Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance. Employees are given the opportunity to select the benefits they want, just like an individual standing in the cafeteria line at lunch.

Only certain benefits can be offered through a cafeteria plan:

  • Coverage under an accident or health plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-insured medical reimbursement plans, dental, vision, and more);
  • Dependent care assistance benefits or DCAPs
  • Group term life insurance
  • Paid time off, which allows employees the opportunity to buy or sell paid time off days
  • 401(k) contributions
  • Adoption assistance benefits
  • Health savings accounts or HSAs under IRS Code Section 223

Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-employees, transportation and other fringe benefits, long-term care, and health reimbursement arrangements (unless very specific rules are met by providing one in conjunction with a high deductible health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.

Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also affected aspects of cafeteria plan administration.

Employees are allowed to choose the benefits they want by making elections. Only the employee can make elections, but they can make choices that cover other individuals such as spouses or dependents. Employees must be considered eligible by the plan to make elections. Elections, with an exception for new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be changed during the plan year, unless a permitted change in status occurs. There is an exception for mandatory two-year elections relating to dental or vision plans that meet certain requirements.

Plans may allow participants to change elections based on the following changes in status:

  • Change in marital status
  • Change in the number of dependents
  • Change in employment status
  • A dependent satisfying or ceasing to satisfy dependent eligibility requirements
  • Change in residence
  • Commencement or termination of adoption proceedings

Plans may also allow participants to change elections based on the following changes that are not a change in status but nonetheless can trigger an election change:

  • Significant cost changes
  • Significant curtailment (or reduction) of coverage
  • Addition or improvement of benefit package option
  • Change in coverage of spouse or dependent under another employer plan
  • Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
  • Changes in 401(k) contributions (employees are free to change their 401(k) contributions whenever they wish, in accordance with the administrator’s change process)
  • HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
  • COBRA qualifying event
  • Judgment, decrees, or orders
  • Entitlement to Medicare or Medicaid
  • Family Medical Leave Act (FMLA) leave
  • Pre-tax health savings account (HSA) contributions (employees are free to change their HSA contributions whenever they wish, in accordance with the their payroll/accounting department process)
  • Reduction of hours (new under the ACA)
  • Exchange/Marketplace enrollment (new under the ACA)

Together, the change in status events and other recognized changes are considered “permitted election change events.”

Common changes that do not constitute a permitted election change event are: a provider leaving a network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a legal separation (unless the separation leads to a loss of eligibility under the plan), commencement of a domestic partner relationship, or a change in financial condition.

There are some events not in the regulations that could allow an individual to make a mid-year election change, such as a mistake by the employer or employee, or needing to change elections in order to pass nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing evidence that the mistake has been made. For instance, an individual might accidentally sign up for family coverage when they are single with no children, or an employer might withhold $100 dollars per pay period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.

Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts in the middle of the plan year, so long as automatic election language is in the plan documents. An “insignificant” amount is considered one percent or less.

Plans should consider which change in status events to allow, how to track change in status requests, and the time limit to impose on employees who wish to make an election.

Cafeteria plans are not required to allow employees to change their elections, but plans that do allow changes must follow IRS requirements. These requirements include consistency, plan document allowance, documentation, and timing of the election change. For complete details on each of these requirements—as well as numerous examples of change in status events, including scenarios involving employees or their spouses or dependents entering into domestic partnerships, ending periods of incarceration, losing or gaining TRICARE coverage, and cost changes to an employer health plan—request UBA’s ACA Advisor, “Cafeteria Plans: Qualifying Events and Changing Employee Elections”.

By Danielle Capilla
Originally published by www.ubabenefits.com

On December 13, 2016, former President Obama signed the 21st Century Cures Act into law. The Cures Act has numerous components, but employers should be aware of the impact the Act will have on the Mental Health Parity and Addiction Equity Act, as well as provisions that will impact how small employers can use health reimbursement arrangements (HRAs). There will also be new guidance for permitted uses and disclosures of protected health information (PHI) under the Health Insurance Portability and Accountability Act (HIPAA). We review the implications with HRAs below; for a discussion of all the implications, view UBA’s Compliance Advisor, “21st Century Cares Act”.

The Cures Act provides a method for certain small employers to reimburse individual health coverage premiums up to a dollar limit through HRAs called “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRAs). This provision will go into effect on January 1, 2017.

Previously, the Internal Revenue Service (IRS) issued Notice 2015-17 addressing employer payment or reimbursement of individual premiums in light of the requirements of the Patient Protection and Affordable Care Act (ACA). For many years, employers had been permitted to reimburse premiums paid for individual coverage on a tax-favored basis, and many smaller employers adopted this type of an arrangement instead of sponsoring a group health plan. However, these “employer payment plans” are often unable to meet all of the ACA requirements that took effect in 2014, and in a series of Notices and frequently asked questions (FAQs) the IRS made it clear that an employer may not either directly pay premiums for individual policies or reimburse employees for individual premiums on either an after-tax or pre-tax basis. This was the case whether payment or reimbursement is done through an HRA, a Section 125 plan, a Section 105 plan, or another mechanism.

The Cures Act now allows employers with less than 50 full-time employees (under ACA counting methods) who do not offer group health plans to use QSE HRAs that are fully employer funded to reimburse employees for the purchase of individual health care, so long as the reimbursement does not exceed $4,950 annually for single coverage, and $10,000 annually for family coverage. The amount is prorated by month for individuals who are not covered by the arrangement for the entire year. Practically speaking, the monthly limit for single coverage reimbursement is $412, and the monthly limit for family coverage reimbursement is $833. The limits will be updated annually.

Impact on Subsidy Eligibility. For any month an individual is covered by a QSE HRA/individual policy arrangement, their subsidy eligibility would be reduced by the dollar amount provided for the month through the QSE HRA if the QSE HRA provides “unaffordable” coverage under ACA standards. If the QSE HRA provides affordable coverage, individuals would lose subsidy eligibility entirely. Caution should be taken to fully education employees on this impact.

COBRA and ERISA Implications. QSE HRAs are not subject to COBRA or ERISA.

Annual Notice Requirement. The new QSE HRA benefit has an annual notice requirement for employers who wish to implement it. Written notice must be provided to eligible employees no later than 90 days prior to the beginning of the benefit year that contains the following:

  • The dollar figure the individual is eligible to receive through the QSE HRA
  • A statement that the eligible employee should provide information about the QSE HRA to the Marketplace or Exchange if they have applied for an advance premium tax credit
  • A statement that employees who are not covered by minimum essential coverage (MEC) for any month may be subject to penalty

Recordkeeping, IRS Reporting. Because QSE HRAs can only provide reimbursement for documented healthcare expense, employers with QSE HRAs should have a method in place to obtain and retain receipts or confirmation for the premiums that are paid with the account. Employers sponsoring QSE HRAs would be subject to ACA related reporting with Form 1095-B as the sponsor of MEC. Money provided through a QSE HRA must be reported on an employee’s W-2 under the aggregate cost of employer-sponsored coverage. It is unclear if the existing safe harbor on reporting the aggregate cost of employer-sponsored coverage for employers with fewer than 250 W-2s would apply, as arguably many of the small employers eligible to offer QSE HRAs would have fewer than 250 W-2s.

Individual Premium Reimbursement, Generally. Outside of the exception for small employers using QSE HRAs for reimbursement of individual premiums, all of the prior prohibitions from IRS Notice 2015-17 remain. There is no method for an employer with 50 or more full time employees to reimburse individual premiums, or for small employers with a group health plan to reimburse individual premiums. There is no mechanism for employers of any size to allow employees to use pre-tax dollars to purchase individual premiums. Reimbursing individual premiums in a non-compliant manner will subject an employer to a penalty of $100 a day per individual they provide reimbursement to, with the potential for other penalties based on the mechanism of the non-compliant reimbursement.

By Danielle Capilla
Originally published by www.ubabenefits.com

On December 20, 2016, federal officials released FAQs About Affordable Care Act Implementation Part 35 (FAQ #35) in an ongoing series of informal guidance regarding the Affordable Care Act (ACA). This FAQ addresses several topics:

  • Special enrollment rules.
  • Preventive services.
  • Qualified small employer health reimbursement arrangements.

A summary of the key points from FAQ #35 follows.

Special Enrollment Rules

Group health plans are subject to rules under the Health Insurance Portability and Accountability Act (HIPAA) requiring plans to offer a special enrollment (mid-year enrollment) opportunity for persons who are not enrolled when first eligible but then experience certain events. Examples of qualifying events include acquiring a new dependent through marriage, birth or adoption (including placement for adoption) of a child, or losing coverage under another plan. The requirements are referred to as the HIPAA special enrollment rules.

One of the events triggering a special enrollment opportunity is the involuntary loss of other coverage, such as losing coverage under the spouse’s plan, unless the loss is for cause or due to failure to pay premiums.

UPDATE: FAQ #35 confirms that persons are entitled to a special enrollment if they are otherwise eligible for the group plan, had other coverage (including individual insurance obtained inside or outside of a Marketplace) when the group plan coverage was previously offered, and now have lost eligibility for that other coverage. Further, the special enrollment rule applies whether or not the individual is eligible for other individual market coverage, though or outside of a Marketplace.

Coverage of Preventive Services

The Affordable Care Act (ACA) requires that nongrandfathered health plans provide 100 percent coverage without deductibles or co-pays for certain preventive services. Some exceptions are allowed regarding services received outside the network when they are available from in-network providers and for brand-name drugs when equivalent generics are available (unless the physician determines a medical necessity). See the following current lists of required preventive services:

For women’s health services, the current list of required preventive services includes prescribed contraceptives (including sterilization procedures, and patient education and counseling). At this time, there are 18 FDA-approved contraceptive methods and the plan must cover at least one item in each method at 100 percent. Plans also must have an “exceptions process” to ensure 100 percent coverage of any item within the method based on medical necessity as determined by the physician.

The preventive services requirements are developed based on recommendations from the U.S. Preventive Services Task Force (USPSTF), the Centers for Disease Control (CDC), the Health Resources and Services Administration (HRSA), and others, and are subject to change from time to time.

UPDATE: FAQ #35 explains that updated HRSA recommendations for women’s preventive services will apply for plan years beginning on or after December 20, 2017 (e.g., January 1, 2018 for calendar-year plans). Plans may adopt the new guidelines earlier if they choose. The updated guidelines address several women’s health services, including breast cancer screening, cervical cancer screening, gestational diabetes, breastfeeding services and supplies, and well-woman preventive visits.

The new guidelines also will require plans to cover all 18 of the FDA-approved contraceptive methods. Plans may continue to impose cost-sharing requirements on branded drugs for which generic equivalents are available. Note that the ACA provides certain exceptions regarding contraceptives with respect to plans sponsored by religious employers and nonprofit religious-affiliated employers; those exceptions will continue.

See the HRSA’s Women’s Preventive Services Guidelines for more information.

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)

Section 18001 of the recently-enacted 21st Century Cures Act creates an opportunity for small employers to offer a new type of health reimbursement arrangement for their employees’ healthcare expenses, including individual insurance premiums.

Employers of all sizes currently are prohibited from making or offering any form of payment to employees for individual health insurance, whether through premium reimbursement or direct payment. Employers also are prohibited from providing cash or compensation to employees if the money is conditioned on the purchase of individual health insurance. (Some exceptions apply; e.g., retiree-only plans, dental/vision insurance.) Violations can result in excise taxes of $100 per day per affected employee.

The new law does not repeal the existing prohibition, but rather it provides an exception for a new type of tax-free benefit called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). Small employers meeting certain conditions may begin offering QSEHRAs in 2017. Our December 9, 2016 blog post, New Law Allows Small Employers to Pay Premiums for Individual Policies, summarized the requirements for small employers to offer QSEHRAs.

Separately, the 21st Century Cures Act offers small employers certain relief from excise taxes for violating the existing prohibition against employer payment of individual health insurance. The relief applies retroactively and continues through the 2016 plan year (whether or not the employer offers QSEHRAs in 2017), but certain conditions must be met. FAQ #35 clarifies the conditions for tax relief, as follows:

  • The relief applies only to plan years beginning on or before December 31, 2016;
  • The relief applies only to employers that employed on average fewer than 50 full-time and full-time-equivalent employees. In other words, for the relevant period, the employer must not have been an applicable large employer (ALE) as defined under the ACA; and
  • The relief is limited to employer arrangements that pay or reimburse only individual health insurance premiums (or Medicare Part B or D premiums, in some cases). The relief does not extend to stand-alone health reimbursement arrangements that pay or reimburse medical expenses other than individual health insurance premiums.

Lastly, note that an employer arrangement that qualifies for relief from excise taxes generally will be considered minimum essential coverage and preclude covered persons from qualifying for premium tax credits (subsidies) at a Marketplace (Exchange).

More Information

Employers and their advisors are encouraged to review the complete FAQ #35 to ensure their group health plans continue to comply with the ACA’s requirements. The special enrollment rule merely confirms existing HIPAA requirements. For preventive services, the update regarding women’s health services applies for plan years beginning on or after December 20, 2017 (e.g., January 1, 2018 for calendar-year plans). Lastly, small employers may want to consider the new option for QSEHRAs starting in 2017.

Originally published by www.thinkhr.com

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