As the end of the year is quickly approaching, please take a moment to ensure your year-end compliance measures are in place. While this Alert does not set forth all compliance obligations, it highlights some of the new obligations set forth under the Patient Protection and Affordable Care Act (i.e. Health Care Reform).
Specifically, plans must ensure that all relevant SBCs are drafted and distributed no later than the first day of open enrollment (and at other times briefly set forth below). Employers who sponsor health flexible spending accounts must also ensure that the salary reduction amount does not exceed $2,500 for plan years beginning on or after January 1, 2013. Additionally, larger employers must be prepared to report the cost of coverage provided in 2012 on their employee’s 2012 Form W-2. Plans with plan years ending on or after October 1, 2012 must report and pay a comparative effectiveness fee ($1 for 2012 calendar year plans and increasing thereafter) for patient-centered outcomes research. Measures must also be in place with regard to the additional Medicare tax going into effect in 2013. Finally, employers and employees should be aware that the threshold for which individuals can itemize their unreimbursed medical expenses is being increased.
These issues are briefly set forth below. For more information, please see our previously issued Alerts.
Summary of Benefits and Coverage (SBC)
With varying compliance dates for disclosure, in general, the requirement went into effect September 23rd of this year. Group health plans must provide a summary of benefits and coverage that: (1) is in either color or grayscale; (2) is presented in a uniform format; (3) uses terminology understandable by the average plan enrollee; (4) does not exceed four double-sided pages in length; and (5) does not include print smaller than 12-point font. The SBC, notice of material modification, and uniform glossary requirements apply to self-funded and fully-insured group health plans, including grandfathered plans. However, an SBC need not be provided for plans, policies, or benefit packages that constitute HIPAA excepted benefits under 26 CFR 54.9831-1(c).
Group health plans and health insurance issuers must provide the SBC to participants and beneficiaries, including COBRA qualified beneficiaries no later than the first day of open enrollment occurring on or after September 23, 2012. SBCs also must be provided upon application, special enrollment, by the first day of coverage, and upon request.
If you have not done so, please contact your insurer and/or third-party administrator (TPA) to ensure they are working on the SBC.
Please keep in mind that these requirements not only apply to your medical and prescription coverage, but may also apply to other benefits, including but not limited to, dental / vision / health FSA (unless HIPAA excepted benefits), health reimbursement arrangements, wellness programs, and employee assistance programs. For more detailed information, please see our previously issued Alerts.
Health FSA Limitation to $2,500
Effective for plan years beginning after December 31, 2012 (i.e., January 1, 2013 for calendar year plans), the salary reduction amount for health flexible spending accounts (health FSAs) under a cafeteria plan cannot exceed $2,500, adjusted in future years for changes in the cost of living.
If your plan currently offers a health FSA in excess of $2,500, you must have it amended.
Form W-2 Reporting of Cost of Employer-Sponsored Health Coverage
(January 1, 2013)
Employers (who were required to file 250 or more Forms W-2 in the preceding calendar year) must report the aggregate cost of employer-sponsored coverage provided in 2012 on their employees’ Form W-2 (Code DD in Box 12) issued in January 2013. “Applicable employer-sponsored coverage” is group health plan coverage that is non-taxable to the employee (i.e., excludable from an employee’s gross income under Code section 106); however, exceptions do apply. The cost of coverage includes both the employer and employee contribution, so for an insured plan, using the insurance premium is acceptable. Transition relief exists for at least another year for small employers. For more detailed information, please see our previously issued Alerts.
Comparative Effectiveness Fee / Patient-Centered Outcomes Research Trust Fund (2012)
In April 2012, the IRS / Department of Treasury issued proposed regulations on the Comparative Effectiveness Fee. A public hearing was scheduled for August 8th so we anticipate final regulations soon.
As of now, fees on insured and self-insured plans in the amount of $1 per covered life for plan years ending on or after October 1, 2012, and ending before October 1, 2013, are required. There are a number of different ways to calculate the “covered lives” which are set forth in the regulations. The approach used by a plan, however, must be consistent. The fee will increase to $2 for the next plan year (ending on or after October 1, 2013 and ending before October 1, 2014) and will again increase and be calculated as indicated for future plan years until the fee ceases for years ending on or after October 1, 2019.
This does not apply to HIPAA excepted benefits (however, it is applicable to retiree-only plans), and some self-funded plans having the same plan year with the same plan sponsor may be considered a single plan for purposes of the fee (examples given in the regulations are medical/prescription and medical/HRA combinations). Again, a thorough review of each of your benefits is necessary.
For insured plans, the insurer is liable for the fee. For self-funded plans, the plan sponsor is liable for the fee, which must be reported on Form 720 and filed by July 31 of the calendar year immediately following the last day of the plan year. Therefore, the plan sponsor of a self-funded calendar year plan must report and pay the fee by July 31, 2013 and each year thereafter until the obligation ceases.
Additional Medicare Tax (2013)
In 2013, an additional Medicare tax of 0.9 percent goes into effect. The tax is applicable for individuals making over a certain threshold depending on filing status, namely:
Filing Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Threshold Amount
Married filing jointly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$250,000
Married filing separately. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$125,000
Single . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000
Head of household (with qualifying person) . . . . . . . . . . . . .$200,000
Qualifying widow(er) with dependent child . . . . . . . . . . . . .$200,000
The below link includes information in a question and answer format about this tax:
Increase of AGI Percentage to Deduct Unreimbursed Medical Expenses (2013)
Beginning 2013, the cost of unreimbursed medical expenses must exceed 10% of adjusted gross income (AGI) in order for individuals to itemize deductions for such expenses, versus the current 7.5% threshold.
Health care reform is an incredibly complex law. If you have any questions about the above, other aspects of health care reform, or with regard to employee benefits in general, do not hesitate to contact us.