Integrated HRAs

A new option exists for employers when it comes to paying for employee health care coverage. On June 13th, the U.S. Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued a final rule allowing employers to use pretax dollars to subsidize employee premiums in the individual health insurance market. Now, employers of all sizes that do not offer a group coverage plan can fund a new health reimbursement arrangement (HRA) known as individual coverage HRA (ICHRA).

Previously, under the Affordable Care Act, employers were prevented from offering stand-alone HRAs that would allow an employee to purchase coverage on the individual market. That has changed. Employers now have the option to provide their workers and their families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market. The departments posted an FAQs regarding the new regulation. ICHRAs are advantageous to employers because they maintain the tax favored status that apply to a traditional group health plan. Additionally, another employer-sponsored insurance called Excepted Benefit HRAs (EBHRA) allows employers to finance an additional pretax $1,800 per year to reimburse employees for certain qualified medical expenses (such as premiums for vision and dental insurance) even if the employee opts out of enrollment in the traditional group plan.

Qualified Small Employer HRAs (QSEHRA) are still an attractive alternative to group coverage for smaller employers- those with fewer than 50 full-time employees. Under QSEHRAs, employers can give their employees money tax-free to purchase individual health policies through the ACA exchange, similar to ICHRAs. Employees can use these funds to pay all or part of the insurance plan premium or pay for out-of-packet medical costs. While ICHRAs are void of caps on annual allowance amounts, in 2019, QSEHRAs allowance amounts were capped at $5,150 for self-only employees and $10,450 for employees with a family. While ICHRAs are free of caps, employees who choose ICHRAs will not be able to receive any premium tax credit/subsidy for exchange-based coverage. In some instances, if an employer funds an ICHRA or a QSEHRA coupled with individual-market insurance, this will bar the individual-market coverage from becoming part of the Employee Retirement Income Security Act (ERISA).

If employers choose to offer ICHRAs, then the new regulations require a written notice be issued to all employees who are eligible. In this notice, employers need to include a provision that states the ICHRA may make them ineligible for a premium tax credit or subsidy when buying an Affordable Care Act exchange-based plan. ICHRAs will be available for plan years starting on or after January 1, 2020. Employers offering an ICHRA with a plan year that begins on January 1, 2020 should help eligible employees understand that they must enroll in individual health insurance coverage during the open enrollment period, November 1, 2019 through December 15, 2019, for individual health insurance coverage that takes effect on January 1, 2020.

ICHRAs and EBHRA are two new health insurance arrangements that could provide smaller employers with innovative and more cost-effective ways to finance worker health insurance coverage. The IRS has noted that including safe harbor provisions to ensure employers still satisfy the ACA’s affordability and minimum value requirements with ICHRAs will come out later this year.

© 2019 Vandenack Weaver LLC

For more information, Contact Us

U.S. Supreme Court Interpretation Permits Thousands of “Church Plans” – Including Many for Hospitals and Health Systems – to Remain Exempt from ERISA

On June 5, 2017, the United States Supreme Court unanimously adopted a “broad” interpretation of the exemption allowed under the Employee Retirement Income Security Act (“ERISA”) for “church plans.”   The decision effectively permits thousands of retirement plans adopted by church-affiliated organizations – including numerous hospitals, schools and social-service organizations – to remain exempt from most ERISA requirements.

Plaintiffs in the case of Advocate Health Care Network v. Stapleton argued that a “narrow” interpretation of the “church plan” exemption was appropriate, and that they were damaged by their employers failing to comply with ERISA’s various requirements designed to protect employee retirement savings.  Advocates of the “narrow” interpretation argued that only plans actually established by a church should be eligible for the exemption.

A split among the United States Courts of Appeal between the “broad” and “narrow” interpretations of the exemption had left plan sponsors and participants in an uncertain state where the applicable plan was maintained by a church-affiliated group and not established by the church itself.

A considerable number of plans in question related to church-affiliated hospitals and health systems.  A “narrow” interpretation would render such plans subject to ERISA.

In an 8-0 decision authored by Justice Elena Kagan, the Supreme Court concluded that principles of statutory interpretation favored the conclusion that Congress chose language indicating a “broad” exemption.  The “broad” exemption had been employed in interpretive materials, advisory opinions and private letter rulings of the Internal Revenue Service and Department of Labor, so the decision eliminates, for now, the uncertainty that had arisen with respect to plans that had relied on said interpretation.

© 2017 Vandenack Weaver LLC
For more information, Contact Us

IRS Denies Tax-Favored Status to Certain “Self-Funding” Health Plans

By James Pieper

The Internal Revenue Service (“IRS”) has issued a memorandum (“Memorandum”) indicating that it will deny tax-favored status to payments received under certain health plans marketed by their promoters as “self-funding.”

The Memorandum indicates that payments made under such plans will be considered “income” on the part of the employee (and thus not excluded from “gross income” for purposes of the income tax), and will be considered “wages” for purposes of the Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes paid by the employer.

The Memorandum cites plans being offered by promoters as “fixed indemnity health plans” with associated “wellness plans.”  The benefit promoted is that the plans are “self-funding” because the purported tax benefits will offset the expense, and employees can gain apparently tax-favored payments as a result of the plan while reducing the FICA purportedly owed by the employer.

The key to the plans is that the employee receives a monthly payment, not as income, but as a “health benefit” in return for a simple but voluntary act such as calling a toll-free number to obtain health advice or participating in biometric screening.  So long as the employee undertakes one act per month, then the benefit is paid.  Promoters of such plans contend that the employee receives comparable take-home pay and the employer receives tax benefits, all on a self-funded basis.

The IRS, however, concludes in the Memorandum that the plans do not constitute “insurance” because the “health benefit” is almost certain to be paid, and, on an actuarial basis, the amount of “benefits” is almost certain to exceed the amount paid as “premium.”

Accordingly, the IRS concluded that payments related to the so-called “self-funding” plans will be considered “income” and “wages” – and, therefore, the apparent “self-funding” mechanism obtained via tax-favored treatment is illusory.

Any employers considering any sort of “self-funding” plan should consider the Memorandum as strong evidence that such a plan is not likely to produce the tax benefits promised.

© 2017 Vandenack Weaver LLC
For more information, Contact Us

IRS Issues Publications on Electronic Filing of Health Care Coverage Information Returns

The Patient Protection and Affordable Care Act (PPACA) implemented information reporting requirements for employers. Known as information returns, the employer supplied information allows the government to ascertain whether the employer is meeting their requirements under the PPACA. The type of information submitted pertains to the type of employer health-coverage offered, specific employee coverage, and other various requirements under the act.

In order to facilitate the information returns, the Internal Revenue Service (IRS) allows these filings to be submitted electronically. Known as the “AIR” system, the IRS issued publications to guide employers wishing to submit the PPACA information returns electronically. In order to submit the information returns, the employer must first create an account at least 28 days prior to submitting information. For some employers, such as those with over 250 of one type of information return, the returns must be submitted via the AIR system.

The AIR filings are subject to very specific instructions and requirements. To retrieve these publications, please visit the following website. http://www.irs.gov/for-Tax-Pros/Software-Developers/Information-Returns/Affordable-Care-Act-Information-Return-AIR-Program?utm_source=Mondaq&utm_medium=syndication&utm_campaign=inter-article-link

© 2015 Houghton Vandenack Williams
For more information, Contact Us

CMS Proposes New Exceptions to the Stark Law

The Centers for Medicare and Medicaid Services (“CMS”) has proposed revisions to the regulations governing enforcement of the physician self-referral law, commonly known as the Stark Law.   The changes are part of a 282-page proposed rulemaking that establishes the 2016 Medicare Physician Fee Schedule.  According to CMS, the proposed changes to the Stark regulations are intended to accommodate delivery and payment system reform, to reduce regulatory burdens, and to facilitate compliance.  Many aspects of the proposal appear to be in response to physician self-disclosures of highly technical violations that have been submitted under the Medicare self-referral disclosure protocol (“SRDP”) adopted as part of the Patient Protection and Affordable Care, also known as Obamacare.

The Stark law  generally prohibits a physician from making referrals for certain designated health services (“DHS”) that are payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership or compensation), unless an exception applies.  Among other things, the proposal would add two new exceptions, primarily targeted at rural and underserved areas.  As with all things Stark-related, the proposed exceptions are highly technical.

The first new exception to Stark would permit a hospital, federal qualified health center, or rural health center to subsidize a physician’s payment of a nonphysician practitioner’s salary.  The proposed exception would apply only where the nonphysician practitioner is a bona fide employee of the physician or the physician’s practice and the purpose of the employment is to provide primary care services to the physician’s patients.  To qualify under this exception, a non-physician practitioner would have to be a physician assistant, nurse practitioner, clinical nurse specialist, or certified nurse midwife.  The subsidy would also be subject to a financial cap and two year time limitation.

The second new exception would expressly permit “timeshare arrangements,” and is intended to benefit communities where there is a need for certain specialty services but that need is not great enough to support a full-time physician specialist.   Under timeshare arrangements, a hospital or local physician practice may ask a specialist from a neighboring community to provide the services in space owned by the hospital or practice on a limited or as-needed basis. In such circumstances, the visiting physician may not have exclusive use of the premises and there may not be a one-year arrangement as required by the current exception for leased office space.

The proposed timeshare exception would provide relief from Stark where the visiting physician is a temporary licensee of the space rather than a lessor.  However, the proposed exception includes numerous technical requirements, including limitations on certain types of equipment that may be used in connection with the license.  In addition, the proposed exception would not protect a license of office space that is primarily used to furnish DHS to patients.

The proposed rule impacting the Stark Law can be found at the following link: http://www.gpo.gov/fdsys/pkg/FR-2015-07-15/pdf/2015-16875.pdf

© 2015 Houghton Vandenack Williams
For more information, Contact Us

IRS Issues Notice Regarding PPACA Excise Tax

Part of the Patient Protection and Affordable Care Act (“PPACA”) efforts to reduce healthcare costs include an excise tax on health insurers that provide benefits to employees above a threshold limit. This tax is designed to discourage insurance programs that allow employees to receive unusually generous benefits under the insurance plan, which is believed to encourage heavy usage of healthcare. By reducing the overall usage, it will decrease costs. Moreover, it is expected that this tax will help fund the PPACA and off-set the cost of healthcare for those who are not enrolled in a qualified welfare plan. The 40% excise tax is set to take effect in 2018 for the cost of an applicable coverage plan that is above the threshold limit.

In preparing for the implementation of the excise tax, the Internal Revenue Service (“IRS”) has issued Notice 2015-16. This notice serves to clarify “the definition of applicable coverage,” “the determination of the cost of applicable coverage,” and “the application of the annual statutory dollar limit to the cost of applicable coverage.” The notice also seeks input on these issues.

This notice is only the start of implementing the new excise tax and the IRS anticipates issuing further notices. Eventually, the IRS intends to propose regulations and will invite further comments. For details regarding Notice 2015-16, the notice may found at the following link: http://www.irs.gov/pub/irs-drop/n-15-16.pdf .

© 2015 Houghton Vandenack Williams

For more information, Contact Us

Update to FMLA Definition of “Spouse”

The Department of Labor (“DOL”) has updated selected regulations to the Family and Medical Leave Act (“FMLA”). The updates change the definition of spouse to mean: “husband or wife refers to the other person with whom an individual entered into marriage as defined or recognized under state law for purposes of marriage in the State in which the marriage was entered into . . . .”

Essentially, the change now requires employers to recognize FMLA leave for same sex individuals if the marriage is recognized and valid in the state where they were married. This change departs from the previous rule that requires recognition of the marriage by the state where the employee resides. This update will impact several parts of FMLA regulations, including leave for pregnancy, adoption, next of kin, and the care of a parent.

Although this new rule brings FMLA closer to the definition of spouse in other federal regulations and Supreme Court precedent, it does not include domestic partners. It must be a legally recognized marriage, including common law marriage, but it does not include a domestic partnership.

For employers, this may mean updating employee manuals and handbooks, as well as being aware of the laws of the various states when an individual applies for FMLA leave. The DOL does not expect compliance with the new regulations to add substantial cost.

The update to the federal regulations can be found at the following link: https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-03569.pdf

© 2015 Houghton Vandenack Williams
For more information, Contact Us