David Gabor, Thursday, June 13, 2013 at 4 PM ET
authorities are in the business of conducting audits to ensure that
companies comply with all of their financial and reporting
obligations. Authorities have become increasingly more efficient in
conducting these audits and sharing information with other
governmental and quasi-governmental authorities. The impact to
companies is far reaching. This program addresses the challenges
created by these audits and the steps that companies can take to
ensure that they are compliant and prepared.
The free 30-minute
webinar will take place on
Thursday, June 13th at 4 PM ET.
Click here to register!
Wagner Law Group
Changing DC Landscape: How Regulation Is Changing the Face of the DC
Plan," Panel Discussion with Marcia Wagner, 2nd
Annual Inside Indexing Conference, June 17, 2013 (Boston,
Evolving Landscape of Fiduciary Responsibility,"
Marcia Wagner, Webinar for Transamerica Retirement Industry Speakers
Bureau, June 18, 2013
The Wagner Law Group
comprehensive resources on ERISA and employee benefits; estate
planning; and employment, labor and human resources law. Below
are links to these resources.
Seminars and Presented Papers
Changes from D.C. - What Do You Need To Know?" Marcia Wagner, The Robertson Group, Sponsored by
Legg Mason, May 29, 2013 (Columbus, Ohio)
Marcia S. Wagner", Marcia
Wagner, Everhart Advisors, Sponsored by Legg Mason, May 29, 2013
Changes from D.C. - What Do You Need To Know?" Marcia Wagner, John Hancock Financial Network,
Sponsored by Legg Mason, May 28, 2013 (Troy & Bloomfield Hills,
"Black Rock DC Leaders
Wagner, May 20, 2013 (New York, New York)
Publications and Articles
"Tibble v. Edison
Affirmed, But Plaintiffs May Not Be Celebrating," Marcia Wagner, 401(k) Advisor, May, 2013
Webinars and Podcasts
"A Plan Sponsor's
Fiduciary Calling: Improving the Retirement Readiness of Plan
Wagner, Webinar for LPL Financial (sponsored by Mutual of Omaha),
June 4, 2013
Evaluating The Success of Your Plan" Marcia Wagner, Webinar for Legg Mason, May 30,
"Complying with PPACA," Marcia Wagner, Webinar for SourceMedia, May 22,
"Target Date Funds and
Plan Sponsor Responsibilities," Marcia Wagner, Webinar for ByAllAccounts, May
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In 2014 new regulations will be implemented by the
Department of Labor ("DOL") and Human and Health Services
("HSS") pertaining to important issues, such as the
Patient Protection and Affordable Care Act ("PPACA") and
the Health Information Portability and Accountability Act
As we get ready to enter the third quarter, now is the time to
start preparing for the new regulations and ensuring that you are
in compliance with the 2014 requirements. Please read more
information about the upcoming changes in this newsletter.
To help you understand more about these changes, we
will also be hosting a free webinar on "Complying with
PPACA" on June 25th
from 3 PM to 3:45 PM ET. Under PPACA, there are new taxes
and fees on individuals, employers and health care insurers. These
changes have subjected many employers to new rules, regulations and
In order to comply with PPACA, you must first be in
compliance with ERISA. This free webinar will guide you
through the steps to ensure that you avoid penalties and are
compliant with PPACA.
To register: copy and paste the URL into your browser:
Congratulations to Stuart Klein, Of Counsel with The
Wagner Law Group. He has recently become AV rated! He joins six of
The Wagner Law Group attorneys, who are also AV rated by
Martindale-Hubbell as having very high to preeminent legal
abilities and ethical standards. The Wagner Law Group attorneys
already AV rated include Alvin Lurie, Russell Gaudreau, Diane
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Join over 250 people following Marcia on Twitter for
the latest ERISA and employee benefits updates.
DOL Releases PPACA and HIPAA Self-Compliance Tools
The U.S. Department of Labor ("DOL") has
issued two self-compliance tools that allow sponsors of group
health plans to test whether they are in compliance with the
Patient Protection and Affordable Care Act ("PPACA") and
the Health Information Portability and Accountability Act ("HIPAA").
The PPACA self-compliance tool provides plan sponsors
with a checklist of requirements that are already in effect under
the law and offers guidance on how group health plans should
currently be operating. However, this tool does not offer guidance
on requirements that do not have final regulations or on those that
have a future effective date.
The HIPAA self-compliance tool primarily evaluates
whether a group health plan is compliant with requirements other
than those under PPACA. This tool provides assistance to plan
sponsors in determining whether a plan is compliant with the HIPAA
nondiscrimination rules, wellness program guidelines, the Mental
Health Parity Act requirements, the Women's Health and Cancer
Rights Act and the Newborns' and Mothers' Health Protection Act.
While both tools provide plan sponsors with valuable
tips about how to achieve compliance, neither tool offers
definitive guidance on all aspects of these laws.
The PPACA compliance tool is at http://www.dol.gov/ebsa/pdf/part7-2.pdf and the HIPAA
compliance tool is at http://www.dol.gov/ebsa/pdf/CAGappA.pdf
Final Regulations Implementing Provisions of the HITECH Act
HHS has released final regulations implementing many
provisions of the Health Insurance Technology for Economic and
Clinical Health Act ("HITECH"). In particular, the final
regulations modify the HIPAA Privacy, Security, Enforcement and
Breach Notification Rules under HITECH and create numerous new
compliance obligations for covered entities, including health plans
and their business associates. Some of the key changes made by the
final regulations that directly impact health plans and their
business associates are as follows:
New Content and Distribution Requirements for Notice
of Privacy Practices. Health plans must currently maintain and distribute
a Notice of Privacy Practices. The notice describes the plan's
permitted uses and disclosures, privacy practices, and legal duties
regarding protected health information ("PHI"). The final
regulations require plans to revise their notices to include the
statement that certain PHI disclosures (i.e., disclosures
involving psychotherapy notes, disclosures of PHI for
marketing purposes, disclosures that constitute a sale of PHI,
and disclosures other than those listed in the notice) require
an individual's prior authorization and that such
authorization may be revoked.
the plan intends to contact an individual for fundraising
purposes, a statement of such intent and the individual's
right to opt out of receiving fundraising communications.
the plan intends to use or disclose PHI for underwriting
purposes, a statement that the plan is prohibited from
providing genetic information about an individual for such
statement informing individuals of their right to be notified
following a breach of unsecured PHI.
The final regulations provide that the inclusion of
these required statements creates a material change to the notice,
thereby requiring plans to notify individuals of the changes. The
final regulations provide health plans with the following methods
for distributing this information:
plans that post the notice on a website must: (1) prominently
post the changes on the website by the effective date of the
change; and (2) provide a copy of the revised notice, or
information about the changes and how to request a copy of the
revised notice, in the plan's next annual mailing.
plans that do not post the notice on a website must provide a
copy of the revised notice, or information about the changes
and how to request a copy of the revised notice, within 60
days of the changes.
Definition of Business Associate. HIPAA allows a
health plan to disclose PHI to its business associates if both
parties meet certain requirements, including the execution of a
Business Associate Agreement ("BAA"). The final
regulations change the definition of business associate to include
subcontractors of business associates. As a result, business
associates must now execute BAAs with any subcontractors that
create, receive or maintain PHI on behalf of the business
Business Associate Agreements. Health plans and
business associates must revise their current BAAs to incorporate
certain new requirements specified in the final regulations. For
example, BAAs must now provide that:
business associate will not only report any security incidents
of which it becomes aware, but also any breaches of unsecured
the health plan delegates any of its Privacy Rule obligations,
the business associate will comply with the Privacy Rule when
performing those obligations.
Expansion of Individual Rights. The Privacy Rule
allows an individual to request that the health plan restrict both
the use and disclosure of PHI for treatment, payment and healthcare
operations. Previously, plans were generally not required to
accommodate an individual's request to restrict PHI disclosures.
The final regulations now require plans to agree to an individual's
request to restrict PHI disclosure if: (1) the disclosure is for
the purpose of payment or health care operations; (2) the
disclosure is not required by law; and (3) the PHI relates only to
a health care item or service that has already been paid in full by
a source other than the plan.
The Privacy Rule generally permits individuals to
request access to their PHI. Within 30 days after receiving such a
request, plans must either grant access or provide a written
explanation of why access is being denied. Previously, plans that
did not maintain PHI on-site had 60 days to respond to such
requests. The final regulations require all plans to respond within
the 30-day period. In addition, plans must provide PHI in the form
and format requested by individuals if it is readily producible in
that form and format. If the PHI is not readily producible in the
requested form and format, the plan must provide the PHI in a readable
electronic form and format that is acceptable to the individual.
Finally, if an individual requests in writing that the plan provide
his or her PHI directly to another person, the plan must comply
with the request if it is signed by the individual and identifies
the designated individual and where to send the
Breach Notification. HITECH requires
plans to provide notification of a breach of unsecured PHI to
affected individuals, the Department of Health and Human Services
("HHS") and, in some cases, the media. The final
regulations make the following changes regarding breach
is now defined so that an impermissible use or disclosure of
PHI is presumed to be a breach, unless the plan or business
associate demonstrates that there is a low probability that
PHI has actually been compromised.
risk assessment to determine if breach notification is
required now focuses on the probability of whether the PHI has
been compromised instead of the risk of harm posed by the
breach. If the plan or business associate can demonstrate that
there is a low probability that PHI has been compromised,
breach notification is not required. (Under the proposed
regulations, breach notification was not required if a plan or
business associate could demonstrate that the breach presented
no risk of significant harm to individuals.)
assessments must evaluate: (1) the nature and extent of PHI
involved; (2) the unauthorized person who used PHI or to whom
the disclosure was made; (3) whether PHI was actually acquired
or viewed; and (4) the extent to which the risk to PHI has
Compliance Date. While the
official effective date of the final regulations is March 26, 2013,
health plans and their business associates have until September 23,
2013, to comply with the applicable provisions. Existing BAAs may
remain in effect without revision until either the underlying
contract is up for renewal or until September 23, 2014, whichever
Actions Steps for Health Plan Administrators. In response to
the final regulations, health plan administrators should promptly:
their HIPAA policies and procedures and revise them as
necessary to ensure compliance by the applicable date.
and revise Notice of Privacy Practices to ensure that they
accurately describe their policies and procedures regarding
privacy practices, including any required changes made by the
BAAs to determine the required revision date.
strategies to train front-line staff on implementing the
HIPAA training and education materials and update as required.
Delinquent Filer Voluntary Compliance Program
The DOL has issued a notice providing technical
updates to its Delinquent Filer Voluntary Compliance
ERISA requires most employee benefit plans to file a
Form 5500 annually. Plan administrators may be liable for
significant monetary penalties for failure to file timely and
complete Forms 5500. The DFVC Program encourages plan
administrators to file for overdue or incomplete Forms 5500 by
offering reduced penalties. In general, plan administrators are
eligible for relief under the DFVC Program if they comply with the
Program's requirements before receiving written notice from the DOL
of the Form 5500 filing failure.
The recent notice incorporates changes to the DFVC
Program since it was last updated in 2002, including the following:
Forms 5500 filed under the DFVC Program must now be filed
electronically, using the ERISA Filing Acceptance System
("EFAST2"). The DOL has also created an electronic
online payment option and payment calculator to help filers
determine applicable penalty amounts.
generally must use the Form 5500 and schedules for the
appropriate plan year when filing under the DFVC Program.
However, if the delinquent filing is for a plan year that is
more than three years prior to the most recent forms available
in EFAST2, the filing must be completed using the current
year's Form 5500 and schedules. To help filers determine which
forms to use when filing for past years, the DOL has created a
Form 5500 Version Selection Tool, which is available at: www.dol.gov/ebsa/5500selectorinstructions.html.
SSA and IRS Form 8955-SSA cannot be submitted through EFAST2.
Instead, plan administrators must file these documents
directly with the IRS.
the DFVC Program does not directly provide relief from late
filing penalties under the Internal Revenue Code, the IRS is
expected to issue guidance that will provide relief from
penalties under the Code for delinquent Form 5500 filings if
plan administrators satisfy the DFVC Program requirements.
The DFVC Program will no longer be formally amended
through Federal Register notices for non-substantive, technical
changes (e.g., deleting references to obsolete addresses for
remitting penalty payments). Instead, the DFVC Program's website (www.dol.gov/ebsa) will be used for
announcing non-substantive technical adjustments to the Program.
Final Regulations on PPACA's Transitional Reinsurance Fees
HHS has issued
final regulations on group health plan sponsors' liability under
the transitional reinsurance fee provisions of PPACA.
During the first three years that the Health Insurance
Exchanges are in effect (i.e., 2014 through 2016), employer-sponsored
group health plans are subject to PPACA's transitional reinsurance
fees. These fees will be used to fund transitional reinsurance
programs, which are designed to protect against premium increases
caused by the implementation of the 2014 market reform rules,
particularly guaranteed availability.
The final regulations offer much needed clarification
about the assessment, calculation and payment of these fees,
including the following:
transitional reinsurance fee for 2014 will be $63 per covered
life. Although HHS suggested that the 2014 fee might be
lowered, this is the same amount as set forth in the proposed
fee applies on a per-covered-life basis, which includes
spouses, children and domestic partners.
sponsors may use one of the following methods to calculate the
number of covered lives:
actual count method (i.e., the plan sponsor adds the number
of lives covered on each day, and divides that number by the
by the number of days in the plan year);
snapshot method (i.e., the plan sponsor uses total lives
covered on one day in each quarter of the plan year); or
Form 5500 method (i.e., the plan sponsor uses a specified
formula that includes the number of participants actually
reported on the Form 5500 for the plan year).
fee is applicable only to group health plans that provide
"major medical coverage," which is defined as health
coverage for a broad range of services and treatments,
including diagnostic and preventive services, as well as medical
and surgical conditions. As a practical matter, this includes
typical PPO, HMO and high-deductible health plan coverages,
whether insured or self-insured.
beneficiaries receiving COBRA continuation coverage must be
counted as covered lives.
savings accounts, health reimbursement arrangements, flexible
spending arrangements, prescription drug coverage, dental and
vision plans offered on a stand-alone basis, and other
programs providing ancillary benefits are generally not major
medical coverage and are not a factor in the assessment of
plan sponsors' fee liabilities.
employees who have both Medicare and employer-provided
coverage, when Medicare is the primary payer, the employer
coverage is not considered major coverage and the employee is
not counted as a covered life.
sponsors must report the total number of covered lives to HHS
by November 15 (of 2014, 2015 and 2016). In turn, HHS will
notify plan sponsors of their fee assessment by December 15.
Plan sponsors will then be required to remit fee payments to
HHS within 30 days of receiving the fee assessment notices.
sponsors that maintain multiple group health plans that
provide major medical coverage for the same covered lives may
combine the plans to prevent double counting. Plan sponsors
may deduct the reinsurance fees for income tax purposes as
ordinary and necessary business expenses.
plans may use plan assets to pay the fee assessments.
Given the financial impact of the reinsurance fees,
group health plan sponsors are advised to begin estimating the
amount of transitional reinsurance fees that their plans will be
assessed and factor these amounts into their 2014 budgets.
Final Regulations on Essential Health Benefits and Plan Value under
HHS has issued final regulations on the essential
health benefits EHBs and actuarial value requirements contained in
Essential Health Benefits. Beginning in
2014, health plans offered in the individual and small group
markets, including "Qualified Health Plans" offered
through Exchanges, must cover the following ten categories of EHBs:
and newborn care,
health and substance use disorder services,
and habilitative services and devices,
and wellness services and chronic disease management, and
The final regulations base required EHBs on a
state-specific benchmark plan. The state options for benchmarks
largest plan by enrollment in any of the three largest small
group insurance products in the state;
of the three largest state employee health benefit plans;
of the three largest Federal Employees Health Benefits
largest insured non-Medicaid HMO in the state.
All plans offered within a state that are subject to
the EHB requirements must contain benefits substantially equal in
scope to the benefits offered by the selected benchmark plan. For
states that fail to select a benchmark plan, the default benchmark
plan will be the largest plan in the largest product within the
state's small group market.
The final regulations contain standards to protect
consumers against discrimination and ensure that benchmark plans
offer a full suite of EHB benefits and services. In particular, the
discriminatory benefit designs;
special standards and options for coverage of benefits not
typically covered by individual and small group policies
standards for prescription drug coverage to ensure that
individuals have access to needed prescription medications.
Actuarial Value. The final
regulations outline actuarial levels in the individual and small
group markets, which helps consumers to distinguish between health
plans offering different levels of coverage. Beginning in 2014,
health plans that offer EHBs must cover a certain percentage of
costs, known as actuarial value or "metal levels." PPACA
requires non-grandfathered health plans to meet one of the
following four "metal" levels: 60 percent for a bronze
plan, 70 percent for a silver plan, 80 percent for a gold plan and
90 percent for a platinum plan. The metal levels are also intended
to help consumers in comparing and selecting health plans by
allowing a potential enrollee to compare the relative payment
generosity of available plans. HHS is finalizing an actuarial value
calculator that it will make available to the public to assist in
determining a health plan's actuarial value.
Shared Responsibility Penalty
The IRS has issued proposed regulations addressing the
individual shared responsibility provision contained in PPACA.
Beginning in 2014, PPACA's individual shared responsibility
provision requires individuals either to be insured by
"minimum essential coverage" or to pay a penalty on their
federal tax returns. Below is a summary of the sections of the
proposed regulations that address: (i) the definition of minimum
essential coverage; (ii) how the shared responsibility penalty will
be calculated and paid; and (iii) who is exempt from paying the
Minimum Essential Coverage. For purposes of
the shared responsibility penalty, an individual is considered to
have minimum essential coverage for any month in which he or she is
enrolled in one of the following types of coverage for at least one
coverage (including COBRA and retiree coverage);
purchased in the individual market; or
coverage, such as Medicare, Medicaid, the Children's Health
Insurance Program, or TRICARE.
Minimum essential coverage does not include
specialized coverage such as vision care or dental care, workers'
compensation, disability policies, or coverage for a specific
disease or condition.
Calculating Shared Responsibility Penalty. The penalty is
the greater of: a flat dollar amount; or a specific percentage of
income. For 2014, the penalty amount will be the greater of $95 per
adult and $47.50 per child under age 18 (maximum of $285 per
family) or 1% of income over the tax-filing threshold which, in
2012, was $19,500 for a joint return.
The 2014 shared responsibility penalties are payable
when individuals file their 2014 federal income tax returns in
2015. If the penalty applies for less than a full calendar year, it
is prorated to 1/12 of the annual penalty for each month without
Exemptions from Shared Responsibility Penalties. PPACA provides
certain statutory exemptions from the minimum essential coverage
requirement. Individuals who meet the following criteria are exempt
from paying the shared responsibility penalty:
of religious organizations that object to coverage on
of health care sharing ministries (i.e., non-profit religious
organizations where members share medical costs);
of federally recognized Indian tribes;
with incomes below the minimum threshold for filing a tax
who have a gap in minimum essential coverage for less than
three consecutive calendar months in a year;
who qualify for a hardship exemption;
who cannot afford coverage because their required contribution
towards minimum essential coverage exceeds 8% of their annual
who are incarcerated; and
not lawfully present in the United States.
U.S. citizens residing in a foreign country are also
generally exempt from the shared responsibility penalty if they
meet certain requirements, such as living abroad for the entire
Released Health Care Reform FAQs Address HRAs
The DOL, HHS and IRS have issued the eleventh set of
FAQs relating to the implementation of various provisions PPACA. In
particular, the eleventh set of FAQs offer guidance on the
application of PPACA's prohibition against annual or lifetime
dollar limits to health reimbursement arrangements
HRAs and PPACA's Restriction on Lifetime or Annual
Limits. PPACA generally prohibits group health plans from
imposing annual or lifetime dollar limits on "essential health
benefits." HRAs are group health plans that typically
reimburse medical expenses up to a specified dollar amount. Thus,
it is impossible for an HRA to comply with PPACA's prohibition on
annual or lifetime dollar limits.
The final regulations implementing PPACA's prohibition
on annual and lifetime dollar limits made a distinction between
HRAs that are "integrated" with other employer health
coverage and "stand-alone" HRAs that are not integrated.
Specifically, the final regulations provide that when an HRA is
integrated with other employer health coverage that complies with
PPACA's annual and lifetime dollar limit prohibitions, the fact
that benefits under the HRA are limited will not violate PPACA
because the combined plans satisfy the requirements.
The FAQs offer the following additional guidance on
when an HRA will be considered "integrated" with other
employer health coverage:
employer-sponsored HRA is not considered integrated unless it
specifies that coverage is available only to employees who are
also covered by employer-provided health coverage that
complies with the annual and lifetime dollar limit
employer-sponsored HRA cannot be integrated with individual
market coverage or with an employer-provided plan that
provides coverage through individual policies.
employer-sponsored HRA may be treated as integrated with other
employer-provided health coverage only if the employee covered
by the HRA is actually enrolled in the other coverage.
Although PPACA's prohibition on lifetime or annual
dollar limits has been in effect since 2010, the FAQs permit any
amounts credited to an HRA before January 1, 2014, to be used after
December 31, 2013, without violating PPACA, regardless of whether
the HRA is integrated.
Guidance on PPACA Exchange Notices
The DOL has issued temporary guidance on the
requirement that employers issue "Exchange Notices" to
employees. PPACA requires certain employers to provide this Notice,
which explains the coverage options available under the Health
Insurance Exchanges that will open in January of 2014.
Employers Subject to Requirement. PPACA's Exchange
Notice requirement applies to employers that are subject to the
Fair Labor Standards Act ("FLSA"), including:
who have at least $500,000 in annual business;
state and local government agencies;
and other institutions primarily engaged in the care of the
sick, aged, mentally ill, or disabled; and
elementary and secondary schools, and institutions of higher
Employers can use DOL's FLSA compliance assistance
tool to determine if they are subject to the FLSA and,
consequently, PPACA's Exchange Notice requirement. DOL's compliance
assistance tool is at: http://www.dol.gov/elaws/esa/flsa/scope/screen24.asp
Content. In general, the Exchange Notice must:
employees of the existence of the Exchanges, describe the
services provided by the Exchanges, and explain how an
employee can contact an Exchange for assistance;
that the employee may be eligible for a premium tax credit to
purchase health coverage through an Exchange if the employer's
plan does not meet certain requirements; and
employees that if they purchase a qualified health plan
through an Exchange, they may lose any employer contribution
made towards health coverage, and that a portion of that
employer contribution may be tax exempt.
Model Notices. The temporary guidance provides the
following model Exchange Notice templates:
Distribution of the Notice. Employers must
distribute the Exchange Notice to all employees, regardless of plan
enrollment status or part- or full-time status. New employees must
be given the Notice "at the time of hiring." For 2014,
this means within 14 days of the employment starting date.
Employers do not have to provide a separate Notice to the
The Exchange Notice may be furnished electronically, provided
the DOL's electronic disclosure safe harbor requirements are met.
Compliance Date. The Exchange
Notice requirement is effective October 1, 2013. It was originally
slated to take effect on March 1, 2013. However, DOL delayed the
effective date until this fall, so that Exchange Notice
distribution efforts are coordinated with the open enrollment
period for the Exchanges.
The temporary guidance is at: http://www.dol.gov/ebsa/pdf/tr13-02.pdf
Proposed Regulations on PPACA's Employer Pay-or-Play Penalties
The IRS began 2013 by releasing proposed regulations
that offer much needed guidance to employers regarding their
potential liability for the "pay-or-play" penalties
contained in the PPACA. Beginning in 2014, PPACA subjects large
employers (i.e., employers with 50 or more full-time equivalent
employees ("FTEs")) to two different pay-or-play
penalties if they fail to comply with PPACA's "employer shared
responsibility" provisions. Below is a summary of the
penalties imposed for violations of PPACA's pay-or-play rules.
Pay-or-Play Penalties. The first
pay-or-play penalty applies if: (i) an employer fails to offer
coverage to "substantially all" of its full-time
employees; and (ii) a low-income, full-time employee receives a
premium tax credit through an Exchange. In those situations, the
employer must pay an annual penalty of $2,000 multiplied by: the
number of full-time employees, minus 30.
The other pay-or-play penalty applies in situations
where: (i) an employer offers coverage to its full-time employees
that is either "unaffordable" or does not provide
"minimum value;" and (ii) a low-income, full-time
employee receives a premium tax credit through an Exchange. In such
situations, the employer must pay an annual penalty of $3,000 for
each full-time employee who receives the premium tax credit.
However, this penalty is capped at $2,000 multiplied by: the number
of full-time employees minus 30.
Full-time Employee vs. FTEs. Although the
hours of part-time workers are aggregated into FTEs when
determining if an employer is a large employer subject to the
penalties, for purposes of determining penalty amounts, only actual
full-time employees are counted. Generally, a full-time employee is
an employee who is employed an average of at least 30 hours per
week. Hours of service include not only hours when work is
performed but also hours for which an employee is paid or entitled
to payment, even when no work is performed (i.e., vacation, sick
"Substantially All" Employees. An employer is
consider to have offered health care coverage to
"substantially all" of its employees if the offer is made
to at least 95% of the full-time employees. Therefore, an employer
that offers health coverage to 97% of its full-time employees is
not subject to the $2,000 penalty. However, that employer is still
subject to the $3,000 penalty for each low income full-time
employee who receives a premium tax credit through an Exchange,
regardless of whether that employee is or is not eligible to
participate in the employer's plan.
Employees vs. Dependents. In 2014, with
certain exceptions, large employers must offer coverage to
full-time employees' dependents in order to avoid the penalty. For
purposes of the pay-or-play penalty, the term "dependent"
means an employee's dependent children up to age 26, but does not
include the employee's spouse.
Determining if Coverage Provides Minimum Value. In general, an
employer's health coverage provides "minimum value" only
if it covers at least 60% of the total allowed costs of benefits
that are expected to be incurred under the plan. The IRS, DOL and
HHS will make a minimum value calculator available to help
employers determine whether their coverage provides minimum value.
Employers will input certain information about their plan (e.g.,
deductibles and co-pays) into the calculator and get a
determination as to whether their coverage provides minimum value.
Affordability Safe Harbors. Coverage is
"unaffordable" if the employee's share of the premium is
more than 9.5% of his or her annual household income. However,
employers generally do not know their employees' household incomes.
The proposed regulations provide the following affordability safe
harbors that employers may use to determine if their coverage is
safe harbor. If the employee's contribution for single
coverage under the employer's lowest cost medical option does
not exceed 9.5% of the employee's Box 1, W-2 pay for that year,
the affordability test is satisfied.
of pay safe harbor.If the employee's contribution for single
coverage under the employer's lowest cost medical option does
not exceed 9.5% of the employee's monthly wage amount, the
affordability test is satisfied.
poverty line safe harbor. If the employee's contribution for
single coverage under the employer's lowest cost medical
option does not exceed 9.5% of the federal poverty line for a
single individual, the affordability test is satisfied.
All large employers should carefully consider the
financial impact of the proposed regulations. Even extremely large
employers that offer coverage which provides minimum value should
consider the ramifications of the penalty when some of their
employees receive premium tax credits through Exchanges. This is
because employees may qualify for the premium tax credit with
household incomes as high as 400% of the federal poverty line,
which, for 2012, was $92,000 for a family of four. Therefore, more
employees may receive premium tax credits than would be anticipated
Final Regulations on PPACA's Patient-Centered Outcomes Research
The IRS has issued
final regulations implementing certain fees imposed by PPACA on
health insurers and self-insured health plan sponsors. These fees,
which are known as Patient-Centered Outcomes Research Institute
("PCORI") fees, are for funding medical research and
comparing outcomes of various medical techniques. They apply for
policy and plan years ending on or after October 1, 2012, and
before October 1, 2019 (i.e., seven full policy or plan years).
The final regulations offer guidance explaining which
health insurers, and which self-funded health plan sponsors, are
subject to the PCORI fees and how to calculate the number of
covered lives for purposes of determining the amount of the PCORI
Definition of "Applicable Self-insured Health
The final regulations define self-insured health plans
as all plans that are not fully insured. This includes any plan
that provides accident and health coverage to an active employee,
former employee or qualifying beneficiary under COBRA, or similar
continuation coverage under federal or state law. The definition
includes retiree-only health plans, which are exempt from many of
the other PPACA mandates.
However, the definition excludes self-insured plans
where substantially all of the coverage consists of HIPAA-excepted
benefits (e.g., limited scope vision and dental). Employee
assistance programs, disease management programs, and wellness
programs that do not provide "significant benefits in the
nature of medical care or treatment" are also excluded.
The final regulations include health reimbursement
accounts (HRAs) as self-insured health plans. Nonetheless,
multiple, self-insured arrangements maintained by the same plan
sponsor can be treated as a single plan subject to only one PCORI
fee. For example, an HRA will not be subject to a separate PCORI
fee if it is paired with another self-insured group health plan
that provides major medical coverage, if the HRA and the other plan
are established by the same sponsor and have the same plan year. However,
when an HRA is paired with an insured group health plan, each must
pay the PCORI fee separately.
Under the final regulations, a health flexible
spending account (FSA) is not covered if: (i) employees who are
eligible for the health FSA are also eligible for group health plan
coverage; and (ii) the FSA is funded either solely by employees'
salary reduction contributions or the employer's contributions to
the FSA do not exceed the greater of (a) $500, or (b) twice the
employees' pre-tax contribution. In other words, the typical FSA
will be exempt.
Calculating and Paying the Fee
For the first year, the PCORI fee is $1 for each
covered life. For the second through seventh years, the amount
increases to $2, subject to an adjustment based on increases to the
projected per capita amount of the National Health Expenditures.
Plan sponsors of self-funded plans must remit the fee
to IRS annually along with an IRS Form 720. The payment and form
will be due July 31 for all plan years ending in the preceding
Calculating the Number of Covered Lives
The final regulations provide that a plan sponsor may
use any of the following methods to calculate the average number of
covered lives under the plan:
actual count method (i.e., plan sponsor adds the totals of
lives covered for each day of the year, divided by the total
by the number of days in the plan year).
snapshot method (i.e., plan sponsor adds the total lives
covered on one date in each quarter of the plan year).
Form 5500 method (i.e., plan sponsor uses a certain formula
that includes the number of participants actually reported on
the Form 5500 for the plan year). Note: The Form 5500 method
is not available to sponsors that extend their filing
deadlines beyond the July 31 due date for the PCORI fees.
The final regulations provide a special rule that allows
sponsors of covered HRAs and health FSAs to count only
employee-participants and exclude dependents.
The final regulations are effective immediately, and
the first PCORI fees are to be reported and paid to the IRS by July