• Issue Brief- DOL Delays Exchange Notice Requirement

DOL Delays Exchange Notice Requirement

January 2012

As anticipated, based on prior informal comments, the Department of Labor (DOL) has delayed the employer requirement to send a “Notice of Exchange” to employees.

The Affordable Care Act (ACA) amended the Fair Labor Standards Act (FLSA) requiring employers to send a notice describing certain elements of exchanges and subsidy eligibility to employees by March 1st, 2013.  However, citing a number of factors, the DOL has delayed the requirement until after guidance is issued later in 2013.

In an FAQ on the department’s website, the DOL states that it expects notice distribution will be required late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.  The announcement also states that the DOL plans to release model language, or additional guidance regarding the format and content of the notice.

So for now, employers need not worry about meeting the March 1, 2013 notice deadline, but should stay tuned for future guidance and details regarding an updated distribution date later this year.

Text of DOL Announcement

Notice of Coverage Options Available Through the Exchanges

Section 18B of the Fair Labor Standards Act (FLSA), as added by section 1512 of the Affordable Care Act, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, an applicable employer must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice:

  • Informing the employee of the existence of Exchanges including a description of the services provided by the Exchanges, and the manner in which the employee may contact Exchanges to request assistance;
  • If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through an Exchange; and
  • If the employee purchases a qualified health plan through an Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Q1: When do employers have to comply with the new notice requirements in section 18B of the FLSA?

Section 18B of the FLSA provides that employer compliance with the notice requirements of that section must be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].” Accordingly, it is the view of the Department of Labor that, until such regulations are issued and become applicable, employers are not required to comply with FLSA section 18B.

The Department of Labor has concluded that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, we are committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability date that ensures that employees receive the information at a meaningful time. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.

The Department of Labor is considering providing model, generic language that could be used to satisfy the notice requirement. As a compliance alternative, the Department of Labor is also considering allowing employers to satisfy the notice requirement by providing employees with information using the employer coverage template as discussed in the preamble to the Proposed Rule on Medicaid, Children’s Health Insurance Programs, and Exchanges: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes for Medicaid and Exchange Eligibility Appeals and Other Provisions Related to Eligibility and Enrollment for Exchanges, Medicaid and CHIP, and Medicaid Premiums and Cost Sharing (78 FR 4594, at 4641), which will be available for download at the Exchange web site as part of the streamlined application that will be used by the Exchange, Medicaid, and CHIP. Future guidance on complying with the notice requirement under FLSA section 18B is expected to provide flexibility and adequate time to comply.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments

• Issue Brief- IRS Releases Premium Tax Credit for Families

IRS Releases Premium Tax Credit for Families

January 2013

The IRS has issued an amendment to final regulations originally issued May 23, 2012 regarding qualification for a premium tax credit (premium assistance) when purchasing individual health insurance through a public exchange. In the case of family members who are eligible for an employer sponsored insurance (ESI), affordability for family members will be based on the employee’s required contribution for self-only coverage (i.e. employee only coverage), not the required contribution for family coverage.

In a separate set of guidance issued the same day, the IRS clarified exemptions from the “individual mandate” tax beginning in 2014. Taking the opposite approach to the qualification or the tax credit described above, family members eligible for an employer sponsored plan will be exempt from the tax if the required contribution for family coverage is “unaffordable”.

Qualification for Premium Tax Credits

Beginning in 2014, individuals with incomes of 100% – 400% of federal poverty level may qualify for premium assistance when purchasing individual health insurance through a public (state or federal) exchange.  However, individuals who are eligible for “affordable” ESI are not eligible for the premium assistance.  In May of 2012, the IRS released final regulations clarifying the definition of affordable ESI as it relates to an employee. An employee whose required contribution to participate in an employer plan is no more than 9.5% of their household income is not eligible for the premium assistance.

The May final regulations delayed ruling on affordability as it applied to family members. Many expected the IRS to make a family member’s qualification for premium assistance contingent on the required contribution for family coverage in the employer’s plan. However, this guidance clarifies that the premium assistance will only be available to family members if the employee’s required contribution for self-only (i.e. employee only) coverage is more than 9.5% of the family household income.

Liability for Individual Mandate Tax

In separate guidance, the IRS released additional rules regarding the shared responsibility payment for individuals who do not maintain minimum essential coverage (commonly referred to as the individual mandate tax). A family member who is eligible for ESI which is “unaffordable” will not be liable for the individual mandate tax.

The definition of “affordable” for the purpose of the mandate tax is different from what is considered affordable for premium assistance. In the case of individual mandate tax liability, an individual is generally exempt from the tax if the coverage available costs more than 8.0% of their household income.

How will this Rule Impact Employer Plans?

A family member’s qualification for premium assistance does not affect an employer liability under the ACA employer shared responsibility rules. Potential employer penalties in this context are based only on an employee qualifying for premium assistance.

However, family member qualification for premium assistance will have an impact on employer plan enrollment rates. Had the IRS ruled that family members could qualify for premium assistance based on the cost of family coverage, employers may have seen a decrease in the number of employees electing family coverage, especially employers with a significant number of lower income employees.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Guidance Issued on Transition Rules for Plans with Fiscal Plan Years

Guidance Issued on Transition Rules for Plans with Fiscal Plan Years

February 2013

The IRS has proposed regulations regarding transition relief for compliance with the shared responsibility rules cited in ACA section 4980H in terms of “applicable large employers’” fiscal (non-calendar) plan years. These proposed regulations may be relied upon for guidance pending the issuance of final regulations or other applicable future guidance.

For those applicable large employers with existing fiscal plan years as of December 27, 2012, the proposed transition relief is provided to (a) avoid the need to administer a change mid-plan year, and (b) assist those employers choosing to use the look-back measurement period for determining full-time status. The employer’s plan must have already been in effect on December 27, 2012 if the employer is to take advantage of the transition relief.

Transition Relief Application

The transition relief applies so that employer penalties under 4980(H) would not apply relative to employees who would be eligible for coverage as of the first day of the 2014 fiscal plan year. However, the transition relief is provided only for those applicable large employers with a significant percentage of their employees eligible or covered under the fiscal year plans. Specifically, the transitional relief applies only if:

  1. At least one-quarter of the company’s employees are covered under the  fiscal plan years (as of the end of the most recent enrollment period or any date between October 31, 2012 and December 27, 2012), or
  2. One-third or more of the company’s employees were offered coverage under those plans during the most recent open enrollment period before December 27, 2012.

No penalties shall be due prior to the first day of the 2014 fiscal plan year with respect to employees who are offered affordable, minimum value coverage no later than the first day of the 2014 fiscal plan year.

Additional rules apply to employers who sponsor multiple health plans with different plan years. Employers with these structures should seek the advice of a qualified advisor before assuming the transition relief would apply to any particular plan.

Measurement Periods

For those employers choosing to use the optional look-back measurement method for determining full-time status and using a 12-month stability period for the 2014 fiscal plan year, it will be necessary to begin their measurement periods in 2013.

Typically, the measurement period is required to match the chosen stability period. However, for ease of administration in determining full-time status for the 2014 fiscal plan year, the employer may adopt a transition measurement period that is shorter than 12 months, but that is no less than 6 months. In addition, the transition measurement period must begin no later than July 1, 2013 and end no earlier than 90 days before the first day of the 2014 plan year.

For example, an employer with a fiscal plan year beginning April 1, 2014 who elected a 90-day administrative period could use a measurement period from July 1, 2013 through December 31, 2013 (6 months), followed by an administrative period ending on March 31, 2014. Keep in mind, an employer with a fiscal plan year beginning July 1, 2014 or later must use a measurement period longer than 6 months in order to comply.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Small Employer “Choice Option” Delayed on Federal SHOP Exchange

Small Employer “Choice Option” Delayed on Federal SHOP Exchange

April 2013

The Department of Health and Human Services (HHS) has announced that one of the options planned for small group insurance purchased through federally operated exchanges will be delayed until 2015. Under what is referred to as the “choice option,” small employers will be able to select a level of coverage (i.e. bronze, silver, gold, or platinum coverage tier), and participating employees would be allowed to choose from any carrier offering coverage within that tier.

Small employers will still be able to purchase small group plans through the federal exchange, but for 2014 all participating employees would be covered by the particular plan chosen by the employer. Also, beginning in 2014 the federal tax credit (of up to 50% of the employer’s cost) offered to some small employers is available only if an eligible employer purchases group coverage through a public (state or federal) exchange. Generally, the tax credit is available to employers with fewer than 25 employees who meet certain compensation and contribution requirements.

State-operated exchanges are still allowed to offer a choice option to small employers, and a number of states have announced that this model will be available in 2014. In addition, in most states, health insurance carriers will continue to offer small group health insurance policies to employers outside the public exchanges. So far only Vermont and the District of Columbia plan to require all small group plans to be sold through the state exchange.

This delay has no effect on individual health insurance plans sold through a public exchange. It also does not affect the availability of subsidies (i.e. premium tax credits and cost sharing reductions) beginning in 2014, for individuals who qualify and purchase individual health insurance policies through a public (state or federal) exchange. The federal government has already announced plans to make available at least two individual health insurance options nationwide through both federal and state operated exchanges.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Final Rules for Wellness Plans Released

Final Rules for Wellness Plans Released

June 2013

Background

The Departments of Health and Human Services, Labor, and Treasury (The Departments) have issued final wellness program rules. The new final rules are based on the existing HIPAA wellness rules and the requirements contained in proposed rules issued in November 2012,

Wellness programs are divided into two categories: “participatory wellness programs” and “health-contingent wellness programs.”  Participatory wellness programs are permissible under the HIPAA nondiscrimination rules, as amended by the Affordable Care Act (ACA), provided they are available to all similarly situated individuals regardless of health status. Health-contingent wellness programs are permissible under the rules provided they meet the five specific criteria described below.

 These final regulations regarding wellness plans generally apply for plan years beginning on or after January 1, 2014.

 Types of Wellness Programs

 Participatory Wellness Programs

Participatory wellness programs are defined as “programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor.”  The rules do not impose a limit on incentives or rewards for participatory programs.

Examples described in the guidance include:

(1)   a program that reimburses employees for all or part of the cost of membership in a fitness center;

(2)   a diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes; and

(3)   a program that provides a reward to employees for attending a monthly, no-cost health education seminar.

Health-Contingent Wellness Programs

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. This standard may be performing or completing an activity relating to a health factor, or it may be attaining or maintaining a specific health outcome. Under the final regulations, health-contingent wellness programs are further divided into activity-only wellness programs and outcome-based wellness programs.

In an important change from previous guidance, some programs that previously have been considered participatory programs, such as a walking program, are now classified as a activity health contingent program.

  • Activity-only health contingent wellness program – A program where an individual is required to perform or complete an activity related to a health factor in order to obtain a reward, but is not required to attain or maintain a specific health outcome. Examples include walking, diet, or exercise programs.

Some individuals participating in an activity-only wellness program may be unable to participate in or complete (or have difficulty participating in or completing) the program’s prescribed activity due to a health factor, so these individuals must be given a reasonable alternative opportunity to qualify for the reward.

  • Outcome-based health contingent wellness program – A program where an individual must attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward.

As with the activity based programs, individuals who do not attain or maintain the specific health outcome must be offered an alternative to earn the reward. An activity based option may be offered as an alternative to the outcome based program to achieve the same reward.

5 Criteria for Health-Contingent Wellness Programs 

  1. Frequency of Opportunity to Qualify. Individuals eligible for the program must be given the opportunity to qualify for the reward at least once per year.
  1. Size of Reward. The maximum reward offered to an individual with respect to a group health plan cannot exceed 30% of the total cost of employee-only coverage under the plan. This percentage is increased to 50% for any programs designed to prevent or reduce tobacco use.

The combined incentive for a program that includes both outcomes based rewards, and a reward related to tobacco, may not exceed 50% of the cost of coverage. For example, an combined program could provide a outcomes based reward equal to 30% of the plans premium with a tobacco based reward worth another 20% of premium for a total reward of 50%.

In addition, if dependents may participate in the wellness program, the reward cannot exceed 30% (or 50% for tobacco-related programs) of the total cost of the coverage in which the employee and any dependents are enrolled.

  1. Reasonable Design. “A wellness program is reasonably designed if it has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease.”

To be considered reasonably designed, an outcome-based wellness program must provide a reasonable alternative standard to qualify for the reward for all individuals who do not meet the initial standard that is related to a health factor. More detail on the reasonable standard requirement is included below.

  1. Uniform Availability and Reasonable Alternative Standards. The full reward must be available to all similarly situated individuals, and individuals who qualify by satisfying a reasonable alternative standard in place of the otherwise applicable standard. The reasonable standard requirements in the final regulations are significantly more detailed than prior HIPAA wellness rules guidance, and will require new procedures be adopted by many existing wellness programs. Additional detail on the reasonable alternative standard is included below
  1. Notice of Availability of Reasonable Alternative Standard. Plans are required to disclose the availability of a reasonable alternative standard to qualify for the reward in all plan materials describing the terms of a health-contingent wellness program. The disclosure must include; (i) contact information for obtaining the alternative, and (ii) a statement that recommendations of an individual’s personal physician will be accommodated. For outcome-based wellness programs, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard.

Model notice language was provided in the guidance:

“Your health plan is committed to helping you achieve your best health. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.”

If plan materials merely mention that a wellness program is available, without describing the wellness program terms, this disclosure is not required in that material.

Reasonable Alternatives

In arguably the most significant change to prior guidance, the final regulations impose considerable new requirements related to the offer of an alternative standard to allow individuals to receive an incentive.

Plans are not required to establish a reasonable alternative standard in advance of an individual’s request, and can provide the same reasonable alternative standard for an entire class of individuals, or provide the reasonable alternative standard on an individual basis.

All facts and circumstances are taken into account in determining whether a plan has provided a reasonable alternative standard, including but not limited to factors listed in the final regulations:

  • If the reasonable alternative standard is completion of an educational program, the educational program must be made available at no cost to the individual.
  • The time commitment required must be reasonable.
  • If the reasonable alternative standard is a diet program, the membership or participation fee must be paid by the plan (but not the cost of food).
  • If an individual’s physician states that a plan standard is not medically appropriate, a reasonable alternative standard must be provided that accommodates the recommendations of the physician.

Some of the requirements apply differently depending on whether the program is an activity-only, or an outcome-based wellness program:

Activity-only wellness programs

  • The program must allow a reasonable alternative standard for any individual for whom it is either unreasonably difficult due to a medical condition, or for whom it is medically inadvisable to attempt to satisfy the standard.
  • The plan is permitted to seek verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult or medically inadvisable for the individual to satisfy the standard.

Outcome-based wellness programs

  • The program must allow a reasonable alternative standard for obtaining the reward for any individual who does not meet the initial standard based on a measurement, test, or screening.
  • In another notable expansion of earlier requirements, a program consisting solely of a measurement, test, or screening must provide a reasonable alternative to earn the incentive to individuals who do not meet the initial standard.
    • If the alternative standard is to meet a different (easier) level of the same standard, reasonable additional time must be given to meet the new alternative.
    • An individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard to meeting the reasonable alternative standard defined by the plan.
    • In a change to previous guidance, plans are not allowed to require verification, such as a statement from the individual’s physician, that a health factor makes it unreasonably difficult or medically inadvisable for the individual to satisfy the outcomes based standard. However, if a plan or issuer provides an activity-only wellness program as an alternative to the measurement, test, or screening of the outcome-based wellness program, then verification may be requested with respect to the activity-only component of the program.

Summary

While the amount of an incentive employers can provide has been significantly increased, the final rules contain new requirements that will require employers to redesign many existing wellness programs that include “health contingent” components. Employers must also remember that recent guidance has clarified that the “affordability” of a plan, for the purposes of determining employer penalties under the ACA shared responsibility rules, will be based on the employee contribution level associated with non-participation in wellness programs.

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Employer Shared Responsibility Rules Delayed until 2015

Employer Shared Responsibility Rules Delayed until 2015

July 2013

In what is easily the most significant health reform development for employers since the passage of the Affordable Care Act (ACA), the employer shared responsibility rules (often called the “employer mandate” or  “pay or play rules”) have been delayed until 2015.

On July 2nd the Treasury Department announced that it is delaying employer reporting requirements, and more importantly, also delaying the requirement that “applicable large employers” must provide coverage to all full time employees or pay a penalty.

Because of the delay:

  • Employers can continue existing employee health plan eligibility and coverage rules through 2014 plan years without the risk of paying a penalty under the ACA 4980(H) shared responsibility rules.
  • Employers will not be required to provide health insurance coverage to employees with 30 hours of service per week.
  • There will be no need for large employers to consider implementing a measurement and stability approach to defining full time employees in 2014.

Importantly, the announcement does not affect other significant areas of the ACA:

  • State and federal exchanges will still begin offering coverage to individuals and small employers beginning in 2014.
  • Small group underwriting and rating rules will go into effect for plan year beginning in 2014
  • The individual mandate that requires most individuals to carry health insurance in 2014 or pay a tax will still apply.
  • Subsidies will still be available to certain eligible individuals who purchase individual health insurance policies through public exchanges.
  • Other health plan requirements such as the 90 day maximum waiting period, cost sharing limits and child coverage to age 26 are not affected by this delay.

One significant question remains…when will the fully insured non-discrimination rules take effect? The ACA requires the IRS to develop non-discrimination rules for fully insured plans that will be similar to the existing 105(h) rules currently applicable to self-funded health plans. It was widely expected that the ACA non-discrimination rules would go into effect in conjunction with the employer shared responsibility rules in 2014. With this delay will the IRS also delay the effective date of the non-discrimination rules? Hopefully the IRS will answer this question very soon

The Treasury Department also stated that it expects to release more formal guidance regarding the delay very shortly. We will continue to monitor this important development and will release more details as additional information is released.

 

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While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept  liability  for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.