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The following information is provided by Banyan Administrators:

Another component of the Health Care Reform Act signed into law on 3/23/2010 is that beginning with the 2011 tax year, employers must report the aggregate cost of applicable employer-sponsored health insurance coverage on employees W-2 forms.  General information about this requirement has been provided, however, the Department of Labor (DOL) has not yet issued Interim Final Rules on this provision of the Health Care Reform Act.

1. When does an employer have to be ready to be in compliance with this new reporting requirement?

Employers must be prepared to accurately report this information on an employee’s 2011 W-2 form as early as February, 2011.  Although employers will be sending most of the 2011 W-2 forms to the employees in January, 2012, if an employee terminates employment in 2011, they do have the right to request an early 2011 W-2 form.  Employers must be prepared for this possibility.

2. How is “applicable employer-sponsored health insurance coverage” defined?

The “applicable employer-sponsored health insurance coverage” is more than just the employer’s health plan.  The requirement includes:

• Medical plans;
• Prescription drug plans;
• Health Reimbursement Accounts
• Executive physicals;
• On-site clinics if they provide more than de minimus care;
• Medicare supplemental policies; and
• Employee assistance programs (EAP).

Typically, dental and vision plans are not included if they are “stand alone” plans.  For example, most employers will have a separate dental or vision plan with, perhaps, a different insurance carrier than their medical plan.  However, an employer might sponsor a medical plan that has a separate rider that provides a benefit for routine vision exams.  In the latter case, the cost for the vision rider should be factored into the cost/value.

Other benefits in which an employer might be making a contribution on behalf of an employee, such as flexible spending accounts, health savings accounts, specific disease or hospital/fixed indemnity plans, are excluded from the reporting requirement.

3. How does an employer calculate the cost/value for the “applicable employer-sponsored health insurance coverage”?

For medical plans and prescription drug plans an employer should use the fully-insured monthly rates charged by their medical and prescription drug carriers.  Employers with self-funded plans should use the rates developed for COBRA participants (minus the 2% administrative fee).

This is an area in which further guidance is needed from the DOL, through issuance of Interim Final Rules, and from the IRS.  For example, how should the cost/value be calculated for an employee whose coverage starts or stops mid-month?  For fully-insured plans the expectation is that cost/value will be calculated based on the amount of monthly premium payments made by the employer to the insurance carrier for the employee.  For self-funded plans, however, the calculation may be more difficult.  Will the cost/value be prorated based on the number of days for the month and calculated on a per day basis, or, will the calculation be based on a cut-off date for the month?  For example, if an employee has coverage for more than half of the month, should the employer add that month’s COBRA rate to the employee’s calculation?  If the employee had the coverage for less than half the month, the employer should not add that month to the employee’s calculation?   We will provide further guidance when updates from the DOL or IRS are released.

4.  How does an employer calculate the cost/value for an on-site clinic or an EAP?

Once again, this is an area in which further guidance is needed.  Most employers with an on-site clinic have probably never calculated the cost/value of that benefit to its employees.  Even if the employer had calculated the cost/value of that benefit, at this time, there is no guarantee that the methodology would be acceptable.

An employer paying a premium rate to an EAP vendor would use that premium to calculate the cost/value.  However, recent years have seen a trend in EAP services being provided to an employer as a value-added service by a different vendor, typically, the life or disability insurance company.  Guidance will be needed as to how to determine the cost/value in these situations.

5. Will the employee be taxed on the cost/value of the employer-sponsored health insurance?

No.  The reporting of the cost/value of the employer-sponsored health insurance is for informational purposes only and the employee, at this time, will not have to pay tax on the amount reported.

6. What are the reasons for this reporting change?

The reasons for this new W-2 reporting requirement have never been clearly defined. However, the assumption is that there are 3 probable reasons for this change.

• Disclosure – Employers will now be reporting to the employees the actual cost/value of the health insurance.    Previously, most employees did not have this information unless the employer sent communication materials such as benefit statements.

• Individual Mandate – In 2014, all U.S. citizens will have to have health insurance or pay a penalty.  How an individual is going to document having coverage is still unclear – perhaps the W-2 will be the vehicle used for documentation.

• “Cadillac Tax” – Beginning in 2018, employer-sponsored health plans with aggregate values exceeding $10,200 for individual coverage and $27,500 for family coverage will be subject to the “Cadillac Tax”.  How will the IRS know which employer-sponsored health plans are subject to this Cadillac Tax?  Most likely from the amounts reported on the W-2 forms.  If subject, then the Plan will be taxed.  The employee will not be taxed, at least not directly.

7. What do I need to do now?

• Develop an implementation strategy with your Payroll department and/or your Payroll administrator by February, 2011.

• Determine how and if you can calculate the cost/value for all the plans subject to reporting on the W-2 form.

• You may want to consider preparing a communication piece for your employees to, first, alert them of the inclusion of the new information on the W-2 so that they will see the amount you pay for health insurance coverage for them and, secondly, to assure them that they are not being directly taxed on this amount in 2011.  For future tax years, there is no expectation that the employee will be directly taxed on this amount however that is always subject to change.  Your Payroll department and/or Payroll administrator may already be drafting communication pieces on your behalf. 
 
If you have any questions on this or any new health care reform regulation, please consult with a member of your Banyan Consulting team.

Banyan Consulting LLC has been providing us with beneficial information about different aspects of the Health Care Reform and how it affects us. Over the next months and years, employers will be faced with numerous changes, many of which require regulatory clarification. Banyan will continue to keep us up to date and on target with decisions that affect our plans. 

There are a few pieces of the Health Care Reform Act that take effect in the near future. The one that has garnered more headlines is the requirement to cover dependent children to age 26. Click here to read the Q&A segments that address different portions of the provision and how it impacts employers.

The fact that the new employee was related had, in fact, no bearing on how the matter was handled. What was relevant, however, was the firm’s written policy, clearly spelled out in its benefit plan subscription agreement (an employer’s master application and agreement with the Group Insurance Trust or other carrier), that new employees had to complete a two-month waiting period before being eligible for benefits. Naturally, the firm’s owner was disappointed that his relative would have to wait the same as any other new hire. Nevertheless, he was also appreciative that Banyan had helped him keep his firm in compliance with both HIPAA and ERISA rules. The Department of Labor (DOL) is concerned about fair treatment of employees and issues of discrimination immediately arise if employees are not treated equally.

Because Banyan service center representatives had the information at their fingertips in their computer system, they were able to provide an explanation to the firm’s owner on the phone. Even if the owner had not contacted Banyan proactively, Banyan would have flagged the employee’s enrollment form when it came in because it did not meet the employer’s established policy. An important feature of Banyan’s computerized recordkeeping is to help member firms prevent unintended regulatory violations.

At the same time, the Trust provides flexibility by offering member firms a broad range of options in setting their own policies. A firm can choose to add new hires to their existing plans on the first of the month following the day of hire or up to six months after, provided they are consistent. Existing rules are subject to change as the Patient Protection and Health Care Affordability Act (health care reform) is implemented and the specifics of the law are ironed out. The Trust and Banyan will continue to monitor evolving regulations and keep you informed as health care reforms solidify.

Generally, employers may change their benefit waiting period and other employee eligibility policies during the annual open enrollment period. It makes sense to review these policies each year to ensure that they are consistent with your firm’s hiring practices. If you are not sure about your company’s benefits eligibility policy as stated in your ProtectPlus Subscription Agreement, or if you are not sure whether the subscription agreement is consistent with your employee handbooks or other new-hire materials, call the Banyan Service Center at (877) 480-7923 or email cpaprotectplus@banyan-llc.com. A Banyan member service representative will be happy to answer your questions.

Banyan Administrators, LLC, Managers of the CalCPA ProtectPlus program, have thoughtfully put together the following presentation, which is designed to help our members understand the bill’s most significant reforms. The presentation walks you through the first two years of the bill – 2010 through 2012. However, there are many areas that still remain undefined due to the complexity of the bill. Please be assured that Banyan Administrators and the Group Insurance Trust will continue to report on the evolving impact of health care reform as clarity develops.  Please click on the link below to view the presentation.

Banyan Health Care Reform 2010 summary years 2010 -2012

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The following information is from the United States Department of Labor’s web site. Since this COBRA article (or booklet, as the article refers to it) from dol.gov has an abundance of information, we will break the article up into sections over the next several weeks. We hope that you find the information valuable.

An Employee’s Guide to Health Benefits Under COBRA -The Consolidated Omnibus Budget Reconciliation Act 

 Note: This publication contains information about the COBRA premium reduction provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). This publication has not been updated for recent amendments made to ARRA. For updated information on ARRA and its amendments, please see the COBRA Premium Reduction Fact Sheet.

Introduction

Health insurance programs help workers and their families take care of their essential medical needs. These programs can be one of the most important benefits provided by an employer.

There was a time when employer-provided group health coverage was at risk if an employee was fired, changed jobs, or got divorced. That substantially changed in 1986 with the passage of the health benefit provisions in the Consolidated Omnibus Budget Reconciliation Act (COBRA). Now, many employees and their families who would lose group health coverage because of serious life events are able to continue their coverage under the employer’s group health plan, at least for limited periods of time.

This booklet explains your rights under COBRA to a temporary extension of employer-provided group health coverage, called COBRA continuation coverage.

This booklet is designed to:

• Provide a general explanation of your COBRA rights and responsibilities;
• Outline the COBRA rules that group health plans must follow;
• Highlight your rights to benefits while you are receiving COBRA continuation coverage.

What Is COBRA Continuation Coverage?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires most group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated.

COBRA requires continuation coverage to be offered to covered employees, their spouses, their former spouses, and their dependent children when group health coverage would otherwise be lost due to certain specific events. Those events include the death of a covered employee, termination or reduction in the hours of a covered employee’s employment for reasons other than gross misconduct, divorce, or legal separation from a covered employee, a covered employee’s becoming entitled to Medicare, and a child’s loss of dependent status (and therefore coverage) under the plan.

Employers may require individuals who elect continuation coverage to pay the full cost of the coverage, plus a 2 percent administrative charge. The required payment for continuation coverage is often more expensive than the amount that active employees are required to pay for group health coverage, since the employer usually pays part of the cost of employees’ coverage and all of that cost can be charged to the individuals receiving continuation coverage. The COBRA payment is ordinarily less expensive, though, than individual health coverage. A temporary premium reduction may be available to help (see “Premium Reduction Following Involuntary Termination”). While COBRA continuation coverage must be offered, it lasts only for a limited period of time. This booklet will discuss all of these provisions in more detail.

COBRA generally applies to all group health plans maintained by private-sector employers (with at least 20 employees) or by state and local governments. The law does not apply, however, to plans sponsored by the Federal government or by churches and certain church-related organizations.

Under COBRA, a group health plan is any arrangement that an employer establishes or maintains to provide employees or their families with medical care, whether it is provided through insurance, by a health maintenance organization, out of the employer’s assets on a pay-as-you-go basis, or otherwise. “Medical care” for this purpose includes:

• Inpatient and outpatient hospital care;
• Physician care;
• Surgery and other major medical benefits;
• Prescription drugs;
• Dental and vision care.

Life insurance is not considered “medical care,” nor are disability benefits; and COBRA does not cover plans that provide only life insurance or disability benefits.

Group health plans covered by COBRA that are sponsored by private-sector employers generally are governed by ERISA. ERISA does not require employers to establish plans or to provide any particular type or level of benefits, but it does require plans to comply with ERISA’s rules. ERISA gives participants and beneficiaries rights that are enforceable in court.

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The federal health care reform law will have a substantial impact on employers. Here are the main issues  that employers will want to be aware of:  

 1. Keeping the same coverage  

Employers will be able to avoid some of the law’s requirements by keeping their coverage the same after the law’s effective date (March 23, 2010). Unfortunately, it is very unclear at this time what kinds of minor changes will alter coverage, or keep it the same; this will be clarified in later regulation.  

 Changes that must be made to all plans include:  

• waiting periods for coverage must be less than 90 days; 
• no lifetime benefit maximum limits;
• dependent coverage for adult children up to age 26; and
• no annual limits on certain types of benefits (unless permitted by later-issued regulation).

2. New benefit and other plan changes If an employer does not keep its coverage the same, employers will need to make additional changes such as:  

• extending 100 percent coverage for preventive care;
• removing any prior authorization requirement or increased cost-sharing for emergency
• services (regardless of whether the services are provided in or out of network);
• no pre-existing limitation for children under age 19; and
• coverage of routine patient costs in clinical trials for life-threatening diseases.

3. FSA/HRA/HSA changes The law also will require changes to these types of accounts. In 2011, employees will no longer be able to receive pre-tax reimbursements from their FSA, HRA or HSA for non-prescribed over-the-counter medications, and the excise tax for nonqualified HSA withdrawals will increase from 10 percent to 20 percent. In 2013, employee contributions to FSAs will be capped at $2,500 annually, with the cap adjusted annually to the Consumer Price Index.  

4. Employee notification of value of coverage and exchange information Effective in 2011, employers will need to start reporting the value of the employer-sponsored coverage to employees on their W-2s. And in March 2013, employers will need to begin notifying employees about state exchanges and the availability of premium subsidies and free choice vouchers, all of which will be available beginning in 2014.  

5. Fees and penalties imposed on employer plans   

Under the law, employers will be subject to a number of fees and exposed to penalties for certain behaviors. Among them are the following:    

• Effective in 2013, a fee will be assessed on employers with self-funded health plans to fund a comparative effectiveness research agency. (For employers with fully insured health plans, the health insurer will be assessed the fee.) In 2013, this fee will be $1 times the average number of lives covered under the plan; for 2014 to 2019, the fee will be $2 times the average number of covered lives. The fee will end on September 30, 2019.
• Effective in 2014, if an employer has 50 or more full-time employees, then the employer may be subject to penalties under the law if it provides either no health coverage to full-time employees, or provides coverage to full-time employees that is not affordable. Penalties vary from $2,000 to $3,000 per employee.
• Effective in 2018, a 40 percent excise tax on high-cost plans will be applied to plans costing more than $10,200 for individual coverage, or $27,500 for family coverage.

6. Employer administrative reporting duties    

The law will require employers to annually report to the IRS a number of pieces of data, including:  

• Whether the employer offers minimum essential coverage to full-time employees;
• Any waiting period for health coverage;
• The monthly premium for the lowest cost option in each enrollment category under the plan;
• The employer’s share of the total allowed cost of benefits provided under the plan;
• The number of full-time employees during each month;
• The name, address and taxpayer identification number (or Social Security number) of each full-time employee, and the months each employee was covered under the employer’s plan, and
• “Such other information as the [Health and Human Services (HHS)] Secretary may require.” This requirement will likely be further refined in later regulations.

7. Changes to employee wellness programs  

• Effective in 2010, wellness programs may not require disclosure or collection of any information relating to the presence of firearms, and may not base premiums, discounts, rebates or rewards on the basis of firearm or ammunition ownership.
• Effective in 2014, the law codifies the HIPAA nondiscrimination rules on wellness programs and increases the incentive cap of 20 percent of premium to 30 percent. The HHS Secretary has the discretion to increase the incentives cap to 50 percent.

 This document is issued for informational purposes and is not intended to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal, state or local laws that may impose additional obligations. The information is current as of the date on the first page of the document. 

Anthem Blue Cross is the trade name of Blue Cross of California. Independent licensee of the Blue Cross Association. ® ANTHEM is a registered trademark of Anthem Insurance Companies, Inc. The Blue Cross name and symbol are registered marks of the Blue Cross Association.   

The following information is from the IRS Web site, IRS.gov:

IR-2010-38, April 1, 2010

WASHINGTON ― Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees now qualify for a special tax credit, according to the Internal Revenue Service.

Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,” said IRS Commissioner Doug Shulman. “We urge small businesses and tax-exempt employers to look closely at this important tax break — which is already effective — to see if they qualify.”

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.

The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

The IRS will use postcards to reach out to millions of small businesses that may qualify for the credit. The postcards will encourage small business owners to take advantage of the credit if they qualify.

More information about the credit, including tax tips, guides and answers to frequently asked questions, is now available on the IRS Web site, IRS.gov.

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Employer Eligibility
ProtectPlus is available to accounting firms and firms offering general financial services. Solo practitioners (a CPA practicing on his/her own with no other employees) are eligible to apply.

To be eligible and retain such eligibility, more than 50% of all the Employer’s owners (i.e., principals, proprietors, partners, shareholders or other owners) must be CPAs or Associate members of CalCPA in good standing.

If you are a CPA and not a member of CalCPA, see how you can join CalCPA here.

All employers deemed to be part of an affiliated group under Internal Revenue Code Sections 414 (b), (c), or (m) are considered to be a single employer.

Employee Eligibility
Active, regular full-time solo practitioners working at least 20 hours per week are eligible for coverage.

Dependent Eligibility
Eligible dependents include a lawful spouse, domestic partner, and unmarried children, up to age 19, or through age 24 if the child is an unmarried, full-time student carrying nine or more credit hours per semester. Disabled children of eligible employees who, with appropriate medical certification, are eligible for coverage at any age. Children of domestic partners are eligible. Non-student dependent children, ages 19 through 24, are eligible but must be covered at employee rates.

Learn More

CalCPA ProtectPlus Copay Plans

CalCPA ProtectPlus HSA Plans

If you lose or have lost work during this period, you need to know about these provisions because they can save you money. Keep in mind, however, that if you voluntarily quit your job you don’t qualify. Moreover, individuals who were fired for negligence or misconduct don’t qualify either.

If you are an employer and let employees go during these 15 months, new rules under this law require action on your part. Among its many features, ARRA provides federal subsides that reduce premiums for nine months of COBRA or Cal-COBRA coverage.

During this nine-month period eligible individuals (and their qualified beneficiaries) are responsible for only 35 percent of their premiums. For COBRA recipients the remaining 65 percent must be paid by their former employer, while for Cal-COBRA recipients, the 65 percent portion must be paid by the insurer. Employer and insurer payments, however, are fully reimbursable through a tax credit.

Another provision of the new law allows COBRA recipients to switch their health coverage to a less expensive policy if that policy is available to all active employees of their former company.

Under the previous law, an eligible employee could only elect to continue coverage under the policy they had at the time they were terminated. To comply with ARRA, employers must amend their existing COBRA notice forms and distribute additional notices that include information about these benefits.

CalCPA member firms with ProtectPlus coverage should take note that Seabury & Smith has already sent letters to all those they believe are eligible under Cal-COBRA. Employers with 20 or more employees who fall under COBRA regulations are themselves responsible for notifying former employees who may be eligible.

If you have questions or concerns regarding these issues, please contact Seabury & Smith customer service at (800) 824-1154. Those with other health insurance coverage should make sure they are in compliance.

This is Part 3, of a three part article.  For Part 2, see Employers, What You Need to Know About the Federal Stimulus Package: Part 2.

This article was written by Connie Chuang and Gage C. Dungy, attorneys with the labor and employment law firm of Liebert Cassidy Whitmore.