The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department to offer more flexibility in what constitutes the definition of a “hospital” under the Affordable Care Act.

The AICPA recommended in a letter Monday that the IRS and the Treasury issue guidance that would exclude certain organizations, which do not function as or operate what is commonly considered a hospital, from the requirements of Internal Revenue Code section 501(r).

The letter explained that the current language in the Code states that section 501(r) is applicable to organizations that operate a facility “which is required by a State to be licensed, registered, or similarly recognized as a hospital” and “any other organization which the Secretary determines has the provision of hospital care as its principal function.”

“In practice, there are situations where an organization is licensed under state law as a hospital, or an organization may maintain licensed hospital beds, but does not actually function as or operate what is commonly thought of as a hospital,” wrote AICPA Tax Executive Committee chairman Troy Lewis. “Therefore, we do not believe the requirements of section 501(r) should apply to these types of organizations.”

The AICPA letter offered specific examples:  “A state may require organizations such as research institutes, nursing homes, and skilled nursing facilities to be licensed, registered or otherwise recognized as a hospital. For example, in at least one state, acute care organizations and nursing facilities are licensed as hospitals. Also, in at least one state, school clinics are licensed as hospitals. These organizations are not what is commonly considered a hospital.”

Therefore, the AICPA requested that guidance be provided that would allow for a facts and circumstances test to determine whether an organization is a true hospital.  “This test should place the burden on the organization to substantiate that, despite state licensing requirements, a hospital is not the organization’s principal function,” the letter stated.  “If these facts and circumstances are established, then section 501(r) should not apply to the organization.”

HSA Changes
Separately, a group of Senate Republicans are questioning proposed changes by the Obama administration on the requirements for health savings accounts under the Affordable Care Act.

In a letter Thursday, Senate Republicans, led by Finance Committee Chairman Orrin Hatch, R-Utah, and Majority Leader Mitch McConnell, R-Ky., called on Centers for Medicare & Medicaid Services (CMS) Acting Administrator Andy Slavitt to provide information on policies to require standardized cost-sharing options for health plans on the federal exchanges. Under the new “standard option,” healthcare plans that qualify for health savings accounts will not be able to comply with the requirements, which is likely to limit choice and access to popular HSAs that allow consumers to save tax-free for their health care expenses. 

“Your agency took another step to potentially limit the utilization of HSA-eligible plans on the federally-facilitated exchanges (FFEs) by developing a ‘standard option’ for the 2017 plan year that imposes additional requirements on plans,” the Senators wrote. “For a plan to meet the qualifications of one of the ‘standard options,’ it must conform to a uniform set of features related to deductibles, out-of-pocket limits, co-payments and coinsurance levels, and it must have a single provider tier.” 

Currently, health care plans that qualify for HSAs will not meet the qualifications for the six uniform set of features under the ACA’s new “standard option” meaning that this type of consumer-driven option could be suppressed as individuals and families shop for health insurance coverage. The senators said the plan, when applied to current law, would prevent an HSA from feasibly meeting these new requirements and asked CMS to explain what steps were taken to draft the requirements for the standardized option and to provide information on the number of individuals that are currently enrolled in HSA health plans on the federal exchanges.

“Under current law, the very requirements to qualify as an HSA will in turn preclude an HSA from meeting the requirements on the new ‘standard option’ and limit consumers’ exposure to and choice of popular, consumer-driven health coverage,” the letter continued. “It is clear to see the potential disruption in consumer choice by creating the ‘standard option’ and limiting the types of plans that qualify for it to exclude HSAs.”

According to a memo from the Congressional Research Service, there are 329 plans that include the term “HSA” in their plan name and meet two of the three requirements of an HSA plan.  There are another 1,323 qualified health plans that meet the minimum deductible and out-of-pocket limit requirements to be an HSA, but they do not explicitly include the term in the plan name.  CRS clarifies that in order to be considered an “HSA-qualified health plan,” individuals must be enrolled in a high-deductible health plan that meets statutory requirements, including the following:

A minimum deductible must be met each year.  For 2016, the minimum deductible is $1,300 for single coverage and $2,600 for family coverage;

1. The plan must limit out-of-pocket expenses for covered benefits each year.  For 2016, the out-of-pocket limit is $6,550 for single coverage and $13,100 for family coverage; and

2. The only benefits that can be covered prior to the deductible being met are for preventive care.

In addition to Hatch and McConnell, R-Ky., the letter was signed by Senators Chuck Grassley, R-Iowa, Mike Crapo, R-Idaho, Pat Roberts, R-Kan., Mike Enzi, R-Wyo., John Cornyn, R-Texas, John Thune, R-S.D., Richard Burr, R-N.C., Johnny Isakson, R-Ga., Rob Portman, R-Ohio, Pat Toomey, R-Pa., Dan Coats, R-Ind., Dean Heller, R-Nev., Tim Scott, R-S.C., John Barrasso, R-Wyo., Jerry Moran, R-Kan., Ron Johnson, R-Minn., Marco Rubio, R-Fla., Roger Wicker, R-Miss., Kelly Ayotte, R-N.H., Jeff Flake, R-Ariz., John Boozman, R-Ark., and Steve Daines, R-Mont.

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