Exchange Notice Requirements Delayed
The Affordable Care Act (ACA) requires employers to provide all new hires and current employees with a written notice about ACA’s health insurance exchanges (Exchanges), effective March 1, 2013.
On Jan. 24, 2013, the Department of Labor (DOL) announced that employers will not be held to the March 1, 2013, deadline. They will not have to comply until final regulations are issued and a final effective date is specified.
This Power Group Companies Legislative Brief details the expected timeline for the exchange notice requirements.
Exchange Notice Requirements
In general, the notice must:
- Inform employees about the existence of the Exchange and give a description of the services provided by the Exchange;
- Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer's plan does not meet certain requirements;
- Inform employees that if they purchase coverage through the Exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes; and
- Include contact information for the Exchange and an explanation of appeal rights.
This requirement is found in Section 18B of the Fair Labor Standards Act (FLSA), which was created by the ACA. The DOL has not yet issued a model notice or regulations about the employer notice requirement.
When do Employers have to Comply with the Exchange Notice Requirements?
Section 18B provides that employer compliance with the notice requirements must be carried out "[i]n accordance with regulations promulgated by the Secretary [of Labor]." Accordingly, the DOL has announced that, until regulations are issued and become applicable, employers are not required to comply with the exchange notice requirements.
The DOL has concluded that the notice requirement will not take effect on March 1, 2013, for several reasons. First, this notice should be coordinated with HHS's educational efforts and IRS guidance on minimum value. Second, the DOL is committed to a smooth implementation process, including:
- Providing employers with sufficient time to comply; and
- Selecting an applicability date that ensures that employees receive the information at a meaningful time.
The DOL expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.
The DOL is considering providing model, generic language that could be used to satisfy the notice requirement. As a compliance alternative, the DOL is also considering allowing employers to satisfy the notice requirement by providing employees with information using the employer coverage template as discussed in the preamble to the Proposed Rule on Medicaid, Children's Health Insurance Programs and Exchanges.
Future guidance on complying with the notice requirement under FLSA section 18B is expected to provide flexibility and adequate time to comply.
Tax the rich – and limit retirement contributions? It doesn’t add up
Source: https://eba.benefitnews.com
By: Aaron Friedman
Tax the rich! Raise their rates! Limit their deductions! That seems to be the populist mantra. It’s perpetuated in the press, and there’s some indication that the general public seems to support the idea. Now middle class workers with higher than average incomes seem to be caught up in discussions defining those that are “rich.”
As this applies to tax-exempt organizations, we’re talking about hospital administrators, educators, executive directors of local community and other charitable organizations – people who generally earn a better than average income, yet by no stretch of the imagination do their incomes compare to Warren Buffett’s. And when it comes to the impact on their employers’ retirement plans, shouldn’t the tax structure support retirement readiness for those who have dedicated their careers to giving back to their communities?
For example, current conventional belief supports that people should be saving 11-15% of their pay, including matching contributions, every year throughout their working careers in order to save enough to be retirement ready. Assuming a 3% match, and therefore an average of a 12% annual savings need, anyone earning less than approximately $146,000 annually should be fine. (12% of $146,000 is approximately the $17,500 annual limit.)
However, what about the person making $250,000 per year? Contributing a maximum of $17,500 only equates to 7% of pay. When the match is included it’s still short of the target necessary for retirement readiness — yet as the numbers show, these limitations currently in place put these people at a disadvantage for retirement savings. In addition, one of the alternatives under consideration is limiting qualified plan contributions even further.
Fortunately, there is something that can be done. Private (non-governmental) tax-exempt organizations can maintain a deferred compensation plan under section 457 of the internal revenue code. These 457 plans allow for additional benefits for a select group of management or highly compensated individuals, over and above the limitations in their 403(b) or 401(k) plan.
457 plans are an excellent tool for tax-exempt organizations to be able to recruit, retain, reward and retire key personnel. In other words, they help meet the goals of the organization (which in turn, serves their communities) while empowering key employees to meet their financial goals.
Last summer, Sen. Tom Harkin released a report called “The Retirement Crisis and a Plan to Solve It.” One premise of the report is that there is inadequate savings for Baby Boomers and Gen Xers to pay for basic expenses in retirement. The report footnotes studies that show this ”retirement income gap” is between $4.3 and $6.6 trillion, but as we see above, there is already pressure in regular tax rules that make it difficult for higher-than-average income people to achieve retirement readiness.
As Congress continues the tax debate, it’s important that we consider what’s good for the long term, and helping all plan participants achieve retirement readiness should be of paramount importance. Tax reform and retirement policy should not be at odds.
Cheat Sheet: What employers need to know about the Affordable Care Act
Source: https://www.insidecounsel.com
By: Alanna Byrne, Mary Swanton
President Obama’s Election Day victory ends, or at least postpones, Republican promises to overhaul or repeal the Patient Protection and Affordable Care Act (PPACA), a hallmark piece of legislation from the president’s first term. This means that, starting on Jan. 1, 2014, employers with more than 50 full-time equivalent employees must either provide health care coverage for their workers or pay a penalty.
In the November feature “Pay or Play,” InsideCounsel provides a look at the key factors that companies should consider when deciding whether to comply with the law—or face a stiff fine for failing to do so.
Does the size of a business matter?
The PPACA applies to all companies with more than 50-full time employees. Employers can choose not to provide coverage, but will pay $2,000 for every worker they do not insure, excluding the first 30 employees.
A General Accounting Office review of several studies on the subject found that larger employers are less likely to drop health care coverage when the new reforms take effect, largely to remain competitive in attracting the best employees. Smaller companies with less than 100 workers, on the other hand, could face a disadvantage on the health care market, as they often can’t get the same deals on insurance as their larger counterparts, so paying the penalty may make sense to them.
How are part-time and full-time workers affected?
Currently, many employers offer benefits only to full-time employees, generally defined as those working 35 or more hours a week. The PPACA, however, has lowered the standard for full-time employment from 35 to 30 hours, leaving companies that rely on part-time employees with a difficult choice to make.
“The problem arises when you have a workforce where your criteria [for receiving health benefits] was 35 hours per week, and now the threshold is 30,” says Patricia Cain, a partner at Neal, Gerber & Eisenberg. “If you have a lot of employees working 30-plus hours but less than 35, your choices are to cut them back to under 30 hours, pay the penalty tax or offer coverage.”
What industries will be most affected by the new reforms?
Unsurprisingly, the hardest-hit industries are likely to be those that have not provided health coverage—or have provided very minimal insurance—to workers in the past, while offering insurance to executives. These include restaurant chains, retail outlets and other businesses in the service sector. A nondiscrimination clause in the PPACA now requires that companies provide the same coverage to all employees at all levels, or face a $3,000 per employee penalty.
Complicating matters for these businesses, the coverage they offer must be affordable, which is defined as coverage that does not cost more than 9.5 percent of an employee’s yearly W-2 wages. “To get out of all penalties, you have to offer [coverage] at 9.5 percent of household income. That’s a pretty low threshold for servers or shift cooks,” says BakerHostetler Partner John McGowan. “The business will incur some meaningful costs it doesn’t have in the budget right now.”
Are there hidden costs?
Ideally, the health care reforms will reduce health care costs by providing affordable preventative care and putting new regulations on health care providers. But the future of health care costs remains murky, and if they continue to rise after 2014, employers may be more likely to drop coverage.
“[The PPACA] mandates certain types of coverage be provided and mandates preventative coverage be provided at no cost, all of which are good for employees. But it doesn’t appear to take an aggressive stand toward lowering costs, and that’s what troubles employers,” says Littler Mendelson Shareholder Steve Friedman.
What role will state-run health care exchanges play?
The PPACA requires everyone to have health insurance, meaning that those employees who don’t receive it from their companies likely will have to seek it on state-run health care exchanges. But officials in some states have signaled their unwillingness to establish and oversee these exchanges, leaving the task to the federal government. And even if states do implement exchanges, some employers, particularly those operating in multiple states, are concerned about the quality and consistency of the programs.
“The big unknown is whether the exchanges will be a viable alternative to employer coverage,” says Michael Tomasek, a partner at Freeborn & Peters. “How good will the quality be? Will they function well? Will they be administered well? We just don’t know that yet. Until we know what the alternative to employer coverage is, it’s impossible for employers to make a rational choice about pay or play.”
Notice of Exchange Option is Delayed
In an FAQ issued January 24, 2013 by the Department of Labor, the employer mandate to provide employees with a notice of coverages available through the Exchanges is being delayed. The original required distribution date of March 1, 2013 has been delayed until the late summer or fall of 2013.
The Department of Labor FAQ states…..
“The Department of Labor has concluded that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, we are committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability dates that ensures that employees receive the information at a meaningful time. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.”
FAQs about Affordable Care Act Implementation Part XI
Source: https://www.dol.gov/ebsa/faqs/faq-aca11.html
Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of various provisions of the Affordable Care Act. These FAQs have been prepared by the Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the Departments). Like previously issued FAQs (available at https://www.dol.gov/ebsa/healthreform/), these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended.
The Departments anticipate issuing further responses to questions and issuing other guidance in the future. We hope these publications will provide additional clarity and assistance.
Notice of Coverage Options Available Through the Exchanges
Section 18B of the Fair Labor Standards Act (FLSA), as added by section 1512 of the Affordable Care Act, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, an applicable employer must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice:
- Informing the employee of the existence of Exchanges including a description of the services provided by the Exchanges, and the manner in which the employee may contact Exchanges to request assistance;
- If the employer plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through an Exchange; and
- If the employee purchases a qualified health plan through an Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.
Q1: When do employers have to comply with the new notice requirements in section 18B of the FLSA?
Section 18B of the FLSA provides that employer compliance with the notice requirements of that section must be carried out "[i]n accordance with regulations promulgated by the Secretary [of Labor]." Accordingly, it is the view of the Department of Labor that, until such regulations are issued and become applicable, employers are not required to comply with FLSA section 18B.
The Department of Labor has concluded that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS's educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, we are committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability date that ensures that employees receive the information at a meaningful time. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.
The Department of Labor is considering providing model, generic language that could be used to satisfy the notice requirement. As a compliance alternative, the Department of Labor is also considering allowing employers to satisfy the notice requirement by providing employees with information using the employer coverage template as discussed in the preamble to the Proposed Rule on Medicaid, Children's Health Insurance Programs, and Exchanges: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes for Medicaid and Exchange Eligibility Appeals and Other Provisions Related to Eligibility and Enrollment for Exchanges, Medicaid and CHIP, and Medicaid Premiums and Cost Sharing (78 FR 4594, at 4641), which will be available for download at the Exchange web site as part of the streamlined application that will be used by the Exchange, Medicaid, and CHIP. Future guidance on complying with the notice requirement under FLSA section 18B is expected to provide flexibility and adequate time to comply.
Compliance of Health Reimbursement Arrangements with Public Health Service Act (PHS Act) section 2711
Section 2711 of the PHS Act, as added by the Affordable Care Act, generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits. The preamble to the interim final regulations implementing PHS Act section 2711 (75 FR 37188) addressed the application of section 2711 to health reimbursement arrangements (HRAs) and certain other account-based arrangements. HRAs are group health plans that typically consist of a promise by an employer(1) to reimburse medical expenses (as defined in Code section 213(d)) for a year up to a certain amount, with unused amounts available to reimburse medical expenses in future years. The preamble distinguished between HRAs that are "integrated" with other coverage as part of a group health plan and HRAs that are not so integrated ("stand-alone" HRAs). The preamble stated that "[w]hen HRAs are integrated with other coverage as part of a group health plan and the other coverage alone would comply with the requirements of PHS Act section 2711, the fact that benefits under the HRA by itself are limited does not violate PHS Act section 2711 because the combined benefit satisfies the requirements." (75 FR 37188, at 37190-37191). The corollary to this statement is that an HRA is not considered integrated with primary health coverage offered by the employer unless, under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage provided by the employer and meeting the requirements of PHS Act section 2711.
Questions 2 through 4 below address certain issues relating to HRAs. The Departments anticipate issuing future guidance addressing HRAs.(2)
Q2: May an HRA used to purchase coverage on the individual market be considered integrated with that individual market coverage and therefore satisfy the requirements of PHS Act section 2711?
No. The Departments intend to issue guidance providing that for purposes of PHS Act section 2711, an employer-sponsored HRA cannot be integrated with individual market coverage or with an employer plan that provides coverage through individual policies and therefore will violate PHS Act section 2711.
Q3: If an employee is offered coverage that satisfies PHS Act section 2711 but does not enroll in that coverage, may an HRA provided to that employee be considered integrated with the coverage and therefore satisfy the requirements of PHS Act section 2711?
No. The Departments intend to issue guidance under PHS Act section 2711 providing that an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in that coverage. Any HRA that credits additional amounts to an individual when the individual is not enrolled in primary coverage meeting the requirements of PHS Act section 2711 provided by the employer will fail to comply with PHS Act section 2711.
Q4: How will amounts that are credited or made available under HRAs under terms that were in effect prior to January 1, 2014, be treated?
The Departments anticipate that future guidance will provide that, whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before January 1, 2014, consisting of amounts credited before January 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013 may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without causing the HRA to fail to comply with PHS Act section 2711. If the HRA terms in effect on January 1, 2013, did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.
Disclosure of Information Related to Firearms
Q5: Does PHS Act section 2717(c) restrict communications between health care professionals and their patients concerning firearms or ammunition?
No. While we have yet to issue guidance on this provision, the statute prohibits an organization operating a wellness or health promotion program from requiring the disclosure of information relating to certain information concerning firearms. However, nothing in this section prohibits or otherwise limits communication between health care professionals and their patients, including communications about firearms. Health care providers can play an important role in promoting gun safety.
Self-Insured Employer Prescription Drug Coverage Supplementing Medicare Part D Coverage Provided through Employer Group Waiver Plans
Medicare Part D is an optional prescription drug benefit provided by prescription drug plans. Employers sometimes provide Medicare Part D coverage through Employer Group Waiver Plans (EGWPs) under title XVIII of the Social Security Act and often supplement the coverage with additional non-Medicare drug benefits. For EGWPs that provide coverage only to retirees, the non-Medicare supplemental drug benefits are exempt from the health coverage requirements of title XXVII of the PHS Act, Part 7 of the Employee Retirement Income Security Act (ERISA), and Chapter 100 of the Code. (For ease of reference, the relevant provisions of the three statutes are referred to here as "the health coverage requirements.") Moreover, for EGWPs that are insured under a separate policy, certificate, or contract of insurance, the non-Medicare supplemental drug benefits qualify as excepted benefits under PHS Act section 2791(c)(4), ERISA section 733(c)(4), and Code section 9832(c)(4) and are, therefore, similarly exempt from the health coverage requirements.
Q6: Must self-insured prescription drug coverage that supplements the standard Medicare Part D coverage through EGWPs comply with the health coverage requirements?
Pending further guidance, the Departments will not take any enforcement action against a group health plan that is an EGWP because the non-Medicare supplemental drug benefit does not comply with the health coverage requirements of title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code. This enforcement policy does not affect other requirements administered by the Centers for Medicare & Medicaid Services that apply to providers of such coverage. The Centers for Medicare & Medicaid Services intends to issue related guidance concerning insured coverage that provides non-Medicare supplemental drug benefits shortly.
Fixed Indemnity Insurance
Fixed indemnity coverage under a group health plan meeting the conditions outlined in the Departments' regulations(3) is an excepted benefit under PHS Act section 2791(c)(3)(B), ERISA section 733(c)(3)(B), and Code section 9832(c)(3)(B). As such, it is exempt from the health coverage requirements of title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code. The Departments have noticed a significant increase in the number of health insurance policies labeled as fixed indemnity coverage.
Q7: What are the circumstances under which fixed indemnity coverage constitutes excepted benefits?
The Departments' regulations provide that a hospital indemnity or other fixed indemnity insurance policy under a group health plan provides excepted benefits only if:
- The benefits are provided under a separate policy, certificate, or contract of insurance;
- There is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and
- The benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor.
The regulations further provide that to be hospital indemnity or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred.
Various situations have come to the attention of the Departments where a health insurance policy is advertised as fixed indemnity coverage, but then covers doctors' visits at $50 per visit, hospitalization at $100 per day, various surgical procedures at different dollar rates per procedure, and/or prescription drugs at $15 per prescription. In such circumstances, for doctors' visits, surgery, and prescription drugs, payment is made not on a per-period basis, but instead is based on the type of procedure or item, such as the surgery or doctor visit actually performed or the prescribed drug, and the amount of payment varies widely based on the type of surgery or the cost of the drug. Because office visits and surgery are not paid based on "a fixed dollar amount per day (or per other period)," a policy such as this is not hospital indemnity or other fixed indemnity insurance, and is therefore not excepted benefits. When a policy pays on a per-service basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an income replacement policy. Accordingly, it does not meet the conditions for excepted benefits.
The Departments plan to work with the States to ensure that health insurance issuers comply with the relevant requirements for different types of insurance policies and provide consumers with the protections of the Affordable Care Act.
Payment of PCORI Fees
Section 4376 of the Code, as added by the Affordable Care Act, imposes a temporary annual fee on the sponsor of an applicable self-insured health plan for plan years ending on or after October 1, 2012, and before October 1, 2019. The fee is equal to the applicable dollar amount in effect for the plan year ($1 for plan years ending on or after October 1, 2012, and before October 1, 2013) multiplied by the average number of lives covered under the applicable self-insured health plan during the plan year. In the case of (i) a plan established or maintained by 2 or more employers or jointly by 1 or more employers and 1 or more employee organizations, (ii) a multiple employer welfare arrangement, or (iii) a voluntary employees' beneficiary association (VEBA) described in Code section 501(c)(9), the plan sponsor is defined in Code section 4376(b)(2)(C) as the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.
Q8: Does Title I of ERISA prohibit a multiemployer plan's joint board of trustees from paying the Code section 4376 fee from assets of the plan?
In the case of a multiemployer plan defined in ERISA section 3(37), the plan sponsor liable for the fee would generally be the independent joint board of trustees appointed by the participating employers and employee organization, and directed pursuant to a collective bargaining agreement to establish the employee benefit plan. Normally, such a joint board of trustees has no function other than to sponsor and administer the multiemployer plan, and it has no source of funding independent of plan assets to satisfy the Code section 4376 statutory obligation. The fee involved is not an excise tax or similar penalty imposed on the trustees in connection with a violation of federal law or a breach of their fiduciary obligations in connection with the plan. Nor would the joint board be acting in a capacity other than as a fiduciary of the plan in paying the fee.(4) In such circumstances, it would be unreasonable to construe the fiduciary provisions of ERISA as prohibiting the use of plan assets to pay such a fee to the Federal government. Thus, unless the plan document specifies a source other than plan assets for payment of the fee under Code section 4376, such a payment from plan assets would be permissible under ERISA.
There may be rare circumstances where sponsors of employee benefit plans that are not multiemployer plans would also be able to use plan assets to pay the Code section 4376 fee, such as a VEBA that provides retiree-only health benefits where the sponsor is a trustee or board of trustees that exists solely for the purpose of sponsoring and administering the plan and that has no source of funding independent of plan assets.
The same conclusion would not necessarily apply, however, to other plan sponsors required to pay the fee under Code section 4376. For example, a group or association of employers that act as a plan sponsor but that also exist for reasons other than solely to sponsor and administer a plan may not use plan assets to pay the fee even if the plan uses a VEBA trust to pay benefits under the plan. The Department of Labor would expect that such an entity or association, like employers that sponsor single employer plans, would have to identify and use some other source of funding to pay the Code section 4376 fee.
Footnotes
- An HRA may be sponsored by an employer, an employee organization, or both. For simplicity, this section of the FAQs refers to employers. However, this guidance is equally applicable to HRAs sponsored by employee organizations, or jointly by employers and employee organizations.
- With respect to HRAs that are limited to retirees, the exemption from the requirements of ERISA and the Code relating to the Affordable Care Act for plans with fewer than two current employees means that retiree-only HRAs generally are not subject to the rules of PHS Act section 2711. See the preamble to the interim final rules implementing PHS Act section 2711 (75 FR 37188, at 37191). See also ACA Implementation FAQs Part III, issued on October 12, 2010 (available at https://www.dol.gov/ebsa/faqs/faq-aca3.html).
- See 26 CFR 54.9831-1(c)(4), 29 CFR 732(c)(4), 45 CFR 146.145(c)(4).
- See generally, ERISA Field Assistance Bulletin 2002-02 (trustees of multiemployer plans, if allowed under the plan documents, may act as fiduciaries in carrying out activities that otherwise would be settlor in nature), available at https://www.dol.gov/ebsa/regs/fab2002-2.html.
HHS Issues Proposed Rule on Exchange Liability; IRS Provides Coordination Options for Noncalendar-Year Plans
On Jan. 14, 2013, the Department of Health and Human Services (HHS) issued another lengthy proposed rule under the Patient Protection and Affordable Care Act (PPACA). Among other things, the proposed rule provides some information on how employers will be notified if an employee applies for a premium subsidy / tax credit and how an employer may appeal a determination of premium subsidy eligibility that it believes is incorrect. The proposed rule is HERE
Employee Requests for Premium Subsidies
An employee will be eligible for a premium subsidy only if:
- His household income is less than 400 percent of federal poverty level,
- He purchases coverage through the public exchange,
- He does not have access to affordable, minimum value coverage through his employer, and
- He is not covered by a plan through his employer that provides minimum essential coverage (even if that coverage is not affordable or it does not provide minimum value)
The employee will be required to provide information to the exchange about his income and access to employer-provided affordable, minimum value coverage. The exchange (or HHS if the state asks HHS to do this) will attempt to verify this information from available data bases, but in all likelihood it will need to contact the employer for verification of information regarding coverage.
HHS is considering the use of a one-page template that the employer would complete with respect to the employee’s eligibility for coverage, plan affordability and plan value.
Employee Eligibility for a Premium Subsidy
Under the proposed rule, HHS or the exchange would notify the employer if an employee is determined to be eligible for a premium subsidy (“certified under Section 1411”). The employer would have 90 days to appeal the determination if it believed the employee should not be eligible for the subsidy. (All employers, regardless of size, would receive the notice that an employee has been found to be eligible for a premium subsidy. Employers large enough to be responsible for paying a penalty on employees who receive a premium subsidy would receive a separate notice from the IRS actually assessing the penalty. The IRS notice most likely would be sent during the second quarter after the calendar year for which the premium subsidy was provided.)
Coordinating Exchange and Plan Open Enrollments
On Jan. 2, 2013, the IRS issued a detailed rule that, among other things, provides that noncalendar-year plans may amend their Section 125 plans to allow employees to make midyear changes because of PPACA. Open enrollment for the exchanges will begin in October 2013 for a Jan. 1, 2014, effective date, and the individual coverage mandate also begins Jan. 1, 2014. The proposed rules provide that employers with noncalendar-year plans may amend their Section 125 plans to allow participants to drop coverage as of Jan. 1, 2014, to enroll in an exchange plan. Employers also may amend their plans to allow employees who had declined coverage to enroll and pay premiums on a pre-tax basis as of Jan.1, 2014, so that the employee can meet the coverage requirement. (Employers considering allowing a special enrollment for those who had declined coverage should obtain the consent of their carrier or reinsurer before implementing this option.) The proposed rule is here:
https://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf
Important: The HHS rules are still in the “proposed” stage, which means that there may be changes when the final rule is issued. Employers should view the HHS proposed rule as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.
PPACA: Play or Pay? 7 Reasons Why ‘Pay’ is Not the Easy Answer
By Thom Mangan, CEO, United Benefit Advisors
Source: https://www.insurancebroadcasting.com
With every day that goes by, the nation’s employers move a step closer to having to make a decision: Do I play or pay?
Employers now have just a little more than one year to prepare themselves and their workforces for the arrival of the core of the Patient Protection and Affordable Care Act (PPACA), which requires employers with 50 or more full-time employees to offer medical coverage or pay a penalty. Although a year might seem like ample time, the decision isn’t an easy one, and it’s fraught with financial, legal and competitive implications.
Some employers assert that the play-or-pay mandate will raise their costs and force them to make workforce cutbacks. As a result, a number are considering eliminating their health care coverage altogether and instead paying the penalty on their full-time employees. While the “pay” option might be worth considering, there are strong reasons why employers should look carefully at all of their options and do their best to calculate the actual outcomes of each.
Here are some of the issues employers should factor into their decision-making process:
1. Lost Tax Advantages—Employers that eliminate health care coverage or opt not to offer it to full-time employees will be missing out on tax breaks (as will their employees). Employer contributions for health care coverage are not considered taxable income to the employee (and are deductible by the employer). Employee premiums that are paid through a Section 125 plan reduce the employee’s taxable income, which reduces both the employer’s and the employee’s FICA tax.
2. Reporting Burdens Remain—Employers that don’t offer health care coverage will still face federal reporting requirements, in part so the penalty amount can be determined. In addition, employees who are not offered coverage are likely to go to the exchanges for coverage. These exchanges will require a variety of employee data from employers, particularly for employees who may be eligible for the premium tax credit, which means employers may have to deal with a significant number of inquiries from exchanges (staff time, effort, costs).
3. Recruitment and Retention Challenges—Employers who opt not to offer health care coverage could be doing long-term damage to their employment brands, making it difficult to attract top talent in the future. Even worse, they could lose current employees to organizations that do provide coverage. And the damage to the brand could be even greater for employers that once offered coverage but elect to eliminate it in favor of paying penalties. Not offering coverage could tarnish the employment brand and disrupt business in another way: Employees who are forced to use exchanges—especially untested or insufficiently staffed exchanges—could feel undervalued or abandoned by their employers.
4. Counting Employees Can Be Complex—What constitutes a full-time employee? Answering this question can be tricky; in late August the IRS issued 18 pages of rules that only partly answer the question. Employers that believe they won't face penalties for dropping or not offering coverage because they have fewer than 50 employees may have calculated incorrectly. If that happens, the results could be costly. Be certain you know how to count full-time and full-time equivalent employees and what your obligations are.
5. The Cost of Coverage Can Be Adjusted—While employers may have to cover more people, they do have options for reducing the costs of this coverage. For example, employers could reduce their lowest-cost coverage to stay just above the 60 percent minimum value threshold; they could reduce workers’ hours below the “full-time employee” level; and they could consider paying targeted penalties (e.g., not providing “affordable coverage” to certain segments of their workforce).
6. Other Financial Implications—Employees may demand additional compensation from employers that elect to drop coverage to cover the cost of health care they must now purchase with their own, after-tax dollars. Employers who haven't properly budgeted for nondeductible penalties may compound their financial burdens, especially if they don't make long-term plans for penalty increases.
7. Carriers Will Address Plan Designs—Insurance carriers will become experts on coverage requirements out of sheer necessity, so the myriad of plan design criteria won't likely be a burden on many employers. In addition, carriers will implement a variety of tools to communicate with employees, helping to keep business disruptions to a minimum.
These play-or-pay decisions actually represent just one aspect of PPACA, and there are obligations and implications attached to both sides of the argument. Again, employers would do well to consider all of their options and calculate the outcomes as accurately as possible.
IRS Offers Some Help with 'Pay or Play' Proposal
The IRS kicked off 2013 with a little relief for some employers under the Patient Protection and Affordable Care Act (PPACA).
The proposed guidance, released Dec. 28, 2012, eases some of the penalties for larger employers who fail to provide adequate health care coverage for all their full-time employees. The PPACA "pay or play" penalty -- $2,000 per full-time employee for employers with at least 50 workers as of Jan. 1, 2014 -- will not apply as long as the employer covers at least 95 percent of their full-time employees and their dependents up to age 26, according to Littler Mendelson PC.
The proposed guidance clears up questions that have lingered since the inception of the law in 2010, according to a report in Business Insurance. As it was originally written, any employee with a large employer who opted to receive a premium subsidy under the PPACA-created health care exchanges instead of taking the employer-sponsored coverage might trigger the penalty for the employer. The 95 percent rule would give employers a little wiggle room in case a handful of employees decided to take the subsidy.
These proposed rules also would provide flexibility in the event that part-time employees who take the premium subsidy occasionally accrue hours that temporarily push them into full-time status, according to the Business Insurance report.
In addition to the 95 percent rule, the IRS handed out a few other surprises for employers, according to the law firm of Kilpatrick Townsend & Stockton LLP. For instance, the guidance would:
- Require coverage of full-time employees and dependents under age 26, but not of spouses.
- Aggregate employers in a controlled group (common ownership) to determine if an employer is subject to the penalty. However, if an employer is subject to the penalty, the calculation of the fine is applied to each employer separately in a controlled group -- meaning "one member's failure will not affect the other members of the group."
While the "pay or play" penalty doesn't go into effect until next year, employers need to start tracking their employees' status now, advises Kevin R. McMurdy, an attorney with Fox Rothschild.
"The release of this information continues to underline the importance of counting employees and measuring their hours to see if they are full- or part-time under the definitions provided in PPACA," McMurdy wrote in Employee Benefit News. "Employers should start counting now and avoid any last-minute confusion over their status or their obligations. As more guidance is issued, we can fine-tune these measurements, but don't get caught short at year-end having failed to manage your population."
The IRS currently is taking public comments on the rules through March 18 and plans to conduct a hearing in April to further explore these proposals.
Health Care Reform Update: IRS Proposes Regulations on Employer Penalty
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.
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.