Employee Benefit Question of the Week: 1095-C Form

QUESTION: I thought the individual mandate no longer applies, what is the purpose of 1095-C form? Will employees covered under an employer’s group health plan still receive the 1095-C?

ANSWER:    The IRS 1095-C form shows whether an employer offered an employee affordable health care coverage of minimum value during the past year. It also reports whether the employee and their family members actually had health coverage through the employer for each month of the past year.

The employer or health insurance company sends one copy of the 1095-C to the Internal Revenue Service (IRS) and one copy to the employees.  It is the responsibility of the plan sponsor to provide the 1095-C, so if your client is self-insured they are the responsible party, if they are fully insured, it is the responsibility of the health insurance company to provide the form.

The 1095-C should be received by March 2nd, 2020.  While not needed for federal tax purposes given the absence of a penalty for not having health insurance, some states require residents to have health insurance.  New Jersey, Massachusetts and Washington, D.C. required individuals to have health coverage in 2019. California, Vermont and Rhode Island will join them in 2020.

Source: https://www.irs.gov/affordable-care-act/individuals-and-families/affordable-care-act-what-to-expect-when-filing-your-tax-return

Employee Benefit Question of the Week: COBRA Extensions

QUESTION: Can COBRA be extended?

ANSWER:    Before answering the question, it’s best to explore how long qualified beneficiaries are entitled to COBRA.  Depending on the qualifying event (QE), the maximum coverage period can be anywhere between 18 and 36 months.

18 Months

Where a loss of coverage is a result of an employee’s termination of employment (other than by reason of gross misconduct) or reduction in hours, qualified beneficiaries are entitled to continue coverage for a maximum of 18 months.

36 Months

Where a loss of coverage is a result of any of the following, qualified beneficiaries are entitled to continue coverage for a maximum of 36 months:

  • Death of a covered employee;
  • Divorce or legal separation of a covered employee from the covered employee’s spouse;
  • A covered employee becoming entitled to Medicare benefits; and
  • A dependent child ceasing to be a dependent child under the terms of the health plan.

29 Months

Where a loss of coverage is a result of an employee’s termination of employment (other than by reason of gross misconduct) or a reduction in hours and a qualified beneficiary is determined by the Social Security Administration to be disabled before, at or within 60 days of the date of the qualifying event, all qualified beneficiaries within that family are entitled to COBRA for a maximum period of 29 months. To benefit from this extension, any qualified beneficiary within the family must notify the plan administrator as required by the reasonable procedures established by the plan administrator.

Medicare

If the employee was enrolled in Medicare prior to his or her termination or reduction in hours (for example, retirement), the employee is entitled to 18 months of COBRA continuation coverage. Where the spouse or dependent is covered under the plan on the day before the employee’s termination or reduction in hours, the spouse and dependent are entitled to COBRA continuation coverage for the longer of:

  • 18 months from the date of the employee’s termination or reduction in hours; or
  • 36 months from the date the employee became enrolled in Medicare.

As outlined, the length of the maximum coverage period depends on the type of qualifying event that has occurred.  There are situations where the maximum coverage period can be extended or terminated early.

There are several ways that the standard maximum coverage period can be extended. The following chart provides a summary of the available methods.

Disability Extension Rule Extends 18-month period to 29 months for all related QBs
Multiple Qualifying Event Rule Extends 18-month coverage period to 36 months for spouse and children when a second qualifying event (such as divorce from or death of the covered employee or loss of dependent status) occurs during the initial 18-month coverage period
Medicare Entitlement Rule Extends 18-month period for spouses and children when the covered employee becomes entitled to Medicare within 18 months before the qualifying event

COBRA coverage usually terminates at the end of the maximum coverage period. It is important to keep track of each QB’s period of coverage to be able to tell when coverage should be terminated. In addition, coverage can be terminated early for the following reasons:

  • The QB fails to make timely premium payments;
  • The employer ceases to make any group health plan available to any employee;
  • The QB becomes covered under another group health plan;
  • A disabled QB is determined not to be disabled; or
  • For cause.

If coverage is to be terminated before the end of the maximum coverage period, notice to the QB is required.

 

Source:   Zywave’s “Top 10 COBRA Mistakes” and “COBRA Common Questions – Administration”  https://www.dol.gov/sites/dolgov/files/legacy-files/ebsa/about-ebsa/our-activities/resource-center/publications/an-employees-guide-to-health-benefits-under-cobra.pdf

 

Compliance: Annual Limitations on Cost Sharing

The ACA requires non-grandfathered plans to comply with an overall annual limit—or an out-of-pocket maximum—on essential health benefits.

For 2020, the out-of-pocket maximum is $8,150 for self-only coverage and $16,300 for family coverage.

Individual Mandate’s Affordability Exemption

Under the ACA, individuals who lack access to affordable minimum essential coverage (MEC) are exempt from the individual mandate penalty. Coverage is considered affordable for an employee if the required contribution for the lowest-cost, self-only coverage does not exceed 8.24% of his/her household income for MEC in 2020.

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Employee Benefits Question of the Week: Filing Form 1094 and 1095

QUESTION: Do employers still need to file Forms 1094 and 1095?

ANSWER:    Some employers are confused about whether ACA reporting is required in 2020 for health coverage in the 2019 calendar year. Here’s a reminder that the Affordable Care Act (ACA) is still law and employers must comply with its provisions, including filing forms 1094 and 1095.

The International Revenue Service (IRS) is enforcing the employer mandate by sending Letters 226-J to employers it believes owe a penalty. The determination of whether an applicable large employer (ALE) may be liable for an Employer Shared Responsibility Payment (ESRP) and the amount of the proposed ESRP in Letter 226-J are based on information from IRS Forms 1094-C and 1095-C filed by the ALE and the individual income tax returns filed by the ALE’s employees.

Employers are responsible for furnishing their employees with a Form 1095-C by Monday, March 2, 2020. Employers are responsible for filing copies of Form 1095-C with the IRS by Friday, February 28, 2020 if filing by paper or Tuesday, March 31, 2020 if filing electronically. Like previous years, IRS Notice 2019-63 extends good-faith transition relief from reporting penalties for incorrect or incomplete reporting for 2019 coverage.

While the federal individual mandate penalty is reduced to $0 in 2019, certain states, including New Jersey, Vermont and Massachusetts, have enacted individual mandates and have their own reporting rules.

 

Source: https://blog.ifebp.org/index.php/aca-reporting-1094-1095

 

Employee Benefits Question of the Week: Medical Opt-Out Payments

QUESTION: What is a medical opt-out payment?

ANSWER:   Many employers offer employees the option to use the employer’s cafeteria plan to opt-out of group health plan coverage and receive taxable cash payments. It is important that employers consider the possible ramifications such opt-out payments may have on employees and their benefits.

Mechanics

Most opt-out payments are significantly less than the amount the employer saves. Typically, opt-out payments are spread out over the plan year, and are not paid in a lump sum, which allows the employer to reduce its risk of loss in the event an employee terminates employment or experiences a HIPAA special enrollment event.

Taxability

Opt-out payments are taxable to the employee. The cash payments must be included in gross income on the employee’s Form W-2 and are subject to federal income tax withholding. These payments are also generally subject to federal employment tax withholding (FICA and FUTA). Because opt-out payments give employees a choice between health care coverage and taxable compensation, they must be offered through a cafeteria plan under Section 125 of the Internal Revenue Code.

ACA Affordability Calculation Impact

To avoid potential penalties under the shared responsibility rules, ALEs must offer affordable, minimum value health coverage to substantially all full-time employees. In general, the affordability of an employer’s offer of health coverage depends on whether the employee’s required contribution for self-only coverage exceeds a certain percentage of the employee’s household income.

The IRS’ guidance groups medical opt-out arrangements into two general categories:

  • Unconditional medical opt-out payments –opt-out payments are conditioned solely on an employee declining coverage under an employer’s health plan and not on an employee providing proof of other coverage. According to Notice 2015-87, it is generally appropriate to treat unconditional opt-out payments as increasing an employee’s contribution for health coverage beyond the amount of the employee’s salary reduction contribution.

For example, an employee whose required self-only contribution for health coverage is $200 per month, but who is eligible for a cash payment of $100 per month if coverage is waived would be treated as having a required contribution of $300 per month when determining if the coverage is affordable. Until the proposed regulations are finalized, this guidance applies to unconditional opt-out arrangements that are adopted after Dec. 16, 2015.

  • Conditional medical opt-out payments – An arrangement where the opt-out payments are conditioned on an employee declining coverage under an employer’s health plan and providing proof of other coverage. An eligible opt-out arrangement is one where the opt-out payments are available only to employees who decline employer-sponsored coverage and provide reasonable evidence that they and their expected tax dependents have or will have minimum essential coverage other than individual market coverage during the plan year. Payments under conditional opt-out arrangements will not be treated as increasing an employee’s required contribution until the proposed regulations are finalized.

Other Legal

  • Offering opt-out incentives only (or primarily) to employees who have a history of high health claims may violate nondiscrimination rules under the Health Insurance Portability and Accountability Act (HIPAA).
  • Opt-out incentives may violate the Medicare Secondary Payer rules for employers with Medicare-eligible employees (or employees who are married to Medicare-eligible persons).
  • consider how opt-out incentives may impact the calculation of overtime payments under the Fair Labor Standards Act (FLSA). The opt-out incentives may need to be factored into employees’ regular pay when calculating overtime payments, depending on the facts of the specific opt-out incentive arrangement.

 

Source: Zywave search “Medical Opt-out Payments”

Employee Benefits Question of the Week: The “Cadillac” Tax

QUESTION: What is the status of the “Cadillac” tax?

ANSWER:   When the Affordable Care Act (ACA) went into effect in 2010, it included the High-Cost Plan Tax (HCPT), commonly referred to as the “Cadillac” Tax. The Cadillac Tax has twice been delayed and is currently scheduled to take effect on January 1, 2022.

The tax is a 40% tax based on the value of health benefits in excess of a predetermined threshold, originally set at $10,200 for single coverage and $27,500 for family coverage (but amounts will increase by 2022 due to inflation). The Cadillac tax applies to employer and employee contributions to premiums, and contributions to health savings accounts, health reimbursement arrangements, and flexible spending accounts.

The Kaiser Family Foundation estimates that in 2022, 21% of employers offering health benefits will have at least one plan whose premium and account contributions would exceed the threshold.

The implementation of the 2022 date remains in discussion. On July 17, 2019, the Middle Class Health Benefits Tax Repeal Act of 2019 (HR 748) passed the House, although no further action is scheduled. You should continue to monitor any legislative action as the tax may continue to be delayed or even repealed altogether.

 

Source: IFEBP

Employee Benefits Question of the Week: 5500s

 QUESTION: I haven’t filed 5500s…what can I do to correct this?

ANSWER:    If no filing exemption applies there are potentially large penalties for Form 5500 compliance failures. For each late or unfiled Form 5500, the DOL may assess a penalty of over $2,000 per day (indexed annually) for each day it remains unfiled. Moreover, penalties may be assessed for delinquent Form 5500s back to the 1988 plan year. The good news is that these penalties may be greatly reduced under the DOL’s Delinquent Filer Voluntary Compliance (DFVC) Program.

Availability of the DFVC Program – The program is not available if the DOL has notified the plan in writing of a failure to timely file a Form 5500. It can be used only for filing Form 5500s that have not been timely filed—not to correct previous incomplete or deficient filings.

Penalty Amounts Under DFVC – The DFVC penalty amount is $10 per day from the due date (without regard to any extensions that might have applied) until the filing date; the penalty is capped according to plan size. For small plans (generally, fewer than 100 participants at the beginning of all plan years covered by the DFVC submission), the maximum penalty is $750 for a single delinquent Form 5500, or $1,500 for a DFVC submission relating to multiple plan years. For large plans, the maximum penalty is $2,000 for a single delinquent Form 5500, or $4,000 for a DFVC submission relating to multiple plan years. To take full advantage of the caps, it is best to file all late or unfiled Form 5500s for the same plan under a single DFVC submission. It is not possible to request a waiver of DFVC Program penalties (regardless of the circumstances), and the penalties may not be paid from plan assets.

Paying DFVC Penalties – Penalties must be paid by mail (via check) or electronically. An online DOL Penalty Calculator can be used to accurately calculate the payment due. While use of the calculator is not required, the DOL encourages its use to help avoid errors that delay participation in the program. Filers using the calculator can pay DFVC Program penalties automatically online.

Before deciding to use the DFVC Program, you should be aware that incomplete or otherwise deficient DFVC filings may create additional penalties. And use of the program constitutes a waiver of certain rights by the plan, including the right to contest the DOL’s assessment of the penalty amount.

Lastly, while the DFVC Program is maintained by the DOL to address reporting failures under ERISA, the IRS will also provide penalty relief for delinquent filers of Code-required Form 5500s who satisfy the DFVC program’s conditions.