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ACA Update: Summary of Benefits and Coverage and Uniform Glossary Details Remain Fuzzy, FAQ Released

The Affordable Care Act (ACA) created new disclosure tools—the summary of benefits and coverage (SBC) and uniform glossary—to help consumers compare coverage options available to them. Generally, group health plans and health insurance issuers are required to provide the SBC and uniform glossary free of charge. This disclosure requirement applies to both grandfathered and non-grandfathered plans.

On March 31, 2015, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued a Frequently Asked Question (FAQ) announcing their intention to issue final regulations on the SBC requirement in the near future. The final regulations are expected to apply for plan years beginning on or after Jan. 1, 2016 (including open enrollment periods in fall of 2015 for coverage beginning on or after Jan. 1, 2016).

However, according to this FAQ, the new template, instructions and uniform glossary will not be finalized until January 2016, and will apply for plan years beginning on or after Jan. 1, 2017 (including open enrollment periods in fall of 2016 for coverage beginning on or after Jan. 1, 2017).

Overview of the SBC Requirement

The ACA requires health plans and health insurance issuers to provide an SBC to applicants and enrollees, free of charge. The SBC is a concise document that provides simple and consistent information about health plan benefits and coverage.

The SBC requirement became effective for participants and beneficiaries who enroll or re-enroll through an open enrollment period beginning with the first open enrollment period starting on or after Sept. 23, 2012. For participants and beneficiaries who enroll other than through an open enrollment period (such as newly eligible or special enrollees), SBCs were required to be provided beginning with the first plan year starting on or after Sept. 23, 2012.

The DOL has provided a template for the SBC and Uniform Glossary documents along with instructions and sample language for completing the template, available on the DOL’s website. On April 23, 2013, the SBC template was updated for the second year of applicability to incorporate ACA changes that become effective in later years. Until further guidance is issued, these documents continue to be authorized.

On Dec. 22, 2014, the Departments released proposed regulations on the SBC requirement, which would revise the SBC template, instruction guides and uniform glossary. At that time, the Departments expected that the new requirements for the SBC and uniform glossary would apply to coverage that begins on or after Sept. 1, 2015. The draft-updated template, instructions and supplementary materials are available on the DOL’s website under the heading “Templates, Instructions, and Related Materials—Proposed (SBCs On or after 9/15/15).”

The SBC and Uniform Glossary must be provided in a culturally and linguistically appropriate manner. Translated versions of the template and glossary are available through the Centers for Consumer Information and Insurance Oversight (CCIIO) website.

To the extent a plan’s terms do not reasonably correspond to the template and instructions, the template should be completed in a manner that is as consistent with the instructions as reasonably as possible, while still accurately reflecting the plan’s terms. In addition, the DOL notes that ACA implementation will be marked by an emphasis on assisting (rather than imposing penalties on) plans and issuers that are working diligently and in good faith to understand and comply with the new law.

Thus, during the first and second years of applicability, penalties will not be imposed on plans and issuers that are working diligently and in good faith to comply with the new requirements. This enforcement relief will continue to apply until further guidance is issued.

Overview of the FAQ Guidance

In the FAQ issued on March 31, 2015, the Departments stated that they intend to issue final regulations in the near future. These regulations would finalize proposed changes in the proposed regulations from Dec. 22, 2014, which were proposed to apply beginning Sept. 1, 2015.

However, the FAQ notes that the final rules are expected to apply in connection with:

  • Coverage that would renew or begin on the first day of the first plan year (or policy year, in the individual market) that begins on or after Jan. 1, 2016; or
  • Open enrollment periods that occur in the fall of 2015 for coverage beginning on or after Jan. 1, 2016.

Despite this effective date, the new template, instructions and uniform glossary are not expected to be finalized until January 2016. According to the Departments, this delay is necessary to allow for consumer testing and offer an opportunity for the public to provide further input before finalizing revisions to the SBC template and associated documents.

The revised template and associated documents will apply to:

  • Coverage that would renew or begin on the first day of the first plan year (or policy year, in the individual market) that begins on or after Jan. 1, 2017; or
  • Open enrollment periods that occur in the fall of 2016 for coverage beginning on or after Jan. 1, 2017.

Impact on Employers

This FAQ guidance leaves a lot of uncertainty for employers with regard to their SBC documents. The changes included in the final regulations may require health plans to update their SBC documents before the new template is released.

The forthcoming final regulations may address this issue. In some cases, the Departments have provided temporary enforcement safe harbors when guidance is not issued sufficiently in advance of an effective date. However, at this time, no safe harbors or other relief has been provided on this issue.

For clarification of this information, or to be kept up to date with any and all parts of the Affordable Care Act, contact CIBC today.

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Live Well, Work Well: December’s Employee Wellness Newsletter

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Benefits Buzz: A Monthly Employee Benefits Newsletter from CIBC of Illinois, Inc.

BenefitsBuzz-CIBC Newsletter

Affordable Care Act Pay or Play Penalties—Helpful Look-back Measurement Examples

The Affordable Care Act (ACA) imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. Penalties may also be imposed if coverage is offered, but is unaffordable or does not provide minimum value. The ACA’s employer penalty rules are often referred to as “employer shared responsibility” or “pay or play” rules.

On Feb. 12, 2014, the IRS published final regulations on the ACA’s employer shared responsibility rules. The final regulations provide an optional safe harbor method that employers can use for determining full-time status, called the look-back measurement method. The look-back measurement method involves a measurement period for counting hours of service, a stability period when coverage may need to be provided, depending on an employee’s average hours of service during the measurement period, and an administrative period that allows time for enrollment and disenrollment.

This Legislative Brief provides examples of potential measurement, administrative and stability periods for plan years beginning in each month throughout the 2015 and 2016 calendar years. These examples assume that the employer will be using a 12-month standard measurement period, a two-month administrative period and a 12-month stability period.

It also provides examples of optional transition measurement periods in 2015, if allowed for the plan year. The final regulations allow employers to use shorter measurement periods for stability periods starting in 2015 under the look-back measurement method. For 2015, employers can determine full-time status by reference to a transition measurement period in 2014 that:
• Is shorter than 12 consecutive months, but not less than six consecutive months long; and
• Begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the first plan year beginning on or after Jan. 1, 2015.

If permitted under the employer shared responsibility rules with respect to their plan years, employers can choose to use either the standard measurement period or the transition measurement period for stability periods beginning in 2015.

PLAN YEAR SELECTION
The final rules state that the plan year must be 12 consecutive months, unless a short plan year of less than 12 consecutive months is permitted for a valid business purpose. A plan year may begin on any day of a year and must end on the preceding day in the following year (for example, a plan year that begins on Oct. 15, 2015, must end on Oct. 14, 2016).

Once established, a plan year is effective for the first plan year and for all subsequent plan years unless it is changed, provided that such change will only be recognized if made for a valid business purpose. Note that a change in the plan year is not permitted if the principal purpose of the change in plan year is to avoid the employer shared responsibility requirements.

CALENDAR-YEAR PLANS
A calendar-year plan is a health plan that has a plan year running on the calendar year. Thus, the plan year of a calendar-year plan is a period of 12 consecutive months beginning on Jan. 1 and ending on Dec. 31 of the same calendar year.

Plan Year: Jan. 1 — Dec. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Nov. 1, 2013 — Oct. 31, 2014 May 1, 2014 — Oct. 31, 2014 Nov. 1, 2014 — Dec. 31, 2014 Jan. 1, 2015 — Dec. 31, 2015
2016 Plan Year Nov. 1, 2014 — Oct. 31, 2015 N/A Nov. 1, 2015 — Dec. 31, 2015 Jan. 1, 2016 — Dec. 31, 2016

 

NON-CALENDAR-YEAR PLANS
A non-calendar-year plan is a health plan that has a plan year that does not run on the calendar year. Thus, the plan year of a non-calendar-year plan is a period of 12 consecutive months beginning in any month after Jan. 1. As a result, the plan year of a non-calendar-year plan will run during parts of two consecutive calendar years.

Plan year: Feb. 1 — Jan. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Dec. 1, 2013 — Nov. 30, 2014 June 1, 2014 — Nov. 30, 2014 Dec. 1, 2014 — Jan. 31, 2015 Feb. 1, 2015 — Jan. 31, 2016
2016 Plan Year Dec. 1, 2014 — Nov. 30, 2015 N/A Dec. 1, 2015 — Jan. 31, 2016 Feb. 1, 2016 — Jan. 31, 2017
Plan year: March 1 — Feb. 28 (or Feb. 29, during a leap year)
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Jan. 1, 2014 — Dec. 31, 2014 July 1, 2014 — Dec. 31, 2014 Jan. 1, 2015 — Feb. 28, 2015 March 1, 2015 — Feb. 29, 2016
2016 Plan Year Jan. 1, 2015 — Dec. 31, 2015 N/A Jan. 1, 2016 — Feb. 29, 2016 March 1, 2016 — Feb. 28, 2017
Plan year: April 1 — March 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Feb. 1, 2014 — Jan. 31, 2015 July 1, 2014 — Jan. 31, 2015 Feb. 1, 2015 — March 31, 2015 April 1, 2015 — March 31, 2016
2016 Plan Year Feb. 1, 2015 — Jan. 31, 2016 N/A Feb. 1, 2016 — March 31, 2016 April 1, 2016 — March 31, 2017
Plan year: May 1 — April 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year March 1, 2014 — Feb. 28, 2015 July 1, 2014 — Feb. 28, 2015 March 1, 2015 — April 30, 2015 May 1, 2015 — April 30, 2016
2016 Plan Year March 1, 2015 — Feb. 29, 2016 N/A March 1, 2016 — April 30, 2016 May 1, 2016 — April 30, 2017
Plan year: June 1 — May 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year April 1, 2014 — March 31, 2015 July 1, 2014 — March 31, 2015 April 1, 2015 — May 31, 2015 June 1, 2015 — May 31, 2016
2016 Plan Year April 1, 2015 — March 31, 2016 N/A April 1, 2016 — May 31, 2016 June 1, 2016 — May 31, 2017
Plan year: July 1 — June 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year May 1, 2014 — April 30, 2015 July 1, 2014 — April 30, 2015 May 1, 2015 — June 30, 2015 July 1, 2015 — June 30, 2016
2016 Plan Year May 1, 2015 — April 30, 2016 N/A May 1, 2016 — June 30, 2016 July 1, 2016 — June 30, 2017
Plan year: Aug. 1 — July 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year June 1, 2014 — May 31, 2015 July 1, 2014 — May 31, 2015 June 1, 2015 — July 31, 2015 Aug. 1, 2015 — July 31, 2016
2016 Plan Year June 1, 2015 — May 31, 2016 N/A June 1, 2016 — July 31, 2016 Aug. 1, 2016 — July 31, 2017
Plan year: Sept. 1 — Aug. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year July 1, 2014 — June 30, 2015 N/A July 1, 2015 — Aug. 31, 2015 Sept. 1, 2015 — Aug. 31, 2016
2016 Plan Year July 1, 2015 — June 30, 2016 N/A July 1, 2016 — Aug. 31, 2016 Sept. 1, 2016 — Aug. 31, 2017
Plan year: Oct. 1 — Sept. 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Aug. 1, 2014 — July 31, 2015 N/A Aug. 1, 2015 — Sept. 30, 2015 Oct. 1, 2015 — Sept. 30, 2016
2016 Plan Year Aug. 1, 2015 — July 31, 2016 N/A Aug. 1, 2016 — Sept. 30, 2016 Oct. 1, 2016 — Sept. 30, 2017
Plan year: Nov. 1 — Oct. 31
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Sept. 1, 2014 — Aug. 31, 2015 N/A Sept. 1, 2015 — Oct. 31, 2015 Nov. 1, 2015 — Oct. 31, 2016
2016 Plan Year Sept. 1, 2015 — Aug. 31, 2016 N/A Sept. 1, 2016 — Oct. 31, 2016 Nov. 1, 2016 — Oct. 31, 2017
Plan year: Dec. 1 — Nov. 30
  Standard Measurement Period (optional for 2015) Transition Measurement Period (optional for 2015) Administrative Period Stability Period
2015 Plan Year Oct. 1, 2014 — Sept. 30, 2015 N/A Oct. 1, 2015 — Nov. 30, 2015 Dec. 1, 2015 — Nov. 30, 2016
2016 Plan Year Oct. 1, 2015 — Sept. 30, 2016 N/A Oct. 1, 2016 — Nov. 30, 2016 Dec. 1, 2016 — Nov. 30, 2017

MORE INFORMATION
Please contact CIBC of Illinois, Inc. for more information on the employer shared responsibility rules.

Kicking the Can Down the Road: Transition Policy for Canceled Health Plans Extended

The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies, beginning in 2014. For example, effective for 2014 plan years, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.

Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. President Obama was criticized that these cancelations went against his assurances that if consumers had a plan that they liked, they could keep it.

Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms for 2014.

On March 5, 2014, the Department of Health and Human Services (HHS) extended the transition relief policy for two years to policy years beginning on or before Oct. 1, 2016.  Thus, individuals and small businesses may be able to keep their non-ACA compliant coverage into 2017, depending on the plan or policy year.

Transition Relief Policy

HHS outlined the original transition relief policy in a letter to state insurance commissioners. Under the original transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be considered to be out of compliance with specified ACA reforms.

Also, to qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancelation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancelation or termination notice with respect to the coverage).

 

The transition relief only applies with respect to individuals and small businesses with coverage that was in effect on Oct. 1, 2013. It does not apply with respect to individuals and small businesses that obtain new coverage after Oct. 1, 2013. All new plans must comply with the full set of ACA reforms.

Two-year Extension

Under the transition relief extension, at the option of the states, issuers that have issued or will issue a policy under the transitional relief in 2014 may renew these policies at any time through Oct. 1, 2016, and affected individuals and small businesses may choose to re-enroll in the coverage through Oct. 1, 2016. Policies that are renewed under the extended transition relief will not be considered to be out of compliance with specified ACA reforms.

According to HHS, the extension will ensure that consumers have multiple health insurance coverage options, and that states continue to have flexibility in their markets. Also, some commentators have suggested that the extension was issued to avoid a new round of policy cancellations that would occur shortly before the November 2014 elections.

Transition relief also applies to large employers that currently purchase insurance in the large group market but that, as of Jan. 1, 2016, will be redefined by the ACA as small employers purchasing insurance in the small group market. At the option of the states and health insurance issuers, these large employers will have the option of renewing their current policies through policy years beginning on or before Oct. 1, 2016, without their policies being considered to be out of compliance with the specified ACA reforms that apply to the small group market but not to the large group market.

Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.

HHS will consider the impact of the two-year extension and assess whether an additional one-year extension is appropriate.

Specified ACA Reforms

The specified ACA reforms subject to the transition relief are the following reforms that take effect for plan years starting on or after Jan. 1, 2014:

  • Modified community premium rating standards;
  • Guaranteed availability and renewability of coverage;
  • Prohibition of pre-existing condition exclusions or other discrimination based on health status, except with respect to group coverage;
  • Nondiscrimination in health care;
  • Coverage for clinical trial participants; and
  • Coverage of the essential health benefits package.

Notice Requirement

The notice to individuals and small businesses must inform consumers of their options and the protections that are available in other plans. HHS’ guidance from March 5, 2014, includes standard notices that issuers are required to use in order to satisfy the notice requirement.

State Decisions

Because the insurance market is primarily regulated at the state level, state governors or insurance commissioners have to allow for the transition relief in their state.

A number of states decided against permitting insurers to use the original transition policy, including California, Connecticut, Washington, Minnesota, New York, Indiana, Vermont and Rhode Island. Some states, such as Maryland, are allowing renewals with specific provisions.

HHS’s guidance on the transition relief extension outlines the following different options for how states may adopt the transition relief.

  • States that did not adopt the original transition relief and that regulate issuers whose 2013 policies renew anytime between March 5, 2014, and Dec. 31, 2014, including any policies that they allowed to be renewed early in late 2013, may choose to implement the transitional policy for any remaining portion of the 2014 policy year (that is, the transition policy could apply to early renewals from late 2013).
  • States can elect to extend the transitional policy for a shorter period than through Oct. 1, 2016, but may not extend it to policy years beginning after Oct. 1, 2016.
  • States may choose to adopt both the original transitional policy as well as the extended transitional policy through Oct. 1, 2016, or adopt one but not the other, in the following manner:
    • For both the individual and the small group markets;
      • For the individual market only; or
      • For the small group market only.
      • States may choose to adopt the transitional relief policy only for large employers that currently purchase insurance in the large group market but that, for policy years beginning on or after Jan. 1, 2016, will be redefined as small employers purchasing insurance in the small group market.

As always, contact us with any questions!

Telecommuting: A Driver or a Drain on Productivity

Telecommuting is the term for working from a remote location, usually an employee’s residence. Workers are connected to employers and company servers via the Internet and are able to communicate regularly in real time using email, instant messaging, webcams and conference calls. Telecommuting can range from working exclusively from a home office to only working at home a few hours every week.

History and Prevalence

The term “telecommuting” was coined in the early 1970s by a University of Southern California professor researching communication and transportation. Companies and government offices began seriously promoting the idea later that decade during the energy crisis.

Technological innovation allowed telecommuting to increase over the next three decades. By 2011, data collected by the U.S. Bureau of Labor statistics showed that 24 percent of employed Americans work from home on a weekly basis. Another survey by Global Workplace Analytics showed that the rate of telecommuting had increased 73 percent since 2005, and that 2.5 percent of the non-self-employed workforce (roughly 3 million people) primarily works from home.

 But while the overall usage of telecommuting has steadily increased, many companies have chosen not to adopt it, and some have chosen to push back. In 2013, Yahoo! CEO Marissa Mayer prohibited telecommuting in her offices, where it had been established company policy. Yahoo’s shift in policy highlighted some of the downfalls of this way of conducting business.

 Pro and Cons

Telecommuting brings advantages and disadvantages to the way companies do business. Here’s a look at some of them. 

Pro: Increased productivity. While it’s easy to imagine workers shirking their duties at home more readily than in the office, numerous studies show that workers who telecommute are 15 to 55 percent more productive. Two-thirds of employers report increased productivity among their telecommuters.

 Additionally, AT&T reports that employees work an extra five hours per week when telecommuting versus when they are at the office, and Sun Microsystems data shows that employees spend 60 percent of the time they would have used commuting working for the company.

 Pro: Fewer costs. Over half of all employers reported cost savings as a significant benefit to telecommuting. By allowing workers to telecommute, companies reported big savings on real estate, absenteeism and relocation costs. In many areas there are also grants and other financial incentives for companies that offer telecommuting.

Pro: Increased employer flexibility. Telecommuting gives employers the option to hire from across the country without worrying about relocating workers to a central location. Employers can also more readily hire part-time, semi-retired, disabled or homebound workers.

Pro: Healthier employees. Telecommuting relieves the stress caused by commuting and other issues related to the workplace or being away from home. Telecommuters eat healthier and exercise more than their office-bound counterparts, and are less likely to get sick from contagious germs.

Con: Disengagement. Many employers say that telecommuting interferes negatively with the relationship between workers and management, and can foster jealousy and rivalries between telecommuters and non-telecommuters.  Staying connected and supervising employees who work from home can also be a challenge for managers.

 Con: Lack of collaboration. Innovation can be stifled when workers are not physically interacting with each other. This is the main reason cited by Mayer for the discontinuation of Yahoo’s telecommuting policy.

 Con: Technology and security concerns. Not all employees are tech-savvy, and there can be problems trying to remotely access an office network or set up remote meetings. Sensitive company information carries the potential for greater risk of being compromised through unsecure home computers. Additionally, 59 percent of telecommuters do not use their company’s data backup system, risking the loss of hard work and valuable information.

Con: Wasted downtime. Capitalizing on lulls in job tasks between big projects is more difficult to manage when an employee is working from home than when he or she is in the office.

 Legal Issues

In addition to the strengths and weaknesses of telecommuting, employers must recognize legal issues associated with it before deciding it is right for them. The following are legal issues that may need to be addressed.

Property. Make sure you have a clearly stated company policy for employees who are issued company electronics that addresses what to do in the event they are lost, damaged or stolen. Consider insuring more expensive items.

One way to handle company property issues is to have a written policy in place. If you are issuing electronics to your employees, have them sign something that acknowledges their receipt of the equipment, and indicates who is responsible for maintenance and damages.

Privacy. Employees should be made aware of their privacy rights when working from home. Just because work is being performed on a home computer doesn’t mean that it’s exempt from being monitored or inspected by the employer. Though the location may be personal, employees are still acting under the scope of employment.

Security and confidentially. Security concerns arise with workers accessing company information from their home computers. One way to guard against intentional leaking is to require that telecommuters sign a nondisclosure agreement. Have your company outline security measures employees should follow to protect information on their computer from exposure to external forces.

Payroll records and compensation.

Telecommuting presents difficulties for employers in complying with hourly recordkeeping regulations. Employers with telecommuters should set up a way to track those hours and ensure their accuracy.

Similarly, federal rules on overtime and rest and meal breaks apply to telecommuters as much as they do to employees in the workplace. This makes an employer’s obligation to track employee hours especially important.

Employer liability. What happens if an employee slips and falls at home, while on the clock? Or what if an employee commits a crime in the scope of his or her employment while telecommuting? What about workers’ compensation?

Employer liability remains a considerable concern for telecommuting employees. For starters, you should have a specific policy in place to address work-related injuries or torts that occur at a telecommuting employee’s home office.

Telecommuting is not the right fit for every company, but it has a decades-old record of being positive for many organizations. As the business world becomes more ensconced online than ever before, and a younger, more Internet-connected generation moves up the ranks of the workforce, telecommuting may become far more common than it is today. At the same time, there may never be a proper substitute for a centrally located office and face-to-face meetings.

Before your company decides to embrace telecommuting in the future, you must carefully weigh the risks and benefits of instituting a telecommuting policy to ensure it will be an asset to your organization.

 

Paying Premiums for Individual Health Insurance Policies

Starting in 2014, the Affordable Care Act (ACA) may make purchasing health insurance in the individual market more accessible for individuals. Due to the ACA’s reforms and the rising costs of health coverage, some employers have considered whether they should help employees pay for individual health insurance policies instead of offering an employer-sponsored group health plan.

On Sept. 13, 2013, the Internal Revenue Service (IRS) issued Notice 2013-54 (Notice) to address how certain ACA reforms apply to health reimbursement arrangements (HRAs), cafeteria plans and other employer payment plans. The Notice is effective for plan years beginning on or after Jan. 1, 2014.

The Notice discourages employers from helping employees pay for individual policies in lieu of offering a group health plan by eliminating the tax savings associated with contributions toward individual coverage. Effective for 2014, if employers want to help employees pay their individual policy premiums, it generally must be on an after-tax basis. However, employers may continue to provide group health coverage for their employees on a tax-free basis.

This Legislative Brief outlines how employers have traditionally paid for employees’ individual policy premiums on a tax-free basis, and summarizes how the ACA affects these arrangements starting in 2014.

HRAs

HRAs have been used by employers to help employees pay for the cost of individual insurance policies on a tax-free basis. Unlike health flexible spending accounts (FSAs) and health savings accounts (HSAs), HRAs can be used to reimburse health insurance premiums. Also, unlike an HSA, an individual does not need to be covered under a high-deductible health plan (HDHP) to participate in an HRA. This has made HRAs particularly compatible with individual health insurance policies.

The Notice addresses how the ACA’s market reforms apply to HRAs, including HRAs that are not integrated with other group health coverage, or “stand-alone” HRAs. An HRA used to purchase coverage on the individual market cannot be integrated with that individual coverage, and is considered a stand-alone HRA. Some stand-alone HRAs are not subject to the ACA’s market reforms because they fall under an exception, such as retiree-only HRAs. However, beginning in 2014, stand-alone HRAs that do not fall under an exception will not be permitted due to the ACA’s annual limit prohibition and preventive care requirements.

Thus, effective for 2014 plan years, employers will not be able to offer a stand-alone HRA for employees to purchase individual coverage, inside or outside of an Exchange, without violating specific provisions of the ACA and risking exposure to severe financial penalties.

Employer Payment Plans

In Revenue Ruling 61-146, the IRS provided that if an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income under Internal Revenue Code (Code) section 106. This IRS guidance allowed an employer to pay an employee’s premiums for individual health insurance coverage without the employee paying tax on the amount.

The Notice refers to this type of arrangement as an “employer payment plan.” An employer payment plan appears to also include any tax-advantaged arrangement to pay for individual health insurance premiums, including employee pre-tax salary reduction contributions paid through a cafeteria plan.

Similar to the guidance for HRAs, the Notice provides that an employer payment plan that reimburses employees for their individual insurance policy premiums will not comply with the ACA’s annual limit prohibition and preventive care requirements. Thus, effective for 2014 plan years, these plans will essentially be prohibited.

However, an employer payment plan does not include an employer-sponsored arrangement that allows an employee to choose either cash or an after-tax amount to be applied toward health coverage. Thus, premium reimbursement arrangements made on an after-tax basis will still be permitted.

Cafeteria Plans

A Section 125 Plan, or a cafeteria plan, can be used by employers to help employees pay for certain expenses, including health insurance, on a pre-tax basis. The proposed cafeteria plan regulations from 2007 allow for the pre-tax payment or reimbursement of individual health insurance policy premiums under a cafeteria plan. However, the ACA changes this rule and prohibits cafeteria plans from paying or reimbursing premiums for individual health insurance policies, effective for 2014.

The ACA’s prohibition on including individual health insurance policies under a cafeteria plan applies to policies purchased on an Exchange and through the private market, as follows:

  • Exchange Coverage: The ACA provides that individual health insurance offered through an Exchange cannot be reimbursed or paid for under a cafeteria plan. Exchange coverage may be funded through a cafeteria plan only if the employee’s employer elects to make group coverage available through the Exchange’s Small Business Health Options Program (SHOP).
  • Non-Exchange Coverage: The Notice indicates that, effective for 2014, cafeteria plans may not be used to pay premiums for individual health insurance policies that provide major medical coverage. However, it appears that this restriction does not apply to individual policies that are limited to coverage that is excepted from the ACA’s market reforms, such as retiree-only coverage, or limited-scope dental or vision benefits.

Thus, effective for 2014, the tax exclusion provided through a cafeteria plan is only available when group coverage is purchased. Employers that want to contribute toward the cost of individual coverage must do so on a taxable basis.

The Notice provides a transition rule for certain cafeteria plans for plan years beginning before Jan. 1, 2014. For cafeteria plans that as of Sept. 13, 2013, operate on a plan year other than a calendar year, the restriction on purchasing individual Exchange coverage through a cafeteria plan will not apply before the first plan year that begins after Dec. 31, 2013. However, individuals may not claim a premium tax subsidy for any month in which they are covered by an individual plan purchased through an Exchange as a benefit under a cafeteria plan.

Affordable Anxiety and Controlled Groups: You Can Run, but You Can’t Hide

Part 3: Affiliated Service Groups

By William Johnson- President and CEO

CIBC of Illinois, Inc.

www.cibcinc.com

In the previous two parts of the Controlled Group series we looked at a few different types of groups that the IRS deems Controlled Groups, or groups where two or more employers must be grouped together and treated as a single employer for certain purposes. Today, we will look at the final types of controlled groups, Affiliated Service Groups.

What is an Affiliated Service Group?

Affiliated Service Group rules are directed at professionals (for example, doctors, attorney and accountants) and other service organizations that that use separate service companies or management companies.

An Affiliated Service Group is a group of two or more organizations that have a service relationship and sometimes an ownership relationship. These relationships include; A-Organization groups, which consist of a First Service Organization (FSO) and at least one A-Organization, B-Organization groups, which consist of an FSO and at least one B-Organization, and Management groups.

An organization is defined as a sole proprietorship, partnership, corporation or any other type of entity regardless of its ownership format. Let’s look at the different types of organizations and their classification criterion.

Service Organization

An organization engaged in any one or more of the following fields is considered a service organization: accounting; actuarial science; insurance; architecture; health; law; performing arts; consulting; and engineering.

A professional services corporation is a corporation organized to provide professional services and has a least one shareholder who is licensed to perform the services for which the corporation is organized.

A-Organization Groups

An A-Organization group consists of an FSO and at least one A-Organization. A service organization is an A-Organization if it is a partner or shareholder in the FSO, and itt consistently performs services for the FSO or is regularly associated with the FSO in performing services for third parties. The working relationship test involves reviewing the facts and circumstances of each relationship.

Example – Blue Partnership is a law partnership. Yella Corporation is a partner in the law firm. Blue provides paralegal and administrative services for the attorneys in the law firm.

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Yella is an A-Organization because is it a partner in the FSO and it is regularly associated with the law firm in performing services for third parties. Thus, Blue Partnership and Yella Corporation are an affiliated service group. 

B-Organization Groups

Another classification is a B-Organization. An organization qualifies as a B-Organization if a significant part of business is the performance of services for the FSO, for one or more A-Organizations or for both, the services are historically performed by employees in the service field of the FSO or the A-Organizations, and those who are highly compensated employees of the FSO or the A-Organizations that in total hold 10 percent or more of the interests in the organization.

It is very important to note that a B-Organization does not need to be a service organization.

A facts and circumstances analysis applies when determining whether providing services constitutes a substantial portion of the business of an organization. There are two tests that are used to verify the facts and circumstances. These are a service receipts safe harbor test and a total receipts threshold test.

Example – Green Partnership is an accounting firm with 13 partners that are deemed highly compensated employees under IRS Code 414(q). Each partner owns 1 percent of the stock of Stella Blue Corporation. Stella Blue provides services to Green of a type historically performed by employees in the accounting field. A significant portion of Stella Blue’s business consists of providing services to ABC.

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Green is an FSO. Stella Blue is a B-Organization because a significant portion of its business involves performing services for the accounting firm of a type historically performed by employees in the accounting field. Also, more than 10 percent of the interests in Green are held by highly compensated employees of the FSO. Thus, Green Partnership and Stella Blue Corporation are an affiliated service group. 

Remember, the aggregation rules of Code section 318 apply. An individual is considered to own stock owned by his spouse, children, grandchildren and parents. Also, Code section 318 contains attribution rules for business relationships.

Management Groups

The final type of Affiliated Service group we will examine is the management-type affiliated service group. They exist if an organization performs management functions, and the management organization’s principal business is performing management functions on a regular and continuing basis for a recipient organization.

It is crucial to note that there does not need to be any common ownership between the management organization and the organization for which it provides services.

A recipient organization is an organization for which management services are performed, any organizations aggregated under the controlled group or affiliated service group rules,andrelated organizations (described under IRS Code section 144(a)(3)).

There are tests that can be used to determine a management organization’s principal business on a regular and continuing basis: tax-year rolling percentage test; percentage of gross receipts test; and facts and circumstances test.

Example: Sam and Dave Corporations are part of a controlled group. Shoe Corporation performs management functions for Sam Corporation on a consistent basis, and this is Shoe Corporation’s principal business. Sam and Dave Corporations are treated as the service recipient. In this scenario, Sam, Dave and Shoe Corporations are an affiliated service group.

We hope this series has helped spur some thought on how the ACA (via the IRS) will assess your business and the compliance issues associated with how it is set up. We are not lawyers, and we always recommend consulting legal professionals for specific answers to your situation. We do know that these laws are having a great impact on how people are, and will be structuring their organizations going forward.

This article is intended for informational purposes only and should not be construed as legal advice. Please consult with a legal professional for legal opinions.

 To get more information on CIBC of Illinois, visit us at www.CIBCINC.Com or call toll free 877-936-3580.

Pay or Play for Educational Institutions

By Andrew Wheeler

Director of eCommerce

www.CIBCinc.com

When I was growing up, I remember many of my teachers saying that there was five hours of prep time for every hour spent in the classroom teaching. At the time, I couldn’t have cared less, especially when adjunct professors would try and use this equation to motivate us to prepare for class more effectively. It was a calculation that I made in my head; me plus preparation equaled no 25 cent drafts at the Village Green. Hence my 20 year gap between when I started college and when I finished my Masters.

Now, I have many clients in the world of education. That old axiom, especially since the Affordable Care Act became law, rings loud and clear. Educational organizations have a distinct and separate set of hoops to jump through, and only careful preparation and calculation will help administrators negotiate around the pitfalls.  The same shared responsibility mandate apples for these institutions, whether they are self or fully insured. The difference lies in how they quantify and qualify full time employees.

Every Hour Counts

 

First, let’s look at how to calculate the hours of employees of educational institutions with relation to their full time or part time status. Remember, all employees over 30 hours per week, or 130 hours per month are considered full time.

Until final guidance is issued, employers must use a reasonable method for crediting hours of service. The IRS says that a method of crediting hours would not be reasonable if it took into account only classroom or other instruction time and not other hours that are necessary to perform the employee’s duties, such as class preparation time.  Clear as mud, right?  Basically, office hours count toward full time status, as do any other prep time.

Looking Forward Back

There is also something called a look-back period that will be used for this industry segment, as well as other segments. For ongoing employees, an employer looks at each employee’s full-time status by looking back at a measurement period lasting between 3 to 12 consecutive calendar months, as chosen by the employer, to decide whether the employee averaged at least 30 hours of service per week during this time.  If the employee was employed for at least 30 hours of service per week during the measurement period, he or she is considered a full-time employee for a set period into the future, known as the stability period. The stability period must be at least six calendar months and no shorter in duration than the measurement period.

Employers may need some time between the measurement and stability periods to figure out which employees are eligible for coverage….and also to notify and enroll employees. Hence, employers may use a 90 day administrative period between the measurement and stability periods.

An employer will not be subject to a tax /penalty for not offering coverage to new full-time employees during the first three calendar months of employment, so probationary periods for new employees still are legal under ACA. If the employer uses a look-back period for its ongoing employees, the employer may also use a similar method for new variable hour or seasonal employees.

Leaves and Breaks

When looking at breaks in the academic year that are paid leave periods, the employer must credit employees with hours of service. The proposed regulations include special averaging methodologies for employment break periods of employees of educational organizations. The proposed regulations state that an employment break period is a period of at least four consecutive weeks during which an employee is not credited with an hour of service. Special unpaid leave, which does not apply in this scenario, includes leave under the Family and Medical Leave Act (FMLA), the Uniformed Services Employment and Reemployment Rights Act (USERRA) and jury duty. 

The proposed regulations assess that the educational organization must apply one of the following methods to employment break periods related to or arising out of non-working weeks or months under the academic calendar. An educational organization either:

          •        Treats employees as credited with hours of service for the                employment break period at a rate equal                                              to the average weekly rate at which the                                                       employee was credited with hours of service during the                     weeks in the measurement period that are not part of an                      employment break period; or,

          •        Averages hours of service per week for the employee                       during the    measurement period excluding the                                     employment break period and uses that     average as the                      average for the entire measurement period.

We have found this is difficult for institutions of higher learning to manage. They have a stable of adjunct professors that will surely see credit-hour class assignments reduced in order to mitigate the financial exposure to ACA. Considering the nature of most labor agreements, it becomes problematic for institutions to be able to afford the increase in benefits allocation. When push comes to shove, it seems that the educator is getting shoved into a more limited class schedule. Again, this is a generalization…but it is not an uncommon scenario. We look at each scenario on its own merit, we do our homework, and then we present our findings. We know that there will be a test, and educational intuitions don’t have the resources to fail. That’s where we come in.

This article is intended for informational purposes only and should not be construed as legal advice. Please consult with a legal professional for legal opinions.

 To get more information on CIBC of Illinois, visit us at www.CIBCINC.Com or call toll free 877-936-3580.

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