Update: IRS Delays New W-2 Reporting

The IRS recently released news that they are delaying the requirement for employers to report the cost of group health plans on W-2s.  It will now be optional to report it for the 2011 tax year and then be required for the 2012 tax year.  The official news release can be found here.  The IRS also released a draft W-2 that could be used for such reporting.  The draft W-2 can be found here.

Also, in the same news re

New Nondiscrimination Rules: They May Effect You

As part of PPACA, there are new nondiscrimination rules for fully-insured insurance plans that must be complied with upon renewal or when getting a new insurance plan.  While we are still waiting for further guidance from HHS, there is a lot we do know and it will affect many businesses who offer insurance benefits.  The new laws are to protect against discrimination in favor of highly-compensated employees.

WHO IS HIGHLY COMPENSATED?

A highly compensated employee (HCE) is defined as either being (1) one of the five highest-paid officers, (2) a shareholder owning (actually or constructively) more than 10% of the company’s stock, or (3) among the highest paid 25% of all employees.

Types of Discrimination

The new laws prohibit offering insurance benefits to highly compensated employees (HCEs) and not to non-HCEs.  This also means that you cannot offer different, better benefits to HCEs than non-HCEs.  This prohibits manager-carve-out plans (assuming the managers are HCEs), Long-Term Care plans for only execs, and a different health plan for retired execs that other retirees don’t get.

There are two other scenarios that may be prohibited that would affect a lot more businesses.  HHS needs to still provide further definitions to know for sure if these scenarios will be prohibited.  The first one is more likely to be prohibited; it is having the employer pay for a higher amount of the premium for HCEs than for non-HCEs.  The second scenario is more questionable as to whether it will be prohibited or not; it is having a shorter new-hire waiting period for HCEs than for non-HCEs.  Both of these practices are used quite often and will thus effect many more businesses.

Eligibility Tests

There are three eligibility tests that can be used to determine if your company is nondiscriminatory.  Only one of any of the tests need to be passed — not all three.  Before I list the three tests, keep in mind that there are many employees that can be excluded when performing these tests.

Employees that can be excluded from the eligibility tests include:

  1. employees who have less than 3 years of service at the beginning of the plan year;
  2. employees who are younger than age 25 at the beginning of the plan year;
  3. part-time or seasonal employees;
  4. employees who are covered under a collective bargaining agreement;
  5. and nonresident aliens who receive no income from a U.S. source.

The three nondiscrimination eligibility tests are:

  1. 70% of all employees (except excluded employees) benefit under the plan;
  2. the plan benefits 80% of eligible employees and 70% of all employees (except excluded employees) are eligible;
  3. the plan benefits a nondiscriminatory classification of employees (non-HCEs)

Penalties

Plans that do not comply with the new nondiscrimination requirements may face excise taxes of $100 per day for each employee whose benefits are not in compliance; capped at 10% of the cost of the group plan or $500,000, whichever is less.  So, as you can see, the penalties could be steep.  Thus, you will want to stay in compliance.

Closed Loophole

Some have thought that an easy loophole would be to have a separate business entity for mangers, or HCEs.  But, the rules will apply on a controlled group basis.  Meaning, plans from related businesses will, generally, be required to be tested as if they are a single employer.

Grandfathered Plans

These new nondiscrimination rules do not apply to Grandfathered Plans.  For more information on Grandfathered Plans, please read my previous post.

Conclusion

With these new rules, it is important to review your current contracts and benefits rules.  As well, you may want to review negotiated contracts of hired employees if the negotiations included insurance benefit offerings that may be different from your normal procedures.

Grandfathered Health Plans and Management Carve-Out Plans

Let me first start by stating that it is thought that most group insurance plans, at least in Utah, will be hard to Grandfather.  But, that does not mean it can’t be done or that none of the health plans can be Grandfathered.

Why Grandfather Your Health Insurance Plan?

Why would you want your group’s health insurance plan to be Grandfathered?  Well, there are many of the new laws from Patient Protection and Affordable Care Act (PPACA) that Grandfathered health plans do not have to comply with.  A Grandfathered plan would be exempt from the following PPACA provisions:

  • First-dollar coverage of preventive health benefits
  • Utilization of uniform explanation of coverage documents and standardized definitions
  • Prohibition of discrimination in favor of highly compensated individuals
  • Must allow individuals to choose  pediatrician for child’s primary care physician
  • Must provide internal appeals and external review process
  • Must allow emergency services without preauthorization and treat as in-network
  • Rating limitations, guaranteed issue, guaranteed renewability, essential benefits
  • Limits on cost sharing and deductibles
  • No discrimination against individual participating in a clinical trial

There are a few others that I have not listed as well, but they are less applicable.  For a small business on a fully-insured health plan, most of the provisions listed are not of great concern unless you really don’t want to offer a few added benefits (although they will cause the premiums increase slightly).  But, there is one provision that will have a profound effect on some business that have a management carve-out health plan.  That is the provision prohibiting discrimination of health insurance coverage for highly compensated individuals.  That provision essentially does away with most all management carve-out plans.  There are non-discrimination tests that if passed could keep the management carve-out plan in place, but it is highly unlikely a management carve-out plan would pass that test.  Thus, for those businesses who currently offer a management carve-out health plan and need to keep it in place due to the cost of offering to pay for the plan for all employees, you will want to Grandfather your health insurance plan if you can.

Can You Grandfather Your Health Plan?

If you have decided it is best to Grandfather your health plan then the next question is, how do you Grandfather it?  You have to meet the following regulations in order to Grandfather your health insurance plan.

  • You must have had a health plan in place with at least one person being insured since 3/23/2010
  • You must state in plan materials that you “believe” the health plan to be Grandfathered
  • You must provide contact information for questions or complaints – the contact information needs to also be sent to the DOL or HHS
  • You must maintain records documenting the health plan’s existence, the plan’s terms, and any plan changes from 3/23/2010 forward, and make the records available upon request

What Would Cause Your Plan to Lose Grandfathered Status?

Aside from not meeting the regulations mentioned above there are other changes to the health plan that will cause the plan to lose its Grandfathered status.  These include:

  • Obtaining a new health insurance policy
  • Eliminating benefits for a particular condition
  • Adding or decreasing annual limits (there are specifics to this depending on your current plan’s coverage)
  • Increasing the plan’s coinsurance
  • Increasing the plan’s deductible or out-of-pocket maximum (by more than medical inflation plus 15%, from 3/23/2010)
  • Increasing the copayment amounts (by either more than $5 or more than medical inflation plus 15%, from 3/23/2010)
  • Decreasing the employer contribution (by more than 5% from 3/23/2010)

Summary

Depending on the health insurance plan your business currently offers, it may be easy or difficult to qualify for Grandfathered status.  If you determine that it is in your best interest to seek Grandfathered status then you will want to consult with your insurance broker.  For most small businesses it will probably not be necessary or feasible to have a Grandfathered health plan.  For those businesses that do need a Grandfathered health plan, they should be aware of the regulations, consult with their broker, and make the necessary arrangements.

New W-2 Reporting of Health Insurance Value

Beginning with tax year 2011, the Patient Protection and Affordable Care Act (PPACA) will require employers to report the value of their employees’ health benefits on Form W-2s.  While most W-2s will not be issued until January 2012 for the 2011 tax year, employers must have this new reporting available by February 1, 2011 in case a terminating employee asks for his/her W-2 early.  Below summarizes both items we know about and items the IRS & HHS needs to give further guidance on regarding this new W-2 Reporting.

What We Know:

The coverage costs that must be reported include:

  • Medical Plans
  • Prescription drug plans
  • Dental and Vision plans (if employee is also enrolled in medical insurance)
  • Employer funding contributions to an HRA
  • Executive physicians
  • Medicare supplemental policies
  • Employee assistance programs
  • On-site clinics if they provide more than de minimis care

Coverage costs exempt from reporting requirements:

  • Dental and Vision plans if they are “stand-alone” policies
  • Long-term care, accident, or disability income benefits
  • Specific disease or illness policies, and hospital indemnity insurance policies when the employee pays the full premium on an after-tax basis
  • Archer MSA or HSA contributions of the employee or the employee’s spouse
  • Salary reduction contributions to a Health FSA

Waiting for Further IRS & HHS Guidance:

First, we are waiting to know where to report the health benefits cost on Form W-2.  We also need IRS interpretation on when a medical clinic provides de minimis benefits (small enough value to deem unreasonable to report).  Since the new reporting requirements appear to be monthly calculation, we need guidance for reporting when an employee has less than a month’s worth of benefits.  And lastly, we need to know if employers need to report and send a Form W-2 to former employees who are provided health coverage (terminated employees on COBRA, surviving spouses, early retirees, and retirees in general).

There is a bit more to the requirements, but at minimum employers should be aware and be prepared for this new W-2 reporting law.

Plug for Magellan: Magellan, Inc. has the software ability and the expertise to handle the new Form W-2 reporting requirements.  This is especially simple for employers if Magellan is their health insurance broker and their payroll processor.  Talk to me about this if interested.


New Employee Orientation

Here is information relayed from HR & Benefits on New Employee Orientation.  This article was from a previous Magellan newsletter, but I thought it might be of interest to some if you missed it.

New employee orientation (also called on-boarding) is the process employers have created to introduce new employees to management, staff and their new workplace environment. The goal is to familiarize your new employee with your company and create a positive first impression. Employee orientation is also designed for employees who are promoted within your company and need a similar type of program.

Be sure that your employee orientation process treats employees fairly and avoids any statements or actions that could constitute illegal discrimination under federal or state law. If you have questions regarding your orientation program and discrimination issues, contact an employment law attorney who knows your state laws.

Benefits of Employee Orientation
The following are major benefits of a good orientation program:

  • Increases staff retention – an effective orientation program can increase the likelihood that new employees will stay with the company.
  • Enhances productivity – a proper orientation will allow new employees to be more productive at a faster pace.
  • Helps new employees understand the processes and procedures that help your company run smoothly- and what is expected of them.
  • Provides an opportunity for the new hire to ask questions, get help and even offer constructive suggestions as to how to improve your company.
  • Reinforces the qualities you conveyed about your company and the position during the recruitment process.

New Employee Orientation Checklist
Your orientation process should begin with planning ahead for your new employee’s arrival. The following checklist will help things move smoothly for your new employee:

  • Notify everyone in the employee’s department that a new person is starting.
  • Assign one of your employees to show your new hire the new workplace environment, make introductions and respond to any questions. This is a great way to put your new employee at ease.
  • Encourage the team to welcome and support the new employee.
  • Create a great first impression by making the employee’s work location neat, clean and organized.
  • Be sure that access to the company’s network or intranet, email and phone extension are set up for your new employee.
  • If necessary, arrange for a building pass, IDs and parking pass.
  • If you will be providing an employee handbook, make sure it is ready to be distributed, along with all necessary benefits plan information , including a general COBRA notice if you are a covered employer (20+ employees).
  • Develop a training plan to ensure that the new employee’s first few months go smoothly.
  • Organize a list of key people, i.e., team and management your new employee should meet to get a better understanding of everyone’s roles.

When do New Healthcare Laws Take Effect

On September 23rd many of the new healthcare laws took effect — 6 months from the signing of Patient Protection and Affordable Care Act (PPACA).  But when do these new changes really effect you and your insurance coverage?  I have heard it incorrectly reported on the radio this week and I thought clarification should be given.

The changes to insurance coverage will happen either at the time a new policy takes effect or at the time a current policy renews.  Thus, if you buy a new health insurance policy that starts after September 23rd then the new laws will be in place for that policy.  For your current health plan that is already in place, nothing changes on your current policy until its renewal date.  Upon the renewal of your health plan the new health laws will take effect on your policy.

In later posts I will cover in more detail the changes that happened from PPACA on September 23rd.  For now, a basic list of changes are located to the right under “Dates To Be Aware Of”.