Common Terms in the Insurance World
6055 & 6056 Reporting:
IRC Section 6055 and 6056 outline the reporting requirements for insurers, large employers and plan sponsors of self-funded health plans. The purpose of the reporting is to provide information to the IRS and to employees about coverage that meets minimum essential coverage requirements. All employers who are large employers in 2015, based on the number of employees during calendar year 2014, will need to provide reporting in early 2016. Employers that are part of a controlled group of employers are aggregated for the purposes of determining large-employer status; however, the reporting requirements apply separately to each employer in the controlled group.
The Patient Protection & Affordable Care Act (PPACA), signed into law on March 23, 2010, and the Health Care and Education Reconciliation Act, signed into law on March 30, 2010, together make up what is commonly referred to as The Affordable Care Act (ACA) or healthcare reform. The Affordable Care Act represents a massive regulatory overhaul of the U.S. healthcare system. It seeks to expand availability of coverage for all citizens, make healthcare coverage affordable for all citizens, improve the quality of care that consumers receive, promote preventive care and wellness, increase transparency in the healthcare system, and shift the burden of rising healthcare costs away from the American consumer.
Affiliated Service Group:
An affiliated service group means a group of two or more organizations that have a service relationship and where one organization provides professional or management services for another. There may or may not be common ownership involved. Affiliated service group rules are complex and anyone unsure if their organization may be part of an affiliated service group should consult legal counsel.
If an employee’s share of the premium for employer-provided coverage would cost the employee less than or equal to 9.5% of that employee’s annual household income, the coverage is considered affordable for that employee. Because employers generally will not know their employees’ household incomes, employers can use one or more of the three affordability safe harbors. If an employer meets the requirements of any of these safe harbors, the offer of coverage will be deemed affordable for purposes of the Employer Shared Responsibility provisions regardless of whether it was affordable to the employee for purposes of the premium tax credit.
- The Form W-2 wages safe harbor,
- The rate of pay safe harbor, and
- The federal poverty line safe harbor.
Business Associate Agreement (BAA):
A HIPAA business associate agreement (BAA) is a contract between a HIPAA covered entity and a HIPAA business associate (BA), or between a Business Associate and a Sub Contractor that is used to protect personal health information (PHI) in accordance with HIPAA guidelines.
A notice required for employers sponsoring group health plans to comply with the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA). If a group health plan provides benefits for medical care to participants or dependents in a state that provides a premium assistance subsidy for the purchase of group health plan coverage, the employer is required to provide the CHIP Notice to each employee, regardless of whether the employee is enrolled in the group health plan. The notice provides information regarding potential premium assistance subsidies currently available in the state in which the employee resides.
Centers for Medicare and Medicaid Services (CMS):
Centers for Medicare and Medicaid Services was created in 1977 to administer both Medicare and Medicaid programs.
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985):
Federal law applicable to most group health plans sponsored by employers with 20 or more employees in the prior calendar year. It is not applicable to church plans. The law gives workers and their families who lose health benefits the right to choose to continue group health benefits for limited periods of time, under certain circumstances. Qualified individuals are required to pay the entire premium for coverage up to 102 percent of the cost to the plan. Note that many states have additional requirements for continuation coverage under state law.
COBRA Election Notice:
The group health plan is responsible for providing this notice to qualified beneficiaries within 14 days of the plan receiving notice of a qualifying event. The election notice should include:
- The name of the plan and the name, address, and telephone number of the plan's COBRA administrator;
- Identification of the qualifying event;
- Identification of the qualified beneficiaries (by name or by status);
- An explanation of the qualified beneficiaries' right to elect continuation coverage;
- The date coverage will terminate (or has terminated) if continuation coverage is not elected;
- How to elect continuation coverage;
- What will happen if continuation coverage isn't elected or is waived;
- What continuation coverage is available, for how long, and (if it is for less than 36 months), how it can be extended for disability or second qualifying events;
- How continuation coverage might terminate early;
- Premium payment requirements, including due dates and grace periods;
- A statement of the importance of keeping the plan administrator informed of the addresses of qualified beneficiaries; and
- A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the SPD.
- The Department of Labor has developed a model election notice that plans may use to provide this notice.
COBRA General Notice:
Sometimes referred to as an Initial Notice. This notice provides important information about participants COBRA rights under the plan. It must include:
- The name of the plan and the name, address, and telephone number of someone whom the employee and spouse can contact for more information on COBRA and the plan;
- A general description of the continuation coverage provided under the plan;
- An explanation of what qualified beneficiaries must do to notify the plan of qualifying events or disabilities;
- An explanation of the importance of keeping the plan administrator informed of addresses of the participants and beneficiaries; and
- A statement that the general notice does not fully describe COBRA or the plan and that more complete information is available from the plan administrator and in the SPD.
The notice requirement can be satisfied by including the general notice in the plan’s SPD and giving the SPD to the employee and spouse within the required time limit. However, while many plan benefit booklets provide COBRA information, few provide all the required information. The Department of Labor has a model general notice that single-employers with group health plans may use to satisfy the general notice requirement.
COBRA Notice of Early Termination of Continuation Coverage:
Continuation coverage must generally be made available for a maximum period (18, 29, or 36 months). The group health plan may terminate continuation coverage early, however, for any of the following reasons:
- Premiums are not paid in full on a timely basis;
- The employer ceases to maintain any group health plan;
- A qualified beneficiary begins coverage under another group health plan after electing continuation coverage;
- A qualified beneficiary becomes entitled to Medicare benefits after electing continuation coverage; or
- A qualified beneficiary engages in conduct that would justify the plan in terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage (such as fraud).
When a group health plan decides to terminate continuation coverage early for any of these reasons, the plan must give the qualified beneficiary a notice of early termination. The notice must be given as soon as practicable after the decision is made, and it must describe the date coverage will terminate, the reason for termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage.
COBRA Notice of Insignificant Premium Underpayment:
If a premium payment is short by no more than the lesser of $50 or 10% of the total required amount, it is an insignificant underpayment. In situations where the underpayment is insignificant, the administrator has two choices, (a) accept the payment as payment in full; or (b) grant the QB an additional grace period of 30 days to remit the balance due. In this case the plan administrator sends a notice to the qualified beneficiary of the underpayment and that there is a 30 day grace period, measured from the date the notice is sent, in which to remit the balance.
COBRA Notice of Unavailability of Continuation Coverage:
When a group health plan determines the individual requesting COBRA coverage, or extension of COBRA coverage is not entitled to receive it, the plan is obligated to provide a notice to the individual denying the request and explaining the reason for the denial.
COBRA Qualifying Event Notice:
The group health plan must be notified of the qualifying event in order for COBRA to be offered. The employer is responsible for providing the notification within 30 days of the event if the qualifying event is:
- Termination or reduction in hours of employment of the covered employee;
- Death of the covered employee;
- Covered employee's becoming entitled to Medicare; or
- Bankruptcy of a private-sector employer.
The covered employee or one of the qualified beneficiaries must notify the plan if the qualifying event is:
- Legal separation; or
- A child's loss of dependent status under the plan.
- The plan can set procedures and time limits for providing the notice, but the time limit cannot be shorter than 60 days.
ERISA Sections 414(b) and (c) require that all employees of commonly controlled corporations, trades or businesses be treated as employees of a single corporation, trade or business. Section 1563(a) provides mechanical ownership tests, which are used in determining if a controlled group situation exists. A control group relationship exists if the businesses have one of the following relationships:
Parent-subsidiary - A parent-subsidiary controlled group exists when one or more chains of corporations are connected through stock ownership with a common parent corporation; and − 80 percent of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and − Parent Corporation must own 80 percent of at least one other corporation.
Brother-sister - A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (a common owner must be an individual, a trust, or an estate) own directly or indirectly a controlling interest of each group and have “effective control”. Controlling interest generally means 80 percent or more of the stock of each corporation (but only if such common owner own stock in each corporation); and Effective control generally more than 50 percent of the stock of each corporation, but only to the extent such stock ownership is identical with respect to such corporation.
- Combination of the above - A combined group consists of three or more organizations that are organized as follows:
- Each organization is a member of either a parent-subsidiary or brother-sister group; and
- At least one corporation is the common parent of a parent-subsidiary; and is also a member of a brother-sister group.
Under constructive ownership, or attribution rules, family members - such as spouse, children, grandchildren and parents - of owners are considered owners, which may result in groups of businesses owned by separate family members being treated as a controlled group. Controlled group rules can be complex and anyone unsure if their organization may be part of a controlled group should consult legal counsel.
An SPD should be delivered to participants within 90 days after they become covered, whether they request it or not. Plan administrators of a new plan must distribute an SPD within 120 days after the plan is established. An updated SPD must be furnished to all covered participants every 5 years, and every 10 years even if the SPD has not changed.
Determining whether or not an SPD was furnished to a participant or beneficiary is an important issue in litigation. An employer should be prepared to prove that it furnished one in a way "reasonably calculated to ensure actual receipt," using a method "likely to result in full distribution." Acceptable methods of delivery include: first-class mail, hand-delivery, and electronic distribution, if the employees have access to computers in the workplace and can print a copy easily. DOL regulations are quite clear that merely placing copies of the SPD in a break room or posting it on an employer's website or intranet does not necessarily satisfy this requirement because it was not affirmatively delivered to the participant.
Under ERISA, electronic distribution is one of the acceptable methods of delivery for required documents; however the distribution method must be “reasonably calculated to ensure actual receipt,”using a method “likely to result in full distribution.” Merely posting copies of a document on an employer's website does not necessarily satisfy this requirement because it was not affirmatively delivered to the participant. The Department of Labor has established safe harbor methods that plan administrators/employers may follow to ensure they meet this requirement.
Employee Retirement Income Security Act (ERISA): A federal law that sets standards of protection for individuals in most private-sector employer-provided retirement and health & welfare plans. Generally, all employer-sponsored or union-sponsored employee benefit plan, regardless of size, insured or self-funded, are subject to ERISA. However, state and local government plans and church plans are not subject to ERISA.
Family Medical Leave Act of 1993 (FMLA):
A federal law applicable to all public agencies, public and private elementary and secondary schools, and to all private sector employers who employ 50 or more employees within 75 miles for at least 20 work weeks in the current or preceding calendar year. It entitles eligible employees to take up to 12 workweeks of unpaid, job-protected leave in a 12-month period to care for a family member with a serious medical condition or for parental leave. Group health insurance coverage is continued during the leave under the same terms and conditions as if the employee had not taken leave. Under the Military Family Leave provision of the FMLA, leave is also available because of a “qualifying exigency” when a military member is on covered active duty. Twenty-six weeks of leave is available to care for a family member who is a covered service member with a serious injury or illness. Several states have their own FMLA-type statutes which may have different rules.
Annual Report of employee benefit plans required under Title I and Title IV of ERISA and under the Internal Revenue Code. Any administrator or sponsor of an employee benefit plan subject to ERISA must file information with the Department of Labor about each benefit plan every year. There are exceptions for fully-insured health and welfare plans with fewer than 100 plan participants.
Full-time Equivalent Employees:
A calculation of the hours worked by part time employees expressed as the equivalent of a full-time employee working 30 hours or more, used to determine whether an employer meets the definition of an “applicable large employer“ under the ACA. In this calculation, the hours worked by part-time employees (those working less than 30 hours per week) during a month are added together and divided by 120. The result is the number of full-time equivalent employees. That number is added to the number of full-time employees for the month. Generally, only work performed in the United States is taken into account. Employers that are part of a controlled group of employers are aggregated in the calculation to determine large-employer status.
A plan where the employer contracts with another organization such as an insurance company to assume financial responsibility for the enrollees’ medical claims and for all incurred administrative costs.
Glossary of Terms:
Glossary of Health Coverage and Medical Terms which is a required part of the Summary of Benefits and Coverage. It describes common terms and definitions that may be used in a health plan or policy.
A health plan that was in existence the date the ACA was passed and meets requirements making it exempt from certain Health Care Reform provisions. To maintain grandfathered plan status, the plan must not have made any significant changes to either the benefits or employer contribution since March 23, 2010, and must disclose the plan’s status in any plan materials. A grandfathered plan is exempt from the following requirements of the ACA:
- Coverage of preventive care without employee cost-sharing, including contraception for women.
- Limitations on out-of-pocket maximums
- Essential health benefits, metal levels and deductible limits (these only apply to insured small group plans).
- Modified community rating (this only applies to insured small group plans).
- Guaranteed issue and renewal (this only applies to insured plans).
- Nondiscrimination rules for fully insured plans (requirement has been delayed indefinitely).
- Expanded claims and appeal requirements.
- Additional patient protections (right to choose a primary care provider designation, OB/GYN access without a referral, and coverage for out-of-network emergency department services).
- Coverage of routine costs associated with clinical trials.
Group Health Plan:
An employee benefit plan established or maintained by an employer or an employee organization (such as a union) or both, that provides medical care to employees and their dependents directly or through insurance, reimbursement or otherwise. A group health plan can include an Employer Assistance Program, a Health Reimbursement Arrangement, or in some circumstances a Flexible Spending Account. For some federal laws, such as COBRA, dental and vision plans are considered group health plans. For other laws, such as HIPAA, and the ACA, dental and vision plans may be excluded from the health plan requirements if they are offered separately and not an integral part of a group health plan.
Health Reimbursement Arrangement (HRA):
A tax-advantaged health benefit plan authorized under Section 105 of the Internal Revenue Code that uses employer money to reimburse employees for out-of-pocket medical expenses. Since they are a type of self-funded health & welfare plan, an HRA is subject to the ACA. Since an HRA is unlikely to meet the requirements for unlimited lifetime and annual maximum reimbursement for a health plan under the Affordable Care Act, an HRA will usually be offered in conjunction with an ACA compliant plan.
Health Insurance Portability and Accountability Act of 1996 (HIPAA):
Title I of HIPAA protects health insurance coverage for workers and their families when they change or lose their jobs. Title II of HIPAA, known as the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans, and employers and includes the HIPAA Privacy Rule and HIPAA Security Rule.
HIPAA Notice of Privacy Practices:
Under Title II of HIPAA, most covered entities are required to provide a notice that describes how the covered entity may use and disclose protected heath information about an individual and the individual’s rights with respect to the information. Covered entities include: health care providers, health care clearing houses and health plans. For fully-insured health plans, insurance companies are a covered entity. Updates to the notices were required as of September 23, 2013 to comply with the final rules of the HiTECH Act.
HIPAA Plan Amendment and Certificate of Compliance:
If a covered entity receives PHI, the plan document must describe what information the employer may receive, the classes of employees who will receive it and the safeguards which will be implemented to protect the information received. The amendment must also limit the use of such information to plan administration purposes, provide a mechanism for resolving non-compliance and require the plan sponsor to honor individual rights, report any inconsistent acts to the plan, make records available for audit, require its business associates to observe the same restrictions and return or destroy PHI received, if feasible. Once the amendments have been implemented, the plan sponsor must certify that the plan’s documents have been amended and the implemented the requirements of HIPAA privacy and security have been implemented.
HIPAA Security Risk Assessment:
The HIPAA Security Rule requires that covered entities conduct a risk assessment of their healthcare organization to ensure it is compliant with HIPAA’s administrative, physical, and technical safeguards. A risk assessment also helps reveal areas where protected health information (PHI) could be at risk.
HIPAA Security Rule:
The section of HIPAA’s Administrative Simplification that establishes national standards to protect individual’s electronic personal health information that is created, received, used or maintained by a covered entity. The Security Rule requires covered entities to use appropriate administrative, physical and technical safeguards to ensure the confidentiality, integrity and security of electronic protected health information.
An employee with a major ownership and/or decision-making role in the business. Key employees are usually highly compensated. They may also receive special benefits as an incentive to join the company and to stay with the company. Government and IRS rules have different definitions of Key Employee for different purposes. A ‘key employee’ is defined for purposes of employer provided life insurance as among the highest paid 10 percent of all the employees—both salaried and non-salaried, eligible and ineligible—who are employed by the employer within 75 miles of the worksite.
Or “applicable large employer”(ALE) as defined by the Affordable Care Act (ASA), is an employer that, during the prior calendar year, employed an average of at least 50 full-time and full-time equivalent employees and is therefore subject to the employer mandate to provide affordable, minimum value coverage or pay a penalty. Full time employees working 30 hours per week or more are added to the number of full-time equivalent employees for the month to determine whether an employer meets the definition of an “applicable large employer.”
Employers that are part of a controlled group of employers are aggregated for the purposes of determining large-employer status; however, the reporting requirements apply separately to each employer.
Under ERISA, the type of modification that requires a plan administrator to notify plan participants of the change. A modification is considered material if, it establishes new benefits, takes away existing benefits, narrows or expands the circumstances under which benefits are paid, or terminates the plan entirely. If the amendment changes the information required to be disclosed in an SPD, a Summary of Material Modification should be distributed. An amendment that merely clarifies plan languages or changes how plan administrative expenses are paid is usually not considered a material modification.
Medicare Part D Notice:
Creditable Coverage Disclosure Notice and Non-Creditable Coverage Disclosure Notice. The Medicare Modernization Act requires entities who provide prescription drug coverage to Medicare beneficiaries to disclose whether the coverage is “creditable prescription drug coverage,” which means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage. Medicare eligible individuals can then make an informed decision as to whether they should enroll in a Medicare Part D plan.
A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services (HHS) and the IRS have produced a minimum value calculator. By entering certain information about the plan, such as deductibles and co-pays, into the calculator employers can get a determination as to whether the plan provides minimum value. Additionally, on May 3, 2013, Treasury and the IRS issued proposed regulations regarding the other methods available to determine minimum value.
Multiple Employer Welfare Arrangement (MEWA):
A welfare plan established by an employer or an employee organization which provides insurance benefits to two or more employer groups which do not have enough common ownership to be treated as a single employer. Health plans offered through trade groups or associations are usually MEWA’s. Plans maintained under collective bargaining agreements are excluded from the definition of a MEWA.
A section 125 plan (also sometimes called a Cafeteria plan) is subject to certain nondiscrimination rules under Internal Revenue Code (IRC) Section 125. Generally, those rules prohibit a cafeteria plan from discriminating in favor of highly compensated individuals (HCIs) and/or key employees as to plan eligibility and benefits. In addition to Section 125 non-discrimination testing, many of the benefits offered within the Section 125 plan are subject to separate non-discrimination tests. A cafeteria plan sponsor often contracts with another party to perform the non-discrimination tests as they can be complicated.
Notice of Exchange Rights:
A notice required by the ACA to inform employees about their right to enroll on state or federal government sponsored exchanges. Employers are required to provide this document to all new employees within 14 days of their date of hire – even employees who are not eligible for coverage. If the employer offers group medical coverage to employees, the notice must also include eligibility requirements for that coverage.
Patient Protection Provider Choice Notification:
For non-grandfathered plans that require the designation of primary care providers, the ACA requires an insurer or plan to notify plan participants of the right to designate any primary care provider in the plan’s network. For children, a pediatrician may be designated. It also describes the rights of a woman to obtain obstetrical or gynecological care without prior authorization. The notice must be provided whenever the plan or insurer provides a participant with a summary plan description or other similar description of benefits under the plan or health insurance coverage, and may be included in the summary plan description.
Patient Centered Outcomes Research Institute (PCORI) fee:
Under the Affordable Care Act, health plan sponsors and insurance companies are required to pay a fee to fund a program that assist patients, clinicians and policymakers in making informed health decisions. Insurance companies pay the fee for all fully-insured plans. Plan sponsors pay the fee for self-insured plans. The fee is due on July 31 of each year based on the number of enrollees during the plan year ended before the previous October 1. The fee is applicable to plan years ending after September 30, 2012 and before October 1, 2019. The plan sponsor files the fee on Form 720 and pays the fee directly to the IRS. Third party administrators cannot pay the fee on behalf of the plan. The fee may not be paid from plan assets.
A written document that describes the plan's terms and conditions related to the operation and administration of the plan. It is required for each welfare benefit program or plan an employer maintains which is subject to ERISA. An insurance company's Master Contract, Certificate of Coverage or Summary of Benefits are not considered a Plan Document. An ERISA plan may exist even without a written document, but it is out of compliance.
Benefit programs subject to ERISA plan document requirements include a plan, fund or program established or maintained by an employer which provides benefits specifically covered by ERISA to participants or beneficiaries. Because state and local government plans and church plans are exempt from Title I of ERISA, the requirements do not apply to them. The following are examples of benefit programs:
- Medical, surgical, hospital or HMO Group Insurance Plans
- Health Reimbursement Arrangements (HRAs)
- Health Flexible Spending Accounts (FSAs)
- Group Dental Insurance Plans
- Group Vision Insurance Plans
- Prescription Drug Plans
- Group Sickness, Accident, and Disability Insurance Plans
- Group Life and AD&D Insurance Plans
- Group Long Term Care Insurance Plans
- Medical Reimbursement Plans
- Wellness Programs (if medical care is offered)
- Voluntary Insurance Plans
- Retiree Medical Plans
- Group Employee Assistance Programs (if provide counseling, not just referrals)
- Severance Pay Plans
- Group Business Travel Accident Insurance Plans
- Certain Prepaid Legal Services
- Unemployment Benefit Plans
- Funded Vacation Plans
- Funded Apprenticeship or other Training Plans
- Scholarship Plans
- Holiday Plans
- Certain Housing Assistance Plans
- Day-care centers
- The following are normally not included, as long as they are provided as a normal payroll practice to currently employed individuals without using prefunding, insurance or employee contributions
- Sick Pay
- Short Term Disability
- Paid Time Off
- Jury Duty
- Vacation Pay
Voluntary individual or group insurance plans in which the employees pay all the cost and the employer’s role is limited to allowing the insurer to publicize the plan, collecting premiums by payroll deduction and remitting them to an insurer is usually exempt from ERISA.
ERISA defines participants to include any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan, or whose beneficiaries may be entitled to receive a benefit.. A beneficiary is a person designated by a participant or by the terms of an employee benefit plan who is or may become entitled to a benefit.
Under DOL regulations, the plan administrator of a welfare benefit plan is required to automatically furnish SPDs only to participants covered under the plan and not to beneficiaries. Although beneficiaries and participants not covered by a plan need not be automatically furnished an SPD, they have a right under ERISA Section 104(b)(4) to receive a copy of the latest SPD after making a written request to the plan administrator.
Prescription Drug Plan:
A plan or program that provides coverage for prescription drug expenses, usually included as part of a medical plan. The plan may require a separate copayment for each prescription filled, or prescriptions may be subject to an annual medical deductible, coinsurance, and out-of-pocket.
Primary Care Provider:
A physician or nurse practitioner who is usually the first contact for a patient with an undiagnosed health concern and who also provides continuing care for various medical conditions not usually treated by a specialized medical professional. Most practitioners have training in family medicine, pediatrics, internal medicine, or sometimes, gynecology. Some insurance programs provide a financial incentive to designate a Primary Care Provider and to receive a referral from that provider before seeking care from a medical specialist.
Protected Health Information (PHI):
Any information about health status, provision of health care or payment for health care that can be linked to a specific individual. This may include any part of a patient's medical record or payment history.
Qualified health insurance:
Insurance coverage that qualifies as Minimum Essential Coverage and satisfies the individual shared responsibility requirement under the ACA. However, employers who want to avoid the employer shared responsibility penalty must offer coverage that is both minimum essential coverage and meets other requirements. Most fully-insured health insurance policies offered by insurance companies have been designed to meet the benefit requirements of the ACA. Employers with self-insured plans work with their consultants or third party administrators to ensure their benefits meet the minimum value requirements. To avoid the employer shared responsibility penalty, the employer must offer affordable coverage to substantially all full-time employees.
Quarterly Reports (Medicare Reporting):
Group health plans, including HRAs are subject to Medicare Secondary Payer provisions. Insurers and plans are required to provide coverage information to CMS that allows CMS to coordinate payer responsibilities between the group health plan and Medicare. If a self-funded plan has a third-party administrator, the administrator will normally file on behalf of the plan. If the plan is self-administered, the responsibility will fall upon the plan administrator – which is normally the plan sponsor or employer.
Recent IRS Guidelines:
- (Specific to Section 125 Plans) Section 125 plans should have been reviewed and/or amended by December 31, 2014 for the following possible changes:
- Eligibility and waiting period for your Health FSA should match your health plan’s eligibility
- Salary reductions for health FSA’s are now capped at $2,500, indexed annually for inflation ($2,550 for 2015)
- The IRS now allows a $500 carryover from prior plan year FSA balance (optional)
- The following additional amendments are optional and do not need to be adopted until December 31, 2015.
- For non-calendar year plans, participants may make mid-year change in elections to enroll in the marketplace during its open enrollment period
- Mid-year changes in major medical elections are allowed for an employee who changes employment status, where the employee was previously expected to average 30 hours per week and after the change in status will no longer average 30 hours per week.
A worker who performs labor or services on a seasonal basis, as defined by the Secretary of Labor. Since the Secretary of Labor has not yet provided regulations that define seasonal employees, through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee.” Under the Affordable Care Act, if an employer’s workforce exceeds 50 full time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers, the employer is not an applicable large employer. However, the 120 day period is not part of the definition of seasonal employee and does not affect the employee’s eligibility for health insurance. IRS Notice 2012-58 allows employers to use a look-back/stability period safe-harbor method to determine which seasonal employees should be treated as full-time employees and offered health coverage.
Section 125 Plan:
(Cafeteria Plan) A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as salary or wages) and one qualified benefit (such as health, dental or vision insurance.) A Section 125 plan may offer a “premium-only” benefit, where employees pay for their portion of insurance premiums through payroll deduction on a pre-tax basis. A Section 125 plan may offer a flexible spending account (FSA), which allows the enrollee to set aside part of their salary for qualified unreimbursed health care expenses, or dependent care expenses on a pre-tax basis. More than 2% owners of an S-Corp (and their spouse, children, grandchildren, and parents), partners in a partnership, or members of an LLC are not eligible to participate in a Section 125 plan.
When a plan sponsor decides to administer a self-insured plan or program using internal personnel and resources rather than contract with a third party to administer the program. Entities that self-administer are responsible for all compliance requirements such as ERISA, HIPAA, COBRA, Medicare reporting, and the ACA regulations and reporting.
A plan offered by employers who directly assume the major cost of health insurance for their employees. Some self-insured plans bear the entire risk. Other self-insured employers insure against large claims by purchasing stop-loss coverage. Some self-insured employers contract with insurance carriers or third party administrators for claims processing and other administrative services; other self-insured plans are self-administered.
Summary of Benefits and Coverage (SBC):
Group health plans and health insurers are required to provide each eligible individual and new enrollee with a written summary that accurately describes the plan's benefits and coverage. The summary must be in a format established by the regulations for ease of comparing plan options. Insurance companies and plans share responsibility for the SBC. Typically, for a fully-insured group plan, the insurance company creates the SBC and provides it to the employer/plan administrator for distribution to individuals. The SBC is provided to individuals in the following situations:
- At initial enrollment or application
- At Renewal/re-enrollment.
- Whenever there is a material change that affects the contents of the SBC
- Upon request
Summary Plan Description (SPD):
A Summary Plan Description communicates the plans rights and obligations to participants and beneficiaries. It should be written in a way that the average participant of the employer can understand. It is not unusual for the SPD to be a combination of a complete description of the plan’s terms and conditions, such as a booklet or Certificate of Coverage, with the required language. Some required information for an SPD that is often missing in a plan booklet or certificate of coverage would be:
- Name of the plan
- Name and address of plan sponsor/employer
- Name, address and phone number of plan administrator
- Plan Sponsor’s Employer ID #
- ERISA plan number assigned
- ERISA plan year end
- Named Agent for Legal Process
Transitional Reinsurance Fees:
Under the Affordable Care Act, health plan sponsors and insurance companies are required to pay into a temporary reinsurance fund that will seek to stabilize premiums for coverage in the individual health insurance market for a three-year period from 2014 through 2016. Insurance companies pay the fee for all fully-insured plans. Plan sponsors pay the fee for self-insured plans, but a third party administrator may pay the fee on their behalf. The enrollment count is reported to HHS by November 15 for each of the three years and HHS provides a notice of the fee liability by December15. The fees are due within 30 days. The fee is treated as an ordinary and necessary business expense and may be paid from plan assets.
USERRA (Uniformed Services Employment and Reemployment Rights Act):
Passed into law in 1994, USERRA protects the civilian employment and health and pension benefits of non-full-time military personnel called into active duty. It applies to all employers in the United States, including government employers and United States employers operating in foreign countries, allowing eligible employees to continue their health coverage for up to 24 months.
Variable Hour Employees:
Under the Affordable Care Act, large employers are required to offer health insurance coverage to substantially all full-time employees, including variable hour employees, who averaged 30 hours per week. An employee is a variable hour employee, if based on the facts and circumstances at the date the employee begins working for the employer, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week. IRS Notice 2012-58 allows employer to use a look-back/stability period safe-harbor method to determine if a variable hour employee should be treated as a full-time employee and offered health coverage.
Voluntary Life Insurance:
Life insurance coverage offered by some employers to employees as an optional benefit, partially or entirely paid for by the employee. Voluntary coverage may also be available for the employee’s spouse and dependent children. Some voluntary life insurance is purchased on a group basis and may be less expensive than individual life insurance because of an employee group discount. There may be an option to keep the insurance if the policyholder changes jobs. Other voluntary life insurance may actually be individual policies purchased directly from an insurance company but the employer allows the premiums to be paid via payroll deductions.
The IRS form W-2 Wage and Tax Statement is used to report wages paid to the employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage or other compensation as part of the employment relationship.
A program offered by an employer designed to promote health or prevent disease. Wellness programs usually provide incentives for participants to meet specific standards related to their health or perform certain activities that promote health. However, employment-based wellness programs must meet standards established by the Affordable Care Act to protect employees from discrimination on the basis of health status.
Wellness Program Disclosure:
A disclosure required of any group health plan with a reward or penalty that affects a participant’s cost for group health plan coverage based on performing wellness-related activities or achieving certain health performance standards. Information on the availability of a reasonable alternative standard or the availability of a waiver of the standard must be included in all materials describing the wellness program.
A notice required for employers sponsoring group health plans with benefits for mastectomies to comply with the Women’s Health and Cancer Rights Act of 1998. The notice describes breast reconstructive surgery and other post-mastectomy benefits of the health plan. The notice must be provided to employees when they enroll in the health plan and to all employees annually.
A document that includes ERISA required language and incorporates insurance company booklets/certificates to create a plan document or summary plan description that can wrap around multiple insurance plans.