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Affordability Calculation Undermines Wellness Programs Beginning in 2015

The Affordable Care Act requires that employers offer affordable health care coverage to full-time employee beginning January 1, 2014 (or pay a penalty).  Coverage is affordable if the employee’s contribution toward self-only coverage does not exceed 9.5% of his or her household income.  Until now, it was not clear how wellness plan surcharges would impact the affordability calculations.

Based on the pre-release of guidance that is expected to be published today (May 3), wellness plan surcharges must be included in the premium for purposes of the affordability calculation.  Two exceptions are provided for arrangements that satisfy the wellness plan rules:  (1) surcharges based on tobacco use; and (2) for any plan year beginning prior to January 1, 2015, surcharges for any wellness arrangement, but only to the extent the terms of the wellness arrangement were in effect on May 3, 2013.  Under this guidance, the premium that applies to non-tobacco users is used to test affordability for all employees regardless of tobacco use; however, any other wellness surcharge (except those described above in the transitional relief provision) must be included in the employee’s share of the premium when calculating affordability.

SBCs: Few Changes and (Mostly) Extended Relief

On Tuesday, the PPACA triumvirate of DOL, Treasury/IRS and HHS issued a new set of FAQs (number 14, for those still counting) covering changes to the Summary of Benefits and Coverage.  The only changes (as emphasized in multiple places in the FAQs) are to add two disclosures:

– Whether the plan provides “minimum essential coverage” (or MEC)

– Whether the plan meets, or does not meet, the “minimum value” requirements.

MEC, simply put, is an employer-sponsored plan that complies with health care reform (whether or not its grandfathered).  Minimum value (which is also relevant for play or pay purposes) generally means that the plan’s share of the total allowed costs of benefits provided under the plan or coverage is not less than 60 percent of such costs.

The agencies released templates in both Word and PDF showing how this is done (as well as blank revised SBCs in Word and PDF).

The good news is that the agencies did not add additional coverage examples or otherwise modify the SBC format, even though they had previously said that they would.

The agencies also extended much of the transition relief provided in prior guidance (see Q5).  However, there is some question as to whether the transition relief afforded under Q10 of Number IX Set of FAQs, was extended.  That FAQ provides, in relevant part, that for the first year only, a group health plan utilizing two or more insured products under a single health

Health Care Exchanges: Where Does Your State Stand?

April 15, 2013


Health insurance exchanges will offer government-regulated and standardized healthcare plans from which individuals may purchase health insurance eligible for federal subsidies.  These exchanges must be ready to begin enrollment by October 1, 2013.

Every state, plus the District of Columbia, must have an exchange.  States may choose to operate the exchange itself, operate it in partnership with the federal government or allow the federal Department of Health and Human Services (HHS) to operate the exchange.

Currently, it appears that 25 will have federal-run exchanges, 18 will have state-run exchanges, and 8 will have jointly-run (state/HHS) exchanges.  The following identifies the respective state choices.


State-run exchange Calif. Hawaii Md. N.M. Texas Colo. Idaho Mass. N.Y. Vt. Conn. Ky. Minn. Ore. Wash. D.C. Nev. R.I.


Federal exchange Ala. Ind. Mo. N.D. S.D. Alaska Kan. Mont. Okla. Tenn. Ariz. La. Neb. Ohio Va. Fla. Maine N.J. Pa. Wis. Ga. Miss. N.C. S.C. Wyo.


Planned partnership exchange Ark. Ill. Mich. Utah Del. Iowa N.H. W.Va.


Same-Sex Marriage: New Developments & Impact on Employee Benefits

With over 1,100 federal statutory provisions in which marital status is a factor in determining access to statutory benefits, rights, or privileges, the outcome of the challenge to the constitutionality of laws adversely impacting same-sex marriages could have a significant effect on employee benefits.

Under the federal Defense of Marriage Act (DOMA), for purposes of federal law, the word “marriage” means only a legal union between a man and a woman, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife.  This means that under current law, Federal benefits available to opposite-sex spouses are not available to same-sex spouses even when they are legally married under state law.

Later this month, the Supreme Court will hear oral arguments on two cases that could change this result.  Windsor v. United States is a constitutional challenge to Section 3 of DOMA, which defines marriage to exclude same-sex marriages.  Hollingsworth v. Perry is a constitutional challenge to Proposition 8, a California ballot initiative that amended the state constitution to ban same-sex marriage.

So far, over 300 employers including many of America’s top companies, e.g.,, Apple, Citigroup, Ernst & Young, Google, Intel, Microsoft, Starbucks, Walt Disney, have signed a petition in a brief submitted to the Supreme Court urging that the Court declare Section 3 of DOMA unconstitutional.  Similar briefs have been filed to declare Proposition 8 unconstitutional.  Final decisions on the cases are expected this summer.

If the

IRS Audit Trends & Issues

IRS Audit Trends & Issues

February 25, 2013

Authored by: Chris Rylands and Lisa Van Fleet

Continuing our series of posts reporting on the recent TE/GE meetings, today we focus on the audit trends and issues that the IRS officials in attendance identified.  In addition to providing insight on the IRS’s focus, the list serves as a good compliance checklist for plan sponsors.  Are you making these errors?  If so, you can (and should) fix them now before the IRS comes knocking.

Areas of Focus. At the outset, it’s helpful to know where the IRS is looking for trouble, so you can have some idea where agents are coming from when you get the dreaded audit letter.  The officials at TE/GE gave these insights:

  • Most audits are focused on 3 or 4 particular issues depending on the market segment (i.e., the business of the employer) and the size of the plan (generally less than 100 participants is a small plan while other plans are considered large).  The IRS did not give examples of the issues on which they are focusing, but to the extent you or your advisors are aware of other IRS audits in your market segment and for plans of your size, you may be able to identify them.
  • There is no current targeted audit project for governmental plans.
  • 403(b) plans will be an area of focus going forward.
  • With regard to 401(k) audits, there will be a heavy emphasis on internal controls.  They mentioned this multiple times, so it’s a good idea to review and document your

IRS Talks About Play or Pay (and a Mini-Med Issue to Boot)

In one brief session at the recent TE/GE meetings, we heard from some of the IRS drafters of the PPACA shared responsibility/play or pay regulations under 4980H of the Internal Revenue Code.  They provided a few insights on upcoming guidance and raised one issue with which we disagree.

Employer Reporting. First, they said they are working on guidance on the employer reporting of health coverage to the IRS on Form 6056.  This is relevant to play or pay because they advised that the IRS intends to collect that information and compare it with who received premium tax credits and cost sharing reductions after the fact. (See our earlier discussion of the play or pay regulations to understand the interaction.)  Once they make that comparison, they will then pursue penalties.   This means that any play or pay penalties will not be assessed until 2015, at the earliest.

Special Employment Situations. Additionally, they advised that future guidance will address special employment situations.  In particular, they said to “stay tuned” for rules on adjunct professors, which will likely be out soon.

Mini-Med Plans and Transition Relief.  Finally, they noted that mini-med plans that have received a waiver from HHS/CCIIO generally should be eligible for the special transition relief for fiscal year plans, if they can survive into 2014 (more on that below).  For those unfamiliar, the regulations provided a special transition rule for plans that had a non-calendar plan year as of December 27,

When the Government Speaks: DoL Enforcement Priorities

In this second post in our series of reflections from the recent Tax Exempt/Government Entities meeting with IRS and DoL officials, we’ll focus on the areas the DoL officials identified as enforcement priorities and some of the specific items they highlighted.

Health Plans.  As we previously posted, the DoL is starting to look at health plans and compliance with health care reform specifically.  They have also discovered that many plans lack what they consider to be a formal plan document.  They are starting to ask not just for proof of the plan document’s existence, but also proof of when it was adopted, going back to January 1, 2010.  Plan sponsors who have not adopted wrap plan documents for their health plans may want to consider implementing those soon.

ESOPs. ESOP enforcement continues to be a priority.  The officials stated that they believe appraisers are arguably already fiduciaries on the theory that they are providing investment advice (although, in our view, that position is not without its flaws).  They noted that trustees still have a duty to prudently select the appraisers and that, even if the appraiser is prudently selected, the trustee still has an obligation to make sure the assumptions on which the valuation is based are reasonable under the circumstances.   They also said that trustees should be wary of a seller’s role in selecting the appraiser.  Oh, and trustees should also read the appraisal.

Officials identified the following more egregious practices that they

When the Government Speaks: DoL Regulatory Initiatives

Last week I (Chris) had the good fortune to travel on Lisa’s behalf to Baltimore to attend an annual meeting of benefits practitioners with government representatives from the DoL and IRS national offices.  It served as a great opportunity to hear what guidance may be in the pipeline and what enforcement issues are catching the government’s attention.  Plan sponsors should take heed because those items getting the government’s regulatory or enforcement attention tend to (1) be very common and (2) serve as a good compliance check.  Over the next week or so, we’ll cover what they said and what you should be looking for coming down the pike.  First up: the Department of Labor’s regulatory agenda.  Based on statements from DoL officials:

  • No additional guidance is planned on the ERISA 408(b)(2) service provider fee disclosures at this time.  They talked with many service providers and felt that, in general, where there was ambiguity, the providers made reasonable interpretations.
  • Regarding the reproposal of the definition of “fiduciary,” they are looking to draw a bright-line distinction between investment education (non-fiduciary) and investment advice (fiduciary).  They may also include a prohibited transaction exemption for individuals who accidentally cross the line.
  • On lifetime income options in DC plans, there are three areas of focus:
    • Showing the income stream the participant’s account balance could generate (this will likely be the first area on which guidance will be issued).
    • Including education about retirement planning (e.g., whether

Other Benefits Components of the, Ahem, “Relief” Act

So we know you’re probably tired of hearing about the fiscal cliff.  We know this because we are sure many of you nominated “fiscal cliff” as one of the “words” that should be banished from the English language in 2013.  However, there are some benefits provisions in the generally Orwellian-named American Taxpayer Relief Act.  Fortunately, they were not the ones we were worried might be included, and in fact, some of them actually provide some tax relief.

  • Educational assistance tax benefits, which previously had to be extended each year, are now “permanent” (as that term is generally used in tax law).
  • The same is true for adoption assistance.
  • The tax exclusion for transit benefits is now permanently on par with commuter parking (previously, the tax exclusion for transit benefits was lower than for commuter parking).
  • The CLASS Act (the voluntary long-term care program that was part of health reform) was finally repealed.  Those who follow benefits news may recall that HHS declined to implement it once the program was determined to be financially unsustainable.
  • Any remaining funding for CO-OPs (which are essentially non-profit insurers that were supposed to compete with for-profit insurers under health reform) has been eliminated.  Only about half of the funding for CO-OPs had been used, and that will remain outstanding, but the rest has been clawed

Health Care Reform: What Are You Worried About? Tell Us!

We’re working on putting together a series of roundtables to help our clients and friends discuss their worries and strategies to deal with health reform/PPACA now that the Supreme Court has weighed in.  We want to make sure the program is helpful and impactful so we want to hear from YOU.  What are your biggest compliance concerns?  What do you want to hear more about?

  • Summaries of benefits and coverage,
  • Form W-2 reporting of the cost of health coverage,
  • $2,500 limit for health FSAs,
  • How to handle medical loss ratio rebates,
  • Preparing for the 2013 increase in Medicare tax,
  • 90-day limitations on waiting periods,
  • The “shared responsibility” (aka “play or pay”) penalties for employers,
  • Increased incentives for wellness programs,
  • Non-discrimination rules for insured health plans,
  • Automatic enrollment in health plans for employers with at least 200 employees,
  • Why employers need to consider the impact of the Supreme Court ruling on Medicaid expansion, or
  • Anything else?

What strategies have you heard about that you would like to discuss more?  Please leave us a comment below or drop a line to your Bryan Cave benefits contact and let us know your thoughts!

Other Health Care Reform Posts

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