REQUIRED UPGRADES: A BENEFITS BLUEPRINT
By: Deborah Hembree
I.WELFARE BENEFIT PLAN ISSUES
A.Keeping Up With the Affordable Care Act in 2016
B.Correcting ACA Information Returns: Getting it Right
C.Undeliverables – Affordable Care Act Information Returns
D.What Happens When a Full-time Employee has a Change In Status?
E.How Do We Handle Temporary Employees? Leased Employees?
F.Wellness: Programs and Penalties
G.The Interplay of Health Savings Accounts and Flexible Spending Accounts
H.Telemedicine – Who Are You Going to Call?
I.Same Sex Benefits: How are They Handled?
J.Subrogation and Reimbursement of Benefit Overpayments: An Empty Promise?
II.RETIREMENT PLAN ISSUES
A.The End of An Era? The IRS Discontinues the Determination Letter Program. What Now?
III.FRINGE BENEFIT ISSUES
A.ID Protection: A New Benefit?
IV.CONCLUSION.
REQUIRED UPGRADES: A BENEFITS BLUEPRINT
Things have been relatively quiet in the employee benefits arena this past year as employers have worked to comply (or avoid compliance) with the Affordable Care Act and other benefit laws. Consequently, now is the perfect time to evaluate plans for any “upgrades” desired by plan sponsors, as well as to ensure their plans have been kept up to date for any required amendments. Many employers are looking for alternative benefits to help reduce health care coverage costs for their employees, and, as a result, more employers are including telemedicine and wellness benefits in their group health plans. The following is an outline of some recent issues employers should consider in upgrading their plans.
I.WELFARE BENEFIT PLAN ISSUES
A.Keeping Up With the Affordable Care Act in 2016
As we move into an area of compliance with the Affordable Care Act (ACA), the number of companies that must comply increases. One of the biggest changes for 2016 is the definition of “small employer.” Through December 31, 2015, a small employer was typically defined as a business between 1 and 50 full-time equivalent employees. Beginning January 1, 2016, however, small employers now include businesses with between 1 and 100 full-time equivalent employees, thereby requiring employers with between 51 and 100 full-time equivalent employees to meet ACA requirements for small group employers. Of course, the employer may still offer a grandfathered plan, which likely has been hard to maintain in the current market.
In addition to a change in compliance obligations, employers with 50 to 100 full-time equivalent employees, though considered small for insuring purposes, are now considered a large group employer for employer mandate penalty purposes. This is the mandate that requires employers to offer minimum essential health coverage that is affordable and provides minimum value to 95 percent of its full-time employees and its dependents (up to age 26), or pay a penalty.
These businesses (all businesses with at least 50 full-time equivalent employees) must also pay a penalty if a full-time worker receives a tax credit or cost subsidy through the ACA Marketplace because employer-provided insurance was unaffordable or did not meet minimum value. In 2015, the first 80 full-time employees were excluded from counting toward the penalty; now only the first 30 are excluded.
Other changes include the availability of the Small Business Health Options Program (or SHOP) which became available beginning November 15, 2015, for businesses with 51 to 100 full-time equivalent employees. Prior to November 15, 2015, only businesses with 50 or less full-time equivalent employees could use the SHOP.
Health care is also costing more money this year for individuals, with the annual in-network, out of pocket maximum cost, including deductibles, copays and coinsurance, increasing to $6,850 for individual and $13,700 for family coverage. The maximum out of pocket expense any individual with family coverage, whether an employee or covered dependent, is required to pay before family coverage starts is also $6,850. Similarly, the penalties for failing to meet applicable large employer reporting requirements for 2015, will increase, along with the penalty caps.
The ACA currently provides for automatic enrollment as well as nondiscrimination (for all plans, not just self-insured). Under the automatic enrollment requirement, employers with more than 200 full-time employees will be required to automatically enroll new full-time employees in the health plan and provide an opt-out notice describing the employee’s right to opt out of the process. Note that this rule does not apply to dependents, and, currently, it is not being enforced by the IRS. We are still waiting on regulations to implement this provision, and they are expected soon.
The process for automatic enrollment is expected to be similar to automatic enrollment and elections for 401(k) plans. However, the opt out process is to date unclear. It is also unclear how the rule will apply to those employers who offer more than one heath plan option. Will the IRS require coverage under the plan with the least cost? Or, will the IRS require coverage under the plan with the most comprehensive coverage? Will the IRS require a high deductible health plan option? What we have now are a lot of questions with few answers.
Similarly, the ACA requires eligibility in a group health plan as well as benefits offered to be nondiscriminatory. In the past, this rule has only applied to self-insured plans. Applying nondiscrimination rules to fully-insured plans will likely impose substantial new costs for those employers who discriminate in favor of highly compensated employees. Because of issues related to the applicable penalty for having a discriminatory fully-insured plan (which is different than the penalty relating to self-insured plans), the IRS has stated it will not enforce the nondiscrimination provision applicable to fully-insured plans until regulations are issued. Again, such regulations are expected soon. Undoubtedly, the regulations will contain an eligibility test as well as a benefits test. Plan sponsors should take the time now to evaluate whether their group health plans are discriminatory, and if so, make changes accordingly.
B.Correcting ACA Information Returns: Getting it Right
Under the ACA, insurance companies, self-insured employers, large businesses and businesses that provide health insurance to their employees must submit information returns to the IRS reporting on each individual’s health insurance coverage. These forms include the Form 1095-B and 1095-C series. Many employers have already submitted information returns. However, due to confusion regarding the ACA information return filing requirements, these employers need to make a correction to their filing. To help in the process, the IRS has extended the deadlines for ACA information reporting corrections. Originally, information returns were due to employees by February 1, 2016, and are now due March 31, 2016. Information returns filed on paper were required to be filed with the IRS by February 29; the due date is now May 31, 2016. For those forms being filed electronically, the due date was March 31, 2016, which has now changed to June 30, 2016.
For information returns filed with the IRS on paper, any failures that reporting entities correct by June 30, 2016, are subject to reduced penalties for corrections made within 30 days; failures corrected by Nov. 1, 2016, are subject to reduced penalties for corrections that would otherwise be due on or before Aug. 1, 2016.
For information returns filed with the IRS electronically, any failures that reporting entities correct by July 30, 2016, are subject to reduced penalties for corrections made within 30 days; corrections made by Nov. 1, 2016, are subject to reduced penalties for corrections that would otherwise be due on or before Aug. 1, 2016.
In extending these deadlines, the IRS is taking into account the complexity of the ACA and its reporting requirements. Because this is the first year returns and statements are required, many employers have found they need to provide corrected information. By reducing the penalty, the IRS is encouraging these corrections.
Employers should review Q&A 30 and Q&A 32 on the IRS’ACA webpages for more information. In addition, employers should note that despite the complexity of the ACA, the IRS has indicated it does not anticipate any additional extensions regarding ACA information reporting.
C.Undeliverables – Affordable Care Act Information Returns
As mentioned above, the IRS has extended the deadline for providing Forms 1095-B and 1095-C to employees. Previously, these forms were due to employees by February 1, 2016. The new IRS due date is March 31, 2016. These forms detail the coverage the employer made available to the employee. This is also known as an “offer of coverage.” Form 1095-B is generally provided by the employer. Form 1095-C is provided by employers who are Applicable Large Employers (employers with 50 or more full-time employees). Where a group health plan is insured, the insurer provides the employees with Form 1095-B; where the group health plan is self-insured, the employer provides the Form 1095-B. For those self-insured employers who are Applicable Large Employers, the IRS allows the information in Form 1095-B to be combined with the information in Form 1095-C, and the employer need only provide Form 1095-C.
What does an employer do, then, when it has mailed the requisite forms to current and former employees and the forms are returned undeliverable? Of course, if the form belongs to a current employee who works on site, the form can easily be delivered to him in person. But what about the former employee who did not leave a valid forwarding address? There is little guidance on this issue, similar to the retirement plan arena.
Importantly, the employer will want to be sure it retains evidence of its attempts to provide the form – a copy of the form, the returned delivery envelope and all attempts made to obtain a good address for the employee. The employer wants to be able to establish it made good faith, reasonable efforts to deliver the form. The form should also remain readily available in the event the employee requests a copy at a later date.
One suggestion is to follow the IRS instructions for maintaining evidence of undeliverable Forms W-2. According to the 2016 W-2 instructions, employers are advised to retain copies of Forms W-2 “that you tried but could not deliver” for a period of 4 years.
What about maintaining proof of an offer of coverage? There is no legal requirement under the ACA that employers retain proof of offers of coverage. However, retaining proof of offers of coverage is a “best business practice” all companies should follow, particularly in the event of an audit. In addition, maintaining such proof of offers of coverage will simplify the reporting process for employers.
The challenge for employers is how to handle those employees who do not respond to an offer of coverage? How much follow up is necessary? Is a certified letter required? What about a personal meeting with the employee?
An additional risk arises from employees who later claim never to have received an offer of coverage after incurring major medical expenses. It is expected that automatic enrollment will eliminate this problem, but automatic enrollment will only apply to larger employers (those with over 200 employees).
D.What Happens When a Full-time Employee has a Change In Status?
“Change in status” generally refers to a full-time employee transferring to a part-time position. The general rule under the ACA for employers that use the look-back method of determining who is a full-time employee is that an employee’s full-time or part-time status, determined based on hours during the preceding measurement period, is locked in to that status for the full stability period, regardless of the employee’s actual hours during the stability period. However, there are two exceptions to this rule, one is at the initiation of the employer and the other is at the initiation of the employee.
If the employer wants to discontinue coverage before the next open enrollment period, it may do so, but only if the following requirements are met:
(1)The employee must actually average less than 30 hours per week for each of the three calendar months after the change to part-time status; and
(2)The employer must have continuously offered minimum-value coverage to the employee starting no later than the first day of the calendar month after the employee’s first three calendar months of employment through the calendar month in which the change occurs.
If these requirements are met, coverage may then be discontinued as of the first day of the fourth full calendar month following the calendar month of transfer.
If the employee wants to discontinue coverage before the next open enrollment, the employer may allow such discontinuance, but only if the following requirements are met:
(1)The cafeteria plan document must have been previously amended to allow such a midyear election change; and
(2)The employee and any related individuals whose coverage is being dropped must intend to enroll in another plan that provides minimum essential coverage (the employer may rely on the written representation of the employee) by the first day of the second month after the month in which the coverage ceases.
Employers should note that simply averaging fewer hours without a corresponding change in employment status (i.e., full-time to part-time) normally will not trigger this option.
E.How Do We Handle Temporary Employees? Leased Employees?
One of the long-standing questions employers have about the ACA is what effect the “pay or play” rule has on employers who use temporary employees and the staffing agencies who supply the workers. Mainly, whose employee are they? And, who then, the employer or the staffing agency, is responsible for offering coverage?
Starting in 2015 the ACA’s employer shared responsibility provisions (a/k/a the “pay or play” rules) required employers to offer their full-time employers (and employees’ dependents) the opportunity to enroll in an employer provided health insurance coverage. For employers who use temporary employees and the staffing agencies that supply these workers, the requirement has raised some major questions. Many hoped that the final regulations would put an end to such questions and while they did close the gap some, questions still remain.
The first question to address is to whom does the employee belong? The final regulations reiterated that the IRS will employ the “common law test” to determine whether a contingent employee is an employee of the staffing agency or the agency’s client company for purposes of the ACA. The final regulations do not directly address when and how the common law test will apply with regard to temporary employees. So, it remains to be seen just how vigorously the IRS intends to apply the test, which is by no means a black-and-white indicator.
The common law test generally requires a weighing of several factors—behavioral control, financial control, and the relationship of the parties. Traditionally, temporary staffing agencies demonstrate both behavioral and financial control when they recruit, screen, hire, pay and withhold taxes; and have the right to terminate or reassign employees. In fact, the American Staffing Association has recommended that its members offer coverage because clients will not have “employer” responsibilities.
Generally, companies engage a temporary staffing agency with the intent that the employees be deemed employees of the temporary staffing agency. Client companies seek to cover the first two factors of the common law test in their contracts with the temporary staffing agencies to demonstrate those agencies exercise the amount of direction and control needed to be considered the employer. However, the third factor—the relationship of the parties—adds an element of intent which can be troublesome if not accounted for appropriately by all parties. This factor generally reflects how the worker and company perceive their relationship to one another and reflects their intent regarding control of work. For example, courts have considered evidence of an ongoing relationship, as opposed to period or project based work, indicative of an employee-employer relationship. While a contract designating responsibilities will be considered, courts and the IRS will go beyond the written word to see what the actual practice between the parties is.
The fact that the regulations do not address the application of the common law test in this context is likely no mistake. Leaving the regulations open in this regard allows the IRS flexibility to evaluate each relationship on a case by case basis. In addition, the application of the common law test in the context of temporary staffing situations has not been well-tested in the courts. Hence, employers need to be clear, first, in their contracts, and second, in practice, who their employees are.
The final regulations, however, contain two narrow safe-harbors. First, if a staffing agency offers health care coverage to the temporary employees in the form of a multiple employer welfare arrangement (MEWA), it may be considered an offer of coverage for purposes of the client company. The second applies in situations where the staffing agency is not considered the common law employer and makes an offer of coverage under a plan maintained by the staffing agency. If the fee paid to the staffing agency for an enrolled employee is higher than the fee for the same employee were he or she not to elect coverage, then the offer can be counted as if it were from the employer.