The Impact on You, Your Clients, and Your Business. Pre-2010 Laws That Affect Health Plans

Transcription

1 Health Care Reform The Impact on You, Your Clients, and Your Business Renée W. O Rourke, Shareholder GREENBERG TRAURIG, LLP ATTORNEYS AT LAW , Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. [ ] Pre-2010 Laws That Affect Health Plans Internal Revenue Code of 1986 Employee Retirement Income Security Act of 1974 Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) Age Discrimination in Employment Act of 1967 (as amended by the Older Workers Benefits Protection Act of 1990) Medicare Secondary Payer Rules Pregnancy Discrimination Act Americans With Disabilities Act of 1990 ADA Amendments Act of 2008 [September 25, 2008] [2] 10/22/2016 1

2 Pre-2010 Laws that Affect Health Plans Family and Medical Leave Act of 1993 National Defense Authorization Act for Fiscal Year 2010 (expands 2008 military family leave) Airline Flight Crew Technical Correction Act [December 21, 2009] Health Insurance Portability and Accountability Act of 1996 Pre-existing Condition Exclusions Discrimination Based on Health Status/Limitations on Wellness Programs Special Enrollment Rights HIPAA Privacy and Security Newborns and Mothers Health Protection Act of 1996 Mental Health Parity Act of 1996 Extended by Heroes Earnings Assistance and Relief Tax Act of 2008 Modified and made Permanent by the Mental Health Parity and Addiction Equity Act of 2008 (part of the Emergency Economic Stabilization Act of 2008) Women s Health and Cancer Rights Act of 1998 [October 21, 1998] [3] Pre-2010 Laws That Affect Health Plans Genetic Information Nondiscrimination Act of 2008 [May 21, 2008] Mental Health Parity and Addiction Equity Act [Part of Emergency Economic Stabilization Act of October 3, 2008] Michelle s Law of 2008 [October 9, 2008] American Recovery and Reinvestment Act of 2009 [original COBRA subsidy rules 2/17/2009] Temporary Extension Act of 2010 [First extension of COBRA subsidy 3/2/2010] Continuing Extension Act of 2010 [Extended COBRA subsidy 4/15/2010] Title XIII (Division A) and Title IV (Division B) of the American Recovery and Reinvestment Act of 2009 (Health Information Technology for Economic and Clinical Health Act - HITECH HIPAA) Changes to HIPAA Privacy Children s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) [4] 10/22/2016 2

3 Health Care Reform Patient Protection and Affordable Care Act of 2010 (PPACA) [March 23, 2010] Health Care and Education Reconciliation Act of 2010 (RA) [March 30, 2010] [5] Where are these Laws? Some of these Acts amended one or more of: (1) Internal Revenue Code of 1986 [Title 26 of the United States Code] (2) Employee Retirement Income Security Act of 1974 ( ERISA ) [Title 29 of the United States Code (Labor)] (3) Public Health Service Act ( PHSA ) [Title 42 of the United States Code] [6] 10/22/2016 3

4 Federal Governmental Agencies Department of the Treasury, Internal Revenue Service ( IRS ) Generally, enforces the Internal Revenue Code and laws that amend the Code Department of Labor ( DOL ), Employee Benefits Security Administration ( EBSA ) Generally, enforces ERISA and provisions of laws that amend ERISA DOL s Employment Standards Administration, Wage and Hour Division, enforces the FMLA Equal Employment Opportunity Commission ( EEOC ) Health and Human Services ( HHS ) [7] Laws Generally Enforced by the Equal Employment Opportunity Commission ( EEOC ) Title VII of the Civil Rights Act of 1964 (Title VII) illegal to discriminate against someone on the basis of race, color, religion, national origin, or sex Pregnancy Discrimination Act Equal Pay Act of 1963 (EPA) illegal to pay different wages to men and women if they perform equal work in the same workplace Age Discrimination in Employment Act of 1967 (ADEA) Americans with Disabilities Act of 1990 (ADA) Genetic Information Nondiscrimination Act of 2008 (GINA) Some enforcement is shared with HHS, Office for Civil Rights [8] 10/22/2016 4

5 Health Plan Laws Generally Enforced by the Department of Health and Human Services HHS is the principal agency for protecting the health of all Americans HIPAA Privacy and Security Provisions of the Health Insurance Portability and Accountability Act of 1996 Medicare and Medicaid Children s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) [DOL, EBSA also involved] Public Health Services Act [9] Health Care Reform Nature of the Changes Impact on Eligibility (Providing Access to Coverage) Requirement to offer coverage to over-age dependents Automatic enrollment Requirement to offer coverage to all full-time employees (or pay penalty) 90-day maximum waiting period Impact on Benefits Required to be Provided Requirement to provide a certain level of coverage [minimum value] Requirements to provide certain types of benefits [minimum essential coverage] Cost-Sharing (Employer/Employee portion of the cost) Employer must pay enough of the cost so employee portion does not exceed 9.5% of household income [affordable coverage] Nondiscriminatory [must not discriminate in favor of highly compensated] Reporting and Disclosures [10] 10/22/2016 5

6 Health Care Reform Employer Mandate Employer Shared Responsibility Employer Mandate Steps Step 1: Is the employer required to offer coverage (or pay penalty)? Applicable large employer = 50+ full-time employees and Full Time Equivalents (FTEs) in prior calendar year in the employer s controlled group/affiliated service group Step 2: Who must be offered coverage? Full-time, not part-time (Full-time means 30 hours per week) Must Use One of Two Methods to Determine Full-Time Status Monthly Measurement Period Method Look-Back Measurement Period Method Dependents, not spouses Step 3: Is the coverage offered good enough? Does the plan meet minimum value requirements? (coverage pays at least 60% of the cost of the plan s covered benefits) Is the plan affordable? (9.5% of household income) Does the coverage comply with market reforms such as preventive services and annual/lifetime limits? Do you require longer than a 90-day waiting period? [12] 10/22/2016 6

7 Step 1: Is the Employer Required to Offer Coverage? Are you an Employer subject to the Mandate? Do you have 50 Full-Time Equivalent Employees? Employers with at least 50 fulltime equivalent employees on business days in prior calendar year Final regulation permits employer to look at any 6 consecutive calendar months during 2014 for the 2015 plan year determination (e.g. March August of 2014 to determine status for 2015 plan year) Count each employee who is working 30 or more hours per week Final regulation provides additional measurement methods In lieu of using 30 or more hours per week, can use 120 hours over 4-week month or 150 hours over 5-week month Exclude employees who only work outside the United States (even if U.S. citizens) Exclude full-time seasonal employees who work less than 120 days during the year [14] 10/22/2016 7

8 Are you an Employer subject to the Mandate? Do you have 50 Full-Time Equivalent Employees? Seasonal Employees Seasonal workers are workers who perform labor or services on a seasonal basis (as defined by the DOL) and retail workers employed exclusively during holiday seasons Must apply a reasonable, good faith interpretation of the term seasonal worker Technically, seasonal workers are taken into account in determining the number of full-time employees However, if employer s workforce does not exceed 50 FTEs for 120 days, Employer is not a large employer subject to the mandate (should be the same as excluding seasonal workers who work less than 120 days) Total hours of part-time for the month and divide by 120 No break-in-service or leave of absence service crediting is required for the applicable large employer determination Example: 20 PT employees working 24 hours per week 20 x 24 x 4 = 1920/120 = 16 FT equivalents [15] Health Care Reform uses the Single Employer Rules (similar to qualified plans) Single Employer: 1. Controlled Group Rules [applies] Code 414(b) and (c) 2. Affiliated Service Group Rules [applies] Code 414(m) 3. Leased Employees [does not apply] Code 414(n) 4. Shared Employees [applies] Code 414(o) Regulations Multiple Employer (more than one unrelated entity s employees participate in the plan) Multiemployer (more than one unrelated entity s employees participate pursuant to union contracts) [16] 10/22/2016 8

9 Calculation Determine number of Full-Time Employees for each month in the prior calendar year Determine the number of full-time equivalents for each month in the prior calendar year by adding the total number of hours for the non-ftes (not to exceed 120 hours for any employee) and divide by 120 Add the number of FTEs and full-time equivalents for each month and divide by 12 [17] Example Month Full-Time PT Hours Divide by 120 Total Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Average [18] 10/22/2016 9

10 Step 2: Who Must Be Offered Coverage? Determining Full-Time Employees Offer coverage to full-time employees who have met the plan s waiting period (not to exceed 90 days) Full-time means 30 hours per week Can, but are not required to, offer coverage to employees who are not full-time Must Use One of the Following Methods to Determine Full-Time Employee Status Monthly Measurement Period Method Look-Back Measurement Period Method Code 4980H; Notice ; Treas. Reg H-3 Months beginning on/after 1/1/2014 [20] 10/22/

11 Monthly Measurement Period Method Determine each employee s status as a FT employee by counting the employee s hours of service for each calendar month Employee must be offered coverage no later than the first day of the first calendar month immediately following the 3-month period (if the employee is still employed on that date) Can apply this rule again to rehires, but cannot apply more than once to an employee s period of employment Treat as rehire if employee did not have an hour of service for a period of at least 13 consecutive weeks immediately prior to rehire Do not use averaging method for unpaid leave or breaks in employment [21] Change in Employment Status Monthly Measurement Period Method Part-Time to Full-Time change in hours makes employee first eligible Offer coverage no later than first day of the calendar month immediately following the 3-month period if still employed on that date Full-Time to Part-Time can drop employee from coverage for month in which employee does not work an average of 30+ hours per week Cannot impose any waiting period at point employee returns to full-time (unless terminated/rehired) Rehired after termination of employment Can treat as new employee if no hours of service for at least 13 consecutive weeks Educational Institutions: period of at least 26 consecutive weeks [22] 10/22/

12 Look-Back Measurement Period Method Ongoing Employees: determine full-time employee status by using the Look-Back Measurement Period Method New Hires: Full-time: if a new employee is reasonably expected at his/her hire date to be a full-time employee (and not seasonal), determine the employee s hours of service for each calendar month (similar to monthly measurement period method) Variable Hour, Part-time or Seasonal: for variable hour employees, part-time employees and seasonal employees, determine full-time employee status by using the Look-Back Measurement Period Method [23] Look-Back Measurement Period Method Whether a newly-hired employee is reasonably expected to regularly work at that level Facts and circumstances at employee s start date Whether the employee is replacing an employee who was/was not a full-time employee Extent to which hours of service of ongoing employees in the same/comparable positions have varied above and below 30 hours Whether the job was advertised/communicated to new hire as more or less than 30 hours/week [24] 10/22/

13 Look-Back Measurement Period Method Employer Chooses Standard Measurement Period (not less than 3, not more than 12 months) If employee averaged at least 30 hours per week during the Standard Measurement Period, then employee is FT employee during a subsequent Stability Period Regardless of employee s actual number of hours of service during stability period (as long as still an employee) [one exception] If EE is FT: Stability Period must be at least 6 consecutive calendar months, and no shorter in duration than the Standard Measurement Period If EE is NOT FT: Stability Period must be no shorter in duration than the Standard Measurement Period [25] Measurement Period/Stability Period Employers can use different Measurement Periods/Stability Periods for: Collectively bargained employees and non-collectively bargained employees Salaried employees and hourly employees Employees of different entities Employees located in different States Administrative Period between Measurement Period/Stability Period: For determining eligibility, notifying and enrolling employees Cannot exceed 90 days Cannot reduce nor lengthen either period Continue to offer coverage to currently eligible employees Limit: Combined Measurement Period and Administrative Period cannot exceed13 months from the employee's start date, plus the time remaining until the first day of the next calendar month [26] 10/22/

14 Ongoing Employee Employed on 11/1/ /1/ /31/ /31/2016 First Standard Measurement Period 12 months Admin Period 60 days First Stability Period 1/1/ /31/2017 Second Standard Measurement Period 12 months Admin Period 60 days 12/31/2017 Second Stability Period 1/1/ /31/ /1/ /31/ /31/2017 Variable Hour Employee NOT Employed on 11/1/2015 (New Hire on 4/25/2016) New Hire s Initial Measurement Period of 12 months 4/25/2016-4/24/2017 New Hire s Special Admin Period 4/24/2017 5/31/2017 New Hire s Personal Stability Period 6/1/2017 5/31/ /1/2016 Start as Ongoing Employee with Second Standard Measurement Period 12 months Admin Period 60 days 10/31/ /31/2017 Second Stability Period 1/1/ /31/2018 [27] Change in Employment Status Look-Back Measurement Period Method General Rule: If employee averaged at least 30 hours per week during the Standard Measurement Period, then employee is FT employee during the entire subsequent Stability Period Regardless of employee s actual number of hours of service during stability period (as long as still an employee) Exception: Part-Time/Variable Hour/Seasonal EE to Full-Time Experience a change in employment status before end of initial measurement period that if the employee had begun employment in the new position/status, employee would have reasonably been expected to be employed at least 30 hours per week Offer coverage by first day of 4 th calendar month following change OR, if earlier, beginning of first Stability Period, if employee averaged at least 30 hours per week during the Standard Measurement Period [28] 10/22/

15 Use of Consistent Methodology Must use the same method (Look-Back Measurement Period Method or Monthly Measurement Period Method) for a category of employee Permissible categories: Collectively bargained employees and non-collectively bargained employees Salaried employees and hourly employees Employees of different entities Employees located in different States [29] Determining Hours of Service Applies for both the applicable large employer determination and for the coverage offer requirement Generally, the same rules apply in the DOL regulations that apply to qualified retirement plans (like 401(k) plans) [DOL Reg b-2(a)] Each hour for which an employee is paid/entitled to payment for the performance of duties for the employer Each hour for which an employee is paid/entitled to payment for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence Hourly employees use actual hours Salaried employees use actual hours or may use equivalencies 1 day = 8 hours, 1 week = 40 hours (not DOL equivalencies) Not required to use same calculation method for all salaried employees May apply different methods for different categories of salaried employees, provided that the categories are reasonable and consistently applied [30] 10/22/

16 Determining Hours of Service Special Disability Rules in Notice , Q&A-14 Do not include any hours after the individual terminates employment with the employer Do not include an hour for which an employee is directly or indirectly paid/entitled to payment for a period during which no duties are performed, if such payment is made/due under a plan maintained solely for the purpose of complying with applicable worker s compensation, unemployment, or disability insurance laws Do not include an hour of service for a payment which solely reimburses an employee for medical or medically related expenses incurred by the employee Include payments made by/due from an employer, regardless of whether the payment is made by/due from a trust fund or insurer to which the employer contributes or pays premiums Effective as of 12/16/2015 [31] Special Categories of Employees Exclusions from Hours of Service Bona Fide Volunteers hours not counted if for government entity or tax-exempt entity and only compensation from entity is reimbursement/reasonable expense allowance for expenses incurred, reasonable benefits, and nominal fees [Code 457(e)(11)(B)(i)] Student Employees work study program hours (form of financial aid) and unpaid internships/externships do not count (paid internships/externships follow the regular rules) Members of Religious Orders can exclude certain hours related to work by an individual who is subject to a vow of poverty [32] 10/22/

17 Special Categories of Employees Special Applications of Hours of Service IRS is continuing to consider additional rules for determining hours of service for certain work arrangements where: determinations of hours of service are particularly challenging to identify or track AND final regulations general rules for determining hours of service may present special difficulties Until further guidance is issued, can follow the following guidelines for these following categories: Adjunct Faculty can (but are not required to) credit 2¼ hours per week for each hour of teach or classroom time PLUS credit actual hours spent for required duties such as required office hours or required attendance at faculty meetings [33] Special Categories of Employees Special Applications of Hours of Service Layovers (Airline or Similar Employees) must credit a layover hour if (a) employee receives compensation for the layover hour in addition to compensation that the employee receives for the services performed or (b) layover hour counts toward hours to earn regular compensation Also reasonable to use equivalency, if no extra pay or layover hours not counted toward regular compensation On-Call Employees must credit employee with an hour of service for any on-call hour for which payment is made or due by the employer for which the employee is required to remain on-call on the employer s premises or for which the employee s activities while remaining on-call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee s own purposes [34] 10/22/

18 Changing Workforce Hours If an employer changes the hours of its workforce as part of determining whether employees fall within FULL-TIME WORKER status, Employers may be subject to: whistleblower claims ERISA 510 claims [35] Prohibition on Excessive Waiting Periods cannot exceed 90 days Group health plan and a health insurance issuer offering group or individual health insurance coverage shall not apply any waiting period that exceeds 90 days Waiting Period: period that must pass before an otherwise eligible employee s coverage can be effective Employer can set eligibility (can t be lapse of time) DOL Technical Release issued Treas. Reg issued Treas. Reg issued PPACA 1201; PHSA 2708 (see RA 2301) PY beginning on/after 1/1/2014 [36] 10/22/

19 Step 3: Is the Coverage Offered Good Enough? 2015 Employer Coverage Obligation [Notice delayed until 2015 for large employers; 2016 if <100 EEs] Employers may either offer coverage or pay a penalty Coverage is only required for fulltime employees (work more than 30 hours) Not required for part-time employees or seasonal [6 month standard] or temporary employees who are working fewer than 90 days Not required for full time employees during the plan s waiting period [which cannot exceed 90 days] Must offer coverage to full-time employees dependents Dependent does not include spouse Coverage does not have to be affordable for dependents Effective in 2015, for employers that do not offer dependent coverage now PPACA 1513 and 10106; RA 1003; Code 4980H Months beginning on/after 1/1/2014 [38] 10/22/

20 Employer Coverage Must be Affordable Required Coverage must be affordable for fulltime employees [Notice and Treas. Reg H-5] If not affordable, fulltime employees can purchase coverage in the exchange and may qualify for a subsidy Premium for self-only coverage (not spouse/dependents/family coverage) Not affordable if employee s premium exceeds 9.5% of household income safe harbors: 9.5% of Employee s W-2 (Box 1) 9.5% of 100% of Federal Poverty Level for a single person (approximately $93/month in 2016) 9.5% of rate of pay at beginning of coverage period (can decrease if hourly rate goes down, but cannot increase) May use one or more of the safe harbors for all employees or for any reasonable category of employees (must use a uniform/consistent basis for all employees in the category) [39] Special Affordability Rules Under Notice HRAs: Employer contributions count toward an employee s required contribution only to the extent the employer s contribution is required/determinable before open enrollment AND employees can use the contribution to pay for the employer group health plan Flex Credits Under Cafeteria Plan: Employer contributions count toward an employee s required contribution only if the employee may not receive the amount as a taxable benefit, the employees can use the contribution to pay for the employer group health plan, and the employee may use the amount exclusively to pay for medical care Opt-Out Payments: If the employee only receives the payment because the employee declines coverage, the cost of coverage to the employee is increased by the opt-out payment (unless required to provide proof of other coverage) For Employers, provision will not apply until regulations are issued and effective [40] 10/22/

21 Minimum Essential Coverage/Minimum Value Required Coverage must be minimum essential coverage [not required for employersponsored group health plans under Notice ] Required Coverage must pay at least 60% of the cost of the plan s covered benefits [Minimum Value] Notice and HHS Reg 45 CFR Parts 147, 155, and 156 [41] Minimum Value Required Coverage must pay at least 60% of the cost of the plan s covered benefits [Minimum Value] HHS Reg 45 CFR Parts 147, 155, and 156 issued 2/25/2013 Follows approach of Notice Can Use: Minimum Value Calculator made available by Health and Human Services (HHS) Any safe harbor established by HHS and the IRS certification by a certified actuary to determine Minimum Value if the plan contains non-standard features that are not suitable for either of the other methods [must by a member of American Academy of Actuaries, performed in accordance with generally accepted actuarial principles and methodologies Any plan in the small group market that meets the levels of coverage (60%, 70%, 80%, 90%) Can take into account benefits that are EHB-benchmarks, HRA and HSA contributions [42] 10/22/

22 2015 Employer Coverage Obligation Penalties [Notice delayed until 2015 for large employers; 2016 if <100 EEs] Offer coverage Coverage must be offered to all full-time employees (and their dependents) All but 5% or if greater, 5 employees for 2016 and later For 2015 plan year, standard is 70% of full-time employees and their dependents Even if coverage offered, if coverage is unaffordable for an employee or doesn t offer minimum value, then employer pays $3,000 penalty for each employee who has bad or unaffordable coverage and receives a tax credit (or the no coverage offered penalty, if less) Also will pay penalty for any employee not offered coverage No coverage offered $2,000 x all full-time employees minus 30 employees (assessable payment calculated by subtracting 80 employees for 2015 plan year) if any employee goes to the Exchange and receives a tax credit Code 4980H; Treas. Reg H-4 and -5 Months beginning on/after 1/1/2014 [43] Penalty Calculation Details Coverage available to everyone 95% standard: All but 5% or if greater, 5 employees for 2016 and later If employer fails to meet these standards, treated as if no coverage offered Consider impact of reclassification of any independent contractors Subtraction of 30 FT employees from $2,000 penalty calculation This calculation is done by applicable large employer member not the controlled group, but the 30 is allocated among the controlled group members Penalty will never exceed the amount of the penalty that would be imposed if no coverage offered Note that the $2,000 and $3,000 penalty amounts are indexed for inflation starting in 2015 [44] 10/22/

23 Penalty Calculation Monthly Calculation If failure to offer coverage for any day of the month, employee is treated as not covered for the month Non-Calendar Year Plans (if non-calendar year as of 12/27/2012 and not modified subsequently to a later plan year start date) Transition Relief for end of the 2014 Plan year ending in 2015 (e.g., 1/1/2015 6/30/2015 for plan year ending 6/30/2015): Employees who are eligible for coverage on 1/1/2015 under terms of the plan as of 2/9/2014 Employees who were not eligible for coverage Dependent coverage can be offered at the beginning of the 2015 plan year if not offered previously to a dependent and is offered for the 2015 plan year Note that this transition relief does not apply to the 2016 plan year for employers with >50 but <100 employees [45] Eligibility for Transition Relief for 2015 Employ >50, but less than 100 full-time equivalents (determined in the same manner as determining applicable large employer status) From 2/9/2014 through 12/31/2014, employer does not reduce the size of its workforce or the overall hours of service of its employees (unless reduction is for bona fide business reasons) Employer continues to maintain previously offered health insurance (does not eliminate or materially reduce health coverage offered as of 2/9/2014 At least 95% of employer contribution amount as of 2/9/2014, or at least the same percentage of the cost of coverage employer contributed on 2/9/2014 If employee-only coverage changes, the new coverage provides minimum value, and it does not narrow or reduce the class or classes of employees (or dependents) eligible on 2/9/2014 [46] 10/22/

24 Example Employer provides qualifying coverage to 35+ hour employees at $250/month for single coverage, waiting period 90 days Workforce of 200 employees, mostly full-time minimum wage workers (assume $16,000 annually) Only about 50 take any coverage OPTIONS: 1. Keep Current Coverage: not available to everyone (35 hr requirement), not affordable (9.5% x $16,000/12 = $127/month) Penalty:?? [$3,000 x FT EEs who go to exchange and get subsidy] 2. Drop Coverage: Penalty = $2,000 x (200-30) = $340,000, if any Employee goes to the exchange and gets a subsidy 3. Make Coverage available to 30+ hour EEs, reduce cost to $125 for single coverage: Employees probably won t race to sign up so cost increase may be less than penalty, maybe Medicaid eligible? [47] Payment of Penalties (2015 and later) IRS will provide employers with a certification that one or more employees purchased insurance on an exchange and received a premium tax credit IRS informs employer of potential liability [Actually, Employers have started receiving the notices from the exchanges.] Employers have an opportunity to respond before any liability is assessed (and before notice and demand for payment is made) [A specific form is provided for this purpose.] Process starts after the individual income tax deadline and after the due date for the information returns filed by the employer identifying their full-time employees and describing any coverage offered If penalties owed, IRS will send notice and demand for payment (not paid with any employer tax return filed) [48] 10/22/

25 Health Care Reform Medical Plan Mandates Mandates Already Implemented Cover adult children up to age 26 No lifetime limit or annual dollar limits on essential health benefits No rescissions of coverage (unless there is fraud) No pre-existing condition limitations on children 19 and under No pre-existing condition limitations at all, effective 1/1/2014 Appeals and grievance process No cost-sharing on certain preventive health benefits Choice of doctor and expanded emergency care coverage Prohibition on discrimination based on health status No reimbursement for over-the-counter drugs from health FSAs or HSAs Reduced limit on contributions to health FSAs to $2,500 [50] 10/22/

26 Mandates Already Implemented 90-day limit on waiting periods for health care coverage Wellness programs incentives Required coverage for approved clinical trials Limits on out of pocket expenses (HSA compatible HDHP limits) Health exchanges (state or federal) for individuals and small employers Future Mandates to be Implemented Nondiscrimination Requirements (upon the issuance of regulations) Automatic enrollment (upon the issuance of regulations) 2017 Large employers are able to buy in health exchanges 2018 Cadillac Tax on high-cost health plans [51] Employer Group Health Plans Wellness Programs 10/22/

27 Existing Law: HIPAA Discrimination Based on Health Status No Discrimination as to Eligibility or Premiums based on: Health status (no physical can be required if fail to enroll initially) Medical condition (physical/mental) Claims experience Receipt of health care Medical History Genetic information Evidence of insurability Disability Exception: Wellness Program Discounts [53] Health Care Reform: Prohibition on Discrimination Based on Health Status No Discrimination as to Eligibility (and Continued Eligibility) based on: Health status Medical condition (physical/mental) Claims experience Receipt of health care Medical History Genetic information Evidence of insurability (including conditions arising out of acts of domestic violence) Disability DOES NOT APPLY TO GRANDFATHERED PLANS PPACA 1201; PHSA 2705 PY beginning on/after 1/1/2014 [54] 10/22/

28 Nondiscrimination In Health Care PROVIDERS: Group health plan shall not discriminate with respect to participation under the plan against any health care provider who is acting within the scope of that provider s license or certification under State law EMPLOYEES: No employer shall discharge or in any manner discriminate against any employee with respect to compensation, terms, conditions, or other privileges of employment because the employee has received a tax credit or a subsidy or provided information related to an employer violation of Title I of PPACA DOES NOT APPLY TO GRANDFATHERED PLANS PPACA 1201; PHSA 2706; FLSA 18C PY beginning on/after 1/1/2014 [55] Health Care Reform: Programs of Health Promotion or Disease Prevention (Wellness Programs) Program offered by the employer Designed to promote health or prevent disease Cannot require satisfaction of a condition that is related to a health factor to receive premium rebate or reward Program must be made available to all similarly situated individuals May offer rewards (discounts, rebates, cost-sharing waivers, avoidance of surcharges) Reward cannot exceed 30% of cost of coverage, except: gym/fitness center membership Up to 50% for smoking cessation programs PPACA 1201; PHSA 2705 PY beginning on/after 1/1/2014 [56] 10/22/

29 Wellness: Health-Contingent Programs Health-Contingent Programs, must (i) be reasonably designed to promote or prevent disease; (ii) allow eligible individuals to qualify for the reward at least annually; (iii) be available to all similarly situated individuals; (iv) provide a reasonable alternative standard (or waiver); and (v) provide notice Activity Only Program (e.g. walking, diet or exercise program) Requires performance or completion of an activity but not attainment or maintenance of a specific health outcome Outcome-based Program (e.g. attaining certain results on biometric screenings or stopping smoking) Requires an individual to attain or maintain a specific health outcome [57] Wellness: Health-Contingent Programs Health-Contingent Programs Individual must satisfy a standard to obtain a reward Activity-Only Perform or complete activity to obtain the reward (e.g., walking, diet, or exercise programs) Opportunity to get reward at least once per year Total reward not more than 30% of premiums (50% for tobacco programs) Reasonable design Must provide a reasonable alternative to obtain full reward if unreasonably difficult due to a medical condition or medically inadvisable to satisfy the standard Reasonable alternative may be activity-only program (subject to same requirements) or outcome-based (subject to special rules) Verification permitted Outcome-Based Maintain specific health outcome to obtain reward (e.g., achieve target BMI, cholesterol) Opportunity to get reward at least once per year Total reward not more than 30% of premiums (50% for tobacco programs) Reasonable design Must provide a reasonable alternative to obtain full reward to all individuals who do not meet health outcome Reasonable alternative may be activity-based (subject to same requirements) or outcomebased If reasonable alternative outcome-based, must comply with special rules (e.g., cannot be same standard, only lower, on same date) If still unreasonable, employee must get physician s note with different reasonable alternative standard Verification not permitted [58] 10/22/

30 EEOC Regulations Final Regulations issued 5/17/2016 Genetic Information Nondiscrimination Act of 2008 [May 21, 2008] Prohibits discrimination on the basis of genetic information Americans With Disabilities Act of 1990 ADA Amendments Act of 2008 [September 25, 2008] ADA prohibits discrimination on the basis of disability (compensation/terms & privileges of employment) Provides Limitations on Wellness Programs that would otherwise comply with HIPAA or Health Care Reform requirements Make sure you comply with the notice requirement [59] Employer Group Health Plans Nondiscrimination Requirements 10/22/

31 Plans Subject to Nondiscrimination Self-insured medical, dental, and vision programs Fully-insured medical, dental, and vision programs Health Reimbursement Accounts Health Savings Accounts Cafeteria Plans Medical Flexible Spending Accounts Dependent Care Flexible Spending Accounts [61] Self-Insured Medical, Dental, and Vision SELF-INSURED unless: reimbursement provided under policy of insurance OR arrangement in nature of prepaid health care plan regulated under federal or state law (HMOs) Medical Expense Reimbursement Plan (Flexible Spending Accounts through a cafeteria plan) is self-insured "Shifting of Risk" is the key SELF-INSURED if: cost-plus policy policy which in effect merely provides administrative or bookkeeping services even if partially underwritten by insurance (stop loss coverage) [62] 10/22/

32 Self-Insured: Must Not Discriminate in Favor of Highly Compensated Individuals Nondiscrimination Rules Under Code 105(h) apply Cannot discriminate in favor of Highly Compensated Individuals (not HCEs) Definition of Highly Compensated Individual: one of the five highest paid officers more than 10% shareholder (Code 318 attribution rules apply) among the highest paid 25% of all employees of the employer [63] Employees of the Employer Employer Concept Under Code 414 (Code 105(h)(8)) Can Exclude: Employees with less than 3 years of service Part-time or seasonal employees Collectively bargained employees if accident and health benefits were the subject of good faith bargaining Nonresident aliens who receive no earned income (within the meaning of Code 911(d)(2)) which constitutes income from sources within the United States (within the meaning of Code 861(a)(3)) (Code 105(h)(3)) [64] 10/22/

33 "Employer" Concept Under Code 414 (Code 105(h)(8)) Single Employer: 1. Controlled Group Rules Code 414(b) and (c) 2. Affiliated Service Group Rules Code 414(m) 3. Shared Employees Code 414(o) Regulations Distinguish Multiple Employer (at least 2 unrelated entities participate in one plan) Distinguish Multiemployer (unrelated entities in one plan pursuant to collective bargaining agreements) [65] Existing Law: Code 105(h)(2) Prohibition of Discrimination A self-insured medical reimbursement plan satisfies the requirements of 105(h)(2) only if the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate; AND the benefits provided under the plan do not discriminate in favor of participants who are highly compensated individuals [66] 10/22/

34 Eligibility to Participate Two Tests (Code 105(h)(3)) 70% Test Plan must BENEFIT 70% or more of all employees OR Plan must BENEFIT 80% or more of all employee ELIGIBLE to benefit IF 70% or more of all employees are ELIGIBLE to benefit under the Plan Nondiscriminatory Classification Test Plan must benefit CLASSIFICATION of employees which is not DISCRIMINATORY [67] Existing Law: Code 105(h)(2) Nondiscrimination Testing Benefits Benefits Test Benefits provided under self-insured plan cannot discriminate in favor of highly compensated individuals (Code 105(h)(2)(B)) ALL BENEFITS PROVIDED for highly compensated individuals must be provided for all others (Code 105(h)(4)) [68] 10/22/

35 Fully Insured: Cannot Discriminate in Favor of Highly Compensated Individuals Health Care Reform: Non-discrimination rules of Code 105(h)(2) now apply to insured plans (PHSA 2716) Rules similar to the rules in 105(h)(3), (4), and (8) also apply highly compensated individual has the same meaning as 105(h)(5) All of Code 105(h) continues to apply to self-insured plans IRS delayed application of this rule until it issues regulations and requested comments, Notices and DOES NOT APPLY TO GRANDFATHERED PLANS PPACA 1001 amended by 10101; PHSA 2716 PY beginning on/after 9/23/2010 [69] Failure to Meet Nondiscrimination Rules SELF-INSURED PLANS: "excess reimbursement" included in gross income of Highly Compensated Individual (HCI) Benefits Provided Test: excess reimbursement = amount paid to HCI not available to others Percentage Test or Classification Test: excess reimbursement = total amount reimbursed to HCI x fraction total reimbursed to all HCIs total reimbursed to all Ees INSURED PLANS: Excise tax imposed on the Plan (or Employer) of $100 per participant discriminated against (per day) and subject to civil action to force plan to be nondiscriminatory (See Notice ) [70] 10/22/

36 IRS Notice Requested Comments on: What constitutes nondiscriminatory benefits under 105(h)(4)? What is included in the term benefits? rate of employer contributions toward the cost of coverage (or the required percentage or amount of employee contributions) duration of eligibility waiting periods (treated as a benefit that must be provided on a nondiscriminatory basis?) Alternative method of compliance with PHSA 2716 that would involve only an availability of coverage test? [71] IRS Notice Requested Comments on: How does it work when: the health insurance exchanges become operational AND employer responsibility provisions ( 4980H of the Code), premium tax credit ( 36B of the Code), individual responsibility provisions ( 5000A of the Code) and related Affordable Care Act provisions are effective? Use of the HCE definition in 414(q) for purposes of determining the plan s nondiscriminatory classification? Should nondiscrimination standards be applied separately to employers sponsoring insured group health plans in distinct geographic locations? permissive or mandatory? [72] 10/22/

37 IRS Notice Requested Comments on: Should guidance provide for safe harbor plan designs? What potential safe and unsafe harbor designs are consistent with 105(h)? Should employers be permitted to aggregate different, but substantially similar, coverage options? How do you determine substantially similar? Application of the nondiscrimination rules to expatriate and inpatriate coverage Application of the nondiscrimination rules to multiple employer plans [73] IRS Notice Requested Comments on: Should coverage provided to a highly compensated individual on an after-tax basis be disregarded? Treatment of employees who voluntarily waive employer coverage in favor of other coverage Potential transition rules following a merger, acquisition, or other corporate transaction Application of the sanctions for noncompliance with PHSA 2716 [74] 10/22/

38 What do we think will pass the test? All arrangements available to all eligible employees of all related entities Same cost sharing for all eligible employees of all related entities Same waiting period for all eligible employees of all related entities [75] HRAs Health Reimbursement Accounts 10/22/

39 HRA (Rev. Rul , Notice ) Account set up for each participant from which health expenses can be reimbursed Usually funded annually with a set dollar amount per person (e.g., $5,000 each year for each eligible employee) Arrangement paid solely by the Employer Cannot be funded with employee contributions Cannot be part of a cafeteria plan arrangement Reimbursement for Medical Care Expenses (as defined in Code 213(d)) insurance, medical bills, long-term care for current employees, retirees, and COBRA participants Expenses must be incurred by employee or the employee s spouse or dependents (as defined in Code 152) [77] HRA Carryforward - Unused balance may be carried forward to increase the maximum reimbursement amount in subsequent years Year Contribution Amount Used Balance 2003 $5,000 $3,500 $1, $5,000 $6,000 $ $5,000 $2,000 $3, $5,000 $1,000 $7,500 [78] 10/22/

40 Nondiscrimination Testing for HRAs Simply a self-insured medical plan Subject to Code 105(h) [79] HSAs (and MSAs) Health Savings Accounts Medical Savings Accounts 10/22/

41 HSAs (Code 223) and MSAs (Code 220) Tax-exempt trust or custodial account organized to pay qualified medical expenses of the account holder Contributions are deductible if made by an eligible individual Or deductible if made by employer of eligible individual Earnings on HSAs/MSAs are not currently taxable Distributions from an HSA/MSA for qualified medical expenses are not taxable [81] HSAs and MSAs Must be covered under a high deductible health plan HSAs may be sponsored by any size employer or by a self-employed individual MSAs must be sponsored by a small employer or by a self-employed individual Small employer if employ no more than 50 employees in the last 2 years [82] 10/22/

42 HSAs and MSAs Permitted Other Coverage Cannot have other coverage (as employee, spouse or dependent) except: worker s compensation tort or property liability hospital per diem coverage disease specific coverage accidents or disability dental or vision care long-term care [83] HSAs Deductible Contributions HSAs: Since 2007, use statutory dollar limit Self = $3,350 in 2016 Family = $6,750 in 2016 Catch-up for 55+ individuals = $1,000 Amounts indexed [84] 10/22/

43 HSAs Comparable Contributions 4980E and 4980G impose a 35% excise tax on employer contributions to HSAs/MSAs that are not comparable Comparable if: Same amount Same percentage of the annual deductible limit under the HDHP covering the employees For employees who are eligible individuals covered under any HDHP of the employer AND who have the same category of coverage (family or self-only) Apply separately with respect to part-time employees Not comparable if employer matches the amount the employee contributes [85] If any Contributions are made to HSAs through Cafeteria Plan Comparability Rules do not apply Test contributions under the cafeteria plan rules (eligibility, contributions, benefits, and concentration tests) Treas. Reg G-5 [86] 10/22/

44 Cafeteria Plans Code 125 Cafeteria Plans Permitted under Code 125 Exception to Rule on Constructive Receipt Participants Have a Choice Among: Cash Qualified Benefits Without Adverse Tax Consequences Note: The only way an employee can pay health coverage premiums with pre-tax dollars is through a cafeteria plan [88] 10/22/

45 Cafeteria Plan Qualified Benefits Accident and Health Insurance Health (medical, dental, vision) Coverage Premiums Medical Expense Reimbursement Plans (Medical Flex) Disability Insurance Group Term Life Insurance Accidental Death and Dismemberment Health Savings Accounts Dependent Care Assistance (Dependent Flex) Code 401(k) Elective Deferrals Adoption Assistance [89] Cafeteria Plan Tax Consequences Amount of an employee s compensation contributed to a cafeteria plan: Not subject to federal or state income taxes if used to buy nontaxable benefits Not subject to FICA (social security and Medicare) taxes if used to buy nontaxable benefits [90] 10/22/

46 Ramification of Failures Any operational error causes all benefits under the cafeteria plan to be taxable (FIT, SIT, FICA, FUTA) to all participants Failure to operate in accordance with written plan terms Failure to comply with cafeteria plan rules Changing/revoking elections Noncompliance with substantiation rules Reimbursing impermissible expenses in FSA Note to self: DON T BEND THE RULES!! MAKE SURE THE PLAN DOCUMENT SAYS WHAT YOU ARE DOING!! [91] Cafeteria Plans Nondiscrimination Requirements 10/22/

47 Eight Nondiscrimination Tests Cafeteria Plan [Code 125(b) and (g)] Eligibility Test Benefits Test Concentration Test Medical Expense Reimbursement Plan (Medical Flex) [Code 105(h)] Eligibility Test Benefits Test Dependent Care Assistance Plan (Dependent Flex) [Code 129(d)] Eligibility Test Benefits Test Concentration Test [93] Cafeteria Plan Eligibility Test Eligible group must consist of only employees (Code 125(d)(1)) Eligible group cannot discriminate in favor of Highly Compensated Individuals as to eligibility to participate (Code 125(b)) Highly compensated individual is: an officer more than 5% shareholder (voting power or value of classes of stock) highly compensated (HCE under 414(q)) spouse or dependent of officer, shareholder, and highly compensated [94] 10/22/

48 Cafeteria Plan Eligibility Test (Code 125(g)(3)) Cafeteria Plan Eligibility is not treated as discriminatory if: No employee is required to complete more than 3 years of employment with the employer maintaining the plan in order to participate Employment requirement for each employee is the same Employee commences participation no later than the first day of the first plan year after the employment requirement is satisfied Plan benefits group of employees described in Code 410(b)(2)(A)(i) [95] Cafeteria Plan Eligibility Test Plan benefits group of employees described in Code 410(b)(2)(A)(i) and Treas. Reg (b)-4(b) Must benefit a group of employees who qualify under a reasonable classification established by the employer that is not discriminatory in favor of highly compensated individuals (HCIs) Reasonable classifications generally include specified job categories, nature of compensation (salaried or hourly), geographic location and similar bona fide business criteria Must meet the safe harbor percentage test OR the unsafe harbor percentage test and the facts and circumstances test [96] 10/22/

49 Cafeteria Plan Eligibility Test Can exclude Employees: With less than 3 years of employment if the plan requires 3 years of employment for participation Employees who are covered by a collectively bargained plan Employees who are nonresident aliens and receive no earned income from the employer which constitute income from sources with the U.S. Employees participating under a COBRA continuation provision [97] Cafeteria Plan Eligibility Test Safe Harbor/UnSafe Harbor Tests ratio % for the separate = > classification group Employer s safe harbor % NHCIs in separate classification group NHCIs of Employer (and controlled group) Determine NHCI Concentration % NHCIs of Employer (and controlled group) All Employees of Employer (and controlled group) Lookup NHCI Concentration % on Chart in Regulations to determine Employer s safe harbor % and unsafe harbor % [98] 10/22/

50 Cafeteria Plan Eligibility Test NHCI Concentration % Safe Harbor % NonSafe Harbor % 0-60% NHCI Concentration % Safe Harbor % NonSafe Harbor % [99] Cafeteria Plan Eligibility Test Example: Total Employees = 1,000 NHCIs = 950, HCIs = 50 Salaried = 150 (100 NHCI, 50 HCI) Hourly = 850 (850 NHCI) Eligibility for Hourly = 90 days Eligibility for Salaried = Immediate [100] 10/22/

51 Cafeteria Plan Eligibility Test (Hourly Employees Eligibility Test) Safe Harbor/UnSafe Harbor Tests ratio % for the separate = > classification group NHCIs in separate classification group NHCIs of Employer (and controlled group) 850 hourly/950 total NHCE = 89.47% Employer s safe harbor % Determine NHCI Concentration % NHCIs of Employer (and controlled group) All Employees of Employer (and controlled group) PASS!! 950/1,000 = 95% 23.75% Lookup NHCI Concentration % on Chart in Regulations to determine Employer s safe harbor % and unsafe harbor % [101] Cafeteria Plan Eligibility Test (Salaried Employees Eligibility Test) Safe Harbor/UnSafe Harbor Tests ratio % for the separate = > classification group NHCIs in separate classification group NHCIs of Employer (and controlled group) 100 NHCI salaried/950 total NHCI = 10.53% Employer s safe harbor % Determine NHCI Concentration % NHCIs of Employer (and controlled group) All Employees of Employer (and controlled group) FAIL 950/1,000 = 95% Safe = 23.75% Unsafe = 20.00% Lookup NHCI Concentration % on Chart in Regulations to determine Employer s safe harbor % and unsafe harbor % [102] 10/22/

52 Cafeteria Plan Eligibility Test Examples from the Proposed Regulations: Example 1: same qualified benefit for same salary reduction amount. One employer-provided health insurance plan Cost to all employees is $10,000 per year for single coverage All employees have the ability to salary reduce $10,000 for single coverage Plan satisfies eligibility test [103] Cafeteria Plan Eligibility Test Examples from the Proposed Regulations: Example 2: Same qualified benefit for unequal salary reduction amounts. One employer-provided health insurance plan Cost to NHCEs is $10,000 per year for single coverage (all salary reduced) Cost to HCEs is $2,000 (salary reduced) and employer provides an $8,000 flex credit to HCEs Plan fails eligibility test [104] 10/22/

53 Cafeteria Plan Eligibility Test Examples from the Proposed Regulations: Example 3: Health plans of unequal value. Two employer-provided health insurance plans Low-deductible health plan available only to HCEs, premium is $15,000 per year (all salary reduced) High-deductible health plan available only to NHCEs, premium is $8,000 per year (all salary reduced) Plan fails eligibility test [105] Cafeteria Plan Eligibility Test Examples from the Proposed Regulations: Example 4: Health plans of unequal value. Two employer-provided health insurance plans Low-deductible health plan available only to HCEs, premium is $15,000 per year ($8,000 salary reduced) High-deductible health plan available only to NHCEs, premium is $8,000 per year ($8,000 salary reduced) Plan fails eligibility test [106] 10/22/

54 Cafeteria Plan Eligibility Test Failure If plan fails the Eligibility Test, each HCP is required to include in his/her gross income the value of the taxable benefit with the greatest value that the HCP could have elected for the Plan Year even if the HCP elected to receive only the nontaxable benefits offered [107] Cafeteria Plan Benefits Test Plan must not discriminate in favor of Highly Compensated Participants ( HCPs ) as to contributions and benefits for a plan year HCPs are HCIs who are eligible to participate Test applies to both availability and to utilization of qualified benefits [Note that if there are employer flex credits, an additional similar test applies to flex credits used to purchase qualified benefits.] Availability: Plan must give each similarly situated participant a uniform opportunity to elect qualified benefits Utilization: Whether the aggregate qualified benefits of the HCPs divided by the aggregate compensation of the HCPs as a % exceeds the same calculated % for the NHCPs [108] 10/22/

55 Cafeteria Plan Benefits Test Continuing the Same Example: Total Employees = 1,000 NHCEs = 950, HCEs = 50 Salaried = 150 (100 NHCE, 50 HCE) Hourly = 850 (850 NHCE) Eligibility for Hourly = 90 days Eligibility for Salaried = Immediate Coverage cost is the same for hourly and salaried All employees have the ability to elect the same benefits (all salary reduction no flex credits) HCEs aggregate qualified benefits = $300,000 HCEs aggregate compensation = $6,000,000 NHCEs aggregate qualified benefits = $1,750,000 NHCEs aggregate compensation = $38,000,000 [109] Cafeteria Plan Benefits Test Availability: Plan must give each similarly situated participant a uniform opportunity to elect qualified benefits PASS because all employees have the right to elect the same qualified benefits Utilization: Whether the aggregate qualified benefits of the HCEs divided by the aggregate compensation of the HCEs as a % exceeds the same calculated % for the NHCEs $300,000/$6,000,000 = 5% $1,750,000/$38,000,000 = 4.6% UTILIZATION TEST FAILS because 5% exceeds 4.6% [110] 10/22/

56 Cafeteria Plan Benefits Test Failure If plan fails the Benefits Test, each HCP is required to include in his/her gross income the value of the taxable benefit with the greatest value that the HCP could have elected for the Plan Year even if the HCP elected to receive only the nontaxable benefits offered [111] Cafeteria Plan Benefits Test Safe Harbor for Cafeteria Plans providing Health Benefits Cafeteria plan is not treated as discriminatory under the Benefits Test if: contributions for each participant equal 100% of the cost of the health benefit coverage of the MAJORITY of the HCPs similarly situated OR contributions for each participant equal or exceed 75% of the cost of the health benefit coverage of the participant (similarly situated) having the HIGHEST cost health benefit coverage AND contributions in excess of 100% bear uniform relationship to compensation [112] 10/22/

57 Cafeteria Plan Benefits Test Safe Harbor for Cafeteria Plans providing Health Benefits Health Benefits includes only major medical coverage (excludes dental and health FSAs) Similarly situated can consider different geographical locations and single coverage vs. family coverage Example from proposed regulations: All 10 employees are eligible to salary reduce $8,000 per year for single coverage All 10 employees elect to salary reduce $8,000 for single coverage Surprise, surprise the plan meets the safe harbor! [113] Cafeteria Plan Concentration Test Statutory nontaxable benefits provided to Key Employees cannot exceed 25% of the aggregate of statutory nontaxable benefits provided for all employees under the plan Note: Key Employee definition is same as top heavy rules If plan fails to meet the Concentration Test, each Key Employee is required to include in his/her gross income the value of the taxable benefit with the greatest value that the Key Employee could have elected for the Plan Year even if the Key Employee elected to receive only the nontaxable benefits offered [114] 10/22/

58 Cafeteria Plan Concentration Test Example from the Proposed Regulations All Employees have election between taxable benefits and qualified benefits Plan satisfies the eligibility test 2 key employees 4 NHCEs Key Employees each elect $2,000 of qualified benefits Each NHCE also elects $2,000 of qualified benefits Key employees receive $4,000 of qualified benefits and NHCEs receive $8,000 of qualified benefits $4,000 (key employees)/$12,000 (total qualified benefits) = 33 1/3% which is greater than 25% Plan fails the Concentration Test (but see safe harbor test for premium-only plans) [115] Safe Harbor Test for the Cafeteria Plan Eligibility Test and Benefits Test Applies only to Premium-Only Cafeteria Plans (health insurance premiums only) Treated as meeting the Eligibility Test and the Benefits Test if plan meets the safe harbor percentage test for eligibility Example from Proposed Regulations Cafeteria plan offers one health plan Offers all employees the election to salary reduce the same amount or same percentage of the premium for single coverage or family coverage All key employees and all HCPs elect to salary reduce for the premium Only 20% of the NHCPs elect to salary reduce for the premium The plan satisfies the Eligibility Test and the Benefits Test [116] 10/22/

59 Aggregation and Disaggregation for Testing Purposes Permissive Disaggregation. Employer is permitted to disaggregate employees who have been employed for less then 3 years and test that group of employees separately from the rest of the workforce (as if the plan was two separate plans) Permissive Aggregation. Employer who sponsors more than one cafeteria plan is permitted to aggregate two or more of the cafeteria plans for purposes of discrimination testing (and test as if the plans are a single plan) [117] Timing of Testing Testing is performed as of the last day of the plan year Take into account all nonexcludable employees (or former employees) who were employees on any day during the plan year [118] 10/22/

60 Eight Nondiscrimination Tests Cafeteria Plan [Code 125(b) and (g)] Eligibility Test Benefits Test Concentration Test Medical Expense Reimbursement Plan (Medical Flex) [Code 105(h)] Eligibility Test Benefits Test Dependent Care Assistance Plan (Dependent Flex) [Code 129(d)] Eligibility Test Benefits Test Concentration Test [119] Medical Flex Nondiscrimination Testing Eligibility Test 70% Test OR Nondiscriminatory Classification Test Benefits Test Benefits provided under self-insured plan cannot discriminate in favor of highly compensated individuals (ALL BENEFITS PROVIDED for highly compensated individuals must be provided for all others) Definition of Highly Compensated Individual: one of the five highest paid officers more than 10% shareholder among the highest paid 25% of all employees [120] 10/22/

61 Medical Flex Nondiscrimination Testing Eligibility Test Plan must BENEFIT 70% or more of all employees OR Plan must BENEFIT 80% or more of all employee ELIGIBLE to benefit IF 70% or more of all employees are ELIGIBLE to benefit [121] Medical Flex Nondiscrimination Testing Eligibility Test Alternatively must meet Nondiscriminatory Classification Test: Plan must benefit CLASSIFICATION of employees which is not DISCRIMINATORY [122] 10/22/

62 Medical Flex Nondiscrimination Testing Failure "excess reimbursement" included in gross income of HCE Benefits Provided Test: excess reimbursement = amount paid to HCE not available to others Percentage Test or Classification Test: excess reimbursement = total amount reimbursed to HCE x fraction total reimbursed to all HCEs total reimbursed to all EEs [123] Eight Nondiscrimination Tests Cafeteria Plan [Code 125(b) and (g)] Eligibility Test Benefits Test Concentration Test Medical Expense Reimbursement Plan (Medical Flex) [Code 105(h)] Eligibility Test Benefits Test Dependent Care Assistance Plan (Dependent Flex) [Code 129(d)] Eligibility Test Benefits Test Concentration Test [124] 10/22/

63 Dependent Care Flex - Discrimination Testing MUST MEET ALL THREE TESTS: Eligibility Test (nondiscriminatory classification test) Contributions/Benefits Provided average benefits provided to non-hces is at least 55% of the average benefits provided to HCEs (129(d)(8)(A) aggregate all plans of the controlled group for the 55% test) (employer may disregard EEs with comp < $25,000) Concentration Test no more than 25% of dependent care assistance may be provided to more than 5% shareholders/owners Tests use the definition of HCE under Code 414(q) [125] Health Plan Nondiscrimination Chart Type of Plan 105(h) 105(h)(2) G Self-insured medical, dental, or vision plan Insured medical, dental, or vision plan Medical Flexible Spending Account (FSA) Health Reimbursement Account (HRA) Health Savings Account (HSA), with no amounts contributed through the cafeteria plan Health Savings Account (HSA), with some amounts contributed through the cafeteria plan X X X X X X [126] 10/22/

64 Disclosures and Reporting Reporting Already Implemented Summary of Benefits & Coverage (SBC) W-2 Reporting of Health Insurance Coverage Notice of Exchange Medical Loss Ratio Rebates [128] 10/22/

65 Reporting Requirements Under Code 6055 and 6056 (Forms 1094 and 1095) Code 6055 require employers/insurers who provide minimum essential coverage to file a return with the IRS and furnish a statement to individuals regarding which months they were covered (individual mandate) Code 6066 requires employers to file a return with the IRS and furnish related statements to individuals regarding health coverage to ensure compliance with employer mandate (employer mandate) Insured Plans: Insurer will complete Form 1095-B on the individual mandate for each employee with coverage Each payroll employer will complete Form 1095-C on the employer mandate for each full-time employee without coverage (if Applicable Large Employer) Self-insured Plans: Form 1095-C allows a payroll employer to report both the individual mandate and the employer mandate on one form for an employee each payroll employer will complete Form 1095-C for each employee with coverage and each full-time employee without coverage [129] [130] 10/22/

66 [131] [132] 10/22/

67 [133] Employer Group Health Plans Cadillac Tax (now known as the Toyota Tax) 10/22/

68 Tax on High-Cost Employer-Sponsored Plans (Cadillac Tax) 40% non-deductible excise tax will be imposed on high-cost health coverage (Code 4980I) Excise tax is based on the aggregate cost of the employee s coverage over the annual limit in effect determined under rules similar to COBRA 2018 annual limits: $10,200 for individual coverage ($850/month) $27,500 for self and spouse or family coverage ($2,292/month) Insurers of group medical insurance and plan sponsors of self-insured group health plans will pay 40% of any dollar amount beyond the annual limits Effective in 2018 [135] Tax on High-Cost Employer-Sponsored Plans (Cadillac Tax) Include cost of any group health plan made available to the employee that is excludable from the employee s gross income (regardless of who pays for the coverage or whether the employee pays for the coverage with after-tax dollars) [limited scope dental and vision excluded] The following amounts are also included in the calculation: Health FSAs HSAs, including employer and employee contributions through the cafeteria plan HRAs Specific disease or illness coverage and hospital indemnity or other fixed indemnity insurance On-site medical clinics Executive physical programs [136] 10/22/

69 Employer Group Health Plans Penalties for Failures IRS Excise Tax IRS excise tax for failures to meet health care reforms, including: Prohibition on annual or lifetime limits Prohibition on preexisting conditions Prohibition on excessive waiting periods (maximum 90 days) Prohibition on rescissions Coverage of adult dependent children Patient protections, including preventive care, emergency care coverage, approved clinical trials and choice of primary care physician Nondiscrimination based on health status (wellness exception) Nondiscrimination rules for fully insured plans (yet to be issued) [138] 10/22/

70 IRS Excise Tax IRS excise tax is generally: $100 per day per individual up to a maximum of the lesser of $500,000 or 10% of the cost of medical care for unintentional failure No excise tax if failure due to reasonable cause (not wilful neglect) and corrected by filing Form 8928 within 30 days of knowledge (includes should have known standard) of failure If discovered upon audit, even reasonable cause failures, trigger minimum excise taxes ranging from $2,500 $15,000+ [139] Additional Health Plan Fees 10/22/

71 Fees to Fund Patient-Centered Outcomes Patient-Centered Research Institute created to support informed health decisions by advancing evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings Funded in part by fees on insurers and plan sponsors of selfinsured health plans for policy and plan years ending after 10/1/12 and before 10/1/19 $1 per average number of covered lives for plans/policies ending before 10/1/13 First potential due date of fee was 7/31/13 $2 per average number of covered lives for plans or policies ending on/after 10/1/13 and before 10/1/14 (indexed thereafter) Self-insured plans, PCORI fee reported and paid by plan sponsor (IRS Form 720) Self-insured plans use (i) actual count method; (ii) snapshot method; or (iii) Form 5500 method to determine covered lives [141] Transitional Reinsurance Fees ( ) Each State (or HHS) must establish a temporary reinsurance program to which insurers and self-insured health plans must contribute to stabilize premiums in the individual market HHS required to establish reinsurance contribution rate for each year ( ) Annual per capita contribution rate for 2014 is $63 per covered life ($5.25/month) Paid by insurers or TPAs on behalf of self-insured plans Self-insured health plan may use, actual count method, snapshot count or factor method or Form 5500 method Insurer and self-insured health plans reports number of covered lives to HHS (each 11/15), HHS notifies entity of amount owed (within 30 days) and entity remits amount (within 30 days) [142] 10/22/

72 Health Plan Governance Litigation and Audits Document and Disclosure Requirements Health plan, summary plan description, enrollment materials need to describe eligibility provisions Section 125 (Cafeteria) Plan is only vehicle to allow employees to pay their share of cost of coverage on a pre-tax basis and must include eligibility provisions, change in status, leave of absence Administrative services agreements or group insurance contracts may need updating Leave of absence policies should be reviewed and updated Agreements with third party staffing/temporary agencies should be reviewed and amended Remember all the notices Check definition of spouse in all documents [144] 10/22/

73 Health Care Trends And the Legal Issues They Create Renée W. O Rourke, Shareholder GREENBERG TRAURIG, LLP ATTORNEYS AT LAW , Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. [ July 22, 2016 ] Trends Telemedicine - Actual delivery of remote clinical services using technology such as smart phones and other forms of telecommunications technology that permit two-way, real time interactive communication between the patient, and the physician/practitioner at the distant site Second Opinions - Physician reviews the patient s medical situation to provide the patient with recommendations about the patient s diagnosis and treatment plan Specialty Surgery Centers - Offers access to its network providers for certain surgical procedures at negotiated bundled rates (outside network) On-Site Clinics - Ranges from Office Nurse to full primary care physician office Concierge Medicine - relationship between a patient and a primary care physician in which the patient pays an annual fee or retainer [146] 10/22/

74 Wellness Centers/Benefits Sometimes a program separate from the medical program Biometric screenings Exercise programs Exercise tracking Weight loss programs Tobacco cessation programs Physical exams for executives [147] Health Advocates Services related to helping participants get to the right medical providers for the health care they need Find the right doctors Schedule appointments Assist with Eldercare issues (such as Medicare) Assist in the transfer of medical records Services related to sorting out the billing issues for the medical care the participant received Cost estimates Help with approvals from insurance company/tpa Resolve claims [148] 10/22/

75 Legal Issues to Consider Legal Issues to Consider Is the benefit a group health plan subject to Health Care Reform? Or is it an excepted benefit? Is the benefit part of the employer group health plan? Does the benefit provide only medical care (so that the value of the benefit can be excluded from your employees W-2s)? Does the benefit discriminate in favor of highly compensated individuals (HCIs)? Does the benefit need to be structured to comply with Code 409A if it is taxable? Does the benefit cause the participant to violate the HDHP requirements and thus be prohibited from contributing to an HSA? [150] 10/22/

76 Application of Health Care Reforms Health Care Reforms apply to a group health plan Is the benefit a group health plan (as defined in Code 5000(b)(1))? Code: Plan (including self-insured plans) of (or contributed to by) an employer to provide health care to the employees, former employees, others associated or formerly associated with the employer in a business relationship, or their families ERISA: employee welfare benefit plan to the extent that the plan provides medical care (including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise [151] Application of Health Care Reforms Is the benefit part of the medical program or is it supposed to be a separate benefit program? Who does it cover? Separate program for COBRA purposes? Separate program for HIPAA Privacy purposes? Can it meet the health care reform mandates? Or is it an excepted benefit? [152] 10/22/

77 Application of Health Care Reforms Employer Group Health Plans must provide certain specified preventive care services at first dollar coverage Specialty programs typically would not provide any/all preventive care required for any health program Does the specialty program provide benefits that constitute excepted benefits which are exempt from the Health Care Reform Mandates? [153] Excepted Benefits (Not Subject to Reforms) Benefits that are not health care auto insurance, workers compensation, disability, AD&D Non-coordinated benefits specific disease or illness policies, hospital indemnity or fixed indemnity policies Supplemental coverage Medicare supplemental, TRICARE supplemental, or similar coverage designed to fill gaps in primary coverage such as coinsurance or deductibles Limited scope benefits Vision and dental benefits EAP, if no significant medical care benefits, no coordination with benefits under GHP, no employee premiums, and no cost-sharing Long-term care, nursing home care, home health care, community based care Must be provided under separate policy, certificate, contract Not an integral part of the group health plan Wellness/disease mgmt programs are NOT excepted benefits [154] 10/22/

78 Application of Health Care Reforms Unless an Excepted Benefit, it needs to be part of the employer group health plan and only available to covered participants under the employer group health plan If offered to broader group, the portion of the arrangement that provides services to non-covered employees and their spouses and dependents violates the ACA requirements to provide preventive care and have no annual or lifetime limits This would apply to telemedicine, second opinions, specialty surgery centers, on-site clinics, concierge services (probably), and wellness benefits that constitute medical care [155] Medical Care Does the benefit cover only medical care? Definition of Medical Care for Tax Purposes (Code 213): allows taxpayers a deduction for expenses incurred for medical care Note that the employer may exclude medical care benefits paid for employee under Code 105 Medical care includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease Taxation of Non-Medical Care Benefits: If benefit does not constitute medical care, employer must require employees to pay that portion or impute income to the employee for the benefit [156] 10/22/

79 Taxation of Benefits that are not Medical Care General Rule: There is typically no exclusion from gross income unless an exclusion applies Chief Counsel Memorandum (Stephen Tackney) Dated Employer may not exclude cash rewards for participating in a wellness program from an employee s gross income Any reward, incentive, or benefit that is not medical care must be included (gym memberships) Unless de minimis non-cash fringe (cheap T-shirt) compensation subject to Social Security and Medicare Employer may not exclude reimbursements to an employee of premiums paid by the employee through the cafeteria plan (pre-tax) from the employee s gross income [157] Taxation of Benefits that are not Medical Care This can be an issue for: certain services provided at the on-site clinic some wellness program incentives and benefits Massages Gym memberships Health Coaching (stress management, fitness, nutrition, lifestyle) Weight Management (unless rises to the level of medical care ) health advocate services [158] 10/22/

80 Nondiscrimination Plans Subject to Nondiscrimination: Self-insured medical, dental, and vision programs Fully-insured medical, dental, and vision programs Health Reimbursement Accounts Health Savings Accounts Cafeteria Plans Medical Flexible Spending Accounts [159] Prohibition of Discrimination General Rule: The plan must not discriminate in favor of highly compensated individuals as to eligibility to participate; AND the benefits provided under the plan must not discriminate in favor of participants who are highly compensated individuals [160] 10/22/

81 Nondiscrimination This can be an issue for: Executive benefits Executive physical Special Pulmonary testing Stress testing That are provided under the employer group health program to avoid health care reform issues Tax the benefits to avoid Nondiscrimination issue? Executive benefits can also be an issue for HSA contribution eligibility [161] Application of Code 409A If employee is taxed on a benefit, must consider whether there are any implications under Code 409A [162] 10/22/

82 Implications for HDHPs and HSAs Tax Considerations for HDHPs with Health Savings Accounts (HSAs) In order to contribute to an HSA, cannot have other coverage Exception for limited scope dental and vision HDHP must require deductible be met before any benefits provided, except for preventive care Does the pricing/reimbursement arrangement for a benefit impermissibly constitute payment of a benefit before the HDHP deductible is met? [163] Implications for HDHPs and HSAs This can be an issue for: Telemedicine second opinions surgery centers onsite clinic services concierge medicine wellness program medical care special executive medical care benefits (if not coordinated through the TPA for the employer s group health plan) [164] 10/22/

83 Additional Considerations How are costs of the special benefit accounted for with respect to the Form 5500, ER shared responsibility, Cadillac Tax? Need to have a business associate agreements for the vendor(s) associated with the special benefit? Who needs to share/have access to data? Is there a separate COBRA premium or is it included in cost of the medical program? [165] Transgender Benefits Apparently most medical expense administration software requires identification of gender The identification of gender eliminate reimbursement for certain medical expenses Software does not make valid assumptions for a transgender person New Rule effective 7/18/2016: Prohibits denying or limiting coverage for gender transition services if it results in discrimination against a transgender individual prohibits restrictions on services that do not conform with an individual s gender identity Example: Individual born as a woman may transition to a man, but still needs treatment for ovarian cancer Generally would not apply to self-insured plans of employers not principally engaged in providing health services or health insurance coverage [166] 10/22/

84 Renée W. O Rourke, Shareholder Greenberg Traurig, LLP The Tabor Center th Street, Suite 2400 Denver, CO Direct: orourker@gtlaw.com Cell: /22/