Posts Tagged ‘HSA’

Essential Health Benefit Regulations And Tools

Tuesday, February 26th, 2013

Health Care Reform - GuidanceFebruary 25, 2013

In keeping with the on-going march toward Affordable Care Act compliance in 2014, the Department of Health and Human Services has issued several important pieces of guidance recently, including final Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation.

Essential Health Benefits
Non-grandfathered plans in the individual and small group markets, issued both in – and outside of exchanges (“marketplace”) must cover essential health benefit packages (EHBs), beginning in 2014. Self-insured group health plans, health insurance coverage offered in the large group market, and grandfathered health plans are not required to cover the essential health benefits. However, to the extent that self-funded plans and large insured plans offered outside the marketplace offer EHBs, these essential benefits cannot be subject to annual and lifetime limits.

Coverage for the essential health benefits package must cover 10 specific categories of benefits. The 10 categories are:

  1. Ambulatory patient services.
  2. Emergency services.
  3. Hospitalization.
  4. Maternity and newborn care.
  5. Mental health and substance use disorder services, including behavioral health treatment.
  6. Prescription drugs.
  7. Rehabilitative and habilitative services and devices.
  8. Laboratory services.
  9. Preventive and wellness services and chronic disease management.
  10. Pediatric services, including oral and vision care.

Coverage for Mental Health and Substance Abuse Services
Though health plans offered by employers employing fewer than 50 employees are generally not subject to the federal mental health parity laws (Mental Health Parity Act of 1996 (MHPA) and the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), these plans will be required to provide mental health benefits, in accordance with the EHB standards.

Benchmark Plan Designs
States can utilize one of several plan design categories for defining essential benefits (click here for CBIZ Health Reform Bulletin). As of February 25, 2013, twenty-six states have chosen their base-benchmark plans. In states that do not select their own benchmark plan, the default base-benchmark plan will be based on the largest plan and product by enrollment in the State’s small group market.

Additional information on the specific benefits, limits, and prescription drug categories and classes covered by the EHB-benchmark plans, and state-required benefits, is available on the Center for Consumer Information and Insurance Oversight (CCIIO) website.

Cost-Sharing Requirements

DEDUCTIBLES. For plan years beginning on or after January 1, 2014, the final regulations clarify that the annual deductible imposed by plans cannot exceed $2,000 for self-only coverage, or $4,000 for coverage other than self-only. These deductible restrictions only apply to individual and small group health plans, and plans offered through the marketplace. These deductible limits do not apply to large group plans offered outside the marketplace or to self-funded plans.

These regulations, while they reserve the right to make modifications, provide that contributions to flexible medical spending arrangements (FSAs) cannot be used to buy down the deductible levels by the amount available under the FSA.

OUT-OF-POCKET LIMITS. The annual out of pocket limits must match those limits applicable to health savings accounts (HSA). While we do not know the HSA limits for 2014 yet (typically, these figures are available in May or early June), the high-deductible health plan annual out-of-pocket limit for self-only coverage in 2013 is $6,250; $12,500 for family coverage. The out of pocket limits apply to all sized plans; though, with the exception of emergency services, these restrictions only apply to in-network services.

For subsequent years, the deductible and out-of-pocket limits may be adjusted annually to reflect cost increases.

Actuarial Valuation Calculation for determining level of coverage
Non-grandfathered health plans offered to individuals and small employer group markets both in and outside an marketplace must meet the bronze, silver, gold, or platinum actuarial levels of benefits and coverage. A bronze plan is required to have an actuarial value (AV) of 60%; a silver plan, 70%; a gold plan, 80%; and a platinum plan, 90%. Actuarial value refers to a percentage measurement of expected health care costs covered by the plan and used to determine an overall measurement of the plan’s generosity.

The CCIIO has released an updated Actuarial Value Calculator, together with an Actuarial Value Calculator Methodology, for purposes of determining whether a plan’s actuarial value is based on a national standard population.

Determining Minimum Value
Under ACA, a plan fails to provide minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of such costs. Determining minimum value is important to employers, particularly those employing 50 or more full-time equivalent employees, in that if the employer plan fails the minimum value test, or is unaffordable, a shared responsibility tax may be triggered (see CBIZ Health Reform Bulletin, Shared Responsibility Guidance, 1/9/13).
For the purposes of determining whether an employer’s group health plan provides a minimum value of benefits, the plan can utilize a minimum value calculator, a designed-based safe harbor checklist to be established by HHS/IRS, or the plan can seek an appropriate actuarial certification. The CCIIO has released Minimum Value Calculator, together with a Minimum Value Calculator Methodology for purposes of determining a plan’s minimum value.

The final regulations provide that employer contributions to health savings accounts (HSA) and first year contributions to health reimbursement arrangements (HRAs) can count toward meeting a plan’s minimum value.

The final regulations also provide for a plus or minus 2% margin, applicable to AV calculations and MV calculations, as well as to deductibles in the small group market, to allow plans a bit of wiggle room for compliance.

About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation.  The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.  As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

Health Care Reform Overview

Thursday, August 2nd, 2012

Health Care ReformHealth care reform legislation has added a number of new taxes and made various other changes which will help finance the reform. The legislation also made several health care related changes which benefit certain taxpayers:

  • A credit to offset part of the costs of health insurance for low to middle income individuals and families.
  • A credit to offset the costs to small businesses which provide health insurance for their employees.

Here is a list of some of the tax related items from the health care reform legislation that were upheld as a result of the Court’s decision:

Provisions Already in Effect

  • Small Business Tax Credit: Small businesses, defined as businesses with 25 or fewer employees and average annual wages of $50,000 or less, are eligible for a credit of up to 50% of nonelective contributions the business makes on behalf of their employees for insurance premiums.
  • Tax on Health Savings Account (HSA) Distributions: Additional tax on distributions from an HSA or an Archer Medical Savings Account (MSA) that are not used for qualified medical expenses is increased to 20% of the disbursed amount.
  • SIMPLE Cafeteria Plans for Small Business: An eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan.
  • Adult Dependent Insurance Coverage: If dependent coverage is provided, plans must allow coverage for children up to age 26 regardless of student or marital status.  Employers may exclude the cost of dependent coverage for children under age 27 from an employee’s taxable income.
  • Restrictions on Use of HSA and FSA Funds: Over the counter medications are no longer 213D qualified medical expenses.  This change makes these medications ineligible for FSA, HRA and H.S.A. reimbursement.  Prescribed drugs and insulin are still considered to be 213D qualified eligible expenses.
  • Information Reporting: If your company filed 250 or more W-2s in 2011, then you must report the health insurance premium for each participating employee on 2012 W-2’s.  Companies with fewer than 250 employees will need to comply with this requirement beginning with 2013 W-2 reporting. Premiums for standalone vision and dental plans, Group Term Life, Group Short Term Disability and Group Long Term Disability are not included.  Although the premium for health contributions is reported on the W-2 form, they are not taxable.
  • Preexisting Conditions: Plans may not impose any preexisting condition exclusion for children under age 19.
  • No Lifetime Limits on coverage of ‘Essential Benefits’: (as defined by the Department of Health and Human Services). May only impose restricted annual limits on the dollar value of ‘Essential Benefits’.
  • Preventive Health Services: (as defined by the Department of Health and Human Services) must be covered and no cost sharing requirements may be imposed for these services.
  • Medical Loss Ratio – 80/20 Rule: requires health insurance companies (depending on their size) to spend at least 80 percent of premium dollars on health insurance claims and clinical activities for improved healthcare quality. Insurance companies that do not meet the 80/20 Medical Loss Ratio (MLR) standard must provide their policyholders a rebate for the difference no later than August 1, 2012. (Additional clarification provided below.)

Effective in 2013

  • Additional Hospital Insurance Tax on High-Income Taxpayers: Starting in 2013, high-income individuals will pay an additional 0.9 percentage points on earned income over $200,000 ($250,000 if married). Currently, the Medicare payroll tax is 2.9% on all wages — with the worker and employer each paying 1.45%.
  • Medicare Tax on Investment Income: Imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified AGI exceeds a threshold amount.
  • Medical Care Itemized Deduction Threshold: Threshold for the itemized deduction for unreimbursed medical expenses is increased from 7.5% of adjusted gross income (AGI) to 10% of AGI for regular income tax purposes. (Effective 2013 generally, 2017 for certain taxpayers).
  • Health Flexible Spending Arrangements: Beginning with 2013 plan years, the maximum for Flex Spending Account (FSA) pretax salary deferral is $2500.  Be sure to amend your FSA plan at renewal time accordingly.

Effective in 2014

  • Premium-Assistance Credit: Refundable tax credits that eligible taxpayers can use to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange.
  • Reporting Requirements: Requires insurers (including employers who self-insure) that provide minimum essential coverage to any individual during a calendar year to report certain health insurance coverage information to both the covered individual and to the IRS.
  • Cafeteria Plans: A qualified health plan offered through a health insurance exchange is a qualified benefit under a cafeteria plan of a qualified employer.
  • Employer Responsibility: An “applicable large employer” that does not offer coverage for all its full-time employees; offers minimum essential coverage that is unaffordable; or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%; is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.If a large employer does not offer qualified affordable coverage then an employee can go to the exchange.  If the employee gets a subsidy then the employer must pay a $250 a month tax penalty (not deductible) for each employee receiving coverage through the exchange that gets a subsidy not to exceed the aggregate penalty for not offering coverage.

    Any large group employer not offering coverage and having at least 1 employee obtaining coverage through an exchange with a subsidy must pay a $166 per month tax penalty (not deductible) to the government (this equates to a $2,000 Annual penalty).

    In 2014, small employers of fewer than 50 employees have no penalties.  If they offer coverage that is affordable and qualified (no more than 9.5% of pay for employee coverage and at least a bronze level coverage) then the employee is not eligible to buy coverage through the exchange.

Additional Details You Should Know About:

Medical Loss Ratio (MLR) Rebate Distribution
If you receive a MLR distribution, you will be required to develop a plan to distribute the rebates that your insurance carrier declares.  As of today, HealthPartners is the only local carrier to announce they will be issuing an MLR rebate and only to a very small subset of their clients.  HealthPartners has already contacted those affected.

For future reference, if you receive an MLR rebate, the method of allocating the rebate has been provided in Health and Human Services interim regulations, and directs insurers to distribute the entire rebate to the group policyholder.  The group policyholder is required to use the portion of the rebates attributable to the amount of premiums paid by the subscribers for the benefit of the subscribers, insuring that enrollees in such plans receive the benefit of the rebates.

Three methods of distribution are allowed:

  1. to reduce the subscribers portion of the annual premium for the subsequent policy year for all subscribers covered under the group health policy in the subsequent year; or
  2. to reduce subscribers portion of the annual premium for subsequent policy year for only those subscribers covered by the group health policy in the year for which the rebate was based; or
  3. to provide a cash refund only to subscribers that were covered by the group health policy on which the rebate is based.

All three options are acceptable.  The most administratively simple process is to issue a premium reduction in the subsequent year for those participating in the plan in the subsequent year.

If you are currently covered by HealthPartners, an MLR rebate may be announced in the near future.  Otherwise, it is unlikely this provision will apply to you this year.

Summary of Benefits (SBC’s)/Uniform Glossary (UG)
Watch for the Summary of Benefits and Coverage (SBC) and Uniform Glossary that your insurance carrier has developed, and include those new documents in Open Enrollment packets for 2013. These new documents must be provided to employees at least 30 days prior to renewal (or as early as reasonably possible) for plans renewing after 9/23/12.  SBC’s will also be required for HRA’s and Flexible Spending Accounts.

Patient Centered Outcomes Research
Determine if your plan is subject to a “PCOR” fee (Patient Centered Outcomes Research) also known as “CER” (Comparative Effectiveness Research).

This fee applies to insured plans (fee paid by the insurer) and self-insured plans (fee paid by the plan sponsor). Self-insured plans include HRAs.  For plan/policy years ending on or after October 1, 2012 and before October 1, 2013, the fee is $1, multiplied by the average number of covered lives (including dependents). The fee is increased to $2 for plan years ending on or after October 1, 2013 and may be further increased on or after October 1, 2014. Your TPA will have additional information.

Health Insurance Exchange
Prepare to notify employees of the availability of Health Insurance Exchanges by March of 2013.  (While this notification will be required, at this time we are waiting for additional guidance regarding the availability of the health exchange in Minnesota, since Minnesota has not passed a specific Exchange bill yet.)

Links to More Information
PPACA timeline for implementation
Impact to Individuals
Impact to Small Companies
Impact to Large Companies

Article Contributors:

Gary Helm
Bearence Management Group
651.379.7906 Direct
Email Gary

John Cleveland
The Cleveland Company, Inc.
952.885.2701 Direct
Email John

PCS Tax and Support Departments

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

HSAs Gain Favorable WI Tax Treatment

Thursday, March 31st, 2011

HSA WI Tax UpdateMarch 2011

Pamela Branshaw, CPA, CEBS

In a long-awaited move, Wisconsin Governor Scott Walker signed into law the 2011 Wisconsin Act 1 on January 24, 2011. This Act changes Wisconsin income tax law to conform with federal tax law as it relates to health savings accounts (“HSAs”). Effective January 1, 2011, HSA account owners are no longer subject to Wisconsin income taxes on contributions, provided they do not exceed statutory limitations. In addition, earnings on HSAs are income tax-free as long as they are used for qualified medical expenses. This tax break is expected to save Wisconsin taxpayers over $49 million during the next two years and will not only reduce complexity related to payroll reporting and income tax preparation, but will help make health care a little more affordable. Prior to the enactment of this law, Wisconsin was one of only four states that did not allow favorable tax treatment of HSAs.

Immediate Action Required
For employers that sponsor cafeteria plans which allow employees to make pre-tax contributions to an HSA, the payroll deductions setup should be changed immediately to reflect these deductions as pre-tax deductions instead of post-tax deductions. Thus, HSA contributions will no longer be subject to Wisconsin income tax withholding. In addition, all employer contributions to HSAs will be tax-free and no longer should be added to Wisconsin taxable wages on Form W-2. Note that the new law does not apply to nonpayroll HSA contributions made from January 1, 2011, to April 18, 2011, which are designated for the 2010 year.

Other Considerations
This law change also means that HSA account owners will have income tax basis in their accounts to track in the event a distribution is taken for other than medical expenses in the future. If this should occur, the taxpayer will have a recovery of basis and applicable earnings for Wisconsin income tax purposes, instead of reporting the entire HSA distribution as taxable for federal purposes. The account balance as of December 31, 2010 (which consists of nondeductible contributions and taxable earnings from the inception date of HSAs on January 1, 2004, through December 31, 2010) should represent the total Wisconsin income tax basis for most taxpayers. If the HSA is used for qualified medical expenses, the Wisconsin income tax basis will be irrelevant.

HSA Summary – A comprehensive summary on health savings accounts.

Contributed By:

WIPFLi CPAs and Consultants

Pamela Branshaw, CPA, CEBS

Tom Krieg, CPA

Bob Buss, CPA, CEBS

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

IRS Provides Guidance on OTC Drugs

Tuesday, September 28th, 2010

OTC DrugsSeptember 2010

By: Gallagher Benefit Services, Inc.

The Patient Protection and Affordable Care Act (PPACA) changes the definition of eligible medical expenses for employer-provided accident and health plans (including Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs)).   The new definition applies to all employer-sponsored health care plans – both grandfathered and non-grandfathered plans – beginning on January 1, 2011.   PPACA also revised the definition of “qualified medical expense” for Archer Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs).   To address these revised definitions, the IRS issued guidance (Notice 2010-59) on September 3, 2010. Following is a summary of that IRS guidance.

As of January 1, 2011, over the counter (OTC) medicines and drugs will generally not be eligible expenses for employer-sponsored health plans. Medicines and drugs that may still be reimbursed under employer-sponsored plans are:

  • Medicine or drugs that require a prescription under Federal law
  • Medicine or drugs that do not require a prescription under Federal law (OTC drugs) if the individual obtains a prescription
  • Insulin

Similar rules also limit distributions from a HSAs and MSAs.

PPACA did not change the status of over the counter items that are not medicines or drugs. Equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits continue to be eligible expenses.

Unlike many of the provisions of PPACA, this change does not apply based on the employer’s plan year. The new rules apply to all medicines or drugs purchased after December 31, 2010. Key items from the IRS Notice:

  • OTC medicines or drugs purchased before January 1, 2011 can be reimbursed by an employer-sponsored plan even if the claim is submitted after January 1
  • OTC medicines or drugs purchased after December 31, 2010 cannot be reimbursed from an FSA even if the FSA has a grace period
  • FSA and HRA debit cards may continue to be used for medical expenses other than OTC medicines and drugs
  • After January 16, 2011, OTC medicines or drugs purchased using a debit card must be substantiated before reimbursement may be made. (The IRS stated that it will not challenge the use of FSA and HRA debit cards for expenses incurred through January 15, 2011.)

OTC medicines or drugs may be substantiated in one of two ways:

  • Documentation by an independent third party that includes the name of the patient, the date and amount of the purchase and an Rx number. An example is a receipt from a pharmacy, which includes all of the required information
  • Documentation by an independent third party with all required information except an Rx number plus a copy of the related prescription

Cafeteria plans that currently cover OTC drugs and medicines must be amended. Cafeteria plans must comply with the new rules beginning on January 1, 2011, but under a special transition rule have until June 30, 2011 to make formal amendments.

The IRS also provided 10 FAQs along with Notice 2010-59. The full text of Notice 2010-59 and the FAQs can be found at:

Notice 2010-59


Submitted By:

Gallagher Benefit Services, Inc. (GBS)

For more information on GBS and how we can guide you through the complexities of health care reform, please contact:

Patricia Jesperson at 952.356.0704

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.