Trump Signs Executive Order on the ACA
On Jan. 20, 2017, President Donald Trump signed an executive order addressing the Affordable Care Act (ACA), as his first act as president. The order states that it is intended “to minimize the unwarranted economic and regulatory burdens” of the ACA until the law can be repealed and eventually replaced.
The executive order broadly directs the Department of Health and Human Services (HHS) and other federal agencies to waive, delay or grant exemptions from ACA requirements that may impose a financial burden.
ACTION STEPS
An executive order is a broad policy directive that is used to establish how laws will be enforced by the administration. It does not include specific guidance regarding any particular ACA requirement or provision, and does not change any existing regulations.
As a result, the executive order’s specific impact will remain largely unclear until the new administration is fully in place and can begin implementing these changes.
Overview
President Trump’s executive order begins by emphasizing his administration’s long-stated goal of repealing the ACA. Pending these repeal efforts—which are already underway in Congress—the executive order is intended to:
- Minimize the ACA’s unwarranted economic and regulatory burdens; and
- Prepare to afford states more flexibility and control to create a free and open health care market.
Specifically, the executive order directs HHS and other federal agencies responsible for administering the ACA to “exercise all authority and discretion available to them to:
- Waive, defer, grant exemptions from, or delay implementation of any ACA provision or requirement that would impose a fiscal burden on any state or a cost, fee, tax, penalty or regulatory burden on individuals, families, health care providers, health insurers, patients, recipients of health care services, purchasers of health insurance, or makers of medical devices, products or medications;
- Provide greater flexibility to states and cooperate with them in implementing health care programs; and
- Encourage the development of a free and open market in interstate commerce for the offering of health care services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.”
The executive order specifically states that it does not, itself, make changes to any existing regulations. To the extent that the executive order’s directives would require revision of regulations, that will be done by federal agencies through the normal regulatory process.
Impact on ACA Provisions
The executive order is very broad, and does not include any detailed guidance as to how it should be carried out. Instead, it gives federal agencies broad authority to eliminate or fail to enforce any number of ACA requirements, as permitted by law. As a result, until the new heads of federal agencies are in place, it is difficult to know how the ACA will be specifically impacted.
There is some indication that the executive order is partially aimed at eliminating or providing exemptions from the ACA’s individual and employer mandates, since those requirements impose tax penalties that may impose a “fiscal burden” on individuals and employers. In addition, it is clear that the executive order is intended to help accomplish an idea that has been long supported by President Trump, which is to allow health insurers to sell policies across state lines in an effort to increase free market competition.
However, the immediate impact of the executive order will likely be small, since it will take time to implement policies, regulations and other subregulatory guidance to carry out the directives. In addition, health insurance policies for 2017 are already in place, and state law, in many cases, prohibits significant changes from being made midyear.
No ACA provisions or requirements have been eliminated or delayed at this time as a result of President Trump’s actions. Therefore, employers should continue to prepare for upcoming requirements and deadlines to ensure full compliance.
New Stand-alone HRA Option Available for Eligible Small Employers
Due to the Affordable Care Act (ACA), most stand-alone health reimbursement arrangements (HRAs)—an HRA that is not offered in conjunction with a group health plan—have been prohibited since 2014. However, on Dec. 13, 2016, the 21st Century Cures Act (Act) was signed into law, which allows small employers that do not maintain group health plans to establish stand-alone HRAs, effective for plan years beginning on or after Jan. 1, 2017.
This new type of HRA is called a “qualified small employer HRA” (or QSEHRA). Like all HRAs, a QSEHRA must be funded solely by the employer. Employees cannot make their own contributions to an HRA, either directly or indirectly through salary reduction contributions. Specific requirements apply, including a maximum benefit limit and a notice requirement.
Who is eligible?
To be eligible to offer a QSEHRA, an employer must meet the following two requirements:
- The employer is not an applicable large employer (ALE) that is subject to the ACA’s employer shared responsibility rules.
- The employer does not maintain a group health plan for any of its employees.
What is the maximum benefit limit?
The maximum benefit available under the QSEHRA for any year cannot exceed $4,950 (or $10,000 for QSEHRAs that also reimburse medical expenses of the employee’s family members). These dollar amounts are subject to adjustment for inflation for years beginning after 2016. Additionally, the maximum dollar limits must be prorated for individuals who are not covered by the QSEHRA for the entire year.
What is the notice requirement?
An employer funding a QSEHRA for any year must provide a written notice to each eligible employee. This notice must be provided within 90 days of the beginning of the year. For employees who become eligible to participate in the QSEHRA during the year, the notice must be provided by the date on which the employee becomes eligible to participate.
Transition Relief Extension
The Act also extends the transition relief under IRS Notice 2015-17, so that it applies with respect to plan years beginning on or before Dec. 31, 2016.
Health FSA Limit Will Increase for 2017
The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans. This dollar limit is indexed for cost-of-living adjustments and may be increased each year.
On Oct. 25, 2016, the Internal Revenue Service (IRS) released Revenue Procedure 2016-55 (Rev. Proc. 16-55). Rev. Proc. 16-55 increased the FSA dollar limit on employee salary reduction contributions to $2,600 for taxable years beginning in 2017. It also includes annual inflation numbers for 2017 for a number of other tax provisions.
ACTION STEPS
Employers should ensure that their health FSA will not allow employees to make pre-tax contributions in excess of $2,600 for 2017, and they should communicate the 2017 limit to their employees as part of the open enrollment process.
An employer may continue to impose its own health FSA limit, as long as it does not exceed the ACA’s maximum limit for the plan year. This means that an employer may continue to use the 2016 maximum limit for its 2017 plan year.
The ACA initially set the health FSA contribution limit at $2,500. For years after 2013, the dollar limit is indexed for cost-of-living adjustments.
- 2014: For taxable years beginning in 2014, the dollar limit on employee salary reduction contributions to health FSAs remained unchanged at $2,500.
- 2015: For taxable years beginning in 2015, the dollar limit on employee salary reduction contributions to health FSAs increased by $50, for a total of $2,550.
- 2016: For taxable years beginning in 2015, the dollar limit on employee salary reduction contributions to health FSAs remained unchanged at $2,550.
- 2017: For taxable years beginning in 2017, Rev. Proc. 16-55 increased the dollar limit on employee salary reduction contributions to health FSAs to $2,600.
The health FSA limit will potentially be increased further for cost-of-living adjustments in later years.
Employer Limits
An employer may continue to impose its own dollar limit on employees’ salary reduction contributions to health FSAs, as long as the employer’s limit does not exceed the ACA’s maximum limit in effect for the plan year. For example, an employer may decide to continue limiting employee health FSA contributions for the 2017 plan year to $2,500.
Per Employee Limit
The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $2,600 in salary reductions in 2017, regardless of whether he or she also has family members who benefit from the funds in that FSA. However, each family member who is eligible to participate in his or her own health FSA will have a separate limit. For example, a husband and wife who have their own health FSAs can both make salary reductions of up to $2,600 per year, subject to any lower employer limits.
If an employee participates in multiple cafeteria plans that are maintained by employers under common control, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,600. However, if an individual has health FSAs through two or more unrelated employers, he or she can make salary reductions of up to $2,600 under each employer’s health FSA.
Salary Reduction Contributions
The ACA imposes the $2,600 limit on health FSA salary reduction contributions. Non-elective employer contributions to health FSAs (for example, matching contributions or flex credits) generally do not count toward the ACA’s dollar limit. However, if employees are allowed to elect to receive the employer contributions in cash or as a taxable benefit, then the contributions will be treated as salary reductions and will count toward the ACA’s dollar limit.
In addition, the limit does not impact contributions under other employer-provided coverage. For example, employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance are not affected by the health FSA limit. The limit also does not apply to salary reduction contributions to a cafeteria plan that are used to pay for an employee’s share of health coverage premiums, to contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).
Grace Period/Carry-over Feature
A cafeteria plan may include a grace period of up to two months and 15 days immediately following the end of a plan year. If a plan includes a grace period, an employee may use amounts remaining from the previous plan year, including any amounts remaining in a health FSA, to pay for expenses incurred for certain qualified benefits during the grace period. If a health FSA is subject to a grace period, unused salary reduction contributions that are carried over into the grace period do not count against the $2,600 limit applicable to the following plan year.
Also, if a health FSA does not include a grace period, it may allow participants to carry over up to $500 of unused funds into the next plan year. This is an exception to the “use-it-or-lose-it” rule that generally prohibits any contributions or benefits under a health FSA from being used in a following plan year or period of coverage. A health FSA carryover does not affect the limit on salary reduction contributions. This means the plan may allow the individual to elect up to $2,600 in salary reductions in addition to the $500 that may be carried over.
Plan Amendments
Plan documents that specify the health FSA dollar limit must be amended if the higher limit will be used in 2017.