developments in health and welfare plans in 2016

Developments in Health & Welfare Plans

Larry Grudzien

Attorney at Law

Copyright 2016 – Not to be reproduced without express permission of Benefit Express Services, LLC 2

• Taxation of Wellness Benefits

• DOL Increases Penalties

• EEOC Provide Sample ADA Notice for Employees

• Agencies Propose Significant Changes to Form 5500

• IRS Proposes Information Reporting Rules With Guidance on HRAs and TIN Solicitation

• HHS Releases Proposed Notice of Benefit and Payment Parameters for 2018

• EEOC Clarifies Wellness Program Incentive Limits for Employers With Multiple Group Health Coverage Options

• IRS Releases 2016 Final Forms 1094-C and 1095-C (and Instructions)

• IRS Releases Benefit Limitations for 2017

• Final Regulations Address Excepted Benefits, Lifetime and Annual Limits

Agenda – Changes since June 2016

Taxation of Wellness Benefits

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A wellness benefit that does not qualify either as an “eligible medical expense” under Code § 213(d) or a “fringe benefit” under Code §132 is taxable to the employee.

Copyright 2016 – Not to be reproduced without express permission of Benefit Express Services, LLC

Taxation Issues


IRS Memo 2016-22031• Cash and non-cash incentives, payments and rewards paid to an employee are

not excludable from an employee’s taxable income merely because they are paid under an employer wellness program.

• For purposes of income and employment taxes (e.g., FICA and FUTA), the following items are included as taxable income/wages even if paid under an employer wellness program:

• Cash payments (even small amounts such as $10 or $25) for participating in a wellness program.

• Non-cash rewards, incentives or other benefits that are not medical care as defined under Code section 213. E.g., payment of gym membership, unless, based on the facts and circumstances, it would be a medical expense under 213(d).

• Payment or “reimbursements” through a wellness program to reimburse employees for all or a portion of the premiums the employees paid by salary reduction.

Taxation Issues

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IRS Memo 2016-22031The following items are excluded from taxable income, whether paid under a wellness program or not:

• Benefits, services and non-cash rewards or incentives that are medical care as defined under Code section 213. e.g., biometric screenings, smoking cessation programs, health risk assessments.

• Rewards or incentives that qualify as “de minimis” fringe benefits under Code section 132(e). These are defined as property or services whose value is so small that accounting for them would be unreasonable or administratively impracticable. An example would be tee shirts provided under a wellness program.


Taxation Issues

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IRS Memo 2016-22031Two other employer payments that are also excluded from taxable income but were not addressed under Tax Memo 201622031 are:

• Group health plan premium reduction amounts paid as rewards for employees who participate in or complete specified activities under the employer wellness program that is connected to the group health plan.

• Employers’ H.S.A. contributions for employees who complete specified activities under the employer wellness program, so long as they meet applicable comparability requirements or cafeteria plan nondiscrimination rules.


Taxation Issues

DOL Increases Penalties

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• This interim final regulations increases penalties imposed under the Employee Retirement Income Security Act of 1974 (ERISA), Occupational Safety and Health Act (OSHA), Fair Labor Standards Act (FLSA), and the Family and Medical Leave Act (FMLA), among other laws.

• The adjusted civil penalty amounts apply to civil penalties assessed after August 1, 2016, whose associated violations occurred after November 2, 2015.

• Therefore, violations occurring on or before November 2, 2015, as well as assessments made before August 1, 2016 whose associated violations occurred after November 2, 2015, continue to be subject to the civil penalty amounts set out in the DOL's prior regulations (or under the applicable statute, if the amount has not yet been adjusted by regulation).

• For a Table of the new civil penalty amounts, please clink on the link below:

• https://www.dol.gov/ebsa/pdf/fs-interim-final-rule-adjusting-erisa-civil-monetary-penalties-for-inflation.pdf


Increased Penalties

https://www.dol.gov/ebsa/pdf/fs-interim-final-rule-adjusting-erisa-civil-monetary-penalties-for-inflation.pdf

https://www.dol.gov/ebsa/pdf/fs-interim-final-rule-adjusting-erisa-civil-monetary-penalties-for-inflation.pdf

EEOC Provides Sample ADA Notice for Employees

The EEOC provided a sample notice to help employers with wellness programs comply with the new rules.

Employer-sponsored wellness programs that collect employee health information must provide a notice to employees describing the information to be collected, how it will be used, who will receive it, and how it will be kept confidential.

EEOC Provides Sample Notice

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Notice Format• So long as the required information is provided, employers need not use the

precise wording in the sample notice and may tailor their notices to the specific features of their wellness programs.

• Employers that already provide notices under HIPAA may comply with the ADA rules by revising their notices as necessary to include all required information.

• Notices may be provided in hard copy or by email but should not be buried in unrelated information.

• Employees with disabilities may need to receive notices in an alternative format.



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Distribution and Timing• The notice requirement takes effect as of the first day of the first plan

year beginning on or after January 1, 2017.

• Employees are not required to receive the notice at a particular time (e.g., within a certain number of days prior to collecting health information); however, they must receive the notice before providing health information, and with enough time to decide whether to participate in the wellness program.

• Employers may contract with wellness providers to distribute notices but remain responsible for ensuring that employees receive the notices.



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Written Authorization• An employee’s signed authorization is not required for purposes of the

ADA rules, but it may be required to comply with other laws, including HIPAA and GINA.

Copy of Sample Notice:• https://www.eeoc.gov/laws/regulations/ada-wellness-notice.cfm



Agencies Propose Significant Changes to Form 5500

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• The DOL, IRS, and PBGC have jointly proposed changes to Form 5500.

• Concurrently, the DOL has proposed changes to the ERISA reporting regulations to conform the regulations to the proposed Form 5500 revisions.

• Most changes are targeted for implementation beginning with 2019 plan year filings.

• They include a detailed new schedule for group health plan reporting and a filing requirement for group health plans that are currently exempt from filing as small welfare plans.



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Increased Group Health Plan Filing Obligations • The proposal would require Form 5500 reporting by all ERISA group health

plans (including those now covered by the filing exemption for small unfunded, insured, or combination unfunded/insured welfare plans), including a comprehensive new Schedule J (Group Health Plan Information).

• Schedule J would indicate the types of health benefits offered and the funding method, including information about participant and employer contributions, and whether the plan is insured, uses a trust, or pays benefits from the employer’s general assets.

• It would also require information about COBRA coverage and insurer refunds, and would ask whether the plan claims grandfathered status under health care reform or is a high deductible health plan, HRA, or health FSA.



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Increased Group Health Plan Filing Obligations• Most filings (except those for small fully insured plans) would have to

provide financial and claims information, and list TPAs, stop-loss carriers, and other plan service providers such as mental health or substance abuse benefit managers.

• These filers must also answer questions about compliance with HIPAA, GINA, the mental health parity rules, health care reform, and other mandates, including specific questions about SPD and SBC compliance.



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Proposals for All Types of Plans• A separate Schedule C would be filed for each service provider, and

revisions would more closely align the schedule with the service provider fee disclosure rules.

• Also, the Schedule C filing requirement would be extended to some small plans currently exempt from filing it.

• Schedule H would be expanded to include questions on fee disclosures, leveraged asset acquisitions, annual fair market valuations, designated investment alternatives, investment managers, plan terminations, asset transfers, administrative expenses, uncashed participant checks, SPDs, and other topics.



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• The changes are generally targeted to take effect with 2019 plan year filings, although some may be implemented earlier or later.

• Proposed revisions to the ERISA reporting regulations would conform them to the proposed Form 5500 changes.

• Similar changes are proposed for Form 5500-SF, which would no longer be available to group health plans.



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Proposals for All Types of Plans• It would also distinguish between assets held for investment and

those that were sold during the year.

• Schedule I would be eliminated; small plans that currently file Schedule I would generally need to file Schedule H instead.

• Plans that invest through a direct filing entity (DFE) would no longer be required to file Schedule D; DFEs would still file Schedule D.



IRS Proposes Information Reporting Rules With Guidance on HRAs and TIN Solicitation

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HRA Reporting • The proposed regulations would incorporate, without substantial

change, the reporting exceptions articulated in the 2015 Instructions for Forms 1094-B and 1095-B and Notice 2015-68 for individuals covered by more than one type of MEC.

• Examples are included in the proposed regulations to illustrate the rules.

• Duplicative Coverage. Under this exception, coverage under a health reimbursement arrangement (HRA) or other plan that is MEC need not be reported for an individual if the reporting entity—the plan sponsor in the case of a self-insured group health plan like an HRA—provides the same individual with other MEC for which reporting is required.



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HRA Reporting• Supplemental Coverage

Under this exception, coverage under an HRA or other plan that is MEC need not be reported for an individual if the individual is eligible for that “supplemental” coverage “only if” enrolled in other MEC that must be reported.

When this rule is applied to eligible employer-sponsored coverage (e.g., an HRA), the supplemental coverage and the other MEC must be offered by the same employer.

For purposes of this “same employer” requirement, the proposed regulations clarify that all employers in a controlled group or affiliated service group are treated as the same employer.




TIN Solicitation

• The proposed regulations would clarify the requirement for soliciting a taxpayer identification number (TIN) of a covered individual, and waiver of the related penalty in certain circumstances where the failure is due to reasonable cause.

• Missing TINs

Coverage providers are permitted to report a birth date of a covered individual if a TIN is not available after reasonable efforts are made to obtain it.

According to the proposed regulations, penalties would be waived for missing TINs when a filer acts in a responsible manner by initially soliciting an individual’s TIN when an account is “opened” (i.e., at the time the insurer or employer receives a substantially complete application for new coverage or to add an individual to existing coverage).

If the TIN is not received, a second solicitation (i.e., the first annual solicitation) must be made no later than 75 days after the date on which an account was opened, or, if the coverage is retroactive, no later than 75 days after the determination of retroactive coverage is made.

A third solicitation (i.e., the second annual solicitation) must be made by December 31 of the year following the initial solicitation.


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TIN Solicitation

• Transitional Missing TIN Relief for Individuals Already Enrolled in Coverage

The preamble to the proposed regulations includes a transitional rule to ensure that the requirements for the first annual and second annual solicitations for missing TINs may be satisfied with respect to individuals already enrolled in coverage.

Under this rule, July 29, 2016 is treated as the account opening date, and filers will be considered to have satisfied the requirement for initial solicitation for already enrolled individuals so long as they requested a TIN either as part of the application for coverage or at any other point before July 29, 2016.

The first annual solicitation may be made any time up to 75 days after July 29.



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TIN Solicitation • Incorrect TINs

In contrast to missing TINs, the proposed regulations would not modify existing rules for incorrect TINs.

However, in applying the existing rules for initial solicitations, an account is also considered “opened” for purposes of incorrect TINs at the time an application is received for new coverage, or to add an individual to existing coverage. [EBIA Comment:

A footnote in the preamble explains that a Form 1095 validation error for a TIN and name that do not match IRS records is not a penalty notice or an indication that the filer is required to solicit a TIN.

However, it is not clear whether failing to re-solicit a TIN after receiving a TIN validation error message would preclude a filer from relying on the reasonable cause penalty waiver.



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TIN Solicitation • Solicitation of Covered Individuals

The proposed regulations clarify that TIN solicitations made to the responsible individual (generally, the individual who enrolls him or herself and others in MEC) would be treated as TIN solicitations of every covered individual on the policy or plan.

However, to avoid penalties, a coverage provider would have to solicit TINs separately for any individual added to a policy or plan. The preamble also clarifies rules for electronic TIN solicitations.



HHS Releases Proposed Notice of Benefit and Payment Parameters for 2018

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• HHS has released proposed regulations that include the benefit and payment parameters for 2018.

• This mixed bag of proposed rules is largely aimed at insurers, including an emphasis on risk adjustment and actuarial value methodology.

• There are some proposals that may be of interest to employers and their advisors.

• Increased Annual Cost-Sharing Limits

HHS has proposed an increase in the maximum annual limitation on cost-sharing for 2018 to $7,350 for individual coverage and $14,700 for family coverage (compared to $7,150 and $14,300, respectively, for 2017).

• New Bronze-Level HDHP Coverage

For 2018, HHS has proposed an Exchange standardized plan option at the bronze level of coverage that qualifies as an HSA-eligible high-deductible health plan (HDHP).



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Revised SHOP Enrollment Rules

• To ensure that newly qualified employees have a full 30 days to enroll, HHS has proposed that SHOPs would be required to provide an employee who becomes a qualified employee outside of the initial or annual open enrollment period with a 30-day enrollment period that begins on the date the qualified employer notifies the SHOP about the newly qualified employee.

• Qualified employers would be required to notify the SHOP about a newly qualified employee on or before the 30th day after the day that the employee becomes eligible for coverage.

• In the federal SHOP, the coverage effective date for a newly qualified employee would be the first day of the month following the plan selection, unless the employee is subject to a waiting period.

• Waiting periods in SHOPs could not exceed 60 days, calculated beginning on the date the employee becomes eligible, regardless of when the qualified employer notifies the SHOP about the newly qualified employee.




Re-Tooled Insurance Market Rules

• A number of provisions would clarify and revise insurance market requirements.

• For example, in the small group market, revised age-rating bands are proposed for children for 2018—one age band for individuals ages 0 through 14, and single-year age bands for individuals ages 15 through 20.

• And revisions to the guaranteed renewability rules would reduce instances where certain insurers may inadvertently trigger a 5-year prohibition on re-entering a market.

• A proposed expansion to the medical loss ratio (MLR) rules beginning in 2018 would permit insurers to defer reporting of policies newly issued with a full 12 months of experience in that MLR reporting year in addition to policies newly issued with less than 12 months of experience (as allowed by prior rules).

• Insurers could also limit their total MLR rebate liability payable for a calendar year in certain situations. There are also proposals to shore up the risk adjustment program by, for example, incorporating adjustments for partial-year enrollments, using prescription drug utilization data, and reigning in special enrollment periods to prevent abuse while still encouraging enrollment.


EEOC Clarifies Wellness Program Incentive Limits for Employers With Multiple Group Health Coverage Options

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• The EEOC’s legal staff has written an informal discussion letter clarifying how the EEOC’s final regulations on wellness program incentives apply to a group health plan with multiple coverage options.

• The letter states that the same analysis applies whether an employer offers its coverage options in multiple plans or as multiple options within a single plan.

• Either way, when wellness program participation does not require enrollment in a particular option, the maximum incentive is determined by the lowest-cost option, even if that is not the option in which the employee is actually enrolled.

• This interpretation promotes consistency within the wellness program by making the incentive limit the same for all employees.

• The letter notes that this approach differs from the HIPAA rule, but asserts that the end result balances a desire for consistency between the statutes with the need to ensure that incentives are not coercive.


EEOC Clarifies Wellness Program Incentive Limits for Employers with Multiple Group Health Coverage Options

IRS Releases 2016 Final Forms 1094-C and 1095-C (and Instructions)

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• No more extensions to May/June!

• Employee statements (Form 1095-C) due on January 31, 2017

• File with IRS under cover Form 1094-C: February 28, 2017 (paper)

March 31, 2017 (electronic – 250 or more employee statements)

• Duties apply to “Applicable Large Employers” in 2016 based on 2015 full-time/FTE employee headcount.



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• Transition relief specific to 2015 has been discontinued or limited:

Line 22, Box B, formerly “Qualifying Offer Transition Relief,” is now marked “Reserved.”

Line 22, Box C, “Section 4980H Transition Relief) only applies for final months of non-calendar 2015-2016 plan year.

• This Form determines liability under IRC § 4980H(b) (up to $3,120 per year per FT employee who obtains premium tax credits on an exchange)

• Transition relief specific to 2015 has been discontinued or limited:

Code 1I for Line 14 (Offer of Coverage), relating to “Qualifying Offer Transition Relief” is marked “Reserved.”

Code 2I for Line 14 (Safe Harbor), formerly for non-calendar year transition relief, now marked “Reserved.”



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• Two New Codes for Form 1095-C Line 14 (Offer of Coverage), related to “Conditional” Offers of Coverage to Spouses:

New Code 1J

New Code 1K

• Offer is subject to one or more reasonable, objective conditions:

For example, coverage is available only upon proof that spouse is not eligible for coverage under spouse’s employer’s plan.

• It is a valid offer for ACA reporting purposes even if conditions are not met.



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• An employer must offer MEC to at least 95% of its full-time employees and their dependents, less 30, in order to use Series 2 affordability safe harbor codes.

• Thus, if an employer checked “No” for a month on Form 1094-C, Part II, Column (a), you cannot use a safe harbor code on Form 1095-C, Line 16, for that same month.

• Do not use Code 2C, Employee Enrolled in Coverage, for a month, if the employee enrolled in coverage that was less than MEC (e.g., student health program).

• Count an employee as full-time for a month on Form 1094-C, Part III, Line 23, Column (b) if the employee met the definition of full-time on any day of the month, under either the monthly measurement method or the look-back measurement method.



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• The IRS allowed offered “good faith” relief for timely filed but incomplete or incorrect Employee Statements and Returns due earlier this year for 2015 reporting.

• Good faith relief does not apply for 2016 reporting due early in 2017.

• Penalties for late/incomplete Forms will apply; may be up to $260 per employee statement, up to $3,193,000.

• “Reasonable cause” relief may be available.



IRS Releases Benefit Limitations for 2017

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• The IRS has released the 2017 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits, including limits relating to salary reductions under health flexible spending arrangements (health FSAs), qualified transportation fringe benefits, adoption assistance, dependent care assistance programs (DCAPs), the small business health care tax credit, the premium tax credit, and Archer medical savings accounts (Archer MSAs).

• Health FSAs. For 2017, the dollar limit on employee salary reduction contributions to health FSAs will be $2,600 (a $50 increase from the 2016 dollar limit).

• Qualified Transportation Fringe Benefits. For 2017, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will remain at $255.

• The combined monthly limit for transit passes and vanpooling expenses for 2017 will also remain at $255.



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• Adoption Assistance Exclusion and Adoption Credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $13,570 for 2017 (a $110 increase from the 2016 maximum).

• In addition, the maximum adoption credit allowed to an individual for the adoption of a child will be $13,570 for 2017 (also a $110 increase from 2016).

• Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $203,540 and will be entirely phased out for individuals with modified adjusted gross incomes of $243,540 or more (these income levels are $1,620 higher than for 2016).



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• DCAPs. While the $5,000/$2,500 DCAP limit has not changed (it is a non-indexed limit), there are adjustments to some of the general tax limits that are relevant to the federal income tax savings under a DCAP.

• These include the 2017 tax rate tables, earned income credit amounts, and standard deduction amounts. The child tax credit limits are also relevant when calculating the federal income tax savings from claiming the dependent care tax credit (DCTC) versus participating in a DCAP.

• Small Business Health Care Tax Credit. For 2017, the average annual wage level at which the tax credit begins to phase out for eligible small employers will be $26,200 (a $300 increase from the 2016 threshold).

• The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2017 will be twice this amount; i.e., $52,400 (a $600 increase from the 2016 amount).



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The IRS highlighted the following adjustments taking effect on 1/1/2017 for 401(k), 403(b) and most 457 plans:



Final Regulations Address Excepted Benefits, Lifetime and Annual Limits

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Excepted Benefits

• The final regulations incorporate prior FAQ guidance by specifying the conditions for supplemental health insurance coverage that is designed to fill certain gaps in primary coverage to qualify as an excepted benefit.

• The regulations also add travel insurance to the list of excepted benefits.

EHB Definition for Purposes of Lifetime and Annual Dollar Limits

• The regulations amend the definition of EHB for purposes of the prohibition on lifetime and annual dollar limits.

• While employer-sponsored self-insured health plans and insured large group health plans are not required to cover EHB, they may not impose annual or lifetime dollar limits on EHB they do offer.

• The amendment is intended to ensure that such plans use a complete definition of EHB—consistent with specified benchmark plans (supplemented, as needed, to comply with EHB standards) and including certain state-required benefit mandates.



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Short-Term, Limited-Duration Insurance

• The regulations revise the definition of short-term, limited-duration coverage by reducing its duration to less than three months (including any possible extensions).

• In addition, enrollment materials must include a notice that such coverage is not minimum essential coverage.

• Although the revised definition applies for plan and policy years beginning on or after January 1, 2017, HHS will not take enforcement action before April 1, 2017 if a product with a coverage period of three months or more is otherwise compliant with the regulations, provided that the coverage ends on or before December 31, 2017.



Questions?

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Larry GrudzienAttorney at Law

(708) [email protected]


Contact Information

mailto:[email protected]

http://www.larrygrudzien.com/

developments in health and welfare plans in 2016

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