AN EMPLOYER’S GUIDE TO HEALTH SAVINGS ACCOUNTS (HSAs)

May 13, 2013

The following provides you, as an employer, with information about Health Savings
Accounts (“HSAs”) under Internal Revenue Code (“Code”) Section 223. You should
read this explanation to evaluate whether HSAs may be used either as an alternative to,
or in addition to, health flexible spending accounts (“Health FSAs”) under Code Section
125 or Health Reimbursement Arrangements (“HRAs”) under Code Section 105(h).

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Employer Mandate Explanation

January 22, 2013

On December 28, 2012, the Internal Revenue Service (the “IRS”) released proposed regulations under Code Section 4980H (54.4980H-1, 2, 3, 4 and 5) relating to the employer shared responsibility provisions (the “Employer Mandate”) under Health Care Reform. These regulations follow prior guidance, makes changes, provides clarifications and includes important transition relief. The following has been revised to include these important provisions.

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Health Reform changes that are effective for 2013

November 13, 2012

This webinar reviews those Health Reform changes that are effective for 2013.
These changes include:

  • Health FSA contributions capped at $2,500/year,
  • An additional hospital insurance tax of .9 percent imposed on high income individuals ($200,000 individual, $250,000 joint ,
  • An additional 3.8% Medicare payroll tax imposed on unearned income for high income individuals ($200,000 individual, $250,000 joint),
  • Employers required to provide written notice to employees about exchange and subsidies, and
  • Determination of full-time employees for variable hour and seasonal employee for health coverage in 2014.

Health Reform changes that are effective for 2013. from Larry Grudzien on Vimeo.

What premium tax credits and cost-sharing subsidies are available to individuals in 2014 and who is eligible for them?

October 16, 2012

What premium tax credits and cost-sharing subsidies are available to individuals in 2014 and who is eligible for them?

To assist individuals and families who do not qualify for Medicare or Medicaid and are not offered affordable health coverage by their employers, a refundable tax credit (the “premium tax credit”) and a cost sharing subsidy will be available beginning in 2014 to help pay for insurance purchased through an Exchange. Generally, taxpayers with income between 100% and 400% of the federal poverty line (FPL) who purchase insurance through an Exchange will qualify them, as provided in Code Section 36B. and Section 1402 of the Patient Protection and Affordable Care Act (“PPACA”).
A premium assistance tax credit will be provided monthly to lower the amount of premium the individual or family must pay for their coverage. Cost sharing subsidies will limit the plan’s maximum out-of-pocket costs, and for some individuals will also reduce other cost sharing amounts (i.e., deductibles, coinsurance or copayments) that would otherwise be charged to them by their coverage.
Both types of assistance will be tied in some way to the value of the coverage available in the Exchanges. Four levels of plans will be offered by insurers in the exchanges. All the plans must offer a set of essential health benefits. The four plan levels vary in the total value of coverage they must provide. This amount is sometimes called “actuarial value” and represents the proportion of health insurance expenditures for covered benefits that, for an average population, would be paid by the plan. Section 1302(d)(1) of PPACA requires that the actuarial value be 60% for “bronze” plans, 70% for “silver” plans, 80% for “gold” plans and 90% for “platinum” plans. In addition, the out-of-pocket maximum for any of these plans may not exceed a limit that is determined annually. For 2013, the limit is $6,250 for individual coverage and $12,500 for family coverage. It will be adjusted higher for 2014.

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Common Health Reform Questions: Employer Mandate

October 16, 2012

What employers are subject to the employer mandate in 2014? When are they subject to any penalties? What are these penalties?

In general

Beginning in 2014, certain large employers may be subject to a penalty tax (also called an “assessable payment”) for failing to offer health care coverage for all full-time employees (and their dependents), offering minimum essential coverage that is unaffordable, or offering minimum essential coverage under which the plan’s share of the total allowed cost of benefits is not at least 60% (referred to as “minimum value”). The penalty tax is due if any full-time employee is certified to the employer as having purchased health insurance through an Exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee, as provided in Code section 4980H.

What is a large employer for purposes of the employer mandate?

The penalty tax (or assessable payment) applies to “applicable large employers.” An applicable large employer for a calendar year is an employer who employed an average of at least 50 “full-time employees” on business days during the preceding calendar year, as provided in Code Section 4980H(c)(2)(A).

What factors are used to determine whether an employer is an “applicable large employer”?

For purposes of determining whether an employer is an applicable large employer, an employer must include not only its full-time employees but also a full-time equivalent for employees who work part-time. To do so, the employer must add up all the hours of service in a month for employees who are not full-time and divide that aggregate number by 120. The result of that calculation is then added to the number of full-time employees during that month. Then, if the average number of employees for the year is 50 or more, the employer is an applicable large employer, as provided in Code Section 4980H(c)(2)(E).

Under Code Section 4980H(c)(2)(C)(i), all entities treated as a single employer under the employer aggregation rules will be treated as one employer.

Are seasonal employees counted in determined whether an employer is an “applicable large employer?

Under Code Section 4980H(c)(2)(B)(i), a special rule enables an employer that has more than 50 full-time employees solely as a result of seasonal employment to avoid being treated as an applicable employer. Under this rule, an employer will not be considered to employ more than 50 full-time employees if (a) the employer’s workforce only exceeds 50 full-time employees for 120 days, or fewer, during the calendar year; and (b) the employees in excess of 50 who were employed during that 120-day (or fewer) period were seasonal workers.*“Seasonal worker” means a worker who performs labor or services on a seasonal basis as defined by the DOL, including agricultural workers covered by 29 CFR § 500.20(s)(1) and retail workers employed exclusively during holiday seasons , as provided in Code Section 4980H(c)(2)(B)(ii).

Which employees are considered “full-time” for the employer mandate?

Under Code Section 4980H(c)(4)(A), a “full-time employee” for any month is an employee who is employed for an average of at least 30 hours of service per week.

What is the penalty if an applicable large employer does not offer minimum essential coverage to its employees?

Beginning in 2014, Code Section 4980H(a) provides that an applicable large employer will pay a penalty tax (i.e. make an assessable payment) for any month that—

(1) the employer fails to offer its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage” under an “eligible employer-sponsored plan” for that month; and

(2) at least one full-time employee has been certified to the employer as having enrolled for that month in a QHP for which health coverage assistance is allowed or paid.

What is the amount of assessable payment (penalty tax)?

Code Section 4980H(a) provides that the penalty tax (assessable payment) is equal to the product of the “applicable payment amount” and the number of individuals employed by the employer (less the 30-employee reduction) as full-time employees during the month. The “applicable payment amount” for 2014 is $166.67 with respect to any month (that is, 1/12 of $2,000). The amount will be adjusted for inflation after 2014.

What is “minimum essential coverage”?

Under Code Section 5000A(f)(1), the term “minimum essential coverage” means coverage under any of the following: (a) a government-sponsored program, including coverage under Medicare Part A, Medicaid, the CHIP program, and TRICARE; (b) an “eligible employer-sponsored plan;” (c) a health plan offered in the individual market; (d) a grandfathered health plan; or (e) other health benefits coverage (such as a State health benefits risk pool) as HHS recognizes.

What is an “eligible employer-sponsored plan”?

Under Code Section 5000A(f)(2), it means a group health plan or group health insurance coverage offered by an employer to an employee that is (a) a governmental plan, or (b) any other plan or coverage offered in a state’s small or large group market

Under what circumstances will an applicable large employer be subject to the penalty tax if it offers its employees minimum essential coverage?

Beginning in 2014, Code Section 4980H(b)(1) provides that an applicable large employer will pay a penalty tax (i.e., make an assessable payment) for any month that—

(1) the employer offers to its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage” under an eligible employer-sponsored plan for that month; and
(2) at least one full-time employee of the employer has been certified to the employer as having enrolled for that month in a QHP for which a premium tax credit or cost-sharing reduction is allowed or paid.

If an employee is offered affordable minimum essential coverage under an employer-sponsored plan, then the individual generally is ineligible for a premium tax credit and cost-sharing reductions for health insurance purchased through an Exchange.

When would employees offered minimum essential coverage by an employer be eligible for a premium tax credit and cost-sharing reductions for health insurance purchased through the Exchange?

Under Code Section 36B(c)(2)(C), employees covered by an employer-sponsored plan will be eligible for the premium tax credit if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of those costs (that is, the plan does not provide “minimum value”), or the premium exceeds 9.5% of the employee’s household income. The employee must seek an affordability waiver from the Exchange. The penalty tax applies for employees receiving an affordability waiver. In order to get the premium tax credit and cost-sharing reduction, however, an employee must decline to enroll in the coverage and purchase coverage through the Exchange instead, as provided under Code Section 36B(c)(2)(C)..

When would the penalty tax be assessed?

To be considered minimum essential coverage, the coverage will need to meet an affordability requirement (which compares cost to income and provide minimum value (i.e., it will need to pay at least 60% of the total allowed cost of benefits. The penalty tax is due if any full-time employee is certified to the employer as having purchased health insurance through an Exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to the employee. Employers who provide coverage under an eligible employer-sponsored plan that does not meet the affordability and minimum value requirements may nevertheless avoid the tax to the extent employees actually participate in the plan, as provided under Code Section 36B(c)(2)(C)(iii).

What is the amount of the assessable payment (penalty tax?)

Code Section 4980H(b)(1) provides that the penalty tax (assessable payment) is equal to $250 (1/12 of $3,000, adjusted for inflation after 2014) times the number of full-time employees for any month who receive premium tax credits or cost-sharing assistance (this number is not reduced by 30). This penalty tax (assessable payment) is capped at an overall limitation equal to the “applicable payment amount” (1/12 of $2,000, adjusted for inflation after 2014) times the employer’s total number of full-time employees, reduced by 30, as provided in Code Section 4980H(b)(2).

How will the minimum value for an employer-sponsored plan be determined?

In IRS Notice 2012-31, the IRS requested comments on several approaches to the minimum value determination, including evaluating plan designs that will cover part or all of 2014 and suggestions for transitional relief for plan years that start before and end in 2014. This determination of minimum value for employer plans will be consistent with previous HHS guidance on “actuarial value,” which is relevant for determining coverage levels for QHPs offered through the Exchanges.
In IRS Notice 2012-31, the IRS described three potential approaches, for determining minimum value. They include:

– Minimum Value Calculator: The IRS will develop a MV calculator for use by self-insured plans and insured large group plans. Under this approach, plans with certain standard cost-sharing features (e.g., deductibles, co-insurance, and maximum out-of-pocket costs) will be able to enter information about four core categories of benefits (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) into the calculator based on claims data of typical self-insured employer plans. The calculator would also take into consideration the annual employer contributions to an HSA or amounts made available under an HRA, if applicable. Comments are specifically requested on how to adjust for other benefits (e.g., wellness benefits) provided under a plan using the calculator.

-Design-Based Safe Harbor Checklists: As an alternative, an array of safe harbor checklists would be provided so plans may compare to their own coverage. The safe harbor checklists would be used to make minimum value determinations for plans that cover all of the four core categories of benefits and services (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) and have specified cost-sharing amounts. Each safe harbor checklist would describe the cost-sharing attributes of a plan (e.g., deductibles, co-payments, co-insurance, and maximum out-of-pocket costs) that apply to the four core categories of benefits and services.

-Actuarial Certification: The last approach would be available for plans with “nonstandard” features (such as quantitative limits on any of the four categories of benefits, including, for example, a limit on the number of physician visits or covered days in a hospital) since these plans would not be able to use a calculator or the safe harbor checklists. Plans would be able to generate an initial value using a calculator and then engage a certified actuary to make appropriate adjustments that take into consideration the nonstandard features. Plans with nonstandard features of a certain type and magnitude would also have the option of engaging a certified actuary to determine the plan’s actuarial value without the use of a calculator.

How can employer determine whether its coverage is affordable when it will not know the employee’s household income?

In finalized regulations to implement the premium tax credit through the Exchange, the IRS indicated that it was their intention to issue proposed regulations or other guidance that would allow employers to use an employee’s Form W-2 earnings (instead of household income) in assessing affordability.

IRS Releases Guidance on Determining Full-Time Employees for Employer Mandate and the 90- Day Waiting Period

October 16, 2012

On August 31, 2012, the IRS released Notices 2012-58 and 2012-59. Notice 2012-58 describes safe harbor methods that employers may use (but are not required to use) to determine which employees are treated as full-time employees for purposes of the employer mandate under health care reform. In Notice 2012-59, the IRS provides guidance on the 90-day waiting period limitation requirement under health care reform. IRS indicated that employers can rely on the guidance provided in this notice until the end of 2014. The following discusses both of these notices.

Determination of Full Time Employees Status for the Required Coverage under the Employer Mandate

The requirement: Beginning in 2014, certain large employers may be subject to a penalty tax for failing to offer health care coverage for all full-time employees (and their dependents), offering minimum essential coverage that is unaffordable, or offering minimum essential coverage under which the plan’s share of the total allowed cost of benefits is not at least 60% (referred to as “minimum value”). The penalty tax is due if any full-time employee is certified to the employer as having purchased health insurance through an exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee, as provided in Code Section 4980H.

Who is a “full-time” employee for required coverage under the employer mandate: Under Code Section 4980H(c)(4)(A), a “full-time employee” for any month is any employee who is employed for an average of at least 30 hours of service per week.

Notice 2012-58: In this notice, the IRS describes safe harbor methods that employers may use (but are not required to use) to determine which employees are treated as full-time employees for purposes of the employer mandate described above. These methods can be used to determine whether new, on-going employees or seasonal employees are considered full-time employees for the employer mandate and when an employer must provide coverage or be penalized.

Safe Harbor for new variable hour and seasonal employees: If an employer maintains a group health plan that would offer coverage to the employee only if the employee were determined to be a full-time employee, the employer may use both a measurement period of between three and 12 months and an administrative period of up to 90 days for variable hour and seasonal employees. However, the measurement period and the administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date (totaling, at most, 13 months and a fraction of a month).

Who is a variable hourly employee? A new employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week. A new employee who is expected to work initially at least 30 hours per week may be a variable hour employee if, based on the facts and circumstances at the start date, the period of employment at more than 30 hours per week is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week over the initial measurement period (defined below).

Who is a seasonal employee? Through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee.”

What is an “initial measuring period”? For variable hour and seasonal employees, employers are permitted to determine whether the new employee is a full-time employee using an “initial measurement period” of between three and 12 months (as selected by the employer).

The employer measures the hours of service completed by the new employee during the initial measurement period and determines whether the employee completed an average of 30 hours of service per week or more during this period. The stability period for such employees must be the same length as the stability period for ongoing employees (described below). If an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least six consecutive calendar months that is no shorter in duration than the initial measurement period and that begins after the initial measurement period (and any associated administrative period).The stability period is the first period in which the employer is required to provide health coverage to the employee.

If a new variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period, the employer is permitted to treat the employee as not a full-time employee during the stability period that follows the initial measurement period. This stability period for such employees must not be more than one month longer than the initial measurement period and, as explained below, must not exceed the remainder of the standard measurement period as defined below (plus any associated administrative period) in which the initial measurement period ends.

Transition from New Employee Rules to Ongoing Employee Rules: Once a new employee, who has been employed for an initial measurement period, has been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other ongoing employees.

A standard measurement period is a defined time period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer and is used to determine whether ongoing employee are eligible for health coverage.

An employee determined to be a full-time employee during an initial measurement period or standard measurement period must be treated as a full-time employee for the entire associated stability period. This is the case even if the employee is determined to be a full-time employee during the initial measurement period but determined not to be a full-time employee during the overlapping or immediately following standard measurement period. In that case, the employer may treat the employee as not a full-time employee only after the end of the stability period associated with the initial measurement period. Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees.. (as described below).

In contrast, if the employee is determined not to be a full-time employee during the initial measurement period, but is determined to be a full-time employee during the overlapping or immediately following standard measurement period, the employee must be treated as a full-time employee for the entire stability period that corresponds to that standard measurement period (even if that stability period begins before the end of the stability period associated with the initial measurement period). Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees.

Use if an administrative period: In addition to the initial measurement period, the employer is permitted to apply an administrative period before the start of the stability period. This administrative period must not exceed 90 days in total. For this purpose, the administrative period includes all periods between the start date of a new variable hour or seasonal employee and the date the employee is first offered coverage under the employer’s group health plan, other than the initial measurement period.

In addition to the specific limits on the initial measurement period (which must not exceed 12 months) and the administrative period (which must not exceed 90 days), there is a limit on the combined length of the initial measurement period and the administrative period applicable for a new variable hour or seasonal employee. Specifically, the initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date. For example, if an employer uses a 12-month initial measurement period for a new variable hour employee, and begins that initial measurement period on the first day of the first calendar month following the employee’s start date, the period between the end of the initial measurement period and the offer of coverage to a new variable hour employee who works full time during the initial measurement period must not exceed one month.

Example (12-Month Initial Measurement Period Followed by 1+ Partial Month Administrative Period):

For new variable hour employees, Employer B uses a 12-month initial measurement period that begins on the start date and applies an administrative period from the end of the initial measurement period through the end of the first calendar month beginning on or after the end of the initial measurement period. Employer B hires Employee Y on May 10, 2014. Employee Y’s initial measurement period runs from May 10, 2014, through May 9, 2015. Employee Y works an average of 30 hours per week during this initial measurement period. Employer B offers coverage to Employee Y for a stability period that runs from July 1, 2015 through June 30, 2016.

Employee Y works an average of 30 hours per week during his initial measurement period and Employer B uses (1) an initial measurement period that does not exceed 12 months; (2) an administrative period totaling not more than 90 days; and (3) a combined initial measurement period and administrative period that does not last beyond the final day of the first calendar month beginning on or after the one-year anniversary of Employee Y’s start date. Accordingly, from Employee Y’s start date through June 30, 2016, Employer B is not subject to any payment with respect to Employee Y, because Employer B complies with the standards for the initial measurement period and stability periods for a new variable hour employee. Employer B also complies with the law. Employer B must test Employee Y again based on the period from October 15, 2014 through October 14, 2015 (Employer B’s first standard measurement period that begins after Employee Y’s start date).

Safe harbor for ongoing employees: For this purpose, an “ongoing employee” is generally an employee who has been employed by the employer for at least one complete standard measurement period. An employer determines each ongoing employee’s full-time status by looking back at the standard measurement period (a defined time period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer). The employer has the flexibility to determine the months in which the standard measurement period starts and ends, provided that the determination must be made on an uniform and consistent basis for all employees in the same category.

For example, if an employer chose a standard measurement period of 12 months, the employer could choose to make it the calendar year, a non-calendar plan year, or a different 12-month period, such as one that ends shortly before the start of the plan’s annual open enrollment season. If the employer determines that an employee averaged at least 30 hours per week during the standard measurement period, then the employer treats the employee as a full-time employee during a subsequent “stability period”, regardless of the employee’s number of hours of service during the stability period, so long as he or she remained an employee. The stability period is the period in which the employer is required to offer the employee coverage to comply with the employer mandate.

For an employee whom the employer determines to be a full-time employee during the standard measurement period, the stability period would be a period of at least six consecutive calendar months that is no shorter in duration than the standard measurement period and that begins after the standard measurement period (and any applicable administrative period. If the employer determines that the employee did not work full-time during the standard measurement period, the employer would be permitted to treat the employee as not a full-time employee during the stability period that follows, but is not longer than, the standard measurement period. This means that the employer is not required to offer the employee coverage and would not be penalized.

Employers may use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees: (1) collectively bargained employees and noncollectively bargained employees; (2) salaried employees and hourly employees; (3) employees of different entities; and (4) employees located in different States.

Use of an administrative period: Because employers may need time between the standard measurement period and the associated stability period to determine which ongoing employees are eligible for coverage, and to notify and enroll employees, an employer may make time for these administrative steps by having its standard measurement period end before the associated stability period begins. However, any administrative period between the standard measurement period and the stability period may neither reduce nor lengthen the measurement period or the stability period. The administrative period following the standard measurement period may last up to 90 days. To prevent this administrative period from creating any potential gaps in coverage, it will overlap with the prior stability period, so that, during any such administrative period applicable to ongoing employees following a standard measurement period, ongoing employees who are eligible for coverage because of their status as full-time employees based on a prior measurement period would continue to be offered coverage.

Example:

Employer W chooses to use a 12-month stability period that begins January 1 and a 12-month standard measurement period that begins October 15. Consistent with the terms of Employer W’s group health plan, only an ongoing employee who works full-time (an average of at least 30 hours per week) during the standard measurement period is offered coverage during the stability period associated with that measurement period. Employer W chooses to use an administrative period between the end of the standard measurement period (October 14) and the beginning of the stability period (January 1) to determine which employees worked full-time during the measurement period, notify them of their eligibility for the plan for the calendar year beginning on January 1 and of the coverage available under the plan, answer questions and collect materials from employees, and enroll those employees who elect coverage in the plan. Previously-determined full-time employees already enrolled in coverage continue to be offered coverage through the administrative period.

Employee A and Employee B have been employed by Employer W for several years, continuously from their start date. Employee A worked full-time during the standard measurement period that begins October 15 of Year 1 and ends October 14 of Year 2 and for all prior standard measurement periods. Employee B also worked full-time for all prior standard measurement periods, but is not a full-time employee during the standard measurement period that begins October 15 of Year 1 and ends October 14 of Year 2.

Because Employee A was employed for the entire standard measurement period that begins October 15 of Year 1 and ends October 14 of Year 2, Employee A is an ongoing employee with respect to the stability period running from January 1 through December 31 of Year 3. Because Employee A worked full-time during that standard measurement period, Employee A must be offered coverage for the entire Year 3 stability period (including the administrative period from October 15 through December 31 of Year 3). Because Employee A worked full-time during the prior standard measurement period, Employee A would have been offered coverage for the entire Year 2 stability period, and if enrolled would continue such coverage during the administrative period from October 15 through December 31 of Year 2.

Because Employee B was employed for the entire standard measurement period that begins October 15 of Year 1 and ends October 14 of Year 2, Employee B is also an ongoing employee with respect to the stability period in Year 3. Because Employee B did not work full-time during this standard measurement period, Employee B is not required to be offered coverage for the stability period in Year 3 (including the administrative period from October 15 through December 31 of Year 3). However, because Employee B worked full-time during the prior standard measurement period, Employee B would be offered coverage through the end of the Year 2 stability period, and if enrolled would continue such coverage during the administrative period from October 15 through December 31 of Year 2.

Employer W complies with the standards because the measurement and stability periods are no longer than 12 months, the stability period for ongoing employees who work full-time during the standard measurement period is not shorter than the standard measurement period, the stability period for ongoing employees who do not work full-time during the standard measurement period is no longer than the standard measurement period, and the administrative period is not longer than 90 days.

90-Day Waiting Period Requirement

Effective as of plan years beginning on or after January 1, 2014, group health plans and insurers are prohibited from applying a waiting period that exceeds 90 days, as provided in PHSA Section 2708, as added by PPACA, Pub. L. No. 111-148, Section 1201 (2010). A waiting period is defined as the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan, as provided in Code section 9801(b)(4); ERISA Section 701(b)(4);PHSA Section 2704(b)(4). For plan years beginning on or after January 1, 2014, any waiting period that exceeds 90 days will be considered an excessive waiting period, as provided in PHSA § 2708, as added by PPACA, Pub. L. No. 111-148, § 1201 (2010).

Notice 2012-59:

Other conditions for eligibility under the terms of a group health plan are generally permissible under PHS Act section 2708, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. Furthermore, if, under the terms of a plan, an employee may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation is considered satisfied. Accordingly, a plan or issuer will not be considered to have violated PHS Act section 2708 merely because employees take additional time to elect coverage.

Application of Waiting Period Requirement to Variable Hour or Seasonal Employees: If a group health plan conditions eligibility on an employee regularly working a specified number of hours per period (or working full time), and it cannot be determined that a newly hired employee is reasonably expected to regularly work that number of hours per period (or work full time), the plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition, which may include a measurement period that is consistent with the timeframe permitted for such determinations under Code Section 4980H. An employer may use a measurement period that is consistent with Code Section 4980H, whether or not it is an applicable large employer subject to Code Section 4980H. Except where a waiting period that exceeds 90 days is imposed after a measurement period, the time period for determining whether such an employee meets the plan’s eligibility condition will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective no later than 13 months from the employee’s start date, plus if the employee’s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month.

Example:

Under Employer Y’s group health plan, only employees who work full time (defined under the plan as regularly working 30 hours per week) are eligible for coverage. Employee C begins work for Employer Y on November 26 of Year 1. C’s hours are reasonably expected to vary, with an opportunity to work between 20 and 45 hours per week, depending on shift availability and C’s availability. Therefore, it cannot be determined at C’s start date that C is reasonably expected to work full time. Under the terms of the plan, variable hour employees, such as C, are eligible to enroll in the plan if they are determined to be full time after a measurement period of 12 months. Coverage is made effective no later than the first day of the first calendar month after the applicable enrollment forms are received. C’s 12-month measurement period ends November 25 of Year 2. C is determined to be full time and is notified of C’s plan eligibility. If C then elects coverage, C’s first day of coverage will be January 1 of Year 3.

In this example, the measurement period is not considered to be designed to avoid compliance with the 90-day waiting period limitation (and is, therefore, permissible) because the plan may use a reasonable period of time to determine whether a variable-hour employee is full time under PHS Act Section 2708 if the period of time is consistent with the timeframe permitted for such determinations under Code Section 4980H. In such circumstances, the time period for determining whether an employee is full time will not be considered to avoid the 90-day waiting period limitation if coverage can become effective no later than 13 months from C’s start date, plus the time remaining until the first day of the next calendar month.

Example:

Employer X’s group health plan limits eligibility for coverage to full-time employees. Coverage becomes effective on the first day of the calendar month following the date the employee becomes eligible. Employee B begins working full time for Employer X on April 11. Prior to this date, B worked part time for X. B enrolls in the plan and coverage is effective May 1.

In this example, the period from April 11 through April 30 is a waiting period. The period while B was working part time is not part of the waiting period because B was not in a class of employees eligible for coverage under the terms of the plan while working part time, and full-time versus part-time status is a bona fide employment-based condition that is not considered to be designed to avoid compliance with the 90-day waiting period limitation.

For copies of the notices, please click of the links below:

Notice 2012-58:

http://www.irs.gov/pub/irs-drop/n-12-58.pdf

Notice 2012-59:

http://www.irs.gov/pub/irs-drop/n-12-59.pdf

INSTRUCTIONS HOW TO COMPLETE PART I OF FORM 8889 FOR 2012

October 14, 2012

Every year, I receive a number of questions regarding how to complete Part I of Form 8889. The reason for this is that the instructions provided by the Internal Revenue Service for completing Form 8889 are very complex and unclear. To assist, the following shows how to complete Form 8889 in 25 different situations for 2012.
The discussion below is for example purposes only. Individuals should be advised to seek professional tax assistance in the completion of Form 8889 or any other tax return.

Download the Doc HERE…

AN EMPLOYER’S GUIDE TO HEALTH SAVINGS ACCOUNTS (HSAs)

May 14, 2012

Introduction to the Guide
The following provides you, as an employer, with information about Health Savings Accounts (“HSAs”) under Internal Revenue Code (“Code”) Section 223. You should read this explanation to evaluate whether HSAs may be used either as an alternative to, or in addition to, health flexible spending accounts (“Health FSAs”) under Code Section 125 or Health Reimbursement Arrangements (“HRAs”) under Code Section 105(h).
To fully understand the requirements of these accounts, the following discusses their terms and compares their advantages and disadvantages over Health FSAs and HRAs in a question and answer format. In addition, a chart comparing both Health FSAs and HRAs with HSAs is included at the end of this explanation.
It is important to remember that this explanation is not intended to serve as a substitute for the advice of your lawyer, accountant, or other personal tax or financial advisor.

Click Here To Download The PDF HERE…

Summary of Benefits and Coverage – The New Requirement

May 2, 2012

I presented a free for a free Webinar on April 26 . During this Webinar, I reviewed all of the requirements for creating and distributing the Summary of Benefits and Coverage (SBC).This requirement applies for the first open enrollment period beginning on or after September 23, 2012 for participants and beneficiaries enrolling or re-enrolling through open enrollment.

From this Webinar, you will learn:

  • The general requirements
  • Who must provide the SBC?
  • Who must be furnished the SBC?
  • When must the SBC be Distributed?
  • Form and manner to distribute the SBC
  • Appearance, language, and content requirements for the SBC
  • Updating the SBC: Notice of material modifications
  • Consequences of failing to provide the SBC
  • Resources available for creating the SBC

This webinar is approximately 60 minutes in length.

SUMMARY OF BENEFITS AND COVERAGE (SBC) -EXPLANATION

April 2, 2012

Health care reform expands ERISA’s disclosure requirements by requiring that a “summary of benefits and coverage” be provided to applicants and enrollees before enrollment or re-enrollment. The summary (referred to as the SBC) must accurately describe the “benefits and coverage under the applicable plan or coverage.” The requirement applies beginning with the first open enrollment period beginning on or after September 23, 2012 for participants and beneficiaries enrolling or re-enrolling through open enrollment. For individuals enrolling other than through open enrollment (e.g., newly eligible individuals or special enrollees), the requirement applies beginning on the first day of the first plan year that begins on or after September 23, 2012. For calendar-year plans, this means that SBCs will first be required during open enrollment in 2012 for the 2013 plan year. But for some non-calendar-year plans, the SBC rules may first apply to newly eligible individuals and special enrollees.

Download the PDF here.

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