Tag Archives: ACA

New Flexibility For Health Reimbursement Plans

In an effort to reverse another aspect of the Affordable Care Act (“ACA”), the Trump Administration published a proposed rule in late October that would allow employers to reimburse employees for medical expenses through a stand-alone health reimbursement account (“HRA”).  Health care reform imposes a large excise tax on arrangements that reimburse employees for health care expenses without also providing a group health plan to employees.  The penalty was intended to drive employers to purchase group insurance plans for their employees but posed a huge challenge for small employers who saw such reimbursements as a natural alternative to offering employee health care coverage.  In the wake of rising health care costs, the Internal Revenue Service (“IRS”) recognized the burden such prohibition posed on small employers.  As a result, in 2017, the IRS chipped away at the prohibition by allowing employers with less than 50 full-time employees to offer special stand-alone HRAs, known as “Qualified Small Employer Health Reimbursement Accounts” or “QSEHRAs.”  The government now takes one step further by proposing to allow both small and mid-size employers to offer HRAs to their employees, even if they do not offer traditional group coverage.  The Proposed Rule intends to accomplish two major goals: (1) permit HRAs to be integrated with individual health insurance coverage; and (2) expand the definition of benefits in order to allow reimbursement for stand-alone dental, limited scope vision, and other plans.

i.                     The Proposed Integration Rules

HRAs are tax-free, employer-funded accounts used to pay for out-of-pocket, qualified medical expenses.  HRAs have been part of the health care market for years, but the ACA tried to discourage the use of HRAs to prevent employers from pushing employees with health risks into the individual market.  Currently, employers can only offer an HRA to their employees if it is “integrated” with a major group medical plan sponsored by the employer.  Under the new Proposed Rule, employers would be able to offer HRAs to employees with individual health insurance coverage if certain conditions are met.  For example, under the Proposed Rule, an employer cannot offer a stand-alone HRA and a traditional group health plan to the same group or class of employees.  Additionally, while HRA reimbursement amounts can vary to reflect age-based health coverage pricing, reimbursement amounts cannot vary based on the health-risk posed by the employee.  In other words, the general rule requires that the HRA integrated with individual health insurance coverage be offered on the same terms to all employees of the same class (e.g., full-time, part-time, seasonal, etc.).

ii.                   Limited Excepted Benefits under the Proposed Rule

The Proposed Rule also offers employers the opportunity to offer an HRA to its employees, even if its employees do not have any major medical coverage at all.  Under the Proposed Rule, an HRA will be considered a “limited excepted benefit” exempt from the integration rules if: (1) the HRA is not an integral part of the plan; (2) the HRA does not provide reimbursements in excess of $1,800 per year; (3) the HRA does not reimburse premiums for certain health insurance coverage; and (4) the HRA is made available under the same terms to all similarly situated individuals.  The HRA is not an “integral part of the plan” if the participant is offered the opportunity to enroll in an employer-sponsored group health plan.  Additionally, the HRA cannot reimburse the participant for premiums for individual health insurance coverage, coverage under a group health plan, or Medicare parts B or D.  Rather, the HRA could reimburse employees for premiums for dental plans, limited scope vision plans, or other “excepted benefits.”

iii.                  The Proposed Rule and QSEHRAs

HRAs under the Proposed Rule are different from QSEHRAs.  QSEHRAs have specific, stringent requirements and only apply to employers with less than 50 full-time employees.  However, QSEHRAs have a higher statutory dollar limit on reimbursements.  While an employer-sponsored QSEHRA can reimburse employees up to $5,050 for individuals and $10,250 for families, a stand-alone HRA under the new Proposed Rule can only reimburse employees for up to $1,800 worth of medical expenses.  In other words, some small employers hoping to reimburse employees up to the highest dollar amount available might find that QSEHRAs are a more attractive option.  Another difference between QSEHRAs and the stand-alone HRAs under the Proposed Rule is the ACA consequences applicable to employers.  Under the Proposed Rule, if group health plan coverage is unaffordable for an employee enrolled in the stand-alone HRA, the employer will be subject to ACA penalties if the employee opts out of coverage and qualifies for a premium tax credit subsidy.  In contrast, QSEHRAs do not impose penalties on employers if the reimbursements do not make health coverage “affordable,” because small employers eligible to establish QSEHRAs are not subject to the pay-or-play mandate.

If you have any questions about the HRAs, QSEHRAs, or the new Proposed Rule, please contact one of our employee benefits attorneys.

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Health Care Subsidies Upheld

Today, in King v. Burwell, the United States Supreme Court voted 6-3 to uphold the availability of subsidies provided by the Affordable Care Act (“ACA”) in federal Exchanges. This ruling means that, for most employers, the threat of ACA penalties is a reality.

The ACA requires most Americans to have health insurance coverage or pay a penalty, and the ACA provides subsidies for individuals within a certain income range in order to make health insurance more affordable. In addition, the ACA requires the creation of a health insurance marketplace, or “Exchange,” in each state in which people can compare and purchase health insurance. The Exchanges are the sole mechanism through which Americans can obtain health care subsidies. States were offered the opportunity to establish their own Exchange but states could also opt to have the federal government establish the Exchange on their behalf. Thirty-six states opted not to create a state-run Exchange and instead allowed the federal government to establish their Exchanges. Opponents to the ACA argued that the law only permitted ACA subsidies to participants in state Exchanges and were unavailable to participants in those states with federally run Exchanges.

In reaching its decision, the Court relied on the legislative intent behind the ACA in its interpretation of the statutory language. The phrase at issue declares that subsidies are available through “an Exchange established by the State.” The Court interpreted this phrase to include both state and federally-operated Exchanges. This interpretation is consistent with the regulations implementing the subsidies where the IRS defines “Exchange” as an Exchange established by the state or the federal government. As a result, this ruling permits individuals who purchase health coverage through a state or federally run Exchange to receive subsidized health care coverage.

Subsidies are a crucial component of the ACA and limiting their availability to state-run Exchanges would completely undermine the statutory scheme. Chief Justice Roberts, writing for the majority, reasoned that Congress enacted the ACA to improve the health insurance market, so the Court should strive to read provisions in the ACA in such a way that is consistent with Congress’s intent.

This decision resolves many of the ambiguities surrounding the implementation of the ACA’s requirements. Employers can now count on penalties for non-compliance with the ACA’s employer mandate. This mandate is often called the “Pay or Play Mandate” or “Employer Shared Responsibility Mandate,” and employers with an average of at least 50 full-time employees (and full-time equivalent employees) are subject to the mandate. Under the ACA, an employer must provide health coverage that is affordable and provides “minimum value” or pay a penalty.  The employer may be subject to two penalties: (1) the “no offer” penalty if an employer fails to provide minimum essential health coverage; and, (2) the “insufficient coverage” penalty if the employer provides minimum essential health coverage but the coverage is either unaffordable or does not provide minimum value. In either case, employer penalties are triggered only when an employee receives subsidized coverage through an Exchange. As a result, the statutory scheme is effective only where employers are subject to the threat of penalties which are triggered through the provision of health care subsidies to individuals. This ruling makes it clear that subsidies are available for all Exchange plans—whether offered through the state or the federal government—and; thereby, all employers in those states face the threat of ACA penalties. In light of this ruling, it is crucial for employers to evaluate the potential costs to their organization to determine whether they will pay the penalty or offer adequate coverage to full-time employees and their dependents.

If you have any questions regarding this alert, how this ruling impacts your organization or have any additional questions about your benefits plan, please contact your McGrath North attorney.

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Year-End Compliance Checklist

Year end complianceIt’s that time of year again—time to cleanup and close-out the 2014 plan year for your ERISA health and retirement plans. The following is an overview of a few compliance items that should be addressed before the close of 2014.

Group Health Plans

This past year was a big year for health plans. With all the changes associated with the Affordable Care Act (“ACA”) and some big announcements by the IRS and the Supreme Court, there are several new items to add to our year-end checklists. Here are a few of the highlights:

  • Health Flexible Spending Accounts.  The IRS recently announced that the health flexible spending arrangement (“Health FSA”) limit for 2015 was increased to $2,550. Additionally, as announced last year, Health FSAs continue to be permitted to offer limited rollovers of up to $500.
  • New COBRA Notices.  COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, requires group health plans to provide qualified beneficiaries with an election notice that describes their rights to continuation coverage and how to make an election. The election notice must be provided to these individuals within 14 days of the date the plan administrator receives the notice of a qualifying event. The Department of Labor (“DOL”) recently issued new model COBRA notices that reference the ACA Marketplaces (or “exchanges”). Accordingly, employers should modify their COBRA notices and include this new language going forward.
  • Health Reimbursement Arrangements.  The IRS continues to maintain that certain health reimbursement arrangements which operate independently of group health plans must be re-designed or terminated by January 1, 2014. Employers providing reimbursement for individual health insurance policies or other medical care should review their plan design to ensure the arrangement remains permissible.
  • DOMA.  On June 26, 2013, the Supreme Court of the United States ruled in the well-publicized United States v. Windsor that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional. As a result, the IRS and the DOL declared that employee benefit plans must now treat same-sex spouses in the same manner as opposite-sex spouses. To this end, plan sponsors should review the plan documents and gather information to determine the impact of this guidance. Specifically, plans should update eligibility provisions, adjust imputed income practices and review plan definitions of “spouse” to ensure compliance before year end.
  • HIPAA.  In January 2013, the government released final HIPAA regulations which became effective September 23, 2013. Sponsors of group health plans should review and update their plan’s HIPAA materials as necessary to ensure compliance with the new regulations. This review should include the plan’s HIPAA Privacy Notice, Business Associate Agreements and HIPAA Privacy Policies.

Sponsors of group health plans should continue focus their efforts on getting ready for the full onset of the ACA’s employer mandate. Under the mandate, large employers will be subject to significant penalties if they fail to offer health coverage or fail to offer sufficient health coverage to their full-time employees. Employers should have measurement periods in place and should continue to examine their workforce, particularly part-time and/or seasonal employees, in order to finalize their health care reform strategies for 2015.

Retirement Plans

Although the ACA has dominated the employee benefits news this past year, plan sponsors of retirement plans are equally affected by the Supreme Court’s ruling on DOMA. Additionally, retirement plans are subject to a variety of annual disclosure obligations. Here are a few of the year-end compliance highlights:

  • Safe Harbor 401(k) Plans.  Plan sponsors of safe harbor 401(k) plans must provide all participants an annual notice describing the employer’s safe harbor contributions. This notice must be provided to participants at least 30 days (but not more than 90 days) before the first day of the plan year. For most plans, the notice was due December 1, 2014.
  • Automatic Enrollment Features.  Plans that automatically enroll participants are required to provide participants with an annual notice describing the plan’s enrollment and contribution features. This notice must be provided to participants at least 30 days (but not more than 90 days) before the first day of the plan year. For most plans, the notice was due December 1, 2014.
  • Funding Notice for Defined Benefit Plans.  Defined benefit plans are required to provide participants with a funding notice summarizing the plan’s assets and liabilities, its funding status for the previous two years and certain other information. The notices are due no later than 120 days after the close of the plan year. For most large plans, the notice must be provided by April 30, 2015.
  • Qualified Default Investment.  Where participants are allowed to direct their own investments, defined contribution plans are allowed to select a “qualified default investment” in which participants’ assets will be invested if the participant does not select an investment option. The plan sponsor must give participants notice of the plan’s qualified default investment. This notice must be provided to participants at least 30 days (but not more than 90 days) before the first day of the plan year. For most plans, the notice was due December 1, 2014.
  • DOMA.  Pursuant to the Supreme Court ruling and guidance from the IRS, same-sex spouses must be treated as lawful spouses for purposes of maximum benefit limitations, spousal consent rules, rollovers, death benefits, minimum required distributions, availability of in-service hardship withdrawals and assignment of benefits under qualified domestic relations orders. At a minimum, plan sponsors should review the plan documents, policies and procedures to determine whether additional amendments are needed to reflect these changes.

Complying with the IRS and the DOL notice requirements is an important part of the plan administration process. Furthermore, penalties for noncompliance can be significant. Penalties for noncompliance generally begin at $100 per day per affected participant or beneficiary.

Compliance Assistance

We understand this is a busy time of year for many of our clients and that it’s easy to overlook small details. If you have any questions regarding the above items or have any related compliance questions, be sure to contact your McGrath North attorney.

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