The Vita Blog March 2020

Congress has passed, and the President has signed, legislation intended to ease the economic consequences stemming from the COVID-19 pandemic. The legislation is titled Families First Coronavirus Response Act, H.R. 6201. It includes a number of provisions addressing social concerns as well as four provisions that directly impact employers and group health plans.

1. Coverage Mandate – Free COVID-19 Testing
2. Paid Sick Leave for Employees
3. Expanded FMLA with Paid Leave
4. Employer Tax Credits
   
   

Coverage Mandate – Free COVID-19 Testing

Group health plans and insurers must cover FDA-approved diagnostic products to detect the virus that causes COVID-19.

No Cost Share
The testing benefits must be provided without any cost-sharing, preauthorization, or other medical management requirements. Coverage requirements include related services furnished during urgent care, emergency room, or in-person or tele-health provider visits that result in an order for or administration of a covered diagnostic test.

Impacted Plans 
This requirement applies to all health plans. This includes self-funded plans and fully insured plans, as well as to ACA grandfathered plans. However, it appears that excepted benefit plans and retiree-only plans are not subject to this provision.

Effective Date and Duration 
The mandate is effective from the date of enactment for the duration of the public health emergency declared by the Secretary of HHS.

Paid Sick Leave for Employees

Employers with fewer than 500 employees (as well as federal and state employers of any size) must provide paid sick time to employees who are unable to work (or telework) for specified virus-related reasons.

Eligibility for Sick Leave
Ten (10) days of paid sick time must be provided to full-time employees. Part-time employees are entitled to sick time based on their average hours worked over a two-week period. Benefits are available immediately regardless of the employee’s length of employment.

Sick Leave Maximum Benefit
Benefits are calculated based on the employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work. The maximum benefit varies based on the reason for absence as outlined below:

Employee Who Is: (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking diagnosis.
Pay Rate: 100% of regular pay  
Maximum Daily Benefit:  $511 per day 
Maximum Total Benefit:  $5,110 total

Employee Who Is: Caring for an individual described in category (1), (2), or (3), caring for a son or daughter whose school or place of care has been closed.
Pay Rate: 66.67% of regular pay 
Maximum Daily Benefit:  $200 per day 
Maximum Total Benefit:  $2,000 total

Additional Details
Employers may not require that an employee use any other paid time program offered by the employer before using this sick leave. Additionally, the paid sick time does not carry over to the following year. Employers are also not required to reimburse employees for paid sick time not used by the employee when the employee leaves the job.

Effective Date and Duration
The effective date of the paid sick leave mandate is no later than 15 days after enactment (March 18, 2020).The mandate expires December 31, 2020.

Expanded FMLA with Paid Leave

The legislation includes the Emergency Family and Medical Leave Expansion Act, which provides a temporary expansion of the FMLA to cover a new category of leave related to COVID-19. Employers with fewer than 500 employees are required to provide paid leave due to the public health emergency.

Eligibility for Paid Leave
The emergency leave generally is available when an employee is unable to work (or telework) due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to a COVID-19 public emergency declared by a federal, state, or local entity. To be eligible, employees must have been employed for at least 30 days (rather than the standard 12-month period for other types of FMLA leave). Similarly, the 50 employees within a 75-mile radius requirement does not apply.

Paid Leave Benefit Amount
Benefits are calculated based the employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work.

• 67% of regular pay
• Maximum benefit = $200 per day
• Aggregate Maximum = $10,000 per employee

The first 10 days of leave may be unpaid. After Day 10, paid leave must be provided.

Duration
The maximum benefit of $200 per day results in 50 days of paid leave. A daily rate of $100 per day (approximately $4,500 in monthly compensation) results in 100 days of paid leave.

Additional Details
Notably, no changes have been made to the FMLA’s health benefit provisions. However, the additional leave rights may result in more employees taking FMLA leave, which will affect administration of group health plans. Employers should review their policies and procedures in light of the changes (e.g., new definitions and temporary timeframes). Certain exemptions and special rules apply, and a tax credit may be available (see below).

Effective Date and Duration
The effective date of the paid FMLA paid leave extension is no later than 15 days after enactment (March 18, 2020). The mandate expires December 31, 2020.

Tax Credits for Employers

The bill provides refundable tax credits to help employers cover the cost of providing these new paid leave benefits. The credits apply against the employer portion of Social Security taxes due and are equal to 100% of the qualifying paid leave wages paid by the employer, up to certain limits.

Tax Credits – Paid Sick Leave
The sick leave credit is limited to $511 per day per employee if qualified sick leave was taken by the employee for his or her own needs or $200 per day per employee if qualified sick leave was taken to provide care for others. In either case, the maximum number of days that may be taken into account in calculating the tax credit is 10 per employee, across all quarters.

Tax Credits – Paid FMLA Leave
The credit is limited to $200 per day per employee, with an aggregate $10,000 cap per employee, if taken for qualified family medical leave.

Tax Credits – Health Plan
The FMLA-related and emergency paid sick leave credits can be increased to include amounts employers pay for an employee’s health plan coverage while the employee is on leave.

Timing of Credit
Tax credits are computed on a quarterly basis and are available for Q2, Q3, and Q4 2020. Because of the effective date, (15 days after action by the Secretary), enactment will take too long for the credit to have any application in Q1.

No Double-Dipping
To the extent that a covered employer elects to receive the credit, the credit amount must be taken into the employer’s gross income, which effectively eliminates any potential double benefit because the employer will have deducted the sick leave wages it paid.

Wages and Taxation
The qualified sick leave wages paid are not “wages” for the employer-portion of the Social Security tax. The legislation has no effect on the employee-portion of the Social Security tax, nor does it have any effect on employer or employee-portion of the Medicare tax.

Notices and Procedures

An employer must post a notice for employees about the requirements of the law.

After the first workday that an employee receives paid sick time, the employer may require the employee to follow “reasonable notice” procedures in order to continue receiving the paid sick time. “Reasonable notice” is not defined in the bill.

The employer may not require that the employee find or search for a replacement to cover the hours the employee will be on sick leave.

What About 500+ Employers?

Although employers with 500 or more employees are exempt from the paid sick leave mandate in this bill, it is useful for all employers to understand the approach taken by Congress since additional legislation may still be introduced to cover larger employers.

Also, we do not yet know whether related employers (such as members of a controlled group) may or must aggregate employees to reach the 500-employee threshold, or if the 500-employee threshold is determined on an entity-by-entity basis without considering whether the entities are related. We anticipate implementing guidance from the Department of Labor and/or the Internal Revenue Service on this issue in the next two weeks.

The Crystal Ball . . .

In addition to legislation, administrative actions are likely to affect employers and their benefit plans over the coming weeks and months. Action is likely at the federal, state, and local levels. Given the nature of the emergency, most of these actions will demand immediate attention, so it is important to stay closely attuned. The team at Vita will keep you apprised of critical benefits-related issues.

Vita clients in need of sample language to update their policies or handbooks can refer to ThinkHR. If you need assistance with your access, please reach out to your Vita representative for assistance.

As America’s workforce ages, employers are seeking ways to retain valuable, experienced workers without breaking their benefits budget. In this piece, we will explore the legality and advisability of the creative ways in which employers are trying to address this issue.

Scenario:

ABC Company has 40 employees. Employees working 30 or more hours per week receive company medical benefits and there is no differentiation of benefits based on eligibility for Medicare.

ABC company presented the following set of questions in an effort to formulate a benefits policy for retention of older employees who may want to work a reduced work schedule.

Questions

• Can ABC Company offer a supplemental health insurance policy to employees who are eligible for Medicare and are enrolled in Medicare? 
• Can the supplemental health insurance replace their enrollment in the current group health insurance plans (presumably at a less expensive monthly premium cost)?
• Can the premiums for this type of policy be paid for directly by ABC Company or do they have to be paid by the individual?
• Would it be possible to provide a supplemental health insurance policy to an employee who is eligible for Medicare and is enrolled in Medicare and currently works for ABC Company full-time but is interested in reducing their hours worked per week from 40 to 20?
  
  

Answer

This line of questions addresses the root of (and the very reason for) the Medicare Secondary Payor (MSP) rules. All of these questions are good ones, and the intention to try to retain experienced employees is both honorable and smart. However, the short answer is that they can't do any of the proposed actions given that they are over the threshold for MSP (20 employees).

Explanation

As a quick overview, following is a summary of the key rules that govern the MSP requirements:

1. “Taking into Account” Medicare Entitlement is Prohibited 
   As a general rule, the MSP statute prohibits a group health plan from “taking into account” the Medicare entitlement of a current employee or a current employee's spouse or family member. Taking Medicare into account includes not paying primary when required under the MSP rules. 
   
   
2. Same Benefits Under Same Conditions is Required
   The MSP statute also requires a plan to provide a current employee or a current employee's spouse who is age 65 or older with the same benefits, under the same conditions, as are provided to employees and spouses who are under age 65. This is a separate and distinct requirement from the “taking into account” Medicare entitlement prohibition.
   
   
3. Offering Incentives is Prohibited
   The MSP statute prohibits employers from discouraging employees from enrolling in their group health plans or from offering any “financial or other incentive” for an individual entitled to Medicare “not to enroll (or to terminate enrollment) under” a group health plan that would otherwise be a primary plan. For example, an employer is prohibited from offering an alternative to the employer's primary plan, such as a prescription drug plan, to Medicare beneficiaries unless such individuals have primary coverage other than Medicare, either through the employer or another source (e.g., a spouse's employer). CMS takes the position in its Medicare Secondary Payer (MSP) Manual that the prohibition applies “even if the payments or benefits are offered to all other individuals who are eligible for coverage under the plan.”
   
   
4. Employee Voluntary Opt Out 
   An employee may choose to voluntarily drop employer coverage (for example, because it costs too much) and rely on Medicare as the sole and primary payer of medical expenses. CMS has indicated that if an employee chooses not to take employer-provided group health plan coverage, then the employer can offer the employee a plan that will pay for services Medicare does not cover, such as eyeglasses. It cautions, however, that an employer “can't offer…a plan that pays supplemental benefits for Medicare-covered services or pays for these benefits in any other way.”
   
   
5. The Penalty 
   According to CMS, the Medicare law is violated “every time a prohibited offer is made regardless of whether it is oral or in writing.” A violation of the prohibition on financial incentives can lead to civil penalties of up to $5,000 per violation.
   
   
6. Excepted Employers 
   There is an exception to the MSP rules for employers with 20 or more employees (for each working day in at least 20 weeks in either the current or the preceding calendar year). If an employer falls under the exception, Medicare will be the primary payor.

So, in short, the MSP rules very tightly prohibit essentially every possible “workaround” where an employee would opt off of a group plan and the employer could subsidize Medicare premiums and/or Medicare supplemental coverage.

What about an ICHRA?

There is one possible way to get around this for some employers, but there are some pretty significant restrictions which make it very difficult for smaller MSP subject employers. Following is a summary of the key provisions for the potential partial solution, an ICHRA:

1. Must Work Less than 30 Hours Per Week
   To qualify for this exception, an employer must establish an Individual Coverage HRA (ICHRA) for employees who work less than the 30-hour threshold for the regular group health plan. This is a big drawback as it could only be used if the employer wanted to offer coverage for Medicare-eligible employees working between, say, 20-30 hours per week. Thus this solution can only be used for a portion of all Medicare-eligible employees.
   
   
2. ICHRA must be Based on Actual Class of Employees 
   An ICHRA must be offered to a bona fide class of employees and offered on the same basis to all. For example, if an ICHRA was offered to employees who worked 20-30 hours per week, it would need to be offered to all employees in that category, not only those who are Medicare-eligible. Typical classes might include, part time employees (if full time employees are offered a traditional health plan) or non-salaried employees.
   
   
3. No “Regular” Group Health Plan 
   No other group health plan can be offered to the class of employees eligible for the ICHRA.
   
   
4. Minimum Size Requirement 
   There are additional size rules that govern the population of the class of employees offered an ICHRA. The minimum number of employees in the class is:

• 10, for an employer with fewer than 100 employees;
• A number (rounded down to a whole number) equal to 10% of the total number of employees, for an employer with 100 to 200 employees; and
• 20, for an employer with more than 200 employees.

As you can see, the class and size restrictions for ICHRAs make the viability of their use as a means to circumvent the MSP rules for smaller-but-MSP-subject employers very difficult.

Conclusion

It is reasonable and even responsible to work toward a goal to reduce healthcare costs. However, the door to an option that would allow employers subject to MSP rules to offer alternate, less expensive coverage for Medicare-eligible employees is solidly closed. The expressed purpose of the MSP rules is, in fact, to redirect the cost of coverage for age 65+ working employees away from Medicare and toward employers. (The exception for small employers with fewer than 20 employees is intended to shield such small employers from this cost burden.)

For years, the MSP rules existed, but the implementation was lax. However, in this age of extreme cost escalation, both CMS and insurers have tightened up compliance to the letter of the law, which leaves essentially no options for employers in the search for “creative ways” to lower premium costs for Medicare-eligible employees.

On Thursday, March 12th, California Governor Gavin Newsom issued a new executive order enhancing benefits for employees diagnosed with COVID-19. Those individuals who are unable to work due to having been exposed to COVID-19 will now have the 7-day waiting period waived for disability and unemployment insurance. CA SDI provides short-term benefit payments to eligible workers who have a full or partial loss of wages due to a non-work-related illness, injury, or pregnancy. Benefit amounts are approximately 60-70 percent of wages (depending on income) and range from $50-$1,300 a week. 

Please note that SDI claims are accepted for both being diagnosed and being exposed to COVID-19 (as certified by a medical professional).  For more information, please see the CA-SDI website here: https://edd.ca.gov/about_edd/coronavirus-2019.htm 

If you have questions about this change as it relates to your employees and your private disability contracts, please reach out to your Vita representative. 

Recent Market Volatility

While market corrections are never pleasant, they are something investors should expect to happen from time to time, especially as saving for retirement is a long-term process. We believe that one of the best ways to manage risk, and our reaction to it, is to have a well-diversified portfolio. 

As Co-Fiduciary on our clients’ 401(k) plans, Vita Planning Group works closely with plan sponsors and recordkeepers to ensure the mutual funds available to participants are well managed and offer a diverse range of market sectors and investment strategies. While this cannot prevent short-term losses in any portfolio (or guarantee a profit), we encourage participants to look at retirement savings as a long-term process and to base investment decisions on risk tolerance and time horizon, over that long-term. 

Perspective

It is important to remember that we have seen many sharp market corrections from which we have recovered: most recently the crash of technology stocks in the early 2000’s, the mortgage crisis of 2008/2009, and now the Coronavirus (Covid-19) outbreak. 2020 is also an election year, which is likely to add to the already volatile markets.   

There have been at least 10 serious health events like Covid-19 (e.g. SARS, Avian flu, Zika virus) since the 1990s that have caused significant downturns in global markets.¹ In 8 of those 10 events, stocks climbed more than 10% after the scare. Additionally, there have been 26 market corrections of at least a 13% decline since the end of World War II. On average it has taken four months for markets to get back to their pre-decline levels.

Closing Thoughts

Periodically rebalancing investments is an important way to help manage risk in one’s portfolio and can help one to meet his or her retirement goals. However, this should be done in a calm and methodical way and not in reaction to short-term market movements or media hysteria. 

¹Wall St. Journal Op-Ed published on March 2, 2020

We've created a collection of educational resources about the coronavirus (COVID-19) to help inform you, your team, and your family. We will continue to update the page with important information when available. If you have any questions, please email us at help@vitamail.com.