Health-Care Benefits Alert
Employers Cannot Pay for Individual Health Policies
In terms of providing health care, many small employers are unable or reluctant to sponsor group health plans. As an alternative, some employers reimbursed or paid for all or part of the premiums for their employees individual health policies. Oftentimes, carriers would even send the bills directly to the employers. The employer would then pay all or a portion of the premiums and then withhold the employees share of the premiums on a pre-tax basis. The U.S. government, however, is cracking down on this practice. In the latest of a series of rulings, the government has said that employers can no longer pay any portion of the premiums on individual health plans or policies on either a pre-tax or post-tax basis. Following is the link to the governments guidance on this practice and some additional articles that explain the rules.
The government has forbidden employers from paying premiums on a post-tax basis. As an example, an employer cannot terminate its group health plan and then give additional taxable compensation to the employees so that they can buy individual health policies. The employer could provide equal additional compensation to all employees, but it cannot be linked to health-care coverage. For example, the employer could not give the additional wages to only those who buy health coverage, or vary the amount of the additional compensation based on the amount the employee is paying for his or her health coverage. In short, there can be no connection between the additional compensation and the employee getting individual health coverage. The penalty for violating this rule is $100 per day, or $36,500 per year for each violation (i.e., each employee).
Employers Need to Prepare for Health-Care Reform Reporting Requirements
For large employers (i.e., those with 50 or more full-time and full-time equivalent employees), the employer mandate or play-or-pay rules require them to offer quality/affordable health coverage to their full-time employees (i.e., those who work 30 hours or more per week) or pay a penalty. Those rules apply in 2015 for employers with at least 100 full-time and full-time equivalent employees. Employers with between 50 and 99 full-time and full-time equivalent employees do not have to comply until 2016. However, all employers that sponsor self-funded health plans, irrespective of size, have to comply with complex reporting requirements starting January 1, 2015, regardless of the employers group health plan year.
The reporting rules will help the government enforce the individual mandate that requires most Americans to have health coverage or pay a penalty, as well as the employer play-or-pay rules. The Internal Revenue Service (IRS) has issued Form 1094 and Form 1095, which employers will use to submit the data to the government. The forms are extremely complicated, and the employers size and whether or not the health plan is self-funded or fully insured dictate which forms and what part of the forms the employer must complete. The following link contains a chart that shows which forms the employer has to complete:
The forms are similar to the IRS Form W-2 and Form W-3. That is, Form 1094 is a transmittal form that gets filed with the IRS along with Form 1095, with another copy of Form 1095 going to the employee. Gathering the information for the forms is going to be a daunting task, and employers need to prepare now. We urge employers to contact their payroll vendor or review their payroll systems to ensure the information is being gathered. It will be almost impossible to gather the data after the fact. In other words, the information needs to be collected during the year. Tying the process into the payroll system makes the most sense.
Should You Consider Self-Funding?
Health-care reform imposes a number of requirements and restrictions on group health plans, as well as various taxes and assessments. Additionally, small employer group health plans will be subject to community rating, which many people believe will substantially increase the premiums for most small employers. Therefore, more employers are looking at self-funding as a way to reduce the increases and avoid some of the rules that only apply to fully insured health plans. The following article discusses things to consider when thinking about self-funding a group health plan:
Traditionally, self-funding only made sense for larger employers. However, with health-care reform, carriers are developing products that make self-funding feasible for smaller employers. Therefore, you may want to consider self-funding your group health plan when reviewing your options.
Can You Discriminate with Respect to Health Insurance?
Some employers may be under the impression that you have to treat all employees the same when it comes to the group health plan. However, that may not be the case. There have been discrimination rules applicable to self-funded health plans under the Internal Revenue Code for some time. Basically, those rules preclude the employer from disproportionately benefitting the higher paid employees with respect to eligibility and benefits. The rules also impose an affirmative obligation on the part of the employer sponsoring a self-funded health plan to test the plan each year to ensure the self-funded health plan does not discriminate. Although the rules have been around for some time, it has not been a high-enforcement area for the IRS. Health-care reform imposed discrimination rules on fully insured health plans. However, the rules applicable to fully insured health plans have been postponed until the IRS issues the regulations. The following link contains further information on this issue:
Thus, the situation is as follows: (1) self-funded health plans are (and have been) subject to discrimination rules under the Internal Revenue Code, but they have not been given a lot of attention from the government; and (2) fully insured health plans are not currently subject to discrimination rules, but that will change when the IRS issues the regulationsthough no one knows exactly when that will be. For the time being, you can charge employees different amounts for the coverage under a fully insured health plan.
Can the Government Speak with One Voice?
More and more employers are adopting wellness programs as a way to control health costs and to encourage employees to adopt a healthier life style. Health-care reform adopted new rules governing wellness programs. That is, the wellness programs have to comply with some fairly detailed rules laid out under health-care reform. However, there is a dispute between federal statutes. Employers have adopted wellness programs that comply with health-care reform, but the Equal Employment Opportunity Commission (EEOC) has filed lawsuits against a couple of employers saying the programs violate the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA). The following article discusses this action:
The rules are complicated to begin with, and the challenges presented by the dispute between federal statutes and the EEOC complicate the issue further. Hopefully, the government will deal with this conflict and release a rule that will allow employers to meet the rules of health-care reform without risking action from the EEOC.
Checklist for 2015
The following is a checklist applicable to welfare benefit plans for 2015:
This resource can help you navigate these regulations and stay compliant with all new rules.