Shirazi Notice – February 2013

 open book


Legislative Alert

HHS Issues Final Rule on Essential Health Benefits
Notice of Exchanges and Subsidies: Delayed
Obama Administration Proposes Change to Contraception Rules
Employer Mandate to Be Based on 2013 Numbers

Federal Law Alerts

Updated Family Medical Leave Act (FMLA) forms (revised February 2013)
FMLA Notice Poster Updates
Revised Employment Eligibility Verification Form I-9

Affordable Care Act Tax Provisions

IRS Proposed and/or Final Guidance Provisions



HHS Issues Final Rule on Essential Health Benefits

The Department of Health and Human Services (HHS) has released a 149-page final rule detailing the essential health benefits (EHB) requirements. Beginning in 2014, all new small group and individual market plans will be required to cover EHB categories. The rule largely codifies proposed rules that were released last November.

HHS Secretary Kathleen Sebelius praised the rule, stating, “People all across the country will soon find it easier to compare and enroll in health plans with better coverage, greater quality and new benefits.”

Insurers must cover EHBs offered in 10 categories of care including emergency services, maternity, mental health, substance abuse, and prescription drugs. States are given substantial flexibility in selecting a benchmark plan, and many have been moving forward based on the proposed rule issued in November. Ian Spatz, a senior advisor for Manatt, Phelps and Philips, says the rule is good news for states as they continue to implement the Patient Protection and Affordable Care Act (PPACA). “Over the summer, we’ll get to see what the plans look like and especially how much they will cost,” Spatz said.

The rule also clarifies that insurers must have policies that permit patients to get “clinically appropriate” prescriptions, even if those drugs are not on the insurer’s list of covered medications. This will provide a great deal of relief to cancer patients that may have been hit with tens of thousands of dollars in prescription drug costs.

Stephan Finan, director of policy for the American Cancer Society’s Cancer Action Network, lauds this as an improvement. “It suggests that if you need a drug and that’s not on the formulary, you can get it, which was not the case before,” he said.

Under the new rule, insurers will not be able to charge a co-payment if a polyp is removed during a colonoscopy.  Until this new provision, insurers were able to reclassify the procedure as “diagnostic,” thus forcing liability back to the patient. The new rule also greatly expands mental health and substance abuse services.

While many are praising the final rule, the Children’s Hospital Association (CHA) expressed disappointment that HHS did not provide a strong definition of “habilitative” services for children. CHA released a statement expressing concern “that the flexibility HHS has given states to select services to include in essential health benefits packages could result in the exclusion of critical services for children, particularly those with severe disabilities and lead to state-by-state disparities.”

Although the final rule may, in fact, lead to disparities among states, the rule suggests HHS is taking a comprehensive approach to incorporating over 11,000 comments on previous EHB bulletins. According to HHS, comments were received by a wide variety of stakeholders including states, tribes, health plan issuers, consumer groups and health care providers. The final rule appears to be an effort to address many of these comments in a single, integrated platform.


Notice of Exchanges and Subsidies: Delayed

According to the original Health Care Reform Acts, effective March 1, 2013, employers of all sizes were required to provide each newly hired employee with a written notice of the existence of health insurance exchanges and potential subsidies available (Notice of Exchanges and Subsidies). This notice was, subsequently, required to be provided to all current employees. However, on January 24, 2013, the US Department of Labor (DOL) announced that it has delayed the compliance date for the delivery of this document. The DOL estimates that the notices (for both newly hired and current employees) will be mandated in either late summer or early fall of 2013. The DOL will publish and release a model notice prior to the new deadline.


Obama Administration Proposes Change to Contraception Rules

Earlier this month, the Obama administration announced a proposed rule change under the Patient Protection and Affordable Care Act (PPACA) that would relieve certain religious employers from paying for contraceptives for their female employees.

The proposed regulation, published by the U.S. Department of Health and Human Services (HHS) in the Federal Register, further expands and defines the groups that would be exempt from covering the costs of female contraception.  The rule also addresses where the money to pay for the guaranteed coverage would come from, ensuring that religious groups will not be paying any portion.

The proposed rule states:

The guidance provides that, under the temporary enforcement safe harbor, the Departments will not take any enforcement action against an employer, group health plan, or health insurance issuer for failing to cover some or all recommended contraceptive services in a non-grandfathered group health plan (or any group health insurance coverage provided in connection with such a plan) where the plan is established or maintained by an organization meeting all of the following criteria:

  • The organization is organized and operates as a nonprofit entity.
  • From February 10, 2012, onward, the group health plan established or maintained by the organization has consistently not covered all or the same subset of recommended contraceptive services, consistent with any applicable state law, because of the religious beliefs of the organization.
  • The group health plan established or maintained by the organization (or another entity on behalf of the plan, such as a health insurance issuer or third party administrator) provides to participants a notice indicating that some or all contraceptive services will not be covered under the plan for the first plan year beginning on or after August 1, 2012, as set forth in the guidance.
  • The organization self-certifies that it satisfies the foregoing three criteria and documents its self-certification, as set forth in the guidance.

The temporary enforcement safe harbor is also available for insured student health insurance coverage arranged by nonprofit institutions of higher education with religious objections to contraceptive coverage that similarly meets the four criteria.

It appears that by changing the definition of a “religious employer,” the proposed rule ensures more organizations will be able to claim the exemption.  Furthermore, an exempted organization will not be disqualified from claiming the exemption when:

1) Its express purpose extends beyond the inculcation of religious values;
2) It employs people of different religions; and
3) It does not primarily serve people with the same religious values. The revised regulation raises a new set of questions in terms of the expanded scope that will need to be addressed in the final rule.

Although the final details will need to be sorted out, female employees of exempt organizations will qualify for a separate insurance policy that only covers contraception and is not paid for by the employer or the employee.   The proposed regulations imply that commercial insurers would cover the costs for standalone conception coverage because such coverage is “cost neutral” for the underwriter.  For self-funded plans, the third party administrator (TPA) would help coordinate the funding of the coverage by claiming an adjustment in Federally-facilitated Exchange (FFE) user fees.

The original PPACA requirement that employers cover the cost of contraceptives as a preventive service was strongly opposed by religious employers who feel the requirement violated their 1st Amendment Rights and religious beliefs.  Churches have been exempt from the requirement for some time, and recently the exemption was expanded to include some religiously affiliated institutions.  The exemption will not extend to private businesses whose owners express moral reservations about the requirement.  Several lawsuits challenging the provision are currently in litigation, and it is anticipated the issue will ultimately reach the U.S. Supreme Court.

President Obama supports the new regulation under the premise it guarantees contraception for women while respecting religious beliefs. HHS Secretary Kathleen Sebelius mirrored this sentiment, stating, “Today, the administration is taking the next step in providing women across the nation with coverage of recommended preventive care at no cost, while respecting religious concerns.  We will continue to work with faith-based organizations, women’s organizations, insurers and others to achieve these goals.”

While the proposed rule is being praised by some, critics say the compromise is not enough. The president of the U.S. Conference of Catholic Bishops, Cardinal Timothy Dolan of New York, expressed his dissatisfaction with the regulation saying, “Throughout the year, we have been assured by the Administration that we will not have to refer, pay for, or negotiate for the mandated coverage.  We remain eager for the Administration to fulfill that pledge and to find acceptable solutions – we will affirm any genuine progress that is made, and we will redouble our efforts to overcome obstacles or setbacks.”

Similar sentiments were echoed by parties to current litigation challenging the mandate.  “After over a year of litigation, our clients and many others like them were hoping for much, much more from the administration,” Kyle Duncan, general counsel for the Becket Fund for Religious Liberty, stated on a conference call.  “The rights of family businesses like Hobby Lobby are still being violated.”

The proposed regulation remains open for public comment through April 8, 2013.


Employer Mandate to Be Based on 2013 Numbers

Beginning on January 1, 2014, the employer mandate provision of the Patient Protection and Affordable Care Act (PPACA) will become effective. This provision requires employers with 50 or more full-time equivalent employees to offer those employees health insurance benefits that satisfy certain affordability thresholds. Many employers do not realize that the application of the employer mandate will be based on the number of employees on the books in 2013.

According to guidance issued on December 28 , the government will rely on employer’s 2013 data to determine whether the employer is subject to a penalty for failure to comply with the requirement. Under the proposed regulation, if a company has 50 or more full-time equivalent employees on the record, that employer must provide those employees with insurance that meets affordability and minimum value requirements.

The guidance provides some clarification on how to determine the size of the firm. For example, employers can choose to calculate the number of full-time equivalent employees by averaging all 12 months of 2013, or by using a consecutive six-month period within the year.

A tax/penalty will apply if:

1) An employer is subject to the threshold and either does not provide any coverage.


2) The employer provides insurance that does not meet affordability or minimum value thresholds, and one or more employees receives a premium subsidy for coverage obtained via a state health benefits Exchange.

This guidance should spur employers to make decisions as to the composition of their work force now. Employers must take a proactive approach to remain compliant with PPACA and its various provisions.



Updated Family Medical Leave Act (FMLA) forms (revised February 2013)

Effective March 8, 2013, employers should begin to utilize the updated Family Medical Leave Act (FMLA) forms (revised February 2013) released by the Department of Labor (DOL), when applicable.

The updated forms are:

  • FMLA Form WH-381 (Notice of Eligibility and Rights & Responsibilities),
  • FMLA Form WH-384 (Certification of Qualifying Exigency for Military Family Leave),
  • FMLA Form WH-385 (Certification for Serious Injury or Illness of Current Servicemember for Military Family Leave) and
  • FMLA Form WH-385-V (Certification for Serious Injury or Illness of a Veteran for Military Caregiver Leave).

FMLA Notice Poster Update

Effective March 8, 2013, there are changes to the federal Family and Medical Leave Act (FMLA) requirements. All employers covered by FMLA must display the updated FMLA notice poster, “Employee Rights and Responsibilities under the Family and Medical Leave Act” (WHD Publication 1420, revised February 2013), in a conspicuous area easily visible to all employees and applicants for employment. The poster summarizes the major provisions of the FMLA. In addition, it must be displayed at all locations an employer conducts business, regardless if there are fewer than 50 employees employed within a 75-mile radius of the worksite. If the employer chooses to utilize electronic postings to satisfy the posting requirement, this method is permissible only if the requirements of the regulations are met.

Revised Employment Eligibility Verification Form I-9

The U.S. Citizenship and Immigration Services (USCIS) published a revised Employment Eligibility Verification Form I-9 for use. All employers are required to complete a Form I-9 for each employee hired in the United States. Employers should not complete a new Form I-9 for current employees if a properly completed Form I-9 is already on file.

Effective 03/08/13: Employers should begin using the newly revised Form I-9 (Rev. 03/08/13) for all new hires and re-verifications. Employers may continue to use previously accepted revisions (Rev.02/02/09) and (Rev. 08/07/09) until May 7, 2013. After May 7, 2013, employers must only use Form I-9 (Rev. 03/08/13).

I-9 Form and Instructions



IRS Proposed and/or Final Guidance Provisions

Effect of Sequestration on Small Business Health Care Tax Credit

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, certain automatic cuts took place as of March 1, 2013. These required cuts include a reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers under Internal Revenue Code section 45R. As a result, the refundable portion of your claim will be reduced by 8.7 percent. The sequestration reduction rate will be applied until the end of the fiscal year (Sept. 30, 2013) or intervening Congressional action, at which time the sequestration rate is subject to change.


The Health Care Law generally has no new impacts to the Form 1040 series for the 2012 returns that individuals may be currently filing. However, if you received a health insurance premium rebate during 2012, check under Medical Loss Ratio to see if you are one of the few people who needs to include it on your 2012 return. If you do not have a tax filing requirement, you do not need to file a 2012 federal tax return to establish future eligibility or qualify for future financial assistance to purchase health care coverage through an exchange. To find out if you have to file a federal tax return for other reasons, use the IRS Interactive Tax Assistant.

If you are seeking information about how to obtain health care coverage or financial assistance to purchase health care coverage for you and your family, visit the Health and Human Services website,

Información en Español: Disposiciones del Acta del Cuidado de Salud de Bajo Precio

The Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that are in effect and more that will be implemented during the next several years. The following is a list of provisions for which the IRS has issued proposed and/or final guidance.

IRC §7216, Disclosure or Use of Information by Tax Return Preparers

Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers.

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Net Investment Income Tax

A new Net Investment Income Tax goes into effect starting in 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. The IRS and the Treasury Department have issuedproposed regulations on the Net Investment Income Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.

Additional Medicare Tax

A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The IRS and the Treasury Department have issued proposed regulations on the Additional Medicare Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Additional Medicare Tax, see our questions and answers.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

Information Reporting on Health Insurance Coverage

On April 26, 2012, the Department of the Treasury and IRS issued Notices 2012-32 and 2012-33, which invited comments to help inform the development of guidance on annual information reporting related to health insurance coverage. The information reporting is to be provided by health insurance issuers, certain employers that sponsor self-insured plans, government agencies and certain other parties that provide health insurance coverage.

Disclosure of Return Information

On April 27, 2012, the Department of the Treasury and the IRS issued proposed regulations with rules for disclosure of return information to be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs. The proposed regulations solicit public comments.

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers and our news release.

Health Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95Notice 2010-59Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5.

In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules and requests comments about other possible administrative changes to the rules on FSA contributions. The notice provides instructions on how to submit comments.

Medical Device Excise Tax

On Dec. 5, 2012, the IRS and the Treasury Department issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Treasury Department also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs on

Health Insurance Premium Tax Credit

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. Exchanges will operate in every state and the District of Columbia. The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Treasury Department and the IRS issued final regulations which provide guidance for individuals who enroll in qualified health plans through Exchanges and claim the premium tax credit, and for Exchanges that make qualified health plans available to individuals and employers. Additionally, on Jan. 30, 2013, the Treasury Department and IRS released final regulations on the premium tax credit affordability test for related individuals.

The portion of the law that will allow eligible individuals to use tax credits to purchase health coverage through an Exchange is not effective until 2014.

Exchanges will offer individuals a choice of health plans that meet certain benefit and cost standards. The Department of Health and Human Services (HHS) administers the requirements for the Exchanges and the health plans they offer. Additional information about the Exchange can be found at and in IRS REG-131491-10 issued on Aug. 12, 2011.

Individual Shared Responsibility Provision

Starting in 2014, the Individual Shared Responsibility provision calls for each individual to either have minimum essential health coverage (minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. On Jan. 30, 2013, the Treasury Department and the IRS issued proposed regulations on the Individual Shared Responsibility provision. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Individual Shared Responsibility provision and the proposed regulations, see our questions and answers. Additional information on exemptions and minimum essential coverage is available in proposed regulations issued by the U.S. Department of Health & Human Services.

Health Coverage for Older Children

Health coverage for an employee’s children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.

Excise Tax on Indoor Tanning Services

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn’t apply to phototherapy services performed by a licensed medical professional on his or her premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.

Adoption Credit

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news releasetax tipquestions and answersflyerNotice 2010-66Revenue Procedure 2010-31Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information.

Transitional Reinsurance Program

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.

Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.

The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.

Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found inNotice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-4003810, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59provides guidance to group health plans on the waiting periods they may apply before coverage starts. Other information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Annual Fee on Health Insurance Providers

The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On March 1, 2013, the Treasury Department and IRS issued proposed regulations on this provision. Comments may be submitted electronically, by mail or hand delivered to the IRS.

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulationsand a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the Department of Health and Human Services website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at

Additional Requirements for Tax-Exempt Hospitals

The Affordable Care Act added new requirements for charitable hospitals. (See Notice 2010-39 andNotice 2011-52.) On June 22, 2012, the IRS issued proposed regulations which provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. Comments on the proposed regulations are requested by Sept. 24, 2012.

Form 990, Schedule H, for tax year 2010 was revised to include a new Part V, Section B, to gather information on hospitals’ compliance with the new requirements and on related policies and practices. To give the hospital community time to familiarize itself with the types of information the IRS is requesting, Part V, Section B of Schedule H was made optional for the 2010 tax year (seeAnnouncement 2011-37).

The IRS considered public input and made revisions to Part V, Section B for tax year 2011 (see theForm 990, Schedule H and instructions). Hospitals are required to complete all parts and sections of Schedule H for tax year 2011, with the exception of lines 1-7 of Part V, Section B, which relate to community health needs assessments (see Notice 2012-4). These lines are optional for 2011. The IRS continues to welcome public input on the new requirements for charitable hospitals under the Affordable Care Act.

Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid.

On Nov. 4, 2011, the IRS issued Notice 2011-92 which provides additional guidance on the branded prescription drug fee for the 2012 fee year. On Nov. 29, 2012, the IRS issued Notice 2012-74providing similar guidance for the 2013 fee year.

Modification of Section 833 Treatment of Certain Health Organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2011-51 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2010 and the first taxable year beginning after Dec. 31, 2010. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. Initial guidance on the application of this provision can be found in Notice 2011-2, which also solicited comments on the application of the amended provision.

Employer Shared Responsibility Payment

Starting in 2014, certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Dec. 28, 2012, the Treasury Department and the IRS issued proposed regulations on the Employer Shared Responsibility provisions.  Comments may be submitted electronically, by mail or hand delivered to the IRS.  For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. Other information, much of which has been incorporated into the proposed regulations, may be found in news releases IR-2011-92 and IR-2011-50 and Notices 2011-732011-362012-17and 2012-58.  Additionally, Notice 2012-59 provides related guidance for group health plans on the waiting periods they may apply before starting coverage.

Patient-Centered Outcomes Research Institute

The Affordable Care Act establishes the Patient-Centered Outcomes Research Institute. Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The IRS and the Treasury Department have issued final regulations on this fee.

Retiree Drug Subsidies

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act  are not included in the gross income of plan sponsors.  Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans.  For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies.  See our questions and answers for more information.