Important Transition Relief for Non-Calendar Year Plans

Source: United Benefit Advisors

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.

New IRS Plan Correction Program Effective April 1

Source: https://ebn.benefitnews.com

On the last day of 2012 the IRS updated the Employee Plans Compliance Resolution System (EPCRS), published as Rev. Proc 2013-12. The program allows plan sponsors to declare, fix and pay penalties (where applicable) for certain operational or demographic missteps under the “voluntary correction program” (VCP).

The revisions, effective April 1, “include changes and additional guidance with respect to correction methods as well as procedural changes for VCP submissions,” according to a client bulletin by the law firm Drinker Biddle.  According to that document, authored by Sharon L. Klingelsmith and Heather B. Abrigo, changes to the program include the following:

Corrective contributions for excluded employees in 401(k) plans.  “Previously all corrective matching contributions and, if the plan used nonelective contributions to satisfy a safe harbor, all corrective nonelective contributions, related to missed deferrals for an excluded employee were required to be made in the form of a qualified nonelective contribution ‘(QNEC)’ which is a nonforfeitable (i.e., fully vested) contribution.  Except for corrective matching and nonelective contributions used to satisfy the safe harbor requirements under section 401(k)(12) of the Code, contribution in the form of a QNEC is no longer required for corrective matching and nonelective contributions,” according to the authors.

Overpayments from defined contribution plans.  “If a defined contribution plan overpays benefits, in most cases, the plan sponsor must request that the participant return the overpayment to the plan.  Rev. Proc. 2008-50 provided that the participant should repay the overpaid amount with appropriate interest but that the employer was required to make up any amount not repaid by the employee with interest at the plan’s earnings rate.  Rev. Proc. 2013-12 now also requires the plan’s earnings rate to be used for participant repayments.  In addition, if the reason for the overpayment is the lack of a distributable event, the plan sponsor is not required to make a contribution to the plan even if the participant does not repay the overpayment,” Klingelsmith and Abrigo write.

Finding Missing Participants.  “The IRS has discontinued the IRS Letter Forwarding Program as a method for finding lost plan participants who are owed retirement plan benefits. Rev. Proc. 2013-12 provides the following methods to locate missing participants should certified mail not result in success: (i) Social Security letter forwarding program; (ii) a commercial locator service; (iii) a credit reporting agency; or (iv) Internet search tools.”

These changes offer a glimpse of the complete Drinker Biddle report, which advisers may wish to call the attention of their clients.


6 key compliance deadlines for 2013 and beyond

Source: https://ebn.benefitnews.com

By Kathleen Koster

For plan sponsors, 2013 is a year of crossing Ts and dotting Is on PPACA compliance for their health care plans and strategizing for next year, when the employer mandate and public exchanges go into effect. The health care reform law has many moving parts and a great deal of regulations yet to come, which will keep benefits professionals on their toes all year.

"Employers have never experienced this complexity and oversight in compliance for their health plans. Employers are used to a compliance-rich environment around their retirement plans, but they need an equally robust and hands-on approach to managing the compliance of their health plans," says Mike Thompson, a principal in the human resources services practice of PricewaterhouseCoopers. He adds that "the rules, regulations and level of enforcement have never been greater."

Thompson believes "2013 is a period of strategic re-evaluation of whom the employer will provide benefits to in light of the changes in the individual market allowing guaranteed issue and subsidies for lower- and middle-income Americans."

He believes that employers will also transition around financing as "more employers look at community-type programs with the interest of moving away from their own programs and potentially contributing towards a private exchange or facilitating access to coverage in the open market."

To help employers keep all their compliance ducks in a row while managing and determining long-term strategies for their plans, EBN asked legal and health care experts for top issues to keep in mind for 2013 and beyond.

1. Preparing for the 2014 employer mandate

"At the top of the list is the interpretation of employer responsibility provisions that includes what constitutes minimum essential coverage that employers have to provide or be subject to penalties. Along with that, there are very important issues around the minimum value of the coverage they provide as well as who they have to provide it to," says Paul Dennett, senior vice president of health care reform at the American Benefits Council.

The employer mandate applies only to large employers. Whether an employer is defined as large under PPACA (generally companies with 50 or more employees) depends on the number of its full-time equivalent employees. Companies with 50 or more full-time workers (averaging at least 30 hours per week) must offer minimum health care coverage that is affordable.

In 2013, an employer ought to be determining whether it is a large employer and, therefore, subject to the mandate. "If they offer coverage in 2014, the coverage must meet the minimum value standards and the contributions the employer requires of employees cannot be so high the coverage is unaffordable relative to the employee's household income," says Jean C. Hemphill, practice leader of Ballard Spahr's health care group.

To determine the minimum value, fully insured plans will rely on their insurance carrier for information on whether they meet the minimum value of 60% for their plan. Self-insured plans can turn to an actuary or determine their value with the aid of a government-provided calculator or government-provided checklists.

When it comes to determining the affordability of the plan, an employer cost-sharing arrangement must be affordable relative to the employees' household income, as stated under PPACA. So, "the employee's contribution and cost-sharing obligations can't exceed 9.5% of their household income," says Hemphill.

However, the IRS acknowledges that employers don't know workers' household income, and suggests employers use W-2 wage information instead to determine their plan's affordability.

Hemphill expects more guidance on this issue since employees' contributions are typically much greater for dependents coverage than their own. An employee offered otherwise qualifying coverage by their employer can't use the public exchange unless they prove their employer-sponsored coverage is unaffordable.

The affordability issue may be of greater concern to employers with fairly low-income workforces or for employers not offering comprehensive plans to employees or all employees, such as the mini-medical plans sometimes offered in the retail industry. Employers only need to offer one affordable plan with minimum value to satisfy the rules, however mini-medical plans will be illegal after 2014.

Actuarial experts predict that most high-deductible health plans with deductibles in the $2,000-$3,000 range will most likely qualify, however those with much higher cost-sharing may not meet the minimum value.

While sponsors can vary the deductible and coinsurance amount of HDHPs, they should remember that the higher the deductible, the lower actuarial value of the plan.

"There are variables that can be adjusted in the plan design, but the most important one is where to set the amount of the deductible," says Dennett. He adds that guidance so far has indicated employer contributions toward HSAs or credits toward HRAs will count toward the minimum value. The question is whether the amount contributed is counted 100% to the plan or if it is discounted in the actuarial value formula that HHS would use in the calculation of actuarial value coverage.

Overall, "the Affordable Care Act was designed so employers don't need to make too many plan design changes to their plan," says J.D. Piro, national practice leader for Aon Hewitt's health and benefits legal department. "They may need to open it up to more employees but, generally speaking, they should be able to meet the affordability and minimum value requirements."

2. Public exchanges

Employers are required to provide employees with notice alerting them of the existence of public insurance exchanges. It is thought that the government will issue a model notice for this purpose. At press time, the government had yet to produce this model notice or other guidance about the notice requirement. The March 1 notification deadline has been extended until "late summer or fall," according to a recent FAQ announcement from the Centers for Medicare and Medicaid Services.

"There may still be unanswered questions about whether the state exchanges, partnership exchanges or the federal exchanges are really at an operational readiness stage to be able to go live as of October 2013," says Dennett.

Assuming the exchanges are on track and sponsors receive the guidance they need, they should expect many questions from workers about how the process affects them.

"While most major employers will continue to offer coverage to employees, there will be some confusion around the availability of coverage in the public exchanges and what the implications are [for employees] getting coverage from their employer, says Thompson.

He suggests employees will primarily want to know:

* Do I still have coverage through my employer?

* Am I eligible to get coverage through the exchange?

* Can I potentially get subsidies through the exchange?

* Is it in my best interest to go through the exchange?

3. Waiting periods

Another design-related issue employers must factor into their plans is that under PPACA, waiting periods for health care coverage cannot exceed 90 days. The 90-day period begins when the employee is otherwise eligible for coverage. Employers with a high-turnover workforce that currently have long waiting periods will have to shorten them.

If an employer requires employees to work a minimum number of hours to qualify for coverage, it may need to monitor workers' timesheets in 2013 to determine if and when coverage needs to be offered in 2014; this may be complicated for seasonal employees and other employees with variable hours.

Thompson believes this is part of a larger question of meeting qualifications for providing coverage.

"It's part of a package in my mind," he says. "Employers must evaluate employee classes when looking at whether they meet the minimum threshold of providing coverage to full-time employees. Seasonal, temporary, or contract workers are classes that need to be evaluated in order to avoid or at least understand what the penalties might be."

4. Pre-existing and non-discrimination prohibitions

"The non-discrimination rules are new for insured plans in 2014," says Hemphill. Even though these prohibitions should already be in effect, government agencies have delayed enforcement until they release regulations.

"It will be an important issue because right now there is no requirement to offer coverage to part-time employees, but with the definition of full-time employees as an average of 30 hours per week and new non-discrimination testing rules, the employer obligation may be different," she says.

Either way, employers can expect notice and guidance well before implementation because, "it is a big plan design issue," says Edward I. Leeds, counsel in the employee benefits and executive compensation group at Ballard Spahr.

5. Wellness programs

PPACA includes rules that prohibit plans from discriminating against individuals based on a range of health-related factors. Plans cannot impose restrictions on eligibility or increase employee costs for coverage based on these factors.

"When the government issued guidance under ACA, they actually revised the HIPAA regulations. So now the ACA and HIPAA rules ... will be the same," says Leeds. "By and large the rules follow HIPAA with some changes, the most significant of which is that the potential reward for meeting requirements under the wellness programs will increase as of January 1, 2014."

The potential reward for meeting a wellness requirement will increase from 20% of cost of coverage to 30% of cost of coverage. Incentives related to tobacco cessation will increase up to 50%. (For more details, read "Regs increase wellness rewards," page 28.)

6. Upcoming fees and taxes

Patient-Centered Outcomes Research Institute, established by PPACA, will collect and publish information about clinical effectiveness of treatments for patients. It will be paid for through fees assessed against insurers and self-funded plans equal to $2 ($1 in the first year) per covered life. The assessment will last seven years and eventually be adjusted for inflation. Employers with self-funded plans will need to report and pay these fees starting in July 2013.

The Transitional Reinsurance Program aims to stabilize the individual health insurance market as insurers provide coverage, starting in 2014, to large numbers of individuals who do not currently have coverage and present uncertain risks. The program will provide reinsurance payments to insurers that take on high-risk individuals. The program is funded through a three-year tax (expected to be $63 per covered life in the first year.)

The Additional Medicare Tax, in effect this year, is an additional 0.9% tax applied to high-income individuals. Employers are responsible for withholding the tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.


Labor Department Releases New FMLA Model Forms and Notice Poster

Source: Jackson Lewis

The U.S. Department of Labor has released revised model Family and Medical Leave Act (“FMLA”) forms to administer federal FMLA leave and a notice poster. The updated forms should be used by employers immediately, although they include no substantive revisions despite recent rule-making on the FMLA military caregiver leave provisions (see our article DOL Publishes Final Regulations Addressing Military Family Leave Provisions). The new forms expire on February 28, 2015. Following are links to the revised model forms:

Employers should keep in mind that family and medical leave obligations under state/territorial laws may provide for a greater leave entitlement than the FMLA and (most notably in California, Connecticut and Washington, D.C.) require employers to provide other forms or information.

The DOL notice poster summarizes major provisions of the federal FMLA and tells employees how to file a complaint. By March 8, 2013, all covered employers must display the new notice poster in a conspicuous place where employees and applicants for employment can see it. The poster must be displayed at all locations even if there are no employees eligible for FMLA at the location (e.g., there are fewer than 50 employees employed within a 75-mile radius of the worksite). Electronic posting also is permitted to satisfy the posting requirement, as long as it otherwise meets the requirements of the regulations.

The poster may be accessed here: https://www.dol.gov/whd/regs/compliance/posters/fmlaen.pdf


DOL Publishes Final Regulations Addressing Military Family Leave Provisions

Source: Jackson Lewis

The U.S. Department of Labor (DOL) has published final regulations clarifying several amendments to the Family and Medical Leave Act (FMLA) that expand the law’s military family leave provisions. The agency’s final rule, released on the FMLA’s 20-year anniversary, also implements changes enacted through the Airline Flight Crew Technical Corrections Act and contains other modifications to the prior regulations.

Following a 2008 law that extended FMLA-qualifying leave to certain eligible employees for reasons arising from a family member’s service in the military, the National Defense Act Authorization Act for FY 2010 (NDAA) further expanded the leave entitlements available to relatives of covered service members. The DOL’s final rule, published in the Federal Register on February 6, 2013, provides additional guidance regarding these and other changes.

Qualifying Exigency Leave

Prior to the 2010 NDAA’s enactment, eligible employees could take FMLA leave for qualifying exigencies because the employee’s spouse, son, daughter or parent was on active duty or had been notified of an impending call or order to active duty in support of a contingency operation. Among other things, the 2010 NDAA extended qualifying exigency leave to family members of service members in the Regular Armed Forces, as the law previously only provided such leave to family members of service members in the National Guard and Reserves. The 2010 law also added the requirement that the service member (National Guard, Reserves and Regular Armed Services) be deployed to a foreign country in order for qualifying exigency leave to be utilized by a covered family member.

The DOL’s final regulations also add a new category of qualifying exigency leave. Eligible employees are now entitled to “parental care leave” to care for a military member’s parent, which in many cases will be an in-law, who is incapable of self-care when the care is necessitated by the member’s covered active duty. Further, under prior law, employees could take up to five days of qualifying exigency leave to spend time with a military member on Rest and Recuperation; the new regulations extend that time to 15 days.

Military Caregiver Leave

Under the 2008 amendments to the FMLA establishing military caregiver leave law, certain family members were entitled to 26 workweeks of FMLA leave in a single 12-month period to care for a covered service member with a serious injury or illness incurred in the line of duty on active duty for which the service member was undergoing medical treatment, recuperation, or therapy. The NDAA revised the definition of “covered service member” to add veterans, provided they were a member of the Armed Forces at any time during the five-year period preceding the date of the medical treatment, recuperation, or therapy. Importantly, the final regulations state that the period between their effective date and enactment of the NDAA on October 28, 2009, does not count for purposes of determining the five-year period for covered veteran status.

The regulations also clarify that, for a veteran, an injury or illness that existed before the beginning of the member’s active duty and was aggravated by service in the line of duty on active duty may constitute a “serious injury or illness” in certain situations. The final regulations similarly expand the definition of a “serious injury or illness” for current service members, but without the limitations applicable to veterans.

Certifications

The final regulations clarify that, with respect to military leave, FMLA certifications can be signed by any health care provider who is authorized to certify a FMLA medical certification form for other FMLA-qualifying reasons.

The DOL also has replaced the previous prototype FMLA medical certification and notice forms with a note that such forms should be obtained directly from the DOL website or a local office. Thus, in the future, the DOL will not need to issue new regulations each time it changes the required certification forms.

Airline Flight Crew Employees

The DOL’s regulations provide additional guidance for employers in the airline industry on how to calculate FMLA leave for airline flight crew employees. FMLA regulations previously contained no provision regarding the calculation of FMLA leave specifically for airline flight crew employees. This had caused airline employers significant problems in calculating the number of days in a workweek for airline flight crew employees for FMLA purposes, as well as in accounting for FMLA leave taken on an intermittent or reduced work schedule basis.

The DOL’s Proposed Rule was nearly universally opposed by both employer and employee representatives. They said it was too complicated to administer due to the unique scheduling practices in the airline industry, thereby causing confusion and leading to inequitable deductions of FMLA leave. The DOL agreed with many commenters. The DOL’s solution, however, creates an entirely different system for calculating FMLA leave for airline flight crew employees than for other employees.

The final regulations address two important aspects of calculating FMLA leave for airline flight crew employees. First, the final regulations establish a uniform FMLA leave entitlement of 72 days for airline flight crew employees. The DOL chose 72 days because it corresponds to the maximum six-day workweek an airline flight crew employee can work under Federal Aviation Administration regulations. Second, the final regulations provide that an employer must account for an airline flight crew employee’s FMLA intermittent or reduced workweek leave in an increment no greater than one day, instead of the usual maximum increment of one hour. Other regulatory changes were made to implement the special eligibility rules applicable to airline flight crew employees regarding actual hours worked.

The Department of Labor’s final regulations take effect on March 8, 2013. Joe Lynett, Partner in the Disability, Leave and Health Management Practice Group at Jackson Lewis observed, "All employers covered under the FMLA should review their FMLA policies to confirm that their descriptions of military family leave entitlements are consistent with these new regulations. The new rules are particularly important, however, for airlines that must now adopt an entirely new method for calculating FMLA workweeks for flight crews.”

 


IRS Proposes Regulations on Employer Penalty

Source: UBA

The Internal Revenue Service has released proposed regulations on the health care reform employer "shared responsibility" penalty provision. This is the penalty on "large" employers (those with at least 50 full-time or full-time equivalent employees) that do not provide affordable minimum essential coverage for full-time employees and their dependents and have at least one full-time employee who receives subsidized Exchange coverage (new Internal Revenue Code section 4980H, enacted as part of the Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010). The IRS also posted on its website a set of related questions and answers.

Employers Affected

An employer meets the penalty provision's large employer threshold if it employed, on average, at least 50 full-time or full-time equivalent employees in the prior calendar year. Thus, for 2014, the first year the penalty is effective, an employer would consider the average number of such employees it had during 2013 to determine whether it is a covered large employer. The proposed regulations include a transition rule under which employers may use any consecutive six-month period in 2013, instead of the full year, to calculate the average number of employees.

A full-time employee is one who is employed by the employer an average of 30 hours per week. Part-time employees count, too, taking into account the number of full-time equivalents: For a given month, add the number of hours for all part-time employees (counting no more than 120 hours for any one employee) and divide by 120. Count all hours worked and all hours for which payment is made or due for vacation, illness, holiday, incapacity, layoff, jury duty, military duty, or leave of absence. Notice 2011-36 had limited the period of leave that must be included to 160 hours but the proposed regulations eliminate this limitation.

The proposed regulations clarify that the IRS's safe harbor for determining full-time status (i.e., using the look-back/stability period approach) will not apply for purposes of determining whether an employer meets the threshold of 50 full-time employees. Instead, whether an employer is a large employer for a given year will be determined by calculating employees' actual hours of service in the immediately preceding year. Equivalency rules may be used for employees not paid on an hourly basis. An entity not in existence in the preceding year may be a large employer in its first year if it is reasonably expected to employ an average of at least 50 full-time employees during its first year. Special hours-counting rules are proposed for educational institutions, employees paid on a commission basis, and other circumstances.

Whether a worker is an employee of a particular employer will be based on the long-standing common law principle that, if a service recipient has the right to direct and control how a worker performs services, that service recipient is the worker's employer. The proposed regulations also reiterate that controlled group rules apply for purposes of identifying the employer. Thus, all common law employees of all entities that are part of the same controlled group or affiliated service group must be counted to determine whether the threshold of 50 full-time employees is met.

Assessable Penalty for Affected Employers

For a given month beginning after 2013, if an employer does not offer minimum essential coverage to "substantially all" of its full-time employees and their dependents and a full-time employee obtains subsidized Exchange coverage, the employer must pay a penalty equal to $166.67 multiplied by the number of its full-time employees in excess of 30. Under the proposed regulations, "substantially all" means all but five percent of full-time employees or, if greater, five full-time employees. The proposed regulations define "dependent" as a child, within the meaning of Code 152(f)(1), who is under age 26. (Thus, a spouse is not a dependent.) The proposed regulations offer transitional relief (only for 2014) for employers that do not currently provide dependent coverage. Any employer that takes steps during its plan year that begins in 2014 toward offering dependent coverage will not be liable for penalties solely on account of its failure to offer dependent coverage for that plan year. The proposed rules also explain that the 30-employee reduction used when calculating this penalty is applied on a controlled group basis so that each member company reduces its number of full-time employees by a ratable share of 30.

If an employer offers minimum essential coverage to substantially all of its full-time employees and their dependents, but a full-time employee nevertheless obtains subsidized Exchange coverage (i.e., because the employer's coverage fails to meet the minimum value or affordability test), the employer must pay a penalty equal to the lesser of the penalty determined in the preceding paragraph or $250 multiplied by the number of full-time employees who are certified as having subsidized Exchange coverage for the month.

Since no penalty is triggered unless at least one full-time employee obtains subsidized Exchange coverage, it is important to know whether a full-time employee can obtain subsidized Exchange coverage. An employee can obtain subsidized Exchange coverage only if his or her household income is between 100 percent and 400 percent of the federal poverty line, he or she enrolls in Exchange coverage and is not eligible for Medicaid (or other government coverage), and either no employer coverage is offered or the employer coverage offered fails to meet either a minimum value test or an affordability test:

  • Employer coverage meets the minimum value test if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services is working with IRS to develop a calculator that employers may use to determine whether this test is met.
  • Employer coverage meets the affordability test if the employee is required to pay no more than 9.5% of his household income for self-only coverage. Since employers have no practical way of knowing what an employee's household income is, the IRS previously stated that employers could use an employee's W-2 reported wages as a safe harbor. The proposed regulations explain how that safe harbor would apply, including how it would apply to partial years worked. The W-2 safe harbor will be very useful to most employers, but the proposed regulations also offer two additional safe harbors that employers may use to determine affordability: one based on monthly rate of pay (i.e., coverage is affordable if the employee's monthly cost for self-only coverage does not exceed 9.5% of his monthly rate of pay) and the other based on eligibility for Medicaid (i.e., coverage is affordable if the employee's cost for self-only coverage does not exceed 9.5% of the federal poverty line for a single individual).

If an employee elects coverage under an employer's group health plan, the employee cannot qualify for subsidized Exchange coverage even if the employer coverage fails the minimum value or affordability test. However, providing mandatory group health coverage that fails the minimum value or affordability test will not prevent an employee from obtaining subsidized Exchange coverage.

The proposed regulations retain the look-back/stability period safe harbor method provided in prior guidance for determining which employees are full-time for purposes of the penalty calculation. Thus, an employer can use a look-back period of up to 12 months to determine whether an on-going employee (i.e., one employed for at least the length of the look-back measurement period selected) is a full-time employee. If an employer uses a look-back/stability period for its on-going employees, it also can use the look-back/stability period for new and seasonal employees. The proposed regulations include additional special rules for a new variable-hour employee or seasonal employee whose status changes during the look-back measurement period, for rehired employees and employees returning from unpaid leaves of absence, for employees of temporary agencies, and for other special circumstances.

The proposed regulations assure that an employer will (a) receive certification of an employee's receipt of subsidized Exchange coverage and (b) have an opportunity to respond regarding application of the penalty before IRS actually assesses a penalty in connection with that employee.

Recordkeeping obviously is important both for compliance (existing law already requires substantial recordkeeping for tax purposes) and to substantiate any defense to a penalty.

Opportunity to Comment on Proposed Regulations

Employers and other stakeholders can help shape final regulations at a public hearing on April 23, 2013, and by submitting written comments by March 18, 2013. In addition, the government also requests comments on the new Code § 6056 employer-reporting requirements and the 90-day waiting period rule.


Regulation Roundup: The Hits Keep On Coming

Source: United Benefit Advisors

The federal government in the past few weeks has kept up the fast pace of pumping out benefits-related guidance -- a trend that started at the end of 2012 --  with a set of final and proposed regulations for the health care reform law, a final HIPAA rule and a compromise on the Obama administration's coverage requirement for contraceptives.

HIPAA: The Department of Health and Human Services (HHS) released its HIPAA omnibus final rule in late January. The final rule establishes new rights for individuals to access their health information, calls for updates to business associate contracts, beefs up privacy protections for patients and gives the government more power to enforce the law, according to a HealthLeaders Media article.

Employers should expect tougher policing of HIPAA-related infractions by federal agencies, experts say.

"The 'good old days' of voluntary compliance and 'slaps on the wrist' seem to be a thing of the past," Brad M. Rostolsky, a partner with Reed Smith, LLP, told HealthLeaders Media. "As a result, it's important that regulated businesses, from the top down, are seen to have buy-in to HIPAA compliance efforts."

Contraception Compromise: HHS has tweaked its requirement that religious nonprofit organizations provide their female members coverage for birth control, according to a PPACA Advisor release from United Benefit Advisors (UBA). Instead, insurance companies, after being notified of the employer's objection to the coverage, would be required to provide coverage at no cost to workers through separate policies. If the employer is self-insured, it can use a third party to set up a separate health policy that would provide coverage for contraceptives. The costs for this action may be be offset by the fees that insurers will pay to participate in the government-run health care exchanges, slated to go online in 2014.

Affordability: The IRS finalized a rule that clarified that the health coverage "affordability" requirement (that an employee's premium contribution not exceed 9.5 percent of household income) under the Patient Protection and Affordable Care Act (PPACA) will be based on self-only coverage, according to a Business Insurance online report. Employers with plans that fail that test face a $3,000 penalty for each full-time employee who is not offered affordable coverage and instead receives a premium subsidy from the government to purchase insurance in a health care exchange. The proposed regulation left open the possibility that the affordability test might have applied to family coverage, but the IRS removed that scenario with its final rule.

HRAs: A new set of frequently asked questions posted by federal agencies limits the use of health reimbursement arrangements (HRAs) in the coming government-run health insurance exchanges, an online report by the Society for Human Resource Management (SHRM) notes. The FAQs state that an HRA that is not integrated with a group health plan but instead functions as a "stand-alone" benefit falls under the PPACA provision that limits the annual amount an individual is required to spend on health care coverage. The report points out that this restriction means funds from stand-alone HRAs can't be used to buy individual coverage through the online exchanges, slated to open in 2014.

Timothy Jost, a professor at Washington and Lee University School of Law, told SHRM that many employers were hoping to offer employees "a fixed-dollar contribution" through an HRA. Such a move "would permit the employee to take advantage of the tax subsidies currently available through HRA coverage but get the employer out of the health insurance business." For many employers, this now will not be possible.

Minimum Coverage: A proposed PPACA rule clarifies what types of services would be considered "minimal essential coverage," UBA reports. Services such as on-site clinics, limited-scope dental and vision, long-term care, disability income and accident-only income would not qualify as employer-sponsored minimal essential coverage. More details can be found in the Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2013-02-01/pdf/2013-02141.pdf

Exchange Notice Delay: Employers who were concerned about a fast-approaching deadline to distribute notices on the exchanges can relax for a few more months. The Department of Labor (DOL) has pushed the date (originally March 1) to late summer or early fall. The DOL is preparing model language for the notice, and a final date will be announced later, the agency said.

 


To Open Eyes, W-2s List Cost of Providing a Health Plan

Source: https://www.nytimes.com
By Robert Pear

As workers open their W-2 forms this month, many will see a new box with information on the total cost of employer-sponsored health insurance coverage. To some, it will be a surprise, perhaps even a shock.

Workers often have little idea how much they and their employers are paying for coverage. In many cases, economists say, workers give up cash compensation to get and keep health benefits.

The disclosures, required by the 2010 health care law, are meant to make workers more cost-conscious. Health benefits are still tax-free. But labor unions and employer groups say it could be easier to tax them in the future, now that employers must report their value to the government.

The new information appears in Box 12 of the standard W-2 form, with a two-letter code, DD. The box shows the “cost of employer-sponsored health coverage.” And that amount is not taxable, the Internal Revenue Service says on the back of the form.

Jay J. Makled, a union steward for the United Automobile Workers at the Ford plant in Dearborn, Mich., described his reaction after seeing that his health coverage cost nearly $16,000 last year: “It’s quite expensive. I was surprised to see how much the company was paying for that benefit.”

Hourly employees represented by the union there said they generally did not pay any of the premium.

The number on the W-2 form is supposed to reflect the part of the cost paid by the employer and the part paid by the employee.

Prof. Nicole Huberfeld, an expert on health law at the University of Kentucky, who received her W-2 form on Monday, said, “Most people who get health insurance from their employers have no idea how much it costs.”

“People are often shocked when they see the cost, $12,000 to $16,000 a year,” Ms. Huberfeld said. “Many Americans believe this is something they get free. But employers pay lower wages because they provide insurance.”

In 2012, according to an annual survey by the Kaiser Family Foundation, premiums for employer-sponsored health insurance averaged $5,615 a year for single coverage and $15,745 for family coverage. Over five years, the costs have increased 25 percent for individual coverage and 30 percent for family coverage.

“Health coverage is a big piece of people’s income and a large part of the social welfare budget,” said C. Eugene Steuerle, a tax economist at the Urban Institute. “But the benefits are not taxable, and most of the spending is hidden, so we don’t consider the trade-offs. If we want to get control of health care costs, people have to be aware of them.”

That is the goal of the disclosure requirement, which was proposed by a bipartisan group of senators: two Republicans, Charles E. Grassley of Iowa and Michael B. Enzi of Wyoming, and two Democrats, Max Baucus of Montana and Ron Wyden of Oregon.

Congress acted after Peter R. Orszag, then the director of the Congressional Budget Office, told lawmakers: “The economic evidence is overwhelming, the theory is overwhelming, that when your firm pays for your health insurance, you actually pay through reduced take-home pay. The firm is not giving that to you for free.”

The tax-free treatment of employer-provided health benefits is the largest tax break in the tax code, costing the government roughly $180 billion a year in lost revenue, or 80 percent more than the home mortgage interest deduction, according to the administration.

Katie W. Mahoney, the executive director of health policy at the U.S. Chamber of Commerce, said, “It’s useful for employees to know the value of coverage their employers provide.” But she said some employers worried that reporting the benefit on the W-2 form could lead to taxing the benefit.

“That’s not the intent of the current requirement,” Ms. Mahoney said. “But once the information is collected by the government, it’s very easy for another administration to have a different intent.”

An employee of the A.F.L.-C.I.O. whose health coverage was listed as costing more than $20,000 said: “That knocks my socks off. When I saw the number, my eyes popped out. I appreciate my employer all the more.”

The employee said he had been told not to discuss the cost publicly because the union did not want to suggest that some employees had “Cadillac coverage.”

An employer that fails to comply with the reporting requirement could be subject to penalties of $200 per W-2 form, up to a maximum of $3 million, tax lawyers said.

Employers are exempt from the reporting obligation if they are required to file fewer than 250 W-2 forms, the I.R.S. said. That could change, but the agency said employers would be given at least six months’ notice.

 


Additional proposed regulations addressing open issues under PPACA

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).

Notice of Exchange Has Been Delayed

On Jan. 24, 2013, the DOL issued a FAQ that delays the due date for providing employees with a notice about the affordable health exchanges.  The notice had been due March 1, 2013 but the due date has been delayed until late summer or early fall of 2013.  The delay will result in the notice being provided closer to the start of open enrollment for the exchanges, which will begin Oct. 1, 2013, for a Jan. 1, 2014, effective date.

To read the FAQ, click here: https://www.dol.gov/ebsa/faqs/faq-aca11.html

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:
https://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: https://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.

Public comments on this rule also are due March 18, 2013.  To read the proposed HHS rule, click here: https://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: https://www.ofr.gov/OFRUpload/OFRData/2013-02420_PI.pdf

Important: Some of these rules are still in the “proposed” stage, which means that there may be changes when the final rule is issued.  Employers should view the proposed rules as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.

 

 


Health Care Reform and the Benefits Renewal Process

Source: United Benefit Advisors

By Mick Constantinou

The Supreme Court decision last June removed the remaining obstacles blocking implementation of health care reform. Prior to the ruling, many employers took a “wait and see” approach and were left scrambling to qualify and quantify how those aspects of the Patient Protection and Affordable Care Act (PPACA) of 2010 that went into effect January 2013 would impact their business and their employees.

Beginning in 2014, the requirements of PPACA will change the way employers plan and execute their benefits renewal process. The difference is that the impacts forthcoming, both financially and in terms of access to health care, will be far greater than those elements of health care reform that have been implemented to date.

Employers and employees will be left scrambling again if the age-old, “I worry about our benefits during the last three months of our plan year,” paradigm continues. There are decisions that should be made between now and 2014 because the changes are far greater in scope. Mishandling or delaying the question of health benefits now can carry a big price tag in dollars, reputation, competitiveness, retention, employee engagement or a combination of all of the above.

In its current form and implementation schedule, PPACA will forever alter how health care is purchased, delivered and funded by employers. The complexities of the law will touch all employers, regardless of their size, and all employees in a variety of ways and to varying degrees. The impact, often referred to as “play or pay” or “the mandate”, is different for groups with under 50 or more than 50 full-time employees.

Employers that currently offer group benefits or are thinking about offering group benefits, regardless of the number of full-time equivalent employees, should include the following as part of their planning process during 2013:

Minimum Value - Determine the actuarial value (AV) of their current plan design as well as calculate the AV of plans under consideration for 2013 to ensure the designs comply with the minimum requirement to cover an estimated 60 percent (the bronze standard) of covered health care expenses.

Affordability – Confirm your current employee contributions satisfy the affordability test of costing no more than 9.5 percent of an employee’s earnings.

Tax Subsidies – Identify which employees may qualify for subsidized health care through the exchanges and therefore subject you to a $3,000 annualized penalty.

Penalties – If you decide to pay the $2,000-per-employee penalty rather than continue to offer employer-sponsored group coverage, you should calculate which of your employees would be better off and which would be worse off with such a decision.

Medicaid – Quantify how the expansion of Medicaid will impact your costs and which employees will qualify under the new rules and Medicaid tables.

Eligibility – Review how your current benefits eligibility will be altered by the new regulations on eligibility.

Enforcement – Understand when and how the new rules are expected to be enforced, and be aware of the new requirements placed on employers and employees to ensure compliance with the provisions of the health care reform law.

The capabilities, expertise and analytical tools available to benefit advisors that support employers are key value-adds. Employer groups should consider these as part of their checklist when vetting the advisory firm that can best support them through 2013 in preparation for 2014 and beyond. Employers require compliance programs, solutions and services designed to help them stay informed, manage changes in benefits compliance and labor laws, and be prepared for the impacts in 2014 with sound analytics.

Employers will have a number of obligations and opportunities related to health care reform. This law is complicated, and each employer will need to base its decisions on its particular situation, which will require an advisor with the analytical tools to model a variety of scenarios specific to your company.