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  • August 2018

Blogs August 2018

  1. IRS Begins to Issue ACA Penalty Letters

    System Administrator – Fri, 24 Aug 2018 04:40:48 GMT – 0

    This applies to Applicable Large Employers (ALEs) subject to the ACA. 

    Overview

    Recently, the Internal Revenue Service (IRS) has been sending out penalty letters (Letters 226-J, 227, and 5569) to ALEs to inform them of:

    • Potential penalties
    • Matters regarding an Employer Shared Responsibility Payment (ESRP)
    • Issues with Forms 1094-C and 1095-C

    Below we outline the purpose of each of these letters, and the necessary actions to take if you receive one of them. Importantly, if you receive such a letter, please contact your team at Vita for assistance

    Letter 226-J

    Letter 226-J is issued to ALEs to notify them that they may be liable for an Employer Shared Responsibility Payment (ESRP). The determination of whether an ALE may be liable for an ESRP and the amount of the proposed ESRP in Letter 226-J are based on cross-referenced information from Forms 1094-C and 1095-C filed by the ALE and the individual income tax returns filed by the ALE’s employees.

    To reply to the letter, you must complete Form 14764 indicating your agreement or disagreement with the letter. If you disagree with the letter, you should collect supporting documentation to present with your response.

    Letters 227

    Letters 227 are acknowledgement letters sent to close an ESRP inquiry or provide the next steps to the ALE regarding the proposed ESRP. There are five different 227 letters:

    • Letter 227-J
    • Letter 227-K
    • Letter 227-L
    • Letter 227-M
    • Letter 227-N 

    To reply to the letter, you must complete Form 14764 indicating your agreement or disagreement with the letter. If you disagree with the letter, you should collect supporting documentation to present with your response.

    Letter 5699

    Letter 5699 is sent by the IRS if they have not received or received an incomplete filing for Forms 1094-C and 1095-C. Your filing is not considered sent until the IRS has either accepted the filing with revisions or accepted it outright.

    If you received this letter, you will have the opportunity to either:

    • Note that Forms 1094-C and 1095-C have been filed
    • Provide the completed Forms 1094-C and 1095-C
    • Commit to filing Forms 1094-C and 1095-C within 90 days of receiving the letter
    • Make a case as to why you should not be considered an ALE in the noted calendar year or to provide an explanation as to why you have not filed
    • ACA
  2. Destigmatizing the High Deductible Health Plan

    System Administrator – Sat, 11 Aug 2018 01:52:46 GMT – 0

    We’ve all heard the timeless adage “don’t judge a book by its cover.” These are sage words that taught us as children to never judge the value of something by its outward appearance alone. In the world of employee benefits, these words are resoundingly applicable to the way in which some employees view High Deductible Health Plans (HDHPs).

    HDHPs have become a mainstay in the benefits world, with many employers opting to provide these consumer-driven options, paired with access to and/or contributions toward a Health Savings Account (HSA). In fact, 48% of Bay Area employers that provide medical coverage offer an HDHP/HSA option*.

    That being said, the most prevalent medical plan option remains the Preferred Provider Organization (PPO) plan, a plan that generally includes a much smaller deductible and access to first dollar coverage for services that require a copayment (e.g. office visits, prescription drugs). As such, when employers and brokers alike present HDHPs and PPOs side-by-side during new hire orientations and open enrollment meetings, employees see the plan details and often make quick judgments based on the plan that initially appears to have richer benefits.

    The common judgment is that the HDHP option is the objectively less-preferable option, because of the higher deductibles and out-of-pocket maximums. However, in order to make an honest and accurate assessment of the HDHP option, employees must first fully comprehend how HDHPs function, as these plans have nuances that require a deeper understanding, such as the ability to open an HSA.

    HSA-qualified HDHPs allow eligible participants to open, contribute and receive contributions toward an HSA. More details about the eligibility requirements to open an HSA can be found here. HSAs are powerful tax-saving vehicles. In fact, an HSA is the only triple-duty tax-free investment vehicle in the IRS tax code. An HSA is an individually owned account that allows participants to contribute money on a pre-tax basis** to pay for eligible medical, dental and vision expenses. Since these accounts are individually owned, the funds are not subject to any use-it-or-lose-it provision; funds will continue to be available year after year. Any gains made on the account are also tax-free. (Many institutions provide investment options for HSA balances, including stocks and mutual funds!) Lastly, any money withdrawn and spent toward those eligible expenses is tax-free.

    As powerful as the HSA is on these points alone, any employer funding into the HSA would be an even greater incentive to consider enrollment into the HDHP. Employer contributions into an employee’s HSA belong to the employee as soon as a deposit is made. Therefore, even if an employee opted to transition away from the HDHP on a later date or terminated employment, any employer contributions deposited into the HSA remain with the employee.

    One final consideration is the difference in per-paycheck contributions for coverage. HDHPs typically have lower premiums than traditional PPOs or HMOs. As a result, the per-paycheck contribution for HDHP coverage is often lower than other coverage options. These contribution savings may actually result in the HDHP having a lower overall out-of-pocket expense for the employee.  Any savings should be further captured by diverting it into an HSA  so that the employee can take advantage of the triple duty tax savings!

    Every employer’s philosophy and strategy with regards to HDHPs and HSAs is different. It is possible that the HDHP does not make sense to an employee, even when factoring in the finer details. However, simply making a decision based on the plan details, or “the book’s cover” would not serve anyone well, as the contents of the book beyond the cover may include key factors that would otherwise point the employee in a different direction.

    * 2018 Silicon Valley Employee Benefits Index (SVEBI)
    ** Contributions to HSAs are pre-tax on a Federal level and most states do not tax contributions.  However, there are two states who currently do tax eligible HSA contributions: California and New Jersey.

    • Pre-Tax
  3. Association Health Plans: What You Need to Know Now

    System Administrator – Sat, 04 Aug 2018 00:00:01 GMT – 0

    On June 19, 2018, the U.S. Department of Labor released its Final Rule regarding Association Health Plans (AHPs). AHPs are not new, but they have not been widely available in the past and, in some cases, they have not been successful. The Final Rule is designed to make AHPs available to a greater number of small businesses as an alternative to standard ACA-compliant small group insurance policies.

    This article answers common questions about AHPs under the current rules (which groups can continue to use) and the new rules.

    Is group medical insurance the same for small and large employers?

    Yes and no. Federal law imposes certain basic requirements on all group medical plans, regardless of the employer’s size. For instance, plans cannot exclude pre-existing conditions nor impose annual or lifetime dollar limits on basic benefits. If the plan is insured, it also is subject to the insurance laws of the state in which the policy is issued.

    Small group policies, which are sold to employers with up to 50 or 100 employees, depending on the state, are subject to additional requirements. These policies must cover 10 categories of essential health benefits (EHBs), including hospitalization, maternity care, mental health and substance abuse treatment, and prescription drugs. (Some states allow certain grandfathered or grandmothered policy exceptions.) For most small employers, their options for group medical insurance are limited to small group policies that comply with the full scope of ACA requirements. On the other hand, the policies are subject to guaranteed issue and adjusted community rating rules, so carriers cannot refuse to insure a small employer nor use any past claims experience in setting rates.

    Large group policies, which can only be sold to groups with at least 50 or 100 employees, depending on the state, are not required to cover all EHBs. Carriers have more flexibility in designing coverage options and developing premium rates in the large group market. This means larger employers have more options to choose from and may be able to purchase coverage at a lower cost than would apply to a small group policy. Note, however, that there is no guaranteed issue protection, so carriers can accept or reject each employer’s application or use the employer’s past claims experience in setting rates.

    Lastly, self-funded plans are subject to the ACA and other federal laws, but generally are exempt from state laws. They typically are not feasible for small employers, however, due to the financial risk of uninsured programs.

    What is an Association Health Plan (AHP)?

    Group insurance covers the employees of an employer (or an employee organization such as a labor union). An AHP, as the name implies, covers the members of an association. Unrelated employers can obtain coverage for their employees through an AHP provided the employers form a bona fide association. Traditionally, this has meant that the employers had to have a “commonality of interest” and their primary interest had to be something other than an interest in providing benefits. For this reason, AHPs generally have been limited to associations formed by employers in the same trade, industry, or profession.

    The Final Rule makes AHPs available to a wider range of businesses by expanding the meaning of “commonality of interest.” Once the Final Rule takes effect, an association may be formed by employers that are:

    • In the same trade, industry, or profession, regardless of location; or
    • In the same principal place of business; i.e., in the same state or in the same multi-state metropolitan area.

    Under the new rules, the employer’s primary interest in associating may be benefits coverage, although they still will need to have at least one other substantial business purpose other than benefits. This is a key difference from the current rules.

    When does the new Final Rule take effect?

    The Final Rule expanding the definition of an association for purposes of an AHP will take effect on staggered dates:

    • For fully insured AHPs: September 1, 2018
    • For self-funded AHPs in existence on or before June 19, 2018: January 1, 2019
    • For self-funded AHPs created after June 19, 2018: April 1, 2019

    As noted, the new rules do not replace existing rules. Employers and associations may continue to follow the existing rules (which generally limit AHPs to employers in the same trade, industry, or profession). The new rules merely expand the opportunities for AHPs, such as making them available to employers in the same state or metropolitan area even if they are in different industries.

    Are AHPs limited to employers with employees? What about sole proprietors?

    Currently, sole proprietors, such as mom-and-pop shops without any W-2 employees, purchase medical insurance in the individual market. Individual policies often cost more than group policies or AHPs. The new rules will expand the availability of AHPs to include sole proprietors who work a minimum number of hours (so-called working owners).

    What about state laws? Will AHPs be available nationwide?

    Insurance products, including AHPs, are regulated by state law. Under both the existing and new rules, AHPs are multiple employer welfare arrangements (MEWAs). State laws on MEWAs are quite complicated. In some states, MEWAs are prohibited. In others, insured MEWAs are allowed but self-funded plans are prohibited. The laws vary from state to state, so different carriers will make different decisions about whether they want to design and market AHPs in various jurisdictions around the country.

    A number of states are very concerned about AHPs and may prohibit them in their states or impose strict requirements to ensure they will provide reliable and effective coverage. Other states will view AHPs as cost-effective alternatives to ACA-compliant policies for small employers and look to encourage their expansion.

    What’s next?

    There is no clear answer to what’s next. Over the coming months, carriers across the country likely will review the reasons they have or have not offered AHPs in the past, and whether they want to consider new approaches in the future. Along with economic and market issues to consider, carriers also must consider the state insurance laws in different jurisdictions. At the same time, many state legislatures and insurance commissioners will be reviewing their existing rules and whether they want to promote or expand the availability of AHPs in their area.

    Oh … and the lawsuits. Yes, that also is what’s next. As of this writing, attorneys general in different states are planning to join together in challenging the federal government’s Final Rule on AHPs. Their stated concern is that effective regulation is required to ensure that plans provide adequate coverage.

    Vita will continue to monitor developments in this area.

    • Employee Benefits
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