On Thursday, May 10, the Internal Revenue Service (IRS) published Revenue Procedure 2018-30 which includes inflation adjustments to qualified high deductible health plans (HDHPs) and Health Savings Account (HSA) contribution limits. A summary of the adjustments has been provided below:

It should be noted that the maximum out-of-pocket limits for a HDHP asociated with an HSA are different than the maximum out-of-pocket limits allowed under the Affordable Care Act (ACA). Additionally, the adjustments to the 2019 HSA contribution limits are final and are not expected to change. 

Last week, President Donald Trump signed into law a 2,232-page federal spending bill avoiding another government shutdown. In the days leading up to the bill’s passage, it appeared that Congressional leaders were on the verge of including funds which aimed to stabilize the Affordable Care Act (ACA).

Funding for cost-sharing reduction subsidies (CSR subsidies) that was discontinued in 2017 was expected to be restored. Additionally, $30 billion in funds was expected to be allocated toward reinsurance programs that would offset some of the claims expenses incurred by insurance companies for high risk members.

Congressional Republicans who generally oppose the ACA were willing to include these stabilization measures, but they also wanted some additional restrictions for federal funding of abortions.
Congressional Democrats weren’t willing to make that trade. In the end, neither provision was included in the final bill.

Insurance companies will take this into consideration as they set 2019 premiums and decide which markets they want to participate in next year. Rate filings generally need to be submitted to applicable state and federal agencies in May or June, and the absence of CSR subsidy funding and reinsurance funding may yield another round of high rate increases in some markets.

Many people think the federal spending bill was the last opportunity to make changes to the ACA which would be impactful for 2019. With healthcare being such a touchy subject, it seems less and less likely that substantial changes will be made anytime soon since it’s a midterm election year. It would be more likely that substantial healthcare proposals would be taken up after the midterm elections which will be held on November 6, 2018.

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Here’s a little history:

• May 4, 2017 – The Internal Revenue Service (IRS) publishes Rev. Proc. 2017-37 which includes Health Savings Account (HSA) contribution limits for 2018. The family contribution limit is set at $6,900.
• December 22, 2017 – The Tax Cuts and Jobs Act is signed into law. The law changes the inflationary measure used to adjust annual contribution limits to various benefit programs, including HSAs. Contributions limits will now be tied to the Chained CPI starting in 2018. The Chained CPI is a little bit lower than the more traditional CPI.
• March 5, 2018 – The IRS releases Bulletin No. 2018-10 which contains Rev. Proc. 2018-18. This indicates the family contribution limit for HSAs is being retroactively changed. The family contribution limit for 2018 is reduced by $50 and is now set at $6,850. This was a direct result of tying adjustments to contribution limits to the Chained CPI.
• April 26, 2018 – The IRS releases Rev. Proc. 2018-27. This indicates the family contribution limit will be increased back to $6,900 for 2018. This was attributed to comments and concerns the IRS received about the unanticipated administrative and financial burdens the $50 reduction could create for employers and individuals.

After all of this, we are right back to the original family contribution limit of $6,900 for this year. Through all of this, the individual contribution limit was unaffected. That limit remains unchanged at $3,450. Additionally, the catch-up contribution for those age 55 and older remains at $1,000.

Medicare ID numbers are changing! 

Social Security numbers followed by the letter “A” or “B” have historically been the ID numbers assigned to Medicare beneficiaries. The Medicare Access and CHIP Reauthorization Act of 2015, also known as MACRA, is requiring this to change. As you may suspect, the reason for the change is to protect against identity theft and other types of fraud. The new ID cards will use randomly generated 11-digit identifiers as opposed to Social Security numbers. Below is an example of what the new cards will look like.

The Centers for Medicare and Medicaid Services (CMS) is starting to use the revised ID cards for newly eligible Medicare beneficiaries. Over the next year, existing Medicare beneficiaries will gradually receive new ID cards. Existing Medicare beneficiaries in Delaware, Maryland, Pennsylvania, Virginia, Washington D.C. and West Virginia are expected to be part of the first group of people who receive a new card. All Medicare beneficiaries should have their new card by April 2019.

Healthcare providers will need to prepare for the change. There will be a transition period in place that will allow claims which are submitted under the old ID numbers to be processed, but this will eventually end. Claims submitted with the old ID numbers will be rejected starting in 2020.

Insurance carriers will also need to prepare for the change. Carriers who sell Medicare Supplement plans, Medicare Advantage plans and Part D plans will need the revised ID numbers. The revised ID numbers will also be needed to coordinate benefits between group health plans and Medicare.

Health plans in the individual and small group markets that were issued after March 23, 2010 and prior to January 1, 2014 are commonly referred to as grandmothered plans. March 23, 2010 is the date the Affordable Care Act (ACA) was signed into law while January 1, 2014 is the so-called full implementation date of the ACA.

Grandmothered plans were supposed to be terminated on the full implementation date of the ACA because they failed to satisfy all of the ACA’s market reforms, but the federal government has offered temporary, transitional relief which has allowed these plans to continue to exist. This relief was set to expire later this year, but the Centers for Medicare and Medicaid Services (CMS) has indicated they are authorizing an additional extension. This is now the fourth extension that has been authorized.

In a recently issued bulletin, CMS announced that grandmothered plans can continue to be renewed for plan years beginning on or before October 1, 2019, provided that the plans end by December 31, 2019. States and insurance carriers must also agree to the extension. In other words, the CMS guidance is an option for states and carriers, not a requirement. Additionally, a state or carrier may choose to extend grandmothered plans in just the individual market, just the small group market, or both markets. We should expect to see guidance in the near future.

It should be noted that this guidance has no impact on grandfathered plans which were in effect on or before March 23, 2010. Grandfathered plans can continue to exist permanently without having to comply with all of the ACA’s market reforms.

Last month, U.S. Representative Mike Kelly (R-PA) introduced the Bipartisan HSA Improvement Act. The proposed legislation would improve and enhance Health Savings Accounts (HSAs), and unlike most other HSA initiatives, this bill has bipartisan support. HSAs have been an agenda item for the Republican party since their inception in 2004, but they are now gaining support amongst Democrats too. The Bipartisan HSA Improvement Act is co-authored by Rep. Earl Blumenauer (D-OR) and is being co-sponsored by a mixture of Republicans and Democrats including Erik Paulsen (R-MN), Ron Kind (D-WI), Terri Sewell (D-AL) and Brian Fitzpatrick (R-PA).

The Bipartisan HSA Improvement Act would include the following reforms:

• Allow for pre-deductible coverage of health services at on-site health clinics without disqualifying HSA-eligibility.
• Allow for pre-deductible coverage of health services and medications that manage chronic conditions without disqualifying HSA-eligibility
• Clarify that employers can offers benefits such as telemedicine and second opinion services without disqualifying HSA-eligibility.
• Make a change to existing legislation which would allow an employee to establish an HSA if their spouse had a general-purpose Flexible Spending Account (FSA).
• Permit the use of HSA funds toward wellness benefits, including exercise and other expenses associated with physical activity.

A summary of the Bipartisan HSA Improvement Act can be found here.

The Affordable Care Act (ACA) created a research institute known as the Patient-Centered Outcomes Research Institute (PCORI). The goal of PCORI is to help patients and those who care for them make betterinformed decisions about healthcare choices. PCORI is funded by fees which are charged to health plans.The following information is designed to help employers understand their payment obligations.

Fully-insured health plans – The insurance company is responsible for paying the PCORI fee. However, most employers with fully-insured health plans are indirectly paying these fees by virtue of higher premium payments.

Self-insured health plans – The employer is responsible for paying the PCORI fee. The fee is determined based on the average number of covered lives in the previous plan year. An easy way to calculate the average number of covered lives is using a snapshot method. Under this method, an employer picks one day during each quarter of the plan year (e.g. Jan 1, Apr 1, Jul 1, Oct 1), adds the total number of covered lives (including dependents) for those days, and divides that number by 4.

Fee Amount – The upcoming fee depends on when the plan year ended.

• Plan years ending between January 1, 2017 and September 30, 2017 – $2.26 per life
• Plan years ending between October 1, 2017 and December 31, 2017 – $2.39 per life

Plan Year Ending Date – This is the last day of the plan year. As an example, a plan that had an effective date of January 1st would have a plan year ending date of December 31st.

Making Payments – Employers should complete Form 720 for the second quarter to make payments.

Due Date – The fees are due by July 31, 2018 for plan years which ended in 2017.

Special Rules for HRAs – Employers with a fully-insured health plan and an integrated Health Reimbursement Arrangement (HRA) must pay the PCORI fee for the HRA, but they may treat each HRA participant as a single covered life. In other words, the fee generally does not apply to spouses or dependents covered under the HRA. Employers with a self-insured health plan and an integrated HRA may treat the coverage as a single plan assuming they have the same plan year.

FSAs – Flexible Spending Accounts (FSAs) are not subject to PCORI fees if they are excepted benefits.

HSAs – Health Savings Accounts (HSAs) are not subject to PCORI fees.

Dental and Vision – Stand-alone dental and vision plans are not subject to PCORI fees.
 

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) applies to employers who had 20 or more employees on more than 50% of its business days in the preceding year. Both full -time and part-time employees are counted to determine whether a group health plan offered by an employer is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

Unlike Illinois State Continuation which is a requirement to offer continuation coverage under state law, COBRA is a continuation coverage requirement under federal law.  Under the COBRA law, “qualified beneficiaries” must be given the right to continue coverage for a pre-determined maximum length of time in certain situations when the group health plan would otherwise be terminated. To be considered a qualified beneficiary, a person must be covered by a group health plan on the day before a “qualifying event” occurred that would otherwise cause him or her to lose coverage.  In addition, a qualified beneficiary must be a covered employee, the employee’s spouse or former spouse, or the employee’s dependent child.  A domestic partner covered under the plan is an example of a type of person who is not considered a qualified beneficiary under the COBRA law.

Below is a chart explaining the continuation coverage requirements of COBRA:

In certain situations, the bankruptcy of an employer sponsoring a group health plan will be a qualifying life event for the retired employee, the retired employee’s spouse or former spouse, and the retired employee’s dependent children.

It is relatively simple to understand COBRA at a high level, but the administrative requirements can be burdensome. Specific notices must be provided at certain times, such as within 90 days of a participant first enrolling in a plan and within 14 days of a qualifying event (or receiving notice of a qualifying event). Additionally, there are administrative challenges with the billing and collection of premiums. As a result, employers who are subject to COBRA often find it easiest to comply with this law by outsourcing the service to a third-party company who specializes in COBRA administration.

It should be noted that if an employer is subject to both Illinois State Continuation and COBRA, the employer must offer both options when applicable, and the individual(s) eligible for both options are only able to choose one of the options. The maximum premium that can be charged and the length of continuation coverage varies between the two laws, so it may make sense for a person to choose continuation coverage under one law and not the other. 

1. Premium Only Plan Document (POP Document)

The only way for an employer to provide certain benefits tax-free to its employees, such as health, dental or vision insurance, is through a Cafeteria Plan, as defined under Section 125 of the Internal Revenue Code.  The only way for an employer to have a Cafeteria Plan is by preparing a written plan document which meets the requirements of Code Section 125.  Failure to have a written document, or failure to operate a Cafeteria Plan in accordance with the terms of Code Section 125, disqualifies the plan as a Cafeteria Plan and results in gross income to the participants.  In other words, any participant in the plan will lose the tax favorable status of the benefits that he or should would have otherwise received. 

As a comparison, think about an employer who offers a tax-preferred retirement account, such as a 401(k).  To have a 401(k), the employer must have a written plan document that explains information about the plan.  For example, who is eligible, when can contributions be changed, what happens after employment is terminated, can loans be taken from the plan, etc.  A similar, but different type of plan document is required when it comes to providing tax-free benefits for health, dental, vision, life, disability and other qualified group insurance products. 

Please note that a Premium Only Plan (POP) can generally be defined as a type of Cafeteria Plan where the only pre-tax benefits available to participants are for those of insurance premiums.  If the Cafeteria Plan also provides for other pre-tax benefits, such as a Health FSA or Dependent Care FSA, additional plan documents are required. 

Because Code Section 125 is complex, it generally requires a third party who is familiar with the tax code to prepare a plan document which meets the Cafeteria Plan requirements. 

2. Non-Discrimination Testing

Employers who offer tax-free insurance benefits to employees must be sure the benefits are not discriminating in favor of highly compensated individuals (HCIs).  For purposes of the POP plan, a HCI is a person who earns $120,000, an officer of the company, a shareholder with more than 5% of the voting power, or a spouse or dependent of any of the preceding.

For those employers with a POP plan in place, there is only one non-discrimination test relating to eligibility that must be satisfied. 

There’s a total of three different non-discrimination tests that must be passed relating to:

1. Eligibility
2. Actual contributions and benefits, and
3. Key employee concentration.

These are rather sophisticated and complex tests that need to be performed, and employers usually rely on a third-party to conduct the testing.

But there’s good news for POP plans! Employers will get an automatic pass of the three non-discrimination tests if they can satisfy one simple requirement. If the ratio of non-highly compensated employees participating in the POP plan compared to the ratio of highly compensated participating in the POP plan is 50% or greater, the employer will be treated as passing all the non-discrimination tests. 

Okay, maybe that sounds complicated, but it’s easy to understand once you’ve seen an example. XYZ Company has:

• 100 non-highly compensated employees
  • 60 participate in the POP plan (60 / 100 = 60%)
• 30 highly compensated employees
  • 25 participate in the POP plan (25 / 30 = 83.33%)

60% / 83.33% = 72.03%

72.03% is greater than 50% so XYZ Company automatically passes the three non-discrimination tests. It would probably be more appropriate to say XYZ Company does not have to conduct the tests relating to contributions and benefits or key employee concentration because the IRS is comfortable that enough non-highly compensated employees are eligible and participating in the POP plan.
 
Employers that satisfy the 50% ratio are considered to have met the POP plan “safe harbor test for eligibility.” If the ratio is less than 50%, the employer doesn’t necessarily fail the non-discrimination testing. They might even be able to pass this test with a ratio that is less than 50%. The ratio to pass gets smaller as the concentration of non-highly employees participating in the POP plan increases. However, at a high level, understand that a ratio of 50% or greater will guarantee a pass for any employer.  

The consequences of failing the test means that some or all the HCIs lose the tax favorable status of the benefits that he or should would have otherwise received.  Additional non-discrimination testing also applies if an employer provides for other pre-tax benefits, such as a Health FSA or Dependent Care FSA.

3. ERISA Wrap Plan Document

The Employee Retirement Income Security Act of 1974 (ERISA) sets forth certain requirements for employers who offer health and welfare benefits to its employees, such as health, dental, vision, life, disability and other insurance plans.  The ERISA law has certain rules in place to protect plan participants and beneficiaries, such as covered employees and their spouses and children. 

The ERISA law indicates that a written summary plan description (SPD) must be provided to plan participants at certain times, such as within 90 days of becoming covered by one or more insurance plans offered by the employer.  Although SPDs are provided by insurance companies for distribution to plan participants, the SPDs fail to provide all the required written disclosures under the ERISA law.  For example, the SPD provided by an insurance company does not address the circumstances under which the employer might modify or terminate a plan during the year, but the ERISA law requires that type of information to be disclosed in writing and provided to participants.

Click here to download a list of things that are commonly excluded from an SPD provided by an insurance company but are required to be disclosed in writing to participants.

To comply with the SPD requirements under ERISA, employers must prepare a supplemental document, which is commonly referred to as a Wrap Document.  The Wrap Document provides all the required written disclosures under the ERISA law, and it applies to all health and welfare benefits offered by the employer.  It “wraps” up all the SPDs provided by insurance companies for health, dental, vision, life, disability and other insurance plans.

Failure to provide an adequate SPD to a participant within 30 days of request can result in a financial penalty of $110/day.  In addition, the ERISA law provides participants and beneficiaries with the right to file a civil action lawsuit against an employer who does not comply with the ERISA law.  The Wrap Document will help an employer reduce the probability of a civil action lawsuit by providing all the written disclosures as required under the ERISA law.

Because the ERISA SPD requirements are complex, it generally requires a third party who is familiar with the law to prepare a plan document which meets the SPD requirements.    

4. Summary of Benefits and Coverage (SBC)

The Summary of Benefits and Coverage (SBC) is another type of plan document that must be provided to participants and beneficiaries at certain times.  The SBC is generally only something required for health insurance plans, but in some instances, it may be required for other group health plans.

The good news is that the SBC will be prepared by the insurance company.  The challenging part for an employer is knowing when the SBC must be distributed to employees.  Failure to provide an SBC, or failure to provide an SBC within the required time frame can result in a penalty of $1,128 for each occurrence.  The bullet points below describe when the SBC must be distributed.

Upon application or enrollment, the SBC must be provided no later than the first day the participant is eligible to sign up for coverage.

If there is any change in the information required to be in the SBC that was provided upon application and before the first day of coverage, you must provide the updated SBC no later than the first day of coverage.

Employees who sign up for coverage during a special enrollment period must be provided an SBC within 90 days of enrolling in coverage.

During your annual renewal (open enrollment period), the SBC should be provided with all other enrollment materials.

Upon request, the SBC must be provided with 7 business days.

If you are making a material modification to your health insurance plan during the middle of the plan year which would change the content in the SBC, you must provide an updated SBC at least 60 days prior to making the material modification.

5. Marketplace Notification

If you are subject to the Fair Labor Standards Act (FLSA), you must provide a notification to all new hires with information on the Health Insurance Marketplace (Marketplace).  Generally, any employer with annual sales of at least $500,000 is subject to the FLSA. 

Please be advised that the notification must be provided to all new hires within 14 calendar days of their start date.  The notice should be provided regardless of whether you offer health insurance, and if you do offer health insurance, it should be provided to all employees, even those who are not eligible for coverage.

6. Medicare Part D Notification and Reporting

Medicare Part D is the prescription drug program available to those individuals who are enrolled in Medicare Part A and/or B.  Upon becoming eligible for Medicare, everyone has the option to sign up for a Part D plan.  If a person delays enrollment in Part D they will be charged a late enrollment penalty of 1% of the “national base beneficiary premium” multiplied by the number of months not enrolled in a Part D plan.  However, if a person delays enrollment in Part D and is enrolled in a plan from their employer which includes prescription drug coverage, they will most likely have that penalty waived if they sign up for Part D on a later date. 

The Medicare rules provide that employers must do two things:

1. Provide any Medicare eligible individuals with a notice annually prior to October 15^th.  The notice indicates whether the drug coverage you offer is at least as good as the standard Part D plan option, referred to as the creditable coverage notice.  There is a non-creditable coverage notice if the drug coverage isn’t at least as good as the standard Part D plan option.  The notice should also be provided at other times, such as when a person first joins the plan or if creditable coverage status changes.  The best practice is to give this notice to all eligible employees since you may not be aware if they and/or their dependents are eligible for Medicare.
2. You must report information about your drug coverage and its creditable or non-creditable status to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the start of each plan year.  You must also report to CMS within 30 days after termination of a plan with prescription drug coverage or a change in the plan’s creditable coverage status. 

Model notices and access to the online site to complete the reporting can be found here.

7. Illinois State Continuation

The state of Illinois requires employers of any size with a fully insured health insurance plan or HMO to provide employees, their spouses and their dependents with the right to continue coverage after certain events occur, such as termination of employment.  You should familiarize with the rules to understand when someone may be permitted to continue coverage on your health insurance plan in certain situations, such as when they are no longer an employee of your company. 

Is your business overdue for a Compliance Audit? We offer complimentary audit to small businesses.

Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) are spearheading efforts to repeal and replace substantial parts of the Affordable Care Act (ACA). The bill they’ve introduced is expected to go to vote later this week.  There are many changes that the so-called “Graham-Cassidy” bill would make to the ACA—here are three that stand out the most:

1. Block Grants to States: 
   The bill would end funding for Exchange subsidies and Medicaid expansion as it exists under the ACA today. Instead, states would be provided block grants from the federal government, and states would decide how those funds are used.  Each state could opt out of certain ACA provisions, such as those that apply to pre-existing conditions and essential health benefits. But only if there was first a program in place to provide adequate and affordable coverage to lower income and/or high risk individuals.
2. The End of Mandates: 
   The bill would make penalties under the Individual and Employer Mandates $0 retroactively to 2016. This is not a direct repeal of the mandates, but it essentially has the same effect as a repeal.
3. Enhancements to HSAs:
   Contribution limits for Health Savings Accounts (HSAs) would increase. They would be equal to the maximum out-of-pocket limit for an HSA-eligible health plan ($6,650/single, $13,300/family in 2018). In addition, there would be no more need to obtain a prescription to make over-the-counter drugs an eligible expense. Several other HSA enhancements were also included in the bill.

For a section-by-section summary of the Graham-Cassidy bill, please click here.    

The biggest controversy of the Graham-Cassidy bill is about the block grants to states. Federal funding for healthcare would be fixed and ultimately less than what it would otherwise be under the ACA. 

There is also a worry by Democrats and even some Republicans that this type of system does not provide enough protections for people with pre-existing conditions. 

The main underlying issues and concerns that have been debated in Washington D.C. throughout the year appear to be the same with the Graham-Cassidy bill.

It’s unclear if Senate Republicans will get the 51 votes they need to pass this legislation and move it onto the next phase. Keep in mind that even if they do get the 51 votes, the bill would have to go back to the House of Representatives and it’s unclear if it would pass in that Chamber again.