“Grandfather” Rules Now Include Change of Carriers Legislation to Repeal Expanded 1099 Reporting Introduced

NAIFA reports:

Issue: Health Reform Modifications

Date: November 16, 2010

Actions Taken:

On November 15, the Treasury Department, Department of Health and Human Services, and the Department of Labor issued an amendment revising the interim final “grandfather” rules released in June. The revised rules, as advocated by NAIFA, will allow group plans to change carriers without losing their grandfathered status.

Also on November 15, Senate Finance Chairman Max Baucus (D-MT) introduced legislation that would repeal recently-expanded reporting requirements. The Small Business Paperwork Relief Act (not yet numbered) would repeal a key revenue raiser used in the Patient Protection and Affordable Care Act (PPACA) and the Small Business Jobs Act which requires businesses and landlords to file Form 1099 reports to the Internal Revenue Service for any business expenses in excess of $600.


Grandfathered Rules – In June, the three agencies issued the “grandfather” interim final rules that severely limited changes that can be made to plans that existed before enactment of the PPACA in order to be exempt from many of the law’s new requirements. NAIFA submitted several recommended changes to the interim final regulations in August, including changing the rule to allow plans to change carriers without losing grandfathered status.

Previously, one of the ways an employer group health plan could lose its grandfather status was if the employer changed insurance companies. The amendment now allows all group health plans to switch insurance companies and shop for the same coverage at a lower cost while maintaining their grandfathered status, provided the structure of the coverage doesn’t violate one of the other rules for maintaining grandfathered plan status.

The amendment affects only insured group health plans. A change of issuers in the individual market would still result in the loss of grandfathered status. The federal agencies intend to publish the amendment in the November 17 Federal Register.

1099 Reporting – The PPACA includes a provision that expands the 1099 reporting requirement to all businesses for business expenses in excess of $600. The Small Business Jobs Act bill signed into law on September 27 increases penalties for failure to file Form 1099 reports with the IRS and adds individuals receiving rental income from real estate to the expanded Form 1099 reporting requirements.

Efforts to repeal or modify the expanded 1099 reporting requirement began in late July by both parties in both chambers. These previous legislative initiatives failed primarily due to the lack of consensus on how to pay for the repeal. The Form 1099 requirement would have raised $17 billion for the health care bill and $2.5 billion over 10 years for the small business bill. New offsets will be sought to pay for the repeal.

Next Steps:

NAIFA will continue to work with regulators and legislators to achieve necessary modifications to the PPACA to ensure consumers have access to affordable plans and professional advice from fairly compensated agents in a competitive insurance marketplace. As Congress looks for new offsets to defray the cost of repeal or to fund new initiatives, NAIFA will remain ever-vigilant to retain a tax structure that encourages individuals and businesses to transfer financial risks to insurance products.

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