Author Archives | Andie Schieler

About Andie Schieler

Andie is an attorney and works in J.W.Terrill's Compliance division specializing in interpreting the Affordable Care Act and various insurance laws. She advises clients on legal and regulatory issues affecting their employee benefit plans. She obtained her law degree from Saint Louis University and undergraduate from Indiana University Bloomington.

Annual CMS Medicare Part D Disclosure Due for Calendar-Year Plans

February 10, 2020

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Reporting Creditable or Non-Creditable Status to CMS

As part of the annual notification requirements under the Medicare Modernization Act (MMA), employer-sponsored group health plans that provide prescription drug coverage are required to disclose the plan’s creditable or non-creditable coverage status to the Centers for Medicare & Medicaid Services (CMS). This online disclosure is due sixty (60) days after the first day of each plan year, and for calendar year plans it should be made by February 29, 2020 (but see Timing of the Disclosure to CMS Form below).

This alert provides a summary of the Medicare Part D disclosure requirements including a review of:

If you have any questions or need further details about the creditable coverage disclosure requirements, please contact your client service team.

Employers Subject to Medicare Part D Disclosure

Employers who offer group health plans with prescription drug coverage that cover Medicare eligible employees, retirees, spouses, or dependents are subject to the Medicare Part D disclosure (and notification[1]) requirements. The disclosure is required whether the coverage is primary or secondary to Medicare.

A Safe Assumption – If you are an employer sponsoring a group health plan with prescription drug coverage, this disclosure requirement likely applies to you.

Timing of the Disclosure to CMS Form

There are three events which trigger submission of the disclosure. The disclosure must be completed:

  1. Within sixty (60) days after the first day of the plan year (this is February 29, 2020 for calendar-year plans, but this falls on a Saturday and CMS will likely accept a filing by March 2, 2020 as timely);
  2. Within thirty (30) days of a mid-year change in the prescription drug plan’s status (from creditable to non-creditable or vice versa); and
  3. Within thirty (30) days of the termination of the plan.

Believe It or Not:  There are no enforcement penalties or sanctions for failing to timely file this disclosure with CMS or even for failing to file it at all.  We do recommend applicable employers complete this filing, but it’s little surprise that non-compliance is high.

The General Contents of the Disclosure to CMS Form

Employers sponsoring at least one prescription drug plan in which a Medicare eligible individual is enrolled (or could be enrolled), are required to complete the online disclosure. No other filing methods are allowed.

The contents of the disclosure include:

  • General employer information – Employers should report using the name and federal ID number (EIN) of the plan sponsor. If multiple employers within a controlled group are covered under the same plan, the EIN for the parent company (or other entity if it is the plan sponsor) may be used. If each individual entity reports separately, each should report using its own EIN. The EIN of the insurance carrier or third party administrator should not be used.
  • The type of coverage (“Group Health Plan: Employer Sponsored Plan”).
  • Plan option information – Employers must report the number of prescription drug options offered and the creditable or non-creditable coverage status for each.[2] This is based on the number of group health plan options offered with different prescription drug benefits.
  • The estimated number of Medicare Part D individuals covered under each plan.

How Accurate Do I Have to Be? CMS will accept a reasonable estimate of how many Medicare eligible individuals are covered. Remember that individuals can be Medicare eligible based on age, disability, or end-stage renal disease.

  • The most recent date (MM/DD/YYYY) that the required annual creditable or non-creditable Medicare Part D Notice was distributed to participants

Available CMS Guidance and Instructions CMS provides instructions in its Creditable Coverage Disclosure to CMS Form Instructions and Screen Shots. Information regarding the creditable coverage requirements under the Medicare Prescription Drug, Improvement, and Modernization Act is available on the CMS website.


[1]Distributing Medicare Part D notices is a separate employer responsibility in which the employer notifies the participants of the creditable status of the drug plan(s).

[2] Employers should exclude options receiving a Medicare retiree drug subsidy.

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Affordable Care Act Reporting Relief Extended for 2019

December 29, 2019

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The Internal Revenue Service just released Notice 2019-63, which extends the deadline for Affordable Care Act (ACA) Form 1095 reporting to individuals and the good faith compliance defense for reporting errors consistent with the relief that has been available in prior years. 

Relief Notes

  • Delivery of Forms 1095 to Individuals – The deadline to provide the 2019 Forms 1095 (B or C) to individuals is extended to March 2, 2020. No additional extension will be available for this obligation.
  • Filing Forms 1094/1095 with IRS – The deadline to file the 2019 Forms 1094/1095 with the IRS has not been extended.
    • Electronic filers – The deadline for entities filing electronically is March 31, 2020. Entities filing 250 or more forms must file electronically.
    • Paper filers – The deadline for entities filing by paper is February 28, 2020

An automatic 30-day extension of the deadline to file with the IRS may be requested using Form 8809.

  • Good faith relief extended – The IRS will not assess penalties for missing or inaccurate information if the 2019 forms are completed and filed in good faith. Entities who fail to provide and/or file forms altogether are not eligible for this relief.
  • Special limited transition relief related to the ACA Individual Mandate –

Form 1095-B

Form 1095-B is primarily used by insurance carriers to report fully insured coverage. Because individuals no longer need the information on Form 1095-B to avoid an individual mandate penalty (which is now $0), the IRS has announced it will not assess a penalty for failing to furnish Form 1095-B if both of the following are true:

  1. The reporting entity posts a notice prominently on its website stating that responsible individuals may receive a copy of their 2019 Form 1095-B upon request, accompanied by:
    • An email address and physical address to send requests to, and
    • A telephone number that individuals may contact with questions.
  2. The reporting entity furnished a 2019 Form 1095-B to any responsible individual upon request within 30 days of the date the request is received.

Note: Reporting entities are still required to file Forms 1095-B with the IRS. It’s unclear if insurance carriers will abandon automatically providing Forms 1095-B to covered participants for 2019. Please also see State Individual Mandates below.

Form 1095-C
Self-insured applicable large employers (ALEs) must continue to provide Forms 1095-C to their ACA full-time employees and report coverage on Part III. However, the IRS did grant special transition relief identical to the Form 1095-B relief described above when reporting coverage for an individual who was not an ACA full-time employee for any month during 2019. This can include part-time employees as well as COBRA participants and retirees (usually beginning the year after the COBRA qualifying event or retirement).

Note: It is unclear how much practical value this relief will provide to ALEs, who will continue to be required to file all Forms 1095-C with the IRS and provide Forms 1095-C to employees who were ACA full-time employees for at least one month during the calendar year. It may be administratively impractical for an ALE to try to fit within the special limited transition relief and not automatically provide Forms 1095-C to certain individuals who likely account for only a small number of the ALE’s Forms 1095-C. Please also see State Individual Mandates below.

State Individual Mandates
In response to reduction of the ACA’s individual mandate penalty to $0, several states recently passed their own ACA-style individual mandates requiring taxpayers to provide proof of coverage to avoid penalties. To date, these are California, the District of Columbia, New Jersey, Rhode Island, and Vermont. Form 1095-C can generally be used for this purpose which will pressure insurers and ALEs to deliver Forms 1095 to all covered individuals in at least those states. The individual mandates in New Jersey and the District of Columbia are effective for 2019 and require duplicate Forms 1095 be filed by the insurer or ALE with the state/district. The state individual mandates for California, Rhode Island, and Vermont become effective in 2020. Massachusetts has also long maintained a state individual mandate with its own form and reporting requirements. We’ll cover these individual mandates in detail in another December 2019 article.

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Repeal, Repeat, Remand – Ho Ho Hum?

December 27, 2019

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The year ended with a lot of activity in the health and welfare benefits space, although much of that activity results in things continuing as they were for 2019.

2020 Federal Spending Bill

Congress passed the fiscal year 2020 spending bill (the “Spending Bill”) last week, and it was signed by the President on December 20, 2019. The Spending Bill contains several provisions affecting health and welfare benefit plans, with certain key items summarized below:

Cadillac Tax

The Affordable Care Act’s (ACA) excise tax on high cost coverage (better known as the “Cadillac Tax”) was originally planned for 2018. It has been delayed twice – first to 2020 and again to 2022 – and will now never see the light of day. The Spending Bill permanently repeals the Cadillac Tax.

The Plot Thickens – A significant revenue raising mechanism under the ACA was the combination of the Cadillac Tax and the employer shared responsibility payments (ESRPs). As an employer’s Cadillac Tax liability [inevitably] increased, the employer would eventually find it less expensive to opt out of providing health coverage to its employees and pay an ESRP instead. With no Cadillac Tax to help drive employers toward the ESRPs, the ACA’s long-term funding has taken a significant hit.

Health Insurance Tax (HIT)

The ACA’s HIT requires fully insured medical, dental and vision plans to pay an annual fee, which is typically baked into the plan’s insurance premiums. The HIT has been suspended for roughly half the years it has been in effect. The Spending Bill repeals the HIT entirely as of January 1, 2021. The HIT is still in effect for 2020, mainly because the rates for 2020 were already approved by state departments of insurance and incorporated in 2020 insurance premiums. On average, the HIT has been responsible for an increase of 2.5 – 3% in premiums for the years it has been in effect. We believe premiums are unlikely to actually decrease with the HIT’s repeal, but the rate of premium increases should be reduced for 2021.

Medical Device Tax

The ACA’s medical device tax is repealed as of January 1, 2020. This was a tax on the sale of certain medical devices by the manufacturer or importer of the device and resulted in modest increases to plan costs.

Qualified Transportation Fringe Benefit for Non-Profits

The 2017 Tax Cuts and Jobs Act required nonprofit companies to include the cost of qualified transportation benefits in their unrelated business income (UBTI). The Spending Bill repeals this requirement retroactively for amounts paid or incurred after December 31, 2017.

Note:  We provided an overview of the status of qualified transportation fringe benefit plans earlier this year. It remains current minus the references to UBTI for nonprofits.

Patient-Centered Outcomes Research Institute (PCORI) Fee

This fee on fully insured and self-insured health coverage is due annually on July 31st and is calculated by multiplying the average number of covered lives for the policy year by an indexed dollar amount. The PCORI fee was scheduled to end in 2019 (2020 for many non-calendar year plans). In a surprise move, the Spending Bill extends the PCORI fee to 2029 (2030 for many non-calendar year plans).

Fifth Circuit Ruling in Texas v. U.S.

Also in December, the 5th Circuit Court of Appeals agreed that the ACA’s individual mandate is unconstitutional without a corresponding tax penalty. However, the 5th Circuit remanded the case back to the District Court to provide additional analysis on whether this provision is severable from the ACA without declaring the entire ACA unconstitutional. If the lower courts strike down the entire ACA, we are confident the U.S. Supreme Court will hear the case. This may not occur before 2021, since the case will first need to work its way back through the District Court and 5th Circuit. If these lower courts determine the individual mandate can be severed from the rest of the ACA, the Supreme Court may decline to hear the case which preserves the current status quo. 

Remember:  Although the Trump Administration has appointed two new justices, the five Supreme Court justices that initially saved the ACA in 2012 are still on the bench. 

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IRS Releases 2020 Limits for FSAs and Other Benefits

November 8, 2019

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The Internal Revenue Service released Revenue Procedure 2019-44 earlier this week, which contains the 2020 cost-of-living adjustments for various employee benefit plans including employer sponsored health care flexible spending accounts, qualified transportation fringe benefits, and adoption assistance programs. The following provides a summary of the annual limits for these specific benefit programs along with a summary of the 2020 high deductible health plan and health savings accounts limits announced earlier this year.

Each of the limits described below are applicable for taxable years beginning in 2020. If you have any questions or need further details about the tax limits and how they will impact your employee benefit programs, please contact your account team.

Health Care Flexible Spending Accounts
Employees will be allowed to contribute up to $2,750 per plan year.

Qualified Transportation Fringe Benefit
The monthly dollar limit on employee contributions has increased to $270 per month for the value of transportation benefits provided to an employee for qualified parking. The combined transit pass and vanpooling expense limit will also increase to $270 per month.

Adoption Credit/Adoption Assistance Programs
In the case of an adoption of a child with special needs, the maximum credit allowed under Code Section 23 is increased to $14,300. The income threshold at which the credit begins to phase out is increased to $214,520. Similarly, the maximum amount that an employer can exclude under Code Section 137 from an employee’s income for adoption assistance benefits is increased to $14,300.

HDHP and Health Savings Account (HSA) Amounts
Earlier this year, the IRS released Revenue Procedure 2019-25 which included the 2020 minimum deductible and maximum out-of-pocket limits for high deductible health plans (HDHPs) and the maximum contribution levels for HSAs.

  • The minimum annual deductible for a plan to qualify as an HDHP will be $1,400 for self-only coverage and $2,800 for family coverage;
  • The maximum annual out-of-pocket limits allowable under an HDHP will increase to $6,900 for self-only coverage and $13,800 for family coverage; and
  • The 2020 maximum allowable annual contribution employees may make to their HSAs will increase to $3,550 for an individual with self-only coverage and increase to $7,100 for an individual with family coverage.

The HSA catch-up contribution limit for participants who are 55 or older on December 31, 2020, remains an additional $1,000 per year.

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Agencies Release 2020 Adjusted Limits

July 9, 2019

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Now that the U.S. Department of Health & Human Services (HHS) has released its final rules, and the IRS has released Rev. Proc. 2019-25, we know the 2020 cost-of-living adjustments for non-grandfathered plans subject to the Affordable Care Act (ACA), high-deductible health plans (HDHPs), and health savings accounts (HSAs). For comparison purposes, the limits for 2019 and 2020 are below:

ACA Limit 2019 2020
Out-of-Pocket Maximum Limit[1] Self-only: $7,900

 

Family: $15,800

Self-only: $8,150

 

Family: $16,300

 

 

HDHP/HSA Limits 2019 2020
HDHP Minimum Deductible Self-only: $1,350

 

Family: $2,700

Self-only: $1,400

 

Family: $2,800

 

HDHP Maximum Out-of-Pocket Self-only: $6,750

 

Family: $13,500

Self-only: $6,900

 

Family: $13,800

HSA Annual Contribution Maximum Self-only: $3,500

 

Family: $7,000

 

Self-only: $3,550

 

Family: $7,100

HSA Catch-up Contribution Limit (age 55 and older) $1,000 $1,000

Also in HHS’ Final Rules – New Prescription Drug Guidance

Consumers and group health plans alike have struggled with the rising cost of prescription drugs, and there have been numerous high-profile cases involving dramatic price increases for prescription medication. It may seem impossible to effectively reign it in, even with existing manufacturer coupons, discount cards, and other drug-rebating programs. HHS has debated several prescription drug policy changes directed at lowering prices and has adopted a new approach. Beginning in 2020, fully insured and self-insured plans will be able to exclude the value of drug manufacturer coupons used to buy brand-name medications if a medically-appropriate generic-equivalent is available. This change is intended to shift costs from employers to consumers encouraging them to choose equally effective, lower-cost FDA-approved generic medication. This approach is purely optional. Plans do not have to disregard manufacturer coupons and may be able to include those amounts when calculating the participant’s annual out-of-pocket maximum. Keep in mind that some states may prohibit fully insured plans from doing this.

[1] This limit does not apply to plans that remain grandfathered under the ACA.

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The Affordable Care Act’s Employer Mandate: Part 1

July 9, 2019

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Determining Applicable Large Employer Status

This article is Part 1 in a series intended to provide an overview of the Employer Shared Responsibility provisions (also known as the “employer mandate”) under the Affordable Care Act (ACA). The employer mandate generally requires certain employers – known as applicable large employers – to offer medical coverage to full-time employees in order to avoid certain potential penalties.

This article will explain if and when the employer mandate applies. Future articles will address how to determine who is a full-time employee, offers of coverage, and how to report this information to the IRS.

What’s in a Name?

In 2015, the employer mandate changed the landscape of employer-provided group health plans for insurance carriers and employers alike. The employer mandate is filled with many defined terms, including:

  • Full-time employee (FTE) – An employee who is expected to work at least 30 hours per week on average and/or who does average at least 30 hours of service per week over the course of a measurement period.
  • Applicable large employer (ALE) – An ALE is an employer who employs 50 or more FTEs (including full-time employee equivalents) on average during the prior calendar year. ALE status is also determined in the aggregate for certain groups of related legal entities identified under the Internal Revenue Code, and each member employer of an aggregated ALE group is known as an applicable large employer member (ALEM).
  • Dependent – An FTE’s natural or adopted child (or a child placed for adoption) who has not reached age 26. For employer mandate purposes, “dependent” does not include a spouse or any other child including a stepchild or foster child.[1]
  • Minimum essential coverage – This is broadly defined to include most traditional job-based health plans (including retiree and COBRA coverage).
  • Minimum value – Minimum value means the plan covers at least 60% of the total allowed cost of covered services expected to be incurred by a standard population and must include coverage for hospital and physician services. In layman’s terms, it’s a bronze-level plan.
  • Affordable – Affordable coverage means the employee’s share of self-only coverage in the lowest-cost available plan providing minimum value doesn’t exceed an indexed percentage (9.86% in 2019) under any of three employer safe harbors: (1) Federal Poverty Limit, (2) Rate of Pay, and (3) Form W-2. These safe harbors will be addressed in a later article in this series.
  • Section 4980H(a) Penalty – This penalty is triggered when an ALE/ALEM fails to offer minimum essential coverage to at least 95% of its FTEs and at least one FTE qualifies for a subsidy in the public health insurance exchange. This penalty amount is indexed and pro-rated monthly ($208.33/month or $2,500/year in 2019) and is multiplied by all of the ALE/ALEM’s FTEs. An ALE may exclude 30 FTEs from this penalty calculation. This 30 FTE exclusion limit applies at the aggregated ALE group level, and an ALEM is limited to excluding its proportional share of the 30 FTEs. We will also refer to this as the “no offer” penalty in this article.
  • Section 4980H(b) Penalty – This penalty is triggered when an ALE/ALEM offers minimum essential coverage to at least 95% of its FTEs but fails to offer affordable, minimum value coverage to an FTE who qualifies for a subsidy in the public health insurance exchange. This penalty is also indexed and pro-rated monthly ($312.50/month or $3,750/year in 2019) but is limited to those FTEs who actually qualify for subsidies. We will also refer to this as the “inadequate offer” penalty in this article.

This article focuses on how to determine ALE/ALEM status. The other terms and their employer mandate definitions will be covered in greater detail in later articles in this series.

Defining an ALE (or ALEM)

As indicated earlier, an ALE is an employer who employs 50 or more FTEs (including full-time employee equivalents) on average during the prior calendar year. With this definition fresh in mind, it’s clear that the first step is to determine if the employer has 50 or more FTEs in “Year 1” making it an ALE for “Year 2.” Sounds simple, right?

How to Determine ALE Status

 

 

 

 

Step 5 in Action

 

 

 

 

What about First-Timers? Transitional Relief is Available.

Both ALE status determinations and the employer mandate apply on a calendar year basis without regard to an employer’s actual plan year. Employers who are on the brink of becoming ALEs need to continuously monitor their employee count. If an employer grows during the year or has employees logging extra hours, it may cross the 50 FTE threshold in that year (Year 1) and face the employer mandate the following year (Year 2). This can pose a particular problem for an employer with a non-calendar year plan that could be left scrambling to comply with the employer mandate in the middle of its plan year. Remember, the employer mandate imposes monthly penalties for non-compliance beginning January 1st of Year 2.

Luckily the final regulations contain some relief for first-time ALEs. The regulations give “first-timers” three months (January through March of Year 2) to:

  1. Do the math for Year 1 to determine if it is an ALE for Year 2;
  2. Find a broker;
  3. Negotiate a plan;
  4. Put together open enrollment materials;
  5. Have open enrollment; and
  6. Make coverage effective by April 1st of Year 2.

If the new ALE does not offer coverage to its FTEs (and dependents) by April 1st, the employer may be subject to the subsection (a) “no offer” penalty for those months (January-March) in addition to any subsequent calendar month for which coverage is not offered.

The first-time ALE also gets a break from the subsection (b) penalty if the coverage offered by April 1st provides minimum value and is affordable. If the employer does offer coverage by April 1st but the coverage is “inadequate,” the employer may be subject to the subsection (b) penalty for January, February and March in addition to any subsequent calendar month for which the penalty may apply.

So, Should You Care?

If you’re an employer who reaches the magic number of 50 or is over 50 FTEs, then you should care a lot – and prepare. The transitional relief is only available for the first year in which an employer is an ALE, even if the employer goes back and forth between ALE and non-ALE status. Neglecting or not being prepared for the employer mandate and the responsibilities it entails could be very costly. We will cover how to determine FTE status and the offer of coverage in Part 2 of this series.

Authors:

Andie Schieler – Andie is a Compliance Consultant in the Employee Health & Benefits Compliance Center of Excellence for J.W. Terrill a Marsh & McLennan Agency

Jennifer Stanley – Jennifer is a Compliance Consultant in the Employee Health & Benefits Compliance Center of Excellence for Marsh & McLennan Agency.

Chris Beinecke – Chris is the Employee Health & Benefits National Compliance Leader for Marsh & McLennan Agency.

 

[1] By contrast, stepchildren and foster children do count as dependents for other ACA provisions such as the ACA’s dependent coverage to age 26 mandate.

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President Signs Executive Order to Improve Healthcare Price and Quality Transparency

July 2, 2019

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The President signed an Executive Order (or “Order”) on June 24, 2019, directing the U.S. Departments of Health and Human Services (HHS), Treasury, and Labor (collectively, the “Tri-Agencies”) and other federal departments (together, the “Various Agencies”) to develop rules designed to assist patients in making informed decisions about their healthcare.

What and When…
This Order continues the President’s agenda to reform the healthcare industry. The Order requires a number of federal agencies to issue guidance, rules and tools designed to increase transparency in the healthcare market and certain other changes. These include (all timing is measured from the date of the Order):

Within 60 days

  • HHS must propose regulations that require hospitals to publically post charge information, including negotiated rates, on common or shoppable services[1] in a consumer-friendly way. While price transparency is the primary goal, the Order contained other directives that will potentially impact how patients interact with healthcare.

Within 90 days

  • The Tri-Agencies must issue a notice of proposed rulemaking seeking comment on how healthcare providers, insurance carriers, and self-insured group health plans can support transparency.

Within 120 days

  • Treasury will issue guidance permitting qualified high deductible health plans (HDHPs) to pay for medical care for chronic conditions without cost sharing. This means the HDHP will be able to provide these benefits before the individual has met the annual deductible without affecting the ability to make or receive health savings account (HSA) contributions.

Within 180 days

  • HHS – with support from the Attorney General and Federal Trade Commission – will issue a report addressing how the federal government and private sector negatively affect transparency and recommendations to improve this. HHS will develop ideas to address surprise medical billing, including the creation of a federal benchmark of exorbitant out-of-network fees owed to providers by insurance companies and plans.
  • The Various Agencies will work together to improve data collection for research by consolidating data from federally sponsored health systems (such as Veterans Affairs and the Marketplace) and improving access to de-identified claims data.
  • Treasury will propose regulations to treat expenses related to certain types of arrangements, which may include direct primary care and healthcare sharing ministries, as eligible medical expenses. This would enable the expenses to be reimbursable from an HSA, health reimbursement arrangement, or health flexible spending account (hFSA).

Please note: The Order did not indicate that expenses related to direct primary care and healthcare sharing ministries must be included as eligible medical expenses in the proposed regulations. The Order also did not address these arrangements as potential disqualifying other coverage for HSA compatibility purposes.

Treasury will also issue guidance increasing the maximum amount of hFSA funds that can be carried over to the following plan year.

  • The Tri-Agencies will work together to propose rules on expanding patient access to expected out-of-pocket costs to cut down on surprise or balance billing.

But Relax for Now…
No immediate action by employers is necessary as a result of this Executive Order. The initial guidance and proposed regulations are months away, and it will be much longer before final regulations appear. In the meantime, there should be no immediate impact on the healthcare market.

[1] Shoppable services are common services that are offered in the market by multiple providers, such as imaging services.

We are providing this information to you in our capacity as consultants with knowledge and experience in the insurance industry and not as legal or tax advice.  The issues addressed may have legal or tax implications to you, and we recommend you speak with your legal counsel and/or tax advisor before choosing a course of action based on any of the information contained herein.  Changes to factual circumstances or to any rules or other guidance relied upon may affect the accuracy of the information provided. Marsh & McLennan Agency LLC is not obligated to provide updates on the information presented herein. © 2019 Marsh & McLennan Agency LLC. All Rights Reserved.

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Mistaken HSA Contributions

March 7, 2019

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Health Savings Accounts (HSAs) have become increasingly popular over the past decade. When combined with a qualified high deductible health plan (HDHP), an HSA allows an individual to save money to be used on qualifying medical expenses at a later date. Employees may elect to contribute money to their HSA account on a pre-tax basis through their employer’s cafeteria plan. Employers aren’t required to contribute to employees’ HSA accounts, but many choose to do so as part of their health insurance program.

Unfortunately, mistakes can and do occur when administering HSA contributions. Employers may think mistakes are easy to fix, but the HSA regulations are very particular about when (or even if) a mistaken HSA contribution can be recovered. Employers frequently can’t recover the funds even if the HSA holder/employee agrees to the recoupment. However, the IRS does allow an employer is allowed to recover the mistaken contributions in certain situations.

Employee Was Never HSA Eligible

If HSA contributions are made to an employee who was never an HSA-eligible individual, the employer can recover the amounts. The employer may request the bank administering the HSA to return the funds. This option is not available if the employee was eligible for even one month during the year.

Administrative or Process Error

The IRS recently released General Information Letter 2018-0033 clarifying when and how to fix certain HSA contribution mistakes. If there is clear documentary evidence of an administrative or procedural error, the employer may request the HSA bank return the money to the employer so all parties are in the same position before the mistake was made. Examples of the types of mistakes that may be corrected include:

  • Withholding and contribution of amount in excess of the employee’s HSA salary reduction election;
  • Incorrect entries by payroll administrators;
  • Excess amount due to duplicate payroll files being accessed;
  • Employee payroll election change is not timely processed resulting in wrong amount being withheld;
  • Incorrect HSA contribution amount calculation;
  • Wrong decimal entry;
  • Incorrect spreadsheet being accessed; and
  • Employee name confusion.

The above list is not exhaustive and only contains examples of administrative and procedural errors that can be fixed. Employers should maintain documentation to support their decision to correct a mistaken contribution. Documentation should include details on the type of mistake, how it occurred, the impact and the steps the employer took to correct the mistake.

Employee Is No Longer HSA Eligible

Another common mistake is for an HSA holder to continue contributing to their HSA when they are no longer eligible. Individuals must be enrolled in a HDHP and have no disqualifying coverage (such as enrollment in Medicare/Medicaid or coverage under a general purpose FSA or HRA) to be able to contribute to an HSA account.

The 2019 annual HSA contribution limit for those with self-only HDHP coverage is $3,500 and $7,000 for those with family HDHP coverage. HSA holders who lose HSA eligibility during the year will
have their annual contribution maximum pro-rated for the months in which they were HSA eligible. HSA holders who are eligible as of December 1st may contribute up to the annual maximum, regardless of only being HSA eligible for part of the year, as long as they retain HSA eligibility through the end of the following calendar year.[1]

Corrective Distributions

If an individual makes or receives contributions in excess of their annual HSA contribution limit, including contributions received from an employer that the employer is unable to recoup as described earlier, they may be subject to a cumulative 6% excise tax for each year the impermissible contributions remain in the HSA.

To avoid this penalty, the excess contributions must be distributed to the account holder before the account holder’s federal income tax return filing deadline for that taxable year (typically April 15th). HSA holders must also be careful also include the net income attributable to such excess contributions in their gross income for the taxable year in which the distribution was received. This is done by notifying the HSA bank of a need for a corrective distribution. The HSA bank will provide the account holder with the necessary forms and information to make the corrective distribution. We recommend HSA holders work with a tax advisor to correct any HSA errors.


[1] This is described in more detail in “Frequently Misunderstood Health Savings Account Issues” appearing earlier in this newsletter.

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Slowly Filling in the Blanks

January 2, 2019

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IRS Releases Guidance on Qualified Transportation Fringe Benefits for Tax-Exempt Organizations

The Tax Cuts and Jobs Act (the “Act”), enacted in December 2017, eliminated the business deduction employers received for providing qualified transportation fringe benefits (“fringe benefits”) to their employees beginning January 1, 2018. The Act did not affect the employee exclusion, which enables the amount of qualified transportation fringe benefits provided by employers to be excluded from employee gross income up to specified monthly limits ($260 in 2018; $265 in 2019). Since the loss of the business tax deduction would not affect a tax-exempt organization, Congress included a provision in the Act that requires tax-exempt organizations to add the amount of these fringe benefits provided to their employees to its unrelated business taxable income (UBTI). However, the Act didn’t specify exactly how to calculate the disallowed deduction or UBTI amount, particularly for qualified parking expenses.

The Internal Revenue Service released Notice 2018-99 that fills in this gap by describing how to calculate the disallowed deduction amount for taxable organizations or UBTI for tax-exempt organizations. The Department of the Treasury and the IRS will eventually publish proposed regulations but, in the meantime, IRS Notice 2018-99 may be relied upon for fringe benefit amounts paid or incurred after December 31, 2017. Essentially, the calculation will depend upon whether the employer pays a third party for parking, or if the employer owns or leases a parking facility.

We believe the ultimate result is that employers will move away from or limit providing reserved parking spaces to employees for reasons that will become clear later in this article.

Employer Pays a Third Party for Parking Space 

If an employer pays a third party so their employees may park in the third party’s garage or lot, the disallowed deduction or UBTI amount is generally the total annual cost paid to the third party. Keep in mind that if the amount exceeds the monthly exclusion limit ($260 in 2018; $265 in 2019), the excess amount must also be treated as taxable compensation to the employee. Fortunately, this excess amount will not be included in the UBTI calculation.

Employer Owns or Leases All or Part of a Parking Facility

Until further guidance is released, employers may use any reasonable method to calculate the disallowed deduction or UBTI amount if the employer owns or leases a portion of a parking facility. The IRS specifically noted that “using the value of employee parking to determine expenses allocable to employee parking in a parking facility owned or leased by the taxpayer is not a reasonable method.”

If the employer owns or leases more than one parking facility in a single geographic location, the employer may aggregate the number of spaces in those parking facilities using this process. If the parking facilities are in multiple geographic areas, the employer cannot aggregate the spaces. For those who prefer firmer guidance, Notice 2018-99 provided steps an employer may follow to calculate that amount. Yes, this is really what the guidance says.

Step 1: Reserved Employee Spaces

The employer must first calculate the amount attributable for reserved employee spaces. This is done by determining the percentage of reserved employee spaces in relation to total parking spaces and multiplying that by the employer’s total parking expenses for the parking facility. “Total parking expenses” is defined in the Notice and does not include a deduction for depreciation or expenses paid for items near the parking facility, such as landscaping or lighting. The resulting amount is the disallowed deduction or the amount that will be added to a tax-exempt organization’s UBTI. The IRS will allow employers that have reserved employee spots until March 31, 2019 to change their parking arrangements to decrease or eliminate the number of reserved employee spots retroactive to January 1, 2018.

Step 2: Primary Use Test

The employer must next identify the remaining spaces and determine whether they are primarily used for the general public or for its employees. The IRS defines “primary use” as greater than 50% of actual or estimated usage during normal hours on a typical work day. If parking space usage significantly varies, the employer can use any reasonable method to determine the average usage. The portion of expenses not attributable to the general public’s use is the disallowed deduction or amount included in a tax-exempt organization’s UBTI.

Step 3: Reserved Non-Employee Spots

If the primary use of the employer’s remaining parking spaces is not for the general public, the employer must identify the number of spaces exclusively reserved for non-employees (such as “Customer Only” parking). Spaces reserved for partners, sole proprietors and 2% shareholders are also included in this category. If the employer has reserved non-employee spaces, it needs to determine the percentage of reserved non-employee spaces in relation to the remaining total spaces. That amount is multiplied by the employer’s remaining total parking expenses. This is the amount of the disallowed deduction or amount included in a tax-exempt organization’s UBTI.

Step 4: Determine Remaining Use and Allocable Expenses

If there are any leftover parking expenses left over, the employer must reasonably determine employee use (either actual or estimated usage) of the remaining spaces during normal work hours and the related expenses for those spaces. The amount of expenses attributable to employee use is the disallowed deduction or amount included in in a tax-exempt organization’s UBTI.

IRS Notice 2018-99 does provide some helpful examples of this four step process illustrating how the calculation works in different situations. If tax-exempt organizations have $1,000 or more of UBTI they will need to report using Form 990-T.  Those tax-exempt organizations with less than $1,000 in UBTI are not required to file and are not subject to the tax.

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Better Late Than Never

November 16, 2018

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The Internal Revenue Service released Revenue Procedure 2018-57 today, which contains the 2019 cost-of-living adjustments for various employee benefit plans including employer sponsored health care flexible spending accounts, qualified transportation fringe benefits, and adoption assistance programs. The following provides a summary of the annual limits for these specific benefit programs along with a summary of the 2019 high deductible health plan and health savings accounts limits announced earlier this year.

Each of the limits described below are applicable for taxable years beginning in 2019. If you have any questions or need further details about the tax limits and how they will impact your employee benefit programs, please contact your account team.

Health Care Flexible Spending Accounts
Employees will be allowed to contribute up to $2,700 per plan year.

Qualified Transportation Fringe Benefit
The monthly dollar limit on employee contributions has increased to $265 per month for the value of transportation benefits provided to an employee for qualified parking. The combined transit pass and vanpooling expense limit will also increase to $265 per month.

Adoption Credit/Adoption Assistance Programs
In the case of an adoption of a child with special needs, the maximum credit allowed under Code Section 23 is increased to $14,080. The income threshold at which the credit begins to phase out is increased to $211,160. Similarly, the maximum amount that an employer can exclude under Code Section 137 from an employee’s income for adoption assistance benefits is increased to $14,080.

HDHP and Health Savings Account (HSA) Amounts
Earlier this year, the IRS released Revenue Procedure 2018-30 which included the 2019 minimum deductible and maximum out-of-pocket limits for high deductible health plans (HDHPs) and the maximum contribution levels for HSAs.

  • The minimum annual deductible for a plan to qualify as a HDHP will remain at $1,350 for self-only coverage and $2,700 for family coverage;
  • The maximum annual out-of-pocket limits allowable under an HDHP will increase to $6,750 for self-only coverage and $13,500 for family coverage; and
  • The 2018 maximum allowable annual contribution employees may make to their HSAs will increase to $3,500 for an individual with self-only coverage and increase to $7,000 for an individual with family coverage.

The HSA catch-up contribution limit for participants who are 55 or older on December 31, 2019, remains an additional $1,000 per year.

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Annual Creditable Coverage Notice Deadline Approaches

September 21, 2018

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The annual deadline for the Creditable Coverage notice is arriving once again. The Centers for Medicare and Medicaid Services (CMS) requires employers offering prescription drug coverage to disclose to all Medicare Part D eligible individuals the creditable status of their plan by October 15th each year. Employers may use the model notices available here on CMS’s website.

It can be very difficult for employers to know exactly who should receive the notice as there are ways to become Part D eligible beyond attaining age 65. Many employers resolve this issue by including the notice in enrollment materials or providing separate mailings to all employees who participate in the employer-sponsored plan. We’ve previously discussed distributing the notice here.

If mailing the notice, first-class mail is generally preferred. A single notice may be sent to Part D eligible employees and their Part D eligible spouse or dependents. If the employer is aware a spouse or dependent resides at a different address, a separate notice must be sent to their address. When including with enrollment materials, the notice must be:

  • Prominently referenced; and
  • In a (minimum) 14-point font in a separate box, bolded or offset on the first page.
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PCORI Fee Deadline Approaches

June 20, 2018

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The annual Patient Centered Outcomes Research Institute (PCORI) fee is due by July 31, 2018. The fee was created by the Affordable Care Act to help fund the nonprofit Patient-Centered Outcomes Research Institute which supports clinical effectiveness research. Typically only employers with self-funded health plans, including health reimbursement arrangements (HRAs), must calculate and pay the fee. Health insurance companies will pay the fee on behalf of employers with fully-insured health plans.

Plan sponsors will use IRS Form 720 (Quarterly Federal Excise Tax Return) to report the fee. The fee amount changes annually and is tied to the plan year. The amount due each year is calculated by multiplying the applicable fee by the average number of covered lives in the plan. Employers have several methods available to calculate the average number of covered lives including the actual count method, snapshot method and Form 5500 method. For plan years ending in January 2017 through September 2017, the fee will be $2.26. For plans ending in October 2017 through December 2017, the fee will be $2.39.

For more information on how to calculate and pay the PCORI fee, please contact your service team.

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