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.
The folks at KFF (a nonprofit organization based in San Francisco, CA) have done a phenomenal job of collecting and posting over 300 FAQs pertaining to the 6th annual upcoming Affordable Care Act (ACA/ObamaCare) open enrollment period. New questions and answers have been added expanding upon the already rich library of detail pertaining to the ACA and specifically open enrollment. This set of FAQs are searchable and cover not only ACA but the health insurance marketplace in general. The details provided will be a very valuable resource to any consumer, navigator, broker and all those that have a vested interest in the marketplace.
Search the FAQs
The database of information covers topics including eligibility, requirements and general information about State ACA marketplaces. The collection also addresses the 2019 repeal of the individual mandate penalty and offers a totally new section on short-term health insurance policies.
Site visitors will be able to obtain information on situations that affect all people from young adults to retirees. Immigrant situations and folks with job-based plans will also find information to help them make the important decisions needed in this next enrollment period. We were pleased to also see that over 150 of the FAQ’s are also available in Spanish.
Please note that open enrollment for the Federal and most state marketplaces begins on Thursday November 1, 2018.
The KFF website also provides many other resources including:
As always, we are here to help you navigate these waters. Many of your questions will be answered by searching through this valuable database. However, each situation is unique. Please contact us if you would like to discuss the upcoming enrollment period or any topic related to your business’ health care solution.
In a recently updated article from the Kaiser Family Foundation, the authors continue to monitor insurer’s Affordable Care Act (ACA/ObamaCare) marketplace filings by State. These filings detail premiums the marketplace insurers will be charging in the areas where they plan to participate in 2019. The State or the Federal Government reviews each of these premium rates to ensure that they are both accurate and justifiable before they go into effect. There are different criteria used by State and each State varies on how much information they release.
The KFF analysis compares and contrasts various levels (bronze, silver and gold) of the ACA across the 50 States and the District of Columbia. The authors will continue to update this report as additional States release or update their reviews. It is likely that the information will change over the remainder of 2018.
The authors note:
“The second lowest-cost silver plan serves as the benchmark for premium tax credits (which subsidize premiums for low and modest income exchange enrollees) and is the only plan that offers reduced cost sharing for lower-income enrollees. About 63% of marketplace enrollees are in silver plans this year, and 29% are enrolled in bronze plans.”
The insurers that participate in the various States are mostly taking into account the repeal of the individual mandate (associated with the tax cut in December 2017) that goes into effect this coming year. It is also anticipated that there will be an increase in non-compliant, short-term, limited duration health plan (STDL). Without the penalty, it is expected that relatively healthy individuals will leave the regulated insurance marketplace and thereby cause an increase in the 2019 premiums. It is unsure if all the providers have fully included this information in their 2019 estimates.
The authors also include:
“Additionally, the Trump administration decision to stop making cost-sharing reduction payments to insurers had an upward effect on 2018 premiums, but some insurers may adjust premiums in 2019 up or down if their 2018 adjustments proved to be inaccurate. Some insurers may be changing which plans are subject to increased premiums to compensate for the loss of cost-sharing reduction payments. In 2018 many insurers increased premiums just on silver marketplace plans – which are the only plans in which consumers can receive cost-sharing reductions — but a small number of states directed insurers to increase individual market premiums across the board.”
How was the data collected?
The authors collected data from health insure filings to the various States released by the State’s Insurance Departments. The submissions were public and available for the States they investigated. The data focuses on major cities and larger communities where insurance providers participate. Some of the plans may not be available in all cities or counties within the individual rating areas. Rating areas are defined as groups of adjacent counties and the analysis chose a represented sample within each area.
As always, if you have any questions or comments with what this means for your business, please contact us.
Source: Kaiser Family Foundation
Details are being released regarding the number of individuals that signed up for medical coverage under the Affordable Care Act (ACA) Marketplace. The numbers show that there is an overall reduction of 3.7% in 2018 over 2017. This a combination of a slight increase (0.2%) in the state-based marketplace offset by a reduction at Healthcare.gov. There were 15 states that showed an increase over 2017 with the majority of these being state-based services.
This is a larger enrollment than many expected because funding for outreach informing those potentially in need of the program was dramatically reduced and the enrollment period was cut in half. There were also a few political factors including the government’s termination of the cost-sharing provision and uncertainty whether the law would be in effect at all.
Outreach, as outlined in the ACA, was provide through Navigator programs. These programs helped inform and guide potential enrollees in the 34 states using Healthcare.gov about enrollment periods and what they specifically had to do to comply with the ACA. In august of last year, the Center for Medicare and Medicaid Services significantly reduced their spending on Navigator. Because it was so close to the actual enrollment period, many thought that it would have a major impact on enrollment in general.
The elimination of the cost-sharing provision for insurers prior to the open enrollment period led to an increase in the premiums that many would have to pay. It also increased the premium subsidies for some of those enrolled that qualified leading to reductions in what they had to pay.
In Illinois, 334, 979 enrolled this year down 6% from the 356,403 that enrolled in 2017.
There are still many changes on the horizon with regards to the ACA and its components. While Congress did not fully repeal and replace the ACA, they did remove the individual mandate as part of the most recent tax bill. The full impact of this will be realized over the next few months and years.
We will continue to monitor progress in the provisions of the ACA and how it will impact your business. Please contact us if you would like to discuss how this changing environment will impact your business and what steps you can take to make sure that you are compliant while still saving as much on the expense side as possible.
Sources for this blog include:
Kaiser Family Foundation
The most recent tax cut approved by the US Congress late last year know as the Tax Cuts and Jobs Act removed the federal penalty for not having health insurance – the individual mandate. Since then, officials from many states have been concerned that the elimination of the penalty might have a destabilizing impact on their local health insurance marketplaces. To combat this some States have and others are looking at instituting their own individual mandate programs.
States with Mandates:
Massachusetts was the first state and actually had an individual mandate in place before the Affordable Care Act when into law. The penalty amount varies by income with a maximum penalty of just under $1,500 per year.
New Jersey recently passed a new law which goes into effect in 2019. Their penalty is based on per adult+child amount (695/347.50) or 2.5% of household income whichever is the greater. The total is capped at the premiums of the lowest rate plan in their marketplace
Vermont also passed a new law, but it will not go into effect until 2020. The details of this new law are not known yet as the State Legislature will be working out the details durin 2019.
Several states are considering instituting some form of the mandate. These include California, Connecticut, Maryland, Hawaii, Rode Island, Washington, Minnesota and the District of Columbia. Other states are unknown at this time but all the signs point to additional states climbing on board in the very near future.
If you have any questions or would like to discuss this impact on your business, please do not hesitate to contact us. Please also stay tuned to our blog posts and we will update you as soon as we know of changes in this changing landscape.
In a recent executive order, the Trump Administration has proposed new regulations to encourage a much wider use of short-term health plans. These plans have limited duration and are generally a cheaper alternative to individual market, ACA compliant plans. However, cheaper does not always translate to better. A recent analysis from the Kaiser Family Foundation found that these plans have gaps and offer less or limited services.
The Foundation’s analysis examined specific short-term insurance products that are available in 45 states and the District of Columbia through two insurance partners – eHealth or Agile Health Insurance.
In general, the Kaiser Foundation analysis found:
- 43 percent do not cover mental health services;
- 62 percent do not cover substance abuse treatment;
- 71 percent do not cover outpatient prescription drugs; and
- None of the plans cover maternity care.
The study found that these short-term health plans have premiums that are up to 20% lower than the lowest ACA compliant individual marketplace plans (bronze) within each of the states analyzed.
There are concerns that healthier people may move to these shorter, cheaper plans leaving those with more complicated health conditions in the ACA plans. This would have the knock-on effect of raising the premiums for those that remain in the ACA plans. While qualified low income people may be able to take advantage of tax credits to help offset the higher premiums, most middle-income families would not be entitled to any tax relief. This would most likely result in higher premiums for this group.
It is also expected that the repeal of the individual mandate that was voted in as a rider on the 2017 Holiday Tax Cut will boost enrollment in these short-term plans as the penalty will no longer apply.
There is a tremendous amount of activity in the marketplace these days where a change in one component of health care has huge impacts on other areas. Please contact us if you have any questions about this change. We will help walk you through the changes and what impact it may have on your business.
Additional Resources on Short-term Health Care Plans:
Kaiser Family Foundation
The Cadillac Tax imposes a 40% excise tax on coverage in excess of certain thresholds. When originally enacted with a 2018 effective date, the thresholds were $10,200 for self-only and $27,500 for family coverage. The tax has since been delayed twice (including this delay), and the thresholds will be updated prior to the new Jan. 1, 2022 effective date.
Many employers, unions, insurers and industry groups have opposed the tax based on concerns around administrative and financial burdens for employers and adverse outcomes for employees. Cigna is a founding member and on the executive committee of The Alliance to Fight the 40, a coalition of public and private sector stakeholders that seeks a full repeal of the Cadillac Tax. To learn more about these efforts, visit www.fightthe40.com.
Health Insurance Industry Fee (a.k.a. Health Insurer Tax)
The short-term spending bill also suspends the Health Insurance Industry Fee for 2019. This fee began in 2014 and only affects insured health plans. It was previously suspended for 2017 but went back into effect on Jan. 1, 2018.
If you have any questions or would like to find out more about how these changes impact your business, please contact us.
In late December the IRS provided a 30-day extension for insurers, self-insuring employers, other coverage providers, and applicable large employers to provide the 2017 health coverage forms to their employees. The original date, January 21 was extended until March 2, 2018. At this time these groups must provide statements to their employees or any covered individuals regarding the health coverage that is offered to them. This will assist the employees in determining if they will be able to claim the premium tax credit on their individual income tax returns. This extension is automatic, it is not something that employers have to request.
We have made mention of this extension in the past on our website. The reason we are bringing it up again now is the due dates for filing 2017 information returns with the IRS are not extended. For 2018, the due dates to file information returns with the IRS are:
- 28 for paper filers
- April 2 for electronic filers
The dates are quickly approaching. We wanted to surface them as a reminder for your information and use.
The IRS also noted that this extension may be beyond when many taxpayers are ready to file their taxes. These forms are not required to file. Taxpayers may be able to prepare and file their returns using other information about their coverage, they do not need to wait for the forms 1095-B or 1095-C to file.
If you have any questions about this extension, please don’t hesitate to contact us.
Additional information may be found here:
IRS Public Filing
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
The Internal Revenue Service (IRS) recently released Revenue Procedure 2017-36 which provides indexing adjustments for certain provisions under the Patient Protection and Affordable Care Act (ACA/Obamacare). Of interest to employers is the index adjustment of the contribution percentage used for purposes of determining affordability under the employer shared responsibility (pay or play) mandate. Employers looking to avoid pay or play penalties will need this information to assist in the decision-making process relative to plan designs and employer funding.
Background on Indexing Adjustments
In order to avoid pay or play penalties, applicable large employer (ALE) members must offer full-time employees minimum essential coverage (MEC) that is both affordable and provides minimum value (i.e., actuarial value of at least 60%). Under applicable rules, health care coverage is affordable if the employee’s required contribution for the lowest cost self-only option offered by the employer is 9.5% (as adjusted annually) or less of the employee’s household income. The statute defines “household income” as the modified adjusted gross income of the taxpayer and the members of the taxpayer’s family, and modified adjusted gross income is defined as adjusted gross income plus certain types of income that would otherwise be excluded from the taxpayer’s income (i.e., foreign earned income and housing costs, tax exempt interest, and the excludable portion of the taxpayer’s social security income).
The IRS did not address the household income standard in its employer shared responsibility regulations.
The IRS did not address the household income standard in its employer shared responsibility regulations. Instead, the IRS established a choice of three safe harbors that employers could use to demonstrate compliance with the affordability standard, all of which limit the determination of affordability to employee self-only coverage. Those safe harbor affordability standards include the Form W-2 Safe Harbor (based on the employee’s W-2, Box 1 reported wages for that year), the Rate of Pay Safe Harbor (based on an employee’s hourly rate times 130 hours per calendar month), and the Federal Poverty Line Safe Harbor (based on the annual federal poverty line for a single individual divided by 12).
The provision in the ACA/Obamacare statute that established 9.5% of an employee’s household income as the general affordability standard also provided for indexing (adjustments) of that standard beginning in 2015. The annual adjustments, prior to 2018, are as follows:
- 2015 – 9.56%
- 2016 – 9.66%
- 2017 – 9.69%
- 2018 – 9.56% (decreased)
Affordability percentage for 2018
For purposes of the employer shared responsibility mandate, the required contribution percentage has decreased for 2018 to 9.56% (from 9.69% in 2017). This means that if an employee’s share of the premium (in 2018) for the lowest cost self-only option offered by the employer is more than 9.56% of his or her household income (or the applicable standard if using one of the affordability safe harbors), the coverage is not considered affordable for that employee and the ALE member may be liable for a penalty if that employee obtains a premium tax credit for health coverage purchased through the public exchange.
So, unless the employer shared responsibility mandate (or at least the related penalties) is repealed, employers may need to reduce employee contributions (or the relative share of plan cost reflected in employee contributions) in 2018 to maintain “affordable” coverage under the ACA/Obamacare.
Contact us for more details