Health Care Reform
Let American Fidelity be your guide.
Let American Fidelity be your guide.
American Fidelity Assurance Company's goal is to be our customers' primary resource for managing challenges and changes resulting from Health Care Reform and rising health care costs. This website is a resource to help our customer groups focus on the steps you need to take today, find the answers you need, and plan for additional changes. We look forward to helping you during the months and years ahead.
Due to popular demand, we are offering an additional opportunity to attend our Final Free Rider Penalty Regulations Webinar. The IRS has published the much anticipated final Free Rider Penalty (Employer Mandate) regulations. While many of the rules remain the same, the IRS has provided clarification on open issues. You can view a White Paper summary of the regulations here.
We invite you to sign up here to learn more. In this webinar, we will examine the implications of the final regulations and help provide guidance on the next steps.
Date: March 19, 2014
Time: 12:00 p.m. - 1:30 p.m.
Webinar Fee: $55.00 for current Employer Groups and members of American Fidelity Assurance Company Association Partners. $110.00 for others.
The IRS has published the much anticipated final Free Rider Penalty (Employer Mandate) regulations. While many of the rules remain the same, the IRS has provided clarification on open issues. You can view a White Paper summary of the regulations here.
Health Care Reform requires employers to report the cost of employer-sponsored health care coverage on employees' W-2 Forms. Most employers (except Federally recognized Indian tribes and tribally chartered corporations wholly owned by Federally recognized Indian tribes) were required to report the aggregate cost of employer-sponsored health care coverage on W-2 Forms beginning with the 2012 calendar year. Small employers, defined as those who file fewer than 250 Form W-2s for the previous calendar year, are exempt from the new reporting requirement until further notice. The amount is reported in Box 12 of Form W-2, using code DD.
W-2 reporting is required for all employer-sponsored health care coverage that is excludable from employee income with certain exceptions. The IRS has published a chart that lists the common employer benefits to be included in the calculation. For example, premiums for specified disease coverage (such as cancer or critical illness insurance) are reportable only if paid by the employee on a pre-tax basis or paid for with employer contributions; they are not reportable if paid on an after-tax basis. Contributions to Health Flexible Spending Accounts (FSAs) are generally not reportable if only the employee (not the employer) makes contributions. Premiums for accident and disability insurance are not reportable regardless of tax treatment.
More information about the W-2 reporting of health costs is available at www.HCReducation.com/w2reporting, or feel free to contact our Health Care Reform team at 877-302-5073 or HCReducation@americanfidelity.com.
The Health Insurance Portability and Accountability Act (HIPAA) includes portability and nondiscrimination provisions applicable to group health plans. Health Care Reform amended HIPAA to provide for plan design mandates, such as prohibiting annual and lifetime limits on essential health benefits and waiting periods longer than 90 days. Generally, these provisions only apply to health care benefits. Certain benefits are excluded from these provisions, and they are referred to as excepted benefits. Excepted benefits are also excluded from certain provisions under Health Care Reform such as the Patient Centered Outcomes Research Fee, the requirement to report under the Summary of Benefits and Coverage (SBCs), and the requirement to report the cost on the employee's W-2.
Dental and vision benefits are excepted benefits if they are 1) provided under a separate policy, certificate, or contract of insurance; or 2) otherwise not an integral part of a group health plan. The first exception applies to insured plans, and the second applies to both insured and self-funded plans. Regulations previously provided that benefits are not an integral part of a group health plan unless the plan allows participants the right to elect or decline dental or vision coverage, and, if coverage was elected, the participant was required to pay an additional premium for the coverage. In these recent regulations, the Agencies proposed to eliminate the requirement that an additional premium needs to be paid for the dental or vision benefit to be an excepted benefit.
The Agencies also issued guidance relating to Employee Assistance Programs (EAP). EAPs generally are programs that provide assistance to employees such as short term substance abuse or financial counseling. If an EAP provides medical care, it could be a group health plan subject to HIPAA and Health Care Reform, which could be problematic because many EAPs are meant as a supplement to a group health plan, and, by their nature provide limited benefits. Under the proposed regulations, an EAP would be an excepted benefit if the EAP:
Although the proposed effective date for these changes is plan years beginning on and after January 1, 2015, the Agencies stated that dental and visions benefits and EAPS that meet the criteria in the proposed regulations in 2014 would be considered excepted benefits. Final regulations will be issued no earlier than February 22, 2014, which marks the end of the comment period for these proposed regulations.
Under federal tax law, spouses receive special treatment for certain benefits. For example, employer provided health care coverage for spouses is not included in the employee’s income, and an employee may pay for spousal coverage on a pre-tax basis. Under the Defense of Marriage Act, the IRS did not recognize same sex spouses for federal tax purposes. As a result, employers withheld employment and income tax with respect to certain benefits provided to same sex spouses.
The Supreme Court recently found DOMA unconstitutional, and the IRS now recognizes same sex spouses for tax purposes. The IRS issued guidance on how an employer can expedite overpayments of Federal Insurance Contribution Act (FICA) taxes and Federal income tax withholding that occurred because same sex spouses were not recognized. The guidance provides that if an employee made pre-tax salary reductions under a cafeteria plan and paid for health care coverage for a same sex spouse on an after-tax basis, an employer may treat the amount that an employee paid for same sex spousal coverage on an after-tax basis as pre-tax salary reductions. The FICA and income tax paid on the after-tax amount would be considered an overpayment.
For 2013, there are two alternatives. First, if an employer repays or reimburses its employees for the amount of the over collected FICA tax and income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013, the employer can then reduce the amount of FICA and income tax withholding reported for the fourth quarter on Form 941. If the employer does not repay or reimburse employees before the end of 2013, the employer may correct the overpayments using Form 941-X, provided it otherwise satisfies the Form 941-X filing requirements, such as obtaining employee consent. Employers must file a claim for a refund by the later of the three years from the date the return was filed or within two years of paying the tax.
Health Care Reform comes at a time of limited resources for many employers across the nation. Employers need to understand their responsibilities and choices, assess whether costs are sustainable, develop their strategies, prepare for compliance, and implement their plans. Even with the Free Rider Penalty delay, action is required for most employers as early as 2013.
In response to great demand from American Fidelity Assurance Company customers, American Fidelity Administrative Services (AFAS) has designed a suite of solutions to make Health Care Reform easy for you. We are pleased to announce the following services:
Whether you are looking for more comprehensive strategic planning and administrative assistance or just some guidance with Health Care Reform-related questions, AFAS provides an end-to-end solution by offering a variety of services that can assist with managing the developing law.
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Under the Defense of Marriage Act (DOMA), the federal government only recognized marriages between opposite sex couples. This had significant impacts on many employee benefit programs. For example, an employer was required to impute income on the value of the health care coverage if a same sex spouse were covered under a health care plan, but was not required to do so for an opposite sex spouse. The Supreme Court found that this provision of DOMA was unconstitutional.
In recent guidance, the IRS concluded that for purposes of the Internal Revenue Code, the terms spouse, marriage and husband or wife include an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law.
The IRS also announced that for federal tax purposes, it will recognize the validity of a same-sex marriage that was valid in the state in which it was entered, regardless of where the married couple may live. For example, if a couple enters into a valid marriage in Maryland, but later moves to Virginia which does not recognize same sex marriage, the IRS would continue to recognize the marriage. This result helps to streamline plan administration. For example, if the spouse were covered under the employer group health plan, the employer would not need to impute income merely because the couple moved to a state that does not recognize same sex marriage.
Finally, the IRS concluded that for federal tax purposes, marriage does not include registered domestic partnerships, civil unions or other similar formal relationships recognized under state law that are not denominated as marriage.
An HRA is an employer-funded arrangement of a set dollar amount that reimburses employees, spouses and dependents for medical expenses, as designated by the employer, including premiums. The reimbursement is excludable from the employee’s income, and unused funds generally roll-over from year to year. A health Flexible Spending Account also reimburses employees for medical expenses. Both employers and employees can contribute to a health FSA, but Health Care Reform limits employee contributions to $2,500 per year. Any unused health FSA amounts are forfeited. Some employers do not sponsor a group health plan, but, instead, reimburse employees for substantiated, individual coverage premiums. In the past, the IRS stated that these reimbursements are not includable in an employee’s income. These are referred to as employer payment plans.
The IRS issued Notice 2013-54, and the DOL issued Technical Release 2013-03, both of which discuss the interaction of the prohibition on annual dollar limits on essential health benefits for all plans and the mandate to cover certain preventive services on non-grandfathered plans certain with Health Reimbursement Accounts (HRA), health Flexible Spending Accounts (FSA) and other employer arrangements. The guidance also addresses other related issues.
In previous guidance, the IRS stated that an HRA that is integrated with a group health plan that meets the annual dollar limit requirement would be allowed. In addition, the guidance provided that stand alone retiree HRAs also are permitted. In other guidance, the Agencies stated that an FSA that is an excepted benefit is not subject to the annual dollar limit prohibition.
In the new guidance, the Agencies reiterate that an HRA used to purchase coverage on the individual market is not integrated with that coverage for purposes of the annual dollar limit; and, therefore, violate the annual dollar limit prohibition because by its very nature there is an annual dollar limit. They went further to state that other arrangements that reimburse employees for individual policies, such as employer payment plans, are subject to the annual dollar prohibition, and also violate this prohibition and cannot be integrated with an individual plan.
The Agencies also applied a similar analysis to preventative services and HRAs and employer payment plans. Specifically, such plans cannot be integrated with individual policies to meet the requirement that plans cover specific preventative services at 100 percent.
The guidance provides two ways in which an HRA will be considered integrated with a group health plan. Neither method requires that the HRA necessarily be integrated with the group health plan sponsored by the employer who sponsors the HRA. In addition, an employee or former employee must be allowed to opt out of or waive future HRA contributions.
Under the minimum value not required method, an HRA is considered integrated with another group health plan if:
Under the minimum value required method, the HRA is considered integrated with another group health plan if:
The guidance also clarified that coverage under a HRA after coverage ends under an integrated group health plan will not violate the annual limit prohibitions. In addition, this would constitute minimum essential coverage for purposes of the individual mandate. The guidance also provided that a HRA that is integrated with a group health plan that imposes an annual limit on essential health benefits will violate the prohibition on essential health benefits, even if the HRA is available for reimbursing those expenses.
The guidance also stated that a retiree covered by a standalone HRA would not be eligible for a premium tax credit.
The guidance reaffirmed that the annual dollar prohibitions do not apply to health FSAs that are excepted benefits. In addition, the guidance stated that only health FSAs offered through a cafeteria plan are exempt from the annual dollar limit prohibitions.
Under Health Care Reform, an entity that provides minimum essential coverage must report the names of the individuals covered and the period of coverage to the IRS. A reporting entity must provide a similar statement to the individual. The reporting was required for 2014, but the IRS delayed the effective date by one year. The IRS issued proposed regulations related to this reporting.
The proposed regulations clarify that the insurer is required to report minimum essential coverage provided through an insured group health plan. For self-funded plans, the responsible entity varies depending on the type of plan. For example, it is the employer for a single employer plan, the committee or joint board of trustee for a multiemployer plan, each employer for a multiple employer welfare arrangement, or the person designated as the plan sponsor or administrator for other plans. A special rule applies for self-funded governmental plans, which allows the employer to enter into a written agreement with another government unit to be responsible for the reporting.
The proposed regulations require that all entities report the following to the IRS:
If the insurer is reporting coverage offered in a group health plan, the insurer also must include the name, address and EIN of the employer sponsoring the plan and whether the coverage is a qualified health plan offered through the Small Business Health Options Program.
The information must be filed with the IRS by February 28 (or March 31 if filed electronically) of the year following the calendar year for which coverage was provided. All entities may file electronically using Form 1095-B. The first report will be in 2016 for 2015.
A reporting entity also must provide a statement to each responsible individual (generally, the primary insured, employee or former employee) that includes the information it provided to the IRS for that individual and the contact phone number for the person required to file the return and the policy number, if applicable. The reporting entity is not required to provide statements to each spouse or dependent covered under the plan. The statement may either be the return filed with the IRS or a substitute statement. A truncated TIN may be used on the statement.
The statement must be provided by January 31 following the calendar year of coverage. This means the first statement will be provided by January 31, 2016 for 2015 coverage. If it is mailed, it must be sent to the last know permanent address or the individual’s temporary address. The statement may be provided electronically if the individual affirmatively consents to electronic delivery.
Under Health Care Reform, large employers (employers with more than 50 full-time equivalent employees) are required to file informational returns with the IRS relating to the Free Rider Penalty (referred to as Section 6056 reporting). Health Care Reform also requires that an employer provide each full-time employee who is listed on the IRS return with a statement showing the name and address of the person required to provide the form and the information in the IRS return.
Who Must File
The proposed regulations define large employer with reference to the definition in the Free Rider Penalty proposed regulations. Although each member of a controlled group is combined to determine whether the entity is a large employer, under the proposed regulations, each member of a controlled group must file the Section 6056 return separately. In addition, each employer must report on an employee who works for more than one member of the controlled group and is considered full-time by combining all hours of service. The preamble to the proposed regulations provide that until further guidance is issued, government entities, churches and a convention or association of churches may apply a reasonable good faith interpretation of whether they are part of a controlled group.
The preamble to the proposed regulations provides that an employer may contract with a third party to provide the Section 6056 return and other information to the IRS and employees, but the employer ultimately remains responsible. However, a government entity may designate a related governmental unit as the responsible party, if the designation is in writing, indicates, among other things, for which full-time employees the designee is responsible, and is signed by the large employer and the designee.
Information to Be Reported
In an effort to streamline reporting, the IRS stated that employers would need to file the following information on a return:
The IRS indicated that it may request additional information such as whether the coverage was offered to employees and dependents, meets minimum value, and was offered to spouse, the total number employees by calendar month, and a variety of requests for members of controlled groups. The proposed regulations noted that additional information may be required in guidance, forms and instructions.
The proposed regulations reiterate that the employer statement must include the name, address and EIN and the above information with respect to the employee.
Method of Reporting
Information will be reported using Form 1094-C (transmittal) and Form 1095-C (employee statement). All employers with more than 250 information returns, such as Form W-2, Form 1099, during the calendar year must file the return to the IRS electronically. For smaller employers, filing electronically is optional. The employee statement may be provided electronically if the employee is provided adequate notice, affirmatively consents, and can show that hardware and software requirements are met. The IRS stated that it is considering combining the Section 6056 returns with other returns and statements as well as streamlining the reporting. The IRS seeks comments on this.
Time for Reporting
The return must be filed with the IRS by February 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates. The first return for the 2015 calendar year must be filed no later than March 1, 2016 (February 28, 2016 is a Sunday) or March 31, 2016, if filed electronically. The employee statement must be provided by February 1, 2016 for 2015.
Under Health Care Reform, employers are required to provide current employees and new hires a Notice of Exchange. In May 2014, the Department of Labor (DOL) issued Technical Release 2013-2 and two model notices. The Technical Release provides temporary guidance that employers may rely upon until further guidance is issued.
Employers are required to provide the notice to all employees regardless of full or part time status or plan enrollment. Employers must provide the notice to current employees by October 1, 2013, and upon hire for new employees after October 1, 2013. Starting January 1, 2014 employers will have up to 14 days from the date of hire to provide the notice to new employees.
Recently, the DOL issued a FAQ that stated an employer satisfies this obligation if a third party provides the Notice of Exchange on the employer’s behalf. The DOL noted that when issuers, multiemployer plans or third party administrators provide the notice on the employer’s behalf, such entity should take steps to provide the notice to employees not covered by the plan or inform the employer that it only is providing the notice to a subset of employees (namely, employees enrolled in the plan).
The IRS recently issued an FAQ announcing that although Health Care Reform requires the Notice to be provided, it does not provide for any penalty or fine for not reporting. However, the DOL encourages employers to provide this Notice.
The IRS recently issued a FAQ announcing that although Health Care Reform requires the Notice to be provided, it does not provide for any penalty or fine for not reporting. However, the DOL encourages employers to provide this Notice.
An individual may only establish a health savings account (HSA) if covered by a high deductible health plan (HDHP) that meets certain requirements. Among the requirements are that the HDHP may not cover most benefits until the deductible is met, except for limited preventive services. Health Care Reform requires group health plans, including HDHPs, to cover additional preventive services without imposing cost sharing. In recent guidance, the IRS clarified that the HDHP that covers these additional preventive services at no cost remains compatible with an HSA.
The information provided here is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All interpretations are subject to change as the appropriate agencies publish additional guidance. American Fidelity does not provide legal advice – as such, we suggest that employers and individuals consult with their legal counsel and/or tax advisors about how Health Care Reform may impact them.
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