Understanding the Family Glitch Fix

Congress enacted the Affordable Care Act in 2010 under unusual circumstances. Democrats began drafting the law when they had 60 votes in the Senate and a majority in the House. Senator Edward Kennedy’s passing changed that. Democrats turned to the budget reconciliation process to pass the ACA. However, this circumvented the legislative process we learned about on School House Rock. The law never went to a conference committee. Conference committees fine tune legislation, addressing details, nits and errors. Without these tweaks, laws are usually flawed.

Which meant that the ACA had problems. Whatever your personal opinion on the ACA, the reality is the legislation as passed needed refinement. Normally this problem would be remedied in follow-up legislation. But the politics of the ACA made significant fixes impossible. Republicans historically wanted to repeal Obamacare, not fix it. Democrats couldn’t implement many fixes on their own.

This year, however, the IRS stepped up to fix what is known as the Family Glitch. To oversimplify a bit, these are rules that determined whether a person was eligible for a premium tax credit. Family members of employees offered qualifying employer-sponsored coverage who could not afford the dependent premium were ineligible for subsidies when they obtained insurance through an ACA exchange.

The regulations apply to health plans with January 1, 2023 effective dates – even if those plans are sold before January 1st. For example, plans sold during this year’s open enrollment (November 1, 2022 through January 15, 2023).

Which means if you sell health insurance, understanding the Family Glitch fix is important. Fortunately, the folks at NAHU can help with that. They’ve published a Family Glitch FAQ that is required reading for benefit specialists. (Members of NAHU have access to compliance support that can provide even more assistance). You can view NAHU’s FAQ here.


Putting Healthcare Reform In Perspective

Putting Healthcare Reform In Perspective

I am honored that California Broker magazine has asked me to write a monthly column for their publication. The magazine has been an important resource for insurance agencies in the Golden State for decades. I’ve written numerous articles for them over the year, but this is the first time I’m doing a regular column.

Since the topics I’m writing on are not geographically limited, I thought I’d share them here as well. This first article, Putting Politics Into Perspective, published in the January issue, explains why there is almost no chance of Medicare for All becoming law in the next administration. While the COVID-19 epidemic changes the calculus slightly, I stand by the conclusion made here. Unless something remarkable happens in the Fall, there simply won’t be the votes needed to enact legislation this sweeping. The article has been slightly edited since its publication.


Putting Health Care Reform in Perspective

It’s easy to get caught up in the day-to-day events that comprise America’s politics. Like an easily distracted dog, every day brings another squirrel. Or three.

By the time you read this, for instance, cable news is no doubt obsessing over the twists and turns of President Donald Trump’s impeachment trial. (As I write, the Judiciary Committee is getting ready for its first hearing, but where this road leads is pretty easy to map). Once the trial is over, the news channels will resume fixating on the Democratic Party’s presidential nomination. That means we’ll be hearing a lot more about Medicare For All, Medicare For All Who Want It and all the other permutations that are healthcare reform in 2020.

A winning issue

In the 2018 mid-term elections healthcare reform played a critical role in helping Democrats capture a majority in the House of Representatives. That’s in part because Republicans badly botched their “repeal and replace” approach to the Affordable Care Act (ACA), misplacing the “replace” part of the formula. For Democrats, healthcare reform is a winning issue. They’ll keep it front and center in 2020.

Listening to politicians debate an issue that could devastate your profession and livelihood can be … upsetting. Especially when the issues involve something as complex as healthcare reform and the politicians, by choice and necessity, talk in generalities and principles that often only glancingly connect with reality.

For example, the Democratic Presidential Debates over the past few months have spent considerable time on the need to fix America’s healthcare system. They often fail to separate health insurance practices from, say, pharmaceutical company pricing decisions. There should be a warning on the screen: Politicians conflating insurance policies covering the cost of care and providers setting the cost of care may lead to indigestion and high blood pressure.

Or consider the appropriation of Medicare to sell a single-payer system. Any and every health insurance professional knows that when candidates talk about Medicare For All they are not referring to Medicare As It Is Today. Medicare As It Is Today includes premiums, co-pays, deductibles, coverage limits and more. It limits costs by setting reimbursement levels for doctors, hospitals and other providers. Medicare For All includes no cost-sharing. And it sets prices providers can charge–a fact no politician will emphasize.

However, Medicare As It Is Today is popular. Co-opting the term “Medicare” for a government-run single payer plan is simply good marketing. And good marketing is good politics. Which means this conflation will continue.

Governing isn’t campaigning

There’s a simple way to get through the coming stress-inducing political maelstrom. Relax. Pay attention. But don’t panic. What you’re hearing is the sound and fury to which William Shakespeare referred. He noted such noise signified nothing. In the case of healthcare reform, it signifies something, but much less than might be apparent.

That’s because campaigning and governing are two different things. Campaigns are about hope (or fear). Campaigns are aspirational. Governing is about counting votes. Administrations are pragmatic. That’s because the calculus each use is different.

Campaigns are about aggregating voting blocks to create a majority (or at least a plurality). In presidential campaigns this is complicated by the Electoral College, but let’s not go there. That’s why politicians talk about “big tents” and “coalitions.”

Governing requires cobbling together sufficient majorities in a legislature (let’s assume Congress). This process is focused on the needs and fears of 535 lawmakers, not 130 million voters.

The 60th Senator

The implications of this difference are profound. Despite all the attention paid to the presidential contest and the nearly $2 billion that will be spent to influence who sits in the oval office, the president doesn’t get to decide the final shape of health care reform. That power resides with one senator.

Interestingly, we don’t know who that is. Yet. But let any president, Democrat or Republican, try to push through healthcare reform and we’ll find out. That most powerful Senator is whoever positions themselves as the 60th vote. (There are ways to change laws in the Senate with a simple majority, but let’s consider the traditional method for now).

Getting to 59 votes is tough. Getting to 60 votes is much tougher. Senators who commit late are extremely powerful. They can often determine what the final bill contains.

In 2017 we saw an example of this phenomenon. Senate Republicans needed 50 votes to pass a “skinny” repeal of the ACA (why 50 were needed as opposed to 60 isn’t relevant now). That crucial vote turned out to belong to Senator John McCain. And neither the president nor Senate Majority Leader Mitch McConnell could capture his support. In that famous “thumbs down” moment, Senator McCain doomed the Republican effort to kill the ACA.

 Medicare for All: Not happening

Come November 2020 we’ll find out which party holds the majority in the Senate. Given that every Republican and several Democrats oppose Medicare For All, that proposal will be dead on arrival.

It’s totally appropriate for Democratic candidates to use Medicare For All to define their aspirations and build their coalitions. When it comes time to govern, however, no matter who is elected, Medicare For All is not going to happen. The 60th senator–whoever that may be–won’t let it.

This doesn’t mean the healthcare reform debate this year is meaningless. This doesn’t mean, as knowledgeable health insurance professionals, we can be detached or silent. Quite the opposite. Momentum matters. Education makes a difference. And advocates for a single payer system are not going away. Engaging in the debate is necessary and useful.

Just keep things in perspective. Your blood pressure will thank you.

Alan Katz is a co-founder of Take 44, Inc., the company behind NextAgency, an agency management system for life and health agencies that saves them time, money and clients. Learn more at www.NextAgency.com. Alan is a past president of NAHU, was a senior vice president at WellPoint and general manager of the general agency Centerstone. He has served as chief of staff to California’s Lieutenant Governor and on the Santa Monica City Council. You can follow him on Twitter (@AlanSKatz), connect on LinkedIn (www.linkedin.com/in/alankatz44) and contact him at Alan@Take44.com.


Your Client Got an IRS Letter 226J … a What?

Your Client Got an IRS Letter 226J … a What?

If you have clients that meet the Affordable Care Act’s definition of a “large group,” they may soon receive an unwelcome letter from the Internal Revenue Service — if they haven’t already. This Letter 226J informs these groups that they may be liable for an Employer Shared Responsibility Payment (ESRP) based on a discrepancy between what the group submitted to the IRS in 1094-C and 1095-C forms for the 2015 tax year and the individual income tax returns filed by some of the group’s employees for that tax year.

If your client gets this letter they’re likely to be … confused and perhaps a bit unsettled. Since they’ll figure out the letter involves their benefit plans they’ll soon be calling you.

What’s going on here? And what are you supposed to do about it?

Before we answer those questions a caveat: this post is not providing legal advice. Consult your lawyer for that. Instead, think of this article as a heads-up: expect calls from some of your larger clients (because you’re not busy enough in the fourth quarter). When those calls come in you’ll want to be ready.

What’s Going on Here

Remember the ACA’s employer mandate to offer health care coverage to their employees? This requirement creates an opportunity for employers to pay-or-play. If they offer qualifying coverage, great. If they don’t, they are required to make an Employer Shared Responsibility Payment. An ESRP is government-speak for “hefty fine.”

Groups demonstrate they chose to play and provided coverage when they 1094-C and 1095-C with the Internal Revenue Service. If the group’s workers income tax filings show they had no qualifying coverage when employed by the firm, however, a flag gets raised deep in an IRS basement somewhere (figuratively speaking). The raising of this flag triggers an IRS Letter 226J to your client

When it comes to determining if your client is subject to an ESRP, size matters. So does timing. Originally the large group employer mandate was to take effect in 2014. The Obama Administration, however, postponed enforcement until the 2015 tax year for groups of 100 or more full time equivalent employees (FTEs). Groups of 50 or more FTEs needed to comply with the mandate in 2016. FTEs is different than a simple headcount of full-time employees. FTEs take into account hours worked by employees working part-time or for part of the year.

This means groups with 100 or more FTEs in 2015 were required to provide qualifying coverage or pay a fine. Letters concerning that fine are going out now. In 2016, clients with 50 or more FTEs will be subject to this requirement. That means in 2018 even more IRS letters are likely to flow out of that basement. And that, in turn, means more unsettled clients.

What You Are Supposed to Do About It

If the terms like ESRP, FTE, 1094-C and the like sound like gibberish to you, don’t worry. Most acronyms sound like gibberish. But that doesn’t mean you don’t need to get educated about them. Now. Fortunately, that’s a relatively straightforward process.

If you’re a member of the National Association of Health Underwriters, head over to NAHU’s Compliance Corner. There’s a plethora of information there. You can also submit questions on the site and have them answered by HR professionals. If you’re not a NAHU member, join today. Access to the tools and resources in the NAHU Compliance Corner alone is worth the membership fee (and membership gets you so much more).

Even if you consider yourself an ACA pro, NAHU’s resources are invaluable. So is information available on the IRS site. They offer a clear explanation of the explanation of the Letter 226-J and a useful guide to the employer mandate, including a guide for calculating FTEs.

Several companies specialize in supporting insurance professionals and their clients with expert benefit advice and help in navigating the ACA. Ask your colleagues and peers for recommendations. Just a word of caution: some vendors will try to tie you into multi-year, expensive contracts. Be careful, you’re looking for answers to benefit questions and that shouldn’t require such a long-term commitment.

When your clients receiving an IRS Letter 226J call you, remember, you’re an insurance professional, not an attorney or CPA. Channel your inner Doctor McCoy and inform them of this reality. (Unless, of course, you are an attorney or CPA in which case, proceed at your own risk).

The point is, be careful of offering advice — and accepting liability — you’re not qualified to provide. When you get the call, your job is to calm your client, let them know this is happening across the country, and reassure them you’re happy to work with their tax advisor. Then encourage them to call that tax advisor, share the letter, and give that adviser your contact information.

As a rule, letters from the IRS are rarely fun and Letter 226Js are not the exception to that rule. They will require you to put in some additional effort. That’s OK. Providing service to your clients is a critical part of what professional insurance brokers do. Arm yourself with an understanding of this area of the law and take your own advice: stay calm.