The Vita Blog March 2018

The San Francisco Health Care Security Ordinance (SF HCSO) requires covered employers to make a minimum health care expenditure on behalf of their covered employees.  SF HCSO rules were first issued in January 2008. While it has been in place for many years, many employers are still out-of-compliance or unsure how the rules apply.

Below is a brief overview of the HCSO. For more details, visit the San Francisco Office of Labor Standards Enforcement (OLSE) page on HCSO, which includes training slides, new rules, an administrative guide and FAQ, as well as links to the required HCSO poster and waiver form. The OLSE page will also contain a link and instructions for the online Annual Reporting Form due April 30. The reporting form should be available no later than April 1.

Covered Employers: Have 20+ employees (50+ for non-profits), with 1 or more working in the geographic boundary of San Francisco, and required to obtain a San Francisco business registration certificate. Small employers 0-19 (0-49 non-profit) are exempt.

Tip: The headcount for determining your company size under HCSO – both for determining applicability and expenditure rate – includes ALL employees, regardless of status, classification, or contract status. That means even temp or contract employees that are 1099 or through an agency still counts!

Covered Employees: Works an average of 8 or more hours per week in San Francisco and entitled to be paid minimum wage. There is a waiting period of 90 days.

Tip: Look at the exemption criteria closely. The manager/supervisor exemption is coupled with the salary exemption amount, meaning the two are not separate. An employee needs to make more than the salary exemption (2019: $100,796annually) AND be considered a manager/supervisor/confidential employee per HCSO.

Calculating Expenditure Rate (Updated for 2019): Rates are based on employer size and are calculated per hour payable to covered employees. A medium size employer is 20-99 employees (50-99 non-profit) with a rate of $1.95 per hour, while a large employer is 100+ employees with a rate of $2.93 per hour.

Tip: Hours worked include both paid and entitled, like PTO. Maximum hours for the calculation is capped at 172 a month.

Making Expenditures: For your full-time, benefit eligible employees, average costs for medical, dental, and vision can be used. For most employers, the minimum expenditure is easily reached. A large employer would need to spend approximately $491 a month on an exempt or 40-hour non-exempt employee. Most medical, dental, and vision premiums, when combined, would exceed that amount. Just be sure to factor out employee contribution amounts. For non-benefit eligible employees, the expenditure would be made quarterly. The simplest method for making an expenditure is via the San Francisco City Option.

Tip: Being benefit eligible does not immediately mean that HCSO requirements are met and expenditures do not need to be made. If a benefit-eligible employee waives the employer’s company sponsored health plan, the employer is still required to make a minimum expenditure on behalf of that employee. That means paying into the City Option, similar to  non-benefit eligible employees. The exception is if the employee voluntarily signs the HCSO Waiver Form. You may NOT coerce an employee to sign the form and the form language dissuades one from signing it! Due diligence would mean sending the form to a waived employee and if the employee chooses not to sign, be sure to make the quarterly expenditure.

Due Dates: Quarterly expenditures are due 30 days following the end of the quarter. First quarter 2019 will be due April 30. Annual Reporting to HCSO of covered employees and expenditures made are also due April 30 and is completed online. The online form will be posted to the OLSE HCSO website no later than April 1, so mark your calendars.

Risk: There are penalties for non-compliance – up to $100 per employee per quarter for failure to make expenditures and up to $500 per quarter if the annual reporting is not submitted. There are other penalties as well for retaliation, failure to provide records to OLSE, and failure to post the required notice. However, while there’s no guarantee, the OLSE generally does not fine an employer that has been out-of-compliance that now comes into compliance. The bigger risk is if an employee complains as that is generally when the OLSE would take action and penalize for non-compliance.

“$4.5 million awarded for failure to grant additional leave.[1]” This judgment came down in January 2018 in favor of an employee who requested additional leave beyond her entitled FMLA. She had requested 18 additional days to accommodate her disability under the ADA. Her employer, instead of engaging in an interactive process, terminated her employment. 

This case serves as an important reminder that employers need to be prepared to properly address a leave request under the ADA, which requires that they engage in an interactive process with employees to determine if the request can be accommodated and is reasonable. Employers often overlook additional time off as an accommodation under the ADA. This judgment was rendered against the employer because they failed to engage in the interactive process. 

Unfortunately, the ADA was not intended to be a leave law and it offers no set time limit on leave that must be granted as an accommodation. There are a number of court cases where contradictory decisions have been rendered regarding the request for additional leave as an accommodation under the ADA. That leaves employers with a tremendous amount of gray area to navigate when addressing these requests. 

The most important lesson here is the need for a formal process. If this has you running scared, you will be glad to hear there is help available in the marketplace. Most third party leave administrators offer ADA services that employers can purchase at additional cost or add-on to traditional leave administration. These services typically include three elements:

1. Identification – identifying potential ADA leaves as well as gathering the medical data and pushing that data to the employer client
2. Coaching/Guidance – telephone based guidance with an ADA expert, this typically includes an undue hardship analysis
3. Communication/Data – communication to the employee as well as tracking of approved leaves

As you can see, these services do not include actually engaging the employee in an interactive process. Nor do they include a final decision about whether or not to make the accommodation. They do, however, offer some peace of mind by allowing you to rely on an expert for situations that you may run into very infrequently. 

On a final note, leave administration services are available to process leaves for groups as small as 50 employees. Minimum fees typically come into play at this size, but the service is available for smaller employers that want to outsource.

[1] Hill v. Asian American Drug Abuse Program, Inc., Calif. Super. Ct., No BC 582 516

Under pressure to suppress increasing health-care costs, health insurance company Cigna announced on Thursday that it had agreed to buy Express Scripts, the largest pharmacy benefit manager in the country, for $52 billion.

Health-care spending is inexorably rising. Insurers, drug-benefit managers, drug distributors, pharmacies, and large medical groups all get a cut of the profits from caring for patients. The thought is bringing these businesses together could help streamline some costs and improve care.

This deal could also help Cigna compete with UnitedHealth Group Inc., which has clinics, drug benefits, and insurance business, and CVS Health Corp., which agreed to buy Aetna Inc., linking its pharmacies and drug-benefit plans with the insurer’s coverage.

Although a combined Cigna-Express Scripts would have great bargaining power over drug prices, it remains to be seen whether this deal would reduce costs for the employers and patients who pay the bill.

Recently, pharmacy benefits managers have come under pressure from critics of the health sector’s inefficiencies. Attacks have been aimed at a system of rebates that critics say obscure a drug’s true cost and often don’t benefit patients.

Express Scripts is the largest of the remaining independent pharmacy-benefit managers. They have recently noted the benefits of staying independent, though recent deals in health care appears to have changed its mind.

The agreement comes as Express Scripts is set to lose its biggest client, Anthem Inc. as it said it would set up its own pharmacy-benefits management unit after accusing Express Scripts of overcharging for drugs.

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

Overview

Effective for calendar year 2018, the family contribution limit for HSAs has been lowered to$6,850 from the previously set amount of $6,900. This change was released yesterday as the IRS published Internal Revenue Bulletin (IRB) 2018-10 that contains Revenue Procedure (Rev. Proc.) 2018-19. Please note there is no impact to the individual contribution limit ($3,450) or catch-up contribution limit ($1,000).

This change came as a result of the tax reform law (P.L. 115-97) that changed the annual inflation adjustment factor from the Consumer Price Index (CPI) to a new factor known as 'chained CPI'. This change was anticipated to slow the rate of changes in all programs under the tax code, including HSAs.

Vita Clients: Your Vita representative will be contacting you should this change impact your organization's benefit plans. 

Below is a chart outlining the impact of the changes: 

Question: We interviewed a recent college graduate that we would like to hire. During her interview, however, she told us that she is being treated for an anxiety disorder. How should we respond?

Answer: Mental health is an important topic, and one we’re finding should be front and center of discussion in the workplace. First, it’s important to note that while your candidate readily revealed her condition during her interview, your hiring team is not at liberty to discuss the issue or necessary accommodations with her until after she has accepted an offer of employment. More importantly, this information should not prevent you from considering her.

Make sure that you clearly outline the requirements of the job and give the candidate a true picture of what it would be like working in your company and in that job so that she can assess whether she can manage her health condition with those job requirements. She might determine that the job would not be right for her and opt to withdraw her application. If you both decide she’s right for the job and you extend an offer of employment that she accepts, then you may open the line of communication regarding how she plans to manage her disclosed health condition with the requirements of the job. Let her know that you are willing to work with her to maintain her health and be successful in the job. If your organization is subject to the Americans with Disabilities Act (applies to all employers with 15 or more employees), then you must work with her and her health provider to consider reasonable accommodations, as long as the accommodations do not cause undue hardship.

Those considerations can be relatively simple. If your company provides paid or unpaid sick time or other time off that can be used when she needs a mental health day, you may want to bring those options to her attention. If you have a policy for occasional work at home or flexible work hours, she may be happy to learn about those as well. Make sure your policies leave no room for discrimination towards employees who may find themselves dealing with transitory or chronic mental or physical health issues, and that all your employees are aware of mental health resources available through your employee assistance program (EAP), if you have one.

In all cases, be sure all your employees know that they will be supported by your organization during any health event or crisis, both mental and physical.

Virtually every employer that offers group health coverage at work also sponsors a cafeteria plan. Cafeteria plans provide significant tax advantages by allowing employees to pay for health coverage, flexible spending accounts, and other options from their pay before taxes are deducted. By making pretax contributions, the employee saves money from reduced income taxes and both the employee and employer save from lower payroll taxes. In exchange for the tax advantages, however, cafeteria plans must comply with requirements under § 125 of the Internal Revenue Code, including nondiscrimination testing to ensure the plan does not disproportionately favor highly-compensated employees.

Did you know that small and midsize employers qualify for a special type of cafeteria plan that eliminates the need for nondiscrimination testing? It’s simple — in fact it is called a Simple Cafeteria Plan. Several years ago, Congress created a simpler plan for smaller employers that meet conditions for eligibility, participation, and employer contributions. As long as those requirements are met, the Simple Cafeteria Plan is automatically deemed nondiscriminatory under § 125.

Eligibility
Only smaller employers are eligible to sponsor a Simple Cafeteria Plan. That means the employer has had an average of 100 or fewer employees during either of the two preceding years. If the employer was not in business throughout the preceding year, the employer is eligible if it reasonably expects to employ an average of 100 or fewer employees in the current year.

Also, if a Simple Cafeteria Plan is established in a year in which an average of 100 or fewer employees are employed, the employer remains eligible for subsequent years, as long as it does not employ an average of 200 or more employees.

Participation
The Simple Cafeteria Plan generally must be offered to all employees who had at least 1,000 hours of service in the preceding plan year. The employer may, however, design its plan to exclude employees who:

• Are under age 21 before the close of the plan year;
• Have less than one year of service as of any day during the plan year;
• Are covered under a collective bargaining agreement; or
• Are nonresident aliens working outside the United States whose income did not come from a U.S. source.

Employees who are eligible to participate may elect any of the benefits available under the plan.

Contributions
The last requirement for a Simple Cafeteria Plan is the employer contribution. Specifically, the employer must provide qualified benefits on behalf of each eligible employee in an amount equal to:

1. A uniform percentage (not less than 2 percent) of the employee’s compensation for the plan year; or
2. An amount which is at least 6 percent of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less.

If the contribution requirement is met using option two, the rate of contribution to any salary reduction contribution of a highly-compensated or key employee cannot be greater than the rate of contribution to any other employee.

CMS usually is looking for information on persons for whom Medicare has already paid claims, which may have been several years ago. Receiving an inquiry now regarding claims paid three years ago is not unusual.

Summary
The § 125 rules that require nondiscrimination testing for a traditional cafeteria plan can be challenging for some employers. In particular, smaller employers often complain that the tests may limit the ability of their highly-compensated employees to benefit from dependent care spending accounts.

For small and midsize employers, a Simple Cafeteria Plan may be a viable alternative. By meeting specific criteria for eligibility, participation, and employer contributions, the plan automatically qualifies as nondiscriminatory without the need for complex testing.

Employers and their advisors can learn more about Simple Cafeteria Plans in IRS Publication 15-B.