Health Care Reform

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Health Care Reform

American Fidelity Assurance Company's goal is to be our customers' primary resource for managing challenges and changes resulting from Health Care Reform and rising health care costs. This website is a resource to help our customer groups focus on the steps you need to take today, find the answers you need, and plan for additional changes. We look forward to helping you during the months and years ahead.

Hot Topics

  • "Culturally and Linguistically Appropriate" County List Updated

    On December 16, 2014, the Department of Health and Human Services released the updated “Culturally and Linguistically Appropriate Services (CLAS)” county data list, which is used to comply with certain disclosure requirements under the Public Health Service Act (PHSA, as added by PPACA). Non-grandfathered group health plans and health insurance issuers offering non-grandfathered health insurance coverage are required to provide certain notices in a “culturally and linguistically appropriate” manner, if at least 10% of a county’s population is literate only in the same non-English language, as defined under Section 2719 of the PHSA.

    Notices related to internal claims and appeals, external review processes, and the Summary of Benefits and Coverage (SBC) are required to be in compliance. In these instances, the employer must provide the notices upon request in the non-English language, and include in all English versions of the notices a statement in the non-English language clearly indicating how to access non-English language services from the plan or insurance issuer.

    The CLAS county data list is updated annually and includes all counties which meet or exceed the 10% threshold. The 2014 edition included a note stating that the only change from the prior list is the addition of Sullivan County in Missouri, which now meets the 10% threshold of Spanish speaking households. This is the first county in Missouri to be added to the CLAS county data list.

  • Stop Loss Insurance Regulations Issued

    On November 6, 2014, the U.S. Department of Labor (DOL) issued guidance on state regulation of stop-loss insurance for self-insured group health plans.

    The guidance provides that unless prohibited by state insurance law, a stop-loss insurer could offer insurance policies with attachment points set so low that the insurer assumes nearly all of the employer's claim's risk.

    Some states have considered measures to prohibit insurers from issuing stop-loss contracts with attachment points below a specified level, but have been unsure that they may regulate stop-loss coverage due to ERISA preemption of state regulation of private sector employee benefit plans.

    The guidance clarifies the role of states to regulate stop-loss insurance for employee benefit plans while maintaining an employer’s flexibility in stop loss design based on what is allowable in its state of residence.

    This effectively provides the employer with the advantage of not being required to meet state insurance laws with a self-funded major medical plan and the ability to shift the risk of the self-funded plan through stop-loss insurance.

  • Transitional Reinsurance Fee Delay

    The Department of Health and Human Services has delayed the submittal deadline of employer enrollment counts for 2014 to administer the fees owed under the Transitional Reinsurance program to 11:59 pm on December 15, 2014. The original deadline under the program was November 15, 2014. The deadlines for payments of the two part of the fee (January 15, 2015 and November 15, 2015) remain the same.

    The Transitional Reinsurance Fee, paid by insurers for insured medical plans and by plan sponsors of self-funded plans, was instituted by Health Care Reform to help stabilize premiums for coverage in the individual health care market during the first three years of operation of the Federal and State Public Exchanges.

  • Transitional Reinsurance Fee Deadline for Employers Approach in November

    Plan sponsors and issuers must register and report covered life information by November 15, 2014 via for the Transitional Reinsurance Fee. The Department of Health and Human Services (HHS) will send invoices based on this information by December 15, 2014, for $52.50 of the $63.00 owed per covered life in 2014. Insurers and plan sponsors of self-funded plans must pay the fees within 30 days. The remaining $10.50 per covered life will be invoiced in the fourth quarter of 2015 and is payable later in that same quarter. In recent guidance, the Centers for Medicare & Medicaid Services (CMS) is allowing an option to make a single combined payment for the full $63.00 times the number of covered lives payable by January 15, 2015.

  • Delay in HPID Requirement

    On October 31, 2014, the Centers for Medicare & Medicaid Services (CMS) announced a delay in the requirement for HIPAA covered entities, including health plans, health care providers, and health care clearinghouses to obtain a Health Plan Identifier (HPID). The HPID was required to be obtained by November 5, 2014 for health plans with annual receipts in excess of $5 million. Employers were required to obtain this ID for any self-funded plan offerings. HPIDs for insured plans were to be handled by the insurer. The delay applies until further notice.

    On September 23, 2014, the National Committee on Vital and Health Statistics (NCVHS), an advisory body to HHS, recommended that HIPAA covered entities not use the HPID in the HIPAA transactions. The delay will allow HHS to review the NCVHS’s recommendation and consider any appropriate next steps.

  • New PCORI Fee Amount for 2015

    On September 18, 2014 the Internal Revenue Service (IRS) issued Notice 2014-56, which provided the applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee on health insurance policies and self-insured health plans to fund the Patient-Centered Outcomes Research Institute (PCORI) Trust Fund. Based on the percentage increase in the projected per capita amount of the National Health Expenditures published by HHS on September 3, 2014, the applicable dollar amount that must be used to calculate the fee imposed for policy years and plan years that end on or after October 1, 2014, and before October 1, 2015, is $2.08.

  • New Guidance On Applying the Look Back Method for Employment Status Changes

    On September 18, 2014 the Internal Revenue Service (IRS) issued Notice 2014-49, which describes a proposed approach employers may use to apply the “look-back” method where a change in employment status places the employee in a new Measurement Period for determining their full-time status, and thus, the employer's requirements under the Employer Mandate provision of ACA.

    As a reminder employers may use different Measurement Periods (and Administrative and Stability Periods) for different categories of employees. These categories are (A) collectively bargained and non-collectively bargained employees, (B) each group of collectively bargained employees covered by a separate collective bargaining agreement, (C) salaried employees and hourly employees, and (D) employees whose primary places of employment are in different States.

    In general, for an employee who has been employed for a full measurement period at the time of transfer (and thus has a status as either a full-time employee or non-full-time employee for the stability period associated with that measurement period), the employee retains his or her status through the end of the associated stability period. For an employee who is not in a stability period (or administrative period) at the time of transfer, the employee’s status is determined using the measurement period applicable to the second position, but including hours of service in the first position in applying that measurement period.

    Specific examples were provided in the notice and IRS invite public comments, through December 29, 2014, on the proposed approach set out in the notice. Employers may rely on this notice for administration until further guidance is issued, at least through the end of the 2016 calendar year.

  • New Resources Available to Assist with November 5, 2014 HPID Requirement

    The Department of Health and Human Services (HHS) has published a Quick Reference Guide for obtaining a health plan identifier (HPID) under HIPAA. HHS requires health plans to obtain an HPID by November 5, 2014 (small health plans with annual receipts of $5 million or less have until November 5, 2015 to comply). Employers that sponsor self-funded health plans will need to register for this ID; insurance companies will perform this task on behalf of employers that sponsor fully-insured plans. An employer may register for and obtain the HPID from the HHS website. Once a health plan has received its HPID, any covered entity or business associate that identifies the health plan must utilize the assigned HPID number when conducting electronic, standard business transactions. So, it will be important to share the HPID with applicable entities.

    American Fidelity Administrative Services has published a new white paper to help you understand these requirements, along with the certification requirements that are due by December 31, 2015. For more information, please contact 877-302-5073.

  • New Reporting Instructions Released

    On August 28, 2014, the Internal Revenue Service (IRS) released draft instructions for completing and filing Forms 1094-B and 1094-C as well as forms 1095-B and 1095-C for reporting of health care coverage by insurers and employers as required by the Patient Protection and Affordable Care Act (ACA) under Internal Revenue Code Sections 6055 and 6056. Earlier this year, on July 24, the IRS released the draft forms that would be filed with the IRS and provided to employees annually.

    Section 6055 and 6056 require insurers and employers to report information to the IRS and employees to manage the administration of the Individual Mandate, the Employer Mandate, and Premium Tax Subsidies. Although the first reports will not be due until early 2016, the reported data will be for the 2015 calendar year (regardless of the employer’s plan year). Employers will want to consider the data requirements now before the start of 2015 to make sure they have a process to capture the required information.

    More information about the requirements of Section 6055 and 6056 along with the draft forms and instructions are available here.

  • IRS Releases Draft Forms for Mandatory Employer Reporting

    On July 24, the Internal Revenue Service (IRS) released draft forms to be used by employers and insurers for reporting information regarding health care coverage and "minimum essential coverage" (MEC) as required under Health Care Reform. Final regulations were issued earlier in the year implementing the MEC reporting (Section 6055 of the Internal Revenue Code) and the reporting of health coverage (Section 6056). Instructions to the form have not yet been published. The reports are required for the 2015 calendar year regardless of plan year effective date and the first reporting will be due in early 2016. Learn more about the IRS reporting on our website.

  • Court of Appeals Decision on Health Care Reform Law

    On Tuesday, July 22, 2014 the U.S. Court of Appeals in the District of Columbia and the 4th District fell on opposite sides with regard to the ability of Federally-Facilitated Exchanges (FFEs) to provide subsidies (e.g., Premium Tax Credits) to offset the cost of health care. The decisions do not impact the ability of state run exchanges to offer subsidies. The implications that a Federal exchange not be allowed to offer subsides extends to individuals and employers. Individuals in the 36 states that are run by an FFE could lose their Premium Tax Credits and have to pay more for coverage through the Exchange. That scenario, though, may benefit employers in those states as the 4980H penalties only apply if an employee receives a Premium Tax Credit in the exchange. The DC decision (which struck down the law) has been stayed pending review by the full Circuit court, which is not expected before this fall. Therefore, these rulings change nothing for now with respect to how both employers and individuals operate in the new environment of Health Care Reform. Learn more about the 4980H employer mandate obligations on our website.

  • REMINDER: File Tax Form 720 to Pay the PCORI Fee by July 31, 2014.

    The Patient-Centered Outcomes Research Institute (PCORI) fee, required to be reported only once a year on the second quarter, is based on the average number of lives covered under the policy or plan, if certain conditions apply. For 12-month plan years that end January 1, 2013 through September 30, 2013, the first PCORI fee is due by July 31, 2014.

    Who is subject to the fee?

    Employers may be subject to these fees for their Health Flexible Spending Accounts if:

    • Health FSA Participants are NOT offered other group major medical plan coverage in addition to the Health FSA or eligibility requirements are different for the major medical plan and the Health FSA.
    • If an employer contributes more than $500 to employees’ Health FSA or funds Section 125 flex credits that an employee may use for a Health FSA and 50% or more is not available as a cashout option.

    How do you pay the fee?

    The employer is required to file Tax Form 720 and make a payment to the IRS for the amount due.

    Where do you get Tax Form 720?

    Tax Form 720 is available here. Instructions and a link to the form are also available on our website at

    For more information, please contact 800-325-0654.

    Need assistance?

    For more information, please visit for a complete list of questions and answers or call 877-302-5073. We are here to assist you.

  • FSA/HSA Guidance

    The IRS released two memoranda March 28, 2014 providing some additional guidance on the Health Flexible Spending Account (Health FSA) new $500 permitted Carryover and correction procedures for improper Health FSA reimbursements. American Fidelity Assurance Company has been operating in accordance with the conclusions in this guidance based on prior informal guidance from the IRS and previously available published guidance. Our Health FSA administrative procedures, therefore, will not change. This new guidance simply verifies our ongoing procedures.

    Summary of HSA Carryover Guidance:

    • Anyone who is eligible for a Health FSA that covers a broad range of medical expenses (General Purpose Health FSA), even if only due to the $500 Carryover, is not an eligible individual for Health Spending Account (HSA) purposes for the entire plan year, regardless of when the Health FSA amounts are reimbursed during the plan year.
    • A plan may permit (or automatically treat) anyone who is eligible for a Carryover from a General Purpose Health FSA to elect the Carryover be used for a limited purpose HSA compatible FSA (Limited Purpose Health FSA) (but no other type of FSA, such as Dependent Day Care Flexible Spending Account).
    • A plan may permit anyone who is eligible for a Carryover from a General Purpose Health FSA to waive the Carryover for the following plan year in order to be eligible for an HSA.
    • If a participant elects to Carryover amounts from a General Purpose Health FSA to a limited purpose Health FSA, claims should be paid from the General Purpose Health FSA during the run-out period and once the Carryover amount is determined, claims can be paid from the limited purpose Health FSA from the Carryover amount. Any newly elected amount for the plan year for the limited purpose Health FSA must otherwise be available for claims reimbursement from that FSA until the Carryover amount is determined.

    Summary of FSA Overpayment Corrections Guidance:

    • The correction procedures for debit card overpayments outlined in the proposed 125 Plan regulations may be used for all FSA overpayments.
    • An employer or agent of the employer may alter the order of the correction procedures as outlined in the proposed 125 Plan regulations, except that treating the overpayment as business indebtedness must be a last resort.
    • Where all other correction procedures fail and the overpayment is forgiven as bad business indebtedness by the employer, the forgiven debt must be reported by the employer to the employee on Form W-2 or 1099.

    For more information, please contact 800-325-0654.

  • Proposed Regulations Defining Employment-based Orientation Periods

    Proposed regulations were issued to clarify the maximum length of any reasonable and bona fide employment-based orientation period that could be required before becoming eligible for health coverage and subject to any waiting period requirement. The final regulations on the waiting period rule already allow for requirements to be in an eligible job classification, achieve a job-related licensure requirement, or the satisfaction of an employment-based orientation period before the application of the 90-day waiting period. The employment-based orientation period rule was not included in the proposed regulations on the waiting period, but rather was added in the final regulations issued on February 20, 2014. Therefore, these proposed regulations were issued for comment.

    The proposed regulations provide that one month is the maximum length of any bona fide employment-based orientation period where an employer and employee could evaluate whether the employment situation is satisfactory for each party, and standard orientation and training would occur. One month would be determined by adding one calendar month and subtracting one day from the employee’s start date. For example, if the employee’s start date is May 3rd (and the employee is in an eligible class for health plan coverage) the last permitted day of the orientation period is June 2nd. If there is not a corresponding date in the next calendar month then the last day of the orientation period is the last day of the next calendar month (e.g., start date of January 31st would result in the last day of the orientation period being February 28th in a non-leap year or February 29th in a leap year).

  • Final Regulations on Waiting Periods

    The final regulations implementing the 90-day waiting period limitation, applicable to both grandfathered and non-grandfathered group health plans and group health insurers, is effective for plan years beginning on or after January 1, 2015. Note that the rule only defines the period that must pass before an otherwise eligible employee (and his/her dependents) can enroll under the terms of the group health plan. It does not require an employer to offer coverage to any particular individual. It is also important to note the rule applies to all employees eligible for group health plans, not just full-time employees as defined under the Free Rider Penalty (Employer Mandate) from Health Care Reform.

    The final regulations maintain the pure 90-day requirement of the proposed regulations issued in February, 2012. The 90-day requirement counts all days from first becoming eligible for coverage, including weekends and holidays. Many employers had hoped the final regulations may have offered some relief by allowing for coverage to start the first of the month following 90 days.

    Other conditions for eligibility that are not based on the lapse of time are generally permissible unless designed to avoid the 90-day rule. Specifically for plans that require a specified number of hours of service per period before eligible for coverage for variable-hour employees will not be considered to avoid compliance with the rule if coverage is made effective 13 months from the employee’s start date plus the time remaining until the first day of the next calendar month (in situations where the employee's start date is not the first of the month.) This approach is consistent with the implementation of the measurement period approach under the final Free Rider Penalty rules issued in early February, 2014. Additionally, the plan terms are not considered to avoid compliance if the cumulative hours-of-service requirement does not exceed 1,200 hours. The final regulations do not permit re-application of a cumulative hours-of-service requirement to the same individual each year. The final regulations provide that a former employee who is rehired may be required to meet the eligibility criteria and to satisfy the plan’s waiting period anew, as long as the termination was not subterfuge to avoid compliance with the waiting period rules. The same would apply to an individual who moves to a job classification that is ineligible for coverage and later moves back to an eligible classification.

    Lastly, the final regulations eliminate the requirement to issue HIPAA certificates of credible coverage beginning December 31, 2014.

  • Agencies Publish Guidance on Permissible Waiting Periods

    On Thursday, February 20, 2014, the Departments of Labor, Treasury, and Health and Human Services released final regulations to implement the 90-day waiting period limitation under section 2708 of the Public Health Services Act as added by the Health Care Reform law. Simultaneously, the three departments released related proposed regulations on employment-based orientation periods. The proposed regulations clarify the length of any reasonable and bona fide period under which an employer may define the required eligibility conditions before an employee can become eligible to participate in the plan and be subject to any waiting period requirement.

  • Final Free Rider Penalty Regulations

    On Monday, February 10th the Internal Revenue Service (IRS) released long-awaited final regulations implementing the Employer Shared Responsibility provision (the Free Rider Penalty or employer mandate) under Health Care Reform. Our white paper provides a recap of the general rules, describes the changes and key clarifications provided by the final regulations, and highlights some of the questions that remain unanswered.

  • Reminder: Health Costs to be Reported on W-2 Forms

    Health Care Reform requires employers to report the cost of employer-sponsored health care coverage on employees' W-2 Forms. Most employers (except Federally recognized Indian tribes and tribally chartered corporations wholly owned by Federally recognized Indian tribes) were required to report the aggregate cost of employer-sponsored health care coverage on W-2 Forms beginning with the 2012 calendar year. Small employers, defined as those who file fewer than 250 Form W-2s for the previous calendar year, are exempt from the new reporting requirement until further notice. The amount is reported in Box 12 of Form W-2, using code DD.

    W-2 reporting is required for all employer-sponsored health care coverage that is excludable from employee income with certain exceptions. The IRS has published a chart that lists the common employer benefits to be included in the calculation. For example, premiums for specified disease coverage (such as cancer or critical illness insurance) are reportable only if paid by the employee on a pre-tax basis or paid for with employer contributions; they are not reportable if paid on an after-tax basis. Contributions to Health Flexible Spending Accounts (FSAs) are generally not reportable if only the employee (not the employer) makes contributions. Premiums for accident and disability insurance are not reportable regardless of tax treatment.

    More information about the W-2 reporting of health costs is available at, or feel free to contact our Health Care Reform team at 877-302-5073 or

  • Agencies Issue Proposed Regulations on Dental, Vision, and EAPs as Excepted Benefits

    The Health Insurance Portability and Accountability Act (HIPAA) includes portability and nondiscrimination provisions applicable to group health plans. Health Care Reform amended HIPAA to provide for plan design mandates, such as prohibiting annual and lifetime limits on essential health benefits and waiting periods longer than 90 days. Generally, these provisions only apply to health care benefits. Certain benefits are excluded from these provisions, and they are referred to as excepted benefits. Excepted benefits are also excluded from certain provisions under Health Care Reform such as the Patient Centered Outcomes Research Fee, the requirement to report under the Summary of Benefits and Coverage (SBCs), and the requirement to report the cost on the employee's W-2.

    Dental and vision benefits are excepted benefits if they are 1) provided under a separate policy, certificate, or contract of insurance; or 2) otherwise not an integral part of a group health plan. The first exception applies to insured plans, and the second applies to both insured and self-funded plans. Regulations previously provided that benefits are not an integral part of a group health plan unless the plan allows participants the right to elect or decline dental or vision coverage, and, if coverage was elected, the participant was required to pay an additional premium for the coverage. In these recent regulations, the Agencies proposed to eliminate the requirement that an additional premium needs to be paid for the dental or vision benefit to be an excepted benefit.

    The Agencies also issued guidance relating to Employee Assistance Programs (EAP). EAPs generally are programs that provide assistance to employees such as short term substance abuse or financial counseling. If an EAP provides medical care, it could be a group health plan subject to HIPAA and Health Care Reform, which could be problematic because many EAPs are meant as a supplement to a group health plan, and, by their nature provide limited benefits. Under the proposed regulations, an EAP would be an excepted benefit if the EAP:

    • Does not provide significant medical benefits;
    • Does not coordinate its benefits with benefits under another group health plan;
    • Does not charge any employee premiums; and
    • There is not cost sharing for EAP services.

    Although the proposed effective date for these changes is plan years beginning on and after January 1, 2015, the Agencies stated that dental and visions benefits and EAPS that meet the criteria in the proposed regulations in 2014 would be considered excepted benefits. Final regulations will be issued no earlier than February 22, 2014, which marks the end of the comment period for these proposed regulations.

  • IRS Issues Guidance on Tax Refunds for Over Payment on Same Sex Spousal Benefit

    Under federal tax law, spouses receive special treatment for certain benefits. For example, employer provided health care coverage for spouses is not included in the employee’s income, and an employee may pay for spousal coverage on a pre-tax basis. Under the Defense of Marriage Act, the IRS did not recognize same sex spouses for federal tax purposes. As a result, employers withheld employment and income tax with respect to certain benefits provided to same sex spouses.

    The Supreme Court recently found DOMA unconstitutional, and the IRS now recognizes same sex spouses for tax purposes. The IRS issued guidance on how an employer can expedite overpayments of Federal Insurance Contribution Act (FICA) taxes and Federal income tax withholding that occurred because same sex spouses were not recognized. The guidance provides that if an employee made pre-tax salary reductions under a cafeteria plan and paid for health care coverage for a same sex spouse on an after-tax basis, an employer may treat the amount that an employee paid for same sex spousal coverage on an after-tax basis as pre-tax salary reductions. The FICA and income tax paid on the after-tax amount would be considered an overpayment.

    For 2013, there are two alternatives. First, if an employer repays or reimburses its employees for the amount of the over collected FICA tax and income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013, the employer can then reduce the amount of FICA and income tax withholding reported for the fourth quarter on Form 941. If the employer does not repay or reimburse employees before the end of 2013, the employer may correct the overpayments using Form 941-X, provided it otherwise satisfies the Form 941-X filing requirements, such as obtaining employee consent. Employers must file a claim for a refund by the later of the three years from the date the return was filed or within two years of paying the tax.

  • Health Care Reform - An End-to-End Solution from American Fidelity Administrative Services

    Health Care Reform comes at a time of limited resources for many employers across the nation. Employers need to understand their responsibilities and choices, assess whether costs are sustainable, develop their strategies, prepare for compliance, and implement their plans. Even with the Free Rider Penalty delay, action is required for most employers as early as 2013.

    In response to great demand from American Fidelity Assurance Company customers, American Fidelity Administrative Services (AFAS) has designed a suite of solutions to make Health Care Reform easy for you. We are pleased to announce the following services:

    • WorxTime - Our automated Health Care Reform eligibility software to assist with managing the Free Rider Penalty.
    • Variable Hour Employee Premium Billing - To assist with billing and collecting premiums for variable hour employees.
    • Employee Notice and Reporting - To assist with the notice and reporting requirements to individuals and federal agencies.
    • Consulting Retainer - For ongoing expert Health Care Reform consulting assistance when you need it.

    Whether you are looking for more comprehensive strategic planning and administrative assistance or just some guidance with Health Care Reform-related questions, AFAS provides an end-to-end solution by offering a variety of services that can assist with managing the developing law.

    Ready to get started?

    We want to be your partner and primary resource to help you manage your responsibilities and choices in light of Health Care Reform. Sign up by January 1, 2014 and receive two free months with WorxTime! Contact us today!

  • IRS Issues Guidance Recognizing State of Celebration for Same Sex Marriages

    Under the Defense of Marriage Act (DOMA), the federal government only recognized marriages between opposite sex couples. This had significant impacts on many employee benefit programs. For example, an employer was required to impute income on the value of the health care coverage if a same sex spouse were covered under a health care plan, but was not required to do so for an opposite sex spouse. The Supreme Court found that this provision of DOMA was unconstitutional.

    In recent guidance, the IRS concluded that for purposes of the Internal Revenue Code, the terms spouse, marriage and husband or wife include an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law.

    The IRS also announced that for federal tax purposes, it will recognize the validity of a same-sex marriage that was valid in the state in which it was entered, regardless of where the married couple may live. For example, if a couple enters into a valid marriage in Maryland, but later moves to Virginia which does not recognize same sex marriage, the IRS would continue to recognize the marriage. This result helps to streamline plan administration. For example, if the spouse were covered under the employer group health plan, the employer would not need to impute income merely because the couple moved to a state that does not recognize same sex marriage.

    Finally, the IRS concluded that for federal tax purposes, marriage does not include registered domestic partnerships, civil unions or other similar formal relationships recognized under state law that are not denominated as marriage.

  • Agencies Issue Guidance on Health Care Reform Market Reforms and HRAs and Other Arrangements

    An HRA is an employer-funded arrangement of a set dollar amount that reimburses employees, spouses and dependents for medical expenses, as designated by the employer, including premiums. The reimbursement is excludable from the employee’s income, and unused funds generally roll-over from year to year. A health Flexible Spending Account also reimburses employees for medical expenses. Both employers and employees can contribute to a health FSA, but Health Care Reform limits employee contributions to $2,500 per year. Any unused health FSA amounts are forfeited. Some employers do not sponsor a group health plan, but, instead, reimburse employees for substantiated, individual coverage premiums. In the past, the IRS stated that these reimbursements are not includable in an employee’s income. These are referred to as employer payment plans.

    The IRS issued Notice 2013-54, and the DOL issued Technical Release 2013-03, both of which discuss the interaction of the prohibition on annual dollar limits on essential health benefits for all plans and the mandate to cover certain preventive services on non-grandfathered plans certain with Health Reimbursement Accounts (HRA), health Flexible Spending Accounts (FSA) and other employer arrangements. The guidance also addresses other related issues.

    In previous guidance, the IRS stated that an HRA that is integrated with a group health plan that meets the annual dollar limit requirement would be allowed. In addition, the guidance provided that stand alone retiree HRAs also are permitted. In other guidance, the Agencies stated that an FSA that is an excepted benefit is not subject to the annual dollar limit prohibition.

    In the new guidance, the Agencies reiterate that an HRA used to purchase coverage on the individual market is not integrated with that coverage for purposes of the annual dollar limit; and, therefore, violate the annual dollar limit prohibition because by its very nature there is an annual dollar limit. They went further to state that other arrangements that reimburse employees for individual policies, such as employer payment plans, are subject to the annual dollar prohibition, and also violate this prohibition and cannot be integrated with an individual plan.

    The Agencies also applied a similar analysis to preventative services and HRAs and employer payment plans. Specifically, such plans cannot be integrated with individual policies to meet the requirement that plans cover specific preventative services at 100 percent.

    The guidance provides two ways in which an HRA will be considered integrated with a group health plan. Neither method requires that the HRA necessarily be integrated with the group health plan sponsored by the employer who sponsors the HRA. In addition, an employee or former employee must be allowed to opt out of or waive future HRA contributions.

    Under the minimum value not required method, an HRA is considered integrated with another group health plan if:

    • The employer offers a group health plan (other than a HRA) to the employee that does not consist of excepted benefits;
    • The employee receiving the HRA is actually enrolled in the other group health plan;
    • The HRA is available only to employees who are enrolled in a non-HRA group health plan, regardless of whether the employer sponsors the non-HRA group health plan;
    • The HRA is limited to co-payments, co-insurance, deductibles and premiums under the non-HRA group plan, or medical care that is not essential health benefits; and
    • An employee or former employee is permitted to opt out of or waive future HRA reimbursements at least annually or at termination of employment.

    Under the minimum value required method, the HRA is considered integrated with another group health plan if:

    • The employer offers a group health plan to the employee that provides at least a 60 percent actuarial value;
    • The employee receiving the HRA is actually enrolled in a group health plan that provides 60 percent actuarial value, regardless of whether the employer sponsors the plan;
    • The HRA is available only to employees who are actually enrolled in minimum value group coverage; and
    • An employee or former employee is permitted to opt out of or waive future HRA reimbursements at least annually or at termination of employment.

    The guidance also clarified that coverage under a HRA after coverage ends under an integrated group health plan will not violate the annual limit prohibitions. In addition, this would constitute minimum essential coverage for purposes of the individual mandate. The guidance also provided that a HRA that is integrated with a group health plan that imposes an annual limit on essential health benefits will violate the prohibition on essential health benefits, even if the HRA is available for reimbursing those expenses.

    The guidance also stated that a retiree covered by a standalone HRA would not be eligible for a premium tax credit.

    The guidance reaffirmed that the annual dollar prohibitions do not apply to health FSAs that are excepted benefits. In addition, the guidance stated that only health FSAs offered through a cafeteria plan are exempt from the annual dollar limit prohibitions.

  • IRS Issues Proposed Regulations on Reporting of Minimum Essential Coverage

    Under Health Care Reform, an entity that provides minimum essential coverage must report the names of the individuals covered and the period of coverage to the IRS. A reporting entity must provide a similar statement to the individual. The reporting was required for 2014, but the IRS delayed the effective date by one year. The IRS issued proposed regulations related to this reporting.

    The proposed regulations clarify that the insurer is required to report minimum essential coverage provided through an insured group health plan. For self-funded plans, the responsible entity varies depending on the type of plan. For example, it is the employer for a single employer plan, the committee or joint board of trustee for a multiemployer plan, each employer for a multiple employer welfare arrangement, or the person designated as the plan sponsor or administrator for other plans. A special rule applies for self-funded governmental plans, which allows the employer to enter into a written agreement with another government unit to be responsible for the reporting.

    The proposed regulations require that all entities report the following to the IRS:

    • The name, address, and employer identification number of the reporting entity;
    • The name, address, and tax identification number (TIN), or date of birth if a TIN is not available, of each individual covered under the policy or program;
    • For each covered individual, the months for which, for at least one day, the individual was covered; and
    • Any other information specified in forms or instructions relating to the reporting.

    If the insurer is reporting coverage offered in a group health plan, the insurer also must include the name, address and EIN of the employer sponsoring the plan and whether the coverage is a qualified health plan offered through the Small Business Health Options Program.

    The information must be filed with the IRS by February 28 (or March 31 if filed electronically) of the year following the calendar year for which coverage was provided. All entities may file electronically using Form 1095-B. The first report will be in 2016 for 2015.

    A reporting entity also must provide a statement to each responsible individual (generally, the primary insured, employee or former employee) that includes the information it provided to the IRS for that individual and the contact phone number for the person required to file the return and the policy number, if applicable. The reporting entity is not required to provide statements to each spouse or dependent covered under the plan. The statement may either be the return filed with the IRS or a substitute statement. A truncated TIN may be used on the statement.

    The statement must be provided by January 31 following the calendar year of coverage. This means the first statement will be provided by January 31, 2016 for 2015 coverage. If it is mailed, it must be sent to the last know permanent address or the individual’s temporary address. The statement may be provided electronically if the individual affirmatively consents to electronic delivery.

  • IRS Issues Proposed Regulations on Free Rider Penalty Reporting Under Section 6056

    Under Health Care Reform, large employers (employers with more than 50 full-time equivalent employees) are required to file informational returns with the IRS relating to the Free Rider Penalty (referred to as Section 6056 reporting). Health Care Reform also requires that an employer provide each full-time employee who is listed on the IRS return with a statement showing the name and address of the person required to provide the form and the information in the IRS return.

    Who Must File

    The proposed regulations define large employer with reference to the definition in the Free Rider Penalty proposed regulations. Although each member of a controlled group is combined to determine whether the entity is a large employer, under the proposed regulations, each member of a controlled group must file the Section 6056 return separately. In addition, each employer must report on an employee who works for more than one member of the controlled group and is considered full-time by combining all hours of service. The preamble to the proposed regulations provide that until further guidance is issued, government entities, churches and a convention or association of churches may apply a reasonable good faith interpretation of whether they are part of a controlled group.

    The preamble to the proposed regulations provides that an employer may contract with a third party to provide the Section 6056 return and other information to the IRS and employees, but the employer ultimately remains responsible. However, a government entity may designate a related governmental unit as the responsible party, if the designation is in writing, indicates, among other things, for which full-time employees the designee is responsible, and is signed by the large employer and the designee.

    Information to Be Reported

    In an effort to streamline reporting, the IRS stated that employers would need to file the following information on a return:

    • The name, date, and employer identification number;
    • The name and telephone number of the applicable large employer’s contact person;
    • The calendar year for which the information is reported;
    • A certification whether the employer provided its full-time employees (and dependents) an opportunity to enroll in minimum essential coverage, by calendar month;
    • The months during the calendar year for which coverage under the plan was available;
    • Each full-time employee’s share of the lowest cost monthly premium (self-only) for coverage providing minimum value;
    • The number of full-time employees for each month during the calendar year; and
    • The name, address, and taxpayer identification number for each full-time employee during the calendar year and the months, if any, during which the employee was covered under the plan.

    The IRS indicated that it may request additional information such as whether the coverage was offered to employees and dependents, meets minimum value, and was offered to spouse, the total number employees by calendar month, and a variety of requests for members of controlled groups. The proposed regulations noted that additional information may be required in guidance, forms and instructions.

    The proposed regulations reiterate that the employer statement must include the name, address and EIN and the above information with respect to the employee.

    Method of Reporting

    Information will be reported using Form 1094-C (transmittal) and Form 1095-C (employee statement). All employers with more than 250 information returns, such as Form W-2, Form 1099, during the calendar year must file the return to the IRS electronically. For smaller employers, filing electronically is optional. The employee statement may be provided electronically if the employee is provided adequate notice, affirmatively consents, and can show that hardware and software requirements are met. The IRS stated that it is considering combining the Section 6056 returns with other returns and statements as well as streamlining the reporting. The IRS seeks comments on this.

    Time for Reporting

    The return must be filed with the IRS by February 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates. The first return for the 2015 calendar year must be filed no later than March 1, 2016 (February 28, 2016 is a Sunday) or March 31, 2016, if filed electronically. The employee statement must be provided by February 1, 2016 for 2015.

  • Third Party May Provide Notice of Exchange on Employer's Behalf

    Under Health Care Reform, employers are required to provide current employees and new hires a Notice of Exchange. In May 2014, the Department of Labor (DOL) issued Technical Release 2013-2 and two model notices. The Technical Release provides temporary guidance that employers may rely upon until further guidance is issued.

    Employers are required to provide the notice to all employees regardless of full or part time status or plan enrollment. Employers must provide the notice to current employees by October 1, 2013, and upon hire for new employees after October 1, 2013. Starting January 1, 2014 employers will have up to 14 days from the date of hire to provide the notice to new employees.

    Recently, the DOL issued a FAQ that stated an employer satisfies this obligation if a third party provides the Notice of Exchange on the employer’s behalf. The DOL noted that when issuers, multiemployer plans or third party administrators provide the notice on the employer’s behalf, such entity should take steps to provide the notice to employees not covered by the plan or inform the employer that it only is providing the notice to a subset of employees (namely, employees enrolled in the plan).

    The IRS recently issued an FAQ announcing that although Health Care Reform requires the Notice to be provided, it does not provide for any penalty or fine for not reporting. However, the DOL encourages employers to provide this Notice.

  • No Penalty or Fine for Not Providing the Notice of Exchange

    The IRS recently issued a FAQ announcing that although Health Care Reform requires the Notice to be provided, it does not provide for any penalty or fine for not reporting. However, the DOL encourages employers to provide this Notice.

  • IRS Guidance Clarifies High Deductible Health Plan that Provides Required Preventive Services under Health Care Reform Remains HSA Compatible

    An individual may only establish a health savings account (HSA) if covered by a high deductible health plan (HDHP) that meets certain requirements. Among the requirements are that the HDHP may not cover most benefits until the deductible is met, except for limited preventive services. Health Care Reform requires group health plans, including HDHPs, to cover additional preventive services without imposing cost sharing. In recent guidance, the IRS clarified that the HDHP that covers these additional preventive services at no cost remains compatible with an HSA.


The information provided here is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All interpretations are subject to change as the appropriate agencies publish additional guidance. American Fidelity does not provide legal advice – as such, we suggest that employers and individuals consult with their legal counsel and/or tax advisors about how Health Care Reform may impact them.


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