IRS Offers First Proposed Regulations on “Play or Pay”

The IRS has released its first set of formal, proposed regulations, and a parallel set of questions and answers, on the health reform law’s “play or pay” mandate on employers. Lockton is preparing two separate Alerts to address the 144 pages of regulations, but here’s a sneak preview:

Some Non-Calendar Year Plans Get a Reprieve

Health reform’s “play or pay” mandate on employers applies January 1, 2014, but after pressure from many employer groups the IRS proposes to permit some employers with non-calendar year plans to delay coverage offers to their full-time employees until the first day of the plan year beginning in 2014. But many large retail, hospitality, staffing and seasonal employers will not be able to take advantage of this special accommodation unless they’re offering employees at least some coverage today. See our impending Alert (Part I) for the details.

Penalty Calculations Apply on an EIN-by-EIN Basis

In determining whether an employer is subject to the play or pay rules in the first instance, all full-time equivalent employees in the controlled group are counted.

But once it’s determined that a controlled group of employers is subject to the play or pay mandate, the mandate’s obligations and penalties would be applied–under the proposed regulations–not on a controlled group basis, but on an employer-by-employer (EIN-by-EIN) basis. This means that if one employer in a controlled group decides not to offer coverage to its full-time employees, only that employer–not every employer in the controlled group–would be penalized.

“All Full-Time Employees” Means 95 Percent…and “Dependents” Do Not Include Spouses

The health reform law requires an employer subject to the play or pay mandate to offer minimum essential coverage to all its full-time employees and dependents, or pay a penalty. The proposed regulations would deem an employer in compliance if it offered coverage to at least 95 percent of its full-time employees, and the employees’ children under age 26. The proposed rules would not require the employer to offer coverage to spouses.

Three Affordability Safe Harbors

When determining whether an offer of coverage to a full-time employee is “affordable” under the health reform law, an employer would be permitted to use one of three “affordability safe harbors,” one based on W-2 pay, one based on the employee’s rate of pay as of the beginning of the plan year, or one based on the federal poverty level.

Updated Rules on Measurement Periods

The guidance makes important changes to the “measurement period” and “stability period” concepts described by the IRS in late August, and summarized by our Alert on September 10, 2012.

Changes include guidance relating to breaks in employment, crediting hours for gaps in service by employees of school districts and other educational institutions, shrinking the measurement period to ignore gaps in coverage due to some unpaid leaves, special rules and restrictions on staffing companies, adjusting measurement periods to embrace payroll periods that extend outside a measurement period’s boundaries, and much more.

Cafeteria Plan “Change in Status” Rules

The guidance permits certain employees to change their cafeteria plan elections to take advantage of certain entitlements under the health reform law in 2014.

Effective Date and Reliance

Generally, the proposed regulations–when finalized–will apply for 2014 except where they deal with matters already addressed in earlier guidance (such as the IRS’s important Notice in late August, addressing how to determine “full-time employees” for 2014). However, employers may rely on the proposed regulations before they are finalized, if they find it helpful to do so. Generally, earlier guidance continues to apply for 2014.

via Lockton

Posted in Executive Benefits, Health & Welfare

Proposed Regulations Charge Wellness Programs

Proposed Regulations TurbochargeHealth-Related Wellness Programs
*   Federal authorities have issued proposed regulations that would, when finalized, implement the federal health reform law’s welcome changes to wellness programs.

*   The proposed rules would increase by 50 percent the maximum wellness-related incentive or penalty a health plan may impose due to one’s health condition…and would increase by a whopping 150 percent the maximum incentive for such a program targeting tobacco users.

Federal authorities recently issued proposed regulations on several important issues related to the Patient Protection and Affordable Care Act (PPACA), the federal health reform law. One set of proposed rules would turbocharge employment-based wellness programs. This Alert describes the proposed regulations relating to wellness programs; another Alert–scheduled to follow shortly after this one–will deal with the other recent guidance.

The newly proposed regulations largely mirror regulations finalized in 2006 governing workplace wellness initiatives that condition health plan-related incentives on enrollees’ health conditions. But the newly proposed rules would do two important things, if finalized: First, they would dramatically increase the amount of the permissible incentive a health plan may offer based on someone’s health condition, particularly tobacco use. Secondly, they clarify several issues not resolved by the 2006 regulations, in some cases by imposing additional requirements upon wellness programs.


The Health Insurance Portability and Accountability Act (HIPAA) generally prohibits a health plan from discriminating as to eligibility, benefits or premiums based on the enrollee’s health condition or claims history.

But HIPAA carves out an exception for certain wellness programs, and permits a health plan to grant a reward or impose a penalty in an amount up to 20 percent of the total cost of an employee’s coverage. Note that the total cost means the employee- and employer-paid portions of the premium. For example, if it costs a plan $500 per month to supply employee-only coverage, the plan may make unhealthy employees pay an additional $100 more ($500 x .20) per month for their coverage than healthy employees pay for theirs. The reward or penalty may impact premiums, cost sharing (e.g., deductibles), benefits, etc.

Upping the Ante

The PPACA expressly permits non-grandfathered health plans to increase the incentive or penalty amount from 20 percent to 30 percent of the total cost of the individual’s coverage (an increase of 50 percent), for plan years beginning after 2013. The proposed regulations allow for the same increase.

But PPACA also allows federal regulators to increase the incentive amount to a whopping 50 percent of the total cost of coverage, via regulations (a 150 percent increase). The newly proposed regulations take advantage of this authorization to push the maximum incentive amount to 50 percent of the total cost of coverage, where the wellness program targets tobacco users. In the example above, the plan would be able to require tobacco users to pay $250 per month more for their coverage (i.e., total employee contribution of $400) than non-smokers are asked to pay for theirs (i.e., $150).

Where a wellness initiative combines incentives or penalties related to tobacco use with incentives or penalties related to other health conditions, the aggregate maximum reward or penalty can’t exceed 50 percent of the total cost of the employee’s coverage, and the non-tobacco-related incentive or penalty–considered alone–can’t exceed 30 percent of that cost.

As we have long expected, the regulations would also extend the new, larger limits to grandfathered plans, for the sake of consistency.

Participation-Based Wellness Programs

The regulations acknowledge that health plan-related rewards or penalties that are based simply on participation, for example, completing a health risk assessment or biometric screening, without regard to results, are not limited to the 30 or 50 percent maximums. Thus, a wellness initiative may stack a participation-based reward or penalty atop the maximum health condition-related reward or penalty.

In the example immediately above, the plan imposes a $250 per month surcharge on tobacco users. The plan could levy an additional surcharge, such as $20 or $50 per pay period, upon those who decline to participate in a health risk assessment or biometric screening, even though the two surcharges combined exceed 50 percent of the total cost of coverage.

Where dependents are allowed to participate in the health plan’s outcomes-based wellness program, the maximum reward or penalty is based on the total cost of the coverage tier, for example, employee-plus-one, employee-plus-family, etc., in which the employee is enrolled.1

Other Financial Incentives

One interesting clarification contained in the newly proposed regulations deals with financial incentives that might be something other than a premium differential, cost-sharing adjustment, or a different benefit. Lawyers have debated whether HIPAA’s general prohibition on health plan discrimination due to health status even applies if the wellness incentive is unrelated to the health plan. For example, what if an employer simply gives additional cash to healthy employees?

The proposed regulations might be read to imply that cash or any other financial reward is just the other side of the incentive coin. That is, the regulations might imply there’s no difference between a premium discount that puts more cash in the enrollee’s pocked by reducing his or her required contribution, and putting more cash in the employee’s pocket directly.We hope the authorities will clarify this when they finalize the regulations.

Reiterating Old Conditions, and Adding a Few New

Under the current HIPAA regulations governing outcomes-based wellness programs, a health plan looking to grant rewards or impose penalties must jump through five hoops, including the limitation on the size of the reward or penalty. Other important requirements include:

*   The wellness program must be reasonably designed to promote good health;
*   Individuals who can’t attain the plan’s desired goal (or shouldn’t try) due to a health condition must be given an alternative standard to attain the reward or avoid the penalty;
*   The plan must notify individuals about the availability of alternative standards; and
*   Individuals must have the chance to qualify for the reward–or avoid the penalty–at least once per year; this doesn’t mean the plan must keep the wellness program in place year after year.

The recently proposed regulations would tinker with all but the last of these requirements.

Reasonably Designed to Promote Good Health

Many wellness initiatives include a health screening like a biometric exam or a health risk assessment. Under the newly proposed rules, a wellness initiative would not be considered “reasonably designed to promote good health” unless it meets a new condition. If a surcharge is imposed, or reward denied, based on a screening result (e.g., the individual’s cholesterol level, blood pressure or weight is outside normal limits, etc.), the initiative would have to make available a reasonable, alternative method for the individual to get the reward or avoid the penalty.

In other words, it appears that where the award or penalty depends on the results of a screening, it would not be enough for the plan to say to the individual, “Go out and try to lose a few pounds and circle back to us later…we’ll re-evaluate you.” It appears the wellness initiative would have to be more formal, and actually offer a method, such as coaching, intervention, education, etc., for the individual to qualify for the reward or avoid the penalty. Federal authorities have invited comments on the need for this new condition.

Alternative Standard or Goal for Those Unable to Meet the Wellness Initiative’s Goal, Due to a Health Condition

Current HIPAA wellness program regulations say that if an individual cannot meet the initiative’s desired goal, such as keeping one’s weight within normal limits, or it would be medically inadvisable for the individual to even try, the wellness initiative must make an alternative standard or goal available to the individual. Often, the wellness initiative will simply rely upon the individual’s physician for a recommendation.

For example, assume a wellness initiative targets workplace obesity. Employees whose weight exceeds normal limits by at least 20 pounds are told that they will pay extra, within the 20 or 30 percent maximum differential, for their health insurance. But if they lose 20 pounds over the ensuing three months the plan will lift its premium surcharge.

Joe is substantially overweight, but due to a thyroid condition Joe cannot reasonably lose 20 pounds over the three months. Joe’s physician suggests that 10 pounds is a reasonable goal. Mary is also substantially overweight, but due to knee, hip and heart ailments, Mary’s doctor believes it would be dangerous for Mary to try to lose 20 pounds in three months. The doctor recommends to the plan or its wellness vendor that 10 pounds over three months is a reasonable goal. The plan accepts these alternative standards for Joe and Mary.

The proposed regulations would require a few additional things of the wellness initiative:

*   If the initiative’s alternative standard is completion of an educational program, the plan must pay for the program. For example, if instead of accepting the recommendation from Joe’s doctor, the plan were to tell Joe, “We understand you can’t lose 20 pounds in three months, so your alternative standard is to attend an educational program on healthy eating habits,” the plan would have to make the educational program available to Joe, and pay for it.
*   If the alternative standard is participation in a diet program, the plan must pay the program’s membership or participation fee, but would not have to pay for cost of food.
*   If the alternative standard is to comply with recommendations of a medical professional who is an employee or agent of the health plan, and the employee’s own physician disagrees with the alternative standard, the alternative standard offered to the employee must include the recommendations of his or her own physician.

In short, the proposed regulations would often require the plan to actually offer or make available some kind of formal program consistent with the wellness goal, such as a formal smoking cessation or weight loss program in which employees may participate to avoid a surcharge, and in some cases may have to pay for the formal program.

Note that in some cases–where the program is not supplying medical care–the cost of a program paid by the employer or plan will be imputed taxable income to the employee.

The parameters around or limitations on these requirements are not entirely clear, but we suspect federal authorities will clarify them when the regulations are finalized.

Notification of the Availability of an Alternative Standard

Existing HIPAA regulations dealing with outcomes-based wellness initiatives require that health plan enrollees be informed, in materials describing the initiative, about the availability of an alternative standard or goal. The regulations include model language for this purpose, but it’s vague.

The newly proposed regulations give wellness initiatives much more leeway in describing the availability of an alternative standard or goal. Now, the text of this notice may be tailored nicely to the actual nature of the program. For example, the proposed regulations offer this sample, relating to a wellness initiative aimed at obesity:

Fitness is Easy! Start Walking! Your health plan cares about your health. If you are overweight, our Start Walking program will help you lose weight and feel better. We will help you enroll. (** If your doctor says that walking isn’t right for you, that’s okay too. We will develop a wellness program that is.)

The plan may craft its notice differently, but it should be substantially as plain and unambiguous.

Next Steps…and Why Wellness Programs Matter

Federal authorities will take some time to receive and consider comments on the proposed regulations before finalizing them, but we don’t anticipate significant changes. If the regulations are not finalized in 2013, we believe non-grandfathered health plans may nevertheless increase incentives to the 30 percent level, for the plan year beginning in 2014, because that increase is authorized by the literal text of PPACA itself. Implementation of other changes described in the proposed regulations probably must wait until the regulations are finalized.

Nevertheless, the additional leverage placed in the hands of employers, to drive behavioral change, is certainly welcome. And it comes at an interesting time.

Wellness Programs and PPACA’s “Play or Pay” Mandate on Employers

A little more than a year from now, most employers will have to offer health insurance to full-time employees and dependents, or risk penalties. If the employer offers coverage, but the coverage is not adequately robust or affordable, the employer risks alternative penalties if the employee obtains federally-subsidized insurance in an insurance exchange.

It might be possible for employers to use wellness-related surcharges to deliberately make health insurance “unaffordable” to employees in poor health, thus inviting those employees to drop the employer’s coverage and obtain exchange-based coverage. That, in turn, may  trigger penalties against the employer, but the penalties will almost certainly be less–in many cases, a lot less–than the risk that employee poses to the health plan, particularly where the plan is self-insured.

Wellness Programs and PPACA’s Cadillac Tax

Five years from now PPACA’s “Cadillac tax” takes effect, imposing large excise taxes where a plan’s premium cost exceeds certain thresholds. Most plans in place today will trigger the excise tax, and it’ll be difficult to avoid it by tinkering with deductibles and other cost-sharing features. To avoid the tax, employers will need to reduce the risk in their health plans, and that means enhancing the health profile of their employees. Wellness programs are the catalysts for that enhancement, but they need time to work.

Wellness Programs and Other Federal Laws

Unfortunately, some ambiguity continues to linger at the intersection of HIPAA’s (and now PPACA’s) wellness program rules, and disability discrimination laws such as the Americans with Disabilities Act and the Genetic Health Information Act. That is, is there a point at which a wellness program permissible under HIPAA and PPACA may violate the ADA? Federal authorities who regulate the ADA have said too little on this point, but most employers who install wellness programs aren’t waiting for their permission. In any event, it’s rare for one federal law to be construed in a way that conflicts with another.

Your Lockton Account Service Team can connect you with one of Lockton’s Health Risk Solutions Directors if you’d like more information about wellness programs, and about the programs offered by many employers today.

by Ed Fensholt, J.D.
Health Reform Advisory Practice
1The proposed regulations solicit comments from employers and others, regarding whether to prorate the maximum penalty where it is based on the cost of family coverage. That is, authorities are wondering about the fairness of assessing against an employee a penalty equal to 30 percent or 50 percent of the total cost of his or her coverage tier, where just one family member fails to meet the plan’s wellness standards.
Not Legal Advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton’s Compliance Services group are not privileged under the attorney-client privilege.

Circular 230 Disclosure: To comply with regulations issued by the IRS concerning the provision of written advice regarding issues that concern or relate to federal tax liability, we are required to provide to you the following disclosure: Unless otherwise expressly reflected herein, any advice contained in this document (or any attachment to this document) that concerns federal tax issues is not written, offered or intended to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the IRS.

Posted in Health, Health & Welfare, Health Reform | Tagged ,

Document Retention for ERISA Plan Sponsors

via Lockton Retirement Services Guidance

Plan sponsors are required to retain plan documents and other records related to benefits – but for how long? Unfortunately, there is no universal answer to this question because the applicable laws are confusing and contradictory.

ERISA has two provisions that concern record retention. First, ERISA §107 requires anyone who files or certifies certain information (i.e. a Form 5500) to maintain sufficient records to explain, corroborate, substantiate and clarify the information contained in the filing or certification. These records must be retained for six years from the date of filing. The second ERISA provision pertains to records necessary to determine a participant’s benefit. Specifically, ERISA §209 requires every employer to “maintain benefit records with respect to each of its employees sufficient to determine the benefits due or which may become due to such employees.” The proposed regulation explaining ERISA §209 went on to say that these records must be maintained for “as long as a possibility exists that they might be relevant to a determination of the benefit entitlement of a participant or beneficiary.” This means indefinitely, or forever.

To make matters more confusing, the government agencies regulating the ERISA rules all seem to have their own opinion. The Internal Revenue Service (IRS), Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC) all regulate retirement plans under no uniform retention period. The DOL and the PBGC require a six-year retention period from the audit or premium payment due date, while the IRS requires records to be kept for seven years after the applicable Form 5500 filing.

The icing on the cake is the limited case law suggesting that indefinite recordkeeping is in the best interest of plan sponsors. One of the most notable cases, Central Pension Fund of Int’l Union of Operating Engineers v. Ray Haluch Gravel Co., a 2012 case out of the 1st Circuit, found that an employer had not provided sufficient records to determine the amount of contributions owed to an employee. The question then became, who carries the burden of producing the records? Although plaintiffs traditionally carry the burden of proof, the Court found that evidence of the employee performing some work and the employer’s insufficient records was enough to shift the burden to the employer/defendant under ERISA §209. The indication here is indefinite/forever record retention will best serve to protect employers.

Although ERISA does not specify a penalty for failure to maintain records, the same civil and criminal penalties apply as with knowingly violating any other ERISA provision. While plan sponsors can alleviate some of this document retention headache by hiring a third-party administrator (TPA), hiring a TPA does not relieve sponsors of their fiduciary duties. Any outsourcing of document retention still likely leaves the fiduciary liability on the plan sponsor.

Our recommendation is to keep as many records as possible indefinitely, specific records certainly indefinitely, and all other pertinent plan records for a period of 7 years. With the advancement of technology, long-term retention of records has become less burdensome. To assist in the organization of how to classify your records for retention, we have prepared a Document Retention Guide offering guidance on the importance of each document listed and provide assistance in creating an organized and efficient recordkeeping system. This guide lists documents typically required to properly administer a qualified retirement plan that are often requested during the course of an ERISA lawsuit, or an IRS/DOL audit. While this guide may not include all documents necessary to properly administer a plan, any documents and records not listed in the guide could be requested during a dispute, audit or investigation. This chart also lists suggested retention periods for documents, which sets forth a minimum standard. As mentioned above, it may be in your best interest to keep documents indefinitely, or forever, in order to reduce the possibility that a record would be discarded in error.

Posted in Executive Benefits, Non Qualified Retirement Plans, Qualified Retirement Plans, Retirement, Retirement Plans

Social Security’s Real Retirement Age is 70

Social Security was designed to replace income once people could no longer work. In the 1930s, the retirement age was set at 65, which coincided with the age used by many private and public pension plans. In the late 1950s and early 1960s, Congress changed the law to enable workers to claim benefits as early as 62. But benefits claimed before 65 were actuarially reduced, so that those who claimed at 62 and those who claimed at 65 could expect to receive about the same total amount in benefits over their lifetimes.

Read the full report via the Center for Retirement Research at Boston College: IB_13-15-2

Posted in Executive Benefits, Qualified Retirement Plans, Retirement, Retirement Plans | Tagged ,

The ObamaCare lessons in a cancer patient’s cancelled insurance

via The Wall Street Journal

Edie Littlefield Sundby may not have thought she’d ignite a national debate when the stage-4 cancer survivor asked us to publish her Monday op-ed on losing her oncologist due to the Affordable Care Act. But she certainly has, and it’s important to understand why. Mrs. Sundby and millions like her must be denied their medical choices if ObamaCare is going to work as its liberal planners intend.

Mrs. Sundby’s seven years of gallbladder cancer treatment have been underwritten by a policy known as preferred provider organization coverage, or a PPO, from UnitedHealthcare. She says she bought the product on the individual insurance market for herself and her family in large part because it offers more choice in medical care. PPOs cost more than health-maintenance organizations (HMOs), for example, but they offer access to more doctors and hospitals.

This proved invaluable for Mrs. Sundby, who needed expert care from various providers after her diagnosis. Under her PPO, the San Diego resident could go to a local hospital for some treatments, but her main oncologist is at Stanford, and she could also seek counsel at M.D. Anderson, the renowned cancer center in Houston. The choices she has under her PPO have literally extended her life for seven years.

But in July UnitedHealthcare announced that it is withdrawing from the California individual market, and Mrs. Sundby’s policy will be cancelled on December 31. A UnitedHealth spokeswoman explained the decision to us this way: “Because of UnitedHealthcare of California’s historically small presence in the individual market and the fact that individual consumers in the state are well served with many competitive product offerings, we will focus on our employer group insurance and Medicare business in California for 2014.”

The company covered only 8,000 or so customers in California, where the individual market is dominated by Kaiser, Anthem Blue Cross and Blue Shield of California. Another competitor, Aetna, is also fleeing California, leaving about 50,000 policyholders in the lurch.

Dan Pfeiffer, President Obama’s chief political spinner, sent out a now infamous tweet on Monday linking to a left-wing website that blamed Mrs. Sundby’s policy loss on UnitedHealthcare. The White House default is always to blame the insurers. But UnitedHealthcare only fled the state because ObamaCare’s subsidized exchanges are meant to steal their customers. As more people are pulled into government coverage, policies like Mrs. Sundby’s are harder to sustain economically, so insurers bail.

Mr. Pfeiffer and other liberals suggest that UnitedHealthcare is profiteering, but that’s an odd way to describe a company that has spent $1.2 million on Mrs. Sundby’s cancer care. Liberals also claim the company could have moved Mrs. Sundby’s policy to the Covered California exchange, but the company isn’t participating precisely because the exchange rules are too restrictive. And none of the other insurers that are participating in the state exchange offer a PPO with Mrs. Sundby’s current coverage. Thus she may lose her preferred doctor as well as her insurance.

The reason goes to the political control that is the animating purpose of ObamaCare. No fewer than 33 insurers tried to join the California exchange, but state regulators would only approve 13. This is by design because ObamaCare’s planners want to limit insurance choices to reduce costs and to equalize coverage. Having opted out on first call, UnitedHealthcare is now barred by a California “lock out” clause from selling individual insurance until 2017.

President Obama praised this California exchange model in June for its “excellent results,” adding on a trip to San Jose that “none of this is a surprise. This is the way that the law was designed to work.” Precisely.

To stem the uproar over cancelled insurance, Mr. Obama and the left are now insisting that the old policies were inferior and the new exchange policies are better. But tell that to Mrs. Sundby and millions of others who are willing to pay to have access to the hospital and doctor of their choice.

The truth is that ObamaCare’s insurance is by and large the inferior coverage, which is why insurers are calling it “Medicaid Plus.” To keep costs low, ObamaCare has to stuff patients into policies with narrow doctor networks and fewer treatment choices. Liberals then fall back on the claim that everyone’s coverage is guaranteed—unless, of course, you live in San Diego and want to get care at M.D. Anderson.

As it imposes these policy cancellations, ObamaCare is also systematically destroying one of the best features of the current individual market, known as “guaranteed renewability at class-average rates.” This meant that once an insurance policy was issued, people could renew their coverage year after year at the same rates as their peer group. So someone like Mrs. Sundby who got sick would not pay higher premiums than average and her insurer could not deny coverage—unless UnitedHealthcare quit the business. This guaranteed renewability is no longer a guarantee thanks to ObamaCare.

Mrs. Sundby’s crisis is one story among millions, but it illustrates Nietzsche’s aphorism that convictions are more dangerous than lies. Critics are rightly noting that Mr. Obama sold reform with the falsehood that Americans could keep their policies if they liked them. But the scary part is that Mr. Obama and his health planners truly believe that everyone should receive the same medical care and pay for it the same way.

The reason Edie Sundby had to lose her plan is because her needs, and her measure of her own well-being, are different from Mr. Obama’s, and that is now unacceptable.

Posted in Health, Health & Welfare, Health Reform | Tagged ,

Healthcare Credits Reach Middle Class

via Center for Retirement Research at Boston College

Individuals earning nearly $46,000 a year and families of four earning $94,000 may be eligible for federal tax credits under the new health care law.

Tax credits are the mechanism by which the federal government caps how much people pay for health insurance premiums, which are set by the private market.  The premium caps are based on how much someone earns, relative to the federal government’s definition of poverty.

Here’s an example of how premiums are calculated for, say, young, single workers who earn between $17,236 and $22,980 per year, which is between one-and-one-half and two times the poverty level.  The premiums, which range from 4 percent to 6.3 percent of their income, start at about $57 a month for those at the low end of this income range and up to $121 at the high end.

In the following charts, Squared Away converted into dollars the income and premiums that the Henry J. Kaiser Foundation, in its brief on the healthcare law, has expressed as percentages of the U.S. poverty thresholds:

Taxpayers can lower their premiums immediately by directing the government to pay the tax credit to the insurer, or they can wait and claim the credit when they file their 2014 tax return.

Lower-income adults who purchase the “Silver” healthcare plan may also qualify for help paying their deductibles and copayments.

Posted in Health, Health & Welfare, Health Reform | Tagged

IRS Allows Carryover of Up to $500 for Health FSAs

For nearly 30 years, the “use-or-lose” rule has been the bedrock on which flexible spending arrangements (FSAs) have operated. It says that any amounts elected under an FSA for a given year must be used for expenses incurred during that year or forfeited. The IRS added a major fault line to the use-or-lose bedrock last week when it issued a genuine carryover rule.

Under the new carryover rule, employers may amend their cafeteria plans to allow carryover of up to $500 in unused health FSA amounts from one plan year to the next, for use at any time during that next plan year. While this additional flexibility is good news, there are some major caveats that may make a carryover provision unattractive to some employers. Issues include:

  •  A health FSA that has a carryover cannot also have a grace period (that’s the period of up to 2.5 months that a health FSA may provide after the end of a plan year during which participants can use up any year-end balances by incurring additional eligible expenses). Employers considering a carryover may wish to compare it to the grace period and decide which type of provision is more beneficial.
  • As with the grace period, there will be complex interactions between the carryover and other requirements that potentially apply to health FSAs (e.g., COBRA, HIPAA and health reform coverage mandates). Details of those interactions have not yet been defined, so adopting a carryover may result in unanticipated compliance headaches. When considering a carryover, employers may wish to assess whether they are willing to go forward with these details undefined.
  • Also like the grace period, the carryover is likely to affect individuals’ ability to contribute to a health savings account (HSA) during the carryover year, creating a complex set of issues to manage and communicate for employers that have or are implementing HSA-based plans. The IRS is likely to address those issues in future guidance, but employers sponsoring HSA-based plans should consider the potential complications.
  • The reason for adopting a carryover or a grace period is to reduce participants’ risk of forfeitures. One consideration for employers is whether, on the whole, it is desirable to reduce the risk of forfeiture for health FSA participants.
  • Although the carryover will reduce health FSA participants’ risk of forfeitures, employers may wish to assess whether that reduction will be sufficient to attract additional participants – particularly lower-paid participants – to the health FSA. Another consideration is whether the grace period is a better means of providing that reduced risk.

Please click for more details

Posted in Uncategorized | Tagged