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Employee Benefits Update from CIBC of Illinois, Inc.

Agencies Plan to Issue Final Rules for SBC Requirements

On March 31, 2015, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued Frequently Asked Questions (FAQ) announcing their intention to issue final regulations for the Affordable Care Act’s (ACA) summary of benefits and coverage (SBC) and uniform glossary requirement. These regulations will finalize the proposed regulations from Dec. 22, 2014.

The ACA requires these disclosure tools—the SBC and uniform glossary—to help consumers compare available coverage options. The requirement to provide them applies to both grandfathered and non-grandfathered plans.

Health plan issuers must provide the 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 final regulations are expected to be released in the near future and will 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).

The updated template and related documents, including sample language and instructions, for the SBC and uniform glossary will not be issued until January 2016. The updated template will then apply for plan years beginning on or after Jan. 1, 2017. Until further guidance is issued, the previously updated template provided on the DOL’s website on April 23, 2014, continues to be authorized.

The March 31 FAQ guidance leaves a lot of uncertainty for employers in 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.

Plan Offerings Now Diverging by Group Size

A new trend of health plan offerings has emerged over the past few years. Group size appears to be a determining factor in whether employers are offering more generous health plans or working on implementing more cost-sharing strategies for health benefits.

Large organizations—with more than 500 lives—tend to offer generous health plans, likely in an effort to use their benefits packages as recruiting and retention tools in a market that is becoming increasingly fierce.

Smaller groups are cutting back on benefits and using cost-sharing efforts with employees. This trend of leaner benefits with smaller groups is likely an effort to bring down expenses associated with rising health care costs and other costs related to the ACA.

For more information on how your benefits offerings compare to other employers, contact CIBC of Illinois, Inc. for benchmarking information.

DID YOU KNOW?

On May 4, 2015, the Internal Revenue Service (IRS) released Revenue Procedure 2015-30 to announce the inflation-adjusted limits for health savings accounts (HSAs) for calendar year 2016.

The following limits apply for 2016:

  • The HSA contribution limit is $3,350 for self-only and $6,750 for family.
  • The minimum deductible for high deductible health plans (HDHPs) is $1,300 for self-only and $2,600 for family.
  • The maximum out-of-pocket for HDHPs is $6,550 for self-only and $13,100 for family.

ACA Update: IRS Releases HSA Limits for 2016

On May 4, 2015, the Internal Revenue Service (IRS) released Revenue Procedure 2015-30 to announce the inflation-adjusted limits for health savings accounts (HSAs) for calendar year 2016. The IRS announced the following limits for 2016:

  • The maximum HSA contribution limit;
  • The minimum deductible amount for high deductible health plans (HDHPs); and
  • The maximum out-of-pocket expense limit for HDHPs.

These limits vary based on whether an individual has self-only or family coverage under an HDHP.

Only some of the HSA limits will increase for 2016. The limits that will increase are the HSA contribution limit for individuals with family HDHP coverage and the maximum out-of-pocket expense limit for self-only and family HDHP coverage.

Type of Limit 2015 2016 Change
HSA   Contribution Limit Self-only $3,350 $3,350 No change
Family $6,650 $6,750 Up $100
HSA   Catch-up Contributions (not subject to adjustment for inflation) Age 55 or older $1,000 $1,000 No change
HDHP Minimum Deductible Self-only $1,300 $1,300 No change
Family $2,600 $2,600 No change
HDHP Maximum Out-of-pocket Expense Limit (deductibles, copayments and other amounts, but not premiums) Self-only $6,450 $6,550 Up $100
Family $12,900 $13,100 Up $200

Just let us know if you have any other questions about this, or any other aspect of the Affordable Care Act.

http://www.CIBCINC.com / 1-866-936-3580

Compliance Alert: EEOC Issues Proposed Rule on the ADA and Wellness Programs

On April 16, 2015, the U.S. Equal Employment Opportunity Commission (EEOC) released a proposed rule that describes how the Americans with Disabilities Act (ADA) applies to employee wellness programs that include questions about employees’ health or medical examinations. Although the ADA limits when employers may inquire about employees’ health or require them to undergo medical examinations, these inquiries and exams are permitted if they are part of a voluntary wellness program.

The long-awaited proposed rule would provide much needed guidance for employers on how to structure employee wellness programs without violating the ADA. Most importantly, the proposed rule addresses the amount of incentives that may be offered under employee wellness programs that are part of group health plans. This amount is generally consistent with HIPAA’s limits on wellness program incentives, although the proposed rule does not fully incorporate HIPAA’s increased incentive limit for tobacco cessation programs.

Implications for Employers

The EEOC is seeking comments on the proposed rule and may make revisions to its guidance before it is finalized. While employers are not required to comply with the proposed rule before it is finalized, they may choose to do so. According to the EEOC, it is unlikely that a court or the EEOC would find an ADA violation where an employer complied with the proposed guidance until a final rule is issued.

Wellness Programs

Many employers offer workplace wellness programs as a way to help control health care costs, encourage healthier lifestyles and prevent disease.

Employers may offer participatory wellness programs, which do not require individuals to meet a health-related standard in order to obtain an incentive. Participatory wellness programs include, for example, subsidized fitness club memberships, reimbursement of smoking cessation classes (without regard to whether the employee quits smoking) or rewards for completing a health risk assessment (HRA) without any further action required by the employee with respect to the health issues identified by the HRA.

Employers may also offer health-contingent wellness programs, which require individuals to satisfy a standard related to a health factor in order to obtain an incentive. For example, health-contingent wellness programs may require participants to participate in exercise programs, remain tobacco-free or attain certain results on biometric screenings (for example, low cholesterol, blood glucose and blood pressure levels) to obtain an incentive.

Wellness program incentives can be framed as rewards or penalties and often take the form of prizes, cash, or a reduction or increase in health care premiums or cost-sharing.

Legal Concerns for Wellness Programs

Employee wellness programs must be carefully designed to comply with the ADA and other federal laws that prohibit discrimination based on race, color, sex (including pregnancy), national origin, religion, compensation, age or genetic information.

Additionally, wellness programs that are part of group health plans must be designed to comply with HIPAA’s nondiscrimination requirements, as amended by the Affordable Care Act (ACA). Under HIPAA, health-contingent wellness programs are required to follow certain standards related to nondiscrimination, including a standard that limits the amount of incentives that can be offered. The maximum reward under HIPAA for health-contingent wellness programs is 30 percent of the cost of health coverage (or 50 percent for programs designed to prevent or reduce tobacco use).

EEOC Guidance

Background

The ADA prohibits employers with 15 or more employees from discriminating against individuals with disabilities. Under the ADA, an employer may make disability-related inquiries and require medical examinations after employment begins only if they are job-related and consistent with business necessity. However, these inquiries and exams are permitted if they are part of a voluntary wellness program.

Neither the ADA nor prior EEOC guidance addressed the extent to which incentives affected the voluntary nature of a wellness program. Recently, the EEOC filed well-publicized lawsuits against a number of employers, alleging that their wellness programs violated the ADA and other federal fair employment laws. In response, Congress called on the EEOC to issue guidance on wellness programs and introduced legislation, the Preserving Employee Wellness Program Act, to provide more certainty for employers regarding wellness programs.

Proposed Guidance

The EEOC’s proposed rule would establish the following parameters for permissible wellness program designs under the ADA.

  • Reasonable Design: A wellness program must be reasonably designed to promote health or prevent disease. A program that collects information on an HRA to provide feedback to employees about their health risks, or that uses aggregate information from HRAs to design programs aimed at particular medical conditions is reasonably designed. A program that collects information without providing feedback to employees or without using the information to design specific health programs is not reasonably designed.
  • Voluntary: Wellness programs must be voluntary. Employees may not be required to participate in a wellness program, may not be denied health insurance or given reduced health benefits if they do not participate, and may not be disciplined for not participating. Employers also may not interfere with the ADA rights of employees who do not want to participate in wellness programs, and may not coerce, intimidate or threaten employees to get them to participate or achieve certain health outcomes.
  • Employee Notice: For wellness programs that are part of group health plans, employers must provide employees with a notice that describes what medical information will be collected as part of the wellness program, who will receive it, how the information will be used and how it will be kept confidential.
  • Limited Incentives: For wellness programs that are part of group health plans, employers may offer limited incentives for employees to participate in the programs or to achieve certain health outcomes. Consistent with HIPAA, the amount of the incentive that may be offered for an employee to participate or to achieve health outcomes may not exceed 30 percent of the total cost of employee-only coverage. For example, if the total cost of coverage paid by both the employer and employee for self-only coverage is $5,000, the maximum incentive for an employee under that plan is $1,500.

This incentive limit only applies to wellness programs that include disability-related inquiries or medical examinations. According to the EEOC, a smoking cessation program that merely asks employees whether they use tobacco (or whether they stopped using tobacco upon completion of the program) is not a wellness program that includes disability-related inquiries or medical examinations. Thus, the EEOC’s proposed guidance would allow an employer to offer incentives as high as 50 percent of the cost of employee coverage for that smoking cessation program, consistent with HIPAA’s requirements. However, an incentive tied to a biometric screening or medical examination that tests for the presence of tobacco would be limited to 30 percent under the proposed rule.

  • Confidentiality: Medical information obtained as part of a wellness program must be kept confidential. Generally, employers may only receive medical information in aggregate form that does not disclose, and is not reasonably likely to disclose, the identity of specific employees.

Wellness programs that are part of a group health plan may generally comply with their obligation to keep medical information confidential by complying with the HIPAA Privacy Rule. Employers that are not HIPAA covered entities may generally comply with the ADA by signing a certification, as provided for by HIPAA regulations, that they will not use or disclose individually identifiable medical information for employment purposes and abiding by that certification.

Practices such as training individuals in the handling of confidential medical information, encryption of information in electronic form, and prompt reporting of breaches in confidentiality can help assure employees that their medical information is being handled properly.

  • Reasonable Accommodations: Employers must provide reasonable accommodations that enable employees with disabilities to participate and to earn whatever incentives the employer offers. For example, an employer that offers an incentive for employees to attend a nutrition class must, absent undue hardship, provide a sign language interpreter for a deaf employee who needs one to participate in the class. An employer also may need to provide materials related to a wellness program in alternate format, such as large print or Braille, for someone with vision impairment. An employee may need to provide an alternative to a blood test if an employee’s disability would make drawing blood dangerous.

More Information

To help employers understand the proposed guidance, the EEOC provided a fact sheet and a set of questions and answers or call us at 877-936-3580.

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.

Q1 2015 Benefits Bulletin: A Look Back, and Ahead

From CIBC of Illinois

IRS Invites Comments on Cadillac Tax Implementation

On Feb. 23, 2015, the Internal Revenue Service (IRS) issued Notice 2015-16 to describe potential approaches for a number of issues related to the Affordable Care Act’s (ACA) so-called Cadillac tax. The IRS is seeking comments as it begins developing guidance for the implementation of the Cadillac tax. Public comments may be submitted to the IRS until May 15, 2015.

Proposed or final regulations have not yet been issued on the ACA’s Cadillac tax provision. This notice is intended to invite comment as guidelines are assembled, and taxpayers should not rely on the information provided in Notice 2015-16.

Cadillac Tax Overview

The Cadillac tax will go into effect beginning in 2018. This provision imposes a 40 percent excise tax on high-cost group health coverage. The Cadillac tax is intended to encourage companies to choose lower-cost health plans for their employees.

The Cadillac tax provision is found in Internal Revenue Code Section 4980I. This provision taxes the amount of an employee’s “excess benefit.” The excess benefit is the amount by which the monthly cost of an employee’s employer-sponsored health coverage exceeds the annual limitation.

For 2018, the statutory dollar limits are:

  • $10,200 per employee for self-only coverage; and
  • $27,500 per employee for other-than-self-only coverage.

The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.

The Cadillac tax applies to “applicable employer-sponsored coverage” (both insured and self-insured). Applicable employer-sponsored coverage is coverage under any group health plan made available to the employee by the employer, which is excludable from the employee’s gross income under Code Section 106.

Applicable coverage also includes health flexible spending accounts (FSAs), health savings accounts (HSAs), on-site medical clinics, retiree coverage, multiemployer plans and coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance (if paid on a pretax basis or if a Section 162(l) deduction is allowed).

 

DOL Issues Final Rule to Expand FMLA Protections for Same-sex Spouses

The Department of Labor (DOL) has issued a final rule that will expand rights under the Family and Medical Leave Act (FMLA) for same-sex spouses. Under the final rule, eligible employees in legal same-sex marriages will be able to take FMLA leave in order to care for their spouses or family members, regardless of where they live.

The DOL’s new guidance is effective March 27, 2015, and it replaces guidance regarding FMLA protections for same-sex spouses that was issued following the U.S. Supreme Court’s decision in United States v. Windsor.

The final rule changes the definition of “spouse” under the FMLA as follows:

Adopts a “place of celebration” rule (which is based on where the marriage was entered into), instead of the “state of residence” rule that applied under prior DOL guidance; and

  • Expressly includes same-sex marriages in addition to common law marriages, and encompasses same-sex marriages entered into abroad that could have been entered into in at least one state.

This change will impact FMLA leave in several ways. Specifically, the definitional change means that eligible employees, regardless of where they live, will be able to:

  • Take FMLA leave to care for their same-sex spouses with serious health conditions;
  • Take qualifying exigency leave due to their same-sex spouses’ covered military service; or
  • Take military caregiver leave for their same-sex spouses.

In connection with the final rule, the DOL also issued a set of frequently asked questions (FAQs) to help employers and employees understand the changes to the FMLA’s definition of “spouse.”

To comply with the final rule, employers should review and update their FMLA policies and procedures as necessary. Employers should also train employees who are involved in the leave management process on the expanded eligibility rules for same-sex spouses under the FMLA.

DOJ to Allow Claims Based on Gender Identity Discrimination

On Dec. 18, 2014, the U.S. Department of Justice (DOJ) announced a reversal of its position regarding whether discrimination based on sex incudes discrimination based on an individual’s gender identity and transgender status.

The DOJ has now taken the position that discrimination based on sex includes discrimination based on an individual’s gender identity and transgender status.

Although the DOJ’s authority to file discrimination lawsuits is limited to government employers, this announcement solidifies the federal government’s position on gender identity rights.

Background Title VII of the Civil Rights Act prohibits employers from discriminating on the basis of race, color, religion, sex or national origin when making employment decisions. In 2006, the DOJ took the position that discrimination based on sex excluded discrimination based on an individual’s gender identity or transgender status. The DOJ has now reversed this position.

Gender identity is an individual’s internal sense of being male or female. An individual’s internal identification may or may not correspond to the individual’s biological gender. Transgender individuals are people with a gender identity that is different from the sex assigned to them at birth.

Effect on Employers Employers can expect to see more individuals file claims based on gender identity discrimination and increased federal support for employee protections against discrimination based on gender identity and sexual orientation.

Employers should review their employment policies to ensure that they are compliant with federal, state and local anti-discrimination regulations.

New Guidance and Relief for Employer Payment of Individual Premiums

Under the ACA, employer payment plans do not comply with several provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.

An employer payment plan is an arrangement where an employer reimburses or pays premiums for an employee’s individual health insurance.

New Guidance on Employer Payments
The Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury have released several pieces of guidance clarifying the rules regarding these arrangements. The IRS issued Notice 2015-17 on Feb. 18, 2015, providing further clarification.

Specifically, this notice provides information on several related issues:

  • Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
  • Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
  • Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation health care arrangements for 2-percent shareholder-employees;
  • Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
  • States that employer payments for individual premiums can be excludable from an employee’s income under the tax code but will still violate the ACA’s market reforms.

Employers should review their benefit and compensation plans and policies to ensure they are not in violation of current guidance regarding employer payment plans.

The information contained in this newsletter is not intended as legal or medical advice. Please consult a professional for more information.

IRS Solicits Comments on Affordable Care Act Cadillac Tax Implementation for 2018

For taxable years beginning in 2018, the Affordable Care Act (ACA) imposes a 40 percent excise tax on high-cost group health coverage. This tax, also known as the “Cadillac tax,” is intended to encourage companies to choose lower-cost health plans for their employees.

On Feb. 23, 2015, the Internal Revenue Service (IRS) issued Notice 2015-16 to begin the process of developing guidance to implement the Cadillac tax. Proposed or final regulations have not yet been issued on the ACA’s Cadillac tax provision.

This notice describes potential approaches with regard to a number of issues under the Cadillac tax and invites comments on these approaches. Public comments may be submitted to the IRS until May 15, 2015.

Taxpayers may not rely on the information provided in Notice 2015-16. However, the IRS notes that these potential approaches could be incorporated in future proposed regulations.

Overview of the Cadillac Tax

The Cadillac tax provision is found in Internal Revenue Code (Code) Section 4980I. This provision taxes the amount of an employee’s “excess benefit.” The excess benefit is the amount by which the monthly cost of an employee’s employer-sponsored health coverage exceeds the annual limitation.

For 2018, the statutory dollar limits are:

  • $10,200 per employee for self-only coverage; and
  • $27,500 per employee for other-than-self-only coverage.

The cost of applicable coverage for purposes of the Cadillac tax is determined under rules similar to those used for determining the COBRA applicable premium. The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.

Applicable Employer-sponsored Coverage

The Cadillac tax applies to “applicable employer-sponsored coverage” (both insured and self-insured). Applicable employer-sponsored coverage is coverage under any group health plan made available to the employee by the employer, which is excludable from the employee’s gross income under Code Section 106. The term “employee” includes any former employee, surviving spouse or other primary insured individual.

Applicable coverage also includes health FSAs, HSAs, on-site medical clinics, retiree coverage, multiemployer plans and coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance (if paid on a pre-tax basis or a Section 162(l) deduction is allowed).

Some types of coverage are generally excluded from applicable coverage, including coverage under which medical benefits are secondary or incidental to other insurance benefits, long-term care coverage, limited scope dental and vision coverage and coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance (if paid for exclusively with after-tax dollars or a Section 162(l) deduction is not allowed).

Overview of IRS Proposals

Notice 2015-16 describes a number of potential approaches on certain aspects of the ACA’s Cadillac tax provision, which may be included in future proposed regulations. The IRS is requesting comments on the potential approaches, as well as any other approaches or guidance that might be helpful.

Definition of Applicable Coverage

Notice 2015-16 includes the following potential clarifications on the definition of applicable coverage:

  • The IRS expects future guidance to include executive physical programs and HRAs as applicable coverage.
  • The IRS anticipates that future regulations will exclude on-site medical clinics that offer only de minimis medical care to employees from the definition of applicable coverage.
  • The IRS invites comments on how to treat on-site medical clinics that provide certain services in addition to (or in lieu of) first aid.
  • The IRS is considering whether to propose approaches under which self-insured limited scope dental and vision coverage and certain employee assistance programs (EAPs) that qualify as an excepted benefit under the amended excepted benefits regulations would be excluded from applicable coverage for purposes of the Cadillac tax. Comments are requested on any reasons why the IRS should not implement these approaches.

Determining the Cost of Applicable Coverage

A number of issues arise in calculating the COBRA applicable premium, including how to determine which non-COBRA beneficiaries are similarly situated, methods for self-insured plans to determine the applicable premium and how to determine the applicable premium for HRAs.

Notice 2015-16 describes potential approaches for each of these issues for purposes of the Cadillac tax. The IRS is also considering whether these potential approaches should apply for determining the COBRA applicable premium.

  • The COBRA applicable premium is based on the cost of coverage for similarly situated non-COBRA beneficiaries. The IRS anticipates that a somewhat similar standard will apply for the Cadillac tax, where the cost of the applicable coverage for an employee will be based on the average cost of that type of applicable coverage for that employee and all similarly situated employees. The IRS invites comments on this potential approach, including areas where more guidance would be beneficial. Future guidance will likely attempt to harmonize the COBRA rules with the Cadillac tax rules (although some differences may be appropriate).
  • Currently, there are two methods for self-insured plans to calculate the COBRA applicable premium—the actuarial basis method and the past cost method. The IRS anticipates that, in general, these two methods will apply for determining the cost of applicable coverage for self-insured plans for purposes of the Cadillac tax, and it seeks comment on this approach.
  • Instead of determining the cost of applicable coverage using rules similar to the COBRA applicable premium rules, some have suggested that this could be determined by reference to the cost of similar coverage available elsewhere (for example, through an Exchange), whether or not based on actuarial values, metal levels (bronze, silver, etc.) or other metrics. The IRS invites comments on other alternative approaches.

Determination Period

The IRS anticipates that the method for calculating the cost of applicable coverage would be elected prior to the period for which the cost applies, under similar rules as the COBRA applicable premium. The IRS invites comments on whether the COBRA rules should apply for purposes of the Cadillac tax, and whether more guidance would be beneficial.

Applicable Dollar Limit

The IRS is considering an approach to clarify the application of the dollar limit for employees with both self-only and other-than-self-only applicable coverage (for example, self-only major medical coverage and supplemental coverage, such as an HRA, that covers the employee and his or her family).

The IRS invites comments on the following potential approaches, including any potential administrative difficulties, as well as any other approaches that might address this issue:

  • Under one approach, the applicable dollar limit would depend on whether the employee’s primary (major medical) coverage is self-only coverage or other-than-self-only coverage. The employee’s primary coverage would be the type of coverage that accounts for the majority of the aggregate cost of applicable coverage.
  • An alternative approach would apply a composite dollar limit determined by prorating the dollar limits for each employee according to the ratio of the cost of the self-only coverage and the cost of the other-than-self-only coverage provided to the employee.

 

Dollar Limit Adjustments

The annual dollar limits for the Cadillac tax may be adjusted in certain circumstances. For example, a “health cost adjustment percentage” will be applied to determine the dollar limits for 2018, and a cost-of-living adjustment will be applied to determine the dollar limits for taxable years after 2018. In addition, the dollar limits are increased by an age and gender adjustment, if applicable for an employer. Also, higher dollar limits apply for:

  • Qualified retirees; and
  • Employees engaged in a high-risk profession or employed to repair or install electrical or telecommunication lines.

The IRS intends to include rules regarding these adjustments in proposed regulations, and invites comments on the application and adjustment of the dollar limits.

Comment Submissions

The IRS invited comments on the issues addressed in the notice and on any other issues under the Cadillac tax provision. The IRS also intends to issue another notice inviting comments on additional issues. The comments received by the IRS are expected to be used to draft proposed regulations.

Comments should be submitted no later than May 15, 2015, and should reference Notice 2015-16. Comments may be sent electronically to: Notice.comments@irscounsel.treas.gov, or mailed to: CC:PA:LPD:PR (Notice 2015-16), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Reliance

Taxpayers may not rely upon Notice 2015-16 for guidance regarding the Cadillac tax provision. The IRS also specified that no inference should be drawn from the notice concerning any provision of Section 4980I other than those addressed in the notice or concerning any other section of the ACA or COBRA

ACA Update: New Guidance and Relief for Employer Payment of Individual Premiums

In the past, many employers have helped employees pay for individual health insurance policies instead of offering an employer-sponsored plan. In recent months, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) have released several pieces of guidance addressing these arrangements.

The Departments’ guidance specifically addresses “employer payment plans,” under which an employer reimburses or pays premiums for an employee’s individual health insurance policy.

According to this guidance, employer payment plans do not comply with several ACA provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.

IRS Notice 2015-17

On Feb. 18, 2015, the Internal Revenue Service (IRS) issued Notice 2015-17. This notice:

  • Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
  • Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
  • Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation healthcare arrangements for 2-percent shareholder-employees;
  • Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
  • States that employer payments for individual premiums can be excludable from an employee’s income under the tax code, but will still violate the ACA’s market reforms.

The DOL and HHS have reviewed the notice and agree with the guidance provided. The Departments noted that they expect to issue further clarifications regarding other aspects of employer payment plans and HRAs in the near future.

Increases in Employee Compensation

Notice 2015-17 clarifies that, if an employer increases an employee’s compensation, but does not condition the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form or issuer of health insurance), it is not considered an employer payment plan.

According to the IRS, providing employees with information about the Exchange or the premium tax credit is not endorsement of a particular policy, form or issuer of health insurance. Because this type of arrangement generally will not constitute a group health plan, it is not subject to the ACA’s market reforms.

Excise Tax Delay for Small Employers

Small employers have often helped employees pay for individual coverage. As noted above, these employers would normally be subject to an excise tax of $100 per day for each employee.

Notice 2015-17 provides a delay in the excise tax penalty for employers that are not applicable large employers (ALEs) under the ACA’s employer shared responsibility rules. These employers may need additional time to obtain group health coverage or to adopt a suitable alternative.

Therefore, an excise tax will not be assessed for violations of the ACA’s market reforms by certain employer payment plans that pay (or reimburse employees) for individual health policy premiums or Medicare Part B or Part D premiums.

This transition relief is available on a temporary basis. Employers may be eligible for relief from the excise tax as late as June 30, 2015. Specifically:

  • For 2014, the relief applies to employers that are not ALEs in 2014.
  • For Jan. 1 to June 30, 2015, the relief applies to employers that are not ALEs in 2015.

After June 30, 2015, these employers may be liable for the excise tax.

This relief does not extend to stand-alone HRAs or other arrangements that reimburse employees for medical expenses other than insurance premiums.

Employers eligible for this relief are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans) as a result of having these arrangements during the period for which the employer is eligible for the relief.

Reimbursement of Medicare and TRICARE Premiums

Notice 2015-17 notes that an arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees constitutes an employer payment plan. Similarly, an arrangement under which an employer reimburses (or pays directly) some or all of medical expenses for employees covered by TRICARE constitutes an HRA. In both cases, if the arrangement covers two or more active employees, it is a group health plan subject to the ACA’s market reforms.

An employer payment plan or an HRA may not be integrated with Medicare coverage or TRICARE to satisfy the market reforms, because Medicare coverage and TRICARE are not group health plans for integration purposes.

However, an employer payment plan or HRA that pays for or reimburses Medicare Part B or Part D premiums, or medical expenses for employees covered by TRICARE, is integrated with another group health plan offered by the employer for purposes of the market reforms if:

  • The employer offers a group health plan (other than the employer payment plan or HRA) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value;
  • The employee participating in the employer payment plan or HRA is actually enrolled in Medicare Parts A and B or TRICARE;
  • The employer payment plan or HRA is available only to employees who are enrolled in Medicare Part A and Part B or Part D, or TRICARE; and
  • The employer payment plan or HRA is limited to reimbursement of Medicare Part B or Part D premiums, or cost-sharing, and excepted benefits, including Medigap premiums or TRICARE supplemental premiums.

Note that, to the extent that this type of arrangement is available to active employees, it may be subject to restrictions under other laws, such as the Medicare secondary payer provisions or laws that prohibit offering financial or other incentives for TRICARE-eligible employees to decline employer-provided group health plan coverage, similar to the Medicare secondary payer rules.

An employer payment plan that has fewer than two participants who are current employees (for example, a retiree-only plan) on the first day of the plan year is not subject to the market reforms, and, therefore, integration is not necessary to satisfy the market reforms.

Also, an employer may provide more than one type of healthcare arrangement for its employees (for example, a Medicare Part B employer payment plan and a TRICARE-related HRA), provided that each arrangement meets the applicable integration or other rules.

S Corporation Healthcare Arrangements for 2-percent Shareholder-employees

Under IRS Notice 2008-1, if an S corporation pays for (or reimburses) premiums for individual health insurance coverage covering a 2-percent shareholder, the payment or reimbursement is included in income, but the 2-percent shareholder-employee may deduct the amount of the premiums (provided that all other eligibility criteria for deductibility are satisfied). Notice 2015-17 refers to this as a 2-percent shareholder-employee healthcare arrangement.

The Departments stated that they may issue additional guidance on the application of the market reforms to a 2-percent shareholder-employee healthcare arrangement. However, until further guidance is issued (and at least through the end of 2015), the excise tax will not be assessed for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement.

Furthermore, until additional guidance provides otherwise, an S corporation with a 2-percent shareholder-employee healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans, including the market reforms) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.

However, this guidance does not apply to reimbursements of individual health insurance coverage with respect to employees of an S corporation who are not 2-percent shareholders.

The IRS is also considering whether additional guidance is needed on the federal tax treatment of 2-percent shareholder-employee healthcare arrangements. However, until additional guidance provides otherwise, taxpayers may continue to rely on Notice 2008-1 with regard to the tax treatment of these arrangements for all federal income and employment tax purposes.

To the extent that a 2-percent shareholder is allowed both the deduction described above and a premium tax credit for coverage through an Exchange, Revenue Procedure 2014-41 provides guidance on calculating the deduction and the credit with respect to the 2-percent shareholder.

Notice 2015-17 also noted, however, that the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year. Thus, an arrangement covering only a single employee (whether or not that employee is a 2-percent shareholder-employee) generally is not subject to the market reforms, whether or not the reimbursement arrangement otherwise constitutes a group health plan.

However, if an S corporation maintains more than one of these types of arrangements for different employees (whether or not 2-percent shareholder-employees), all are treated as a single arrangement covering more than one employee, so that this exception does not apply.

Employer Payment Plans under Code Sections 105 and 106

The notice also addresses Revenue Ruling 61-146 (Rev. Rul. 61-146), which has been cited by some as authority permitting employer payment plans under the tax code. Under Rev. Rul. 61-146, employer reimbursements of an employee’s individual insurance premiums are excluded from the employee’s gross income under Code Section 106. This exclusion also applies if the employer pays the premiums directly to the insurance company.

According to the IRS, this guidance regarding the tax exclusion continues to apply. This means only that the payments are excludable from the employee’s gross income under Section 106 (regardless of whether the employer includes the payments as wages on the Form W-2).

However, the IRS stated that Rev. Rul. 61-146 does not address the application of the ACA’s market reforms, and should not be read as containing any implication regarding the application of those market reforms.

An arrangement under which an employer provides reimbursements or payments that are dedicated to providing medical care (such as cash reimbursements for the purchase of an individual market policy) is, itself, a group health plan. Accordingly, the arrangement is subject to the ACA’s market reform rules applicable to group health plans, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. These employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, do not comply with the ACA.

The notice supplements two Information Letters previously issued by the IRS Office of Chief Counsel. Letter 2014-0037 and Letter 2014-0039 addressed the ability of employers to reimburse employees’ medical expenses with pre-tax dollars under Code Section 105. These letters note that, although the ACA has not changed the tax treatment under Section 105 or 106, these arrangements violate the ACA’s prohibition on annual limits because they reimburse medical expenses up to a fixed amount.

Prior Employer Payment Plan Guidance

  • 24, 2013: Department FAQs addressed compliance of HRAs with the ACA’s market reforms.
  • 13, 2013: IRS Notice 2013-54 and DOL Technical Release 2013-03 clarified that HRAs, certain health FSAs and other employer payment plans are considered group health plans subject to the ACA’s market reforms, and they cannot be integrated with individual policies to satisfy those requirements. As a result, effective for 2014 plan years, these plans are essentially prohibited.
  • May 13, 2014: IRS FAQs addressed the consequences for employers that reimburse employees for individual health insurance premiums. These arrangements may trigger an excise tax of $100 per day for each applicable employee ($36,500 per year for each employee) under Code Section 4980D.
  • 6, 2014: Department FAQs clarified that employer payment plans do not comply with the ACA’s market reforms and may subject employers to penalties, whether provided on a pre- or after-tax basis.

CIBC of Illinois, Inc. Merges With Strategic Employee Benefit Services of Champaign

CIBC of Illinois, Inc. Merges With Strategic Employee Benefit Services of Champaign

 

FOR IMMEDIATE RELEASE

Kankakee, IL– (February 9, 2015)- William Johnson, Chairman and CEO of CIBC of Illinois, Inc. is pleased to announce the successful merger of CIBC of Illinois and Strategic Employee Benefit Services of Champaign (SEBS). The new organization will operate as CIBC of Illinois, Inc. and include offices in both Kankakee and Champaign.

“This is an extremely exciting development for both of our organizations,” said Johnson. “The expertise that CIBC possesses in the ever-changing world of employee benefits and group health insurance is exactly what businesses are demanding, and the SEBS connection to the Central and Southern Illinois markets is a great opportunity for us to deliver these solutions on a consistent basis. The synergies we gain via this new powerhouse organization will position CIBC as an industry-leader in both size and capabilities that we deliver to businesses.”

As a result of the merger, former SEBS Benefit Consultant Tony Johnston was named as President and Chief Operating Officer for both the Kankakee and Champaign offices, and Erin Beck remains as Chief Financial Officer for CIBC.

“This is a great opportunity for the SEBS team to further commit to the exciting business opportunity of employee benefits, “said Tony Johnston. “Our extensive client base will now have access to the cutting edge benefits knowledge, wellness resources, technology, and regulatory compliance that is requisite in the healthcare reform era.”

About CIBC of Illinois, Inc.

CIBC is a leader in the development and implementation of innovative employee benefits plans. Headquartered an hour south of Chicago in Kankakee and with a branch office in Champaign, CIBC serves private sector clients, non-profit organizations, governmental bodies and agencies and Taft-Hartley health and welfare funds across the Midwest. Over the past two decades, they have creatively addressed the employee benefits needs of hundreds of organizations — some with as few as two employees and others with as many as 25,000 employees around the globe.

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Individual Health Insurance: Reporting Coverage and Paying Penalties

A key provision of the Affordable Care Act (ACA) is the individual mandate, which requires most individuals to purchase health insurance coverage for themselves and their family members or pay a penalty.

Starting in 2015, individuals will have to report on their federal tax return whether they had health insurance coverage for 2014 or were exempt from the individual mandate. Any penalties that an individual owes for not having health insurance coverage will generally be assessed and collected in the same manner as taxes.

How will coverage be reported under the individual mandate?

Starting in 2015, when you file a federal tax return for 2014, you will have to:

  • Report that you, your spouse (if filing jointly) and any individual you claim as a dependent had health care coverage throughout 2014; or
  • Claim a coverage exemption from the individual mandate for some or all of 2014 and attach Form 8965; or
  • Pay an individual mandate penalty (called a shared responsibility payment) for any month in 2014 that you, your spouse (if filing jointly) or any individual you claim as a dependent did not have coverage and did not qualify for a coverage exemption.

If you and your dependents all had minimum essential coverage for each month of the tax year, you will indicate this on your 2014 tax return by simply checking a box on Form 1040, 1040A or 1040EZ; no further action is required.

If you obtained a coverage exemption from the Marketplace or you qualify for an exemption that you can claim on your return, you will file Form 8965, and attach it to your tax return.

For any month you or your dependents did not have coverage or a coverage exemption, you will have to make a shared responsibility payment. The amount of the payment due will be reported on Form 1040, Line 61, in the “Other Taxes” section, and on the corresponding lines on Form 1040A and 1040EZ.

Who is exempt from the individual mandate?

You may be exempt from the individual mandate penalty if you:

  • Cannot afford coverage
  • Have income below the federal income tax filing threshold
  • Are not a citizen, are not considered a national or are not lawfully present in the United States
  • Experience a gap in coverage for less than a continuous three-month period
  • Qualify as a religious conscientious objector
  • Are a member of a health care sharing ministry
  • Are a member of certain American Indian tribes
  • Are given a hardship exemption by the Department of Health and Human Services
  • Are incarcerated

How much will the individual mandate penalty cost me?

The penalty for not obtaining acceptable health care coverage is being phased in over a three-year period. The amount of the penalty is either your “flat dollar amount” or your “percentage of income amount”—whichever is greater.

For 2014, the annual penalty is either:

  • One percent of your household income that is above the tax return filing threshold for your filing status; or
  • Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285.

Your payment amount is capped at the cost of the national average premium for a bronze level health plan, available through the Marketplace in 2014. For 2014, the annual national average premium for a bronze level health plan available through the Marketplace is $2,448 per individual ($204 per month), but $12,240 for a family with five or more members ($1,020 per month).

Calculating your payment requires you to know your household income and your tax return filing threshold.

Household income is the adjusted gross income from your tax return plus any excludible foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the adjusted gross incomes of all of your dependents who are required to file tax returns.

Tax return filing threshold is the minimum amount of gross income an individual of your age and filing status (for example, single, married filing jointly, head of household) must make to be required to file a tax return.

High Deductible Plan Options: Bringing Consumerism and Cost-Savings to tthe Marketplace

CIBC of Illinois specializes in Group Benefit plans, and in order to best serve our clients, we also employ consultants that specialize in individual and family health insurance plans. In both of these areas, we continually get asked about high deductible plans because, in most cases, there is a significant cost advantage found in these types of plans. Hopefully this article will provide some basic information, and as always, please contact us for a detailed analysis.

Moving From a Standard Plan to an HDHP

There is no such thing as a one-size-fits-all health plan. Everyone has different health insurance needs depending on their health care requirements along with those of their dependents. While some prefer standard deductible health insurance (often called a PPO health insurance plan), people are increasingly switching to a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) as a better way to maximize their health care dollars.

Standard Plans vs. HDHPs

Standard plans and HDHPs are set up much in the same way. Under both plans, the member pays a premium for coverage. Both must cover preventive services free of charge. If a member receives nonpreventive medical care, he or she pays a deductible—a specified amount of money that the insured must pay before an insurance company will pay a claim. The chief difference between the plans is that under an HDHP, premium payments are considerably lower and the deductible is considerably higher.

The minimum deductibles for HDHPs are established by the IRS. For 2015, the minimum deductible is $1,300 for individuals and $2,600 for families. Comparatively, standard plans come with a deductible that is generally quite a bit lower.

The cost of the higher premiums for HDHP plans is offset by two factors. First, as previously mentioned, the premium price for an HDHP is much lower than standard plans. This means that members who use little or no medical care during the year can save hundreds of dollars that would otherwise go to unnecessary health coverage, while still remaining compliant with the individual mandate provision of the Affordable Care Act (ACA).

While some people prefer standard deductible health insurance, people are increasingly switching to an HDHP with an HSA as a better way to maximize their health care dollars.

The second major factor setting HDHPs apart from standard plans is the addition of an HSA.

Health Savings Accounts

HSAs are one of several types of tax-advantaged health accounts, and are exclusively available to people enrolled in an HSA-compliant HDHP.

With an HSA, the account holder or his or her employer (usually both) make contributions into a savings account. No taxes are deducted from money placed into the account, as the HSA contribution is withdrawn from a paycheck before taxes are assessed. While in the savings account, the money can earn interest. The employee is free to spend that money on qualified medical expenses.

The total amount that can be placed in an HSA per year is capped by the IRS. For 2015, the maximum contribution limit is $3,350 for individuals and $6,650 for families, though account holders over 55 years old may contribute an extra $1,000 to those totals.

These limits are significantly higher than other types of tax-advantaged health accounts, and unlike the other options, HSAs have additional unique features that allow you to save more money and keep it over a longer period of time. Whereas funds in health Flexible Spending Accounts (FSAs) and Health Reimbursements Arrangements (HRAs) come with an expiration date or a maximum carry-over dollar amount, HSAs allow you to build your balance as high as you wish in perpetuity. Except for the cap on total contributions per year, there are no limits on how much money can be in your account and how long it remains open.

Additionally, HSAs are individually owned accounts, meaning employees take the account—including any employer contributions—with them if they leave their employer.

Using Health Care with an HDHP

Because of the high deductibles associated with HDHPs, having an HDHP means you need to become a smart health care shopper.

The most important thing to keep in mind is that some types of health care products and services cost much more than similar items, and the more expensive option may not be necessary for the treatment you require.

Additionally, like most other health plans, HDHPs cover preventive services at no cost. Preventive care is defined as medical checkups and tests, immunizations and counseling services used to prevent chronic illnesses from occurring. Preventive care not only keeps you healthy, but it can also monitor and even reduce the risk of developing future, costly health problems.

Most types of specific preventive services are listed here. While it can sometimes be difficult to determine if a specific medical service qualifies as preventive, you can call your health plan to learn if a service is considered preventive before receiving it.

Other medial savings strategies people with HDHPs should consider are:

  • Using a generic in place of a name brand prescription can result in significant savings. While there is not a generic version for every type of drug, the only difference between a branded drug and a generic counterpart is the name; they both have the same active ingredients. If you need medication, find out what class of drugs your prescription is classified under. If you receive a name brand prescription from a doctor, ask if a generic is available.
  • Emergency Room vs. Urgent Care.Like prescriptions, there is a sizable cost adjustment between emergency rooms and urgent care. It is very expensive for hospitals to support all of the equipment and staff that an emergency room requires, so visits to the emergency room generally cost much more than those to a doctor’s office or an urgent care center. If you develop a problem that needs to be treated quickly, but it is not life threatening or risking disability, go to an urgent care clinic.
  • Qualified Medical Expenses. Use your HSA to pay for qualified medical expenses without paying taxes. Qualified medical expenses include the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for medical services rendered by physicians, surgeons, dentists and other medical practitioners. They also include the costs of equipment, supplies and diagnostic devices needed for these purposes. Like preventive care, there can sometimes be uncertainty surrounding what is an allowable qualified medical expense. Specific qualified medical expenses are approved by the IRS, and a list of them can be found here.

HDHPs and HSAs are not the ideal health coverage plan for everyone. However, for many people, HDHPs are a great way to avoid paying for superfluous coverage and HSAs are an excellent vehicle for stockpiling tax-free money to use on future health care needs.

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