IRS Issues Draft Instructions for Forms 1094-C and 1095-C for 2015

Below was written by Larry Grudzien. In my opinion, it is best to have someone help with these filings for this year. Most payroll companies will do it (if you sign up by September/October timeframe). There are also a number of companies who will help (I have 5 on my desk that will do it). If you want help, let me know and I can direct you to an appropriate service. You can also rely on Larry's expertise in this matter.

By Larry Grudzien, Attorney-At-Law
708-717-9638, larry [at] larrygruidzien [dot] com                  

August 9, 2015

On August 6, 2015, IRS released draft instructions for Forms 1094-C and 1095-C for 2015. The following is an overview of important provisions to consider in the completion of the forms:

 1. Who Must File:

 If an employer is offering health coverage to employees other than under a self-insured plan, such as through an insured health plan or a multiemployer health plan, the issuer of the insurance or the sponsor of the plan providing the coverage is required to furnish the information about their health coverage to any enrolled employees, and the employer should not complete Form 1095-C, Part III for those employees.

 2. One Form 1095-C for Each Employee of Each Employer:

 For each full-time employee of an employer, there must be only one Form 1095-C filed for employment with that employer. For example, if an employer separately reports for each of its two divisions, the employer must combine the offer and coverage information for any employee who worked at both divisions during the calendar year so that a single Form 1095-C is filed for the calendar year for that employee which reports information for all twelve months of the calendar year from that employer.

 In contrast, a full-time employee who works for more than one employer that is a member of the same Aggregated ALE Group (that is, works for two separate ALE Members) must receive a separate Form 1095-C from each employer, unless the ALE Member is not treated as the employer for any calendar month in the calendar year as described later.

 For any calendar month in which a full-time employee works for more than one ALE Member of an Aggregated ALE Group, only one ALE Member is treated as the employer and only that ALE Member reports for that employee for that calendar month (and the other ALE Member is not required to report for that employee for that calendar month). If under these rules, an ALE member is not required to report for an employee for any month in the calendar year, the employer is not required to report for that full-time employee for that calendar year.

 3.   Form 1094-C, Column (c) Total Employee Count for ALE member:

 An employer must choose to use one of the following days of the month to determine the number of employees per month and must use that day for all months of the year: (1) the first day of each month; (2) the last day of each month; (3) the first day of the first payroll period that starts during each month; or (4) the last day of the first payroll period that starts during each month (provided that for each month that last day falls within the calendar month in which the payroll period starts). If the total number of employees was the same for every month of the entire calendar year, enter that number in line 23, column (c) "All 12 Months" or in the boxes for each month of the calendar year. If the number of employees for any month is zero, enter 0.

 4.  Form 1095-C,  line 14:

 An employer offers health coverage for a month only if it offers health coverage that would provide coverage for every day of that calendar month. Thus, if an employee terminates  coverage before the last day of the month, the employee does not actually have an offer of coverage for that month. See Line 16, code 2B later for how the employer may complete  Line 16 in the event an employee terminates coverage before the last day of the month.

 5.   Form 1095-C, line 14:

 For reporting offers of coverage for 2015, an employer relying on the multiemployer arrangement interim guidance should enter code 1H on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim rule relief). For reporting for 2015, Code 1H may be entered without regard to whether the employee was eligible to enroll in coverage under the multiemployer plan. For 2016 and future years, reporting for offers of coverage made through a multiemployer plan may be reported in a different manner.

 6.  Form 1095-C, Line 14:

 An offer of COBRA continuation coverage that is made to a former employee upon termination of employment is reported as an offer of coverage using the appropriate indicator code on line 14 only if the former employee enrolls in the coverage. If the former employee does not enroll in the coverage (even if a spouse or dependent of the former employee independently enrolls in the coverage), code 1H (No offer of coverage) should be entered for any month for which the offer of COBRA continuation coverage applies.

 An offer of COBRA continuation coverage that is made to an active employee (for instance, an offer of COBRA continuation coverage that is made due to a reduction in the employee's  hours that resulted in the employee no longer being eligible for coverage under a plan) is reported in the same manner and using the same code as an offer of that type of coverage to any other active employee.

 7.   Form 1095-C, Line 16:

 If an employee is in an initial measurement period, enter code 2D (employee in a section 4980H(b) Limited Non-Assessment Period) for the month, and not code 2B (employee not a full-time employee). For an employee in a section 4980H(b) Limited Non-Assessment Period for whom the employer is also eligible for the multiemployer interim rule relief for the month code 2E, enter code 2E (multiemployer interim rule relief) and not code 2D (employee in a Limited Non Assessment period.

 8.   Form 1095-C, Line 16:

 Enter code 2E for any month for which the multiemployer interim guidance applies for that employee. Under the interim guidance regarding multiemployer arrangements,  an employer is treated as offering health coverage to an employee if the employer is required by a collective bargaining agreement or related participation agreement to make contributions for that employee to a multiemployer plan that offers, to individuals who satisfy the plan's eligibility conditions, health coverage that is affordable and provides minimum value, and that also offers health coverage to those individuals' dependents or is eligible for the section 4980H transition relief regarding offers of coverage to dependents.

 Codes 2F through 2H: Although employers may use the section 4980H affordability safe harbors to determine affordability for purposes of the multiemployer interim guidance, an employer eligible for the relief provided in the multiemployer interim guidance for a month for an employee should enter code 2E (multiemployer interim rule relief), and not a code for the section 4980H affordability safe harbors (codes 2F, 2G, or 2H).

 9.   Form 1095-C, Part III:

 If two or more employees employed by the same employer are spouses or employee and dependent, and one employee enrolled in a coverage option under the plan that also covered the other employee(s) (for example, one employee spouse enrolled in family coverage that provided coverage to the other employee spouse and their employee dependent child), the enrollment information should be reflected only on the Form 1095-C for the employee who enrolled in the coverage (but would report the other employee family members as covered individuals.

 10.  Form 1095-C, Part III:

 This part may be completed by an employer offering self-insured health coverage for any other individual who enrolled in the coverage under the plan for one or more calendar months of the year but was not an employee for any calendar month of the year, such as a non-employee director, a retired employee who retired in a previous year, a terminated employee receiving COBRA continuation coverage who terminated employment during a previous year, and a non-employee COBRA beneficiary (but not including an individual who obtained coverage through the employee's enrollment, such as a spouse or dependent obtaining coverage when an employee elects COBRA continuation coverage that is family coverage). If the Form 1095-C is used with respect to an individual who was not an employee for any month of the calendar year, Part II must be completed by using Code 1G in the "All 12 Months" box or the box for each month of the calendar year

 11.    Employee, Definition:

 For this purpose, an employee is an individual who is an employee under the common-law standard for determining employer-employee relationships. An employee does not include a sole proprietor, a partner in a partnership, an S corporation shareholder who owns at least 2-percent of the S corporation, a leased employee within the meaning of section 414(n) of the Code, or a worker that is a qualified real estate agent or direct seller. If an employee is an employee of more than one employer of the same Aggregated ALE Group during a calendar month, the employee is treated as an employee of the employer for whom the employee has the greatest number of hours of service for that calendar month; if the employee has an equal number of hours of service for two or more employers of the same Aggregated ALE Group for the calendar month, those employers must treat one of the employers as the employer of that employee for that calendar month.

 12.    Limited Non-Assessment Period, Definition:

 A Limited Non-Assessment Period generally refers to a period during which an ALE Member  will not be subject to an assessable payment under section 4980H(a), and in certain cases section 4980H(b), for a full-time employee, regardless of whether that employee is offered health coverage during that period.

 The first five periods described below are Limited Non-Assessment Periods only if the employee is offered health coverage by the first day of the first month following the end of the period, and are Limited Non-Assessment Periods for section 4980H(b) only if the health coverage that is offered at the end of the period provides minimum value.

 First Year as ALE Period. January through March of the first calendar year in which an employer is an ALE, but only for an employee who was not offered health coverage by the employer at any point during the prior calendar year. For this purpose, 2015 is not the first year an employer is an ALE, if that employer was an ALE in 2014 (notwithstanding that transition relief provides that no employer shared responsibility payments under section 4980H will apply for 2014 for any employer).

 Waiting Period under the Monthly Measurement Method. If an employer is using the monthly measurement method to determine whether an employee is a full-time employee, the period beginning with the first full calendar month in which the employee is first otherwise (but for completion of the waiting period) eligible for an offer of health coverage and ending no later than two full calendar months after the end of that first calendar month.

 Waiting Period under the Look-Back Measurement Method. If an employer is using the look-back measurement method to determine whether an employee is a full-time employee and the employee is reasonably expected to be a full-time employee at his or her start date, the period beginning on the employee's start date and ending not later than the end of the employee's third full calendar month of employment.

 Initial Measurement Period and Associated Administrative Period under the Look-Back Measurement Method. If an employer is using the look-back measurement method to determine whether a new employee is a full-time employee, and the employee is a variable hour employee, seasonal employee or part-time employee, the initial measurement period for that employee and the administrative period immediately following the end of that initial measurement period.

 Period Following Change in Status that Occurs During Initial Measurement Period Under the Look-Back Measurement Method. If an employer is using the look-back measurement method to determine whether a new employee is a full-time employee, and, as of the employee's start date, the employee is a variable hour employee, seasonal employee or part-time employee, but, during the initial measurement period, the employee has a change in employment status such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be a full-time employee, the period beginning on the date of the employee's change in employment status and ending not later than the end of the third full calendar month following the change in employment status. If the employee is a full-time employee based on the initial measurement period and the associated stability period starts sooner than the end of the third full calendar month following the change in employment status, this Limited Non-Assessment Period ends on the day before the first day of that associated stability period.

 First Calendar Month of Employment. If the employee's first day of employment is a day other than the first day of the calendar month, then the employee's first calendar month of employment is a Limited Non-Assessment Period.

 13.   Offer of Health Coverage, Definition

 An employer makes an offer of coverage to an employee if it provides the employee an effective opportunity to enroll in the health coverage (or to decline that coverage) at least once for each plan year. An employer makes an offer of health coverage to an employee for the plan year if it continues the employee's election of coverage from a prior year but provides the employee an effective opportunity to opt out of the health coverage. If an employer provides health coverage to an employee but does not provide the employee an effective opportunity to decline the coverage, the employer is treated as having made an offer of health coverage to the employee only if that health coverage provides minimum value and does not require an employee contribution for the coverage for any calendar month of more than 9.5 percent of a monthly amount determined as the mainland federal poverty line for a single individual for the applicable calendar year, divided by 12.

 For purposes of reporting, an offer to a spouse includes an offer to a spouse that is subject to a reasonable, objective condition, regardless of whether the spouse meets the reasonable, objective condition. For example, an offer of coverage that is available to a spouse only if the spouse certifies that the spouse does not have access to health coverage from another employer is treated as an offer of coverage to the spouse for reporting purposes. Note that this treatment is for reporting purposes only, and generally will not affect the spouse's eligibility for the premium tax credit if the spouse did not meet the condition and therefore did not have an actual offer of coverage.

 An employer offers health coverage for a month only if it offers health coverage that would provide coverage for every day of that calendar month. For reporting purposes, this means that an offer of coverage does not occur for a month if an employee's employment terminates before the last day of a calendar month and the health coverage also ends before the last day of that calendar month (or for an employee who did not enroll in coverage, the coverage would have ended if the employee had enrolled in coverage).

 An employer offers health coverage to an employee if it, or another employer in the Aggregated ALE Group, or a third party such as a multiemployer or single employer Taft-Hartley plan, a multiple employer welfare arrangement (MEWA), or, in certain cases, a staffing firm, offers health coverage on behalf of the employer.

 For a copy of the instructions, please click on the link below:

http://www.irs.gov/pub/irs-dft/i109495c--dft.pdf  

Update on Providing Notice to Employees about the Exchange

According to the Department of Labor, there is no penalty for not providing notice. This is opposite to what we have been led to believe.

Here's a link to the FAQ:

http://www.dol.gov/ebsa/faqs/faq-noticeofcoverageoptions.html

Health Reform Questions - Premium Tax Credits & Cost-Sharing Subsidies

Health Reform Questions 

- Premium Tax Credits & Cost-Sharing Subsidies                 

By Larry Grudzien

 What premium tax credits and cost-sharing subsidies are available to individuals in 2014 and who is eligible for them?

To assist individuals and families who do not qualify for Medicare or Medicaid and are not offered affordable health coverage by their employers, a refundable tax credit (the "premium tax credit") and a cost sharing subsidy will be available beginning in 2014 to help pay for insurance purchased through an Exchange. Generally, taxpayers with income between 100% and 400% of the federal poverty line (FPL) who purchase insurance through an Exchange will qualify them, as provided in Code Section 36B. and Section 1402 of the Patient Protection and Affordable Care Act ("PPACA").

A premium assistance tax credit will be provided monthly to lower the amount of premium the individual or family must pay for their coverage. Cost sharing subsidies will limit the plan's maximum out-of-pocket costs, and for some individuals will also reduce other cost sharing amounts (i.e., deductibles, coinsurance or copayments) that would otherwise be charged to them by their coverage.

Both types of assistance will be tied in some way to the value of the coverage available in the Exchanges. Four levels of plans will be offered by insurers in the exchanges. All the plans must offer a set of essential health benefits. The four plan levels vary in the total value of coverage they must provide. This amount is sometimes called "actuarial value" and represents the proportion of health insurance expenditures for covered benefits that, for an average population, would be paid by the plan. Section 1302(d)(1) of PPACA requires that the actuarial value be 60% for "bronze" plans, 70% for "silver" plans, 80% for "gold" plans and 90% for "platinum" plans. In addition, the out-of-pocket maximum for any of these plans may not exceed a limit that is determined annually. For 2013, the limit is $6,250 for individual coverage and $12,500 for family coverage.  It will be adjusted higher for 2014.

Who is eligible for the premium tax credit and cost sharing subsidy?

Citizens and legal residents in families with incomes between 100% and 400% of poverty who purchase coverage through a health insurance exchange are eligible for a premium tax credit cost sharing subsidy to reduce the cost of coverage. individuals eligible for public coverage are not eligible for premium assistance in Exchanges. In states without expanded Medicaid coverage, individuals with incomes less than 100% of poverty will not be eligible for Exchange subsidies, while those with incomes at or above poverty will be.

Would an individual be eligible for premium tax credits and cost-sharing subsidies in the Exchange if he or she is offered "minimum essential coverage" by his or her employer in that it is both affordable and provides minimum value, but declines it and obtains coverage in the Exchange?

No. As a general rule, if an eligible employer-sponsored plan constitutes "minimum essential coverage" in that it is both affordable and provides minimum value merely being eligible for the plan will make an individual ineligible for the tax credit. In  Treasury Regulation Section 1.36B-2(c)(3)(iii)(A), the IRS indicates that an eligible employee who declines enrollment in such a plan remains ineligible for the tax credit for each month in the coverage period related to the enrollment period (e.g., for the full plan year in the case of an annual enrollment period).

Would an individual be eligible for premium tax credits and cost sharing subsidies in the Exchange if he or she is enrolled coverage offered by his or employer that is either unaffordable and does not provides minimum value?

If an employee actually enrolls in an eligible employer-sponsored plan, the tax credit is not available-even if the plan does not meet the affordability and minimum value conditions, as provided in Code Section 36B(c)(2)(C)(iii). Employees who are automatically enrolled in an eligible employer-sponsored plan have a grace period to unwind the enrollment to maintain their eligibility for the tax credit, as provided in Treasury Regulation Section 1.36B-2(c)(3)(vii)(B). An employee is not considered eligible for minimum essential coverage (i.e., may qualify for the tax credit) during any required waiting period before coverage becomes effective under an eligible employer-sponsored plan. The IRS is expected to provide a safe harbor under which an employer would not have to pay the shared responsibility tax penalty under Code § 4980H for failing to offer coverage for at least the first three months after an employee's hire date, as provided in Department of Labor Technical Release 2012-01, Q/A-3.

Individuals who meet these thresholds for unaffordable employer-sponsored insurance are eligible to enroll in a health insurance exchange and may receive tax credits to reduce the cost of coverage purchased through the exchange.

What are the amounts of the premium tax credit and cost- sharing subsidies to be provided?

Under Code Section 36B(b), the amount of the tax credit that a person can receive is based on the premium for the second lowest cost silver plan in the Exchange . A silver plan is a plan that provides the essential benefits and has an actuarial value of 70%. (A 70% actuarial value means that on average the plan pays 70% of the cost of covered benefits for a standard population of enrollees.)

Under Code Section 36B(b)(3), the amount of the tax credit varies with income such that the premium that the premium a person would have to pay for the second lowest cost silver plan would not exceed a specified percentage of their income (adjusted for family size), as follows:

Household Income (as percentage of  Federal Poverty Line (FPL) Premium as a Percent of Household Income

Up to133%           2%  of income

133-150%             3-4% of income

150-200%             4-6.3% of income

200-250%             6.3-8.05%  of income

250-300%             8.05-9.5% of income

300-400%             9.5% of income

 

In addition, Section 1402(b) of PPACA limits the total amount that people must pay out-of-pocket for cost sharing for essential benefits. Generally, the limits are based on the maximum out-of-pocket limits for Health Savings Account-qualified health plans ($6,250 for single coverage and $12,500 for family coverage in 2013), which will be indexed to the change in the Consumer Price Index until 2014 when the provision takes effect.

After 2014, the limits will be indexed to the change in the cost of health Coverage. Individuals with incomes at or below 400% of federal poverty line have their out-of-pocket liability capped at lower levels, as follows:

Household Income (as percentage of Federal Poverty Line (FPL) 

Reduction in Out-of-Pocket Liability

100-200%             Two-thirds of the maximum

200-300%             One-half of the maximum

300-400%             One-third of the maximum

 

The limits on out-of-pocket maximum amounts means that a person with income of 150% of poverty purchasing coverage in the exchange would have the limit on their out-of-pocket spending reduced to at least two-thirds of the generally applicable maximum value (for example, if the provision were in effect in 2013, the out-of-pocket maximum for single coverage for such a person would be about $2,083 for single coverage and $4,166 for family coverage).

In addition, Section 1402(c) of PPACA provides that federal payments will be made to health insurers to increase the actuarial value of the plan for individuals with household incomes under 250% of the federal poverty line. For example, for individuals with household incomes between 100% and 150% of federal poverty line, the actuarial value of the plan will be increased to 94%. That means that in addition to keeping within the lower out of pocket maximums established above, insurers must make other changes to increase the actuarial value of the coverage. Most likely this will mean reducing plan deductibles, coinsurance or copayments in order to meet the higher actuarial value requirements.

For individuals with household incomes over 250% of federal poverty line, the actuarial value of their plan may not exceed 70%, which is the basic value of the silver plan even for those who receive no financial assistance. This means that, for some individuals, some cost sharing amounts could increase. That would happen if their out of pocket maximum was decreased to keep within the required lower maximum, because the deductibles, copayments or coinsurance that would otherwise apply would have to be increased to keep the actuarial value at 70%.

The last cost sharing subsidy is summarized below:

Household Income (as percentage of Federal Poverty Line (FPL) Net Value of the Subsidy (% of Actuarial Value)

Out-of-Pocket Liability

100-150%                            94%

150-200%                         87%

200-250%                         73%

250-400%                         70%

Who determines an individual's eligibility for the premium tax credit and the cost-sharing subsidies?

Under 45 CFR Section 155.300, HHS is requiring the Exchanges to establish a system of coordinated eligibility and enrollment so that an individual can simultaneously apply for enrollment in a Qualified Health Plan ("QHP"), as well as Insurance Affordability Programs ("IAPs"), including the premium tax credit and cost-sharing reductions. Under Treasury Proposed Regulation Section 301.6103(l)(21). The IRS is permitted to disclose income and other specified information about an individual taxpayer to HHS for purposes of making eligibility determinations for advance payments of the premium tax credit or the cost-sharing reductions.

When an individual purchases a Qualified Health Plan how are any credits and subsidies applied?

Under the Actuarial Value and Cost-Sharing Reductions Bulletin (released by HHS), when an individual receives covered essential health benefits, the provider would collect from the individual only the amount of cost-sharing specified in the silver plan variation in which the individual is enrolled. The federal government would pay in advance to the insurer amounts estimated to cover the cost-sharing reductions associated with the specific silver plan variation. HHS intends to propose that this advance cost-sharing reduction payment to the insurer would occur monthly, and that after the end of the calendar year, the federal government would reconcile the advance payments to actual cost-sharing reduction amounts. 

The Exchange must report to the IRS and to each taxpayer required information for the Qualified Health Plan in which the employee (or a member of the employee's family) is enrolled through the Exchange, as provided in Treasury Regulation Section 1.36B-4. In turn, individuals who receive advance payments of the premium tax credit must file an income tax return for that taxable year, as provided in Treasury Regulation Section 1.36B-5.

For More Information:

If you have any comments or questions regarding any of above information, please do not hesitate to call (708) 717-9638 or e-mail at  larry[at]larrygrudzien[dot]com

Family Health Premiums reach $15,745 this year and how much you'll need to pay in 2014

I was reading USA Today this morning and an article listed two surveys stating that the average cost of coverage for a family is $15,745/year (http://usat.ly/PiBDpC) with employees paying $4,300/year of that cost. This translates into a 4% increase from last year, but with salary increases flat, the average family just lost buying power.

That said, let's see how the Affordable Care Act will impact the employee's portion of the cost of insurance in 2014. Here are the actual percent payouts based upon family income:

• 150% - 200% of Federal Poverty Level (FPL) equals people paying up to 6.3% of their income on health insurance. 
• 201% - 250% of FPL equals 8.05% of their income on health insurance. 
• 250% - 400% FPL equals 9.5% of their income on health insurance.

Let's see how this stacks up with the $4,300/year the average family pays towards their health insurance (assuming a family of 4).
In 2012, the FPL is $23,050 for a family of four.
150% of FPL = $34,575/year of income with a maximum spent on health insurance being $2,178.23.
200% of FPL = $46,100/year of income with a maximum spent on health insurance being $3,711.05.
250% of FPL = $57,625/year of income with a maximum spent on health insurance being $5,474.38.

What this means, especially in the Chicagoland area, is that you won't notice a change in your premium when health reform occurs. What health reform gives you is an opportunity of purchasing your own coverage and NOT being depended upon your employer. It will be interesting to see how many employees leave to start their own businesses or become consultants.

[Removed]

Again, the Affordable Care Act is not what it is hyped to be. There will be no "free healthcare" for the majority of Americans. Most likely, they will be paying the same or a little bit more for their coverage than what they are paying now. The best part of health reform is that anyone can obtain a plan (guaranteed issue), with no pre-existing conditions (everything is covered from day one - as long as the insurance plan covers the conditions), and a person cannot be charged an extra premium other than if they are a smoker (community rating).

Compliance Questions -HSAs and Health FSAs - Eligibility Issues     

August 23, 2012

One of my employees just enrolled in a High Deductible Health Plan ("HDHP") and is now eligible to contribute to a Health Savings Account ("HSA").  A few months ago, his spouse enrolled in a general- purpose Health Flexible Spending Account ("Health FSA").  She enrolled the whole family, including her spouse. If the spouse never submits claims for her husband, is he still eligible to contribute to an HSA?

No.

Individuals who are covered by traditional, general-purpose Health FSA are not eligible for HSA contributions. This rule applies whether the individual is the participant in the Health FSA or simply someone whose expenses can be reimbursed-both are considered "covered." Thus, an employee's spouse will not be eligible for HSA contributions if the spouse's qualified medical expenses can be paid or reimbursed under the general purpose Health FSA in which the employee participates, as provided in Revenue Ruling 2004-45 and IRS Notice 2005-86. Nothing in the guidance limits this principle to spouses, so adult children and other individuals (e.g., domestic partners) who have HDHP coverage-and thus might otherwise be able to make contributions to their own HSAs-will not be eligible to make HSA contributions if they are also covered by a family member's general-purpose Health FSA. 

A family member's eligibility may be preserved if the Health FSA excludes him or her from coverage. But at the present time, it is unusual for a Health FSA to restrict coverage, for example, solely to the covered employee or solely to the covered employee and children (but not the spouse). Most of these arrangements allow benefits for any eligible tax dependent. Plan documents and administrative procedures would need to be redesigned in order to facilitate such an "employee-only" or "employee-plus-children (but not spouse)" coverage option. It is not sufficient for an individual to simply promise not to request reimbursement (even if the promise is kept and no claims are ever submitted).

In general, an individual who is covered by a general-purpose Health FSA will be ineligible for HSA contributions for the individual's entire period of coverage under the Health FSA -even after the individual has completely exhausted his or her Health FSA.

Although an individual generally will not be eligible to contribute to an HSA for the entire period of coverage under a general-purpose Health FSA even if the Health FSA account balance has been exhausted, an individual with a $0 balance at plan year-end under a general-purpose Health FSA with a grace period can disregard that Health FSA coverage and be HSA-eligible during the grace period, as provided in IRS Notice 2007-22. This rule requires that the $0 balance be determined on a cash basis and taking into account the uniform coverage rule. Cash basis means the balance as of the relevant date, without taking into account expenses that have not been reimbursed as of that date. Thus, pending claims, claims submitted, claims received, or claims under review that have not been paid as of a date are not taken into account. 

Written by:

Larry Grudzien

Attorney-At-Law

Larry Grudzien, Attorney at Law | 708 South Kenilworth Ave. | Oak Park | IL | 60304

Coordination of Benefits for Medicare Eligible People

You will be turning 65 soon (become Medicare Eligible), but still plan on working for your employer for several more years. Do you need to take Medicare parts A and B? 

The answer is it depends. Below is a snippet from a Humana newsletter that tried to explain how it works (BTW, this is for almost all insurance companies/plans):

Coordinating Medicare and employer health plans isn't a complicated proposition if you know the facts. Active employees cannot be dropped from employer group health plans without violating the federal Age Discrimination Employment Act (ADEA) except in specific circumstances. Medicare secondary payer rules also prohibit employers from reducing health benefits to current employees because of their Medicare eligibility. Plus, the Equal Employment Opportunity Commission issued an informal letter late last year that advised the exemption for coordination with Medicare is only applicable to retirees, not current employees. As older workers delay retirement – or opt to forego retirement altogether, the need for clarity on how to navigate coordination of Medicare and employer-based insurance has become crucial.

Coordination requirements depend on the size of the employer-based healthcare plan.

Under a small group plan, defined as 20 or fewer employees, Medicare becomes the primary health coverage for eligible employees. The employee might not have health insurance if he or she declines Medicare Part B coverage, outpatient, and doctors benefits. Expenses of Part B-eligible employees who become injured and are covered by the group health plan can see the program stop payment – or attempt to recoup payments – creating a nightmarish scenario for employees. An employer who decides to remain the primary payer (an option currently allowed) must receive written confirmation from the employee and the health plan.

In large group plans of 20 or more employees, the amount of coverage employers must provide changes. The employee is not required to opt for Part B but can accept Part B as secondary coverage. When the employee stops working, Part B becomes the primary payer. In the case of a multiple-employer plan, the size of the largest employer dictates whether the group plan size is small or large and therefore, the category of coordination requirements and coverage to which all the employers in the group must adhere.

Additional guidance is available from several sources. National nonprofit consumer service group Medicare Rights Center, along with Cook County, Illinois-based AgeOptions, created a toolkit of educational materials on this subject. The toolkit, "How Medicare Works with Employer-Based Health Insurance: A Guide for Employers, Professionals and Consumers," is designed to help older workers knowledgeably make their way through the transition from employer-based health insurance to Medicare. 

Now in Illinois, if you are enrolled in an HMO plan for an employer with LESS THAN 20 employees, you actually do NOT need to get Part B as an HMO treats payments differently than other plans. That said, please check with your employer/health insurance agent FIRST to confirm that this is still the case in your situation.

Transitional reinsurance program may add 3% - 4% to costs for individual and group health insurance according to United Healthcare

United Healthcare and Anthem Blue Cross Blue Shield both send out information on the transitional reinsurance program which is a part of the Affordable Care Act. According to United Healthcare, this program will increase cost 3% to 4% starting in 2014. The purpose of the reinsurance program is to stabilize the premiums of insurers who take on high cost people (think about your Aunt Edna who is 400 pounds, has high blood pressure, high cholesterol, diabetes, takes 8 medications/day and needs a double knee replacement) in the individual market due to it being guaranteed issue with no pre-existing conditions. This plan will compensate those insurance companies who insure those individuals. The reinsurance program fees will total $12 billion in 2014 and gradually decrease to $5 billion in 2016. States can actually increase these fees at their discretion.

What this means is that the average cost of a health insurance plan will be 3%-4% higher in 2014 due to this reinsurance program alone (fees are ultimately passed on to consumers).

Also starting September 30, 2012 there is a new fee assessed on health insurers (and self insured plans) of $1 per covered life and increasing to $2 per covered life in the second year. This fee helps to fund research on the effectiveness of medical treatments conducted by the new Patient-Centered Outcomes Research Institute (PCORI). The good news is that the most effective treatments will be found and recommended. The bad news is that I wouldn't be surprised if expensive and obscure treatments are "defunded" from health insurance plans (excluded from coverage). That second item is only speculation, but it seems to correlate with many single payer systems around the world.

By the way, if you offer an HRA, even if it is in conjunction with a fully insured plan, it is considered a self-funded plan and you will need to submit those fees to the government. Yes, this means you pay twice.

More updates will be coming.

Health Reform Questions - Employer Mandate

Health Reform Questions 

- Employer Mandate     

 By Larry Grudzien

What employers are subject to the employer mandate in 2014?  When are they subject to any penalties?  What are these penalties?

In general:

Beginning in 2014, certain large employers may be subject to a penalty tax (also called an "assessable payment") for failing to offer health care coverage for all full-time employees (and their dependents), offering minimum essential coverage that is unaffordable, or offering minimum essential coverage under which the plan's share of the total allowed cost of benefits is not at least 60% (referred to as "minimum value"). The penalty tax is due if any full-time employee is certified to the employer as having purchased health insurance through an Exchange  with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee, as provided in Code section  4980H.

What is a large employer for purposes of the employer mandate?

The penalty tax (or assessable payment) applies to "applicable large employers." An applicable large employer for a calendar year is an employer who employed an average of at least 50 "full-time employees" on business days during the preceding calendar year, as provided in Code Section 4980H(c)(2)(A).

What factors are used to determine whether an employer is an "applicable large employer"?

For purposes of determining whether an employer is an applicable large employer, an employer must include not only its full-time employees but also a full-time equivalent for employees who work part-time. To do so, the employer must add up all the hours of service in a month for employees who are not full-time and divide that aggregate number by 120. The result of that calculation is then added to the number of full-time employees during that month. Then, if the average number of employees for the year is 50 or more, the employer is an applicable large employer, as provided in Code Section 4980H(c)(2)(E).

Under Code Section 4980H(c)(2)(C)(i), all entities treated as a single employer under the employer aggregation rules will be treated as one employer.

How are seasonal employees counted in determining whether an employer is an "applicable large employer?

Under Code Section  4980H(c)(2)(B)(i), a special rule enables an employer that has more than 50 full-time employees solely as a result of seasonal employment to avoid being treated as an applicable employer. Under this rule, an employer will not be considered to employ more than 50 full-time employees if (a) the employer's workforce only exceeds 50 full-time employees for 120 days, or fewer, during the calendar year; and (b) the employees in excess of 50 who were employed during that 120-day (or fewer) period were seasonal workers.*"Seasonal worker" means a worker who performs labor or services on a seasonal basis as defined by the DOL, including agricultural workers covered by 29 CFR § 500.20(s)(1) and retail workers employed exclusively during holiday seasons , as provided  in Code Section 4980H(c)(2)(B)(ii).

Which employees are considered "full-time" for the employer mandate?

Under Code Section 4980H(c)(4)(A), a "full-time employee" for any month is an employee who is employed for an average of at least 30 hours of service per week.

What is the penalty if an applicable large employer does not offer minimum essential coverage to its employees?

Beginning in 2014, Code Section 4980H(a) provides that an applicable large employer will pay a penalty tax (i.e. make an assessable payment) for any month that-

(1) the employer fails to offer its full-time employees (and their dependents) the opportunity to enroll in "minimum essential coverage" under an "eligible employer-sponsored plan" for that month; and

(2) at least one full-time employee has been certified to the employer as having enrolled for that month in a QHP for which health coverage assistance is allowed or paid.

What is the amount of assessable payment (penalty tax)?

Code Section 4980H(a) provides that the penalty tax (assessable payment) is equal to the product of the "applicable payment amount" and the number of individuals employed by the employer (less the 30-employee reduction) as full-time employees during the month. The "applicable payment amount" for 2014 is $166.67 with respect to any month (that is, 1/12 of $2,000). The amount will be adjusted for inflation after 2014.

What is "minimum essential coverage"?

Under Code Section 5000A(f)(1), the term "minimum essential coverage" means coverage under any of the following: (a) a government-sponsored program, including coverage under Medicare Part A, Medicaid, the CHIP program, and TRICARE; (b) an "eligible employer-sponsored plan;" (c) a health plan offered in the individual market; (d) a grandfathered health plan; or (e) other health benefits coverage (such as a State health benefits risk pool) as HHS recognizes.

What is an "eligible employer-sponsored plan"?

Under Code Section 5000A(f)(2), it means a group health plan or group health insurance coverage offered by an employer to an employee that is (a) a governmental plan, or (b) any other plan or coverage offered in a state's small or large group market

Under what circumstances will an applicable large employer be subject to the penalty tax if it offers its employees minimum essential coverage?

Beginning in 2014, Code Section 4980H(b)(1) provides that an applicable large employer will pay a penalty tax (i.e., make an assessable payment) for any month that-

(1) the employer offers to its full-time employees (and their dependents) the opportunity to enroll in "minimum essential coverage" under an eligible employer-sponsored plan for that month; and

(2) at least one full-time employee of the employer has been certified to the employer as having enrolled for that month in a QHP for which a premium tax credit or cost-sharing reduction is allowed or paid. 

If an employee is offered affordable minimum essential coverage under an employer-sponsored plan, then the individual generally is ineligible for a premium tax credit and cost-sharing reductions for health insurance purchased through an Exchange.

When would employees offered minimum essential coverage by an employer be eligible for a premium tax credit and cost-sharing reductions for health insurance purchased through the Exchange?

Under Code Section 36B(c)(2)(C), employees covered by an employer-sponsored plan will be eligible for the premium tax credit if the plan's share of the total allowed costs of benefits provided under the plan is less than 60% of those costs (that is, the plan does not provide "minimum value"), or the premium exceeds 9.5% of the employee's household income. The employee must seek an affordability waiver from the Exchange. The penalty tax applies for employees receiving an affordability waiver. In order to get the premium tax credit and cost-sharing reduction, however, an employee must decline to enroll in the coverage and purchase coverage through the Exchange instead, as provided under Code Section 36B(c)(2)(C).

When would the penalty tax be assessed?

To be considered minimum essential coverage, the coverage will need to meet an affordability requirement (which compares cost to income and provide minimum value (i.e., it will need to pay at least 60% of the total allowed cost of benefits. The penalty tax is due if any full-time employee is certified to the employer as having purchased health insurance through an Exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to the employee. Employers who provide coverage under an eligible employer-sponsored plan that does not meet the affordability and minimum value requirements may nevertheless avoid the tax to the extent employees actually participate in the plan, as provided under Code Section  36B(c)(2)(C)(iii).

What is the amount of the assessable payment (penalty tax?)

Code Section 4980H(b)(1) provides that the penalty tax (assessable payment) is equal to $250 (1/12 of $3,000, adjusted for inflation after 2014) times the number of full-time employees for any month who receive premium tax credits or cost-sharing assistance (this number is not reduced by 30).  This penalty tax (assessable payment) is capped at an overall limitation equal to the "applicable payment amount" (1/12 of $2,000, adjusted for inflation after 2014) times the employer's total number of full-time employees, reduced by 30, as provided in Code Section  4980H(b)(2).

How will the minimum value for an employer-sponsored plan be determined?

In IRS Notice 2012-31, the IRS requested comments on several approaches to the minimum value determination, including evaluating plan designs that will cover part or all of 2014 and suggestions for transitional relief for plan years that start before and end in 2014. This determination of minimum value for employer plans will be consistent with previous HHS guidance on "actuarial value," which is relevant for determining coverage levels for qualified health plans ("QHPs) offered through the Exchanges.

In IRS Notice 2012-31, the IRS described three potential approaches, for determining minimum value. They include:

- Minimum Value Calculator:  The IRS will develop a MV calculator for use by self-insured plans and insured large group plans. Under this approach, plans with certain standard cost-sharing features (e.g., deductibles, co-insurance, and maximum out-of-pocket costs) will be able to enter information about four core categories of benefits (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) into the calculator based on claims data of typical self-insured employer plans. The calculator would also take into consideration the annual employer contributions to an HSA or amounts made available under an HRA, if applicable. Comments are specifically requested on how to adjust for other benefits (e.g., wellness benefits) provided under a plan using the calculator.

-Design-Based Safe Harbor Checklists:  As an alternative, an array of safe harbor checklists would be provided so plans may compare to their own coverage. The safe harbor checklists would be used to make minimum value determinations for plans that cover all of the four core categories of benefits and services (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) and have specified cost-sharing amounts. Each safe harbor checklist would describe the cost-sharing attributes of a plan (e.g., deductibles, co-payments, co-insurance, and maximum out-of-pocket costs) that apply to the four core categories of benefits and services.

-Actuarial Certification:  The last approach  would be available for plans with "nonstandard" features (such as quantitative limits on any of the four categories of benefits, including, for example, a limit on the number of physician visits or covered days in a hospital) since these plans would not be able to use a calculator or the safe harbor checklists. Plans would be able to generate an initial value using a calculator and then engage a certified actuary to make appropriate adjustments that take into consideration the nonstandard features. Plans with nonstandard features of a certain type and magnitude would also have the option of engaging a certified actuary to determine the plan's actuarial value without the use of a calculator.

How can employer determine whether its coverage is affordable when it will not know the employee's household income?

In  finalized regulations to implement the premium tax credit through the Exchange, the IRS indicated that it was their intention to issue proposed regulations or other guidance that would allow employers to use an employee's Form W-2 earnings (instead of household income) in assessing affordability. 

What Can an Employer Do with the Medical Loss Ratio Rebates

From Guest Contributor Larry Grudzien (larrygrudzien.com).

My client sponsors a group health plan for its employees. It recently received a medical loss rebate check from its insurer. The employer is asking what he should do with it.   Can he keep it? Or does he have to give a portion of the rebate to the participants?  

Allocating the Rebate

Technical Release 2011-04, the Department of Labor (DOL) outlined how employers should handle rebates for their ERISA group insured health plans. The DOL indicated that to the extent that all or a portion of the rebate constitutes a "plan asset," the employer may have a fiduciary duty to share the rebate with participants.

In the absence of specific plan or policy language, the determination of whether a rebate is considered to be a plan asset will depend, in part, on the identity of the group policyholder. If the plan or trust is the policyholder, the rebate will likely be considered a plan asset under ordinary notions of property rights. This means it stays with the plan and the employer cannot share in any part of it.

If the employer is the policyholder, the determination will hinge on the source of the premium payments and the percentage of premiums paid by the employer, as opposed to plan participants. If a portion of the premium is paid by participants, that portion will be considered a plan asset and must be used for their benefit. An employer cannot use the rebate generated by one plan to benefit participants in another plan. Such action would constitute a breach of fiduciary duty.

If all or a portion of a rebate does constitute a plan asset, then the plan sponsor will have to determine how and to whom to allocate the rebate. For example, must a portion of the rebate be allocated to former plan participants? The selection of an allocation method must be reasonable and it must be made solely in the interest of plan participants and beneficiaries.

In making the determination, the plan fiduciary may weigh the costs to the plan - and the ultimate plan benefit - when deciding on an allocation method. If the cost of calculating and distributing shares of a rebate to former participants approximates (or exceeds) the amount of the proceeds, a plan fiduciary is permitted to limit the allocation to current plan participants.

If it is not cost-effective to distribute cash payments to plan participants (because the amounts are de minimis, or they would produce negative tax consequences for the participants), the fiduciary may use the rebate for other permissible plan purposes. These might include a credit against future participant premium payments or benefit enhancements.

Notices to Subscribers

Insurers must send written notices to group policyholders - and their subscribers -informing them that a rebate will be issued. Employers should be prepared to respond to questions from participants who receive these notices, particularly if the sponsor does not intend to share any of the rebate with those participants.

The notice must include information regarding:

* The purpose of the MLR requirement imposed by the ACA;

* The applicable MLR standard;

* The issuer's actual MLR for the reporting year at issue and its adjusted aggregate premium revenue;

* The rebate being provided; and

* If applicable, an explanation that the rebate is being provided to the policyholder.

For ERISA plans, this explanation must state that policyholders may have obligations under ERISA with respect to the handling of the rebate amount, and the contact information for the ERISA covered plan. For other group health plans (such as non-federal governmental plans), the explanation must explain how the policyholders will use the rebate to benefit subscribers

Likewise, even if an insurer meets the Medical Loss Ratio requirements, it must notify subscribers that no rebate will be issued. This notice must be included with the first plan document provided to enrollees on or after July 1, 2012. Model notices are available on the Centers for Medicare & Medicaid Services website.

Tax Consequences

For participants in a group plan, the tax consequences will depend on factors such as the source of the premium payments (employer versus participant), whether participant premiums were paid on an after-tax or pre-tax basis.

If the rebate is distributed as a premium reduction for the employee, then the amount paid for the coverage is less, resulting in increased taxable wages. If the rebate is distributed in cash, then the rebate is treated as taxable wages, subject to income and employment taxes.

A link to Technical Release 2011-04 is provided below:

http://www.dol.gov/ebsa/newsroom/tr11-04.htm