Compliance Recap - May 2019

May was a busy month in the employee benefits world. The Internal Revenue Service (IRS) released health savings account annual contribution limits and high deductible health plan minimum annual deductibles and annual out-of-pocket maximums for 2020.

The Department of Labor (DOL) released questions and answers (Q&As) to clarify its enforcement of the association health plan final rule. The Department of Health and Human Services (HHS) published a final rule that implements conscience rights protections contained in federal laws.

The Department of Health and Human Services’ Office for Civil Rights (OCR) released a proposed rule to revise its regulations implementing the Patient Protection and Affordable Care Act’s Section 1557. The IRS released an information letter on how to determine whether an item is a Section 213 medical care expense.

The OCR released a fact sheet clarifying when business associates are directly liable for violations of the Health Insurance Portability and Accountability Act (HIPAA). The OCR also released frequently asked questions regarding HIPAA liability when an app uses or discloses protected health information.

UBA Updates

UBA updated or revised existing guidance:

IRS Releases 2020 HSA Contribution Limit and HDHP Deductible Minimum and OOP Maximum

The Internal Revenue Service (IRS) released the annual contribution limits for health savings accounts (HSAs) and the high deductible health plan (HDHP) minimum annual deductibles and the HDHP annual out-of-pocket (OOP) maximums for the 2020 calendar year.

The HSA contribution limit will be $3,550 for self-only coverage and $7,100 for family coverage. The HDHP minimum annual deductible will be $1,400 for self-only coverage and $2,800 for family coverage. The HDHP OOP maximum will be $6,900 for self-only coverage and $13,800 for family coverage.

Update on DOL Enforcement Policy Regarding Association Health Plans

On March 28, 2019, the U.S. District Court for the District of Columbia (Court) found that the Department of Labor (DOL) association health plans (AHPs) final rule exceeded the statutory authority delegated by Congress under the Employee Retirement Income Security Act (ERISA) and that the final rule unlawfully expands ERISA’s scope. In particular, the Court found the final rule’s provisions – defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees – were unlawful and must be set aside.

On May 13, 2019, the DOL issued Questions and Answers – Part Two (Q&As) as follow up to the DOL’s April 2019 AHP enforcement statement. In the Q&As, the DOL clarifies two points.

First, although new AHPs formed under the DOL’s final rule cannot market to and sign up new employer members, existing AHPs can continue to enroll new employees upon HIPAA special enrollment events (for example, upon marriage, birth, adoption, placement for adoption, or loss of eligibility for other coverage) and consistent with the plan’s eligibility terms (for example, enrolling new hires) while the DOL’s enforcement relief remains in effect.

Second, although AHPs are not required to obtain an advisory opinion from the DOL, AHPs with questions about whether they meet the DOL’s pre-rule guidance for sponsoring an AHP can either request an official advisory opinion from the DOL or have an informal discussion with the DOL’s employee benefits law specialists by contacting the DOL.

In the upcoming months, the U.S. Court of Appeals for the District of Columbia Circuit will consider the legal arguments in this case. Employers in AHPs should keep apprised of future developments in this case.

Read more about the DOL’s enforcement of the final rule.

HHS Publishes Conscience Rights Final Rule

On May 21, 2019, the Department of Health and Human Services (HHS) published a final rule and released a fact sheet to implement the conscience rights protection provisions contained in federal laws such as the Church Amendments, the Coats-Snowe Amendment, the Weldon Amendment, and the Patient Protection and Affordable Care Act (ACA).

Although the final rule does not create any new conscience rights protection, individuals, health care entities (including health plans and plan sponsors), and providers are protected from discrimination in health care (based on their religious belief or moral conviction) by government or government-funded entities. The final rule requires applicants for and recipients of federal financial assistance from HHS to attest that they will comply with conscience rights and anti-discrimination laws. The final rule implements enforcement tools, such as investigating complaints, compliance reviews, and withholding federal funds, similar to other civil rights laws, to ensure compliance with federal conscience rights protection laws.

OCR Releases Proposed Rule to Revise ACA Section 1557 Regulations

The Department of Health and Human Services’ Office for Civil Rights (OCR) released a proposed rule and fact sheet to revise its regulations under the Patient Protection and Affordable Care Act’s Section 1557. The current Section 1557 regulations remain in effect until a final rule is published.

The proposed rule would eliminate:

  • Certain definitions, including the definition of “covered entity”
  • Specific nondiscrimination definitions based on sex and gender identity
  • Translated taglines in significant consumer communications, the requirement to post information about Section 1557 and nondiscrimination at a covered entity’s locations and website, use of language access plans, and certain video standards for individuals with limited English proficiency (LEP)
  • Any reference to a private right of action to sue covered entities for violations of the proposed rule
  • The requirement to have a compliance coordinator and written grievance procedure to handle complaints about Section 1557 violations
  • Enforcement-related provisions

Public comment on this proposed rule will close 60 days after the proposed rule is published in the Federal Register. After considering public comments, OCR will issue a final rule. The final rule will be effective 60 days after it is published in the Federal Register.

Read more about the proposed rule in our “Updated on Nondiscrimination Regulations Relating to Sex, Gender, Age, and More” Advisor and our “Update on Nondiscrimination Regulations Relating to Sex, Gender, Age, and More – for Health Care Providers” Advisor.

IRS Releases Information Letter on Section 213 Medical Care Expenses

The Internal Revenue Service (IRS) released an information letter in response to a question of whether menstrual care products’ costs qualify as medical care expenses under Internal Revenue Code Section 213 for purposes of health savings accounts, health flexible spending accounts, and other tax-preferred accounts.

Although the IRS declined to specifically answer the question, it indicates that medical care expenses under Section 213 are limited to expenses paid primarily for the prevention or alleviation of a physical or mental defect or illness. Generally, an expense that benefits a person’s general health is a personal expense and not a medical care expense. A personal expense will only qualify as a medical care expense if the person would not have incurred the expense but for the person’s disease or illness.

The IRS lists some objective factors to use in determining whether an expense may qualify as a Section 213 medical care expense:

  • The motive or purpose for making the expenditure
  • A medical condition diagnosis and a physician’s recommendation of the item as treatment or mitigation
  • The relationship between the treatment and the illness
  • The treatment’s effectiveness
  • The proximity in time to the disease’s onset or recurrence.

OCR Releases Fact Sheet on Business Associate Liability

The Department of Health and Human Services Office of Civil Rights (OCR) recently released a fact sheet listing ten HIPAA violations for which business associates are directly liable.

Read more about business associate liability.

OCR Releases FAQs on HIPAA Applicability to Health-Related Apps

The Department of Health and Human Services Office for Civil Rights (OCR) recently released five Access Rights, Apps and APIs frequently asked questions (FAQs) regarding covered entities’ liability under HIPAA and HITECH for an application’s (app) use or disclosure of an individual’s protected health information (PHI).

If the app is not provided by or on behalf of the covered entity, the covered entity will not be liable for a PHI breach experienced by the app. However, if the app was developed for or provided by or on behalf of the covered entity, the covered entity could be liable under HIPAA because the app developer would be a business associate. A covered entity will not be liable for a PHI breach that occurs due to a person’s request that unencrypted PHI be transmitted to an app.

Question of the Month

Q: Who must pay the Patient-Centered Outcomes Research Institute (PCORI) fee and when is the fee due?

A: The fee must be determined and paid by:

  • The insurer for fully insured plans (although the fee likely will be passed on to the plan)
  • The plan sponsor of self-funded plans, including HRAs
    • The plan’s TPA may assist with the calculation, but the plan sponsor must file IRS Form 720 and pay the applicable fee
    • If multiple employers participate in the plan, each must file separately unless the plan document designates one as the plan sponsor

The fee is due by July 31, 2019 for the following plan/policy years:

Plan/Policy Year Year Fee Is Due

($2.39, indexed/person)

Feb. 1, 2017 – Jan. 31, 2018 July 31, 2019
March 1, 2017 – Feb. 28, 2018 July 31, 2019
April 1, 2017 – March 31, 2018 July 31, 2019
May 1, 2017 – April 30, 2018 July 31, 2019
June 1, 2017 – May 31, 2018 July 31, 2019
July 1, 2017 – June 30, 2018 July 31, 2019
Aug. 1, 2017 – July 31, 2018 July 31, 2019
Sept. 1, 2017 – Aug. 31, 2018 July 31, 2019
Oct. 1, 2017 – Sept. 30, 2018 July 31, 2019
Plan/Policy Year Year Fee Is Due

($2.45, indexed/person)

Nov. 1, 2017 – Oct. 31, 2018 July 31, 2019
Dec. 1, 2017 – Nov. 30, 2018 July 31, 2019
Jan. 1, 2018 – Dec. 31, 2018 July 31, 2019

 

6/3/2019


Compliance Recap - April 2019

Compliance Recap

April 2019

April was a busy month in the employee benefits world.

The Centers for Medicare & Medicare Services (CMS) issued its parameters for the defined standard Medicare Part D prescription drug benefit for 2020. In the court case challenging the Patient Protection and Affordable Care Act’s constitutionality, the court will hear oral arguments during the week of
July 8, 2019.

CMS released its 2020 Benefit Payment and Parameters final rule and fact sheet. The Department of Labor (DOL) started its appeal of the court case that invalidated portions of the DOL’s association health plans final rule. The DOL also released a statement regarding its enforcement of the final rule.

The Department of Health and Human Services (HHS) issued a notice that all Health Insurance Portability and Accountability Act of 1996 (HIPAA) enforcement actions will be governed by lower interim civil monetary penalty amounts as a matter of HHS’ enforcement discretion, pending rulemaking to change the current civil monetary penalty limits.

The Internal Revenue Service (IRS) released a memorandum regarding S corporation 2-percent shareholders’ deduction of group health plan coverage premiums paid or reimbursed by an S corporation.

UBA Updates

UBA released one new Advisor: Final 2020 Benefit Payment and Parameters Rule

UBA also updated existing guidance: Updates on DOL’s Association Health Plans Final Rule

 

 

CMS Releases 2020 Parameters for Medicare Part D Prescription Drug Benefit

The Centers for Medicare and Medicaid Services (CMS) released the following parameters for the defined standard Medicare Part D prescription drug benefit for 2020:

Deductible

$ 435

Initial coverage limit

$ 4,020

Out-of-pocket threshold

$ 6,350

Total covered Part D spending at the out-of-pocket threshold (for beneficiaries who are ineligible for the coverage gap discount program)

$ 9,719.38

Minimum cost-sharing in catastrophic coverage portion of the benefit

$ 3.60 for generic/preferred multi-source drugs

$ 8.95 for all other drugs

 

Generally, group health plan sponsors must disclose to Part D eligibility individuals whether the prescription drug coverage offered by the employer is creditable. Coverage is creditable if it, on average, pays out at least as much as coverage available through the defined standard Medicare Part D prescription drug plan.

Status of Court Case Challenging ACA Constitutionality

As background, in February 2018, twenty states filed a lawsuit asking the U.S. District Court for the Northern District of Texas (Court) to strike down the Patient Protection and Affordable Care Act (ACA) entirely. The lawsuit came after the U.S. Congress passed the Tax Cuts and Jobs Act in December 2017 that reduced the individual mandate penalty to $0, starting in 2019.

On December 14, 2018, the Court issued a declaratory order that the individual mandate is unconstitutional and that the rest of the ACA is unconstitutional. The Court granted a stay of its December 2018 order, which prohibits the order from taking effect while it is being appealed in the Fifth Circuit Court of Appeals (appeals court).

The appeals court will hear oral arguments during the week of July 8, 2019.

CMS Publishes 2020 Benefit Payment and Parameters Final Rule

The Centers for Medicare and Medicaid Services (CMS) published its final rule and fact sheet for benefit payment and parameters for 2020. Although the final rule primarily affects the individual market and the Exchanges, the final rule addresses the following topics that may impact employer-sponsored group health plans:

  • The 2020 maximum annual limitation on cost sharing is $8,150 for self-only coverage and $16,300 for other-than-self-only coverage.
  • For fully-insured plans, any indication of a reduction in the generosity of a benefit for individuals that is not based on clinically indicated, reasonable medical management practices is potentially discriminatory.
  • Amounts paid toward cost sharing using direct support by drug manufacturers (for example, coupons) to insured patients to reduce or eliminate immediate out-of-pocket costs for specific prescription brand drugs that have a generic equivalent are not required to be counted toward the annual limitation on cost sharing.
  • Federally Facilitated Small Business Health Options Programs (FF-SHOPs) may operate a toll-free hotline rather than a more robust call center.

The final rule is effective on June 24, 2019. The final rule generally applies to plan years beginning on or after January 1, 2020.

Read more about the final rule.

DOL Appeals Association Health Plan Court Case

On March 28, 2019, the U.S. District Court for the District of Columbia (Court) found that the DOL’s association health plans final rule exceeded the statutory authority delegated by Congress under the Employee Retirement Income Security Act (ERISA) and that the final rule unlawfully expands ERISA’s scope. In particular, the Court found the final rule’s provisions – defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees – were unlawful and must be set aside.

On April 26, 2019, the Department of Justice (DOJ) filed a notice of appeal. On April 29, 2019, the DOL issued a statement regarding its enforcement policy regarding the final rule. In light of the court’s decision, the DOL will not take enforcement action against:

  • employers and associations for potential violations stemming from actions taken before the court’s decision:
  • if the employer or association relied in good faith on the AHP final rule’s validity and
  • as long as the employers (and association) meet their responsibilities to association members and their participants and beneficiaries to pay health benefit claims as promised.
  • existing AHPs for continuing to provide benefits – to members who enrolled in good faith reliance on the AHP rule’s validity before the court’s order – through the remainder of the plan year or contract term that was in force at the time of the court’s decision.

This means that the DOL will not enforce potential violations that may have occurred before March 28, 2019. However, the DOL will enforce violations that occur on or after March 28, 2019. Because the DOL has not asked for a stay of the court order, associations cannot form self-funded AHPs under the final rule and existing AHPs must not market to new enrollees or sole proprietors.

Employers and their employees who are currently participating in an insured AHP under the final rule can generally maintain their coverage through the later of the end of the plan year or contract term. However, at the end of the plan year, the issuer will only be able to renew coverage for an employer if the coverage complies with the relevant market requirements for that employer’s size, rather than the association’s size.

For example, if a small employer and a sole proprietor joined an insured AHP under the final rule, then at renewal, an insurer can only sell coverage that complies with the small group market rules to the small employer and that complies with the individual market rules to the sole proprietor.

In the upcoming months, the U.S. Court of Appeals for the District of Columbia Circuit will consider the legal arguments in this case. Employers in AHPs should keep apprised of future developments in this case.

Read more about DOL’s enforcement of the final rule.

HHS Issues Notification Regarding the HIPAA Civil Monetary Penalty Tiers

On April 30, 2019, the Department of Health and Human Services (HHS) issued a notice that all Health Insurance Portability and Accountability Act of 1996 (HIPAA) enforcement actions will be governed by the following interim penalty tiers as a matter of HHS’ enforcement discretion:

Culpability

Penalty per violation

Annual limit

No knowledge

$100 – $50,000

$25,000

Reasonable cause

$1,000 – $50,000

$100,000

Willful neglect – corrected

$10,000 – $50,000

$250,000

Willful neglect – not corrected

$50,000

$1,500,000

 

The notice doesn’t legally bind HHS and doesn’t create legal rights for covered entities such as employers’ group health plans.

Practically speaking, the penalty amounts have not changed. The civil monetary penalties under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health (HITECH) Act, continue to be:

Culpability

Penalty per violation

Annual limit

No knowledge

$114 – $57,051

$1,711,533

Reasonable cause

$1,141 – $57,051

$1,711,533

Willful neglect – corrected

$11,410 – $57,051

$1,711,533

Willful neglect – not corrected

$57,051

$1,711,533

 

However, HHS may exercise discretion to impose a lower penalty amount if a covered entity, such as a health plan, is facing enforcement for violating HIPAA or HITECH.

HHS plans to engage in rulemaking to revise the penalty amounts. If and when final regulations are issued, then the revised penalty amounts will become law.

IRS Releases Memo on 2-percent Shareholders’ Health Coverage Deductions

The Internal Revenue Service (IRS) released a memorandum to confirm that a person who is a 2-percent shareholder (through Internal Revenue Code §318’s attribution rules) in an S corporation is entitled to a deduction for the amounts paid by the S corporation under a group health plan.

For the 2-percent shareholder to deduct the health insurance premium amounts, the S corporation must report the health insurance premiums paid or reimbursed as wages on the 2-percent shareholder’s Form W-2 in that same year. Also, the shareholder must report the premium payments or reimbursements from the S corporation as gross income on the Form 1040, U.S. Individual Tax Return.

Question of the Month

  1. What are the penalties for failing to comply with Section 125 requirements, such as failing to follow a cafeteria plan document’s terms?
  2. An operational failure occurs when a plan fails to follow its cafeteria plan document’s terms. There are several potential penalties for operational failures, including:
  • Cafeteria plan disqualification
  • Requiring the cafeteria plan to comply with Section 125 and its regulations, including reversing transactions that caused noncompliance
  • Imposing employment tax withholding liability and penalties on the employer regarding pre-tax salary reductions and elective employer contributions
  • Imposing employment and income tax liability and penalties on employees regarding pre-tax salary reductions and elective employer contributions

 

5/1/2019


Compliance Recap - March 2019

Compliance Recap - March 2019

March was a busy month in the employee benefits world.

The Department of Justice (DOJ) announced that it will not defend the Patient Protection and Affordable Care Act (ACA) in the court case challenging the ACA’s constitutionality. The Internal Revenue Service (IRS) updated two Q&As regarding ACA reporting for 2018.

The Department of Health and Human Services (HHS) published its 2020 Actuarial Value Methodology and 2020 AV Calculator. HHS also released a bulletin that allows grandmothered plans to be extended through 2020. A U.S. District Court vacated the bona fide associations and working owner provisions contained in the Department of Labor’s association health plans final rule.

The Department of Labor (DOL) released two information letters. One information letter clarifies when an authorized representative may receive claim-related notices on behalf of an ERISA plan participant. The other information letter addresses whether employees may delay taking FMLA leave and whether the statutory 12-week period may be extended.

The IRS updated its Publication 969 for taxpayers to use in preparing 2018 returns. The IRS also announced tax relief for individuals and businesses affected by recent storms in Alabama, Nebraska, and Iowa.

UBA Updates

UBA released one new advisor: 2019 Compliance Calendar

UBA updated or revised existing guidance:

 

Status of Court Case Challenging ACA Constitutionality

As background, in February 2018, twenty states filed a lawsuit asking the U.S. District Court for the Northern District of Texas (Court) to strike down the Patient Protection and Affordable Care Act (ACA) entirely. The lawsuit came after the U.S. Congress passed the Tax Cuts and Jobs Act in December 2017 that reduced the individual mandate penalty to $0, starting in 2019.

On December 14, 2018, the Court issued a declaratory order that the individual mandate is unconstitutional and that the rest of the ACA is unconstitutional. The Court granted a stay of its December 2018 order, which prohibits the order from taking effect while it is being appealed in the Fifth Circuit Court of Appeals (appeals court).

On March 25, 2019, the DOJ submitted a letter to the appeals court clerk stating the Court’s ruling should be affirmed and that the entire ACA should be struck down as unconstitutional. The DOJ intends to file an appellate brief to defend the Court’s ruling.

IRS Updates Q&As on ACA Reporting

On March 26, 2019, the Internal Revenue Service (IRS) updated the Extended Due Dates and Transitional Relief section of the Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055) to include two additional Q&As at Q29 and Q30. Q29 addresses the extended 2019 due date, provided under IRS Notice 2018-94, for furnishing Forms 1095-B to individuals. Q30 states that Notice 2018-94 did not affect the penalty amounts for failing to furnish and file Forms 1094 and 1095.

The IRS updated the Extended Due Dates and Transition Relief for 2015 and 2016 Reporting section of the Questions and Answers on Reporting of Offers of Health Coverage by Employers (Section 6056) to include an additional Q&A at Q35. Q35 addresses the extended 2019 due date provided under IRS Notice 2018-94 for furnishing Forms 1095-C to individuals.

HHS Publishes Final 2020 Actuarial Value Calculator and Methodology

On March 19, 2019, The Department of Health and Human Services (HHS) published the Final 2020 Actuarial Value (AV) Calculator Methodology. The Final 2020 AV Calculator Methodology also contains the 2020 AV Calculator. HHS issues this guidance annually to help issuers of non-grandfathered health insurance plans, offered in the individual and small group markets, to determine the levels of coverage of their plans (for example, AV of 60 percent for bronze level, AV of 70 percent for silver level, AV of 80 percent for gold level, and AV of 90 percent for platinum level).

A few changes were made to the 2020 AV Calculator compared to the 2019 AV Calculator. For the 2020 AV Calculator, HHS added a one-year projection factor of 6.1 percent for medical costs and 9.8 percent for drugs costs to the calculator claims data. Also, the AV Calculator estimate for the annual limit on cost-sharing has been increased to $8,250 for 2020. Finally, HHS removed the column labeled “Number of Enrollees” in its AV Calculator to limit user confusion.

HHS Releases Bulletin that Extends Grandmothered Plans Through 2020

As background, in the fall of 2013, the Department of Health and Human Services (HHS) announced a transitional relief program that allowed state insurance departments to permit early renewal at the end of 2013 of individual and small group policies that do not meet the “market reform” requirements of the Patient Protection and Affordable Care Act (ACA) and for the policies to remain in force until their new renewal date in late 2014.

Since 2013, HHS has re-extended transitional relief each year. Most recently, on March 25, 2019, HHS released a Bulletin in which it re-extended its transitional relief policy to permit renewals with a termination date no later than December 31, 2020, provided that all such coverage comes into compliance with the specified requirements by January 1, 2021.

Read more about the transitional relief.

District Court Vacates Portions of the Association Health Plans Final Rule

As background, on June 19, 2018, the U.S. Department of Labor (DOL) issued a Final Rule that broadened the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act (ERISA).

On March 28, 2019, the U.S. District Court for the District of Columbia (Court) found that the DOL’s final rule exceeded the statutory authority delegated by Congress under ERISA and that the final rule unlawfully expands ERISA’s scope. In particular, the Court found the final rule’s provisions – defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees – are unlawful and must be set aside.

The Court’s order vacates the specific provisions of the DOL’s final rule regarding “bona fide group or association of employers,” “commonality of interest,” and “dual treatment of working owners as employers and employees.” The Court order sends the final rule back to the DOL to consider how the final rule’s severability provision affects the final rule’s remaining portions.

Although the DOL issued Questions and Answers after the Court’s decision, the DOL has not indicated how it will proceed. The DOL could revise its final rule or could appeal the decision and request that the Court stay its decision pending the appeal. Employers in association health plans should keep apprised of future developments in this case.

Read more about the court decision.

DOL Releases Information Letter on ERISA Claim-Related Notices to Representatives

The Department of Labor (DOL) recently released an information letter (Letter) that clarifies an authorized representative’s ability to receive notices regarding claims under ERISA. The Letter notes that a plan may communicate with both the individual and the individual’s authorized representative. However, for purposes of the claims procedures rules, when a person clearly designates an authorized representative to act and receive notices on the person’s behalf with respect to a claim, the plan should direct all information and notifications to the authorized representative, unless the person indicates otherwise.

DOL Releases Opinion Letter on When an Employee Must Take FMLA Leave

On March 14, 2019, the Department of Labor (DOL) released Opinion Letter FMLA2019-1-A (Letter) to address whether an employer may delay designating paid leave as Family and Medical Leave Act (FMLA) leave or permit employees to extend FMLA leave beyond the 12-week period (26 weeks for military or caregiver leave) provided under the FMLA.

The Letter states that once an eligible employee communicates a need to take leave for an FMLA-qualifying reason, neither the employee nor the employer may delay designating the FMLA-qualifying leave as FMLA leave. The employer may not delay designating leave as FMLA-qualifying leave even if the employee would prefer that the employer delay the designation. Further, an employer may not designate more than 12 weeks of leave as FMLA leave. If an employee substitutes paid leave for unpaid FMLA, the paid leave counts toward the 12-week FMLA period and does not extend such period.

IRS Releases Publication 969 Health Savings Accounts and Other Tax-Favored Health Plans

The Internal Revenue Service (IRS) updated its Publication 969 for taxpayers to use in preparing 2018 returns. The publication explains Health Savings Accounts (HSAs), Medical Savings Accounts (Archer MSAs and Medicare Advantage MSAs), Health Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs).

Tax Relief for Victims of Storms in Alabama, Nebraska, and Iowa

The Internal Revenue Service (IRS) recently announced that individuals who reside or have businesses in certain counties of Alabama, Nebraska, and Iowa may qualify for tax relief, including postponed deadlines, because of the President’s declaration that a major disaster occurred in these states due to severe storms. The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

The Department of Labor (DOL) released a Fact Sheet that recognizes that the recent natural disasters may impede efforts to comply with ERISA for the next few months. The Fact Sheet provides guidance on relief that is available for certain ERISA requirements for employee benefit plans. The DOL also released an FAQ directed toward participants and beneficiaries of employee benefit plans that have been impacted by the recent natural disasters. The FAQ addresses health benefit questions and retirement benefit questions.

Question of the Month

  1. How does a person who is 65 years old or older maintain HSA eligibility and continue working? Also, when the person plans to retire, what should the person do about HSA contributions to avoid IRS penalties?
  2. To maintain health savings account (HSA) eligibility, an individual who is working and age 65 or older must:
  • Not apply for or waive Medicare Part A, and
  • Not apply for Medicare Part B, and
  • Waive or delay Social Security benefits.

For example, if a person delays Social Security benefits and delays Medicare Part A and B, retires at the end of April at an age over 65, and applies for Social Security benefits and Medicare on May 1, 2019, then the general rule is that the person’s Social Security entitlement and Medicare Part A coverage will be retroactive for six months, but no earlier than the person’s first month of eligibility. In this example, if the person retired and applied for Medicare at age 67, then Medicare benefits would be retroactively effective as of November 2018.

IRS regulations state that a person can’t contribute to an HSA when the person has Medicare, so a person would need to stop contributing six months in advance of applying for Social Security benefits and Medicare. If a person contributes to an HSA after Medicare coverage begins, then the person may be subject to IRS penalties.

4/10/2019


Compliance Recap - February 2019

February was a quiet month in the employee benefits world.

The Internal Revenue Service (IRS) released an information letter addressing when an employer may seek recoupment of contributions made to an employee’s HSA.

A U.S. District Court held that the State of Maryland could not ask for a declaration that the Patient Protection and Affordable Care Act (ACA) is constitutional and enforceable. Four states and the U.S. House of Representatives joined the appeal of the court case that held the ACA to be unconstitutional.

The Department of the Treasury, Department of Labor (DOL), and the Department of Health and Human Services (HHS) issued a request for information regarding grandfathered group health plans.

UBA Updates

UBA released one new advisor: Compliance Recap – 2018 Year in Review

UBA updated or revised existing guidance: State Guide to COBRA Supplemental Requirements

IRS Releases Information Letter on Returning HSA Contributions to an Employer

Generally, a person’s interest in a health savings account (HSA) is nonforfeitable. However, in the past, the Internal Revenue Service’s Notice 2008-59 described limited circumstances under which an employer may recoup contributions made to an employee’s HSA.

The Internal Revenue Service (IRS) recently released Information Letter 2019-0033 (Letter), clarifying that IRS Notice 2008-59 was not intended to provide an exclusive set of circumstances in which an employer can recoup contributions made to an HSA. If there is clear evidence of an administrative or process error, an employer may request that the contributions it made to an employee’s HSA be returned. This correction should put the employer and employee in the same position that they would have been in if the error had not occurred.

The Letter lists the following examples of when an employer may recoup HSA contributions:

  • An amount withheld and deposited in an employee’s HSA for a pay period is greater than the amount shown on the employee’s HSA salary reduction election.
  • An employee receives an employer contribution that the employer did not intend to contribute but the amount was transmitted because an incorrect spreadsheet is accessed or because employees with similar names are confused with each other.
  • An employee receives an incorrect HSA contribution because it is incorrectly entered by a payroll administrator (whether in-house or third-party) causing the incorrect amount to be withheld and contributed.
  • An employee receives a second HSA contribution because duplicate payroll files are transmitted.
  • An employee receives as an incorrect HSA contribution because a change in employee payroll elections is not processed timely so that amounts withheld and contributed are greater than (or less than) the employee elected.
  • An employee receives an incorrect HSA contribution because an HSA contribution amount is calculated incorrectly, such as a case in which an employee elects a total amount for the year that is allocated by the system over an incorrect number of pay periods.
  • An employee receives an incorrect HSA contribution because the decimal position is set incorrectly resulting in a contribution greater than intended.

Status of Court Case Challenging ACA Constitutionality

There is recent activity in the court case regarding the Patient Protection and Affordable Care Act’s constitutionality.

As background, in February 2018, twenty states filed a lawsuit asking the U.S. District Court for the Northern District of Texas (Court) to strike down the Patient Protection and Affordable Care Act (ACA) entirely. The lawsuit came after the U.S. Congress passed the Tax Cuts and Jobs Act in December 2017 that reduced the individual mandate penalty to $0, starting in 2019.

On December 14, 2018, the Court issued a declaratory order that the individual mandate is unconstitutional and that the rest of the ACA is unconstitutional. The Court granted a stay of its December 2018 order, which prohibits the order from taking effect while it is being appealed in the Fifth Circuit Court of Appeals (appeals court).

On February 1, 2019, the U.S. District Court for the District of Maryland held that the State of Maryland could not ask for a declaration that the ACA is constitutional and enforceable because the federal government will continue to enforce the ACA while the appeal proceeds.

On February 14, 2019, the appeals court granted the U.S. House of Representatives’ request to intervene as a party to the lawsuit to defend the ACA. Also, on February 14, the appeals court granted the request of the states of Colorado, Iowa, Michigan, and Nevada to intervene as parties to the lawsuit to defend the ACA. The appeals court denied these intervenor states’ request for expedited briefing. The federal government’s brief is due on March 25, the twenty states’ brief is due on April 24, and reply briefs are due on May 15.

Agencies Issue Request for Information on Grandfathered Health Plans

On February 25, 2019, the Department of the Treasury, Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, the Departments) issued a request for information (RFI) regarding grandfathered group health plans. The RFI contains two sets of questions concerning: (1) maintaining (or relinquishing) grandfathered status and (2) general information about grandfathered group health plans and group health insurance coverage.

As background, under the ACA, group health plans that were in existence on March 23, 2010, are excused from some of the ACA’s requirements. Under the Departments’ prior guidance, certain changes can cause a plan to lose its grandfathered status.

The RFI is intended to help the Departments understand issues related to grandfathered health plans and to estimate the impact of any potential changes to the rules governing group health plans’ retention of grandfathered status. The RFI also seeks to determine whether there are opportunities for the Departments to assist group health plans with maintaining grandfathered status.

Question of the Month

Q: When must IRS reporting Forms 1094-C, 1095-C, 1094-B, and 1095-B be electronically filed for the 2018 calendar year?

A: If filing electronically, Forms 1094-C, 1095-C, 1094-B, and 1095-B must be filed by April 1, 2019. Employers may file Form 8809 to receive an automatic 30-day extension of this due date for forms due to the IRS. Form 8809 must be filed by April 1, 2019 for employers that are filing electronically.

3/1/2019


Compliance Recap - 2018 Year in Review

Compliance Recap – 2018 Year in Review

During 2018, federal agencies and courts provided employers with a significant amount of new guidance, regulation, and FAQs relating to employer benefit plans. This month-by-month guide provides a timeline of these documents, highlighting the major changes and updates in 2018.

To access the complete monthly Compliance Recaps, please click below:

January 2018 Compliance Recap

February 2018 Compliance Recap

March 2018 Compliance Recap

April 2018 Compliance Recap

May 2018 Compliance Recap

June 2018 Compliance Recap

July 2018 Compliance Recap

August 2018 Compliance Recap

September 2018 Compliance Recap

October 2018 Compliance Recap

November 2018 Compliance Recap

December 2018 Compliance Recap

January 2018

January was a busy month in the employee benefits world. On January 24, 2018, the U.S. Senate confirmed Alex Azar as the new Secretary of the U.S. Department of Health and Human Services (HHS).

HHS released the 2018 federal poverty guidelines. The DOL issued updated civil monetary penalties for 2018 and announced the applicability date for final regulations regarding disability claims procedures.

Congress and the President delayed the Cadillac tax’s effective date, delayed the health insurance tax (HIT), and reauthorized the Children’s Health Insurance Program.

HHS Releases 2018 Federal Poverty Guidelines

The U.S. Department of Health and Human Services (HHS) released the 2018 federal poverty guidelines (FPL). For a family/household of one in the contiguous United States, the FPL is $12,140. In Alaska, the FPL is $15,180, and in Hawaii, the FPL is $13,960.

For 2018, applicable large employers that wish to use the FPL affordability safe harbor under the employer shared responsibility / play-or-pay rules should ensure that their lowest employee-only premium is equal to or less than $96.72 a month, which is 9.56% of the 2018 FPL.

Civil Monetary Penalties Inflation Adjustment for 2018

The U.S. Department of Labor (DOL) published its civil monetary penalties for 2018. Under federal law, the DOL is required to annually adjust its regulations’ civil monetary penalties for inflation no later than January 15 of each year. The adjusted penalty amounts are effective for violations occurring after November 2, 2015, that have penalties assessed after January 2, 2018.

Below are some examples of the increases.

Description 2017 Penalty Amount 2018 Penalty Amount
Failure to file Form 5500 $2,097 per day $2,140 per day
Failure to provide the Summary of Benefits and Coverage (SBC) $1,105 $1,128
Failure to provide documents requested by the DOL $149 per day, not to exceed $1,496 per request $152 per day, not to exceed $1,527 per request
Failure to inform employees of children’s health insurance program (CHIP) coverage opportunities; each employee is a separate violation $112 per day $114 per day

DOL Issues Final Disability Claims Procedures Regulations’ Applicability Date

The U.S. Department of Labor (DOL) announced that April 1, 2018, will be the applicability date for its rule that amends the claims procedure requirements of ERISA-covered employee benefit plans that provide disability benefits. The DOL’s Fact Sheet contains a summary of the regulation’s requirements.

Congress Delays Cadillac Tax Effective Date, Delays HIT Tax, and Reauthorizes CHIP

Congress and the President passed H.R. 195, a short-term spending bill. The bill delays the effective date of the excise tax on high cost employer-sponsored health coverage (“Cadillac tax”) to 2022. The bill delays the health insurance tax (HIT) that applies to insurers. The HIT was in effect in 2014, 2015, and 2016, and will be in effect for 2018. Now the HIT will be delayed from 2019 to 2020; essentially, the bill implemented a one-year moratorium for the HIT for 2019. The bill also reauthorizes the Children’s Health Insurance Program (CHIP) for six years.

February 2018

Coming off a busy January, the Internal Revenue Service (IRS) updated its Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C, its Questions and Answers on Information Reporting by Health Coverage Providers, and its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.

The IRS released its adjusted penalty amounts under the employer shared responsibility provisions for the 2018 calendar year.

IRS Updates Its Employer Information Reporting Q&As

The Internal Revenue Service (IRS) updated its “Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C.” The IRS made one substantive change to the Q&As. At Q&A #5, the IRS provided the 2018 due dates for furnishing forms to employees and filing forms with the IRS.

For reporting in 2018 (for offers of coverage and coverage in 2017), an applicable large employer must furnish Form 1095-C to each full-time employee on or before March 2, 2018. This due date reflects a 30-day extension from the general due date (that is, January 31 of the year immediately following the calendar year to which the information relates); the extension was provided by the IRS in Notice 2018-06 on December 22, 2017. The extension applies automatically and does not require the submission of any request or other documentation to the IRS.

Although the IRS extended the due date for furnishing Form 1095-C for 2017, the due date for filing Forms 1094-C and 1095-C with the IRS was not extended.

IRS Updates Its Q&As on Information Reporting by Health Coverage Providers

The Internal Revenue Service (IRS) updated its Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055) by adding questions 30 through 35. Among other items, the IRS discussed short-term relief available from penalties for incomplete or incorrect returns filed with the IRS or furnished to individuals. For reporting in 2016, 2017, and 2018, the IRS will not impose penalties on employers that can show that they have made good faith efforts to comply with the information reporting requirements.

IRS Announces the Play-or-Pay Adjusted Penalty Amounts

The Internal Revenue Service (IRS) updated its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act to reflect adjusted penalty amounts for failures to offer coverage in the 2018 calendar year. For Penalty A (or the “no offer” penalty), the adjusted penalty amount per full-time employee is $2,320. For Penalty B (or the “inadequate coverage” penalty), the adjusted penalty amount per full-time employee is $3,480.

March 2018

March was a quiet month in the employee benefits world. The U.S. Department of Labor (DOL) updated its model Premium Assistance Under Medicaid and the Children’s Health Insurance Program notice (CHIP notice).

The IRS issued its updated Employer’s Tax Guide to Fringe Benefits, issued transition relief regarding HSA eligibility of individuals with health insurance that provides benefits for male sterilization or male contraceptives without a deductible, and issued its updated Guide on Health Savings Accounts and Other Tax-Favored Health Plans.

DOL Updates Employer CHIP Notice

The U.S. Department of Labor (DOL) updated its model Premium Assistance Under Medicaid and the Children’s Health Insurance Program notice (CHIP notice).

Employers that provide health insurance coverage in states with premium assistance through Medicaid or the Children’s Health Insurance Program (CHIP) must provide their employees with the CHIP notice before the start of each plan year. The CHIP notice provides information to employees on how to apply for premium assistance, including how to contact their state Medicaid or CHIP office. The DOL usually updates its model CHIP notice biannually.

IRS Issues Updated Employer’s Tax Guide to Fringe Benefits

The Internal Revenue Service (IRS) issued its 2018 Publication 15-B which contains information for employers on the employment tax treatment of fringe benefits. The guide is updated to reflect, among other items:

  • The suspension of qualified bicycle commuting reimbursements from an employee’s income for any tax year beginning after December 31, 2017, and before January 1, 2026.
  • The suspension of the exclusion for qualified moving expense reimbursements from an employee’s income for tax years beginning after December 1, 2017, and before January 1, 2026. However, the exclusion remains available for a U.S. Armed Forces member on active duty who moves because of a permanent change of station.
  • Limits on the deduction by employers for certain fringe benefits, such as meals and transportation commuting benefits.
  • The definition of items that aren’t tangible personal property for purposes of employee achievement awards.

The guide lists fringe benefits’ tax treatment in its Table 2-1 “Special Rules for Various Types of Fringe Benefits.”

IRS Issues Transition Relief Notice for Plans with Male Sterilization or Contraceptive Benefit

Recently, some states adopted laws that require certain health insurance policies to provide benefits for male sterilization and male contraceptives without cost-sharing.

However, under health saving account (HSA) eligibility requirements, a high deductible health plan (HDHP) generally may not provide benefits for any year until the minimum deductible for that year is satisfied. Although an HDHP may provide preventive care without a deductible or with a deductible that is below the minimum annual amount required by HSA eligibility requirements, male sterilization and male contraceptives are not considered preventive care under the Social Security Act or any Treasury Department guidance.

The Internal Revenue Service (IRS) released its Notice 2018-12 (Notice) to clarify that if a health plan provides benefits for male sterilization or male contraceptives before satisfying the minimum deductible for an HDHP, then the plan is not an HDHP, regardless of whether state law requires coverage of such benefits. Further, an individual who is not covered by an HDHP with respect to a month is not an HSA-eligible individual and may not deduct contributions to an HSA for that month. Similarly, HSA contributions made by an employer on behalf of the individual are not excludible from income and wages.

To allow states time to change their laws so their residents will be able to purchase health insurance coverage that qualifies as an HDHP, the Notice provides transition relief for periods before 2020 to individuals who are, have been, or become participants in or beneficiaries of a health insurance policy that provides benefits for male sterilization or male contraceptives without a deductible or with a deductible below the minimum deductible for an HDHP.

During the transition relief period, an individual with this type of health insurance policy will not be treated as HSA-ineligible, merely because the policy fails to qualify as an HDHP.

IRS Issues Updated Guide on Health Savings Accounts and Other Tax-Favored Health Plans

The Internal Revenue Service (IRS) updated its Publication 969 for taxpayers to use in preparing their 2017 returns. The publication explains health savings accounts (HSAs), medical savings accounts (Archer MSAs and Medicare Advantage MSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs).

April 2018

April was a busy month in the employee benefits world. The Internal Revenue Service (IRS) modified the 2018 health savings account (HSA) family contribution limit back to $6,900. The U.S. Department of Labor (DOL), U.S. Department of Health and Human Services (HHS), and the Treasury released proposed frequently asked questions regarding mental health parity.

The Centers for Medicare and Medicaid Services (CMS) released the 2019 parameters for the Medicare Part D prescription drug benefit, a 2019 Benefit and Payment Parameters final rule, and a transitional policy extension for non-grandfathered coverage in the small group and individual health insurance markets.

The IRS released frequently asked questions on the employer credit for paid family medical leave.

IRS Changes 2018 HSA Family Contribution Limit

The Internal Revenue Service (IRS) recently released Revenue Procedure 2018-27 to modify the 2018 health savings account (HSA) family contribution limit back to $6,900. This is the second, and likely final, change in limit during 2018.

As background, in May 2017, the IRS released Revenue Procedure 2017-37 that set the 2018 HSA family contribution limit at $6,900.

However, in March 2018, the IRS released Revenue Procedure 2018-10 that adjusted the annual inflation factor for some tax-related formulas from the Consumer Price Index (CPI) to a new factor called a “chained CPI.” As a result, the 2018 HSA family contribution limit was lowered to $6,850 from $6,900, retroactively effective to January 1, 2018.

Stakeholders informed the IRS that the lower HSA contribution limit would impose many unanticipated administrative and financial burdens. In response and in the best interest of sound and efficient tax administration, the IRS will allow taxpayers to treat the originally published $6,900 limit as the 2018 HSA family contribution limit.

Excess Contribution Tax Treatment if Employee Received Distribution Based on Earlier Limit
Employee received distribution of excess contribution with earnings? Employee repays distribution by the individual’s tax return filing date? Excess contribution is includible in the employee’s gross income and subject to the 20% excess contributions excise tax?
Yes Yes No
Yes No Generally, no.

Yes, if the HSA distribution is attributable to employer contributions and not included in the employee’s wages because the employer treats $6,900 as the limit, unless the employee uses the distribution for qualified medical expenses.

DOL, HHS, and Treasury Release Proposed FAQs on Mental Health Parity

The U.S. Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the “Departments”) released proposed FAQs About Mental Health and Substance Use Disorder Parity Implementation and the 21st Century Cures Act Part XX.

The Departments respond to FAQs as part of implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).

Generally, the MHPAEA requires that the financial requirements (for example, coinsurance and copays) and treatment limitations (for example, visit limits) imposed on mental health or substance abuse disorder (MH/SUD) benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical/surgical benefits in a class.

Similarly, a group health plan or issuer cannot impose a nonquantitative treatment limitation (NQTL) on MH/SUD benefits that is more stringent than a comparable limitation that is applied to medical/surgical benefits.

The MHPAEA regulations include express disclosure requirements. For example, if a participant requests the criteria for medical necessity determinations regarding MH/SUD benefits, then the plan administrator must make the information available to the participant.

To assist plan sponsors with disclosure requests, DOL released a revised draft Mental Health and Substance Use Disorder Parity Disclosure Request that plan sponsors may provide to individuals who request information from an employer-sponsored health plan regarding treatment limitations.

To assist plan sponsors in determining whether a group health plan complies with MHPAEA, the DOL released its Self-Compliance Tool for the Mental Health Parity and Addiction Equity Act. 

CMS Releases 2019 Parameters for Medicare Part D Prescription Drug Benefit

The Centers for Medicare and Medicaid Services (CMS) released the following parameters for the defined standard Medicare Part D prescription drug benefit for 2019:

Deductible $ 415
Initial coverage limit $ 3,820
Out-of-pocket threshold $ 5,100
Total covered Part D spending at the out-of-pocket threshold (for beneficiaries who are ineligible for the coverage gap discount program) $ 8,139.54
Minimum cost-sharing in catastrophic coverage portion of the benefit $ 3.40 for generic/preferred multi-source drugs

$ 8.50 for all other drugs

Generally, group health plan sponsors must disclose to Part D eligibility individuals whether the prescription drug coverage offered by the employer is creditable. Coverage is creditable if it, on average, pays out at least as much as coverage available through the defined standard Medicare Part D prescription drug plan.

CMS Issues 2019 Benefit and Payment Parameters Final Rule

The Centers for Medicare and Medicaid Services (CMS) published its 2019 Benefit and Payment Parameters final rule. The rule primarily affects the individual health insurance market inside and outside of the Exchange, the small group health insurance market, issuers, and the states.

Within the rule, three items most directly affect employers and their group health plans:

  • Maximum annual out-of-pocket limit on cost sharing for 2019
  • New methods for changing state EHB-benchmark plans
  • New requirements for employers and issuers participating in the Small Business Health Options Program (SHOP) Marketplace

Read more about the final rule.

CMS Issues Transitional Policy Extension

The Centers for Medicare and Medicaid Services (CMS) issued a bulletin extending its transitional policy.

As background, in November 2013, CMS announced a transitional policy for non-grandfathered coverage in the small group and individual health insurance markets. Under its policy, health insurance issuers may choose to continue certain coverage that would otherwise be cancelled because of noncompliance with Patient Protection and Affordable Care Act (ACA) and Public Health Service Act (PHS Act). Further, affected small businesses and individuals may choose to re-enroll in such coverage.

Under its policy, non-grandfathered health insurance coverage in the small group and individual health insurance markets will not be considered to be out of compliance with the following ACA and PHS Act market reforms if certain criteria are met:

  • Fair health insurance premiums
  • Guaranteed availability of coverage
  • Guaranteed renewability of coverage
  • Prohibition of pre-existing condition exclusions or other discrimination based on health status, with respect to adults, except with respect to group coverage
  • Prohibition of discrimination against individual participants and beneficiaries based on health status, except with respect to group coverage
  • Non-discrimination in health care
  • Coverage for individuals participating in approved clinical trials
  • Single risk pool requirement

Under CMS’ transitional policy, states may permit issuers that have renewed policies under the transitional policy continually since 2014 to renew such coverage for a policy year starting on or before October 1, 2019. However, any policies renewed under this transitional policy must not extend past December 31, 2019.

IRS Releases FAQ on Employer Credit for Paid Family Medical Leave

The IRS released an FAQ that primarily reiterates the Tax Cuts an Jobs Act’s provisions that provide a new federal credit for employers that provide paid family and medical leave to their employees.

The IRS explains that an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.

The IRS adds this definition of “paid family and medical leave” that, for purposes of the credit, includes time off for:

  • Birth of an employee’s child and to care for the child.
  • Placement of a child with the employee for adoption or foster care
  • To care for the employee’s spouse, child, or parent who has a serious health condition
  • A serious health condition that makes the employee unable to perform the functions of his or her position
  • Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin

The FAQ also explains that, in the future, the IRS intends to address:

  • When the written policy must be in place
  • How paid “family and medical leave” relates to an employer’s other paid leave
  • How to determine whether an employee has been employed for “one year or more”
  • The impact of state and local leave requirements
  • Whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit

Read more about the federal tax credit for employer-provided paid family and medical leave.

May 2018

May was a relatively busy month in the employee benefits world. The Internal Revenue Service (IRS) released the indexed threshold that employers will use in 2019 to determine coverage affordability. The IRS also issued inflation-adjusted amounts that will apply to health savings accounts for 2019.

The IRS released guidance on its play-or-pay penalty response acknowledgment letters. The IRS also released a tax reform tip, frequently asked questions about the family and medical leave credit, and a fact sheet on determining whether an employer is a large employer.

IRS Releases ACA Indexed Affordability Threshold for 2019

The Internal Revenue Service (IRS) released its Revenue Procedure 2018-34 that makes an indexing adjustment to the required contribution percentage that is used to determine whether employer-sponsored health coverage is affordable. For 2019, the percentage will be 9.86 percent.

This means that if an employer is using the federal poverty level (FPL) affordability safe harbor, then the maximum monthly self-only contribution will be $99.75. [9.86% of $12,140 (the 2018 contiguous U.S. FPL for one person), divided by 12, equals $99.75.]

IRS Releases 2019 Limits on Health Savings Accounts

The Internal Revenue Service (IRS) released its Revenue Procedure 2018-30 that provides the 2019 inflation-adjusted amounts for health savings accounts (HSAs).

For 2019, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,500. For 2019, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000.

For 2019, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage.

IRS Releases Guidance on its Play-or-Pay Penalty Response Acknowledgment Letters

In late 2017, the Internal Revenue Service (IRS) started mailing Letter 226J to inform large employers of their potential liability for an employer shared responsibility payment (ESRP) for the 2015 calendar year. The IRS’ determination of an employer’s liability and potential payment is based on information reported to the IRS on Forms 1094-C and 1095-C and information about the employer’s full-time employees that were allowed the premium tax credit.

The letter contains Form 14764 (ESRP Response) which is the form that the employer must use to file its response by the deadline listed in the letter. The employer uses Form 14764 to indicate that it agrees or disagrees with the IRS’ letter. If an employer disagrees with the proposed liability, then it must provide a full explanation of its disagreement using Form 14765.

The IRS will acknowledge the employer’s response with a Letter 227 that describes the further actions that an employer can take. The IRS’ recently released Understanding Your Letter 227 describes the versions of Letter 227 that an employer may receive:

  • Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response, and that the penalty will be assessed. After the IRS issues this letter, the case will be closed. No response is required.
  • Letter 227-K acknowledges receipt of the information provided and shows the penalty has been reduced to zero. After the IRS issues this letter, the case will be closed. No response is required.
  • Letter 227-L acknowledges receipt of the information provided and shows the penalty has been revised. The letter includes an updated Form 14765 and revised calculation table. The employer can agree or request a meeting with the manager and/or appeals.
  • Letter 227-M acknowledges receipt of information provided and shows that the penalty did not change. The letter provides an updated Form 14765 and revised calculation table. The employer can agree or request a meeting with the manager and/or appeals.
  • Letter 227-N acknowledges the decision reached in appeals and shows the penalty based on the appeals review. After the IRS issues this letter, the case will be closed. No response is required.

If, after receiving Letter 227, the employer agrees with the proposed penalty, then the employer would follow the instructions to sign the response form and return it with full payment in the envelope provided.

If, after receiving Letter 227, the employer disagrees with the proposed or revised shared employer responsibility payment, the employer must provide an explanation of why it disagrees or indicate changes needed, or both, on Form 14765. Then the employer must return all documents as instructed in the letter by the response date. The employer may also request a pre-assessment conference with the IRS Office of Appeals within the response date listed within Letter 227, which will be generally 30 days from the date of the letter.

If the employer does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment.

Read more about the play-or-pay penalty assessment letters.

IRS Releases Tax Reform Tax Tip and FAQs Regarding Family and Medical Leave Credit

The Internal Revenue Service (IRS) released its Tax Reform Tax Tip 2018-69: How the Employer Credit for Family and Medical Leave Benefits Employers and its updated Section 45S Employer Credit for Paid Family and Medical Leave FAQs that primarily reiterates the Tax Cuts and Jobs Act’s provisions that provide a new federal credit for employers that provide paid family and medical leave to their employees.

In its Tax Tip, the IRS explains that an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.

In its FAQs, the IRS indicates that, in the future, it will address when the written policy must be in place, how paid family and medical leave relates to an employer’s other paid leave, how to determine whether an employee has been employed for one year or more, the impact of state and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.

Read more about the federal tax credit for employer-provided paid family and medical leave.

IRS Releases Fact Sheet on Determining Whether an Employer is a Large Employer

The Internal Revenue Service (IRS) released Publication 5208 – Affordable Care Act: Determining if you are an applicable large employer that provides a three-step process for employers to determine whether they are an applicable large employer for purposes of the employer shared responsibility provisions.

Although this one-page fact sheet doesn’t provide new information about counting employees, it may be a helpful guide for those employers who have fewer than 50 full-time or full-time equivalent employees and who are growing their staff numbers.

June 2018

June was a relatively quiet month in the employee benefits world. The U.S. Department of Labor issued final regulations regarding association health plans. The Centers for Medicare and Medicaid Services released a form that certain plan sponsors will use for reporting limited wraparound coverage.

DOL Issues Final Regulations Regarding Association Health Plans

On June 19, 2018, the U.S. Department of Labor (DOL) published Frequently Asked Questions About Association Health Plans (AHPs) and issued a final rule that broadens the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act (ERISA).

The final rule is intended to facilitate adoption and administration of AHPs and expand health coverage access to employees of small employers and certain self-employed individuals.

The final rule will be effective on August 20, 2018. The final rule will apply to fully-insured AHPs on September 1, 2018, to existing self-insured AHPs on January 1, 2019, and to new self-insured AHPs formed under this final rule on April 1, 2019.

Read more about the final rule.

CMS Releases Form for Reporting Wraparound Excepted Benefits

Under a 2015 final rule by the Internal Revenue Service, U.S. Department of Labor, and U.S. Department of Health and Human Services, certain employers may offer limited wraparound coverage under one of two narrow pilot programs.

These wraparound benefits are considered an excepted benefit and are generally exempt from certain requirements of federal laws, including ERISA, the Internal Revenue Code, and parts of the Patient Protection and Affordable Care Act.

Under the final rule, plan sponsors who offer limited wraparound coverage have reporting requirements. In December 2017, the Centers for Medicare and Medicaid Services (CMS) issued a notice for comments on a proposed reporting form.

On June 25, 2018, the CMS published its Reporting Form for Plan Sponsors Offering Limited Wraparound Coverage. A plan sponsor of limited wraparound coverage must file the form once, within 60 days of the form’s publication (by August 24, 2018), or 60 days after the first day of the first plan year that limited wraparound coverage is first offered.

Read more about limited wraparound coverage.

July 2018

July was a quiet month in the employee benefits world. The IRS released an information letter on the employer shared responsibility provisions.

IRS Releases Information Letter on Employer Shared Responsibility

The Internal Revenue Service (IRS) released its Information Letter 2018-0013 to reiterate how the employer shared responsibility provisions would apply to an applicable large employer. Specifically, the IRS explained how the Service Contract Act (SCA) interacts with the Patient Protection and Affordable Care Act (ACA).

As background, the SCA requires workers who are employed on certain federal contracts to be paid prevailing wages and fringe benefits. An employer generally can satisfy its fringe benefit obligation by providing the cash equivalent of benefits or a combination of cash and benefits. Alternatively, an employer may permit employees to choose among various benefits, or various benefits and cash. An employer may choose to provide fringe benefits under the SCA by offering an employee the option to enroll in health coverage provided by the employer (including an option to decline that coverage). If the employee declines the coverage, that employer would then generally be required by the SCA to provide the employee with cash or other benefits of an equivalent value.

This Information Letter refers to IRS Notice 2015-87 which describes how the ACA and the SCA may be coordinated for plan years beginning before January 1, 2017, and until further guidance is issued and applicable. Notice 2015-87 clarifies that, for employees under the SCA, the choice of a cash-out payment will generally not require an employer to pay a greater share of the cost of the health coverage for the coverage to be considered affordable.

August 2018

August was a relatively quiet month in the employee benefits world. The Internal Revenue Service (IRS), the Department of Health and Human Services (HHS), and the Department of Labor (DOL) published a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule. To provide guidance on association health plans, the DOL posted a fact sheet and the IRS posted a new Q&A for employers.

IRS, HHS, and DOL Issue Final Rule on Short-Term, Limited-Duration Insurance

On August 3, 2018, the Internal Revenue Service, the Department of Health and Human Services (HHS), and the Department of Labor (collectively, the Departments) published a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule.

According to the Departments, the final rule will provide consumers with more affordable options for health coverage because they may buy short-term, limited-duration insurance policies that are less than 12 months in length and may be renewed for up to 36 months.

The final rule will apply to insurance policies sold on or after October 2, 2018.

Read more about the final rule.

DOL and IRS Release Additional Information on Association Health Plans

On August 20, 2018, the Department of Labor (DOL) posted the Association Health Plans ERISA Compliance Assistance fact sheet.

On August 20, 2018, the IRS added a new Q&A 18 to its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act. Q&A 18 confirms that:

  • An employer that is not an applicable large employer (ALE) under the employer shared responsibility provisions does not become an ALE due to participation in an AHP.
  • An employer that is an ALE under the employer shared responsibility provisions continues to be an ALE subject to the employer shared responsibility provisions regardless of its participation in an AHP.
  • The only circumstance when multiple employers are treated as a single employer for determining whether the employer is an ALE is if the employers have a certain level of common or related ownership.

Read more about the association health plan final rule.

September 2018

September was another relatively quiet month in the employee benefits world. The IRS issued guidance on the employer credit for paid family and medical leave.

IRS Issues Guidance on Employer Credit for Paid Family and Medical Leave

The Internal Revenue Service (IRS) released Notice 2018-71 (Notice) that provides Q&A guidance on the Internal Revenue Code Section 45S employer credit for paid family and medical leave (FML). The IRS clarified several items in its guidance, including:

  • An employer does not need to be subject to Title I of the Family and Medical Leave Act of 1993 (FMLA) to be eligible for the employer credit for FML
  • A description of what the employer’s written policy must contain, including sample “non-interference” language
  • Under Section 45S, paid leave is considered FML only if the leave is specifically designated for one or more FMLA purposes, may not be used for any other reason, and is not paid by a state or local government or required by state or local law
  • An employee does not need to work a minimum number of hours per year to be a qualifying employee
  • Each member of a controlled group generally makes a separate election of whether to claim the credit
  • An employer must file IRS Form 8994, Employer Credit for Paid Family and Medical Leave, and IRS Form 3800, General Business Credit, with its tax return to claim the credit

Read more about the IRS’ Q&A guidance.

October 2018

October was a busy month in the employee benefits world. The Internal Revenue Service (IRS) released final forms and instructions for 2018 ACA reporting. The Department of Health and Human Services (HHS) released inflation-adjusted civil monetary penalty amounts.

Congress and the President enacted a law to prohibit pharmacy gag clauses. The IRS provided tax relief to victims of Hurricane Michael in Florida. The DOL released FAQs for plan participants affected by Hurricanes Florence and Michael.

IRS Releases Final Forms and Instructions for 2018 ACA Reporting

The Internal Revenue Service (IRS) released instructions for both the Forms 1094-B and 1095-B and the Forms 1094-C and 1095-C and Forms 1094-B, 1095-B, 1094-C, and 1095-C. There are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to Forms 1095-B and 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

Reporting will be due early in 2019, based on coverage in 2018. For calendar year 2018, Forms 1094-C, 1095-C, 1094-B, and 1095-B must be filed by February 28, 2019, or April 1, 2019, if filing electronically. Statements to employees must be furnished by January 31, 2019.

All reporting will be for the 2018 calendar year, even for non-calendar year plans.

Read more about the final forms and instructions.

HHS Releases Inflation-Adjusted Federal Civil Penalty Amounts

The Department of Health and Human Services (HHS) issued its Annual Civil Monetary Penalties Inflation Adjustment. Here are some of the adjustments:

  • Medicare Secondary Payer:
    • For failure to provide information identifying situations where the group health plan is primary, the maximum penalty increases from $1,157 to $1,181 per failure.
    • For an employer who offers incentives to a Medicare-eligible individual to not enroll in employer-sponsored group health that would otherwise be primary, the maximum penalty increases from $9,054 to $9,239.
    • For willful or repeated failure to provide requested information regarding group health plan coverage, the maximum penalty increases from $1,474 to $1,504.
  • Summary of Benefits and Coverage: For failure to provide, the maximum penalty increases from $1,105 to $1,128 per failure.
  • Health Insurance Portability and Accountability Act (HIPAA):
Tier Penalty
1. Did Not Know:

Covered entity or business associate did not know (and by exercising reasonable diligence would not have known) that it violated the provision of the Administrative Simplification regulations.

$114 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
2. Reasonable Cause:

The violation was due to reasonable cause and not to willful neglect.

$1,141 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
3. Willful Neglect – Corrected:

The violation was due to willful neglect, but the violation is corrected during the 30-day period beginning on the first date the liable person knew (or by exercising reasonable diligence would have known) of the failure to comply.

$11,410 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
4. Willful Neglect – Not Corrected:

The violation was due to willful neglect and the violation is not corrected as described in Tier 3.

$57,051 minimum for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

 

The adjustments are effective for penalties assessed on or after October 11, 2018, for violations occurring after November 2, 2015.

Congress and the President Enact Law Prohibiting Pharmacy Gag Clauses

Congress and the President enacted the Patient Right to Know Drug Prices Act (Act) that prohibits any restriction on a pharmacy’s ability to inform customers about certain prescription drug costs.

The Act prohibits a group health plan (or a health insurance issuer offering group or individual health insurance coverage, or a pharmacy benefits management service working with a health plan or health insurance issuer) from taking the following actions against a pharmacy that dispenses a prescription drug to an enrollee in the plan or coverage:

  • restricting, directly or indirectly, the pharmacy from informing an enrollee of any difference between the enrollee’s out-of-pocket prescription drug cost under the plan or coverage and the amount that the enrollee would pay for the prescription drug without using any health plan or insurance coverage, or
  • penalizing the pharmacy for informing an enrollee of any difference between the enrollee’s out-of-pocket prescription drug cost under the plan or coverage and the amount that the enrollee would pay for the prescription drug without using any health plan or insurance coverage.

Tax Relief for Victims of Hurricane Michael in Florida

Victims of Hurricane Michael that took place beginning on October 7, 2018, in Florida may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in Florida. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

In the prior month, the IRS extended deadlines for victims of Hurricane Florence in certain counties of North Carolina, South Carolina, and Virginia.

DOL Releases FAQs for Plan Participants Affected by Hurricanes Florence and Michael

The Department of Labor (DOL) released its FAQs for Participants and Beneficiaries Following Hurricanes Florence and Michael to answer health benefit and retirement benefit questions. The FAQs cover topics including:

  • Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed
  • Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

November 2018

November was a busy month in the employee benefits world. The Internal Revenue Service (IRS) extended the due date for employers to furnish Forms 1095-C or 1095-B to individuals, extended “good faith compliance efforts” relief for 2018, and issued specifications for employer-provided substitute ACA forms. The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) released two final rules on contraceptive coverage exemptions.

The IRS released indexed Patient-Centered Outcomes Research Institute (PCORI) fees and inflation-adjusted limits for various benefits. The DOL, IRS, and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and instructions.

For survivors of the 2018 California wildfires, the IRS provided tax relief and the DOL released employee benefit guidance. The IRS provided guidance to employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. The Treasury released its Priority Guidance Plan that lists projects that will be the focus of the Treasury and IRS for the period from July 1, 2018, through June 30, 2019.

IRS Extends Due Date to Furnish ACA Forms to Participants and Provides Good Faith Penalty Relief

The Internal Revenue Service (IRS) issued Notice 2018-94 to extend the due date to furnish 2018 Forms 1095-B and 1095-C to individuals. The due date moves from January 31, 2019, to March 4, 2019.

The IRS also extends “good faith compliance efforts” relief for 2018. As in prior years, this relief is applied only to incorrect or incomplete information reported in good faith on a statement or return. The relief does not apply to a failure to timely furnish a statement or file a return.

Read more about the notice.

IRS Issues Specifications for Employer-Provided Substitute ACA Forms

The Internal Revenue Service (IRS) issued Publication 5223 General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C that describes how employers may prepare substitute forms to furnish ACA reporting information to individuals and the IRS.

Treasury, DOL, and HHS Release Two Final Rules on Contraceptive Coverage Exemptions

The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, Departments) released two final rules on contraceptive coverage exemptions. These rules finalize the Departments’ interim final rules that were published on October 13, 2017. HHS also issued a press release and fact sheet on these final rules.

The first final rule provides an exemption from the contraceptive coverage mandate to entities (including certain employers) and individuals that object to services covered by the mandate on the basis of sincerely held religious beliefs.

The second final rule provides an exemption from the contraceptive coverage mandate to nonprofit organizations, small businesses, and individuals that object to services covered by the mandate on the basis of sincerely held moral convictions.

The final rules will be effective on January 14, 2019.

Read more about the final rules.

IRS Releases Indexed PCORI Fee

The Patient Protection and Affordable Care Act (ACA) imposes a fee on insurers of certain fully insured plans and plan sponsors of certain self-funded plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI fee is due by July 31 of the year following the calendar year in which the plan or policy year ends.

The Internal Revenue Service issued Notice 2018-85 to announce the PCORI fee of $2.45 for policy years and plan years that end on or after October 1, 2018, and before October 1, 2019.

Plan/Policy Year Last Year Fee Is Due ($2.45, indexed/person)   Plan/Policy Year Last Year Fee Is Due ($2.45, indexed/person)
Nov. 1, 2017 – Oct. 31, 2018 July 31, 2019 May 1, 2018 – April 30, 2019 July 31, 2020
Dec. 1, 2017 – Nov. 30, 2018 July 31, 2019 June 1, 2018 – May 31, 2019 July 31, 2020
Jan. 1, 2018 – Dec. 31, 2018 July 31, 2019 July 1, 2018 – June 30, 2019 July 31, 2020
Feb. 1, 2018 – Jan. 31, 2019 July 31, 2020 Aug. 1, 2018 – July 31, 2019 July 31, 2020
March 1, 2018 – Feb. 28, 2019 July 31, 2020 Sept. 1, 2018 – Aug. 31, 2019 July 31, 2020
April 1, 2018 – March 31, 2019 July 31, 2020 Oct. 1, 2018 – Sept. 30, 2019 July 31, 2020

Read more about the PCORI fee.

IRS Releases 2019 Inflation-Adjusted Limits

The Internal Revenue Service (IRS) released its inflation-adjusted limits for various benefits. For example, the maximum contribution limit to health flexible spending arrangements (FSAs) will be $2,700 in 2019. Also, the maximum reimbursement limit in 2019 for Qualified Small Employer Health Reimbursement Arrangements will be $5,150 for single coverage and $10,450 for family coverage.

Read more about the 2019 limits.

Advance Informational Copies of 2018 Form 5500 Annual Return/Report

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and related instructions.

Here are some of the changes that the instructions highlight:

  • Principal Business Activity Codes.Principal Business Activity Codes have been updated to reflect updates to the North American Industry Classification System (NAICS). For Line 2d, a plan administrator would enter the six-digit Principal Business Activity Code that best describes the nature of the plan sponsor’s business from the list of codes on pages 78-80 of the Form 5500 Instructions.
  • Administrative Penalties. The instructions have been updated to reflect that the new maximum penalty for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report has been increased to up to $2,140 a day for penalties assessed after January 2, 2018, whose associated violations occurred after November 2, 2015.

Because the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 requires the penalty amount to be adjusted annually after the Form 5500 and its schedules, attachments, and instructions are published for filing, be sure to check for any possible required inflation adjustments of the maximum penalty amount that are published in the Federal Register after the instructions have been posted.

  • Form 5500-Participant Count.The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6.

Be aware that the advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 annual return/report.

ERISA imposes the Form 5500 reporting obligation on the plan administrator. Form 5500 is normally due on the last day of the seventh month after the close of the plan year. For example, a plan administrator would file Form 5500 by July 31, 2019, for a 2018 calendar year plan.

Tax Relief for Victims of November Wildfire in California

Victims of the wildfires that took place beginning on November 8, 2018, in California may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in California. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

DOL Releases Employee Benefit Guidance and Relief for 2018 California Wildfire Survivors

The Department of Labor (DOL) released its FAQs for Participants and Beneficiaries Following the 2018 California Wildfires to answer health benefit and retirement benefit questions.

The FAQs cover topics including:

  • Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed
  • Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

The DOL also released its Fact Sheet: Guidance and Relief for Employee Benefit Plans Impacted by the 2018 California Wildfires to recognize that employers may encounter problems due to the wildfires. The DOL advises plan fiduciaries to make reasonable accommodations to prevent workers’ loss of benefits and to take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.

The DOL also acknowledged that there may be instances when full and timely compliance by group health plans may not be possible due to physical disruption to a plan’s principal place of business. The DOL’s enforcement approach will emphasize compliance assistance, including grace periods and other relief where appropriate.

IRS Provides Guidance on Leave-Based Donation Programs’ Tax Treatment

The IRS issued Notice 2018-89 to guide employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. These leave-based donation programs allow employees to forgo vacation, sick, or personal leave in exchange for cash payments that the employer will make to charitable organizations described under Internal Revenue Code Section 170(c).

The employer’s cash payments will not constitute gross income or wages of the employees if paid before January 1, 2020, to the Section 170(c) charitable organizations for the relief of victims of Hurricane Michael. Employers do not need to include these payments in Box 1, 3, or 5 of an employee’s Form W-2.

Treasury Releases 2018-19 Priority Guidance Plan

The Department of the Treasury (Treasury) released its 2018-2019 Priority Guidance Plan (Plan) that describes the priorities for the Treasury and the Internal Revenue Service (IRS) for the period from July 1, 2018, through June 30, 2019. The Plan contains a list of projects that will be the focus of the Treasury and IRS, including:

  • Guidance on employer shared responsibility provisions
  • Regulations regarding the excise tax on high cost employer-provided coverage (also known as the “Cadillac tax”).

December 2018

December was a relatively quiet month in the employee benefits world. A U.S. District Court issued an order declaring that the Patient Protection and Affordable Care Act (ACA) is unconstitutional. The Equal Employment Opportunity Commission (EEOC) issued two final rules to remove certain wellness program incentives. The Department of Labor (DOL) updated its Form M-1 filing guidance for association health plans.

U.S. District Court Declares ACA Unconstitutional

On December 14, 2018, the U.S. District Court for the Northern District of Texas (Court) issued a declaratory order in ongoing litigation regarding the individual mandate and the Patient Protection and Affordable Care Act (ACA). The Court declared that the individual mandate is unconstitutional and declared that the rest of the ACA – including its guaranteed issue and community rating provisions – is unconstitutional.

The Court did not grant the plaintiffs’ request for a nationwide injunction to prohibit the ACA’s continued implementation and enforcement. The Court’s declaratory judgment simply defines the parties’ legal relationship and rights under the case at this relatively early stage in the case.

On December 16, 2018, the Court issued an order that requires the parties to meet and discuss the case by December 21, 2018, and to jointly submit a proposed schedule for resolving the plaintiffs’ remaining claims.

On December 30, 2018, the Court issued two orders. The first order grants a stay of its December 14 order. This means that the court’s order regarding the ACA’s unconstitutionality will not take effect while it is being appealed. The second order enters the December 14 order as a final judgment so the parties may immediately appeal the order.

On December 31, 2018, the Court issued an order that stays the remainder of the case. This means that the Court will not be proceeding with the remaining claims in the case while its December 14 order is being appealed. After the appeal process is complete, the parties are to alert the Court and submit additional court documents if they want to continue with any remaining claims in the case.

At this time, the case’s status does not impact employers’ group health plans. However, employers should stay informed for the final decision in this case.

Read more about the court case.

EEOC Issue Final Rules to Remove Wellness Program Incentive Limits Vacated by Court

On December 20, 2018, the Equal Employment Opportunity Commission (EEOC) issued two final rules to remove wellness program incentives.

As background, in August 2017, the U.S. District Court for the District of Columbia held that the U.S. Equal Employment Opportunity Commission (EEOC) failed to provide a reasoned explanation for its decision to allow an incentive for spousal medical history under the Genetic Information Nondiscrimination Act (GINA) rules and adopt 30 percent incentive levels for employer-sponsored wellness programs under both the Americans with Disabilities Act (ADA) rules and GINA rules.

In December 2017, the court vacated the EEOC rules under the ADA and GINA effective January 1, 2019. The EEOC issued the following two final rules in response to the court’s order.

The first rule removes the section of the wellness regulations that provided incentive limits for wellness programs regulated by the ADA. Specifically, the rule removes guidance on the extent to which employers may use incentives to encourage employees to participate in wellness programs that ask them to respond to disability-related inquiries or undergo medical examinations.

The second rule removes the section of the wellness regulations that provided incentive limits for wellness programs regulated by GINA. Specifically, the rule removes guidance that addressed the extent to which an employer may offer an inducement to an employee for the employee’s spouse to provide current health status information as part of a health risk assessment (HRA) administered in connection with an employer-sponsored wellness program.

Both rules will be effective on January 1, 2019.

Read more about the EEOC’s final rules.

DOL Updates Form M-1 Filing Guidance for Association Health Plans

On December 3, 2018, the Department of Labor (DOL) published its “10 Tips for Filing Form M-1 For Association Health Plans And Other MEWAs That Provide Medical Benefits” that provides plan administrators with information on when to file and how to complete portions of Form M-1.

The DOL emphasizes that all multiple employer welfare arrangements (MEWAs) that provide medical benefits, including association health plans (AHPs) that intend to begin operating under the DOL’s new AHP rule, are required to file an initial registration Form M-1 at least 30 days before any activity including, but not limited to, marketing, soliciting, providing, or offering to provide medical care benefits to employers or employees who may participate in an AHP.

Read more about the DOL guidance.

1/3/2019

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


Compliance Recap - December 2018

December was a relatively quiet month in the employee benefits world.

A U.S. District Court issued an order declaring that the Patient Protection and Affordable Care Act (ACA) is unconstitutional. The Equal Employment Opportunity Commission (EEOC) issued two final rules to remove certain wellness program incentives. The Department of Labor (DOL) updated its Form M-1 filing guidance for association health plans.

UBA Updates

UBA updated or revised existing guidance:

U.S. District Court Declares ACA Unconstitutional

On December 14, 2018, the U.S. District Court for the Northern District of Texas (Court) issued a declaratory order in ongoing litigation regarding the individual mandate and the Patient Protection and Affordable Care Act (ACA). The Court declared that the individual mandate is unconstitutional and declared that the rest of the ACA – including its guaranteed issue and community rating provisions – is unconstitutional.

The Court did not grant the plaintiffs’ request for a nationwide injunction to prohibit the ACA’s continued implementation and enforcement. The Court’s declaratory judgment simply defined the parties’ legal relationship and rights under the case at this relatively early stage in the case.

On December 16, 2018, the Court issued an order that requires the parties to meet and discuss the case by December 21, 2018, and to jointly submit a proposed schedule for resolving the plaintiffs’ remaining claims.

On December 30, 2018, the Court issued two orders. The first order grants a stay of its December 14 order. This means that the court’s order regarding the ACA’s unconstitutionality will not take effect while it is being appealed. The second order enters the December 14 order as a final judgment so the parties may immediately appeal the order.

On December 31, 2018, the Court issued an order that stays the remainder of the case. This means that the Court will not be proceeding with the remaining claims in the case while its December 14 order is being appealed. After the appeal process is complete, the parties are to alert the Court and submit additional court documents if they want to continue with any remaining claims in the case.

At this time, the case’s status does not impact employers’ group health plans. However, employers should stay informed for the final decision in this case.

Read more about the court case.

EEOC Issue Final Rules to Remove Wellness Program Incentive Limits Vacated by Court

On December 20, 2018, the Equal Employment Opportunity Commission (EEOC) issued two final rules to remove wellness program incentives.

As background, in August 2017, the United States District Court for the District of Columbia held that the U.S. Equal Employment Opportunity Commission (EEOC) failed to provide a reasoned explanation for its decision to allow an incentive for spousal medical history under the Genetic Information Nondiscrimination Act (GINA) rules and adopt 30 percent incentive levels for employer-sponsored wellness programs under both the Americans with Disabilities Act (ADA) rules and GINA rules.

In December 2017, the court vacated the EEOC rules under the ADA and GINA effective January 1, 2019. The EEOC issued the following two final rules in response to the court’s order.

The first rule removes the section of the wellness regulations that provided incentive limits for wellness programs regulated by the ADA. Specifically, the rule removes guidance on the extent to which employers may use incentives to encourage employees to participate in wellness programs that ask them to respond to disability-related inquiries or undergo medical examinations.

The second rule removes the section of the wellness regulations that provided incentive limits for wellness programs regulated by GINA. Specifically, the rule removes guidance that addressed the extent to which an employer may offer an inducement to an employee for the employee’s spouse to provide current health status information as part of a health risk assessment (HRA) administered in connection with an employee-sponsored wellness program.

Both rules will be effective on January 1, 2019.

Read more about the EEOC’s final rules.

DOL Updates Form M-1 Filing Guidance for Association Health Plans

On December 3, 2018, the Department of Labor (DOL) published its “10 Tips for Filing Form M-1 For Association Health Plans And Other MEWAs That Provide Medical Benefits” that provides plan administrators with information on when to file and how to complete portions of Form M-1.

The DOL emphasizes that all multiple employer welfare arrangements (MEWAs) that provide medical benefits, including association health plans (AHPs) that intend to begin operating under the DOL’s new AHP rule, are required to file an initial registration Form M-1 at least 30 days before any activity including, but not limited to, marketing, soliciting, providing, or offering to provide medical care benefits to employers or employees who may participate in an AHP.

Read more about the DOL guidance.

Question of the Month

Q: If an employee must increase the hours of childcare needed because the employee changes work schedules, may the employee increase the DCAP amount that the employee elects?

A: Yes, increasing the hours of childcare is a permitted election change event that would allow an employee to increase the employee’s DCAP election amount consistent with the change in childcare cost.

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


Compliance Recap - November 2018

Compliance Recap

November 2018

November was a busy month in the employee benefits world.

The Internal Revenue Service (IRS) extended the due date for employers to furnish Forms 1095-C or 1095-B to individuals, extended “good faith compliance efforts” relief for 2018, and issued specifications for employer-provided substitute ACA forms. The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) released two final rules on contraceptive coverage exemptions.

The IRS released indexed Patient-Centered Outcomes Research Institute (PCORI) fees and inflation-adjusted limits for various benefits. The DOL, IRS, and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and instructions.

For survivors of the 2018 California wildfires, the IRS provided tax relief and the DOL released employee benefit guidance. The IRS provided guidance to employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. The Treasury released its Priority Guidance Plan that lists projects that will be the focus of the Treasury and IRS for the period from July 1, 2018, through June 30, 2019.

UBA Updates

UBA released one new advisor: 2019 Annual Benefit Plan Amounts card

UBA updated or revised existing guidance:

IRS Extends Due Date to Furnish ACA Forms to Participants and Provides Good Faith Penalty Relief

The Internal Revenue Service (IRS) issued Notice 2018-94 to extend the due date to furnish 2018 Forms 1095-B and 1095-C to individuals. The due date moves from January 31, 2019, to March 4, 2019.

The IRS also extends “good faith compliance efforts” relief for 2018. As in prior years, this relief is applied only to incorrect or incomplete information reported in good faith on a statement or return. The relief does not apply to a failure to timely furnish a statement or file a return.

Read more about the notice.

IRS Issues Specifications for Employer-Provided Substitute ACA Forms

The Internal Revenue Service (IRS) issued Publication 5223 General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C that describes how employers may prepare substitute forms to furnish ACA reporting information to individuals and the IRS.

Treasury, DOL, and HHS Release Two Final Rules on Contraceptive Coverage Exemptions

The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, Departments) released two final rules on contraceptive coverage exemptions. These rules finalize the Departments’ interim final rules that were published on October 13, 2017. HHS also issued a press release and fact sheet on these final rules.

The first final rule provides an exemption from the contraceptive coverage mandate to entities (including certain employers) and individuals that object to services covered by the mandate on the basis of sincerely held religious beliefs.

The second final rule provides an exemption from the contraceptive coverage mandate to nonprofit organizations, small businesses, and individuals that object to services covered by the mandate on the basis of sincerely held moral convictions.

The final rules will be effective on January 14, 2019.

Read more about the final rules.

IRS Releases Indexed PCORI Fee

The Patient Protection and Affordable Care Act (ACA) imposes a fee on insurers of certain fully insured plans and plan sponsors of certain self-funded plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI fee is due by July 31 of the year following the calendar year in which the plan or policy year ends.

The Internal Revenue Service issued Notice 2018-85 to announce the PCORI fee of $2.45 for policy years and plan years that end on or after October 1, 2018, and before October 1, 2019.

Plan/Policy Year

Last Year Fee Is
Due (2.45,
indexed/person)

Nov. 1, 2017 – Oct. 31, 2018

July 31, 2019

Dec. 1, 2017 – Nov. 30, 2018

July 31, 2019

Jan. 1, 2018 – Dec. 31, 2018

July 31, 2019

Feb. 1, 2018 – Jan. 31, 2019

July 31, 2020

March 1, 2018 – Feb. 28, 2019

July 31, 2020

April 1, 2018 – March 31, 2019

July 31, 2020

May 1, 2018 – April 30, 2019

July 31, 2020

June 1, 2018 – May 31, 2019

July 31, 2020

July 1, 2018 – June 30, 2019

July 31, 2020

Aug. 1, 2018 – July 31, 2019

July 31, 2020

Sept. 1, 2018 – Aug 31, 2019

July 31, 2020

Oct 1, 2018 – Sept. 30, 2019

July 31, 2020

Read more about the PCORI fee.

IRS Releases 2019 Inflation-Adjusted Limits

The Internal Revenue Service (IRS) released its inflation-adjusted limits for various benefits. For example, the maximum contribution limit to health flexible spending arrangements (FSAs) will be $2,700 in 2019. Also, the maximum reimbursement limit in 2019 for Qualified Small Employer Health Reimbursement Arrangements will be $5,150 for single coverage and $10,450 for family coverage.

Read more about the 2019 limits.

Advance Informational Copies of 2018 Form 5500 Annual Return/Report

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and related instructions.

Here are some of the changes that the instructions highlight:

  • Principal Business Activity Codes. Principal Business Activity Codes have been updated to reflect updates to the North American Industry Classification System (NAICS). For Line 2d, a plan administrator would enter the six-digit Principal Business Activity Code that best describes the nature of the plan sponsor’s business from the list of codes on pages 78-80 of the Form 5500 Instructions.
  • Administrative Penalties. The instructions have been updated to reflect that the new maximum penalty for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report has been increased to up to $2,140 a day for penalties assessed after January 2, 2018, whose associated violations occurred after November 2, 2015.Because the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 requires the penalty amount to be adjusted annually after the Form 5500 and its schedules, attachments, and instructions are published for filing, be sure to check for any possible required inflation adjustments of the maximum penalty amount that are published in the Federal Register after the instructions have been posted.
  • Form 5500-Participant Count. The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6.

Be aware that the advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 annual return/report.

ERISA imposes the Form 5500 reporting obligation on the plan administrator. Form 5500 is normally due on the last day of the seventh month after the close of the plan year. For example, a plan administrator would file Form 5500 by July 31, 2019, for a 2018 calendar year plan.

Tax Relief for Victims of November Wildfire in California

Victims of the wildfires that took place beginning on November 8, 2018, in California may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in California. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

DOL Releases Employee Benefit Guidance and Relief for 2018 California Wildfire Survivors

The Department of Labor (DOL) released its FAQs for Participants and Beneficiaries Following the 2018 California Wildfires to answer health benefit and retirement benefit questions.

The FAQs cover topics including:

  • Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed
  • Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

The DOL also released its Fact Sheet: Guidance and Relief for Employee Benefit Plans Impacted by the 2018 California Wildfires to recognize that employers may encounter problems due to the wildfires. The DOL advises plan fiduciaries to make reasonable accommodations to prevent workers’ loss of benefits and to take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.

The DOL also acknowledged that there may be instances when full and timely compliance by group health plans may not be possible due to physical disruption to a plan’s principal place of business. The DOL’s enforcement approach will emphasize compliance assistance, including grace periods and other relief where appropriate.

IRS Provides Guidance on Leave-Based Donation Programs’ Tax Treatment

The IRS issued Notice 2018-89 to guide employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. These leave-based donation programs allow employees to forgo vacation, sick, or personal leave in exchange for cash payments that the employer will make to charitable organizations described under Internal Revenue Code Section 170(c).

The employer’s cash payments will not constitute gross income or wages of the employees if paid before January 1, 2020, to the Section 170(c) charitable organizations for the relief of victims of Hurricane Michael. Employers do not need to include these payments in Box 1, 3, or 5 of an employee’s Form W-2.

Treasury Releases 2018-19 Priority Guidance Plan

The Department of the Treasury (Treasury) released its 2018-2019 Priority Guidance Plan (Plan) that describes the priorities for the Treasury and the Internal Revenue Service (IRS) for the period from July 1, 2018, through June 30, 2019. The Plan contains a list of projects that will be the focus of the Treasury and IRS, including:

  • Guidance on employer shared responsibility provisions
  • Regulations regarding the excise tax on high cost employer-provided coverage (also known as the “Cadillac tax”).

Question of the Month

Q. Under the ACA, which employers must report information on Form W-2 and what information must be reported?

A. The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on Form W-2 does not mean that the coverage is taxable.

Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). Federally recognized Indian tribal governments are not subject to this requirement.

Employers that are subject to this requirement should report the value of the health care coverage in Box 12 of Form W-2, with Code DD to identify the amount. There is no reporting on Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. Please see the chart below from the IRS’ webpage and its questions and answers for more information.

The chart below illustrates the types of coverage that employers must report on Form W-2. Certain items are listed as “optional” based on transition relief provided by Notice 2012-9 (restating and clarifying Notice 2011-28). Future guidance may revise reporting requirements but will not be applicable until the tax year beginning at least six months after the date that the IRS issues its guidance.

Form W-2 Reporting of Employer-Sponsored Health Coverage

Form W-2, Box 12, Code DD
Coverage Type

Report

Do Not 
Report

Optional

Major medical

X

Dental or vision plan not integrated into another medical or health plan

X

Dental or vision plan which gives the choice of declining or electing and paying an additional premium

X

Health flexible spending arrangement (FSA) funded solely by salary-reduction amounts

X

Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits

X

Health reimbursement arrangement (HRA) contributions

X

Health savings account (HSA) contributions (employer or employee)

X

Archer Medical SAvings Account (Archer MSA) contributions (employer or employee)

X

Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis

X

Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer

X

Employee assistance plan (EAP) providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
On-site medical clinics providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
Wellness programs providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
Multi-employer plans

X

Domestic partner coverage included in gross income

X

Governmental plans providing coverage primarily for members of the military and their families

X

Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government

X

Self-funded plans not subject to federal COBRA

X

Accident or disability income

X

Long-term care

X

Liability insurance

X

Supplemental liability insurance

X

Workers’ compensation

X

Automobile medical payment insurance

X

Credit-only insurance

X

Excess reimbursement to highly compensated individual, included in gross income

X

Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income

X

Other situations
Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)

X

Forms W-2 furnished to employees who terminate before the end of a calendar year and rquest, in writing, a Form W-2 before the end of that year

X

Forms W-2 provided by third-party sick-pay provider to employees of other employers

X

11/30/2018


HHS Releases Inflation-Adjusted Federal Civil Penalty Amounts

Are you up-to-date on the Department of Health and Human Services' (HHS) Annual Civil Monetary Penalties Inflation Adjustment? Read this blog post to learn about the new changes.


The Department of Health and Human Services (HHS) issued its Annual Civil Monetary Penalties Inflation Adjustment. Here are some of the adjustments:

  • Medicare Secondary Payer:
    • For failure to provide information identifying situations where the group health plan is primary, the maximum penalty increases from $1,157 to $1,181 per failure.
    • For an employer who offers incentives to a Medicare-eligible individual to not enroll in employer-sponsored group health that would otherwise be primary, the maximum penalty increases from $9,054 to $9,239.
    • For willful or repeated failure to provide requested information regarding group health plan coverage, the maximum penalty increases from $1,474 to $1,504.
  • Summary of Benefits and Coverage: For failure to provide, the maximum penalty increases from $1,105 to $1,128 per failure.
  • Health Insurance Portability and Accountability Act (HIPAA):
 Tier Penalty
1. Did Not Know:
Covered entity or business associate did not know (and by exercising reasonable diligence would not have known) that it violated the provision of the Administrative Simplification regulations.
$114 - $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
2. Reasonable Cause:
The violation was due to reasonable cause and not to willful neglect.
$1,141 - $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
3. Willful Neglect – Corrected:
The violation was due to willful neglect, but the violation is corrected during the 30-day period beginning on the first date the liable person knew (or by exercising reasonable diligence would have known) of the failure to comply.
$11,410 - $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
2. Willful Neglect – Not Corrected:
The violation was due to willful neglect and the violation is not corrected as described in Tier 3.
$57,051 minimum for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

The adjustments are effective for penalties assessed on or after October 11, 2018, for violations occurring after November 2, 2015.

SOURCE: Hsu, K. (29 November 2018) "HHS Releases Inflation-Adjusted Federal Civil Penalty Amounts" (Web Blog Post). Retrieved from 


Compliance Recap - October 2018

October was a busy month in the employee benefits world.

The Internal Revenue Service (IRS) released final forms and instructions for 2018 ACA reporting. The Department of Health and Human Services (HHS) released inflation-adjusted civil monetary penalty amounts. The Treasury, the Department of Labor (DOL), and HHS released a proposed rule on health reimbursement arrangements. The IRS released a proposed rule regarding penalties for failure to file correct information returns or furnish correct payee statements.

Congress and the President enacted a law to prohibit pharmacy gag clauses. The IRS released an information letter regarding dependent care assistance plan funds’ forfeiture. The IRS provided tax relief to victims of Hurricane Michael in Florida. The DOL released FAQs for plan participants affected by Hurricanes Florence and Michael. HHS released a proposed rule to require drug pricing transparency. The DOL and HHS released their regulatory agendas.

UBA Updates

UBA released three new advisors:

UBA updated or revised existing guidance:

IRS Releases Final Forms and Instructions for 2018 ACA Reporting

The Internal Revenue Service (IRS) released instructions for both the Forms 1094-B and 1095-B and the Forms 1094-C and 1095-C and Forms 1094-B, 1095-B, 1094-C, and 1095-C. There are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to Forms 1095-B and 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

Reporting will be due early in 2019, based on coverage in 2018. For calendar year 2018, Forms 1094-C, 1095-C, 1094-B, and 1095-B must be filed by February 28, 2019, or April 1, 2019, if filing electronically. Statements to employees must be furnished by January 31, 2019.

All reporting will be for the 2018 calendar year, even for non-calendar year plans.

Read more about the final forms and instructions.

HHS Releases Inflation-Adjusted Federal Civil Penalty Amounts

The Department of Health and Human Services (HHS) issued its Annual Civil Monetary Penalties Inflation Adjustment. Here are some of the adjustments:

  • Medicare Secondary Payer:
    • For failure to provide information identifying situations where the group health plan is primary, the maximum penalty increases from $1,157 to $1,181 per failure.
    • For an employer who offers incentives to a Medicare-eligible individual to not enroll in employer sponsored group health that would otherwise be primary, the maximum penalty increases from $9,054 to $9,239.
    • For willful or repeated failure to provide requested information regarding group health plan coverage, the maximum penalty increases from $1,474 to $1,504.
  • Summary of Benefits and Coverage: For failure to provide, the maximum penalty increases from $1,105 to $1,128 per failure.
  • Health Insurance Portability and Accountability Act (HIPAA):
Tier Penalty
1. Did Not Know:

Covered entity or business associate did not know (and by exercising reasonable diligence would not have known) that it violated the provision of the Administrative Simplification regulations.

$114 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
2. Reasonable Cause:

The violation was due to reasonable cause and not to willful neglect.

$1,141 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
3. Willful Neglect – Corrected:

The violation was due to willful neglect, but the violation is corrected during the 30-day period beginning on the first date the liable person knew (or by exercising reasonable diligence would have known) of the failure to comply.

$11,410 to $57,051 for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.
4. Willful Neglect – Not Corrected:

The violation was due to willful neglect and the violation is not corrected as described in Tier 3.

$57,051 minimum for each violation, up to a maximum of $1,711,533 for identical provisions during a calendar year.

The adjustments are effective for penalties assessed on or after October 11, 2018, for violations occurring after November 2, 2015.

Treasury, DOL, and HHS Releases Proposed Rule on Health Reimbursement Arrangements

The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, the Departments) released their proposed rule regarding health reimbursement arrangements (HRAs) and other account-based group health plans. The DOL also issued a news release and fact sheet on the proposed rule.

The proposed rule’s goal is to expand the flexibility and use of HRAs to provide individuals with additional options to obtain quality, affordable healthcare. According to the Departments, these changes will facilitate a more efficient healthcare system by increasing employees’ consumer choice and promoting healthcare market competition by adding employer options.

To do so, the proposed rules would expand the use of HRAs by:

  • Removing the current prohibition against integrating an HRA with individual health insurance coverage (individual coverage)
  • Expanding the definition of limited excepted benefits to recognize certain HRAs as limited excepted benefits if certain conditions are met (excepted benefit HRA)
  • Providing premium tax credit (PTC) eligibility rules for people who are offered an HRA integrated with individual coverage
  • Assuring HRA and Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) plan sponsors that reimbursement of individual coverage by the HRA or QSEHRA does not become part of an ERISA plan when certain conditions are met
  • Changing individual market special enrollment periods for individuals who gain access to HRAs integrated with individual coverage or who are provided QSEHRAs

Public comments are due by December 28, 2018. If the proposed rule is finalized, it will be effective for plan years beginning on or after January 1, 2020.

Read more about the proposed rule.

IRS Releases Proposed Rule Regarding Penalties for Failure to File Correct Information Returns or Furnish Correct Payee Statements

The Internal Revenue Service (IRS) released its proposed rule relating to penalties for failure to file correct information returns or furnish correct payee statements. The proposed rule contains safe harbor exceptions that apply in circumstances when an information return or payee statement is otherwise correct, is timely filed or furnished, and includes a de minimis dollar amount error.

A dollar amount error is a de minimis error if the difference between any single amount in error and the correct amount is not more than $100, or, if the difference relates to an amount of tax withheld, it is not more than $25.

Generally, when the safe harbor exception applies to an information return or payee statement and the return or statement is otherwise correctly and timely filed or furnished, no correction is required and, for purposes of Sections 6721 or 6722, the document is treated as having been filed or furnished with all of the correct required information.

The proposed safe harbor exception would apply to information reported on the Forms 1094/1095, Form W-2, and Form 1099-R.

Public comments are due by December 17, 2018.

Congress and the President Enact Law Prohibiting Pharmacy Gag Clauses

Congress and the President enacted the Patient Right to Know Drug Prices Act (Act) that prohibits any restriction on a pharmacy’s ability to inform customers about certain prescription drug costs.

The Act prohibits a group health plan (or a health insurance issuer offering group or individual health insurance coverage, or a pharmacy benefits management service working with a health plan or health insurance issuer) from taking the following actions against a pharmacy that dispenses a prescription drug to an enrollee in the plan or coverage:

  • restricting, directly or indirectly, the pharmacy from informing an enrollee of any difference between the enrollee’s out-of-pocket prescription drug cost under the plan or coverage and the amount that the enrollee would pay for the prescription drug without using any health plan or insurance coverage, or
  • penalizing the pharmacy for informing an enrollee of any difference between the enrollee’s out-of-pocket prescription drug cost under the plan or coverage and the amount that the enrollee would pay for the prescription drug without using any health plan or insurance coverage.

IRS Releases Information Letter Regarding DCAP Fund Forfeiture

The Internal Revenue Service released Information Letter 2018-0027 (Letter) to confirm that a participant’s dependent care assistance plan (DCAP) funds can be forfeited if a participant does not timely submit documentation of dependent care expenses. The Letter explains that, although the Treasury’s regulations do not specify a length of time for submitting expenses, the cafeteria plan document should specify the deadline for submitting expenses.

The Letter also explains that the plan administrator should apply the deadline to all participants on a uniform and consistent basis. A cafeteria plan must operate according to its written plan or the employees’ elections between taxable and nontaxable benefits are includible in the employees’ income.

Tax Relief for Victims of Hurricane Michael in Florida

Victims of Hurricane Michael that took place beginning on October 7, 2018, in Florida may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in Florida. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Last month, the IRS extended deadlines for victims of Hurricane Florence in certain counties of North Carolina, South Carolina, and Virginia.

DOL Releases FAQs for Plan Participants Affected by Hurricanes Florence and Michael

The Department of Labor (DOL) released its FAQs for Participants and Beneficiaries Following Hurricanes Florence and Michael to answer health benefit and retirement benefit questions. The FAQs cover topics including:

  • Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed
  • Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

HHS Releases Proposed Rule to Require Drug Pricing Transparency

The Department of Health and Human Services (HHS) released its proposed rule that would require direct-to-consumer television advertisements of prescription drugs and biological products to include the Wholesale Acquisition Cost (WAC or list price) of that prescription drug or biological product.

The proposed rule would require the following written statement to appear at the end of an advertisement, against a contrasting background, for sufficient duration, and in font that allows the statement to be easily read:

‘‘The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.’’

The advertising requirement would only apply to prescription drugs and biological products that cost $35 or more per month and for which reimbursement is available, directly or indirectly, by Medicare or Medicaid.

To enforce the advertising requirement, the proposed rule would require HHS to maintain a public list that identifies prescription drugs and biological products that are advertised in violation with the rule. HHS would post this list on the Centers for Medicare & Medicaid Services (CMS) website at least annually.

Public comments are due by December 17, 2018.

DOL and HHS Release Their Regulatory Agendas

The Department of Labor (DOL) released its regulatory agenda and the Department of Health and Human Services (HHS) released its regulatory agenda. Each agenda provides a list of regulations that the agency is currently working on, including rulemaking stage, to help employers anticipate potential change in certain areas of employee benefits.

Question of the Month

Q: What is the status of the Form 5500 proposed rule, that if adopted as a final rule, would generally apply for plan years beginning on or after January 1, 2019?

A: Although the Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation (PBGC) proposed Form 5500 filing changes in 2016, the agencies have not released any final rules regarding Form 5500 filing.

At the American Bar Association’s ERISA Basics National Institute in October 2018, a DOL representative unofficially said that, due to President Trump’s Executive Order, the DOL has some other higher priority items that the DOL needs to address before it can address the Form 5500 proposed regulations. The DOL representative also unofficially said that it’s likely that new proposed Form 5500 regulations would be issued to allow for another round of public comment. However, the DOL representative didn’t have a timeline on when the additional proposed regulations might be released.

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


Compliance Recap - September 2018

September was a relatively busy month in the employee benefits world.

The Internal Revenue Service (IRS) released draft 2018 instructions for Forms 1094-B, 1095-B, 1094-C, and 1095-C. The IRS also issued an information letter regarding health flexible spending accounts and guidance on the employer credit for paid family and medical leave. The Congressional Research Service published its updated Federal Requirements for Private Health Insurance Plans.

UBA Updates

UBA released one new advisor: IRS Releases Draft Forms and Instructions for 2018 ACA Reporting

UBA updated existing guidance:

IRS Issues Draft 2018 Instructions for Forms 1094-B, 1095-B, 1094-C, and 1095-C

The Internal Revenue Service (IRS) recently released draft instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C and the draft forms for 1094-B, 1095-B, 1094-C, and 1095-C. There are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to draft Forms 1095-B and 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

In past years, the IRS provided relief to employers who made a good faith effort to comply with the information reporting requirements and determined that they would not be subject to penalties for failure to correctly or completely file. This did not apply to employers that failed to timely file or furnish a statement.

For 2018, the IRS has stated that it does not anticipate extending the “good faith compliance efforts” relief relating to reporting requirements. Employers should be ready to fully meet the reporting requirements in early 2019 with a high degree of accuracy. There is however relief for de minimis errors on Line 15 of the 1095-C.

Read more about the draft ACA reporting forms and instructions.

IRS Issues Information Letter Regarding Health FSAs

The Internal Revenue Service (IRS) issued Information Letter 2018-0012 to reiterate that employers can include a provision in a heath flexible spending arrangement (FSA) that allows up to $500 in unused amounts at the end of the plan year to be carried over to the next plan year. However, any carryover amount cannot be accumulated in the health FSA over several years.

The IRS also indicates that a health savings account (HSA) would allow unused amounts to be accumulated and used in any later year. Further, the IRS indicates that a heath reimbursement arrangement (HRA) can be structured to allow for unused amounts to be accumulated and used for medical expenses in later years.

IRS Issues Guidance on Employer Credit for Paid Family and Medical Leave

The Internal Revenue Service (IRS) released Notice 2018-71 (Notice) that provides Q&A guidance on the Internal Revenue Code Section 45S employer credit for paid family and medical leave (FML). The IRS clarified several items in its guidance, including:

  • An employer does not need to be subject to Title I of the Family and Medical Leave Act of 1993 (FMLA) to be eligible for the employer credit for FML
  • A description of what the employer’s written policy must contain, including sample “non-interference” language
  • Under Section 45S, paid leave is considered FML only if the leave is specifically designated for one or more FMLA purposes, may not be used for any other reason, and is not paid by a state or local government or required by state or local law
  • An employee does not need to work a minimum number of hours per year to be a qualifying employee
  • Each member of a controlled group generally makes a separate election of whether to claim the credit
  • An employer must file IRS Form 8994, Employer Credit for Paid Family and Medical Leave, and IRS Form 3800, General Business Credit, with its tax return to claim the credit

Read more about the IRS’ Q&A guidance.

CRS Publishes Updated Federal Requirements on Private Health Insurance Plans

The Congressional Research Service (CRS) published its updated Federal Requirements on Private Health Insurance Plans which summarizes federal requirements that apply to the private health insurance market, including a table that indicates whether a particular federal requirement applies to a fully-insured large group plan, fully-insured small group plan, self-funded plan, or individual coverage.

Question of the Month

Q. We recently received a medical loss ratio (MLR) rebate. How should the money be distributed?

A. If the plan document states how a rebate should be used, then the plan administrator should follow the plan document’s terms.

If the plan document is silent on how the rebate should be distributed, then the following general principles apply.

How should the rebate be divided?

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

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

Using the example that the rebates are based on premiums paid to the carrier for calendar year 2017, the employer may pay the rebate only to employees who participated in the plan in 2017 and are still participating, only to current participants (even though the rebate relates to 2017), or to those who participated in 2017, regardless whether they are currently participating.

Insurers must send a notice to all employees who participated in the plan in 2017 stating that a rebate has been issued to the employer, so employers who choose to limit rebate payments to those who are currently participating should be prepared to explain why the rebate is only being paid to current participants. This might include the fact that since the rebate would be taxable income, the amount involved does not justify the administrative cost to locate former participants and issue a check.

Are former plan participants entitled to a share of the rebate?

Whether former participants should be included in any rebate allocations depends on the type of plan involved. For ERISA plans, there is no requirement that former participants be included or excluded. However, the Department of Labor’s (DOL) Technical Release, in discussing fiduciary decisions regarding distribution of rebates, states that if a fiduciary determines that the cost of including former participants in a rebate distribution approximates the amount of the rebate, the fiduciary may properly decide to allocate the rebate only to current participants. This means that plan fiduciaries should consider whether to include former participants and should make a prudent decision based on all of the facts and circumstances.

For non-federal governmental plans, the interim final regulations specifically require any portion of a rebate that is based on former participants’ contributions to be aggregated and used for the benefit of current participants.

For nongovernmental, non-ERISA plans, the interim final regulations provide that if the rebate is paid to the policyholder (which is only permissible if the policyholder has given the insurer written assurance that meets the requirements of the regulations), the policyholder must allocate the rebate to current participants only, in the same way as a non-federal governmental plan. If the rebate is paid directly to participants by the insurer (because the policyholder has declined to provide a written assurance), the insurer must distribute the rebate equally among those who were participants during the MLR reporting year on which the rebate is based.

How may the employer use the rebate?

The employer may pay the rebate in cash, use it for a premium holiday, or use it for benefit enhancements. The rebate must be applied or distributed within 90 days after it is received.

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

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

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

How should the rebate be provided?

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

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

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

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