Employee Benefits Question of the Week: HSA Contributions

QUESTION: Can an employer utilize different HSA contribution amounts based on length of employment?

ANSWER: Tiering contributions based on length of service would be considered discrimination under a cafeteria plan and would fail comparability testing under a non-cafeteria plan. Thus, such an arrangement is not permissible.

Employers are not required to contribute to the HSAs of their employees. However, if an employer makes contributions to any employee’s HSA outside of a cafeteria plan, the employer must make comparable contributions to the HSAs of all comparable participating employees. As a general rule, contributions are comparable if they are the same dollar amount or the same percentage of the HDHP deductible. An employer that fails to comply with comparability requirements may be liable for excise taxes.

If an employer fails to comply with the comparability requirement during a calendar year, it will be liable for an excise tax equal to 35 percent of the aggregate amount contributed by the employer to the HSAs of its employees during that calendar year.

Categories of Employees
Non-collectively bargained employees can be separated into three categories for comparability testing:
• Current full-time employees
• Current part-time employees
• Former employees

Categories of HDHP Coverage
There are four categories of coverage for purposes of comparability testing:
• Self only
• Self plus one
• Self plus two
• Self plus three or more

The comparability rules do not apply to employer HSA contributions made through a cafeteria plan. HSA contributions are made through a cafeteria plan if the cafeteria plan allows employees to make pre-tax salary reductions to fund their HSAs.

Sources: Zywave, Health Equity, Robert Husta

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.


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 Benefit Question of the Week: The Medical Loss Ratio Provisions

QUESTION: ​​​What is the Medical Loss Ratio provision and what does it require?

ANSWER: ​​​  The Medical Loss Ratio (or MLR) requirement of the Affordable Care Act (ACA) limits the portion of premium dollars health insurers may use for administration, marketing, and profits. Under the ACA, health insurers must publicly report the portion of premium dollars spent on health care and quality improvement and other activities in each state in which they operate.

The Medical Loss Ratio provision requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on health care claims and quality improvement, leaving the remaining 20% for administration, marketing, and profit. The MLR threshold is higher for large group insured plans, which must spend at least 85% of premium dollars on health care and quality improvement. Insurers failing to meet the applicable MLR standard have been required to pay rebates to consumers since 2012 (based on their 2011 experience). Insurers may either issue rebates in the form of a premium credit or a check payment and, in the case of people with employer coverage, the rebate may be shared between the employer and the employee. Insurers have until September 30 to begin issuing rebates this year. Rebates issued in 2019 will go to subscribers who were enrolled in rebate-eligible plans in 2018.

Using data reported by insurers to CMS, estimates are that insurers will be issuing a total of at least $1.3 billion across all markets in 2019 – exceeding the previous record high of $1.1 billion in 2012 (based on 2011 experience). The amount varies by market, with insurers reporting at least $743 million in the individual market, $250 million in the small group market, and $284 million in the large group market.


Source: https://www.kff.org/private-insurance/issue-brief/data-note-2019-medical-loss-ratio-rebates/


Employee Benefit Question of the Week: Social Determinants of Health

QUESTION: ​​​What are Social Determinants of Health (SDOH)?

ANSWER: ​​​ According to the American Medical Association, SDOH are: education, food, neighborhood and physical environment, community and social context, economic stability and healthcare. These conditions are shaped by the distribution of money, power and resources.  The interplay can produce various experiences and results in one’s overall health.

U.S. health policy and spending has traditionally been focused on the financial aspect of healthcare because it has been grounded in a transaction-based interaction. Medicine has been practiced as the act of diagnosing and treating a specific clinical condition. And in a fee-for-service environment, patients receive a bill for that care or treatment from their provider. As medicine becomes more personalized, care is streamlined and coordinated between providers, the industry explores pay-for-value models, and the definition of and approach to patient care is changing to orient care delivery based on a person’s social, mental and physical status within their community.

The industry is beginning to grapple with how to bridge better health to better healthcare by exploring how to connect a person’s physical, mental and social wellbeing. It stems from the idea that health is defined by multiple factors, or the aforementioned social determinants, that interact with each other to create a compounded effect on a person’s health.

Healthcare spending typically focuses on the after-the-fact treatment of acute and chronic medical conditions rather than on investments to target people in the communities in which they live.

Racial, ethnic and geographic disparities are some of the most prominent examples of the effects of SDOH. Life expectancy is generally lower in rural settings in comparison to urban settings. Black American babies are 2.3 times more likely to die as infants than non-Hispanic white children. Unemployment rates are twice as high among black Americans and American Indians compared to non-Hispanic whites. Unemployed adults also are more likely to lack health insurance — 28% of unemployed adults do not have health insurance compared to 11% of employed adults.

As the definition of health expands beyond access to medical care, there will no doubt be additional movement in legislation and the healthcare industry to bridge the gap between access, quality and cost of healthcare.


Source: https://www.leadersedge.com/healthcare/social-determinants-of-health-surface-in-u-s-policy-agenda

Employee Benefit Question of the Week: HIPAA

QUESTION: ​​​What is HIPAA? Does it apply to me?

ANSWER:   HIPAA is the acronym for the Health Insurance Portability and Accountability Act that was passed by Congress in 1996.  HIPAA does the following:

  • Provides the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change or lose their jobs;
  • Reduces health care fraud and abuse;
  • Mandates industry-wide standards for health care information on electronic billing and other processes; and
  • Requires the protection and confidential handling of protected health information

While all four are important, we will focus on HIPAA liability for business associates related to the handling of protected health information (PHI).

Below are specific HIPAA violations that business associates can be directly liable for. Key areas of liability include a business associate’s failure to:

  • Comply with the HIPAA Privacy Rule’s restrictions regarding the use and disclosure of protected health information (PHI);
  • Comply with the HIPAA Security Rule’s requirements for safeguarding electronic PHI (ePHI);
  • Provide notification when it discovers a breach of unsecured PHI; and
  • Enter into business associate agreements with subcontractors.

The HIPAA Privacy, Security and Breach Notification Rules (HIPAA Rules) apply to covered entities, which include health plans, health care clearinghouses and most health care providers. The HIPAA Rules also apply to other entities that perform functions or activities on behalf of a covered entity when those services involve access to, or the use or disclosure of, PHI. These entities are called business associates. Examples of business associates include TPAs, pharmacy benefit managers, attorneys or auditors that use PHI when performing their professional services, and health plan consultants or brokers.

If a covered entity uses a business associate, there must be a written agreement between the parties, called a business associate agreement, that requires the business associate to comply with certain requirements under the HIPAA Rules.

Business associates are directly liable for the following HIPAA violations:

  • Failing to comply with the requirements of the Security Rule;
  • Impermissible uses and disclosures of PHI;
  • Failing to provide breach notification to a covered entity (or another business associate);
  • Failing to enter into business associate agreements with subcontractors that create or receive PHI on the business associate’s behalf, and failure to comply with the implementation requirements for those agreements;
  • Failing to take reasonable steps to address a material breach or violation of the subcontractor’s business associate agreement;
  • Failing to make reasonable efforts to limit PHI to the minimum necessary to accomplish the intended purpose of the use, disclosure or request;
  • Failing, in certain circumstances, to provide an accounting of PHI disclosures;
  • Failing to disclose a copy of electronic PHI (ePHI) to either the covered entity, the individual or the individual’s designee (whichever is specified in the business associate agreement) to satisfy a covered entity’s obligations regarding the form and format, and time and manner of access under 45 C.F.R. §§ 164.524(c)(2)(ii) and 3(ii), respectively.
  • Taking any retaliatory action against any individual or other person for filing a HIPAA complaint, participating in an investigation or other enforcement process, or opposing an act or practice that is unlawful under the HIPAA Rules; and
  • Failing to provide HHS with records and compliance reports, cooperate with complaint investigations and compliance reviews, and permit access by HHS to information, including PHI, relevant to determining compliance.

Zywave produces an excellent HIPAA privacy and security compliance toolkit for employers that you can access here.



Source: Zywave

Employee Benefit Question of the Week: What is subrogation?

QUESTION: What is subrogation, and how does it affect health benefit plans?

ANSWER:   Subrogation and reimbursement are methods utilized by benefit plans to recover money spent on behalf of a plan beneficiary. Wait… what the heck is subrogation and reimbursement, anyway?


In a nutshell, subrogation and reimbursement are methods utilized by benefit plans to recover money against parties who may have caused, or in some way be responsible for, an injury or loss that resulted in payment by the benefit plan on behalf of a plan beneficiary. Subrogation and reimbursement, while inextricably related, operate in different, very important ways.

To illustrate, let’s first consider a subrogation hypothetical. Subrogation is the right of a benefit plan to “step into the shoes” of a plan participant and seek to enforce any underlying right that participant may have had against some other party. Imagine that John Owner is driving a vehicle and because he was awestruck by lighting in the sky, he loses control and runs into an embankment. Assuming these are the only facts that lead to his accident, one can easily conclude that John’s own lack of attention lead to the car accident. John goes to the hospital because he is experiencing neck pain, provides his health insurance card, and incurs $10,000 in medical expenses that are thereafter paid by his health plan.

Several months later John receives a phone call from a representative of his health plan asking John why he didn’t access his medical coverage through his auto insurance policy. John indicates that he didn’t realize this coverage was available to him, and now that all his bills have been paid by his health benefit plan, doesn’t want to have to go through the hassle of obtaining money from his auto insurance plan. How can a benefit plan seek recovery from that policy which likely is primary in this hypothetical?

Enter subrogation! It is through the right of subrogation that John’s health benefit plan can now “step into John’s shoes” and bring a claim against that auto insurance policy in John’s name. The ability to bring this claim allows the plan to recoup the $10,000 in medical benefits it paid from this policy and put the funds back in to the health plan for use to pay for the future medical claims incurred by John, his family, and all his coworker’s and their families.


Now let us illustrate the concept of reimbursement. Imagine the exact same hypothetical, except that in this accident John Driver wasn’t distracted by the majestic sky, in fact, it was Distracted Donna who was behind him and couldn’t take her eyes off the lighting causing her to rear-end John, resulting in his losing control of the vehicle and running into the embankment.

Now, in this case John incurred $100,000 in medical benefits. He still can access the $10,000 policy discussed above, but he also now has a claim against Distracted Donna, who, fortunately, happens to have a $250,000 liability insurance policy. At the advice of his attorney, John goes ahead and files a claim against Donna. While all of this is happening, John’s health plan is receiving and paying the $100,000 in medical bills that he incurred. Several months later, John settles his claim for $250,000 and reimburses his health benefits plan the $100,000 it paid in relation to this accident.

Why would John do that? Well, quite simply, John’s medical benefits (like those of most Americans obtained through an employer) are intended to pay for treatment of an injury or illness, but not when another party may be responsible for the injuries or illness sustained. This is a standard concept that is well known and provided for in most health insurance policies. A party who causes injuries to another should be held responsible for their wrongdoing, to include compensation to the person whom they wronged. That is the very basic idea that is in play when discussing subrogation and reimbursement.

These tools allow a benefit plan to pay medical benefits only when it is the responsibility of the plan participant to pay them and ensure that any third party who may be responsible is required to pay for the damage they caused.

Costly process for employers

Now, considering these examples one might wonder why a benefit plan might not want to engage in these types of activities which allow a plan to pay only for what it should be responsible for, There are several. First, bear in mind that many “benefit plans” are sponsored by the employer of the injured person. That means that even though the employer itself has no right to any of the money being recouped since its going back to the benefit plan for the benefit of all the employees and their families, employees still sometimes feel that the employer is benefiting from their plight. Other employers simply don’t want to have to bother with the process of actually recovering these funds which can be very difficult, legally involved, and incredibly costly. Unfortunately, the law may require that benefit plans engage in these types of cost saving activities to ensure that the plan assets are being prudently managed.

Providing insurance to employees, either through a fully insured or self-funded benefit plan arrangement, is generally governed by the Employee Retirement income Security Act of 1974 (ERISA). ERISA, among other things, enumerates the requirements and limitations of establishing a benefit plan as well as the duties of the parties who take it upon themselves (or perhaps are required to under applicable law) to provide benefits to their employees. Perhaps the most important duty of plan sponsor has is a fiduciary duty to prudently manager plan assets. In pertinent part 29 U.S. Code § 1104. Fiduciary duties, provides:

Prudent man standard of care: … a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—

for the exclusive purpose of (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan;

  • with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;
  • by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and
  • in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III.

Stated simply, a plan that provides for cost-containment activities, and specifically if it provides for subrogation and reimbursement, has a fiduciary duty to engage in such activities to protect the assets of the plan and ensure those assets are being prudently managed.

Where plan fiduciaries come in

In perhaps one of the most well written opinions addressing subrogation and third-party reimbursement claims, the 11th Circuit Court of Appeals goes to great lengths to lay out the rationale for subrogation and third-party recovery activity and why it may be a requirement of any benefit plan’s administration. Specifically, in the case of Zurich American Insurance Company v. Keith O’Hara, Ross & Pines, LLC, 2010 U.S. App. LEXIS 8570, (April 26, 2010). The Court held that the primary purpose of ERISA was to ensure the integrity and viability of bargained for benefit plans and those plans must be enforced as written.

The Zurich Court went on to state that although the participant would be in a better position if the subrogation provision was not enforced, plan fiduciaries must be impartial and account for the interests of all the beneficiaries. Reimbursement inures to the benefit of all participants and beneficiaries by reducing the total cost of the plan.

If the participant were relieved of his obligation to reimburse the Plan for the medical benefits it paid on his behalf, the cost of those benefits would be defrayed by other plan members and beneficiaries in the form of higher premium payments.

Plan fiduciaries must also ensure that the assets of employee health plans are preserved in order to satisfy present and future claims. Because maintaining the financial viability of self-funded ERISA plans is often unfeasible in the absence of reimbursement and subrogation provisions like the very ones we are discussing. Denying the Plan its right to reimbursement would harm other plan members and beneficiaries by reducing the funds available to pay those claims.

Moreover, the participant availed himself of the benefits of the Plan with the knowledge that the Plan would be entitled to full reimbursement for those benefits in the event he was injured and received full or partial recovery from a third-party tortfeasor.

Ultimately, it is important that employers who want to provide benefits to their employees work with qualified advisors and experts that can guide them through the process of making these types of decisions. There is no question that subrogation and reimbursement cases can sometimes create tension between employees and employers, but depending on the specifics of the plan, plan sponsor likely has a fiduciary duty to all the beneficiaries of the plan to engage in activities that will ensure prudent management of plan assets, and ultimately, the financial viability of the plan.

Setting up the programs that will both educate as well as properly execute these types of activities are important rolls of a plan fiduciary that should not be taken lightly.


Source: Christopher M. Aguiar, Esq., is vice president of Legal Recovery Services at The Phia Group. via BenefitsPro