IRS Delays Mandatory Reporting for Issuers of Catastrophic Health Plans

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August 18, 2017

On August 3, the IRS issued Notice 2017-41 to extend the period of voluntary reporting by insurance issuers regarding “catastrophic plans” for 2017 coverage and to provide that information reporting penalties will not apply to such voluntary reporting.  “Catastrophic plans” provide essential health benefits as defined under the Affordable Care Act (ACA), but only to the extent they exceed the annual limit on cost-sharing under the ACA, and a limited number of primary care visits.  Catastrophic plans can generally only be sold to low-income individuals and those determined by HHS to have suffered undue hardship and satisfy the coverage requirement under Section 5000A when purchased by such individuals.  Such plans may be enrolled in through an Exchange, but purchasers are ineligible for a premium tax credit for such coverage.  Section 6055 requires all persons, including issuers, providing minimum essential coverage to file annual information returns with the IRS and the responsible individual, but the timing of the reporting is subject to IRS regulations.  Section 36B(f)(3) includes a similar reporting requirement for any health plan provided by an Exchange.

Under current IRS regulations, the IRS has interpreted “any health plan,” to exclude catastrophic plans.  Additionally, IRS regulations do not require issuers to report coverage enrolled in through an exchange, including coverage under a catastrophic plan.  The result is that no reporting is currently required on catastrophic plans by issuers or the exchanges.

As a result, the IRS has issued several stop-gap measures over the past couple of years.  In September 2015, the IRS issued Notice 2015-68, which provided for voluntary reporting by issuers regarding catastrophic plans and stated that it intended to require reporting for 2016 coverage, which would be done on Form 1095-B, “Health Coverage.”  In August 2016, the IRS published proposed regulations under Section 6055 that would be effective for 2017 coverage and require reporting by issuers of catastrophic plans purchased through an exchange.  Since the IRS has still not finalized these proposed regulations, it issued Notice 2017-41 to extend the period of voluntary reporting and communicate that information reporting penalties will not apply to such voluntary reporting in 2017.

There is debate over whether issuers are the appropriate avenue for reporting this information, as the statute suggests that Congress intended to assign this duty to the exchanges.  As discussed above, Section 36B(f)(3) requires that exchanges report on “any health plan,” but the IRS has interpreted that term to exclude catastrophic health plans.  This interpretation effectively reads “any health plan” to mean a “qualified health plan.”  Congress used the term “qualified health plan” repeatedly and consistently throughout Section 36B, so its use of the term “any health plan” in this instance suggests that Congress intended to encompass plans other than “qualified health plans” when creating the reporting requirement applicable to exchanges, including catastrophic health plans.  Placing the reporting obligation on the exchanges also makes sense from a policy perspective, as the exchanges already collect the information needed to comply with this reporting obligation directly from customers enrolling through them, so they are better positioned to meet this reporting obligation than the health insurance issuers, which must rely upon the exchanges to provide timely and accurate information to enable them to report.