New Guidance on HRAs and Premium Reimbursement Arrangements
On Sept. 13, 2013, the IRS issued Notice 2013-54, which includes details on permissible health reimbursement arrangements (HRAs), provides some clarification on minimum essential, minimum value and affordable coverage, and addresses payment of individual premiums through an employer-provided plan.
Most people had expected that standalone HRAs would have difficulty meeting PPACA’s prohibition on dollar limits, and the Notice confirms this. Beginning with the 2014 plan year, an HRA will not be permitted unless:
It is integrated with a group medical plan that does not have dollar limits and that provides first-dollar benefits for preventive care,* or
The HRA only provides “excepted benefits” such as standalone dental or vision, or
The HRA only covers retirees.
In order for an HRA to be integrated:
The HRA must only be available to employees who are actually enrolled in group medical coverage (either through the employee’s or a family member’s employer); and
The employee receiving the HRA must actually be enrolled in a group medical plan (either through the employee’s or a family member’s employer); and
The HRA must be written to give the employee the opportunity at least annually to permanently decline participation in the HRA, and when employment terminates the employee must be allowed to permanently decline participation in the HRA or the balance must automatically be forfeited at termination.
An integrated HRA will be able to reimburse a former employee with unused HRA dollars even after the employee’s group medical coverage ends. The IRS will consider an HRA to be minimum essential coverage for as long as it has a balance. A person is ineligible for a premium subsidy if he is covered by an employer-sponsored plan that provides minimum essential coverage. Therefore, an employee will need to be given the opportunity to decline the HRA so that he can apply for a premium subsidy if he prefers. This means that most HRA plan documents will need to be amended to provide the opportunity to decline coverage.
If an employer chooses to make HRA contributions to employees covered under a group health plan provided by another entity, it may simply get a certification of other coverage from the employee. The employer does not need to independently verify that the other coverage meets the PPACA requirements.
Stand-alone medical HRAs will not be allowed after this year for non-retirees because they fail to meet the PPACA requirement that there be no annual or lifetime dollar limit on essential health benefits; HRAs are limited to the amount of the employer contribution, which is virtually always capped. Despite the new restrictions, unused amounts that were credited to an HRA before Jan. 1, 2014, generally may be paid out as reimbursements even after 2013 from a HRA that is not integrated.
Minimum Essential Coverage
As mentioned above, the IRS considers an HRA with any type of a balance to be minimum essential coverage. As a reminder, whether a person has minimum essential coverage matters several ways under PPACA:
A person with minimum essential coverage does not have to pay an individual shared responsibility/individual mandate penalty.
A person with minimum essential coverage is not eligible for a premium subsidy through the health marketplace/exchange.
Beginning in 2015, a large employer (one with 50 or more full-time or full-time equivalent employees) must offer minimum essential coverage to at least 95 percent of its employees or pay a penalty of $2,000 per year per full-time employee.
Impact on Minimum Value and Affordability
As the IRS has said before regarding HRA contributions used in connection with the employer’s own integrated group medical plan:
If the HRA may only be used for cost-sharing (reimbursing the deductible, copays, and/or coinsurance), current year HRA contributions may be used when calculating the plan’s minimum value.
If the HRA may be used to reimburse premiums, or to pay both premiums and cost-sharing, current year HRA contributions may be used when deciding if the group medical plan is affordable.
The new Notice states that although an employer may consider an HRA integrated with coverage under any group medical plan, contributions to one employer’s HRA may not be applied by another employer when deciding if that employer’s coverage is affordable or minimum value.
Example: Acme, Inc. sponsors a group medical plan and an HRA for its employees. Acme’s HRA is available only to employees who are either enrolled in its group health plan or in a group medical plan through a family member. Mark is employed by Acme. He chooses to enroll in his wife’s group medical plan sponsored by Baker Co. Mark attests to Acme that he is covered by the Baker group medical plan through his wife.
Acme’s HRA is permissibly integrated with Baker’s group medical coverage for purposes of the annual dollar limit prohibition and the preventive services requirements. Because Acme makes an HRA contribution whether Mark enrolls in the Acme plan or his spouse’s plan, Acme may use the HRA contributions when determining whether its group medical plan is affordable or provides minimum value coverage. If, however, Acme only contributed to an HRA if the employee declined Acme’s medical coverage and enrolled elsewhere, Acme would not be allowed to use the HRA contribution in its minimum value or affordability determination. Baker may never use Acme’s HRA contribution when determining if its plan is affordable and minimum value.
Premium Reimbursement Arrangements
Premium reimbursement arrangements are now called “employer payment plans.” An employer payment plan is any arrangement under which an employer reimburses an employee for all or part of the premium for an individual health policy. Employer payment plans include direct employer payment to the insurance carrier and reimbursement of substantiated employee premium payments. Like stand-alone HRAs, employer payment plans will not meet the PPACA requirements of no dollar limits or coverage of preventive care, and so will not be allowed after this year.
The Notice states that an employer payment plan does not include “an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount [emphasis added] to be applied toward health coverage.” This would seem to mean that paying pre-tax premiums through a Section 125 plan for individual coverage would be considered an employer-payment plan and will not be allowed after this year.
Employers that sponsor HRAs will need to determine if the HRA is properly integrated with a group medical plan. If the HRA is integrated, the HRA plan document likely will need to be amended to allow employees to decline to participate annually and to either automatically forfeit unused contributions or allow the employee to decline further participation when employment terminates. Employers with HRAs that are not integrated will either need to discontinue contributions after the 2013 plan year or restructure the arrangement.
Employers that reimburse individual policies likely will need to discontinue that practice after 2013. Plan amendments may be needed if premiums are paid through a Section 125 plan or an HRA.
Retiree-only HRAs will still be permitted, and individual premiums may be reimbursed in this situation. Employers need to consider the effect of the HRA on the retiree’s eligibility for a premium subsidy, and amend the plan accordingly.
Note that this Notice only addresses payment of premiums for individual coverage. Premiums may still be paid on a pre-tax basis if coverage is provided through a group policy.
*Grandfathered plans are not required to provide first dollar coverage for preventive care.
Strut Your Stuff Regional Mixer on October 10th! $10
Attachment #1 – PPACA Advisor Brochure – “Maniaci Insurance Services – The HCHG Chamber’s Trusted Advisor for Healthcare Reform”
- Description: Your HCHG Chamber membership will allow you access to accurate and timely information to help your company navigate through Healthcare Reform. The majority of the services offered through our Healthcare Reform Program with Maniaci Insurance Services will have no additional cost. This brochure details what types of information will be available to you.
- Download the document from this link: PPACA Advisor Brochure
Attachment #2 – Executive Summary – “Preparing for 2015 – A Snapshot for Employers Under the Patient Protection and Affordable Care Act” (also referred to as PPACA, Healthcare Reform, ObamaCare, etc.)
- Description: The Chamber understands the burdens employers are faced with in relation to Healthcare Reform. You have a number obligations, legal requirements and potential fines for not being in compliance with the law. This simplified overview of the law will help you better understand what your company is faced with and what you need to do to adhere to the law.
- Download the document from this link: Executive Summary
Attachment #3 – Compliance Guide Small Size Co – “Compliance and Decision Guide for Employers with Fewer than 50 Employees”
- Description: Depending on the size of your company, you will have different requirements to meet to be in compliance with Healthcare Reform. This guide details the aspects of the law for an employer with fewer than 50 employees.
- Download the document from this link: Compliance Guide Small
Attachment #4 – Compliance Guide Large Size Co – “Compliance and Decision Guide for Employers with More than 50 Employees”
- Description: Although Healthcare Reform affects every employer, no matter their size, the majority of the law impacts employers with more than 50 employees. This guide outlines the more specific requirements large employers must comply with.
- Download the document from this link: Compliance Guide Large
Attachment #5 – Play or Pay Penalty Delayed to 2015 – “Play or Pay Penalty Delayed to 2015”
- Description: The employer shared responsibility/pay or play requirement that employers with 50 or more full-time or full-time equivalent employees must offer affordable, minimum value coverage to employees working 30 hours/week or pay a penalty. On July 2, 2013 the Department of Treasury and the White House indicated that this requirement will be delayed until 2015. The attached outlines what has been delayed and what part of the law is still required.
- Download the document from this link: Play or Pay Penalty Delayed
Attachment #6 – Counting Employees – “The Play or Pay Penalty and Counting Employees Under PPACA”
- Description: There are many questions surrounding how an employer determines whether they have met all of the Play or Pay rules and whether they will be responsible for paying a penalty. Because employees work a variety of schedules, the rules are long, and in some situations they are complicated. This detailed guide outlines the rules an employer must follow for their specific situation.
- Download the document from this link: Counting Employees
Attachment #7 – Timeline HCR – “Healthcare Reform Timeline”
- Description: Preparing for Healthcare Reform and how it will impact your company is crucial. The attached timeline provides you with important dates to help stay in compliance.
- Download the document from this link: Timeline HCR
HIGHLIGHTS OF THE EXCHANGE NOTICE REQUIREMENT
The Department of Labor, since originally requiring employers to provide employees with written notice of availability of the Exchanges earlier this year, extended the deadline to October 1, 2013. Additionally, they have provided more guidance to assist employers with complying with this requirement.
WHO MUST PROVIDE THE NOTICE?
All employers that are subject to FLSA:
- Generally, the FLSA applies to employers who are engaged in interstate commerce and have gross annual sales of $500,000 or more
- “Engage in interstate commerce” is any regular contact with interstate, no matter how small. Activity must solely be local activity to avoid “engaging in interstate commerce.”
- DOL provided tool to determine FLSA applicability:
- Hospitals, non-acute care and residential facilities, schools and institutions of higher learning
- Federal, state and local governments
- Size does not matter, i.e., regardless of whether an applicable large employer or not, the Notice must be provided if the employer is in one of the above categories
WHO MUST RECEIVE THE NOTICE?
- ALL employees
- Full-time and part-time employees
- Employees covered by employer health plan/employees not covered by employer health plan
- No separate Notice required to dependents and spouses
- Not required to provide Notice to retirees
- Not required to provide to COBRA participants
WHAT INFORMATION MUST BE INCLUDED IN THE NOTICE?
Employees must be:
- Informed of the existence of the Exchanges
- Given a description of the services provided by the Exchange
- Told how to contact the Exchange
- Informed whether employees may be eligible for a subsidy if they purchase insurance through the Exchange
- Informed they may lose employer contributions if they purchase insurance through the Exchange
- Told employer contributions to the employer health plan are excludable for federal income tax purposes
We advise you use the Model Notices provided by the DOL. Each Model Notice has a Part A and a Part B:
- Part A – general Exchange, tax and economic information
- Part B – employer specific information
WHEN MUST THE NOTICE BE PROVIDED?
- Current employees - no later than October 1, 2013
- New hires – within 14 days of date of hire
- One-time Notice
DELIVERY OF NOTICE?
- First class mail
- Electronically if the requirements of DOL’s electronic safe harbor are met
- The Notice may be sent with other materials, e.g., new hire enrollment packets or other communications
Download the Model Notices using the links below:
- Model Notice (English), Model Notice (Spanish) - for employers without health plan
- Very simple to use, employer merely needs to add an employer contact name, phone number and email
- Model Notice (English), Model Notice (Spanish) - for employers with health plan – Part B requires more employer specific information
- Health plan information about who is covered, dependent coverage, wellness coverage (premium impact)
- If plan meets the minimum value standard (Note: your group plan has been tested for this and does meet the minimum value standard)
- Whether the employer intends the coverage to be affordable based upon the wages of the recipient
- Optional section that mirrors the Exchange Employer Coverage Tool to assist employees to understand their coverage choices
- Sample Model Notice - for you to reference when completing your model notice
Should you have any questions or need further assistance with your notice, please do not hesitate to contact our office.
Determine how you will distribute these to your employees
- Sample Cover Letter (English), Sample Cover Letter (Spanish) - provided to assist in communicating this information to your employees
- PPACA Guide for Employees (English), PPACA Guide for Employees (Spanish) - provided to assist your employees in understanding PPACA
For those that have embraced one of our online benefit systems (i.e., HRConnect, Employee Benefit Center), please return your completed model notice to our office so that we may upload it your online system.
Please note, this is only one employee notice requirement of PPACA, however there are several others. In the next few weeks, we will be providing you with additional documents to provide to your employees. We will also be providing additional information to clients who are not currently set up with an online benefits system. This online system will satisfy the requirements of the law and simplify the compliance administration process.
The preceding information has been provided to the Chamber courtesy of :
Maniaci Insurance Services, Inc.
500 Silver Spur Road, Suite 121
Palos Verdes, California 90275
Thank you for the opportunity to be of service.
PPACA AND THE INDIVIDUAL SHARED RESPONSIBILITY REQUIREMENT
(Updated Aug. 29, 2013)
Although the employer shared responsibility requirements have been delayed to 2015, the individual responsibility requirement (also known as the individual mandate) is still scheduled to take effect in 2014. Under the individual mandate, most people residing in the U.S. will be required to have minimum essential coverage, or they will have to pay a penalty. Many individuals will be eligible for financial assistance, through premium tax credits (also known as premium subsidies), to help them purchase coverage if they buy coverage through the health insurance marketplace (also known as the exchange).
This PPACA Advisor includes information from the final regulations issued by the Internal Revenue Service on Aug. 27, 2013 and by the Department of Health and Human Services on July 1, 2013. Employers are not required to educate employees about their individual responsibilities under the Patient Protection and Affordable Care Act (PPACA) – this Advisor simply provides information that employers may find helpful to know.
The individual mandate is effective for most people as of Jan. 1, 2014. However, if the individual has access to minimum essential coverage through an employer, and that employer’s plan operates on a non-calendar year basis, the employee and/or dependent will not have to pay penalties for the months before the start of that plan year.
For 2014 the penalty for an adult is the greater of $95 or one percent of household income above the tax filing threshold
The penalty for a child under age 18 is 50 percent of the adult penalty. The maximum penalty per family is three times the individual penalty. The penalty amount increases after 2014. The penalty will be calculated and paid as part of the employee’s federal income tax filing.
Minimum Essential Coverage
To avoid a penalty a person must have “minimum essential coverage.” Minimum essential coverage is basic medical coverage, and may be provided through an employer (whether insured or self-funded, and whether provided directly by the employer or through another party, such as a multiemployer plan, a collectively bargained plan, a PEO or a staffing agency), Medicare, Medicaid, CHIP, TRICARE, some VA programs, and an individual policy (through or outside the marketplace/exchange).
While most people must obtain coverage or pay penalties, individuals will not be penalized if they do not obtain coverage and:
- They do not have access to affordable coverage (cost exceeds 8 percent of modified adjusted gross household income)
- Their household income is below the tax filing threshold
- They meet hardship criteria (e.g., recent bankruptcy, homelessness, unreimbursed expenses from natural disasters)
- Their period without coverage is less than three consecutive months
- They live outside the U.S. long enough to qualify for the foreign earned income exclusion
- They reside in a U.S. territory for at least 183 days during the year
- They are a member of a Native American Tribe
- They belong to a religious group that objects to having insurance, including Medicare and Social Security, on religious grounds (e.g., Amish)
- They belong to a health sharing ministry that has been in existence since 1999
- They are incarcerated (unless awaiting trial or sentencing)
- They are illegal aliens
If the person has access to employer-provided coverage as either the employee or an eligible dependent, affordability of the employer-provided coverage is the only factor considered.
- For the employee, coverage is unaffordable (so no penalty applies for failure to have coverage) if the cost of single coverage is more than eight percent of household income
- For a dependent, coverage is unaffordable (so no penalty applies for failure to have coverage) if the cost of the least expensive employer-provided dependent coverage is more than eight percent of household income
- If the employee and spouse both have access to coverage through their own employer, the cost for each person’s coverage is based on the cost of their own single coverage, but the totals are then combined to see if the total cost exceeds eight percent of household income
This means that there will be situations in which the employee has to pay a penalty, but family members do not. It also means that a while a low-income person could choose not to purchase coverage (and pay no penalty), he or she also has the option to purchase through the exchange and receive a premium subsidy.
If the person does not have access to employer (or other non-marketplace/exchange) coverage, the measure of unaffordability is the person’s premium after the premium subsidy is applied to the lowest cost bronze plan available through the marketplace/exchange.
Eligibility for Premium Subsidies
To help lower-income people meet the requirement to have insurance, a premium subsidy will be available to a person who:
- Purchases coverage through a public marketplace/exchange; and
- Has a household modified adjusted gross income between 100 or 133 percent (depending on their state) and 400 percent of Federal Poverty Level (FPL); and
- Is not eligible for minimum essential medical coverage through a government program such as Medicare, Medicaid or CHIP or for employer-provided coverage that both is minimum value (is expected to cover at least 60 percent of claims) and affordable (the cost of single coverage is not more than 9.5 percent of household income).
The amount of available premium subsidy depends on the person’s household income. The percentage of income a person will be expected to pay for coverage ranges from two percent for someone whose income is 100 to 133 percent of FPL to 9.5 percent for someone whose income is 300 to 400 percent of FPL. Basically, the marketplace/exchange will look at how much a specific silver (70 percent value) plan costs in the marketplace/exchange and determine how much of that cost the person should pay based on their income. The person will directly pay his or her share to the insurer and the government will pay the rest directly to the insurer.
The government payment of the premium subsidies is considered an advance tax credit, so when the person files his or her federal income tax return after the end of the year there will be a true-up, and the employee will pay extra tax (to a maximum) or get money back if the monthly subsidies/credits were too large or too small.
Individuals with incomes below 250 percent of FPL also will be eligible for help with deductibles, coinsurance and co-pays.
A person who applies for a premium subsidy will be required to provide information about coverage available through sources other than the marketplace/exchange as part of the application process. If the person says that coverage is available through his employer (or his or her spouse’s employer), the marketplace/exchange will contact the employer to verify that the employee’s information is accurate. Employers will be encouraged, but not required, to respond to these verification requests. Income will be verified through tax filings. Equifax will be used to obtain current income if that is needed. The IRS has the right to audit both the employer and individual.
Note: PPACA defines “affordability” differently based on the situation – affordability for purposes of the individual responsibility requirement is based on eight percent of household income; affordability for purposes of the premium subsidy is based on 9.5 percent of household income; and affordability for purposes of the employer shared responsibility requirement (now delayed to 2015) is based on 9.5 percent of the employee’s safe harbor income.
The IRS has issued a FAQ about the individual mandate which may be obtained here: Questions and Answers on the Individual Shared Responsibility Provision
A Fact Sheet developed by the IRS is here: www.treasury.gov/press-center/press-releases/Pages/jl2152.aspx
Noteworthy Numbers and Other Details:
The tax filing threshold is $10,000 if filing single and $20,000 if married and filing jointly.
Federal Poverty Level (FPL) in the 48 contiguous states is $11,490 for a single household and $23,550 for household of four. It is $14,350/29,440 in Alaska and $13,230/27,090 in Hawaii.
The subsidy is based on the following table (a sliding scale applies in a linear manner, rounded to the nearest one-hundredth of one percent between the minimum and maximum percentage):
|Household income as a percent of FPL||Applicable Percentage|
|Minimum percent||Maximum percent|
|Up to 133 percent||2.0||2.0|
|133 – 150 percent||3.0||4.0|
|150 – 200 percent||4.0||6.3|
|200 – 250 percent||6.3||8.05|
|250 – 300 percent||8.05||9.5|
|300 – 400 percent||9.5||9.5|
The applicable percentage multiplied by the person’s household income determines his required share of premiums for the second least expensive silver plan in the marketplace/exchange.
Household income generally includes the income of all individuals in the tax household (e.g., the income of employed children is considered unless the child files his/her own tax return).
The maximum amount an individual who received too large a subsidy would repay is $300 if filing single and $600 if filing other than single if household income is less than 200 percent of FPL; $750/$1,500 if income is 200 percent up to 300 percent of FPL; and $1,250/$2,500 if income is 300 – 400 percent of FPL.
Additional requirements to be eligible for the premium subsidy are that the person:
- Is a US citizen, national or alien lawfully present in the U.S. (e.g., on a visa)
- Is not eligible to be claimed as another person’s tax dependent
- Files a tax return (if married, a joint return must be filed)
- Has not purchased employer-provided coverage (regardless whether it is affordable and minimum value)
An individual who is exempt from the individual mandate because he or she does not have affordable coverage available also has the option to purchase catastrophic coverage. Premium subsidies are not available for catastrophic coverage.
Information provided to the Chamber courtesy of
Maniaci Insurance Services, Inc.
500 Silver Spur Road
Palos Verdes, California 90275
International Trade News - Truck Funding Available:
Proposition 1B Goods Movement Emission Reduction Program (Program). Six local air districts are offering financial incentives to owners of trucks used in goods movement to upgrade to cleaner technologies through truck replacement or engine repower projects. These funds are available for eligible trucks operating primarily in the four high priority trade corridors in the Bay Area, Central Valley, Los Angeles/Inland Empire, and San Diego/Border corridors.
Incentives for truck electrification infrastructure projects will also be offered.
The local agencies will be accepting applications beginning August 26, 2013, for a limited time. Please see the Program website at: http://www.arb.ca.gov/gmbond for more information and how to apply for funds.
In addition, owners of fleets of 40 or fewer trucks may be eligible for loan assistance, without the Prop. 1B grant limitations regarding goods movement and operation in the trade corridors. Please see the following for more information and how to apply: http://www.arb.ca.gov/ba/loan/on-road/on-road.htm or http://www.treasurer.ca.gov/cpcfa/calcap/arb/index.asp.
Background: The Proposition 1B: Goods Movement Emission Reduction Program is a partnership between the State Air Resources Board (ARB) and local agencies (like air districts and ports) to quickly reduce air pollution emissions and health risk from freight movement along California’s trade corridors. ARB provides funding to eligible agencies; those agencies then offer financial incentives to owners of equipment used in freight movement to upgrade to cleaner technologies prior to regulatory requirements.
If you have any questions, please call our Goods Movement Information Line at: (916) 44-GOODS (444-6637) or contact us via email at email@example.com.