on other information provided by their employers or other service providers to determine their eligibility for a premium tax subsidy and confirming whether they have had MEC to avoid an individual mandate penalty in 2018. Individuals do not need to send the information they relied upon to the IRS when they send their returns.

Notably, while the individual shared responsibility payment is reduced to zero beginning January 1, 2019, the IRS will continue to study whether and how the reporting requirements should change, if at all, for future years. In the meantime, employers and other service providers should continue to collect information in 2019 needed to comply with all ACA reporting requirements.

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[1] The penalties for failure to comply with these ACA requirements could result in penalties under Internal Revenue Code Section 4980H(a) (“A Penalty”) and Section 4980H(b) (“B Penalty”). The “A Penalty” is $2,320 in 2018 ($2,500 in 2019) for each full-time employee (minus 30 employees) of the employer, including full-time employees who have MEC from another employer plan or another source. The “B Penalty” is $3,480 in 2018 ($3,750 in 2019) for each employee that obtains a premium tax credit.

Employers and health plans should be aware that two recent federal decisions have recognized that the non-discrimination provision in the Affordable Care Act prohibits discrimination on the basis of gender identity. Plans cannot categorically exclude coverage for procedures to treat gender dysphoria.

In Boyden v. Conlin, the U.S. District Court for the Western District of Wisconsin found that the state’s exclusion of gender reassignment-related procedures from the state employees’ health insurance coverage constitutes sex discrimination in violation of Section 1557 of the Affordable Care Act (the “ACA”) and Title VII of the Civil Rights Act. Section 1557 of the ACA prohibits discrimination and the denial of benefits under a health program or activity, any part of which is in receipt of federal financial assistance, on the basis of race, color, national origin, sex, age or disability. The plaintiffs, two transgender women employed by the State of Wisconsin, also alleged that the exclusion violated the Equal Protection Clause of the Fourteenth Amendment.

This case involved the exclusion of “procedures, services, and supplies related to surgery and sex hormones associated with gender reassignment” from the health insurance coverage. Pursuant to the exclusion, the health plan did not cover hormone therapy involving gender reassignment surgery, or the surgery itself. Defendants argued that the exclusion did not discriminate on the basis of sex because the plan excludes coverage for all cosmetic treatments for psychological conditions, and because the exclusion simply prohibits coverage for gender reassignment procedures, not because plaintiffs are transgender. The court disagreed, finding that the case constituted a “straightforward case of sex discrimination” because the exclusion treated people differently based on their natal sex. The court also found that the exclusion implicated “sex stereotyping by limiting the availability of medical transition … thus requiring transgender individuals to maintain the physical characteristics of their natal sex.”

The court also found liability against the state on plaintiffs’ Equal Protection Clause claim. In applying heightened scrutiny review, the court concluded that the state failed to show that the exclusion was the product of cost concerns or concerns about the safety and efficacy of gender reassignment surgery and hormone therapy. Because the state could not put forth evidence of a genuine reason for the exclusion, the court found in favor of plaintiffs on the Equal Protection Claim.

Two days after the decision in Boyden, in Tovar v. Essentia Health, the District Court for the District of Minnesota held that Section 1557 prohibits discrimination on the basis of gender identity. In that case, plaintiffs alleged that Essentia Health and HealthPartners Inc. violated Section 1557 by sponsoring or administering a plan that categorically excluded coverage for all health services and surgery related to gender reassignment. Section 1557 incorporates four federal civil rights statutes that prohibit discrimination on the basis of: race, color and national origin (Title VI); sex (Title IX); age (ADEA); and disability (Rehabilitation Act). Concluding that Title IX’s prohibition against sex discrimination should be read as coextensive with Title VII, and noting that courts have recognized a cause of action under Title VII for sex discrimination based on gender identity and gender-transition status, the court determined that “sex discrimination encompasses gender-identity discrimination.” The court thus concluded that Section 1557 prohibits gender identity discrimination and denied defendants’ motion to dismiss.

The court also declined to stay the action pending resolution of Franciscan Alliance, Inc. v. Burwell, in which the Northern District of Texas issued a nationwide injunction enjoining enforcement of the Department of Health and Human Services (HHS) regulations providing that Section 1557’s prohibition of sex discrimination encompasses gender identity discrimination. The Minnesota court concluded that a stay was not warranted because its conclusion that Section 1557 prevents discrimination based on gender identity is based on the plain reading of the statute and does not rely on the Franciscan Alliance decision.

Employer Takeaways

These two cases are the latest in a series in which plaintiffs allege that their employer sponsored health plans are designed in a manner that discriminates based on gender identify in violation of Section 1557 of the ACA and Title VII of the Civil Rights Act. While an earlier decision (Baker v. Aetna Life Insurance Co., 228 F. Supp. 3d 764 (N.D. Tex. 2017)) by the Northern District of Texas declined to find a cause of action for gender identity discrimination under Section 1557, these decisions are in line with the current trend to allow gender identity discrimination claims to be pursued under Section 1557. Therefore, while HHS continues its current policy of non-enforcement of allegations of gender identity discrimination under Section 1557, employers should be aware of provisions in their group health plans that exclude coverage for transgender benefits and litigation risks that these provisions may pose.

Notably, the plans in both Boyden and Tovar included categorical exclusions for services and/or surgeries related to gender reassignment or transition. These categorical exclusions often are a red flag. By contrast, in Baker, the plan did not categorically exclude gender reassignment procedures; there, the insurance company denied the plaintiff’s request for breast augmentation surgery as not medically necessary. The Baker court found in favor of defendants on both the Section 1557 and Title VII claims. Thus, employers are advised to review their plans to ensure that services to treat gender dysphoria and related conditions are made available to their covered employees.

On Friday October 6, 2017, the Trump administration released two interim final rules expanding the exemptions allowed under the Patient Protection and Affordable Care Act’s (the “ACA’s”) contraceptive coverage mandate. Under the ACA, employer group health plans generally are required to cover contraceptives, sterilization, and related patient education and counseling, with exemptions provided for religious houses of worship. The exemption was expanded by the Department of Health and Human Services (HHS) as a result of the Supreme Court’s decision in Burwell v. Hobby Lobby 34 S. Ct. 2751 (2014), which held health plans of closely held for-profit corporations are not required to cover contraceptives if doing so would contradict the owner’s religious beliefs under the Religious Freedom Restoration Act.

The interim final rules, released by the Treasury Department, Department of Labor (DOL), and HHS, are effective immediately and provide exemptions from the contraceptive coverage mandate to many employers with “sincerely held religious beliefs” or “sincerely held moral convictions.” The interim final rules limit the exemption for “sincerely held moral convictions” to houses of worship, tax-exempt entities, and closely held for-profit corporations, but permit publicly traded for-profit entities to use the exemption for “sincerely held religious beliefs.”

According to the Trump administration, the United States has had a long history of providing protections in the regulation of health care for individuals and entities with objections based on religious beliefs or moral convictions.

To take advantage of the new exemption, eligible employers must notify employees that they will no longer provide contraceptive coverage but need not inform the federal government. The Employee Retirement Income Security Act of 1974, as amended (ERISA), requires that a Summary of Material Modification (SMM) is provided within 60 days of a “material reduction” in covered services or benefits provided under a group health plan. A material reduction includes the elimination of benefits payable under a group health plan.

According to an Obama administration report released last year, 55 million women have gained access to no-cost birth control as a result of the contraceptive coverage mandate. It is not clear how many entities may claim the exemptions, but HHS has predicted about 200 entities (affecting 120,000 women) may do so based on the number of entities that filed lawsuits.

Written comments on the interim final rules are due December 5, 2017.

 

On June 5, 2017, in Advocate Health Care Network et al. v. Stapleton et. al, the Supreme Court unanimously held that employee benefit plans maintained by church-affiliated hospitals were exempt from the Employee Retirement Income Security Act (the “ERISA”), regardless of whether the plan was actually established by a church. The plaintiffs consisted of current and former employees of three church-affiliated non-profits who ran hospitals and healthcare facilities that offered their employees defined benefit pension plans established by the hospitals and managed by internal hospital employee benefits committees.  The plaintiffs filed class actions in three different federal districts alleging that the hospital defined benefit pension plans were not entitled to an exemption under ERISA because they were not established by a church and therefore should be required, among other things, to meet the minimum-funding obligations of ERISA. The pension plans at issue were severely underfunded and ERISA would have required the hospitals to potentially contribute billions of dollars to satisfy the ERISA minimum-funding standards.

Under ERISA, private employers that offer pension plans must abide by a set of rules created to protect plan participants and ensure plan solvency. Section 4(b)(2) of ERISA, however, specifically exempts the employee benefits plans of churches. Section 3(33) of ERISA originally defined a church plan to mean a plan “established and maintained” for its employees by a church or by a convention or association of churches. In 1980, Congress expanded the church-plan definition to state that an “employee of a church” would include an employee of a church-affiliated organization and to add that a church plan includes a plan “maintained” by a “principal-purpose” organization. A “principal-purpose” organization is an organization controlled by or associated with a church or a convention or association of churches the principal purpose or function of which is the administration or funding of a plan or program providing retirement or welfare benefits to employees of such organizations. The Supreme Court found that, under the best reading of the statute, Congress intended that the church plan exemption under ERISA include plans adopted by principal-purpose organizations, even if not established by the church to which the principal-purpose organization is affiliated. In a concurring opinion, Justice Sotomayor agreed with the interpretation of ERISA but cautioned that Congress, when enacting the 1980 amendment, probably did not envision that this exemption would apply to large organizations that employ thousands of employees, operate for-profit subsidies, earn billions of dollars in revenue, and compete in the secular market with companies that must bear the cost of compliance under ERISA. Although she agreed with the majority’s conclusion, she wondered whether the current reality may prompt Congress to make changes.

Takeaway

The Supreme Court’s decision provides assurances to church-affiliated organizations that have treated their employee benefit plans as exempt church plans under ERISA. The organizations should be mindful, however, that as the Court specifically noted, the issue of whether  the hospitals qualified as “principal-purpose” organizations was not brought before it.  Therefore, it remains to be seen how the lower courts address the level and quality of a relationship that must be maintained between a church and a health care provider to qualify it as a “principal-purpose” organization.

In a notable recent court decision highlighting transgender issues and employer sponsored benefit plans, on January 13, 2017, in Baker v. Aetna Life Ins. Co., 2017 U.S. Dist. LEXIS 5665, 2017 WL 131658 (N.D. Tex.), Aetna Life Insurance Co. (“Aetna”) defeated a claim by a transgender employee of L-3 Communications Integrated Systems LP (“L-3”) who alleged that Aetna’s denial of her disability benefits constituted discrimination based on her gender identity. The plaintiff, Charlize Marie Baker (“Baker”), is a participant in L-3’s Employee Retirement Income Security Act (“ERISA”) covered group health plan and short term disability benefits plan (“STD Plan”). Aetna is the third party administrator (“TPA”) of the group health plan and the claim fiduciary and administrator of the STD Plan.

In 2011, Baker began transitioning from male to female, legally changing her name and gender designation on all government issued documents. In 2015, after a consultation with a health care professional who determined that breast implants were medically necessary to treat gender dysphoria, Baker scheduled surgery and sought benefits under the STD Plan to cover her post-surgery recovery. Coverage under the group health plan and benefit claims under the STD Plan were denied. Filing suit against Aetna and L-3, Baker alleged that Aetna and L-3 discriminated against her based on her gender identity in violation of Section 1557 of the Affordable Care Act (the “ACA”), that Aetna denied her benefits under the STD Plan in violation of ERISA, and that Aetna and L-3 violated Title VII by discriminating against her based on her sex.

The court held that there is no controlling precedent that recognizes a cause of action under Section 1557 for discrimination based on gender identity with Baker failing to cite any precedent that recognizes such a cause of action. The court also held that ERISA does not recognize such a claim. Specifically, the court concluded that it is up to Congress to decide whether it wants to create in ERISA a protection that the statute does not expressly provide. Lastly, regarding Baker’s Title VII claims, the court found that Aetna was not an employer of Baker under the “single employer” test or the “hybrid economic realities/common law control” test. However, the court declined to dismiss Baker’s Title VII claims against L-3, finding Baker did sufficiently argue that she was denied employee benefits due to her sex.

Takeaways

While the Northern District of Texas declined to find a cause of action for gender identity discrimination under Section 1557 of the ACA, there are several cases of gender identity or transgender discrimination pending that may further impact the law for these benefit claims under Section 1557. There is little likelihood, however, that a claim of gender identity discrimination will be successful under ERISA. If the ACA is repealed under the Trump administration, Section 1557 will no longer be available and transgendered employees would be limited to claims under Title VII, to the extent that employees are successful in arguing that discrimination on the basis of gender identity constitutes sex discrimination.

While Section 1557 imposes significant nondiscrimination requirements on “Covered Entities” (as discussed in the article above), most employers are not “Covered Entities” as defined under the final rule (“non-covered employers”). The impact of Section 1557 on non-covered employers depends on whether their respective group health plans are insured or self-insured and the level of involvement in the plans by insurance issuers that are “Covered Entities” under the final rule.

Non-Covered Employers with Fully Insured Group Health Plans

Nearly all health insurance issuers are Covered Entities under Section 1557 because they offer individual policies on a federal or state Health Insurance Marketplace or otherwise receive federal funds. Non-covered employers that sponsor fully insured group health plans will be subject to Section 1557 through the underlying insurance policy (provided that the insurer offering the policy participates in an exchange or otherwise receives federal financial assistance).

As a Covered Entity, a health insurance issuer must provide special notices to plan participants, make available appropriate translations and auxiliary aids and services, and ensure that the covered benefits offered under the insurance policy are nondiscriminatory. Plan sponsors of fully insured group health plans should expect to see changes to enrollment documents, plan participant communications, and other notices from the health insurance issuer.

One of the most significant changes being made by insurance issuers to comply with Section 1557 is the elimination of any exclusion for benefit coverage of transgender health services under the insurance policy. The final rule makes clear that sex discrimination includes discrimination based on an individual’s sex, including gender identity (as well as pregnancy, childbirth, and related medical conditions, and sex stereotyping). Specifically, Covered Entities may not deny or limit coverage for health services that are ordinarily or exclusively available to persons of one gender because the person’s sex assigned at birth, gender identity, or recorded gender is different than the one to which the services are ordinarily or exclusively available. The final rule concludes that broad coverage exclusions or limitations related to gender transition are per se discriminatory and therefore unlawful. For example, many group health plans currently have explicit exclusions of coverage for all care related to gender dysphoria or gender transition, with all treatment related to transition categorized as cosmetic or experimental. Such explicit coverage exclusions under a fully insured group health plan generally are now prohibited.

Non-Covered Employers with Self-Insured Group Health Plans

If a health insurance issuer acts as a third-party administrator for a non-covered employer’s self-insured group health plan, the issuer is directly subject to Section 1557 and must administer the plan in compliance with the nondiscrimination rules. This means that if the third-party administrator is providing claims services, it must comply with the nondiscrimination rules in making any claims determinations. The non-covered employer, however, is not required to comply. Therefore, any plan coverage design decisions made by the non-covered employer in its capacity as plan sponsor are not subject to the Section 1557 nondiscrimination protections.

Nevertheless, the Section 1557 final rule clarifies that even though HHS lacks jurisdiction over a non-covered employer, HHS has the power to refer any complaint of discrimination to the EEOC and that it intends to do so. Few courts have held that discrimination based on gender identity constitutes a form of sex-based discrimination. However, the EEOC has taken the position that sex discrimination includes discrimination on the basis of gender identity and has already begun investigating allegations of gender identity discrimination in a health program or activity. From a risk perspective, a non-covered employer with a self-insured group health plan may wish to review the plan’s benefit design and determine if any changes should be made. If there is an explicit exclusion for coverage of transgender health care, a non-covered employer may choose to remove the exclusion from the plan to minimize the possibility of an EEOC investigation as it relates to the employer’s group health plan.

Employment Discrimination

Finally, non-covered employers should be reminded of other nondiscrimination rules that might apply to them. For example, Section 1557 borrows from various antidiscrimination laws that apply to the employer directly, such as the requirement to provide auxiliary aids and services under the Americans with Disabilities Act. Although non-covered employers may not be required to comply with Section 1557, they are still required to abide by the various antidiscrimination laws and an employment discrimination complaint could arise through a referral to the EEOC in relation to an employer’s group health plan.

Takeaways

Although only Covered Entities are required to comply with the Section 1557 final rule, non-covered employers should be aware of the breadth of the final rule and how it affects them. Clearly, in developing the final rule, HHS intended for the nondiscrimination protections to apply to the greatest number of plan participants possible. To manage risk, non-covered employers may wish to review the design and operation of their group health plans to ensure that the plans do not discriminate against individuals, specifically with regards to transgender benefits, and to be aware that group health plan design and administration may be the basis of an employment discrimination complaint or EEOC investigation.

A version of this article originally appeared in the Take 5 newsletter Five Key Issues Impacting Health Care Employers.”