Blogs October 2022

The last of the 2023 employee benefits annual limits and numbers have now been finalized by the IRS. Here is a recap of all the finalized 2023 numbers:

Under the ACA, people who do not have access to “affordable” health insurance through their employer may qualify for a premium tax credit to purchase coverage through the ACA’s health insurance marketplaces (CoveredCA in California). Current regulations define employer-based health insurance as “affordable” based solely on the lowest cost plan’s employee contribution, not on the full contribution to insure their family members. This has the consequence of deeming family members ineligible for premium tax credits, even though the cost of employer-sponsored coverage for family members could be well above the affordability threshold. This problem has been dubbed the “family glitch.”
 

Final Regulations Released

The Treasury Department and the IRS released proposed regulations in April to eliminate the family glitch. Those regulations have just been finalized. The new regulations allow family members of workers who are offered affordable self-only coverage, but unaffordable family coverage would no longer be disqualified from receiving premium tax credits to purchase ACA coverage.
 

Are we surprised by this?

No. This change is not a surprise. The regulations flow from an executive order on the ACA and Medicaid issued by President Biden in January 2021, which hinted at the possibility of fixing the family glitch. Critics have long argued that the family glitch interpretation is inconsistent with the text, structure, and goals of the ACA and unfairly penalizes family members of lower-income workers. In addition, it has long been the intention of the current administration to beef up the ACA where possible, with the goal of providing greater access to healthcare and to lower individuals’ costs were possible.
 

Fixing the Family Glitch

The proposed rule would reinterpret how affordability of employer health care coverage is determined for purposes of premium tax credits with respect to family members who are offered employer-sponsored coverage.

The Old Way: Employer coverage is defined as unaffordable for a single employee if the employee contribution for self-only coverage is more than the affordability threshold (9.61% in 2022 of household income, 9.12% in 2023). An oddity emerges in that calculation with respect to family coverage because affordability for family members is also determined with respect to the contribution for self-only coverage (not the contribution for family coverage).

The New Way: The affordability test for single employees will remain unchanged. Employees would still be barred from accessing marketplace subsidies if their employer offered affordable employee-only coverage. However, the calculation will change for employees with families. Under the new rules, affordability would be calculated separately for family coverage and would be deemed unaffordable for family members if the required family contribution is greater than the affordability threshold (9.61% of household income in 2022, 9.12% in 2023). When this affordability threshold is exceeded, family members would no longer be barred from accessing premium tax credits and thus could seek subsidized coverage through the Exchange.
 

Key Employer Takeaways

There is a lot in here . . . What do I really need to know as an employer? The good news is that there is little that is newly actionable for employers in these proposed regulations. It impacts access to premium tax credits for dependents who may have been previously disqualified. The following are the key takeaways for employers:

No Impact to Employer Shared Responsibility Penalties: The proposed rule will not affect Shared Responsibility liability under the employer mandate. Why? The employer mandate requires certain ALEs to offer coverage to employees and dependents. However, penalties for violating the mandate are triggered only when an employee receives premium tax credits through the marketplace. Therefore, extending marketplace tax credits to family members of employees (who are not offered affordable employer-sponsored family coverage) would not impact the eligibility of employees and thus would not trigger a shared responsibility payment.

No Impact to 1095 Reporting: These regulations have no impact on 1095 reporting. It is important to remember that affordability and minimum value for premium tax credit eligibility is different than for purposes of potential employer shared responsibility penalties. No doubt the new proposed rule will create some confusion given the similar terminology. However, the regulations do not change the affordability calculation or minimum value determination as it relates to annual ACA reporting or assessment of penalties.

Conforming Cafeteria Plan Change: A change was also made to allow an employee to make a mid-year election change to their health insurance coverage (not FSA coverage) when a dependent becomes newly eligible for a premium subsidy under the Exchange.

Marketplace Notice: Employers can expect the standard Marketplace Notice to be revised to reflect these changes and should plan on updating the version that is distributed to employees once a new version has been released.
 

Two Nitty Gritty Clarifications

The regulations also addressed two additional items as follows:
 

1. Minimum Value Rule: The minimum value rule is extended to dependent coverage. This means that employers must provide an offer of minimum value coverage to dependent children as well as to employees (to avoid Shared Responsibility penalties). The definition of minimum value coverage retains the requirement that plans provide 60% of the total allowed cost of benefits and newly adds the clarification that plan benefits must include substantial coverage of inpatient hospital and physician services. To the extent that minimum value coverage is not being offered to dependent children, employers will need to address this issue.
    
2. Marketplace Responsibilities: The marketplace would be required to assess:
   • Whether an employee has an offer of affordable employee-only coverage,
   • Whether family members have an offer of affordable family coverage, and
   • Whether any of those family members have an offer of affordable coverage from more than one employer (either as an employee or a dependent).

 

What is the effective date?

The new rule becomes effective for tax years beginning in 2023. This means that dependents who are offered unaffordable employer-sponsored family coverage would be eligible for premium tax credits beginning in 2023 (with enrollment to begin in November 2022).

Basics of the Program

• Family Leave
  • To care for and bond with a child following the child’s birth, adoption, or foster care placement (must be taken within 12 months of birth/placement)
  • To care for a family member with a serious health condition
• Medical Leave
  • To recover from a serious health condition or care for a family member with a serious health condition
• Safe Leave
  • To take leave if the employee or an employee’s family member has experienced domestic violence, sexual assault, harassment, or stalking.

• Must be employed in Oregon.
• Must have earned at least $1,000 in wages in the four out of five quarters before starting leave under Paid Leave Oregon.
• Cannot simultaneously receive workers’ compensation and/or unemployment insurance benefits.
• Independent contractors, volunteers, and work training/work-study program participants are not considered employees and, thus, are excluded from the program.

• Child (of any age)
• Spouse or Domestic Partner
• Sibling (including step-siblings and in-laws)
• Parents (includes step-parents and in-laws)
• Grandchild
• Grandparent
• Any individual related by blood or affinity whose close association with a covered individual is the equivalent of a family relationship

 

Program Benefits

• Employees may take up to 12 weeks of paid leave per year.
• In certain situations, an employee may take an additional two weeks (for a total of 14 weeks)
• Leave may be taken continuously or in partial increments (one week, one day, etc.).
• Benefit amounts are based on a formula that considers the income of the individual.
• Leaves are job-protected for employees who have been employed with an employer for at least 90 days.

• If AWW <= 65% of SAWW, benefit = 100% of AWW
• If AWW > 65% of SAWW, benefit = 65% of the SAWW + 50% of the AWW above that amount
• Benefit Cap = 120% of SAWW (Initial benefit cap: $1,469.78 per week for 2023)

Program Funding and Contribution Details

• Employees contribute 60%
• Employers contribute 40%

• Register with Frances Online
• Coordinate with the payroll service provider to ensure that correctly calculated employee contributions are withheld from paychecks starting January 1, 2023.

 

Employer Obligations

• Benefits of the program
• Claims process
• Notice requirements for leave
• Rights to job protection and benefits continuation
• Protection against retaliation
• Right to appeal a decision
• Confidentiality of information received related to a leave

• Right to restoration to the same position (or equivalent if the position no longer exists)
• No employee benefits loss, including seniority or pension rights, accrued before the date on which the leave commenced.

Important Dates to Know

• January 1, 2023: Employee contributions start
• January 1, 2023: Employer contributions start
• September 3, 2023: Employees may begin applying for Paid Leave Oregon benefits
   

Claims Administration

Private Plan Arrangements

• Offer the same or more benefits than Paid Leave Oregon offers
• Employee contributions less than or equal to contributions to the Paid Leave Oregon program
• Be approved by the Oregon Employment Department.

Small Employer Exemption and Grants

• If an employee takes family and medical leave, a small employer who pays their share of contributions may apply for one grant per employee, up to a maximum of 10 grants per year.
• Employers must continue to pay their share of contributions for 8 consecutive calendar quarters.
• Small Employer Assistance Grants provide up to $3,000 towards the cost of hiring temporary workers to replace employees on leave and up to $1,000 to reimburse the employer for significant additional wage-related costs incurred while an employee is on leave.

 

Interaction with Other PTO/Sick Leave Benefits

Annual Reporting Requirements

Integration with Short-Term Disability

Action Items for Employers

• Confirm Covered Employer status
• Register with Frances Online
• Confirm if a private/equivalent option is right for you (submit an application if necessary)
• Work with payroll vendor to implement payroll contribution process
• Create an internal procedure for payment of ongoing employee/employer contributions
• Communicate with employees regarding new payroll contributions that will be happening in 2023
• Post required notifications in the workplace(s)

The IRS and Treasury department have released Notice 2022-41 which corrects an inconsistency in the regulations for non-calendar year plans. This inconsistency follows along with the regulatory corrections of the “family glitch” for ACA coverage that were just finalized by the DOL. 
 

Which employers does the change apply to?

The change is only relevant for employers with non-calendar year Section 125 plans. Employers who have a calendar year Section 125 plan do not need to pay attention to this.
 

What is the change?

The newly permitted election change applies to individuals covered under a non-calendar year cafeteria plan who have elected family coverage and have dependents who become newly eligible to enroll in a Qualified Health Plan under an Exchange. The new guidance allows plans to allow participants to revoke family coverage under the group health plan to enroll dependents in coverage through the Exchange (thus changing their own election to self-only coverage under the plan.) Note that the change only applies to health plan election changes; it does not allow participants to make a change in a health FSA plan.
 

Why was this necessary?

Existing regulations allow for this election change opportunity for calendar year plans; however, the wording of the regulations constricted a parallel election change opportunity for participants in non-calendar year plans. The issue here is that, when dependents become newly eligible for Exchange coverage, the tax credit available to the family may make it more advantageous for the participant to opt dependents off of the group health plan in favor of Exchange coverage. This type of election change was previously prohibited under non-calendar year plans. The newly issued regulations conform to this type of election change for non-calendar year plans.
 

Effective Date

The effective date of this guidance is January 1, 2023.
 

Vita Plans

Vita will amend all Vita-created Section 125 Plan Documents to reflect this updated guidance for medical plan election changes.

San Francisco repeatedly renewed its Public Health Emergency Leave Ordinance related to COVID-19 over the past two years. Public sentiment affirmed this direction when San Francisco voters passed Proposition G, a new Public Health Emergency Leave Ordinance (PHELO) which makes permanent the public health emergency leave requirement for employers operating within San Francisco.
 

Ordinance Overview

The following are the key tenets of the ordinance:
 

• Effective Date: The ordinance becomes effective on October 1, 2022. 
• Only for Public Emergencies: The leave is only available during a declared local or statewide health emergency related to a contagious, infectious, or communicable disease.
• Covered Employers: Businesses with 100 or more employees worldwide are subject to the ordinance. 
• Employees Covered: All employees who work in San Francisco for a covered employer are entitled to Public Health Emergency Leave (PHEL), regardless of the duration of employment or job title, including part-time, temporary, seasonal, and salaried employees.
• Benefit Provided: Each employee who performs work in San Francisco must be provided up to 80 hours of paid Public Health Emergency Leave.
• In Addition to PTO: The paid leave is in addition to any other paid time off, including paid sick leave under the San Francisco Paid Sick Leave Ordinance.
• Teleworking Capacity: There are certain restrictions on using PHEL if an employee can telework without increasing exposure to disease or unhealthy air quality.
• Declaration of Emergency: A qualifying public emergency may be declared by the City of San Francisco or California’s health officer or when the Bay Area Air Quality Management District issues a Spare the Air Alert.

 

Leave Reasons

Employees may use this leave when they are unable to work (or telework) due to the following reasons:
 

• Order or Guidelines: The recommendations or requirements of an individual or general federal, state, or local health order (including an order issued by the local jurisdiction in which an employee or a family member the employee is caring for resides).
• Symptoms: The employee, or a family member the employee is caring for, is experiencing symptoms, seeking a medical diagnosis, or has received a positive medical diagnosis for a possibly infectious, contagious, or communicable disease associated with the public health emergency.
• Isolate or Quarantine: An employee, or a family member the employee is caring for, has been advised to isolate or quarantine by a healthcare provider.
• School Closure or Unavailable Care Provider: The employee is caring for a family member whose school or place of care is closed or whose care provider is unavailable due to a public health emergency.
• Air Quality Emergency: The employee is diagnosed with heart or lung disease, has respiratory problems, is pregnant, or is at least 60 years old and primarily works outside, and the Bay Area Air Quality Management District has issued a Spare the Air Alert.

Special note on Teleworking Capability: If an employee can telework without increasing the employee’s exposure to disease or unhealthy air quality, the employee may not use PHEL if the declared reason is an order or guideline, advice from a health care provider, or in the event of air quality emergency. Teleworking employees may still utilize PHEL for other covered reasons.
 

Benefit Calculations

• Same Basis as SF Paid Sick Leave: The ordinance uses the same rate of pay calculations as San Francisco’s Paid Sick Leave Ordinance.
• Exempt Employees: Employers pay PHEL in the same manner as they pay other forms of paid leave.
• Non-Exempt Employees: Employers pay PHEL using one of two methods:
  • The regular rate of pay for the workweek in which the PHEL is used 
  • Divide total wages (not including overtime premium pay) by the total hours the employee worked in the pay periods for the 90 days of employment prior to the employee’s use of PHEL.

 

Employer Obligations

• Leave Payment Timing: PHEL payments must be made to employees by the next regular pay period after the leave is taken. 
• Health Benefits: Health insurance benefits must be maintained while an employee is on a PHEL leave in the same manner as when the employee is an active employee.
• No Rollover: Employers are not obligated to roll over any unused PHEL to the next year.
• No Payout: Employers are not required to pay out any unused leave. 
• Doctor’s Note Restrictions: Employers may require a doctor’s note or other documentation to confirm an employee qualifies to use PHEL for an air quality emergency. The ordinance does not provide for any other opportunities for an employer to require or request documentation of a need for PHEL. 

 

Phased In Allocation of Hours

• October 1 – December 31, 2022: The allocation must equal or average (depending on the employee’s schedule) the number of hours worked over a one-week period that the employee regularly worked, not to exceed 40 hours.
• Beginning in 2023 Employees Working Full Time, Regular, or Fixed Schedules: The allocation must be equal to the number of hours the employee regularly works over a two-week period, not to exceed 80 hours.
• Beginning in 2023 Employees Working a Variable Schedule: The allocation must be equal to the average number of hours the employee worked over a two-week period or since the employee’s start date if after the beginning of the previous calendar year, not to exceed 80 hours.
• Future Employees: Future hired employees (who are not employed on these dates), must be allocated the maximum amount of PHEL available to the employee when a public health emergency commences.

Notice and Recordkeeping Requirements

• Employer Poster: Employers must post a poster notice in a conspicuous location. The poster should be posted in all available languages in the workplace and emailed to workers who do not frequent the workplace. 
• Employer Leave Balance Notice: Employers must provide notice of the amount of PHEL available to each employee in the same way they provide notice of regular California Paid Sick Leave (whether on a wage statement or other writing). If the employer offers unlimited paid leave or paid time off, the employer must note “unlimited” on the employees’ wage statements.
• Employer Recordkeeping: Employers must keep records documenting the hours worked and PHEL was taken for four years.
• Employee Foreseeability: If the employee’s need for PHEL is foreseeable, the employer can require employees to follow reasonable notice procedures.

Exemptions and Limitations

• Healthcare Worker Limitation: An employer of health care providers or emergency responder employees may elect to limit the employee’s use of this leave but may not prevent the employee from using it if the employee is unable to work due to due to an order or guidelines, advice from a health care provider, or in the event of air quality emergency.
• Non-Profit Exemption: The PHELO exempts certain non-profit organizations that do not engage in specific health care operations, and government entities other than the City of San Francisco.
• Collective Bargaining Exemption: The only exception for otherwise covered employers is for employees subject to a collective bargaining agreement that expressly waives PHEL in clear and unambiguous terms.

Penalties and Enforcement

• Non-Retaliation: Employees who assert their rights to receive Public Health Emergency Leave are protected from retaliation. 
• Governing Authority: San Francisco’s Office of Labor Standards Enforcement is responsible for the enforcement of the ordinance.
• Penalties: If PHEL is unlawfully withheld, the employee will be awarded an administrative penalty of the dollar amount of PHEL withheld multiplied by three or $500, whichever amount is greater. Penalties also exist for failing to post the PHEL notice and for failing to retain records.

Action Item for Employers

Employers impacted by the San Francisco PHELO should address the following action items prior to October 1, 2022:
 

• Update Policies: Review (and revise, if necessary) their leave of absence policies and processes.
• Address Recordkeeping: Update leave record-keeping practices (in the payroll system or other methods).
• Post Notice: Post the required Poster Notice.