As you start off the new year and plan your health care
budget we wanted to pass along a couple of definitions and some considerations
as you head into this new year.
First some definitions:
The IRS defines Cafeteria Plans as:
A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.
A qualified benefit is a
benefit that does not defer compensation and is excludable from an employee’s
gross income under a specific provision of the Code, without being subject to
the principles of constructive receipt. Qualified benefits include the
- Accident and health benefits (but not Archer medical savings accounts or long-term care insurance)
- Adoption assistance
- Dependent care assistance
- Group-term life insurance coverage
- Health savings accounts, including distributions to pay long-term care services
IRS states Constructive Receipt is: Income
is constructively received when an amount is credited to your account or made
available to you without restriction. You do not need to have possession of it.
If you authorize someone to be your agent and receive income for you, you are
considered to have received it when your agent receives it. Income is not
constructively received if your control of its receipt is subject to
substantial restrictions or limitations.
Why do we care?
In a recent
article posted on Flexiblebenefit.com
we care because at times, employers offer cash payments to their employees who
choose not to sign up for employer health insurance coverage. These cash payments are taxable to employees
who waive the coverage but employees who elect the coverage may also be liable
for the taxed on a cash payment that they did not receive. This is where constructive receipt comes into
play. By definition, employees may need to consider the amount of the cash
payment as income because the person has control over the money even though
they did not take the money. Control exists because the employee has the option
to waive the coverage in return for a cash payout. That is Constructive Receipt.
The money would have to be recorded as income and treated generally like a cash
bonus. Employers will need to withhold the appropriate payroll taxes as if the
bonus was paid. This will need to be reflected in the employee’s W2 that may
have already been sent to the employees.
Can this be avoided?
Yes – This
can be avoided if the employer makes the cash payment available through a Cafeteria
Plan. If the employer sets up their health care coverage under a Cafeteria Plan,
then the employ has a choice between taking a plan or taking the cash payout. If
the employer offers a cafeteria plan then employees that take advantage of that
coverage may do so tax-free according to flexiblebenefit.com. The key to this working is to make sure that
the Cafeteria Plan documentation addresses this so that the tax implications
can be avoided.
Please contact our office if you have any questions or wish to inquire about Cafeteria Plans or other ways you can protect your employees and offer best practice health coverage.
One of biggest pharmacy players in the marketplace, CVS Health, announced that it has agreed to buy Aetna for $69 Billion. This works out to be approximately $207/share with $145 in cash and the rest in stock. The deal is expected to close, with regulatory approval in the second half of 2018. Today there was a call for congressional hearings to see if this is merger will lead to a better landscape or do more harm. So, more news to come.
What does this CVS acquisition of Aetna mean?
In the short term, CVS could provide a very wide range of services to the 22 million Aetna medical members. This could include expansions in the walk-in clinics, efficiencies in pharmaceutical sales and provide CVS with something other than just retail sales. We may see a better use of health data from both Aetna and CVS (stores and minute clinics) to create a better experience for all consumers. This could also lead to lower costs for care at Minute Clinics and in health care premiums.
Early reports indicate that CVS is considering transforming its locations into some sort of community health hub where pharmacists and nurses can provide services to individuals recently released from hospitals to help them stay out of the hospital. There also some signs that this combination could be a place where individuals go rather than to the emergency room. This could also extend into general wellness, nutrition, vision and hearing screening services. CVS could be positioning themselves in front of health issues to support a healthier person and thereby saving health care costs across the board. Health insurance providers want to get closer to the consumer so that they are better able to manage the aspects of a person’s health better, this could be that way fro Aetna. Many people agree that in the future you will see much less retail (where items can be purchased easily online) and more emphasis on health care from within the CVS stores. The combination CVS/Aetna group will have to take steps to convert customer perceptions that include a feeling that CVS sells eye make-up and toys so why would it be the place to go for health care?
Large companies that employ many have traditionally kept their prescription drug benefits separate from medical coverage. These companies feel they can get a better, lower cost deal by shopping these benefits around separately. This merger could change that thinking as CVS and Aetna argue that this deal will lower costs and give them the ability to negotiate drug prices down and the management in the use of these drugs up. We feel that this will lead to more companies when they look to negotiate their health contracts next year, to look to see if it is better to pull these services together or will overall savings occur by keeping health and pharmacy separate.
This may be the first in other health services mergers as this industry attempts to insulate themselves from competition from Amazon that is expanding into the sale of prescription drugs and from health insurers that have brought drug price negotiations in-house rather than using a middle man as CVS now becomes that middleman for Aetna.
We continue to monitor all aspects of the health care industry and will help guide you through the changing landscape. Our goal is to provide you with the maximum amount of savings in health care costs while still providing the right set of services to your employees.
Please contact us for more details.
Contributing sources as well as additional information on this merger can be found here:
CNBC / CNBC
New York Times
The Kaiser Family Foundation in conjunction with the Health Research and Educational Trust (HRET) recently announced their 2017 Employer Health Benefits Survey. This survey covers over 150 million people. It helps to provide fresh information about employer-sponsored health benefits. The 2017 report is the nineteenth survey of this type.
Quoted abstract from the Health Benefits Survey
“This annual survey of employers provides a detailed look at trends in employer-sponsored health coverage including premiums, employee contributions, cost-sharing provisions, and employer practices. The 2017 survey included more than 2,100 interviews with non-federal public and private firms. Annual premiums for employer-sponsored family health coverage reached $18,764 this year, up 3% from last year, with workers on average paying $5,714 towards the cost of their coverage, according to the Kaiser Family Foundation/Health Research & Education Trust 2017 Employer Health Benefits Survey. The 2017 survey includes information on the use of incentives for employer wellness programs, plan cost sharing, and firm offer rates. Survey results are released in a variety of ways, including a full report with downloadable tables on a variety of topics, summary of findings, and an article published in the journal Health Affairs”
The survey is very comprehensive and contains many pages of tables and charts that describe the current condition of the employer marketplace today.
Please contact us if you have any questions or check out the survey.
Here are a few 2017 Health Benefits Survey highlights
• The average premium for single coverage through an employer-sponsored plan is $6,690 up 4% over last year.
• The average premium for family coverage through an employer-sponsored plan is $18,764 up 3% over last year.
• Worker’s wages increased 2.2% and inflation increased 2.2%
• On average covered workers contribute 18% for single and 31% for family towards premium payments. With workers in small firms contributing a larger percentage than those workers in larger firms.
• Dwindling its share over the last 8 years by 8%, the PPO continues to be the most common plan type followed by High-deductible plan, HMO, POS and less than 1% in a conventional/indemnity plan.
• 15% of the workers in small firms and 79% of the workers in large firms are enrolled in plans that self-fund in some capacity. This is very similar to the numbers from last year.
• Most workers have some type of deductible such as a general annual deductible, cost-sharing, copayments or coinsurance for office visits and hospital stays.
• 53% of firms offer health benefits to some of their workers and 89% of the people surveyed work in firms that offers health benefits.
• A clear majority (over 94%) of all firms offer coverage to spouses of those eligible. Over 92% of all firms offer health benefits coverage to non-spouse dependents.
• Many firms that offer health benefits also offer supplemental benefits as well. These include dental, vision, critical illness insurance, hospital indemnity insurance and long-term care insurance. With firms more likely to contribute towards dental and vision than the others.
• A small number of firms (minimally 8%) collect health information from workers through wearable devices such as a Fitbit.
• 4% of firms with at least 50 workers offer health benefits through a private exchange. Many more are considering it going forward.
Conclusion highlights from the 2017 Health Benefits Survey:
• Employer-sponsored health benefits market displays no big changes over 2016
• Premium increases are modest and not much change in cost sharing or enrollments.
• Employers continue to invest in promotion of wellness and build incentives around programs that collect information about their employees.
• No signs that long term declines in the offer and coverage rates are reversing with the percentage of workers covered at work remains at 62%
• There continues to be a significant variation around premiums and contribution amounts. Large number of workers in small firms pay a substantial share of the cost of family coverage. This calls into question whether this is a viable source of coverage for the dependents.
• Even with the uncertainty of the ACA (Obamacare), employers seem to have adapted to the provisions without significant disruption. Even if repeal and replace efforts succeed the impacts on the group market will be relatively small. There may be some small changes made, but the costs and coverages will most likely not change in any meaningful way.
• One to watch – The Cadillac tax could affect the market over the next couple of years. Because this law has been pushed out to 2020 and with Congressional support for pushing it out further, the pressure on employers has been alleviated to some extent. This could change dramatically if the tax is not further delayed.
For more information on the survey methodology, please visit the Methodology section at http://ehbs.kff.org/.
For more information on how this information will impact your business contact us here at HRB Solutions Inc