The House of Repersentives has just passed the American Health Care Act (AHCA), new legislation to begin the repeal process of the ACA. Check out this great article from HR Morning and take a look how this new legislation will affect HR by Jared Bilski.
Virtually every major news outlet is covering the passage of the American Health Care Act (AHCA) by the House. But amidst all the coverage, it’s tough to find an answer to a question that’s near and dear to HR: What does this GOP victory mean for employers?
The AHCA bill, which passed in the House with 217 votes, is extremely close to the original version of the legislation that was introduced in March but pulled just before a vote could take place due to lack of support.
While the so-called “repeal-and-replace” bill would kill many of the ACA’s taxes (except the Cadillac Tax), much of the popular health-related provisions of Obamacare would remain intact.
However, the new bill does allow states to waive certain key requirements under the ACA. One of the major amendments centers on pre-existing conditions.
Under the ACA, health plans can’t base premium rates on health status factors, or pre-existing conditions; premiums had to be based on coverage tier, community rating, age (as long as the rates don’t vary by more than 3 to 1) and tobacco use. In other words, plans can’t charge participants with pre-existing conditions more than “healthy” individuals are charged.
Under the AHCA, individual states can apply for waivers to be exempt from this ACA provision and base premiums on health status factors.
Bottom line: Under this version of the AHCA, insurers would still be required to cover individuals with pre-existing conditions — but they’d be allowed to charge astronomical amounts for coverage.
To compensate for the individuals with prior health conditions who may not be able to afford insurance, applying states would have to establish high-risk pools that are federally funded. Critics argue these pools won’t be able to offer nearly as much coverage for individuals as the ACA did.
Under the AHCA, states could also apply for a waiver to receive an exemption — dubbed the “MacArthur amendment” — to ACA requirement on essential health benefits and create their own definition of these benefits.
So what does all this mean for HR pros? HR Morning spoke to healthcare reform implementation and employee benefits attorney Garrett Fenton of Miller & Chevalier and asked him what’s next for the AHCA as well as what employers should do in response. Here’s a sampling of the Q&A:
HR Morning: What’s next for the AHCA?
Garrett Fenton: The Senate, which largely has stayed out of the ACA repeal and replacement process until now, will begin its process to develop, amend, and ultimately vote on a bill … many Republican Senators have publicly voiced concerns, and even opposition, to the version of the AHCA that passed the House.
One major bone of contention – even within the GOP – was that the House passed the bill without waiting for a forthcoming updated report from the Congressional Budget Office. That report will take into account the latest amendments to the AHCA, and provide estimates of the legislation’s cost to the federal government and impact on the number of uninsured individuals …
… assuming the Senate does not simply rubber stamp the House bill, but rather passes its own ACA repeal and replacement legislation, either the Senate’s bill will need to go back to the House for another vote, or the House and Senate will “conference,” reconcile the differences between their respective bills, and produce a compromise piece of legislation that both chambers will then vote on.
Ultimately the same bill will need to pass both the House and Senate before going to the President for his signature. In light of the House’s struggles to advance the AHCA, and the razor-thin margin by which it ultimately passed, it appears that we’re still in for a long road ahead.
HR Morning: What should employers be doing now?
Garrett Fenton: At this point, employers would be well-advised to stay the course on ACA compliance. The House’s passage of the AHCA is merely the first step in the legislative process, with the bill likely to undergo significant changes and an uncertain future in the Senate. The last few months have taught us nothing if not the impossibility of predicting precisely how and when the Republicans’ ACA repeal and replacement effort ultimately will unfold. To be sure, the AHCA would have a potentially significant impact on employer-sponsored coverage.
However, any employer efforts to implement large-scale changes in reliance on the AHCA certainly would be premature at this stage. The ACA remains the law of the land for the time being, and there’s still a long way to go toward even a partial repeal and replacement. Employers certainly should stay on top of the legislative developments, and in the meantime, be on the lookout for possible changes to the current guidance at the regulatory level.
HR Morning: Specifically, how should employers proceed with their ACA compliance obligations in light of the House passage of the AHCA?Garrett Fenton: Again, employers should stay the course for the time being, and not assume that the AHCA’s provisions impacting employer-sponsored plans ultimately will be enacted. The ACA remains the law of the land for now. However, a number of ACA-related changes are likely to be made at the regulatory and “sub-regulatory” level – regardless of the legislative repeal and replacement efforts – thereby underscoring the importance of staying on top of the ever-changing guidance and landscape under the Trump administration.
Fenton also touched on how the “MacArthur amendment” and the direct impact it could have on employers by stating it:
“… could impact large group and self-funded employer plans, which separately are prohibited from imposing annual and lifetime dollar limits on those same essential health benefits. So in theory, for example, a large group or self-funded employer plan might be able to use a “waiver” state’s definition of essential health benefits – which could be significantly more limited than the current federal definition, and exclude items like maternity, mental health, or substance abuse coverage – for purposes of the annual and lifetime limit rules. Employers thus effectively could be permitted to begin imposing dollar caps on certain benefits that currently would be prohibited under the ACA.”
See the original article Here.
Bilski J. (2017 May 5). Health reform expert: here’s what HR needs to know about GOP repeal bill passing [Web blog post]. Retrieved from address http://www.hrmorning.com/health-reform-expert-heres-what-hr-needs-to-know-about-gop-repeal-bill-passing/
Make sure you are aware of all the requirements for Form 5500 reporting. Take a look at this great article from our partner, United Benefit Advisors (UBA) about how to properly file Form 5500 by Anne B. Vandeveer.
Most companies are fully aware of Form 5500 reporting requirements related to their 401(k) plans, but are less familiar with the Form 5500 reporting requirements for their health and welfare benefit plans.
Requirements: Most employer-sponsored health and welfare benefit plans, including, but not limited to, group health, dental, vision, life insurance, disability insurance, voluntary worksite benefits (typically, but not always), and health flexible spending account (FSA) plans are subject to the reporting requirements under the Employee Retirement Income Security Act (ERISA) of 1974.
A Form 5500 is due to be filed with the Department of Labor (DOL) within seven months after the end of the plan year.
Exemptions: While there are a few common exceptions to filing for smaller plans and those sponsored by certain governmental and church plans, most employers who are filing Form 5500 for their retirement plans will also have Form 5500 reporting requirements for their health and welfare plans. Certain funding types (VEBAs, Trusts) may not be exempt based on size, however.
Normal Annual Filing: Once Schedule A information is available on the plan, from the carrier or third-party administrator (TPA), this information, along with some general participant enrollment information, is used to complete the filing. So long as company ownership, participation, and plans offered haven’t changed from year to year, it’s a fairly simply process.
It is worth reviewing the filing history of all plans subject to ERISA for all prior years to rule out any delinquencies in advance of filing for the current year. If all is in order, the filing deadline is the last day of the seventh month after the end of the plan year. Extensions, of up to 2.5 months, are available if the company applies prior to the initial deadline by filing Form 5558 with the Internal Revenue Service (IRS).
Failure to File and Remedy: If a Form 5500 filing is determined to be delinquent, the company is potentially subject to penalties imposed by the DOL (up to $1,100 per day) if the DOL discovers this before the return is filed electronically. The company can voluntarily “enter” the DOL’s delinquent filer amnesty program. The program is formally named the Delinquent Filer Voluntary Compliance Program (DFVCP) and entering it will eliminate the risk of any future penalty associated with the delinquent Form 5500 returns. However, the DOL still imposes a lower, capped dollar penalty, which is assessed on a “per plan” basis.
The first step for a DFVCP filing is in defining the applicable plans and plan years along with the due date for each plan, historically. Correction is generally suggested as far back as the delinquency goes, or minimally as far back as documentation can be provided. That said, many companies choose to internally review all options and risks.
Preparation of Filings: The DOL mandates electronic filings under its EFAST2 system and it can be challenging for employers to prepare their own Form 5500 filings. Defining whether, and which of, your plans are subject to the ERISA reporting requirements is the best first step of the ERISA reporting process.
Because the forms resemble IRS tax forms, companies often assume that an accountant is needed for preparation. This is not necessarily the case and it is more common to rely on a benefits consultant with domain expertise. These consultants routinely determine filing requirements, have experience dealing directly with the DOL (not IRS), and transmit hundreds of filings annually.
That said, it is important to note that, regardless of who prepares the filing, it remains the sole responsibility of the employer, or Plan Sponsor, when it comes to Form 5500 transmissions or failures to file.
Vandeveer A. (2017 April 18). Discovery for health and welfare benefit plans: required ERISA reporting-form 5500[Web blog post]. Retrieved from address http://blog.ubabenefits.com/discovery-for-health-and-welfare-benefit-plans-required-erisa-reporting-form-5500
Do you receive your healthcare through an employer? Then take a look at this article from Benefits Pro about how the passing of the AHCA will affect employees who get their healthcare through an employer by Marlene Y. Satter.
It’s not just individuals without employer health coverage who could lose big under the newly revised version of the Republicans’ American Health Care Act.
People who get health coverage from their jobs could be left swinging in the wind, too—in fact, as many as half of all such employees could be affected.
That’s according to an Alternet report that says an amendment added to the bill currently being considered by the House of Representatives would allow insurers in states that get waivers from regulations put in place by the Affordable Care Act to deny coverage for 10 types of health services—including maternity care, prescription drugs, mental health treatment and hospitalization.
An MSNBC report points out that “because the Republican-led House is scrambling to pass a bill without scrutiny or serious consideration,” the last-minute amendment’s full effects aren’t even known, since “[t]his is precisely the sort of detail that would’ve come to light much sooner if Republicans were following the American legislative process. In fact, this may not even be the intended goal of the GOP policy.”
While the ACA prohibits employer-based plans from imposing annual limits on coverage and bare lifetime caps on 10 essential benefits, the Obama administration did loosen those restrictions back in 2011, saying that employers could instead choose to follow another state’s required benefits.
What the new Republican take on the AHCA does is push that further—a lot further—by allowing large employers to pick the benefit requirements for any state. That would let them limit coverage on such costly types of care as mental health and substance abuse services.
In a Wall Street Journal report, Andy Slavitt, former acting administrator of the Centers for Medicare and Medicaid Services under President Barack Obama, is quoted saying, “It’s huge. They’re creating a backdoor way to gut employer plans, too.”
The changes to employer-based plans would hit anyone not insured by Medicare or by small-business plans, because the bill includes cuts to Medicaid and changes to the individual market as well.
A report from the Brookings Institution points out that “One of the core functions of health insurance is to protect people against financial ruin and ensure that they get the care they need if they get seriously ill.” The ACA pushed insurance plans to meet that standard, it says, by requiring them to “limit enrollees’ annual out-of-pocket spending and [bar] plans from placing annual or lifetime limits on the total amount of care they would cover.”
However, while those protections against catastrophic costs “apply to almost all private insurance plans, including the plans held by the roughly 156 million people who get their coverage through an employer,” the Brookings report says, the amendment to the Republican bill “could jeopardize those protections—not just for people with individual market plans, but also for those with employer coverage.”
How? By modifying “the ‘essential health benefit’ standards that govern what types of services must be covered by individual and small group market insurance plans. The intent of the amendment is reportedly to eliminate the federal benefit standards that currently exist and instead allow each state to define its own list of essential health benefits.”
And then, with employers allowed to pick and choose which state’s regulations they’d like to follow, a loophole the size of the Capitol building would not only allow “states will set essential health benefit standards that are considerably laxer than those that are in place under the ACA,” says the report, but “large employers may have the option to pick which state’s essential health benefits requirements they wish to abide by for the purposes of these provisions.”
The result? “[T]his would likely have the effect of virtually eliminating the catastrophic protections with respect to large employers since employers could choose to pick whichever state set the laxest standards. The same outcome would be likely to occur for all private insurance policies,” the report continues, “if insurers were permitted to sell plans across state lines, as the Administration has suggested enacting through separate legislation.”
While the actual effect of the amendment is unclear, the Brookings report concludes, “there is strong reason to believe that, in practice, the definition of essential health benefits that applied to the catastrophic protections would be far weaker under the House proposal than under current law, seriously undermining these protections. These potential adverse effects on people with employer coverage, in addition to the potentially damaging effects of such changes on the individual health insurance market, are thus an important reason that policymakers should be wary of the House proposal with respect to essential health benefits.”
Satter M. (2017 May 4). Workers might see employer health coverage disappear under new GOP AHCA [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/05/04/workers-might-see-employer-health-coverage-disappe?page_all=1
Under Internal Revenue Code Section 105(h), a self-insured medical reimbursement plan must pass two nondiscrimination tests. Failure to pass either test means that the favorable tax treatment for highly compensated individuals who participate in the plan will be lost. The Section 105(h) rules only affect whether reimbursement (including payments to health care providers) under a self-insured plan is taxable.
When Section 105(h) was enacted, its nondiscrimination testing applied solely to self-insured plans. Under the Patient Protection and Affordable Care Act (ACA), Section 105(h) also applies to fully-insured, non-grandfathered plans. However, in late 2010, the government delayed enforcement of Section 105(h) against fully-insured, non-grandfathered plans until the first plan year beginning after regulations are issued. To date, no regulations have been issued so there is currently no penalty for noncompliance.
Practically speaking, if a plan treats all employees the same, then it is unlikely that the plan will fail Section 105(h) nondiscrimination testing.
What Is a Self-Insured Medical Reimbursement Plan?
Section 105(h) applies to a “self-insured medical reimbursement plan,” which is an employer plan to reimburse employees for medical care expenses listed under Code Section 213(d) for which reimbursement is not provided under a policy of accident or health insurance.
Common self-insured medical reimbursement plans are self-funded major medical plans, health reimbursement arrangements (HRAs), and medical expense reimbursement plans (MERPs). Many employers who sponsor an insured plan may also have a self-insured plan; that self-insured plan is subject to the Section 105 non-discrimination rules. For example, many employers offer a fully insured major medical plan that is integrated with an HRA to reimburse expenses incurred before a participant meets the plan deductible.
What If the Self-Insured Medical Reimbursement Plan Is Offered Under a Cafeteria Plan?
A self-insured medical reimbursement plan (self-insured plan) can be offered outside of a cafeteria plan or under a cafeteria plan. Section 105(h) nondiscrimination testing applies in both cases.
Regardless of grandfathered status, if the self-insured plan is offered under a cafeteria plan and allows employees to pay premiums on a pre-tax basis, then the plan is still subject to the Section 125
nondiscrimination rules. The cafeteria plan rules affect whether contributions are taxable; if contributions are taxable, then the Section 105(h) rules do not apply.
What Is the Purpose of Nondiscrimination Testing?
Congress permits self-insured medical reimbursement plans to provide tax-free benefits. However, Congress wanted employers to provide these tax-free benefits to their regular employees, not just to their executives. Nondiscrimination testing is designed to encourage employers to provide benefits to their employees in a way that does not discriminate in favor of employees who are highly paid or high ranking.
If a plan fails the nondiscrimination testing, the regular employees will not lose the tax benefits of the self-insured medical reimbursement plan and the plan will not be invalidated. However, highly paid or high ranking employees may be adversely affected if the plan fails testing.
What Are the Two Nondiscrimination Tests?
The two nondiscrimination tests are the Eligibility Test and Benefits Test.
The Eligibility Test answers the basic question of whether there are enough regular employees benefitting from the plan. Section 105(h) provides three ways of passing the Eligibility Test:
The Benefits Test answers the basic question of whether all participants are eligible for the same benefits.
Definition of Terms in the Nondiscrimination Tests
A highly compensated individual (HCI) is an individual who is:
Under Section 105(h), an employee’s compensation level is determined based on the employee’s compensation for the plan year. Fiscal year plans may determine employee compensation based on the calendar year ending within the plan year. Only current year compensation may be used to determine compensation levels.
For shareholder stock ownership, Section 318 constructive ownership rules apply. Per the attribution rules, a spouse is deemed to own the interest held by the other spouse. Also, an employee is deemed to own the ownership interest of the employee’s parents, children, and grandchildren. Further, a person with an option to buy stock is considered to own the stock subject to that option and a shareholder who owns 50 percent of more of a corporation is deemed to own a proportionate share of stock owned by the corporation.
Section 105(h) also defines excludable employees. The following employees may be excluded from the highest-paid 25 percent of all employees, unless they are eligible to participate in the plan:
Exclusions should be applied uniformly. Employees in excludable categories should not be excluded during testing if the employees are eligible under the plan.
How Are the Tests Applied?
The Eligibility Test
All three of the alternative eligibility tests discuss who benefits under the plan. Although the Eligibility Test’s name implies that it looks at eligibility, the more cautious interpretation is that an employee must have elected coverage or have been provided with free coverage by plan design for the employee to benefit under the plan. For purposes of Section 105(h), an employee benefits from the plan when the employee actually participates in the plan.
A self-insured plan must pass one of the following three tests to pass the Eligibility Test:
To determine whether a self-insured plan passes the Nondiscriminatory Classification Test, the IRS will look at the facts and circumstances of each case, applying the standards of Section 410(b)(1)(B) that apply to tax-preferred retirement plans. If an employer must rely on the Nondiscriminatory Classification Test to pass the Eligibility Test, then the employer should consult with its attorney or tax professional about running the nondiscriminatory classification test because it is complicated to apply.
then the employer should consult with its attorney or tax professional about running the nondiscriminatory classification test because it is complicated to apply.
Although Section 105(h) is not clear on the exact process for conducting the Nondiscriminatory Classification Test, the plan may rely on the Section 410(b) regulations’ current nondiscriminatory classification test. Under the test, a classification is not discriminatory if it satisfies either the Safe Harbor Percentage Test or the Facts and Circumstances Test.
Safe Harbor Percentage Test. To meet the Safe Harbor Percentage Test, a plan’s ratio percentage must be equal to or greater than the applicable safe harbor percentage. If the plan’s ratio percentage is 50 percent of more, then the plan passes the Safe Harbor Percentage Test. If the plan’s ratio percentage is less than 50 percent, the plan might pass if the ratio percentage exceeds the safe harbor percentage found in the IRS’ Nondiscriminatory Classification Table below.
The plan’s ratio percentage is determined by dividing the percentage of non-highly compensated individuals who benefit under the plan by the percentage of highly compensated individuals who benefit under the plan.
The plan’s non-highly compensated individuals concentration percentage is the percentage of all employees who are non-highly compensated individuals.
Nondiscriminatory Classification Table
If the plan’s ratio percentage is equal or greater than the safe harbor percentage, then the plan’s employee classification meets the safe harbor and is nondiscriminatory.
Facts and Circumstances Test. If the plan fails the Safe Harbor Percentage Test, then the plan would apply the Facts and Circumstances Test. To pass the Facts and Circumstances Test, the plan’s ratio percentage must be greater than or equal to the corresponding unsafe harbor percentage in the chart above.
Also, the IRS must find the classification to be nondiscriminatory based on all the relevant facts and circumstances. No one single factor will be dispositive; here are some of the facts that the IRS will consider:
The Benefits Test
To pass the Benefits Test, all benefits provided to highly compensated individuals who are participating in the plan must be provided to all other participants. Also, all benefits available for highly compensated individuals’ dependents must also be available on the same basis for all non-highly compensated participants’ dependents.
Essentially, the Benefits Test requires a plan to have no facial discrimination and no discrimination in its operation.
To have no discriminatory benefits on its face, the plan must have the following features:
To have no discriminatory benefits in operation, the plan must not discriminate in favor of highly compensated individuals in actual operation; this is a facts and circumstances determination that looks to see if “the duration of a particular benefit coincides with the period during which [a highly compensated individual] utilizes the benefit.”
When to Test
Section 105(h) and its regulations do not specify when nondiscrimination testing must be done. However, for highly compensated individuals to retain favorable tax treatment, the self-insured plan must satisfy the tests for a plan year.
As a best practice, the employer should test prior to the beginning of the plan year, several months before the end of the plan year, and after the close of the plan year. Testing before and during the plan year will allow the plan sponsor to potentially make election or plan design changes to correct testing problems. The nondiscrimination tests cannot be satisfied by corrections made after the end of the plan year. The employer should keep a record of its test results.
Consequences of Failing the Nondiscrimination Tests
If the plan fails the nondiscrimination tests, then highly compensated individuals’ excess reimbursements will be taxable. If the plan is discriminatory, then non-highly compensated individuals will not lose their tax benefits and the plan will not lose its status as a valid Section 105 plan.
Amounts that are excess reimbursement are includable in a highly compensated individual’s income; the excess reimbursement calculation varies based on whether the benefits were paid to highly compensated individuals due to either discriminatory coverage for failing to meet the Eligibility Test, or discriminatory benefits for failing to meet the Benefits Test.
If a self-insured plan fails to meet the Eligibility Test and provides discriminatory coverage, the amount of the excess reimbursement is calculated as:
If a self-insured plan fails to meet the Benefits Test and provides discriminatory benefits, the amount of the excess reimbursement is the amount reimbursed to that highly compensated individual for the discriminatory benefit.
If the benefit was only available to a highly compensated individual and not to other participants, then the total amount reimbursed to that highly compensated individual for that benefit will be included in that individual’s gross income.
If the benefit is available to non-highly compensated individuals but it is a lesser benefit, then the amount available to the highly compensated individual is offset by the amounts available to the non-highly compensated individuals.
A pro rata share of the discriminatory coverage or discriminatory benefit will be taxable when coverage is partially paid with employee after-tax contributions and partially paid with employer contributions.
If a self-insured plan fails to meet both the Eligibility Test and the Benefits Test, the excess reimbursement is calculated by first applying the Benefits Test. Then the amount of excess reimbursement under the Benefits Test is subtracted from the numerator and dominator when the Eligibility Test is calculated.
The regulations provide six excess reimbursement examples, found here in the Appendix to this Advisor.
Reporting Discriminatory Amounts
If a self-insured plan discriminates in favor of highly compensated individuals, the employer should include the excess reimbursement in the highly compensated individual’s gross income and report the income in Box 1 of Form W-2. The amounts should not be reported in Box 3 or Box 5 of Form W-2 because the amounts are not considered wages for FICA or FUTA withholding.
Plan Design Considerations
Plan sponsors should be cautious of plan designs that create separate plans for different employee groups or that do not cover all employees, create different eligibility requirements for different groups of employees, or base employer contributions or benefits on employees’ years of service or compensation level.
Appendix: Excess Reimbursement Examples
Corporation M maintains a self-insured medical reimbursement plan which covers all employees. The plan provides the following maximum limits on the amount of benefits subject to reimbursement: $5,000 for officers and $1,000 for all other participants. During a plan year Employee A, one of the 5 highest paid officers, received reimbursements in the amount of $4,000. Because the amount of benefits provided for highly compensated individuals is not provided for all other participants, the plan benefits are discriminatory. Accordingly, Employee A received an excess reimbursement of $3,000 ($4,000−$1,000) which constitutes a benefit available to highly compensated individuals, but not to all other participants.
Corporation N maintains a self-insured medical reimbursement plan which covers all employees. The plan provides a broad range of medical benefits subject to reimbursement for all participants. However, only the 5 highest paid officers are entitled to dental benefits. During the plan year Employee B, one of the 5 highest paid officers, received dental payments under the plan in the amount of $300. Because dental benefits are provided for highly compensated individuals, and not for all other participants, the plan discriminates as to benefits. Accordingly, Employee B received an excess reimbursement in the amount of $300.
Corporation O maintains a self-insured medical reimbursement plan which discriminates as to eligibility by covering only the highest paid 40% of all employees. Benefits subject to reimbursement under the plan are the same for all participants. During a plan year Employee C, a highly compensated individual, received benefits in the amount of $1,000. The amount of excess reimbursement paid Employee C during the plan year will be calculated by multiplying the $1,000 by a fraction determined under subparagraph (3) [of 26 CFR 1.105-11].
Corporation P maintains a self-insured medical reimbursement plan for its employees. Benefits subject to reimbursement under the plan are the same for all plan participants. However, the plan fails the eligibility tests of section 105(h)(3)(A) and thereby discriminates as to eligibility. During the 1980 plan year Employee D, a highly compensated individual, was hospitalized for surgery and incurred medical expenses of $4,500 which were reimbursed to D under the plan. During that plan year the Corporation P medical plan paid $50,000 in benefits under the plan, $30,000 of which constituted benefits paid to highly compensated individuals. The amount of excess reimbursement not excludable by D under section 105(b) is $2,700:
$4,500 x ($30,000 ¸ $50,000)
Corporation Q maintains a self-insured medical reimbursement plan for its employees. The plan provides a broad range of medical benefits subject to reimbursement for participants. However, only the five highest paid officers are entitled to dental benefits. In addition, the plan fails the eligibility test of section 105(h)(3)(A) and thereby discriminates as to eligibility. During the calendar 1981 plan year, Employee E, a highly compensated individual, received dental benefits under the plan in the amount of $300, and no other employee received dental benefits. In addition, Employee E was hospitalized for surgery and incurred medical expenses, reimbursement for which was available to all participants, of $4,500 which were reimbursed to E under the plan. Because dental benefits are only provided for highly compensated individuals, Employee E received an excess reimbursement under paragraph (e)(2) above in the amount of $300. For the 1981 plan year, the Corporation Q medical plan paid $50,300 in total benefits under the plan, $30,300 of which constituted benefits paid to highly compensated individuals. In computing the fraction under paragraph (e)(3) [of 26 CFR 1.105-11], discriminatory benefits described in paragraph (e)(2) are not taken into account. Therefore, the amount of excess reimbursement not excludable to Employee E with respect to the $4,500 of medical expenses incurred is $2,700:
and the total amount of excess reimbursements includable in E’s income for 1981 is $3,000.
(i) Corporation R maintains a calendar year self-insured medical reimbursement plan which covers all employees. The type of benefits subject to reimbursement under the plan include all medical care expenses as defined in section 213(e). The amount of reimbursement available to any employee for any calendar year is limited to 5 percent of the compensation paid to each employee during the calendar year. The amount of compensation and reimbursement paid to Employees A-F for the calendar year is as follows:
(ii) Because the amount of benefits subject to reimbursement under the plan is in proportion to employee compensation the plan discriminates as to benefits. In addition, Employees A and B are highly compensated individuals. The amount of excess reimbursement paid Employees A and B during the plan year will be determined under paragraph (e)(2) [of 26 CFR 1.105-11]. Because benefits in excess of $400 (Employee F’s maximum benefit) are provided for highly compensated individuals and not for all other participants, Employees A and B received, respectively, an excess reimbursement of $4,600 and $850.
To download the full compliance alert click Here.
Are you having trouble controlling your healthcare cost? Take a look at this interesting article from Employee Benefits Advisor on how rising healthcare costs are affecting employers by Bruce Shutan.
With the fate of healthcare reform in limbo, new research suggests employers are moving forward with a host of incremental changes to their health and wellness plans in hopes of curtailing costs on their own.
Kim Buckey, VP of client services at DirectPath, an employee engagement and healthcare compliance technology company, has noticed a slowdown in adoption of high-deductible health plans and cost-shifting strategies that aren’t quite living up to expectations. DirectPath’s 2017 Medical Plan Trends and Observations Report, based on an analysis of about 975 employee benefit health plans, found employers applying creative methods for cost control.
Buckey noted greater use of health savings accounts, wellness incentives, price transparency tools and alternative care options.
Slightly more than half of the employers studied by DirectPath offer a price transparency tool, while another 18% plan to do so in the next three years. Price-comparison services were found to save employees and employers alike an average of $173 and $409, respectively, per procedure.
In an effort to reduce costs and the administrative burden of tracking coverage for dependents, surcharges on spouses who can elect coverage elsewhere soared more than 40% within the past year to $152 per month.
The number of plans that offer wellness incentives rose to 58% from 50% between 2016 and 2017. Rewards included paycheck contributions, plan premium discounts, contributions to HSAs and health reimbursement arrangements and reduced co-pays for office visits. HSAs were far more popular than employee-funded HRAs (67% vs. 15% of employers examined), while employer contributions to HSAs increased nearly 10%.
Barriers to care and cost containment
A separate survey conducted by CEB, a technology company that monitors corporate performance, noted that although as many as one-third of organizations offer telemedicine, more than 55% of employees aren’t even aware of their availability and nearly 60% believe they’re difficult to access.
DirectPath and CEB both found that the average cost of specialty drugs increased by more than 30%. This reflects research conducted by the National Business Group on Health. Nearly one-third of NBGH members said the category was their highest driver of healthcare costs last year.
The pursuit of a panacea for rising group health costs has been meandering. When Buckey’s career began, she recalls how indemnity plans gave way to HMOs and managed care, then HDHPs, consumer-directed plans and private exchanges. “There is no one silver bullet that’s going to solve this problem,” she explains, “and I think employers and their advisers are starting to understand that it’s got to be a combination of things.”
More employers are now realizing that cost-shifting isn’t a viable long-term solution and that “whatever changes are put in place will require a well thought-out, year-round and robust communication plan,” she says.
There’s also a serious need to improve healthcare literacy, with Buckey noting that many employees still struggle to understand basic concepts such as co-pays, deductibles and HSAs. Consequently, she says it’s no wonder why they often “just shut down and do whatever their doctor tells them.
“So I think anything that advisers and brokers can do to support their employers in explaining these plans, or whatever changes they choose to implement,” she continues, will help raise understanding and eventually have a positive influence on behavior change. This, in turn, will help lower employee healthcare costs.”
Shutan B. (2017 April 5). Are healthcare cost-shifting efforts at a tipping point? [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/are-healthcare-cost-shifting-efforts-at-a-tipping-point
Take a look at the great article from Employee Benefits Advisor on what employers need to know about healthcare with the collapse of the AHCA by Alden J. Bianchi and Edward A. Lenz.
The stunning failure of the U.S. House of Representatives to pass the American Health Care Act has political and policy implications that cannot be forecasted. Nor is it clear whether or when the Trump administration and Congress will make another effort to repeal and replace, or whether Republicans will seek Democratic support in an effort to “repair,” the Affordable Care Act. Similarly, we were unable to predict whether and to what extent the AHCA’s provisions can be achieved through executive rulemaking or policy guidance.
Here are some ways the AHCA’s failure could impact employers in the near term.
Immediate impact on employers
Employers were not a major focus of the architects of the ACA, nor were they a major focus of those who crafted the AHCA. This is not surprising. These laws address healthcare systems and structures, especially healthcare financing. Rightly or wrongly, employers have not been viewed by policymakers as major stakeholders on those issues.
In a blog post published at the end of 2014, we made the following observations:
The ACA sits atop a major tectonic plate of the U.S. economy, nearly 18% of which is healthcare-related. Healthcare providers, commercial insurance carriers, and the vast Medicare/Medicaid complex are the law’s primary stakeholders. They, and their local communities, have much to lose or gain depending on how healthcare financing is regulated. The ACA is the way it is largely because of them. Far more than any other circumstance, including which political party controls which branch of government, it is the interests of the ACA’s major stakeholders that determine the law’s future. And there is no indication whatsoever that, from the perspective of these entities, the calculus that drove the ACA’s enactment has changed. U.S. employers, even the largest employers among them, are bit players in this drama. They have little leverage, so they are relegated to complying and grumbling (not necessarily in that order).
With the AHCA’s collapse, the ACA remains the law of the land for the foreseeable future. The AHCA would have zeroed out the penalties on “applicable large” employers that fail to make qualified offers of health coverage, but the bill’s failure leaves the ACA’s “play or pay” rules in full force and effect. The ACA’s reporting rules, which the AHCA would not have changed, also remain in effect. This means, among other things, that many employers, especially those with large numbers of part-time, seasonal, and temporary workers that face unique compliance challenges, will continue to be in the position of “complying and grumbling.”
This does not mean that nothing has changed. The leadership of the Departments of Health and Human Services, Labor and Treasury has changed, and these agencies are now likely to be more employer-friendly. Thus, even though the ACA is still the law, the regulatory tone and tenor may well be different. For example, although the current complex employer reporting rules will remain in effect, the Treasury and IRS might find administrative ways to simplify them. Similarly, any regulations issued under the ACA’s non-discrimination provisions applicable to insured health plans (assuming they are issued at all) likely will be more favorable to employers than those issued under the previous administration.
There are also unanticipated consequences of the AHCA’s failure that employers might applaud. We can think of at least two.
1. Stemming the anticipated tide of new state “play or pay” laws
The continuation of the ACA’s employer mandate likely will put on hold consideration by state and local governments of their own “play or pay” laws.
In anticipation of the repeal of the ACA’s employer mandate, the Governor of Massachusetts recently introduced a budget proposal that would reinstate mandated employer contributions to help cover the costs of increased enrollment in the Medicaid and Children’s Health Insurance Program, known as MassHealth. Under the proposal, employers with 11 or more full-time equivalent employees would have to offer full-time employees a minimum of $4,950 toward the cost of an employer group health plan, or make an annual contribution in lieu of coverage of $2,000 per full-time equivalent employee. While the Governor’s proposal is not explicitly conditioned on repeal of the ACA’s employer mandate, the ACA’s survival may prompt a reconsideration of that approach.
California lawmakers were also considering ACA replacement proposals, including a single-payer bill introduced last month by Democratic state senators Ricardo Lara and Toni Atkins. Had the ACA’s employer mandate been repealed, those proposals were likely just the tip of an iceberg. When the ACA was enacted in 2010, Hawaii, Massachusetts, and San Francisco were the only jurisdictions with their own healthcare mandates on the books. But in the prior two-year period, before President Obama was elected and made healthcare reform his top domestic priority, more than two dozen states had introduced various “fair share” health care reform bills aimed at employers.
Most of the state and local “play or pay” proposals would have required employers to pay a specified percentage of their payroll, or a specified dollar amount, for health care coverage. Some required employers to pay employees a supplemental hourly “health care” wage in addition to their regular wages or provide health benefits of at least equal value. California, Illinois, Pennsylvania, and Wisconsin considered single-payer proposals.
To be sure, any state or local “play or pay” mandates would be subject to challenge based on Federal preemption under the Employee Retirement Income Security Act (ERISA). While some previous “play or pay” laws were invalidated under ERISA (e.g., Maryland), others (i.e., San Francisco) were not. In sum, given the failure of the AHCA, there would appear to be no rationale, at least for now, for any new state or local “play or pay” laws to go forward.
2. Avoiding upward pressure on employer premiums as a result of Medicaid reforms
The AHCA proposed to reform Medicaid by giving greater power to the states to administer the Medicaid program. Under an approach that caps Medicaid spending, the law would have provided for “per capita allotments” and “block grants.” Under either approach, the Congressional Budget Office, in its scoring of the AHCA, predicted that far fewer individuals would be eligible for Medicaid.
According to the CBO: CBO and JCT estimate that enacting the legislation would reduce federal deficits by $337 billion over the 2017 to 2026 periods. That total consists of $323 billion in on-budget savings and $13 billion in off-budget savings. Outlays would be reduced by $1.2 trillion over the period, and revenues would be reduced by $0.9 trillion. The largest savings would come from reductions in outlays for Medicaid and from the elimination of the ACA’s subsidies for non-group health insurance.
While employers rarely pay attention to Medicaid, the AHCA gave them a reason to do so. Fewer Medicaid-eligible individuals would mean more uncompensated care — a significant portion of the costs of which would likely be passed on to employers in the form of higher premiums. As long as the ACA’s expanded Medicaid coverage provisions remain in place, premium pressure on employers will to that extent be avoided.
Long-term impact on employers
As we conceded at the beginning, it’s not clear how the Republican Congress and the Administration will react to the AHCA’s failure. If the elected representatives of both political parties are inclined to try to make the current system work, however, we can think of no better place that the prescriptions contained in a report by the American Academy of Actuaries, entitled “An Evaluation of the Individual Health Insurance Market and Implications of Potential Changes.”
The actuaries’ report does not address, much less resolve, the major policy differences between the ACA and the AHCA over the role of government — in particular, the extent to which taxpayers should be called on to fund the health care costs of low-and moderate-income individuals, and whether U.S. citizens should be required to maintain health coverage or pay a penalty. And even if lawmakers can reach consensus on those contentious issues, they still would have to agree on the proper implementing mechanisms.
But whatever the outcome, employers are unlikely to play a major role.
Bianchi A. & Lenz E. (2017 April 6). How employers should proceed after the AHCA’s collapse [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/how-employers-should-proceed-after-the-ahcas-collapse
Have any questions about cafeteria plans and how they work? Check out this great article from our partner, United Benefit Advisors (UBA) about which events qualify and what changes can happen to any employee’s cafeteria plan by Danielle Capilla
Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance. Employees are given the opportunity to select the benefits they want, just like an individual standing in the cafeteria line at lunch.
Only certain benefits can be offered through a cafeteria plan:
Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-employees, transportation and other fringe benefits, long-term care, and health reimbursement arrangements (unless very specific rules are met by providing one in conjunction with a high deductible health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.
Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also affected aspects of cafeteria plan administration.
Employees are allowed to choose the benefits they want by making elections. Only the employee can make elections, but they can make choices that cover other individuals such as spouses or dependents. Employees must be considered eligible by the plan to make elections. Elections, with an exception for new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be changed during the plan year, unless a permitted change in status occurs. There is an exception for mandatory two-year elections relating to dental or vision plans that meet certain requirements.
Plans may allow participants to change elections based on the following changes in status:
Plans may also allow participants to change elections based on the following changes that are not a change in status but nonetheless can trigger an election change:
Together, the change in status events and other recognized changes are considered “permitted election change events.”
Common changes that do not constitute a permitted election change event are: a provider leaving a network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a legal separation (unless the separation leads to a loss of eligibility under the plan), commencement of a domestic partner relationship, or a change in financial condition.
There are some events not in the regulations that could allow an individual to make a mid-year election change, such as a mistake by the employer or employee, or needing to change elections in order to pass nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing evidence that the mistake has been made. For instance, an individual might accidentally sign up for family coverage when they are single with no children, or an employer might withhold $100 dollars per pay period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.
Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts in the middle of the plan year, so long as automatic election language is in the plan documents. An “insignificant” amount is considered one percent or less.
Plans should consider which change in status events to allow, how to track change in status requests, and the time limit to impose on employees who wish to make an election.
Capilla D. (2017 February 07). Cafeteria plans: qualifying events and changing employee elections [Web blog post]. http://blog.ubabenefits.com/cafeteria-plans-qualifying-events-and-changing-employee-elections
Stay up-to-date with the most recent ACA regulations thanks to our partners at United Benefits Advisor (UBA)
February had relatively little activity in the employee benefits world because a new Secretary of the Department of Health and Humans (HHS) was recently confirmed and HHS started its rulemaking under the new administration.
On February 10, 2017, the U.S. Senate confirmed Rep. Tom Price as the new Secretary of HHS, who has a budget of more than $1 trillion, the largest budget of any Cabinet secretary. HHS administers the Patient Protection and Affordable Care Act (ACA), Medicare, and Medicaid, and oversees other programs and agencies.
The Centers for Medicare & Medicaid Services (CMS) extended its transitional policy for nongrandfathered coverage in the small group and individual health insurance markets. The Internal Revenue Service (IRS) delayed the deadline for small employers to provide its initial written notices to employees regarding Qualified Small Employer Health Reimbursement Arrangements (QSE HRAs). CMS proposed a rule on ACA market stabilization.
HHS issued its Annual Civil Monetary Penalties Inflation Adjustment to reflect required inflation-related increases to the civil monetary penalties in its regulations. The IRS released a letter that discusses retroactive Medicare coverage’s effect on HSA contributions. Also, the IRS announced that it will not automatically reject individual tax returns when the taxpayer failed to indicate continuous coverage, failed to claim an exemption from the individual mandate, or failed to pay the penalty.
UBA released three new advisors in February:
UBA updated existing guidance:
CMS Allows States to Extend Life of “Grandmothered” or Transitional Health Insurance Policies
On February 23, 2017, the Department of Health and Human Services’ Centers for Medicare & Medicaid Services (CMS) released its Insurance Standards Bulletin Series, in which it re-extended its transitional policy for non-grandfathered coverage in the small group and individual health insurance markets.
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, 2018; however, any policies renewed under this transitional policy must not extend past December 31, 2018.
If permitted by applicable state authorities, health insurance issuers may choose to continue certain coverage that would otherwise be cancelled, and affected individuals and small businesses may choose to re-enroll in such coverage.
As background, CMS’ transitional policy was first announced in November 14, 2013; CMS had most recently extended the transitional policy on February 29, 2016, for an additional year for policy years beginning on or before October 1, 2017, provided that all policies end by December 31, 2017.
Policies subject to the transitional relief are not considered to be out of compliance with the ACA’s single risk pool requirement or the following Public Health Service Act (PHS Act) provisions:
However, issuers can choose to adopt some of or all these provisions in their renewed policies.
IRS Delays Initial Notice Requirements for QSE HRAs
Under the 21st Century Cures Act, small employers that want to reimburse individual health coverage premiums through HRAs called “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRAs) must provide annual written notice to all eligible employees no later than 90 days before the beginning of the benefit year.
On February 27, 2017, the Internal Revenue Service (IRS) issued Notice 2017-20 that delays the initial written notice deadline. The Department of the Treasury and the IRS intend to issue guidance to provide employers with additional time to furnish the initial notice to employees; the extended deadline will be no earlier than 90 days following the issuance of future guidance. Further, no penalties will be imposed for failure to provide the initial notice before the extended deadline.
CMS’ Proposed Rule on ACA Market Stabilization
On February 17, 2017, the Department of Health and Human Services’ Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to stabilize the health insurance market and address risks to the individual and small group markets. CMS proposes changes to guaranteed availability of coverage, network adequacy, essential community providers, open enrollment periods, special enrollment periods, continuous coverage, and standards for the Exchanges.
The proposed changes primarily affect the individual market. However, to the extent that employers have fully-insured plans, some of the proposed changes will affect those employers’ plans because the changes affect standards that apply to issuers.
Public comments are due by March 7, 2017.
HHS Civil Monetary Penalties Increase
On February 3, 2017, the Department of Health and Human Services (HHS) issued its Annual Civil Monetary Penalties Inflation Adjustment to reflect required inflation-related increases to the civil monetary penalties in its regulations. Here are some of the adjustments:
Most adjustments are effective for penalties assessed after February 3, 2017, for violations occurring after November 2, 2015. The HIPAA penalty adjustments are effective for penalties assessed after February 3, 2017, for violations occurring on or after February 18, 2009.
IRS Letter Regarding the Retroactive Medicare Coverage Effect on HSA Contributions
The Internal Revenue Service (IRS) recently released a letter regarding retroactive Medicare coverage and health savings account (HSA) contributions.
As background, Medicare Part A coverage begins the month an individual turns age 65, provided the individual files an application for Medicare Part A (or for Social Security or Railroad Retirement Board benefits) within six months of the month in which the individual turns age 65. If the individual files an application more than six months after turning age 65, Medicare Part A coverage will be retroactive for six months.
Individuals who delayed applying for Medicare and were later covered by Medicare retroactively to the month they turned 65 (or six months, if later) cannot make contributions to the HSA for the period of retroactive coverage. There are no exceptions to this rule.
However, if they contributed to an HSA during the months that were retroactively covered by Medicare and, as a result, had contributions in excess of the annual limitation, they may withdraw the excess contributions (and any net income attributable to the excess contribution) from the HSA.
They can make the withdrawal without penalty if they do so by the due date for the return (with extensions). Further, an individual generally may withdraw amounts from an HSA after reaching Medicare eligibility age without penalty. (However, the individual must include both types of withdrawals in income for federal tax purposes to the extent the amounts were previously excluded from taxable income.)
If an excess contribution is not withdrawn by the due date of the federal tax return for the taxable year, it is subject to an excise tax under the Internal Revenue Code. This tax is intended to recapture the benefits of any tax-free earning on the excess contribution.
Individual Mandate – IRS Will Not Reject Silent Returns
For 2016 returns, the Internal Revenue Service (IRS) intended to reject electronically filed “silent returns,” when the taxpayer failed to indicate continuous coverage on Line 61, failed to file a Form 8965 to claim an exemption from the individual mandate, or failed to pay the penalty.
On February 15, 2017, the IRS issued a statement that it would change course and process silent returns. This means that returns without a completed Line 61 will not be systemically rejected by the IRS at the time of filing. The IRS determined that allowing returns to be accepted for processing – when a taxpayer doesn’t indicate health insurance coverage status – is consistent with the January 20, 2017, Executive Order directing federal agencies to exercise authority and discretion to reduce potential burden under the ACA.
Per the IRS, the ACA’s provisions are still in force until changed by Congress; further, taxpayers remain required to follow the law and pay what they may owe. The IRS indicates that if it has questions about a return, it will follow up with correspondence and questions to taxpayers at a future date, after the filing process is complete.
Please be aware that this change in IRS policy for individual filers does not affect employer reporting.
To download the full compliance click Here.
Make sure to stay up-to-date with the most recent compliance alerts from our partners at United Benefits Advisors (UBA).
Starting on January 1, 2017, certain small employers have the option to reimburse individual health coverage premiums up to a dollar limit through Qualified Small Employer Health Reimbursement Arrangements (QSE HRAs) under the 21st Century Cures Act (Cures Act).
The Cures Act amends the Employee Retirement Income Security Act of 1974 (ERISA) to exclude QSE HRAs from the ERISA definition of group health plan; however, the Cures Act does not specifically exclude QSE HRAs from the rest of ERISA.
Small employers that plan to offer QSE HRAs should be cautious before presuming that ERISA would not apply to a reimbursement arrangement. ERISA generally covers employee welfare benefit plans that are established or maintained by any employer engaged in interstate commerce or in any industry or activity affecting interstate commerce.
Under the Cures Act, QSE HRAs are excluded from one of ERISA’s two definitions of “group health plan.” QSE HRAs are excluded from the definition of group health plan that applies only to ERISA’s Title I, Part 7, that governs group health plan requirements. In summary, Part 7 includes requirements relating to portability, access, renewability, mother/newborn benefits, parity in mental health and substance use disorder benefits, reconstructive surgery, dependent student coverage, and additional market reforms.
Outside of the group health plan definition above, ERISA provides a broader definition of an employee welfare benefit plan: generally, it is any plan, fund, or program established or maintained by an employer to provide participants or their beneficiaries with medical, surgical, or hospital care or benefits, through the purchase of insurance or otherwise.
Further, in the legislative history of QSE HRA’s exclusion from ERISA’s group health plan definition, the House Committee on Ways and Means’ Report stated, as part of recommending the bill’s passage: “While these arrangements are not considered group health plans for purposes of the employer penalty, H.R. 5447 is not intended to change the extent to which these plans are employee welfare benefit plans under ERISA.”
Because QSE HRAs are new, the issue of whether the remainder of ERISA applies to QSE HRAs remains undetermined by an administrative agency or court. In consideration of the limited ERISA group health definition exclusion and the law’s legislative history, a risk-averse small employer should treat a QSE HRA as an employee welfare benefit plan covered under ERISA and comply with applicable ERISA requirements such as having a written plan document and summary plan description as well as following ERISA’s fiduciary and other rules.
A small employer who intends to offer a QSE HRA without complying with ERISA’s employee welfare benefit plan requirements should consult with its attorney before proceeding
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On December 13, 2016, President Obama signed the 21st Century Cures Act into law. The Cures Act has numerous components, but employers should be aware of the impact the Act will have on the Mental Health Parity and Addiction Equity Act, as well as provisions that will impact how small employers can use health reimbursement arrangements (HRAs). There will also be new guidance for permitted uses and disclosures of protected health information (PHI) under the Health Insurance Portability and Accountability Act (HIPAA).
Title XVIII – Health Reimbursement Arrangements
The Cures Act provides a method for certain small employers to reimburse individual health coverage premiums up to a dollar limit through HRAs called “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRA). This provision will go into effect on January 1, 2017.
Previously, the Internal Revenue Service (IRS) issued Notice 2015-17 addressing employer payment or reimbursement of individual premiums in light of the requirements of the Patient Protection and Affordable Care Act (ACA). For many years, employers had been permitted to reimburse premiums paid for individual coverage on a tax-favored basis, and many smaller employers adopted this type of an arrangement instead of sponsoring a group health plan. However, these “employer payment plans” are often unable to meet all of the ACA requirements that took effect in 2014, and in a series of Notices and frequently asked questions (FAQs) the IRS made it clear that an employer may not either directly pay premiums for individual policies or reimburse employees for individual premiums on either an after-tax or pre-tax basis. This was the case whether payment or reimbursement is done through an HRA, a Section 125 plan, a Section 105 plan, or another mechanism.
The Cures Act now allows employers with less than 50 full-time employees (under ACA counting methods) who do not offer group health plans to use QSE HRAs that are fully employer funded to reimburse employees for the purchase of individual health care, so long as the reimbursement does not exceed $4,950 annually for single coverage, and $10,000 annually for family coverage. The amount is prorated by month for individuals who are not covered by the arrangement for the entire year. Practically speaking, the monthly limit for single coverage reimbursement is $412, and the monthly limit for family coverage reimbursement is $833. The limits will be updated annually.
Impact on Subsidy Eligibility. For any month an individual is covered by a QSE HRA/individual policy arrangement, their subsidy eligibility would be reduced by the dollar amount provided for the month through the QSE HRA if the QSE HRA provides “unaffordable” coverage under ACA standards. If the QSE HRA provides affordable coverage, individuals would lose subsidy eligibility entirely. Caution should be taken to fully education employees on this impact.
COBRA and ERISA Implications. QSE HRAs are not subject to COBRA or ERISA.
Annual Notice Requirement. The new QSE HRA benefit has an annual notice requirement for employers who wish to implement it. Written notice must be provided to eligible employees no later than 90 days prior to the beginning of the benefit year that contains the following:
Recordkeeping, IRS Reporting. Because QSE HRAs can only provide reimbursement for documented healthcare expense, employers with QSE HRAs should have a method in place to obtain and retain receipts or confirmation for the premiums that are paid with the account. Employers sponsoring QSE HRAs would be subject to ACA related reporting with Form 1095-B as the sponsor of MEC. Money provided through a QSE HRA must be reported on an employee’s W-2 under the aggregate cost of employer-sponsored coverage. It is unclear if the existing safe harbor on reporting the aggregate cost of employer-sponsored coverage for employers with fewer than 250 W-2s would apply, as arguably many of the small employers eligible to offer QSE HRA’s would have fewer than 250 W-2s.
Individual Premium Reimbursement, Generally. Outside of the exception for small employers using QSE HRAs for reimbursement of individual premiums, all of the prior prohibitions from IRS Notice 2015- 17 remain. There is no method for an employer with 50 or more full time employees to reimburse individual premiums, or for small employers with a group health plan to reimburse individual premiums. There is no mechanism for employers of any size to allow employees to use pre-tax dollars to purchase individual premiums. Reimbursing individual premiums in a non-compliant manner will subject an employer to a penalty of $100 a day per individual they provide reimbursement to, with the potential for other penalties based on the mechanism of the non-compliant reimbursement.
Title XIII – Mental Health Parity
Overall, the Act does not provide any substantive guidance or changes to the mental health parity rules or mental health and substance use disorder coverage requirements (collectively, mental health parity rules).
The Act provides only one clarification to mental health parity rules: if a group health plan or a health insurance issuer provides coverage for eating disorder benefits, including residential treatment, the plan or issuer must provide the benefits consistent with the mental health parity rules.
The Act directs the Secretary of Health and Human Services, Secretary of Labor, and Secretary of the Treasury (collectively, the Agencies) to issue compliance program guidance, share findings with each other, and issue guidance to group health plans and health insurance issuers to help them comply with the mental health parity rules.
The compliance program guidance must illustrate de-identified examples of compliance and noncompliance based on the Agencies’ investigations of violations. In each of the Agencies’ examples of a finding of compliance or non-compliance with nonquantitative treatment limitations requirements, the Agencies must provide sufficient detail to explain the finding, including a full description of the criteria for approving medical and surgical benefits and the criteria for approving mental health and substance use disorder benefits.
The compliance program guidance must also include recommendations to advance compliance and encourage the development and use of internal controls to monitor adherence to applicable statutes, regulations, and program requirements. The internal controls description may include illustrative examples of nonquantitative treatment limitations on mental health and substance use disorder benefits which fail to comply with nonquantitative treatment limitations on medical and surgical benefits.
The Act requires the Agencies to share compliance findings with each other and to seek agreements with states to share similar compliance findings. Further, the Agencies must update their compliance program guidance biennially to include illustrative, de-identified examples of previous findings of compliance and noncompliance.
The Agencies must also issue guidance to group health plans and health insurance issuers; the guidance must provide information and methods that plans and issuers can use when they are required to disclose information to participants, beneficiaries, contracting providers, or authorized representatives to ensure the plans’ and issuers’ compliance with the mental health parity rules.
The guidance to plans and issuers must include:
The Act authorizes the Agencies to determine whether a group health plan or health insurance issuer has violated the mental health parity requirements under the Public Health Service Act, ERISA, or the Internal Revenue Code. If a plan or issuer is cited five violations, then the agency will audit plan documents for that health plan or issuer to improve compliance.
The Agencies must issue the compliance program guidance and guidance to group health plans and health plan issuers within 12 months after the date that the Helping Families in Mental Health Crisis Reform Act of 2016 was enacted, or by December 13, 2017.
Title XI – Compassionate Communication on HIPAA
The Cures Act does not provide any substantive guidance or changes to the confidentiality of alcohol and drug abuse patient records under federal regulations or protected health information under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
However, the Act directs the Secretary of Health and Human Services (the Secretary) to issue guidance relating to the confidentiality of alcohol and drug abuse patient records, issue guidance relating to the permitted use or disclosure of protected health information (PHI), and develop and disseminate model training programs and materials on its guidance.
The Act requires the Secretary to finalize regulations updating existing sections on the confidentiality of alcohol and drug abuse patient records.
Further, the Act requires the Secretary to issue guidance clarifying the circumstances under which a health care provider or covered entity may use or disclose PHI consistent with HIPAA. The Secretary’s guidance must address circumstances that:
For the circumstances listed above, the Secretary’s guidance must clarify permitted uses and disclosures of PHI for:
The Act also directs the Secretary to develop and disseminate model programs and materials to train health care providers on permitted uses and disclosures of PHI of patients seeking or undergoing mental health or substance use disorder treatment.
The Secretary must issue guidance and disseminate model programs and materials within one year after the date that the 21st Century Cures Act was enacted, or by December 13, 2017.
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