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The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) allows qualified beneficiaries who lose health benefits due to a qualifying event to continue group health benefits. The COBRA payment process is subject to various rules in terms of grace periods, notification, premium payment methods, and treatment of insignificant shortfalls.

Grace Periods

The initial premium payment is due 45 days after the qualified beneficiary elects COBRA. Premium payments must be made on time; otherwise, a plan may terminate COBRA coverage. Generally, subsequent premium payments are due on the first day of the month. However, under the COBRA grace period rules, premiums will still be considered timely if made within 30 days after the due date. The statutory grace period is a minimum 30-day period, but plans may allow qualified beneficiaries a longer grace period.

A COBRA premium payment is made when it is sent to the plan. Thus, if the qualified beneficiary mails a check, then the payment is made on the date the check was mailed. The plan administrators should look at the postmark date on the envelope to determine whether the payment was made on time. Qualified beneficiaries may use certified mail as evidence that the payment was made on time.

The 30-day grace period applies to subsequent premium payments and not to the initial premium payment. After the initial payment is made, the first 30-day grace period runs from the payment due date and not from the last day of the 45-day initial payment period.

If a COBRA payment has not been paid on its due date and a follow-up billing statement is sent with a new due date, then the plan risks establishing a new 30-day grace period that would begin from the new due date.

Notification

The plan administrator must notify the qualified beneficiary of the COBRA premium payment obligations in terms of how much to pay and when payments are due; however, the plan does not have to renotify the qualified beneficiary to make timely payments. Even though plans are not required to send billing statements each month, many plans send reminder statements to the qualified beneficiaries.

While the only requirement for plan administrators is to send an election notice detailing the plan’s premium deadlines, there are three circumstances under which written notices about COBRA premiums are necessary. First, if the COBRA premium changes, the plan administrator must notify the qualified beneficiary of the change. Second, if the qualified beneficiary made an insignificant shortfall premium payment, the plan administrator must provide notice of the insignificant shortfall unless the plan administrator chooses to ignore it. Last, if a plan administrator terminates a qualified beneficiary’s COBRA coverage for nonpayment or late payment, the plan administrator must provide a termination notice to the qualified beneficiary.

The plan administrator is not required to inform the qualified beneficiary when the premium payment is late. Thus, if a plan administrator does not receive a premium payment by the end of the grace period, then COBRA coverage may be terminated. The plan administrator is not required to send a notice of termination in that case because the COBRA coverage was not in effect. On the other hand, if the qualified beneficiary makes the initial COBRA premium payment and coverage is lost for failure to pay within the 30-day grace period, then the plan administrator must provide a notice of termination due to early termination of COBRA coverage.

Originally published by www.ubabenefits.com

Voluntary Benefits are Supplementary Benefits in addition to the core benefits package that the employee can choose to add.

Our Firm is making a big push to provide compliance assessments for our clients and using them as a marketing tool with prospects. Since the U.S. Department of Labor (DOL) began its Health Benefits Security Project in October 2012, there has been increased scrutiny. While none of our clients have been audited yet, we expect it is only a matter of time and we want to make sure they are prepared.

We knew most fully-insured groups did not have a Summary Plan Description (SPD) for their health and welfare plans, but we have been surprised by some of the other things that were missing. Here are the top five compliance surprises we found.

  1. COBRA Initial Notice. The initial notice is a core piece of compliance with the Consolidated Omnibus Budget and Reconciliation Act (COBRA) and we have been very surprised by how many clients are not distributing this notice. Our clients using a third-party administrator (TPA), or self-administering COBRA, are doing a good job of sending out the required letters after qualifying events. However, we have found that many clients are not distributing the required COBRA initial notice to new enrollees. The DOL has recently updated the COBRA model notices with expiration dates of December 31, 2019. We are trying to get our clients to update their notices and, if they haven’t consistently distributed the initial notice to all participants, to send it out to everyone now and document how it was sent and to whom.
  2. Prescription Drug Plan Reporting to CMS. To comply with the Medicare Prescription Drug Improvement and Modernization Act, passed in 2003, employer groups offering prescription benefits to Medicare-eligible individuals need to take two actions each year. The first is an annual report on the Centers for Medicare & Medicaid Services (CMS) website regarding whether the prescription drug plan offered by the group is creditable or non-creditable. The second is distributing a notice annually to Medicare-eligible plan members prior to the October 15 beginning of Medicare open enrollment, disclosing whether the prescription coverage is creditable or non-creditable. We have found that the vast majority (but not 100 percent) of our clients are complying with the second requirement by annually distributing notices to employees. Many clients are not complying with the first requirement and do not go to the CMS website annually to update their information. The annual notice on the CMS website must be made within:
  • 60 days after the beginning of the plan year,
  • 30 days after the termination of the prescription drug plan, or
  • 30 days after any change in the creditability status of the prescription drug plan.
  1. ACA Notice of Exchange Rights. The Patient Protection and Affordable Care Act (ACA) required that, starting in September 2013, all employers subject to the Fair Labor Standards Act (FLSA) distribute written notices to all employees regarding the state exchanges, eligibility for coverage through the employer, and whether the coverage was qualifying coverage. This notice was to be given to all employees at that time and to all new hires within 14 days of their date of hire. We have found many groups have not included this notice in the information they routinely give to new hires. The DOL has acknowledged that there are no penalties for not distributing the notice, but since it is so easy to comply, why take the chance in case of an audit?
  2. USERRA Notices. The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects the job rights of individuals who voluntarily or involuntarily leave employment for military service or service in the National Disaster Medical System. USERRA also prohibits employers from discriminating against past and present members of the uniformed services. Employers are required to provide a notice of the rights, benefits and obligations under USERRA. Many employers meet the obligation by posting the DOL’s “Your Rights Under USERRA” poster, or including text in their employee handbook. However, even though USERRA has been around since 1994, we are finding many employers are not providing this information.
  3. Section 79. Internal Revenue Code Section 79 provides regulations for the taxation of employer-provided life insurance. This code has been around since 1964, and while there have been some changes, the basics have been in place for many years. Despite the length of time it has been in place, we have found a number of groups that are not calculating the imputed income. In essence, if an employer provides more than $50,000 in life insurance, then the employee should be paying tax on the excess coverage based on the IRS’s age rated table 2-2. With many employers outsourcing their payroll or using software programs for payroll, calculating the imputed income usually only takes a couple of mouse clicks. However, we have been surprised by how many employers are not complying with this part of the Internal Revenue Code, and are therefore putting their employees’ beneficiaries at risk.

There have been other surprises through this process, but these are a few of the more striking examples. The feedback we received from our compliance assessments has been overwhelmingly positive. Groups don’t always like to change their processes, but they do appreciate knowing what needs to be done.

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By Bob Bentley, Manager
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

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

Many employee benefit limits are automatically adjusted each year for inflation (this is often referred to as an “indexed” limit). UBA offers a quick reference chart showing the 2017 cost of living adjustments for health and Section 125 plans, qualified plans, Social Security/Medicare withholding, compensation amounts and more. This at-a-glance resource is a valuable desk tool for employers and HR practitioners.

Here’s a snapshot of a section of the 2017 health plan limits; be sure to request the complete chart from a UBA Partner.

2017 health plan limits

Originally published by www.ubabenefits.com