PPACA Medicare Withholding

Our partners at UBA have helped to provide you with what employers need to know right now about Health Care Reform:


HIGHLIGHTS OF ADDITIONAL MEDICARE WITHHOLDING FOR HIGH EARNERS

• Effective Jan. 1, 2013
• Applies to all employers
• Must withhold an additional 0.9 percent of the employee's share for Medicare/HI (from 1.45 percent to 2.35 percent) once the employee's wages exceed $200,000
• Employer does not match this additional 0.9 percent
• Additional 0.9 percent is not capped
• Additional withholding only applies to wages over $200,000, beginning in the pay period the $200,000 threshold is met
• Additional amount will be reported with other Medicare withholding in Box 6 of the W-2
• Employee's tax obligation is not synchronized with the withholding requirement
• Employee owes the extra 0.9% on wages and other compensation over $200,000 if single, $250,000 if married and filing jointly, and $125,000 if married and filing single - employer simply withholds on wages in excess of $200,000 regardless of employee's situation
• No obligation to notify high earners of additional withholding
• Similar requirement applies to self-employed once their income exceeds $200,000

ACTION NEEDED:

• Verify payroll system/payroll vendor is prepared to withhold the additional tax as needed beginning January 2013
• Consider advising affected employees that:
• Additional withholding will occur
• Withholding is a rough estimate of the actual household tax obligation, and they should review their circumstances, including estimated tax payments, and plan accordingly

Click here for more information:

IRS LINK

Note: There is another new Medicare tax on high earners that imposes no obligation on employers. A 3.8 percent tax is payable on the lesser of the taxpayer's net investment income and modified adjusted gross income over the levels described above. Net investment income excludes wages, self-employment income, distributions from IRA's and qualified plans, and tax-exempt interest and dividends. It includes dividend and interest income, annuities, royalties and rents unless derived in the ordinary course of business, net gains on the disposition of property, and income from a variety of other passive activities. The capital gain from selling a principal residence is considered net income to the extent it exceeds the excludable amount ($250,000 if single or $500,000 if married and filing jointly).


*This information is general and is provided for educational purposes only. It reflects UBA's understanding of the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors. 

HHS Report on MLR Rebates

We're bringing you the latest HealthCare Reform Update thanks to our partners at UBA:

HHS Report on MLR Breakdown of Upcoming Rebates


HHS has released a report on the first round of rebates to be provided under health care reform's medical loss ratio (MLR) requirements.  The report contains calendar year 2011 data--insurers are required to pay rebates by August 1, 2012 based on their 2011 MLR.


The report provides a detailed breakdown of the rebates to be provided based on 2011 MLRs--both by market type (individual, small and large group markets) and by state.  

• HHS estimates that nearly 12.8 million individuals will receive rebates totaling more than $1.1 billion.
• The vast majority of individuals are insured by insurers that meet or exceed the MLR standard--89% in the large group market and 83% in the small group market.
• Insurers in the large and small group markets are expected to return $386 million and $321 million, respectively, in rebates for 2011. 

An insurer that issues a rebate must provide a notice explaining the rebate and how it is calculated.  For 2012 only (i.e., with respect to the 2011 MLR reporting year), the notice requirement also applies to insurers who are not required to provide rebates because their 2011 MLR meets or exceeds the standard.  For the full report, see http://www.healthcare.gov/law/resources/reports/mlr-rebates06212012a.html .


Employers and advisors must gear up for compliance to properly handle these rebates and evaluate the permitted uses.  Adding to the complexity is that separate rules apply to ERISA plans, non-federal governmental plans, and non-ERISA, non-governmental plans. (See suggestions from an attorney responding to an inquiry by UBA member Scott Howell immediately below.)


The water was muddied by DOL Technical Release 2011-4 (see http://www.dol.gov/ebsa/newsroom/tr11-04.html).  Basically, the DOL says plan fiduciaries need to go through an analysis of whether some or all of an MLR rebate constitutes plan assets, and if so, how the funds should be held and used.  Then the IRS released guidance (in the form of numerous Q&As) on whether MLR rebate payments are taxable to the employee (see http://www.irs.gov/newsroom/article/0,,id=256167,00.html).  The DOL and IRS guidance is too technical to summarize in just a few sentences; however, I think I can give you a safe strategy so your clients don't have to spend time and money trying to analyze all of this.


Strategy - Consider the MLR rebate as plan assets to the extent employees contribute to the premium.  The employer should not keep any rebate amount greater than the total amount of premiums and other plan expenses paid by and attributable to the employer.  Within 3 months of receipt of an MLR rebate, return any amount paid by and attributable to employees.  This avoids any requirement to hold the funds in trust.  To avoid most (but not all) payroll headaches and tax issues with employees, consider returning the funds to employees by providing a one-time reduction in a monthly premium (e.g. a premium holiday). 


The guidance allows a fiduciary to weigh the costs to the plan as well as the ultimate plan benefit when deciding on an allocation method.  If the cost of calculating and distributing a proportional amount of a rebate to former employees approximates or exceeds the amount of the proceeds, a fiduciary is permitted to limit the allocation to current plan participants.  In addition, if it is not cost-effective to distribute cash payments to employees (because the amounts are de minimis, or they would produce negative tax consequences for the employees), a fiduciary may use the rebate for other permissible plan purposes (e.g. credit against future employee premium payments, or benefit enhancements).


Note that if an employee paid premiums on a pre-tax basis (i.e., through a cafeteria plan), the return of those premiums (whether received in cash or as a credit against future premiums) will be subject to both income and employment taxes.

Supreme Court Largely Upholds PPACA

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The Supreme Court Largely Upholds PPACA

Yesterday, the U.S. Supreme Court upheld the individual mandate and most of the Patient Protection and Affordable Care Act (PPACA).  As expected, it was a close decision -- 5-4 -- with Chief Justice Roberts and Justices Breyer, Ginsburg, Kagan and Sotomayor agreeing that the individual mandate is a permissible tax. Because the individual mandate was found to be acceptable, most of the rest of the law (including the exchanges and the requirement that larger employers provide minimum coverage or pay penalties of their own) automatically stands.  For additional information on the decision, CLICK HERE.

Because PPACA has been upheld, employers need to move forward with implementing the changes required by the law.  The most immediate requirements are:

• All group health plans, regardless of size, must provide "summaries of benefits coverage" (SBC) with the first open enrollment beginning on or after Sept. 23, 2012.  The content and format of these SBCs must meet strict guidelines, and the penalties for not providing them are high (up to $1,000 per failure).  Insurers will be expected to provide the SBCs for fully insured plans, while self-funded plans will be responsible for preparing their own.
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• Employers that issued 250 or more W-2s in 2011 must report the total value of each employee's medical coverage on their 2012 W-2 (which is to be issued in January 2013).
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• High income taxpayers (those with more than $250,000 in wages if married and filing jointly, or more than $200,00 if single) must pay additional Medicare tax, and employers will be responsible for deducting a part of the tax (an additional 0.9 percent on the employee's wages in excess of $200,000) from the employee's pay beginning in 2013.
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• The maximum employee contribution to a health flexible spending account (FSA) will be $2,500 beginning with the 2013 plan year.
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• The Patient Centered Outcomes fee (also called the comparative effectiveness fee) is due July 31, 2013.  The fee is $1 per covered life for the 2012 year.  Insurers will remit the fee on behalf of the plans they cover, while self-funded plans will pay the fee directly.

Politically, while House Republicans have pledged to repeal PPACA, it is unlikely a repeal bill would pass the Senate, and it would be vetoed in any event by President Barack Obama.  The fall elections, of course, could result in a change in control of Congress and/or the White House, and Republican victories would likely re-energize efforts to repeal PPACA or to discontinue funding needed to implement various parts of the law.

The opinion is long (193 pages) and complex, and we will provide additional details -- through both written alerts and a webinar -- once there has been more time to study the opinion.   

This information is general and is provided for educational purposes only, and does not contain legal advice.  You should not act on this information without consulting legal counsel or other knowledgeable advisors. 

Thanks to our partnership with our friends at UBA, we are able to provide you with the latest Health Care Reform Update:

PREPARING FOR THE SUPREME COURT DECISION

ON HEALTH CARE REFORM

The U.S. Supreme Court is expected to publish its decision on the legality of the Patient Protection and Affordable Care Act, or PPACA (also called health care reform, HCR and ACA), by the end of June.  What they will decide is anyone's guess.  Here are the possibilities (in no particular order), and a brief overview of what the decision would mean to employers that sponsor group health plans.  For additional information on the issues the Court is considering,
CLICK HERE.


Entire Law is Constitutional
If the Court decides that all parts of the law are constitutional, employers will need to move forward with implementing the changes that the law requires.  For 2012 and 2013, these include:

• Providing summaries of benefits coverage with the first open enrollment on or after Sept. 23, 2012
• Reporting the value of medical coverage on the 2012 W-2
• Reducing the maximum health flexible spending account (FSA) contribution to $2,500 (beginning with the 2013 plan year)
• Paying the Patient Centered Outcomes fee (due July 31, 2013)

Note: Details on these requirements are included in recent Employer Compliance Alerts.


Part of the Law is Constitutional and Part is Not
The Court could decide that the requirement that individuals obtain health coverage or pay a penalty (the "individual mandate") exceeds Congress' authority but that other parts of the law are permissible.  They could then either specify which parts should stay and which should go, or they could send the case back to a lower court to determine the details.  Either way, employer obligations to comply with the law would continue, and the actions needed for 2012 and 2013 would continue to apply.


Entire Law is Unconstitutional
The Court could decide that the entire law is flawed, in which case employers will not need to implement the changes that were to take effect for 2012 and later.  There would be some uncertainty (and choices) with respect to the parts of the law that have already been implemented.  Keep in mind that if the plan or policy has been amended or written to include the 2010 and 2011 changes, the plan document or policy will need to be revised to remove the changes -- the mere fact that the law is unconstitutional will not void the changes in the plan or policy.
Several carriers -- Aetna, Humana and UnitedHealthcare -- have stated that they will continue to administer their policies to include many of the changes that have already been implemented, even if that is not legally required.  Employers that have self-funded plans will need to decide -- and those who have fully insured plans may need to decide -- if they want to roll back changes such as:

• Covering dependent children to age 26 (there will be tax issues with this unless the IRS provides a waiver)
• Elimination of lifetime and annual maximums for most benefits
• Elimination of pre-existing condition limitations for dependents under age 19
• First-dollar coverage for preventive care
• Excluding over-the-counter prescription drugs for health FSA and health savings account (HSA) coverage

The Supreme Court decision is unlikely to end the debate over PPACA, particularly with the fall congressional and presidential elections looming.  If the Supreme Court upholds the law, House Republicans have pledged to introduce legislation to repeal it, but they likely do not have the votes in the current Congress to prevail.


This information is general and is provided for educational purposes only, and does not contain legal advice.  You should not act on this information without consulting legal counsel or other knowledgeable advisors.

FSA Limits & Tax Credits

Are you concerned how the  laws surrounding Flexible Spending Accounts will affect you in the years to come? Don't worry... we've got the answers for you! We've worked with our partners at UBA to bring you latest updates in Health Care Reform:


The IRS on Wednesday provided regulatory relief for health care flexible spending account (FSA) participants and also said it is reconsidering its longtime use-it-or-lose-it rule for FSAs! 


Employer benefits lobbying groups, including the American Benefits Council (ABC) had complained that the new $2,500 annual limit set to go into effect on January 1, 2013 would effectively force noncalendar-year plans to comply with the rule before the statutory effective date. 


Let's break it down: If an employee has an FSA with a fiscal year that begins on July 1, 2012, elects to contribute $3,600 during that plan year, making contributions of $300 a month from July 1, 2012 through June 30, 2013, the employee would violate the $2,500 annual limitation for 2013, the ABC noted, because the employee would have contributed $300 a month for the first six months of 2013 and $208.33 for the last six months of 2013 (a total of $3,050 during 2013).



In Notice 2012-40, the IRS said participants in noncalendar-year plans can still make the maximum contributions to their FSAs during the first year that a mandated FSA contribution cutback goes into effect under the health care reform law.


In addition, the IRS made clear that amounts that remain in so-called grace period FSAs can be rolled over to the next year without those funds counting against the $2,500 limit.  Grace period FSAs -- allowed by the IRS under a 2005 rule -- are those in which unused balances from the prior plan year can be used to pay expenses that are incurred during the first 2.5 months of the next plan year.


The guidance also addresses plan grace periods and provides relief for "certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer."  Further, the notice clearly establishes that the limit in PPACA does not does not apply to certain employer nonelective contributions (sometimes called flex credits), nor does it apply to non-healthcare FSA contributions, HSAs, HRAs or health plan premium payments made under a Section 125 plan.


Finally, in a development that stunned benefit experts, the IRS also disclosed that it considering "modifying" its 28-year-old use-it-or-lose-it rule.  If use it or lose it were eliminated, FSAs would become even more popular.  The fear of losing unused contributions is a disincentive for some employees to participate, and others contribute less than they would in the absence of the requirement, experts said.


Few small employers claim small employer tax credit 


Few of the estimated 1.4 million to 4 million eligible small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010, according to a recent report from the Government Accountability Office (GAO).  The GAO noted that only 170,300 small employers claimed the tax credit, which represents only 7 percent (plus or minus 3 percent) of the estimated eligible small employers. 


The cost of credits claimed was $468 million, and most claims were limited to partial rather than full percentage credits because of the average wage or full-time equivalent (FTE) requirements.  The report noted that only 28,100 employers claimed the full credit percentage in 2010.   In addition, 30 percent of claims had the base premium limited by the state premium average


The report, "Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity," noted that employer representatives, tax preparers and insurance brokers that GAO interviewed identified a number of factors limiting the credit's use:

• Approximately 83 percent of small employers do not offer health insurance, and the tax credit was not large enough to incentivize these employers to begin offering insurance

• Rules on FTEs and average wages are too complex

• Calculating and filing a claim for the credit is too complex

The GAO noted that options to address these factors (such as expanded eligibility requirements) have trade-offs, including less precise targeting of employers and higher costs to the federal government.

NAHU Hosts Webinar on Exchanges

NAHU Hosts Webinar on Exchanges
On May 10, NAHU conducted a one-hour webinar on health insurance exchanges.  It was an exceptionally thorough overview of the topic, and I would encourage folks to listen/view it.  The link to the Professional Development page of NAHU's site (the webinar is the first item under the NAHU Webcasts heading):
http://www.nahu.org/education/programs/webcasts.cfm?ibcToken=a0a490fb-9052-4c36-bd08-d7da54f8f2ef.
Just a couple of highlights (there were many):

• Premium subsidies and cost-sharing reduction subsidies will only be available via the Individual coverage exchanges (low-income people who buy coverage via a SHOP exchange are not eligible for subsidies)
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• Low-income people who have access to "adequate" and "affordable" group coverage cannot leave the group plan and buy coverage via an exchange
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• Employers will be required to help verify coverage in virtually any situation:
• Whether or not any employee purchases coverage through an exchange 
• If an employer doesn't offer coverage at all
• After an employee enrolls in an exchange (and likely every year thereafter)
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• The small-business tax credits currently available to any qualifying small employers will only be available after Jan. 1, 2014, to employers purchasing coverage through a SHOP exchange
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• If an individual state elects to allow "large" groups to access an exchange on Jan. 1, 2017, or thereafter, and even one large employer elects to participate, all of the SHOP exchange requirements will apply to every insured large group in that state.  Examples: modified community rating rules (no more experience rating for an employer's large group plan), minimum benefit requirements, guarantee issue, etc.
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• Private exchanges are not subject to SHOP exchange rules
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Many items that require further regulatory guidance are noted

We have partnered with our colleagues from UBA, and we are happy to able to provide you with the latest Employer Compliance Alert:

IRS ANNOUNCES 2013 AMOUNTS for HSAs and HDHPs On April 27, the IRS issued Revenue Procedure 2012-26, announcing the 2013 inflation-adjusted dollar limitations applicable to health savings accounts (HSAs) and qualifying high-deductible health plans (HDHPs). The maximum HSA contribution for an individual with self-only coverage under an HDHP will increase to $3,250 - up from $3,100 in 2012.  The maximum HSA contribution for an individual with family HDHP coverage will be $6,450 - up from $6,250 in 2012.  The "catch-up contribution" limit, for individuals who will attain age 55 by the end of the year, will remain at $1,000. To qualify as an HDHP, a plan must specify a minimum annual deductible amount, with that amount based on whether the coverage is self-only or family.  Those deductibles have also been adjusted for inflation.  For self-only coverage, the annual deductible must be no less than $1,250 - up from $1,200 in 2012.  For family coverage, the annual deductible must be no less than $2,500 - up from $2,400 in 2012. Finally, to qualify as an HDHP in 2013, the total annual out-of-pocket expenses (deductibles, copayments, and other amounts - but not premiums) may not exceed $6,250 for self-only coverage or $12,500 for family coverage. Sponsors of HSA arrangements and/or HDHPs will want to incorporate these new dollar amounts into their 2013 open enrollment materials. Chadron J. Patton, Associate Spencer Fane Britt & Browne LLP