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    Plan Design Mandate FAQs

  • Are plans still required to provide HIPAA certificates of creditable coverage?

    Yes, the requirement to provide HIPAA certificates of creditable coverage has not been amended.

    Group health plans are required to provide such certificates when an individual drops coverage under the plan.  Many plan sponsors have voluntarily eliminated all pre-existing condition exclusions from their plans (even though a Health Care Reform requirement only currently extends to children).  However, the rule requiring plans to provide HIPAA certificates has not been revised and some individuals may still need the benefit of the certificate to help reduce the length of a pre-existing condition limitation period prior to 2014, at which time plans are no longer allowed to impose pre-existing condition limits.

  • Do my plan documents need to be amended to reflect these changes?

    Probably so, particularly if the plan design needed to be revised to comply with the new plan design mandates. You may be able to collect the appropriate documents from your insurer or third party administrator. Talk with your legal counsel regarding what amendments may be necessary for your plan.  American Fidelity does not provide legal advice.

  • Do plans that are exempt from ERISA have to comply with the Health Care Reform requirements?

    Generally yes. The Health Care Reform plan design mandates apply more broadly than ERISA.  For example, the plan design mandates amended the parallel HIPAA provisions in ERISA, the Internal Revenue Code, and the Public Health Service Act.  Therefore, an exemption from ERISA alone does not generally mean that a plan is exempt from the Health Care Reform requirements.  It is important to consult with your legal counsel on this question.  American Fidelity does not provide tax or legal advice.

  • Do self-funded employer plans have to cover essential health benefits?

    No, this rule only applies to insured plans. Employers that have self-funded health plans will have more choices with respect to the health plan benefits they cover than insured plans beginning in 2014.

  • Do special rules apply for collectively bargained plans?

    Yes, but only for insured collectively bargained plans, not self funded plans. In the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements ratified before March 23, 2010, the coverage is a grandfathered health plan at least until the date on which the last agreement relating to the coverage that was in effect on March 23, 2010 terminates. Thus, before the last of the applicable collective bargaining agreement terminates, any health insurance coverage provided pursuant to the collective bargaining agreements is a grandfathered health plan. Remember, this special rule for collectively bargained plans only applies to insured plans, not self-funded plans. After the date on which the last of the collective bargaining agreements terminates, the determination of whether health insurance coverage maintained pursuant to a collective bargaining agreement is grandfathered health plan coverage is made under the general grandfathering rules.

  • Do the annual limit restrictions apply to mini-med plans?

    Mini-med, or expense-based limited medical plans, may apply to the U.S. Department of Health and Human Services (HHS) for an annual limit waiver prior to 2014. The waiver does not apply to any other Health Care Reform requirements. Plans that receive waivers must reapply each year and must comply with certain notice requirements.

  • Do the grandfathering rules apply to an employer’s entire benefit package or each option individually?

    Grandfathered status is determined and maintained on a per-benefit option basis. For example, if an employer sponsors a plan with three benefit package options – a PPO, HMO, and high deductible health plan – and the employer makes changes that cause the HMO to lose its grandfathered status, the changes to the HMO do not impact the grandfathered status of the PPO or high deductible health plan.

  • Do the new internal claims review requirements apply to all ERISA health plans?

    This isn’t entirely clear.  At the moment, the new internal claims review requirements apply only to non-grandfathered plans that are subject to the plan design mandates (e.g., major medical plans).  However, the preamble to the interim final regulations indicates that the Department of Labor intends to update the ERISA claims procedure rules that apply to all ERISA health and welfare plans to include the internal claims review rules added by the Health Care Reform law. (For more information, see the summary of exemptions.)

  • Do these plan design mandates apply to dental and vision plans?

    No, if the dental and vision plans qualify as HIPAA excepted. Under HIPAA, dental and vision benefits generally constitute excepted benefits if they:

    • Are offered under a separate policy, certificate, or contract of insurance; or
    • Are not an integral part of the major medical plan. For dental or vision benefits to be considered not an integral part of the plan (whether insured or self-funded), participants must have a right not to receive the dental or vision coverage and, if they do elect to receive the coverage, must pay an additional premium.

      Accordingly, if an employer provides its dental or vision benefits pursuant to a separate election by a participant and charges even a nominal employee contribution towards the coverage, the dental or vision benefits would constitute excepted benefits, and the Health Care Reform plan design mandates would not apply to that coverage. For additional information on plan design mandate exemptions, click here.

    • Does a grandfathered executive health plan violate the nondiscrimination requirements?

      No. So long as a plan that was providing benefits on March 23, 2010 maintains its grandfathered status, it is not subject to the new nondiscrimination rules. An executive health plan that is designed to benefit only highly compensated individuals is very likely to run afoul of the nondiscrimination requirements unless it maintains grandfathered status. Therefore, the employer sponsoring such a plan may want to take care not to make changes that would jeopardize grandfathered status.

    • Does grandfathered status automatically expire in 2014?

      No. A grandfathered plan will lose its grandfathered status when the plan sponsor or insurer makes changes prohibited by the grandfathering regulations. There is no date when grandfathered status automatically expires or becomes unavailable.

    • Does Health Care Reform require employers to implement wellness incentives?

      No. An employer is not required to offer financial incentives to participate in wellness programs. However, more and more are choosing to do so. This new rule provides plan sponsors with increased flexibility to design wellness incentives.

    • Does the plan have to cover preventive care services if delivered by out-of-network providers?

      No. Plans that offer out-of-network benefits are not required to cover these preventive services if delivered by out-of-network providers. Alternatively, the employer may choose to impose cost-sharing if the service is delivered by an out-of-network provider.

    • Enforcement of Nondiscrimination Rule Delayed

      In December 2010, the Department of Treasury issued Notice 2011-1 announcing a delay in enforcement of the nondiscrimination rules for insured plans until after regulatory guidance is published. In order to give plan sponsors time to comply with the new rules, the guidance is not expected to apply until plan years that begin sometime after the rules are published.

    • From which Health Care Reform requirements may grandfathered plans receive relief?

      A grandfathered plan only receives relief from certain plan design mandates. Grandfathering does not provide relief from the other plan design mandates or the other requirements in Health Care Reform, such as the Free Rider Penalty, or Cadillac Tax.

    • How can a Dependent Verification Review help mitigate costs in connection with rescissions?

      A Dependent Eligibility Verification Review (DVR) is the inspection of an employer’s plans to ensure that dependents enrolled on their sponsored benefit plans actually meet the guidelines of an eligible dependent. The DVR will allow an employer to internally identify ineligible dependents that are being covered by the employer’s plan. This in turn can reduce health care costs by eliminating claims paid for ineligible dependents and provide immediate savings ensuring the employer is able to continue providing benefits while containing health care costs.

    • If an issue is discovered during a preventive screening, does the treatment have to be provided without cost-sharing?

      No. The plan may impose cost-sharing requirements on treatment services, even those that are delivered as part of an appointment that was initially scheduled for a preventive service.

    • If the plan sponsor of a self-funded plan currently contracts with a third party administrator (TPA) to administer claims/external review and appeals, can the plan contract with the TPA to administer external review?

      Yes.  According to a Department of Labor FAQ, federal guidance does not require a plan to contract directly with an Independent Review Organization (IRO) to perform the required external review. Where a self-funded plan contracts with a TPA that, in turn, contracts with an IRO, the external review requirements can be satisfied in the same manner as if the plan had contracted with the IRO directly. Of course, such a contract does not automatically relieve the plan from responsibility if there is a failure to provide an individual with external review. The Department of Labor guidance also notes that fiduciaries of plans that are subject to ERISA have a duty to monitor the service providers to the plan.

    • If the preventive service is provided during an office visit, may a copay be charged for the visit?

      It depends. The interim final regulations clarify when cost-sharing may be imposed in connection with a preventive service provided during an office visit.

      • If a preventive service is billed separately from the office visit, the plan may impose cost-sharing for the office visit.
      • If the preventive service is not billed separately from an office visit and the primary purpose of the office visit is the delivery of the preventive service, then the plan may not impose cost-sharing for the office visit.
      • If the preventive service is not billed separately from an office visit and the primary purpose of the office visit is not the delivery of the preventive service, the plan may impose cost-sharing for the office visit.

      The regulations include a number of examples illustrating these rules.

    • Is it the employer's or insurer's responsibility to make the plan design mandate changes?

      The penalty for not complying with the plan design mandates is imposed on the employer.  The penalty is generally $100 per day for each affected individual up to the date of correction.  From a practical standpoint, there are many tasks that will likely be performed by the insurer.  However, because the employer could be assessed a penalty, it is important for the employer to take an active role in ensuring the group health plan’s compliance with these Health Care Reform mandates.

    • Is the new nondiscrimination rule the same as the one that was in effect for self-funded plans prior to enactment of Health Care Reform?

      The rule for insured plans is expected to be similar but is not the same as the rule for self-funded plans. Self-funded health plans are subject to the nondiscrimination rule in Internal Revenue Code (Code) section 105(h). The Health Care Reform legislation directs the federal agencies such as the Department of Treasury to adopt a rule similar to Code section 105(h) that will apply to fully-insured plans. Therefore, the rules are likely to be similar but not exactly the same.

      One key difference is the penalty. If a self-funded plan is found to be discriminatory, the consequence is that benefits will be treated as income for the impacted highly compensated individuals. Under the new provision applicable to insured plans, the penalty is $100 per person per day that the plan does not comply with the rule.

    • Is the plan required to extend coverage to age 26 or to the end of the year in which the child turns age 26?

      To age 26. There are two separate Health Care Reform rules related to adult children: the coverage mandate and the tax change. Under the coverage mandate, a group health plan that covers children must offer coverage to any child up to age 26 for plan years beginning on or after September 23, 2010. In addition, Congress made a corresponding tax change so that employment-based health coverage for such children would be excluded from the employee’s income. That rule allows an employer to extend coverage for the child on a tax-advantaged basis through the end of the calendar year in which the child turns age 26. (For more information about the new tax rule for adult children, click here.)

      Putting the two rules together, for plan years beginning on or after September 23, 2010, an employer’s plan must cover adult children to age 26 and may cover children on a tax-free basis through the end of the year in which the child turns age 26. The health plan may provide coverage beyond the end of the year in which a child attains age 26 (and may be required to do so under state law), but the value of the child’s coverage would have to be imputed as income to the employee unless the child otherwise qualifies as a tax-dependent (perhaps because the child is disabled).

      Note that some state income tax laws do not automatically conform to federal tax rules, meaning children up to age 26 may not necessarily qualify for dependent status for state income tax purposes. Therefore, the value of health coverage provided to an individual up to age 26 who does not qualify as a dependent in certain states may need to be imputed as income to affected employees for state tax purposes. The law in every state varies and we encourage you to contact your tax advisor for details. You may also click here for more information.

    • May a plan impose support, residency, student status, tax dependent status, or other restrictions on children’s eligibility?

      Generally no. “Children” for purposes of this rule includes the employee’s sons, daughters, stepchildren, adopted children (including children placed for adoption), and foster children. Generally the only restriction an employer’s plan may impose on such children’s eligibility prior to turning age 26 is age. However, an employer may impose restrictions on other individuals. For example, the plan could require that an employee’s grandchild or niece must qualify as the employee’s tax dependent in order to be enrolled in the plan.

    • May a plan sponsor change insurers and still maintain grandfathered status?

      The federal agencies have amended their initial guidance on grandfathered plans to provide that a plan sponsor may change insurers for a grandfathered plan and still maintain grandfathered status, so long as the change occurs on or after November 15, 2010 and the sponsor does not make any other impermissible changes that would jeopardize grandfathering eligibility.

    • May an employee purchase an individual insurance policy with a higher cost-sharing limit?

      Yes. The restriction on deductibles does not limit the cost-sharing an insurer may require on an individual health insurance policy.

    • May an employee purchase an individual insurance policy with a higher deductible?

      Yes. The restriction on out-of-pocket maximums does not limit the deductibles an insurer may offer on an individual health insurance policy.

    • May an employer cancel an individual’s coverage going forward without violating the rule on rescissions?

      Yes. The rule on rescissions governs retroactive terminations of coverage, not cancellation of coverage on a go-forward basis.

    • May plans impose lifetime limits on some benefits?

      It depends. Plans may impose lifetime limits on non-essential benefits. In addition, plans may impose non-dollar limits (such as service or visit limits) on any benefits. For example, an employer-plan sponsor may decide to only cover one organ transplant during a participant’s lifetime.

    • May plans impose longer waiting periods for part-time employees?

      No.  The Health Care Reform law does not require plans to cover part-time employees.  However, if a plan does cover part-time employees, the waiting period for these employees may not exceed 90 days.

    • May plans still impose service-based limits?

      Generally yes a plan may impose service-based limits without violating the rules restricting annual and lifetime limits. For example, a plan may limit physical therapy coverage to a certain number of treatment sessions per illness or injury. However, a plan that limits coverage to a certain number of events (such as treatment sessions) and to a certain dollar limit per event (such as $100 per treatment session) probably would be considered to include an annual limit.

    • Under the special enrollment rules, must the plan allow other family members to enroll or only the adult child who had previously aged out of the plan?

      Yes. The plan must provide all eligible family members an opportunity to enroll in the plan.

    • Under the special enrollment rules, must the plan allow other family members to enroll or only the individual who had previously reached the plan’s lifetime limit?

      The plan must provide all eligible family members an opportunity to enroll in the plan for the first plan year beginning on or after September 23, 2010, not just the individual who had previously reached the plan’s lifetime limit.

    • What are essential health benefits?

      Future regulations are expected to define “essential health benefits”. In the interim, federal guidance provides that plan sponsors may use a good faith judgment to determine what constitutes an essential health benefit. Click here to learn more about essential health benefits.

    • What is a pre-existing condition?

      A pre-existing condition is a health condition, disease, illness, or injury for which medical advice, diagnosis, care, or treatment was received or recommended within a specified time period prior to enrolling in a health plan.

    • What is a pre-existing condition limit?

      A pre-existing condition limit is when a plan will not provide coverage to treat a pre-existing condition until the end of the specified period, not longer than 12 months. HIPAA requires the plan to offset the period with “creditable coverage” (i.e., prior health plan coverage) that the individual had prior to joining the plan (after not more than a 63-day break in coverage).

      Example: A plan imposes a 12 month pre-existing condition period. A newly-hired employee who enrolls in the plan has a pre-existing condition but also had creditable health plan coverage for the 7 months immediately prior to enrollment. That 7-month period of creditable coverage would reduce the 12-month limitation period to 5 months. The plan could deny coverage to treat the pre-existing condition for the first 5 months, but after that would have to provide coverage for the pre-existing condition.

    • Who is tasked with enforcing the Health Care Reform design mandates?

      It depends on the requirement. Three federal agencies share jurisdiction over the Health Care Reform plan design mandates that amended HIPAA: the Departments of Treasury, Labor, and Health and Human Services. Tax provisions are generally interpreted and enforced by the Department of Treasury and IRS. Some provisions are enforced under state law, such as certain components of rate review, external review, and medical loss ratio requirements.

    • Will higher cost-sharing (out-of-pocket) limits be available for group plans offered through the state Health Insurance Exchanges?

      No, group plans offered through the Exchanges will also have to comply with the requirement to impose out-of-pocket maximums.

    • Will higher deductibles be available for group plans offered through the state Health Insurance Exchanges?

      No, group plans offered through the Exchanges will also have to comply with these deductible limits.

    • Will plans offered through state Health Insurance Exchanges have to cover all essential health benefits?

      Yes, all plans offered through the Exchanges will be required to cover essential health benefits.

    • Would the rule on recissions apply in the case of dependent verification audits?

      Yes. For example, if an employer performs a dependent verification audit and determines that an employee has inappropriately enrolled an individual who does not qualify as a dependent under the terms of the plan, the employer may terminate coverage for the nonqualified individual only in accordance with the rules governing rescission of coverage. For example, the employer may cancel coverage on a go-forward basis. Alternatively, if the plan document allows for retroactive termination in the case of fraud or misrepresentation of material fact, and the employer determines that the employee’s enrollment of the nonqualified individual constituted fraud or misrepresentation of material fact, after providing 30 days written notice the employer could retroactively terminate the coverage.

    • Health FSA, HRA, HSA Provisions FAQs

    • Any tips on using a debit card to purchase an over-the-counter drug filled as a prescription?

      The following tips may be helpful if a participant plans to have a pharmacist fill a prescription for an OTC drug or medicine “behind the counter” so the debit card may be used:

      • The pharmacist may charge a dispensing fee – the participant may want to ask in advance how much the fee will be. It’s possible the fee could be more than the tax savings realized by paying for the OTC drug on a pre-tax basis from a Health FSA. For example, if the participant would save $2 in taxes on an drug that could cost $10 over-the-counter, it may not be valuable to pay a $4 dispensing fee in order to use the debit card.
      • Participants should make a copy of the prescription before giving it to the pharmacist. If the participant chooses not to have future OTC drugs or medicines filled by the pharmacist, a copy of the prescription will be needed in order to manually submit reimbursement request vouchers.
      • Remember there is always the option of paying for the OTC drug or medicine out-of-pocket, then submitting a manual voucher to request reimbursement.

       

      American Fidelity Assurance Company does not provide tax or legal advice.

      • Are employer contributions subject to the Health FSA contribution limit?

        No. However, one of the requirements for a Health FSA to qualify as a HIPAA excepted benefit (and therefore qualify for a limited COBRA obligation and exemption from the Health Care Reform plan design mandates, is that the employer not contribute more than the greater of $500 or the maximum amount the employee is allowed to contribute to the FSA. That rule, in effect, creates a cap on employer contributions equal to the limit that will apply for employee contributions.

      • Are spouses who work limited to combined $2,500 Health FSA contribution?

        No.  Each employee is limited to a $2,500 Health FSA contribution (or smaller amount if the employer’s plan has a lower limit).

      • Can employers change a $2,500 health FSA contribution limit for a 2012 cafeteria plan year that has already begun and let existing participants change their elections?

        No, not unless the IRS issues additional guidance permitting this change. The existing regulations would not permit existing participants to make a mid-year election change in these circumstances.

        Employers with 2012 cafeteria plan years that have not yet begun are not required to limit Health FSA contributions to $2,500 for their 2012 plan year. Notice 2012-40 clarifies these employers can wait to implement the $2,500 health FSA contribution limit for the cafeteria plan year beginning in 2013. For example, if an employer’s cafeteria plan year begins August 1, 2012, the plan can have a Health FSA contribution limit higher than $2,500 for the 2012 plan year. For the plan year beginning August 1, 2013, the employer must reduce the plan’s Health FSA contribution limit to $2,500 or lower.

      • Does the Health FSA Contribution limit take effect January 1, 2013, or the first plan year beginning on or after January 1, 2013?

        The Department of Treasury has not yet published guidance on this issue. However, the statute does not reference a plan year. Therefore, it’s possible that participants of a non-calendar year plan may be impacted mid-year during the plan year that begins in 2012. Planning ahead, an employer may want to adopt the limit for the 2012 plan year. However, Treasury guidance is expected to be published before an employer will need to make that decision.

      • How does the tax change work with the mandate to cover children to age 26?

        There are two separate Health Care Reform rules related to adult children: the coverage mandate and the tax change. Under the coverage mandate, a group health plan that covers children must offer coverage to any child up to age 26 for plan years beginning on or after September 23, 2010. In addition, Congress made a corresponding tax change so that employment-based health coverage for such children would be excluded from the employee’s income. That rule allows an employer to extend coverage for the child on a tax-advantaged basis through the end of the calendar year in which the child turns age 26. (For more information about the new coverage mandate for adult children, click here.)

        Putting the two rules together, for plan years beginning on or after September 23, 2010, an employer’s plan must cover adult children to age 26 and may cover children on a tax-free basis through the end of the year in which the child turns age 26. The health plan may provide coverage beyond the end of the year in which a child attains age 26 (and may be required to do so under state law), but the value of the child's coverage would have to be imputed as income to the employee unless the child otherwise qualifies as a tax-dependent (perhaps because the child is disabled). Having said that, the employer may not extend eligibility for health FSA or HRA reimbursements for individuals who are not eligible to receive benefits on a tax-free basis.

        Also see the following FAQ related to the state tax issue.

      • What’s an easy way to tell if an over-the-counter item requires a prescription?

        Take a look at the back of the box. If the packaging shows “Drug Facts”, it will need a prescription in order to be reimbursed.

      • Administrative Requirements FAQs

      • Delay in Health Care Reform W-2 Reporting

        In October, 2010, the IRS issued Notice 2010-69, indicating that the new requirement to report the value of health care coverage on Form W-2 is optional for the 2011 tax year but mandatory for the 2012 tax year.  This delay will give employers additional time to make changes to their payroll systems to accommodate the requirement.

      • Does an employer have to comply with these rules if a collectively-bargained agreement already includes automatic enrollment provisions?

        Probably, but the Health Care Reform law does not directly address this question. Hopefully federal agency guidance will clarify how the new requirements coordinate with existing collective bargaining agreements.

      • Does the new W-2 reporting mean that the employee will pay taxes on the value of the employer-sponsored health coverage? Or will it only be taxable if it is deemed a Cadillac Plan?

        No, the W-2 reporting requirement does not mean that employees will pay taxes on the value of the employer-sponsored health coverage.  The amounts reported are not included in income.  The Form W-2 reporting takes effect in 2012 and is unrelated to the excise tax that takes effect in 2018 (“Cadillac Tax”). If the Cadillac Tax applies in 2018, the tax is owed by the insurance company, plan administrator, or employer - not the employee.

      • If I don’t sponsor any plans that are subject to the Cadillac Tax, will I have to file a report?

        Probably not. An employer is only subject to the Cadillac Tax if the employer offers health plans that are included when calculating whether an employee’s coverage has exceeded the applicable threshold. If an employer does not offer such coverage, the employer will probably not have to submit anything to the IRS. Future agency guidance is likely to establish rules for who is required to submit a report.

      • If I sponsor coverage that’s subject to the Cadillac Tax but my coverage will not exceed the thresholds for any employee for the year, do I still have to submit a report?

        The Health Care Reform law does not include an answer for that question. Many employers are hoping for a safe harbor plan design that will exempt them from having to perform the calculation or report information to the IRS. Future agency guidance is likely to establish the reporting rules.

      • If we need to automatically enroll one of our full-time employees in coverage, do we provide employee only coverage or family coverage? What if we offer multiple health coverage choices?

        Those are good questions. The Health Care Reform law does not provide the answers, but hopefully federal agency guidance will. American Fidelity is committed to monitoring the rules and notifying customers as new guidance becomes available.

      • Is there a penalty for failing to provide the Summary of Benefits and Coverage?
        Significant penalties apply to a group health plan or health insurance issuer that willfully fails to provide the SBC. The fine can be up to $1,000 per person. A failure to provide to a participant and a beneficiary are separate offenses.
      • What do I do if the state health plan in which we participate did not offer a 30 day open enrollment?

        The new rules prohibiting lifetime limits and extending eligibility for adult children to age 26 also require that plans provide affected individuals 30 days to enroll for the first plan year beginning on or after September 23, 2010. However, some schools and municipalities, for example, participate in state-sponsored health plans and some states do not typically provide a 30-day open enrollment. One solution may be to calculate 30 days from the beginning of the health plan open enrollment, and if an employee asks for coverage adjustments during that window, you would still allow and notify the state plan’s administrator of the change.

      • What's the penalty for not reporting the correct amount on the Form W-2?

        Good question, and the answer isn't entirely clear at this point. Existing law imposes penalties when a Form W-2 doesn't include correct information. The amount of the penalty varies, depending on when the corrected Form W-2 is filed (from $30 to $100 per form, with maximum penalties for small businesses), and higher penalties apply for intentional reporting errors or omissions ($200 per form, with no maximums). Existing law also includes exceptions – no penalties are applied if Form W-2 reporting errors are inconsequential or due to reasonable cause, and penalties are limited if Form W-2s are filed timely and reporting errors are corrected by August 2nd. Because the IRS hasn't yet finalized the W-2 reporting requirements for health care coverage, it remains to be seen how strictly the IRS will enforce W-2 penalties for failing to report accurate health information.

      • When do the Nondiscrimination Rules Take Effect?
        In December 2010, the Department of Treasury issued Notice 2011-1 announcing a delay in enforcement of the nondiscrimination rules for insured plans until after regulatory guidance is published. In order to give plan sponsors time to comply with the new rules, the guidance is not expected to apply until plan years that begin sometime after the rules are published.
      • Which health coverage is subject to the Cadillac Tax?
        • The following benefits are subject to the Cadillac Tax:
          • major medical (including retiree medical), prescription drug, Health FSAs, HRAs, HSAs (to the extent contributions are made by the employer, or made by the employee via pre-tax salary deferral), gap coverage, and, if purchased on a pre-tax basis, specified disease, hospital indemnity, and other fixed indemnity insurance. Certain wellness benefits or on-site clinics may also be subject to the Cadillac Tax if they are considered group health plans.
        • The following benefits are not subject to the Cadillac Tax:
          • dental, vision, long-term care, accident, and disability coverage.
      • Will my insurance company send the Patient Protection Notice...

        You need to check to see whether your insurance company (or third party administrator) is sending the required notices.  If not, it is your responsibility to do so. Model notices are available here.

      • Plan Sponsorship Provisions

      • Does a high deductible health plan provide adequate coverage?

        The plan sponsor would need to perform the calculation to determine whether the plan's actuarial equivalence is at least 60%. However, as a rule of thumb, high deductible health plan coverage offered in connection with a Health Savings Account often has an actuarial value of approximately 65%.

      • Does an employer plan qualify as “minimum essential coverage” for purposes of the individual mandate?
        Yes. In fact, any employer-sponsored major medical coverage (that does not qualify as a HIPAA excepted benefit) will satisfy an employee’s obligation to obtain minimum essential coverage. An insurance plan purchased through a state Exchange is another example of qualifying minimum essential coverage.
      • How is coverage valued for calculating the Cadillac tax?

        The employer will be tasked with adding up the value of the coverage that each employee selects, which will include both the full cost (employee and employer shares similar to how COBRA rates are calculated) of the health coverage each employee elects. If coverage for any individual exceeds the applicable threshold, the employer will notify the entity required to pay the tax and the IRS.

      • How is the premium tax credit calculated?
        The premium tax credit is the lesser of the premium for the plan in which the taxpayer actually enrolls, or the excess of the premium for a benchmark plan over the applicable percentage of the taxpayer's household income. The benchmark plan is the second lowest cost silver plan available in the individual market in the rating area in which the taxpayer resides. The applicable percentage of the taxpayer's household income represents the amount of the taxpayer's required out-of-pocket contribution to the premium cost if the taxpayer purchases the benchmark plan. The remainder of the premium for the benchmark plan is the premium tax credit amount.
      • How is the premium tax credit reconciled?

        The taxpayer's applicable percentage varies with household income, increasing from 2% (household income at 100% of FPL) to 9.5% (household income at 400% of FPL). The premium tax credit is available for the taxpayer and other individuals the taxpayer claims as tax dependents.

        Taxpayers receiving the premium tax credit must file an income tax return, even if a return is not otherwise required. On the return, the taxpayer must reconcile advance credit payments with the amount of credit actually allowed. If the allowable credit amount exceeds the advance credit payments, the taxpayer may receive a refund. If the advance credit payments exceed the allowable credit amount, the taxpayer must pay the excess as an additional tax liability. The additional tax liability is capped for taxpayers with incomes below 400% of FPL.

      • How much is 400% of the Federal Poverty Level?

        Click here to link to the latest Federal Poverty Levels as established by the federal government. The following are examples of 400% of the Federal Poverty Level in 2011:

        • Individual: $ 44,680
        • Family of 2: $ 60,520
        • Family of 4: $ 92,200
        • Family of 6: $ 123,880
      • How would one calculate whether a plan's coverage is "inadequate" for purposes of the Free Rider Penalty?

        Agency guidance is expected to clarify how to perform this calculation.  However, the following may provide a better understanding of the general concepts likely to be involved.  Coverage is adequate if the actuarial value of the affordable coverage is at least 60%.  Actuarial value is the amount the plan will pay toward allowable costs.  The participant makes up the remainder of the costs in the form of cost-sharing.  One possible way to calculate actuarial value is to divide:

        • Allowable costs minus cost-sharing, by
        • Allowable costs.

        The allowable cost is the negotiated amount (e.g., after applying network discounts or usual, customary, and reasonable payment policies for out-of-network coverage) on which payment is based for health care services covered by the health insurance policy or self-funded plan (eligible expenses).

        It’s currently unclear the extent to which insurance premiums may be taken into consideration.  Guidance is also expected to clarify whether employer contributions to a Health Savings Account may be taken into account.

      • When calculating the Cadillac Tax, what value of coverage is included if an employee is married? Does the employer have to find out what health coverage an employee's spouse may have?

        The only amount an employer takes into account is the coverage that employer provides that is elected by the employee. If the employee elects family coverage, the total cost of family coverage is included. If the employee elects self-only coverage, the cost of the self-only coverage is included. Each employer only has to report the coverage that it provides. Whether or not another family member has additional health coverage is irrelevant for purposes of the excise tax on high cost plans.

      • What is the Federal Poverty Level?

        The Federal Poverty Levels are thresholds used for administrative purposes, such as determining financial eligibility for certain federal programs. They are issued each year by the Department of Health and Human Services and published in the Federal Register. The most recent levels are available by clicking here.

      • What is the purpose of the Cadillac Tax?

        The initial policy goal of the Cadillac Tax was to encourage employees to select coverage that was not as rich, which, in turn, would discourage over-utilization of medical services. The enacted version of the Cadillac Tax imposes an excise tax on the insurance companies or administrators to incentivize offering lower cost health plan options.

      • When is employer coverage considered to be "adequate"?
        Employer coverage is considered to be adequate if the plan pays at least 60% of the allowable costs covered by the plan. If an employee is eligible for employer coverage that is adequate, the employee is not eligible for a premium tax credit.
      • When is employer coverage considered to be “affordable”?
        Employer coverage is considered to be affordable if the employee’s required payment for employee-only coverage does not exceed 9.5% of the employee’s household income. If an employee is eligible for employer coverage that is affordable, the employee is not eligible for a premium tax credit.
      • Will grandfathered plans be subject to the Free Rider Penalty?

        Employers, not plans themselves, are subject to the Free Rider Penalty.  There is no exemption for sponsors of grandfathered plans.  Thus, if the grandfathered coverage is inadequate or unaffordable, the employer may owe a penalty.

      • Reference Materials FAQs

      • Could the model notices be revised

        Yes, the federal agencies that issued these notices could revise them at any time.

      • Do employers have to use the exact language in the model notices?

        No, in fact the agencies expect employers to revise them to accurately reflect specific information about the employer’s plans. However, using the models is typically considered to be a safe harbor – if a plan sponsor uses the model language (and fills in all additional information as indicated in the models) the content will be considered sufficient.

      • Where can I learn more about the tax rules for domestic partner coverage?

        You may click here for information about some of the tax issues associated with providing coverage for domestic partners. We also recommend you consult with your legal counsel or tax advisor.

      American Fidelity Assurance Company does not provide tax or legal advice.

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