Blogs April 2018

This applies to all employers offering medical plans with a Health Savings Account (HSA).

Overview

On Thursday, April 26, the IRS announced via Revenue Procedure 2018-27 that it's granting relief to taxpayers who have family coverage under a high deductible health plan and who contribute to a health savings account (HSA).

On May 4, 2017, the maximum for family coverage was issued as $6,900. On March 2, 2018, the limit was reduced to $6,850 for taxpayers with family coverage under HDHPs pursuant to Tax Reform legislation that changed the calculation for 2018 and future years. Under this new guidance, it allows taxpayers to continue to treat the 2018 limit as $6,900.

The new guidance also clarifies how taxpayers who already received a distribution from an HSA of an excess contribution based on the $6,850 deduction limit may treat the distribution as a mistake and repay the HSA without any tax or reporting consequences. In addition, it clarifies how to treat a distribution of an excess contribution (and earnings) based on the $6,850 deduction limit.

Vita Clients: If you are a Vita Client, your dedicated Account Representative will be reaching out soon with a plan of action.

On April 9, 2018, in Rizo v. Yovino, the Ninth Circuit Court of Appeals held that under the federal Equal Pay Act an employer cannot justify a wage differential between male and female employees by relying on prior salary. The EPA prohibits sex-based wage discrimination between men and women, in the same establishment, who perform jobs that require substantially equal skill, effort, and responsibility under similar working conditions.

According to the court’s opinion, “[w]e now hold that prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap [endlessly] – would be contrary to the text and history of the EPA and would vitiate the very purpose for which the act stands.”

What Happened in Rizo

In this case, after Rizo was hired she learned that male colleagues in the same job were being hired at a higher salary than her. However, the only rationale the employer offered for this wage disparity was that Rizo’s salary was lower at a prior job. The court held, “[that] this scenario provides a textbook violation of the “equal pay for equal work” mantra of the EPA . . . because [p]rior salary level created the only differential between Rizo and her male colleagues. Thus, requiring that the “any-other-factor-other-than-sex” defense must be limited to legitimate, job-related factors.”

Through this decision, the Ninth Circuit (covering employers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) joins the Second, Sixth, Tenth, and Eleventh Circuits that have likewise interpreted the “any-factor-other-than-sex” defense is limited in its application.

What Now?

The impact of the Rizo decision reinforces federal and state equal pay rights and highlights National Equal Pay Day because the decision was filed April 9, 2018, the day before 2018’s Equal Pay Day. Equal Pay Day was originated by the National Committee on Pay Equity (NCPE) as a public awareness event illustrating the gap between men’s and women’s wages and is commemorated around the nation and the world. When created, the NCPE decided to select a Tuesday in April as Equal Pay Day. A Tuesday was selected to represent how far into the next work week women must work to earn what men earned the previous week.

As the fight for equal pay continues, Rizo may be reviewed by the Supreme Court, although there are no current indications the employer is pursuing review. So, what now? Employers should take steps to review their policies and eliminate any hiring policy that relies on a job applicant’s prior salary in determining their starting pay. Additionally, employers should review applicable state laws related to hiring practices and prior salaries to ensure compliance and avoid liability.

However, according to the NCPE, because on average women earn less than men, they must work significantly longer for the same amount of pay. So . . . maybe the better answer to “What now?” is that employers do not just review their policies, but take the steps necessary to ensure that their employees are paid equally, regardless of gender, and work toward ending the perpetual cycle of pay inequality.

The Medicare secondary payer rules determine when your group health plan must pay primary and when it can pay secondary to Medicare (a.k.a. Coordination of Benefits). Unfortunately, these rules are lengthy and complex. Payment order depends on employer size and reason for Medicare entitlement. We've outlined the ways in which an individual becomes entitled to Medicare, when Medicare is the primary payer, and when it is the secondary payer.

Reasons for Medicare Entitlement
There are three ways in which an individual becomes entitled to Medicare:

• Age: Once an individual reaches age 65, that person is entitled to Medicare and eligible to enroll as of the first of the month in which they turn age 65.
• Disability: While this requires approval by the Social Security Administration, individuals who are deemed disabled become entitled to Medicare on the 30^th month of disability.
• End Stage Renal Disease (ESRD, a.k.a. kidney failure): The date individuals become entitled to Medicare varies based on treatment situations. For more information, visit the CMS website.

The chart below illustrates when Medicare is the primary payer and the group health plan is the secondary payer, and vice versa.  Generally, the group health plan is the primary payer for enrolled employees and their dependents. However, small employers have a special exception. There are two categories of small employers, which are defined by the reason for Medicare entitlement.

Employers with Fewer Than 20 Employees
When the reason for Medicare entitlement is age-related and the employer has fewer than 20 employees for each working day in at least 20 weeks in either the current or the preceding calendar year, Medicare is the primary payer and the group health plan is secondary.

Employers with Fewer Than 100 Employees
When the reason for Medicare entitlement is due to disability and the employer has fewer than 100 employees on at least 50% of its regular business days during the previous calendar year, Medicare is the primary payer and the group health plan is secondary.

End Stage Renal Disease (ESRD)
When the reason for Medicare entitlement is due to ESRD, the group health plan is the primary payer for the first 30 months and Medicare becomes the primary payer thereafter.  There is no exception to this rule.

COBRA Coverage
Medicare will become the primary payer when beneficiaries lose their jobs and lose coverage by virtue of current employment status.  If a Medicare beneficiary chooses COBRA, Medicare pays primary and the COBRA coverage through the group health plan pays secondary.  If the reason for Medicare entitlement is due to ESRD, the ESRD rules above apply under COBRA.  As such, electing COBRA can be an expensive endeavor for coverage that is not primary.  Be sure to direct Medicare eligible individuals to the Medicare website if they are considering COBRA.

Employer Prohibited Actions
Under the Medicare secondary payer rules, employers cannot offer Medicare entitled participants a financial or any other incentive to opt out of the employer sponsored group health plan and take Medicare instead. The plan must offer current employees or current employees’ spouses age 65 or older the same benefits, under the same conditions and terms available to employees or spouses under age 65.