e3 Financial News

IRS Allows Additional Section 125 Change in Status Events

Sep 25, 2014

On September 18, 2014, the Internal Revenue Service (IRS) issued Notice 2014-55 which allows employers to amend their Section 125 plans to recognize several new change in status events.

Open Enrollment in the Health Insurance Marketplace

Prior to this new notice, an opportunity to enroll in the health insurance Marketplace (or "exchange") was not considered a change in status event. This made it difficult for employees in non-calendar year plans to move between a group health plan and the Marketplace since Marketplace coverage generally operates on a calendar year.

Effective immediately, an employer may treat open enrollment for Marketplace coverage as a change in status event, and allow an employee and other covered dependents to drop group medical coverage mid-year to enroll in a Marketplace plan. Marketplace coverage must begin on the day after coverage under the employer's plan ends.

This change in coverage under the employer's plan may only relate to dropping medical coverage -- an employee may not change his or her health flexible spending account (HFSA) contributions, dental coverage, or vision coverage because Marketplace coverage is being elected. The employer may rely on the employee's statement that the individuals dropping coverage are moving to Marketplace coverage -- the employer does not need to obtain proof that Marketplace coverage was put into place.

Special Enrollment in the Health Insurance Marketplace

Prior to this notice, special enrollment in the health insurance Marketplace was not considered a change in status event. This meant that an employee who experienced a special enrollment event (such as marriage, birth, or adoption) might be able to enroll the new family member in Marketplace coverage mid-year but could not move other family members to Marketplace coverage. Effective immediately, an employer may treat special enrollment in Marketplace coverage as a change in status event, and allow an employee and other covered dependents to drop group medical coverage mid-year to enroll in a Marketplace plan. Marketplace coverage must begin on the day after coverage under the employer's plan ends.

This change may only relate to dropping medical coverage -- an employee may not change his or her HFSA contributions, dental coverage, or vision coverage because Marketplace coverage is being elected.

The employer may rely on the employee's statement that the individuals dropping coverage are moving to Marketplace coverage -- the employer does not need to obtain proof that Marketplace coverage was put into place.

Revocation Due to Reduction in Hours of Service

The third new permitted change in status event is designed to address issues that may arise if the employer chooses to measure hours using the lookback (measurement and stability periods) method of determining hours for purposes of meeting the employer-shared responsibility requirements. In this situation, to avoid employer-shared responsibility penalties, the employer must offer the employee coverage throughout the following stability period if the employee averaged 30 or more hours per week during the measurement period, even if the employee's hours are reduced below 30 hours per week. Maintaining the same coverage despite lower income may cause a financial hardship to the employee.

Under the new change in status event, if the employee remains eligible for group medical coverage, even though he or she is now working fewer than 30 hours per week, the employee may revoke the group medical coverage election mid-year to enroll himself or herself (and any covered dependents) in either Marketplace or other employer-provided coverage. The employee may not discontinue all medical coverage, and the new coverage must provide minimum essential coverage. The employee may not change any election of dental or vision coverage or any HFSA election. The new coverage must be effective no later than the first day of the second month following the month that includes the date the original coverage is discontinued.

The employer may rely on the employee's statement that the individuals dropping coverage are moving to Marketplace or other minimum essential coverage -- the employer does not need to obtain proof that this coverage was put into place.

Action Steps

An employer may choose to add any, all or none of these new change in status events under its Section 125 plan. The Section 125 plan must be amended to include any new change in status event by the end of the 2015 plan year.

An employer that chooses to recognize the new change in status events may begin administering its plan to include them immediately. This means, for example, that a non-calendar year plan could allow employees to discontinue employer-provided coverage and enroll in the Marketplace for 2015. Keep in mind that while the employee and dependents may enroll in Marketplace coverage, a premium tax credit will not be available while the person remains eligible for minimum value, affordable (based on the cost of self-only) coverage offered by the employer.

If the employer chooses to include any new change in status events, that decision should be communicated to employees promptly, even though the actual plan amendment is not needed immediately.

IRS Issues Drafts of Instructions for Employer and Individual Responsibility Reporting Forms

Sep 24, 2014

In order for the Internal Revenue Service (IRS) to verify that individuals have the required minimum essential coverage, individuals who request premium tax credits are entitled to them, and large employers are meeting their shared responsibility (play or pay) obligations, employers and insurers will be required to provide reporting on the health coverage they offer. Reporting will first be due early in 2016, based on coverage in 2015.

Although reporting will not begin until 2016, the reporting will reflect coverage offered and elected during the 2015 calendar year (regardless of whether the plan is a calendar year or non-calendar year plan). All sponsors of self-funded plans and all employers with 50 or more employees (whether coverage is self-funded or fully insured) should begin assessing their data gathering and systems soon to be sure they will be able to access and report the needed information when reporting begins. Although the play or pay requirements do not apply to many employers with 50 to 99 employees for 2015, reporting is still required for 2015 from these employers. This employer reporting will help the IRS administer the individual shared responsibility requirements and eligibility for premium tax credits.

An employer's reporting obligation varies by its size, its funding method (self-funded or fully insured) and whether it is part of a controlled group. On August 28, 2014, the IRS issued draft instructions for completing the forms; drafts of the actual forms were issued on July 24, 2014. The IRS has said that the final forms and instructions will be available by the end of 2014. While there will probably be a few changes between the draft and final versions of the requirements, the reporting requirements are becoming clear enough for employers to begin planning to meet this requirement. For more information download the attached PPACA Advisor.

Read more (pdf)...

EEOC Files Suit Over Wellness Program

Sep 10, 2014

The Equal Employment Opportunity Commission (EEOC) has sued an employer because the penalty it applied for not participating in its wellness program was, in the eyes of the EEOC, so high that participation was not, as a practical matter, “voluntary.” Under EEOC rules, an employer may conduct medical examinations, which includes obtaining medical histories and blood draws, only in limited situations. One of those permitted situations is a voluntary wellness program. Because the program did not qualify as “voluntary,” the questions employees were asked about their health on a health risk assessment, a blood draw, and a range of motion assessment violated the Americans with Disabilities Act (ADA), according to the EEOC’s Complaint.

This is the first lawsuit brought by the EEOC challenging the incentives of an employer’s wellness program. The situation that created the complaint is a bit unusual, because the employee was terminated shortly after complaining about the wellness program. However, the EEOC also seems disturbed by the terms of the program itself. The program was designed so that the company paid 100% of the health insurance premium for employees who participated in the wellness program and paid nothing toward the premium of any employee who did not participate. The EEOC has described this penalty as “steep” and “enormous.” It remains to be seen whether the court will agree with the EEOC that the penalty violates the ADA rules, but employers considering significant penalties for non-compliance with, or incentives for participating in, a wellness program should understand that their design could lead to an EEOC charge or lawsuit.

As a reminder, in addition to the ADA requirements, wellness programs need to comply with PPACA’s rules for these programs. Under the 2014 rules, wellness programs are either “participatory” or “health-contingent.” A participatory program is one that either has no reward or penalty (such as providing free flu shots) or simply rewards participation (such as a program that reimburses the cost of a membership to a fitness facility or the cost of a seminar on nutrition). As long as a participatory program is equally offered to all similar employees, no special requirements will apply to the program.

A number of rules apply to “health-contingent” wellness programs. Health-contingent wellness programs are programs that base incentives or requirements in any way on an employee’s health status. Health status includes things like body mass index (BMI), blood glucose level, blood pressure, cholesterol level, fitness level, regularity of exercise, and nicotine use. A wellness program with health-contingent requirements must meet all of these requirements:

  • Be reasonably designed to promote health or prevent disease
  • Give employees a chance to qualify for the incentive at least once a year
  • Cap the incentive at 30% of the cost of coverage if the incentive does not relate to non-use of tobacco and to 50% of the cost of coverage if the incentive relates to non-use of tobacco
  • Provide a reasonable alternative way to qualify for the incentive
  • Describe the availability of the alternative method of qualifying for the incentive in written program materials

The case was filed in Wisconsin against Orion Energy Systems.

Article by Linda Rowings, Chief Compliance Officer, United Benefit Advisor

Delivering Participant Materials

Sep 05, 2014

The Department of Labor (DOL) requires that participant notices and other plan information ("disclosures") be provided in a way that is reasonably calculated to ensure delivery to all plan participants. The Department of Health and Human Service (HHS) typically follows the DOL's rules. There are two primary ways to deliver plan information -- by paper and electronically.

In most instances the information only needs to be provided to the plan participant, who is then expected to share the information with a covered spouse or children. If the employer is aware that the participant and the dependent spouse or child are living apart, a separate disclosure generally should be provided to the dependent. (College students are considered to be living at home for purposes of this rule.)

Paper Delivery

Paper delivery methods include sending the information through the U.S. mail, via interoffice mail, as an insert to company publications, or by hand. If mailing, the information may be sent first class. Alternatively, the information may be sent second or third class if return/forwarding postage is guaranteed and address correction is requested.

Information may be sent through inter-office mail as long as that system operates effectively. It also may be hand delivered or included as an insert with a paycheck.

Simply placing the information in a common area, like a lunchroom, is not adequate.

Electronic Delivery

Employers may send the following types of information electronically, as long as the electronic distribution requirements described below are met:

  • Summary Plan Descriptions (SPDs) and Summaries of Material Modifications (SMMs)
  • Summary of Benefits and Coverage (SBC)
  • Summary Annual Report (SAR)
  • COBRA notifications
  • Qualified medical child support order (QMCSO) notices
  • HIPAA certificates of creditable coverage
  • Annual notices (such as Medicare Part D, CHIP, Women's Health and Cancer Rights, and the governmental plan HIPAA opt-out)
  • Notices regarding a plan's grandfathered status or a reasonable alternative under a wellness program

The DOL divides potential recipients of electronic disclosures into two groups -- those with work-related computer usage, and those who do not use computers as part of their jobs. An employee is considered to have work-related computer usage if:

  • The employee is able to access documents that are sent in electronic format at any location where the employee performs his or her job duties, and
  • The employee is expected to access the employer's electronic information system as part of his or her key job duties

An employee who uses a computer as part of his or her job does not need to consent to receive disclosures electronically.

Individuals who do not access a computer as part of their work for the employer must specifically consent to receive disclosures electronically. This would include retirees, as well as active employees in many types of jobs. The written consent requirements are fairly complicated. Prior to providing consent, an individual must be given a clear statement that explains:

  • The types of documents to which the consent will apply
  • That the consent can be withdrawn at any time without charge
  • The procedures for withdrawing consent and for updating the address used for receipt of electronically furnished documents
  • The right to request and obtain a paper version of an electronically distributed document, and whether the paper version will be provided at no charge
  • The hardware or software needed to access and retain the documents delivered electronically

The individual must provide an email address for delivery of the documents. The individual must provide consent in a manner that demonstrates his or her ability to access the information in the electronic format that will be used, so many employers require that the consent be provided electronically.

The employer must provide participants with annual notices describing the way in which the participant can opt out of the electronic distribution process. This notice must be furnished in paper form unless the plan has had electronic interaction with the participant since the initial or last annual notice was distributed. If the plan administrator changes its software and hardware requirements, it must provide a new notice and obtain a new consent.

An employer may not simply provide a kiosk for employees who do not use computers as part of their jobs. Likewise, it may not provide thumb drives of documents to employees who do not use computers as part of their jobs unless it obtains the employee's consent.

An employer is not required to use the same distribution method for all participants, so it may provide disclosures electronically to employees who use computers as part of their jobs and disclosures by paper to participants who do not use computers to perform their jobs.

There are no restrictions on the types of electronic media that may be used. For example, the employer may provide the notice within an email, attach the disclosure to an email, post the disclosure on a company website or in an Employee Benefit Center (EBC), or provide a DVD, CD-ROM, or thumb drive. An employer may not simply post the disclosure to its website, intranet, or EBC, however -- it also must send a notice, either electronically or in paper form, that notifies the participant that the disclosure is available, how to access it, and the significance of the disclosure. The participant also must be told that a paper copy is available at no cost, with instructions on how to request a paper copy. For example, the notification might say:

Important Information for All Participants in the ABC Health Plan

ABC Company has posted an updated Summary Plan Description on our intranet in the Company Benefits folder. The Summary Plan Description describes the benefits that are available under the group medical plan. The SPD has been updated to reflect our deductibles and out-of-pocket maximums for 2015. We encourage you to read the SPD at your earliest convenience.

You have the right to receive a paper copy of the SPD at no cost to you. To request a paper copy contact Jane Doe at janed@abc.com or at 555-111-0000. Also feel free to contact Jane if you have questions about your benefits.

The posting notice must be sent each time there is a new posting of information -- an annual notification that plan disclosures are located in a particular place is not enough.

An electronic disclosure must include the same information that would be included in a paper version of the disclosure. The employer must use its best efforts to ensure that there is actual receipt of the notice, such as by using the return receipt or notice of undelivered email feature. If a communication is returned, the employer must take steps to find an alternate address and re-send the information. Any confidential participant information must be protected.

Whether provided electronically or in paper, employers should maintain copies of all plan disclosures sent, including the date sent and which individuals or employee groups received the information.

An Employer's Guide to Annual Group Health Plan Notices

Aug 28, 2014

A Word document that includes models of all required federal notices, except the SBC, is attached. (Links to the SBC templates and other available templates are listed below the chart, should you need them.) You should delete the notices that do not apply to your situation. You should also review each notice you do need to give, modify it as needed to describe your plan, and fill in any blanks. Sections that need customization generally are highlighted in yellow.

All of the annual notices also should be given to new enrollees. In addition, new enrollees must be given the general COBRA notice (if you employ at least 20 people) and the notice of special enrollment rights. It also appears that new hires should be given the exchange notice (Notice of Coverage Options). Employers that offer coverage do not need to complete the third page of the notice. Completing the second page is still required, and since it includes information an employee needs to complete an application for a premium subsidy, providing this information may reduce inquiries from the exchange/Marketplace.

Spanish versions -- and originals of the English versions -- of many of the notices are available on the U.S. Department of Labor website or on the Centers for Medicare & Medicaid Services website.

The plan administrator (typically the employer) needs to take steps to be sure that the notices are received. Notices may be mailed (first class to the employee's home address) or hand delivered. Providing paper copies in a central location is not adequate. Notices may be provided electronically, as long as the employee regularly uses a computer as part of his or her job. If an electronic notice is provided, the employer must:

  • Provide either electronic or non-electronic notice to each recipient describing where the notice is posted, explaining the significance of the notice and stating that a paper copy is available, at no charge, with instructions on how to obtain the paper copy.
  • Use the return-receipt feature, the undelivered mail feature, or a similar method to confirm that the materials are being received.

If the employee does not use a computer as part of his or her job, the employee must provide specific permission to receive a notice electronically. If you have some employees who regularly use computers and others who do not, you may distribute the notices electronically to those who use computers and provide paper notices to those who do not.

You do not need to get paper or electronic signatures from employees acknowledging that they have received the notices (although you may do this if you want to). You should always retain evidence that the notices were given, including a copy of each notice, the date it was provided, and who received it (as either a class or individually). You do not need to give a separate notice to a spouse or dependent child unless you know the family members are living apart. (A college student is not considered to be living apart.)

Some employers include notices in their open enrollment packet that are not required. That is permitted, although if the notice technically is required to be included elsewhere (for example, the Newborns and Mother's Health Protection Act notice should be included in the summary plan description), it should also be included in that document.

NoticeDue DateSpecial Rules
Part D NoticeEach year, by Oct. 14Must give to all employees, retirees and dependents who are or may become eligible for Medicare Part D during next 12 months. Due to difficulty identifying dependents who may be Medicare-eligible, many employers provide the notice to all employees.
SBCWhen enrollment materials are provided; if make a mid-year change that affects SBC, must provide updated SBC 60 days before change is effectiveInsurer will prepare for insured plans, but employer remains responsible for seeing that SBC is distributed
Women's Health & Cancer RightsOnce each year 
CHIP NoticeAnnually, by first day of plan yearOnly provide if state provides premium assistance with Medicaid or CHIP (i.e., state is listed in the notice)
Wellness Program DisclosureWhenever program is described in detailOnly provide if sponsor a wellness program that takes health into account
Grandfathered Plan NoticeWhen enrollment materials are provided; also include in SPDOnly provide if plan is grandfathered
Exemption from HIPAAWhen enrollment materials are providedOnly provide if a government plan that has opted out of parts of HIPAA


Model notices and templates:


Important: Notices need to be given to participants in a variety of situations. This guide only addresses notices that must be given annually to meet federal requirements.

California Eligibility Waiting Period – Back to 90 Days

Aug 26, 2014

Last year, California passed legislation requiring a waiting period of 60 days while the ACA had established a 90-day waiting period. Many of you have already made this change.

Senate Bill (SB) 1034 was recently signed into law on August 15, 2014 by California Governor Jerry Brown and will go into effect on January 1, 2015. This new law reverts back to the 90 day waiting period limit.

This new law means that California's health coverage waiting period requirements are now better aligned with federal law, which translates to less confusion with respect to the provisions of the Affordable Care Act (ACA).

If you would like to make a change to your waiting period, we will revisit at your next Renewal Strategy Meeting.

Our access to PPACA Advisor resources can help you clear up PPACA questions and better craft your company's benefit strategy for the future.

Compliance Alert: MLR Rebate ERISA

Jul 24, 2014

MLR Rebate Considerations - Private Plans

As was the case last year, insurers with medical loss ratios (MLRs) that were below the prescribed levels on their blocks of business must issue rebates to policyholders. Insurers must pay rebates owed on calendar year 2013 experience by August 1, 2014. The rules for calculating and distributing these rebates are largely the same this year as they were last year.The guidance provided by the regulatory agencies on how employers should distribute rebates has been fairly general, so employers have some discretion as to how to calculate and distribute the employees' share. These general principles apply:

  • Assuming both the employer and employees contribute to the cost of coverage, the rebate should be divided between the employer and the employees, based on the employer's and employees' relative share. Employers may divide the rebate in any reasonable manner -- for example, the rebate could be divided evenly among the employees who receive it, or it may be divided based on the employee's contribution for the level of coverage elected.

    Employers are not required to precisely determine each employee's share of the rebate, and so do not need to perform special calculations for employees who only participated for part of the year, moved between tiers, etc.

    The employer may pay the rebate only to employees who participated in the plan in 2013 and are still participating, only to current participants (even though the rebate relates to 2013), or to those who participated in 2013, regardless whether they are currently participating.

    Insurers must send a notice to all employees who participated in the plan in 2013 stating that a rebate has been issued to the employer, so employers who choose to limit rebate payments to those who are currently participating should be prepared to explain why the rebate is only being paid to current participants. This might include the fact that since the rebate would be taxable income, the amount involved does not justify the administrative cost to locate former participants and issue a check.
  • The employer may pay the rebate in cash, use it for a premium holiday, or use it for benefit enhancements. The rebate must be applied or distributed within 90 days after it is received.

    A cash rebate is taxable income to the employee if it was paid with pre-tax dollars.

    A premium holiday should be completed within 90 days after the rebate is received (or the rebate needs to be deposited into a trust).

    Benefit enhancements include reduced copays or deductibles (which may not be practical due to the timing requirements) or wellness-type benefits that the employer would not have offered without the rebate, such as free flu shots, a health fair, a lunch and learn on nutrition or stress reduction, or a nurse line.
  • The employer should consider the practical aspects of providing a rebate in a particular form.

    Generally speaking, the larger the amount that would be due to an individual, the more effort the employer should make to directly benefit the person (either through a cash rebate or premium holiday). While benefit enhancements are permissible, a large rebate should be used to provide a direct benefit enhancement, such as a reduced co-pay, and not for a general benefit, such as flu shots.

    The agencies have not provided any details as to what amount is so small that it does not need to be returned to the employee. (Insurers are not required to issue a rebate check to individuals if the amount is less than $5.00.) A cash rebate is taxable income if the premium was paid with pre-tax dollars, so issuing a check that is very small after taxes should not be necessary. If an employer knows it costs it $2.00 to issue a check, issuing a rebate check for $1.00 should not be necessary However, an employer cannot simply keep the rebate if it determines that cash refunds are not practical -- it will need to use the employee share of the rebate to provide a benefit enhancement or premium reduction.
  • Many plans now state how a rebate should be used. If the plan describes a method, that method must be followed.

The following Q and A provides additional details.

Q1. If an employer pays most of the premium, and its contribution far exceeds the rebate, can it just keep the rebate?

A1. With one exception, no. If participants paid part of the premium, the participants (as a whole) should get a pro rata share of the rebate. So, if the employer pays 80% of the premium, the employer must return 20% of the rebate to the participants.

The exception applies if employees paid a fixed dollar amount and the employer paid the balance of the costs. In that case, if the employer's contribution equaled or exceeded the rebate, the employer could keep the entire rebate.

Q2. How does as an employer determine the percentage it can keep?

A2. The percentage of the premium paid by the employer and the percentage paid by employees should be calculated on a representative date, such as the first day of the plan year. If the relative shares changed during the calendar year because of a renewal, the percentages likely should be averaged. If contribution percentages changed during a year because of a change in demographics (e.g., virtually all new hires elected family coverage, for which the employer pays a smaller share), recalculating does not seem to be needed.

Q3. How does an employer determine the employer percentage if the employer contributes different percentages for different groups? For example, if the employer pays 80% of the cost of employee only coverage and 50% of the cost of dependent coverage.M

A3. It is acceptable to look at the participant group as a whole, so an employer could use a blended contribution percentage. If the employer prefers to use different percentages for different classes, based on each classes' actual contribution percentage, that is fine, but not required. An exception would be if the employer pays 100% of the cost of single coverage, and nothing toward dependent coverage. In that case, those with single coverage would have no "overpayment" to be returned, and the rebate probably should be limited to those with dependent coverage.

Q4. How should an employer distribute the participants' shares of the rebate?

A4. The agencies have not provided detailed instructions on how to distribute rebates. The primary options are to pay the rebate in cash, use it to reduce future premiums in the current year (a "premium holiday") or apply it to enhance benefits (e.g., moderating a planned increase in co-pays or the deductible or providing onsite, free flu shots to participants). The Department of Labor (DOL) recognizes that because of the administrative costs of cutting checks and the tax consequences that may follow a cash refund, it may make more sense to provide a premium holiday or to provide a benefit that otherwise would not have been offered. If the per head rebate is more than 90 days' worth of premium, however, serious consideration should be given to a cash refund.

The DOL has interpreted ERISA to require that participant monies in private employer plans be put into a trust within 90 days after they are received. Very few insured plans operate through a trust, so it would be a burden to create a trust due to delays in dispensing the rebates. To avoid the 90 day rule, private plans should take steps to use or pay out the rebate within 90 days after it is received.

Q5. The rebate is based on last year's results. Does an employer need to pay part of the rebate to last year's participants?

A5. The DOL has not specifically addressed whether plans sponsored by private employers should or should not pay rebates to former participants. In similar situations the DOL has said that as long as the participant share is used to benefit the participant group as a whole employers do not need to specifically apportion the payment to specific individuals based on each individual's contribution to the fund. (This is partly because it is so difficult to determine how much, exactly, any person did contribute, as participants come and go. Moreover, these MLR rebates are based on the block, not individual employer experience, so total precision seems impossible to achieve.)

Q6. Should a rebate be paid to COBRA participants?

A6. The agencies have not issued anything that specifically addresses this question. However, in many situations COBRA participants are considered plan participants, so the most conservative approach would be to include individuals currently on COBRA or in the COBRA election period in the rebate. If former active participants are given a rebate, a person who was a COBRA participant during that time also should receive a rebate. It should be acceptable to use the standard method of allocating the rebate amount (even though the individual may have paid the full cost of coverage).

Q7. The employer has two plans/policies. One received a rebate and one did not. How does it handle the rebate?

A7. Normally, the rebate is tied to the policy that received it, so only those covered by that policy would get a portion of the rebate. This is true even if those in the non-recipient policy say they would have elected the receiving policy if they'd known the rebate would impact the cost.

Q8. Are there issues under the Section 125 Plan if the employer gives a premium holiday?

A8. As long as the plan recognizes a change in cost as a qualifying event, the premium holiday would not be a problem under the Section 125 plan. Because the amount the employee expected to pay on a pre-tax basis is now smaller, their taxable wages will increase.

Q9. If the employer decides to give rebates in cash, are those amounts W-2 or 1099 income?

A9. If the premium was originally paid on a pre-tax basis, the refund is taxable wages, which would be handled like any wages (i.e., subject to income tax, FICA and FUTA) and reported on the person's W-2. If the premium was paid with after tax dollars, there are no tax consequences (unless the employee claimed the premium as a deduction on their tax return)./

See the IRS FAQ on taxation of rebates for more information: Medical Loss Ratio (MLR) FAQs

Q10. Is the employer required to provide an explanation of its rebate distribution method to participants?

A10. An explanation is not required, but it likely will reduce questions and misunderstandings over the long run, particularly since if a rebate is paid the insurer is required to send a notice to those who participated in the plan in 2013 stating that a rebate is being paid. The insurer notice that will be sent when the rebate is paid to the employer is available at: http://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-notice-2-group-markets-rebate-to-policyholder.pdf

An employer's explanation does not need to be involved; something like this may be enough:XYZ Company has determined that it is in the best interest of our participants to use the Medical Loss Ratio Rebate to provide a "premium holiday" for the month of September 2014. This means that your share of premium for September will be [zero] [reduced to $___]].

OR

XYZ Company has determined that it is in the best interest of our participants to return your share of the rebate to you in cash. The rebate will be added to your ______, 2014 pay as taxable income.Additionally, when making fiduciary decisions under ERISA (which is what a decision about applying participant monies is for a private employer's plan), the process is just as important as the result. Therefore, it would be a good idea to do a short memo to file explaining the basic method used and why it is used.

Q11. What can the employer do with its share of the rebate?

A11. Unless the insurance policy is part of a trust, the employer can use its share of the rebate however it sees fit. If the policy is in a trust, the entire rebate -- both the employer's and employees' share -- must be used to benefit plan participants (through reduced contributions or enhanced benefits).

Q12. Are grandfathered plans eligible for rebates?

A12. Yes.

Q13. Are self-funded plans eligible for rebates?

A13. No.

Q14. How are rebates determined?

A14. Medical loss ratios (MLRs) are based on the cost of claims and health care quality improvements as a percentage of total premium (federal taxes and assessments are excluded from the premium). All of the insurer's policies in a market, in each state, are combined when calculating its MLR. A policy issued in the large group market is eligible for a rebate if its MLR is less than 85%. A policy in the small group or individual market is eligible for a rebate if its MLR is less than 80%.

Q15. If the employer has employees in several states, how is the rebate determined?

A15. The rebate is based on the state the policy was issued in It should be shared with all participants, regardless where the participant lives.

Governor Brown Signs “Grandmothering” Bill Into Law

Jul 09, 2014

As you may have heard, Senate Bill 1446 was just signed into law in California by Governor Brown. SB 1446 moved rapidly and unopposed through both Houses in the California Legislature. Now that the bill has been signed into law, it will go into effect immediately as an "urgency statute."

This new California law allows small business employers with upcoming renewals to remain on their current health coverage – plans now referred to as "grandmothered" plans – for an additional year. In other words, employers will have guaranteed renewability of that coverage for another 12 months. SB 1446 will allow a small employer health care plan that was in effect on December 31, 2013, and that is still in effect as of the date this bill was signed (July 7, 2014), and that does not qualify as a grandfathered health plan under the ACA, to be renewed until January 1, 2015, and to continue to be in force until December 31, 2015. The bill also states that these plans must be amended to be in compliance with the ACA guidelines as of January 1, 2016, "in order to remain in force on and after that date."

This will help some small California employers who opted to early renew their plans in 2013. The small employer group policies affected by SB 1446 must still include many ACA and state-based mandated benefits such as preventative healthcare coverage without co-pays or deductibles, no lifetime caps on benefits, maternity care, coverage for autism and the elimination of gender discrimination in setting premiums.

It is important to keep in mind that this bill is not a mandate therefore employers and insurance companies are not required to keep these plans in place. This bill is meant to be a "transitional measure" to allow small employers more time to comply with the rules set down by the ACA.

Also of note, the bill does not address rates, so premiums for these plans may increase.

We will be sending more information as it relates to our carrier partners when it becomes available.

Compliance Recap - April 2014

May 01, 2014

The IRS has released the 2015 minimums and maximums that apply to health savings accounts (HSAs) and related high-deductible health plans (HDHPs). These increases occur annually based on a cost-of-living formula. Because the inflation rate is fairly low, the amounts have not increased very much -- the out-of-pocket maximum is increasing by $100 for single coverage and by $200 for family coverage. Both the minimum deductible and the maximum contribution are increasing $50 for single coverage and $100 for family coverage.

In 2014, the same out-of-pocket maximums applied for HDHPs linked to HSAs and to the Patient Protection and Affordable Care Act (PPACA) cost-sharing limit, but those maximums will differ in 2015. The PPACA limits are slightly higher ($6,600 single and $13,200 family) than the HSA/HDHP limits in 2015; HDHPs that are linked to HSAs will need to meet the lower, HSA maximum.

 2015 HSA2014 HSA2015 PPACA
(non-grandfathered plans)
2014 PPACA
(non-grandfathered plans)
Out-of-pocket maximum$6,450 single
$12,900 family
$6,350 single
$12,700 family
$6,600 single
$13,200 family
$6,350 single
$12,700 family
Minimum deductible$1,300 single
$2,600 family
$1,250 single
$2,500 family
NoneNone
Maximum deductibleNone None None
(this requirement has been repealed)
None
(this requirement has been repealed)
Maximum contribution$3,350 single
$6,650 family
$3,300 single
$6,550 family
None None
Catch-up Limit(age 55 or older)$1,000 (unchanged) $1,000Not applicableNot applicable

The out-of-pocket maximum includes deductibles, copayments and coinsurance, but not premiums. This is true for both the HSA and PPACA requirements.Other cost-of-living adjustments that affect employers and plans, such as the health flexible spending account (FSA) limit, Social Security wage base, and qualified plan limits, will be provided by the government later this year.

Question of the Month

Q: May an employer charge smokers more than non-smokers?
A: Employers may charge smokers more than non-smokers, but they must do this as part of a wellness program. A smoking surcharge or non-smoker discount provided without a wellness program violates the health status non-discrimination rules of the Health Insurance Portability and Accountability Act (HIPAA). The wellness program requirements can be complicated, but basically the program must:

  • Provide an opportunity to qualify at least annually
  • Be designed to improve health
  • Offer another way for the participant to avoid the smoker surcharge (or qualify for the non-smoker discount) and
  • Publicize that an alternative way to qualify is available

As part of the health improvement requirement, the Department of Labor (DOL) has noted that it often takes people several tries before they successfully quit smoking. To support that process, employers must offer a "reasonable alternative" to smokers -- often this takes the form of a smoking cessation program -- and the alternative must be offered each year. Employees who complete the smoking cessation program must be given the non-smoker discount -- even if they do not quit smoking.

The maximum penalty or incentive based on smoking status is 50% of the cost of coverage (this includes both the employer and employee share). This means, for example, that if the total premium is $600, the smoker surcharge could be $300. If the non-smoker employee contribution is $100, the smoker rate (applicable only to smokers who do not complete the reasonable alternative) could be as much as $400.

A few states have special protections for smokers. An employer considering a smoker surcharge or a non-smoker discount should make sure their state does not have any special requirements. Often, a chamber of commerce will be able to provide this information.

Government Issues Final Regulations on Employer Shared Responsibility ("Play or Pay") Regulations

Feb 20, 2014

The U.S. Treasury Department released the final regulations implementing the employer shared responsibility penalty provisions of the 2010 health care reform law on February 10, 2014. In many ways, the final regulations resemble the proposed regulations issued over a year ago, but there are several - mostly welcome - changes and transition provisions for employers.

Phased-in enforcement. The penalty provisions were to apply, beginning this year, to employers with 50 or more full-time equivalent employees. Such "large" employers are subject to a tax penalty under Internal Revenue Code section 4980H for each month in which they fail to offer affordable, minimum value coverage to 95% of full-time employees (and their children up to age 26). The Obama administration announced last summer that it would delay enforcement of the penalty provision until 2015 for all large employers. These final regulations further delay the penalty provision until 2016 for large employers with fewer than 100 full-time employees. And, for a large employer with 100 or more full-time employees, penalties can be avoided in 2015 as long as the employer offers affordable minimum value coverage to at least 70% (not 95%) of its full-time employees.

Identifying full-time employees. The final regulations retain the safe harbor look-back measurement/stability period method for determining full-time status, but provide a number of general exemptions to who must be counted as a full-time employee including most volunteers of government or tax-exempt entities and seasonal employees customarily working less than six months of the year. In addition to the exemptions, the final regulations include several clarifying provisions for counting hours of other categories of employees (e.g., teachers, work-study students, and adjunct professors).

Transition relief of proposed rules extended. Certain transition relief that would have been available for 2014 is extended under the final regulations. For example, an employer can use a six-month period in 2014 (instead of the whole year) to determine whether it has the threshold 100 full-time equivalent employees for purposes of the 2015 penalty. Also, an employer with a fiscal year plan generally will not be subject to the penalty provisions until the first day of its 2015 plan year.

As with the proposed regulations, the devil is in the details regarding the special exceptions and transition rules and a full treatment of all those details is well beyond the scope of this alert. We will be reviewing these in more detail in the days ahead.

JACKSON LEWIS, P.C.

Covered CA Takes Provider Directory Offline

Feb 10, 2014

Covered California announced it will discontinue posting of a provider directory on its web site until further notice, after finding some errors in the physician lists.   Please see attached document for more information.

Additional PPACA Details Released

Jan 23, 2014

On January 9, 2014, the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of the Treasury (IRS) issued Frequently Asked Questions - Part XVIII that provides additional information about requirements in several areas.

Preventive Care

The requirement that non-grandfathered plans provide first dollar coverage at 100% includes a provision to update the list of services that must be covered. The FAQ announces that because the United States Preventive Services Task Force (USPSTF) now recommends that breast cancer risk-reducing medications, such as tamoxifen or raloxifene, be prescribed for women who are at increased risk for breast cancer and are at low-risk for adverse medication effects, those medications (which can be expensive) must be covered at 100% beginning with the first plan year that starts on or after September 24, 2014, (starting January 1, 2015, for calendar year plans).

The FAQ also clarifies that a plan may use reasonable limits on the frequency (but not the dollar amount) of preventive care that it will cover. If the USPSTF recommendations include a frequency, those guidelines should be followed. If there is no guideline, the insurer or health plan may impose a reasonable frequency limit.Out-of-Pocket LimitsThe FAQ clarifies that, for non-grandfathered plans, the out-of-pocket maximum:

  • Must include deductibles, coinsurance and copayments for essential health benefits (EHBs). A plan may exclude benefits that are not EHBs from the out-of-pocket maximum if it wishes.
  • Need not include premiums, costs for non-covered services, or costs for out-of-network services, although it may if it wishes.
  • May be separated into different out-of-pocket maximums for different categories of services, but the total of all the separate out-of-pocket maximums cannot exceed the out-of-pocket maximum allowed by the Patient Protection and Affordable Care Act (PPACA), which is $6,350 for self-only coverage or $12,700 for family coverage for 2014.
  • This option may be helpful for plans with multiple vendors.
  • This technique may not be used to create a separate out-of-pocket maximum for mental health services because that would violate the Mental Health Parity Act (MHPA).

The FAQ also verifies that, to the extent a large group insured plan or a self-funded plan must consider EHBs, it may use any state's EHB benchmark plan. (Large group insured plans and self-funded plans do not have to offer coverage for the 10 EHBs, but they cannot impose lifetime or annual dollar limits on EHBs.)

Wellness Programs

The FAQ states that a plan that offers an annual opportunity to receive an incentive for non-use of tobacco is not required to offer a mid-year opportunity for an individual who was offered, but declined the original opportunity. For example, Jones Co. offers a non-smoker discount and an opportunity for smokers to enroll in a smoking cessation program for the next calendar year. Mary and John are both smokers. They decline to enroll in the smoking cessation program. John quits smoking in July and Mary asks to enroll in the non-smoker program in August. Jones Co. is not required to give John the non-smoker rate for the rest of the year (although it may if it wishes, on either a full or pro-rata basis). Jones Co. does not need to offer the non-smoker program, or the discount, to Mary (although it may if it wishes, on either a full or pro-rata basis).

The FAQ also says that if an employee's doctor states that an outcomes-based reasonable alternative is medically inappropriate for the employee, and the doctor suggests an activity-based alternative instead, the employer must accept the suggested alternative but has leeway on how the alternative is implemented. For example, Rachel exceeds the plan's body mass index (BMI) standard, and the plan's usual reasonable alternative is a percentage reduction in BMI. If Rachel's doctor advises that the reduction in BMI is medically inappropriate and suggests a weight reduction program instead, the plan must accommodate the weight loss program request, but it does have a say in which weight loss program Rachel must complete.

Mental Health and Substance Abuse Disorders

Coverage for mental health and substance use disorder services are an EHB, so non-grandfathered individual and small group policies must offer coverage for these services. Prior to PPACA, plans were not required to cover mental health and substance abuse, although the MHPA requirements applied to plans that offered this coverage. To coordinate the requirements of these two laws, the FAQ provides that plans that must offer EHBs need to offer coverage for mental health and substance use disorders beginning with the 2014 plan year, and that the EHB coverage must satisfy the applicable mental health parity rules. This will change slightly starting with the first plan year beginning on or after July 1, 2014, or as of January 1, 2015, for calendar year plans.

Expatriate Plans

Insured expatriate plans do not need to comply with most PPACA provisions. The FAQ clarifies that a plan is considered an insured expatriate health plan if enrollment is limited to employees and their covered dependents who are expected to reside outside of their home country or outside of the United States for at least six months of a 12-month period. The 12-month period can fall within a single plan year or across two consecutive plan years. Expatriate plans generally will satisfy requirements to obtain or offer minimum essential coverage.

Fixed Indemnity Policies (Individual Market)

A fixed indemnity plan does not need to meet most of PPACA's requirements and also is not considered minimum essential coverage for purposes of avoiding the individual or employer penalties. Historically, a plan must pay benefits on a fixed period basis to fall within the fixed indemnity exception. The FAQ says that a supplemental policy may qualify as a fixed indemnity policy even though it reimburses on a per service basis, or other basis than a fixed period, if:

  • It is sold only to individuals who have other health coverage that is minimum essential coverage,
  • There is no coordination between the benefits under the fixed indemnity policy and an exclusion of benefits under any other health coverage,
  • The benefits are paid in a fixed dollar amount regardless of the amount of expenses incurred and without regard to the benefits provided under any other health coverage, and
  • A notice is displayed prominently in the plan materials informing policyholders that the coverage does not meet the definition of minimum essential coverage and will not satisfy the individual responsibility requirements of PPACA.

Volunteer Firefighters

In a blog posted on January 10, 2014, the IRS stated that it intends to exclude volunteer firefighters and other volunteer emergency medical personnel from those who need to be considered "employees" under the employer-shared responsibility ("play or pay") requirements. It is not clear from the blog how much a volunteer emergency responder can be paid and still be considered an exempt volunteer. The IRS has promised to provide details in the final play or pay regulations, which it says will be released shortly.

IRS Issues Notice about Same-Sex Spouses under Section 125 Plans, Flexible Spending Accounts, and Health Savings Accounts

Dec 23, 2013

The Notice states that if the employee had a same-sex spouse on June 26, 2013 (which is the date of the Windsor decision), the plan may allow the employee to add the spouse (with pre-tax payment of premiums) as a change in marital status event if the election is filed at any time during the plan year that includes June 26, 2013, or during the plan year that includes Dec. 16, 2013. This means that a calendar year plan may allow an employee to change his or her election consistent with having a newly eligible same-sex spouse at any time during 2013 -- but not after Dec. 31, 2013 -- even though the marriage took place prior to 2013. Since most Section 125 plans operate on a calendar year, and most have already received open enrollment elections for 2014, this is mostly verification for employers that allowed mid-year changes in light of the court decision.Some employers have allowed employees to make election changes under the significant change in the cost of coverage trigger. The Notice disagrees with this interpretation, saying that a change in a person's tax situation is not a change in status event, but the IRS also says that because the situation was unclear it will accept changes an employer permitted between June 26, 2013, and Dec. 31, 2013, because the employer considered the change in tax treatment a significant change in the cost of coverage.Employers that had received notice of the employee's same-sex marriage, but have not yet allowed the premiums for that same-sex spouse's coverage to be paid on a pre-tax basis, must do so within a reasonable period after Dec. 16, 2013. (A reasonable period is not defined, but since in most cases withholding must be adjusted by the first payroll period beginning 30 days after the notice of change is provided, that would seem to be a "reasonable" period.) The Notice states that an employee may provide notice by electing to cover the spouse under the group health plan and requesting to payroll deduct the premium or by simply filing a new W-4 stating that the employee is married. Employers may need to reconcile recent plan elections or W-4 changes with which employees are making contributions on a pre-tax basis. Employers also may want to notify employees that coverage for same-sex spouses is now available on a pre-tax basis and encourage those who may be affected by this change to contact Human Resources.

FSA Reimbursements

The Notice states that, regardless of the employee's coverage elections for the year, a health flexible spending account (FSA) may reimburse the expenses of the same-sex spouse or the same-sex spouse's dependent as of the beginning of the plan year that includes June 26, 2013 (i.e., all of 2013 for calendar year plans), or, if the marriage occurs after June 26, 2013, as of the date of the marriage. (Retroactive elections to increase FSA contributions are not allowed.) For example:

XYZ Co. sponsors a Section 125 plan with a calendar year plan year. The plan includes a health FSA. XYZ permits same-sex spouses to participate in its health plan and they are eligible dependents under its health FSA. Employee A married same-sex Spouse B in October 2012 in a state that recognized same-sex marriages. During open enrollment for 2013, Employee A elected self-only health coverage. Employee A also elected to contribute $2,500 to his health FSA.

On Oct. 5, 2013, Employee A elected to add health coverage for Spouse B under XYZ's health plan and made a new salary reduction election under the Section 125 plan to pay for Spouse B's health coverage.

On Oct. 15, 2013, Employee A submitted a reimbursement request under the health FSA for a health care expense incurred by Spouse B on July 15, 2013. Employee A's FSA may reimburse the covered expense.

Employee C also has a same-sex spouse that she married in September 2011, but she did not elect to add health coverage for her Spouse D under the XYZ group health plan after the court decision. On Oct. 15, 2013, Employee C submitted a reimbursement request under the health FSA for a health care expense incurred by Spouse D on July 15, 2013. The reimbursement request included a representation that Employee C was legally married to Spouse D on the date that the health care expense was incurred.Employee C's FSA may reimburse the covered expense.

Dependent Care FSAs

The Notice states that a dependent care FSA may reimburse expenses for care of the same-sex spouse's dependent as of the beginning of the plan year that includes June 26, 2013 (i.e., all of 2013 for calendar year plans), or, if the marriage occurs after June 26, 2013, as of the date of the marriage. (Retroactive elections to increase FSA contributions are not allowed.)Since same-sex couples are now considered legally married for federal tax purposes, the $5,000 per family limit on dependent care FSA reimbursements will apply. (For tax purposes, marital status on Dec. 31 determines marital status for the entire tax year.) If this change in marital status means the couple has contributed more to their dependent care FSAs than is allowed, the additional taxable income will be reported through their federal income tax form.

Health Savings Accounts

Since same-sex couples are now considered legally married for federal tax purposes, the family limit on health savings account (HSA) contributions will apply. (For tax purposes, marital status on Dec. 31 determines marital status for the entire tax year.) If the spouses have combined contributions to HSAs for 2013 that exceed the maximum, any excess HSA contribution should be distributed from the HSA of one or both spouses by the tax return due date for the spouses.

Overpaid FICA

The IRS has released an updated version of its Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law, which provides additional information (in Questions 21 and 22) on how an employee and employer can recover overpaid FICA and federal income tax. Additional information on how to handle these overpayments is provided in a Compliance Center Alert we issued in September 2013.

Additional Medicare Withholding For High Earners

Dec 09, 2013

The Internal Revenue Service (IRS) published Final Regulations on the Additional Medicare Tax (AMT) on Nov. 29, 2013, and an updated and comprehensive FAQ on Dec. 2, 2013. There are few changes from the proposed requirements. In summary:

  • The requirement for additional withholding was effective Jan. 1, 2013.
  • The requirement applies to all employers, regardless of size or grandfathered status. Private, government and not-for-profit employers all must withhold the tax.
  • The employer must withhold an additional 0.9 percent of the employee's share for Medicare/Hospital Insurance (from 1.45 percent to 2.35 percent) once the employee's wages exceed $200,000.
  • The employer is not required to - and should not - match this additional 0.9 percent.
  • The additional 0.9 percent is not capped.
  • The additional withholding applies to wages over $200,000, beginning in the pay period the $200,000 threshold is met.
  • Married employees must be treated as separate individuals.

Example: Bob and Beth both work for Acme. They each make $150,000. Even though they will owe the AMT because their household income exceeds $250,000, Acme should not withhold AMT because neither individually earns over $200,000. (Bob and Beth can request additional withholding by filing a W-4.)

  • All wages that are currently subject to Medicare tax are also subject to the AMT (such as imputed income).
  • The additional amount withheld for AMT will be reported with other Medicare withholding in Box 6 of the W-2.
  • The AMT withheld will be reported on a new line 5d on Form 941, 941-PR or 941-SS. "Regular" Medicare tax should be reported on line 5c.
  • There is no obligation to notify high earners of additional withholding.
  • A similar requirement applies to self-employed taxpayers once their income exceeds $200,000. If the taxpayer has both wages and self-employment income, those amounts are combined.
  • Wages of employees who work for related employers are combined only if the employers use a common paymaster.
  • The final regulations clarify that in general over-withholding or under-withholding of the AMT should be handled the same as over-withholding or under-withholding of any other payroll tax. Employer-initiated corrections must occur within the same calendar year as the incorrect withholding; if the correction cannot be made during the current calendar year, the employee typically will need to make the correction through an amended income tax return (Form 1040X).

The employee's actual tax obligation is not synchronized with this withholding requirement. The employer is required to withhold on wages in excess of $200,000 regardless of the employee's actual tax situation. Regardless of the amount withheld, the employee will owe the 0.9 percent AMT on wages and other compensation over $200,000 if filing as a single individual, on wages and compensation over $250,000 if married and filing jointly, and on wages and compensation over $125,000 if married and filing single.

Examples:

  • Joe is married and earns $225,000 in 2013. Joe's wife is not employed, so Joe's household income is below $250,000. Even though Joe will not ultimately owe any additional Medicare tax, Joe's employer must withhold the additional 0.9 percent once his 2013 pay reaches $200,000. The additional amount withheld will be credited/refunded to Joe when he files his federal income tax return.
  • Jane is single and earns $180,000 in 2013. She will owe the AMT on her federal income tax because her income is over $125,000. However, Jane's employer cannot withhold AMT for Jane because her income is below the $200,000 threshold. Jane may request that her employer withhold additional amounts by filing a W-4.

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 IRAs 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).

Mental Health Parity and Addiction Equity Act of 2008 - Key Clarifications Made By Final Regulations

Dec 06, 2013

The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) seeks to ensure that medical plans, including group health plans, that provide mental health and substance use disorder benefits do so in a manner that generally is on par with the medical benefits offered under the plans. The MHPAEA applies to both self-insured and fully insured plans sponsored by employers with more than 50 employees. It is worth noting that while the MHPAEA does not require medical plans to cover expenses for mental health or substance use disorder services, plans that must provide "essential health benefits" under the Affordable Care Act (ACA), must include benefits for mental health or substance use disorder services.

On Nov. 13, 2013, the Departments of Labor, Health and Human Services and Treasury together issued final regulations to implement the MHPAEA. Those regulations become effective for plan years beginning on and after July 1, 2014, but until that time, plans must comply with the interim final regulations currently in effect. The final regulations incorporate clarifications issued by the Departments through a number of Frequently Asked Questions (FAQs) since the issuance of the interim final regulations.


The discussion below summarizes some of the key changes the final regulations made to the interim final regulations.

  • Classifications. Under MHPAEA, plans may not impose "a financial requirement or quantitative treatment limitation on mental health and substance use disorder benefits in any classification that is more restrictive than the predominant financial requirement or quantitative treatment limitation that applies to substantially all medical/surgical benefits in the same classification." The interim final regulations set forth that a parity analysis be conducted on a classification-by-classification basis in six specific classifications of benefits: (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency care; and (vi) prescription drugs.

    The final regulations retain these classifications, but also incorporate an enforcement safe harbor announced in one of the FAQs mentioned above. That is, plans may separate outpatient services into two sub-classifications - (1) office visits and (2) all other outpatient services - for purposes of conducting the parity analysis. Sub-classifications not expressly permitted in the final regulations (such as sub-classifications for generalists and specialists) are not permitted. The final regulations also permit sub-classifications for plan designs that include tiered networks.

    The final regulations confirm that the parity analysis be performed within each classification and sub-classification.
  • Nonquantitative Treatment Limitations (NQTLs). The interim regulations provided that mental health or substance use disorder benefits could not be subject to nonquantitative treatment limitations (NQTLs) in a classification (see above) unless, in general, the limitations to which medical/surgical benefits in the same classification are subject are just as stringent. The interim regulations allowed for differences in the application of NQTLs, however, where clinically appropriate standards of care permitted a difference. The final regulations eliminated this exception because the Departments believe that it created confusion and that there is enough flexibility in the general rule.
  • Measuring Plan Benefits. Because the Departments believe that group health plans have become familiar and experienced with implementing the numerical standards in the interim final regulations, they have retained them in the final regulations. Those standards are the two-thirds "substantially all" standard and the "predominant" standard which was quantified to mean more than one-half of medical/surgical benefits in the classification subject to the financial requirement or quantitative treatment limitation. The final regulations clarify, however, that a plan is not required to perform the parity analysis each plan year unless there is a change in plan benefit design, cost-sharing structure, or utilization that would affect a financial requirement or treatment limitation within a classification (or sub-classification).
  • Coordination with the Affordable Care Act.
    • Lifetime and annual limits. The MHPAEA allows for lifetime and annual dollar limits on mental health and substance use disorder services. However, the ACA generally prohibits such limits with respect to essential health benefits. So, when mental health and substance use disorder services are provided as essential health benefits, they cannot be subject to those limits.
    • Preventive services. The interim final regulations provide that if a plan provides mental health or substance use disorder benefits in a classification, such benefits must be provided in every classification in which medical/surgical benefits are provided. Preventive services under the ACA, which must be provided under non-grandfathered plans, include a range of services such as depression and alcohol screenings. Many expressed concern to the Departments that complying with the ACA preventive service requirements would in effect require those plans to provide the full range of benefits for mental health or substance user disorder benefits under the MHPAEA. The Departments agreed and the final regulations provide that plans which provide mental health or substance use disorder benefits only to the extent required to meet the ACA requirements for preventive services, are not required to provide additional mental health or substance use disorder benefits in any classification.
  • Disclosure Requirements. The final regulations remind plans that compliance with the MHPAEA's disclosure requirements is not determinative of compliance with any other provision of applicable Federal or State law. For group health plans, it is critical that plan administrators make sure that they comply with the ERISA disclosure requirements. For example, a section of ERISA requires that, upon written request from a participant, a plan administrator must disclose the plan instruments under which the plan is established or operated. Those instruments include documents with information on medical necessity criteria for both medical/surgical benefits and mental health and substance use disorder benefits, as well as the processes, strategies, evidentiary standards, and other factors used to apply an NQTL with respect to medical/surgical benefits and mental health or substance use disorder benefits under the plan. Note also that together with the final regulations, the Departments issued additional FAQs which, in part, seek comments on ensuring greater transparency and compliance.
  • Employee Assistance Programs. Commenters questioned whether benefits under an employee assistance program (EAP) are considered to be excepted benefits and, therefore, not subject to the MHPAEA. The Departments intend to amend existing "excepted benefits" regulations to provide that benefits under an EAP are considered to be excepted benefits, but only if the program does not provide significant benefits in the nature of medical care or treatment. Such EAPs will not be subject to MHPAEA or the final regulations.

Compliance with the MHPAEA could begin as early as July 1, 2014, for plans with plan years beginning on that date. For calendar year plans, the compliance date is Jan. 1, 2015. Employers will need to start reviewing their plans ensure MHPAEA compliance, but must continue to comply with the interim final regulations until that time.

COMPLIANCE RECAP November 2013

Dec 02, 2013

November brought several developments of interest to group health plans.

Health FSAs

Health flexible spending accounts (FSAs) may now allow participants to carry over up to $500 in unused contributions to the next plan year. This feature is optional, and will not affect the $2,500 an employee is allowed to contribute to a health FSA each year. Read more: FSA Carryover

Transition to PPACA Compliant Policies

On Nov. 14, President Obama announced that the federal government will not enforce most of the 2014 PPACA requirements if a small group or individual policy that was in place on Oct. 1, 2013, is renewed between now and Oct. 1, 2014. Because state insurance departments also oversee insurance policies, the states also must agree to this non-enforcement, and several (including Massachusetts, Minnesota, New York, Rhode Island, and Washington) have said they will not allow this. Additionally, insurers may, but are not required to, reverse cancellations and continue to renew existing policies under the current rules well into 2014. Therefore, this option will be available to a limited number of individuals and employers. Read more: Extension Announcement

Revised Dates for Open Enrollment in the Health Marketplaces/Exchange and Individual Penalties

The White House and HHS have announced that individuals who enroll in the marketplace by Dec. 23, 2013, will be eligible for coverage as of Jan. 1, 2014. (The original deadline was Dec. 15.) Open enrollment for 2014 coverage will remain open until March 31, 2014. However, because time is needed to process applications, coverage elected in late March will not be effective until May 1, 2014. HHS has issued a Q&A that says the 2014 individual mandate penalty will not be applied to people who enroll in the health marketplace by March 31, 2014. (This extension does not apply to coverage purchased outside the marketplace. However, there is an extension to obtain coverage until the start of the plan year for employees and dependents that are eligible for coverage through an employer that has a non-calendar year plan.) Open enrollment for 2015 has been changed to Nov. 15, 2014, through Jan. 15, 2015.

Transitional Reinsurance Fee

HHS has said that it intends to propose that the reinsurance and administration portion of the transitional reinsurance fee will be collected at the beginning of the year and the treasury portion of the fee at the end of the year. This would seem to mean that about $52.50 of the $63 per covered person fee for 2014 will be due in January 2015 and the remaining $10.50 in late 2015.

Additional Coverage Considered Minimum Essential

Non-citizens who are legally in the U.S. are required to have health coverage, or the individual mandate penalty will apply. HHS will allow coverage through a foreign plan to be considered minimum essential coverage if the foreign plan covers services provided in the U.S. Similarly, while U.S. citizens who are abroad generally must have minimum essential coverage, coverage under a foreign policy will be treated as minimum essential coverage. An employer/plan sponsor that offers this type of coverage must provide a notice to affected U.S. employees stating that the coverage is considered minimum essential coverage and include it in its information reporting to the IRS. (A model notice is not available.)

HHS has also clarified that employer-sponsored coverage will be considered minimum essential coverage for non-employee business owners covered under the plan (such as sole proprietors, LLC members and partners) and their covered dependents. While this interpretation is not surprising, the employer/plan sponsor must provide a notice to affected owners stating that the coverage is considered minimum essential coverage and include it in its information reporting to the IRS.

Annual Limits

Many employee benefit limits and the Social Security wage base are automatically adjusted each year for inflation. The IRS and the Social Security Administration have provided updated annual amounts for 2014. Because inflation is relatively low and some amounts are adjusted only if the increase meets a minimum, many amounts are unchanged for 2014. Read more: 2014 Cost of Living

Reminder

The COBRA election notice has been updated to include information about the health marketplace. (While COBRA will still be available after the marketplaces begin to provide coverage, many COBRA participants may find that the marketplaces provide a more affordable alternative, in part because of the availability of premium subsidies to those who qualify.) All other COBRA notices are unaffected. The Department of Labor has provided an updated Model Election Notice.

Question of the Month

Are the requirements for reporting health costs on W-2s the same for 2013 as they were for 2012?

Yes. The exemptions that were in effect for 2012 reporting remain in effect for 2013. This means that employers that filed fewer than 250 W-2s in 2012 are not required to show the cost of the employee's health coverage on their 2013 W-2 (issued in January 2014). Multiemployer plans also are not required to report on employees who have coverage through a collectively bargained multiemployer plan (although they will need to report the cost of coverage for employees for whom the employer directly provides coverage if it issued 250 or more W-2s in 2012.) Reporting on health reimbursement arrangements (HRAs) also remains optional.

2014 Cost-of-Living Adjustments

Nov 07, 2013

Many employee benefit limits are automatically adjusted each year for inflation (this is often referred to as an "indexed" limit). The Internal Revenue Service and the Social Security Administration have released the indexed figures for 2014. Because inflation is relatively low and some amounts are adjusted only if the increase meets a minimum, many amounts are unchanged for 2014. Please see the attached 2014 IRS Limits Reference Card for details.

Limits of particular interest to employers include the following.

For Health and Section 125 plans:

  • The health flexible spending account maximum employee contribution remains at $2,500
  • The maximum out-of-pocket limit that applies to all non-grandfathered plans will be $6,350 per individual and $12,700 per family
  • The minimum deductible for a high deductible health plan coupled with a health savings account (HSA) remains at $1,250 per individual and $2,500 per family
  • The maximum out-of-pocket for a high deductible health plan coupled with a health savings account (HSA) will increase to $6,350 per individual and $12,700 per family
  • The maximum HSA contribution will increase to $3,300 for individual coverage and $6,550 for family coverage. The catch-up contribution (available to those aged 55 and older) remains at $1,000

For qualified plans:

  • The annual deferral for 401(k), 403(b), and 457(b) plans remains at $17,500
  • The catch-up contribution limits (available to those aged 50 and older) remains at $5,500
  • The threshold for "highly compensated employees" remains at $115,000
  • The threshold for an officer to have "key employee" status will increase to $170,000
  • The annual compensation limit will increase to $260,000

Social Security/Medicare Withholding:

  • The taxable wage base will increase to $117,000
  • The OASDI tax rate remains at 6.2%
  • The Medicare tax rate remains at 1.45%
Read more (pdf)...

IRS Announces Changes to Health FSA “Use-it or Lose-It” Rule Allowing Rollover of Funds

Nov 04, 2013

The IRS released Notice 2013-71 on November 1st that offers option for participants to rollover up to $500 at end of plan year instead of a 2.5-month grace period in which to spend down their FSAs. The notice provides that money carried over can be used for the old or new plan year.

Employers make the choice to either offer the 2.5-month grace period OR the $500 rollover option. And, you can amend your 2013 (current plan) to allow the rollover option before December 31, 2013. If you don't have a calendar year plan, you may amend your existing plan any time prior to the end date.

What you Need to Know:

  • Applies to 2013 plan years and of course the 2014 plans.
  • Applies only to health FSAs; Daycare FSAs still have the use it or lose it rule.
  • Groups with existing FSAs that want to replace the 2.5-month grace period with this new rollover option will need to amend the plan.
  • Does not affect the $2,500 maximum contribution currently in place. In other words, the employee could contribute $2,500 in 2014, carryover $500 from 2013, giving them $3,000 for the 2014 plan year.
  • The $500 rollover may be used for expenses incurred in the new plan year (e.g., 2014) as well expenses from the previous plan year. The notice creates more flexibility and more time for participants to spend their flex dollars. They are no longer limited to just 2.5 months.
  • Employer is not required to offer the carryover or the 2.5-month grace period.

Please contact your e3 Financial Service team with any questions regarding your plan.

COMPLIANCE RECAP September - October 2013

Oct 24, 2013

Because of the government shutdown, very little has been issued in the way of regulations or notices during October. Several items of interest to group health plans were released in September, however.

New PPACA Information

HRAs

The Internal Revenue Service (IRS) and the Department of Labor (DOL) issued a notice that clarifies that standalone health reimbursement arrangements (HRAs) generally will not be permitted after the 2013 plan year. HRAs that are integrated with group health plans will still be allowed.

For additional information, go HERE

Reporting Requirements

The IRS issued proposed regulations on the reporting that will be needed to allow the government to determine who owes an individual mandate or an employer-shared responsibility penalty. Reporting will begin in early 2016, based on coverage during 2015.

It appears that separate reports will be needed for the individual and employer obligations. Insurers will be responsible for reporting on the individuals they cover (even though the coverage is provided through an employer) for purposes of the individual mandate. Plan sponsors will report this information for self-funded plans. Large employers, whether their plan is fully insured or self-funded, will be responsible for the reporting needed with respect to the employer-shared responsibility ("play or pay") penalty.

For additional information, go HERE

Health Marketplaces

The health marketplaces (also known as the exchanges) began open enrollment on Oct. 1. Open enrollment for 2014 will run through March 31, 2014. Coverage will begin on Jan. 1, 2014 if the person enrolls by mid-December 2013 and as of the first of the following month if the person enrolls after that date (with cut-off dates to allow processing time). Premium tax credits (also known as subsidies) are only available through the public exchanges.

For additional information, go HERE

The press is now reporting that the federal government will be making a few changes in how marketplace enrollment synchronizes with the individual mandate, so that a person can enroll in marketplace coverage as late as March 31, 2014 without having to pay penalties for the first part of 2014. We will provide additional details as they become available.

New Information Outside of PPACA

DOMA

The DOL announced that for purposes of employee benefit plans it will join the IRS in recognizing a same-sex marriage if it was legal where performed, even if the couple is now living in a state that does not recognize same-sex marriages. The IRS provided a process for employers and employees to follow to recover FICA taxes paid on an after-tax basis.

For additional information, go HERE and HERE

Frequently Asked Questions

Q1: When must a plan meet the new eligibility waiting period requirements?

A1: Plans may not impose a waiting period longer than 90 days as of the start of the 2014 plan year. So, a plan with a June 1 plan year does not need to meet the waiting period requirement until June 1.

Q2: How will the new waiting period requirement work?

A2: The waiting period limit is fully effective as of the start of the 2014 plan year. This means that starting on that date an employee may not be required to wait more than 90 days from his eligibility date to enroll, even if he was hired under the old plan terms.

Example: Acme has a calendar year plan, so it must meet the 90 day waiting period limit as of Jan. 1, 2014. Acme currently has a 6 month waiting period. Sam was hired on Sept. 15, 2013. Sam must be offered coverage as of Jan. 1, 2014 (rather than 6 months after Sam's start date) since Sam will have completed 90 days of service as of Jan. 1.

Read more (pdf)...

Frequently Asked Questions About the Health Marketplace/ Exchange

Sep 25, 2013

The health marketplaces (which are also called the exchange) are scheduled to open Jan.1, 2014. Most Americans will be eligible to enroll in the marketplace, and many will be eligible for assistance paying the premium. Each state will have its own marketplace. About one-third of the states will run the marketplace themselves and the federal government will run the marketplace on behalf of the state in the remaining two-thirds of the states.

Enrolling in the Marketplace

Q1: When is open enrollment for the marketplace?

A1: The first open enrollment will be from Oct. 1, 2013 - March 31, 2014. Coverage will begin on Jan. 1, 2014 for those enrolling by mid-December 2013. Coverage will begin on the first of the following month for those enrolling between mid-December 2013 and the end of March 2014. (For years after 2014, annual open enrollment for individuals will be from Oct. 15 - Dec. 7, with a Jan. 1 effective date.)

Q2: May a person who misses open enrollment enroll in a marketplace plan mid-year?

A2: Mid-year enrolments will only be allowed if the person has a special enrollment event. The person must request coverage within 60 days1 after the triggering event. Special enrollment events are:

  • Marriage, birth, adoption, placement for adoption, or placement in foster care
  • Loss of eligibility for minimum essential coverage
  • Becoming eligible or ineligible for the premium subsidy or cost-sharing subsidies
  • Moving into a new marketplace region
  • Becoming eligible for marketplace coverage as a result of becoming a citizen, national, or lawfully present individual

Q3: May a person in a marketplace plan voluntarily terminate marketplace coverage during the year?

A3: Yes. A person may drop their marketplace coverage during the year with 14 days' notice.

Eligibility for Marketplace Coverage

Q4: Who may enroll in the marketplace?

A4: All U.S. citizens, nationals and others who are lawfully present (e.g. in the U.S. on a visa) may enroll in the marketplace. People who are eligible for Medicaid or CHIP will be enrolled in those programs, rather the marketplace coverage, however.

Q5: May a person who is eligible for Medicare enroll in the marketplace?

A5: Yes, but a person may not have both Medicare and marketplace coverage.

Q6: May a person enroll in both employer and marketplace coverage?

A6: Yes. Coordination of benefits would be based on the terms of the plans. (Marketplace policies are considered individual policies unless provided through a small business health options program (SHOP) marketplace.)

Eligibility for Premium Subsidies

Q7: Who is eligible for a premium subsidy?

A7: A person is eligible for a premium subsidy if the person meets all of these requirements:

  • Purchases coverage through the government marketplace
  • Has a household modified adjusted gross income between 100 or 133 percent (depending on their state) and 400 percent of Federal Poverty Level (FPL)
  • Is not eligible for minimum essential medical coverage through a government program such as Medicare, Medicaid or CHIP or through employer-provided coverage that both is minimum value2 and affordable3
  • Has not purchased employer-provided coverage (regardless whether it is affordable and minimum value)
  • Is a U.S. citizen, national or alien lawfully present in the U.S. (e.g., on a visa)
  • Is not eligible to be claimed as another person's tax dependent
  • Files a tax return (if married, a joint return must be filed)

Q8: How does a person apply for a premium subsidy?

A8: When a person applies for marketplace coverage he will be screened for possible eligibility for the premium subsidy (or Medicaid). If the person may be eligible for a subsidy he will complete an application that includes information about income and access to affordable, minimum value coverage through an employer. The marketplace will contact the employer to verify that the employee's information is accurate. Employers will be encouraged, but not required, to respond to these verification requests.

Determining the Premium Subsidy Amount

Q9: How large is the premium subsidy?

A9: The amount of the premium subsidy depends on the person's household income. The percentage of income a person will be expected to pay for coverage ranges from two percent for someone whose income is 100 to 133 percent of FPL to 9.5 percent for someone whose income is 300 to 400 percent of FPL. Basically, the marketplace will look at how much a specific silver (70 percent value) plan costs in the marketplace and determine how much of that cost the person should pay based on their income.

Q10: What is Federal Poverty Level?

A10: For 2013 Federal Poverty Level (FPL) in the 48 contiguous states is $11,490 for a single household and $23,550 for household of four. It is $14,350/29,440 in Alaska and $13,230/27,090 in Hawaii.

Q11: How is household income determined?

A11: Household income essentially is the modified adjusted gross income, plus untaxed Social Security and investment income, of everyone listed as a spouse or dependent on the person's tax return.

Q12: How are adult children handled?

A12: Tax filing status controls. This means, for example, that if a 24-year old child is covered by the employee's health plan, but the child is employed and files his own tax return, the child's income will be disregarded for purposes of determining the employee's household income. In contrast, if the 24-year old was a student claimed as a tax dependent by the employee, the child's income would be added to the household income.

Q13: How is the premium subsidy calculated?

A13: The premium subsidy amount is based on the cost of coverage in the marketplace, not the cost of employer-provided coverage. The subsidy decreases as the person's income increases, using the following table. (A sliding scale, rounded to the nearest one-hundredth of one percent, applies between the minimum and maximum percentage.)

Household income as a percent of FPL Applicable Percentage
Minimum percentMaximum percent
Up to 133 percent2.02.0
133 - 150 percent3.04.0
150 - 200 percent4.06.3
200 - 250 percent6.38.05
250 - 300 percent8.059.5
300 - 400 percent9.59.5

The applicable percentage is multiplied by the person's household income to determine his required share of premiums for the second least expensive silver plan in the marketplace.

Q14: Does employer-provided coverage affect eligibility for the premium subsidy?

A14: Yes. An employee (or dependent) is not eligible for a premium subsidy if either:

  • The person is eligible for affordable, minimum value coverage through an employer
  • The person purchases employer-provided coverage even if that coverage is not affordable and minimum value

Receiving the Premium Subsidy

Q15: How is the premium subsidy paid?

A15: The premium subsidy actually is a tax credit that is available in advance. Each month, the government will pay the premium subsidy directly to the insurer. The person will pay his or her share directly to the insurer.

Everyone who receives a premium subsidy must file a federal income tax return. The tax return will be used to true-up the amount of subsidy the person received and the amount they were entitled to. If the subsidy was too large the person will have to pay extra tax (to a maximum). If it was too small, the person will get a refund.

Q16: What is the most a person would have to repay if they received a premium subsidy that is too great?

A16: The maximum amount an individual who received too great a subsidy would repay is:

  • $300 if filing single and $600 if filing other than single if household income is less than 200 percent of FPL
  • $750 if filing single and $1,500 if filing other than single if income is 200 percent up to 300 percent of FPL
  • $1,250 if filing single and $2,500 if filing other than single if income is 300 to 400 percent of FPL

Q17: Can a person get the premium subsidy amount adjusted during the year?

A17: Yes. Recipients will be encouraged to notify the marketplace of mid-year changes in income and number of dependents that might impact the amount of subsidy the person is eligible for.

Q18: Is a new employee eligible to receive a premium subsidy during the plan's eligibility waiting period?

A18: Yes.

Special Issues for Non-Calendar Year Plans

Q19: Is eligibility for the marketplace a Section 125 change in status event?

A19: Eligibility for the marketplace is not a Section 125 change in status event. However, employers with non-calendar year plans have the option to amend their Section 125 plan to treat the new availability of the marketplace as a one-time change in status event and allow the employee to drop coverage as of Jan. 1, 2014.

Q20: Should an employer amend its Section 125 plan to allow employees to terminate plan coverage to enroll in the marketplace?

A20: Each employer will need to decide whether it wants to encourage employees to enroll in the marketplace. Employers that wish to encourage marketplace enrollment will likely want to amend their Section 125 plan to allow for this. Employers that prefer that their employees remain in their plan likely will not want to amend their section 125 plan to allow employees to move to marketplace coverage.

Q21: Is the individual responsibility requirement a change in status event?

A21: The requirement that people have health coverage or pay penalties is not a Section 125 change in status event. However, employers with non-calendar year plans have the option to amend their Section 125 plan and health plan to allow employees who had previously declined coverage during open enrollment for the 2013 - 2014 plan year to enroll in the plan as of Jan. 1, 2014.

Q22: Should an employer with a non-calendar year plan amend its Section 125 plan to allow employees to enroll in the plan as of Jan. 1, 2014?

A22: Each employer will need to decide whether it wants to encourage employees to enroll in its plan. Employers that are considering offering a one-time enrollment opportunity should verify with their insurance or stop-loss carrier that this is acceptable to the carrier. Employers also should be aware that the individual responsibility penalty will not apply to employees who are eligible for coverage through a non-calendar year plan until the start of the 2014 plan year.

Q23: If a plan is on a non-calendar year plan, is the plan renewal date a special enrollment event for marketplace coverage?

A23: No, a plan renewal that occurs other than on Jan. 1 is not a special enrollment event since the employee remains eligible for employer-provided coverage.

Note: The combination of the rules described in Questions 3 and 23 means that it will be simple for an employee to move from marketplace coverage to employer-provided coverage at plan open enrollment if the employee wishes to do that. An employee who wishes to move to marketplace coverage likely will need to pay premiums for plan coverage on an after-tax basis so that he can drop plan coverage mid-year and move to the marketplace plan as of January 1.

Q24: If an employer wants to amend its Section 125 plan to treat the marketplace and/or individual responsibility requirement as a change in status event, when is the amendment due?

A24: The IRS has provided an extended amendment period, so employers have until Dec. 31, 2014 to prepare and sign the plan amendment.

1 30 days in the SHOP marketplace

2 Minimum value means the plan has an actuarial value of at least 60 percent (is expected to cover at least 60 percent of claims)

3 Affordable, for purpose of the premium subsidy, means the cost of single coverage is not more than 9.5 percent of household income

PPACA Summary Charts for Small & Large Group Insured Plans and Self-Insured Plans

Sep 24, 2013

As you know, PPACA brings numerous responsibilities and options to employers. We have attached three separate compliance alerts for your review. Each of the three attachments above includes a summary of the PPACA requirements applicable to:

  • Self-funded plans of all sizes
  • Small insured plans
  • Large insured plans
Read more (pdf)...

DOL Announces Non-Enforcement of Marketplace/ Exchange Notice

Sep 12, 2013

As many of you know, PPACA requires employers covered by the Fair Labor Standards Act to provide a notice about the upcoming health marketplaces (also called exchanges) to their employees. The notice is due Oct. 1, 2013. On Sept. 11, 2013 the Department of Labor (DOL) announced that it will not penalize employers that do not provide this notice. As a practical matter, this means that providing the notice is now optional.

Employers that have already provided the notice do not need to do anything - it is fine to provide the notice. The change simply is that the DOL will not penalize employers that fail to provide the notice.

Employers that have not yet provided the notice may either distribute the notice or not, as they prefer. Employers that want to increase awareness of the marketplace (perhaps because they expect that some of their employees will need or want to purchase from the marketplace) may still want to provide the notice. Employers with complicated distribution situations, or that are concerned that the notices may generate questions the employer is not staffed to answer, may prefer to not distribute the notice.

The FAQ may be accessed at this link:
Frequently Asked Question - Notice of Coverage Options

IRS Issues Rules on Same-Sex Marriages

Sep 05, 2013

On Aug. 29, 2013, the IRS issued Revenue Ruling 2013-17, which describes how the IRS will handle same-sex marriages for federal tax purposes in light of the U.S. Supreme Court decision that found a part of the Defense of Marriage Act (DOMA) unconstitutional. The ruling says:

  • The IRS will consider a person in a same-sex marriage as married if they were legally married in any state, territory, or foreign country, even if the couple is currently living in a state that does not recognize same-sex marriage. 
  • The IRS will not consider a person in a same-sex (or opposite sex) civil union or domestic partnership, even if a "registered" domestic partnership, as "married." 
 
This ruling means that employers must allow employees in same-sex marriages to pay the premiums of their covered same-sex spouses (and eligible dependent children) on a tax-favored basis. This needs to occur regardless of whether the employer or employee is located in a state that recognizes same-sex marriage. Employers that have been imputing income for the cost of the same-sex spouse's coverage should discontinue that practice. Employers that use a Section 125 cafeteria plan should allow premiums for same-sex spouses to be paid on a pre-tax basis.
 
Employers still must impute income on, or require after-tax payment for, premiums to cover the partner of an employee who is in a civil union or a domestic partnership because these individuals are not literally legally "married."
 
Employers may make needed adjustments in tax withholding for 2013 (but not prior years) until the end of this year. Employees generally may file for refunds of premiums paid on an after-tax basis, or for which income was imputed, for the prior three years, by filing a Form 1040X. Employers may file for a refund of over-withheld payroll taxes for open years. The IRS will provide details of a streamlined refund process for employers at a later date.
 
Future government releases will address other benefits aspects of this decision.
 
Revenue Ruling 2013-17 is available at http://www.irs.gov/pub/irs-drop/rr-13-17.pdf
 
An FAQ developed by the IRS is available at
http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Couples

PPACA Exchange Notice

Aug 14, 2013

PPACA Exchange Notice

The Patient Protection and Affordable Care Act of 2010 (PPACA) requires employers to provide employees with written notice of availability of the Exchanges and related information.

Who must provide the notice?

All employers that are subject to Federal Labor Standards Act

  • Generally, the FLSA applies to employers who are engaged in interstate commerce and have gross annual sales of $500,000 or more
  • “Engage in interstate commerce” is any regular contact with interstate, no matter how small. Activity must solely be local activity to avoid “engaging in interstate commerce.”
  • DOL provided tool to determine FLSA applicability:
    www.dol.gov/elaws/esa/flsa/scope/screen24.asp

Who must receive the notice?

  • Full-time and part-time employees
  • Employees covered by employer health plan and employees not covered by the employer health plan
  • No separate Notice required to dependents and spouses
  • Not required to provide Notice to retirees

What information must be included in the notice?

Employees must be:

  • Informed of the existence of the Exchanges
  • Provided a description of the services provided by the exchange
  • Told how to contact the Exchange
  • Informed whether employees may be eligible for a subsidy if they purchase insurance through the Exchange
  • Informed they may lose employer contributions if they purchase insurance through the Exchange
  • Told employer contributions to the employer health plan are excludable for federal income tax purposes

The model notices are recommended for use by our ERISA attorneys in order to comply with the above notice requirements. Model Notice attached for use.

Please explain the different sections of the model exchange notice?

Part A: General exchange, tax and economic information.

  • Informed of the existence of the Exchanges
  • Provided a description of the services provided by the exchange
  • Told how to contact the Exchange

Part B: Employer specific information

Recommended to complete this section in entirety

  • Employer contact name, phone number and email
  • Health plan information about who is covered, dependent coverage, wellness coverage (premium impact)
  • If the plan meets the minimum value standard. Please use attached Minimum Value Calculator to determine.
  • Whether the employer intends the coverage to be affordable based upon the wages of the recipient

Optional Section:

  • This section mirrors the Exchange Employer Coverage Tool and can be completed to assist employees to understand their coverage choices

When must the notice be provided?

  • Current employees – no later than October 1, 2013
  • New hires – within 14 days of date of hire
  • One-time Notice

Delivery of Notice

PPACA and the Individual Shared Responsibility Requirement

Aug 08, 2013

Although the employer shared responsibility requirements have been delayed to 2015, the individual responsibility requirement (also known as the individual mandate) is still scheduled to take effect in 2014. Under the individual mandate, most people residing in the U.S. will be required to have minimum essential coverage, or they will have to pay a penalty. Many individuals will be eligible for financial assistance, through premium tax credits (also known as premium subsidies), to help them purchase coverage if they buy coverage through the health insurance marketplace (also known as the exchange).

This PPACA Advisor simply provides information that employers may find helpful; employers are not required to educate employees about their individual responsibilities under the Patient Protection and Affordable Care Act (PPACA).

General Information

The individual mandate is effective for most people as of Jan. 1, 2014. However, if the individual has access to minimum essential coverage through an employer, and that employer's plan operates on a non-calendar year basis, the employee and/or dependent will not have to pay penalties for the months before the start of that plan year.

For 2014 the penalty for an adult is the greater of:

  • $95
  • One percent of household income above the tax filing threshold
  • The penalty for a child under age 18 is 50 percent of the adult penalty. The maximum penalty per family is three times the individual penalty. The penalty amount increases after 2014.
  • The penalty will be calculated and paid as part of the employee's federal income tax filing.

Eligibility for Premium Subsidies

To help lower-income people meet the requirement to have insurance, a premium subsidy will be available to a person who:

  • Purchases coverage through a public marketplace/exchange; and
  • Has a household modified adjusted gross income between 100 or 133 percent (depending on their state) and 400 percent of Federal Poverty Level (FPL); and
  • Is not eligible for minimum essential medical coverage through a government program such as Medicare, Medicaid or CHIP or for employer-provided coverage that both is minimum value (is expected to cover at least 60 percent of claims) and affordable (the cost of single coverage is not more than 9.5 percent of household income).

The amount of available premium subsidy depends on the person's household income. The percentage of income a person will be expected to pay for coverage ranges from two percent for someone whose income is 100 to 133 percent of FPL to 9.5 percent for someone whose income is 300 to 400 percent of FPL. Basically, the marketplace/exchange will look at how much a specific silver (70 percent value) plan costs in the marketplace/exchange and determine how much of that cost the person should pay based on their income. The person will directly pay his or her share to the insurer and the government will pay the rest directly to the insurer.

The government payment of the premium subsidies is considered an advance tax credit, so when the person files his or her federal income tax return after the end of the year there will be a true-up, and the employee will pay extra tax (to a maximum) or get money back if the monthly subsidies/credits were too large or too small.Individuals with incomes below 250 percent of FPL also will be eligible for help with deductibles, coinsurance and co-pays.

A person who applies for a premium subsidy will be required to provide information about coverage available through other sources than the marketplace/exchange as part of the application process. If the person says that coverage is available through his employer (or his or her spouse's employer), the marketplace/exchange will contact the employer to verify that the employee's information is accurate. Employers will be encouraged, but not required, to respond to these verification requests. With the delay in the employer reporting requirements, it is unclear how the marketplace/exchange will verify if the person has access to affordable, minimum value through an employer during 2014 if the employer does not respond to the request. At this time, it appears the IRS will primarily rely on the taxpayer's reluctance to misrepresent his status on both the application and federal income tax return. The IRS does have the right to audit both the employer and individual. The marketplace/exchanges must provide detailed information about people obtaining coverage and premium subsidies to the IRS, which may be a method of determining candidates for audits.

Exempt Individuals

While most people must obtain coverage or pay penalties, individuals in these situations will not be penalized if they do not obtain coverage:

  • They do not have access to affordable coverage (cost exceeds 8 percent of modified adjusted gross household income)
  • Their household income is below the tax filing threshold
  • They meet hardship criteria (e.g., recent bankruptcy, homelessness, unreimbursed expenses from natural disasters)
  • Their period without coverage is less than three consecutive months
  • They live outside the U.S. long enough to qualify for the foreign earned income exclusion
  • They reside in a U.S. territory for at least 183 days during the year
  • They are a member of a Native American Tribe
  • They belong to a religious group that objects to having insurance, including Medicare and Social Security, on religious grounds (e.g., Amish)
  • They belong to a health sharing ministry that has been in existence since 1999
  • They are incarcerated (unless awaiting trial or sentencing)
  • They are illegal aliens

When considering affordability for purposes of exemption from the individual mandate, if the person has access to employer-provided coverage as either the employee or an eligible dependent, affordability of the employer-provided coverage is the only factor considered.

  • For the employee, coverage is so unaffordable that no penalty applies for failure to have coverage if the cost of single coverage is more than eight percent of household income
  • For a dependent, coverage is so unaffordable that no penalty applies for failure to have coverage if the cost of the least expensive employer-provided dependent coverage is more than eight percent of household income
  • If the employee and spouse both have access to coverage through their own employer, the cost for each person's coverage is based on the cost of their own single coverage, but the totals are then combined to see if the total cost exceeds eight percent of household income
  • This means that there will be situations in which the employee has to pay a penalty, but family members do not. It also means that a while a low-income person could choose not to purchase coverage (and pay no penalty), he or she also has the option to purchase through the exchange and receive a premium subsidy.
  • If the person does not have access to employer (or other non-marketplace/exchange) coverage, the measure of unaffordability is the person's premium after the premium subsidy is applied to the lowest cost bronze plan available through the marketplace/exchange.

Note: PPACA defines "affordability" differently based on the situation - affordability for purposes of the individual responsibility requirement is based on eight percent of household income; affordability for purposes of the premium subsidy is based on 9.5 percent of household income; and affordability for purposes of the employer shared responsibility requirement (now delayed to 2015) is based on 9.5 percent of the employee's safe harbor income.

The IRS has issued a FAQ about the individual mandate which may be obtained here: Questions and Answers on the Individual Shared Responsibility Provision

Noteworthy Numbers and Other Details:

For 2013:

The tax filing threshold is $10,000 if filing single and $20,000 if married and filing jointly.

Federal Poverty Level (FPL) in the 48 contiguous states is $11,490 for a single household and $45,960 for household of four. It is $14,350/29,440 in Alaska and $13,230/27,090 in Hawaii.

The subsidy is based on the following table (a sliding scale applies in a linear manner, rounded to the nearest one-hundredth of one percent between the minimum and maximum percentage):

Household income as a percent of FPLApplicable Percentage
Minimum percentMaximum percent
Up to 133 percent2.02.0
133 – 150 percent3.04.0
150 – 200 percent4.06.3
200 – 250 percent6.38.05
250 – 300 percent8.059.5
300 – 400 percent9.59.5

The applicable percentage multiplied by the person's household income determines his required share of premiums for the second least expensive silver plan in the marketplace/exchange.

Household income generally includes the income of all individuals in the tax household (e.g., the income of employed children is considered unless the child files his/her own tax return).

The maximum amount an individual who received too large a subsidy would repay is $300 if filing single and $600 if filing other than single if household income is less than 200 percent of FPL; $750/$1,500 if income is 200 percent up to 300 percent of FPL; and $1,250/$2,500 if income is 300 - 400 percent of FPL.

Additional requirements to be eligible for the premium subsidy are that the person:

  • Is a US citizen, national or alien lawfully present in the U.S. (e.g., on a visa)
  • Is not eligible to be claimed as another person's tax dependent
  • Files a tax return (if married, a joint return must be filed)
  • Has not purchased employer-provided coverage (regardless whether it is affordable and minimum value)

An individual who is exempt from the individual mandate because he or she does not have affordable coverage available also has the option to purchase catastrophic coverage. Premium subsidies are not available for catastrophic coverage.

MLR Rebate Considerations - Private Plans

Jul 23, 2013

As was the case last year, insurers with medical loss ratios (MLRs) that were below the prescribed levels on their blocks of business must issue rebates to policyholders. Insurers must pay rebates owed on calendar year 2012 experience by Aug. 1, 2013. The rules for calculating and distributing these rebates are largely the same this year as they were last year. However, this year insurers will not be sending notices to individuals who are not receiving a rebate.

The guidance provided by the regulatory agencies on how employers should distribute rebates has been fairly general, so employers have some discretion as to how to calculate and distribute the employees' share. These general principles apply:

  • Assuming both the employer and employees contribute to the cost of coverage, the rebate should be divided between the employer and the employee group as a whole, based on the employer's and employees' relative share.

    Employers are not required to precisely determine each employee's share of the rebate, and so do not need to perform special calculations for employees who only participated for part of the year, moved between tiers, etc.

    The employer may pay the rebate only to employees who participated in the plan in 2012 and are still participating, only to current participants (even though the rebate relates to 2012), or to those who participated in 2012, regardless whether they are currently participating.

    Insurers must send a notice to all employees who participated in the plan in 2012 stating that a rebate has been issued to the employer, so employers who choose to limit rebate payments to those who are currently participating should be prepared to explain why the rebate is only being paid to current participants. This might include the fact that since the rebate would be taxable income, the amount involved does not justify the administrative cost to locate former participants and issue a check.

  • The employer may pay the rebate in cash, use it for a premium holiday, or use it for benefit enhancements. The rebate must be applied or distributed within 90 days after it is received.
    A cash rebate is taxable income to the employee if it was paid with pre-tax dollars. A premium holiday should be completed within 90 days after the rebate is received (or the rebate needs to be deposited into a trust).

    Benefit enhancements include reduced copays or deductibles (which may not be practical due to the timing requirements) or wellness-type benefits that the employer would not have offered without the rebate, such as free flu shots, a health fair, a lunch and learn on nutrition or stress reduction, or a nurse line.


  • The employer should consider the practical aspects of providing a rebate in a particular form.

    Generally speaking, the larger the amount that would be due to an individual, the more effort the employer should make to directly benefit the person (either through a cash rebate or premium holiday). While benefit enhancements are permissible, a large rebate should be used to provide a direct benefit enhancement, such as a reduced co-pay, and not for a general benefit, such as flu shots.

    The agencies have not provided any details as to what amount is so small that it does not need to be returned to the employee. (Insurers are not required to issue a rebate check to individuals if the amount is less than $5.00.) A cash rebate is taxable income if the premium was paid with pre-tax dollars, so issuing a check that is very small after taxes should not be necessary. If an employer knows it costs it $2.00 to issue a check, issuing a rebate check for $1.00 should not be necessary.

  • Many plans now state how a rebate should be used. If the plan describes a method, that method must be followed.

IRS Confirms Employer Shared Responsibility (Play or Pay) Requirements Delayed to 2015

Jul 11, 2013

On July 9, 2013 the Internal Revenue Service issued Notice 2013-45, which confirms that the employer shared responsibility penalties and reporting requirements will not apply until 2015. Last week the Department of the Treasury and the White House blogged that this announcement was coming. The IRS Notice states that employers and insurers will not be required to provide reporting of coverage offered to, and elected by, employees for 2014. The Notice states that the employer shared responsibility penalties are also delayed to 2015. As you may recall, these penalties are set at $2,000 per full-time employee for failing to offer minimum essential coverage to 95% of full-time employees, or $3,000 for any full-time employee who receives a premium tax credit/subsidy because the employer did not offer affordable, minimum value coverage and the employee met income and other requirements.

he Notice states that the delay in the employer shared responsibility will not affect the employee's ability to receive a premium tax credit/subsidy. It is currently unclear how the exchange will know if an employee who is applying for a premium tax credit/subsidy is eligible for employer-provided affordable, minimum value coverage. The Notice also says that the delay in the employer shared responsibility requirements will not affect the requirement that an individual obtain minimum essential coverage or pay a penalty. While the employee's obligation to obtain minimum essential coverage remains, in late June the IRS released Notice 2013-42, which provides that if an individual has access to employer-provided coverage and the employer's plan operates on a non-calendar year, the individual will not be subject to the penalty until the start of the employer's plan year.

Unfortunately, the Notice provides few additional details about how this extension will work. For instance, it is unclear whether the play or pay requirements will apply to all plans as of Jan. 1, 2015, or if non-calendar year plans that meet certain requirements will be able to delay compliance until the start of their 2015 plan year.

What The Delay Affects

The play or pay provision requires employers with 50 or more employees to do the following to avoid penalties:

  • Determine whether it employs 50 or more full-time or full-time equivalent employees
  • Consider employees who average 30 or more hours per week full-time for purposes of their health plan
  • Count employees' hours to determine whether they average 30 or more hours work per week
  • Offer minimum value (60%) coverage to full-time employees
  • Offer affordable (less than 9.5% of employee safe harbor income) coverage to full-time employees
  • Because of the delay, employers will not need to meet the requirements listed above for 2014.

What's Still Required

The delay in the play or pay requirement does not affect the insurance market reforms. This means that these requirements are still scheduled to go into effect as of the start of the 2014 plan year (with penalties of up to $100 per person per day for non-compliance). These requirements apply to all plans except as noted:

  • Waiting periods cannot be more than 90 days from the date the employee becomes eligible
  • All pre-existing condition limitations must be removed
  • The out-of-pocket maximum cannot exceed $6,350 for individual and $12,700 for family coverage for non-grandfathered plans
  • Essential health benefits may not have annual dollar limits
  • Grandfathered plans must cover dependent children to age 26 even if the child has access to his/her own employer-provided coverage
  • New wellness program requirements will apply
  • For non-grandfathered small insured plans, whether in or outside the exchange/marketplace, coverage must include the essential health benefits, at the bronze, silver, gold or platinum level, with a deductible in most situations of not more than $2,000 for individual and $4,000 for family coverage
  • For small insured plans, whether in or outside the exchange/marketplace, modified community rating (rating classes are limited to age, tobacco use, family size and geographic area), guaranteed issue and guaranteed renewal (with some limitations) will apply

Employers also must meet these PPACA requirements:

  • Reporting and payment of the PCORI fee by July 31, 2013 for plans that ended Oct. 1, 2012 through Dec. 31, 2012
  • Timely distribution of any MLR rebates the plan may receive
  • Providing a Summary of Benefits and Coverage (SBC) as part of open enrollment (it is currently unclear whether employers will still need to report whether the plan provides minimum value or minimum essential coverage)
  • Distributing the DOL notice regarding the exchange by Oct. 1, 2013 (it is currently unclear whether the content of the notice will be changed because of the delayed application of affordability and minimum value requirements)
  • Reporting health care costs on the employee's W-2 (the exemption for employers that issued fewer than 250 W-2s in the prior year or that contribute to a multiple employer plan will continue for the 2013 W-2)
  • Paying the transitional reinsurance fee, due in January 2015

What's Next

The government stated in the Notice that it is working to simplify various requirements, and expects to issue the reporting regulations later this summer. (The IRS often uses the meteorological definition of summer, which means that many expect these regulations to be released in September.) Final play or pay rules are expected late this year. Employers should be on the lookout for these rules, and other interim guidance that will help explain how the delay will operate. If employers can delay taking action until the reporting regulations are released, they may avoid rework.

While most employers will enjoy the respite from measurement and stability periods, they may want to take this opportunity to think through actions they had planned to make with respect to their plans to manage the play or pay requirements. Also, many parts of PPACA are unaffected by this delay, and employers will need to meet a number of requirements in 2014 despite this delay. We will provide additional details as they become available.

Play or Pay Penalty Delayed to 2015

Jul 03, 2013

On July 2, 2013 the Department of the Treasury and the White House used their blogs to announce that the employer reporting requirements, and the employer shared responsibility/play or pay penalty, are being delayed until 2015. The Treasury said that it will provide a formal announcement and additional details next week.

Background

The employer shared responsibility/play or pay requirement provides that employers with 50 or more full-time or full-time equivalent employees must offer affordable, minimum value coverage to most full-time (30+ hours/week) employees or pay a penalty. That requirement was scheduled to take effect Jan. 1, 2014, although employers that met transition requirements could delay compliance until the start of the 2014 plan year. In addition, extensive reporting was expected to be required regarding the coverage offered to employees. The blogs state that (1) the reporting requirements will be provided later this summer; (2) reporting will not be required until 2015; and (3) since it is not possible to assess or enforce employer penalties without reporting, the play or pay mandate also will be delayed until 2015.

What’s Been Delayed

The play or pay provision requires employers with 50 or more employees to do the following to avoid penalties:

  • Offer minimum essential coverage to 95 percent of full-time employees
  • Offer minimum value (60 percent) coverage to full-time employees
  • Offer affordable (less than 9.5 percent of income) coverage to full-time employees
  • Consider employees who average 30 or more hours per week full-time for purposes of their health plan
  • Count employees' hours to determine whether they average 30 or more hours work per week

Because of the delay, employers will not need to meet these requirements for 2014.

What's Still Required

The delay in the play or pay requirement does not affect the insurance market reforms. This means that these requirements are still scheduled to go into effect as of the start of the 2014 plan year (with penalties of up to $100 per person per day for non-compliance). These requirements apply to all plans except as noted:

  • Waiting periods cannot be more than 90 days from the date the employee becomes eligible
  • All pre-existing condition limitations must be removed
  • The out-of-pocket maximum cannot exceed $6,350 for individual and $12,700 for family coverage
  • Essential health benefits may not have annual dollar limits
  • Grandfathered plans must cover dependent children to age 26 even if the child has access to his/her own employer-provided coverage
  • The new wellness program requirements
  • For small insured plans, whether in or outside the exchange/marketplace, coverage must include the essential health benefits, at the bronze, silver, gold or platinum level, with a deductible of not more than $2,000 for individual and $4,000 for family coverage
  • For small insured plans, whether in or outside the exchange/marketplace, modified community rating (rating classes are limited to age, tobacco use, family size and geographic area), guaranteed issue and guaranteed renewal (with some limitations) will apply

Employers also must meet these PPACA requirements:

  • Reporting and payment of the PCORI fee by July 31, 2013 for plans that ended Oct. 1, 2012 through Dec. 31, 2012
  • Timely distribution of any MLR rebates the plan may receive
  • Providing a Summary of Benefits and Coverage (SBC) as part of open enrollment
  • Distributing the DOL notice regarding the exchange by Oct. 1, 2013
  • Reporting health care costs on the employee’s W-2 (the exemption for employers that issued fewer than 250 W-2s in the prior year or that contribute to a multiple employer plan will continue for the 2013 W-2)
  • Paying the transitional reinsurance fee, due in January 2015

What's Next

The government stated in the delay announcements that the exchanges are still expected to begin open enrollment on Oct. 1, 2013. It is unclear at this point how the delay of the play or pay requirement will affect determination of employee eligibility for subsidies. Presumably the official guidance that Treasury has promised to provide next week will address this issue.

The White House blog is here: We're Listening to Businesses about the Health Care Law | The White House

The Treasury blog is here: Continuing to Implement the ACA in a Careful, Thoughtful Manner

Individual Grace Period

Jul 02, 2013

The past week has brought several developments of interest to employers who sponsor group health plans.

Effective Date for Individual Mandate Delayed For Some People

On June 26, 2013 the IRS unexpectedly issued a notice that gives individuals who are eligible for coverage under an employer-sponsored health plan, but who have not elected coverage under that plan, until the start of the 2014 plan year to enroll in the plan. Employees (and eligible dependents) who elect employer-provided coverage as of the start of the 2014 plan year will not be required to pay the individual shared responsibility penalty for the months in 2014 that they did not have coverage.

Employees who declined coverage for the plan year that starts during 2013 may still enroll in the exchange as of Jan. 1, 2014 and then move to the employer-sponsored health plan as of the start of the 2014 plan year if they wish to. However, as a result of this new notice, if the employee chooses to wait to obtain coverage through his or her employer until the start of the 2014 plan year the employee will not be penalized.

Employers still have the option to amend their Section 125 plan to allow currently covered employees/dependents to move to the exchange as of Jan. 1, 2014 and/or to enroll in the plan as of Jan. 1, 2014. (Employers considering allowing mid-year enrollment should verify that this is acceptable to their insurer or stop loss carrier.)

Notice 2013-42 is available here: http://www.irs.gov/pub/irs-drop/n-13-42.pdf

Spanish Version of Notice of Exchange is Now Available

The DOL has provided Spanish versions of the model notice regarding the exchange/health insurance marketplace. While employers are not specifically required to provide the Spanish version to Spanish-speaking employees, since the notice is supposed to be understandable by the average employee, providing the Spanish version where appropriate is advisable.

There are two Spanish model notices, one for employers who offer group health coverage and one for employers who do not offer coverage. This is the same approach as is used with the English versions.

The notice needs to be given to all employees by Oct. 1, 2013. Presumably this means that anyone on the employer's payroll as of Oct. 1 should receive the notice. The only employers exempt from this requirement are private employers who have annual dollar volume below $500,000. All not-for-profit and governmental employers must give the notice, regardless of size.

The Spanish version of the model notice for employers who offer health coverage is here: http://www.dol.gov/ebsa/pdf/FLSAwithplanssp.pdf

The Spanish version for employers who do not offer health coverage is here: http://www.dol.gov/ebsa/pdf/FLSAwithoutplanssp.pdf

U.S. Supreme Court Finds Part of DOMA Unconstitutional

On June 26, 2013 the U.S. Supreme Court held, in a 5 - 4 decision, that the federal Defense of Marriage Act (DOMA) is unconstitutional because it violates the Equal Protection clause. The part of DOMA that was found to be unconstitutional states that for purposes of all federal laws and regulations, "marriage" must be defined as a legal union between one man and one woman and "spouse" must be a person of the opposite sex who is a husband or wife. In contrast, several states, including New York, recognize same-sex marriages.

The Court basically said that because the states generally have the right to determine issues relating to family matters, and the state of New York had chosen to recognize and protect same- sex marriage, Congress did not have the right to overrule the state and disadvantage a group of people New York had chosen to protect.

It is important to understand that this decision simply says that if the state chooses to recognize same-sex marriages, the federal government must, too. This means that if the employee lives in a state that recognizes same-sex marriages, the same-sex spouse is now entitled to COBRA, FMLA protection, HIPAA special enrollment rights, FSA, HRA and HSA reimbursements and may pay premiums on a pre-tax basis. (The states that currently recognize same sex marriages are California, Connecticut, Delaware, the District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington.) This decision does not mean that similar rights are available to domestic partners who are not "spouses" so, for instance, domestic partners who are not "spouses" still may not pay premiums on a pre-tax basis.

It appears that employers in states that recognize same-sex marriage may make changes to recognize the rights of same-sex spouses immediately, although they will have at least 25 days, and probably more time than that, to make needed changes. It is unclear whether this decision will apply retroactively (the agencies are expected to issue guidance on this). It is also unclear to what extent states will decline to recognize same-sex marriages performed in other states, which may raise issues for employers who have employees who move among states. We will provide additional information as it becomes available.

HHS ISSUES FINAL RULE ADDRESSING RELIGIOUS EMPLOYERS AND COVERAGE FOR CONTRACEPTION

On June 28, 2013 HHS issued a final rule that is intended to accommodate religious employers that have objections to covering contraception. The final rule is quite similar to the interim rule, as it totally exempts churches from the requirement to provide first dollar contraceptive coverage. However, the final rule uses a more straightforward definition of church, to allay concerns that certain related programs sponsored by the church might have caused it to lose the exemption.

Non-profit religious organizations that object to contraception on religious grounds will not be required to contract, arrange for, refer or pay for contraceptive coverage. Instead, the organization must self-certify its objection and provide the certification to its carrier or third party administrator. That carrier or third party administrator will then be required to provide first dollar contraceptive coverage to covered persons at no cost to the plan. The current self-certification form is to be used through 2013 renewals; a revised form will be used for 2014 and later plan years. The 2014 self-certification form may be found here: http://cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/cms-10459-certification.pdf

The carrier or third party administrator must provide participants a notice of the availability of separate payments for contraceptive services in connection with, but separate from, application materials provided as part of enrollment. A model notice may be found here: http://cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/cms-10459-enrollee-notice.pdf

The final rule provides that all private employers are required to provide first dollar contraceptive coverage, even if they object on religious grounds. A number of private employers have filed lawsuits challenging this requirement, but unless and until an applicable court rules this requirement is unlawful, employers that are not a church or a non-profit religious organization will be expected to meet this requirement.

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:

Limit20142013
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:

  1. Collectively bargained versus non-collectively bargained employees;
  2. Salaried versus hourly employees;
  3. Employees of different entities; and
  4. Employees located in different states.
  5. 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)

    https://www.cms.gov/CreditableCoverage/downloads/CredCovDisclosureCMSInstructionsScreenShots110410.pdf

    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

    • 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

    Action Needed:

    • 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

    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

    • 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

    Action Needed:


    • 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

    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:

    • 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.

    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.

    This information is general and is provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.

    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:

    • 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)

    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:

    • 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

    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.

    This information is general and is provided for educational purposes only, and does not contain legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.

    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:

    • 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.

    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

    Read more (pdf)...

    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:

    • 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.

    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:

    • Overview of Reporting Requirement
    • Calculating the Cost of Coverage
    • Recent Clarifications

    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:

    • 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

    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:

    •    A four-page Benefit Summary (double sided)
    •    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:

    • 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.

    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:
     

    • 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.
     
    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:
     
    • 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.
     
    ***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:

    • 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).

    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:

    • 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).
    Due to these exemptions, many plan sponsors will want to retain their plan's grandfathered status for as long as that proves to be feasible.

    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:

    • 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.
    Losing Grandfathered Status

    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:

    • 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.
    As of now, other types of benefit modifications will not cause a loss of grandfathered status. For instance, the regulations' preamble asks for comments on whether changing a plan's network provider, changing from an insured to a self-funded plan, or changing a prescription drug formulary should be added as events causing a loss of grandfathered status. The preamble assures us, however, that any such change in the regulations would be applied only prospectively.
    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:
    • 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.
    Recommendations

    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.

    Kenneth A. Mason, Partner
    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:
     

    • 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.
     
    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


    Read more (pdf)...

    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.

    Sue K. Willman and David L. Wing
    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.

    Kenneth A. Mason, Partner
    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

    URGENT ACTION ADVISED
     
    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.

     

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