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New Health Reimbursement Arrangements Allowed Under Final Rules

September 30, 2019

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Updated: September 30th, 2019

The President signed an Executive Order on October 12, 2017, directing the U.S. Departments of Labor, Treasury, and Health and Human Services (collectively, the “Agencies”) to consider rules expanding the availability and permitted uses for Health Reimbursement Arrangements (HRAs). The clear intent was to ultimately enable employers to offer HRAs to employees that can be used to purchase individual insurance policies. The Agencies issued a set of final regulations addressing this and related issues on June 13, 2019. Treasury issued additional proposed regulations on September 27, 2019.

Note: This is an update to our earlier article that addressed the June 13, 2019 final regulations. We have incorporated the additional information provided by Treasury in its September 27, 2019 proposed regulations. This new information is identified under Details about Individual Coverage HRAs by marking affected Items with an asterisk (*). Marked items with guidance may be relied upon as a safe harbor until further notice.

The Bottom Line

We’ll address the rules in more depth under Details about Individual Coverage HRAs below, but the main takeaways are:

  • Premiums – Employers will be able to offer HRAs to employees that can be used to pay for individual health insurance coverage and Medicare premiums. These will be referred to as “Individual Coverage HRAs” or “ICHRAs” in this article.
  • Employer mandate – ICHRAs can be used to avoid the Employer Shared Responsibility provisions (also known as the “employer mandate”) penalties under the Affordable Care Act (ACA).

However

  • It’s one or the other – An employer can offer traditional group health coverage to a class of employees or an ICHRA, but not both (with a very limited exception).

So, when exactly?

The effective date is for plan years beginning on or after January 1, 2020, which is unchanged from the earlier proposed rules. There is every indication that both the federal and state-run public insurance exchanges will not be ready to handle the anticipated increase in enrollment, adjust product offerings, or make accurate eligibility determinations until much later, so 2020 may prove chaotic for individuals covered by ICHRAs and the employers offering them. 

Details about Individual Coverage HRAs

ITEM

GUIDANCE

Eligibility

 

Employees (including former employees) and dependents enrolled in major medical coverage purchased in the public insurance exchange, individual insurance market, or Medicare[1] are eligible to participate.

Coverage for any part of a month for which a premium is due qualifies.

Employees who are enrolled in coverage consisting solely of excepted benefits,[2] short-term limited duration insurance, TRICARE, or health care sharing ministry coverage are ineligible.

Reimbursements

The ICHRA may be designed to limit reimbursements solely for individual insurance premiums, or it can be designed to also allow reimbursements for qualified medical expenses (so long as the expenses are not limited to medical expenses not covered by Medicare).

Classes of Employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employers may divide their workforces into the following classes of employees:

  1. Full-time employees
  2. Part-time employees
  3. Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region)
  4. Salaried workers
  5. Non-salaried workers (such as hourly employees)
  6. Seasonal employees
  7. Employees covered by a collective bargaining agreement
  8. Employees eligible for the employer’s traditional group health coverage who are in a waiting period
  9. Non-resident aliens with no U.S.-based income
  10. Temporary employees of staffing firms
  11. Any group formed by combining two or more of the above classes (Example:  Full-time, salaried employees).

If an ICHRA is offered to a class, it must be offered on the same terms to all employees within the class.[3] Benefit levels can vary only based on age[4] and family size within a class.

If an employer offers an ICHRA to a class, it cannot offer its traditional group health coverage to that class, except that an employer may offer traditional coverage to grandfathered members of a class and limit new hires of that class to ICHRAs after a date chosen by the employer.

Employee Class Size

If an employer offers traditional group health coverage to some of its employees, a minimum employee class size applies to ICHRAs offered to classes (1) – (5) described above or any combination that includes one of those classes.

The minimum class size is:

  • 10 employees for an employer with < 100 employees,
  • 10% of the total number of employees, for an employer with 100 to 200 employees, and
  • 20 employees for an employer with > 200 employees.

Special Enrollment Period

Individuals who gain access to an ICHRA qualify for a 60-day special enrollment period in the public insurance exchange and individual market.

ACA and the Employer Mandate*

 

An ICHRA automatically qualifies as “minimum essential coverage” and is an “offer of coverage” for the purposes of meeting the ACA’s employer mandate to offer coverage to at least 95% of full-time employees (FTEs).

An ICHRA is deemed “affordable coverage” if the difference between the monthly premium for the lowest cost available silver plan and 1/12th of the annual ICHRA contribution is equal to or less than the applicable affordability safe harbor percentage.

There are three factors used to determine the applicable lowest cost available silver plan for an FTE:  (1) The FTE’s location; (2) the FTE’s age; and (3) a silver plan cost look-back safe harbor.

(1) FTE’s Location

An employer may use an FTE’s primary worksite as a safe harbor for the FTE’s location. In general, an FTE’s primary worksite is where the employer reasonably expects the FTE to perform services on the first day of the ICHRA plan year (or the coverage effective date for new hires).[5]

If the FTE’s primary worksite changes during the year, the location of the applicable lowest cost available silver plan must also change no later than the 1st day of the 2nd month following the change in primary worksite.

For remote employees (e.g. telecommuters):

  • If the remote employee reports to a work location when not working remotely, this work location is the primary worksite.
  • If the employee is only expected to work remotely, the employee’s primary residence is the primary worksite.

Note: It is possible for a multi-site employer to have more than one FTE primary worksite in the same geographic rating area with different applicable lowest cost available silver plan options as a result.

(2) FTE’s Age

An employer may use the silver plan with the lowest premium cost at the lowest age bracket as the applicable lowest cost silver plan for all ages at a given location. An employer may also use the FTE’s age as of the first day of the ICHRA plan year (or the coverage effective date for new hires) for the entire ICHRA plan year. There are no other special rules related to FTE age.[6]  

(3) Silver Plan Cost Look-Back Safe Harbor

To address employer planning concerns:

  • A calendar year ICHRA may use the premium from the lowest cost silver plan in a given location as of January from the prior calendar year.
  • A non-calendar year ICHRA may use the premium from the lowest cost silver plan in a given location as of January from the current calendar year.

Affordable Coverage Example

In 2020, an employer makes an annual contribution of $6,000 to an FTE’s calendar year ICHRA. As of January 2019, the monthly premium for the lowest cost available silver plan for the FTE’s primary worksite and age was $600.  

$600 – ($6,000/12) = $100/month

The ICHRA is an affordable offer of coverage for the employee if $100/month is within an affordability safe harbor for that employee in 2020. Under the Rate of Pay safe harbor, this is affordable for an employee whose Rate of Pay income is at least $1,022/month ($100 / 9.78% = $1,022). Under the W-2 safe harbor, this is affordable for an employee who worked the entire calendar year and has Box 1 reportable W-2 wages of at least $12,264 ($1,022 x 12 = $12,264).

Consistent with other guidance, if a silver plan bases its premium cost on the completion of certain wellness activities, enrollees are deemed to automatically satisfy all tobacco-based requirements and fail all other requirements. In other words, the applicable premium to use is the premium for non-tobacco users who do not meet any other wellness standard.

An ICHRA deemed affordable coverage is automatically deemed to satisfy the ACA’s minimum value requirement paired with its individual major medical insurance policy.

An employer may vary the use of the ICHRA affordability rules across classes of employees but not within a class of employees.

Silver Plan Database*

The federal agencies intend to provide a national database of lowest cost silver plan information at a later date.

Waiver

 

Employees must be permitted to waive participation annually at the beginning of the plan year or effective date of coverage.

Exchange Subsidies

An individual who enrolls in an ICHRA is ineligible for subsidies through the public insurance exchange. An individual who waives coverage may be eligible for subsidies if the HRA is not considered an offer of affordable, minimum value coverage by the employer.

Substantiation

 

Employers are required to adopt reasonable substantiation procedures to confirm participants are enrolled in eligible medical coverage and communicate these to eligible employees no later than the first day of the plan year or effective date of coverage.

The rules indicate an employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card).[7] A model attestation is available.

Employees are required to substantiate enrollment in eligible medical coverage (including for any dependents) each time a request for reimbursement is submitted.

ERISA Status, etc.

 

The ICHRA is itself an employer-sponsored group health plan.

The individual insurance coverage reimbursed by the ICHRA will not be considered an ERISA plan offered by the employer so long as the employer does not sponsor it or play a role in its selection.

HSA Eligibility

An individual who uses the ICHRA to purchase qualified high deductible health plan coverage is eligible to contribute to a health savings account unless the ICHRA can also be used to pay for general medical expenses.


Cafeteria Plan Option

 

An employer may allow employees within a class to pay for any remaining premium for eligible medical coverage through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange.[8]

Nondiscrimination*

A compliant ICHRA will generally be deemed to satisfy the applicable nondiscrimination rules under Section 105(h) of the Internal Revenue Code (IRC). However, an ICHRA that disproportionally benefits highly compensated employees may still be found to be discriminatory in actual operation.

Notice Requirements

 

Employers must provide eligible employees with a notice describing:

  1. The terms of the ICHRA,
  2. Contact information for assistance,
  3. The availability of a special enrollment right for individual coverage, and
  4. The effect the ICHRA may have on the employee’s eligibility for a subsidy in the public insurance exchange.

The notice must be provided at least 90 days before the beginning of the plan year. A model notice is available.

ACA Reporting*

The IRS will release guidance addressing ACA reporting on Form 1095-C for ICHRAs at a later date.

The employee class and class size limitations should make it difficult for an employer to simply shift its highest cost claimants to the individual market. That said, some classes of employees may incur higher medical expenses than others, and an employer could still shift a more expensive class to the individual market. The ICHRA may also provide employers with a lower, fixed cost coverage alternative to provide to certain classes of employees that present less significant attraction and retention challenges than others.

And for Good Measure…

The Agencies also created another category of HRA known as an “Excepted Benefit HRA” that may be offered on a standalone basis exempt from the ACA’s mandates if all of the following are true:

  • The employer offers traditional group health coverage to the employee whether or not the employee elects it (this means the employee cannot also be offered an ICHRA);
  • The maximum annual contribution is $1,800 (indexed);
  • Reimbursements are limited to general medical expenses and premiums for COBRA, short-term limited duration insurance, and other excepted benefits coverage (this can include many types of non-major medical health coverage); and
  • The Excepted Benefit HRA is available on a uniform basis to all similarly situated employees and is not designed to get high cost claimants to waive coverage.[9]

An Excepted Benefit HRA does not interfere with an individual’s eligibility for subsidies in the public insurance exchange. This form of HRA may be an interesting alternative to a traditional opt-out credit. It does not require the employee to actually enroll in other group health coverage to avoid impacting affordability calculations for the employer’s traditional group health coverage, and the HRA contributions aren’t subject to payroll taxes.[10]


[1] Oddly, fully insured student health insurance also qualifies.

[2] This is based on HIPAA’s “excepted benefits” rule.

[3] An employer can offer an ICHRA to some former employees within a class and not others so long as the terms are uniform for those offered coverage.

[4] ICHRA contributions for older employees are limited to a maximum of three times the contributions provided to younger employees.

[5] An employer could use an FTE’s primary residence. However, the employee class rules will require the employer to use the lowest cost available silver plan with the highest premium applicable to any FTE in the class across the entire class.

[6] An employer could rely on the age of the oldest FTE in an employee class as a sort of age-based safe harbor. This may result in a windfall for younger employees paying lower premiums for silver plan coverage.

[7] This may make the ICHRAs vulnerable to being used to pay for premiums for ineligible coverage.

[8] Employers are not required to permit this, and it might prove complex to administer.

[9] This is based on HIPAA’s “similarly situated groups” rule and is not tied to the permitted classes of employees under the Individual Insurance HRA.

[10] The IRC Section 105(h) nondiscrimination rules apply to Excepted Benefit HRAs.

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2020 Employer Affordability Safe Harbor

September 19, 2019

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Employer Mandate: Part 3 Sneak Peak

We will do a deep dive into what kind of medical coverage must be offered to avoid potential employer mandate penalties in Part 3 of our Affordable Care Act (ACA) Employer Mandate series. On July 23, 2019, the IRS released Revenue Procedure 2019-29, updating the ALEM’s required contribution percentage for affordability for plan years beginning on January 1, 2020 through plan years beginning on December 1, 2020.

Plan year beginning on or after Section 4980H(a) Annual Penalty Section 4980H(b) Annual Penalty Employer Affordability Safe Harbor
January 1, 2019 $2,500 $3,750 9.86 %
January 1, 2020 $2,580 (projected) $3,870 (projected) 9.78 %

Impact of Updates
For applicable large employers (as defined by the ACA) planning their 2020 contribution strategy, the affordability percentage is declining to 9.78% from 2019’s indexed value of 9.86%.   This means employers will be responsible for more of the employee-only premium for the 2020 plan year if pursuing a strategy to minimize potential employer mandate penalties.

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The Affordable Care Act’s Employer Mandate: Part 2

September 18, 2019

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Determining Full-Time Employees

This article is Part 2 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 employers known as applicable large employers (ALEs) to offer medical coverage to full-time employees and certain dependents in order to avoid potential penalties.

We covered how to determine whether an employer is an ALE in Part 1. This Part 2 will address how to determine who is an ACA-defined full-time employee (FTE). This article assumes an employer has already determined it is an ALE, and we will be using the terms ALE and employer interchangeably throughout.

Full-Time Employee Status Matters

Although ALE status is determined using both full-time employees and full-time equivalent employees (described in Part 1), the employer mandate penalties only take full-time employees into account. This is why it is so important to be able to identify the full-time employees. This article does not attempt to address all of the nuances that apply under the ACA’s measurement rules.

What’s in a Name?

Continuing from Part 1, the employer mandate is filled with many defined terms, including:

  • Full-time employee (FTE) – An employee who is reasonably 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.
  • Part-time employee (PTE) – An employee who is not reasonably expected to work at least 30 hours of service per week on average and/or who averages less than 30 hours of service over the course of a measurement period.
  • Variable-hour employee – A new employee with a flexible or uncertain work schedule preventing the employer from determining whether the employee will reasonably average more or less than 30 hours of service per week. Factors the employer should consider when classifying an employee as a variable-hour employee include:
    1. Whether the individual is replacing an employee who averaged 30 or more hours of service per week;
    2. Whether employees in the same or comparable position typically average 30 or more hours of service per week; and
    3. How the position was advertised (i.e., as a full-time or part-time position).

Please do not confuse a short-term or high turnover position with the definition of variable hour employee. If we know the employee will average 30 or more hours per week, the employee is not a “variable-hour employee” (but he or she might be a “seasonal employee”).

Note: The term “variable-hour employee” only applies to the look-back measurement method (describe later in this article). Technically, an employee is only a variable-hour employee when initially hired. The variable-hour employee will subsequently measure and be classified as an FTE or PTE thereafter.

  • Seasonal Employee – An employee hired into a position customarily needed for six months or less and related to staffing needs that recur around the same time each year. These are not the same as temporary employees who are hired as needs arise throughout a year. A seasonal employee can be subject to measurement even if reasonably expected to average at least 30 hours of service per week, and the idea is the seasonal employee will be gone before having to be treated as an FTE for ACA purposes.

Note: The term “seasonal employee” only applies to the look-back measurement method.

  • Hour of service – Each hour for which an employee is paid for duties performed or entitled to payment for periods during which no duties are performed (i.e., vacation, holiday, illness, incapacity, disability,[1] layoff, jury duty, military duty, or leave of absence).
  • Break in service – A period of consecutive weeks in which the employee is not credited with an hour of service.
  • Limited Non-Assessment Period (LNAP) – A period during which an ALE will not owe an employer mandate penalty without regard to whether an FTE was offered coverage. LNAPs include:
    • January through March of the first calendar year in which an employer is considered an ALE, but only for employees not offered coverage during the prior year.
    • A waiting period before coverage is effective.[2]
    • An employee’s first calendar month of employment if hired after the 1st of the month.
    • An employee’s initial measurement period and initial administrative period under the look-back measurement method (described later in this article).
    • If an employee in an initial measurement period transitions to a known FTE position, the three full calendar months following the transition qualify as an LNAP. In the real world, many employers will transition the employee to FTE status faster than the rules require.

Different Strokes for Different Folks Possible
Employers may use different measurement methods for the following categories – or combination of categories – of employees:

  1. Salaried employees and hourly employees;
  2. Employees located in different states (but not within the same state);
  3. Collectively bargained employees and non-collectively bargained employees; and
  4. Employees subject to different collectively bargained agreements.

In other words, an employer can use a different measurement method for salaried, non-collectively bargained employees than it uses for hourly, collectively bargained employees. This rule also permits an employer to use measurement periods that differ in length and/or their beginning and end dates for different categories of employees when using the look-back measurement method.

Monthly Measurement Method (MMM)

Under the MMM, an employer measures an employee’s actual hours of service at the end of each calendar month. If an employee averages 30 or more hours of service per week (130/month) for a calendar month, the employee was an FTE for that month. Since coverage cannot be offered retroactively, an employer may be exposed for failing to offer coverage to an employee determined to be an FTE after-the-fact unless an LNAP applies. If an employer does not select a measurement method, the ACA rules default the employer to the MMM.

Weekly Rule: The MMM rules also permit employers to measure hours of service using a “weekly rule” method. Under this method, the employer can use the number of work weeks used for payroll purposes during a calendar month. This can result in some months having 4 weeks and others having 5 for measurement purposes.

  • 4-week months ->TE = 120+ hours
  • 5-week months ->TE = 150+ hours

Look-Back Measurement Method (LBMM)

Under the LBMM, an employer can make certain employees[3] wait until the end of a measurement period to determine if they were FTEs after-the-fact. The employee’s FTE or PTE status is then locked in for a corresponding stability period. Unlike the MMM, an employer can avoid potential penalties by prospectively offering coverage during an FTE’s corresponding stability period.

An employee who is locked in as an FTE during a corresponding stability period cannot lose that status during the stability period while employed by the employer, even if the employee’s hours are reduced.[4]

Remember: An employee’s FTE status is protected prospectively during a stability period because the employee retroactively measured as an FTE. Also, an employee who is reasonably expected to average 30 or more hours of service per week is a known FTE and should not be made to wait for measurement to determine FTE status.

Under the LBMM, there are separate measurement rules for new employees and ongoing employees.

New Employee
An employee who has been employed for less than one complete standard measurement period (defined below).

Ongoing Employee
An employee who has been employed for at least one complete standard measurement period or who was present when the first standard measurement period was implemented.

New Employees

Initial Measurement Period (IMP)

  • The employer may determine the months in which the IMP begins and ends
  • The IMP can be 3 – 12 months in length (but the minimum ISP is 6 months)
  • IMP used to determine whether new employees measure as FTEs or PTEs

The IMP may begin on the date of hire or the first of the following month

The IMP may also begin on the first payroll date that occurs between the date of hire and first of the following month

Initial Stability Period (ISP)

  • The ISP can be 6 – 12 months, but it cannot be shorter than the employer’s IMP
  • During the ISP, the employee is treated as either:
    • An FTE for employer mandate purposes, or
    • A PTE and no coverage must be offered to avoid penalties

For new variable hour and seasonal employees, the ISP must begin immediately after the IAP

For those who are determined to be FTEs, The ISP must be the same length as the SP for ongoing employees

Initial Administrative Period (IAP)
The period of time during which the employer finishes measurement, determines whether coverage should be offered, and conducts enrollment.

  • The employer is permitted to select an IAP of up to 90 days.
  • The IAP may include a period beginning before and after the IMP. This allows an employer to begin the IMP on the first of the following month or next payroll period instead of the date of hire. The remaining IAP may be used after the IMP and before the ISP begins.
  • The IMP and the IAP combined may not exceed 13 months and a fractional month from the date of hire. In other words, the ISP cannot begin later than the 1st day of the 14th month after the date of hire.

Ongoing Employees

Standard Measurement Period (SMP)

  • The employer may determine the months in which the SMP begins and ends
  • The SMP can be 3 – 12 months in length (but the minimum SP is 6 months)
  • An employer can administer the SMP to coincide with a calendar year, a non-calendar plan year, or a different 12-month period (i.e. an annual enrollment event)
Standard Stability Period (SP)

  • The SP can be 6 – 12 months, but it cannot be shorter than the employer’s SMP
  • During the SP, the employee is treated as either:
    • An FTE for employer mandate purposes, or
    • A PTE and no coverage must be offered to avoid penalties

The SP must begin immediately after the AP.

Standard Administrative Period (AP)

The period of time during which the employer finishes measurement, determines whether coverage should be offered, and conducts enrollment.

  • The employer is permitted to select an AP of up to 90 days.
  • The AP begins immediately after the SMP ends.

NOTE: The AP cannot exceed 90 days, and nearly all 3-month time frames will exceed the maximum period allowed for an AP in any given year (e.g. using all of October, November, and December results in an AP of 92 days).

Putting it Together – The LBMM and When a New Employee Becomes an Ongoing Employee

Click here to view the graphic

A Quick Side-by-Side of Some Remaining Items

Monthly Measurement Method Look-Back Measurement Method
Easy for an employer whose workforce is made up entirely or almost entirely of known FTEs and PTEs Better suited for employers with a more flexible workforce and/or a workforce with a less certain FTE/PTE status
Less record keeping Generally best to hire a vendor and/or use specific software for measurement
Employer can adjust quickly for changes from FTE to PTE status Employee is “locked in” as an FTE (or PTE)[1] for the corresponding stability period
Handling a break in service is straightforward.

  • If an FTE has a break in service less than 13 weeks (26 for educational institutions), the employee is considered a continuing FTE and cannot be subject to a new waiting period upon returning to work. Coverage must be reinstated by the first of the month following the return.
  • If the break in service is 13 weeks or more (or 26 for educational institutions), the returning employee can be treated as a new employee and subjected to another waiting period.
Breaks in service are modified by special rules

  • If an FTE has a break in service less than 13 weeks (26 for educational institutions), the employee resumes their prior stability period. Coverage must be reinstated by the first of the month following the return.The employee generally earns 0 hours of service during the break in service for measurement purposes.
  • If the break in service is due to FMLA, USERRA, or jury duty, the employee does not have a break in service, and the employer must account for this leave period in the measurement period by either:
    • revising the measurement period to exclude this leave; or
    • using the employee’s weekly average hours of service during the rest of the measurement period for this leave period

Note: If the FMLA, USERRA, or jury duty is concurrent with other paid leave, the employee is already accruing hours of service.

Full-time determination is at the end of the month, leaving exposure without a remedy Rules vary depending on whether the employee is hired as full-time or non-full-time. The MMM is running in the background during the first measurement period

About the Authors:

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

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

[1] Again, in the real world, many employers will transition the employee to FTE status faster than the rules require.

[1] Paid disability leave generally counts toward hours of service unless solely paid for after-tax by the employee or provided through a workers’ compensation program.

[2] The waiting period rules vary between the monthly measurement and look-back measurement methods.

[3] These are variable hour, seasonal, and part-time employees.

[4] Similarly, PTE status cannot generally be affected either. In the real world, many employers will transition the employee to FTE status faster than the rules require.

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Medicare Part D Notice Reminder

September 17, 2019

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The Annual Notice Deadline is October 14, 2019

Employer group health plans that include prescription drug coverage must provide a Medicare Part D creditable and/or non-creditable coverage notice (“Notice”), as applicable, each year to all Medicare-eligible employees and dependents before the annual October 15th Medicare Part D enrollment period. The purpose of this annual Notice is to notify Medicare beneficiaries whether or not their employer’s prescription drug coverage is at least as good as Medicare’s prescription drug coverage, in order to help them decide whether to enroll in Medicare Part D.

Take Action

Employers should review their prescription drug coverage to determine creditable coverage status and distribute the appropriate Notice on or before October 14th. If a plan has multiple benefit options providing prescription drug coverage, the test must be applied separately for each benefit option.

Take Note and Give Notice

In order to assist employers with Notice requirements, the remainder of this alert provides additional background details including:

  • Which employers are subject to Medicare Part D Notice requirements;
  • Who is considered a “Medicare Part D eligible individual”;
  • Model Notices;
  • Notice deadlines;
  • Methods of delivery;

We will also address how to determine creditability when there is an account-based plan and creditable coverage reporting to CMS.

Employers Subject to Medicare Part D Notice Requirements
An employer is subject to the Notice requirements if it offers prescription drug coverage to its active employees and/or retirees, which includes Medicare Part D eligible individuals (including dependents). As a best practice, we recommend all employers sponsoring a prescription drug benefit to assume it is responsible for providing the Notice and notifying CMS, as discussed below.

Medicare Part D Eligible Individuals
All Medicare Part D eligible individuals who are applying for, or are covered by, the employer’s prescription drug benefits plan must receive the Notice. A “Medicare Part D eligible individual” is a person who:

  • Is entitled to benefits under Medicare Part A and/or is enrolled in Medicare Part B, as of the effective date of coverage under a Medicare Part D plan (active employees may have Medicare coverage); and
  • Resides in a “service area” of a Medicare Part D plan. A “service area” is defined as a location that meets certain pharmacy access standards. Most individuals live in a service area.

“Medicare Part D eligible individuals” may include active employees, employees who are disabled or on COBRA, retired employees, and their covered spouses and dependents. An employer may not know the Medicare eligibility status for all of these individuals, and we recommend employers provide the Notice to all covered individuals. Please see Method of Delivery below for delivery to covered families living at the same address.

Model Disclosure Notices
The Centers for Medicaid and Medicare Services (CMS) provides guidance and model creditable and non-creditable coverage disclosure Notices on its website. While the templates are dated April 2011, no changes have been made to the standard language since that time.

An employer may include multiple plan options in the same Notice, so long as the plans have the same creditable (or non-creditable) status.

Notice Deadlines
Although October 14th is the due date most associated with the Medicare Part D Notice, there are other times when Notice must be given to Medicare Part D eligible individuals.

  • Prior to an individual’s initial enrollment period for Medicare Part D;
  • Prior to the effective date of coverage for any Medicare-eligible individual that joins the employer’s plan;
  • Whenever prescription drug coverage ends or changes so that it is no longer creditable or becomes creditable; and,
  • Within a reasonable amount of time after an individual requests a copy.

Method of Delivery
Plans may provide the Notice with other member information materials (including new hire and open enrollment materials) or in a separate mailing. If the Notice is included in a separate packet of legal notices or in a benefits enrollment guide, the Notice must either appear on the first page (we interpret this to mean it is sufficient if it appears after the table of contents) or a call-out box must appear on the first page indicating this Notice is included in the materials, and a cross-reference to the page where it may be found. When the Notice is provided with other materials, the delivery guidance also indicates the initial disclosure portion of the Notice or the call-out box must appear in 14-point font. The delivery guidance provides the following sample call-out box:

If you (and/or your dependents) have Medicare or will become eligible for Medicare in the next 12 months, a Federal law gives you more choices about your prescription drug coverage.

The Notice may be hand-delivered, mailed (first-class) or sent electronically. For paper delivery, a single Notice can be provided to a family living at the same address. Employers providing the Notice electronically may rely upon this method as long as certain conditions from the Department of Labor (DOL) are satisfied. For electronic delivery without getting consent from the participants, the DOL requires that:

  • The employee has work-related computer access and use the computer as an integral part of their job;
  • The employee can access the documents in electronic format at their work site;
  • Appropriate measures are taken to ensure actual receipt by participants; and,
  • Participants must be notified in writing or electronically of their right to receive a paper copy of the Notice free of charge.

If an employee does not use a computer as an integral part of their job, or the employer cannot satisfy all of the above, an employer may rely on electronic delivery if the employee provides advance consent.

In addition, if an employer provides the Notice electronically, it must also notify participants that they are responsible for providing a copy of the disclosure to their Medicare-eligible dependents covered by the group health plan.

Determining Creditability When There is an Account-Based Plan

Health Reimbursement Accounts (HRAs)
Plan sponsors who offer HRAs in conjunction with a major medical plan or on a stand-alone basis must take the HRA into account for Medicare Part D creditable coverage purposes if the HRA can be used to reimburse for the cost of prescription drugs.

  • Participation in Medical Plan + HRA: If an individual participates in both the HRA and the major medical plan, creditable coverage is determined by increasing the expected prescription drug claims payable from the major medical plan by the amounts credited to the HRA.For HRAs that pay for both prescription drug costs and other medical claims, a reasonable portion of the year’s HRA contribution may be allocated to prescription drug coverage.Example 1: A medical plan has an annual deductible of $1,000. The employer makes an annual HRA contribution of $500. If the HRA can reimburse for both prescription drugs and other medical expenses, only a reasonable portion of the $500 should be allocated to prescription drug coverage for creditability determination purposes. This amount could be based on average reimbursement data and/or other facts and circumstances.

    If an HRA is limited to reimbursement for prescription drugs, the entire HRA contribution should be allocated to prescription drug coverage.

    Example 2: A medical plan has an annual deductible of $1,000. The employer makes an annual HRA contribution of $500. If the HRA can only reimburse prescription drug expenses, then the sponsor is considered to provide drug coverage with a $500 annual deductible

  • Stand-alone HRA: If the HRA is offered on a stand-alone basis without requiring participation in a medical plan,[1] creditable coverage is determined as if the HRA were a medical plan with no deductible and an annual limit equal to the amount of the credit for that year.[2]

Health Flexible Spending Accounts (FSAs)
Health FSAs are not included when determining the creditable coverage status of an underlying medical plan and are not independently subject to the Notice requirement.

Health Savings Accounts (HSAs)
HSAs are not included when determining the creditable coverage status of an underlying HDHP and are not independently subject to the Notice requirement.

Creditable Coverage Reporting to CMS

An often overlooked requirement for the employer is the obligation to report the creditable coverage status of its prescription drug plan(s) to CMS. The Online Disclosure to CMS Form should be completed (i) annually no later than 60 days from the beginning of a plan year (contract year, renewal year), (ii) within 30 days after termination of a prescription drug plan, and (iii) within 30 days after any change in creditable coverage status. Interestingly, there are no penalties for failing to provide this disclosure to CMS.

About the Authors:

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

Allie Waits is a Compliance Consultant for Marsh & McLennan Agency’s Upper Midwest Region.

[1] This can present certain compliance issues if the HRA is offered to current employees.

[2] CMS, Treatment of Account-Based Health Arrangements under the Medicare Modernization Act,” last updated December 28, 2005: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/EmployerRetireeDrugSubsid/Downloads/AccountBasedPlansGuidanceRev1.pdf

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And in this Corner…the Fight to Expand Association Health Plans Continues

August 15, 2019

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The U.S. Department of Labor (DOL) issued Advisory Opinion 2019-01a to little fanfare on July 8, 2019, but the DOL’s move was a little bigger than the attention it received. It marked Round #3 in the ongoing battle between certain states and the DOL over the expansion of Association Health Plans (AHPs).

The Bottom Line
In its Advisory Opinion, the DOL agreed that Ace Hardware’s[1] corporate operations and independently owned retail stores were employers within the same industry and approved their formation of a Pathway 1 AHP in a large number of states. Traditional Pathway 1 AHPs have historically been limited to the same state, and this appears to be a reaction by the DOL to the unfavorable court opinion given to Pathway 2 AHPs last March.

A Quick Roadmap
The DOL refers to the two categories of AHPs as Pathway 1 and Pathway 2, and we’ll use those terms in this article.[2] Both can enable member employers to participate in large group insurance coverage or potentially self-insure. Please see below for a discussion of Pathway 1 and Pathway 2 AHPs and how we got here.

Pre-Fight

Pathway 1 AHP

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
    AND
  • Be located within the same geographic location (usually within the same state)

This was the AHP environment before the final rules expanding AHPs were issued:

Round 1
The final rules creating the Pathway 2 AHP were issued on June 18, 2018. There were staggered effective dates described in our earlier expansion of AHPs article.

Pathway 1 AHP

Pathway 2 AHP

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    OR
  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

Pathway 2 AHPs also permit broader participation by self-employed individuals.

Round 2
Eleven States and the District of Columbia sued the DOL over Pathway 2 AHPs and received a favorable ruling on March 28, 2019. In an earlier article, we indicated the ruling appeared to leave wiggle room for employers in the same trades or businesses to form Pathway 2 AHPs across state lines. In a set of FAQs released in May, the DOL indicated it would appeal the ruling but would restrict the expansion of existing or the formation of new Pathway 2 AHPs in the meantime.

Pathway 1 AHP

Pathway 2 AHP | SUSPENDED
AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    OR
  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

Round 3
The DOL’s recent Advisory Opinion has this effect:

Pathway 1 AHP

Pathway 2 AHP | SUSPENDED

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    OR
  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

What’s Next?
It will be interesting to see if the DOL’s Advisory Opinion encourages employers and insurance carriers/third party administrators to begin forming Pathway 1 AHPs across state lines or if most adopt a more general wait-and-see approach. It seems likely the States engaged in the current litigation with the DOL over Pathway 2 AHPs will also challenge this apparent expansion of Pathway 1 AHPs. The DOL appears to be on firmer footing with this Pathway 1 AHP expansion, and the position taken by the DOL also seems consistent with the language of the earlier court ruling from Round #2.[3]

[1] Full disclosure: Ace Hardware is a client of Marsh & McLennan Agency.

[2] In our previous articles, we referred to Pathway 1 as the “Narrow Standard AHP” and Pathway 2 as the “Relaxed Standard AHP.”

[3] Yes, we feel largely vindicated for our earlier interpretation that the court’s ruling seemed to leave room for employers in the same trades or businesses to form AHPs across state lines.

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IRS Expands Definition of Preventive Care for Qualified High Deductible Health Plans

July 26, 2019

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Authors: Allie Waits & Jennifer Stanley

In June, the Trump Administration issued Executive Order 13877 requiring various federal agencies to develop rules designed to assist patients in making informed decisions about their healthcare. A summary of this Executive Order can be found in our earlier Alert.

In the Order, the IRS was directed to issue guidance permitting qualified high deductible health plans (HDHPs) to cover medical care for chronic conditions as preventive care. This means the HDHP will be able to provide these benefits before the individual has met the applicable minimum annual statutory deductible without affecting a participant’s ability to make or receive health savings account contributions. The IRS issued this guidance as IRS Notice 2019-45 on July 17, 2019.

The Bottom Line

  1. Expansion for Chronic Conditions – The existing definition for services that can be covered as preventive care under an HDHP has been expanded to include medical services and prescription drugs for certain chronic conditions.
  2. It’s a Choice – HDHPs are not required to cover these services as preventive care but may choose to do so. We expect many HDHPs will be amended to adopt this expansion.
  3. Limited Services – The medical services and prescription drugs for certain chronic conditions that can be covered as preventive care are limited to a narrow list.
  4. For Certain Chronic Condition(s) – An individual must be diagnosed with the corresponding chronic condition, and the services must be prescribed to prevent the condition from worsening or to prevent the individual from developing another condition.

Note: Please see HDHP Preventive Care Safe Harbor below for more detail about eligible preventive care under an HDHP.

When?

IRS Notice 2019-45 is effective as of July 17, 2019, and HDHPs may take advantage of it immediately. It may be more practical for an HDHP to wait until the beginning of its next plan year to adopt the plan design change rather than adopting it mid-year.

HDHP Preventive Care Safe Harbor
The Existing Rule

IRS guidance describes categories of services that may be covered as preventive care provided that the services or treatments are not for the treatment of an existing illness, injury, or condition.[1] The IRS has indicated the described categories are not intended to be exhaustive.

Existing Preventive Care Safe Harbor List (non-exhaustive)
Annual physicals, including necessary testing and diagnostic procedures Routine prenatal care
Adult immunizations Routine well-child care
Child immunizations Obesity weight-loss programs
Cancer screening Tobacco cessation programs
Infectious diseases screening Heart and vascular diseases screening
Mental health conditions screening Substance abuse screening
Metabolic, nutritional, and endocrine conditions screening Osteoporosis screening
Obstetric and gynecologic conditions screening Pediatric conditions screening
Vision disorders screening Hearing disorders screening
Preventive services mandated by the Affordable Care Act (ACA)

 As Expanded by IRS Notice 2019-45
The following services may now also be covered as preventive care. This list is exhaustive.

Services for Specified Conditions For Individuals Diagnosed with
Angiotensin Converting Enzyme (ACE) inhibitors Congestive heart failure, diabetes, and/or coronary artery disease
Anti-resorptive therapy Osteoporosis and/or osteopenia
Beta-blockers Congestive heart failure and/or coronary artery disease
Blood pressure monitor Hypertension
Inhaled corticosteroids Asthma
Insulin and other glucose lowering agents Diabetes
Retinopathy screening Diabetes
Peak flow meter Asthma
Glucometer Diabetes
Hemoglobin A1c testing Diabetes
International Normalized Ration (INR) testing Liver disease and/or bleeding disorders
Low-density Lipoprotein (LDL) testing Heart disease
Selective Serotonin Reuptake Inhibitors (SSRIs) Depression
Statins Heart disease and/or diabetes

Don’t Get Carried Away
IRS Notice 2013-57
added the ACA preventive services to the definition of preventive care for HDHPs in 2013. IRS Notice 2019-45 does not affect the required preventive services that non-grandfathered medical plans must cover under the Affordable Care Act (ACA).

The IRS earlier indicated in IRS Notice 2018-12 that male contraceptive services could not be covered as preventive care under an HDHP even when mandated by state law.[2] IRS Notice 2019-45 does not change this earlier guidance.

[1] This guidance appears in several locations including Internal Revenue Code Section 223(c)(2)(C), IRS Notice 2004-23, IRS Notice 2004-50, Q/A #26 and 27, and IRS Notice 2013-57.

[2] IRS Notice 2018-12 provides for transition relief until January 1, 2020.

The information contained herein is for general informational purposes only and does not constitute legal or tax advice regarding any specific situation. Any statements made are based solely on our experience as consultants. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions. © 2019 Marsh & McLennan Agency LLC. All Rights Reserved.

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Tax Consequences of Gym Membership Reimbursement

July 10, 2019

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All Good Deeds Get Taxed…
In order to encourage employees to exercise, some employers and insurance carriers reimburse or subsidize employees for the cost of a gym membership. Cash or cash equivalent rewards (i.e., gift cards) are always taxable income to the employee. Employers frequently offer non-cash rewards to employees in the belief that such things as t-shirts, water bottles, Fitbits, and gym memberships are not taxable to the employee, but each type of reward needs to be evaluated to determine whether or not it can be provided on a tax free basis.

Unless, it’s of Little Value
Under the Internal Revenue Code (the “Code”), certain fringe benefits may qualify for tax free treatment if they are of little value and provided infrequently, making it hard to reasonably account for their cost. These are known as de minimis fringe benefits and can include company-branded water bottles, towels, T-shirts, and gym bags. By contrast, a gym membership reimbursement for multiple months will rarely qualify as a de minimis fringe benefit due to the dollar value, and the amounts are both known and easily accounted for. The reimbursement will also be viewed as a cash or cash equivalent, which is always taxable income to the recipient.

Off-Site Versus On-Site Gyms
While exercise has obvious health benefits, the value for an “off-site” (or third party gym open to the public) gym membership generally cannot be provided as a tax-free medical benefit because it does not meet the Code’s exception for “medical care.” Medical care is defined as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. Expenses for items or services that provide only general health benefits are considered taxable, and the IRS feels that gym memberships rarely qualify as tax-free medical care.[1]

The IRS makes a limited exception to the broad “general health” exclusion. If an individual can prove that he or she was diagnosed with a specific illness, is using the gym as treatment, and has only incurred the gym membership fees because of the illness under the direction of his or her health care provider, the membership fees may be excluded from the individual’s taxable income.[2] This will almost certainly require a supporting physician’s statement.

Note: This limited exception will only apply to the employee who can demonstrate this and will not broadly apply to all employees receiving a reimbursement or subsidy.

Also, the IRS does make exceptions for “on-site” gyms and employer-owned athletic facilities.
To qualify, the gym or facility needs to be:

  1. Located on property owned or leased by the employer;
  2. Staffed by employees or a third-party hired by the employer for its operation; and
  3. Closed to the public.

The most common example would be an employer who has an on-site gym as an employee perk, along with a cafeteria, and other amenities.

Does it Matter Who Pays?
No, it doesn’t matter. Sometimes, insurance carriers contribute to the cost of participant gym memberships. While the employer is not the one paying for the gym memberships, the employer most likely should be the one addressing the tax issues. This is because, but for the employer sponsored medical plan in which the employee participates, the carrier wouldn’t be paying the incentive. Since the reward is a cash or cash equivalent incentive, it’s taxable income. It’s becoming more common for insurance carriers to address the tax consequences of this approach with employers.

How Do We Account for the Value of the Off-Site Gym Benefit?
Since the off-site gym membership reimbursement is considered a fringe benefit and is unlikely to fit within the medical care exception, the value of the reimbursement will be added as income to employee’s IRS Form W-2. The employer will add the amount to Box 1, under Wages, Tips and Other Compensation, and might detail the amount in Box 15 or on a separate statement.[3]

Summing it up
Employers need to evaluate each incentive and benefit offered to employees and determine its tax status. The reimbursement of off-site gym membership fees is generally taxable to employees and must be reported in Box 1 of Form W-2.

[1] The IRS has addressed this on several occasions, most recently in IRS Memorandum 201622031 (April 14, 2016).

[2] IRS Memorandum 201622031 (April 14, 2016).

[3] The U.S. Department of Labor recently proposed rules that would exclude the value of gym memberships (even if offsite) from being considered as regular compensation for the purposes of determining overtime under the Fair Labor Standards Act.

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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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Association Health Plans (AHPs) – Update

April 2, 2019

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Round One in the Fight over the new AHP Rules [Mostly] goes to the States
Last summer, eleven states and the District of Columbia (the “States”) sued the U.S. Department of Labor (DOL) over its final regulations intended to promote the expansion of AHPs (the “new rules”) on several grounds, including claims that the new rules conflict with both the Affordable Care Act and ERISA. On March 28, 2019, the U.S. District Court for the District of Columbia issued an opinion in favor of the States on certain key points while leaving other portions of the new rules intact.

In 30 Seconds or Less
Four key points from the Court’s ruling are:

  1. Related trades or businesses may still form AHPs across state lines under the new rules.
  2. Unrelated trades or businesses may not form AHPs at all.
  3. Associations cannot be formed for the primary purpose of offering an AHP.
  4. Self-employed individuals must remain limited in their ability to participate in an AHP, and independent contractors cannot participate.

And in More Detail…
There are two forms of permitted AHPs that we refer to as: (1) the Narrow Standard AHP created by prior guidance; and (2) the Relaxed Standard AHP created by the new rules.

The Final Regulations as Drafted
We provided an overview of the new rules and a side-by-side comparison of the two permitted forms of AHPs in an earlier article.

As Affected by the Court’s Ruling…
The Court’s ruling can be demonstrated by reproducing a portion of the side-by-side comparison from our earlier article in redlined form.

Narrow Standard AHP

Relaxed Standard AHP

Member employers must:

  1. Be within the same industry, trade, line of business or profession;
    AND
  2. Be located within the same geographic region (generally within the same state)
Member employers must:

  1. Be within the same industry, trade, line of business or profession;
    OR
  2. Their principal places of business must be located within the same state or metropolitan area (even if this crosses state lines)
The Association must already exist for a business purpose before it can provide the AHP to members The Association does not have to exist before providing the AHP to members, but it must have at least one other substantial business purpose

The requirement under the Narrow Standard AHP rule applies, meaning the Association must already exist for a business purpose before it can provide the AHP to members

Self-employed individuals are not eligible if running a business with no common law employees

 

Self-employed individuals who run a business with no common law employees may still be eligible under “Working Owner” test

“Working Owner” test:

  1. Works at least 20 hours/week or 80 hours/month for business
    OR
  2. Has earned income from the business at least equal to the cost of AHP coverage

The requirement under the Narrow Standard AHP rule applies, meaning self-employed individuals are not eligible if running a business with no common law employees

What’s next?
The Court’s opinion is missing an effective date, although this may be cleared up in the order that follows or through subsequent motions. The Court directed the DOL to consider how the new rules might operate with the overturned portions removed. The DOL could attempt to modify its new rules to better fit within the Court’s opinion instead, but this seems unlikely. This case was always headed for appeal, and the only surprise at this point might be which side is ahead after the first round.

The traditional appeal route would next move this case to the Circuit Court of Appeals for D.C. Whatever that outcome, it seems reasonable to believe the Circuit Court’s decision will also be appealed, meaning final resolution may need to come from the Supreme Court, which won’t occur in 2019. Although the Court’s opinion leaves open a path for related trades or business to form Relaxed Standard AHPs across state lines, we would not be surprised if interest cools in the interim.

All parties interested in or pursuing Relaxed Standard AHPs will need to evaluate whether to proceed or make modifications necessary to fit within the Court’s decision. This is a trickier proposition for an already operating Relaxed Standard AHP that is now in conflict with that decision. It may be reasonable for these AHPs to continue operating “as is” while the case is being appealed, but these AHPs should definitely consult with legal counsel first and may wish to suspend enrolling new member employers for the time being.

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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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