Compliance Corner Archives

PPACA requires that group health plans and health insurance issuers offering group health insurance cannot apply a waiting period that exceeds 90 days. The waiting period may not extend beyond that 90 days, and all calendar days are counted beginning on the first day of the waiting period, including weekends and holidays. The restriction on waiting periods applies on a plan-year basis. Proposed Treasury Regulation §54.9815‑2708(h) states:

"The provisions of this section apply for plan years beginning on or after January 1, 2014. See §54.9815‑1251T providing that the prohibition on waiting periods exceeding 90 days applies to all group health plans and health insurance issuers, including grandfathered health plans."

If an employer's plan runs on a calendar‑year basis, then the waiting period requirement applies as of Jan. 1, 2014. Alternatively, if the plan does not run on a calendar‑year basis, the requirement will apply the first day of the plan year beginning after Jan. 1, 2014. For example, a plan with a plan year of June 1 – May 30 will need to comply with the waiting period requirement by June 1, 2014.

According to the regulations, if any employee is currently in a waiting period for coverage before the first day of the plan year in 2014, when the requirement goes into effect for the plan, any longer waiting period can no longer apply to the individual. In other words, let's say the plan is a Jan. 1 – Dec. 31 plan year and at the time someone is hired, the plan has the longer waiting period (first of the month following 90 days). An employee hired on Dec. 15, 2013, would actually benefit from the rule even though they were hired before the plan had to comply with the rule. Because the rule went into effect when they were still in a waiting period, the employee would need to be enrolled by the 91st day (March 16, 2014, for this example), and not by the first of the month following 90 days (April 1, 2014, for this example).

Health FSAs that are considered "HIPAA‑excepted benefits" do not have to comply with PPACA's requirements. To be a HIPAA‑excepted benefit, the FSA must satisfy two conditions:

1. Maximum benefit condition. Under this condition, the maximum benefit payable under the health FSA to any participant in a class for a year must not exceed two times the employee's salary reduction election under the health FSA for the year.
2. Availability condition. Under this condition, other non‑excepted group health plan coverage (e.g., major medical coverage) must be made available for the year to the class of participants by reason of their employment.

By definition, an FSA that is funded solely by employee salary reductions will automatically satisfy condition 1 (since the maximum benefit payable could never exceed the employee's salary reduction election, let alone exceed it by two times). However, if the employer is contributing to the FSA, the employer must measure the maximum benefit payable under the health FSA (the sum of employer and employee contributions toward the FSA) and determine if that maximum exceeds two times the employee's FSA salary reductions. If so, then the FSA is not HIPAA‑excepted. If not, then the FSA has satisfied the first condition, and the next question is whether the FSA satisfies the availability condition.

The availability condition is satisfied where all of the health FSA‑eligible employees are also eligible for major medical coverage, and the entry dates for both are the same (even if some eligible employees opt in to health FSA coverage but opt out of major medical coverage). If, however, the eligibility provisions under the health FSA are more expansive (e.g., more employees are eligible for the health FSA than for the major medical coverage), then the availability condition may not be met. So the employer must look at the eligibility provisions of health FSA versus the major medical plan, and determine whether those who are eligible for the FSA are also eligible for the major medical. If so, then the FSA would be considered HIPAA‑excepted (assuming it satisfied the maximum benefit condition), and therefore would not be subject to PPACA's restrictions.

Under proposed regulations, insurers and employers sponsoring a group health plan must continue to provide the Certificate of Creditable Coverage to plan participants until Dec. 31, 2014. This is a hard deadline that applies to all plans regardless of plan year.

As background, plan years beginning on or after Jan. 1, 2014, are prohibited from applying pre‑existing condition exclusions. Thus, there will be rolling compliance depending on plan years, whereby plans and insurers are required to eliminate restrictions on plan entry based on a pre‑existing condition, and they are prohibited from excluding coverage for a pre‑existing condition. This applies regardless of whether the plan is fully insured vs. self‑funded, or grandfathered.

Although it may seem like the certificates are no longer necessary due to this significant plan design change, regulations require otherwise. The rationale is due to the fact that many employer‑sponsored plans have different plan years. Employees may still need to provide Certificates of Creditable Coverage to ensure coverage of pre‑existing conditions in cases where the plan in which they participate has not yet begun the 2014 plan year. Therefore the requirement to provide the Certificate of Creditable Coverage continues to apply for all plans, regardless of plan year, until Dec. 31, 2014.

Individuals will not be able to enroll in exchange coverage at any time during the year. An individual would still need a qualifying event to add or drop coverage outside of open enrollment. Exchanges are required by health care reform to have an initial open enrollment period, an annual open enrollment period and certain special enrollment periods.

HHS has provided that the initial open enrollment period will run from Oct. 1, 2013, through March 31, 2014. This is the same for all states. Coverage must be offered effective Jan. 1, 2014, for qualified individuals whose qualified health plan (QHP) selections are received by the exchange on or before Dec. 15, 2013. For selections received between the first and 15th day of January, February or March 2014, coverage must be provided effective the first day of the following month. For those received between the 16th day of the month and the last day of the month of December, January, February or March, the exchange must ensure coverage effective the first day of the second following month.

The exchanges' annual enrollment period for 2015 and subsequent years will begin Oct. 15 and extend through Dec. 7 of the preceding calendar year.

Health care reform requires exchanges to offer special enrollment periods. Under final exchange regulations, the exchanges must allow qualified individuals and enrollees to enroll in a QHP or change from one to another as a result of the following triggering events:

• A qualified individual or dependent loses minimum essential coverage.
• A qualified individual gains a dependent or becomes a dependent through marriage, birth, adoption or placement for adoption.
• An individual, who was not previously a citizen, national or lawfully present individual gains such status.
• A qualified individual's enrollment or non‑enrollment in a QHP is unintentional, inadvertent or erroneous and is the result of the error, misrepresentation or inaction of the exchange or HHS.
• An enrollee adequately demonstrates to the exchange that the QHP in which he or she is enrolled substantially violated a material provision of its contract in relation to the enrollee.
• An individual is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost‑sharing reductions, regardless of whether such individual is already enrolled in a QHP. (The exchange must permit individuals whose existing coverage through an eligible employer‑sponsored plan will no longer be affordable or provide minimum value for his or her employer's upcoming plan year to access this special enrollment period prior to the end of his or her coverage through such eligible employer‑sponsored plan.)
• A qualified individual or enrollee gains access to new QHPs as a result of a permanent move.
• An Indian may enroll in a QHP or change from one to another one time per month.
• A qualified individual or enrollee demonstrates to the exchange that the individual meets other exceptional circumstances (as defined by the exchange).

The special enrollment period generally is 60 days from the date of the triggering event. Coverage must be effective as of the first day of the following month for elections made by the 15th of the preceding month and on the first day of the second following month for elections made between the 16th and the last day of a month (but coverage must be effective on the date of birth, adoption or placement for adoption, when that is the special enrollment triggering event).

Coverage in the exchanges will be for the calendar year. Thus, if an individual applies for coverage in February or March (or through a special enrollment period), coverage will be for the remainder of the calendar year.

Employees will not be able to jump back and forth. If the employer premiums are taken pretax, the employee must experience a Section 125 qualifying event to change his or her election under the employer's plan. Dropping exchange coverage is not a qualifying event to come back on the employer plan midyear. Similarly, dropping employer coverage is not a triggering event to obtain coverage on the exchange (other than the special, optional one‑time qualifying event available for non‑calendar‑year plans explained in the March 26 Compliance Corner FAQ.

No. The spouse and child would be eligible to purchase coverage through the exchange, but would not be eligible for a premium tax credit.

Generally, an individual is eligible for a premium tax credit if he/she: a) has household income between 100 percent and 400 percent of federal poverty level; b) is not eligible for Medicare or TRICARE; and c) is not eligible for qualified employer‑sponsored coverage. "Qualified employer‑sponsored coverage" means that the coverage is affordable and meets minimum value. "Affordable" means that the employee's cost for self‑only coverage does not exceed 9.5 percent of income.

If an employer offers minimum value coverage to a spouse, child and employee, and the cost of self‑only coverage is affordable, the spouse and child will not be eligible for a premium tax credit. The spouse and child would still be eligible to purchase coverage from the exchange, but it would be at full cost. The result would be the same no matter what the employer paid toward family coverage. The determining factors are whether the spouse and child are eligible for coverage and whether the cost of the self‑only tier is affordable.

If the employer excludes spouses from eligibility under the group health plan, the spouse would be eligible for a premium tax credit through the exchange (providing that the household income was within the proper levels and the spouse was otherwise eligible). Further, the employer would not pay a penalty for excluding spouses. In other words, if the spouse is not eligible for the employer‑sponsored coverage, the spouse would maintain their eligibility for a premium tax credit (and the employer would not suffer a penalty related thereto).

The same is not true for children. If a large employer does not make an offer of coverage to substantially all full‑time employees and their children, then the employer would be subject to Penalty A under the employer mandate, which is $2,000 per each full‑time employee (minus the first 30).

PPACA contains several terms that are similar and that are used in different contexts. This can be confusing to employers and individuals when it comes to understanding their responsibilities under PPACA. The easiest place to begin is with the term "essential health benefits."

The term "essential health benefits" comes into play under a few different provisions of PPACA. The first relates to PPACA's prohibition on lifetime and annual limits, which require employers and plans to eliminate any lifetime or annual limit on the dollar value of essential health benefits. In this context, "essential health benefits" is defined by reference to 10 broad categories of services and items. Employers are allowed to use a good faith interpretation of those categories until the government further expounds on the specifics.

The second relates to PPACA's requirements for plans that will be sold on the state health insurance exchanges, whether run by the state, the federal government or a combination of the two. "Essential health benefits" in this context relates to the benefits that must be covered for the plan to be considered a qualified health plan (QHP) — a plan that is allowed to be offered in the exchange. The term "essential health benefits" in this context is defined by each state through its so‑called "benchmark" plan. Each state has designated a benchmark plan that sets the standard for QHPs in that particular state.

Overall, though, there is no requirement for an employer to offer a plan that contains "essential health benefits." Rather, employers must offer what is called "minimum essential coverage" that is both affordable and of "minimum value." This is where some of the confusion comes into play.

"Minimum essential coverage" is what an employer must offer in order to avoid the larger penalty under PPACA's employer mandate, which applies to large employers (those with 50 or more full‑time employees or full‑time equivalents). As background, a larger employer mandate penalty applies to employers that do not provide minimum essential coverage to substantially all (meaning at least 95 percent) of their full‑time employees. A smaller employer mandate penalty applies to employers that do offer minimum essential coverage, but that coverage is either unaffordable or not of "minimum value" (more on that term below). "Minimum essential coverage" is defined very broadly to include any plan sold in the large or small group market. So in this context, almost any plan offered by an employer will constitute minimum essential coverage. However, minimum essential coverage will not include a plan that is considered "excepted benefits," which would include stand‑alone dental or vision plans, certain FSAs and other supplemental plans.

Assuming the employer is offering minimum essential coverage, the employer must make sure that the coverage is also affordable and of "minimum value." Setting aside affordability for now, "minimum value" means that the plan covers at least 60 percent of the allowed cost under the plan. Said another way, the employee must not be responsible for more than 40 percent of the expenses incurred under the plan. There are three methods that a plan may use to determine if the minimum value threshold has been met:

1. Through a minimum value calculator provided by the DOL;
2. through a minimum value checklist provided by the DOL;
3. and through actuarial certification.

Most plans in the insured market will currently meet the minimum value standard. In addition, for a fully insured plan, the insurer will likely know whether the plan is of minimum value before it markets the plan. For a self‑insured plan, though, the employer will have to take steps to ensure the plan meets the minimum value standard.

Finally, outside the employer context, "minimum essential coverage" comes into play with respect to PPACA's individual mandate — the requirement for all U.S. residents to carry health insurance or pay a penalty. For this purpose, "minimum essential coverage" includes a government‑sponsored program (Medicare, Medicaid, CHIP and TRICARE), a health plan offered in the individual market, a grandfathered health plan and an "eligible employer‑sponsored plan," defined very broadly to include almost all employer‑sponsored plans (including retiree, COBRA or state continuation coverage).

Updated response from Aug. 13, 2013, FAQ

To begin with, all employers subject to the FLSA must distribute the Exchange Notice to existing employees by Oct. 1, 2013. Thereafter, the employer must distribute to new employees within 14 days of beginning employment. DOL Technical Release 2013‑02 states:

"The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first‑class mail. Alternatively, it may be provided electronically if the requirements of the Department of Labor's electronic disclosure safe harbor at 29 CFR 2520.104b‑1(c) are met." Historically, we have instructed that there are only two acceptable methods of delivery: via first‑class mail or via electronic delivery (provided the electronic requirements are met). This is based on the above language.

Since this original FAQ was published, representatives with the U.S. Department of Labor have informally confirmed that hand delivery is an acceptable manner of distribution if the employer is able to ensure that each employee receives a copy of the notice. The National Association of Health Underwriters (NAHU) reiterated the informal statements by the DOL in a recent FAQ document released to their membership. This informal confirmation would also likely extend to including the notice in new hire materials or including the notice in open enrollment packets (but the notice must go to all employees, not just those eligible for health benefits).

As this is based on informal discussions, it is not binding guidance and cannot be relied upon to protect an employer from audit. If the client wants to proceed with confidence, we would advise using one of the specifically enumerated methods of distribution (i.e. via first‑class mail or via electronic delivery).

In regards to electronic distribution, the notice may be sent via email to employees who have electronic access as an integral part of their job. The employer must take the necessary steps to ensure that the email system:

• Results in actual receipt of transmitted information (which would be satisfied by return receipts or failure to deliver notices);
• Protects the employee's confidential information;
• Maintains the required style/format/content requirements;
• Includes statement as to the significance of the document;
• and Provides a statement as to the right to request a paper version.

If employees do not have electronic access as an integral part of their job, they may provide the employer with an email address to provide the notice and they must affirmatively give consent to receive the electronic notice before the electronic document is provided. The email must explain what documents will be provided electronically, that their consent can be withdrawn at any time, procedures for withdrawing consent and changing the email address, the right to request a paper copy of the document, whether there is an applicable fee for the paper copy and what hardware or software will be needed.

Finally, the notice may be posted to a company's intranet, but a separate notification must still be sent to each employee notifying them of the document's availability and the significance thereof. The notification may be a paper document or it may be electronic (email). If it is sent via email, the above procedures must be followed.

The HIPAA privacy rule excepts fully insured group health plans from most of the administrative safeguard requirements if the plans do not create or receive PHI other than summary health information for limited purposes and enrollment/disenrollment information. To take advantage of the exception, some plan sponsors structure the relationship between the plans and the insurers so that the plan does not create or receive PHI, and so that the sponsors take a "hands‑off" role in relation to PHI. A fully insured plan sponsor that takes this "hands‑off" approach is not required to maintain or provide a privacy notice or to comply with the HIPAA privacy administrative safeguard provisions except for the prohibitions against intimidating or retaliatory acts and against requiring a waiver of HIPAA privacy or security rights. Instead, these and the other privacy and security requirements are imposed upon the insurer. Plan sponsors may engage in the following activities without losing hands‑off status:

• Receive summary health information. An insurer may provide summary health information (information that summarizes the claims history and expenses of a plan, but does not contain personally identifiable information such as names, emails, addresses, medical record numbers, etc.) to a plan sponsor (electronically or otherwise) for the limited purposes of obtaining premium bids or modifying, amending, or terminating the plan. The information disclosed should be the minimum necessary to accomplish the purpose of the disclosure, and the plan's notice of privacy practices (which should be provided by the insurer) should inform participants that the insurer may disclose this type of information to the plan sponsor.
• Perform enrollment and disenrollment activities and payroll deductions. An insurer may provide enrollment and disenrollment information to a plan sponsor (electronically or otherwise). Again, the information disclosed should be the minimum necessary to accomplish the purpose of the disclosure, and the plan's notice of privacy practices (which should be provided by the insurer) should inform participants that the insurer may disclose this type of information to the plan sponsor. The plan sponsor of a fully insured plan that is "hands‑off" PHI will not become subject to HIPAA's privacy and security requirements if, in the course of assisting an employee with a claims dispute, it receives the employee's PHI. A plan sponsor does not become a covered entity simply by advocating on behalf of a participant. Of course, the employer would only be able to obtain PHI or electronic PHI in accordance with the privacy rule — for example, directly from the employee or pursuant to an authorization.

If the sponsor of an insured plan has access to PHI other than summary health information for the limited purposes and enrollment/disenrollment information discussed above, several privacy and security requirements will apply to both the plan and the plan sponsor, including the necessity to get a business associate agreement (BAA) in place with its covered entities, business associates (including advisor/broker, legal counsel, accounting, third‑party administrators and consultants on behalf of the plan) and subcontractors of business associates — (assuming, of course, these entities have access to PHI as well).

Importantly, while a fully insured group health plan could avoid most of the privacy and security requirements if the plan and the sponsor were "hands‑off," if the plan sponsor also offers a health FSA, they may still need to have BAAs in place with business associates. This is because health FSAs typically are not fully insured. Thus, unless the health FSA is self‑administered and has fewer than 50 participants (so that it is excluded from the definition of "group health plan"), the health FSA will need to comply with HIPAA's privacy rule and, if the health FSA has electronic PHI, with the security rule. This includes implementing a BAA if business associates will have access to PHI as a result of providing assisting in the management/operation of such accounts.

To begin with, all employers subject to the FLSA must distribute the Exchange Notice to existing employees by Oct. 1, 2013. Thereafter, the employer must distribute to new employees within 14 days of employment. DOL Technical Release 2013‑02 states:

"The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first‑class mail. Alternatively, it may be provided electronically if the requirements of the Department of Labor's electronic disclosure safe harbor at 29 CFR 2520.104b‑1(c) are met."

Thus, there are only two methods of acceptable distribution: mailed via first class or distributed electronically. Hand delivery is not permitted.

In regards to electronic distribution, the notice may be sent via email to employees who have electronic access as an integral part of their job. The employer must take the necessary steps to ensure that the email system:

• Results in actual receipt of transmitted information (which would be satisfied by return receipts or failure to deliver notices);
• Protects the employee's confidential information;
• Maintains the required style/format/content requirements;
• Includes statement as to the significance of the document; and
• Provides a statement as to the right to request a paper version.

If employees do not have electronic access as an integral part of their job, they may provide the employer with an email address to provide the notice and they must affirmatively give consent to receive the electronic notice before the electronic document is provided. The email must explain what documents will be provided electronically, that their consent can be withdrawn at any time, procedures for withdrawing consent and changing the email address, the right to request a paper copy of the document, whether there is an applicable fee for the paper copy and what hardware or software will be needed.

In addition, the notice may be posted to a company's intranet, but a separate notification must still be sent to each employee notifying them of the document's availability and the significance thereof. The notification may be a paper document or it may be electronic (email). If it is sent via email, the above procedures must be followed.

There is a correction program — described in more detail below — that allows filing delinquent Forms 5500 with reduced fines, but there is no amnesty program.

As background, under ERISA, DOL penalties can be imposed by the DOL for any refusal or failure to file a required Form 5500, and can be assessed for incomplete or otherwise deficient Forms 5500. Such penalties are generally levied against the plan administrator, and can be up to $1,100 per day starting from the date of the administrator's failure to file a proper Form 5500. In addition, any person who willfully violates the Form 5500 requirement may be subject to a fine of not more than $100,000, imprisonment for not more than 10 years, or both. "Willfully" generally requires a finding of general intent — that is, that the person acted knowingly and voluntarily.

Importantly, the DOL also takes the position that it is not subject to a statute of limitations with respect to the Form 5500, so that it can assess penalties in connection with previous plan years, reaching as far back as the 1988 plan year. This will be a problem if the plan has not filed in years past.

A plan that has not properly adhered to the Form 5500 filing requirement may take advantage of the DOL's Delinquent Filer Voluntary Compliance (DFVC) Program, which is available to plans that voluntarily comply before being notified of a deficiency by the DOL. The DFVC program provides reduced penalties to such plans. Namely, the penalties may be reduced to $10 per day with a maximum limit of $750 for a small plan (one with less than 100 participants) and $2,000 for a large plan (one with 100 participants or more). If the plan is delinquent on multiple years' filings, all filings may be submitted at the same time, including the current year's filing. In this case, the small plan penalty is $1,500 and the large plan penalty is $4,000. Importantly, a failure to file a timely report notice from the DOL will disqualify a plan from using the DFVC program. In effect, if only one year is sent in, and many years are missing, the risk of losing the ability to file under the DFVC program is heightened.

No, grandfathered plans do not automatically go away in 2014. As background, a group health plan that was in existence on March 23, 2010, may be considered a grandfathered health plan. If the plan makes any of the following changes, as compared to the terms and conditions that were in place on March 23, 2010, the plan will lose its grandfathered status.

• Elimination of all or substantially all benefits to diagnose or treat a particular condition
• Increase in a percentage cost‑sharing requirement (e.g., raising a coinsurance requirement from 20 percent to 25 percent)
• Increase in a deductible or out‑of‑pocket maximum by an amount that exceeds medical inflation plus 15 percentage points
• Increase in a copayment by an amount that exceeds medical inflation plus 15 percentage points (or, if greater, $5 plus medical inflation)
• Decrease in an employer's contribution rate toward the cost of coverage by more than five percentage points
• Imposition of annual limits on the dollar value of all benefits below specified amounts

Therefore, grandfathered plans are not automatically terminated in 2014. A plan may maintain its grandfathered status indefinitely until it makes one of the changes described above.

There are many advantages to maintaining a plan's grandfathered status. Such plans are exempt from the following PPACA requirements:

• Nondiscrimination rules under Section 105(h)

  A fully insured grandfathered plan would be exempt from these rules, which may be finalized by the IRS soon. (Remember that a self‑insured plan is already subject to these rules.)

• Mandated preventive care services

  Grandfathered plans are not required to provide coverage for mandated preventive care services at no cost to participants. This includes contraceptive coverage.

• Deductible limitations

  Effective 2014, small group plans are restricted from imposing a deductible greater than $2,000 for individuals and $4,000 for family coverage. Grandfathered plans are exempt from this requirement.

• Rating limitations

  Effective 2014, the ratings for small groups may only be based on tier of coverage (family vs. single), rating area, age and tobacco usage. Grandfathered plans would still be experience rated, if permissible under state law.

• Out‑of‑pocket maximums

  Effective 2014, group health plans of all sizes are prohibited from having an out‑of‑pocket maximum greater than $6,350 for single coverage and $12,700 for family coverage. Grandfathered plans would be exempt from this requirement.

• Appeals processes

  PPACA greatly expanded a participant's appeal rights under a group health plan, including stricter review deadlines and the addition of an external appeal process. Grandfathered plans are exempt from this requirement.

• Quality of care reporting

  PPACA requires non‑grandfathered group health plans to submit an annual report to the Secretary of HHS addressing plan or coverage benefits and provider reimbursement structures that may affect the quality of care in certain specified ways. Guidance is forthcoming on this requirement and it is currently not being enforced. Currently, a grandfathered group health plan may deny coverage to a child under age 26, if that child is eligible for group coverage through his/her own employer or a spouse's employer. This transitional rule will expire in 2014. For plan years starting on or after Jan. 1, 2014, a group health plan must offer coverage to a child under age 26 regardless of whether that child is eligible for other coverage. This applies equally to non‑grandfathered and grandfathered plans. It would not apply to a plan that does not already offer coverage to children.

No. The U.S. Supreme Court's decision on DOMA does not affect domestic partner coverage. Rather, it impacts benefits related only to married same‑sex spouses. Specifically, the decision states that for purposes of federal law (including federal income tax rules and other benefits), same‑sex spouses who are legally married (according to state law) are now treated the same as opposite‑sex spouses. States generally do not define "marriage" to include a domestic partnership. Thus, domestic partnership status does not rise to the level of a legal marriage, and therefore a domestic partner (same‑ or opposite‑sex) would not be considered a "spouse" entitled to tax and other benefits.

For purposes of federal taxation and benefits, only an employee, an employee's spouse (which per the Supreme Court's decision now includes a same‑sex spouse), an employee's child under age 26, and an employee's financial dependent may receive tax‑free coverage under the employee's group health plan. Anyone who is covered under the group health plan but who is not the employee's tax dependent would result in imputed tax to the employee. So, if the domestic partner (same- or opposite‑sex) is not a tax dependent of the employee, then there are adverse federal tax consequences, as follows:

1. The portion of the employee's premiums that pay for the partner's coverage must be paid with after‑tax dollars (i.e., this amount cannot be paid pre‑tax through a section 125 plan); AND
2. The fair market value of the coverage itself must be added to the employee's gross income and taxed as normal wages (including employment taxes). There is no specific federal guidance on specifying how to calculate the value, but there are generally two acceptable methods. The first is to use the incremental amount that the employer pays towards the partner's coverage (e.g., use the employee‑plus‑spouse employer contribution minus the employer's contribution for employee only). The second (and more conservative) is to use the employee‑only COBRA rate (minus the two percent administrative fee) and subtract the amount that the employee contributed towards the premium on a post‑tax basis.

Ultimately, employers should engage outside counsel to assist with any federal taxation issues, including the determination of whether an individual (including a domestic partner) is a "dependent" for purposes of tax‑advantaged coverage and which method to use in calculating the fair market value of coverage that must be imputed to the employee on account of a non‑tax‑dependent.

There is no specific exemption under the employer mandate for union members. Therefore, the question becomes whether the union members constitute "employees" under the common law standard. Because an employer typically controls the hours the union members work as well as pays wages to the union members, union members will likely be considered employees of the employer as opposed to the union. As such, you must include those union members in your employee count when determining the applicability of the employer mandate.

If the employer mandate applies, you must provide all full‑time union employees (and their dependents) minimum essential coverage that is both affordable and of minimum value (or pay a penalty). In considering the employer mandate, it is important to remember the obligations under the employer mandate rest with the employer, not the plan — so you will be required to comply regardless of which plan options are currently offered (and regardless of how those plan options — including employer contribution levels — were negotiated). In other words — the employer mandate applies regardless of any other collective bargaining agreements that may be in place.

A transition rule is in place for 2014, however. Under this rule you will not be subject to a penalty with respect to a full‑time union employee if:

1. You are required to make a contribution to a multiemployer plan pursuant to a collective bargaining agreement or an appropriate related participation agreement; and
2. Coverage under the multiemployer plan is offered to the full‑time union employee (and his or her dependents); and
3. The coverage offered to the full‑time union employee is affordable and provides minimum value.

For purposes of determining whether coverage under the multiemployer plan is affordable, you may use any of the affordability safe harbors. Coverage under a multiemployer plan will also be considered affordable if the employee's required contribution, if any, toward self‑only health coverage under the plan does not exceed 9.5 percent of the wages reported to the qualified multiemployer plan, which may be determined based on actual wages or an hourly wage rate under the applicable collective bargaining agreement.

The answer depends upon whether the HRA is the only group health plan or if it is integrated with a medical plan. A stand‑alone HRA is subject to the PCOR fee. The plan sponsor, which is the employer for a single employer plan, is responsible for reporting and paying the fee. The fee is based on counting only one life per participant (covered employee).

If the plan is integrated with a medical plan, the answer further varies based on whether the medical plan with which the HRA is integrated is self‑insured or fully insured. If the HRA is integrated with a self‑insured medical plan, and the HRA and medical plan have the same plan year, then the PCOR fee does not apply to the HRA. The plan sponsor is responsible only for the fee on the covered lives under the medical plan (including dependents).

If the HRA is integrated with a fully insured medical plan, then the PCOR fee applies separately to both the fully insured medical plan and the HRA. The insurer is responsible for the PCOR fee for the covered lives under the medical plan (including dependents). The plan sponsor is responsible for the PCOR fee for the covered lives under the HRA (i.e., covered employees only; no dependents).

The PCOR fee applies to plan years ending after Oct. 1, 2012, and before Oct. 1, 2019. The fee is $1 per covered life for plan years ending before Oct. 1, 2013, and $2 per covered life for subsequent plan years. Plan sponsors should report and pay fees by filing IRS Form 720 by the end of July of the calendar year following the end of the plan year. For example, if the plan year ended anytime between October and December 2012, the fee is due by July 31, 2013. IRS Form 720reflecting the PCOR fee was released on June 4, 2013.

When receiving a request from an employee to drop coverage due to the fact that his or her child is now enrolled in Medicaid or the State's Children's Health Insurance Program (CHIP), it is necessary to confirm under what coverage the dependent has actually been enrolled. Medicaid and CHIP programs are not the same program. Importantly, they are found within two different sections of the Social Security Act (SSA). Medicaid is authorized under Title XIX (19) of the SSA, while CHIP is authorized under Title XXI (21) of the SSA. The difference between Title 19 and Title 21 is significant when it comes to staying in compliance with the rules under Section 125. Allowing a dependent to drop coverage mid‑year can be a significant plan violation.

Medicaid (Title 19)

There is a qualifying event that allows coverage to be dropped mid‑year if coverage is gained under Medicaid, Title 19. The event is called "Entitlement to Medicare or Medicaid," and is an optional qualifying event that must be included in the cafeteria plan document if a plan sponsor wishes to allow it. Employees can drop coverage for themselves or a dependent after becoming enrolled under either Part A or Part B of Medicare, or Title 19 of Medicaid. Employees usually have 30 – 31 days to request to drop coverage, and the drop request must be effective for a future date (never retroactively).

However, dropping coverage due to becoming enrolled under a State's CHIP coverage is not included as a qualifying event for this purpose. Therefore, if an employee says their child is newly enrolled in Medicaid, the next step is to confirm it is Title 19 of Medicaid (and not CHIP). If it is, coverage for the members of the family with Medicaid coverage may be dropped mid‑year as long as the request is made timely.

CHIP (Title 21)

The only reference to CHIP (Title 21) as a qualifying event under Section 125 is found due to a loss of coverage (not gain of coverage). Under the qualifying event "Loss of coverage under other group health coverage," a Section 125 plan may permit an employee to add coverage under a cafeteria plan for the employee, spouse or dependent if coverage is lost under CHIP. In addition, losing coverage under CHIP is also one of the newest HIPAA special enrollment rights, as of April 1, 2009. This means the loss of CHIP coverage allows at least 60 days for the employee to request coverage under the employer's group health plan, and coverage options may be changed as well (for example, from PPO to HMO or HDHP coverage).

Thus, if a dependent loses coverage under the CHIP program mid‑year, the employee must be permitted to enroll in the employer‑sponsored group health plan mid‑year. However, the rule does not work in the opposite direction. There is no provision to drop the group coverage if CHIP coverage is gained mid‑year. In fact, the preamble to the final regulations specifically prohibits this practice, because of a concern that such a rule would violate a fundamental principle that CHIP coverage not supplant existing public or private coverage.

Therefore, if a plan sponsor receives a request to drop coverage and the explanation is because coverage was gained under CHIP, Title 21, the request to drop coverage should be denied. Conversely, if a plan sponsor receives a request to add coverage because coverage was lost under CHIP, Title 21, the request should be approved.

Here is a helpful chart summarizing the explanation above:

A plan‑sponsoring employer that limits itself to receiving only summary health information and enrollment/disenrollment information is sometimes referred to as a "hands‑off" sponsor. Importantly, "summary health information" is information that summarizes the claims history, expenses or types of claims by individuals for whom the plan sponsor has provided health benefits under a group health plan. To be considered summary health information, the information must not contain names, email addresses, Social Security numbers, medical record numbers and any other identifying information.

Such a hands‑off sponsor is generally not required to maintain or provide a privacy notice or to comply with HIPAA's privacy administrative safeguard provisions. Also, the plan will not have to comply with the HIPAA privacy rule's use and disclosure provisions or individual rights provisions. That said, the plan must still comply with two small requirements: the policy on refraining from intimidating or retaliatory acts and the policy on prohibiting the requirement of a waiver of HIPAA rights.

To expound a bit more, under the first policy, the employer would just need to make sure that it is not going to perform any intimidating or retaliatory acts for individuals who raise HIPAA issues or questions (including questioning whether the employer is truly a "hands‑off" sponsor). The employer also could not retaliate against an individual for:

• Filing a complaint with HHS under the HIPAA administrative simplification enforcement provisions
• Testifying, assisting or participating in an investigation, compliance review, proceeding or hearing under the administrative simplification provisions of HIPAA
• Opposing any act or practice that is unlawful under the privacy rule, if the individual has a good faith belief that the act is unlawful

In addition, under the second policy, the employer may not require employees to waive their HIPAA right to file a complaint with HHS or their rights under the privacy rule as a condition of treatment, payment, enrollment in a health plan or eligibility for benefits.

Under the SHOP exchange provisions, starting in 2014 small employers would have been able to select a particular level of coverage they want to offer their employees, and then their employees would have had the ability to choose from multiple plans within that level of coverage. However, on March 11, 2013, HHS announced proposed rules that will delay full implementation of the SHOP exchange in exchanges run in full or in part by the federal government. States setting up their own exchanges will be given the option to elect to similarly delay full implementation of their SHOPs until 2015. For these purposes, a "small employer" is defined as an employer that employed, on average, 100 or fewer employees on business days during the prior calendar year.

The HHS proposed rules delay until 2015 the ability of a small employer that purchases insurance coverage through the federal SHOP exchange to choose multiple health plans to offer its employees. Until 2015, the federal SHOP exchange will, instead, assist small employers in choosing a single qualified health plan to offer their employees. According to HHS:

"[t]his transitional policy is intended to provide additional time to prepare for an employee choice model and to increase the stability of the small group market while providing small groups with the benefits of SHOP in 2014."

The delayed implementation of certain features of the federal SHOP exchange does not delay application of PPACA's employer mandate provisions, which are generally effective Jan. 1, 2014. Nor does it delay the requirement that a small employer obtain coverage through the SHOP exchange in order to be eligible to receive the small business health care tax credit for taxable years beginning on or after Jan. 1, 2014. It simply means that employers that purchase health insurance through the federal SHOP exchange will be limited to choosing one qualified health plan for their employees until 2015.

Starting next year, non‑grandfathered group health plans, regardless of size, will be prohibited from having an out‑of‑pocket maximum larger than the statutory out‑of‑pocket maximum in place for qualified high‑deductible health plans. The limit is not yet known for 2014, but the limits for 2013 are $6,250 for single coverage and $12,500 for family coverage. This limitation applies equally to self- and fully‑insured plans sold both inside and outside of the exchange.

For the first plan year only, there is a special provision for plans that utilize multiple service providers to administer benefits. An example would be a plan that uses separate providers for the major medical coverage and pharmacy benefits. The plan would be considered in compliance with the out‑of‑pocket requirement if neither of the plan's separate out‑of‑pocket maximums exceeded the statutory maximum.

In 2014, there is also a limitation on deductibles. A non‑grandfathered small group plan is prohibited from having deductibles greater than $2,000 for individual coverage and $4,000 for family coverage. This is applicable to coverage purchased inside and outside of the exchange. Contributions to a health FSA, HRA or HSA cannot be considered in the calculation to lower the plan deductible. Therefore, such contributions would be disregarded for this purpose. Similarly, out‑of‑network expenses are not included in these calculations. In other words, only expenses incurred in connection with an in‑network provider will count toward the deductible and out‑of‑pocket maximum limitations.

Finally, both the out‑of‑pocket maximum and deductible limits apply on a plan‑year basis, meaning that they will be effective for plan years starting on or after Jan. 1, 2014.

No special enrollment is required, but a special transition rule may be adopted by non‑calendar‑year plan sponsors interested in permitting a special enrollment or disenrollment opportunity.

As background, there is no relief to individuals from the individual mandate if their employer sponsors non‑calendar‑year plans. The individual mandate requirement to maintain coverage is effective Jan. 1, 2014, regardless. So, whether an individual obtains individual coverage or is enrolled in their employer plan, some form of minimum essential coverage is required by Jan. 1, 2014, for individuals to avoid the individual mandate penalty.

As for special enrollment periods, generally cafeteria plans prohibit employees from making midyear election changes unless they experience a Section 125 qualifying event. However, under a transition rule, non‑calendar‑year cafeteria plans may permit employees to change health plan elections during the cafeteria plan year beginning in 2013 to allow them to enroll in their employer‑sponsored coverage to avoid the individual mandate penalty described above. A cafeteria plan allowing these elections must be amended by Dec. 31, 2014, effective retroactively to the first day of the plan year starting in 2013. Please note, as with all Section 125 midyear qualifying events, that a plan may include this enrollment event, but does not have to.

Most employees who decide to forgo employer‑sponsored group health coverage and purchase their own individual policy through the new public health insurance marketplaces (also known as exchanges) beginning in 2014 will not be able to purchase coverage on a pretax basis. Additionally, employers will not be able to substantiate and reimburse employees' individual coverage premiums on a pretax basis, as this will establish a non‑integrated HRA, which sub‑regulatory guidance issued on Jan. 24, 2013, indicated will not be permitted as it violates PHS Act 2711. The loss of employees' ability to purchase health insurance coverage on a pretax basis when purchasing health coverage is a major consideration for employers to keep in mind when planning benefit offerings in 2014.

Employers may notice an increase in private exchanges being set up with a defined contribution approach, which will allow employees to choose from a menu of different plan options and spend a preset dollar amount toward the cost of coverage. Unlike the public marketplaces described above, these private exchanges will permit employees to continue to spend pretax dollars on their health insurance coverage. Employers participating in a private exchange will need to amend their Section 125 cafeteria plans to permit such plan designs, and elections to participate in the private exchanges will continue to be subject to the irrevocability requirements, midyear qualifying events and other requirements that already apply to Section 125 cafeteria plans.

There is an exception available for certain exchange‑eligible employers (generally small employers, defined as less than either 50 or 100 employees, depending on the state) that offer all full‑time employees the opportunity to enroll through a public marketplace in a qualified health plan in the group market. Such small employers may opt to participate in the Small Business Health Option Program (SHOP) marketplace. Employers offering such coverage through the SHOP marketplace may structure their Section 125 cafeteria plan to permit employees to pay for coverage with pretax dollars.

As background, under the employer mandate, employers may be liable for either Penalty A or Penalty B. Penalty A applies if the employer fails to offer minimum essential coverage (MEC) to substantially all of its FTEs and their dependents, and if one FTE purchases coverage and receives a premium tax credit through a state health insurance exchange. The amount of Penalty A is $2,000 times the total number of FTEs employed by the employer, with a 30‑employee reduction. Penalty B applies if the employer offers MEC to substantially all of its FTEs and their dependents, but that coverage is either not of minimum value or is unaffordable. The amount of Penalty B is $3,000 times the total number of FTEs that actually go to the exchange and qualify for a premium tax credit (with no 30‑employee reduction).

The IRS intended that Penalty A not apply in the case of an applicable large employer that intends to offer coverage, but fails to do so with respect to a few FTEs. The "substantially all" standard was introduced to deal with this. However, "substantially all" was not initially defined in the statute. Many commentators requested a definitive rule. In the recently released proposed regulations, the IRS defined "substantially all" as the greater of 95 percent of all FTEs or five FTEs. This means that applicable large employers must offer MEC to at least 95 percent of its FTEs or five FTEs. The five FTEs clause is meant to account for relatively small applicable large employer members (those that are subject to the mandate but have fewer than 100 FTEs). Also, in the case of a controlled group situation, the proposed regulations apply the "substantially all" rule separately to each company that is a member of a controlled group.

Although Penalty A may not apply, offering coverage to substantially all of your FTEs (but not necessarily all FTEs) may still create liability under Penalty B. In such a situation, there could be a few FTEs (less than 5 percent) who are not offered affordable, minimum value MEC (because they aren't offered coverage at all). These individuals would still be able to go to the exchange and possibly receive a premium tax credit. The employer will pay a penalty for each of those individuals who receives a premium tax credit through the exchange. Again, the Penalty B amount is $3,000 for each person who goes to the exchange and qualifies for a premium tax credit (there is no 30‑employee reduction).

The answer depends upon what percentage of employees were eligible for or covered by the non‑calendar year plan in 2012. The proposed regulations that were published on Jan. 2, 2013 included a two‑part transitional rule for non‑calendar year plans (also referred to as fiscal year plans). The non‑calendar year plan must have been in place on Dec. 27, 2012. The plan did not have to meet affordability or minimum value standards on that date.

An employer who sponsored one or more non‑calendar year plans on Dec. 27, 2012 first needs to determine which employees were eligible for coverage during the most recent open enrollment period preceding Dec. 27, 2012. The employer will not be subject to the employer mandate penalty for any eligible employee until the first day of the plan year beginning in 2014. It does not matter whether the eligible employee actually enrolled in coverage.

The second part of the transitional rule relates to employees who were not eligible for employer sponsored non‑calendar year plans on Dec. 27, 2012. The employer now needs to determine 1) the percentage of employees to which it offered coverage during the most recent open enrollment period preceding Dec. 27, 2012; and 2) the percentage of employees that were covered under the employer's plan(s) on any day between Oct. 31, 2012 and Dec. 27, 2012. The percentage is based on all employees including both full‑time and part‑time employees.

If the employer offered coverage to at least 33 percent of employees OR covered at least 25 percent of employees, then the employer would not be subject to the employer mandate for any non‑eligible employee until the first day of the plan year beginning in 2014. This is dependent upon the employer offering coverage that meets the affordability and minimum value standards on the first day of the plan year beginning in 2014.

If the employer did not offer coverage to at least 33 percent of employees OR cover at least 25 percent of employees, the employer would be subject to the employer mandate for any non‑eligible employee beginning Jan. 1, 2014. If this employer wanted to avoid the employer mandate, they would want to make sure that their non‑calendar year plan(s) met affordability and minimum value standards with the plan year beginning in 2013.

As a reminder, an employer is subject to the employer mandate penalty if a) they do not offer coverage to 95 percent of full‑time employees or offer coverage that does not meet affordability and minimum value standards; AND b) a full‑time employee qualifies for a premium tax credit to purchase coverage through the exchange.

This fee, payable annually each calendar year after Dec. 31, 2013, applies to any covered entity engaged in the business of providing health insurance (not including accident or disability insurance, specified illness coverage or fixed indemnity insurance) for any United States health risk. Employers that self‑insure their employees' health risks are excluded from this definition, as are governmental entities and certain nonprofit entities and voluntary employee beneficiary associations (sometimes called "VEBAs") established by an entity (such as a union) for the purpose of providing health benefits. The fee does apply to multiemployer welfare arrangements (sometimes called "MEWAs").

Each applicable carrier is required to report the amount of its net premiums each calendar year. Penalties are imposed for failure to file as well as understatements of premiums. The aggregate annual fee is $8 billion for 2014, $11.3 billion for 2015 and 2016, $13.9 billion for 2017, and $14.3 billion for 2018. After 2018, the fee is indexed to the rate of premium growth. This aggregate annual fee is proportionately charged to each insurer based on the market share of U.S. health insurance business, limited by certain dollar thresholds.

Limited information is currently available, but it appears that insurers are beginning to fold the cost of this new tax into their 2013 rates, thereby passing the cost of the fee onto policyholders, including employers.

Most employers are not required to provide coverage for a former spouse of an employee. In fact, most group health plans specifically exclude former spouses from eligibility. Even if the employee's divorce decree states that the employee is responsible for providing coverage for the spouse, this does not necessarily obligate the employer to provide coverage. The employee may meet his/her obligation by purchasing an individual policy for the spouse or reimbursing the cost of COBRA coverage.

However, some states, including Illinois, Maryland, Massachusetts, Minnesota, Missouri and Rhode Island, require a fully insured policy issued in that state to provide coverage for a former spouse under certain conditions. The certificate of coverage issued by the insurance carrier, as well as the Summary Plan Description, should describe eligibility for former spouses.

If a group offers benefits to individuals who are not federal tax dependents, there may be federal tax consequences. The determination of whether an individual is able to receive tax‑free dependent health coverage must be made by a knowledgeable accountant or other tax professional familiar with the definition found under IRC Section 105(b), which is not the same as the definition of who is a tax dependent for purposes of federal income taxes found in IRC Section 152. There are other tests considered under Section 105(b) that are outside the scope of this FAQ, such as age limit, relationship status, residency and support. Typically, a former spouse is not treated as a tax dependent. The result would be similar treatment as is given to a domestic partner.

Once it is determined that an individual does not qualify under Section 105(b) for tax‑free dependent health coverage, then the employer must add the fair market value of the coverage provided to the individual to the employee's gross income, and the fair market value is taxed as normal wages. This is known as "imputed income."

There is no formal guidance on how to calculate the value of "imputed income." There are two accepted approaches with respect to calculating the value to be treated as imputed income. The first approach is to use the incremental amount that the employer pays toward the former spouse's coverage. For example, to determine a non‑section 105(b) individual's cost, the employer would take the employee‑plus‑spouse employer contribution and subtract the employer's contribution for employee only. The difference would be imputed as income to the employee as the value of the former spouse's coverage.

The second approach would be to use the employee‑only COBRA rate minus the 2 percent administration fee and minus the amount that the employee contributed on a post‑tax basis as a premium contribution. The resulting amount would be imputed as income to the employee as the value of the former spouse's coverage.

Though the IRS generally declines to provide guidance on the calculation of imputed income for non‑tax dependents, they have informally commented that the COBRA rate method is the better approach.

Please note that the portion of the employee's premiums that pay for the non‑section 105(b) dependent's coverage must be paid with after‑tax dollars. In other words, this amount cannot be paid pre‑tax through the cafeteria plan.

This article provides a summary of federal tax consequences. There may be additional consequences under state tax laws. We are not able to address that issue in this format. Questions related to state taxation should be referred to a tax professional.

When designing their HRAs, employers have some choices about what will happen to balances remaining at termination of employment. An employer may design its HRA to forfeit unused HRA balances when employment ends, typically after a limited post‑termination opportunity to submit reimbursements for pre‑termination expenses. Employers may also choose a design that permits employees to spend down their HRA accounts after their employment terminates (i.e., to obtain reimbursement for expenses incurred after termination until the account balance is depleted). Alternatively, the HRA could be designed so that all but a nondiscriminatory class of employees forfeit unused amounts at termination; for example, retirees are entitled to spend down their HRA balance.

If the employee dies while eligible to incur reimbursable expenses, the HRA may allow the employee's accumulated balance to reimburse the substantiated qualified medical expenses of the participant's surviving spouse, children who are under age 27 as of the end of the taxable year, or tax dependents for health coverage purposes. Under no circumstance, however, may terminated employees be provided with cash or other benefits in an amount equal to some or all of the HRA balance (i.e., be "cashed out" of their HRAs). Nor may a deceased employee's balance be paid to anyone in cash or used to reimburse the medical expenses of anyone other than the individuals listed above.

The design choices should be clearly stated in the HRA plan document and explained to employees in the summary plan description and other communication materials. Finally, regardless of whether the balance is forfeited, COBRA must be offered. If COBRA coverage is purchased, the recipient will have access to the balance (notwithstanding any forfeiture rule), increased by any account credits that would be received for the coverage period by a similarly situated non‑COBRA beneficiary.