Tag: Employers

For Producer Partners & Employers: COBRA – Am I Doing it Wrong?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers of 20 or more full time equivalent employees to offer their employees the opportunity to continue their group healthcare coverage under the employer’s plan, if the coverage would end due to employee termination, layoff, or certain other employment status changes (referred to as “qualifying events”). This includes any event that changes the employee’s eligibility for benefits except gross negligence. The continuation of coverage applies to surviving spouses, ex-spouses, and dependents of employees as well.

Even though the law impacts healthcare insurance, COBRA is an “employer law.” This means that the employer has certain responsibilities under COBRA and is liable for COBRA failures. Non-compliance can result in financial penalties to the employer. Below is a 10-question quiz to test your knowledge.

  1. COBRA is a ___________ law.
  2. There are as many as ______ types of notices a qualified beneficiary could receive.
  3. _________ can pay anyone’s COBRA premium.
  4. Define the 10 potentially qualified beneficiaries: ____, ____, ____, ____, _____, ____, ____, ____, ____, _____.
  5. _____________ is required at the tail end of COBRA.
  6. ____ states have state continuation requirements.
  7. Employers are subject to COBRA if they have ____ employees on ______________ days of the preceding calendar ____. Both full and part time (counted as a fraction of an employee, with the fraction equal to the number if hours that the part-time employee worked divided by the hours an employee must work to be considered full-time) employees are counted to determine whether a plan is subject to COBRA.
  8. _________ are required to maintain written processed and procedures related to how and when they notify participants of their initial COBRA rights, how and when qualified beneficiaries are informed of their rights and responsibilities and timelines.
  9. Employers have up to ______ days to notify their COBRA administrator (if they have one) of qualified events, the administrator has an additional ____ days to notify the qualified beneficiaries, another ____ days to elect COBRA, and another _____ to send in all retroactive payments.
  10. If a qualified beneficiary is choosing between COBRA and the marketplace, they need to consider that COBRA is _________ while the marketplace is _________.

COBRA Quiz Answers

  1. Federal employer
  2. 15 (Only four are required of which three are provided by the TPA. The QBs could receive more than that including coupons, subsidy notices, plan change notices, etc.) 1) General Notice/Initial Rights Notice 2) Election Notice 3) Notice of Unavailability 4) Notice of Termination of Coverage
  3. Anyone
  4. Active employee, termed employee, retired employee, dependents, officers, directors, self-employed individuals, partners in a partnership, agents, independent contractors
  5. State continuation
  6. Forty
  7. Twenty or more; most regular business; year
  8. Employers
  9. 30; 14; 60; 45
  10. Retroactive; prospective

The proper notices and tedious recordkeeping involved with COBRA make it a perfect opportunity for outsourcing to Sterling to provide COBRA administration.

Sterling Administration can establish and maintain an integrated COBRA and HIPAA system for employers. We can manage and control plan administration, required documentation, and adherence to the law’s eligibility requirements, working with the employer.

Learn more about our standard and optional COBRA services.

Dependents Up to Age 26–State Tax Issues and Actions

Elizabeth Ysla Leight, SPBA Director of Government Relations and Legal Affairs, released this article on March 14, 2011.

Please note that links, bolding and italics have been added by Sterling Health Services Administration.

Under health care reform, changes enacted in 2010 allowed parents to obtain coverage for adult children up to age 26. However, many states have yet to conform their state tax provisions to this change in the health care law. Because of this lack of conformity, employers and taxpayers are confused and face uncertainty about their 2010 taxes and States are scrambling to enact changes.

IRS guidance issued after approval of health reform made clear that employers could provide the coverage tax-free to the employee through the end of the calendar year in which the adult child turns 26. Previously, the Tax Code allowed tax relief only if the dependent was age 19 to 24 and a full-time student, or met the requirements of a “qualifying relative”.

What are the States doing?

Generally, States automatically conform their laws to Federal tax law, and some States have said they will amend their laws retroactively to eliminate the tax issue, but it is still a problem for those States that have not done anything. There are approximately 20 States that are not sure they want to go there. This means that employers will face the possibility that their employees who have added adult children to their coverage will face additional State taxes.

California–Laws set up a five-part test which must be satisfied before coverage can be excluded from taxable income including a “support” requirement. So, if an employee added an adult child and did not meet the “support” test, a portion of the premium will be attributable to the child as “taxable wages”.

Another issue: The value of the coverage and how much income would be added to an employees’ W-2 is not clear and varies from state to state.

In Wisconsin, the Department of Revenue says that the if adult child is not a “dependent” then the “fair market value” would be considered income. To date, the regulators in Wisconsin have not provided guidance on how to calculate “fair market value”.

California recently enacted legislation to conform state income tax law to the federal health care law. A.B. 36 would apply to employer provided health coverage, reimbursements from health care flexible spending accounts, costs of health insurance purchased by self-employed parents for their children and VEBAs that provide health care benefits to adult children. It would apply to expenses incurred and benefits provided on or after March 30, 2010 when the federal law went into effect.

What about sharing the tax hit between the adult child and the employee?

Some states are considering attribution to the employee for coverage of the non-dependent adult child. But agree that it would be a big difference between the premium paid to include the child and the premium paid without the child.

Imagine how the calculation would be made if the plan were a self-funded plan or if it was employer paid coverage?

Final thought, it is a big reporting issue and one that you should talk to your elected official about when you go to visit them on Capital Hill and in the State House.

States need to conform their laws with Federal law concerning the tax treatment of employees’ non-dependent adult children.

In the meantime it would take a while. Let’s remember that it took Wisconsin 7 years to amend its tax law to conform to the 2003 Federal law that excludes health saving account contributions from employee taxable income!

Employers with employees in different states–like MD, DC and VA will need to stay on top of these issues.

Announcing Flexible Benefits Plans: Part Three

This post is Part Three of a three-part series on the topic of Sterling Health Services Administration‘s new Flexible Benefit Plans. Part Three addresses frequently asked questions regarding Flexible Benefit Plans. Part One, published August 9, 2010, introduces Flexible Benefit Plans. Part Two, published August 11, 2010, focuses on advantages of Flexible Benefit Plans to employees and employers as well as why Sterling is a provider of choice.

Flexible Benefit Plans FAQs

What are Flexible Benefit Plans?

Flexible Benefit Plans, including Healthcare FSAs, Dependent Care FSAs, and Transit/Parking benefits, allow employees to pay for eligible healthcare, daycare, elder care and transportation expenses through payroll redirection.

What is the difference between a Healthcare FSA and a Dependent Care FSA?

The Healthcare FSA allows employees to be reimbursed for medical expenses not covered or reimbursed by other insurance and consumer directed plans like HSAs and HRAs. In order for expenses to qualify for reimbursement, they must be for medical care. All expenses must be qualified medical, vision, pharmacy or dental benefit expenses as defined in Section 213(d) of the Internal Revenue Code.

The Dependent Care FSA is a vehicle through which employees can accumulate pre-tax funds to reimburse for childcare expenses or day care expenses for a disabled or elderly/disabled dependent while they are employed. If married, the employee generally will not be able to receive benefits unless their spouse is also employed, a full-time student, or disabled.

Can I participate in both the Healthcare FSA and the Dependent Care FSA?

Yes. Participation in one type of FSA (Healthcare) does not affect participation in another type of FSA (Dependent Care), but funds cannot be transferred from one FSA to another.

How do employees benefit from participating in an FSA?

FSAs benefit employees by allowing them to pay for certain healthcare and dependent care expenses with pre-tax dollars. Each dollar that goes into the plan is free from federal, state (most) and FICA taxation.

Why do employers choose an FSA?

Employers choose FSAs for the tax savings benefits enjoyed by the company and the employees. FSAs help employers contain benefit costs, meet diverse employee needs, and increase employee satisfaction.

Who is eligible to participate in an FSA?

An employing organization sets the eligibility requirements for employees who can participate in the Healthcare FSA. Only employees may participate in a Healthcare FSA. A self-employed individual is not considered an employee for Healthcare FSA purposes.

  • Domestic Partners: Domestic partners are eligible to use an employee’s FSA only if the domestic partner is also a dependent under IRS Code § 152. Domestic partners that do not qualify as dependents are not eligible for an employee’s FSA reimbursements.
  • Subchapter S Corporation Shareholders: Above the 2% level may not participate in cafeteria plans, but they may sponsor a plan for the employees. In addition, their family members may not participate.
  • LLC, LLP and Sole Proprietors: May not participate in a cafeteria plan, but may sponsor one for their employees. However, if the spouse is a bona fide employee of the firm, he or she may participate and use the benefit for the entire family.
  • C-Corporation Owners: Can participate and sponsor a plan.

Flexible Benefit Plans FAQs

Is a health insurance plan required to set-up an FSA?

No. Employers can offer FSAs without also offering health insurance plans.

Can employers contribute to an FSA?

Yes. Employers are allowed to contribute to Healthcare FSAs and Transit/Parking benefits. Employers cannot contribute to Dependent Care FSAs.

How much can employees contribute to an FSA?

Currently employers set the contribution amounts and there is no federally imposed limit. The rules are changing under healthcare reform. Effective 2013, the legislation limits contributions to no more than $2,500 annually for Healthcare FSAs. The limit is indexed to inflation for future years.

Healthcare reform legislation did not specifically address changes to Dependent Care FSAs. Under current regulations, the IRS limits the maximum annual amount you can deposit in your Dependent Care account to $5,000, or $2,500 if you are married and filing separately. The IRS imposes additional restrictions based on marital status, tax-filing status, and spousal income and work status. See your tax advisor for details.

What happens if I don’t use all the funds before the end of the year?

Unlike HSAs, FSAs are subject to a “use-it-or-lose-it” rule requiring forfeiture of unused amounts at the end of the year. And funds are not portable if the employee leaves the employer sponsoring the plan.

What types of healthcare expenses can be covered with an FSA?

The Healthcare FSA allows employees to be reimbursed for medical expenses not covered or reimbursed by other insurance and consumer directed plans like HSAs and HRAs. All expenses must be qualified medical, vision, pharmacy or dental benefit expenses as defined in Section 213(d) of the Internal Revenue Code.

The new healthcare reform law includes a change in the definition of a “qualified medical expense” and therefore a change in how funds in an FSA can be used. This change is also true for HSAs and HRAs. Beginning in January 2011, expenses incurred for over-the-counter medications will no longer be eligible for payment or reimbursement from any of these healthcare accounts. However, the law still allows over-the-counter medicines for which the patient has a doctor’s prescription, as well as insulin, to be reimbursed from these accounts.

However, “medically necessary” expenses can be run through the FSA. Generally if the participant’s doctor or healthcare provider writes a letter of medical necessity that specifies the expense is needed to treat a condition, the expense can be run through the plan as long as all other criteria are met.

Employers cannot impose limits on how FSA funds can be used.

How are claims processed and paid?

If selected, debit cards will be issued to employees and their dependents authorized to use the FSA funds for eligible expenses. In this case, expenses are reimbursed through ACH (debit card). Sterling also provides FSA Disbursement forms. These must be completed and sent with an EOB or receipt under both the Healthcare FSA and the Dependent Care FSA. Sterling will pay the employee or the provider directly based on participant preference.

Can I change my election or stop contributing money to my FSA at any time throughout the year?

No. Federal regulations state that once you have enrolled and selected the contribution amount, you cannot change your decision until your next open enrollment unless you have a family status change including:

  • Employee marriage or divorce
  • Birth or adoption of a child
  • Change in work schedule (e.g., part-time to full-time status or full-time to part-time status) of employee, spouse or dependent
  • Death of a spouse or covered dependent
  • Employer or their spouse taking an unpaid leave of absence

What if I use up all the money in my account before the end of the year? Can I contribute more?

No. You can only change the amount you are contributing if you have a qualifying event in your family situation (see related question above). FSA funds can only be used for expenses incurred in the plan year. If you have an expense in one plan year, but not enough money in the FSA to cover it, you cannot be reimbursed out of the FSA for that expense in another plan year.

Can I transfer funds between accounts?

No. You cannot transfer unused funds from Medical Care Accounts to Dependent Care Accounts or vice versa.

Can an FSA be combined with an HSA?

The Limited Purpose or Post Deductible amendment to a Healthcare FSA deals with how the FSA is treated in conjunction with an HSA. Vertical stacking applies. HSA funds must be spent first for medical care until the HSA statutory deductible ($1,200 for an individual and $2,400 for a family in 2010) is satisfied. Once reached, the participant can use Healthcare FSA funds for healthcare expenses. All expenses must be qualified medical, vision, pharmacy or dental benefit expenses as defined in Section 213(d) of the Internal Revenue Code.

Does my FSA election roll over each year?

No. You must re-enroll in FSAs each year during annual open enrollment if you wish to maintain a Dependent and/or Healthcare account. Because you make a new election each year you have the opportunity to change the amount you elect.

What if I leave the company or retire during the year and still have money in my account?

You will be reimbursed for eligible expenses incurred before the date you retired or left the company. However, if you’ve been reimbursed for all the expenses you incurred during employment and still have a balance in your account, IRS regulations state that you forfeit those funds. Expenses you incur after the end of your employment are eligible for reimbursement only through the “run-out” period established by your employer. This is usually 30, 60 or 90 days after you leave the company.

Are there IRS regulations and reporting for FSAs?

Yes. Healthcare and Dependent Care FSAs are regulated by Section 125 of the IRS Code. Transit and parking benefits are regulated by Section 132 of the IRS Code. Employers are required to file Schedule C (records fees paid to Sterling to administer the plan) and Schedule H, if the employer is funding the employees’ expenses out of a trust.

Form 5500 must be filed by employers with over 100 employees. If filed, it must include Schedule C.

Are there other regulations for FSAs?

Yes. FSAs are considered group health plans and are subject to COBRA, ERISA, and HIPAA regulations.

If you have further questions regarding our new Flexible Benefits Plans, or would like to discuss how these new plans may benefit you, please Contact Us.

Announcing Flexible Benefit Plans: Part Two

This post is Part Two of a three-part series on the topic of Sterling Health Services Administration‘s new Flexible Benefit Plans. Part Two focuses on advantages of Flexible Benefit Plans to employees and employers as well as why Sterling is a provider of choice. Part One, published August 9, 2010, introduces Flexible Benefit Plans. Part Three, to be published this week, addresses frequently asked questions regarding Flexible Benefit Plans.

Flexible Benefit Plans Advantages to Employees
Flexible Benefits Plans: Advantages for Employees

  • Using Flexible Benefit Plans–Healthcare FSAs, Dependent Care FSAs, and Transit/Parking benefits-employees can reduce their taxable income and use the income reduction to pay for qualified expenses that otherwise would have been paid with after tax dollars.
  • Tax savings to the employee include federal income tax, and in most jurisdictions, state and local income taxes. In addition, employees do not pay Social Security and Medicare tax (currently 7.65%) on the amount excluded from income.
  • Healthcare FSAs can be set up without a health insurance plan so more employees can participate.
  • Both employers and employees may contribute to the Healthcare FSA and Transit/Parking benefit. Only employees may contribute to the Dependent Care FSA. Employers cannot restrict the use of funds, even if they contribute. Use of funds is dictated by IRS code.

Flexible Benefit Plans Advantages to Employers

  • Benefit Savings: When salaries are reduced, the cost to the employer for benefits related to salaries may also decrease. The greatest savings to the employer is often the employer portion of Social Flexible Benefit Plans: Advantages for EmployersSecurity and Medicare, which currently equals 7.65% of each dollar of salary reduction (1.45% for those covered only by Medicare and not by Social Security).

Other salary-related benefits that may result in employer savings include the following:

  • Unemployment and workers compensation
  • Short and long term disability coverage
  • Life insurance
  • Pension – unless the pension statutes or ordinances are revised, the employer’s funding and the employee’s pension benefit in many plans will be based on the reduced salary.

Forfeitures: Employee forfeitures under the “use it or lose it” rule belong to the employer. Forfeitures can be returned to employees on a pro-rata basis, used to reduce employees’ future benefit costs, or applied to FSA administrative fees.

Why Sterling Health Services Administration?

  • Leaders: We’re a leading administrator of consumer directed healthcare services that put our clients in control of healthcare spending and in touch with resources to manage their money and their health.
  • Expertise & High Touch Service: We provide expert education and superior execution because we know theSterling Health Service Administration health insurance and financial industries. We provide high touch customer service online, on the phone and in person because we understand that our clients deserve it and want nothing less.
  • Compliance Specialists: We have the expertise to make sure benefits plans are fully compliant with industry and IRS regulations. Banks or other third party administrators operating under “unmanaged” models don’t do that. In short, we eliminate the worry by offering services only available from a company with expertise in health insurance and healthcare financing products.
  • One-stop Shop: Flexible Benefit Plans are part of our “one-stop” product suite so that brokers and employers can easily and conveniently get their health services administration needs met by one company – Sterling Health Services Administration.

Part One of this series was published August 9, 2010 and introduced Sterling Health Services Administration‘s new Flexible Benefit PlansPart Three, to be published this week, addresses frequently asked questions regarding Flexible Benefit Plans.