December Benefits Buzz (2)

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HPID Requirement Delayed Indefinitely

On Oct. 31, 2014, the Centers for Medicare & Medicaid Services (CMS) announced a delay in enforcement of the Health Plan Identifier (HPID) requirement until further notice.The HPID is a standard, unique health plan identifier required by the Health Insurance Portability & Accountability Act of 1996 (HIPAA).The delay, which was announced five days before the initial deadline to obtain an HPID, means that for the foreseeable future, health plan sponsors are not required to obtain an HPID or use it in HIPAA standard transactions.CMS has not indicated if there will be a new deadline for obtaining the HPID, or when the new deadline will be. Health plan sponsors who have already obtained HPIDs should maintain records of their identifiers.This enforcement delay applies to all HIPAA-covered entities, including health care providers, health plans and health care clearinghouses. Officials responsible for enacting the delay released a statement explaining their decision was based on recommendations by a separate advisory body. Those recommendations will be reviewed while the delay is in effect.

DID YOU KNOW?

The IRS recently announced a new annual contribution limit for health Flexible Spending Accounts (FSAs) starting in 2015.

According to this guidance, for taxable years beginning in 2015, the dollar limitation on employee salary reduction contributions to health FSAs will be $2,550, an increase of $50 from the amount for 2014.

The FSA dollar limit first became effective in 2013, as part of the Affordable Care Act (ACA).

Prior to the end of 2014, cafeteria plan documents should be updated to reflect the ACA’s new health FSA dollar limit.

 

December Benefits Buzz

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Agencies Prohibit All Employer Reimbursement of Individual Premiums

Due to the rising costs of health coverage, employers have shown interest in helping employees pay for individual health insurance policies instead of offering employer-sponsored plans.

In response, on Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued FAQ guidance stating that these arrangements do not comply with the Affordable Care Act’s (ACA) market reforms and may subject employers to penalties.

Although it was widely believed that these penalties would apply only to pre-tax arrangements, the FAQs clarify that after-tax reimbursements and cash compensation for individual premiums also do not comply with the ACA’s market reforms and may trigger the excise tax penalties.

This guidance essentially prohibits all employer arrangements that reimburse employees for individual premiums, whether employers treat the money as pre-tax or post-tax for employees.

The new FAQ follows up on IRS guidance previously issued in September 2013, which clarified that health reimbursement arrangements (HRAs), certain health flexible spending arrangements (FSAs) and other employer payment plans are considered group health plans subject to the ACA’s market reforms and cannot be integrated with individual policies to satisfy those requirements.

The IRS further clarified the issue in May 2014 when it issued two FAQs addressing the consequences for employers who reimburse employees for individual health insurance premiums. Because these employer payment plans do not comply with the ACA’s market reforms, the IRS indicated in the FAQs that these arrangements may trigger an excise tax of $100 per day for each applicable employee. This same penalty would apply to employers who violate the new ruling against reimbursing employees for individual premiums.

The latest guidance also stated that products claiming to help employers obtain Marketplace subsidies for their workers through a Code Section 105 reimbursement plan are also not permitted.

Agencies Prohibit All Employer Reimbursement of Individual Premiums

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Due to the rising costs of health coverage, employers have shown interest in helping employees pay for individual health insurance policies instead of offering an employer-sponsored plan.

In response, on Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued FAQ guidance clarifying that these arrangements do not comply with the ACA’s market reforms and may subject employers to penalties.

Although it was widely believed that these penalties would apply only to pre-tax arrangements, the FAQs clarify that after-tax reimbursements and cash compensation for individual premiums also do not comply with the ACA’s market reforms and may trigger the excise tax penalties.

This guidance essentially prohibits all employer arrangements that reimburse employees for individual premiums, whether employers treat the money as pre-tax or post-tax for employees.

Background on Employer Payment Plans

Issued on Sept. 13, 2013, IRS Notice 2013-54 first addressed the application of the ACA’s market reforms to health reimbursement  arrangements (HRAs), certain health flexible spending arrangements (FSAs) and other employer payment plans.

Notice 2013-54 clarified that these arrangements are considered group health plans subject to the ACA’s market reforms—including the annual limit prohibition and the preventive care coverage requirement—and cannot be integrated with individual policies to satisfy those requirements. As a result, effective for 2014 plan years, these plans are essentially prohibited.

On May 13, 2014, the IRS issued two FAQs addressing the consequences for employers that reimburse employees for individual health insurance premiums. Because these employer payment plans do not comply with the ACA’s market reforms, the IRS indicated in the FAQs that these arrangements may trigger an excise tax of $100 per day for each applicable employee ($36,500 per year per employee) under Code Section 4980D.

However, the Departments’ prior guidance suggested that this prohibition generally only applied to employer arrangements that reimburse individual premiums on a tax-free basis, and not to after-tax reimbursements. Thus, it was widely believed that premium reimbursement arrangements made on an after-tax basis would still be permitted.

Cash Reimbursements

According to the new FAQs, an employer arrangement that provides cash reimbursement for an individual market policy is considered to be part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax for the employee. Therefore, the arrangement is group health plan coverage subject to the ACA’s market reform provisions.

The Departments stressed that these employer health care arrangements cannot be integrated with individual market policies to satisfy the ACA’s market reforms. As a result, these plans will violate the ACA’s market reforms, which can trigger penalties, including excise taxes under Code Section 4980D.

Employees with High Claims Risk

The FAQs also clarify that an employer cannot offer a choice between enrollment in the standard group health plan or cash only to employees with a high claims risk. This practice constitutes unlawful discrimination based on one or more health factors, in violation of federal nondiscrimination laws.

Although employers are permitted to have more favorable rules for eligibility or reduced premiums or contributions based on an adverse health factor (sometimes referred to as benign discrimination), the Departments assert that offering cash-or-coverage arrangements only to employees with a high claims risk is not permissible benign discrimination.

Accordingly, these arrangements will violate the nondiscrimination provisions, regardless of whether:

  • The employer treats the cash as pre-tax or post-tax for the employee;
  • The employer is involved in purchasing or selecting any individual market product; or
  • The employee obtains any individual health insurance.

The Departments also noted that the choice between taxable cash and a tax-favored qualified benefit (the election of coverage under the group health plan) is required to be a Code Section 125 cafeteria plan. Offering this choice to high-risk employees could result in discrimination in favor of highly compensated individuals, in violation of the cafeteria plan nondiscrimination rules.

Code Section 105 Reimbursement Plans

The Departments also noted that certain vendors are marketing products to employers claiming that, instead of providing a group health insurance plan, employers can establish a Code Section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies allowing eligible employees to access subsidies for Exchange coverage.

The FAQs assert that these arrangements are problematic for several reasons. First, these arrangements are, themselves, group health plans. Therefore, employees participating in the arrangements are ineligible for Exchange subsidies. The mere fact that the employer is not involved with an employee’s individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan.

Second, as explained in previous guidance, these arrangements are subject to the ACA’s market reform provisions, including the annual limit prohibition and preventive care coverage requirement. As noted before, these employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, can trigger penalties, including excise taxes under Code Section 4980D.

IRS Closes Minimum Value Loophole for Low-cost Employer Plans

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Under the Affordable Care Act (ACA), minimum value (MV) of an employer-sponsored plan is significant for a number of purposes. Beginning in 2015, certain large employers may be penalized if the health plan they offer does not provide MV. Also, an individual who is offered employer-sponsored coverage that is affordable and provides MV may not receive a subsidy for coverage through an Exchange. The Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS) have provided four methods for determining MV of a plan, including an online MV Calculator.

On Nov. 4, 2014, the IRS issued Notice 2014-69 to clarify that plans that do not provide in-patient hospitalization or physician services (referred to as Non-Hospital/Non-Physician Services Plans) do not provide the MV intended by the ACA. HHS and the IRS will issue proposed regulations shortly, clarifying that a plan will not provide MV if it excludes substantial coverage for in-patient hospitalization services or physician services (or both).

Accordingly, under the regulations, an employer will not be permitted to use the MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV. As a result, the IRS asserts that a Non-Hospital/Non-Physician Services Plan should not be adopted for the 2015 plan year.

However, Notice 2014-69 provides transition relief for certain employers that adopted a Non-Hospital/Non-Physician Services Plan prior to Nov. 4, 2014 (Pre-Nov. 4, 2014, Non-Hospital/Non-Physician Services Plans).

Minimum Value

Under the ACA, a plan fails to provide MV if the plan’s share of total allowed costs of benefits provided under the plan is less than 60 percent of those costs. An employer may use one of four methods to determine if its health plan provides MV, including:

  • The online MV Calculator;
  • A safe harbor checklist;
  • An actuarial certification (for plans that are not compatible with those methods); or
  • A metal level determination (for plans in the small group market).

According to the IRS, certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services are being offered to employers. Similarly, the IRS has become aware of unconventional plan designs that exclude substantial coverage of physician services. The IRS refers to these plans as Non-Hospital/Non-Physician Services Plans. Promoters of these plans contend that the plans satisfy MV, as determined through use of the online MV Calculator.

Questions have been raised as to whether Non-Hospital/Non-Physician Services Plans should satisfy the requirements for providing MV. In addition, the IRS notes that certain effects resulting from excluding substantial coverage of in-patient hospitalization services or physician services may not be adequately taken into account by the MV Calculator and its underlying continuance tables.

As a result, the IRS is concerned about the possibility of using the MV calculator to demonstrate that an unconventional plan design that excludes substantial coverage of in-patient hospitalization services or physician services provides MV.

Notice 2014-69

In Notice 2014-69, the Departments clarify that Non-Hospital/Non-Physician Services Plans do not provide the MV intended under the ACA. HHS and the IRS will issue proposed regulations shortly, clarifying that a plan will not provide MV if it excludes substantial coverage for in-patient hospitalization services or physician services (or both).

Accordingly, under the HHS and IRS regulations, an employer will not be permitted to use the MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV. The IRS advises employers to consider the consequences of the inability to rely solely on the MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV for any portion of any taxable year ending on or after Jan. 1, 2015, that follows finalization of the regulations.

Future Regulations

The proposed regulations are expected to be finalized in 2015. The Departments anticipate that the final regulations will apply to plans on the date they become final, rather than being delayed to the end of 2015 or the end of the 2015 plan year.

As a result, a Non-Hospital/Non-Physician Services Plan (other than a Pre-Nov. 4, 2014, Non-Hospital/Non-Physician Services Plan) should not be adopted for the 2015 plan year.

Transition Relief

Notice 2014-69 provides transition relief for employers that have entered into a binding written commitment to adopt, or have begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to Nov. 4, 2014, based on the employer’s reliance on the results of use of the MV Calculator (referred to as a Pre-Nov. 4, 2014, Non-Hospital/Non-Physician Services Plan).

Solely in these situations, the Departments anticipate that final regulations, when issued, will not apply to the plan before the end of the plan year (as in effect under the terms of the plan on Nov. 3, 2014), if that plan year begins no later than March 1, 2015.

Exchange Subsidy Eligibility

Pending issuance of final regulations, an employee who is covered under a Non-Hospital/Non-Physician Services Plan will not be treated as having been offered MV coverage for purposes of eligibility for an Exchange subsidy. This is the case regardless of whether the plan is a Pre-Nov. 4, 2014, Non-Hospital/Non-Physician Services Plan.

Employer Disclosure Requirements

An employer that offers a Non-Hospital/Non-Physician Services Plan (including a Pre-Nov. 4, 2014, Non-Hospital/Non-Physician Services Plan) to an employee must not state or imply in any disclosure that the offer of coverage under the Non-Hospital/Non-Physician Services Plan precludes an employee from obtaining a premium tax credit, if otherwise eligible.

In addition, the employer must correct, in a timely manner, any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit. Without this corrective disclosure, a statement (for example, in a summary of benefits and coverage) that a Non-Hospital/Non-Physician Services Plan provides MV will be considered to imply that the offer of such a plan precludes employees from obtaining a premium tax credit.

However, an employer that also offers to an employee another plan that is not a Non-Hospital/Non-Physician Services Plan and that is affordable and provides MV may advise the employee that the offer of this other plan will (or may) preclude the employee from obtaining a premium tax credit.

Health FSA Limit Will Increase for 2015

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The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to a health flexible spending account (FSA) offered under a cafeteria plan. This limit first became effective for plan years beginning on or after Jan. 1, 2013.

The ACA set the health FSA contribution limit at $2,500. For years after 2013, the dollar limit is indexed for cost-of-living adjustments.

  • 2014: For taxable years beginning in 2014, the dollar limit on employee salary reduction contributions to a health FSA remained unchanged at $2,500.
  • 2015: On Oct. 30, 2014, the IRS released Revenue Procedure 2014-61, which includes the annual inflation numbers for 2015 for a number of tax provisions, including the health FSA limit. According to this guidance, for taxable years beginning in 2015, the dollar limitation on employee salary reduction contributions to health FSAs will be $2,550, an increase of $50 from the amount for 2014.

The health FSA limit will potentially be further increased for cost-of-living adjustments for later years.

Employer Limits

An employer may continue to impose its own dollar limit on employees’ salary reduction contributions to a health FSA, as long as the employer’s limit does not exceed the ACA’s maximum limit in effect for the plan year. For example, an employer may decide to continue limiting employee health FSA contributions for the 2015 plan year to $2,500.

Per Employee Limit

The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $2,500 in salary reductions ($2,550 for 2015), regardless of whether he or she also has family members who benefit from the funds in that FSA.

However, each family member who is eligible to participate in his or her own health FSA will have a separate limit. For example, a husband and wife who have their own health FSAs can both make salary reductions of up to $2,500 per year ($2,550 for 2015), subject to any lower employer limits.

If an employee participates in multiple cafeteria plans that are maintained by employers under common control, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 ($2,550 for 2015). However, if an individual has health FSAs through two or more unrelated employers, he or she can make salary reductions of up to $2,500 ($2,550 for 2015) under each employer’s health FSA.

Salary Reduction Contributions

The ACA imposes the $2,500 limit ($2,550 for 2015) on health FSA salary reduction contributions. Non-elective employer contributions to a health FSA (for example, matching contributions or flex credits) generally do not count toward the ACA’s dollar limit. However, if employees may elect to receive the employer contributions in cash or as a taxable benefit, then the contributions will be treated as salary reductions and will count toward the ACA’s dollar limit.

In addition, the limit does not impact contributions under other employer-provided coverage. For example, employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance are not affected by the health FSA limit. The limit also does not apply to salary reduction contributions to a cafeteria plan that are used to pay for an employee’s share of health coverage premiums, to contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).

Grace Period/Carryover Feature

A cafeteria plan may include a grace period of up to two months and 15 days immediately following the end of a plan year. If a plan includes a grace period, an employee may use amounts remaining from the previous plan year, including amounts remaining in a health FSA, to pay for expenses incurred for certain qualified benefits during the grace period. If a health FSA is subject to a grace period, unused salary reduction contributions that are carried over into the grace period do not count against the $2,500 limit ($2,550 for 2015) applicable to the following plan year.

Also, if a health FSA does not include a grace period, it may allow participants to carry over up to $500 in unused funds into the next plan year. This is an exception to the “use-or-lose” rule that generally prohibits any contributions or benefits under a health FSA from being used in a following plan year or period of coverage. A health FSA carryover does not affect the limit on salary reduction contributions. This means the plan may permit the individual to elect up to $2,500 ($2,550 for 2015) in salary reductions in addition to the $500 that may be carried over.

Plan Amendments

A cafeteria plan with a health FSA must be amended to include the ACA’s dollar limit (or a lower limit at the employer’s option). In general, cafeteria plan amendments cannot be made retroactively. However, the IRS sometimes provides exceptions to this rule. Cafeteria plans with health FSAs must be amended for the ACA’s limit on or before Dec. 31, 2014. To take advantage of the delayed amendment deadline, the cafeteria plan must comply in operation with the ACA’s limit for health FSAs for plan years beginning after Dec. 31, 2012.