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New COVID-19-Related Stimulus
By: Jason Lacey

Congress has passed, and President Trump is expected to sign, the Consolidated Appropriations Act, 2021, a large year-end appropriations bill that includes COVID-19-related stimulus and relief provisions in several key areas, including the PPP loan program, paid leave tax credits, unemployment benefits, and the Provider Relief Fund. Click here to see our issue alert discussing key highlights from the new legislation.

Coronavirus: Tax and Employee Benefit Considerations – Part 2
By: Jason Lacey

Employer-sponsored group health plans have drawn attention regarding coverage for certain coronavirus-related costs.

Under the FFCRA, all group health plans are now required to provide coverage for COVID-19 testing without imposing deductibles, copayments, or other cost sharing — and without requiring prior authorization or imposing other medical management standards. This coverage must include both the cost of the test and related services, such as charges for office, telehealth, urgent care, or ER visits and charges for the collection of testing samples. The testing mandate applies to all types of group health plans, including fully insured plans, self-insured plans, high deductible health plans (HDHPs), and plans that are otherwise “grandfathered” from certain ACA requirements. The mandate also applies to fully insured plans sold in the individual insurance market.

This mandate only applies to coverage of COVID-19 testing and related services. Coverage of treatment for COVID-19 remains subject to the terms of each plan, including applicable cost sharing requirements.

IRS Notice 2020-15 clarifies that an HDHP may provide benefits for COVID-19 testing or treatment prior to satisfaction of the minimum deductible without jeopardizing the plan’s status as an HDHP. Individuals covered under an HDHP may receive no-deductible or low-deductible coverage for these costs and remain eligible to contribute to a health savings account (HSA).

A new package of proposed federal legislation, currently called the CARES Act, would provide additional flexibility with respect to HDHPs and HSAs:

  • An HDHP could provide for coverage of telemedicine visits even if the HDHP deductible has not been      Continue Reading...
Coronavirus: Tax and Employee Benefit Considerations – Part 1
By: Jason Lacey

The Families First Coronavirus Response Act (FFCRA), which was enacted on March 18, 2020, established two new categories of paid leave to assist workers needing time off for certain coronavirus-related purposes: (1) up to two weeks of paid sick leave, and (2) up to ten weeks of paid FMLA leave. These paid leave mandates apply to private sector employers with fewer than 500 employees and public sector employers of any size.

Although the FFCRA requires covered employers to provide these new types of paid leave to qualifying employees, it establishes a process for eligible employers to obtain reimbursement from the federal government for the cost of the paid leave through refundable credits against Social Security payroll taxes. The tax credit is available to all private sector employers that are subject to the FFCRA paid leave mandates, regardless of the type of entity (C corporation, S corporation, partnership, LLC, or sole proprietorship). Public sector employers are expressly excluded from eligibility for the tax credit, although they are subject to the paid leave mandates. Private sector employers with 500 or more employees also are not eligible for the credit, even if they voluntarily provide paid leave that mirrors the FFCRA requirements.

An eligible employer’s payroll tax credit for each calendar quarter is an amount equal to 100% of the qualified sick leave wages and 100% of the qualified family leave wages paid by such employer for the quarter. The credit is limited to the maximum amount of the paid leave required to be paid      Continue Reading...

Three Things Employers Should Know About the New DOL Rule on Association Health Plans
By: Jason Lacey

The U.S. Department of Labor has released a final rule that describes the criteria for establishing a “bona fide” association health plan under ERISA. This rule implements an October 2017 directive from President Trump to make association plans easier to form and available to more employers.

There is a lot of detail in the rule that is relevant to organizing and operating an association health plan, but here are three big-picture things employers should know about the rule at this early stage in its existence.
  1. Don’t Give Up Your Current Plan Just Yet. The DOL rule is intended to provide employers—particularly smaller employers—with additional options for purchasing health coverage, and the rule makes it easier to use an association structure to allow unrelated employers to jointly purchase coverage. But, there are still a lot of hoops to jump through to get a new association plan off the ground. Don’t expect to see them popping up overnight. And, if a new one does emerge, make sure you ask lots of questions before signing up. Not all association plans are created equal. Some are very well managed and provide a reliable source of coverage for employers and their employees. Others, not so much.
  2. Sharing Is Caring, But Do You Want to Share Health Expenses? One anticipated benefit of association plans is providing small employers with an alternative to purchasing insurance in the small group insurance      Continue Reading...
Is the ACA Back on the Endangered Species List?
By: Jason Lacey

The early years of the ACA were fraught with existential threats. Plans were laid to repeal or defund it. Litigation challenged the validity of various aspects of the law, going all the way to the Supreme Court in a couple of cases. And yet it has survived, more or less intact.

But then something curious happened late last year. Buried within a massive package of federal tax reform legislation was a short provision that eliminated the tax penalty associated with the ACA’s “individual mandate” but left the mandate itself on the books. It was effectively a repeal of the mandate (would anyone obey speed limits if the police said they would never issue speeding tickets?), but for reasons related to legislative procedure, the mandate technically remained.
Why does this matter?
In 2012, the Supreme Court was asked to rule on the constitutionality of the ACA’s individual mandate. The challengers argued that Congress did not have the authority under the U.S. Constitution to require Americans to purchase health insurance coverage. The Supreme Court agreed with them but went on to say that the mandate was still okay, because Congress does have the authority to impose taxes, and the individual mandate was a type of tax.
But now there’s no longer any tax. Just the mandate.
See the problem?
A number of states saw the problem too and have brought yet another lawsuit challenging the validity of the individual mandate. They might have a good argument.
But what does it matter if a toothless provision of the ACA is      Continue Reading...
ACA Penalty Assessments Place Focus on ACA Reporting
By: Jason Lacey
Late last year, the IRS began issuing “226J” letters to employers with proposed ACA penalty assessments for 2015. Employers that received these letters often saw eye-popping penalty amounts. Most assessments were at least $100,000, with reports of assessments well into seven figures.
But the news has not been all bad. Employers who have engaged with the IRS have generally found the IRS willing to work with them to provide additional time to evaluate the assessments and prepare a response. Some employers have succeeded in securing significant reductions in the assessed penalties.
A consistent theme among employers who received penalty assessment letters has been a problem with their reporting on Forms 1094-C and 1095-C. Many of the proposed penalty assessments can be traced directly to errors in the forms that were filed for 2015.
For example, employers who failed to answer the question on Form 1094-C about whether they offered coverage to enough of their full-time employees were presumed not to be offering coverage. Problems with the month-by-month codes used on Form 1095-C, such as for months during which an individual was not employed, also have been a source of issues.
All of these notifications point to at least one clear conclusion: Getting the ACA reporting correct makes a difference. Reporting is not just an academic exercise. The IRS      Continue Reading...
EEOC Wellness Regulations Survive AARP Challenge
By: Jason Lacey

A federal court in Washington, D.C. has declined to issue an order that would have halted implementation of the EEOC’s wellness plan regulations under the ADA and GINA. The regulations had been challenged by AARP on the grounds that they failed to adequately protect workers’ rights. However, the court concluded there was no risk of "irreparable harm" to workers in allowing the regulations to remain on the books. This means the regulations remain in force and will apply as scheduled. 

The EEOC’s regulations are generally applicable to wellness programs beginning with the 2017 plan year. The regulations limit the incentives that employers may offer in connection with a wellness program that involves a medical examination or disability-related inquiry. Most wellness programs that involve a health risk assessment or biometric screening are covered. The incentive cannot exceed 30% of the cost of employee-only coverage under the related health plan -- or twice that amount in the case of plans that offer incentives to both employees and their spouses.The regulations also impose notice and confidentiality requirements, in addition to limiting the amount of incentives.

The EEOC’s rules apply in addition to other wellness plan rules under HIPAA and the ACA, with sometimes inconsistent results. For example:

  • Under the HIPAA and ACA regulations, there is no limit on the amount of the incentive that can be offered in a “participation only” wellness program involving completion of a health risk assessment and biometric screening, but the same wellness program generally is subject to      Continue Reading...
EEOC Issues Final Wellness Regulations
By: Jason Lacey

The EEOC has issued final regulations under the ADA and GINA that address the extent to which employers may use incentives to encourage employees and their spouses to participate in wellness programs that involve disability-related inquiries or medical examinations. Although the regulations allow limited incentives, there are a number of conditions and restrictions. And there are some important differences between the EEOC's rules and other rules governing wellness programs, such as guidance under HIPAA and the ACA. Here are the highlights.

What Wellness Plans Are Covered?

These regulations apply to any wellness plan that involves a disability-related inquiry or medical examination. This will include most wellness plans that require completion of a health risk assessment or biometric screening. It also includes tobacco-related wellness plans that involve any type of medical test to screen for the presence of nicotine, but it does not include tobacco-related programs that merely ask an employee to certify whether they use tobacco (and do not require any other medical examinations).

In an important change from the proposed regulations, the final regulations apply to a wellness program without regard to whether the program is offered in connection with a group health plan. For example, an employer that offers a cash reward to employees for completing a health risk assessment or biometric screening may be subject to the limitations under the final regulations.

What Limits Apply to Wellness Incentives?

For a wellness plan covered by these regulations, the incentive offered to any employee may not exceed 30% of the full cost      Continue Reading...

HHS Announces Opening of Phase 2 HIPAA Audit Program
By: Jason Lacey

The HHS Office of Civil Rights (OCR) has announced the opening of its "Phase 2" HIPAA audit program. We have been anticipating this program for some time. It potentially affects all HIPAA covered entities, including employer-sponsored group health plans, as well as business associates of those covered entities, such as third-party administrators for self-insured health plans.

The purpose of the audit program is to "assess compliance" with the HIPAA privacy, security, and breach notification rules. Accordingly, these audits will be directed at a cross-section of HIPAA covered entities and business associates, rather than based on specific complaints or news reports.

Covered entities and business associates that are potential candidates for audit will be contacted by email (check your spam filter!) and asked to complete a pre-audit questionnaire. Not all covered entities and business associates that go through the pre-audit process will be selected for audit. But those who fail to respond to the pre-audit questionnaire will still be included in the potential audit pool, and it seems fair to assume that a failure to respond may increase OCR's interest in conducting a full-scope audit. 

Based on the updated audit protocol that OCR is using to train its auditors, we have a good idea what OCR will be looking for if it conducts an audit. In the case of an employer-sponsored group health plan, the audit is likely to include a review of the following:

  • The plan document (to determine whether the proper HIPAA plan language has been adopted)
  •      Continue Reading...
IRS Provides Favorable New Guidance on Safe-Harbor 401(k) Plans
By: Jason Lacey

The IRS has provided much-anticipated (and welcome) guidance on mid-year amendments to safe-harbor 401(k) plans. This is favorable guidance that provides greater flexibility to employers that sponsor safe-harbor plans.

Brief Background

Safe-harbor 401(k) plans are excused from performing some nondiscrimination tests in exchange for meeting specified criteria, including providing a minimum employer contribution (either a matching contribution or nonelective contribution) and providing eligible employees with a notice each year. Prior guidance from the IRS (mostly informal) has indicated that employers generally could not make mid-year amendments to safe-harbor plans (unless expressly authorized by the IRS) or would risk losing safe-harbor status for that year. This presumption against mid-year amendments appeared to include amendments to plan provisions that did not relate specifically to safe-harbor status.

A Change in the Presumption

New guidance from the IRS reverses the prior presumption that any mid-year amendment to a safe-harbor plan was prohibited unless expressly permitted. Instead the guidance says that most mid-year amendments are permissible, so long as notice and election requirements are met in cases where the change affects the required content of the safe-harbor notice. Specifically, the guidance provides:

“A change made to a safe harbor plan or to a plan’s required safe harbor notice content does not violate the requirements of [the safe-harbor rules] merely because the change is a mid-year change, provided that (i) if it is a mid-year change to a plan’s required safe harbor notice content, the notice and election opportunity conditions [described in the guidance] are satisfied, and (ii) the mid-year change      Continue Reading...

Supreme Court Limits Health Plan Reimbursement Rights
By: Jason Lacey

The U.S. Supreme Court has held that a self-insured health plan may not exercise reimbursement rights against a plan participant after settlement proceeds recovered by the participant from a third party have been spent or otherwise “dissipated.”

In the case, the plan paid $120,000 toward medical expenses incurred by the participant after he was injured by a drunk driver. The participant later recovered a $500,000 settlement from the drunk driver. The plan was entitled to seek reimbursement of $120,000 from the settlement, but it did not take adequate steps to enforce its rights. By the time the plan brought suit to enforce its right to reimbursement, the settlement proceeds had been paid to the participant and were gone. The plan attempted to recover the $120,000 from the participant, but the court held that the equitable remedies available under ERISA did not include a right to obtain payment from the participant after the settlement dollars were no longer in an identifiable fund.

The take-away? A self-insured health plan with a right to subrogation or reimbursement must assert its claim while the proceeds of a judgment or settlement are still in an identifiable fund, such as the trust account of the lawyer representing the participant in the personal-injury action. Otherwise, there may be nothing left from which to seek recovery. 

A copy of the court's opinion is available here.

Wellness Program Survives ADA Challenge
By: Jason Lacey

In a closely watched case, a federal judge in Wisconsin has denied the EEOC’s challenge to a wellness program maintained by Flambeau, Inc. The EEOC had sued the employer, alleging the wellness program violated the ADA.

The wellness program required employees to complete a health risk assessment and a biometric screening, but employees completing the program didn't just receive a premium reduction or other financial incentive. They were required to complete the program as a condition to obtaining coverage under the employer’s group health plan. Employees that chose not to participate in the wellness program were not allowed to enroll in the employer's health plan. 

The EEOC alleged that the wellness program violated the ADA’s prohibition against involuntary medical examinations and disability-related inquires. Although employees were not required to participate in the wellness program, the EEOC viewed the penalty for nonparticipation (loss of access to the group health plan) as too coercive, effectively making the wellness program an involuntary program. 

But the court side-stepped the question of voluntariness and concluded that a safe harbor under the ADA (which allows for bona fide underwriting activities) applied to the wellness program. Thus, the program did not violate the ADA without regard to whether it was voluntary. 

The court's decision to apply the ADA's underwriting safe harbor is consistent with a 2012 federal appeals court decision (Seff v. Broward County), but the EEOC has indicated it strongly agrees with that interpretation of the ADA. So we might expect further sparring between the EEOC and employers who choose      Continue Reading...

Congress Repeals ACA's Auto-Enrollment Requirement
By: Jason Lacey

Need something to add to your list of things to be thankful for this year?

As part of the Bipartisan Budget Act of 2015, Congress has repealed the auto-enrollment requirement under Section 18A of the Fair Labor Standards Act (FLSA), which was added by the Affordable Care Act. This provision would have required an employer that has more than 200 full-time employees to automatically enroll any new full-time employee in one of the employer's health plans, unless the employee affirmatively opted out of coverage.

Implementation of this requirement had been indefinitely delayed, pending the issuance of interpretive guidance. As such, employers will not feel any immediate impact from this legislation. But the auto-enrollment requirement raised a number of sticky issues that were likely to present challenges, so the repeal is a welcome development for regulation-weary employers.


EEOC Proposes GINA Guidance on Wellness Plan Incentives for Spouses
By: Jason Lacey

The EEOC has released a proposed rule, a fact sheet, and a set of FAQs regarding the Genetic Nondiscrimination Act (GINA) and wellness plan incentives for spouses of employees.

Under the proposed rule, an employer may offer an incentive as part of a wellness plan for an employee’s spouse to provide information about the spouse’s current or past health status, so long as the wellness plan is part of a program that is reasonably designed to promote health or prevent disease. Some additional conditions must also be satisfied, including that the total incentive for the employee and the spouse must not exceed 30% of the total cost of the group health plan coverage in which the employee and spouse are enrolled and that the spouse provide a voluntary, written authorization.  

This guidance is limited to programs that provide incentives for spouses to provide information about their current or past health status. It does not change existing GINA guidance that prohibits offering incentives to employees, spouses, or their children to provide their own genetic information, including family medical history.

These regulations are a companion to regulations under the ADA proposed by the EEOC earlier this year relating to wellness plan incentives offered to employees in exchange for undergoing a disability-related inquiry or medical examination. Under those regulations, employers generally may offer such incentives, so long as the amount of the incentives are limited to 30% of the total cost of employee-only coverage under the employer's group health plan. 

The ADA and GINA regulations      Continue Reading...

Supreme Court Upholds ACA Tax Credits in Federal Exchanges
By: Jason Lacey

In its much-anticipated decision in King v. Burwell, the Supreme Court has upheld the availability of the ACA's premium assistance tax credits for individuals purchasing insurance through a federally facilitated exchange, including the exchanges maintained for residents of Kansas and Missouri.

Background. This case addressed a seemingly simple proposition: Whether the phrase "an Exchange established by the State" meant only exchanges actually established and operated by one of the 50 states or the District of Columbia or whether it also included exchanges operated by the federal government in states that declined to establish their own exchanges. If the language meant only exchanges actually established and operated by one of the 50 states or the District of Columbia, the ACA's premium assistance tax credits would not be available to the residents of the 34 states that did not establish their own exchanges. This would have a ripple effect under the ACA by potentially limiting the impact of the individual mandate and the employer mandate and impairing the operation of the individual insurance market.

The Court's Analysis. The Supreme Court concluded that the statutory language (“an Exchange established by the State”) was ambiguous and that its meaning should be interpreted in the context of the broader structure of the ACA. It then held that the overall statutory scheme of the ACA compelled the conclusion that the tax credits should be available to individuals purchasing coverage through federally facilitated exchanges. Otherwise the individual insurance market would be destabilized in states with federally facilitated exchanges, likely leading to      Continue Reading...

New IRS Q&As Clarify ACA Reporting Issues
By: Jason Lacey

The IRS has updated two sets of Q&As on its website to clarify a variety of issues related to ACA reporting on Forms 1094-C and 1095-C. Here are some highlights:

  • ALE With No Full-Time Employees. An employer that qualifies as an "ALE member" does not have to report under Code Section 6056 if the employer does not have any full-time employees for any month of the year. This might happen, for example, if an entity is part of a larger group of entities that collectively employ 50 or more FTEs, but the particular entity in question has no full-time employees. This clarification would allow the employer to avoid filing Forms 1094-C and 1095-C, unless the employer actually provides coverage to one or more part-time employees under a self-insured plan sponsored by the employer.
  • Hand Delivery of Form 1095-C. An employer that is required to distribute Form 1095-C to an employee may hand deliver the Form 1095-C. It was unclear under prior guidance whether the only permitted distribution methods were first class mail and electronic delivery (with consent). 
  • Employee's SSN Required for Form 1095-C. When reporting individuals to whom coverage is provided (either on Form 1095-B or Part III of Form 1095-C), there is an option to use an individual's date of birth if the individual has not provided an SSN. However, when providing Form 1095-C to an employee, the employer must      Continue Reading...
New ACA FAQs Clarify the Preventive Care Mandate
By: Jason Lacey

A new set of tri-agency FAQs has clarified several issues related to the preventive care mandate. Among the highlights:

  • BRCA Testing. A plan subject to the preventive care mandate must cover (without cost-sharing) BRCA genetic testing for women who have had a prior non-BRCA-related breast cancer or ovarian cancer diagnosis, even if those women are currently asymptomatic and cancer-free and even if there is no family history of BRCA-related cancer. 
  • Contraception. A plan subject to the preventive care mandate must cover (without cost-sharing) at least one form of contraception in each of the 18 distinct categories of contraceptive methods identified by the FDA. A plan may use reasonable medical management techniques to encourage use of specific services or FDA-approved items within a particular category (such as steering individuals toward generic prescription drugs), so long as the plan maintains an accessible and expedient exceptions process to allow for coverage (without cost-sharing) of a particular service or item determined by an individual's attending provider to be medically necessary for that individual. 
  • Well-Woman Preventive Care for Dependents. If a plan subject to the preventive care mandate covers dependent children, such children must be provided (without cost-sharing) the full range of recommended preventive services applicable to them based on their age group and health condition. This may include, for example, covering services for prenatal care of a pregnant dependent child.
  • Colonoscopy      Continue Reading...
2016 Inflation Adjusted Amounts for HSAs and HDHPs
By: Jason Lacey

The IRS has released the 2016 inflation-adjusted amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs).

HDHP Minimums and Maximums. The minimum annual deductible for an HDHP will be $1,300 for self-only coverage and $2,600 for family coverage. These amounts have not changed from the 2015 amounts. The maximum annual out-of-pocket for an HDHP will increase to $6,550 for self-only coverage and $13,100 for family coverage.

"Embedded" ACA Out-of-Pocket Maximum. The Affordable Care Act also sets out-of-pocket maximums for non-grandfathered plans. For 2016, the ACA maximum will be $6,850 for self-only coverage and $13,700 for family coverage (compared to $6,550 and $13,100 for HDHPs). In addition, recent HHS guidance provides that, beginning in 2016, the self-only ACA out-of-pocket maximum must be "embedded" within the family ACA out-of-pocket maximum, meaning that no individual may be subject to out-of-pocket expenses in excess of the self-only maximum. In the case of a plan intended to be an HDHP, this means that (1) the out-of-pocket maximum cannot exceed the lower maximum applicable to HDHPs, and (2) the out-of-pocket maximum for an individual covered under a family plan cannot exceed the ACA maximum for self-only coverage. 

Example. An HDHP for 2016 has a family deductible of $13,100, with no other cost sharing. This is permissible because it does not exceed either the ACA out-of-pocket maximum limit ($13,700) or the lower HDHP out-of-pocket maximum limit ($13,100). However, the plan must further provide that no member of the family will be required to contribute more than $6,850 toward      Continue Reading...

An ACA Anniversary
By: Jason Lacey

It should not go without notice that today marks the fifth anniversary of the enactment of the Affordable Care Act. 

Love it or hate it, it is difficult to imagine a single piece of federal legislation in the last 30 years that has dominated the landscape in the way the ACA has. It has been to the Supreme Court three times in its short life, with the outcome of the third visit still in question. It has spawned thousands of pages of complex regulations that affect insurers, employers, and individuals. It has implemented reforms that have already substantially changed both the individual and group markets for health insurance. And we're just getting started. 

What will the next five years bring? A wholesale repeal seems unlikely, but can never be totally ruled out. On many of the elements that have already been implemented, a shift from interpretation to enforcement may start to occur. But there will also be countless further pages of interpretive guidance to digest. And one more big piece of the puzzle likely will be snapped into place with the implementation of the "Cadillac" tax in 2018. 

Whatever may come, the ACA seems certain to provide a continued source of conversation and complexity that will impact all of us. So raise a glass (or a finger) to acknowledge the moment and look forward (or not) to what may lie ahead. It's sure to be interesting. 

Federal Legislation Would Clarify Wellness Plan Treatment Under ADA and GINA
By: Jason Lacey

Federal legislation has been introduced that would clarify the treatment of employer wellness plans under the ADA and GINA. It is styled as the "Preserving Employee Wellness Programs Act." Under the act, any wellness plan that meets the requirements imposed by regulations issued under HIPAA and the ACA would not be treated as violating the ADA or Title I or Title II of GINA solely because the plan provides a reward. 

The legislation would respond to confusion over the EEOC's position on how employer obligations under the ADA and GINA intersect with the HIPAA and ACA rules that allow providing a reward (or penalty) to employees who participate in a "health-contingent" wellness program. Although the EEOC has never taken a formal regulatory position on the issue, it has sued several employers over their wellness programs, including at least one program that appeared to satisfy the requirements under HIPAA and the ACA (see prior articles here, here, and here). 

The EEOC is said to be working on a set of regulations to address this issue that may be near release. Employers will want to keep an eye on both these legislative and regulatory developments, as they could have an important (and hopefully helpful) impact on wellness plan design.

A copy of Senate Bill 620, the Preserving Employee Wellness Programs Act, is here

ACA Back in Front of the Supreme Court
By: Jason Lacey

The Supreme Court heard oral arguments this week in King v. Burwell, the latest challenge to the Affordable Care Act.

At issue in the case is whether the tax credits that are available to subsidize the cost of health insurance coverage are available in all of the public exchanges or just exchanges that are operated by states. If the credits are only available in state-based exchanges, that would severely limit access to the credits, because most states (37 of them) have some form of an exchange operated by the federal government.

This could have an impact beyond individual access to the tax credits. For example, whether and to what extent large employers may be subject to penalty under the "play-or-pay" rules depends on whether and to what extent employees of those employers are able to qualify for tax credits. If tax credits aren't available to employees because the exchange in their state is a federally operated exchange (as in Kansas), the employer might avoid penalties, even if it is not offering the type of coverage required by the play-or-pay rules. 

It's hard to predict how the case will come out. The court is expected to break along the typical ideological lines, with the result depending on how the "swing" votes go. We should have an answer sometime this summer.

A transcript of the oral arguments is here.

IRS Provides Preliminary Cadillac Tax Guidance
By: Jason Lacey

The IRS recently issued Notice 2015-16, which represents the first step in yet another significant ACA guidance project that will unfold over the next two years. This project will flesh out the scope and mechanics of so-called “Cadillac” tax enacted as part of the ACA. Here is an overview of the initial guidance.


Beginning in 2018, a 40% excise tax will be imposed on the value of “applicable employer-sponsored coverage” provided to an employee each year, to the extent that value exceeds a threshold amount. The statutory thresholds are $10,200 for self-only coverage and $27,500 for other-than-self-only coverage. There are some potential upward adjustments to the threshold amounts, including for cost of living, although the thresholds are not anticipated to adjust as quickly as the growth in healthcare costs.

Items Included in Applicable Coverage

Notice 2015-16 begins to clarify the coverage that will (and will not) be included in “applicable employer-sponsored coverage” for purposes of the Cadillac tax, in addition to major medical coverage.

  • Executive Physicals and HRAs. Executive physical programs and HRAs will be included.
  • HSAs. Employer contributions to HSAs and employee salary-reduction contributions to HSAs will be included. Employee after-tax contributions (i.e., employee contributions made outside a cafeteria plan) will not be included.
  • On-Site Clinics. Coverage through on-site clinics generally will be included, but the IRS is considering an exception for on-site clinics that offer only “de      Continue Reading...
No More Inference of Contractual Right to Lifetime Retiree Health Benefits
By: Jason Lacey

The Supreme Court recently answered an important question that has lingered over retiree health benefits for years. If a contract gives retirees a right to health benefits but doesn't specify whether those benefits may be amended or terminated, can they ever be modified or taken away? The Court didn't exactly say they could be changed, but it opened the door a little wider to that possibility.

The Yard-Man Inference. A prior case from a federal appeals court (the Yard-Man case) said that, if retiree health benefits were collectively bargained but the collective-bargaining agreement (CBA) didn't specify whether they could be modified, there was a "presumption" or "inference" that the parties intended for those benefits to last for life, without modification. It didn't matter if the CBA itself expired at some point. The right to unmodified benefits was deemed to continue.

This created a problem for employers who had agreed to provide retiree health benefits at a time when the cost of those benefits wasn't a big concern, only to find out later that, notwithstanding rising health-care costs, they couldn't pass on any greater share of those costs to the retirees, much less take away the benefits altogether.

Placing a Thumb on the Scale. The Supreme Court rejected this so-called Yard-Man presumption, saying, in effect, that it went too far in making up contract terms that weren't really part of the deal. "Yard-Man violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.      Continue Reading...

IRS Provides Limited Penalty Relief for Tax Credit Overpayments
By: Jason Lacey

Individuals who obtained premium tax credits to offset the cost of purchasing insurance through a public exchange during 2014 must reconcile those credits when they file their 2014 tax returns. If it turns out they received more credits than they were entitled to receive, they must pay back some or all of the excess.

Tax Problems. This repayment obligation could trigger a couple of tax problems for the individual. First, they may end up with a tax liability on their return when they were otherwise expecting a refund (or at least not expecting to pay anything). Second, they could owe a penalty for underpaying estimated taxes (not paying their tax liability soon enough).

Limited Penalty Relief. The IRS has provided penalty relief for 2015 (relating to the 2014 tax year) to address these two problems. However, the relief is limited to certain penalties associated with reconciliation of the premium tax credit. There is no relief for penalties associated with underpayments due to responsibility for the individual mandate penalty.

Late Payment Relief. The tax code imposes a delinquency penalty for late payment of taxes that are due. This penalty will be abated for 2014 for taxpayers who (1) are otherwise current with filing and payment obligations, (2) have a balance due for 2014 due to excess premium tax credits, and (3) report the excess tax credits on a timely filed (including extensions) 2014 tax return.

Estimated Tax Penalty Relief. The tax code also imposes a penalty for underpayment of estimated taxes. This penalty will be      Continue Reading...

The Save American Workers Act
By: Jason Lacey

Congress is already at work in early 2015 and attempting to make changes to the Affordable Care Act.  The House passed legislation to change the definition of full-time employment from 30 hours per week to 40 hours per week.  Now its up to the Senate to pass a similar measure.  While Congress seems intent on making changes to the Affordable Care Act, the White House isn't likely to sign off on such a measure.  Stay tuned for further developments as the measure works its way through the Senate.  The introduction of this legislative proposal is likely to be just the first of many actions Congress will take in the coming months.

HIPAA Settlement Highlights Focus on Security Concerns
By: Jason Lacey

The latest announcement by HHS regarding settlement of an investigation under the HIPAA privacy, security, and breach-notification rules reflects an increased focus by HHS on security-related issues and the need for health plans and other covered entities to take reasonable steps to protect PHI from hacking, viruses, and malware attacks.

Background. The covered entity in this case (a non-profit community mental health services organization) reported a breach affecting the PHI of approximately 2,700 individuals. The breach was caused by a malware attack on the covered entity’s IT system. The system was using outdated software that made it vulnerable to attack. Following the HHS investigation, the covered entity agreed to a settlement that included a cash payment of $150,000 and a two-year corrective action plan.

Keep Your Software Updated! A key takeaway from this case is that covered entities will be held responsible for maintaining a sound IT infrastructure. System software must be kept up-to-date, and appropriate technical security measures must be implemented, such as firewalls capable of threat monitoring.

Common Sense Approach. Although covered entities may have varying degrees of technical sophistication, HHS’s press release emphasized the need for a “common sense approach” to risk mitigation. “This includes reviewing systems for unpatched vulnerabilities and unsupported software that can leave [PHI] susceptible to malware and other risks.”

Adopting Policies Isn’t Enough. Another key takeaway is that adopting policies and procedures to address the HIPAA privacy and security rules is only the beginning of an appropriate HIPAA compliance program. The policies must be implemented, followed, and      Continue Reading...

IRS Releases 2015 COLAs for Benefit Plans
By: Jason Lacey

The IRS has released the annual cost of living adjustments for various benefit-plan limits. The adjusted amounts will apply for 2015. Here are the highlights:

  • Retirement plan elective deferrals (402(g) limit) - $18,000 ($500 increase)
  • Retirement plan catch-up contributions - $6,000 ($500)
  • Annual additions to a defined contribution plan (415 limit) - $53,000 ($1,000 increase)
  • Definition of highly compensated employee - $120,000 ($5,000 increase)
  • Annual compensation limit (401(a)(17) limit) - $265,000 ($5,000 increase)

For individuals age 50 and older, these increased limits represent the ability to electively contribute up to $24,000 to a 401(k) plan, 403(b) plan, or governmental 457(b) plan during 2015. 

Inflation-adjusted amounts for high deductible health plans (HDHPs) and health savings accounts (HSAs) were released earlier this year (see prior post here).

IRS and HHS Rein in Minimum Value Plans
By: Jason Lacey

New guidance from the IRS and HHS aims to quickly scuttle the use of health plans designed to push the limits of minimum value. These plans (sometimes referred to in the market simply as “minimum value plans,” “MVPs,” or “MV lite”) aimed to reduce cost by excluding coverage for key benefits, such as physician services or inpatient hospitalization, but were nonetheless said to provide minimum value because they qualified under the MV calculator.

The Concept. The idea behind MVPs was to create a plan that would allow a large employer to avoid all penalties under the ACA’s employer shared responsibility mandate at relatively low cost. As minimum essential coverage that provided minimum value, an MVP would allow a large employer to avoid all penalties, so long as the plan was affordable. And due to the relatively low cost, employers could make MVPs affordable with little or no premium subsidy.

But the effect of MVPs was not limited to penalty avoidance by employers. Employees who are offered coverage under an affordable, minimum value plan are ineligible for premium tax credits (PTCs) through state and federal exchanges, even if they turn down the employer-sponsored coverage. And with MVPs, this meant employees could be knocked out of PTC eligibility with an offer of coverage under a plan that intentionally excluded a significant category of benefits (e.g., inpatient hospitalization). This may well have been their undoing.

MV Calculator. Why did this seem to work? It all came down to the MV calculator. Final HHS regulations and      Continue Reading...

CMS Indefinitely Delays HPID Implementation
By: Jason Lacey

On the eve of the deadline for large controlling health plans (CHPs) to obtain an HPID, CMS has announced that it is indefinitely delaying enforcement of the regulations that require obtaining an HPID and using the HPID in covered transactions. The announcement is effective October 31, 2014 and applies “to all HIPAA covered entities, including healthcare providers, health plans, and healthcare clearinghouses.”

What Does This Mean for Large Health Plans? The immediate impact of this announcement appears to be that large CHPs are no longer required to obtain an HPID by the November 5, 2014 deadline. Whether or when they may be required to do so in the future will depend on when (or if) CMS decides to begin enforcing the regulations again.

What Does This Mean for Small Health Plans? The deadline for small CHPs to obtain an HPID was November 5, 2015. Technically, that deadline has been suspended as well, although with a year between now and then, it’s possible that CMS could reverse course and begin enforcing the rule again before then. So small plans should monitor the status of the rule, but likely will not want to attempt to obtain an HPID until further notice.

Where Did This Come From? The CMS announcement references a September 23, 2014 report from the National Committee on Vital and Health Statistics (NCVHS). In that report, the NCVHS unequivocally recommended that covered entities not begin using an HPID in transactions involving health plans. The report argues that there is already a      Continue Reading...

EEOC Turns Up the Heat on Employer Wellness Plans
By: Jason Lacey

Adding to a flurry of recent activity (see here and here), the EEOC has challenged the wellness plan maintained by Honeywell International, alleging that it violates both the ADA and GINA. The EEOC is seeking a preliminary injunction against Honeywell that would stop further implementation of the plan.

Plan Terms. Based on the facts described in the EEOC’s court filings, Honeywell employees are asked to undergo a biometric screening that includes a blood draw. If the employee has family coverage, the employee’s spouse is asked to complete the biometric screening as well. If employees (or their spouses) do not complete the screening, they pay a “surcharge” on their annual premium of up to $2,500 (a base surcharge of $500, plus tobacco-related surcharges of $1,000 for individual coverage or $2,000 for family coverage). They also lose up to $1,500 in employer contributions to an HSA.

ADA - Voluntariness. The EEOC’s argument under the ADA is that the biometric screening under Honeywell’s plan is not voluntary and, thus, is a prohibited medical examination. Although employees are not required to submit to the biometric screening, the premium surcharges and lost HSA contributions are enough to render the screening involuntary.

ADA - Underwriting Safe Harbor. The EEOC also argues that the wellness plan is not protected by the ADA’s underwriting safe harbor. That safe harbor permits “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on      Continue Reading...

CMS FAQs Clarify HIPAA Health Plan Identifier (HPID) Requirement
By: Jason Lacey

Health plans, including some employer-sponsored plans, face a looming deadline to obtain a HIPAA health plan identifier (HPID). There have been many questions surrounding this requirement, particularly as it applies to employer-sponsored plans. Recent FAQ guidance from CMS (here) has provided some key clarifications, although questions remain. Here's what you need to know.

Background. HIPAA requires health plans and other covered entities to engage in certain covered transactions in a standardized way. This is sometimes referred to as the HIPAA "transactions rule." The details of that rule are beyond what can be addressed here. But the key thing to understand is that the ACA amended the transactions rule to require health plans to obtain a specific identifier (the HPID) to be used in connection with covered transactions.

Deadline. For plans that are required to get an HPID, the deadline is November 5, 2014, unless the plan is a "small" health plan, in which case the deadline is November 5, 2015.

Small Health Plan. A small health plan is a plan that has $5 million or less in annual receipts. The CMS FAQs tell us that annual receipts mean premiums paid during the last full fiscal year, in the case of fully insured plans, and health care claims paid during the last full fiscal year, in the case of self-insured plans. Plans that are partially insured and partially self-insured combine the premiums and health care claims paid to determine their total annual receipts.

Stop-Loss Premiums. It's not clear whether annual receipts are intended to      Continue Reading...

EEOC Challenges Another Wellness Plan Under the ADA
By: Jason Lacey

The EEOC has announced (here) the filing of another lawsuit challenging an employer’s wellness plan on the basis that it violates the ADA. Like a similar case filed in August (see coverage here), the EEOC alleges that the employer’s plan fails under the ADA because it is not a voluntary program.

Background. The wellness plan at issue in this case sounds fairly typical. Employees apparently were asked to submit to a biometric screening and complete a health risk assessment. So far, so good. But employees who declined to participate in the wellness plan are said to have had their health plan coverage canceled or to have been required to pay 100% of the cost of coverage under the employer's health plan. By comparison, employees who participated in the wellness plan were only required to pay 25% of the cost of coverage under the employer's health plan.

Something Doesn’t Add Up. The facts as stated by the EEOC aren’t totally consistent. First they say health-plan coverage was canceled when employees declined to participate in the wellness plan. Then they say higher health-plan costs were shifted to employees who declined to participate in the wellness plan. It can’t be both - at least not for the same employees. So we may not have a clear picture of the plan in question at this point.

Voluntariness. But whatever the facts may be, we can see that the EEOC is clearly focused on voluntariness. According to the press release: “Having to choose between complying with      Continue Reading...

New 125 Plan Election Change Addresses Key ACA Concern
By: Jason Lacey

Employers considering the look-back measurement method to identify full-time employees for purposes of the ACA’s employer shared responsibility mandate have expressed concern about the impact on employees who are treated as full-time for a stability period but experience a reduction in actual hours of service.

Locked-In Status. Employers recognize that these employees may prefer to drop employer-sponsored coverage upon the reduction in hours. But employers that want to avoid penalty exposure under the ACA must continue to make these employees eligible for coverage, because they are recognized as full-time. And because there is no loss of eligibility, the employees cannot make a voluntary decision to drop coverage in the middle of the year. There is no change in status that will support an election change under the existing 125 plan regulations. The employees are locked-in.

New Election Change. A recent notice from the IRS provides important relief from this problem by adding a new election-change event to the cafeteria-plan rules. An employee can now make a mid-year election to revoke health plan coverage (not including health FSA coverage) upon a reduction in hours of service, if the following conditions are satisfied:

  1. The employee has been in a full-time position and changes to a position that is reasonably expected to average less than 30 hours of service per week, even if that change does not result in a loss of health plan eligibility.
  2. The employee represents to the employer that the employee      Continue Reading...
PCORI Fee Increases Slightly
By: Jason Lacey

The IRS has announced that, for plan years ending on or after October 1, 2014 and before October 1, 2015, the Patient Centered Outcomes Research Institute Trust Fund tax (or "PCORI fee") will be $2.08 per covered life, up slightly from the rate of $2.00 per covered life that applied for plan years ending on or after October 1, 2013 and before October 1, 2014.

For insured plans, the PCORI fee is paid by the insurance carrier, but for self-insured plans, the plan sponsor (typically the employer) is responsible for calculating and paying the fee. Payment of the fee is due by July 31 of the year following the calendar year in which the plan year ends. Thus, for example, for plan years ending in 2014, the PCORI fee is due by July 31, 2015. IRS Form 720 must be filed along with payment of the fee.

The announcement (Notice 2014-56) is available here.

HHS Addresses Same-Sex Spouses Under HIPAA
By: Jason Lacey

The HHS Office for Civil Rights (OCR) has provided guidance on the status of same-sex spouses under the HIPAA privacy rule.

In light of the Supreme Court's Windsor decision, same-sex spouses are recognized as lawful spouses for purposes of all federal law, including HIPAA. Under the HIPAA privacy rule, spouses are "family members" of a protected individual, which is relevant for at least the following two purposes:

  • Under certain circumstances, a covered entity (including a health plan) is permitted to share an individual's protected health information with the individual's family members. The guidance makes clear that a family member includes an individual's same-sex spouse.
  • The privacy rule prohibits health plans from using or disclosing genetic information for underwriting purposes. Genetic information includes, for example, genetic tests of an individual's family member or information regarding the manifestation of a disease or disorder in an individual's family member. The guidance makes clear that a family member for this purposes also includes an individual's same-sex spouse.

An individual's same-sex spouse may also qualify as the "personal representative" of an individual under the privacy rule, which, among other things, would allow the same-sex spouse to act on behalf of the individual in some circumstances. OCR indicates that further clarification regarding treatment of same-sex spouses as personal representatives will be forthcoming.

The bottom line for health plans and other covered entities is that same-sex spouses will be treated the same as opposite-sex spouses for purposes of the HIPAA      Continue Reading...

IRS Issues Key Regulations on Cash-Balance Pension Plans
By: Jason Lacey

The IRS released two new regulation packages today dealing with "cash balance" and other "hybrid" pension plans.They provide some important clarifications on implementation of the "market rate" requirement enacted in 2006 as part of the Pension Protection Act. The market-rate requirement ensures that cash-balance plans do not discriminate against older workers by crediting interest at an unreasonably high rate.

Final Regulations. One package of rules finalizes (at long last) market-rate-of-return regulations under Code Section 411(b)(5) that were proposed in 2010. Among other things, the regulations identify the types of interest-crediting rates that will be considered market rates of return, including:

  • the 430(h)(2)(C) segment rates (adjusted or unadjusted),
  • the actual rate of return on plan assets (if conditions are satisfied),
  • the rate of return on certain regulated investment companies (RICs), and
  • a fixed rate of up to 6% (increased from 5% in the proposed regulations).

Interest Rate Floors. The final regulations address the use of an annual or cumulative floor on a variable interest-crediting rate and allow for a floor of up to 5% annually (increased from 4% in the proposed regulations) in connection with any Notice 96-8 rate (e.g., the yield on 30-year Treasury Constant Maturities) and a floor of up to 4% annually in connection with any of the 430(h)(2)(C) segment rates. An investment-based interest-crediting rate (including the rate of return on plan assets) cannot be subject to an annual floor, but may be subject to a cumulative floor      Continue Reading...

EEOC Files ADA Lawsuit Over Employer Wellness Plan
By: Jason Lacey

The EEOC has filed a lawsuit against a Wisconsin employer, alleging that the employer's wellness plan violates the ADA. According to the EEOC's press release (here), this is the first lawsuit by the EEOC directly challenging a wellness program under the ADA.

Background. Although wellness plans are increasingly common, they raise a complex array of legal issues. Regulations addressing compliance with the HIPAA nondiscrimination requirements are well-developed now. But there is virtually no guidance addressing the manner in which the ADA applies to wellness plans. In particular, the ADA prohibits employers from requiring employees to undergo involuntary medical examinations, unless those examinations are clearly job-related, and it has never been clear where the line is on "voluntariness."

Bad Facts. Unfortunately, the facts of this case are bad enough that it may not provide much meaningful guidance. The EEOC's lawsuit alleges that the employer in this case required employees to participate in its wellness program (including what sounds like a fairly typical health questionnaire and biometric screening) and penalized those who refused by requiring them to pay 100% of the cost of coverage under the employer's health plan, plus a $50/month surcharge. Additionally, there is an allegation that the employer then terminated an employee for declining to participate in the wellness program.

Results Not Typical. All of these facts, if true, go well beyond what most typical employer wellness programs require or impose and would seem to be a fairly clear violation of the ADA's voluntariness requirement. So it's not clear how much      Continue Reading...

Halbig Decision Shouldn't Change Employer Planning for ACA Implementation
By: Jason Lacey

The recent decision by the Court of Appeals for the D.C. Circuit in Halbig v. Burwell (here) is certainly a major development in the ongoing saga of health care reform implementation. If it holds up, it would have a significant impact on the ACA as a whole, since both the employer and individual mandates are affected by the presence (or absence) of premium-assistance tax credits.

But this likely isn't the end of the line for tax credits in federally facilitated exchanges (which currently includes the Kansas exchange). The result in the case was not unexpected, given the makeup of the 3-judge panel. And there is a further expectation that the case will be given reconsideration by the full D.C. Circuit, which may lean the other way. (The government's lawyers have already requested such reconsideration.) So the decision could be short-lived.
Even if the decision stands, the Fourth Circuit's opposing decision in King v. Burwell (here) creates a "circuit split" on the issue, making the issue ripe for Supreme Court review. And we know the Supreme Court has been creative in its interpretation of things related to the ACA, like what is or isn’t a “tax." Concluding that the statutory reference to state-based exchanges really means either a state-based exchange or a federally facilitated exchange might not be a big stretch.
It's also unclear what immediate precedential impact (if any) the case has. The ruling would be controlling in the D.C. Circuit, but it may have limited impact outside of the circuit,      Continue Reading...
New ACA FAQ Addresses Elimination of Contraceptive Coverage
By: Jason Lacey

A new FAQ (Part XX in the series) addresses the disclosure obligations of an employer that elects to eliminate contraceptive coverage in light of the Supreme Court's Hobby Lobby decision. It describes obligations under ERISA and, specifically, the employer's obligation to update its SPD by adoption of a new SPD or summary of material modifications (SMM).

60-Day Deadline. SMMs generally must be provided by 210 days after the end of the plan year in which a plan modification occurs. However, a modification that is a material reduction in covered services or benefits under a group health plan must be provided within 60 days after the date the modification is effective. The FAQ indicates that a decision to reduce or eliminate contraceptive coverage would be considered a material reduction in covered services or benefits, thereby requiring notice within 60 days.
What About SBCs? Interestingly, the FAQ makes no reference to the summary of benefits and coverage (SBC). In general, if there is a mid-year plan modification that affects the content of a previously provided SBC, notice of the modification must be provided at least 60 days in advance of the effective date of the change.
Perhaps the failure to address this obligation reflects a conclusion that elimination of all or a portion of contraceptive coverage would not affect the content of the SBC and, therefore, does not trigger the advance-notice requirement. (A review of the sample SBC on the DOL's website shows no reference to contraception or other preventive care.) But any employer considering      Continue Reading...
Out and About - July 2014
By: Jason Lacey

Here's a listing of my scheduled speaking engagements for the next two months. Drop by and say hi, if I'm going to be near you.

  • July 15, 2014 - State and Federal Exchanges: Employer Notice and Other Administrative Impacts (panel) - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • July 15, 2014 - Code § 4980H Plan Design and Administration Impacts (panel) - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • July 16, 2014 - Information Reporting for Employer Plans Under Code §§ 6055 and 6056 (panel) - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • July 17, 2014 - Health Care Reform Impacts for Small Employers - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • August 12, 2014 - HIPAA Privacy and Security for Self-Insured Health Plans - Private Client Event - Webinar
Considering the Scope and Impact of the Supreme Court's Hobby Lobby Decision
By: Jason Lacey
The Supreme Court's Hobby Lobby decision answered the question whether certain for-profit employers may, on religious grounds, avoid complying with the ACA's contraception mandate. But in doing so, it raised a number of other questions regarding the scope and impact of its decision.
Background. The Hobby Lobby case involved three for-profit corporations (Hobby Lobby, Mardel, and Conestoga Wood Specialties) whose owners objected, on religious grounds, to fully complying with the portion of the ACA's preventive-care mandate that requires most health plans to provide coverage (without cost-sharing) for all FDA-approved contraceptive methods for women. Specifically, these owners objected to a subset of contraceptive methods that they believed to be abortive - drugs such as "Plan B" and devices such as IUDs.
Ruling in favor of these employers, the court held that a separate federal statute, the Religious Freedom Restoration Act (RFRA), prevented enforcement of the contraception mandate against these employers because doing so would violate a sincerely held religious belief of the employers and because the mandate to provide coverage was not the "least restrictive means" of implementing the government's interest in ensuring access to these contraceptive methods.
Which Employers? One question that remains after the court's decision is which employers might be able to obtain a similar reprieve from compliance with the mandate. On its face, the decision applies to closely held for-profit corporations whose owners have sincerely held religious beliefs that are shared by the corporation. But many definitional issues remain.
Closely Held. What does it mean for an organization to be closely      Continue Reading...
2015 Inflation Adjusted Amounts for HSAs and HDHPs
By: Jason Lacey

The IRS has released the 2015 inflation-adjusted amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs). 

HDHP Minimums and Maximums. The minimum annual deductible for an HDHP will increase to $1,300 for self-only coverage and $2,600 for family coverage. The maximum annual out-of-pocket for an HDHP will increase to $6,450 for self-only coverage and $12,900 for family coverage.

Relationship to ACA Maximum Out-of-Pocket. The Affordable Care Act also sets out-of-pocket maximums for non-grandfathered plans. For 2014, the ACA maximum and the HDHP maximum are the same. But the amounts are indexed at different rates, and for 2015 they will be different. The ACA maximum will be $6,600 for self-only coverage and $13,200 for family coverage (compared to $6,450 and $12,900 for HDHPs). What does this mean? A plan designed to satisfy the ACA maximums will not necessarily qualify as an HDHP. It will need to satisfy the lower maximum applicable to HDHPs. 

Maximum HSA Contribution. The maximum annual contribution to an HSA for 2015 will increase slightly to $3,350 for an individual with self-only HDHP coverage and $6,650 for an individual with family HDHP coverage. Catch-up contributions for individuals age 55 and older are not inflation-adjusted and remain at $1,000 per year.

Recall that these annual maximums are prorated on a monthly basis for an individual who is covered under an HDHP for less than the full year. Also, special rules apply when one or both spouses have HDHP coverage, with the general effect of limiting the household to a single family-level      Continue Reading...

Out and About - June 2014
By: Jason Lacey

Here's a listing of my scheduled speaking engagements for the next two months. Drop by and say hi, if I'm going to be near you.

  • June 4, 2014 - 2014 Health Care Reform Workshop - Foulston Siefkin LLP - Wichita, Kansas
  • June 5, 2014 - 2014 Health Care Reform Workshop - Foulston Siefkin LLP - Wichita, Kansas
  • June 10, 2014 - Employee Benefits and Insurance Coverage Issues Facing Cancer Patients - ABA Breast Cancer Task Force Webinar
  • June 11, 2014 - Overview of HIPAA Privacy and Security - Friends University Graduate Course in Health Law and Ethics - Wichita, Kansas
  • June 17, 2014 - DOL Audits of Employee Benefit Plans - Private Client Event - Webinar
  • June 19, 2014 - 2014 Health Care Reform Workshop - Foulston Siefkin LLP - Overland Park, Kansas
  • June 23, 2014 - Wellness Plans and ERISA - Private Client Event - Webinar
  • July 15, 2014 - State and Federal Exchanges: Employer Notice and Other Administrative Impacts (panel) - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • July 15, 2014 - Code § 4980H Plan Design and Administration Impacts (panel) - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • July 16, 2014 - Information Reporting for Employer Plans Under Code §§ 6055 and 6056 (panel) - EBIA Advanced Cafeteria Plans and Benefits Conference - Seattle, Washington
  • July 17, 2014 - Health Care Reform Impacts for Small Employers      Continue Reading...
DOL Updates COBRA Notice Regulations and Model COBRA Notices
By: Jason Lacey

Earlier this month, the Department of Labor (DOL) issued proposed amendments to the COBRA notice regulations and released updated model notices for the COBRA general notice and the COBRA election notice.

Proposed Regulations. The proposed changes in the actual regulations are largely unremarkable. The DOL is basically proposing to give itself the ability to update the model COBRA notices at any time by posting a new one to its website, rather than actually amending its regulations each time a model notice is updated. (The original model notices were issued as appendices to the actual regulations.)

The preamble to the proposed regulations provides some assurance that the new model notices may be relied on even though the regulations aren't final: “Until rulemaking is finalized and effective, the Department of Labor will consider use of the model notices available on its website, appropriately completed, to be good faith compliance with the notice content requirements of COBRA. The Department notes that the use of the model notices is not required. The model notices are provided solely for the purpose of facilitating compliance with the applicable notice requirements.”

New Model Notices. Both the model general notice and the model election notice have been updated and posted to the DOL website.

  • General Notice. Ignoring the ARRA COBRA-subsidy notices (remember those?!), this is the first update to the model general notice since 2004. Other than some general wordsmithing, the primary change is to add some general discussion of Marketplace coverage and the related premium-assistance tax credits      Continue Reading...
Out and About - April 2014
By: Jason Lacey

Here's a listing of my scheduled speaking engagements for the next two months. Drop by and say hi, if I'm going to be near you.

  • April 16, 2014 - Information Reporting Under HCR: Final Rules for Code §§ 6055 and 6056 (co-presenter) - EBIA Web Seminar
  • April 17, 2014 - Health Care Reform Update for Educational Organizations (panel discussion) - Kansas Independent College Association - Topeka, Kansas
  • April 30, 2014 - ERISA Compliance for Health and Welfare Plans - EBIA In-Person Seminar - New York, New York
  • April 30, 2014 - HSAs, HRAs, and Consumer-Driven Health Care - EBIA In-Person Seminar - New York, New York
  • May 14, 2014 - ERISA Compliance for Health and Welfare Plans - EBIA Private Client Event - Orlando, Florida
  • May 14, 2014 - HSAs, HRAs, and Consumer-Driven Health Care - EBIA Private Client Event - Orlando, Florida
  • May 20, 2014 - Key Concepts for Required Minimum Distributions from IRAs and Qualified Retirement Plans (co-presenter) - 2014 WSU Accounting and Auditing Conference - Wichita, Kansas
  • May 21, 2014 - ERISA Compliance for Health and Welfare Plans - EBIA In-Person Seminar - Minneapolis, Minnesota
  • May 21, 2014 - HSAs, HRAs, and Consumer-Driven Health Care - EBIA In-Person Seminar - Minneapolis, Minnesota
  • June 4, 2014 - 2014 Health Care Reform Workshop - Foulston Siefkin LLP - Wichita, Kansas
  • June 5, 2014 -      Continue Reading...
IRS Clarifies Impact of Health FSA Carryover on HSA Eligibility
By: Jason Lacey

An internal IRS memorandum has provided much-needed clarification on the interaction between the new $500 carryover rule for health FSA plans and eligibility to make contributions to a health savings account (HSA). The conclusions in the memo are generally favorable, but employers wanting to both offer the carryover rule in a health FSA and allow employees to be HSA-eligible will need to carefully design their health FSA plans to take advantage.

Background. In guidance issued last year, the IRS provided limited relief from the use-it-or-lose-it rule that applies to health FSA plans by allowing for a carryover of up to $500 of unused amounts each year. (See my post here.) Among the open questions was how this carryover would affect an individual's eligibility to make HSA contributions and what steps, if any, could be taken to ensure an individual would be HSA-eligible if the individual had a carryover amount. In general, to be HSA-eligible, an individual cannot have any low-deductible health coverage, including coverage under a general-purpose health FSA.

Carryover Affects HSA Eligibility for Entire Year. In this recent memorandum, the IRS confirmed that an individual who has a carryover amount in a general-purpose health FSA is ineligible to contribute to an HSA for the entire carryover year, even after the individual exhausts the balance in the health FSA. For example, if at the end of 2014 an individual has $400 remaining in a general-purpose health FSA and that amount carries over to a general purpose health FSA for 2015, the individual will      Continue Reading...

IRS Provides Guidance on Treatment of Same-Sex Spouses In Retirement Plans
By: Jason Lacey

The IRS released its long-anticipated guidance today on the impact of the Windsor case to qualified retirement plans. The guidance resolves a potentially thorny issue on retroactive recognition of same-sex marriages and clarifies when plans must adopt any amendments required to comply with Windsor. Here are the highlights:

Retroactivity Permitted But Not Required. Plans are not required to recognize same-sex marriages for any period before June 26, 2013 (the date of the Windsor decision). They are permitted to designate an earlier date as of which same-sex marriages will be recognized for plan purposes, although the guidance observes that recognizing same-sex marriages for all purposes as of a date earlier than June 26, 2013 may trigger requirements that are difficult to implement retroactively and may create unintended consequences, so caution must be exercised. 

Amendments May Not Be Necessary. A plan must be amended to reflect the outcome in Windsor only if the plan terms are inconsistent with Windsor. For example, a plan that defines a spouse as only a person of the opposite sex would be inconsistent with the outcome in Windsor. But a plan that merely uses the term "spouse" or "lawful spouse" without limiting it to persons of the opposite sex may be ok.

Amendment Timing. To the extent an amendment is required, it generally must be adopted by December 31, 2014. (Special rules may apply for non-calendar-year plans and governmental plans.)

Health and Welfare Plans Unaffected. This guidance addresses only retirement plans and does not impact health and welfare plans. 

The IRS's notice (Notice      Continue Reading...

Supreme Court Confirms Severance Payments are Subject to FICA Tax
By: Jason Lacey

The Supreme Court released its decision today in the Quality Stores case, confirming that severance payments are subject to FICA taxes. 

The payments at issue in the case were fairly typical. A significant reduction-in-force occurred. The employer had two severance plans in place. Officers and managers received between 6 and 18 months of severance payments. Rank-and-file employees received one week of severance pay for each year of service. Payments were reported on W-2s, and taxes were withheld, but the employer later had a change of heart and sued the IRS for a refund of the FICA taxes. Lower courts were sympathetic to the employer's arguments, but the Supreme Court was not persuaded. The decision was unanimous, with one justice not participating.

I don't think the decision itself was a big surprise. Severance payments have generally been viewed as an extension of wage payments and, therefore, subject to the same tax treatment as wages. But if the court had reached a different conclusion, that certainly would have been big news. 

The court's opinion is here.

Out and About - March 2014
By: Jason Lacey

Here's a listing of my scheduled speaking engagements for the next two months. Drop by and say hi, if I'm going to be near you.

  • March 19, 2014 - HIPAA Privacy and Security for Self-Insured Health Plans - Private Client Event
  • April 3, 2014 - Analysis of Auto-Enrollment, Same-Sex Spouse Issues and Other Participant and Beneficiary Issues for Health Plans (panel discussion) - ABA Joint Committee on Employee Benefits Government Invitational Conference - Baltimore, Maryland
  • April 10, 2014 - An Update on 105(h) Nondiscrimination Rules and Other ACA Mandates for Health Plans - Wichita Association of Health Underwriters Symposium - Wichita, Kansas
  • April 10, 2014 - Health Care Reform for Non-ERISA Lawyers - Topeka Bar Association CLE - Topeka, Kansas
  • April 17, 2014 - Health Care Reform Update for Educational Organizations (panel discussion) - Kansas Independent College Association - Topeka, Kansas
  • April 30, 2014 - ERISA Compliance for Health and Welfare Plans - EBIA In-Person Seminar - New York, New York
  • April 30, 2014 - HSAs, HRAs, and Consumer-Driven Health Care - EBIA In-Person Seminar - New York, New York
  • May 14, 2014 - ERISA Compliance for Health and Welfare Plans - EBIA Private Client Event - Orlando, Florida
  • May 14, 2014 - HSAs, HRAs, and Consumer-Driven Health Care - EBIA Private Client Event - Orlando, Florida


IRS Provides Final Guidance on Play-or-Pay Requirements
By: Jason Lacey

On February 12, 2014, the IRS published its long-awaited final regulations on the employer play-or-pay mandate under health care reform (here). Although the final regulations do not make significant wholesale changes to the proposed regulations, they do provide some important clarifying rules and transitional guidance that will help smooth the path to full implementation of the employer shared responsibility mandate.

Background. By way of brief background, the employer shared responsibility (pay-or-play) mandate under health care reform requires an "applicable large employer" (generally an employer with 50 or more full-time-equivalent employees) to offer affordable, minimum value health insurance coverage to its full-time employees (defined as employees working an average of 30 or more hours per week). Applicable large employers that fail to offer minimum essential coverage to at least 95% of their full-time employees generally face an annual penalty of $2,000 per full-time employee, if at least one of the employer's full-time employees obtains subsidized coverage through the public insurance exchange. Applicable large employers that offer minimum essential coverage to at least 95% of their full-time employees but do not ensure that the coverage is both affordable and provides minimum value generally face a penalty of $3,000 per full-time employee that obtains subsidized coverage through the public exchange. Key issues under these rules include determining who is an applicable large employer, who is a full-time employee, and whether coverage offered to an employee is affordable.

Details, Details. The specific provisions of the final regulations touch on many different areas to a degree      Continue Reading...

Out and About - February 2014
By: Jason Lacey

Here's a listing of my scheduled speaking engagements for the next two months. Drop by and say hi, if I'm going to be near you.

  • February 19, 2014 - Employee Benefits: Affordable Care Act Update (panel discussion) - Kansas SHRM 2014 Employment Law and Legislative Conference, Topeka, Kansas
  • February 19, 2014 - Employee Benefits: DOMA, Cafeteria Plans, and More (panel discussion) - Kansas SHRM 2014 Employment Law and Legislative Conference, Topeka, Kansas
  • February 26, 2014 - Legal Advocacy for Women with Breast Cancer: Insurance and Benefits Issues - ABA Health Law Section 2014 Emerging Issues Conference - Phoenix, Arizona
  • April 3, 2014 - Analysis of Auto-Enrollment, Same-Sex Spouse Issues and Other Participant and Beneficiary Issues for Health Plans (panel discussion) - ABA Joint Committee on Employee Benefits Government Invitational Conference - Baltimore, Maryland
Out and About - January 2014
By: Jason Lacey

Here's a listing of my scheduled speaking engagements for the next two months. Drop by and say hi, if I'm going to be near you.

  • January 21, 2014 - HIPAA's Brave New World for Brokers and Other Business Associates - Private Client Event - Denver, Colorado
  • January 23, 2014 - HIPAA's Brave New World for Brokers and Other Business Associates - Wichita Association of Health Underwriters Monthly Meeting - Wichita, Kansas
  • January 26, 2014 - Healthcare Reform From the Employer’s Perspective (panel discussion) - The Group 2014 Annual Meeting - Phoenix, Arizona
  • January 28, 2014 - HIPAA (panel discussion) - The Group 2014 Annual Meeting - Phoenix, Arizona
  • February 19, 2014 - Employee Benefits: Affordable Care Act Update (panel discussion) - Kansas SHRM 2014 Employment Law and Legislative Conference, Topeka, Kansas
  • February 19, 2014 - Employee Benefits: DOMA, Cafeteria Plans, and More (panel discussion) - Kansas SHRM 2014 Employment Law and Legislative Conference, Topeka, Kansas
  • February 26, 2014 - Legal Advocacy for Women with Breast Cancer: Insurance and Benefits Issues - ABA Health Law Section 2014 Emerging Issues Conference - Phoenix, Arizona


Supreme Court Upholds Internal Statute of Limitations in an ERISA Plan
By: Jason Lacey

In a unanimous decision (here), the Supreme Court has upheld the enforcement of an internal statute of limitations imposed by the language of an ERISA plan. 

Background. The case involved an employer-sponsored disability insurance plan. The plan language said that any lawsuit to seek payment of benefits must be filed within 3 years after proof of loss of the claim was required to be submitted. This was a shorter period than would have been required under general legal principles. Although ERISA does not provide a specific statute of limitations for claims for benefits, courts have long held that the most comparable statute of limitations under state law applies (usually 3 to 5 years) and that the statute of limitations does not begin to run until after the participant has exhausted the plan's internal claims and appeals process. Under the facts of the case before the Supreme Court, the effect of the internal statute of limitations imposed by the plan language was to require the participant to file a lawsuit within about 1 year after the conclusion of the internal claims and appeals process.

The Court's Ruling. The court held that it was permissible for the plan to impose a shorter limitations period than would otherwise apply under general legal principles. The court reasoned that the terms of the plan generally are controlling and must be given effect, unless the limitations period imposed by the plan is unreasonably short or another controlling statute prohibits the shorter limitations period. After considering the specific      Continue Reading...

HHS Proposes 2015 Reinsurance Contribution Amount and Plan Maximums
By: Jason Lacey

HHS has issued is proposed Notice of Benefit and Payment Parameters for 2015 (here). It is frankly a pretty mind-numbing piece of regulatory handiwork, but it includes a few interesting nuggets for employers.

Transitional Reinsurance Program. The notice discusses the transitional reinsurance program at some length but has three proposals that are particularly noteworthy.

(1) 2015 Contribution Rate. The proposed contribution rate for 2015 is $44 per covered life, as compared to $63 per covered life for 2014.

(2) Change in Payment Schedule. The payment schedule is proposed to change so that the fee would be paid in two installments instead of one. The first installment will generally be due in January following the benefit year, and the second installment will generally be due in November or December following the benefit year. Both installments will be based on the same enrollment count.

For the 2014 benefit year, it is anticipated that this will result in the $63 fee being paid as follows: $52.50 in January 2015 and $10.50 in late 2015. For the 2015 benefit year, it is anticipated that this will result in the proposed $44 fee being paid as follows: $33 in January 2016 and $11 in late 2016.

(3) Exclusion for Self-Administered Self-Insured Plans. Several groups that sponsor self-insured plans (notably multiemployer self-insured plans) have been lobbying for an exemption from the transitional reinsurance fee. (There is some merit to their arguments, since the transitional reinsurance program will not benefit them, but that's beside the point here.) While this proposed notice does      Continue Reading...

IRS Finalizes Amendments to 401(k) Safe Harbor Regulations
By: Jason Lacey

In new final amendments to the 401(k) safe harbor regulations (here), the IRS has provided some additional flexibility on mid-year reductions or suspensions of safe harbor contributions but also has added some new requirements. The regulations apply to amendments adopted after May 18, 2009, except that the additional requirements for mid-year reductions or suspensions of safe harbor matching contributions apply for plan years beginning on or after January 1, 2015.

Background. Safe harbor 401(k) plans are exempt from certain nondiscrimination testing requirements but must meet specific requirements related to employer contributions and vesting and must provide an annual notice. The employer contribution requirement is satisfied through either a matching contribution or a "nonelective" contribution. Safe harbor plan provisions generally must be adopted at or before the beginning of a plan year and must remain in effect for the entire plan year.

Because safe harbor plan provisions must remain in effect for the entire plan year, employers generally have been prohibited from reducing or suspending safe harbor contributions in the middle of a plan year. A limited exception has been available for safe harbor matching contributions, which could be reduced or suspended with at least 30 days advance notice, so long as participants were given an opportunity to change their deferral elections. Before 2009, however, safe harbor nonelective contributions could not be reduced or suspended during the plan year. Proposed regulations issued in 2009 permitted a narrow exception allowing for reduction or suspension of safe harbor nonelective contributions in cases of substantial      Continue Reading...

White House and CMS Announce Administrative Delay in ACA Insurance Mandates
By: Jason Lacey

Yielding to growing political pressure, the White House (here and here) and CMS (here) announced yesterday an administrative delay in enforcement of insurance market reforms under the Affordable Care Act, thereby allowing insurance carriers to retain non-conforming policies for one more year. This addresses concerns over the "keep what you've got" issue.

Insurers had been in the process of announcing the termination or cancelation of policies that did not meet all the requirements that are scheduled to apply to insurance policies beginning January 1, 2014. This includes the requirements to cover all "essential health benefits" and provide first-dollar preventive care coverage. Policy holders facing cancelation had expressed frustration after believing enactment of the ACA would not deprive them of their coverage.

The delay does not affect all policies - just those issued in the individual and small group markets. (Many policies issued in connection with employer sponsored plans are large group policies and will not be affected. Similarly, self-insured health plans are not affected.) Also, the delay is not automatic. The administrative guidance authorizes state insurance commissioners to allow carriers to maintain non-conforming policies, but it is up to each state to decide whether it will provide that flexibility. And even in states that grant carriers the right to maintain their policies, it is up to the carriers to decide whether a policy will be retained. So the guidance is far from a universal solution. 

In many cases, states and insurance carriers have already taken significant steps toward complying with      Continue Reading...

Kansas City Royals Face Hot Dog Liability
By: Jason Lacey

Sometimes we like to take a break from our core topics on this blog and bring you other law-related news of interest. 

In a case being watched closely by sports-law experts and t-shirt-cannon enthusiasts around the country, the Kansas City Royals may be on the brink of making new law on the issue of the liability of professional sports teams for injuries incurred by fans attending games.

News reports on the case are here and here. The basic facts are as follows:

While attending a game in September 2009, a fan was struck in the eye by a foil-wrapped hot dog thrown into the stands by the Royals's mascot, Sluggerrr. The resulting eye injury required the fan to undergo two surgical procedures and is alleged to have permanently impaired his vision. He sued for damages in excess of $20,000. After a trial in Jackson County, Missouri, the jury found for the Royals, but the Missouri court of appeals overturned that verdict, and the case is now on appeal to the Missouri supreme court.

Under a long-standing rule, professional sports teams are generally protected from liability for injuries incurred by fans as a result of things that happen in connection with the game itself. So, for example, fans cannot sue if they are struck by a foul ball, a broken bat, or an errant hockey puck. Fans are deemed to have assumed these inherent risks in attending the game.

But the law has never addressed whether that liability protection extends to injuries incurred as a result      Continue Reading...

IRS Modifies Health FSA Use-It-or-Lose-It Rule
By: Jason Lacey

In new guidance issued late last week (here), the IRS tackled a long-standing issue with cafeteria plans: the requirement that all dollars be used by the end of the plan year or be forfeited. Employees can now be allowed to carryover up to $500 remaining in a health FSA account at the end of the year and use it at any time during the following year. But there are some conditions and limitations, and it's not clear that this approach will be ideal for all plans. Here's what you need to know.

Optional. Employers are not required to add the carryover option to their health FSA plans. But if they do want to add the option, they must timely amend their plans and make sure they meet the other conditions for offering the carryover. Also, employers are not required to allow carryover of the full $500. They could specify a lower carryover amount.

Relationship to $2,500 Cap. Amounts carried over from one plan year to the next under this guidance do not count against the $2,500 cap on salary reduction contributions for the carryover year. So, for example, an employee could carryover $500 from the 2014 plan year into the 2015 plan year and make a $2,500 salary reduction election for the 2015 plan year, giving the employee a total of $3,000 available during the 2015 plan year.

Grace Period. A plan cannot offer both the carryover option and a grace period option. It must be one or the other. This leads      Continue Reading...

IRS Releases 2014 COLAs for Benefit Plans
By: Jason Lacey

The IRS has released the annual cost of living adjustments for various tax-related items, including benefit plan limits (see herehere, and here). The adjusted amounts will apply for 2014. For the most part they reflect no increase or only a modest increase over 2013 levels. Here are the highlights:

  • Retirement plan elective deferrals (402(g) limit) - $17,500 (unchanged)
  • Retirement plan catch-up contributions - $5,500 (unchanged)
  • Annual additions to a defined contribution plan (415 limit) - $52,000 ($1,000 increase)
  • Definition of highly compensated employee - $115,000 (unchanged)
  • Annual compensation limit (401(a)(17) limit) - $260,000 ($5,000 increase)
  • Social security taxable wage base - $117,000 ($3,300 increase)

Inflation-adjusted amounts for high deductible health plans (HDHPs) and health savings accounts (HSAs) were released earlier this year (see prior post here).

New Hardship Exemption from Individual Mandate
By: Jason Lacey

In the wake of the troubled rollout of the public exchanges, which has delayed the ability of many individuals and small businesses to enroll in coverage offered through the exchanges, HHS has announced (here) a new hardship exemption from the individual mandate. Anyone who enrolls in coverage through an exchange by the end of the initial exchange enrollment period (March 31, 2014) will be exempt from the individual mandate during the period in 2014 before the date the exchange-based coverage becomes effective.

Background. The individual mandate is the rule that requires most Americans to maintain health insurance coverage or pay a penalty. It takes effect January 1, 2014. But there are a number of exemptions available. Those who qualify for an exemption will not owe a penalty even if they fail to maintain insurance coverage. One exemption category is for "hardships," as defined by the government. 

Exchange Enrollment Period and Coverage Effective Date. The initial exchange enrollment period began October 1, 2013 and runs through March 31, 2014. No coverage under the exchange becomes effective before January 1, 2014. Beginning in December, those who enroll in coverage on or before the 15th of the month will have coverage that becomes effective on the first day of the next month. Those who enroll after the 15th of the month will have coverage that becomes effective on the first day of the second following month.

For example, an individual who enrolls for coverage on January 10, 2014 will have coverage effective as of February      Continue Reading...

It's Exchange Day
By: Jason Lacey

If you're looking at a list of the milestones for implementation of health care reform, you'll see that we've just reached a big one: the opening of the public insurance exchanges.

Ok, so the day is largely symbolic. Nothing really takes effect today. It just happens to be the first day we can go take a look at what's available through these new marketplaces and begin the process of enrolling for coverage if we want. Coverage purchased through the exchanges between now and December 15 won't be effective until January 1, 2014. But it still feels like there has been a lot of anticipation in the run-up to the opening of the exchanges.

I happened to be awake after midnight last night, so I decided to try out the portal for the Kansas exchange. We don't have a state-based exchange (the federal government is running one for us), so I went to the federal exchange website (www.healthcare.gov) and starting working my way through the process.

I didn't get very far. One of the first things you have to do is set up an account. This requires selecting a user name and password and also answering a series of three security questions, so you can retrieve your user name and password later if you forget. The user name and password part worked fine. And the interface would allow me to answer the security questions, but it wouldn't tell me what the questions were.

It felt a little like that bit Johnny Carson used to do      Continue Reading...

Post-Windsor Guidance Addresses Employment Tax Refunds
By: Jason Lacey

In another round of post-Windsor guidance (here), the IRS has provided some alternative processes for obtaining refunds of employment taxes (FICA tax and withheld income tax) paid with respect to same-sex spouses prior to the Supreme Court's decision in Windsor (e.g., for coverage under a cafeteria or health plan).

Overpayments for 2013. With respect to taxes paid in 2013, there are two alternative procedures for claiming a refund: (1) the employer may true-up the entire year's withholding on its fourth quarter 2013 employment tax return (Form 941); or (2) the employer may file a single amended employment tax return (Form 941-X) for the fourth quarter of 2013 to reflect the correct withholding amounts for the entire year. Both of these approaches allow employers to avoid filing amended returns for each quarter of the year to correct the withholding for that quarter.

For the third quarter of 2013 (July-September), employers should report on the employment tax return for that quarter the amount of taxes actually withheld and not refunded by the end of the quarter. For example, if an employer adjusted its withholding system effective August 1, 2013 and also refunded any taxes withheld in July 2013, then it would not report any of those withheld amounts on its Form 941 for the third quarter. But if it did not refund the July taxes by the end of the third quarter, then those taxes should be reported on the third quarter return and a refund claimed by way of one of the methods      Continue Reading...

Exchange Notice Reminder - Due by October 1
By: Jason Lacey

Just a reminder that the employer exchange notice must be distributed to existing employees (all employees) by October 1.

  • Read prior coverage here and here.
  • Links to the DOL model notices are here and here.
  • Links to DOL guidance are here and here.
DOL Releases Same-Sex Spouse Guidance for Purposes of ERISA
By: Jason Lacey

The DOL released guidance today (here) describing how it will interpret the term "spouse" for purposes of ERISA in light of the Supreme Court's decision in Windsor. There are no real surprises. The guidance is consistent with broader tax-based guidance released by the IRS a few weeks ago (here). 

A same-sex couple will be treated as married (and therefore as "spouses") for purposes of ERISA if their marriage is valid in the state in which it was celebrated. This includes marriages entered into in foreign countries that recognize same-sex marriage. It does not matter that the couple may reside in a state (like Kansas) that does not recognize same-sex marriage.

Consistent with the IRS's guidance, the DOL also clarified that same-sex couples who are in non-marriage relationships, such as civil unions or domestic partnerships, will not be recognized as spouses for purposes of ERISA. They must, in fact, be married.

The DOL's guidance was limited to the definition of spouse for purposes of ERISA and does not address other federal statutes under the jurisdiction of the DOL, such as the FMLA.

Provisions of ERISA that affect spousal rights include:

  • HIPAA special enrollment rights.
  • COBRA notice and election rights.
  • Survivor benefits and other spousal rights under retirement plans.
  • Rights under qualified domestic relations orders (QDROs).

For prior coverage of the Windsor case and related guidance, see here and here.

New Guidance Will Limit HRAs and Employer Use of Individual Market Coverage
By: Jason Lacey

A continuing area of uncertainty under health care reform has been the treatment of health reimbursement arrangements (HRAs) and other arrangements that might be used to allow employees to purchase health insurance through individual policies with the employer subsidizing some or all of the cost. A new notice from the IRS, HHS, and DOL (here) provides some clarity on these - and some related - issues.

Employer Payment Plans. As a preliminary matter, this guidance gives us a new term: "employer payment plan." This refers to an arrangement by which an employer provides payment or reimbursement of individual market insurance premiums in the manner described in an old Revenue Ruling (Rev. Rul. 61-146). Historically, these employer payment plans have been permissible and have allowed employers to provide pre-tax subsidies of individual market coverage.

Integration of Plans with Individual Market Coverage. A concern with HRAs and employer payment plans is that they may be treated as violating two key health care reform mandates: the prohibition on annual limits and the requirement to provide no-cost preventive care services. Previous FAQ guidance (see coverage here) said that HRAs would be treated as satisfying the annual limit rule if they were "integrated" with other coverage that satisfies the annual limit rule.

This guidance effectively confirms that treatment and provides a similar rule for preventive care. But the guidance goes on to say that HRAs and employer payment plans may not be treated as integrated with individual market coverage. Thus, an HRA or employer payment plan      Continue Reading...

No Penalty for Failure to Provide Exchange Notice
By: Jason Lacey

In a single FAQ posted to its website this week, the DOL acknowledged that "there is no fine or penalty under the law" for failing to provide the notice to employees describing the public insurance exchanges (or "Marketplaces"). Many of us had come to this conclusion already, so it was not entirely a new development. But at a minimum it provides some further comfort that there will not be a serious consequence to employers who might foot-fault on the requirement (e.g., overlook an employee when distributing the notice). 

Does this lack of a penalty give employers license to willfully ignore the notice requirement? It could be interpreted that way. After all, if the police said they would no longer issue speeding tickets, would anyone feel compelled to pay attention to the signs?

But I don't recommend taking it too far. Here are at least three reasons complying with the requirement may be important even in the absence of an express penalty.

  1. The DOL will still be looking for evidence of compliance with the requirement. We won't know this for sure until after October 1, but I suspect when the EBSA folks at DOL open an audit and send out their standard (and quite lengthy) list of documents to be reviewed in connection with the audit, the exchange notice will be on the list. If you can't produce evidence that you distributed it, you are likely to receive a stern talking-to. Worse still, if the failure appears to be      Continue Reading...
IRS Clarifies Impact of Preventive Care Services on HDHPs
By: Jason Lacey

The IRS has provided an expected, but welcome, clarification (see Notice here) regarding the impact of providing no-cost preventive care services under a high-deductible health plan. 

Background. To be eligible to contribute to a health savings account (HSA), an individual must be covered under a qualifying high-deductible health plan (HDHP) and must not be covered under any low-deductible coverage, other than permitted coverage. Permitted coverage incudes coverage for preventive care services within the meaning of Internal Revenue Code Section 223(c)(2)(C). 

Health Care Reform. Under health care reform, non-grandfathered health plans are required to offer specified preventive care services without cost sharing. This rule applies to non-grandfathered plans that otherwise meet the requirements to be an HDHP. But the preventive care services required under health care reform are not quite the same as preventive care services described in guidance under Code Section 223(c)(2)(C). And, of course, there cannot be a deductible. So we have wondered: Will compliance with the preventive care mandate under health care reform risk causing a plan to no longer qualify as an HDHP?

Guidance. The assumption has been that the IRS would not view preventive care services provided in accordance with health care reform as impermissible low-deductible coverage. Otherwise HDHPs could effectively no longer exist, unless they remained grandfathered.

That assumption has now been confirmed: "[A] health plan will not fail to qualify as an HDHP under section 223(c)(2) of the Code merely because it provides without a deductible the preventive care health services required under section 2713 of the PHS Act to      Continue Reading...

IRS Releases Initial Guidance on Same-Sex Spouses
By: Jason Lacey

We have been anticipating guidance from the IRS on the treatment of same-sex spouses for tax and benefit purposes in light of the Supreme Court's overturning of DOMA, and here it is.

Married Anywhere. Rev. Rul. 2013-17 (here) says that a same-sex couple validly married anywhere (including in a foreign country) will be recognized as married for federal tax purposes, even if their marriage is not recognized under the law of their home state. In other words, it’s a state-of-celebration rule, not a state-of-residence rule.

All Tax Purposes. The rule applies for all tax purposes, including employee benefits. So in addition to filing joint tax returns, same-sex spouses may obtain tax-free coverage for each other under health or cafeteria plans and are entitled to spousal rights under 401(k) and other qualified retirement plans. Also, medical expenses incurred by one spouse in a same-sex marriage will qualify for reimbursement from a flexible spending account or health savings account maintained by the other spouse. Recognition of the same-sex marriage may present an issue for participants in dependent care assistance plans, because the spouse's income and employment must now be taken into account.

Retroactivity. Individuals in existing same-sex marriages may go back and claim a refund for taxes on any imputed income that resulted from coverage of a same-sex spouse or children of a same-sex spouse under a health or cafeteria plan. Employers may also be able to obtain refunds of employment taxes imposed on imputed income. The refunds are limited to years for which the statute      Continue Reading...

Health Plan's Photocopier Prints a $1.2M HIPAA Fine
By: Jason Lacey

HHS has announced another significant HIPAA privacy settlement (see press release here), this time involving a managed care plan that failed to remove protected health information from the hard drive of a photocopier it had been leasing.

The enforcement action stemmed - not surprisingly - from a breach report filed by the health plan in which the plan estimated that over 340,000 individuals may have been affected by the breach. Of greater interest, however, is the manner in which the health plan discovered the breach. It was contacted by a representative of the CBS Evening News and informed that CBS had purchased the photocopier as part of an investigative report and identified confidential medical information on the photocopier's hard drive.


In the settlement with HHS (see agreement here), the health plan agreed to pay a $1,200,000 resolution amount and implement a corrective action plan that includes using its best efforts to retrieve all hard drives contained on photocopiers previously leased by the plan.

DOL Addresses ERISA Accounts for Defined Contribution Retirement Plans
By: Jason Lacey

In a recent advisory opinion, the DOL has addressed - for perhaps the first time in published guidance - a key issue related to "ERISA accounts" established by service providers for 401(k) and other defined contribution retirement plans.

Background. Service providers to defined contribution retirement plans often receive revenue sharing payments with respect to the plan's investments. As part of their service agreements, these service providers may agree to give a portion of those revenue sharing payments back to the plan in the form of an "ERISA account" or "ERISA budget account." Amounts credited to the ERISA account are often used by the plan or plan sponsor to pay expenses associated with plan administration, such as auditing fees and plan communication costs. 

The structure of the ERISA account varies from agreement to agreement. Some ERISA accounts are held on the service provider's books. Some ERISA accounts are held as a separate account within the plan's trust arrangement. In either case, there has been some question as to whether or when amounts credited to the ERISA account are treated as "plan assets" for purposes of ERISA. 

Plan Assets When Plan Actually Receives Them. The recent advisory opinion describes an arrangement in which the ERISA account is held on the service provider's books as part of its general assets until it is directed by a plan fiduciary to deposit those amounts into a plan account. On those facts, the opinion concluded that the amounts credited to the ERISA account likely did not become plan      Continue Reading...

Final Regs Make Few Changes to Contraception Mandate
By: Jason Lacey

Final tri-agency regulations were released recently on the religious employer exemption from health care reform's contraception mandate, and there is little change from the approach outlined in the proposed regulations (see discussion here). In short, the regulations finalize a moderate expansion of the definition of "religious employer," but continue to require religiously affiliated nonprofit organizations to seek an "accommodation" that allows individuals covered under their plans to obtain contraception coverage at no cost through an insurance carrier.

Applicability Date. A key piece of the final regulations is the effective-date provision, which provides nonprofit organizations some additional time to comply with the accommodation requirement. The regulations generally apply for plan years beginning on or after January 1, 2014, rather than applying for plan years beginning on or after August 1, 2013, as previously expected. Nonprofit organizations that had been relying on a one-year safe harbor from application of the mandate (see description here and here) may continue relying on the safe harbor until the first plan year beginning on or after January 1, 2014. CMS has updated its guidance on the nonenforcement safe harbor (here). 

Definition of Religious Employer. The definition of religious employer is unchanged from the proposed regulations. Although not intended to expand the number of organizations that qualify as religious employers, the change is intended to clarify that religious employers providing educational, charitable, and social services may qualify for the exemption even though some of their constituents or employees may not be of the same      Continue Reading...

Play-or-Pay Delayed
By: Jason Lacey

It’s been a big week for employee benefits law, starting with the Supreme Court’s Windsor decision on DOMA last Wednesday, the administration’s release of a final rule on the religious employer exemption to the contraception mandate, and now a surprise temporary reprieve for employers from the play-or-pay penalties that were scheduled to take effect in 2014.

Transition Relief. In a blog post published quietly on Tuesday afternoon, a senior Treasury Department official said that the administration had been listening to concerns raised by employers about the time needed to implement various aspects of the health care reform law and would be publishing formal guidance within the next week delaying enforcement of the employer shared responsibility (or “play-or-pay”) mandates until 2015. However, the post affirmed that qualifying individuals purchasing health insurance coverage through exchanges in 2014 would continue to have access to premium assistance tax credits. And a related post on the White House Blog asserted that exchange implementation is proceeding "full steam ahead" and is "on target."

What Does the Delay Mean? We won’t know all the specifics until the formal guidance is released (and even then there are likely to be questions). But in broad terms, it appears that large employers will not need to be ready to comply with the play-or-pay requirements until at least January 1, 2015. So, for example -

  • It may not be necessary to implement the look-back measurement period regime until later this year, or perhaps even 2014.
  •      Continue Reading...
Supreme Court Invalidates DOMA
By: Jason Lacey

In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.

Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.

The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.

Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under      Continue Reading...

What the NSA Learned When They Tapped My Phone This Week
By: Jason Lacey

“For years, intelligence officials have tried to debunk what they called a popular myth about the National Security Agency: that its electronic net routinely sweeps up information about millions of Americans. But since the disclosures last week showing that the agency does indeed routinely collect data on the phone calls of millions of Americans, Obama administration officials have struggled to explain what now appear to have been misleading past statements.” -The New York Times, June 11, 2013

*  *  *  *  *  *  *

Report #493849

Subject: Jason Lacey

Age: 37

Occupation: Attorney (or so he says)

# # #

Saturday 6/8, 12:45 pm: Met wife and children at Chick-fil-A for lunch. *Flag for possible Tea Party affiliation.

Sunday 6/9, 5:32 pm: Ordered pizza; cheese with no sauce. *Flag for possible un-American activity. (Who gets pizza without sauce?)

Sunday 6/9, 8:16 pm: Downloaded Angry Birds app.

Monday 6/10, 3:24 pm: Text from wife; daughter went to dentist to have cavity filled; went fine.

Monday 6/10, 4:52 pm: Text to wife; proposes to make pasta with tomato sauce for dinner. *Scratch flag for possible un-American activity.

Monday 6/10, 10:48 pm: Plays Angry Birds.

Tuesday 6/11, 12:30 pm: Text from wife; buys coffee at Starbucks. *Scratch flag for possible Tea Party affiliation.

Wednesday 6/12, 7:15 pm: Phone call with mother; needs to finish her tax return. *Flag for possible tax evasion conspiracy.

Wednesday 6/12, 7:19 pm: Plays Angry Birds.

Wednesday 6/12, 7:32 pm: Phone call with mother; she's getting a refund. *Scratch flag for possible tax evasion conspiracy.

Wednesday 6/12, 9:11 pm: Text to wife; stopped for speeding; 30      Continue Reading...

PCORI Trust Fund Tax is Deductible
By: Jason Lacey

An internal IRS memorandum released this week provides informal guidance clarifying that the PCORI trust fund tax is generally deductible for income-tax purposes when paid by an insurer or the sponsor of a self-insured plan.

By way of brief background, the PCORI trust fund tax is a $1 (increasing to $2) tax on the average number of covered lives under a health insurance policy or self-insured health plan. It funds the Patient Centered Outcomes Research Institute, which studies the comparative effectiveness of medical treatment options.

Given the relatively small dollar amount of the tax when calculated for a single employer, the ability to deduct the tax will not make a huge difference. But it is a welcome clarification just the same.

Reminder. For plans with plan years ending after October 1, 2012 and on or before December 31, 2012, the tax must be paid and a return filed by July 31, 2013. The IRS recently published drafts of the Form 720 and related instructions that must be used to pay the tax.

HIPAA Enforcement: Watch Out for Disabled Firewalls
By: Jason Lacey

I've been fairly diligent in reporting on enforcement actions taken by HHS under the HIPAA privacy and security rules over the past year or so. If you've followed those posts, the outcome of the following case will not surprise you. 

In a recent press release, HHS announced a $400,000 settlement and resolution agreement with Idaho State University relating to violations of the HIPAA security rule that resulted in a data breach with respect to 17,500 patients of a primary care clinic operated by the university. The breach occurred when a firewall providing security for a server storing patient data was disabled, leaving the data unsecured. The press release and resolution agreement do not indicate that any actual disclosure of the patient data occurred. But the firewall had been disabled for 10 months before the clinic or university realized it. 

Yes, 10 months.

Quoting from the press release: "[HHS] concluded that ISU did not apply proper security measures and policies to address risks to ePHI and did not have procedures for routine review of their information system in place, which could have detected the firewall breach much sooner." In other words, they weren't trying hard enough - maybe not at all.

Here are a few takeaways:

  • The HIPAA security rule is just as potent as the HIPAA privacy rule. Failure to comply with the security rule won't be excused just because there was no actual loss of privacy.
  • You have to try. The security rule is written in relative rather      Continue Reading...
2014 Inflation Adjusted Amounts for HSAs and HDHPs
By: Jason Lacey

The IRS has released the 2014 inflation-adjusted amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs). The changes are not large, but most of the key metrics will see some increase.

HDHP Minimums and Maximums. The minimum annual deductible for an HDHP will remain unchanged at $1,250 for self-only coverage and $2,500 for family coverage. The maximum annual out-of-pocket for an HDHP will increase to $6,350 for self-only coverage and $12,700 for family coverage.

>>Why do we care? Whether health coverage qualifies as HDHP coverage is important because an individual must have HDHP coverage to be eligible to contribute to an HSA.

>>Interaction with health care reform. These amounts relate only to compliance with the HSA requirements. Health care reform will impose further limits on deductibles and out-of-pocket maximums beginning in 2014 (see prior coverage here), and plans will need to satisfy those requirements in addition to the conditions necessary to be an HDHP.

Maximum HSA Contribution. The maximum annual contribution to an HSA for 2014 will be $3,300 for an individual with self-only HDHP coverage and $6,550 for an individual with family HDHP coverage. Catch-up contributions for individuals age 55 and older are not inflation-adjusted and remain at $1,000 per year.

Recall that these annual maximums are prorated on a monthly basis for an individual who is covered under an HDHP for less than the full year. Also, special rules apply when one or both spouses have HDHP coverage, with the general effect of limiting the household to a single family-level HSA      Continue Reading...

On Facial Hair and Flexible Spending Accounts
By: Jason Lacey

I have worn a beard for most of my adult life, and I appreciate a solid stand of men's facial hair. So I couldn't help noticing an article last week touting a growing industry in Turkey: Turkish mustache transplants. 

For a mere $5,000, the "follicly challenged" can have a cosmetic surgeon enhance their mustache or beard. The procedure is done under local anesthetic and takes only a few hours. In true medical tourism style, the procedures are being offered as part of "transplant packages" that may include additional amenities such as a beachside vacation on Turkey's Mediterranean coast.

If you're looking to boost your masculinity and catch a few rays in the process, this might just be the thing you've been waiting for.

That got me to thinking: This is bound to become wildly popular because - let's face it - who could resist a shot at the mustache of their dreams. Which means it's only a matter of time before we find an employee or two claiming reimbursement under a health FSA, HRA, or HSA for the cost of the procedure. It's medical, so it's covered - right?

Well, not so fast. 

To be reimbursed from a health FSA, HRA, or HSA, expenses generally must be for "medical care," and the tax code specifically excludes cosmetic surgery from the definition of medical care. What counts as cosmetic surgery? Any procedure that "is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness      Continue Reading...

Employer Exchange Notice: DOL Guidance and Model Notice
By: Jason Lacey

A new technical release from the DOL provides important guidance for employers on the obligation to give employees a notice regarding health coverage available through the public exchanges.

Effective Date. As discussed in a prior post, this notice obligation was scheduled to become effective March 1, 2013, but was delayed until guidance was issued. Under this new guidance, notice must be given to all current employees by October 1, 2013, and must be given to each new employee hired on or after October 1, 2013, within 14 days of the start date.

Covered Employers. Although this notice requirement was enacted as part of health care reform, it applies to employers through the FLSA. So all employers to which the FLSA applies are required to provide the notice. It does not matter whether the employer offers health coverage to employees or whether the employer is subject to the play-or-pay mandates.

Who Gets the Notice? The notice must be given to all employees, whether full-time or part-time and whether or not covered under the employer's health insurance plan. However, notice is not required to be given to dependents or other individuals who may be covered under the employer's plan.

Content Requirements and Model Notice. The notice must provide employees with information about the public exchanges and inform them that they may be eligible for a tax credit to subsidize coverage obtained through the exchange. But the notice must also advise that employees who choose to obtain coverage through the exchange will lose any employer      Continue Reading...

Minimum Value Regulations Clarify Treatment of Wellness Incentives
By: Jason Lacey

Buried deep within new regulations on the arcane "minimum value" requirement is important new guidance on how employer wellness incentives will impact both the minimum value and affordability analysis with respect to employer-provided health coverage.

Most Wellness Impact is Disregarded. The rule described in the regulation is fairly simple, although not favorable to employers. For purposes of determining whether health coverage is affordable to employees, any reward associated with participation in a wellness program (other than related to tobacco use) is ignored. This generally has the effect of increasing the amount the employee is treated as contributing toward the cost of coverage, thereby making the coverage less affordable.

Example. Assume, employees generally are required to pay $200 per month for employee-only coverage. But if the employees participate in a health risk assessment and basic biometric screening, they receive a discount of $50 per month (making the monthly cost $150). For purposes of determining whether the coverage is affordable, the employees are treated as having to pay $200 per month for coverage, even though they may actually qualify to pay only $150 per month.

There is a similar rule for minimum value, to the extent the wellness incentive impacts the cost-sharing structure of the plan (deductible, coinsurance, or copayments). Non-tobacco wellness programs are ignored in determining the plan's cost sharing, which impacts the determination whether the plan provides minimum value. For example, if a plan has a $2,000 deductible but provides a $500 reduction for participating in a non-tobacco-related wellness plan, the plan      Continue Reading...

More ACA FAQs: Mini-Med Plans and Clinical Trials
By: Jason Lacey

We are now up to Part XV of the tri-agency FAQs providing guidance on various ACA-related issues.

The most important guidance in these FAQs relates to the treatment of mini-med plans that obtained a waiver from the prohibition on annual limits. But the FAQs also acknowledge, in so many words, that there are some issues on which further guidance simply will not be provided before 2014, so we're going to have to use our best judgment.

Changing the Plan Year on Mini-Med Plans. Employers and insurance carriers offering mini-med plans were required to obtain a waiver from the prohibition on annual limits. Under the waiver program, plans were allowed to continue until the end of the plan year ending in 2014. Creative employers and carriers began exploring whether they could change their plan years now and effectively extend waiver through most of 2014. For example, a plan with a plan year ending June 30 might change to a plan year ending November 30 and rely on the waiver until November 30. 

These FAQs provide, unequivocally, that a change in the plan year will not be effective to extend a plan's waiver. The waiver only applies until the end of the plan year ending in 2014, based on the plan year the plan was using when it applied for the waiver.

In other words, nice try.

Why would this matter? Well, it now appears that mini-med coverage extending into 2014 will be sufficient to allow employers with fiscal year plans to avoid some of the      Continue Reading...

New SBC Guidance and Templates
By: Jason Lacey

The latest set of Affordable Care Act FAQs (Part XIV) announces the release of updated templates for the SBC and uniform glossary. The updated templates are designed to provide employers and insurers with tools to comply with the SBC requirement for the second year of applicability.

Note that many fiscal-year plans may not yet have begun their first year of applicability for the SBC requirement, which essentially begins with the first open-enrollment period beginning on or after September 23, 2012.

Limited Template Changes. The updated templates reflect only two significant changes. They add language for describing whether the coverage does (or does not) provide minimum essential coverage (MEC), and they add language for describing whether the coverage does (or does not) provide minimum value (MV). There is no change in the language describing whether benefits are (or are not) subject to annual limits, and the template keeps the same two coverage examples (childbirth and diabetes).

Extended Enforcement Relief. Perhaps the most significant guidance in the FAQs is an extension of much of the helpful enforcement relief that was provided through previous FAQs. For example:

  • Compliance emphasis. IRS, DOL, and HHS will continue to emphasize "assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the new law" (Part VIII, Q2) and "will not impose penalties on plans and issuers that are working diligently and in good faith to comply" (Part IX, Q8).
  •      Continue Reading...
Supreme Court Affirms Health Plan Reimbursement Rights, With a Catch
By: Jason Lacey

The U.S. Supreme Court issued an opinion last week (U.S. Airways v. McCutchen) affirming a health plan’s right to enforce express plan language allowing it to recover benefits paid on behalf of a participant when the participant later recovers those benefits from a third party. But the court created a new wrinkle with respect to a plan's obligation to share in the costs of that recovery.

Background. The facts of the case are fairly straightforward. An employee was injured in a car accident, and the plan paid $66,866 in benefits related to those injuries. The employee then sued the individual who caused the accident and recovered $110,000. 40% of the recovery went to the employee’s lawyer, leaving a net recovery of $66,000. The plan claimed it was entitled to the remaining $66,000 based on language in the plan giving it the right to be reimbursed out of any third­-party recoveries. The employee resisted paying the full $66,000 to the plan on the basis that it would be unfair for the plan to be reimbursed off the top without sharing in any of the costs of the recovery.

Plan Terms Control. The court first addressed whether general equitable principles (fairness, essentially) could override the express terms of the plan. In other words, could the participant defend against the plan's express right to reimbursement by asserting it was unfair? The court said no. The plan terms are controlling, even if they arguably work an unfair result.

But there was more.

Sharing the Costs of Recovery.      Continue Reading...

2013 ACA Deadlines: What Employers Should be Thinking About Right Now
By: Jason Lacey

2013 is a relatively light year in the overall scope of health care reform implementation. Few mandates or requirements have 2013 effective dates. And so much will be happening in 2014 that it tends to overshadow 2013. But employers still have a number of things to be thinking about this year. Here are ten items to consider putting on your checklist.

1. SBCs. The requirement to distribute a summary of benefits and coverage (SBC) in connection with open enrollment applies to open-enrollment periods beginning on or after September 23, 2012. So employers with fiscal-year plans may still be getting ready for their first covered open-enrollment periods. For employers that have already distributed SBCs, any mid-year change in plan terms that affects the content of the SBC must be described in a notice of modification given at least 60 days in advance of the effective date of the modification. Also, distribution of the SBC is not a one-time event. It may be required annually or even more frequently, such as in connection with special enrollments or upon request.

2. W-2 Reporting. Currently, only large employers are required to comply with the obligation to report the aggregate cost of applicable employer-sponsored coverage in box 12 (code DD) of an employee’s W-2. Large employers generally are employers that issued 250 or more W-2s in the preceding calendar year. So whether an employer is subject to this requirement can change from year to year, depending on changes in the number of employees and W-2s issued. Employers      Continue Reading...

Fun Final Four Facts
By: Jason Lacey

We interrupt our regularly scheduled programming to bring you this important news update . . .

Wichita is awash in black and gold this week as we proudly celebrate and anticipate WSU's appearance in the NCAA men's Final Four. Here are some fun facts to tuck away in case you need to drop some obscure knowledge on your friends and family as you gather to watch the game.

The history of WuShock. WuShock, the WSU mascot, was originally a nameless shock of wheat, used as a symbol for the WSU football team, known as the Wheatshockers. The mascot took on its first persona in 1948, and has evolved over the last 65 years from a scowling, no-nonsense intimidator into the grinning, wide-eyed fellow we know and love today. WuShock's most recent makeover came in 2006, shortly after Sports Illustrated identified Wu as one of college sports' worst mascots. (read more here)

Against all odds. A political statistician has been calculating the likelihood of success for each team in the NCAA tournament and writing about it in his blog for the New York Times. Before the tournament began, he put WSU's chance of reaching the Final Four at 1.3%. So I'd say they've done pretty well for themselves, all things considered.

What are their odds of winning it all now? You might think they've got a 1-in-4 chance (25%), since there are only four teams left. But when the teams are weighted to take into account their regular-season resumes and the quality of their prior wins in      Continue Reading...

EEOC Provides Informal Wellness Plan Guidance
By: Jason Lacey

One of the murkier issues with wellness plans is the manner in which they intersect with the Americans with Disabilities Act (ADA). I discuss some of the background on the issue here. A recent EEOC letter (here) provides an "informal discussion" of how the ADA applies to a particular type of wellness plan.

The Plan. The wellness plan at issue waived the deductible under a health plan for participants with serious medical conditions (e.g., diabetes) who enrolled in a disease-management program. Although the wellness program did not expressly require participants to complete a health risk assessment, the EEOC assumed that participants needed to make some disclosure about their health status to their employer to become eligible for the plan, thereby implicating the ADA.

Voluntariness. The EEOC reiterated that, because a wellness plan involves an employer inquiry into an employee's medical condition, the wellness plan must be voluntary. A plan is voluntary so long as participation is not required and employees who choose not to participate are not penalized. The plan in this case did not penalize non-participants, but it did provide a reward (waiver of deductible) for participants. The EEOC would not take a position on whether the availability of a reward renders a plan involuntary. 

Reasonable Accommodation. The EEOC also noted that a wellness plan generally must provide a reasonable accommodation to individuals who are unable to meet the required outcomes or engage in required activities due to a disability. For example, if a plan requires a participant to comply with a recommended      Continue Reading...

PPACA Waiting Period Rules: 90 Days Means 90 Days
By: Jason Lacey

HHS, DOL, and IRS recently proposed regulations interpreting the health care reform mandate limiting health plan waiting periods to no more than 90 days. The guidance is fairly straightforward, but does not include one clarification we were anticipating: 3 months cannot be used as a substitute for 90 days. 90 days means 90 days. Period.

What is a waiting period? Under the rules, a waiting period is any period of time that must pass before coverage may become effective for anyone who has otherwise satisfied the plan's eligibility criteria. Eligibility criteria that are based solely on the lapse of a time period count as part of the waiting period. So, for example, if a plan requires employees to work in a particular job classification to be eligible for coverage, time spent working in an ineligible job classification does not count as a waiting period, and the 90-day period may be imposed once an employee moves to an eligible job classification. But if a plan merely requires 60 days of full-time employment to become eligible, those 60 days of employment count toward the waiting period, so another 90 days may not be imposed.

Variable-hour employees. We know from the regulations on the look-back measurement method (see coverage here) that we may need some time (up to 12 months or so) to determine whether a variable-hour employee meets an eligibility requirement relating to average hours worked. These proposed regulations clarify that the period during which a variable-hour employee's hours of service are being measured      Continue Reading...

Domino's Founder Not Required to Comply with Contraception Mandate
By: Jason Lacey

I have left this topic alone for awhile because it can be a real hot-button. But it’s hard to ignore the latest news, which adds to the growing number of conflicting opinions on whether private businesses may seek an exemption from the ACA’s contraception mandate on grounds of religious freedom.

The latest case involves Domino’s Farms, a private business owned by Thomas Monaghan, the founder of Domino’s Pizza. He is a devout Roman Catholic and offers his employees a health plan that does not cover contraceptives or abortions.

A federal court in Detroit has granted a preliminary injunction (here) preventing the federal government from enforcing the contraception mandate against Domino’s Farms. This is significant because Domino’s Farms is a private business and not a church or church-affiliated non-profit organization, so it would otherwise be required to provide contraceptive coverage at no cost under its health plan or face a steep penalty.

As I’ve written about previously on this blog (here), Hobby Lobby stores sought the same relief from a court in Oklahoma late last year, but were denied on the basis that private business entities cannot hold religious beliefs.


Something to Marvell At: An Actual Case Involving Section 409A
By: Jason Lacey

We have been thinking and talking about Section 409A for more than 8 years now, but most of that discussion has been hypothetical. We have pursued compliance with Section 409A, but have been left to wonder: What would actually happen if an arrangement violated Section 409A? Is the IRS monitoring compliance or enforcing these requirements?

Well now we have some answers.

A federal court recently issued a ruling (here) dealing with the consequences under Section 409A of a discounted stock option arrangement. In addition to providing some specific legal analysis on Section 409A issues, the court’s decision provides some insights into how a case like this might arise.

Background. The case involves a founder and senior executive of a technology company (Marvell Semiconductor) who was granted stock options in 2003. In the wake of the various stock option backdating scandals, the company reviewed its option program and repriced the 2003 option grant. As a result, the executive paid over $5,000,000 in additional exercise price, presumably reflecting that the options had been substantially discounted when awarded.

The IRS Takes Notice. Disclosures regarding this repricing must have caught the IRS’s attention. In 2010, it issued the executive a notice of deficiency to the executive assessing additional taxes and penalties under Section 409A in excess of $3,000,000. The executive paid the assessed amounts and then sued to obtain a refund, arguing that the option arrangement was not governed by Section 409A.

The Court’s Analysis. The court made several important rulings regarding the impact of Section 409A for      Continue Reading...

What Is the Deadline for Updating Business Associate Agreements?
By: Jason Lacey

All covered entities and business associates will need to review their business associate agreements in light of the new final HIPAA regulations (see prior coverage here). The new rules are effective March 26, 2013, with a general compliance deadline of September 23, 2013. So what is the deadline for reviewing and updating a business associate agreement?

Transition Rule. Under a transition rule in the new regulations, covered entities and business associates (and business associates and their subcontractors) may continue to operate under certain existing agreements for up to one year beyond the general compliance date of September 23, 2013.

There are two conditions for this rule:

(1) Already in existence. A written business associate agreement must have been in existence on January 25, 2013 (the date the new final rule was released) and must satisfy the requirements of the prior HIPAA rule.

(2) Not renewed or modified. The business associate agreement must not be renewed or modified between March 26, 2013 and September 23, 2013.

If these conditions are satisfied, the agreement will be deemed to satisfy the new rules until the earlier of (i) the date the agreement is renewed or modified on or after September 23, 2013, or (ii) September 22, 2014. In other words, if these conditions are met, covered entities and business associates will have until as late as September 22, 2014 to update their agreements to comply with the final rule.

Evergreen Agreements. This transition rule is available for agreements that automatically renew between March 26, 2013 and September 23,      Continue Reading...

New ACA FAQ Guidance Addresses Cost Sharing, Preventive Care, and Expatriate Plans
By: Jason Lacey

Two more sets of tri-agency FAQs have been released, providing additional interpretive guidance on the Affordable Care Act. They are Part XII and Part XIII in the series.

Cost-Sharing Limitations. Part XII includes two important clarifications on the cost-sharing limitations that will apply to group health plans beginning in 2014.

(1) Deductible. The rule that limits the annual deductible under a plan to $2,000 for self-only coverage and $4,000 for family coverage will apply only to non-grandfathered plans in the individual and small-group markets. Grandfathered plans and large-group plans will be permitted to impose higher deductibles. This may be important for large-group plans that want to offer an option with a high deductible that meets the minimum requirements for a 60% actuarial value plan.

(2) Out-of-pocket maximum. The rule that limits overall cost-sharing under a plan to $5,000 for self-only coverage and $10,000 for family coverage will apply to all non-grandfathered plans. So even large-group plans will be limited.

Preventive Care. Part XII also provides detailed guidance on miscellaneous issues related to the requirement for non-grandfathered plans to offer preventive-care services without cost-sharing. Some highlights:

(1) Out-of-network services. Plans generally are permitted to impose cost-sharing with respect to preventive-care services obtained out of network. However, if a service that is required to be covered by the plan is not available through any in-network provider, the plan must cover the out-of-network service without cost-sharing.

(2) Over-the-counter items. Some of the covered preventive-care items include over-the-counter drugs and devices, such as aspirin. A plan is only      Continue Reading...

DOL Updates Health Plan Self-Compliance Tools
By: Jason Lacey

The DOL has updated the self-compliance tools it makes available to group health plans to include a new checklist relating to health care reform.

The health care reform checklist goes through a series of detailed questions that will help a plan sponsor confirm that it is in compliance with the key group market reforms, such as coverage of dependent children to age 26 and cost-free preventive care. There are particularly extensive provisions addressing grandfathered plan status and the SBC requirement.

A second checklist relates to the HIPAA portability provisions and related requirements for group health plans, including mental health parity. (See related prior coverage here.)

Plan sponsors or administrators would be well-advised to go through these lists once a year or so to determine if there are any areas in which their plans are deficient. It is always easier to correct problems that are identified before the DOL finds them.

The Landscape Becomes Clearer for State Insurance Exchanges
By: Jason Lacey

Employers are not directly affected by the establishment of state insurance exchanges under health care reform, but understanding the exchange landscape helps clarify the bigger picture of health care reform and how employers fit within that.

So here's where we are today: The deadline ran last Friday for states to file applications to run an exchange in partnership with the federal government for 2014. Some did that, but as I've written about previously (here), the response has been underwhelming. States that do not have their own exchanges and do not partner with the federal government will default to having a federally facilitated exchange. 

The Kaiser Family Foundation has an interesting graphic (here) that illustrates what's going on in each state. It reflects that only 17 states (plus the District of Columbia) will run their own exchanges, 7 states will have partnership exchanges, and 26 states will default to the federal exchange.

Depending on your political view, that's either a good first step toward national uniformity in the health insurance market or a lot of federal involvement.

Either way, a lot of questions remain, including whether and how these exchanges will be fully functional by October (when they need to begin enrollment for 2014) and what the exchange interface will look like. The federal government continues to believe it is on track (see here), but there is a lot of ground to cover between now and then.

Health Care Reform and Full-Time Employees - Part 8: Putting It All Together
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Let's review what we know from the previous posts in this series.

(1) It's important to identify full-time employees, because if we want to avoid the play-or-pay penalties, we have to make sure all full-time employees are offered appropriate coverage. 

(2) In many cases, we can determine whether an employee is full-time or not by looking at hours worked over a prior period, known as the measurement period.

(3) An employee's status for a measurement period remains the same during a stability period associated with that measurement period.

(4) We can utilize a brief administrative period between a measurement period and a stability period to allow time for such things as making enrollment elections and allowing coverage to become effective at the beginning of a month or year.

(5) When applying the look-back measurement method, it's useful to distinguish between new hires and ongoing employees. New hires that are reasonably expected to be full time upon hire must be offered coverage within 3 months. New hires that are variable hour or seasonal employees do not have to be offered coverage until the end of an initial measurement period,      Continue Reading...

Forgot to File Form 5500? There's an App For That.
By: Jason Lacey

Most employee benefit plans that are subject to ERISA are required to file Form 5500. This includes both retirement plans (including most 403(b) plans) and welfare-benefit plans, although many welfare-benefit plans covering fewer than 100 participants are exempt.

The failure to file Form 5500 can result in serious penalties. The DOL currently assesses a penalty of $300 per day, up to $30,000 per year for a failure to file Form 5500. Ouch.

But there is good news. The DOL maintains a voluntary compliance program that allows employers to correct a failure to file Form 5500 and pay a substantially reduced fee. Even in cases where there have been failures to file Form 5500 over multiple years, the maximum fee under the program is only $4,000. That's still a lot of money, but it's better than staring down something approaching a 6-digit penalty.

The program was recently updated (see here). The technical details of how the program works and what has changed will not be of interest to most of you. But it's a good time to remind ourselves the program exists - and should be used whenever possible.

Do You Have a Written Plan Document for Your 403(b) Plan?
By: Jason Lacey

If you sponsor a 403(b) retirement plan - which might be the case if you are a 501(c)(3) organization or a governmental educational agency - you are required to maintain a written plan document for the plan. This hasn't always been the law, however. The plan-document requirement began in 2009 when the current 403(b) regulations went into effect.

Some plans have yet to come into compliance with this rule. In most cases this is not due to willful disregard of the law. Rather, plan sponsors may not understand the requirement or - more likely - they may think they have a plan document, because they have entered into an annuity contract or custodial agreement with the investment provider for the plan. But that contract typically will not satisfy all the requirements of a plan document. 

Well, if you happen to sponsor a 403(b) plan that hasn't yet fully complied with the plan-document requirement, the IRS has a deal for you. Under a recently released update to its Employee Plans Compliance Resolution System or "EPCRS" (see here), the IRS has outlined a specific procedure for correcting this problem. It requires filing an application with the IRS and paying a fee. But the relief and peace of mind it provides is nearly priceless.

And there's even better news: If you file your application to correct this problem by December 31, 2013, the required fee is half of what it would be normally. For example, a plan with 51 to 100 participants would typically pay      Continue Reading...

Agencies Propose Changes to Contraception Mandate for Religious Employers
By: Jason Lacey

The IRS, DOL, and HHS have proposed two key changes in the rules that exempt certain religious employers from complying with the mandate to cover all FDA-approved contraception and sterilization procedures for women (see proposed rules here). 

1. Definition of Religious Employer

Employers that are "religious employers" are wholly exempt from compliance with the mandate. The new rules would modify the definition of religious employer slightly. The definition would still be limited to houses of worship (churches, synagogues, mosques, and the like) and religious orders. But the change would clarify that those organizations will not fail to be religious employers even if they also provide educational, charitable, or social services, without regard to whether the persons served share the same religious values.

Example. A church with a parochial school that employs teachers or serves students who are not necessarily of the same religious faith may still qualify as a religious employer.

2. Broader Accommodation for Non-Profit Religious Organizations

A non-profit organization that is not a church or religious order but that meets specified criteria would be provided an "accommodation" exempting the organization from directly providing contraceptive coverage. The criteria are:

  • The organization opposes some or all of the required contraceptive coverage on religious grounds
  • The organization is a non-profit entity
  • The organization holds itself out as a religious organization
  • The organization self-certifies that it meets the first three criteria

This change is intended to exempt organizations such as religious-affiliated non-profit institutional health care      Continue Reading...

HHS Has Updated Its Sample Business Associate Agreement
By: Jason Lacey

The updated sample agreement is here. It reflects changes in the HIPAA privacy, security, and breach-notification rules made by the final omnibus regulation (prior coverage here).

The template is a helpful starting point for drafting and reviewing business associate agreements in light of the new rules. Although it does not purport to address all issues that might merit consideration in an agreement, health plans, brokers, TPAs, and other covered entities or business associates will want to be familiar with it, if for no other reason than it is likely to form the backbone of many standard BAA templates.

Reminder: The final omnibus rule is effective March 26, 2013, with a general compliance date of September 23, 2013. 

New Health Care Reform FAQs Answer Some Questions and Raise Others
By: Jason Lacey

The IRS, DOL, and HHS have released their 11th series of FAQs (here) addressing various issues related to health care reform implementation.

Exchange Notice Requirement. In a helpful clarification, the agencies confirmed that employers will not have to provide a notice to employees regarding insurance exchanges until “regulations are issued and become applicable.” By statute, the notice is required to be distributed by March 1, 2013. This guidance effectively allows employers to delay compliance until further notice.

Stand-Alone HRAs. Three of the FAQs address issues related to health reimbursement arrangements (HRAs). The technical clarifications are as follows:

(1) An HRA cannot be treated as “integrated” with individual insurance coverage.

(2) An HRA can only be treated as “integrated” with major-medical coverage if participation in the HRA is conditioned on being enrolled in that major-medical coverage.

(3) Most amounts credited to an HRA before January 1, 2014, will continue to be available for reimbursements on and after January 1, 2014 without causing the HRA to violate the annual-limit rules under Section 2711 of the Public Health Service Act.

While all of this seems straightforward enough, the proverbial elephant in the room is the fundamental question whether stand-alone HRAs will be deemed to violate the prohibition against annual and lifetime limits under Section 2711 of the Public Health Service Act. These FAQs are the strongest indication yet that future guidance will say they do violate the prohibition, effectively eliminating stand-alone HRAs. 

Plan sponsors that maintain stand-alone HRAs - or are considering implementing one for 2014 - will want      Continue Reading...

What's Up With This Transitional Reinsurance Fee Anyway?
By: Jason Lacey

A fundamental insurance-market reform under the Affordable Care Act is that, beginning in 2014, insurance carriers that want to sell individual policies will be required to make those policies available to all applicants (guaranteed issue) and will be required to set the premiums for those policies based on a "community" rating, with variations based only on the tier of coverage purchased (individual or family), age of the insured, geographic area, and tobacco use by the insured. This is intended to ensure that individuals have access to health insurance without regard to health factors that might otherwise make insurance prohibitively expensive or simply unavailable.

That all sounds pretty good, unless you're the insurance carrier trying to figure out how to absorb the additional risks associated with having to cover people at a set price without regard to how much health care expense they may consume. But the Affordable Care Act makes some provision for them too. For 2014, 2015, and 2016, there will be a transitional reinsurance program through which insurers may offload some of the additional risk assumed in connection with these policies. And it's a pretty big program - $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016.

So who's going to pay for that? Answer: Group health plans.

Beginning in 2014, group health plans will be required to pay a fee for each individual covered under the plan that will be used to fund the transitional reinsurance program. The fee is paid once a year. Plans will      Continue Reading...

Health Care Reform and Full-Time Employees - Part 7: Rehires and Changes in Job Classification
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Now that we’ve got a handle on the general rules - measurement periods, stability periods, new hires, and ongoing employees - let’s look at a couple of nuanced points: rehired employees and employees who change job classifications.

Rehires - General Rule. Here’s the basic question with a rehired employee: Should the employee be treated as a new hire (meaning she starts over on plan eligibility) or should the employee retain the classification she had when she terminated?

For better or worse, the rule on this is pretty clear. If the period of time between termination and rehire is at least 26 weeks, then the employee is treated as a new hire. If not, then the employee generally retains the same classification she had when she terminated, at least for the remainder of that stability period.

Example 1. A long-term employee terminates employment on February 10, 2014. At the time of termination, the employee was being treated as a full-time employee for a 12-month standard stability period that began January 1, 2014. The employee is then rehired on June 30, 2014. Because the rehire date is less      Continue Reading...

Comprehensive Final HIPAA Regulation Released
By: Jason Lacey

HHS has finally released its long-anticipated final “omnibus” regulation (here) addressing the 2009 HITECH Act changes and making other updates to the privacy, security, breach notification, and enforcement rules.

Foulston Siefkin’s health care practice has already posted an issue alert (here) providing an overview of the regulation.

Compliance Date. The advance copy of the regulation runs 563 pages, so there is a considerable detail to digest. Luckily, HHS gave us a little time to get our heads around it. The regulation is effective March 26, 2013, and covered entities and business associates are generally required to begin complying with the final rules by September 23, 2013.

Some Key Points. Here are a few key points to understand about the final rules:

1. Business associate agreements may require modification. Business associates are now directly liable for compliance with portions of the HIPAA privacy and security rules. This requirement and other HITECH Act changes will require review and possible modification of business associate agreements to ensure they are in compliance.

2. Notices of privacy practices will require attention. The final rule changes some of the information that is required to be provided in the notice of privacy practices and generally requires re-distribution of an updated notice.

3. The standard for breach notification has changed. Under current rules, a covered entity is required to provide notification of a breach of protected health information (PHI) only if there is a substantial risk of harm from the breach. That “harm” standard has been replaced. There is now a presumption      Continue Reading...

Employers and Exchanges: What Do You Want to Know?
By: Jason Lacey

Each year the American Bar Association’s Joint Committee on Employee Benefits (JCEB) holds a conference where regulators from the IRS, Treasury, DOL, and HHS are invited to join with private lawyers and advisors for an open discussion on current topics. It’s both an opportunity to learn and an opportunity to share ideas.

This year’s conference is in March, and I’ve been invited to help facilitate a session on the state and federal insurance exchanges that will go into effect later this year. As I’m preparing, I’m thinking specifically about how the exchanges will relate to employers and employer-provided group health coverage. And I’m wondering what questions employers might have about the exchanges and how they will be affected.

So what are your thoughts and questions? Send me an email if you’ve got something on your mind. I can’t promise I’ll get you an answer, but I will try to work your feedback into my presentation, and who knows - maybe we’ll have some opportunity to shape the regulators’ thinking on how the exchanges will or should impact employers. 

Health Care Reform and Full-Time Employees - Part 6: Ongoing Employees
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

As we’ve noted, these rules on full-time employees apply differently depending on whether the employee in question is a new hire or an “ongoing employee,” and we've looked previously at the impact on new hires. So let’s look at them in the context of ongoing employees. Here's the good news: It’s pretty straightforward.

Ongoing Employee Defined. We first need to start with a definition of “ongoing employee,” so we know how to distinguish them from new hires. An ongoing employee is an employee who has been employed for one full standard measurement period. That’s it. So once you know what your standard measurement period is, you know how to identify your ongoing employees.

Test Everyone, Every Period. All ongoing employees will be tested for full-time status during each standard measurement period. It doesn’t matter whether they were previously full-time or not. At the end of each standard measurement period we’ll look back at the hours worked by each ongoing employee during that period and determine whether they averaged 30 or more hours per week. If so, they must be treated as full-time for the associated      Continue Reading...

Health Care Reform Timeline on HHS Website
By: Jason Lacey

HHS has posted a health care reform timeline to its website (here). Although it covers more than just the employer-related features of the law - and, in fact, doesn’t directly address all of the group health plan mandates and other issues affecting employers - it provides a helpful overview if you want to quickly see what’s been implemented already or what’s yet to come.

See also: Health Care Reform Calendar (covering August 1, 2012 through July 31, 2013)

HHS Shows Some Leniency in Recent HIPAA Settlement
By: Jason Lacey

HHS has announced a Resolution Agreement (here) with a nonprofit hospice organization in Idaho, resolving its investigation of a HIPAA breach involving the theft of a laptop computer. Although much about this case is similar to others like it that HHS has settled in the past few months (see, for example, here), the noteworthy points in this case are the ways in which it differs.

Size of Breach. The breach in this case involved electronic protected health information of 441 individuals. That’s a lot of people, but it is the first case HHS has resolved involving a breach affecting fewer than 500 individuals. (Because the breach affected fewer than 500 individuals, it would not have been disclosed to HHS immediately, but rather would have been identified on a log as part of the annual breach-notification requirement.) 

The point: HHS takes these cases seriously, whether they involve thousands of individuals or just a few hundred. A breach will not stay below the governments radar just because there is no separate notification requirement.

Resolution Amount and Corrective Action Plan. The case was resolved for a resolution amount of $50,000 (compared to over $1M in other recent cases), and HHS demanded a relatively light corrective action plan. Why would HHS be more lenient here? Reading between the lines, the answer seems to be based on the covered entity’s voluntary efforts to correct its error and take steps to prevent similar problems from occurring in the future.

The Resolution Agreement indicates that once the covered      Continue Reading...

IRS Proposes Comprehensive Regulations on PPACA’s Play-or-Pay Penalties
By: Jason Lacey

The IRS has released important new guidance on the play-or-pay penalties under Internal Revenue Code Section 4980H in the form of proposed regulations (here) and a set of FAQs (here). The guidance comprehensively addresses a number of key issues regarding the penalties and steps that may be taken to avoid them. For the sake of brevity, only a few highlights will be noted here.

Covered Employers. All common-law employers that are “applicable large employers” (generally 50 or more FTEs) are subject to the penalty rules, including tax-exempt and governmental entities.

Entity Aggregation. The Code's entity-aggregation rules (relating to controlled groups and affiliated service groups) apply for purposes of determining whether an entity is an “applicable large employer.” However, in an important clarification, the regulations confirm that each member of a controlled or affiliated group is allowed to determine separately whether it will comply with the requirements of Section 4980H or pay the penalty, and non-compliance by one group member will not be imputed to other group members.

"All" Full-Time Employees Means 95%. The requirement to offer minimum essential coverage to all full-time employees will be satisfied if the employer offers coverage to at least 95% of its full-time employees (or, if less, all full-time employees but five). This is a welcome interpretation of the statutory language that, at a minimum, will provide some protection against inadvertent failures to comply.

Dependents. The regulations confirm that Section 4980H requires offering coverage to both full-time employees and their dependents. However, the rules define “dependent” to      Continue Reading...

Health Care Reform and Full-Time Employees - Part 5: New Hires
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Prior posts in this series have addressed the structural rules that will apply to the process of determining which employees are full-time employees - things like measurement, stability, and administrative periods. Now it’s time to start looking at how these rules will apply to some specific classifications of employees.

Employees may be initially sorted into one of two groups: new hires and ongoing employees. This post will discuss the treatment of new hires. I’ll discuss ongoing employees in the next post in this series.

New hires will be treated one of two ways.

1. New Full-Time Employees. If, based on the facts at the time of hire, the new employee is reasonably expected to work full time right away (average of 30 or more hours per week) and is not a seasonal employee, the employee must be treated as a full-time employee immediately. Employees hired as full-time employees must be offered coverage within 3 months to avoid penalty exposure.

2. New Variable-Hour Employees. If, based on the facts at the time of hire, it cannot be determined whether the employee will be full time because the employee’s      Continue Reading...

Fiscal Cliff: Taxing Employer-Sponsored Health Coverage
By: Jason Lacey

Almost as soon as the Affordable Care Act passed in March 2010, the emails began coming, and they all said something like this: Obamacare increases your taxes by making your employer-provided health coverage taxable to you. Some even referenced a specific provision of the Affordable Care Act as authority.

True or false?

False. Or at least mostly so.

The kernel of truth was a reference to the provision of the Affordable Care Act that requires employers to report the value of employer-provided health coverage on the employees' W-2s. But it is only an information-reporting requirement. There is no increase in taxable income as a result.

Fast-forward 2-1/2 years, however, and we find ourselves in the midst of frantic politicking to attempt to avert the so-called fiscal cliff. Desperate times lead to desperate measures, and it seems that even the most sacred of sacred cows are now being considered for slaughter.

Today's news brings a report that this includes the long-standing tax exclusion for employer-provided health coverage.

It is an enormous tax expenditure for the federal government. Eliminating it would reportedly raise as much as $150 billion in additional revenue in one year.

But it has also been a linchpin of the employment-based health-care-financing scheme in this country. To encourage employers to provide health coverage to their employees, we allow the employers to claim a tax deduction for the cost of that coverage, but we do not tax the employees on it. We also allow employees to pay their share of the cost of coverage with pre-tax      Continue Reading...

Short Stay at Supreme Court for Contraception Mandate
By: Jason Lacey

The women's health preventive-care mandate - specifically the obligation for non-grandfathered plans to cover all FDA-approved contraceptive methods without cost-sharing - had a short stay at the Supreme Court this week.

Hobby Lobby stores, and a related company named Mardel, had requested a preliminary injunction preventing the government from enforcing the mandate against them (see prior coverage here and here). They were denied relief by both a federal district court in Oklahoma and the Tenth Circuit Court of Appeals in Denver, so they asked the Supreme Court to grant the injunction.

In a brief opinion, Justice Sotomayor denied the request, concluding that the company had not met the very high standard for relief. The company needed to show its legal rights in the matter were "indisputably clear" in order to obtain an injunction before the lower courts had ruled on the merits of the case. The Supreme Court has not previously decided whether a closely held for-profit corporation may hold and exercise religious beliefs, and prior rulings on the issue by lower courts have been inconsistent, so the law is not "indisputably clear."

The ruling is largely procedural and does little to address the merits of the underlying claims. Hobby Lobby may continue challenging the mandate, but it will be required to comply with the mandate (or pay a penalty), unless and until a court rules in its favor.

The mandate becomes effective January 1, 2013, for most calendar-year, non-grandfathered plans.

HHS Releases List of Conditionally Approved State Insurance Exchanges
By: Jason Lacey

HHS has released a list of the state insurance exchanges that have received conditional approval for operation in 2014 (with open enrollment beginning in October 2013) - and the list is short.

States receiving conditional approval for state-based exchanges:

  1. Colorado
  2. Connecticut
  3. District of Columbia 
  4. Kentucky
  5. Maryland
  6. Massachusetts
  7. Minnesota
  8. New York
  9. Oregon
  10. Rhode Island
  11. Washington

States receiving conditional approval for state partnership exchanges:

  1. Delaware

This could leave as many as at least 39 states (including Kansas) in which qualified health plans will be available in 2014 only through a federally facilitated exchange.

States still have until February 15, 2013 to file declaration letters and applications to establish a state partnership exchange.

For additional background on exchanges and exchange implementation, see here, here, and here.

IRS Provides Guidance on New Medicare Taxes
By: Jason Lacey

The IRS has released several guidance items on the new Medicare taxes that take effect beginning January 1, 2013:

  • Proposed regulations on 0.9% additional Medicare tax on earned income (here).
  • Updated Questions and Answers for the Additional Medicare Tax (here).
  • Proposed regulations on the new 3.8% Medicare tax on net investment income (here). 
  • Net Investment Income Tax FAQs (here).

There is considerable detail in all of this, but here are a few highlights:

Additional Medicare Tax on Wages

  • The employer must begin withholding the 0.9% after $200,000 in taxable wages paid. The employee may not opt out of withholding, even if the employee will not owe the tax.
  • Withholding by an employer may not be sufficient to cover all tax actually due by an employee, so the employee may be required to make estimated-tax payments. This can occur when, for example, two married individuals have combined wages that exceed the threshold amount, but neither individual's wages exceed $200,000.
  • If an employer employs two married individuals, the employer is not required to withhold the additional tax from either employee unless and until that employee's wages exceed $200,000. This is the case even if the combined wages paid to the two employees exceed $250,000 (meaning the employees will be subject to the tax).
  • If wages are paid to a single employee by two or more related      Continue Reading...
Final Regulations Released on PCORI Trust Fund Tax
By: Jason Lacey

The IRS has released its final rule on the Patient-Centered Outcomes Research Institute (PCORI) trust-fund tax.

Background on the tax and the proposed regulation released earlier this year is here.

The final regulation does not make significant changes to the proposed rule. It is mostly significant for it is confirmation of certain positions that health insurers and health-plan sponsors had sought relief on, including:

  • Retiree-Only Plans. The tax applies to retiree-only plans, even though those plans are generally exempt from the group-market reforms enacted as part of the Affordable Care Act.
  • COBRA Coverage. Individuals receiving COBRA coverage under a plan are counted as covered lives for purposes of the tax.
  • Integrated Insured and Self-Funded Coverage. The tax applies to both the insured and self-funded portions of a plan or arrangement, when the same individual is covered under both portions. For example, if a plan provides fully insured high-deductible coverage integrated with a self-funded HRA, the tax applies to both the insured portion and the self-funded HRA. However, if a plan includes an insured option and a self-funded option as alternatives (i.e., an individual may be covered under one or the other but not both), the tax may be calculated separated for each option under the plan, meaning individuals receiving only insured coverage do not have to be counted for purposes of calculating the tax on the self-funded coverage.
  • HRAs and Health FSAs. There is no blanket exclusion for      Continue Reading...
Proposed Regulations Sketch Out Framework for Identifying Essential Health Benefits
By: Jason Lacey

New proposed regulations from HHS have outlined a framework for identifying the package of "essential health benefits" (EHB) that must be offered by certain health plans beginning in 2014.

Affected Plans. The plans directly affected by the rules include "qualified health plans" (or "QHPs") that will be offered through an exchange, and any other non-grandfathered individual and small-group insurance policies, whether or not offered through an exchange.

Defining Essential Health Benefits. Rather than defining a package of essential health benefits that must be covered by all affected plans, the regulations propose that essential health benefits be determined on a state-by-state basis by reference to an "EHB-benchmark plan" identified by each state (or identified by default, if the state does not make an affirmative designation). The benchmark plan may be selected from one of the following:

  1. The largest plan by enrollment in any of the 3 largest small-group insurance products in the state.
  2. Any of the largest 3 state employee health benefit plans by enrollment.
  3. Any of the largest 3 national health plan options available to Federal employees under the Federal Employees Health Benefit Program.
  4. The largest insured commercial HMO operating in the state.

An Appendix to the proposed regulations lists, for each state, the plan that the state has already designated as its benchmark plan or that will be the default plan, if the state does not make an affirmative designation.

List of Largest State Small-Group Products. Earlier this year, HHS      Continue Reading...

Agencies Release Joint Proposed Regulation on Wellness Plans
By: Jason Lacey

The IRS, DOL, and HHS have issued a joint proposed regulation addressing wellness plans and the wellness exception to the HIPAA nondiscrimination rules. 

Background. Section 2705 of the Public Health Service Act, as added by the Affordable Care Act, provides statutory affirmation of the wellness-plan rules that have existed by regulation for several years as part of the HIPAA nondiscrimination rules (rules that prohibit, among other things, discrimination on the basis of health factors). It also gives the relevant governmental agencies (IRS, DOL, and HHS) express authority to issue further rules on wellness plans that increase the permissible reward or penalty to as much as 50% of the cost of associated heath-plan coverage.

Proposed Regulations. The proposed regulations largely follow the structure of the existing wellness-plan regulations, requiring, among other things, that wellness programs requiring a particular health outcome (e.g., smoking cessation, biometric screening results, minimum BMI, etc.) provide reasonable alternatives and limit the reward or penalty offered or imposed in connection with the plan. However, there are a couple of points worth highlighting:

  • Participation v. Health-Contingent. The proposed regulations label wellness programs as either "participatory" or "health-contingent." It is only the health-contingent programs that are subject to more rigorous regulation under the proposed rules. Participatory programs include fitness-club memberships, general health education, and other similar programs that do not provide for a reward or include any conditions based on satisfying a standard related to a health factor.
  • Size of Reward. The requirements that must      Continue Reading...
Task Force Releases Two New Draft Preventive-Care Recommendations
By: Jason Lacey

The U.S. Preventive Services Task Force has posted new draft recommendations addressing screening for HIV and hepatitis C. The recommendation for HIV is to screen all individuals ages 15-65. It is proposed as a “grade A” recommendation. The recommendation for hepatitis C is to screen high-risk adults. It is proposed as a “grade B” recommendation.

These recommendations are of interest to non-grandfathered group health plans. If finalized, they would add to the menu of preventive-care services required to be covered without cost-sharing.

Under regulations issued in 2010, any “items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force” are required to be covered. However, a new recommendation does not apply until the first plan year beginning on or after the date that is one year after the recommendation becomes effective.

Health Care Reform and Full-Time Employees - Part 4: Administrative Periods
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

As we have already seen, an employer may use a measurement period to determine whether an employee is a full-time employee, and any such full-time employee must be offered health-plan coverage during the following stability period, if the employer wants to avoid an automatic penalty for that employee. But, of course, enrollment can take some time. The employee may have multiple coverage options to consider and enrollment forms to fill out. And the employer will almost certainly need time to calculate the employee's hours of service during the measurement period. So it wouldn't work very well if the stability period had to begin immediately after the measurement period.

A Time For Transition. Recognizing this, the IRS’s guidance allows employers to use an "administrative period" in connection with their measurement and stability periods. This allows for a reasonable transition period between the measurement and stability periods. It also allows the initial measurement period to begin at a convenient time, such as at the beginning of a month or payroll cycle.

Ground Rules. Like the measurement and stability periods, employers have flexibility in defining the administrative period, but      Continue Reading...

Government Wins a Round on the Contraception Mandate
By: Jason Lacey

In the tally of recent cases involving the women’s health preventive-care mandate and for-profit employers (see, for example, here, here, and here), mark one down in the government’s column.  Earlier this week, a federal court in Oklahoma ruled against Hobby Lobby (prior coverage here), concluding that the company (as distinct from its owners) did not have religious views or freedoms that would be infringed by enforcement of the mandate.

Hobby Lobby has already appealed the decision to the Tenth Circuit court of appeals, so we may soon have a higher court weighing in on the issue.

Additional coverage of both the decision and the appeal is available here and here.

Hurricane Sandy Relief for Retirement Plan Loans and Hardship Distributions
By: Jason Lacey

The IRS has issued guidance temporarily relaxing certain requirements related to loans and hardship distributions from 401(k), 403(b), and governmental 457(b) plans, in an effort to make those funds more readily available to individuals affected by Hurricane Sandy. The new rules apply to loans and hardship distributions made between October 26, 2012 and February 1, 2013, if they are made for the purpose of assisting plan participants or their family members who live or work in a Sandy-related federally declared disaster area.

As described in an IRS news release:

“This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.”

Highlights of the specific relief provided:

Plan Amendment. Plans can make qualifying loans or hardship distributions before the plan document has been formally amended to allow for loans or hardship distributions, so long as an amendment is made by the end of the first plan year beginning after December 31, 2012.
Broader Hardship Standards. Hardship distributions can be made for any Sandy-related hardship, not just the “safe harbor” hardship standards typically relied upon.
Relaxed Documentation Requirements. Documentation and procedural requirements related to hardship distributions      Continue Reading...

Another Court Blocks Enforcement of the Contraception Mandate
By: Jason Lacey

This case, involving a for-profit bible-publishing company (prior coverage here), is very similar to two others decided recently (see here and here). The court concluded that enforcement of the women's health preventive-care mandate was likely to violate the employer's free-exercise of religion, so it temporarily barred enforcement of the mandate (court's order here).

The Washington Times has further coverage here.

There is considerable analysis in the court's opinion in this case on the issue of whether a corporation can hold or exercise religious rights. Although the court concludes a corporation does have that right, it is a very fact-specific analysis that may not lend itself to broad applicability. 

It should also be noted that the view adopted by this court and others that have ruled similarly is not universally held. In October, a Missouri federal court ruled that the mandate did not limit a for-profit employer's free-exercise of religion to a degree that warranted barring enforcement of the mandate. So judges may differ in their view and application of these standards, and how that ultimately will be resolved may not be known unless and until these cases work their way to the Supreme Court.

HHS Grants 11th Hour Second Extension of State Exchange Deadline
By: Jason Lacey

In a letter from HHS secretary Kathleen Sebelius released late yesterday, HHS has given states another month to file the Declaration Letter necessary to show their intent to establish a state-based insurance exchange for 2014. The deadline is now December 14, 2012.  A state's Blueprint Application for a state-based exchange will be due the same time.

The original deadline for filing both the Declaration Letter and the Blueprint Application was November 16, 2012 (see here).

Last week, HHS extended the deadline for filing the Blueprint Application to December 14, 2012, but left the November 16 deadline in place for the Declaration Letter (see here).

HHS also previously extended until February 15, 2013 the deadline for filing a Declaration Letter and Blueprint Application for states that want to establish state partnership exchanges, rather than full-blown state-based exchanges (see here). That deadline remains in place.

Health Care Reform and Full-Time Employees - Part 3: Stability Periods
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

So we know it’s important to identify which employees are full-time (and which are not), and we know we can use a measurement period of up to 12 months to collect the data we need to make the determination about full-time status. The next question then is what that means going forward. How long do the determinations we make during the measurement period last? That’s where the stability period comes in.

Stability Period Related to Measurement Period. Each measurement period (whether an initial measurement period or a standard measurement period) will have an associated stability period. If an employer determines that an employee did not work full-time during a measurement period, the employer is permitted to treat the employee as a part-time employee during the following stability period. Similarly, employees determined to be full-time during the measurement period are treated as full-time during the following stability period.

Actual Facts Don't Change the Current Period. The key is that an employee’s status during the stability period remains the same, regardless of how many hours the employee actually works during the stability period. For example, if an employee      Continue Reading...

HHS Extends Deadlines for States to Make Exchange Decisions
By: Jason Lacey

HHS has released a fact sheet extending a key deadline for states to take the steps necessary to establish either a state-based insurance exchange or a state partnership exchange. This modifies the timetable set out in HHS's previously released Blueprint for establishing an insurance exchange (see coverage here). The highlights:

  • State-Based Exchange. To create a state-based exchange, states still must file a Declaration Letter by November 16, 2012, but they will now have until December 14, 2012 to complete the required Blueprint Application.
  • State Partnership Exchange. To create a state partnership exchange, states have until February 15, 2013 to file a Declaration Letter and Blueprint Application. They must indicate in those documents what roles they intend to fill in the partnership exchange (plan management functions, consumer assistance functions, or both).
  • 2015 Deadlines. States that want to adopt a different exchange model for 2015 than they use in 2014 must submit a Declaration Letter by November 18, 2013 and a Blueprint Application by December 16, 2013.

Kansas Governor Sam Brownback recently affirmed his position that Kansas will not participate in the exchange system at any level for 2014 (his signature is necessary for the state to file a Declaration Letter), so Kansas residents will be covered by a federally facilitated exchange for 2014, absent a change in position before the February 15, 2013 deadline to apply for a state partnership exchange.

IRS Authorizes Leave-Based Donation Programs to Benefit Hurricane Sandy Victims
By: Jason Lacey

In new guidance, the IRS has provided tax relief for leave-based donation programs established to aid victims of Hurricane Sandy. Similar guidance was provided after the September 11, 2001 terrorist attacks and after Hurricane Katrina in 2005.

Under a leave-based donation program, an employer allows employees to elect to forego paid leave time (e.g., vacation, sick, or personal leave), and the employer then donates the value of the foregone leave to a charitable organization.

The guidance clarifies that employees will not have taxable wage income solely because they make, or have the right to make, an election to donate leave under a qualifying leave-based donation program. Employers are allowed a full deduction for the donations, without regard to the percentage limitations on charitable contributions.

To qualify for this treatment, payments of foregone leave time must be made:

  • To a qualifying charitable organization.
  • For the relief of victims of Hurricane Sandy.
  • Before January 1, 2014.

Employees who elect to participate in a leave-based donation program may not claim a charitable contribution deduction for the value of the foregone leave.


Federal Court in Michigan Halts Enforcement of Contraception Mandate Against For-Profit Company
By: Jason Lacey

A federal district court in Michigan has entered an order temporarily halting the government's ability to enforce the women's health preventive-care mandate against a for-profit company on the basis that the mandate would violate the company's free-exercise of religion. As explained by the court:

"Plaintiffs argue that the HRSA Mandate, which forces them to choose between providing health insurance that includes contraception without cost-sharing or incurring a financial penalty, substantially burdens their free exercise of religion. Under the Religious Freedom Restoration Act, Plaintiffs seek a preliminary injunction to prohibit the Government from enforcing the HRSA Mandate against them."

Weighing the relative risks to the government and the company in blocking enforcement of the mandate, the court observed:

"The harm in delaying the implementation of a statute that may later be deemed constitutional must yield to the risk presented here of substantially infringing the sincere exercise of religious beliefs. The balance of harms tips strongly in Plaintiffs' favor.  A preliminary injunction is warranted."

This case and others like it (see here, here, and here) are of interest because they provide, or seek to provide, a targeted exemption for certain for-profit employers from the mandate, even though the government's regulations would exempt only non-profit organizations, and even then only those that are engaged directly in religious activity, not just guided by religious beliefs or principals. The issue sets up considerable tension at the intersection of religious freedom and women's health and could represent the ticket for PPACA's next trip to the Supreme      Continue Reading...

Health Care Reform and Full-Time Employees - Part 2: Measurement Periods
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

We know a critical issue in looking at the play-or-pay penalties is determining which employees are full-time and which are not. An initial step in that process is identifying the period to be used for making that determination.

Looking Back vs. Looking Forward. For employees who work varying schedules and hours, it can be difficult to predict whether or when those employees will average 30 or more hours per week. So Notice 2012-58 allows an employer to look back over a defined period to make that determination. This look-back period is referred to as a “measurement period.” As the name suggests, it is the period over which the employer will measure an employee’s hours worked and determine whether the employee was above or below the 30-hour threshold.

Two Types. There are two types of measurement periods: an “initial measurement period” and a “standard measurement period.” They are conceptually similar, but operate differently and serve slightly different functions.

Initial Measurement Period. The initial measurement period applies to newly hired variable-hour and seasonal employees. Although the length of the initial measurement period must be the same for all      Continue Reading...

Retirement Plan Cost-of-Living Adjustments Released for 2013
By: Jason Lacey

The IRS has released its annual cost-of-living adjustments for retirement plans for 2013. Among the highlights:

  • The annual limit on elective contributions (other than catch-up contributions) to a 401(k), 403(b), or 457(b) plan has increased to $17,500.
  • The annual limit on catch-up contributions (for plan participants age 50 or older) remains the same at $5,500.
  • The maximum amount of annual additions that may be made to a defined contribution plan (the "415 limit") has increased to $51,000.
  • The maximum amount of compensation that may be taken into account for the year (the "401(a)(17) limit") has increased to $255,000.
  • The compensation threshold for identifying certain highly compensated employees remains the same at $115,000.

Separately, the Social Security Administration announced that the Social Security taxable wage base will increase to $113,700 for 2013 - up from $110,100 in 2012. In addition to affecting certain retirement-plan contributions, this impacts the amount of wages and earned income that are subject to the Social Security portion of the FICA and SECA taxes.

IRS Releases 403(b) Plan Checklist
By: Jason Lacey

The IRS has posted a new 403(b) Plan Checklist to its website. It is a list of 10 common operational problems, intended as a "quick tool" to help employers spot check for key compliance issues. 

Among the issues identified:

  • Is the employer eligible to sponsor a 403(b) plan?
  • Is the plan complying with the "universal availability" requirement?
  • Are employee contributions being monitored and appropriately limited?
  • Are the dollar limits on plan loans being monitored and repayments enforced?
  • Is the plan obtaining proper substantiation of hardship withdrawals?

A key issue that is NOT addressed on the checklist is the written-plan requirement. Since 2009, IRS regulations have required that 403(b) plans be maintained under a written plan document. Although it's a fairly simple requirement to comply with, it has been often overlooked. But you can be sure the IRS will check for a written document in every 403(b) examination it conducts.

Employers that sponsor 403(b) plans would be well-advised to use this checklist to conduct a mini self-audit at least once a year. Any issues that may be identified are much easier to resolve through voluntary correction than if the IRS discovers them on audit.

Free Housecleaning Services for Employees: All the Cool Kids Are Doing It
By: Jason Lacey

Looking for a little extra perk to offer your employees next year?

There's always pet insurance, but let's face it - that's just old news. If you want to be on the leading edge, you've got to be thinking about housecleaning services. The New York Times has an article describing the trend: "It is the latest innovation from Silicon Valley: the employee perk is moving from the office to the home."

Yes, this comes to us from that land of milk and honey populated by giants like Google and Facebook and Apple who will spare no expense to engage and inspire the creative minds that deliver tomorrow's technology, not to mention a stellar stock price (at least for some - sorry Mark Zuckerberg).

But these companies do seem to be onto something broader than just a fringe-benefit arms race. There is a sense that employees don't just want to be compensated with more money; they want relief from the stresses of daily living. "And the goal," according to the Times, "is not just to reduce stress for employees, but for their families, too. If the companies succeed, the thinking goes, they will minimize distractions and sources of tension that can inhibit focus and creativity."

Or maybe free up a little more evening time for employees to spend thinking about company business.

I'm just saying.

But whatever the motivation, there is clearly some new ground being broken with the notion that employers should look at all 24 hours in an employee's day - rather than just the      Continue Reading...

Health Care Reform and Full-Time Employees - Part 1: The Problem
By: Jason Lacey

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Background. The play-or-pay