IRS Updates Health Savings Account Limits for 2016

The IRS has updated the Health Savings Account (HSA) limits for 2016:

  • The annual limit on HSA contributions for individuals with self only coverage under a High Deductible Health Plan (HDHP) is $3,350 (unchanged from 2015).  For an individual with family coverage, the limit is $6,750 (up from $6,650 in 2015).
  • The minimum annual deductible for a HDHP is $1,300 for self only coverage and $2,600 for family coverage (both unchanged from 2015).
  • The annual out of pocket maximum for an HDHP is $6,550 for self-only coverage (up from $6,450 in 2015) and $13,100 for family coverage(up from $12,900 in 2015)

icon Rev Proc 2015-30

EEOC Proposes Amendments to ADA Regulations regarding Employer Wellness Programs

On April 20, 2015 the EEOC released proposed amendments to regulations under the Americans with Disabilities Act (ADA) related to employer wellness programs. The proposed rule provides guidance on the extent to which employers may use incentives to encourage employees to participate in wellness programs that are part of their group health plans, and that include disability-related inquiries and/or medical examinations.  The proposed rules explain how a wellness program that includes incentives for participation can satisfy the “voluntary medical examination” exception to the ADA’s prohibition on “making disability-related inquiries or requiring medical examinations”.  The exception allows “voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that work site.”

This is the latest action in an ongoing turf battle between the EEOC (which administers the ADA) and the Departments of Labor, Treasury, and HHS (which administer the HIPAA nondiscrimination rules).  HHS has taken a liberal approach, allowing wellness programs to impose a 30% penalty for failure to participate in wellness programs (and up to 50% in the case of tobacco prevention or reduction programs), in accordance with the Affordable Care Act’s policy of encouraging wellness programs.  The EEOC has traditionally taken a more conservative view, holding such a large incentive would violate the ADA because it would render the program not voluntary.

The proposed rules permit incentives as high as 30% to encourage participation in a wellness program that includes disability-related inquiries or medical examinations, as long as participation is voluntary.  Voluntary means that the employer:

(1) does not require employees to participate;

(2) does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation or limit the extent of such coverage (except pursuant to allowed incentives); and

(3) does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees who do not participate.

In addition, an employer must provide a notice that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods the covered entity will employ to prevent improper disclosure of the medical information. Finally, the proposed rule allows the disclosure of medical information obtained by wellness programs to employers only in aggregate form, except as needed to administer the health plan.

icon   The Proposed Rules

icon   EEOC Q&As on the Proposed Rules

 

DOL Provides Timing Relief for Fee Disclosures in Participant-Directed Individual Account Plans

On March 19, 2015 the Department of Labor issued final rules that give retirement plan administrators a two-month window in which to provide annual fee disclosures to plan participants. Under existing regulations, plan administrators must provide fee disclosures to participants in plans with individually directed accounts at “at least once in any 12-month period, without regard to whether the plan operates on a calendar or fiscal year basis”. This 12-month rule presents some administrative difficulty because Plans that provide the disclosures in the same month every year could easily run afoul of the regulatory language if their disclosures are not done on the exact same day of the month each year.

The new rule replaces “12-month period” with “14-month period”, giving plan administrators a two month window each year in which to make the disclosures The new rules will become effective on June 17, 2015 (unless the DOL gets significant adverse comments on the rule, which is not expected). In the meantime, the DOL indicates that for enforcement purposes plan administrators can rely on the new rule immediately.

icon Final Rule

Final Rule Expanding Excepted Benefits to Include Limited Wrap Around Coverage

The U.S. Departments of Labor (DOL), Health and Human Services (HHS), and Treasury published final rules on March 18, 2015 to amend the definition of excepted benefits to include certain limited coverage that wraps around individual health insurance. The significance of this is that plans providing excepted benefits do not need to comply with many provisions of ERISA and the Tax Code (such as HIPAA and the Affordable Care Act Coverage Mandates).

To qualify as excepted benefits under the new rules, “wrap around” coverage would have to be specifically designed to provide meaningful benefits such as coverage for expanded in-network medical clinics or providers, reimbursement for the full cost of primary care, or coverage of the cost of prescription drugs not on the formulary of the primary plan.

In addition, under the final rules group health plan sponsors may, in limited circumstances, offer wraparound coverage to employees who are purchasing individual health insurance in the private market, including in the Health Insurance Marketplace. The final rule sets forth two pilot programs for limited wraparound coverage. One pilot allows wraparound benefits only for multi-state plans in the Health Insurance Marketplace. The other allows wraparound benefits for part-time workers who enroll in an individual health insurance policy or in Basic Health Plan coverage for low-income individuals established under the Affordable Care Act. These workers could, under existing excepted benefit rules, qualify for a flexible spending arrangement alternative to this wraparound coverage.

icon The Final Rule

Additional Background Information:

There are four categories of statutorily excepted benefits.

The first category includes benefits that are generally not health coverage (such as automobile insurance, liability insurance, workers compensation, and accidental death and dismemberment coverage). The benefits in this category are excepted in all circumstances. In contrast, the benefits in the other categories are types of health coverage but are excepted only if certain conditions are met.

The second category of excepted benefits is limited excepted benefits, which may include limited scope vision or dental benefits, and benefits for long-term care, nursing home care, home health care, or community based care.

The third category of excepted benefits, referred to as “noncoordinated excepted benefits,” includes both coverage for only a specified disease or illness (such as cancer-only policies), and hospital indemnity or other fixed indemnity insurance. In the group market, there benefits are excepted only if all of the following conditions are met: (1) the benefits are provided under a separate policy, certificate, or contract of insurance; (2) there is no coordination between the provision of such benefits and any exclusion of benefits under any group health plan maintained by the same plan sponsor; and (3) the benefits are paid with respect to any event without regard to whether benefits are provided under any group health plan maintained by the same plan sponsor.

The fourth category of excepted benefits is supplemental excepted benefits. Such benefits must be: (1) coverage supplemental to Medicare, coverage supplemental to the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) or to Tricare, or similar coverage that is supplemental to coverage provided under a group health plan; and (2) provided under a separate policy, certificate, or contract of insurance.

CMS 2016 Payment Notice effectively embeds individual out of pocket limit in family HDHPs

The Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS), recently issued its final 2016 Notice of Benefit and Payment Parameters (2016 Payment Notice), in which it stated that, starting in the 2016 plan year, the self-only annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in other than self-only coverage, including in a family high deductible Health Plan (HDHP). The significance of this is that it effectively embeds an individual out-of-pocket limit in all family group health plans with a higher family deductible.

For example, an HDHP plan that has a $10,000 family deductible may provide payment for covered medical expenses for a member of the family if that member has incurred covered medical expenses during the year of at least $2,600 (the minimum deductible for a 2015 family HDHP). Under the policy finalized in the 2016 Payment Notice, this plan must also apply the annual limitation on cost sharing for self only coverage ($6,600 in 2015) to each individual in the plan, even if this amount is below the $10,000 family deductible limit.

IRS Proposes Various Approaches to Cadillac Tax Implementation

IRS released Notice 2015-16 on February 23, 2015.  The notice describes potential approaches the IRS may take in developing regulations to implement the Cadillac Tax, which imposes a 40% excise tax on high cost employer-sponsored health coverage in excess of a statutory dollar limit.  The tax applies if the cost of coverage is in excess of $10,200 per employee for self-only coverage and $27,500 per employee for other than self-only coverage.  The issues addressed in Notice 2015-16 primarily relate to:

(1) defining the coverage to which the tax applies,

(2) determining the cost of applicable coverage, and

(3) applying the annual statutory dollar limit to the cost of applicable coverage.

Significant for many employers: the cost of applicable coverage will most likely include amounts made available under a Health Reimbursement Arrangement (HRA), as well as both employer and employee salary reduction contributions to Health Flexible Spending Accounts (Health FSAs), Health Savings Accounts (HSAs), and Archer MSAs.  In addition, Notice 2015-16 describes various potential approaches where an employee is covered by both individual coverage (for example an employee may have self-only major medical coverage and supplemental coverage (such as an HRA) that covers the employee and the employee’s family.  The notice invites comments on various potential approaches to these and other issues raised by the Cadillac Tax.

icon Notice 2015-16

New FMLA Rule Defining “Spouse” Based on Marriage “Place of Celebration” Rather Than Employee’s “State of Residence”

Same-Sex-CouplesOn February 25, 2015, the Department of Labor published updated FMLA rules pursuant to which employees in legal, same-sex marriages, regardless of where they live, will have the same rights as those in opposite-sex marriages to federal job-protected leave under the Family and Medical Leave Act (FMLA).

Originally enacted in 1993, the FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. Employees are, for example, entitled to take FMLA leave to care for a spouse who has a serious health condition.

This rule change updates the FMLA regulatory definition of “spouse” so that an eligible employee in a legal same-sex marriage will be able to take FMLA leave for his or her spouse regardless of the state in which the employee resides. The new rules are effective March 27, 2015.  Previously, the regulatory definition of “spouse” did not include same-sex spouses if an employee resided in a state that did not recognize the employee’s same-sex marriage. Under the new rule, eligibility for federal FMLA protections is based on the law of the place where the marriage was entered into.

This “place of celebration” rule brings FMLA into alignment with the rules applicable to qualified retirement plans since the Supreme Court’s Windsor decision in 2013.

We recommend that employers review and update their FMLA policies to ensure compliance with the new rules.  In addition, while it is still theoretically permissible for employers to use a different definition of “spouse” for purposes of welfare benefit plans, such as medical, dental, life, and disability (because ERISA does not require spousal coverage under those plans), we recommend that employers seriously consider aligning their definition of “spouse” for all purposes.

icon The Final Rule

icon DOL FAQs

icon DOL Fact Sheet

King v. Burwell Isn’t About Obamacare – Abbe R. Gluck – POLITICO Magazine

This article provides a good primer on one of the rationales the Supreme Court (including some of the conservative justices) could uphold the individual mandate and the employer mandate in the states that have not adopted their own Marketplaces.  In essence, the argument is that by interpreting the ACA to preclude subsidies in the 36 states with a Federal Marketplace, the Court would be construing the ACA in a way that unconstitutionally infringes on federalism principles (i.e. states’ rights).  The Court would then adopt the constitutional interpretation rather than the unconstitutional one.  Of course, this argument could also backfire – if the ACA individual mandate/ employer mandate/ Marketplace structure is not ambiguous and it does unconstituitionally infringe on federalism principles then it is unconstitutional in its entirety (even in the states that have adopted their own Marketplaces).

icon King v. Burwell Isn’t About Obamacare – Abbe R. Gluck – POLITICO Magazine.

Calculating and Paying the Excise Tax for Violating the ACA Market Reforms

Code Section 4980D imposes an excise tax equal to $100 per day per individual (theoretically, $36,500 per year per person) for not complying with the ACA market reforms. For employers with “employer payment plans” that do not satisfy the ACA market reforms, this penalty theoretically could be imposed for every employee who receives reimbursement of insurance premiums. In addition to the transition relief discussed in a prior post the tax can be reduced, or potentially eliminated entirely, if it was due to reasonable cause and not willful neglect.

No Tax If No-One Knew or Should Have Known About the Failure

First, the penalty could be avoided entirely for any period that the employer could show that no-one at the employer knew, or exercising reasonable diligence would have known, that the failure occurred.  Code Section 4980D(c)(1).  It is not clear what evidence a taxpayer would need to support taking this position.  The Excise Tax return used to report the tax (Form 8929) permits tax payers to calculate the tax as $0 by claiming this exemption without submitting anything other than the Form 8928 claiming the exemption.  See the form 8928 here and the Form 8928 Instructions here

No Tax If Failure Was Due to Reasonable Cause and Is Corrected Within 30 Days

Second, the penalty could be avoided if the employer could show that (1) the failure was due to reasonable cause and not willful neglect, and (2) the failure is corrected within 30 days after the employer learned of the failure.  Code Section 4980D(c)(2).  Correction means the failure is retroactively undone to the extent possible and each beneficiary of the plan is put in the same financial position they would have been in if the failure had not occurred.

It is not clear how one would correct a failure to satisfy the market reforms.  In the case of employer re-imbursement plans, options to consider include (1) undo the premium reimbursement arrangement by requiring the recipients to return the re-imbursement; (2) make the reimbursements taxable and then provide additional taxable compensation to all employees so that all employees receive the same amount of additional taxable compensation (either as a percentage of their base, or as a dollar amount); or (3) determine whether anyone was subject to an annual limit or preventative care cost sharing provision under the individual policy (i.e. the market reforms applicable to group plans) that they would not have been subject to had those policies complied with the group policy mandates in that regard, and then provide them additional reimbursement to cover the costs of those services.  Each of these options has potential problems and none of them is specifically approved.  We recommend employers consult their counsel regarding their particular facts and circumstances before fashioning a correction.

The Tax is Limited to 10% of the Premiums paid.

Finally, for a single employer plan the maximum penalty in the case of a failure that was due to reasonable cause and not willful neglect, is 10% of the amount paid for the group health plan by the employer for the year.  In the case of a n employer reimbursement plan, this would be 10% of the mount of the premiums paid or reimbursed by the employer.  Code Section 4980D(c)(3).