Compliance Flash: DOMA and ACA Transition Relief

Distributed August 1, 2013

In this edition:

U.S. Supreme Court Rules the Defense of Marriage Act (DOMA) Unconstitutional
Transition Relief for Information Reporting and Minimum Essential Coverage

U.S. Supreme Court Rules DOMA Unconstitutional

On June 26, 2013, the U.S. Supreme Court issued rulings on two landmark cases. In a 5-4 decision concerning United States v. Windsor, the court held that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional. Section 3 of DOMA had previously excluded same-sex partners from the definitions of "marriage" and "spouse" for federal purposes. DOMA’s recognition of only opposite-sex spouses effectively denied eligibility for federal benefits to same-sex couples and similarly — according to the Supreme Court — denied such couples’ "equal liberty … protected by the Fifth Amendment."

In its subsequent ruling on Hollingsworth v. Perry, the court ruled 5-4 that sponsors of California’s Proposition 8 (a 2008 state constitutional amendment banning same-sex marriages) lacked legal "standing" to appeal a previous federal trial court’s decision that Proposition 8 violated the equal protection and due process clauses of the U.S. Constitution.

Impact to Employee Benefits

These two decisions create a number of questions for employers concerning their respective benefits offerings, the answers to which are not yet known. While neither ruling found a constitutional right to same-sex marriages, the invalidation of DOMA’s restrictions on the definition of marriage seems to now grant same-sex spouses married under controlling state law rights to federal spousal benefits.

Careful review of your plan provisions, including eligibility requirements, is prudent. The following chart shows the known impact of the two recent Supreme Court rulings.

Provision	Prior Treatment of Same-sex Spouses Under DOMA	Effect of U.S. v. Windsor
Tax Treatment of Health Benefits	Federal tax treatment for employer-provided health benefits did not apply to same-sex spouses, unless the spouse qualified as a dependent for federal tax purposes. For example, group health plans covering same-sex spouses were required to impute income to the employee based on the value of health coverage provided by the employer.	A same-sex spouse receives the same federal tax treatment as an opposite-sex spouse, including: Employer-provided health coverage for a spouse is excludable from gross income and wages for payroll tax purposes; Employees may pay their share of the cost of coverage (e.g., medical, dental, vision) for the spouse with pre-tax salary reductions through a Code Section 125 cafeteria plan; Change in status events affecting a spouse will permit an employee to make corresponding mid-year election changes under the cafeteria plan in accordance with Code Section 125; Health care benefits provided to a same-sex spouse through a voluntary employees' beneficiary association (VEBA) will no longer be considered "disqualified benefits" subject to the de minimis rule; Medical care expenses incurred by a spouse are reimbursable on a tax-free basis through a health FSA, HSA, or HRA; Earned income of the spouse is taken into consideration when determining the maximum tax-free benefits available under a dependent care assistance plan. Moreover, the employment status of a spouse will impact the eligibility of child care expenses under a dependent care assistance plan.
HIPAA Special Enrollments	HIPAA special enrollment rights did not apply with respect to a same-sex spouse covered by the plan.	Employees who marry a same-sex spouse during the year will now have a special enrollment right to enroll the employee and the spouse under the employee’s group health plan, to the extent the spouse is otherwise eligible for coverage under the plan. Likewise, an employee whose same-sex spouse loses eligibility for other group health coverage will have a special enrollment right under HIPAA to the extent otherwise eligible under the plan. Windsor does not require coverage of a same-sex spouse and to the extent same-sex spouses are not eligible under the plan, then there is no HIPAA special enrollment right. Nevertheless, employers who do not currently offer same-sex spousal coverage will need to carefully consider whether to offer such coverage.
COBRA Continuation Coverage	A same-sex spouse was not entitled to COBRA rights as a "spouse."	Under COBRA, covered same-sex spouses will now qualify as "qualified beneficiaries" and are independently entitled to COBRA if coverage is lost due to a qualifying event.
FMLA	FMLA allows eligible employees to take leave to care for a spouse with a serious health condition (as defined by the FMLA). Under DOMA, "spouse" was limited to opposite-sex spouses, so employees were not entitled to FMLA leave to care for a same-sex spouse with a serious health condition.	Employees may now be entitled to FMLA leave to care for a same-sex spouse who has a serious health condition as defined by FMLA.
Medicare Secondary Payor Rules	Same-sex spouses were not treated as a spouse.	Same-sex spouses will now be treated as a spouse for purposes of Medicare’s secondary payor rules. This means that plans that cover a same-sex spouse of an active employee will now be primary to Medicare for as long as that employee is in "current employment status."
Dependent Care Assistance	Same-sex spouses were not treated as a spouse for purposes of applying the exclusion for dependent care assistance under Code Section 129.	The earned income of a same-sex spouse will be taken into account in determining the maximum income. A same-sex spouse who is incapable of caring for himself or herself can be a qualifying individual for purposes of the exclusion.
Source: Alston & Bird, LLP

Additional Information

The IRS announced on June 27, 2013 that additional guidance is forthcoming, and as always, CONEXIS will diligently monitor this as it develops. We will send a Compliance Update to you as the specific impact of these decisions becomes clearer.

For further details, please visit the Supreme Court website to obtain the full court syllabus for each judgment.

Transition Relief for Information Reporting and Minimum Essential Coverage

Last month, the IRS released Notice 2013-45, which provides transition relief for various reporting requirements and employer-shared responsibility for minimum essential coverage — provisions originally mandated by the Affordable Care Act (ACA) for 2014.

Information Reporting Requirements

Under Internal Revenue Code Section 6055, health insurance issuers, self-insuring employers, government agencies, and certain other providers of health care coverage have annual reporting requirements. Large employers have similar annual requirements under Section 6056, which involve reporting minimum essential health coverage that the employer offers (or does not offer) to full-time employees. Section 6056 Information Reporting is essential to the administration of Employer Shared Responsibility Provisions since an employer typically will not know if a full-time employee received a premium tax credit, and without this information, the employer will not have all details needed to determine if payments under Section 4980H are due. The IRS will decide if an employer’s full-time employees receive premium tax credits, and if so, if an assessable payment is due.

The transition relief gives employers and other reporting entities additional time to modify systems and to provide input for simplifying information reporting required by the ACA. The Notice states proposed rules for the information reporting provisions will be published later this year.

Even though employer-shared responsibility payments will not be assessed in 2014, employers and other reporting entities are encouraged to comply voluntarily with reporting provisions once further guidance has been issued. This compliance will help contribute to a smoother transition when implementation launches in 2015.

Minimum Essential Coverage

Employer-shared responsibility provisions under Section 4980H apply to minimum essential coverage requirements (often referred to as "Pay or Play"). Regulations impose a financial penalty to an applicable large employer that fails to offer minimum essential coverage to full-time employees and their dependents under a qualified employer-sponsored health plan if at least one full-time employee enrolls in an eligible health plan for which a premium tax credit is allowed or paid. Employer-sponsored coverage must provide minimum value and be affordable to full-time employees.

The transition relief postpones the coverage requirements so employers, insurers, and other providers have time to modify their health plans and reporting systems. However, this delay does not affect employees’ access to premium tax credit. An employee can still enroll in qualified health plans through Affordable Insurance Exchanges (also called Health Insurance Marketplaces) if the employee’s household income is within a set range and the individual is not eligible for other minimum essential coverage, including an eligible employer-sponsored health plan that’s affordable and meets minimum value requirements.

Additional Information

Both reporting requirements and essential coverage provisions will be fully effective in 2015, and the postponement of the requirements noted above have no effect on other ACA provisions. For more information, please review Notice 2013-45 on the IRS website.

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