2017 HSA Limits Released
Original post benefitspro.com
Change is not the order of the day for health savings account (HSA) limits in 2017.
The Internal Revenue Service (IRS) issued its new guidelines for contributions and out-of-pocket expenses for HSAs that are tied to a high-deductible plan this week.
Maximum OOPs for individual and family accounts won’t budge next year, and contributions will remain intact for family plans. Individual contributions increased slightly.
Here’s the run-down of the details:
- Out-of-pocket maximums are unchanged at $6,550 for individuals and $13,100 for families;
- Maximum contributions for family plans remain the same at $6,750;
- Individual contributions can increase from $3,350 to $3,400.
High deductible plans in 2017 will be those that have an annual deductible of least $1,300 for self-only coverage and $2,600 for family coverage.
HSAs are open to all men and women enrolled in a high-deductible health insurance program (exceeding $1,300 for individuals and $2,600 for family) aside from those policyholders currently covered by Medicare or listed as a dependent.
For both 2015 and 2016, IRS regulations mandating the potential contributions on plans covering families (a minimum of two people) held successive increases of $100. Individual restrictions, meanwhile, were bumped up by $50 in 2015, but remained stable the following year.
The annual fluctuations of HSA contribution levels are based directly upon federal cost of living adjustments. They will be applied for the calendar year of 2017.
A full account of the new guidelines may be read under Revenue Procedure 2016-28.
Implementing Health Reform: IRS Requests Comments On Cadillac Tax
Originally posted by Timothy Jost on healthaffairs.org.
One of the last remaining features of the Affordable Care Act (ACA) that has yet to be implemented is the so-called “Cadillac tax,” which takes effect in 2018. Section 4980I will impose a 40 percent excise tax on employee benefits the cost of which exceeds certain statutory limits. The Cadillac tax is intended to limit the generosity of employer coverage on the theory that excess coverage encourages excess health care expenditures and thus drives up the total cost of health care. The tax is also, however, one of the major anticipated sources of revenue under the ACA, expected to raise $87 billion over the next 10 years.
On July 30, 2015, the Internal Revenue Service (IRS) released a Revenue Notice, requesting comments (due by October 1, 2015) on various issues that must be resolved to implement the Cadillac tax. The notice supplements an earlier notice requesting comments issued on February 23, 2015.
The earlier notice had addressed issues relating to (1) the definition of applicable coverage subject to the tax, (2) the determination of the cost of applicable coverage, and (3) the application of the dollar limit to the cost of applicable coverage to determine any excess benefit subject to the excise tax. The July 30 notice addresses additional issues, including the identification of the applicable taxpayer liable for the tax, employer aggregation, allocation of responsibility for the tax among applicable taxpayers, payment of the tax, age and gender adjustment, and further issues concerning the cost of applicable coverage.
Section 4980I(a) imposes a 40 percent excise tax on “excess benefits” provided to employees. Excess benefits are defined as the excess of the aggregate cost of applicable coverage for an employee for a month over the applicable dollar limit for that employee for that month. Section 4980I(c)(1) provides that each “coverage provider” must pay the tax on its applicable share of the employee’s excess benefit.
Section 4980I(c)(2) defines the “coverage provider” as (A) the health insurance insurer that provides health insurance coverage under a group health plan, (B) the employer with respect to contributions to health savings accounts (HSAs) or Archer medical savings accounts (MSAs), or (C) “the person that administers plan benefits” with respect to other applicable coverage. Section 4980I(f)(6) provides that the term “person that administers the plan benefits” includes the plan sponsor, as defined by the Employment Retirement Income Security Act, if the plan sponsor administers benefits under the plan. Each coverage provider is responsible for a share of the excise tax proportionate to its share of the total cost of coverage provided to an employee, as determined by the employer.
Defining The “Person That Administers Plan Benefits”
The term “person that administers plan benefits” is not a term that appears elsewhere in the Internal Revenue Code, the Affordable Care Act, or related legislation, so it must be defined for purposes of section 4980I. The IRS proposes two different approaches to identifying this person.
Under the first, the “person that administers plan benefits” would be the person responsible for the day-to-day administration of plan benefits, usually the third party administrator of a self-insured plan. This could cause problems if several third party administrators are responsible for different parts of a benefit plan.
Under the second approach, the “person that administers plan benefits,” would be the person ultimately responsible for administering the plan, including administering issues like eligibility determinations, claims administration, and arrangements with providers. The IRS requests comments on these two alternative approaches.
Related employers are aggregated for purposes of 4980I much as they are for other Internal Revenue Code purposes. The IRS requests comments on how aggregation would affect (1)
identification of the applicable coverage made available by an employer (2) identification of the employees taken into account for the age, gender adjustments, or adjustments for high risk profession employees; (3) identification of the taxpayer that must calculate and report excess benefits, and (4) identification of the employer liable for the tax.
Timing Of Determinations
The notice discusses at some length issues that arise with respect to the timing of determinations of the cost of coverage under self-insured plans and experience-rated insured plans. It is important that tax liability be determined and paid on a timely basis, but self-insured plans may need a time for claims runout at the end of a taxable period to determine the final cost of coverage. Experience-rated plans may receive discounts from the insurer after the end of the taxable period if experience is favorable, and a determination will need to be made whether to attribute this discount retroactively to the taxable period. The IRS requests further comments on these issues.
The notice also discusses at some length tax issues related to the pass through to employers of the excise tax by entities that pay the tax. It is anticipated that this will generally occur. The reimbursement of the cost of the excise tax by the employer to the coverage provider is not itself coverage subject to the excise tax. It is, however, taxable income to the coverage provider.
It is expected that the coverage provider will attempt to recover from the employer the cost of the income tax paid on this reimbursement in addition to the cost of the excise tax. The cost of the income tax is also not considered to be part of the cost of coverage, subject to the excise tax. The IRS requests comments on whether the cost of the income tax reimbursement that can be excluded from the cost of coverage should be determined based on the marginal tax rate of the particular coverage provider or on some average marginal tax rate.
Issues With Account-Based Coverage
Special issues arise with respect to account-based coverage — HSAs, Archer MSAs, flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs). While the excise tax is calculated on a monthly basis, account-based contributions are not necessarily made on a monthly basis. The IRS is considering an approach under which contributions would be allocated pro-rata on a monthly basis.
Under the statute, the cost of applicable coverage under an FSA for any plan year is the greater of an employee’s salary reduction or total reimbursement received under the FSA. If an employer makes non-elective contributions to an employee’s FSA, these are only counted to the extent they are actually spent on medical care. This formula raises the possibility of double counting if amounts contributed through a salary reduction in one year are carried over and spent in a later year.
The IRS is considering, therefore, a safe harbor which would only count funds contributed through a salary reduction agreement in the year it was contributed, not the year it was spent. Comments are requested to this approach, as well as on whether non-elective contributions from an employer to an FSA should be treated the same way, and how contributions to an FSA should be allocated when total employee and employer contributions to a cafeteria plan exceed the statutory limit on contributions to an FSA.
The notice discusses briefly the treatment under the excise tax of the cost of coverage that is taxable to highly compensated employees because the coverage discriminates in their favor. The IRS understands that this excess coverage is subject to the excise tax and intends to revise reporting requirements accordingly.
Increasing Dollar Limits To Account For Age And Gender
Section 4980I(b)(3)(C)(iii) requires that the dollar limit above which the cost of coverage is subject to the excise tax be increased to account for the age and sex of a particular employer’s employees. The increased amount would be equal to the excess of the premium cost of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan (FEHBP) if priced for the age and gender characteristics of the employees of an individual’s employer over the premium cost for providing this coverage if priced for the age and gender characteristics of the national workforce. This adjustment recognizes that older employees have higher health care costs than younger employees, and that younger women have higher health care costs than younger men. The fact that the the amounts that individual employers can pay for coverage before the excise tax attaches is adjusted for the age and sex of the employer’s employees has received little attention and is an important safety valve. The threshold can only be adjusted upwards, not downwards.
The notice proposes an approach for determining the age and gender composition of the national workforce and of a particular employer. It then proposes a seven step process that would be used for determining the relative FEHBP premium cost for various age and gender groups and for then determining the age and gender adjustment that should be applied for each employer given the composition of its own workforce.
The IRS is proposing the development of a form for employers to use to notify the IRS and their coverage providers as to the amount of the tax and how much each coverage provider is responsible. The IRS is also considering the method through which the tax would be paid. Finally, the IRS requests comments on the issues raised by this notice and the earlier notice, as well as comments on the relationship between the Cadillac tax and the employer responsibility tax, and stipulates that the notice does not provide guidance on which taxpayers can rely.
PPACA’s 2013 provisions near implementation
Source: Benefitspro.com
By: Katie Kelley
Apart from the latest debates on political opinions over health care changes, it’s important to know what necessary steps are required to get HR and their employees on the right track for 2013.
The Patient Protection and Affordable Care Act outlines changes set to kick in over several years. Benefits managers and human resource advisors are nearing the implementation of the 2013 provisions, and while these changes might not be as newsworthy as the 2014 provisions that are dominating headlines, they do hold credence to employees and their health plans.
According to Troy Filipek, a principal and consulting actuary for Milliman, the best way to prepare for compliance next year is to employ contingency planning as well as develop open lines of communication with employees.
Filipek says employers need to be proactive for 2013 while thinking ahead for 2014.
“There are a lot of changes that are occurring, and there are things employers can benefit from just by considering these options. Talk to your advisors and obviously if you do decide to make a change, talk to your employees or your retirees because with anything you make changes to, it’s important that your people are well advised on it, why you’re doing it and how it’s going to impact them.”
Sharon Cohen, a principal at Buck Consultants and an expert in pretax benefits and health care, shared a similar viewpoint, but also noted that it’s imperative for employers and benefits managers continue with what’s required by law right now—despite any changes that may still occur. “The provisions will start taking effect and the government is moving forward. I wouldn’t count on this all going away before I would take action.”
Medicare subsidy taxation
The major PPACA provision impacting Medicare Part D closes the ‘donut hole’ or gap between coverage limits and out-of-pocket spending on the cost of prescription care, but the law also changes the retiree drug subsidy program.
“The big change for 2013 with the RDS program is that in the past, from 2006 forward, the allowance that these employers receive from the government for the subsidies used to be non-taxable income,” Filipek says. “That has changed since the enactment of the [PPACA].”
Now, Filipek explains, the money that employers receive from the government for these subsidies is subject to taxation.
“It’s a pretty big change,” he says. “A lot of employers have already felt the impact of it because once the law passed, based on the accounting standards, you had to recognize the future impact of that in your financial statements.”
Options include continuing coverage and working with the newly taxed subsidies or dropping coverage and allowing retirees to enroll in individual part D plans. Additionally, Filipek says, employers can maintain group coverage and work with a pharmaceutical benefit manager or health plan in the Part D program to develop a custom benefits package through a Part D Employer Group Waiver Plan plus secondary wrap plan design, which are plan options gaining traction in the marketplace.
Regardless of what decision is made, it’s imperative that both brokers and HR professionals “make sure it’s seamless for the retiree and easy for them to understand,” Filipek says.
“It’s important to communicate with the retirees because these are not people who are coming into the workplace every day where it’s easier to communicate with them. You have to find ways for outreach to them and their spouses.”
The RDS program is designed for employers to continue offering prescription drug coverage to retirees since Part D went into effect six years ago. The government provides a subsidy to employers who maintained a benefit rather than dropping coverage and having their retirees sign up for Medicare Part D individually.
“That program has been what a lot of employers have done since 2006 when Part D started. They had to make a decision to continue offering pharmacy coverage or end their coverage and have retirees sign up for Part D,” Filipek says. “Most opted to continue coverage and get the Retiree Drug Subsidy but that is starting to change with some of the PPACA provisions taking effect.”
FSA caps
HR advisors will need to prepare and communicate newly implemented salary reduction contributions regarding flexible spending accounts that go into effect next year, which impose a cap of $2,500 on these accounts.
“Any employer that has a calendar year beginning Jan. 1, will have to have implemented that provision,” Cohen says. “The salary reduction dollars are capped at $2,500 though, right now, with open enrollment periods typically starting in October and in November—that is a communication that employers who previously had a higher maximum on their FSAs now need to communicate to their employees.”
It’s important to note that only a small percentage of individuals who have FSAs made available to them actually use them. Regardless, employers must inform employees of the change and how it could affect their health coverage long term.
“This is a change that now needs to be communicated to employees,” Cohen says.
But there will be a grace period on contributions that go unused and HR directors will have the opportunity to amend plans through the end of 2014, the limit will be necessary beginning Jan. 1.
“For benefits managers, it would have been last year or the beginning of this year that they would have needed to make design changes to accommodate this,” Cohen says. For those who run on a different plan year other than January, the design considerations must be determined now in order to offer concrete options for open enrollments, she says.
W-2 insurance reporting
The PPACA requires that beginning in 2013, W-2 reporting will need to list employer-sponsored health coverage for the calendar year of 2012. Although this is not a 2013 provision, employees will notice the changes beginning in January of next year, and it’s necessary for HR to convey this to individuals.
“Employees have concern that their tax-free health coverage will be taxable, which will not be the case,” Cohen says. “The communications challenge for employers is to now let employees know that this is just information reporting and is not going to be taxed.”
This provision affects employers of larger companies with 250 or more employees, but those who receive life insurance as a retiree are also required to report their expenses as well.
SBC notification and exchanges
Beginning Sept. 23, during open enrollment periods, and continuing through next year, employers were required to offer employees a four-page summary benefits coverage of the packages made available to an employee for a company’s group health plan.
“[This is] a four page document that tells individuals what benefits are offered under the plan, how much they cost and it has to be in a uniform format that the government has put out,” Cohen says. “The idea is that it makes it easier for individuals who are purchasing coverage to compare the different coverages.”
In order to become compliant with this, it’s important for employers and HR to work with their benefits managers and access the guidance that has been introduced by government agencies including the Internal Revenue Service the Department of Labor, and the U.S. Department of Health and Human Services.
“They have provided templates and instructions,” Cohen says. “This requirement is for health plans large or small.” Cohen also notes this will be the same format of the state insurance exchanges, when they are up and running in 2014.
The state insurance exchanges also require contingency planning for the following year of 2014, when they are established within each state. Beginning next year it’ll be necessary to offer employees notice of these state insurance exchanges, by March 1, in compliance with the DOL guidance that takes precedent in this notification.
“States are still considering if they will adopt the exchange or if the federal government will run the exchange for them,” she says. “They will very soon have to put out some guidance, but right now we don’t have specifics around the exchanges.”
Cohen notes there’s no preparation necessary on behalf of HR or brokers for this provision; it’s simply wait-and-see.
Medicare wage expense
The Federal Insurance Contribution Act Medicare tax rate will increase among individuals with earnings greater than $200,000 and $250,000 for couples filing joint returns. This provision was set in place as a revenue-raising activity. It’s dependent on the employer to collect the tax of 0.9 percent, but this “will not increase the employer’s share of Medicare tax,” according to Sam Hoffman, a partner at Foley and Lardner, who specializes in health care.
“What employers really have to focus on is to set up the payroll system to increase the tax for employees who meet these limits,” Hoffman says. “Most people have thought it through.”
Hoffman doesn’t believe there’s a great need for strong communications campaigns because the 0.9 percent increase will be noted on pay stubs for individuals affected by this. However, employers should have prepared their payroll systems if they haven’t done so already to ensure this provision is met beginning next year. HR also should prepare themselves for questions that could arise in this arena.
“It is the responsibility of the employer to increase the withholdings of individuals earning more than $200,000 a year,” Cohen says. “Typically, the employer’s payroll system will need to be programed for that increase. It’s not so much the responsibility of HR as it is payroll, but there is a communications issue.”
For preparation purposes, Cohen echoes a strong necessity for both HR and brokers to be completing preparation as soon as possible.
“Most of these things, if they haven’t been implemented, they should be hurrying now,” she says.
Tax deduction limits
The income-tax deductions for health expenses sit at 7.5 percent of the adjusted gross income, but as of next year this will be raised to 10 percent of the AGI. Although, during a four year period of 2013 to 2016, those turning 65 (and their spouses) won’t be subject to this provision.
While this scarcely affects employers and HR, it will largely affect individuals and their taxes, which can require benefits managers to step in and work with individuals on a better understanding of this provision.
“This is more for individuals who file on an individual basis,” Cohen says. “It doesn’t normally affect an employer’s group health plan.”
Substantial adjustments have been taken in the form of reflections of these soon-to-be taxed subsidies. “Starting in 2013, it will be a practical effect that these moneys are going to be taxed,” Filipek says.Hoffman also paralleled a related sentiment that if you’re an employee under a group health plan, this is irrelevant, however, “if you buy your own health insurance then you’ll need to notate the cost to yourself and how to itemize those deductions.”
He notes that a lot of brokers, advisors and even employers are currently in the process of reevaluating their options for offering retirees prescription drug coverage. As far as what steps are necessary to take in order to be prepared for the coming year’s changes, Filipek feels it’s important for employers and their advisors to simply understand that there are a variety of choices available.