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If an applicable large employer offers health coverage that is affordable and that provides minimum value to its full-time employees and offers health coverage to the dependents of those employees, will it be subject to a penalty if some of its employees don’t enroll in the coverage and purchase health insurance through the Exchange or if some of its employees enroll in Medicare or Medicaid?
As long as an applicable large employer offers affordable and minimum value coverage to substantially all of its full-time employees and their dependents, the employer will not be subject to a penalty. Moreover, an applicable large employer will not be subject to a penalty solely because one, some, or all of its employees purchase health insurance coverage through the Exchange or enroll in Medicare or Medicaid. An employer will only be liable for a penalty if at least one full-time employee receives a premium tax credit on the Exchange. In general, an employee will not be eligible for a premium tax credit if the employer has offered that employee health coverage that is affordable and provides minimum value, even if that employee rejects the offer of coverage and instead enrolls in coverage through the Exchange or enrolls in Medicare or Medicaid. If no full-time employee receives a premium tax credit, the employer will not be subject to a penalty.
The Affordable Care Act does not require small employers to offer health care coverage. Employers with 1-50 eligible employees will not be subject to penalties for not providing health coverage.
Large employers, which are employers with an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year, must offer its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an employer-sponsored plan that is affordable and provides minimum value or face a penalty if a full-time employee is certified to the employer to receive an applicable premium tax credit or cost-sharing reduction through the Marketplace.
For employer with 100+ employees (including FTEs) no penalty will apply during 2014 or any calendar month during the portion of the 2014 plan year that falls in 2015. For employers with 50-99 full-time employees (including FTEs), no penalty will apply during 2015 or any calendar month during the portion of the 2015 plan year that falls in 2016.
An applicable large employer must offer its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an employer-sponsored plan that is affordable and provides minimum value.
The Affordable Care Act only requires employers that employed an average of at least 50 full-time (FT) and full-time equivalent (FTE) employees in the prior calendar year to offer Minimum Essential Coverage, that is Minimum Value and affordable, to substantially all of its FT employees and their dependents (does not include spouses). Employers with less than 50 FT plus FTE employees will not be assessed a penalty for not meeting the affordability requirement.
Yes, the IRS was set, for the first time this tax season to reject tax returns that did not include the filer’s health coverage status, but consistent with President Trump’s executive order seeking to minimize the burden of complying with ACA provisions, the IRS has decided to accept “silent” returns, those that do not state the filer’s health coverage status.
However, the individual mandate is still the law and individuals are expected to pay the penalty if they did not have required healthcare coverage during 2016. Additionally, this decision does not prevent the IRS from asking for proof of coverage at a later date and from assessing penalties if the filer did not maintain the required coverage.
This San Francisco Chronicle article provides helpful background information.
If an individual had qualifying health care coverage, also known as minimum essential coverage, the provider of that coverage is required to send the individual a Form 1095‐A, 1095‐B, or 1095‐C (with Part III completed) that includes individuals in the family who were enrolled in the coverage and their months of coverage.
These forms must be sent on or before January 31 of the year following the calendar year in which minimum essential coverage is provided. Even if individuals have not received one of these forms, but had health care coverage, according to the IRS, they can rely on other information they have about their coverage to complete their tax forms. Consult with a tax advisor to determine what documents are acceptable.
Yes, with the following exemptions:
U.S. citizens who meet neither the physical presence nor residency requirements will need to maintain minimum essential coverage, qualify for a coverage exemption or make a shared responsibility payment. For this purpose, minimum essential coverage includes a group health plan provided by an overseas employer and certain expatriate health plans. One exemption that may be particularly relevant to U.S. citizens living abroad for a small part of a year is the exemption for a short coverage gap. This exemption provides that no shared responsibility payment will be due for a once-per-year gap in coverage that lasts less than three months.
Individuals and their dependents that had coverage for each month of the tax year, will indicate this on their tax return simply by checking a box on their Form 1040, 1040A or 1040EZ.
All of the following are subject to the individual shared responsibility provisions:
The following are exempt from the individual shared responsibility provisions:
The annual penalty amount is either a percentage of household income in excess of the return filing threshold or a flat dollar amount, whichever is greater.
Annual Penalty Amount for 2016
Flat dollar amount
$695 per adult
$347.50 per child
Family maximum: $2,085
Note: After year 2016, the flat dollar amounts are based on the 2016 amounts plus an inflation adjustment.
2.5% of household income above filing threshold
Household Income: The modified adjusted gross income of you, your spouse (if filing jointly), and any dependents who are required to file a tax return. Modified adjusted gross income is the adjusted gross income from the tax return plus any excludible foreign earned income and tax-exempt interest received during the taxable year.
Filing Threshold: The minimum amount of gross income an individual of your age and with your filing status (e.g., single, married filing jointly, head of household) must make to be required to file a tax return.
The penalty amount is capped at the cost of the national average premium for a bronze level health plan available through the Marketplace. For 2015, the annual national average premium for a bronze level health plan available through the Marketplace is $2,484 per year ($207 per month) for an individual and $12,240 per year ($1,020 per month) for a family with five or more members.
The penalty is for each month of noncompliance, however, the amounts indicated are per year. Hence, if an individual had coverage or an exemption for part of the year, the penalty amount is divided by 12 to get the monthly penalty amount.
Individuals who cannot afford coverage, meaning the individual’s required contribution for coverage for the month exceeds 8% (indexed annually) of the individual’s household income; as well as taxpayers with income below the filing threshold are exempt from the individual mandate and thus will not be subject to the penalty.
If the individual is eligible for an employer-sponsored plan, the individual’s required contribution is the portion of the annual premium paid by the individual for the lowest cost self-only coverage or lowest cost family coverage that would cover the employee and all related individuals in the employee’s family. If the individual is not eligible for an employer-sponsored plan, the required contribution is the annual premium for the lowest cost bronze plan available in the Individual Marketplace in the rating area in which the individual resides, reduced by the amount of any premium credit received for the taxable year
There are also options that make coverage more affordable. Individuals with household incomes for the taxable year below 138% of the federal poverty level (FPL) may be eligible for Medi-Cal if they also meet the other eligibility requirements. Individuals with household incomes for the taxable year between 138% and 400% of the FPL may be eligible for premium assistance through Covered California if they also meet the other eligibility requirements. Individuals with household incomes for the taxable year within 138% and 250% of the FPL may also be eligible for a cost-sharing reduction through Covered California if they meet the other eligibility requirements.
There are two different affordability percentages – 8% and 9.5% (indexed annually). These percentages are used for different purposes.
9.5% of household income is used to determine affordability for purposes of the large employer mandate (there are safe harbors employers can use instead of household income) and eligibility for premium tax credits and cost-sharing reductions on the Exchange.
8% of household income is used to determine affordability for purposes of the individual mandate. Individuals who cannot afford coverage, meaning the individual’s required contribution for coverage for the month exceeds 8% of the individual’s household income, are exempt from the individual mandate and thus will not be subject to the penalty.
The individual will be subject to a penalty for each month the individual does not maintain minimum essential coverage. However, individuals are exempt from the penalty for short coverage gaps, which is a continuous period of less than 3 months.
If an individual does not have coverage for a continuous period that begins in one taxable/calendar year and ends in the next, for purposes of applying the short coverage gap rules to the first taxable/calendar year, the months in the second taxable/calendar year are not counted. For purposes of applying the short coverage gap rules to the second year, the months in the first taxable/calendar year are counted. For example, if the individual lacked coverage from November 1, 2015 until the end of February 2016, November and December of 2015 are treated as a short coverage gap on the 2015 tax return and thus exempt from penalty. On the 2016 return, however, November and December of 2015 are included in the continuous period that includes January and February 2016. That continuous period is not less than 3 months so, on the 2016 return, January and February of 2016 are not exempt months under the short coverage gap exemption and therefore the individual would be subject to penalty for January and February of 2016.
Non-exempt individuals and their dependents are required to maintain minimum essential coverage or pay a penalty. Minimum essential coverage includes government sponsored programs, eligible employer sponsored plans, plans in the individual market, grandfathered health plans, or other coverage (ex. state health benefit risk pool). There is no requirement to purchase coverage through the Exchange.
Retiree coverage under an eligible employer-sponsored plan generally is minimum essential coverage.
Individuals who cannot afford coverage, meaning the individual’s required contribution for coverage for the month exceeds 8% of the individual’s household income are exempt from the individual mandate and thus will not be subject to the penalty.
There are also options that make coverage more affordable. If your household income for the taxable year is below 138% of the federal poverty level (FPL), you may be eligible for Medi-Cal if you also meet the other eligibility requirements. If your household income for the taxable year is within 138% and 400% of the FPL, you may be eligible for premium assistance through Covered California if you also meet the other eligibility requirements. If your household income for the taxable year is within 138% and 250% of the FPL, you may also be eligible for a cost-sharing reduction through Covered California if you meet the other eligibility requirements. However, cost-sharing reductions are only available to people who enroll in a silver plan through Covered California.
See pages 8-19 in the Eligibility for Individuals and Families participant guide.
An individual’s tax filing threshold depends on their tax filing status, age, and income. More details can be found here:
Excepted Benefits are not minimum essential coverage. Excepted Benefits means benefits under one or more (or any combination thereof) of the following:
(1) Benefits not subject to requirements
(A) Coverage only for accident, or disability income insurance, or any combination thereof.
(B) Coverage issued as a supplement to liability insurance.
(C) Liability insurance, including general liability insurance and automobile liability insurance.
(D) Workers’ compensation or similar insurance.
(E) Automobile medical payment insurance.
(F) Credit-only insurance.
(G) Coverage for on-site medical clinics.
(H) Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.
(2) Benefits not subject to requirements if offered separately
(A) Limited scope dental or vision benefits.
(B) Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof.
(C) Such other similar, limited benefits as are specified in regulations.
(3) Benefits not subject to requirements if offered as independent, noncoordinated benefits
(A) Coverage only for a specified disease or illness.
(B) Hospital indemnity or other fixed indemnity insurance.
(4) Benefits not subject to requirements if offered as separate insurance policy
Medicare supplemental health insurance (as defined under section 1395ss(g)(1) of this title), coverage supplemental to the coverage provided under chapter 55 of title 10, and similar supplemental coverage provided to coverage under a group health plan.
Individuals not lawfully present are exempt from the individual mandate.
Individuals who are members of a recognized health care sharing ministry are exempt from the individual mandate.
To qualify, a health care sharing ministry:
Certain individuals are exempt from the individual mandate and therefore will not pay a penalty for not maintaining minimum essential coverage. The exemptions include, among others, individuals who cannot afford coverage and individuals not lawfully present. Individuals who cannot afford coverage means the individual’s required contribution for coverage for the month exceeds 8% of the individual’s household income.
An individual is exempt from the individual mandate if the individual is a member of a recognized religious sect and is an adherent of the established tenets or teachings of such sect that is conscientiously opposed to acceptance of the benefits of any private or public insurance which makes payments in the event of death, disability, old-age, or retirement or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act).
The penalty amount is an annual amount. However, the penalty is based on the number of months in which the individual lacked coverage. Hence, if an individual had coverage or an exemption for part of the year, the penalty amount is divided by 12 to get the monthly penalty amount.
Note: Individuals are exempt from the penalty for short coverage gaps, which is a continuous period of less than 3 months.
It depends on the type of coverage. Excepted benefits is not minimum essential coverage. This includes coverage only for accident, or disability income insurance; liability insurance; coverage issued as a supplement to liability insurance; workers’ compensation; automobile medical payment insurance; credit-only insurance; coverage for on-site medical clinics; other similar insurance coverage, under which benefits for medical care are secondary or incidental to other insurance benefits. Moreover, the following are excepted benefits if the benefits are provided under a separate policy, certificate, or contract: limited scope dental or vision benefits; benefits for long-term care, nursing home care, home health care, community-based care; coverage only for a specified disease or illness; hospital indemnity or other fixed indemnity insurance; Medicare supplemental health insurance; and similar supplemental coverage provided to coverage under a group health plan.
Non-exempt individuals and their dependents are required to maintain minimum essential coverage for each month beginning in 2014. However, each individual can be without coverage for a continuous period of less than three months during a calendar year and not be subject to the penalty.
If the individual’s required contribution for coverage for the month exceeds 8% of the individual’s household income, then the individual cannot afford coverage. If the individual is eligible for an eligible employer-sponsored plan, the required contribution is the portion of the annual premium which would be paid by the individual for the lowest cost self-only coverage or lowest cost family coverage that would cover the employee and all related individuals in the employee’s family. If the individual is not eligible for an eligible employer-sponsored plan, the required contribution is the annual premium, reduced by the amount of premium assistance allowable, for the lowest cost bronze plan available in the Individual Marketplace in the rating area in which the individual resides.
A federally recognized American Indian are members as well as first or second descendants of tribe members of federally-recognized tribes by the United States Bureau of Indian Affairs (BIA) in the U.S. Department of the Interior.
Penalty payments may be deducted from any tax refunds.
Does an adult who is not working and does not file taxes exempt from the requirement to have health insurance? Will the person have to pay the penalty when he/she decides to purchase the health insurance later on?
Individuals who cannot afford coverage, meaning the individual’s required contribution for coverage for the month exceeds 8% of the individual’s household income; as well as taxpayers with income below the filing threshold are exempt from the individual mandate and thus will not be subject to the penalty.
According to the regulations, coverage or a plan provided by an issuer that is not offered within the 50 states and the District of Columbia is neither an eligible employer-sponsored plan nor a plan in the individual market. Accordingly, it is not minimum essential coverage. However, the Health and Human Services regulations provide a process by which a sponsor of a health plan, whether domestic or foreign, may apply for recognition as minimum essential coverage.
It depends on the insurance carrier/exchange. The Special Enrollment Period (SEP) is a once per year opportunity for small employers to enroll in medical coverage even though they do not meet carriers’ standard participation or contribution requirements. The SEP is from November 15 – December 15 for coverage starting January 1.
Covered California for Small Business (CCSB) is the only carrier/exchange of those that Claremont represents that does not require employers to meet participation or contribution requirements on their first renewal or thereafter. From a practical standpoint, if the employer chooses another carrier/exchange and does not meet those requirements by the time of their first renewal, they will likely need to switch carriers (this would have to be done during the SEP). However, with CCSB, they would not need to meet those requirements, so CCSB is the best choice if stability is important to the employer.
Yes and No. First, we’ll consider the Special Enrollment Period, then ACA penalties.
Special Enrollment Period
Any employer that qualifies for small group coverage can qualify for the Special Enrollment Period (SEP). Since employers with 1-100 employees qualify for small group coverage in California, an employer with more than 50, but less than 100 employees qualifies for the SEP.
The SEP was created as part of the ACA to help small employers qualify for coverage when they otherwise would not. During the SEP, all participation and contribution minimums are waived. An extreme example: an employer with 60 employees can qualify for coverage with only one enrolling employee while paying nothing towards that employee’s plan. Whether the employer and employees benefit from such an offering is a separate discussion, but an employer does qualify to offer coverage during the SEP in that scenario.
Employers wanting to secure coverage during the SEP need to apply between November 15 and December 15 for coverage effective January 1.
Is an ALE exempt from penalties if it secures coverage during the SEP?
No. An employer with more than 50 full-time and full-time equivalent employees (referred to as an Applicable Large Employer or ALE) is required to:
It does not matter if the ALE purchased coverage during the SEP, the obligations above remain.
The danger is that in their enthusiasm to take advantage of the waived contribution requirement permitted in the SEP, the ALE may lose sight of the fact that they still have an ACA obligation to offer affordable coverage.
For example, if an ALE offers coverage secured during the SEP to its full-time employees, the ALE will satisfy the:
But, if the employer takes advantage of the SEP’s contribution waiver and makes no contribution or sets contribution at a low level, the coverage may not meet the ACA’s affordability standard. If an employee then secures coverage with a subsidy from the exchange, then the employer is at risk of being assessed a fine related to that employee and any other employee that does the same.
Securing coverage through the special provisions of the SEP doesn’t absolve the ALE of their large employer obligations under the ACA.
A QSEHRA is a Qualified Small Employer Health Reimbursement Arrangement. It allows the employer to reimburse employees for individual coverage that the employees themselves secure. A traditional fully-insured group plan cannot be offered alongside a QSEHRA. The only group plans that can be offered are non-health plans such as life or LTD.
If you or your clients are interested in learning more about the QSEHRA, our HR compliance partners TASC and HR Service can assist brokers and employers in setting up and administering QSEHRA’s and maintaining compliance for reimbursement arrangements. Please visit the HR Compliance section on our partner page for company descriptions and contacts
The Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests or by shareholders in S corporations. The purpose of the Schedule K-1 is to report each partner’s or shareholder’s share of the entity’s earnings, losses, deductions, and credits (more detail).
Since partners in a partnership and shareholders in an S corporation are not included in the quarterly wage reports filed with the state, carriers require them to furnish a K-1 to verify that they are associated with the business so as to be eligible for benefits under a group plan.
A Guaranteed Association is a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria. There are numerous other requirements that must be met to be considered a Guaranteed Association (see Law Insider).
To be eligible to offer group health insurance in California, an association must be a Guaranteed Association. Currently, there are five such associations in California. They are known as MEWAs (Multiple Employer Welfare Arrangements). No other associations are permitted to offer health coverage.
Yes. UnitedHealthcare’s bronze-level HSA-compatible plan has an embedded deductible while its silver-level HSA-compatible plan has a non-embedded deductible.
When covered by a family plan with an embedded deductible, the carrier starts paying coinsurance towards a family member’s claims once that family member has met the individual deductible. The family deductible need not be met for coinsurance to start for one family member.
When covered by a family plan with a non-embedded deductible, the carrier does not start paying coinsurance for any family member until the family deductible has been met, even if an individual in the family has met the individual deductible.
In both cases, carriers begin paying coinsurance once the family deductible has been met. This means that for the plan with an embedded deductible, coinsurance payments start once the family deductible has been met even if no family member has met the individual deductible.
If all other plan characteristics are equal, an embedded deductible is more desirable than a non-embedded deductible because it allows a family member to begin receiving the benefit of coinsurance by meeting the individual deductible and by not having to meet the family deductible.
At Claremont Insurance Services the three carriers that we represent which offer both medical and ancillary plans differ as to what they will permit as follows:
It is our understanding that a carrier’s decision in this matter is driven more by system capabilities than legal or regulatory interpretation. In other words, the carriers don’t know of any legal or regulatory reason why a dependent would be barred from choosing to enroll or waive regardless of what the subscriber decides.
Yes, if they elect COBRA. The termination by a subscriber is a qualifying COBRA event for the dependents who would become eligible to continue the plan through COBRA. For more information, download the FAQs on COBRA Continuation Health Coverage from the US Department of Labor.
It is strongly advised that employers pay the exact amount invoiced even if an employee has terminated from or been added to the plan. Failure to submit payment in full could result in delinquency or cancellation of coverage. Conversely overpayment, while usually applied correctly to the next invoice, may sometimes lead to billing errors. If an employer pays the full premium even though an employee has terminated, the carrier will typically adjust future invoices within one or two billing cycles and issue a credit to the employer. And if an employee has been added, the carrier will add an amount to a future invoice for the time the employee was enrolled, but for which the employer was not billed.
Measure Z is an Oakland, California ballot measure which passed in November 2018 will take effect on July 1, 2019. It states that a hotel business with 50 or more rooms must pay employees $15 per hour and offer healthcare benefits or $20 per hour if it does not offer healthcare benefits. Healthcare benefits are not defined. For the purposes of this Q&A, we assume that healthcare benefits mean a standard group health plan.
An employer can always drop their health plan and pay employees more, however, there will be consequences depending on the employer’s status under the ACA. For example, Measure Z has no bearing on an employer’s obligations under the ACA. If an employer is required under the ACA to offer coverage, they must offer coverage. Paying employees more, unfortunately, is not an alternative under the ACA to offering coverage.
Here are the two most likely scenarios – both assume the employer is subject to Measure Z:
a) If the employer is a small employer under the ACA (fewer than 50 full-time, plus full-time equivalent employees), then the employer is under no obligation to offer health coverage under the ACA. For ACA small employers who are subject to Measure Z however, this could be a marketing opportunity for brokers. Small employers who are subject to Measure Z and don’t currently offer coverage will have to:
This represents a sales opportunity for brokers.
b) If the employer is an Applicable Large Employer (ALE) under the ACA (50 or more full-time, plus full-time equivalent employees), they must offer qualified coverage to all full-time employees or risk costly penalties. There is no exception allowing ALEs to “pay employees more” in place of offering qualified health plans to full-time employees.
Of course, an ALE always has a choice to offer or not offer, but not offering comes with the potential to incur harsh ACA penalties. And If an ALE that is also subject to Measure Z doesn’t offer coverage and also doesn’t pay $20 per hour or more, then it looks like they would be subject to penalties under both the ACA and Measure Z.
Bottom line answer to the original question: assuming the employer is an ALE, it would not be wise to drop coverage and pay employees more because of the ACA penalty risk.
1) Small Employers (under 50 EEs) can reimburse employees for Medicare premiums (and other health insurance plan premiums or any IRC Section 213d medical expense) through the use of a Qualified Small Employer HRA (QSEHRA) provided that the reimbursements are not restricted only to Medicare premiums.
2) An employer with fewer than 20 employees, (i.e. not subject to Medicare as secondary payer rules) can pay for employees’ Medicare Part B or D premiums so long as the employer also had standard small group coverage that is subject to market reforms, such as the annual dollar limit prohibition and preventative services requirements.
Regarding the QSEHRA – Not every small employer is eligible to implement a QSEHRA and certain restrictions may make it an undesirable solution, but a QSEHRA may be the right fit for certain employers.
Regarding employers with fewer than 20 employees – See the answer to question #3 in this IRS publication for a more detailed explanation of the requirements for a Medicare reimbursement arrangement.
If you or your clients are interested in learning more about the QSEHRA or Medicare reimbursement, our HR compliance partners TASC and HR Service can assist brokers and employers in setting up and administering QSEHRA’s and maintaining compliance for reimbursement arrangements. Please visit the HR Compliance section on our partner page for company descriptions and contacts.
During the plan year: Principal is the only carrier that Claremont represents that permits an employer to increase the orthodontia limit during the plan year.
At renewal: All other carriers that Claremont represents permit an increase in the limit at renewal. Those carriers are: Beam, Blue Shield of California, ChoiceBuilder, Delta Dental, Humana, MetLife, Reliance Standard, and UnitedHealthcare.
Note: final approval of limit increases is always subject to an underwriting review by the carrier.
Yes. So long as an individual, who is 65 or older, is not enrolled in any part of Medicare, that individual can contribute to a Health Savings Account (HSA) that is connected to a High Deductible Health Plan (HDHP). Deciding whether to delay enrollment in Medicare for those 65 or over is a complicated question and depends on the individual’s financial circumstances and the size of the company which offers the HDHP.
Medicare Interactive.org provides an excellent description of the factors to consider if an individual would like to delay Medicare enrollment in order to continue contributing to an HSA.
Dental – Humana maintains its own network of dental providers. Their network includes 46,000 providers in California and 250,000 providers nationwide.
Vision – Humana partners with Eyemed and offers members a choice of providers through Eyemed’s Insight Nationwide network which includes 15,700 providers in 3,500 locations across California and 70,000 providers in 24,000 locations nationwide. Retail locations include LensCrafters, Pearle Vision, Sears Optical, Target Optical, and JCPenney Optical. Online, members can also shop in-network at Glasses.com and Contactsdirect.com.
Yes, but to maintain the tax-exempt status for both the employer’s and employee’s contributions, an employer’s contribution is limited. This answer applies to Health FSAs only.
Employers can match an employee’s pre-tax contribution to their FSA (Flexible Spending Arrangement) up to the maximum amount the employee is permitted to contribute. If the employee contributes less than $500, the employer is permitted to contribute more than the employee, but only up to $500. Examples best illustrate the rule. If an employee contributes these amounts to their Health FSA:
This article from the Society for Human Resource Managers is an excellent source of information regarding FSA’s. See the section “Employee and Employer Funding.”
No. California, along with Colorado, New York, and Vermont all define a small employer as having up to 100 employees. All other states define a small employer as having up to 50 employees.
Some history…prior to 2016, states defined a small group as having no more than 50 employees. The Affordable Care Act redefined small group as having up to 100 employees. This change was set to begin in 2016. As the deadline drew closer, many states objected and Congress responded by enacting the PACE Act which gave states the choice of leaving the small group definition at 50 or expanding it to 100. So far only California, Colorado, New York, and Vermont have chosen to expand the definition.
Yes, but it depends on the type of Health Reimbursement Arrangement (HRA).
Most carriers expressly forbid employers from pairing a small group medical plan with an HRA that reimburses employees for medical expenses. The exception is Kaiser, which permits employers to pair a medical HRA with this one plan: Gold HRA HMO 2250/35 + Child Dental.
However, employers are permitted to pair “excepted benefits” HRAs with small group medical plans. Examples of excepted benefits HRAs are those that reimburse for dental, vision, long-term care and Medicare supplemental coverage.
You can. Your client’s employees can make normal, qualified changes (add dependents, change address, etc.) by accessing their benefits portal in Ease (which is offered through your own account or Claremont’s – at no cost to you by the way). Ease can be configured to notify you, the group’s administrative contact or Claremont (or all three) that a change has been made. Then, depending on your arrangement with the client, one of the three can submit that change to the carrier just like normal. Or, in the case of Principal, which has just launched a direct link with Ease for ongoing administration, during-the-plan-year changes can be configured to transmit directly from Ease to Principal with no need for the group administrator, the broker or the general agent to get involved.
Yes, but with caution. Note: this answer is limited to health benefits, benefits such as retirement plans may be treated differently and should be discussed with a financial advisor.
Employers can offer different benefits or different levels of benefits (a “Program”) to different classes of employees provided that each employee who is in a similarly situated class is offered the same Program and provided that the classes are constructed from “bona fide employment-based classifications.”
Examples of employee classes:
Two important factors to consider when designing Programs that differ by employee class. In general, the Program must be non-discriminatory. Specifically:
If an employer wishes to implement a Program whose benefits differ based on employee classification, especially if the classification is salary and hourly, where the likelihood of discrimination in favor of highly compensated individuals is much higher, we strongly recommend that you or the employer engage the services of a firm that specializes in compliance testing to ensure that all nondiscrimination requirements are satisfied. We encourage you to contact one of our partners below.
Claremont has vetted and partnered with a number of firms that offer HR Compliance services: Vendor Partners – HR Compliance.
Travel Assistance services included in most group life policies provide employees and their families with several helpful services when traveling more than 100 miles from home (including international travel) whether it’s for business or personal reasons. These services provide peace of mind to travelers, supplementing other coverage by further protecting against an unforeseen medical emergency that happens while traveling away from home.
General Travel Information
Lost Documents and Lost Article Assistance
Emergency Cash and Bail Assistance
Medical Assistance Services
Indemnified Medical Transportation Services
For a group life quote, including travel assistance services, contact us at 800.696.4543 or firstname.lastname@example.org.
It happens a lot this time of year. Payroll companies, that sell benefits on the side, know that the beginning of the year is the best time to win clients looking to make a change. They sell the ease and convenience of having one entity responsible for both payroll and benefits. So, what do you tell your client or prospect who gets the hard sell from a payroll company wanting to be the broker of record?
Here are the talking points you can use if you find yourself in this situation:
In our view, independent brokers provide a superior experience. It is clear that your client or prospect should let you, the expert, help them structure the best benefits solution possible and then provide the best service possible throughout the year.
Covered California for Small Business (CCSB) is the only small business exchange that offers full-network PPO plans. The other small business exchange, California Choice, only offers limited-network PPO plans.
Employers want to provide the widest range of options to employees and often require that agents design solutions that include broad-network PPO plans alongside traditional HMO plans. CCSB’s robust portfolio of full-network PPO plans, from both Blue Shield of California and Health Net, allows brokers and employers to better meet the needs of employees.
No. Most group life insurance plans start reducing the benefit according to an age-reduction schedule, however, MetLife’s voluntary life plan does not. A little nugget that may be helpful for you to discuss with your clients.
Typically, the benefit for group life insurance (both employer-sponsored and voluntary) declines starting at age 65. Below is the average reduction schedule for the most common group plans (the reduction is expressed as a percentage of the original benefit amount):
Age Benefit Reduction
As you can see, starting at age 65, the benefit declines dramatically. For example, a basic life policy with a $50,000 benefit will decline to $35,000 at age 65 and will only pay $12,500 by age 75.
On the other hand, the benefit amount of MetLife’s voluntary life insurance plan does not decline as the subscriber ages. A $50,000 benefit established at age 60, stays at $50,000. In addition, the plan:
As with most ancillary coverage, terms are flexible if you are willing to pay. Carriers will allow the contract owner to “buy out” the age reduction schedule by paying more in premium. This is true of most plans, including MetLife’s employer-sponsored plans, but the beauty of MetLife’s voluntary life plan is that there is no cost for eliminating the age reduction schedule.
Yes. Voluntary benefits (those for which the employee pays 100% of the premium) can be a great way for employers to begin offering benefits if they currently do not. And for those that have a robust offering, “voluntary” can round out that offering by giving employees access to coverages not available on an individual basis. Keep in mind though that there are participation requirements for voluntary plans just as there are for employer-sponsored plans.
The following are examples showing how participation requirements differ between voluntary and employer-sponsored Dental and Life plans from carriers in the small group market:
As you can see, the participation requirements for voluntary plans are quite reasonable, making them a good solution for employers looking to offer coverage for the first time or to expand on what they currently offer.
No. In fact, there are many steps you can take to prepare for Q4 during this relatively quiet time of the year:
If you execute a plan for completing Q4 renewals early, you will see benefits, including:
Need assistance preparing for Q4? We’re standing by to help – yes even now. Want to learn about new Claremont products and services that can help you win clients?
Contact your Claremont sales representative at 800.696.4543 or email@example.com.
Let’s say you have the following scenarios with your clients or prospects:
What’s the most effective solution for these scenarios where you can’t arrange an in-person meeting? The ideal solution is a virtual meeting; a combination of screen-sharing and either a direct call or conference call.
Everyone knows how conference calling works, but you may be less familiar with screen-sharing. If you’ve ever attended a webinar, then you have seen screen-sharing at work. It is the ability to view, in real-time, what is on someone else’s computer screen and it is a powerful tool that can boost efficiency for you and your prospects and clients. Let’s see how this solution can work in each of the above scenarios:
There are numerous companies that offer conference calling and screen-sharing capabilities: GoToMeeting, Join.Me and Zoom are just a few. With most services, you can experiment with a free trial and with some, you can even use a basic version at no cost, indefinitely. The basic versions typically limit the number of participants and exclude more advanced capabilities.
One really useful feature, available with the advanced version of these services, is the ability to pass control of the presentation to someone and allow them to share their screen. For example, in scenario three above, if the client wants to show you a problem they are having in the carrier portal, you can set up a quick call and screen-share, pass the control to them and now you can look at what is on their screen to determine where they are having problems and help solve them.
There are many more capabilities offered by these services, but even using the most basic features can help you collaborate with clients and colleagues in real-time. Once you start using virtual meetings enabled by screen-sharing services, you will find them irreplaceable and well worth the cost. Here at Claremont, if we want to quickly review documents with a colleague, we’ll sometimes set up a virtual meeting even if they are just down the hall!
There are compelling reasons to do exactly that:
There is one situation where the decision becomes a bit more difficult. That is if the employer offers a matching contribution to a traditional retirement account. It’s tough to turn down that “free money.”
As with all matters related to tax and finance, it is strongly recommended that you do not provide advice unless you are certified to do so. That said, if you are not a tax or finance professional, you could certainly encourage your clients to solicit the professional opinion of their tax or financial advisor on this matter.
Please note that this FAQ is meant to be informational only. It is not tax advice and Claremont Insurance Services is not a tax advisor.
Employee Benefit News recently published two helpful articles: “The Case for an HSA-First Investment Strategy” and “How HSA Savings Can Be Used for Long-Term Care in Retirement.”
CCSB’s processes on late payment notices and contract terminations are similar to that of other carriers in the small group market. When an employer does not make payment by the last day of the month for the following month’s coverage they will receive a Notice of Delinquency. The payment must be for the full amount of the invoice. It’s recommended that employers not “self-adjust” based on additions or deletions of plan participants. Employers should pay the invoiced amount.
Once an employer loses coverage with CCSB or any carrier and fails to have a replacement plan in place resulting in an unplanned gap in coverage, there are potentially serious consequences, including but not limited to:
If your client’s coverage is cancelled they may request that the coverage be reinstated. The decision to rescind the termination is made solely at the discretion of the carrier.
To help you and your clients, we have developed Advice to Agents About CCSB’s Payment Policies. However, the most important piece of advice we can provide: advise your clients to pay on-time and for the invoiced amount.
Finally, when you and your client are simply terminating coverage in order to move to another carrier, you should always notify the current carrier via a formal letter of intent to terminate prior to the termination date. CCSB and any other carrier will issue delinquency and termination notices if they have not been notified and will expect to be paid for any unpaid coverage months if they have not been notified in advance of a termination.
With all the talk about repeal, replace and changing regulations, you might have thought the Small Business Healthcare Tax Credit provision in the ACA would have been terminated, but it is alive and well and there is still money available for your clients if they are eligible. This is an excellent and sometimes overlooked financial reward for small employers in low wage industries to encourage them to offer coverage and may be a source of new clients.
To qualify for the tax credit, the business must:
If the employer meets these requirements, they could be eligible for up to a 50% tax credit (35% for non-profits). The dollar value of the credit is based on how much the employer contributes towards the employees’ (and dependents’) premiums. The credit works on a sliding scale; companies with 10 or fewer employees and average wages of $25,000 or less qualify for the maximum, while companies with employee counts and average wages near 25 and $50,000, respectively, will qualify for the least.
Claremont has been working with CCSB since its inception in 2014 to help assist agents and their clients in understanding the tax credit. We will even provide an estimate of the potential tax credit for which your client may qualify. And don’t forget a tax credit is far more valuable than a tax deduction or a deductible expense. A credit allows the for-profit employer to reduce their tax bill by the amount of the credit earned.
We have a crafted this Health Care Tax Credit Solution and posted it on our web site. It provides all the information you need in order to discuss this great program with your clients.
Yes it did. In our March 8, 2018 Question and Answer of the Week we alerted you to a $50 reduction in the maximum allowable contribution to an HSA account with family coverage; from $6,900 to $6,850.
In response to stakeholder concerns about unanticipated financial and administrative burdens, the IRS has reversed itself and has just published this announcement restoring the maximum allowable contribution to an HSA account with family coverage to $6,900.
The maximum contribution for accounts with self-only coverage remains unchanged at $3,450.
Yes, provided you obtain a non-resident license from that state. From time to time, you may have a client whose business is based outside California. Or perhaps you would like to start pursuing business in other states. In order to write business in another state you will need to obtain a non-resident license for that state for yourself, and if desired, for your agency.
Fortunately, California has reciprocity with many states. This means that, provided your California life/health license is current and in good standing, you do not need to take the license education class and pass the license test for each state. You just need to apply (and pay) for a non-resident license for yourself and your agency. You’ll need to secure a non-resident license for your agency if you intend to market your agency in that state or be paid through your agency for business written in that state.
To make this convenient, most states have signed on with the National Producer Insurance Registry (NIPR) which is an organization that facilitates cross-state licensing. NIPR’s web site allows you to apply for and renew non-resident licenses. We have developed this step-by-step guide to apply for your non-resident license. We hope you find it helpful.
Yes. And it just did. On March 5, 2018, the IRS announced that for 2018, the maximum allowable contribution to an HSA account with family coverage decreased $50. Previously the IRS had set the maximum contribution at $6,900, it is now $6,850. The maximum contribution for accounts with self-only coverage remains unchanged at $3,450.
This article from the Society for Human Resource Management explains that the IRS took this unusual step after calculating how the tax reform legislation recently enacted impacts inflation adjustments to HSA contribution maximums. Benefits brokers and agents should consider passing this information on to their clients who have high-deductible HSA-compatible plans in place.
Most of us would answer that question with a “no.” There is good news, however, Humana’s small group dental plans include an “extended annual maximum” feature which pays 30% of the negotiated rate even if the member hits their annual maximum; and there is no cap. Extended annual maximum is superior to the “rollover” features offered by other carriers because it does not require the member to accrue unused amounts before it can be used. Even if a member incurs substantial costs early in the plan year (well before they’ve accrued unused benefit amounts), the extended annual maximum feature kicks in immediately, so members are never without coverage. To learn more, contact your Claremont sales representative at firstname.lastname@example.org or 800.696.4543.
Brokers and agents take different approaches to helping clients with their benefits compliance obligations. Some become a virtual extension of the client’s team, working closely with them to handle most of the notification and reporting requirements. Others provide clients with an outside source for compliance consulting; paying for none, some or all this expense.
Regardless of which approach you take, realize that clients, particularly smaller firms, often look to their benefits professional as an advisor in this area and will place their first call to you. As you consider how you will handle benefits compliance questions, we thought it would be helpful to provide this benefits compliance reference document created by HR Service, Inc., a firm that specializes in providing outsourced benefits compliance and human resource management. Feel free to follow the link and take an online risk assessment (for your firm or for one of your clients).
Should you wish to subscribe to HR Service, Inc.’s Compliance Basics or Compliance Basics Plus services, the cost ranges from $10 to $15 per month per employer group. Be sure to mention that you were referred by Claremont Insurance Services.
Yes. Covered California for Small Business (CCSB) has just launched the ability to submit new groups directly from EaseCentral. This efficient, new service allows brokers and agents to save time and money.
As the only general agent to help test this new electronic capability, Claremont Insurance Services is an expert in how it works and how it can benefit brokers, agents, and their clients. To help benefits professionals take advantage of this new integration, Claremont has launched eQuote-to-Enrollment, a no-cost service that allows brokers and agents to offer an online quoting, plan selection, and application process that saves time, increases accuracy, and leads to faster approvals.
Typically insurers will allow a business to offer small group coverage only to owners or employees, however, there is one carrier that Claremont represents and the only one we know of, that permits a business to offer coverage to contract workers who are not on the payroll.
UnitedHealthcare allows businesses to offer coverage to 1099 workers. We know of many business types that rely on “1099” workers. This unique feature of UnitedHealthcare’s products can be a useful benefit for businesses looking to attract and retain valuable contributors who are not employees. Group benefits brokers should consider discussing this feature with clients and prospects. It may lead to more individuals being covered or to more businesses offering coverage.
The Health Insurance Providers Fee, more commonly known as the Health Insurer Tax (HIT) was one of several taxes mandated by the Affordable Care Act (ACA). Insurers are obligated to add the HIT to every sold policy and forward the funds to the federal government. The HIT, adds 2-3% to the cost of each policy according to most experts. In December 2015, Congress approved a one-year suspension of the HIT starting January 2017. If Congress does not renew that suspension, starting January 1, 2018 the HIT will be charged on all policies. This leads to the question: How will carriers implement collection of the HIT?
In the individual market where all plans start on January 1st, it is anticipated that carriers will build the HIT into the rate. Likewise, in the group market, for those groups whose plan years start January 1, 2018, it is anticipated that carriers will build the HIT into the rate. As a result, rates for January will increase 2-3% in addition to any rate actions taken by the carriers.
However, for groups that renew after January, the method of collecting the HIT is more complicated. Carriers had to set rates for these groups in 2017 and by law cannot change rates during the plan year. If they can’t increase rates starting January 2018, how do they start collecting the HIT? The carriers we’ve spoken to are handling it this way:
When setting their 2017 rates, carriers anticipated that HIT would need to be collected for premium months starting January 2018 and continuing through the end of the group’s plan year. They calculated the total tax for those plan year months in 2018, divided the total tax by 12 and added the result to the monthly base rate for the full plan year. In short, they amortized the tax over the entire plan year.
So groups with any anniversary except January have been paying the tax since the beginning of their plan year, but only what’s owed for the months in 2018 that are in their plan year. It’s really the only way carriers could implement the collection given the requirement that they cannot change rates once a contract is in place.
America’s Health Insurance Plans analysis regarding the Health Insurer Tax.
The short answer is that medical carriers, in accordance with the law (AB1083/AB1672), are permitted to set rates for small group members based on only two factors, age and employer location, while ancillary carriers are not constrained by these laws and can rate small group members on many different factors. These factors can include:
It is possible to limit the amount of information provided to an ancillary carrier by considering an “off the shelf” product such as Reliance Standard’s SmartChoice dental plans, in which case you’ll only need to provide a few data points, however, if your client wants any customization the carrier will likely ask for more information.
Ancillary carriers have good reason for requesting more data. Less data about a group and its members leads to greater uncertainty, which translates into higher cost and at a certain point, a refusal to provide a proposal. However, the more a carrier knows about a group and its members, the tighter their underwriting department can set rates in the proposal and the less likely those rates are to change once the carrier receives all applications and documentation.
The bottom line regarding ancillary proposals: more information means more competitive and better quality proposals and a much lower chance of unpleasant surprises.
California employers must offer Cal-COBRA continuation coverage to qualified beneficiaries if the business employed 2-19 employees on more than 50% of working days during the previous calendar year. Cal-Cobra is administered by the insurance carrier for fully-insured plans.
Likewise, all employers must offer COBRA continuation coverage (often referred to as “federal COBRA”) to qualified beneficiaries if the business employed more than 19 employees on more than 50% of working days during the previous calendar year. The employer must administer COBRA, though many engage a firm that specializes in COBRA administration to do so.
Much like the ACA’s Applicable Large Employer (ALE) determination, COBRA uses a look-back to determine if the employer must offer COBRA, Cal-COBRA or no COBRA. It can be summed up as: “your employee count last year determines your COBRA status for next year.” Today’s question relates to a business that has just brought on their 20th employee. At what time do they transition to COBRA from Cal-COBRA? As with many things, the answer depends…
For example, on January 1, 2018, the employer will look back at the composition of their workforce during 2017 and if that 20th employee caused them to have 20 or more employees on more than 50% of working days during 2017, then they will transition to COBRA from Cal-COBRA on January 1, 2018, for the entirety of 2018.
If however, that 20th employee was added in December 2017 for example, then it’s likely the business did not have 20 or more employees on more than 50% of working days during 2017 and when the employer does the look-back analysis on January 1, 2018 they will conclude that Cal-COBRA is the appropriate continuation coverage to offer.
Employers who determine in early January that their COBRA status has changed based on the look back analysis should immediately report that change to the carrier. The carrier will then either start or stop administering Cal-COBRA as determined by the employer’s report. Keep in mind that an employer’s COBRA status is determined early in January every year and is not tied to the employer’s plan year.
Department of Labor – “An Employer’s Guide to…COBRA” is an excellent reference for brokers and employers.
Willis: This in-depth Q & A regarding COBRA continuation coverage is very helpful. See question #16 for a discussion of when an employer must offer COBRA.
On January 1, 2018 changes are in store for State Disability Insurance (SDI) benefits (and Paid Family Leave benefits as well). Currently, individuals are eligible for wage replacement of 55% up to a maximum of $1,173 per week. In 2018, individuals will be eligible for:
With SDI picking up a larger portion of the individual’s wage replacement, commercial short-term disability (STD) plans will need to pay less. Our carrier sources say that this will likely decrease the cost for group STD coverage, but not by much.
Brokers and agents who implemented STD plans that target a certain wage replacement amount, might want to adjust the benefit to account for the higher SDI payout. For example, assume that in the past, broker and client decided that a 75% wage replacement benefit was best for the client. SDI currently pays 55%, so the broker layered on a 20% STD plan to reach a total 75% benefit. In 2018, most employees will qualify for 60% SDI wage replacement, so to maintain a 75% benefit, the broker and employer will want to adjust the STD plan down to 15%.
The Society for Human Resource Managers provides this summary of AB 908, which includes the January 1, 2018 changes to disability payouts.
Generally, a non-resident employee, in the U.S. with an H-1B work visa must leave the country within 60-days of termination if another employer does not sponsor and employ them. In this situation the employer may ask why they would need to offer COBRA continuation coverage to a former employee who may not even reside in the U.S. shortly after that offer is made.
DOL regulations describing a COBRA beneficiary state that so long as an individual was employed and covered by a group health plan on the day before the qualifying event (in this case, the day before termination), COBRA must be offered. The regulations are silent on the issue of residency.
A reputable COBRA administrator with whom we work states that they believe the former employee must be offered COBRA continuation coverage. If 20 or more employees were employed on more than 50 percent of a company’s typical business days in the previous calendar year, then the company would be responsible for offering and administering COBRA, otherwise the insurance carrier would be responsible.
In either case, it seems clear that if a non-resident employee with a work visa is terminated, they are entitled to an offer of COBRA continuation coverage.
Department of Labor – COBRA Continuation Health Coverage FAQs
Willis — This in-depth Q & A regarding COBRA continuation coverage is very helpful. See question #8 for an even more extreme example of a non-resident who nonetheless may still qualify for continuation coverage.
Society for Human Resource Managers – Recent changes to H-1B grace period for terminated employees.
There are many potential buyers for your firm. Often other agencies in your area are the best candidates since they know the local conditions, may know you and your client base, and can understand the value of your business. These may be private firms or larger public firms. Other buyers include divisions of banks or private-equity backed agencies, a relatively new phenomenon.
Typically, they are started by individuals with extensive agency experience who negotiate deals with investors, such as hedge funds, to finance the acquisition of independent agencies. Often, they use economies of scale in certain areas of the business to achieve a higher level of profit than the independent agency could have on its own. For example, they may have developed proprietary: technology, marketing/sales models or customer service models that are deployed within each acquired agency. Once acquired, an agency is usually permitted to run independently.
Benefit Specialist Magazine’s June issue, page 15, sidebar: “Insurance Agency Mergers and Acquisitions” provides data on the impressive growth in acquisitions during the 1st quarter of 2017.
Considering selling your agency to a third party or selling/gifting to a family member? Cheryl Kessler, Director, Vantage Point Advisors, delivered an insightful presentation (from both the buyer’s and seller’s perspective) at a recent meeting of the Golden Gate chapter of the Association of Health Underwriters (GGAHU). She would be pleased to discuss valuing your agency and can connect you with firms that can market the sale of your agency confidentially.
This week, the Department of Labor (DOL) announced that on June 9, 2017, it will implement expanded fiduciary standards meant to protect retirement account owners. This has a direct impact on employers (and their advisors and vendors) who sponsor, sell and administer Health Savings Account (HSA) plans.
An HSA is not normally considered a retirement account, however, HSA’s are increasingly being used as such due to their triple tax-free structure (contributions are generally tax free as are earnings and withdrawals). If an employer (as the plan sponsor) or advisor (often their broker or agent) takes actions that cause the DOL to consider them fiduciaries, they are subject to the same wide range of rules and requirements with which investment advisors must comply.
In light of the emerging trend of using an HSA as a retirement savings vehicle and the expanded scope of the DOL’s fiduciary standard, employers and advisors should take a fresh look at the structure of and communications related to their HSA plans to ensure they are not taking actions that would create fiduciary liability, such as:
To avoid fiduciary liability, employers and agents/brokers should treat vendor selection, employee communication and ongoing monitoring of their HSA plan in much the same way they do their 401(k) plan as described in this helpful article published by the Society for Human Resource Management (SHRM). Key takeaways:
Benefit Specialist Magazine’s article: “Employer Responsibilities for HSA’s Under the New DOL Fiduciary Standards” provides more detailed analysis and recommendations (starts page 10).
SHRM’s article: “How the Fiduciary Rule Affects Retirement Plan Sponsors” provides excellent background on the matter along with recommendations, all from the employer’s perspective.
Cost-Sharing Reductions (CSRs) describe a mechanism in the ACA that decreases out of pocket expenses. Individuals and families are eligible for CSRs if they purchase a silver plan through a state or federal exchange and earn between 138% and 250% of the federal poverty level. CSRs dramatically lower co-pays and co-insurance. It’s estimated that 12 million individuals are covered by such plans with CSRs.
To get a sense of the impact of CSRs, an individual who qualifies for mid-level CSRs (by earning 150-200% of the federal poverty level) will pay, for example, only $10 instead of $20 for a doctor visit. That same individual’s out of pocket maximum, which, for example, would normally be $7,150, is reduced to $2,250. When combined with the ACA’s advanced premium tax credits (typically referred to as “subsidies”), which lower the individual’s premiums, one can see how CSRs are a key mechanism in making healthcare coverage affordable for those at the lowest end of the income scale, but who don’t qualify for Medicaid.
So who pays the difference between the plan’s stated co-pays and co-insurance amounts, and the reduced amounts that are the subscriber’s responsibility? The federal government makes up that difference by sending the balance, in the form of CSR payments, directly to insurance carriers. Such payments are expected to reach $7 billion in 2017.
The Kaiser Family Foundation’s article “Impact of Cost Sharing Reductions on Deductibles and Out-of-Pocket Limits” describes CSRs in more detail and provides helpful examples of how CSRs impact an individual’s out-of-pocket expenses. CSRs have become a political hot potato that may impact the path of healthcare reform. For more on that perspective we encourage you to read Claremont’s article “A Little-Known Provision in The ACA Could Accelerate Healthcare Reform.”
Strictly-speaking, single-payer describes a system in which a single entity, such as the government, pays for all healthcare costs. Individuals typically pay for healthcare through taxes and the government reimburses the providers of that care.
The recent failure by Congress to pass a replacement or repair of the ACA, and increasing concern about the viability of the ACA’s federal exchanges, is leading some to consider single-payer as a better way to pay for healthcare. Senator Bernie Sanders, who advocated strongly for a single-payer system during his run for the presidency, says he now intends to introduce legislation to establish his version of single-payer, which he calls “Medicare For All.” At the state level, two California State Senators, Ricardo Lara and Toni Atkins, introduced legislation to establish a single-payer system in California.
Until our current system is repaired or replaced, it is likely that you’ll be hearing a lot more about single-payer as alternative to our mostly market-based system of healthcare financing.
Resources – Kaiser Health News, in 2016, published this article which provides an excellent and unbiased description of single-payer.
In most cases — no. Only “eligible individuals” as described by the IRS are permitted to make contributions to an HSA and eligibility is determined monthly. An individual is eligible if, among other requirements, they are enrolled in an HSA-compatible plan on the first day of the month. An eligible individual is permitted to contribute one-twelfth of the full-year maximum each month. They are not allowed to “front-load” their contribution (except as described below).
The maximum contribution in 2017 for an employee with self-only coverage, who is not yet 55 years old, is $3,400. If that employee is enrolled in an HSA-compatible plan on January 1 and transitions to a non-compatible plan on July 1, they (and their employer if the employer contributes) may only contribute $1,700 to the HSA ($3,400 divided by 12 times 6). And the contributions should have been made in increments of $283.33 per month ($3,400 divided by 12) over the six-month period.
The IRS does permit “front-loading” of the full-year contribution amount according to the “last month” rule. To qualify, the individual must be eligible on the first day of the last month of their tax-paying year (December 1 for most) and must maintain HSA-compatible coverage during a testing period that runs from the last month of their tax period (usually December) through the last day of the twelfth month following that month (usually December 31 of the following year).
IRS Publication 969, which describes Health Savings Accounts, including the last month rule, is a good reference guide.
Yes, there are two reporting obligations:
There is a potential financial cost to Medicare-eligible individuals covered by non-creditable plans for longer than 63 days, so it is important for employers to disclose the creditable status to affected individuals.
Resources – This CMS Creditable Coverage web page provides information on the employer’s requirement, describes who is considered a Medicare-eligible individual, and includes links to forms and disclosure model notices that can be used by employers.
The Society of Human Resource Management (SHRM) provides an excellent summary of an employer’s responsibility for disclosing their creditable/non-creditable coverage to CMS and to Medicare-eligible individuals.
If they are enrolled in non-creditable coverage for more than 63-days, they may incur higher premiums when they eventually enroll in Medicare prescription drug coverage (such as a Part D plan or a Medicare Advantage plan that offers prescription drug coverage).
Their premium will increase by one percent each month over what they otherwise would have paid for each month without creditable coverage. It’s important to know if you have clients in this situation and to apprise them of their options. Here is an example of how a small change by the carrier, that caught us by surprise, would have triggered this penalty and how we were able to resolve it.
The client is Medicare-eligible (66 years old), but not enrolled in Medicare and during 2016 was covered through his company’s small group, high-deductible, HSA-compatible plan (the “Plan”) which had creditable coverage. His company’s renewal was January 1, 2017 and he elected to stay with his current plan. Here’s the tricky part: for 2017, the carrier tweaked the plan and the prescription drug benefit changed from being creditable to being non-creditable on January 1st. The carrier did disclose it….on page 43 of a 56 page renewal packet.
When we became aware of this, 53 days had elapsed. We immediately petitioned the carrier to grant this individual a waiver allowing him to change to a plan with creditable coverage retro to January 1st. They approved the petition. The benefits were that the client had no gap of creditable coverage and does not risk higher premiums when he eventually enrolls in a Medicare prescription drug plan. Of course, if we had known that the client’s plan had become non-creditable, we (Claremont and the broker) would have advised him to switch to a creditable plan at renewal.
To ensure you and your clients are not unpleasantly surprised, we recommend you:
2017 Plans with Non-Creditable Coverage from carriers represented by Claremont Insurance Services (as of 2/28/17):
Blue Shield of California
Covered California for Small Business
*Non-Creditable if Sharp is secondary payer to Medicare.
Yes. Distributing a Summary of Benefits and Coverage to employees who are offered coverage through a group plan is still required. Not distributing SBC’s can lead to penalties of $1,000 or more per covered individual. SBC’s should be distributed by the employer:
UnitedHealthcare’s Small Employer’s Guide to SBC’s provides helpful information.
In 2015, some groups’ Blue Shield plans were regulated by the California Department of Insurance (CDI) for 11 months and by the Department of Managed Health Care (DMHC) for one month. Blue Shield only owes rebates in DMHC-regulated plans for 2015. For these groups, Blue Shield will pay a rebate for the one month their plan was regulated by the DMHC.
Qualifying 2015 Blue Shield Small Business plans for a MLR rebate are as follows:
Platinum Full PPO 0 DMHC
Platinum Full PPO 150 DMHC
Gold Full PPO 0 DMHC
Gold Full PPO 750 DMHC
Gold Full PPO 1000 DMHC
Silver Full PPO 1250 DMHC
Silver Full PPO 1700 DMHC
Bronze Full PPO 4500 DMHC
Bronze Full PPO 3000 DMHC
Silver Full PP HSA2000 DMHC
Bronze Full PPO HSA3500 DMHC
Bronze Full PPO HSA5500 DMHC
Platinum Access+HMO $25 DMHC
Platinum Local Access+HMO $25 DMHC
Platinum Trio ACO HMO $25 DMHC
Gold Access+HMO $30 DMHC
Gold Local Access+HMO $30 DMHC
Gold Trio ACO HMO $30 DMHC
Silver Access+HMO $55 DMHC
Silver Local Access+HMO $55 DMHC
Silver Trio ACO HMO $55 DMHC
Bronze 60 PPO Mirror DMHC
Platinum 90 HMO Network 2 Mirror DMHC
Platinum 90 HMO Network 1 Mirror DMHC
Gold 80 HMO Network 2 Mirror DMHC
Gold 80 HMO Network 1 Mirror DMHC
Silver 70 HMO Network 2 Mirror DMHC
Silver 70 HMO Network 1 Mirror DMHC
Medical Loss Ratio (MLR) rebates issued for ERISA-covered health plans may be considered “plan assets,” and therefore, the employer or the administrator of the group health plan may have fiduciary responsibilities regarding the use of the refunds.
If the employer paid 100% of the premium, none of the rebate would be considered plan assets and the entire amount could flow directly back to the employer. The most common situation, however, is when the employer and participants/employees contribute toward the cost of the coverage. In this case, the portion of the rebate that is attributable to participant contributions must be treated as plan assets, which must be used for the exclusive benefit of the employees covered by the policy.
The employer first calculates the percentage of total premium contributed by participants, which includes employee payroll deductions, COBRA premiums paid by participants, premiums paid by participants during an FMLA leave, and any other payment made toward the premium by a participant. The resulting percentage is then applied to the rebate amount to determine the portion of the rebate that must be distributed to plan participants and the portion that may be retained by the employer.
The employer would then need to determine which participants should receive the rebate. The participants’ share of the rebate must be distributed to the participants and beneficiaries who were covered under the policy to which the rebate applies. If the cost of distributing shares of a rebate to former plan participants approximates the amount of the rebate payment, the employer may decide to allocate the rebate payments to current participants.
Finally, the employer would need to decide how to allocate the employees’ share among the participants. The allocation is not required to exactly reflect the premium contribution of individual participants. In deciding on an allocation method, the employer may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective. In most situations, the most fair, reasonable, and objective method of allocation may be as easy as evenly dividing the rebate over all current participants of the plan, even if those participants made different employee contributions to the plan.
If distributing cash payments to participants is not cost-effective (e.g., payments to participants are of de minimis amounts, or would give rise to tax consequences to participants or the plan), the employer may utilize the rebate for other permissible plan purposes including applying the rebate toward future participant premium payments or toward benefit enhancements.
All distributions must be made within three months of receipt of the rebate by the employer in order to avoid additional Department of Labor requirements. Employers should document how allocations were distributed and that the distribution was made within the three-month window.
In the small group market, for one month each year, a health insurance issuer must offer coverage to employers who do not meet contribution or participation requirements. This special enrollment period (SEP) starts on November 15 and continues through December 15 for coverage effective January 1.
Form 1095-C is the form that an Applicable Large Employer (ALE) must provide to each employee detailing what coverage the employer offered. An ALE is generally any employer with 50 or more full-time plus full-time equivalent employees.
Here is a link to Form 1095-C. Some employees ask why they and their dependents are not listed in Part III of the form when they receive it from their employer. The IRS requires the employer to list the employees and dependents only if they were offered coverage under a self-insured employer plan. Many plans offered by ALEs are fully-insured and therefore the employer need not list employee and dependents in Part III.
The IRS document: Instructions for Forms 1094-C and 1095-C, provides a full explanation (see the bottom of page 12 and top of page 13).
If an individual had qualifying health care coverage, also known as minimum essential coverage, the provider of that coverage is required to send the individual a Form 1095‐A, 1095‐B, or 1095‐C (with Part III completed) that includes individuals in the family who were enrolled in the coverage and their months of coverage.
These forms must be sent on or before January 31 of the year following the calendar year in which minimum essential coverage is provided. Even if individuals have not received one of these forms, but had health care coverage, according to the IRS, they can rely on other information they have about their coverage to complete their tax forms. Consult with a tax advisor to determine what documents are acceptable.
Applicable Large Employers (ALEs) must file Forms 1094-C and 1095-C to the IRS and provide a copy of Form 1095-C to employees. ALEs are employers that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year.
All ALEs must report for all full-time employees even if coverage was not offered or the employee declined coverage. ALEs with self-insured coverage must also report for all other employees enrolled in the self-insured plan, including part-time employees and non-employees if they are enrolled in the plan.
Applicable Large Employers must report for all full-time employees even if coverage was not offered or the employee declined coverage. ALEs with self-insured coverage must also report for all other employees enrolled in the self-insured plan, including part-time employees and non-employees if they are enrolled in the plan.
No, Applicable Large Employers are only reporting for all full-time employees. The IRS will know whether coverage was offered to spouses and/or dependents based on the code used on Line 14 of Form 1095-C.
If the Applicable Large Employer (ALE) is part of a controlled group or affiliated service group, the ALE is a member of an Aggregated ALE Group. The ALE would therefore need to: (1) check the yes box on Line 21 of Part II; (2) indicate in Part III, Column (d), the months during the calendar year that the ALE was part of a controlled group or affiliated service group; and (3) complete Part IV of Form 1094-C.
It’s best to seek the advice of legal and/or tax counsel to determine controlled group or affiliated service group status.
Applicable Large Employers (ALEs) with fully-insured plans need not complete Part III of Form 1095-C. This will be completed by the carrier on IRS Form 1095-B.
ALEs with self-insured plans must complete Part III of Form 1095-C for anyone enrolled in the self-insured plan.
Applicable Large Employers must furnish Form 1095-C to individuals on or before January 31 and must file Forms 1094-C and 1095-C with the IRS on or before February 28 if filing by paper or March 31 if filing electronically.
For plan years beginning on or after January 1, 2015, any waiting period cannot exceed 90 days. All calendar days are counted, including weekends and holidays.
Yes, however, one month is the maximum allowed length for an employment-based orientation period. One month would be determined by adding one calendar month and subtracting one calendar day from an employee’s start date in a position that is eligible for coverage. For example, if an employee’s start date is May 3, the last permitted day of the orientation period is June 2.
An employee whose employment has terminated and who then is rehired may be treated as newly eligible upon rehire and, therefore, required to meet the waiting period anew, if reasonable under the circumstances. The same would apply to an employee who moves to a job classification that is ineligible for coverage but then later moves back to an eligible job classification.
Please note that there are rehire rules under the Large Employer Mandate that may require Applicable Large Employers to provide coverage sooner than the end of the 90-day waiting period.
Under the waiting period rules, carriers can rely on the eligibility information reported to it by the employer (or other plan sponsor) if: (1) The carrier requires the employer to make a representation regarding the terms of any eligibility conditions or waiting periods imposed by the employer (and requires the employer to update this representation with any changes), and (2) The carrier has no specific knowledge of the imposition of a waiting period that would exceed the permitted 90-day period.
Covered California for Small Business (CCSB) has taken this approach. CCSB leaves it up to the employer to establish eligibility. CCSB simply asks employers to attest that they are adhering to the waiting period rules. However, the way most other carriers administer the waiting period rules is they track the length of any orientation period and waiting period from the date of hire.
Group health plans cannot discriminate in favor of highly compensated individuals as to eligibility to participate in, and the benefits provided under the plan. Highly compensated individuals are defined as: (1) one of the 5 highest paid officers; (2) a shareholder who owns more than 10% in value of the stock of the employer; or (3) among the highest paid 25% of all employees (except for employees that may excluded – employees who have not completed 3 years of service; employees who have not attained age 25; part-time or seasonal employees; employees covered by a collective bargaining agreement; employees who are non-resident aliens and who receive no earned income from the employer).
The IRS has not determined what eligibility to participate in, and benefits provided under the plan means or includes. Hence, it has not been determined whether differing employer contributions and/or waiting periods will be treated as a “benefit” that must be provided on a nondiscriminatory basis.
However, employers should be cautious that contribution levels and waiting periods could be considered a benefit provided under the plan since employer contributions is typically a benefit employers provide employees, and waiting periods dictate when an employee’s benefits become effective. It can also be claimed that employees with shorter waiting periods are favored more with regards to eligibility to participate in the plan. These employees also have more of a benefit than employees with longer waiting periods, because their coverage becomes effective sooner, therefore they can take advantage of the plan benefits sooner.
Let’s break down the three terms:
Why does this matter?
The House Republicans introduced the American Health Care Act (AHCA), the week of March 6, 2017. In it they propose replacing the Advance Premium Tax Credit (APTC), which is the tax credit mechanism used in the ACA, with a refundable, advanceable tax credit. It’s likely you’ll be hearing much more about the new tax credit as the AHCA makes it way through Congress.
The IRS’ web page describing refundable and non-refundable tax credits is quite helpful. And for an historical perspective on the use of tax credits to encourage adoption of healthcare coverage, this Forbes article provides good context and further explanation (apologies in advance for the advertisements).
Covered California is wholly self-financed. Covered California no longer uses federal start-up funding, and will not be using any state funding. Covered California’s operations are funded by the per-policy-sold fee it charges carriers.
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The answers provided are a best interpretation of the information available as of the date posted. The answers are for informational purposes and should not be construed as tax or legal advice.