Monthly Benefits Update - May 2013
Health & Welfare Plans
Health Care Reform: Agencies Issue Final Regulations on Wellness Programs Under ACA
The Internal Revenue Service (IRS), Department of Labor (DOL), and the Department of Health and Human Services (HHS) finalized regulations on wellness program incentives, revising earlier guidance issued in November of 2012. As in the proposed regulations, the final regulations increase the maximum reward that may be offered by a health-contingent wellness program from 20 percent to 30 percent and the maximum reward for reducing tobacco use from 30 to 50 percent.
Like the proposed regulations, these final regulations divide wellness programs into participatory wellness programs and health-contingent wellness programs. The final regulations, however, further divide health-contingent wellness programs into two subcategories: activity-only wellness programs and outcome-based wellness programs. An activity-only wellness program rewards individuals for performing or completing certain activities related to one or more health factors; it does not require individuals to achieve a particular health outcome. Outcome-based wellness programs, on other hand, reward individuals for attaining or maintaining a particular health outcome (e.g. abstaining from smoking or attaining certain results on biometric screenings). If either activity-only or outcome-based wellness programs are offered, the employer must also offer reasonable alternative methods to those individuals for whom it is unreasonably difficult to meet the standards due to a medical condition, and to those individuals for whom it is otherwise medically inadvisable to meet the standards. The final regulations also provide that a plan may seek verification from an individual’s physician that the individual would be unable to satisfy a standard for activity-based wellness programs, but it may not for outcome-based wellness programs. These final regulations take effect January 1, 2014.
Health Care Reform: IRS Requests Comments on Proposed Rule on “Minimum Value” Health Coverage
The IRS is seeking feedback on a proposed rule that provides guidance on “minimum value” coverage under the Affordable Care Act (ACA). The Internal Revenue Code (IRC) provides that health plans that do not cover at least 60 percent of the cost of benefits generally fail to provide minimum value. Individuals who do not qualify for affordable employer-sponsored coverage can generally receive a premium tax credit under the ACA; employers may also face “pay or play” taxes if a full-time employee receives a premium tax credit. In the proposed rule, the IRS clarified that employer-sponsored self-insured and insured large group plans need not cover every category of essential health benefits in order to conform to the minimum value standard. Minimum value coverage would instead be measured based on anticipated spending for a standard plan population.
The guidance also provides that all amounts contributed by employers to health savings accounts (HSA) would be taken into account in determining the plan’s share of costs for purposes of determining minimum value, and would be treated as amounts available for first-dollar coverage. In addition, amounts newly made available under a health reimbursement arrangement that is integrated with an eligible employer-sponsored for the current plan year would count for purposes of minimum value in the same manner if the amounts may be used only for cost-sharing and may not be used to pay insurance premiums. For employer-sponsored plans that charge higher premiums for tobacco users than non-tobacco users, affordability under the proposed rules would be determined based on the premium that is charged to non-tobacco users or tobacco users who completed a related wellness program.
The IRS and HHS have released calculators to determine whether a plan provides minimum value. The calculators may be used to measure standard plan features (unless a safe harbor applied), but the minimum value percentage may be adjusted based on an actuarial analysis of plan features that are outside the parameters of the calculators. The proposed guidance would take effect for taxable years ending after December 31, 2013 and may be used for taxable years ending before January 1, 2015. Comments on the proposed guidance are due by July 2, 2013.
Health Care Reform: DOL Releases Temporary Guidance and Model Notice of Exchange Coverage Options to Employees
The DOL issued a Technical Release that provides temporary guidance on the notice that employers must provide to their employees regarding the health coverage options available through state health insurance exchanges. Employers must furnish the notice to current employees and begin providing the notice to new employees no later than October 1, 2013. For 2014, the DOL will consider a notice to have been provided at the time of hire if it is provided within 14 days after an employee’s start date.
Along with the guidance, the DOL has also issued model notices for those employers who currently offer health coverage to some or all employees and those who do not offer coverage.
The DOL has also issued an updated model election notice for COBRA continuation coverage. The notice apprises employees of alternative coverage options available through state health insurance exchanges. The model notice can be furnished by employers to employees who experience a loss in health coverage due to a qualifying event. Along with the other exchange notices, employers should start providing COBRA notices containing updated information regarding state exchanges no later than October 1, 2013.
IRS Increases Contribution Limits for High-Deductible Plan Health Savings Accounts
The IRS has increased the contribution limit on health savings accounts (HSAs) that accompany high-deductible health plans. For 2014, the limit for individuals with self-only coverage is now $3,300, up from $3,250 for 2013; for family coverage, the 2014 limit has increased to $6,550 from the 2013 limit of $6,450. The out-of-pocket expense limits have also gone up $6,350 for self-only coverage and $12,700 for family coverage (from the 2013 limits of $6,250 and $12,500, respectively). For 2014, a high-deductible health plan is defined as a plan for which the annual deductible is at least $1,250 for self-only coverage and $2,500 for family coverage.
DOL Issues Proposed Rule Requiring Lifetime Income Illustrations on Defined Contribution Plan Benefit Statements
The DOL issued an Advanced Notice of Proposed Rulemaking (ANPRM) requesting feedback on a proposed rule that would require defined contribution plans to include lifetime income stream illustrations on participants’ benefit statements. Benefit statements would show the participant’s current account balance and the projected account balance, adjusted for inflation, at “normal retirement age.” The proposed rule would only require illustrations to be included on the statements of those participants who have not yet reached normal retirement age.
The proposed rule would measure compliance by a “reasonableness” standard; income projections based on “reasonable assumptions taking into account generally accepted investment theories” would comply with the rule as long as they are “expressed in current dollars and [take] into account future contributions and investment returns.” The DOL is also considering inclusion of a “safe harbor” provision that, if followed, would satisfy the reasonableness requirement. In anticipation of this rule, the DOL has also posted a lifetime income calculator on its website that could serve as a tool for plan sponsors to perform the necessary calculations. Comments to the DOL regarding the proposed rule are due by July 8, 2013.
As always, please let us know if you have any questions on these items or any other recent developments.