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Employers Must Provide Notices to Employees Regarding Availability of Exchange Coverage by October 1, 2013
May 15, 2013
A provision of the 2010 health care reform law requires employers to provide notices, by March 1, 2013, to all employees regarding the availability of health coverage options through the state-based exchanges created pursuant to that law. In January, the Department of Labor had announced delayed enforcement of the exchange coverage notice provision (which added Section 18B to the Fair Labor Standards Act) in light of the reality that, by March 1st, it was unlikely that enough information regarding the exchanges would be available, employers had no way of ascertaining some of the other information required to be included in the notices, and the agency would not have regulations or other guidance ready.
DOL issued temporary guidance on May 8, 2013 (Technical Release 2013-02) and model notices for employers to provide notice of coverage options through the exchanges, or what the federal government recently rebranded as "the Marketplace." Employers are required to issue exchange coverage notices no later than October 1, 2013. The implication of the temporary guidance is that employers may use the model notices and rely on the temporary guidance earlier, but additional guidance and modifications to the model notices are expected.
An exchange coverage notice must include -
- information about the existence of the exchange, including a description of the services provided by the exchange and how to contact the exchange;
- a statement that the employee may be eligible for subsidized exchange coverage (i.e., premium tax credit under Internal Revenue Code § 36B), if the employee obtains coverage through the exchange and the employer's plan fails to meet a 60% minimum value; and
- a statement that the employee may lose the employer contribution (if any) toward the cost of employer coverage (all or a portion of which may be excludable from income for Federal income tax purposes) if the employee obtains coverage through the exchange.
DOL created two model exchange coverage notices: one for employers who do not offer a health plan and the other for employers who do offer a health plan for some or all employees.
The exchange coverage notice must be provided to each employee regardless of the employee's status as full- or part-time and regardless of whether the employee participates in the employer's group health plan. In addition to providing the exchange coverage notice to those employed before October 1, 2013, employers must provide the notice to each new employee (again, regardless of status) hired on or after October 1, 2013 within 14 days of hire.DOL also modified and reissued its model COBRA election notice to include information about the availability of exchange coverage options and eliminate certain obsolete language in the earlier model. A copy of the new model COBRA election notice is available on the DOL's COBRA webpage.
IRS Issues 2014 HSA Limits
May 07, 2013
The IRS has issued the 2014 limits for health savings accounts. PPACA requires that this out-of-pocket limit be the maximum out-of-pocket for all health plans in 2014. The minimum deductible only applies to high deductible health plans integrated with an HSA. The limits are:
| Limit | 2014 | 2013 |
| Maximum Out-of-Pocket | $6,350 single/$12,700 family | $6,250 single/$12,500 family |
| Minimum Deductible | $1,250 single/$2,500 family (unchanged) | $1,250 single/$2,500 family |
| Maximum Contribution | $3,300 single/$6,550 family | $3,250 single/$6,450 family |
| Maximum catch-up contribution - for individuals age 55 or older | $1,000 (unchanged) | $1,000 |
The out-of-pocket includes the deductible, coinsurance and co-pays, but not premiums.
Wellness Incentives and the Play or Pay Requirement, An Updated Summary of Benefits and Coverage Form, and Annual Limits Waivers
May 03, 2013
The Departments of Labor, Health and Human Services and the Treasury have issued several updates that affect employer-sponsored group health plans.
Wellness Incentives, HRAs, Minimum Value and Affordability
The IRS has released proposed regulations that address how wellness incentives or penalties are applied to premium affordability (for purposes of the employer shared responsibility/play or pay requirements) and to minimum value.
The proposed regulations provide that when deciding if the employee’s share of the premium is affordable (less than 9.5% of the employee’s safe harbor income), the employer may not consider wellness incentives or surcharges except for a non-smoking incentive. In other words, the premium for non-smokers will be used to determine affordability (even for smokers). Any other type of wellness incentive must be disregarded, except for a special rule for 2014.
Example: Acme has a wellness program that reduces premiums by $300 for employees who do not use tobacco products or who complete a smoking cessation course. Premiums are reduced by $200 if an employee completes cholesterol screening during the plan year. The annual employee premium is $4,000. Employee B does not use tobacco and completed the cholesterol screen so the cost of his actual premiums is $3,500 [$4,000 – 300 – 200]. Employee C uses tobacco and does not do the cholesterol screen, so the cost of her actual premiums is $4,000. For purposes of affordability, Acme will use $3,700 as the cost of coverage for both Employee B and Employee C [$4,000 less the available $300 non-smoker discount].
For the 2014 plan year only, employers who had a wellness program in place on May 3, 2013 may also take the wellness incentives for targets other than non-use of tobacco into account when determining premium affordability. So, for 2014 only, using the example, Acme would use $3,500 as Employee B’s and Employee C’s cost of coverage (since the employer can assume all available incentives were earned).
If an employer makes HRA contributions that the employee may use to pay premiums, the employer may reduce the employee’s cost of coverage by the HRA contribution for the current year when determining affordability.
When calculating minimum value, if incentives for nonuse of tobacco may be used to reduce cost-sharing (i.e., the deductible or out-of-pocket costs), those incentives may be taken into account when determining minimum value. (Other types of wellness incentives that affect cost-sharing may be considered for 2014 if the employer had a wellness program that provided cost-sharing incentives on May 3, 2013; they may not be considered after 2014.) Current year contributions to an integrated HRA that may only be used for cost sharing (and not to pay premiums) or to an HSA may be considered first dollar benefits when calculating minimum value.
The proposed regulation also includes three proposed “safe harbor” plan designs that would meet the 60% minimum value threshold. (The safe harbor designs could be used instead of testing the plan through the calculator supplied by HHS; the safe harbor is just a convenience and not a limit on permitted plan designs.) The IRS says that these designs meet minimum value:
- A plan with a $3,500 integrated medical and drug deductible, 80 percent cost-sharing, and a $5,000 maximum out-of-pocket limit;
- A plan with a $4,500 integrated medical and drug deductible, 70 percent cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA; or
- A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent medical cost sharing, a $10/$20/$50 copay tiered drug plan, and a 75 percent coinsurance for specialty drugs.
It is possible that more safe harbor designs will be provided later.
The proposed regulation is here: Minimum Value - Proposed Rule
Summary of Benefits and Coverage
The agencies have released an updated Summary of Benefits and Coverage (SBC) template that plans will need to use for 2014. The updated template has very few changes from the version used for 2013.
The primary change is that the 2014 SBC must state whether or not the plan provides “minimum essential” and “minimum value” coverage. The template is designed to include the minimum essential and minimum value information on page 4 of the SBC. If an employer or insurer has already begun preparing its 2014 SBC and including this information on page 4 would be difficult, the needed information can be included in an attachment or cover letter.
Beginning in 2014, plans may not have annual dollar limits on essential health benefits. Plans may address this change by either:
- Deleting the row that asks about annual limits; or
- Completing the question with “no” and stating in the “Why It Matters” column: “The chart starting on page 2 describes any limits on what the plan will pay for specific covered services, such as office visits.”
There are no changes to the examples that must be completed in the SBC (including the stated cost of care), to the glossary that must accompany the SBC or to the SBC calculator.
Employers and carriers should continue to use the current version of the SBC template for any coverage that begins in 2013.
UBA has updated its Highlights and Frequently Asked Questions about the SBC; the updated pieces are HERE and HERE. For additional information on minimum essential and minimum value coverage, go HERE.
Links to the revised SBC template, sample completed template and FAQ that was issued with the updated template are here:
http://www.dol.gov/ebsa/correctedsbctemplate2.doc
http://www.dol.gov/ebsa/pdf/CorrectedSampleCompletedSBC2.pdf
Frequently Asked Questions - The Affordable Care Act Implementation Part XIV
Annual Limit Waivers
The agencies have issued a FAQ that responds to questions about whether a change in plan or policy year would extend the waiver period for a plan that received a temporary waiver of the annual limit requirement. (The waiver primarily affects mini-med plans.) The FAQ states that the plan or policy year in effect when the waiver was issued determines the date the waiver will expire. The FAQ is here: Frequently Asked Questions - The Affordable Care Act Implementation Part XV
Important Transition Relief for Non-Calendar Year Plans
Apr 15, 2013
The January 1, 2014 effective date of the Pay-or-Play requirements under health care reform presents special issues for employers with non-calendar year plans. Prior to the release of the proposed regulations under the shared responsibility rules, employers with non-calendar year plans would either need to comply with the Pay-or-Play requirements at the beginning of the 2013 plan year or change the terms and conditions of the plan mid-year in order to comply. Recognizing that compliance as of January 1, 2014 caused a special hardship for non-calendar year plans, the proposed regulations, provide special transition relief. Employers with non-calendar year plans in existence on December 27, 2012 can avoid the Pay-or-Play penalties for months preceding the first day of the 2014 plan year (the plan year beginning in 2014) for any employee who was eligible to participate in the non-calendar year plan as of December 27, 2012 (whether or not they actually enrolled). Under this relief, the employer would not be subject to Pay-or-Play penalties for any such employees until the first day of the plan year beginning in 2014, provided they are offered coverage that is affordable and provides minimum value as of the first day of the 2014 plan year.
The relief also provides an employer maintaining a non-calendar year plan with additional time to expand the plan's eligibility provisions and offer coverage to employees who were not eligible to participate under the plan's terms as of December 27, 2012. If the employer had at least one-quarter of its employees (full and part-time) covered under a non-calendar year plan, or offered coverage under a non-calendar year plan to one-third or more of its employees (full and part-time) during the most recent open enrollment period prior to December 27, 2012, it will not be subject to Pay-or-Play penalties for any of its employees until the first day of the plan year beginning in 2014. For purposes of determining whether the plan covers at least one-third (or one-quarter) of the employer's employees, an employer can look at any day between October 31, 2012 and December 27, 2012. Again, this transition relief is dependent upon the plan offering affordable, minimum value coverage to these employees no later than the first day of the 2014 plan year.
This important transition rule raises the question of what is considered to be a plan's plan year. If a plan is not required to file an Annual Report, Form 5500, as is the case with a fully insured plan with fewer than 100 participants, or the plan has failed to prepare a summary plan description that designates a plan year, the plan year generally will be the policy year, presuming that the plan is administered based on that policy year. If a policy renews on January 1 and any annual open enrollment changes take effect January 1, the plan year likely will be deemed to start January 1. If the policy renews on July 1, however, and open enrollment changes become effective on January 1 of each year, the lack of a summary plan description leaves the plan year determination open to question. The employer in this situation may want the plan year to start on July 1 in order to delay the date on which the plan has to comply with the requirements under health care reform. If the plan is administered on a calendar-year basis, however, the government could reasonably argue that the plan year is the calendar year. Employers should be taking steps now to identify the plan year for their group health plan(s) in order to ensure that they are timely complying with the applicable requirements under health care reform.
If the employer has prepared and distributed a summary plan description for its group health plan or the plan files an Annual Report, Form 5500, the plan year has already been identified. If the employer has not complied with the ERISA disclosure and/or reporting requirements, then additional analysis of the 12-month period over which the plan is administered and operated is needed to identify the plan year. That analysis should take place now and not when an auditor asks the question.
For employers in this situation, it would be advisable to adopt a plan document to address this issue. Since insurance companies are not directly subject to ERISA, their policies may not contain all of the provisions necessary to meet ERISA's disclosure requirements. An insurance policy typically does not contain certain desired provisions describing the relationship between the employer and plan participants. Such provisions might include the employer's indemnification of its employees who perform plan functions, the employer's right to amend the plan, a description of the plan's enrollment process, and the allocation of the cost of coverage between the employer and participants. A wrap plan can address these issues, as well as enable an employer to aggregate all its welfare benefits under a single plan so that a consolidated Annual Report, Form 5500 may be filed for all ERISA welfare benefit plans subject to annual reporting obligations.
PPACA Employer Fees
Mar 20, 2013
Patient-Centered Outcomes Research Institute (PCORI)
Transitional Reinsurance Fee (TRF)
Health Insurance Providers (HIP) Fee
The IRS and the Department of Health and Human Services have issued final regulations that provide details on two new, temporary fees that will be due as part of the Patient Protection and Affordable Care Act (PPACA). These fees will be calculated and paid directly by self-funded plans. The fees will be calculated and paid by insurers, although insured plans should expect these fees to be passed along.
Both the Patient-Centered Outcomes Research Institute (PCORI) fee and the Transitional Reinsurance Fee (TRF) are based on covered lives -- that is, both employees/retirees and their covered spouses and children must be counted. The basic methods a plan may use to count members are the same under the two fees (although a plan may use one method for one fee and a different method for the other fee if it prefers). However, because the PCORI fee is based on a plan year, the PCORI count looks at the entire plan year. (Note that although PCORI is based on the plan year, the reporting and fee due date is always July 31.) In contrast, the TRF is based on a calendar year, even for noncalendar-year plans. TRF reporting of covered lives will be due Nov. 15 and the fee will be due early in the next January. To meet the Nov. 15 reporting date, for TRF purposes covered lives will only be counted for the first nine months of the calendar year.
The PCORI fee is small -- $1 or $2 dollars per covered person per year -- and will be in effect from 2012 through 2019. It is designed to fund research into the most effective ways of treating various diseases. The federal TRF will be $63 per covered person for the 2014 calendar year. It will be about two-thirds of that amount in 2015 and about half that amount in 2016, and then will expire. (States have the right to charge their own, additional TRF; states that wish to do so must provide details on the state fee by April 11, 2013. Few states are expected to add a state-level fee.) The TRF is designed to pay a portion of the cost for individuals with large claims.
Click here to download a chart that compares the PCORI and TRF fees.
Health Insurance Providers Fee
The IRS has also issued proposed regulations on the Health Insurance Providers (HIP) Fee. This fee will be paid by insurers, although insured plans should expect these fees to be passed along. This fee does not apply to self-funded plans. The HIP Fee is permanent. The total fee that will be paid by insurers on medical, dental and vision coverage is $8 billion in 2014, $11.5 billion in 2015, $11.5 billion in 2016, $13.5 billion in 2017, $14.3 billion in 2018 and $14.3 billion indexed to medical inflation for later years. The insurer's fee will be based on its size, so fees will vary among insurers; one estimate available through the Association of Health Insurance Plans predicts the fee will increase premiums by 1.9 to 2.3 percent in 2014.
Next Steps
Employers with fully insured medical plans should include these new fees in their budgets. (Note that employers that offer an HRA with an insured medical plan will need to report and file the PCORI fees for the self-funded HRA.) Employers with self-funded plans should budget for these new fees. They should also begin to consider the process they will use to gather the information needed to support calculating the fees, and the counting method that will be simplest for them to use. Employers with plan years ending between Oct. 1 and Dec. 31 will need to pay the PCORI fee by July 31, 2013. IRS Form 720 will be used for this filing, but the revised form and filing instructions have not been released yet.
The final regulation on PCORI fees is here:
Patient-Centered Outcomes Research Fee
The final regulation on TRF is here:
Transitional Reinsurance Fee
The proposed regulation on HIP is here:
Health Insurance Providers Fee
If you have any questions, please contact us.
HHS, IRS and DOL Issue Additional Proposed Regulations Addressing Open Issues under PPACA
Feb 13, 2013
The Department of Health and Human Services (HHS), the Internal Revenue Service (IRS) and the Department of Labor (DOL) have recently issued more FAQs and proposed rules that address several employer obligations under the Patient Protection and Affordable Care Act (PPACA).
HRA Restrictions
Because PPACA prohibits annual dollar limits on essential health benefits, HRAs that are not integrated with other group health coverage (usually a major medical plan) will not be permitted after Jan. 1, 2014.
The Jan. 24, 2013, DOL FAQ also addresses HRAs, and states that an employer-provided HRA will not be considered integrated (and therefore will not be allowed) if it:
- Provides coverage through individual policies or individual market coverage; or
- Credits amounts to an individual when the individual is not enrolled in the other, major medical coverage
Existing HRAs that cannot meet the 2014 requirements generally will be allowed to reimburse expenses incurred after 2014, in accordance with the terms of the plan.
Premium Tax Credit/Subsidy
On Feb. 1, 2013, the IRS issued a final regulation that provides the long awaited answer of whether family members of an employee who has access to affordable self-only coverage are eligible for a premium tax credit/subsidy. The answer is that they are not – if the employee has access to affordable self-only coverage, the spouse and children are also considered to have access to affordable employer-sponsored coverage, and therefore the spouse and children are not eligible for premium tax credits/subsidies. To read the final IRS rule, click here:
http://www.gpo.gov/fdsys/pkg/FR-2013-02-01/pdf/2013-02136.pdf
Minimum Essential Coverage
On Feb. 1, 2013, HHS and the IRS issued two proposed regulations that provide details on the individual shared responsibility requirement.
PPACA requires that non-exempt individuals obtain “minimum essential coverage” or pay a penalty. Minimum essential coverage includes individual insurance, Medicare, Medicaid, CHIP, TRICARE, VA and similar government programs, and employer-sponsored coverage. The proposed IRS rule defines minimum essential “employer-sponsored” coverage as an insured or self-funded governmental or ERISA welfare benefit plan that provides medical care directly or through insurance or reimbursement. (An HMO is considered an insured plan.)
Generally, any policy offered in the small or large group market that meets the above requirements will be minimum essential coverage. The proposed IRS regulation states that these types of coverage will not qualify as minimum essential employer-sponsored coverage:
- Accident only;
- Disability income:
- Liability, including general, automobile, and supplemental liability;
- Workers compensation;
- Automobile medical payment;
- Credit only;
- On-site medical clinics;
- Limited scope dental or vision;
- Long-term care, nursing home care, home health care, community-based care or any combination of these;
- Specified diseases or illness;
- Hospital indemnity or other fixed indemnity insurance;
- Medicare supplement;
- Similar limited coverage
Public comments are due March 18, 2013. To read the proposed IRS rule, click here:
http://www.gpo.gov/fdsys/pkg/FR-2013-02-01/pdf/2013-02141.pdf
The HHS proposed rule provides details on how an individual can claim an exemption from the individual shared responsibility penalty. For details on the available exemptions, click below:
http://wn.ubabenefits.com/Download.aspx?ResourceID=10059
Public comments on this rule also are due March 18, 2013. To read the proposed HHS rule, click here:
http://www.gpo.gov/fdsys/pkg/FR-2013-02-01/pdf/2013-02139.pdf
Women’s Preventive Care Services
Proposed rules that would make it simpler for religious organizations and religious-affiliated not-for-profit organizations like hospitals and schools that have a religious objection to providing contraceptive services were released by the DOL on Feb. 1, 2013. These employers would notify their insurer of their objection, and the insurer automatically would be required to notify the employees that it will provide the coverage without cost sharing or other charges through separate individual health insurance policies.
For religious-affiliated workplaces that self-insure, the third party administrator would be expected to work with an insurer to arrange no-cost contraceptive coverage through separate individual health insurance policies. The administration believes the cost of free contraceptive coverage will be offset by fewer maternity claims, but is exploring allowing an offset of the cost against federally facilitated exchange user fees.
The proposed rule offers no exemption for private employers that object to covering contraceptive services on religious or moral grounds.
The proposed rule is here:
http://www.ofr.gov/OFRUpload/OFRData/2013-02420_PI.pdf
Public comments are due April 3, 2013.
As always, we will continue to provide updates as we receive them.
Our access to PPACA Advisor resources can help you clear up PPACA questions and help you shape your company's benefit strategy. Contact us today to find out more!
March 1st Deadline for Exchange Notices Delayed by DOL
Feb 01, 2013
Originally scheduled to take effect March 1, 2013, the employer requirement to provide notice to employees of the available State Exchange coverage has been delayed. On January 24, 2013, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury issued new Frequently Asked Questions (FAQs) on several topics under the Patient Protection and Affordable Care Act (PPACA). The FAQ confirms that employers will not be required to provide the Exchange Notice to their employees until critical information is defined, including:
- The DOL is expected to issue regulations on the Notice
- The IRS is expected to provide guidance on minimum value
- Information on HHS’ educational efforts
The Notice has been delayed to late summer or fall of 2013 pending this information and to coordinate with open enrollment of the Exchanges, which begins October 1.
The FAQ also notes that employers will be provided with model, generic language for the Notice and an alternative template available for download on the Exchange website. Click here for further details about the FAQ on the DOL’s website.
As always, we will continue to provide updates as we receive them.
Highlights of Rules on Essential Health Benefits and Actuarial Value
Dec 03, 2012
The following is a summary of proposed regulations. Some or all of the provisions may change when final rules are issued.
On Nov. 20, 2012, the Department of Health and Human Services (HHS) issued a proposed rule that addresses a number of questions surrounding essential health benefits and determining actuarial and minimum value. This rule is still in the "proposed" stage, which means that there may -- and likely will -- be changes when the final rules are issued.
Provisions that Particularly Affect Insured Small Employers
Beginning in 2014, nongrandfathered insurance coverage in the individual and small group markets will be required to provide coverage for "essential health benefits" (EHBs) at certain levels of coverage. The proposed rule:
- Confirms that these policies, whether provided through or outside of an exchange, will be required to:
- cover the 10 essential health benefits:
- ambulatory/outpatient
- emergency
- hospitalization
- maternity and newborn care
- mental health and substance use
- prescription drugs
- rehabilitative and habilitative services and devices - e.g., speech, physical and occupational therapy
- laboratory services
- preventive and wellness services and chronic disease management
- pediatric services, including pediatric dental and vision care
- provide coverage that meets the "metal" standards (an actuarial value of 60, 70, 80 or 90 percent; actuarial value means the percentage of allowed costs the plan is expected to pay for a standard population)
- meet cost-sharing requirements (in most instances, the deductible for in-network services could not exceed $2,000 per person or $4,000 per family, and the out-of-pocket limit for in-network services could not exceed the high deductible health plan limit for health savings account eligibility, which is currently $6,050 per person or $12,100 per family)
- Confirms that each state would choose its own EHB package, based on a "base-benchmark" plan already available in the state. Many states have already chosen their base-benchmark plan; those who have not done so have until Dec. 26, 2012, to make their selection or the federal government will make the selection for them. Information on state elections to date and the policy that will apply if no choice is made is here: Additional Information on Proposed State Essential Health Benefits Benchmark Plans | cciio.cms.gov
- Provides a way to cover any gaps in EHB coverage under the base-benchmark plan (because many plans do not currently cover habilitative care or pediatric vision / dental services)
- Provides that other policies in the exchange and small-group market must generally provide the same coverage within each EHB category as the base-benchmark plan, but that they may substitute an actuarially equivalent benefit within a category
- States that HHS will provide a calculator that must be used in most situations to determine actuarial value
- Provides that a plan that is within 2 percent of the metal standard would be acceptable (for instance, a plan with an actuarial value of 68 percent to 72 percent would be considered a "silver" plan)
- Provides that state mandates in place as of Dec. 31, 2011, would be considered EHBs
- Provides that current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) would be considered as part of the actuarial value calculation
Provisions that Particularly Affect Self-Funded and Large Employers
For the most part, self-funded and large-group plans would not be required to provide coverage for each of the 10 EHB categories. However, these plans would not be allowed to impose annual dollar limits on EHBs. Also, although self-funded and large-group plans would not be required to cover all of the EHBs, they would be required to provide coverage for all of the "core" benefits -- hospital and emergency care, physician and mid-level practitioner care, pharmacy, and laboratory and imaging - to be considered a plan that provides "minimum value."
The proposed rule also:
- States that HHS and the IRS would provide a minimum value calculator and safe harbor plan designs that self-funded and large-group plans could use to determine whether the plan provides minimum value (the safe harbor plan designs were not included in the proposed rule)
- Provides that current-year employer contributions to an HSA or a HRA would be considered as part of the minimum value calculation
- Resolves an ambiguity in the law and provides that the restrictions on maximum deductibles would not apply to self-funded and large-employer plans.
The proposed rule may be found here: Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation
Important: This rule is still in the "proposed" stage, which means that there may be changes when the final rule is issued. The public may make suggestions until Dec. 26, 2012, on how the proposed rule should be changed before it is finalized. Employers should view the proposed rule as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.
Please contact your e3 Client Service team with any questions.
IRS Announces 2013 Retirement and Inflation-Adjusted Benefit Numbers
Dec 01, 2012
The IRS and the Social Security Administration recently announced most of the dollar amounts that employers will need to administer their benefit plans for 2013. Unlike the past two years, many of the amounts will be adjusted upward to account for inflation. Please see the attached reference card for detailed numbers.
401(k) investors and plan sponsors will enjoy higher contributions limits on their retirement plans. The annual deferral limit will increase from $17,000 to $17,500, the overall limit on annual additions to a participant’s account will increase from $50,000 to $51,000 in 2013, and the annual compensation limit will increase from $250,000 to $255,000. (The catch-up contribution limit, $5,500, will remain unchanged for 2013.)
The annual compensation threshold to identify highly compensated employees (HCEs) will remain unchanged. The maximum contribution to an Individual Retirement Account (IRA) has increased from $5,000 to $5,500 in 2013. The IRA catch-up contribution limit is unchanged, at $1,000.
The maximum contribution to a health savings account will increase from $3,100 to $3,250 for individuals and from $6,250 to $6,450 for family coverage. The HSA catch-up contribution ($1,000) and minimum HSA deductibles ($1,200 and $2,400 for individual and family coverage, respectively) will all remain unchanged.
The Social Security taxable wage base will also increase – from $110,100 to $113,700.
If you have any questions on how these new limits affect your benefit plans, please contact our Investment Specialist, Helen Seestadt CFP® at helen@e3financial.com or your e3 Experience Manager.
Read more (pdf)...What Does The Election Mean for Employers and PPACA?
Nov 08, 2012
Maintenance of the status quo in Washington, D.C. (the re-election of Barack Obama, with a Republican majority in the House of Representatives and a Democratic majority in the Senate) means that implementation of the Patient Protection and Affordable Care Act (PPACA) will move forward largely as the law was passed in 2010.
The law left the task of working out many of the details to the regulatory agencies (the Department of Labor, the IRS and the Department of Health and Human Services), and with many questions remaining unanswered, employers can expect that an enormous number of regulations and other types of guidance will be issued between now and the end of 2013.
Of greatest interest to many employers is the employer shared-responsibility ("play or pay") requirement. As of Jan. 1, 2014, employers who have 50 or more full-time or full-time equivalent employees must offer "minimum essential" (basic) medical coverage for their full-time (30 or more hours per week) employees or pay a penalty of $2,000 per full-time employee, excluding the first 30 employees. Employers who offer some coverage but whose coverage is either not "affordable" or fails to provide "minimum value" must pay a penalty of $3,000 for each employee who receives a premium tax credit. (Coverage is not "affordable" if the employee's cost of single coverage is more than 9.5 percent of income. Coverage does not provide minimum value if it is expected to pay less than 60 percent of anticipated claims. Regulations are still needed to provide details on how the penalty will be determined and collected for employers who do not provide health coverage to their full-time employees, what exactly is the "minimum value" coverage that must be provided to avoid the penalties, and when dependent coverage is "affordable.")
The health insurance exchanges are also scheduled to begin operation in January 2014. (While PPACA is a federal law, the health insurance exchanges were designed to be operated by the states.) A number of states have delayed work on the exchanges pending the outcome of this election, while a few have affirmatively decided not to create a state exchange. If a state is unable or chooses not to create an exchange, the federal government will run the exchange on the state's behalf.
According to the Kaiser Family Foundation, as of Sept. 27, 2012, the following have established exchanges: California, Colorado, Connecticut, District of Columbia, Hawaii, Kentucky, Maryland, Massachusetts, Nevada, New York, Oregon, Rhode Island, Utah, Vermont, Washington and West Virginia. Arkansas, Delaware and Illinois were planning for a partnership exchange with the federal government. Alaska, Florida, Louisiana, Maine, New Hampshire, South Carolina and South Dakota have stated that they will not create an exchange (meaning the federal government will run the exchange on the state's behalf). The remaining states are studying their options but could well end up with a federally run exchange at least for 2014 as the deadline to submit the state's plan for implementing an exchange is next week (Nov. 16). It remains to be seen whether the federal government will be able implement so many exchanges on behalf of the states by the 2014 target date. It also remains to be seen whether a change of governor, insurance commissioner or control of a state legislature or political realities, will change a state's stance on the exchanges. Because employees may choose to obtain coverage through the exchange even if they have access to coverage through their employer and because the exchanges likely will request information from employers when determining eligibility for premium tax credits, all employers will want to have an understanding of the status of their state's exchange.
In addition to deciding whether to "play" (provide health coverage) or "pay" (the penalties), employers (including those with fewer than 50 employees) have a number of compliance obligations between now and 2014, including:
- Expanding first-dollar preventive care to include a number of women's services, including contraception, unless the plan is grandfathered
- Distributing medical loss ratio rebates if any were received from the insurer
- Issuance of summaries of benefits and coverage (SBCs) to all enrollees
- Reducing the maximum employee contribution to $2,500, if the employer sponsors a health flexible spending account (FSA), beginning with the 2013 plan year
- Withholding an extra 0.9 percent FICA on those earning more than $200,000 beginning in 2013
- Providing information on the cost of coverage on each employee's 2012 W-2 if the employer issued 250 or more W-2s in 2011
- Providing a notice about the upcoming exchanges to all eligible employees in March 2013
- Calculating and paying the Patient Centered Outcomes Fee in July 2013 if the plan is self-funded (insurers are responsible for calculating and paying the fee for insured plans but will likely pass the cost on)
- Working with the exchanges to identify those employees eligible for premium tax credits
- Removing annual limits on essential health benefits and pre-existing condition limitations for all individuals, beginning with the 2014 plan year
- Limiting eligibility waiting periods to 90 days, beginning with the 2014 plan year
- Reporting to the IRS on coverage offered and available (the first reports are actually due in 2015 based on 2014 benefits)
If you have questions or would like additional information about your options and obligations under PPACA, please contact us.
HIPAA Privacy and Security Rules
Oct 01, 2012
After several years during which the Department of Health and Human Services (HHS) operated essentially in “complaint-driven” mode with respect to enforcement of the HIPAA Privacy and Security Rules, recent activity suggests a trend toward stricter HIPAA enforcement. The latest evidence comes in a recently-announced settlement between HHS and the Massachusetts Eye and Ear Infirmary and Massachusetts Eye and Ear Associates, Inc. (collectively, MEEI).
In this settlement, MEEI has agreed to pay $1.5 million to settle potential violations of the HIPAA Security Rule. MEEI also agreed to develop a corrective action plan that includes reviewing and revising its existing Security Rule policies and procedures and retaining an independent monitor for a three-year period to conduct semi-annual assessments of MEEI’s compliance with the corrective action plan and report back to HHS.
HHS began its investigation of MEEI after MEEI submitted a breach report, as required by the HIPAA Breach Notification Rule. The report indicated that an unencrypted personal laptop containing the electronic protected health information (ePHI) of MEEI patients and research subjects had been stolen. The HHS investigation concluded that MEEI had failed to comply with certain requirements of the HIPAA Security Rule – particularly with respect to the confidentiality of ePHI maintained on portable devices – and that those failures had continued over an extended period of time.
The MEEI settlement is just the latest in a string of recent penalties and settlements stemming from alleged HIPAA privacy and security violations. From 2003 through 2010, HHS reported that it had received nearly 58,000 privacy complaints and, of those, had resolved more than 52,000. In fact, during this initial eight-year period after the HIPAA Privacy Rule went into effect, HHS did not impose a single civil monetary penalty for HIPAA violations.
In February of 2011, however, HHS imposed a $4.3 million penalty against Cignet Health of Prince George’s County, Maryland. HHS found that Cignet had failed to respond to patients’ requests for access to their medical records and that Cignet refused to cooperate in HHS’s investigation. Later that same month, Massachusetts General Hospital entered into a $1 million settlement with HHS arising out of an incident in which an employee left paper records containing the PHI of 192 patients, including patients with HIV/AIDS, on the subway.
The recent increase in enforcement efforts may be partially attributable to the fact that the available civil penalties increased dramatically as a result of the Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009. The HITECH Act provides HHS with substantial leverage in settlement negotiations.
These steep penalties and settlements should serve as a reminder of how important it is to comply with the HIPAA Privacy and Security Rules. Health plan sponsors should review their existing policies and procedures and remain vigilant in their training of employees.
Julia M. Vander Weele, Partner
Spencer Fane Britt & Browne LLP
COMPLIANCE ALERT: Full Time EE's 90-Day Waiting Period
Sep 21, 2012
MORE GUIDANCE ON "FULL-TIME" EMPLOYEES AND 90-DAY WAITING PERIOD
Starting in 2014, larger employers (generally, those with 50 or more employees) may face "shared responsibility" penalties if any of their "full-time" employees receive subsidized health coverage through an "Affordable Insurance Exchange." At the same time, virtually all employer health plans will become subject to a 90-day limit on any eligibility waiting period. On August 31, the agencies charged with implementing health care reform issued additional guidance on both of these requirements.
In Notice 2012-58, the IRS outlines several safe-harbor methods for determining whether "variable hour" or seasonal employees fall within the "full-time" category (which is generally defined as working 30 or more hours per week). And in Notice 2012-59, the IRS explains how the maximum 90-day eligibility waiting period is affected by various types of eligibility conditions. (Notice 2012-59 was also issued in virtually identical form by both the Department of Labor - as Technical Release 2012-02 - and the Department of Health and Human Services.)
"Full-Time" Employees
In guidance issued late last year (Notice 2011-36), the IRS first proposed a "look-back/stability period" safe harbor by which plan sponsors could determine whether ongoing (as opposed to newly hired) employees fall within the "full-time" category for purposes of the shared responsibility penalties. Under this safe harbor, a sponsor may track an employee's hours during a "standard measurement period" of 3 to 12 months. If an employee averages at least 30 hours per week during that period, he or she would be considered full-time during a subsequent "stability period" of at least six months (but no shorter than the measurement period). If an employee averages fewer than 30 hours per week, he or she would not be considered full-time during the subsequent stability period - even if he or she actually works 30 or more hours per week.
Earlier this year (in Notice 2012-17), the IRS proposed a similar - though slightly different - approach for determining whether a new employee meets this full-time threshold. (For this purpose, a "new" employee is defined as one who has not yet completed a standard measurement period.) If a new employee is reasonably expected to work at least 30 hours per week, he or she would be considered full-time as of the date of hire. However, if it cannot reasonably be determined whether a new employee is expected to meet this 30-hour threshold (thereby constituting a "variable hour employee"), the sponsor would be allowed to count the employee's actual hours during his or her first 3 months (or, in limited cases, 6 months) and then apply rules similar to those previously proposed for ongoing employees.
In response to numerous comments, the IRS has now extended to 12 months the maximum measurement period for newly hired employees. As a result, this "initial measurement period" could now be as long as the "standard measurement period" applicable to ongoing employees.
Moreover, Notice 2012-58 would allow plan sponsors to apply this 12-month initial measurement period not only to variable hour employees, but also to seasonal employees. And through at least the end of 2014, sponsors would be allowed to use any reasonable, good-faith definition of a "seasonal employee."
Notice 2012-58 also allows for an "administrative period" between any measurement period and its related stability period. This administrative period is intended to allow a plan sponsor to determine which employees are eligible for coverage, notify those employees of that fact, and then enroll them in the plan. In general, an administrative period may last for up to 90 days.
There are various constraints on this provision, however. For instance, to prevent a lengthy administrative period from creating a gap in coverage for an ongoing employee, any administrative period for an ongoing employee must overlap with the prior stability period. Accordingly, any ongoing employee who was considered full-time during the prior stability period must retain that status throughout the following administrative period.
Moreover, if a plan sponsor chooses to use an initial measurement period of 12 months, the subsequent administrative period must be shorter than 90 days. This is because the total combined length of an initial measurement period plus the subsequent administrative period may not exceed 13 months, plus any portion of a month remaining until the first day of the following month.
As a general rule, Notice 2012-58 requires that a plan use the same measurement period for all employees. Of course, a plan sponsor may - and probably will - use an initial measurement period that differs from the standard measurement period. The initial measurement period will likely run from each employee's date of hire, whereas the standard measurement period will not.
In either event, the Notice would allow for different measurement periods (and associated stability periods) in the following four circumstances:
- Collectively bargained versus non-collectively bargained employees;
- Salaried versus hourly employees;
- Employees of different entities; and
- Employees located in different states.
- Applies to all employers who sponsor a health flexible spending account (FSA) Effective as of the start of the 2013 plan year
- May not change plan year simply to delay application of the limit
- Employee salary reduction contribution may not exceed $2,500 per health FSA per year
- Amount applies regardless how many family members are covered by the health FSA (i.e., a single employee can contribute up to $2,500 and a married employee with four children can contribute up to $2,500)
- Limit is per employee (so a married couple could each contribute $2,500, even if both are employed by the same employer)
- Employer contributions, whether direct or through flex credits, do not count towards the $2,500 limit
- If the plan offers a grace period to incur claims, amounts reimbursed during the grace period do not apply to the $2,500 limit
- Contributions to HRAs, HSAs, dependent care FSAs and/or for pre-taxation of premiums do not count toward the $2,500 limit
- An employee with two employers during the year (who are not part of the same controlled or affiliated service group) who each sponsor a health FSA could contribute $2,500 to each health FSA
- Must amend the plan to reflect this change by Dec. 31, 2014 (which is longer than employers normally have to amend a Section 125 plan)
- The $2,500 limit is indexed for inflation
- Verify that the administrator of the FSA is prepared for this change
- Communicate the limit to employees as part of FSA enrollment for 2013
- Amend the plan to include the new limit by Dec. 31, 2014
- Effective Jan. 1, 2013
- Applies to all employers
- Must withhold an additional 0.9 percent of the employee's share for Medicare/HI (from 1.45 percent to 2.35 percent) once the employee's wages exceed $200,000
- Employer does not match this additional 0.9 percent
- Additional 0.9 percent is not capped
- Additional withholding only applies to wages over $200,000, beginning in the pay period the $200,000 threshold is met
- Additional amount will be reported with other Medicare withholding in Box 6 of the W-2
- Employee's tax obligation is not synchronized with the withholding requirement
- Employee owes the extra 0.9% on wages and other compensation over $200,000 if single, $250,000 if married and filing jointly, and $125,000 if married and filing single - employer simply withholds on wages in excess of $200,000 regardless of employee's situation
- No obligation to notify high earners of additional withholding
- Similar requirement applies to self-employed once their income exceeds $200,000
- Verify payroll system/payroll vendor is prepared to withhold the additional tax as needed beginning January 2013
- Consider advising affected employees that:
- Additional withholding will occur
- Withholding is a rough estimate of the actual household tax obligation, and they should review their circumstances, including estimated tax payments, and plan accordingly
- All group health plans, regardless of size, must provide "summaries of benefits coverage" (SBC) with the first open enrollment beginning on or after Sept. 23, 2012. The content and format of these SBCs must meet strict guidelines, and the penalties for not providing them are high (up to $1,000 per failure). Insurers will be expected to provide the SBCs for fully insured plans, while self-funded plans will be responsible for preparing their own.
- Employers that issued 250 or more W-2s in 2011 must report the total value of each employee's medical coverage on their 2012 W-2 (which is to be issued in January 2013).
- High income taxpayers (those with more than $250,000 in wages if married and filing jointly, or more than $200,00 if single) must pay additional Medicare tax, and employers will be responsible for deducting a part of the tax (an additional 0.9 percent on the employee's wages in excess of $200,000) from the employee's pay beginning in 2013.
- The maximum employee contribution to a health flexible spending account (FSA) will be $2,500 beginning with the 2013 plan year.
- The Patient Centered Outcomes fee (also called the comparative effectiveness fee) is due July 31, 2013. The fee is $1 per covered life for the 2012 year. Insurers will remit the fee on behalf of the plans they cover, while self-funded plans will pay the fee directly.
- Providing summaries of benefits coverage with the first open enrollment on or after Sept. 23, 2012
- Reporting the value of medical coverage on the 2012 W-2 (for employers filing more than 250 employee W-2 forms)
- Reducing the maximum health flexible spending account (FSA) contribution to $2,500 (beginning with the 2013 plan year)
- Paying the Patient Centered Outcomes fee (due July 31, 2013)
- Covering dependent children to age 26 (there will be tax issues with this unless the IRS provides a waiver)
- Elimination of lifetime and annual maximums for most benefits
- Elimination of pre-existing condition limitations for dependents under age 19
- First-dollar coverage for preventive care
- Excluding over-the-counter prescription drugs for health FSA and health savings account (HSA) coverage
- MV Calculator. HHS intends to develop a minimum value (MV) calculator that would allow sponsors of self-funded health plans to input a limited set of information on the benefits offered under a plan, including specified cost-sharing features such as deductibles, co-insurance, and out-of-pocket maximums. The IRS expects that this information would be required for the following four "core" categories of benefits: physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services. According to the fall 2011 HHS report, these four categories of benefits are the greatest contributors to a health plan's value.
- Safe-Harbor Checklists. Rather than using the MV calculator, an employer whose plan provides benefits in all four of the core categories described above could rely on any of several "safe-harbor checklists" to be developed by HHS and the IRS. Each such checklist would describe the cost-sharing attributes applicable to each of the four core categories of benefits. An employer-sponsored plan would be treated as providing minimum value if its cost-sharing attributes are at least as generous as those shown in any of the safe-harbor checklists.
- Actuarial Certification. Plans with "nonstandard" features, such as quantitative limits on any of the core benefits (e.g., a limit on the number of physician visits or covered hospital days), could start by using the MV calculator and then have a certified actuary make the valuation adjustments needed to reflect the nonstandard features. In certain cases, an employer would even have the option of engaging a certified actuary to make the entire calculation.
- An exclusion for certain Code § 403(b) annuity contracts and custodial accounts;
- Expansion of the information that service providers must disclose about "indirect" compensation they receive;
- Changes to the investment-related disclosures to conform to the requirements of the DOL's participant-level disclosure rules; and
- A separate provision for disclosing changes to investment-related information, which must be updated at least annually.
- Overview of Reporting Requirement
- Calculating the Cost of Coverage
- Recent Clarifications
- Imputed Income for Group Life over $50k: If you provide employer-paid group Life Insurance in excess of $50,000 for any employee, you must include the value of that insurance on the employees’ W-2 at year end. The value of the excess benefit coverage is subject to Social Security and Medicare taxes. For more information, including the IRS rate table and employer responsibilities, click on the following link and review the Publication 15-B document (pages 11-13): http://apps3.irs.gov/govt/fslg/article/0,,id=110345,00.html
- Domestic Partner Taxation: The amount of premium paid by an employer on behalf of a domestic partner is to be included in the employee’s W-2 as imputed income. Further, premiums paid by the employee via payroll deduction on behalf of their Domestic Partners must be on an after-tax basis. We have included an overview on Domestic Partner taxation for your reference (see attached).
- Increase in 401k & Health Savings Account Limits: The IRS and the Social Security Administration recently announced most of the dollar amounts that employers will need to administer their benefit plans for 2012. Unlike the past two years, many of the amounts will be adjusted upward to account for inflation. Please see the attached reference card for detailed numbers.
- Employer Notice Regarding Children's Health Insurance Program: Employers sponsoring group health plans are required to notify employees of potential opportunities currently available in the State in which employees reside for group health plan premium assistance under Medicaid and the Children's Health Insurance Program (CHIP). In many cases this notice must be provided by Jan. 1, 2011 (as described below). The U.S. Department of Labor has published a model notice which may be used to satisfy this requirement, which can be found at: http://www.dol.gov/ebsa/chipmodelnotice.doc
- A permanent risk adjustment formula that would pay insurers higher rates for sicker patients, such as those with chronic conditions. The adjustment would apply to those in the individual and small group markets inside and outside of the exchanges.
- A three-year reinsurance program that would establish a nonprofit entity to handle temporary payments for insurers that cover patients with high medical claims in the individual market.
- A three-year risk corridor program that would give insurers inside the exchanges more certainty by limiting losses and gains. Insurers whose claims are at least 3 percent higher than projected would get more federal funding, while those whose costs are at least 3 percent less than projected would get fewer federal dollars.
- PREMIUM CREDITS - Blue Shield's individual and fully insured group customers will each get a 30 percent credit against one month of premium. Customers with whom Blue Shield shares risk will each get a 10 percent credit against one month of premium. In total, the company will credit $167 million back to its individual and business customers.
- INVESTMENTS IN ACCOUNTABLE CARE - Blue Shield will also provide $10 million in funding to California hospitals and physician groups to help them participate more effectively in accountable care organizations.
- AID TO LOCAL NONPROFITS - The company will give the remainder, about $3 million, to the Blue Shield of California Foundation, which provides grants to local nonprofit organizations that provide health care to low-income Californians.
- The average individual customer will be credited approximately $80 and an average family of four will be credited approximately $250. The range is roughly $25 - $160 for individuals and $130 - $415 for a family of four.
- For all group customers, the average credit to the group will be $110 - $130 per employee. Employers who pay part of the premium must decide whether and how to apportion it.
- For small groups (2-50 employees), the averages are $125 for one employee and approximately $340 for a family of four.
- Flexible Spending Accounts: For 2011, Over the Counter medications will no longer be allowed. Please be sure to remind your eligible employees of this fact prior to making their elections.
- Imputed Income for Group Life over $50k: If you provide employer-paid group Life Insurance in excess of $50,000 for any employee, you must include the value of that insurance on the employees’ W-2 at year end. For more information, including the IRS rate table and employer responsibilities, click on the following link http://apps3.irs.gov/govt/fslg/article/0,,id=110345,00.html and review the Publication 15-B document (pages 11-13).
- Domestic Partner Taxation: The amount of premium paid by an employer on behalf of a domestic partner is to be included in the employee’s W-2 as imputed income. Further, premiums paid by the employee via payroll deduction on behalf of their Domestic Partners must be on an after-tax basis. We have included an overview on Domestic Partner taxation for your reference (see attached).
- Required coverage for emergency services at in-network levels;
- Required first-dollar coverage for certain preventive services (immunizations and screenings), subject to no deductible;
- A prohibition on restricting the designation of primary care providers or requiring referrals for OB/GYN services;
- Required coverage of routine expenses for participation in clinical trials;
- Enhanced claim appeal procedures, including implementation of an external appeals process; and
- A prohibition on discriminating in favor of highly compensated individuals (i.e., applying the same nondiscrimination rules to both insured and self-funded plans).
- Including "in any plan materials provided to a participant or beneficiary that describes the benefits provided under the plan" (such as a summary plan description) a statement that the plan believes it is a grandfathered health plan within the meaning of Section 1251 of the Act. This statement must also provide contact information for questions and complaints. The regulations include model language that may be used to satisfy this disclosure requirement.
- Maintaining records that document the terms of the plan as in effect on March 23, 2010, along with any other documents necessary to verify, explain, or clarify the plan's status as a grandfathered health plan. Those records must then be made available for examination upon request by a participant, beneficiary, or government agency.
- Eliminating all or substantially all benefits to diagnose or treat a particular condition;
- Increasing a coinsurance or other percentage-based cost-sharing requirement above the level in effect on March 23, 2010;
- Increasing a fixed-dollar cost-sharing requirement (other than a copayment), such as an annual deductible or out-of-pocket limit, by a total percentage - measured from March 23, 2010 -- that exceeds the sum of the medical inflation rate plus 15 percentage points;
- Increasing a copayment by an amount that exceeds the greater of (1) the amount just described for other fixed-amount cost-sharing requirements, or (2) $5 increased by the medical inflation rate since March 23, 2010;
- Decreasing the rate of employer contributions to the plan (for any tier of coverage, such as employee-only or family) by more than five percentage points below the rate that was in effect on March 23, 2010; or
- Adopting or decreasing an annual benefit limit, with the specific rules depending on whether the plan had already imposed an annual or lifetime limit as of March 23, 2010.
- Plan changes adopted after March 23, 2010, will be treated as in effect on that date if they were made pursuant to either a legally binding contract or state insurance department filing that was made prior to that date.
- Plans that adopted changes after March 23, 2010, will now have a "grace period" during which they may revoke those changes and thereby retain their grandfathered status. This grace period will end on the first day of the first plan year beginning after September 23, 2010.
- For the period before these regulations were released, the agencies "will take into account good-faith efforts to comply with a reasonable interpretation of the statutory requirements and may disregard changes ... that only modestly exceed" the types of changes allowed by grandfathered plans.
- Market Reforms: The plan introduces a number of market reforms, some of which will take place within 6 months of the enactment of the bill. Some of these reforms include the removal of Pre-Existing conditions, allowing dependent children to stay on the plan until age 26, disbanding “rescission” practices, and the introduction of guarantee issue coverage.
- Exchange Portals: Creation of State-based insurance exchanges for small employers and individuals by 2014. These exchanges would consist of multiple insurance companies offering a wide range of plans. A small employer is defined as 100 or fewer employees, but states may reduce that number down to 50 employees.
- Employer Mandate: Employers do not have to offer coverage, but employers of 50 or more must provide a baseline of “essential” coverage, or pay a fine of $2,000 per uncovered employee (first 30 uncovered employees are exempt).
- Individual Mandate: Beginning 2014, all American citizens and legal residents must purchase qualified health insurance. The bill exempts those below Federal tax thresholds, and applies a penalty to those who do not purchase the coverage.
- Automatic Enrollment: Employers of 200 or more are required to automatically enroll all new employees into employer-sponsored plans. Employees are able to waive if they have another source of coverage.
- FSA limitations: FSA contributions to be limited to $2,500, starting in 2013, and over-the-counter drugs would be considered ineligible expenses at that time.
- MultiState Plans: Allows for creation of interstate and national plans. Creates multistate plans to be offered via state exchanges, provided by private insurers and administered by the Federal Office of Personnel Management.
- Financing: The financing of the increased benefits will come from several sources. Increased Medicare taxes, Employer fines for not covering employees, and new Insurance and Pharmaceutical industry taxes are among the primary funding vehicles.
- Medicare: The bill closes the “donut hole” in Medicare Part D (prescription drugs), by providing a $250 rebate to those who hit the Rx deductible. It reduces payments to Medicare Advantage by freezing the benchmark payment in 2011, and reducing those payments going forward. Proposed “savings” is $200 billion.
- Medicaid: The bill expands coverage under Medicaid for people up to 144% of the Federal Poverty level in 2014.
Notice 2012-58 also provides guidance on rules to be followed when transitioning an employee from his or her initial measurement period to the plan's standard measurement period. Once an employee has been employed for an entire standard measurement period, he or she must be retested for full-time status using that standard measurement period. If the employee would be considered a full-time employee using that standard measurement period, he or she must be considered full-time during the associated stability period - even if the employee would not be considered full-time during the remainder of his or her initial stability period.
90-Day Limit on Eligibility Waiting Period
Unlike the shared responsibility penalties (which will apply only to larger employers), the 90-day limit on eligibility waiting periods will apply to virtually all employer health plans - regardless of the employer's size and even if a plan remains "grandfathered" under health care reform. All employers should thus familiarize themselves with the guidance in Notice 2012-59.
Citing regulations issued in 2004, the agencies define a "waiting period" as "the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective." (Emphasis added.) Consistent with the italicized language, the agencies note that nothing in health care reform requires a plan to provide coverage to any particular category of employees. (Of course, as noted earlier, a large employer may incur a shared responsibility penalty if the exclusion of a full-time employee results in that employee receiving subsidized coverage through an Exchange.)
Much of Notice 2012-59 is devoted to explaining when the agencies will view an eligibility condition as being designed to avoid compliance with the 90-day waiting period limitation - and therefore a violation of this requirement. For instance, a plan may validly require that an employee be in an eligible job classification - such as hourly, salaried, or working at a specified location - in order to participate. And any period in an ineligible classification need not be counted against the 90-day limit. On the other hand, any eligibility condition that is based solely on the lapse of time may last no longer than 90 days.
So far, this is all clear enough. But the guidance then goes on to address certain harder cases. For instance, what if a plan conditions an employee's eligibility on working "full-time" (under either the 30-hour-per-week standard or otherwise) and an employee is hired on a variable hour or seasonal basis? Here, Notice 2012-59 refers to the "initial measurement period" concept outlined in Notice 2012-58. As explained above, this concept could allow for a period of up to twelve months (plus a brief administrative period) for a plan to determine whether an employee has satisfied this eligibility condition - even though such a period greatly exceeds 90 days.
What about a different type of eligibility condition, such as one offering coverage to part-time employees only after they have completed a total of 1200 hours of service? An example in Notice 2012-59 specifically approves of this approach, even though the employee in that example was therefore required to work nearly a year before entering the plan. Interestingly, however, the Notice appears to set a 1200-hour limit on such an eligibility condition, noting that the agencies would consider a requirement to complete more than 1200 hours to be designed to avoid compliance with the 90-day waiting period limitation.
Finally, Notice 2012-59 connects the 90-day limit on eligibility waiting periods to the shared responsibility penalties discussed in Notice 2012-58. It does so by noting that a large employer may require even a full-time employee to satisfy a waiting period of up to 90 days without thereby running the risk of incurring a shared responsibility penalty. Moreover, during that waiting period, the employee may qualify for subsidized coverage through an Exchange. In this way, the Notice closes an analytical gap in the statutory language.
What to Do Now
Although neither of the requirements discussed in this article will take effect until January 1, 2014, sponsors of employer health plans will want to begin planning for their implementation well before that date. In fact, any employer planning to use the look-back/stability period safe harbor for identifying full-time employees during 2014 must begin counting hours of service during 2013.
Moreover, the agencies have stated that this interim guidance will remain in effect through at least the end of 2014 - with any more restrictive guidance taking effect no earlier than 2015. Accordingly, employers can be certain that these are the rules that will apply during the first year the requirements are effective.
Kenneth A. Mason, Partner
Spencer Fane Britt & Browne LLP
CMS Disclosure Requirement- Due October 15th
Sep 07, 2012
This is a friendly reminder regarding your CMS disclosure requirements. If you have not registered your plans this year or distributed the Creditable or Non-Creditable notices, you must do this on or before October 15th of this year.
The Medicare Modernization Act (MMA) requires entities (who offer prescription drug coverage) to notify Medicare eligible policyholders whether their prescription drug coverage is creditable coverage, which means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage. It is preferred that these notices are sent out within 60 days from the beginning of a plan year, within 30 days after termination of a prescription drug plan, or within 30 days after any change in creditable coverage status. However, these notices are required to be distributed no later than October 15th of each calendar year.
Furthermore, because Medicare Part D eligible individuals may include dependents and COBRA participants, we advise you to send the Notice via regular mail to ALL participants covered under your group medical plan. If dependents reside at the same address as the employee, the envelope may be addressed to "(Employee Name) and All Covered Dependents". For your convenience, attached are model notices provided by the Center of Medicare & Medicaid Services (CMS), which we have modified to make them more user-friendly. For example, we've replaced the term "Entity" with "Name of Employer's Group Health Plan". (If you wish to review the original model notices, please visit: https://www.cms.hhs.gov/CreditableCoverage).
Attached are the instructions and screen shots to help you navigate through the websites listed below:
Online Disclosure to CMS Form
Entities that are required to provide a disclosure of creditable coverage status to CMS must complete the following Online Disclosure to CMS Form. Refer to the links on the left side of this webpage to access the Disclosure to CMS Guidance, Commonly Asked Questions and Helpful Hints documents to assist you when completing this form.
https://www.cms.gov/CreditableCoverage/45_CCDisclosureForm.asp#TopOfPage
Creditable Coverage Disclosure to CMS Form Instructions and Screen Shots (also attached)
Please contact your e3 Financial service team if you have any further questions.
Read more (pdf)...Health Care Reform Update: Highlights of Health FSA Contribution Limit
Aug 13, 2012
Action Needed:
This Compliance Alert is brought to you by:
e3 Financial
United Benefit Advisors Member Firm
Our access to Health Care Reform/ PPACA Advisor resources can help you clear up PPACA questions and help you shape your company's benefit strategy.
This information is general and is provided for educational purposes only. It reflects UBA's understanding of the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
Highlights of Additional Medicare Withholding for High Earners
Jul 26, 2012
Action Needed:
Click here for More Information
Note: There is another new Medicare tax on high earners that imposes no obligation on employers. A 3.8 percent tax is payable on the lesser of the taxpayer's net investment income and modified adjusted gross income over the levels described above. Net investment income excludes wages, self-employment income, distributions from IRA's and qualified plans, and tax-exempt interest and dividends. It includes dividend and interest income, annuities, royalties and rents unless derived in the ordinary course of business, net gains on the disposition of property, and income from a variety of other passive activities. The capital gain from selling a principal residence is considered net income to the extent it exceeds the excludable amount ($250,000 if single or $500,000 if married and filing jointly).
Overview of Medical Loss Ratio Rebates
Jul 11, 2012
The Affordable Care Act requires health insurers to spend a minimum percentage of their premium dollars on medical claims and quality improvement. Insurers in the large group market must achieve a medical loss ratio (MLR) of 85%, while insurers in the individual and small group markets must achieve an MLR of 80%. Insurers that fail to achieve these percentages must issue rebates to their policyholders. The first of these MLR rebates are due in August of 2012, so plan sponsors should begin planning how to handle any rebates they might receive.
Which Plans Are Covered?
The MLR rules apply to all fully insured health plans (even grandfathered plans). Self-funded plans are exempt. Certain types of insured coverage, such as fixed indemnity, stand-alone dental and vision, and long-term disability, are also exempt.
If a rebate is payable to a group policyholder, the insurer must issue a single rebate check to the plan. The plan sponsor must then decide whether and how to pass the rebate on to the plan's participants.
Calculating a Medical Loss Ratio
The calculation of an MLR is not specific to each policyholder, but is a state-by-state aggregate of the insurer's overall MLR within a particular market segment (e.g., individual, small group, or large group). Thus, even if a specific employer plan has a low MLR (i.e., favorable claims experience), the employer may not necessarily receive a rebate.
States are permitted to set higher MLR targets. In those states, insurers must comply with the more stringent state requirements.
Notices to Subscribers
Insurers must send written notices to their subscribers, informing them that a rebate will be issued. Plan sponsors should be prepared to respond to questions from participants who receive these notices, particularly if the sponsor does not intend to share any of the rebate with those participants.
Likewise, even if an insurer meets the MLR requirements, it must notify subscribers that no rebate will be issued. This notice must be included with the first plan document provided to enrollees on or after July 1, 2012. Model notices are available on the Centers for Medicare & Medicaid Services website.
How to Allocate MLR Rebates
The Department of Labor (DOL) issued Technical Release 2011-04, summarizing how ERISA plan sponsors should handle MLR rebates. To the extent that all or a portion of the rebate constitutes a "plan asset," the sponsor may have a fiduciary duty to share the rebate with plan participants. See attached article for more information on this subject.
Tax Consequences
Before deciding to pass an MLR rebate on to participants, a plan sponsor will want to understand the tax implications of doing so. The IRS has issued a set of questions and answers on this topic. Because this guidance is entirely in the form of examples, with few general principles provided, the tax treatment may not always be clear. What is clear is that a number of factors will affect the taxability of an MLR rebate. See attached article for more information on this subject.
Julie M. Vander Weele, Partner
Spencer Fane Britt & Browne LLP
Supreme Court Largely Upholds Patient Protection and Affordable Care Act (PPACA)
Jun 28, 2012
Today, the U.S. Supreme Court upheld the individual mandate and most of the Patient Protection and Affordable Care Act (PPACA). As expected, it was a close decision -- 5-4 -- with Chief Justice Roberts and Justices Breyer, Ginsburg, Kagan and Sotomayor agreeing that the individual mandate is a permissible tax. Because the individual mandate was found to be acceptable, most of the rest of the law (including the exchanges and the requirement that larger employers provide minimum coverage or pay penalties of their own) automatically stands. For additional information on the decision, CLICK HERE.
Because PPACA has been upheld, employers need to move forward with implementing the changes required by the law. The most immediate requirements are:
Politically, while House Republicans have pledged to repeal PPACA, it is unlikely a repeal bill would pass the Senate, and it would be vetoed in any event by President Barack Obama. The fall elections, of course, could result in a change in control of Congress and/or the White House, and Republican victories would likely re-energize efforts to repeal PPACA or to discontinue funding needed to implement various parts of the law.
The opinion is long (193 pages) and complex, and we will provide additional details -- through both written alerts and a webinar -- once there has been more time to study the opinion.
Preparing for the Supreme Court Decision on Health Care Reform
Jun 20, 2012
The U.S. Supreme Court is expected to publish its decision on the legality of the Patient Protection and Affordable Care Act, or PPACA (also called health care reform, HCR and ACA), by the end of June. What they will decide is anyone's guess. Here are the possibilities (in no particular order), and a brief overview of what the decision would mean to employers that sponsor group health plans. For additional information on the issues the Court is considering, Click Here.
Entire Law is Constitutional
If the Court decides that all parts of the law are constitutional, employers will need to move forward with implementing the changes that the law requires. For 2012 and 2013, these include:
Note: Details on these requirements are included in recent Employer Compliance Alerts.
Part of the Law is Constitutional and Part is Not
The Court could decide that the requirement that individuals obtain health coverage or pay a penalty (the "individual mandate") exceeds Congress' authority but that other parts of the law are permissible. They could then either specify which parts should stay and which should go, or they could send the case back to a lower court to determine the details. Either way, employer obligations to comply with the law would continue, and the actions needed for 2012 and 2013 would continue to apply.
Entire Law is Unconstitutional
The Court could decide that the entire law is flawed, in which case employers will not need to implement the changes that were to take effect for 2012 and later. There would be some uncertainty (and choices) with respect to the parts of the law that have already been implemented. Keep in mind that if the plan or policy has been amended or written to include the 2010 and 2011 changes, the plan document or policy will need to be revised to remove the changes -- the mere fact that the law is unconstitutional will not void the changes in the plan or policy.
Several carriers -- Aetna, Humana and UnitedHealthcare -- have stated that they will continue to administer their policies to include many of the changes that have already been implemented, even if that is not legally required. Employers that have self-funded plans will need to decide -- and those who have fully insured plans may need to decide -- if they want to roll back changes such as:
The Supreme Court decision is unlikely to end the debate over PPACA, particularly with the fall congressional and presidential elections looming. If the Supreme Court upholds the law, House Republicans have pledged to introduce legislation to repeal it, but they likely do not have the votes in the current Congress to prevail.
IRS Eases Health Care Reform Law’s $2,500 Limit for Non-Calendar Year FSA plans
Jun 01, 2012
The IRS on Wednesday provided regulatory relief for health care flexible spending account (FSA) participants and also said it is reconsidering its longtime use-it-or-lose-it rule for FSAs.
Employer benefits lobbying groups, including the American Benefits Council (ABC) had complained that the new $2,500 annual limit set to go into effect on January 1, 2013 would effectively force noncalendar-year plans to comply with the rule before the statutory effective date. For example, an employee in an FSA with a fiscal year that begins on July 1, 2012, elected to contribute $3,600 during that plan year, making contributions of $300 a month from July 1, 2012, through June 30, 2013. If the employee elects to contribute $2,500 for the next plan year starting July 1, 2013, the employee would violate the $2,500 annual limitation for 2013, the ABC noted, because the employee would have contributed $300 a month for the first six months of 2013 and $208.33 for the last six months of 2013 (a total of $3,050 during 2013).
In Notice 2012-40, the IRS said participants in noncalendar-year plans can still make the maximum contributions to their FSAs during the first year that a mandated FSA contribution cutback goes into effect under the health care reform law.
In addition, the IRS made clear that amounts that remain in so-called grace period FSAs can be rolled over to the next year without those funds counting against the $2,500 limit. Grace period FSAs -- allowed by the IRS under a 2005 rule -- are those in which unused balances from the prior plan year can be used to pay expenses that are incurred during the first 2.5 months of the next plan year.
The guidance also addresses plan grace periods and provides relief for "certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer." Further, the notice clearly establishes that the limit in PPACA does not does not apply to certain employer nonelective contributions (sometimes called flex credits), nor does it apply to non-healthcare FSA contributions, HSAs, HRAs or health plan premium payments made under a Section 125 plan.
Finally, in a development that stunned benefit experts, the IRS also disclosed that it considering "modifying" its 28-year-old use-it-or-lose-it rule. If use it or lose it were eliminated, FSAs would become even more popular. The fear of losing unused contributions is a disincentive for some employees to participate, and others contribute less than they would in the absence of the requirement, experts said.
IRS Proposes Methods for Valuing Employer Health Coverage
May 10, 2012
The IRS has just issued three notices concerning key aspects of the 2010 Affordable Care Act (ACA). Notice 2012-31 proposes three different methods by which sponsors of self-funded health plans could value the coverage they provide to plan participants and their dependents. Notice 2012-32 and Notice 2012-33 then solicit comments on two related employer reporting requirements.
This process for valuing and reporting employer health coverage goes to the heart of the ACA's individual and employer mandates. It will also help target a tax credit designed to help low-income individuals pay premiums for health insurance purchased through a state-wide insurance exchange.
"Minimum Essential Coverage" Versus "Essential Health Benefits"
The "individual mandate" (the constitutionality of which is now under review by the U. S. Supreme Court) refers to the ACA requirement that most U.S. citizens either have "minimum essential coverage" or pay a penalty on their federal income tax return. The emphasis here is on "minimum." This requirement may be satisfied through virtually any type of health coverage - individual or group, private or governmental, generous or stingy.
Minimum essential coverage should be contrasted with "essential health benefits," another ACA-created term. This refers to the type of comprehensive health coverage that must be offered by any insurer whose individual or small-group policy is sold through an exchange. Essential health benefits must include at least a benchmark level of coverage for each of ten specific categories of benefits. Notice 2012-31 makes clear that self-funded employer health plans (as well as insured plans maintained by larger employers) need not meet this higher standard.
New Employer Reporting Requirements
To help enforce the individual mandate, a new Section 6055 of the Tax Code will require all providers of minimum essential coverage to report to the IRS on the individuals who receive that coverage. In Notice 2012-32 the IRS indicates that final regulations under Section 6055 will likely make a health insurer responsible for reporting minimum essential coverage under any insured employer health plan, relieving the sponsoring employer of that obligation. In the case of a self-funded employer plan, however, this reporting obligation will fall on the employer. The IRS anticipates that this Section 6055 reporting would be done on an employee's Form W-2.
A separate reporting requirement will apply only to "large employers" (generally defined as those having 50 or more full-time employees). Under Code Section 6056, a large employer must report the information needed to administer two other provisions of the ACA. These are (1) a premium tax credit available to low-income individuals for the purchase of health insurance through an exchange, and (2) the "shared responsibility" penalty to be assessed against large employers that fail to offer health coverage meeting a "minimum value" standard, or that offer such coverage but charge a premium that is not "affordable." Notice 2012-33 solicits comments on this Section 6056 reporting requirement.
Importance of "Minimum Value" Determination
Under the ACA, an employer plan fails to provide "minimum value" if "the plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs." Citing a fall 2011 report by the Department of Health and Human Services (HHS), the IRS notes that approximately 98% of the individuals currently covered by employer-sponsored health plans receive coverage that meets this minimum value standard.
This minimum value determination is important to both employees and large employers. An employee may not claim the premium tax credit for the purchase of health insurance through an exchange if the employee (or a family member) is eligible to enroll in an employer-sponsored health plan that meets this minimum value standard - unless the premium for that coverage is not "affordable" (a determination to be made on the basis of the employee's household income). This premium tax credit is also unavailable to any employee who is actually enrolled in an employer plan - even if that plan fails to provide minimum value or is not affordable.
If any full-time employee of a large employer receives this premium tax credit - either because the employer plan fails to provide minimum value or because it charges a premium that is not affordable - that employer may be assessed a "shared responsibility" penalty. As explained in our May 2011 article, the formula used in calculating the amount of this penalty will depend on whether the "minimum value" standard has been met. For this reason, large employers will need to value the coverage provided through their plans.
Proposed Valuation Methods
In Notice 2012-31, the IRS proposes the following three valuation methods:
Under any of these three valuation methods, an employer could take into account any of its current-year contributions to an employee's health savings account, or any amounts first made available during the year under a health reimbursement arrangement. Doing so should make it easier for the employer's comprehensive health plan to satisfy the minimum value standard.
Requests for Comments
All three of these Notices solicit comments. Unfortunately, the deadline for submitting those comments is June 11, 2012. This is likely to be before the Supreme Court has issued its ruling on the constitutionality of the individual mandate - and perhaps the entire ACA.
IRS Announces 2013 Amounts for Health Savings Accounts (HSA) and High Deductible Health Plans (HDHP)
May 09, 2012
On April 27, the IRS issued Revenue Procedure 2012-26, announcing the 2013 inflation-adjusted dollar limitations applicable to Health Savings Accounts (HSAs) and qualifying High-Deductible Health Plans (HDHPs).
The maximum HSA contribution for an individual with self-only coverage under an HDHP will increase to $3,250 - up from $3,100 in 2012. The maximum HSA contribution for an individual with family HDHP coverage will be $6,450 - up from $6,250 in 2012. The "catch-up contribution" limit, for individuals who will attain age 55 by the end of the year, will remain at $1,000.
To qualify as an HDHP, a plan must specify a minimum annual deductible amount, with that amount based on whether the coverage is self-only or family. Those deductibles have also been adjusted for inflation. For self-only coverage, the annual deductible must be no less than $1,250 - up from $1,200 in 2012. For family coverage, the annual deductible must be no less than $2,500 - up from $2,400 in 2012.
Finally, to qualify as an HDHP in 2013, the total annual out-of-pocket expenses (deductibles, copayments, and other amounts - but not premiums) may not exceed $6,250 for self-only coverage or $12,500 for family coverage.
Sponsors of HSA arrangements and/or HDHPs will want to incorporate these new dollar amounts into their 2013 open enrollment materials.
Please contact your e3 Financial Client Service Team with any questions.
Agencies Issue Guidance on Automatic Enrollment, Employer Mandate, and Waiting Periods
Mar 02, 2012
On the same day that they released final regulations on the Summary of Benefits and Coverage, the Departments of Labor, Health and Human Services, and Treasury (the Departments) also issued a joint set of frequently asked questions (FAQs) addressing various topics under the Affordable Care Act (ACA). IRS Notice 2012-17 (which was issued in substantially identical form by the other two Departments) provides guidance on automatic enrollment, employer shared responsibility, and waiting periods, as well as suggestions regarding various approaches the Departments are considering proposing in future regulations.
Automatic Enrollment
The ACA provision on automatic enrollment requires certain large employers (those with more than 200 full-time employees) to automatically enroll new full-time employees in one of the employer's health benefit plans (subject to any legally permissible waiting period), and to continue the enrollment of current employees in a health benefit plan. It further requires notice and an opt-out opportunity for employees who have been automatically enrolled.…(See attached full article to view more information on this subject)
Employer Shared Responsibility
Another key element of the ACA is the employer "shared responsibility" provision. This provision, currently scheduled to take effect in 2014, would assess a penalty against certain "applicable large employers" (those with 50 or more full-time employees) that either fail to offer "minimum essential coverage" to their full-time employees, or that offer coverage that is "unaffordable" relative to an employee's income. "Full-time" is defined to mean an employee who is employed an average of at least 30 hours per week…(See attached full article to view more information on this subject)
Waiting Periods
Under the ACA, effective for plan years beginning on or after January 1, 2014, a group health plan may not have a waiting period that exceeds 90 days. The ACA's statutory language raised many questions regarding how this 90-day limit on waiting periods should be measured. Notice 2012-17 continues to leave many of those questions unanswered, but it confirms that future regulations will incorporate the existing regulatory definition of "waiting period." …(See attached full article to view more information on this subject)
Next Steps
This interim guidance may be helpful to employers that are trying to project the financial effect that some of the ACA provisions will have on them in 2014 and beyond. However, because the FAQs are not binding and employers cannot rely on them, additional guidance will be necessary before employers can confirm their final strategies for compliance.
Julia M. Vander Weele, Partner
Spencer Fane Britt & Browne LLP
COMPLIANCE ALERT- Summary of Benefits & Coverage Finalized Guidance
Feb 14, 2012
Agencies Finalize Guidance on Summary of Benefits and Coverage
The health care reforms enacted in March of 2010 will require employer health plans to provide a uniform "summary of benefits and coverage" (SBC) to all plan participants and beneficiaries. The agencies charged with implementing this requirement have now finalized the regulations they proposed in August of 2011. The final regulations ease certain of the more onerous requirements, and they also grant a six-month delay in the statutory effective date.
Compliance Deadlines
As enacted, this SBC requirement was to apply as of March 23, 2012. This recent guidance allows compliance to be deferred until the first open enrollment period beginning on or after September 23, 2012. For participants who are not a part of the open enrollment process (such as new hires or special enrollees), the compliance deadline is the first day of the first plan year beginning on or after September 23, 2012.
To comply with this requirement, an SBC must be included in any application materials provided as a part of the open enrollment process. If there are no such materials, the deadline for providing an SBC is the first day on which a participant is eligible to enroll. Plans have additional time to provide an SBC to any special enrollee. The deadline in that case is 90 days after the participant's enrollment date (i.e., the same as the deadline for providing a summary plan description).
Covered Plans
These SBC rules apply to both insured and self-funded plans. The plan administrator (typically, the sponsoring employer) is responsible for providing the SBC. In the case of an insured plan, however, the insurer is equally responsible. Moreover, if an insurer provides a timely and accurate SBC, the plan administrator is not required to do so.
This is another health care reform requirement to which even "grandfathered" plans are subject. The same is true for even stand-alone health reimbursement arrangements, as well as "mini-med" plans that have received a waiver from the prohibition on annual benefit limitations. Certain employer plans are exempt from this SBC requirement, however. These include HIPAA "excepted benefits," such as stand-alone dental and vision plans and most flexible spending arrangements. Health savings accounts are also exempt. The agencies note, however, that even exempt FSAs or HSAs may need to be referenced in an SBC for a comprehensive medical plan, as a way of explaining that plan's deductibles and other co-payment features.
Please see the attached document for more details regarding Recent Changes.
Kenneth A. Mason, Partner Spencer Fane Britt & Browne LLP
Read more (pdf)...401(K) Fee Disclosure Rules – July 1st Deadline
Feb 10, 2012
The Department of Labor (DOL) has just released final regulations under Section 408(b)(2) of ERISA, requiring retirement plan service providers to disclose information about their services and fees to plan sponsors. In doing so, the DOL delayed the effective date of those rules and made minor modifications to them. The final regulations defer the compliance date from April 1 to July 1, 2012. As a consequence, plan sponsors will also have more time to comply with the related participant-level fee disclosure rules.
In an attempt to arm plan fiduciaries with additional information about the increasingly complex services provided by retirement plan vendors (such as record keepers, third-party administrators, and brokers) and the fees charged for those services, the Section 408(b)(2) regulations impose specific disclosure requirements on those providers. Under ERISA, fiduciaries must ensure that these arrangements are reasonable, and that only reasonable compensation is paid for them. The information that will be provided under these rules is intended to help fiduciaries fulfill that responsibility. The final regulations published on February 2 replace an interim final rule that was released on July 16, 2010. In addition to delaying the effective date of the disclosure requirements, the final rule makes a number of minor changes in response to comments received on the interim final rule. These include:
The final regulations "strongly encourage" service providers to offer plan fiduciaries a "guide" or summary of their disclosures. The DOL included a sample guide as an appendix to the final rule. Debate about whether to require such a summary disclosure is rumored to have delayed the release of the final rules. For now, the summary is voluntary, but the DOL strongly hinted that it may make the summary mandatory in future regulations.
These regulations will be effective for contracts or arrangements (whether existing or new) between covered plans and covered service providers as of July 1, 2012.
This delayed effective date (from April 1) also will push back the effective date for disclosures that plan administrators must send to participants. Initial annual participant-level disclosures must be furnished within 60 days after the effective date of the Section 408(b)(2) service provider disclosures. For calendar year plans, this means that the initial disclosure of plan- and investment-related information must be furnished to participants no later than August 30, 2012 (rather than May 31), and the first quarterly statement must be furnished to participants no later than November 14, 2012 (rather than August 14).
Gregory L. Ash, Partner
Spencer Fane Britt & Browne LLP
More IRS Guidance on W-2 Reporting of Health Coverage
Jan 17, 2012
Among the provisions contained in the 2010 Patient Protection and Affordable Care Act was a requirement that employers report, on each employee's IRS Form W-2, the value of any employer-provided health coverage. This reporting requirement is optional for 2011, but for employers issuing more than 250 W-2’s, it is mandatory for 2012 (that is, for W-2s to be provided in January of 2013). For “small employers”, who issue fewer than 250 W-2’s, the soonest such an employer would be required to report the health coverage value on W-2’s would be January 2014 (on the 2013 W-2). The IRS issued an initial round guidance on this reporting requirement, but that Notice left many questions unanswered. A number of those questions have now been answered.
Please review the attached article for detailed information about these upcoming changes which includes:
For more information, please contact your e3 Financial Client Service Team and they will assist you.
Read more (pdf)...
Year-End Reminder!
Dec 13, 2011
As year-end approaches, here are a few helpful reminders:
For more information, please contact your e3 Financial Client Service Team and they will assist you.
Supreme Court Agrees to Hear Challenge to the 2010 Health Care Reform Law
Nov 15, 2011
The U.S. Supreme court has agreed to hear arguments regarding the constitutionality of the 2010 Health Care Reform law. Oral arguments should occur by March with a possible decision to follow in late June, in the midst of the 2012 presidential campaign. The justices will decide whether the mandate to purchase health insurance is constitutional. Many argue that the mandate exceeded Congress’s power by requiring almost all Americans to have health insurance by 2014 or pay a penalty. If the Supreme Court decides that the mandate was unconstitutional, they will also look at how much of the balance of the Patient Protection and Affordable Care Act, must fall along with it.
IRS Announces 2012 Retirement and Inflation-Adjusted Benefit Numbers
Oct 31, 2011
The IRS and the Social Security Administration recently announced most of the dollar amounts that employers will need to administer their benefit plans for 2012. Unlike the past two years, many of the amounts will be adjusted upward to account for inflation. Please see the attached reference card for detailed numbers.
401(k) investors and plan sponsors will enjoy higher contributions limits on their retirement plans. The annual deferral limit will increase from $16,500 to $17,000, the overall limit on annual additions to a participant’s account will increase from $49,000 to $50,000 in 2012, and the annual compensation limit will increase from $245,000 to $250,000. (The catch-up contribution limit, $5,500, will remain unchanged for 2012.)
The annual compensation threshold to identify highly compensated employees (HCEs) will increase (from $110,000 to $115,000.) Employers will not actually use that number until 2013, however, due to the nature of the “look-back” provision in the HCE definition.
There is no increase to any of the limits on contributions to individual retirement accounts.
The maximum contribution to a health savings account will increase from $3,050 to $3,100 for individuals and from $6,150 to $6,250 for family coverage. The HSA catch-up contribution ($1,000) and minimum HSA deductibles ($1,200 and $2,400 for individual and family coverage, respectively) will all remain unchanged.
Recipients of Social Security will see a 3.6% benefit increase in 2012, the first in three years. The Social Security taxable wage base will also increase – from $106,800 to $110,100.
In 2011 the OASDI tax rate was temporarily reduced to 4.2% to help stimulate the economy. In 2012 it is scheduled to reset back to the previous 6.2%, but it is likely that legislative action will take place to keep a tax reduction in place.
If you have any questions on how these new limits affect your benefit plans, please contact our Investment Specialist, Helen Seestadt CFP® at helen@e3financial.com or your e3 Experience Manager.
Read more (pdf)...
Class Act Repealed
Oct 18, 2011
The Obama administration has decided not to proceed with the implementation of the CLASS Act, a proposed national Long Term Care insurance program that was part of the health reform law.
The Secretary for the US Department of Health & Human Services (HHS) announced that there is currently no viable path forward for the implementation of the Community Living Assistance Services and Supports (CLASS) program. Established under the Affordable Care Act, CLASS was intended to be a voluntary, guaranteed issue, Long Term Care insurance program available to workers that would offset long term health care costs. The monthly benefits could be used toward nursing home costs, daily living needs or in-home care for those who cannot care for themselves.
The law required the HHS Secretary to design a benefit plan that would be actuarially sound and financially solvent for at least 75 years. Officials said they discovered they could not make CLASS both affordable and financially solvent while keeping it a voluntary program open to virtually all workers, as the law also required.
The challenge of financing Long Term Care remains an issue. Medicaid, which pays more than 40 percent of these costs, has its own financial troubles. And only about 7 million Americans own private Long Term Care insurance. This may leave many Americans unprepared for the high costs of Long Term Care.
To find out more about Long Term Care insurance, contact your e3 Financial Service Team today.
New Rule Requires Non-Union Employers to Notify Employees of Their Right to Unionize
Sep 13, 2011
The National Labor Relations Board (NLRB) has just issued a final rule obligating the vast majority of private sector employers to notify employees of their rights under the National Labor Relations Act (NLRA). The purpose of the notice is to inform employees of their rights to organize, form, join or assist a union; to bargain collectively with their employer; and to discuss their wages, benefits, and other terms and conditions of employment with their co-workers or a union. The new rule covers not only union workplaces, but also non-union workplaces.
The rule will pose new challenges for non-union employers and make it harder for all employers to defend themselves against allegations of unfair labor practices. For example, an employer’s failure to properly comply with the rule will toll the six-month statute of limitations period for filing a charge against the employer for unfair labor practices. An employer’s knowing violation of the rule can also be used against the employer as evidence of unlawful motive in anti-union discrimination and other unfair labor practice litigation.
Employers should take immediate steps to determine whether they are subject to the rule. Covered employers must be in full compliance by November 14, 2011. Human resource professionals, executives, and supervisors should be trained on how to properly respond to employees’ questions about their NLRA rights, as well as how to properly address union-related activities in the workplace.
The notice of rights that employers must post under the new rule is not yet available, but employers should periodically check the NLRB website for additional details.
Denise Portnoy, Associate
Spencer Fane Britt & Browne, LLP
HHS Announces Proposed Rules for Uniform Benefit Summaries
Aug 18, 2011
On August 17, the Department of Health and Human Services (HHS) released a Notice of Proposed Rulemaking for Uniform Benefit Summaries under the Patient Protection and Affordable Care Act (PPACA). Please note: e3 Financial will automatically incorporate the language into the benefit summaries that we produce for you.
The intent of Uniform Benefit Summaries is to provide individuals with standard information so they can review medical plans, compare insurers and make decisions about which medical plan to choose. The proposed rule provides additional guidance on the information that must be provided to all individuals enrolling in a medical plan on or after March 23, 2012.
This provision applies to individual and employer-sponsored medical plans, regardless of grandfathered status or funding. It does not apply to retiree-only plans or to standalone dental and vision plans.
What Information Must be Included
Insurers and self-insured employers must provide a Summary of Benefits and Coverage (also referred to as an ‘SBC’ in the proposed rule) to individuals who apply for and enroll in medical plans. The Summary of Benefits and Coverage is a required document that must be provided in the standard format.
There are four standard components:
• Medical Scenarios called “Coverage Examples” that are patterned after the Food and Drug Administration food labels. They estimate customer costs based on the specific plan’s benefits for three medical scenarios – Maternity, Breast Cancer Treatment and Managing Diabetes
• A standard glossary of medical and insurance terms
• A phone number and website where individuals can get additional information including documents such as Certificates, Summary Plan Descriptions (SPDs) and policies
HHS asked the National Association of Insurance Commissioners (NAIC) to propose a format for the four components in the Summary of Benefits and Coverage. Here is a link to the documents proposed by NAIC: http://www.naic.org/committees_b_consumer_information.htm
The information on the NAIC website is not a guideline or example. It is the exact wording, format and layout that must be used. Insurers and employers will just insert plan details into the predetermined rows and columns.
The Benefit Summary must be a freestanding document and may not be incorporated into any other document. Supplemental communication materials may be provided with it. Currently produced documents will not satisfy the requirements of the regulation.
The Coverage Examples must include three pre-defined medical scenarios: Maternity, Breast Cancer Treatment and Managing Diabetes. These scenarios are intended to show typical services and cost sharing under the plan. The numbers would be based on client-specific plans and costs. The estimates are based on national average costs and in-network benefit levels.
Who is Responsible for Providing the Information
For fully insured plans and HMOs, the insurer is responsible for producing and distributing the summaries. For self-insured plans, the responsibility lies with the employer.
What is the Required Timing
Summaries must be provided when an employer or individual requests information about a plan, applies for coverage or enrolls in a plan. They must also receive a summary if there are plan changes or if the individual has a HIPAA special enrollment event that prompts a new enrollment opportunity.
People enrolled in a health plan must be notified of any significant changes to the terms of coverage reflected in the Summary of Benefits and Coverage at least 60 days prior to the effective date of the change. This timing applies only to changes that become effective during the plan or policy year but not to changes at renewal (the start of the new plan or policy year).
How Benefit Summaries will be Delivered
Summaries are required both before and after enrollment and may be delivered in paper and/or electronic format. There are specific requirements for group vs. individual plans.
Penalty for Non-Compliance
The penalty for ‘willful’ non-compliance is up to $1,000 per enrollee for each failure to comply.
Next Steps
Comments on this proposed rule – including the specific request for expatriate plans – are due 60 days from the publish date.
Health Care Reform Update: HHS Releases Guidelines on Women’s Preventive Health Services to be Received at No Cost
Aug 04, 2011
The U.S. Department of Health and Human Services (HHS) has announced new guidelines that will ensure women receive preventive health services at no additional cost (http://www.hrsa.gov/womensguidelines/). Developed by the independent Institute of Medicine and delivered to HHS last Wednesday, the new guidelines are in addition to the rules released last summer by HHS requiring all new private health plans to cover several evidence-based preventive services like mammograms, colonoscopies, blood pressure checks, and childhood immunizations without charging a copayment, deductible or coinsurance.
The new guidelines include:
• well-woman visits;
• screening for gestational diabetes;
• human papillomavirus (HPV) DNA testing for women 30 years and older;
• sexually-transmitted infection counseling;
• human immunodeficiency virus (HIV) screening and counseling;
• FDA-approved contraception methods and contraceptive counseling;
• breastfeeding support, supplies, and counseling; and
• domestic violence screening and counseling.
New health plans will need to include these services without cost sharing for insurance policies with plan years beginning on or after Aug. 1, 2012. The rules governing coverage of preventive services which allow plans to use reasonable medical management to help define the nature of the covered service apply to women's preventive services. Plans will retain the flexibility to control costs and promote efficient delivery of care by, for example, continuing to charge cost-sharing for branded drugs if a generic version is available and is just as effective and safe for the patient to use.
For more information on the HHS guidelines for expanding women's preventive services, please visit: http://www.healthcare.gov/news/factsheets/womensprevention08012011a.html.
Health Exchange Risk Programs Would Protect Insurers and Consumers
Jul 15, 2011
Health and Human Services Department officials have coupled the health exchange regulation released on Monday with another proposed rule designed to minimize the impact of covering sick, expensive patients on insurance companies. The federal government proposed to give insurers higher payments for patients whose claims cost more than average so insurers don't have an incentive to avoid covering high-cost patients.
The 103-page regulation includes three components that would encourage insurers to cover high-risk policy holders just as they would those who are healthy:
The first component, the risk adjustment program, is the only one of the three components that is permanent. Payments will essentially transfer money from plans that cover mostly low-cost individuals to those whose enrollees have higher costs. The federal government or the states would calculate the payment formulas.
The reinsurance and risk corridor programs were made temporary because lawmakers felt that over time, more people would enter the new exchange program, insurers would have a better understanding of the risks of covering enrollees, and the market would mature.
The law requires that each state establish a reinsurance program to "help stabilize premiums for coverage in the individual market during the first three years of exchange operation," which are 2014-16. The money will come from all insurance plans and third-party administrators of self-insured group plans which will contribute funds to a nonprofit that will dole out additional money to insurers who have higher claims. Any insurance company in a state's individual market that was not grandfathered under the law -- including plans outside of the exchange -- could be eligible for the higher reimbursements. The law calls for states to collectively assess and disperse a total of $10 billion in 2014, $6 billion in 2015 and $4 billion in 2016 for reinsurance in addition to collecting other funds from insurers such as $2 billion in 2014-15 and $1 billion in 2016 for the general treasury.
The risk corridor program, which will be administered by the federal government instead of the states, would apply to insurers in the exchange's individual and small group markets during the first three years that the exchange is operating.
The three mechanisms are intended to help smooth the transition and provide more stability in the marketplace for insurers who end up with more sick people, or sicker people, than other insurers as well as for insurers who might not be able to predict their risk in the first couple of years. Risk corridors also could cap the profits of some insurers.
States could choose to change the details of reinsurance or risk adjustment from those set out by the federal standards. Any state that decides to make changes would need to publish a notice at least one year before the benefit year begins, and by March in the calendar year before the effective date.
The public has been given 75 days to comment on the proposal.
Blue Shield of CA Giving Back $180 Million to Customers
Jun 13, 2011
As you may have heard, Blue Shield of CA released a statement last week announcing their pledge to limit net income to 2% of revenue. As a result, they will be giving back $180 million to Blue Shield customers and the community.
Here is how the $180 million will be distributed:
How this translates into actual dollars for policyholders:
Customers with fully insured coverage in May 2011 (other than government programs whose contracts do not permit such credits) will receive a credit in the bill for their October 2011 premiums. The average credit will vary depending on the monthly premiums:
***To read the entire news release, please Click Here.
If you have any further questions, please contact your e3 Financial Client Service Team and they will assist you.
e3 Financial
June 30 Deadline for FSA Amendments
Jun 01, 2011
Last year's Affordable Care Act (ACA) restricted the ability of employer health plans, including flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs), to reimburse expenses incurred for over-the-counter (OTC) medications. With the exception of insulin, expenses for OTC medications may now be reimbursed only if the medications are prescribed by a physician. Sponsors of FSAs face a June 30 deadline for amending their plans to comply with this ACA restriction.
This restriction actually became effective as of January 1, 2011. Ordinarily, the IRS requires that FSA amendments be adopted before they take effect. Moreover, proposed IRS regulations state that any failure to satisfy this requirement results in all employee contributions to the FSA becoming taxable. Perhaps recognizing the severity of this result, the IRS in Notice 2010-59 granted FSA sponsors an additional six months to adopt amendments designed to comply with this restriction. That six-month extension expires on June 30, 2011.
A similar restriction applies to the reimbursement of expenses for OTC medications under health savings accounts (HSAs) and Archer Medical Savings Accounts (MSAs). However, the consequences of non-compliance under such arrangements differ from those that apply under FSAs or HRAs. Distributions from an individual's HSA or MSA for OTC medications that are not prescribed by a physician are treated as "nonqualified" distributions. They are therefore includible in the individual's taxable income, and also subject to a 20% penalty tax. In any event, because most HSAs and MSAs are maintained on documents provided by financial institutions, employers will generally rely on those institutions to adopt timely amendments complying with this ACA restriction.
In drafting amendments to their FSAs or HRAs, employers will want to keep in mind several key points. First, such an amendment should be retroactively effective as of January 1, 2011. This date applies regardless of an arrangement's plan year, and even if an FSA has been amended to take advantage of the 2 ½ - month "grace period" allowed by the IRS. However, any expenses for OTC medications that were incurred before January 1, 2011, may still be reimbursed after that date, even without a prescription.
Another point to be addressed in any FSA or HRA amendment involves the treatment of OTC items other than medications. Notice 2010-59 made clear that expenses for equipment (such as crutches), supplies (such as bandages), and diagnostic devices (such as blood sugar test kits) may still be reimbursed under an FSA or HRA, even without a prescription. In other words, the prescription requirement applies only to OTC medications. (As under longstanding law, however, expenses for items that are merely beneficial to the general health of an individual - such as toiletries - may not be reimbursed from these arrangements.)
Finally, any amendment to an FSA or HRA that allows participants to use debit cards to purchase OTC medications should take into account additional IRS guidance. For instance, Notice 2010-59 granted such arrangements an additional fifteen days (through January 15, 2011) to comply with the requirement of a physician's prescription for an OTC medication. IRS Notice 2011-5 then outlined specific procedures that must be followed if debit cards will continue to be an option for the purchase of OTC medications after January 15, 2011. In general, these procedures are designed to ensure that these cards can be used to purchase OTC medications only after a prescription has been obtained.
If you have any questions regarding this deadline, please contact your e3 Client Service team.
2012 Health Savings Account Limits Released by IRS
May 17, 2011
Annual Contribution Limitation
For calendar year 2012, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,100. The limitation for an individual with family coverage under a high deductible health plan is $6,250.
High Deductible Health Plan
For calendar year 2012, a "high deductible health plan" is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,200 (no change from calendar year 2011) for self-only coverage or $2,400 (no change from calendar year 2011) for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,050 for self-only coverage or $12,100 for family coverage.
If you have any questions on how these new limits affect your benefit plans, please your e3 Client Service team.
Adult Dependent Taxation in California Update
Apr 14, 2011
AB 36 Eliminating the Tax Has Been Signed Into Law By Governor Brown
California employers can breathe a collective sigh of relief. Governor Brown has signed AB36, thereby eliminating the imputed income tax applied to healthcare coverage and payments for adult dependents. This law conforms California tax rules to Federal tax rules implemented in connection with Health Care Reform. The law takes effect immediately, and retroactively to the 2010 implementation of Health Care Reform.
IRS Delays Smaller-Employer Deadline to Report Insurance Costs on W-2s
Mar 31, 2011
Under the reform law, employers were required to provide health care cost information on 2011 W-2 statements that are distributed to employees in 2012. But last year, the IRS waived that requirement for 2011 and said the health care cost reporting requirement would apply to 2012 W-2s, which are issued in 2013. On Tuesday, the IRS said in Notice 2011-28, that employers that issue fewer than 250 W-2s in 2011 "will not be required to report the cost of health coverage on W-2s prior to January 2014. This transition relief will continue until the issuance of further guidance."
In addition, the IRS made clear that employers will not have to issue W-2s to retirees who receive health care coverage but no longer receive wages or salary. "An employer is not required to issue Form W-2 including the aggregate reportable cost to an individual to whom the employer is not otherwise required to issue a Form W-2," the IRS said.
Using a question-and-answer format, Notice 2011-28 also provides guidance for employers that are subject to this requirement for the 2012 Forms W-2 and those that choose to voluntarily comply with it for either 2011 or 2012. The notice includes information on how to report, what coverage to include and how to determine the cost of the coverage.
DOL Releases Report on Self-Insured Health Plans
The U.S. Department of Labor has transmitted to Congress the first annual report on self-insured employee health benefit plans. The report, which was mandated by the Patient Protection and Affordable Care Act, contains general information on self-insured employee health benefit plans covering private-sector employees that file a Form 5500 (they cover 100 or more participants or hold assets in trust) and financial information on the employers that sponsor them.
This report presents data on such plans for 2008, the latest year for which complete data are available. The report includes information on 12,000 self-insured and 5,000 mixed (self-insurance with insurance) health benefit plans, covering 22 million and 25 million participants respectively. The report does not include self-funded plans that are not required to file a Form 5500.
According to the report, just more than 82 percent of private-sector employers with at least 500 employees self-insure at least one of their health care plans, compared with nearly 26 percent for employers with 100 to 499 employees and 13.5 percent for employers with less than 100 employees. "It is unlikely that a large number of small businesses will opt to self-insure" once the reform law "takes full effect, unless comprehensive stop-loss coverage becomes widely available at prices that compete with fully-insured products," according to the report.
The full report and its appendices are linked below.
http://www.dol.gov/ebsa/pdf/ACAReportToCongress032811.pdf
http://www.dol.gov/ebsa/pdf/ACA-ARC2011.pdf
http://www.dol.gov/ebsa/pdf/ACASelfFundedHealthPlansReport032811.pdf
Taxation of Dependent Coverage After Health Care Reform
Feb 23, 2011
By now, most people involved in the administration of group health plans are familiar with the requirement that plans offering dependent coverage make that coverage available to adult children until they attain age 26. This new requirement applies to both insured and self-insured plans (regardless of the plan‘s status as a grandfathered plan), and is effective for plans years beginning on or after September 23, 2010 (January 1, 2011, for calendar-year plans). Many of us, however, are not as familiar with the corresponding change to the Tax Code that allows these benefits to be provided on a tax-free basis.
For periods after March 30, 2010, a covered employee‘s child who is under age 27 as of the end of the taxable year may receive employer-paid health coverage on a tax-free basis (and the employee may pay for some or all of such coverage with pre-tax dollars under a cafeteria plan), even if the child does not qualify as the covered employee‘s Tax Code dependent (i.e., even if the child is not a qualifying child or qualifying relative under Code Section 152, and therefore cannot be claimed as a dependent on the employee‘s federal income tax return). In other words, even though plans are only required to offer dependent coverage until the child‘s 26th birthday, the covered employee‘s child may receive tax-free coverage (or tax-free reimbursements) through the end of the calendar year in which the child turns age 26.
This tax change also applies to the reimbursement of qualifying medical expenses under health reimbursement arrangements (HRAs) and health flexible spending accounts (FSAs) – though not to health savings accounts (HSAs).
Accordingly, plan sponsors that have not already done so, may wish to amend their Section 125 cafeteria plans to allow for the payment of health care premiums and/or FSA reimbursements on behalf of adult children who will not attain age 27 by the last day of the year. Plan sponsors may also want to amend their HRAs for the same reason. For purposes of this change in the tax treatment of dependent coverage, a child is an individual who is the employee‘s son, daughter, stepson or stepdaughter, and includes both a legally adopted individual and an individual lawfully placed with the employee for adoption. The term child also includes an eligible foster child—defined as a child placed with the employee by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. As a result of this tax change, traditional dependency requirements involving age limits, residency, support and other tests that would otherwise need to be satisfied for an individual to qualify as a tax dependent do not apply for purposes of the tax-favored treatment of health reimbursements and coverage for adult children who are younger than 27 for the entire tax year.
This tax change significantly eases the burden associated with analyzing the taxability of dependent coverage for a covered employee‘s adult children. Now, under Code Section 105(b), a covered employee may be reimbursed (without tax consequences) for amounts expended for medical care of the employee‘s children who are under age 27 as of the end of the employee‘s taxable year (generally, the calendar year). It is important to note that not every state follows the federal taxation scheme, and thus some benefits that are not taxable for federal income tax purposes may be taxable for state income tax purposes.
If, however, a covered employee‘s adult child receives coverage or benefits after the end of the year in which the child turns age 26, the value of the coverage or reimbursements will be taxable to the covered employee unless the child is a qualifying child or qualifying relative under Code Section 152. This situation could arise in a plan that voluntarily provides extended dependent coverage, or in an insured plan that is required (by a state insurance law) to provide coverage beyond age 26.
Who is a Qualifying Child? Under Code Section 152, a qualifying child is an individual who (1) bears a specified relationship to the employee; (2) has the same principal place of abode as the employee for more than half of the year; (3) meets certain age requirements; (4) has not provided more than half of his or her own support for the year; and (5) has not filed a joint tax return with his or her spouse for the year. The qualifying child relationship requirement is satisfied if the individual‘s relationship to the covered employee falls within any of the categories described above under the definition of child, or if the individual is a descendant of an employee‘s child (e.g., grandchild). Additionally, the relationship requirement may be met if the individual is the employee‘s sibling, half-sibling, step-sibling, or a descendant of any such individual (e.g., a nephew or niece). A qualifying child must be younger than the employee and under age 19 (or under age 24 if a full-time student) as of the close of the calendar year in which the employee‘s taxable year begins.
Who is a Qualifying Relative? Under Code Section 152, a qualifying relative is an individual (1) who bears a specified relationship to the employee; (2) whose gross income is less than the exemption amount in Code Section 151(d); (3) with respect to whom the employee provides over half of the individual‘s support; and (4) who is not anyone‘s qualifying child. The qualifying relative relationship requirement is quite broad. It is satisfied if the individual‘s relationship to the covered employee falls within any of the categories described above under the qualifying child relationship requirement. The relationship requirement may also be satisfied if the individual is the employee‘s parent, grandparent, aunt, uncle, in-law, or other individual (other than a spouse) if the relationship does not violate local law. The Code Section 151(d) income limitation does not apply for health coverage purposes.
In summary, status as a qualifying child or qualifying relative remains relevant for determining the tax treatment of health coverage and reimbursements for individuals who do not qualify as the employee‘s spouse or child. Fortunately, such status is relevant only for purposes of determining the taxability of coverage or reimbursements for an employee‘s adult child when the child receives coverage after the end of the year in which he or she turns age 26. Thus, for the majority of group health plans, the new coverage mandate and corresponding tax change should simplify the process of determining when health benefits for dependents create taxable income for employees, and should provide much needed relief to plan sponsors.
Chadron J. Patton, Associate
Spencer Fane Britt & Browne LLP
Flexible Spending Account and Children's Health Insurance Program Updates
Jan 03, 2011
IRS Backs Off Flex Account Debit Card Ban for Over-The-Counter Drugs
On Dec. 23, the IRS backed off an earlier rule for next year that prohibited FSA and HRA account holders from using debit cards to pay for over-the-counter drugs.
While patients who use FSA and HRAs still need to get a prescription to purchase everything from Tylenol to cold medicine with FSA or HRA accounts, the IRS stated that debit cards can be used if the prescription is in hand.
However, anybody who tries to use their pre-tax accounts without a proper prescription would have to use post-tax income and be charged an additional 20 percent tax.
Employer Notice Regarding Children's Health Insurance Program
Employers sponsoring group health plans are required to notify employees of potential opportunities currently available in the State in which employees reside for group health plan premium assistance under Medicaid and the Children's Health Insurance Program (CHIP). In many cases this notice must be provided by Jan. 1, 2011 (as described below). The U.S. Department of Labor has published a model notice which may be used to satisfy this requirement, which can be found at:
http://www.dol.gov/ebsa/chipmodelnotice.doc.
This notice requirement only applies to employers providing benefits for medical care (whether insured or self-insured) to employees living in a State that provides premium assistance for the purchase of group health plan coverage through medical assistance under a State Medicaid plan or child health assistance under a State child health plan (regardless of the employer's location or principal place of business). Currently, New York, New Jersey, California and Pennsylvania are among the States that offer programs that meet the standard above. The DOL model notice lists the States that provide premium assistance as of Jan. 22, 2010.
An employer must provide the notice to each employee living in a State that provides the premium assistance described above, regardless of whether the employee is enrolled in the group health plan. If it is administratively easier than determining which employees reside in States that provide premium assistance, the employer may send the notice to all of its employees.
Employers subject to this requirement must provide this notice by the date that is the later of (a) the first day of the first plan year after Feb. 4, 2010, or (b) May 1, 2010, and annually thereafter. Therefore, employers operating group health plans on a calendar year basis must provide this notice by Jan. 1, 2011. The notice may be provided by first-class mail or may be distributed electronically (provided the electronic distribution satisfies the DOL's rules for electronic notice distribution). It may be provided concurrently with other plan materials (such as enrollment packets or the summary plan description) in advance of the upcoming plan year, or if not included in this materials, may be separately provided. The DOL may impose penalties if the notice is not provided.
Year-End Reminder!
Dec 15, 2010
As year-end approaches, here are a few helpful reminders:
Health Care Reform Update: Grandfathered Rules Amended
Nov 18, 2010
The U.S. Internal Revenue Service (IRS), Department of Labor's Employee Benefits Security Administration (EBSA) and the Office of Consumer Information and Insurance Oversight (OCIIO), Health and Human Services, jointly released an amendment relating to grandfathered health plan status under the Patient Protection and Affordable Care Act (PPACA). The amendment permits certain changes in group health plans and other health insurance policies, certificates or contracts without loss of grandfathered status.
Under the amended rules, a group health plan is allowed to change health insurance coverage without ceasing to be a grandfathered health plan, provided the plan continues to comply fully with the standards set forth in the original rule. If insured coverage is provided in the individual market, a change in issuer would still be a change in health insurance coverage and the new individual policy, certificate, or contract of insurance would not be a grandfathered health plan.
The amendment to the interim final rules is effective Nov. 15, 2010. Comments are due on or before Dec. 17, 2010.
For the HHS Fact Sheet regarding this amendment, go to http://www.hhs.gov/ociio/regulations/grandfather/factsheet.html. For the full amendment, go to http://edocket.access.gpo.gov/2010/pdf/2010-28861.pdf.
IRS Delays W-2 Health Cost Reporting Requirement
Oct 14, 2010
The Internal Revenue Service announced Tuesday that it will waive for one year a health care reform law requirement that employers report the cost of coverage on employees' W-2 wage and income statements. Under the relief, health care cost information will have to be reported on the 2012 W-2s, which are issued in 2013.
The IRS also confirmed that the W-2 reporting requirement is only for informational purposes and the amounts that are reported will not be taxable.
http://www.irs.gov/pub/irs-drop/n-2010-69.pdf
Changes to Flexible Spending Accounts Effective 1/1/11
Oct 12, 2010
As you may be aware, Health Care Reform legislation included changes to how over-the-counter (OTC) medications will be handled under FSA, HSA and HRA accounts. As of January 1, 2011, OTC medications may no longer be reimbursed or purchased using FSA, HSA or HRA funds. Purchases may be made up through December 31, 2010 but as of January 1, 2011 they are no longer eligible. Details are outlined in the attached sample communication that may be used to communicate this change to your employees in advance of FSA open enrollment and so they are aware of the changes coming January 1st.
Please contact your e3 Financial service team if you have any further questions.
Andrew Torelli Mike Rankin
President Principal
Read more (pdf)...
New Procedures and Notices for Claims and Appeals and External Reviews under the Affordable Care Act
Sep 14, 2010
The U.S. Departments of Labor (DOL), Treasury and Health and Human Services (HHS) have released interim procedures and related Model Notices for claims, appeals and reviews under the Affordable Care Act. The Affordable Care Act sets standards for plans and issuers regarding both internal claims and appeals and external review. Plans and issuers in States without an applicable external review process are required to implement an effective external review process that meets certain minimum standards. An interim safe harbor provided by Technical Release 2010-01 applies to non-grandfathered, self-insured group health plans not subject to a state external review process. The standards include a number of notice requirements for internal appeals and external reviews.
Model notices that can be used to satisfy the disclosure requirements of the interim final regulations are being posted on the Department of Labor's website at http://www.dol.gov/ebsa and the Department of HHS/Office of Consumer Information and Insurance Oversight website at http://www.hhs.gov/ociio/. They include:
• Model Notice of Adverse Benefit Determination
• Model Notice of Final Internal Adverse Benefit Determination
• Model Notice of Final External Review Decision
For more on new claims, appeals, and review process requirements under the Affordable Care Act, please view a Fact Sheet by clicking here. You can also view the technical release from the U.S. Department of Labor and notice from the Departments of Labor, Treasury and Health and Human Services. For more on the Affordable Care Act, you can visit the HR & Benefits Essentials Health Care Reform Section, or visit the DOL's Employee Benefits Security Administration (EBSA) website by clicking here.
Health Reform: List of Preventive Services without Cost-Sharing Released
Aug 03, 2010
The Departments of Health and Human Services (HHS), Labor, and Treasury issued interim final regulations requiring new plans and issuers to cover certain preventive services without any cost-sharing requirements when delivered by network providers. Cost-sharing includes out-of-pocket costs like deductibles, co-payments and co-insurance. Employers should note that these required preventive services do not apply to grandfathered plans.
Under the new rules, services recommended by the U.S. Preventive Services Task Force (USPSTF) will generally be required to be provided without cost-sharing when delivered by an in-network provider in the plan years that begin on or after September 23, 2010 (except grandfathered plans). For recommendations that have been in effect for less than one year, plans and issuers will have one year from the effective date to comply. Thus, recommendations and guidelines issued prior to September 23, 2009 must be provided for plan years beginning on or after September 23, 2010.
Recommendations of the USPSTF appear in a released chart, which can be accessed by clicking here.
Preventive Services to Be Covered without Cost-Sharing
HHS reports that under the new rules, depending on age and plan type, individuals may have easier access to the following preventive services:
• Blood pressure, diabetes, and cholesterol tests
• Cancer screenings, including mammograms and colonoscopies
• Flu and pneumonia shots
• Routine vaccines ranging from routine childhood immunizations to periodic tetanus shots for adults, including diseases such as measles, polio, or meningitis
• Counseling from health care providers on such topics as quitting smoking, losing weight, eating better, treating depression, and reducing alcohol use
• Counseling, screening and vaccines for healthy pregnancies
• Regular well-baby and well-child visits, from birth to age 21
The interim final regulations also make clear that a plan or issuer is not required to provide coverage or waive cost-sharing requirements for any item or service that has ceased to be a recommended preventive service. For example, if a recommendation of the USPSTF is downgraded from a rating of A or B to a rating of C or D, or if a recommendation or guideline no longer includes a particular item or service, the service is not required to be provided without cost-sharing.
For more on preventive services under the Affordable Care Act, please click here, or view the chart of covered services by clicking here. You can also view a list of covered services for adults, women (including pregnancy) and children by clicking here. To view the interim final regulations, please click here. To learn more about changes to group health plans under the Affordable Care Act, including grandfathered plans, please visit the HR & Benefits Essentials Health Care Reform Section by clicking here.
Agencies Clarify "Grandfathering" Under Health Care Reform
Jun 18, 2010
The Affordable Care Act imposed a number of benefit mandates on employer health plans, most of which will take effect with the first plan year beginning after September 23, 2010. However, certain plans that were in existence on March 23, 2010 (the Act's enactment date) enjoy limited "grandfather" protection. Some of the benefit mandates do not apply at all to these grandfathered plans, while others apply only at a later date. Unfortunately, the Act did little to define the scope of this grandfather protection. The three agencies charged with administering the Act have now issued interim final regulations providing useful guidance on this topic.
Advantages of Grandfathered Status
Even grandfathered plans must comply with many of the Act's benefit mandates. Such plans are exempt, however, from the following mandates:
General Requirements for Grandfathered Status
In addition to being in effect on May 23, 2010, a grandfathered plan must avoid taking any action that would undermine its grandfathered status. The types of actions that would cause a plan to lose its grandfathered status are described in the next section of this Alert. However, the regulations also condition grandfathered status on the sponsor taking the following affirmative steps:
The regulations are particularly helpful in listing the steps a plan may -- or may not -- take without losing its grandfathered status. For instance, grandfathered plans have substantial flexibility to add or remove covered individuals. Employees may be allowed to add their dependents, the plan may enroll new hires, and (clarifying a question left unanswered by the statutory language) the plan may enroll existing employees who had simply declined to enroll in the past. Moreover, subject to certain "anti-abuse rules," employees may be transferred between plans (or plans may be merged) without thereby undermining the plans' grandfathered status.
A self-funded plan may also substitute a new third-party administrator for the TPA that was in place on March 23, 2010. By contrast, an insured plan will generally lose its grandfathered status if it enters into a new policy, certificate, or contract of insurance. Presumably, simply renewing a policy with an existing carrier will not cause a loss of grandfathered status.
The regulations also allow for changes in a plan's benefit structure, so long as none of those changes is described in the following list:
The regulations provide that the grandfathering rules apply separately to each "benefit package" made available under a health plan. Thus, a plan offering both an HMO and a PPO option might choose to modify the PPO's deductible or copayment in a way that would cause the PPO to lose its grandfathered status, without thereby forfeiting the HMO's grandfathered status.
Collectively Bargained Plans
The Act contains special grandfathering provisions for plans maintained pursuant to a collective bargaining agreement. Because these statutory provisions concerning collectively bargained plans were inartfully drafted, they are subject to differing interpretations. The regulations provide needed clarification in this area - though sometimes in rather surprising ways.
For example, the drafters of the regulations take literally the Act's reference to "health insurance coverage" maintained pursuant to a collective bargaining agreement. The regulations therefore limit the special grandfathering rules for collectively bargained plans to those that are fully insured. Although self-funded collectively bargained plans may be grandfathered under the rules described above, they do not enjoy any additional protection under these collectively bargained rules.
Accordingly, if a self-funded collectively bargained plan is modified in any way that would cause a non-bargained plan to lose its grandfathered status, the collectively bargained plan will do so as well. Even granting that this approach tracks the statutory language, one has to question the policy basis for favoring insured over self-funded plans in this fashion.
Moreover, some practitioners had read the Act's provisions concerning collectively bargained plans as providing a type of "super-grandfathering." That is, the language could be read to provide that none of the benefit mandates would apply to a collectively bargained plan -- even those that would otherwise apply to a grandfathered plan -- until the expiration of the last of the relevant collective bargaining agreements (i.e., those in effect on March 23, 2010). The regulations clearly reject this interpretation. A collectively bargained grandfathered plan (even an insured one) will be subject to the Act's benefit mandates at the same time as other grandfathered plans. Thus, for example, as of the first plan year beginning after September 23, 2010, even a collectively bargained plan must eliminate all pre-existing condition limitations for dependents under age 19, remove any lifetime limits on "essential benefits," and make coverage available until a child's 26th birthday (unless the child has access to other employer coverage).
On the other hand, a fully insured plan that enjoys this special grandfather protection for collectively bargained plans may be amended in ways that would otherwise violate the restrictions summarized above without immediately losing its grandfathered status. Instead, it would remain grandfathered until the expiration of the last of the relevant bargaining agreements.
The regulations clarify one other point concerning collectively bargained plans. Some had read the statute to say that such a plan would automatically lose its grandfathered status upon the expiration of the last bargaining agreement that was in effect on March 23, 2010. Again, the regulations reject this approach. Instead, such a plan's status will be determined by comparing the terms of the plan in effect at that point to the terms in effect on March 23, 2010 -- and then applying the analysis set forth above. That is, did any benefit changes exceed the levels described above? If so, the plan will no longer be grandfathered. Otherwise, the grandfather protection will remain in place until such a change is adopted.
Oddly, the regulations also note that a collectively bargained plan may change insurance carriers prior to the expiration of the last of the relevant bargaining agreements without causing a loss of its grandfathered status once that bargaining agreement expires. No policy basis is provided for this exception to the general rule noted above.
Limited Transition Relief
Recognizing that plan sponsors may have been attempting to stay within the Act's grandfather provision even in the absence of regulatory guidance, these regulations provide limited transition relief. In particular:
Armed with this regulatory guidance, sponsors of health plans that wish to retain their grandfathered status should immediately review any changes adopted since March 23, 2010. Some of those changes may need to be revoked during the grace period described above.
Sponsors should also take this guidance into account when determining whether to make further changes to the plan. In doing so, they should consider whether the cost savings associated with plan modifications might more than offset the costs of complying with the benefit mandates associated with the loss of grandfathered status.
Given some of the surprises contained in these regulations, collectively bargained plans may need to entirely rethink their proposed approach to the Act. Those that are self-funded should understand that they enjoy no special protection as a result of their collectively bargained status. And even insured plans that are collectively bargained should be prepared to comply with all of the benefit mandates to which other grandfathered plans are subject -- generally, by the first day of the plan year beginning after September 23, 2010.
Finally, sponsors who want to retain their plan's grandfathered status should not overlook the notification and document retention requirements. For instance, before the first plan year beginning after September 23, 2010, they will want to supplement the plan's summary plan description to include either the IRS model language or similar language tailored to the plan's particular situation.
Spencer Fane Britt & Browne LLP
HSA Contribution Limits and Minimum Deductibles Remain Same as 2010
Jun 17, 2010
The IRS has released the 2011 contribution limits and minimum deductible amounts for Health Savings Accounts (HSAs), based on the Internal Revenue Code's cost-of-living adjustment rules. For calendar year 2011, the annual limit on HSA deductions for an individual with self-only coverage under a high deductible health plan remains $3,050. For calendar year 2011, the annual limit on deductions for an individual with family coverage under a high deductible health plan remains $6,150.
For calendar year 2011, a “high deductible health plan” remains defined as a health plan with an annual deductible that is not less than $1,200 for self-only coverage or $2,400 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $5,950 for self-only coverage or $11,900 for family coverage.
The amounts for 2011 are unchanged from 2010. To view Revenue Procedure 2010-22, please click here.
IRS Releases Revised Form 941 for HIRE Act
Jun 01, 2010
The IRS has issued the newly revised payroll tax Form 941 which most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010.
Designed to encourage employers to hire and retain new workers, the payroll tax exemption and the related new hire retention credit were created by the Hiring Incentives to Restore Employment (HIRE) Act signed by President Obama on March 18, 2010.
The payroll tax exemption is an exemption from the employer's 6.2 percent share of social security tax on all wages paid to qualified employees from March 19, 2010 (the day after the date of enactment of the HIRE Act) through December 31, 2010. The employee's 6.2 percent share of social security tax and the employer and employee’s shares of Medicare tax still apply to all wages.
In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return. Further details on both the tax credit and the payroll tax exemption can be found in a recently-expanded list of answers to frequently-asked questions about the new law now.
How to Claim the Payroll Tax Exemption
Form 941, Employer's QUARTERLY Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, can be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return.
New Dependent Coverage Law - DOL Releases Fact Sheet and FAQs
May 12, 2010
The U.S. Department of Labor has released a Fact Sheet and set of Frequently Asked Questions regarding dependent coverage under the Affordable Care Act. Under the Act, for plan years starting on or after September 23, 2010, group and individual health plans that cover dependents must continue to make dependent coverage available until age 26. The Fact Sheet and FAQs cover topics that include enrollment, new tax benefits, grandfathered plans, and a list of companies that have agreed to implement the program before the September 23, 2010 deadline.
The Young Adults and the Affordable Care Act Fact Sheet and FAQs were released around the same time as regulations from the U.S. Treasury, Labor, and Health and Human Services Departments implementing the dependent care requirements under the Affordable Care Act.
To view the Fact Sheet, please click here. To see the FAQs, click here. To visit the e3 Compliance Navigator “Dependent Coverage to Age 26” Section, please click here to login. More information can be found under the Employee Benefits section, within the Health Insurance Sub-folder entitled “2010 Health Care Reform”.
IRS Releases Information on Small Business Health Care Tax Credit
Apr 14, 2010
Certain small businesses and tax-exempt organizations that provide health insurance coverage to their employees may qualify for a special tax credit, according to the Internal Revenue Service. Included in the recently enacted health care reform legislation, the Patient Protection and Affordable Care Act, is a tax credit designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. The following are eligibility rules and the amount of credit as explained by the IRS.
Eligibility Rules
• Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
• Average annual wage. A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
• Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
• Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
If you are a small employer (business or tax-exempt) that provides health insurance coverage to your employees, determine if you may qualify for the Small Business Health Care Tax Credit by following the three simple steps featured here.
For more information about the credit, please see different tax credit scenarios and answers to frequently asked questions. Or, please visit the IRS site here.
Health Care Reform Passes!
Mar 22, 2010
As you may already know, the U.S. House of Representatives passed new health care legislation last night. As such, Congress is preparing to send the package to President Obama for signature.
The bill touches upon nearly every component of Health Care financing and delivery in the United States. The major components of the bill will be phased in over time (2010, 2011, 2013 and 2014), subject to the writing of regulations. Over the next several weeks, we will send you additional reporting that will outline the impact, timelines and key elements of the new legislation.
Some of the brief highlights are:
Please look for additional information from e3 Financial, as we will have specific Compliance Alerts and Webinars on this topic in the near future. In the meantime, if you have any questions, do not hesitate to call.
COBRA Subsidy Extended
Mar 05, 2010
President Obama has signed legislation that extends the deadline for terminated employees to qualify for the COBRA premium subsidy. Under the law, as amended, workers now terminated between September 1, 2008, and March 31, 2010 may be eligible for a 65% subsidy of their COBRA premiums for up to 15 months.
The legislation also redefines a qualifying event to include the involuntary termination of employment on or after March 2, 2010, of any qualified beneficiary who did not make (or who made and discontinued) an election of coverage on the basis of a reduction of hours of employment.
For more information on this temporary extension, individuals are encouraged to call the Employee Benefits Security Administration toll-free at 1-866-444-3272. To view the legislation, H.R. 4691, please click here.
Model Employer Children's Health Insurance Program Notice
Feb 15, 2010
On February 4, 2009, President Obama signed the Children's Health Insurance Program Reauthorization Act (CHIPRA) of 2009. CHIPRA includes a requirement that the Departments of Labor and Health and Human Services develop a model notice for employers to use to inform employees of potential opportunities currently available in the State in which the employee resides for group health plan premium assistance under Medicaid and the Children's Health Insurance Program (CHIP). The Department of Labor was required to provide the model notice to employers within one year of CHIPRA's enactment.
Through a notice in the February 4, 2010 FEDERAL REGISTER, the Department's Employee Benefits Security Administration (EBSA) announces the availability of the Model Employer CHIP Notice. The notice provides the "form and content of notice" as well as the "timing and delivery of the notice" while outlining the requirements for addition of state-specific information.
The model Employer CHIP Notice is now available in this electronic format.
ARRA COBRA Subsidy Extension Action Items for January 2010
Jan 08, 2010
COBRA Subsidy Update
Dec 29, 2009
As we previously announced, Congress enacted new legislation related to the COBRA continuation coverage subsidy. We thought it would be helpful to summarize the key changes for your review.
The new provisions do the following:
• Change the end date of eligibility for the COBRA ARRA subsidy from December 31, 2009 to February 28, 2010 (a two-month extension);
• Expand the ARRA premium subsidy to 15 months (an increase from the nine-month period under the original provisions);
• Allow for a 60-day period for the retroactive payment of premiums for assistance eligible individuals ("AEIs") (i.e., individuals who were entitled to the subsidy) whose subsidy period expired on November 30th and who failed to pay their premium for December coverage. The period will commence the day the provision is signed into law by the president, or, if later, 30 days after provision of the special notice (described below). The same refund/credit rules under the original bill will apply to any assistance eligible individual ("AEI") whose subsidy expired in November and who has since paid the full COBRA premium;
• Require a special notice describing the new subsidy provisions to all AEIs who are on COBRA on or after November 1, 2009 or whose qualifying event is an "involuntary termination" of employment occurring on or after November 1, 2009;
• Conditions eligibility for the COBRA subsidy on only one factor: a qualifying event that is an "involuntary termination" of employment occurring on or before the new February 28, 2010 sunset date. The previous version of the subsidy also took into account when the COBRA coverage period actually began. This means that employees who are involuntarily terminated before February 28, 2010 but still receive coverage subsidized by employers that defers the COBRA start date to a date later than February 28, 2010 will still be able to receive the subsidy.
We hope you find this information useful. As always, we will keep you posted with future developments.
IRS Announces 2010 Retirement and Inflation-Adjusted Benefit Numbers
Dec 10, 2009
The IRS has announced the 2010 cost-of-living adjustments applicable to dollar limitation for retirement plans and inflation adjusted limits for other benefits.
Read more (pdf)...
Congress Expands Military Family Leave Coverage
Nov 20, 2009
In the 2010 National Defense Authorization Act (NDAA), which was signed by President Obama on October 28, 2009, Congress expanded the military-related family and medical leave that it created in the 2008 NDAA. The expansion became effective upon the President's signature. This new legislation means the Family Medical Leave Act regulations that became effective earlier this year are already outdated with respect to military-related FMLA leave.
Caregiver Leave Expansion
The FMLA permits up to 26 weeks of leave for an eligible employee who is the spouse, son or daughter, parent or next of kin of a service member in the Regular Armed Forces, National Guard or Reserves to care for such a service member who has incurred a serious injury or illness in the line of duty while on active duty. Prior to the most recent amendments, this generally meant that treatment for, recuperation from, or therapy for the serious injury or illness had to commence while the service member was still a member of the military (or on the temporary disability retired list) in order for the family member to take FMLA leave to care for the service member. In other words, if an injury or illness did not manifest itself until after the individual was discharged from the military (e.g., post-traumatic stress disorder), a family member would not have been able to take FMLA caregiver leave to care for the individual.
The above limitation has now been modified. Under the new rules, the serious injury or illness still needs to be incurred while the service member is in the military, but treatment, recuperation and/or therapy for it can now begin as late as five years after the service member's discharge from the military. For example, if a service member is discharged from the military on November 1, 2009 (after serving in Iraq), and begins treatment for service-related PTSD two years later, a covered family member will be able to take FMLA leave at that time to care for the service member. Moreover, the definition of "serious injury or illness" is also expanded to cover not only an injury or illness incurred by the service member in the line of duty on active duty, but also an injury or illness that existed before the beginning of the service member's active duty that was aggravated by service in the line of duty on active duty. The eligible employee is still limited to a total of 26 weeks of leave related to the service member within a single 12 month period beginning with the first use of the leave.
Qualifying Exigency Leave Expansion
Under the original version of the FMLA military leave provisions, as implemented through the FMLA regulations earlier this year, eligible employees may take leave for a "qualifying exigency" arising from a spouse's, child's or parent's active duty or call to active duty as a member of the Reserves or National Guard in support of a "contingency operation" declared by the Secretary of Defense, the President, or Congress. This leave entitlement is up to 12 work weeks of unpaid leave in the employer's normally designated 12 month period (when combined with all other FMLA leave except FMLA caregiver leave).
The original provisions did not provide "exigency" leave related to active duty members of the Armed Forces on a theory that such active duty members and their families are always to be prepared for an assignment overseas. The 2010 NDAA discards this theory and extends coverage to eligible family members of: (1) any member of the Regular Armed Forces who is deployed to a foreign country (regardless of the nature of the service performed in that foreign country and regardless of whether it is in support of a contingency operation); and (2) any member of the Reserves or National Guard who is on federal active duty in a foreign country or is called to federal active duty in a foreign country, provided that such active duty is in support of a contingency operation.
The "qualifying exigencies" have not changed and include: short notice deployment, military events, arranging for child care, arranging financial or legal matters, attending counseling, assisting with the military member's rest and recuperation, post-deployment activities, and similar activities as agreed upon by the employer and employee.
Practice Tips
The expansion of caregiver leave and exigency leave clearly will increase the potential number of employees who may be entitled to take such leave. Employers should consider several steps to comply with the recent changes in the law.
• Update FMLA policies with respect to military leave.
• Monitor the Department of Labor for the anticipated poster revisions, notice revisions, form revisions, and regulatory revisions. In the meantime, consider posting a notice next to the current DOL poster briefly explaining the changes.
• Train personnel responsible for leaves and attendance concerning the changes.
• Educate supervisors of the basics of the changes to enable them to identify situations that should be brought to the attention of personnel responsible for leave administration.
Spencer Fane Britt & Browne LLP
November 30th Deadline for Determining How to Handle 2009 Required Minimum Distributions
Nov 19, 2009
Under recent IRS guidance, sponsors of 401(k) and other defined contribution plans must decide, by November 30, 2009, how to handle required minimum distributions (RMDs) for the 2009 calendar year. Moreover, participants who have already received 2009 distributions that consisted of (or included) a 2009 RMD have until this same date to decide whether to roll that RMD into an IRA or eligible retirement plan in a tax-free rollover.
Late last year, Congress passed the Worker, Retiree and Employer Recovery Act of 2008 (WRERA), which waived the 2009 RMD that must otherwise be paid to participants who have both retired and attained age 70. The expressed goal was to allow participants to avoid having to liquidate a portion of their account balance while the bottom had fallen out of the market. This one-year waiver of the RMD applies only to 401(k) and other qualified defined contribution plans, Section 403(b) plans, and governmental Section 457(b) plans.
On September 24, 2009, the IRS released Notice 2009-82, which provides transition relief for both plan sponsors and plan participants. This transition relief applies to RMDs made between January 1, 2009, and November 30, 2009. According to Notice 2009-82, the IRS will not consider a plan to be disqualified – even if it was not operated in accordance with its written terms during that period – because:
1. It did or did not distribute 2009 RMDs;
2. It did not give participants the option of receiving or not receiving 2009 RMDs; or
3. It did or did not offer direct rollovers of 2009 RMDs.
Under the transition relief, participants who have received a 2009 RMD have until the later of November 30, 2009, or 60 days after receipt of the distribution to roll the RMD into an IRA or eligible retirement plan. This extended deadline applies to both single-sum RMD payments (i.e., a distribution that is limited to the 2009 RMD) and distributions (such as installments or annuity payments) where only a portion of the distribution is the 2009 RMD.
This transition relief is a boon for plan sponsors because they (and their service providers) have taken a variety of approaches to this waiver – some of them inconsistent with each other. However, the transition relief ends on November 30, 2009. All distributions made after that date must be made in accordance with the terms of the plan. Even though WRERA gives plan sponsors until the end of the 2011 plan year to adopt any amendments needed to comply with the RMD waiver, those amendments must reflect the actual operation of the plan for periods after November 30, 2009.
Plan sponsors must therefore decide – between now and November 30, 2009 – how to handle distributions of 2009 RMDs (and distributions that may include 2009 RMDs) for the remainder of the 2009 plan year. The permissible options include:
1. Allowing participants to choose whether to receive any distribution that includes the 2009 RMD (with the default being no distribution if the participant fails to elect); or
2. Allowing participants to choose whether to receive any distribution that includes the 2009 RMD (with the default being to make the distribution); or
3. Automatically making all distributions required under the terms of the plan (i.e., as if there were no waiver of 2009 RMDs); or
4. Automatically stopping any distribution that consists solely of the 2009 RMD; or
5. Some combination of the above.
The IRS guidance anticipates that most plans will adopt one of the first two options (i.e., they will allow participants to choose whether to take, or not take, any distribution that includes the 2009 RMD). Notice 2009-82 even includes “model” amendments that plan sponsors may adopt for these two alternatives. Note that automatically “stopping” all distributions that include the 2009 RMD (without giving the participant any choice) may constitute an impermissible “cutback” of a protected distribution option, and is therefore not a recommended option.
Plan sponsors must also decide whether to give participants receiving 2009 RMDs the option of making a direct rollover of these amounts into an IRA or eligible retirement plan. WRERA does not require plan sponsors to offer a direct rollover option for 2009 RMDs (i.e., they can force participants to receive the distribution and then roll it over within 60 days). However, plan sponsors may allow participants to elect a direct rollover of either (i) any amount that is (or includes) a 2009 RMD, or (ii) only those amounts that would otherwise be “eligible rollover distributions” (such as lump sums or payments over a period of less than 10 years).
Plan sponsors should consult with their investment provider to make sure that the provider can operationally support the plan’s decision on how to administer RMDs after November 30, 2009. Sponsors should also consult with their plan document provider to make sure that the provider will be able provide a plan amendment that is consistent with the plan’s actual administration of RMDs after November 30, 2009.
Spencer Fane Britt & Browne LLP
CMS/ Medicare Disclosure Deadline (Nov 15th)
Oct 29, 2009
You may recall that Medicare Part D includes requirements for employers offering group prescription drug coverage, as you do under your group medical plan(s). To assist you in complying with those requirements, we offer these friendly reminders:
You must send a Notice of Creditable (or Non-Creditable) Coverage to ALL Medicare Part D eligible individuals currently covered under your group medical plan by November 15th of each year.
• The Notice of Creditable Coverage is appropriate for anyone enrolled in an HMO, POS or traditional PPO plan. The Notice of Non-Creditable Coverage is appropriate for anyone enrolled in an HSA-compatible high deductible PPO plan.
• Because Part D eligible individuals may include dependents and COBRA participants, we advise you to send the Notice via regular mail to ALL participants covered under your group medical plan. If dependents reside at the same address as the employee, the envelope may be addressed to "(Employee Name) and All Covered Dependents".
• Please contact us for model notices provided by the Center of Medicare & Medicaid Services (CMS), which we have modified to make them more user-friendly. For example, we've replaced the term "Entity" with "Name of Employer's Group Health Plan". (If you wish to review the original model notices, please visit: https://www.cms.hhs.gov/CreditableCoverage/).
You also must provide a disclosure of creditable coverage status to CMS by completing the online Disclosure to CMS Form. This should be done within 60 days after the end of your group medical plan year. If that deadline has passed, complete the Disclosure as soon as possible.
• Completing the online Disclosure to CMS Form requires only three steps and should take no more than five minutes:
o Step 1 -Enter the Disclosure Information
o Step 2 -Verify and Submit Disclosure Information
o Step 3 -Receive Submission Confirmation
• Step 1 will ask you to provide an estimate - and only an estimate! - of the number of Part D eligible individuals covered under your group medical plan as of the beginning of your plan year. You must also state the latest date on which you sent the Notice of Creditable (or Non-Creditable) Coverage to Part D eligible individuals.
• Here is the link to the required Disclosure to CMS Form:
https://www.cms.hhs.gov/CreditableCoverage/45_CCDisclosureForm.asp
• Once you have answered all of the questions, print a copy of your group's disclosure information and submission confirmation for your records.
If you have not already done so, we encourage you to complete the above items as soon as possible. If you need any assistance, please contact your Experience Manager or Client Advocate at 949-724-1964.
New Genetic Information Nondiscrimination Act (GINA) Guidance: Health Risk Assessment
Oct 14, 2009
On Oct.1, three federal agencies issued a lengthy package of regulations under the Genetic Information Nondiscrimination Act of 2008 (GINA). Though it will take some time to digest this entire package, one point is abundantly clear: Health plan sponsors and their insurers should think twice - if not three or four times - before including questions concerning an individual's family medical history in any health risk assessment (HRA).
Among other things, GINA bars a group health plan or insurer from discriminating on the basis of genetic information. This prohibition extends to collecting genetic information if that information will be used for underwriting purposes. GINA's statutory language made clear that family medical history falls within the definition of genetic information. Accordingly, GINA makes it impermissible to ask for family medical history before enrolling an individual in a health plan.
What many found surprising in the recent regulations, however, is a flat-out prohibition on asking for family medical history in even post-enrollment HRAs if employees will be rewarded for completing the assessment (or penalized for not doing so). Here is the rationale put forth by the government agencies for adopting this more stringent approach:
Under GINA, the definition of underwriting is broader than merely activities relating to rating and pricing a group policy. These interim final regulations clarify that underwriting purposes includes changing deductibles or other cost-sharing mechanisms, or providing discounts, rebates, payments in kind, or other premium differential mechanisms in return for activities such as completing a health risk assessment (HRA) or participating in a wellness program.
So what does this all mean? At a minimum, it means that HRAs may not ask for family medical history in either of the following two circumstances:
1. Before an individual is enrolled in a plan (or even before reenrollment, if the information may affect that reenrollment), or
2. At any time, if a reward will be given for providing this information (including a penalty for not doing so).
These prohibitions apply to plan years beginning after Dec. 7, 2009 - or as of Jan. 1, 2010, for calendar-year plans.
Now that many employers are beginning their annual enrollment season, employers, insurers and wellness vendors may need to respond immediately in order to delete from their HRAs any questions concerning family medical history. It may also be necessary to add language to open-ended questions stating that, in answering those questions, individuals should not provide any genetic information (including family medical history). The regulations impose this requirement in order to take advantage of an "incidental collection exception."
Fortunately, the regulations contain a number of examples that help to illustrate what may or may not be done in this regard. Those examples make clear that the following practices will pass muster under GINA (though they may still run afoul of other laws - including more stringent state laws):
1. Offering a financial incentive to complete an HRA, but excluding from that HRA any questions concerning family medical history.
2. Including questions concerning family medical history, but offering no financial incentive to complete the HRA (and deferring the HRA until after enrollment).
3. Offering a financial incentive to complete an HRA that requests no family medical history, and then including an addendum that requests such history - clearly stating that employees who leave the addendum blank will still receive the financial incentive for completing the rest of the HRA.
Keep in mind, though, that to effectively omit questions concerning family medical history, an HRA must plainly state that such history should not be provided in response to open-ended questions.
Kenneth A. Mason, Partner
Spencer Fane Britt & Browne LLP
HHS Issues Interim Final Rule Issued on HIPAA Breach Notification
Oct 06, 2009
As reported in a March 2009 Alert, the Health Information Technology for Economic and Clinical Health (HITECH) Act created a new notification requirement in the event of a breach involving protected health information (PHI). The Department of Health and Human Services (HHS) recently published interim final regulations clarifying when and how such breach notices must be provided.
Perhaps the most interesting aspect of this new guidance is its clarification of the term “breach.” The regulations define a breach as the acquisition, use or disclosure of PHI that compromises the security or privacy of PHI. The security or privacy of PHI is compromised only if the breach “poses a significant risk of financial, reputational, or other harm to the individual.”
This standard will require a covered entity to conduct a risk assessment and document its analysis with respect to whether a breach has occurred. For example, the inadvertent disclosure of an individual’s admission to the hospital may not be considered a breach for purposes of requiring notification, but the inadvertent disclosure of an individual’s admission to the hospital for substance abuse treatment might be considered a breach.
According to the regulations, this notice requirement applies only to “unsecured” PHI. Unsecured PHI is defined as PHI that is “not rendered unusable, unreadable, or indecipherable to unauthorized individuals through the use of a technology or methodology specified by the Department of Health and Human Services in published guidance.” HHS issued such guidance in April of this year, indicating that the only two approved methods of securing PHI are encryption (for both electronic data “at rest” and data “in motion”) and destruction (by shredding or purging). From a practical perspective, this appears to mean that any PHI that is maintained in a paper format would be considered unsecured for purposes of the breach notification rule, since it cannot be rendered secured until it has been destroyed.
As noted in our earlier article, the HITECH Act also extended this breach notification requirement to business associates of covered entities. Once they become subject to this requirement (by no later than Feb. 17, 2010), business associates whose actions result in a breach of unsecured PHI will be required to notify the covered entity of that breach without unreasonable delay, but in any event within 60 days of the discovery of the breach. They will also have to provide the names of the individuals whose PHI was the subject of the breach.
The new breach notification rules became effective as to covered entities on Sept. 23, 2009, but HHS has stated that it will use its enforcement discretion not to impose sanctions for failure to provide the required notifications for breaches discovered before Feb. 22, 2010. Nonetheless, given the complexities inherent in this area, covered entities (and their business associates) should not rely on this non-enforcement policy as an excuse to delay implementing the breach notification rules.
Julia M. Vander Weele, Partner
Spencer Fane Britt & Browne LLP
COBRA Subsidy Recipients and Notifying Former Employers to Avoid Penalties
Sep 09, 2009
Individuals who have qualified and received the 65 percent subsidy for COBRA health insurance, due to involuntary termination from a prior job, should notify their former employer if they become eligible for other group health coverage.
The American Recovery and Reinvestment Act of 2009 provides a subsidy of 65 percent of the COBRA health insurance premium for employees who are involuntarily terminated from September 30, 2008, to December 31, 2009. The subsidy requires only 35 percent of the premium to be paid for COBRA coverage for individuals, and their families, who have involuntarily lost their job and do not have coverage available elsewhere. The IRS announced the subsidy in a February 26, 2009, information release, IR-2009-15.
If an individual becomes eligible for other group health coverage, they should notify their plan in writing that they are no longer eligible for the COBRA subsidy. The notice that the United States Department of Labor sent to the individual advising them of their right to subsidized COBRA continuation payments includes the form individuals should use to notify the plan that they are eligible for other group health plan coverage or Medicare.
If an individual continues to receive the subsidy after they are eligible for other group health coverage, such as coverage from a new job or Medicare eligibility, the individual may be subject to the new IRC § 6720C penalty of 110 percent of the subsidy provided after they became eligible for the new coverage.
Taxpayers who fail to notify their plan that they are no longer eligible for the COBRA subsidy may wish to self-report that they are subject to the penalty by calling the IRS toll-free at 800-829-1040. In addition, taxpayers will need to notify their plan that they are no longer eligible for the COBRA premium subsidy.
Anyone who suspects that someone may be receiving the subsidy after they become eligible for group coverage or Medicare may report this to the IRS by completing Form 3949-A, Information Referral (PDF).
References/Related Topics
COBRA Health Insurance Continuation Premium Subsidy
Mental Health Parity Act & Group Health Plans
Aug 13, 2009
On October 3, 2008, the President signed the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). Key changes made by MHPAEA, which is generally effective for plan years beginning after October 3, 2009, include the following:
• If a group health plan includes medical/surgical benefits and mental health benefits, the financial requirements (e.g., deductibles and co-payments) and treatment limitations (e.g., number of visits or days of coverage) that apply to mental health benefits must be no more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits;
• If a group health plan includes medical/surgical benefits and substance use disorder benefits, the financial requirements and treatment limitations that apply to substance use disorder benefits must be no more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits;
• Mental health benefits and substance use disorder benefits may not be subject to any separate cost sharing requirements or treatment limitations that only apply to such benefits;
• If a group health plan includes medical/surgical benefits and mental health benefits, and the plan provides for out of network medical/surgical benefits, it must provide for out of network mental health benefits;
• If a group health plan includes medical/surgical benefits and substance use disorder benefits, and the plan provides for out of network medical/surgical benefits, it must provide for out of network substance use disorder benefits;
• Standards for medical necessity determinations and reasons for any denial of benefits relating to mental health benefits and substance use disorder benefits must be made available upon request to plan participants;
• The parity requirements for the existing law (regarding annual and lifetime dollar limits) will continue and will be extended to substance use disorder benefits.
Federal and State law – Generally, large employers with a group health plan must comply with the Federal parity requirements as well as state laws, whereas small employers (2-50 employees) with a group health plan will only be potentially subject to state laws. A state law that requires more favorable treatment of mental health benefits under health insurance coverage offered by issuers (generally, health insurance companies) would not be preempted by the provisions of MHPA and the interim rules. The combined effect of Federal and State rules will vary from state to state.
Please note the following can opt out of the Mental Health Parity Act.
A nonfederal government employer that provides self-funded group health plan coverage to its employees (coverage that is not provided through an insurer) may elect to exempt its plan (opt-out) from the requirements of MHPA and MHPAEA by issuing a notice of opt-out to enrollees at the time of enrollment and on an annual basis thereafter. The employer must also file the opt-out notification with CMS.
For more information on your state, contact the Department of Insurance (DOI) for the state in which you reside. Ask DOI about mental health parity and state laws mandating that mental health benefits be included in the plan. You may also go to www.ncsl.org/programs/health/Mentalben.htm for additional State specific information.
For more information on the MHPA go to the following Websites:
• CMS - links to the MHPA statute. Click on “The Mental Health Parity Act” in the left column and scroll down to the statute.
• For more information on the MHPA statute, regulation, fact sheet and other publications, please click here and scroll down to the MHPA.
Universal Health Care Legislation Advanced by Committee
Jul 16, 2009
The Senate committee on health care has advanced a milestone measure for Obama’s plan.
President Barack Obama’s key priority of providing universal healthcare to the public was voted on by the Senate health committee Wednesday. As reported by the Associated Press (AP), the vote by the committee advanced a $600 billion measure that would require Americans to obtain health insurance, and employers to help supply the rate. The bill also calls for government financial help with premiums for those who will have trouble with the costs. However, the complete plan is still under development.
Senator Chris Dodd of Connecticut is quoted in the report as stating of the bill, “This time we’ve produced legislation that by and large I think the American people want.”
As noted by the AP, House Democratic leaders pledged to meet President Obama’s health care legislation goal by August earlier this week. Leaders are reportedly offering a $1.5 trillion plan, which would make healthcare both a first time right and responsibility for citizens of the United States.
WiredPRNews.com - The latest in U.S. Presidential News
New HSA Limits Announced
Mar 15, 2009
The IRS recently released the new HSA Limits for 2010.
Dust Off Your HIPAA Hats: Major Changes to HIPAA Privacy and Security Rules Are On The Way
Mar 11, 2009
Significant changes are coming up for HIPAA! Read more (pdf)...
ARRA Bill Changes COBRA Regulations
Feb 17, 2009
As you are aware, the American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law by President Obama on February 17th, 2009, and provides a 65-percent subsidy on federal COBRA and COBRA-comparable state continuation premiums for certain assistance eligible individuals (AEIs) for up to nine months.
The Department of Labor has set a deadline of April 18th, 2009 for all ARRA COBRA notices to be mailed out to any employee terminated involuntarily after September 1st, 2008.
Any small group employer that currently offers Cal-COBRA (20 or less employees) should be aware that it is the carrier's responsibility to administer Cal-COBRA, but should also be advised that there is a penalty on the employer if a notice is not sent out to all involuntarily terminated employees after September 1st, 2008.
Please click on the link below to review the model notices made available by the Department of Labor:
http://www.dol.gov/ebsa/cobramodelnotice.html
We have two suggestions for all small group employers that offer Cal-COBRA:
1) Contact your current medical carrier to find out how the ARRA subsidy is being handled.
2) As a precaution, mail out a COBRA ARRA notice to all employees involuntarily terminated after 9/1/08 before the deadline of 4/18/09.
