CalCPA ProtectPlus

by Doug Hessel 

A popular feature in comprehensive benefits packages, long-term disability insurance provides replacement salaries for employees who suffer from an extended illness or injury. While many employers carry an inexpensive group LTD plan as a matter of course, only some take advantage of an IRS ruling that would allow disabled employees to receive their disability income tax free. This failure can prove costly for employees and represents a lost opportunity for savings by employers as well.

Maximizing Benefits

The IRS ruling in question (Revenue Ruling 2004-55) clarifies the distinction between before-tax and after-tax benefits as it applies to disability income, and it provides a mechanism for distinguishing between them. Simply stated, if an employer pays 100 percent of an employee’s premium, the salary replacement benefits to the employee are taxable. Conversely, if the employer increases an employee’s pay to cover the cost of LTD and then deducts the premium from the employee’s check, the benefits are tax free.

Of course, this change means that the employer and employee incur some extra expenses—an increased salary will mean increased FICA, SDI, and so forth—but these are relatively small expenses. Consider the difference in benefits. An employee who is earning $60,000 a year and is covered by an employer-paid LTD plan offering a two-thirds salary replacement, will receive $3,350 a month if disabled. Assuming he or she has a 16 percent effective tax rate, that net replacement salary is reduced to $2,814. That’s a cost of more than $500 a month as opposed to the few dollars a month that employer and employee would have paid in compensation-based taxes.

Moreover, employers who are looking for savings should note that a less expensive after-tax LTD plan—providing only 60 percent salary replacement rather than the two-thirds given in the example above—would net the employee $3,000 per month, an improvement of almost $200 a month. In other words, by offering the LTD as an after-tax benefit, employers can provide employees with larger benefits with less coverage and pay smaller premiums (as much as 20 percent with some carriers). The cliché of a win-win situation has rarely been so applicable.

Avoiding the Three-Year Look-Back Rule

If your firm is paying LTD premiums in pre-tax dollars and is ready to change, be sure to take advantage of a mechanism provided in IRS Ruling 2004-55 that allows benefits to be tax free from day one.

Ordinarily, the IRS applies a three-year look-back rule that considers benefits taxable in the proportion that they were paid for by before-tax premiums over the last three years. However, the IRS has provided a method that allows employees to qualify for tax-free benefits immediately after the change is made to paying with after-tax dollars. The workaround requires specific amendments to the plan description and a modified enrollment form that allows employees to elect for after-tax payment of the LTD insurance. (See below for information on obtaining sample forms.)

Employees can decide on an individual basis whether they want to have their LTD paid for in pre- or after-tax dollars, so firms can implement the program for employees who want to take advantage of this opportunity without forcing others to make any change in the way they have traditionally received benefits.

Doug Hessel is Program Director, CalCPA ProtectPlus Ancillary Products at Hover Insurance Services. For further information and sample forms email dhessel@hoverinsurance.com

Banyan Administrators have been providing us with beneficial information about several 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.  Over this past week, Banyan has provided answers to many questions regarding how the Health Care Reform Cadillac Tax will affect you. We are sure you will find the following information from Banyan Administrators valuable. This article is part 2 of 2. If you missed last week’s article, click here.

Health Care Reform Cadillac Tax

What You Need to Know Now About: The Cadillac Tax

Another component of the Patient Protection and Affordable Care Act (PPACA) commonly referred to as the Health Care Reform Act is a tax on benefit-rich or “gold-plated” insurance plans. This tax is often referred to as “The Cadillac Tax” and, although it is not scheduled to go into effect until 2018 and may see several revisions in design before then, some plan sponsors are beginning to develop strategies to address it.

1.  I sponsor a grandfathered health plan. Am I subject to The Cadillac Tax?

Yes. The Cadillac Tax is applicable to both grandfathered and non-grandfathered health plans. 

2.  Are there any exceptions for certain groups of employees such as collectively bargained union groups?

During initial debate about implementing The Cadillac Tax for 2013, there was debate about excluding federal employees and union groups from the provision; however that was abandoned when the implementation of the tax was delayed to 2018. At this time, union groups will also be subject to the tax in 2018.

There are some adjustments to the current 2018 Annual Value Amounts for certain groups. For example, insurance plans that have an above average population of older workers or female workers may have higher 2018 Annual Value Amounts based on a still to be determined formula. The reasoning is that the higher cost to insure these groups is due to risk factors and not to benefit-rich plan designs.

This line of reasoning is also responsible for higher 2018 Annual Value Amounts for retirees and workers in high-risk professions (firefighters, coal miners, etc.). The amounts for these professions are set at $11,850 for an individual and $30,950 for a family plan. 

3.  How many plan sponsors might be subject to The Cadillac Tax?

Initially, when the tax was scheduled to go into effect in 2013 the CBO estimated that by 2016 19% of all workers would be subject to The Cadillac Tax.

With the delayed implementation date of 2018, several studies and estimates have been performed and assuming just an average annual trend of 8%, the projection is in the range of 40%-60% of all plan sponsors will trigger The Cadillac Tax. Of course, all these projections assume the plan sponsor does not make any significant plan design changes like increased deductibles and other employee out-of-pocket costs and that the details of The Cadillac Tax as currently constituted for 2018 remain unchanged. (continue reading…)

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 couple of 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.

Health Coverage Tax Credit

Certain individuals may be eligible for a Federal income tax credit that can alleviate the financial burden of monthly COBRA premium payments. The Trade Adjustment Assistance Act of 2002 (Trade Act of 2002) created the Health Coverage Tax Credit (HCTC), an advanceable, refundable tax credit for up to 65 percent of the premiums paid for specified types of health insurance coverage (including COBRA continuation coverage). The HCTC is available to certain workers who lose their jobs due to the effects of international trade and who qualify for trade adjustment assistance (TAA), as well as to certain individuals who are receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC). Individuals who are eligible for the HCTC may choose to have the amount of the credit paid on a monthly basis to their health coverage provider as it becomes due, or may claim the tax credit on their income tax returns at the end of the year.

The Trade Adjustment Assistance Health Coverage Improvement Act of 2009, enacted as part of ARRA, made changes to the HCTC.

The HCTC now pays a greater portion of your health insurance. The tax credit has increased to 80 percent of qualified health insurance premiums. The 80 percent tax credit began in May 2009. Newly-enrolled participants can receive a credit on their HCTC accounts for qualified payments made while enrolling in the HCTC Program.

The HCTC is available to your family members for a longer period of time beginning in January 2010. Your family may continue receiving the HCTC for up to 24 months after you, the primary eligible individual, enroll in Medicare, get divorced or die.

COBRA coverage also is temporarily extended for HCTC-eligible individuals. TAA-eligible individuals can keep COBRA coverage as long as they continue to be TAA-eligible, however COBRA provisions only cover 65% of the cost.

PBGC-eligible individuals may be able to retain their COBRA coverage until death. The PBGC-eligible individual’s spouse and dependents can keep the coverage for an additional 24 months beyond that. However, note that this provision, like the rest of the Trade Adjustment Assistance Health Coverage Improvement Act, expires on December 31, 2010. At the time of this printing, these changes to the HCTC – including the new timeframes for extended benefits – are only valid through December 31, 2010.

Electing the COBRA premium reduction disqualifies you for the HCTC. If you are eligible for the HCTC, which could be more valuable than the premium reduction, you will have received a notification from the IRS.

For more information about the Health Coverage Tax Credit, call the HCTC Customer Contact Center at 1.866.628.HCTC (4282) (TDD/TTY: 1.866.626.HCTC (4282)). You may also visit the HCTC Web site.

Coordination with Other Federal Benefit Laws

The Family and Medical Leave Act (FMLA) requires an employer to maintain coverage under any “group health plan” for an employee on FMLA leave under the same conditions coverage would have been provided if the employee had continued working. Group health coverage that is provided under the FMLA during a family or medical leave is NOT COBRA continuation coverage, and taking FMLA leave is not a qualifying event under COBRA. A COBRA qualifying event may occur, however, when an employer’s obligation to maintain health benefits under FMLA ceases, such as when an employee taking FMLA leave decides not to return to work and notifies an employer of his or her intent not to return to work.

In considering whether to elect continuation coverage, you should take into account that maintaining group health coverage affects your future rights to protections provided under HIPAA. HIPAA limits the length of any preexisting condition exclusion that a group health plan may impose and generally requires any exclusion period to be reduced by an individual’s number of days of creditable coverage that occurred without a break in coverage of 63 days or more. For this purpose, most health coverage, including COBRA coverage, is creditable coverage. Electing COBRA may help you avoid a 63-day break in coverage and, therefore, help you eliminate or shorten any future preexisting condition exclusion period that may be applied by a future group health plan, health insurance company, or HMO.

HIPAA also provides special enrollment rights upon the loss of group health plan coverage and rights to buy individual coverage that does not impose a preexisting condition exclusion period as described earlier in this book (See “Alternatives to COBRA Continuation Coverage”).

To take advantage of some of HIPAA’s protections, individuals must show evidence of prior creditable coverage. The primary way individuals can evidence prior creditable coverage to reduce a preexisting condition exclusion period (or to gain other access to individual health coverage) is with a certificate of creditable coverage. HIPAA requires group health plans, health insurance companies, and HMOs to furnish a certificate of creditable coverage to an individual upon cessation of coverage. A certificate of creditable coverage must be provided automatically to individuals entitled to elect COBRA continuation coverage no later than when a notice is required to be provided for a qualifying event under COBRA, and to individuals who elected COBRA coverage, either within a reasonable time after learning that the COBRA coverage has ceased or within a reasonable time after the end of the grace period for payment of COBRA premiums. If you do not receive or you lose your certificate and cannot obtain another, you can still show prior coverage using other evidence of prior health coverage (for example, pay stubs, copies of premium payments, or other evidence of health care coverage). For more information about evidencing prior health coverage or your rights under HIPAA, contact EBSA toll free at 1-866-444-EBSA (3272).

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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 few 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.

Election Procedures

If you become entitled to elect COBRA continuation coverage, you must be given an election period of at least 60 days (starting on the later of the date you are furnished the election notice or the date you would lose coverage) to choose whether or not to elect continuation coverage.

Each of the qualified beneficiaries for a qualifying event may independently elect continuation coverage. This means that if both you and your spouse are entitled to elect continuation coverage, you each may decide separately whether to do so. The covered employee or the spouse must be allowed, however, to elect on behalf of any dependent children or on behalf of all of the qualified beneficiaries. A parent or legal guardian may elect on behalf of a minor child.

If you waive continuation coverage during the election period, you must be permitted later to revoke your waiver of coverage and to elect continuation coverage as long as you do so during the election period. Under those circumstances, the plan need only provide continuation coverage beginning on the date you revoke the waiver.

The Trade Adjustment Assistance Act of 2002 amended COBRA to provide certain workers who lose their jobs due to the effects of international trade and who qualify for trade adjustment assistance (TAA) with a second opportunity to elect COBRA continuation coverage. For more information about the operation and scope of the second COBRA election opportunity created by the Trade Act, call the HCTC Customer Contact Center at 1.866.628.HCTC (4282) (TDD/TTY: 1.866.626.HCTC (4282)). You may also visit the HCTC Web site.

Benefits under Continuation Coverage

If you elect continuation coverage, the coverage you are given must be identical to the coverage that is currently available under the plan to similarly situated active employees and their families (generally, this is the same coverage that you had immediately before the qualifying event). You will also be entitled, while receiving continuation coverage, to the same benefits, choices, and services that a similarly situated participant or beneficiary is currently receiving under the plan, such as the right during an open enrollment season to choose among available coverage options. You will also be subject to the same rules and limits that would apply to a similarly situated participant or beneficiary, such as co-payment requirements, deductibles, and coverage limits. The plan’s rules for filing benefit claims and appealing any claims denials also apply. (continue reading…)

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.

Your COBRA Rights and Responsibilities:
Notice and Election Procedures

Under COBRA, group health plans must provide covered employees and their families with certain notices explaining their COBRA rights. They must also have rules for how COBRA continuation coverage is offered, how qualified beneficiaries may elect continuation coverage, and when it can be terminated.

Notice Procedures

Summary Plan Description

The COBRA rights provided under the plan must be described in the plan’s summary plan description (SPD). The SPD is a written document that gives important information about the plan, including what benefits are available under the plan, the rights of participants and beneficiaries under the plan, and how the plan works. ERISA requires group health plans to give you an SPD within 90 days after you first become a participant in a plan (or within 120 days after the plan is first subject to the reporting and disclosure provisions of ERISA). In addition, if there are material changes to the plan, the plan must give you a summary of material modifications (SMM) not later than 210 days after the end of the plan year in which the changes become effective; if the change is a material reduction in covered services or benefits, the SMM must be furnished not later than 60 days after the reduction is adopted. A participant or beneficiary covered under the plan may request a copy of the SPD and any SMMs (as well as any other plan documents), which must be provided within 30 days of a written request.

COBRA General Notice

Group health plans must give each employee and each spouse who becomes covered under the plan a general notice describing COBRA rights. The general notice must be provided within the first 90 days of coverage. Group health plans can satisfy this requirement by giving you the plan’s SPD within this time period, as long as it contains the general notice information. The general notice should contain the information that you need to know in order to protect your COBRA rights when you first become covered under the plan, including the name of the plan and someone you can contact for more information, a general description of the continuation coverage provided under the plan, and an explanation of any notices you must give the plan to protect your COBRA rights. (continue reading…)

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.

Who Is Entitled to Continuation Coverage?

There are three basic requirements that must be met in order for you to be entitled to elect COBRA continuation coverage:

• Your group health plan must be covered by COBRA;
• A qualifying event must occur; and
• You must be a qualified beneficiary for that event.

Plan Coverage

COBRA covers group health plans sponsored by an employer (private-sector or state/local government) that employed at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. Both full- and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time. (continue reading…)

The old idiom with the words, “two is company,” was reinforced at a recent CalCPA member event. A ProtectPlus staff member was chatting with an accountant who described himself as a sole practitioner while mentioning that he had an assistant. He subscribed to ProtectPlus as a sole practitioner, he said, because the person who helped him already had medical coverage through her spouse’s employer, and she wanted to keep that coverage.

Alerted to a possible misunderstanding, the ProtectPlus representative responded by pointing out that under ProtectPlus rules even if his employee waived coverage, the accountant qualified for the lower premiums of firms with 2 to 14 employees. In addition, if the firm ever moved to another carrier, it would not be subject to underwriting to qualify for coverage. Moreover, simply having that employee on staff is enough to qualify for the lower rates as long as the employee is working a minimum of 20 or 30 hours a week. Even if the employee waives the benefit—whether because he or she has other group insurance coverage or a Kaiser plan—the CPA still qualifies for coverage at the two-member firm rate.

ProtectPlus subscribers should keep in mind that the same rules apply to a CPA sole practitioner who employs his or her spouse. As long as the spouse works at least 20 hours per week and is compensated as an employee, the CPA firm is defined as a group of two. The CPA can purchase a ProtectPlus policy at the lower rate, forego underwriting, and choose whether to include the spouse as a dependent on his or her policy, or cover the spouse as an employee under their own policy. However, in firms where the only other employee is the spouse, the Trust requires documentation (W-2, payroll records, income tax returns, etc.).

For CalCPA members—especially sole practitioners and small firms—one of the greatest benefits of the Group Insurance Plans is access to high quality medical insurance at prices that are competitive to those usually offered to large firms. While true sole practitioners are subject to underwriting, the ProtectPlus policies available to them will for the most part be miles ahead of anything they can purchase on the individual market. And even those who don’t qualify for coverage due to their medical history may qualify for a ProtectPlus HIPAA option. For more information please contact Banyan Administrators (877) 480-7923.

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.

Alternatives to COBRA Continuation Coverage

If you become entitled to elect COBRA continuation coverage when you otherwise would lose group health coverage under a group health plan, you should consider all options you may have to get other health coverage before you make your decision. One option may be “special enrollment” into other group health coverage.

Under the Health Insurance Portability and Accountability Act (HIPAA), if you or your dependents are losing eligibility for group health coverage, including eligibility for continuation coverage, you may have a right to special enroll (enroll without waiting until the next open season for enrollment) in other group health coverage. For example, an employee losing eligibility for group health coverage may be able to special enroll in a spouse’s plan. A dependent losing eligibility for group health coverage may be able to enroll in a different parent’s group health plan. To have a special enrollment opportunity, you or your dependent must have had other health coverage when you previously declined coverage in the plan in which you now want to enroll. To special enroll, you or your dependent must request special enrollment within 30 days of the loss of other coverage.

If you or your dependent chooses to elect COBRA continuation coverage instead of special enrollment, you will have another opportunity to request special enrollment once you have exhausted your continuation coverage. In order to exhaust COBRA continuation coverage, you or your dependent must receive the maximum period of continuation coverage available without early termination. You must request special enrollment within 30 days of the loss of continuation coverage.

Another option may be to buy an individual health insurance policy. HIPAA gives individuals who are losing group health coverage and who have at least 18 months of creditable coverage without a break in coverage of 63 days or more the right to buy individual health insurance coverage that does not impose a preexisting condition exclusion period. For this purpose, most health coverage, including COBRA continuation coverage, is creditable coverage. These special rights may not be available to you if you do not elect and receive continuation coverage. For more information on your right to buy individual health insurance coverage, contact your state department of insurance.

In addition, individuals in a family may be eligible for health insurance coverage through various state programs. For more information, contact your state department of insurance.

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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. (continue reading…)

The American Recovery and Reinvestment Act of 2009 (ARRA), signed into law in February, offers significant health insurance benefits to all those who are involuntarily terminated from a job between September 1, 2008 and December 31, 2009.

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. (continue reading…)

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.

In the beginning, some covered individuals may not become aware of the new federal subsidy and therefore continue to overpay their COBRA/Cal-COBRA premiums by paying the full premium amount.  In order to reimburse the covered employee in this situation, employers will have an initial choice of either providing a refund or a credit to be used against future premium  payments.  The credit option is only available if it is expected that the full credit will be used by the individual within 180 days of the date the full COBRA premium amount was paid. (continue reading…)