DEPARTMENTS RELEASE FINAL ACA RULES ON MULTIPLE TOPICS

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1 Finalizing the ACA Stew of Rules Integrating Marriage and HRAs Just Kidding: No More Extended Form 5500 Extensions DEPARTMENTS RELEASE FINAL ACA RULES ON MULTIPLE TOPICS On November 18, 2015, the Departments of Labor, Treasury, and Health and Human Services (hereinafter referred to as Departments ) released final regulations on multiple topics in relation to the legislation commonly referred to as the Affordable Care Act (ACA). Highlights of the final regulations are contained below. Grandfathered Plans Employers wishing to preserve their grandfathered plan status (in order to avoid some of the ACA requirements and regulations) must do the following with their health plan: 1) A group health plan must include a statement that it is a grandfathered plan in its Summary of Benefits and Coverage (SBC), and it must provide contact information for any questions or comments in relation to the grandfathered status 2) The group health plan cannot eliminate all or substantially all of its benefits to diagnose or treat any particular condition, which is a facts and circumstances test Regulations clarify that the addition of newly contributing employers to a grandfathered multiemployer plan will not affect the plan s grandfathered status. In addition, regulations clarify that if a grandfathered plan previously had fixed-dollar employee contributions, or no employee contributions toward the plan, the plan will continue to be treated as a grandfathered health plan (even if the employer contribution changes), so long as the fixed dollar employee contribution doesn t change or the employee still does not contribute towards their benefits. Lifetime and Annual Dollar Limits Some clarification on the issue of lifetime and annual dollar maximums on Essential Health Benefits (EHB) was included in the final rules. The following are highlights: 1) EHBs shall be defined as either those EHB base-benchmark plans that were selected by the plan (whether by State selection or by default of the EHB base-benchmark plan for the State), and not all plans that are potentially authorized 2) Group/grandfathered individual plans that are not required to provide EHBs may select among any of the 51 EHB base-benchmark plans selected by a State or the District of Columbia, in addition to the Federal Essential Health Benefit Plan (FEHBP) base-benchmark plan, beginning on or after January 1, ) The annual dollar limit prohibition applies to a health Flexible Spending Account (Health FSA) that is not offered through a cafeteria plan 4) Certain account based plans, including FSAs, medical reimbursement plans, and HRAs, may be integrated with other group health plan coverage Page 1

2 Departments Release Final ACA Rules on Multiple Topics (Continued) Lifetime and Annual Dollar Limits (Continued) 5) An HRA will be treated as forfeited or waived, even if the waiver or forfeiture amounts/reimbursements may be reinstated upon a fixed date, a participant s death, or the earlier of the two events, so long as the amounts are irrevocable until the earlier occurrence of either event 6) HRAs may be integrated with Medicare for employers with fewer than 20 employees (because these size employers are not required to offer their group health plan coverage to employees who are Medicare eligible) Rescissions Group health plans and insurance issuers may not rescind the coverage of a plan participant except in the event of fraud or intentional misrepresentation of material fact by the plan participant. The following items in relation to rescission were clarified in the final regulations: 1) The term material fact will continue to be vaguely defined by the Departments, which seems to indicate that plan sponsors may have some discretion in defining what a material fact would be to cause a rescission of a plan participant s coverage 2) If an employee initiates a retroactive cancellation or discontinuance of coverage, this would not be considered a rescission, so long as the employee did so under no influence or from threat of retaliation by the plan sponsor, issuer, employer or health plan 3) A retroactive cancellation or discontinuance of coverage initiated by the Exchange is not a rescission 4) Rescissions are subject to internal claims and external review processes 5) A retroactive termination of coverage due to non-payment of COBRA premiums is permissible, and is not considered a rescission of coverage Dependent Coverage until Age 26 Group health plans and insurance carriers offering health insurance that covers children, must make such coverage available to children until age 26. To provide clarity on this topic however, the final regulations state that eligibility restrictions such as requiring children to work, live, or reside in the service area cannot be a requirement for their eligibility. The health plan can still provide coverage within a limited service area, but cannot require that the child be located in that service area. Patient Protections under a Health Plan Clarification on rules in relation to designations of primary care providers and emergency services for non-grandfathered health plans were also included in the final regulations. Below are a few highlights in relation to that section of the ACA: 1) The term primary care provider shall be defined by the plan or policy terms, in accordance with applicable state law 2) If a plan or issuer requires the designation of a primary care provider for a child, the plan or issuer must allow any physician who specializes in pediatric care (including specialists) who are in-network and available, to be designated as a primary care provider 3) All women, regardless of age, are ensured direct access to an OB/GYN provider 4) Health plans may apply reasonable and appropriate geographic limitations on which primary care providers may be designated as such, in that geographic location 5) Emergency care may not limit treatment of an emergency to within 24 hours of the onset of the condition. In addition, a health plan must provide coverage for emergency services, without any time limit as to when such treatment should have been sought Action Required Although the final rules predominantly adopt previously proposed and interim final rules on the ACA market reforms, plan sponsors should still review their health plans to ensure that the above clarifications are incorporated into the health plan for compliance purposes. For the complete details, see: Final Regulations: Page 2

3 IRS ISSUES MEMORANDUM OPINION ON INTEGRATED HRAs WITH SPOUSAL COVERAGE On November 20, 2015, the Office of Chief Counsel of the Internal Revenue Service (hereinafter referred to as IRS ) released a memorandum on the issue of Internal Revenue Code (IRC) Section 105 or IRC Section 106 payments for the cost of health insurance coverage to the employee through his or her spouse s employer group health plan. Several scenarios were outlined, and the taxation consequences of each scenario are outlined below. General Rule An employer may exclude from an employee s income (under IRC section 105 or Section 106) payments for the cost of health insurance coverage provided to the employee through his or her spouse s employer group health plan, so long as the cost of the employee s coverage through the spouse s employer group health plan is paid for on an after-tax basis. This payment may be made by an employer either in part, or in whole. Different Scenarios of Reimbursement Situation 1 employer also provides an arrangement where A may seek reimbursement for the cost of coverage incurred by A s spouse (spouse B) for A s coverage under B s employer sponsored plan. Under B s employer sponsored plan, an employee participating in the plan must make either a $100 per month after-tax contribution to B s employer sponsored plan for self-only coverage, or an after-tax contribution of $175 per month for other than self-only coverage. B elects other than self-only coverage, at the cost of $175 of post-tax monies. A substantiates to A s employer that B s employer deducts on a post-tax basis $175 for other than self-only coverage out of B s paycheck, of which $75 is for the cost of A s coverage on B s employer sponsored health plan. A receives $75, for the reimbursement of A s share of premium cost at B s employer. The amount of $75 may be excluded from A s income, in addition to FICA taxes, FUTA taxes, and Federal income tax withholding purposes. Situation 2 employer also provides an arrangement where A may seek reimbursement for the cost of coverage incurred by A s spouse (spouse B) for A s coverage under B s employer sponsored plan. Under B s employer sponsored plan, an employee participating in the plan must make either a $100 per month pre-tax (i.e., excluded from income under Section 125) contribution to B s employer sponsored plan for self-only coverage, or a pre-tax (i.e., excluded from income under Section 125) contribution of $175 per month for other than self-only coverage. B elects other than self-only coverage, at the cost of $175 of pre-tax (i.e., excluded from income under Section 125) monies. A substantiates to A s employer that B s employer deducts on a pre-tax basis $175 for other than self-only coverage out of B s paycheck, of which $75 is for the cost of A s coverage on B s employer sponsored health plan on a pre-tax basis. A receives $75, for the reimbursement of A s share of premium cost at B s employer. The amount of $75 may not be excluded from A s income, and is not excluded as income for FICA taxes, FUTA taxes, and Federal income tax withholding purposes, because B s employer sponsored plan allows pre-tax contributions for premiums under Section 125. Page 3

4 IRS Issues Memorandum Opinion on Integrated HRAs with Spousal Coverage (Continued) Situation 3 employer also provides an arrangement through a Health Reimbursement Arrangement (HRA) where the HRA reimburses A the cost of coverage incurred by B for A s coverage under B s employer sponsored plan. Under B s employer sponsored plan, an employee participating in the plan must make either a $100 per month after-tax contribution to B s employer sponsored plan for self-only coverage, or an after-tax contribution of $175 per month for other than self-only coverage. B elects other than self-only coverage, at the cost of $175 of post-tax monies. A substantiates to A s employer that B s employer deducts on a post-tax basis $175 for other than self-only coverage out of B s paycheck, of which $75 is for the cost of A s coverage on B s employer sponsored health plan. A receives $75 through an HRA, for the reimbursement of A s share of premium cost at B s employer. The amount of $75 may be excluded from A s income, in addition to FICA taxes, FUTA taxes, and Federal income tax withholding purposes. Situation 4 employer also provides an arrangement through an HRA where the HRA reimburses A the premium cost incurred by B for A s coverage under B s employer sponsored plan, in addition, the HRA reimburses any unreimbursed medical expenses incurred by A or B under B s employer sponsored plan. Under B s employer sponsored plan, an employee participating in the plan must make either a $100 per month pre-tax contribution to B s employer sponsored plan for self-only coverage, or a pre-tax contribution of $175 per month for other than self-only coverage. B elects other than self-only coverage, at the cost of $175 of pre-tax monies. A substantiates to A s employer that B s employer deducts on a pre-tax basis $175 for other than self-only coverage out of B s paycheck, of which $75 is for the cost of A s coverage on B s employer sponsored plan. A receives $75 through an HRA, for the reimbursement of A s share of premium cost at B s employer. The amount of $75 may not be excluded from A s income, and is not excluded as income for FICA taxes, FUTA taxes, and Federal income tax withholding purposes, because B s employer sponsored plan allows pre-tax contributions for premiums under Section 125. Situation 5 employer also provides an arrangement through an HRA where the HRA reimburses A the premium cost incurred by B for A s coverage under B s employer sponsored plan, in addition, the HRA reimburses any unreimbursed medical expenses incurred by A or B under B s employer sponsored plan. Under B s employer sponsored plan, an employee participating in the plan must make either a $100 per month post-tax contribution to B s employer sponsored plan for self-only coverage, or a post-tax contribution of $175 per month for other than self-only coverage. B elects other than self-only coverage, at the cost of $175 of post-tax monies. A substantiates to A s employer that B s employer deducts on a post-tax basis $175 for other than self-only coverage out of B s paycheck, of which $75 is for the cost of A s coverage on B s employer sponsored plan. A receives $75 through an HRA, for the reimbursement of A s share of premium cost at B s employer. The amount of $75 may be excluded from A s income, and is excluded as income for FICA taxes, FUTA taxes, and Federal income tax withholding purposes. Page 4

5 IRS Issues Memorandum Opinion on Integrated HRAs with Spousal Coverage (Continued) Situation 6 employer also provides an arrangement through an HRA where the HRA only reimburses A and B any unreimbursed medical expenses incurred by A or B, and does not reimburse A s share of premium cost to B. A incurs $1,000 of unreimbursed medical expenses, which does not include the premium cost of A s coverage under B s employer sponsored plan. A receives $1,000 through A s employer sponsored HRA, for the reimbursement of A s share of unreimbursed medical costs. The amount of $1,000 may be excluded from A s income, and is excluded as income for FICA taxes, FUTA taxes, and Federal income tax withholding purposes. Action Required Employers who reimburse an employee s cost of premiums for a spouse s employer sponsored plan pre-tax, through an integrated HRA, should ensure that the employee s spouse s employer plan is paid for on a post-tax basis. For the complete details, see: IRS Memorandum: EXTENSION PERIOD FOR FILING FORM 5500 REPEALED BEFORE EFFECTIVE DATE Summary Legislation, enacted in July of 2015, extended the extension deadline for filing a Form 5500 from 2.5 months to 3.5 months. However, that portion of the legislation was repealed at the beginning of December through the Fixing America s Surface Transportation Act. As a result, the extension deadline is again set at 2.5 months from the original filing deadline, rather than 3.5 months. Action Required Employers who were relying on the 3.5 month extension for filing Form 5500s should take action now to ensure they file applicable Form 5500s within 2.5 months of the original deadline. For the complete details, see: Fixing America s Surface Transportation Act: Page 5

6 QUESTION OF THE MONTH Q: What records does ERISA require us to maintain for our employee welfare benefit plans, and for how long? A: Exactly what records need to be retained under ERISA will depend on the plan s characteristics. ERISA 107 requires retaining records sufficient to document the accuracy and completeness of information required to be reported on Form (Records must be maintained by the party responsible for filing or certifying the relevant information the plan administrator is generally responsible for filing Form 5500 and thus will have the primary record retention obligation, but other parties may also have record retention obligations.) Even for ERISA plans that are exempt from filing Form 5500 (or that qualify for simplified reporting), records relating to information that would be reportable on Form 5500 absent the filing exemption must be maintained. (It is also advisable to keep records documenting the plan s eligibility for the exemption or simplified reporting.) The records that support (or would support) Form 5500 information will vary according to the size and type of plan in question and may include items such as checks, invoices, contracts, agreements, receipts, claim records, and payroll information. Notably, summaries are generally not sufficient the actual records must be retained. ERISA permits records to be retained electronically if certain requirements are met. As for how long to keep these records, ERISA 107 requires that they be retained for a period of not less than six years after the Form 5500 filing date (or, for plans exempt from the filing requirement, when the filing would have been due absent the exemption). Because the Form 5500 due date is well after the end of the plan year (the last day of the seventh month after the close of the plan year later if the plan files an extension), the effective retention period is eight years from the beginning of the relevant plan year. Finally, note that additional considerations will affect plan recordkeeping, such as requirements under the Code and other laws, demonstrating compliance with applicable laws and regulations, and keeping records in anticipation of possible litigation. Source: Thomson Reuters/EBIA Page 6