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Last fall, President Barack Obama signed the Protecting Affordable Coverage for Employees Act (PACE), which preserved the historical definition of small employer to mean an employer that employs 1 to 50 employees. Prior to this newly signed legislation, the Patient Protection and Affordable Care Act (ACA) was set to expand the definition of a small employer to include companies with 51 to 100 employees (mid-size segment) beginning January 1, 2016.

If not for PACE, the mid-size segment would have become subject to the ACA provisions that impact small employers. Included in these provisions is a mandate that requires coverage for essential health benefits (not to be confused with minimum essential coverage, which the ACA requires of applicable large employers) and a requirement that small group plans provide coverage levels that equate to specific actuarial values. The original intent of expanding the definition of small group plans was to lower premium costs and to increase mandated benefits to a larger portion of the population.

The lower cost theory was based on the premise that broadening the risk pool of covered individuals within the small group market would spread the costs over a larger population, thereby reducing premiums to all. However, after further scrutiny and comments, there was concern that the expanded definition would actually increase premium costs to the mid-size segment because they would now be subject to community rating insurance standards. This shift to small group plans might also encourage mid-size groups to leave the fully-insured market by self-insuring – a move that could actually negate the intended benefits of the expanded definition.

Another issue with the ACA’s expanded definition of small group plans was that it would have resulted in a double standard for the mid-size segment. Not only would they be subject to the small group coverage requirements, but they would also be subject to the large employer mandate because they would meet the ACA’s definition of an applicable large employer.

Note: Although this bill preserves the traditional definition of a small employer, it does allow states to expand the definition to include organizations with 51 to 100 employees, if so desired.

By Vicki Randall
Originally published by www.ubabenefits.com

While many Americans will remember January 20, 2017 as the day the 45th President of the United States was sworn into office, employee benefits experts will also remember it as the day the IRS Office of Chief Counsel (OCC) released this memorandum that clarifies, among other things, the tax treatment of benefits paid by fixed-indemnity plans.

Fixed indemnity plans are generally voluntary benefits employers offer to complement or supplement group health insurance, such as a hospital indemnity plan that pays a fixed dollar amount for days in the hospital. The plans do not meet minimum essential coverage standards and are exempt from the Affordable Care Act.

In the memorandum, the IRS clarified that if an employer pays the fixed-indemnity premiums on behalf of employees and the value is excluded from employees’ gross income and wages or allows employees to pay premiums pre-tax through the employer’s cafeteria plan, the amount of any benefits paid to an employee under the plan will be included in the employee’s gross income and wages. On the other hand, if employees pay the premiums with after-tax dollars, then the benefits are not included in the employees’ gross income and wages.

While this creates a tax burden for the employee, it also creates a burden for employers, as they are tasked with determining whether an employee has received a benefit and the amount of the benefit to determine wages and applicable employment taxes.

Employers that offer employer-paid fixed indemnity plans or allow employees to pay for plans pre-tax are encouraged to work with their counsel, broker, carrier, or other trusted advisor to address their current practices and determine if any changes should be made.

By Nicole Quinn-Gato, JD
Originally published by www.thinkhr.com

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:

  • Coverage under an accident or health plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-insured medical reimbursement plans, dental, vision, and more);
  • Dependent care assistance benefits or DCAPs
  • Group term life insurance
  • Paid time off, which allows employees the opportunity to buy or sell paid time off days
  • 401(k) contributions
  • Adoption assistance benefits
  • Health savings accounts or HSAs under IRS Code Section 223

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:

  • Change in marital status
  • Change in the number of dependents
  • Change in employment status
  • A dependent satisfying or ceasing to satisfy dependent eligibility requirements
  • Change in residence
  • Commencement or termination of adoption proceedings

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:

  • Significant cost changes
  • Significant curtailment (or reduction) of coverage
  • Addition or improvement of benefit package option
  • Change in coverage of spouse or dependent under another employer plan
  • Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
  • Changes in 401(k) contributions (employees are free to change their 401(k) contributions whenever they wish, in accordance with the administrator’s change process)
  • HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
  • COBRA qualifying event
  • Judgment, decrees, or orders
  • Entitlement to Medicare or Medicaid
  • Family Medical Leave Act (FMLA) leave
  • Pre-tax health savings account (HSA) contributions (employees are free to change their HSA contributions whenever they wish, in accordance with the their payroll/accounting department process)
  • Reduction of hours (new under the ACA)
  • Exchange/Marketplace enrollment (new under the ACA)

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.

Cafeteria plans are not required to allow employees to change their elections, but plans that do allow changes must follow IRS requirements. These requirements include consistency, plan document allowance, documentation, and timing of the election change. For complete details on each of these requirements—as well as numerous examples of change in status events, including scenarios involving employees or their spouses or dependents entering into domestic partnerships, ending periods of incarceration, losing or gaining TRICARE coverage, and cost changes to an employer health plan—request UBA’s ACA Advisor, “Cafeteria Plans: Qualifying Events and Changing Employee Elections”.

By Danielle Capilla
Originally published by www.ubabenefits.com

On December 13, 2016, former 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). We review the implications with HRAs below; for a discussion of all the implications, view UBA’s Compliance Advisor, “21st Century Cares Act”.

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 HRAs). 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:

  • The dollar figure the individual is eligible to receive through the QSE HRA
  • A statement that the eligible employee should provide information about the QSE HRA to the Marketplace or Exchange if they have applied for an advance premium tax credit
  • A statement that employees who are not covered by minimum essential coverage (MEC) for any month may be subject to penalty

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 HRAs 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.

By Danielle Capilla
Originally published by www.ubabenefits.com

One of President Donald Trump’s first actions in office was to make good on a campaign promise to move quickly to repeal the Affordable Care Act (ACA). He issued Executive Order 13765, Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal. The one-page executive order (EO) is effective immediately and very light on details, with the goal to minimize the financial and regulatory burdens of the ACA while its repeal is pending. The EO directs the Executive Branch agency heads (those in the departments of Labor, Health and Human Services, and the Treasury) in charge of enforcing the ACA to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

While Congress works on the ACA repeal through budget reconciliation, which allows for quick consideration of tax, spending, and debt limit legislation, President Trump is tackling the regulatory enforcement actions of the law. The practical impact of the EO is limited to agency enforcement discretion and requires agencies to implement the EO in a manner consistent with current law, including assuring that any required changes to applicable regulations will follow all administrative requirements for notice and comment periods.

The bottom line is that until the agency heads in Labor, Health and Human Services, and the Treasury are confirmed and take charge of their departments, there will probably be little change in agency enforcement action right away. The broader changes to amend or repeal the ACA will take even more time to implement.

What Employers and Plan Sponsors Should Know Now

While the EO does not specifically refer to the ACA compliance burdens on employers or plan sponsors, such as the employer or individual mandates, required health benefits coverage, reporting or employee notification requirements, the language addresses the actions that the federal agencies can take to soften enforcement until the repeal is accomplished. It does direct the government to address the taxes and penalties associated with the ACA. So what does that mean for employers and plan sponsors now?

IRS employer reporting delay? Not yet. The top concern of employers is whether or not those subject to the shared responsibility provisions of the law would need to submit their 1094/1095 reports of coverage to the IRS by February 28 (or March 31, if filing electronically) and provide their employees with individual 1095-C statements by March 2. These reports are essential for the IRS to assess penalties under the law, and this reporting has been a burden for employers. Unfortunately for employers, the order did not mention delaying or eliminating this reporting requirement.

What employers should do now:

  • Applicable large employers (ALEs) subject to the employer mandate should plan to comply with their 1094/1095 reporting obligations this year.
  • All employers should continue to comply with all current ACA requirements until there is further guidance from the lawmakers.

We’ve Got You Covered

We’ll be monitoring President Trump’s actions to reduce regulatory burdens on American businesses along with Congressional legislative actions that can impact your business operations. Look for ThinkHR’s practical updates where we’ll analyze these developments and break them down into actionable information you need to comply with the changing laws and regulations.

By Laura Kerekes, SPHR, SHRM-SCP
Originally published by www.thinkhr.com

Employer-sponsored health insurance is greatly affected by geographic region, industry, and employer size. While some cost trends have been fairly consistent since the Patient Protection and Affordable Care Act (ACA) was put in place, United Benefit Advisors (UBA) finds several surprises in their 2016 Health Plan Survey.

Based on responses from more than 11,000 employers, UBA announces the top five best and worst states for group health care costs.

Check out this video and contact us to go over the UBA Health Plan Survey.

 

 

 

 

Proposed regulations for revising and greatly expanding the Department of Labor (DOL) Form 5500 reporting are set to take effect in 2019. Currently, the non-retirement plan reporting is limited to those employers that have more than 100 employees enrolled on their benefit plans, or those in a self-funded trust. The filings must be completed on the DOL EFAST2 system within 210 days following the end of the plan year.

What does this expanded number of businesses required to report look like? According to the 2016 United Benefit Advisors (UBA) Health Plan Survey, less than 18 percent of employers offering medical plans are required to report right now. With the expanded requirements of 5500 reporting, this would require the just over 82 percent of employers not reporting now to comply with the new mandate.

While the information reported is not typically difficult to gather, it is a time-intensive task. In addition to the usual information about the carrier’s name, address, total premium, and payments to an agent or broker, employers will now be required to provide detailed benefit plan information such as deductibles, out-of-pocket maximums, coinsurance and copay amounts, among other items. Currently, insurance carriers and third party administrators must produce information needed on scheduled forms. However, an employer’s plan year as filed in their ERISA Summary Plan Description, might not match up to the renewal year with the insurance carrier. There are times when these schedule forms must be requested repeatedly in order to receive the correct dates of the plan year for filing.

In the early 1990s small employers offering a Section 125 plan were required to fill out a 5500 form with a very simple 5500 schedule form. Most small employers did not know about the filing, so noncompliance ran very high. The small employer filings were stopped mainly because the DOL did not have adequate resources to review or tabulate the information.

While electronic filing makes the process easier to tabulate the information received from companies, is it really needed? Likely not, given the expense it will require in additional compliance costs for small employers. With the current information gathered on the forms, the least expensive service is typically $500 annually for one filing. Employers without an ERISA required summary plan description (SPD) in a wrap-style document, would be required to do a separate filing based on each line of coverage. If an employer offers medical, dental, vision and life insurance, it would need to complete four separate filings. Of course, with the expanded information required if the proposed regulations hold, it is anticipated that those offering Form 5500 filing services would need to increase with the additional amount of information to be entered. In order to compensate for the additional information, those fees could more than double. Of course, that also doesn’t account for the time required to gather all the data and make sure it is correct. It is at the very least, an expensive endeavor for a small business to undertake.

Even though small employers will likely have fewer items required for their filings, it is an especially undue hardship on many already struggling small businesses that have been hit with rising health insurance premiums and other increasing costs. For those employers in the 50-99 category, they have likely paid out high fees to complete the ACA required 1094 and 1095 forms and now will be saddled with yet another reporting cost and time intensive gathering of data.

Given the noncompliance of the 1990s in the small group arena, this is just one area that a new administration could very simply and easily remove this unwelcome burden from small employers.

Originally published by www.ubabenefits.com

In a few weeks, a second season of shared responsibility reporting will begin. For some of you, last year’s inaugural year of reporting may have felt eerily similar to Lewis Carroll’s famous book. You know the one. It included a little girl falling down a dark hole, a rabbit frantically checking his watch and a lot of other crazy characters. Now that you have the benefit of one year of reporting under your belt, let’s look at the reporting forms and try to make them less confusing by breaking them down.

Background

The Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA), included various mandates to ensure all citizens have affordable coverage for health care expenses. There is a mandate at the individual level and then other mandates at the employer level.

  • Individual Shared Responsibility Mandate: This mandate requires all citizens to have minimum essential coverage (MEC). If they do not, they must qualify for an exception or they will be subject to a penalty. Individuals use the 1095 forms, or a similar statement, to document that they have the required coverage.
  • Employer Shared Responsibility Mandates: These mandates apply to group health plans. One requirement is that all plans that provide MEC must report who is covered by their plan. There are also requirements which only apply to employers that are considered to be an applicable large employer (ALE), which is defined as any employer that employed, on average, at least 50 full-time employees. These requirements mandate that all ALEs must provide MEC to their full-time employees and this MEC needs to be affordable. If they do not provide MEC, they could be subject to a penalty (sometimes referred to as the “A” penalty). If the MEC they provide does not meet the definition of affordable, then the ALE could be subject to a different penalty (sometimes referred to as the “B” penalty).

In general, the objective of 1094/1095 reporting is (1) to verify those individuals who had the required MEC; and, (2) to make sure ALEs are offering affordable MEC to their full-time employees. If this isn’t happening, 1094/1095 reporting provides the information necessary for the IRS to know whether a penalty to the individual, or to the ALE, is in order.

1095-B vs. 1095-C, “I don’t understand the difference!”

1095-B

Form 1095-B provides evidence that an individual had MEC. It provides reporting strictly for the individual shared responsibility mandate. It will not trigger any employer shared responsibility penalties. It is used to provide documentation for an individual to preclude them from an individual penalty. The 1095-B is required of employer group health plans in two situations:

Situation 1: the plan is fully-insured. It is the insurance carrier’s responsibility to file the 1094/1095-B with the IRS.

Situation 2: the plan is self-insured and you are not an ALE. It is the employer’s responsibility to file with the IRS.

In these situations, a Form 1095-B is to be generated for all covered individuals regardless of employment status.

When is a Form 1095-B required

1095-C

Form 1095-C provides evidence that an ALE offered, or did not offer, affordable MEC to all full-time employees. In other words, it documents whether an ALE met the employer shared responsibility requirements. For self-insured ALEs, Form 1095-C also provides documentation that an individual had MEC, thereby meeting the individual shared responsibility requirement.

Because, in some situations, this form reports on both the employer and the individual shared responsibility mandates, it can feel nonsensical at times. To make sense, a short history lesson may be helpful.

History of Form 1095-C

When the proposed reporting regulations were first released for comment, the 1095-B was to be used for individual shared responsibility reporting and the 1095-C was to be used exclusively for employer shared responsibility reporting. As such, the 1095-C was only a two-part form with Part I being employer identification information and Part II being information on the offer of coverage that was made to full-time employees.

If the reporting forms had remained as initially proposed, self-insured ALEs would have been required to make two filings (the 1094/1095-B filing and 1094/1095-C filing). Why? Because they have a responsibility to report everyone that has MEC through their plan and they also have a responsibility to report on the offers of coverage they made to full-time employees.

Debate over this double filing requirement ensued and ultimately resulted in change. This change eliminated the double filing requirement for self-insured ALEs by revising the 1095-C. The resulting form still has Parts I and II referenced above, but it now also has Part III where employers can report the individual coverage information that was originally proposed to be reported on the 1095-B.

All ALEs are required to file Form 1095-C. However, which parts of the Form 1095-C you complete will be determined according to three situations as follows:

Situation 1 – Fully-insured Health Plan: You will complete Parts I and II for all individuals that were full-time employees at some point during the year. Part III information will be reported by your insurance company on Form 1095-B.

Situation 2 – Self-insured Health Plan: You will complete Parts I, II and III for all individuals that were full-time employees at some point during the year, as well as for individuals that have MEC through your plan.

Situation 3 – No Health Plan: If you are an ALE with no health plan, you will complete Parts I and II for all individuals that were full-time employees at some point during the year.

Which parts of Form 1095-C does an ALE need to complete

Let’s recap the 1095-C:

  • The 1095-C is required of all ALEs.
  • The 1095-C is a three-part form.
    Part I captures employer identification information.Part II is the area used to report what offers of coverage were made and whether or not those offers were affordable. This part addresses the employer shared responsibility mandates and determines whether or not employers are at risk for an employer penalty.Part III, which only gets completed if you have a self-insured plan, is the area used to report who had MEC through your plan. This part addresses the individual shared responsibility mandate and determines whether or not an individual is at risk for an individual penalty.

Final Thoughts

Keep in mind, if you have a self-insured plan, a Form 1095-C is required for all full-time employees, as well as anyone who had coverage through your plan, so there may be situations where you are required to produce a 1095-C for individuals that do not meet the ACA full-time employee definition that identifies those employees for whom you have an employer shared responsibility requirement. In these situations, Part II can cause concern, or an initial fear, that a penalty could be assessed because these individuals may not meet the affordability requirement. Remember, these individuals do not meet the full-time definition, therefore, they cannot trigger an employer shared responsibility penalty.

That’s 1095-B and 1095-C in a nutshell, albeit a very large nutshell. Although there are still a lot of crazy characters associated with ACA reporting, perhaps this has shed some light on the dark hole you may feel like you fell into and, hopefully, you can parlay it into a smoother reporting process in the new year. Happy reporting!

Resources

Employers that did not fulfill all of their obligations under the employer shared responsibility provision (play or pay) in regard to the 2015 plan year might owe a penalty to the IRS. In addition, employers will be notified if an employee who either was not offered coverage, or who was not offered affordable, minimum value, or minimum essential coverage, goes to the Exchange and gets a subsidy or “advance premium tax credit.” To understand this “Employer Notice Program” the appeals process, and how affordability must be documented, request UBA’s newest ACA Advisor, “IRS reporting Now What?”

UBA has created a template letter that employers may use to draft written communication to employees regarding what to expect in relation to IRS Forms 1095-B and 1095-C, and what employees should do with a form or forms they receive. The template is meant to be adjustable for each employer, and further information could be added if it is pertinent to the employer or its workforce. Employers can now request this template tool from a local UBA Partner.

Originally published by www.ubabenefits.com

Recently, the U.S. Department of the Treasury, Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively the Departments) issued final regulations regarding the definition of short-term, limited-duration insurance, standards for travel insurance and supplemental health insurance coverage to be considered excepted benefits, and an amendment relating to the prohibition on lifetime and annual dollar limits.

Effective Date and Applicability Date

These final regulations are effective on December 30, 2016. These final regulations apply beginning on the first day of the first plan or policy year beginning on or after January 1, 2017.

Short-Term, Limited-Duration Insurance

Short-term, limited-duration insurance is a type of health insurance coverage designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another plan or coverage. Although short-term, limited-duration insurance is not an excepted benefit, it is exempt from Public Health Service Act (PHS Act) requirements because it is not individual health insurance coverage. The PHS Act provides that the term ‘‘individual health insurance coverage’’ means health insurance coverage offered to individuals in the individual market, but does not include short-term, limited-duration insurance.

On June 10, 2016, the Departments proposed regulations to address the issue of short-term, limited-duration insurance being sold as a type of primary coverage.

The Departments have finalized the proposed regulations without change. The final regulations define short-term, limited-duration insurance so that the coverage must be less than three months in duration, including any period for which the policy may be renewed. The permitted coverage period takes into account extensions made by the policyholder ‘‘with or without the issuer’s consent.’’ A notice must be prominently displayed in the contract and in any application materials provided in connection with enrollment in such coverage with the following language:

THIS IS NOT QUALIFYING HEALTH COVERAGE (‘‘MINIMUM ESSENTIAL COVERAGE’’) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.

The revised definition of short-term, limited-duration insurance applies for policy years beginning on or after January 1, 2017.

Because state regulators may have approved short-term, limited-duration insurance products for sale in 2017 that met the definition in effect prior to January 1, 2017, HHS will not take enforcement action against an issuer with respect to the issuer’s sale of a short-term, limited-duration insurance product before April 1, 2017, on the ground that the coverage period is three months or more, provided that the coverage ends on or before December 31, 2017, and otherwise complies with the definition of short-term, limited-duration insurance in effect under the regulations. States may also elect not to take enforcement actions against issuers with respect to such coverage sold before April 1, 2017.

For information on final regulations regarding excepted benefits, specifically similar supplemental coverage and travel insurance—as well as information on the definition of essential health benefits for purposes of the prohibition on lifetime and annual limits, view UBA’s ACA Advisor, “Regulations Regarding Short-Term Limited-Duration Insurance, Excepted Benefits, and Lifetime/Annual Limits.”

Originally published by www.ubabenefits.com

This week, the U.S. Senate passed the 21st Century Cures Act which includes a provision allowing small businesses to offer a new type of health reimbursement arrangement for their employees’ health care expenses, including individual insurance premiums. The act was previously passed by the House and President Obama is expected to sign it shortly. The provision for Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), a new type of tax-free benefit, takes effect January 1, 2017. Further, the act retroactively relieves small employers from the threat of excise taxes under prior rules for plan years beginning before 2017.

Background

Employers of all sizes currently are prohibited from making or offering any form of payment to employees for individual health insurance, whether through premium reimbursement or direct payment. Employers also are prohibited from providing cash or compensation to employees if the money is conditioned on the purchase of individual health insurance. (Some exceptions apply; e.g., retiree-only plans, dental/vision insurance.) Violations can result in excise taxes of $100 per day per affected employee.

The prohibition, implemented under the Affordable Care Act (ACA), was intended to discourage employers from canceling their group plans and pushing workers into the individual insurance market. The rules have been particularly disruptive for small businesses, however, since previously it had been common practice for many small employers to subsidize the cost of individual policies instead of offering group coverage. The new law, passed this week with broad bipartisan support, responds to the concerns of small businesses.

New Qualified Small Employer HRAs

The new law does not repeal the ACA’s general prohibition against employer payment of individual insurance premiums. Rather, it provides an exception for a new type of arrangement — a Qualified Small Employer HRA or QSEHRA — provided that specific conditions are met.

First, the employer must meet two conditions:

  • Employs on average no more than 50 full-time and full-time-equivalent employees. In other words, the employer cannot be an applicable large employer as defined under the ACA; and
  • Does not offer a group health plan to any of its employees.

Next, the QSEHRA must meet all of the following conditions:

  • It is funded solely by the employer; employee contributions are not permitted;
  • It is offered to all full-time employees, although the employer may choose to include seasonal or part-time employees and/or may exclude employees with less than 90 days of service;
  • For tax-free QSEHRA benefits, the employee must have minimum essential coverage (e.g., medical insurance under an individual policy);
  • It pays or reimburses healthcare expenses (e.g., § 213(d) expenses) and premiums for individual policies;
  • It does not pay or reimburse contributions for any employer-sponsored group coverage;
  • The same benefits and terms apply to all eligible employees, except the benefit amount may vary by:
    • Single versus family coverage;
    • Prorated amounts for partial-year coverage (e.g., new hires); and
    • For premium reimbursements, variations consistent with the age- and family-size rating structure of a representative individual policy; and
  • Benefits do not exceed $4,950 if single coverage (or $10,000 if family coverage) per 12-month plan year. Amounts are prorated if covered for less than 12 months. Limits will be indexed for inflation.

Coordination with Exchange Subsidies

Coverage under a QSEHRA will affect the employee’s eligibility for a subsidized individual policy from an insurance Exchange (Marketplace). Any subsidy for which the employee would otherwise qualify will be reduced dollar-for-dollar by the QSEHRA.

Benefit Laws

Group health plans are subject to numerous federal laws, including SPD and other notice requirements under ERISA, coverage continuation requirements under COBRA, and benefit mandates under the ACA. The new law specifies that QSEHRAs are not group health plans, so COBRA and other requirements will not apply.

QSEHRA Notices

Small employers offering QSEHRAs will be required to provide a notice to each eligible employee that:

  • Informs the employee of the QSEHRA benefit amount;
  • Instructs the employee that he or she must give the QSEHRA information to the Exchange if applying for a subsidy for individual insurance; and
  • Explains the tax consequences of failing to maintain minimum essential coverage.

QSEHRA notices should be provided at least 90 days before the start of the plan year.

Employers also will be required to report the QSEHRA coverage on Form W-2, Box 12. The reporting is informational only and has no tax consequences. Although small employers usually are exempt from this type of W-2 informational reporting, apparently it will be required for QSEHRAs starting with the 2017 tax year.

More Information

To learn more about QSEHRAs starting in 2017, or for details about the relief from excise taxes for small employers before 2017, see the 21st Century Cures Act. The relevant provisions are found in Section 18001 beginning on page 306.

Employers that are considering QSEHRAs are encouraged to work with legal counsel and tax advisors that offer expertise in this area. Starting in 2017, employer-funded QSEHRAs can offer valuable tax-free benefits to employees as long as they are designed and administered to meet all legal requirements.

Originally published by www.thinkhr.com