Are employers able to waive or opt out of all health care reform?

January 31st, 2012 | No Comments |
Category: CDHC, Compliance and Regulatory, Health Care Reform, IRS, Taxes, Uncategorized

We keep hearing about the government issuing waivers, is it possible for employers to opt out of health care reform?  No, there is no waiver from all of health care reform. Employers may be thinking of the term “grandfathered plans,” which refers to plans in existence on March 23, 2010, which have made minimal changes, defined under regulations, and are therefore exempt from some, but not all, of health care reform’s mandates.

More abundant in the news, however, have been references to the “annual limit waivers,” which have been granted to many prominent restaurant chains and labor unions. The annual limit waiver was brought about due to the fact that health care reform first restricts, and then later prohibits (in 2014), annual dollar limits on the value of “essential health benefits.” Until 2014, restricted annual limits on essential health benefits are permissible under a three-year phased approach.

  • $750,000 for plan years beginning on or after Sept. 23, 2010, but before Sept. 23, 2011
  • $1.25 million for plan years beginning on or after Sept. 23, 2011, but before Sept. 23, 2012
  • $2 million for plan years beginning on or after Sept. 23, 2012, and Jan. 1, 2014

For plans issued or renewed beginning Jan. 1, 2014, all annual dollar limits on coverage of essential health benefits will be prohibited.

A class of group health plans and health insurance coverage generally known as “limited benefit” plans or “mini-med” plans often has annual limits well below the restricted annual limits set out in the interim final regulations. Because this is often the only type of private insurance available to some workers, temporary waivers from the restricted annual limit requirements were previously available. For plan years beginning before Jan. 1, 2014, the interim final regulations allowed HHS to establish a program under which the requirements relating to restricted annual limits may be waived for plans that were offered prior to Sept. 23, 2010 — if compliance would result in a significant decrease in access to benefits or a significant increase in premiums.

However, in June 2011, HHS issued guidance to revise the waiver program to establish new procedures and impose an application cutoff of Sept. 22, 2011, for all waiver extensions and new waiver requests. This means that the waiver process has now concluded, and no waivers will be granted for new waiver applications received after Sept. 22, 2011. Applications received after Sept. 22, 2011, will not be accepted, which means that any plan or policy that did not receive a waiver must be in compliance with the annual dollar limits on essential health benefits described above.

If a plan was granted a waiver by Sept. 22, 2011, that plan will be required to submit an Annual Limit Update in order to retain eligibility for the annual limit waiver through 2014. The first Annual Limit Update must be submitted by Dec. 31, 2012, and the second by Dec. 31, 2013.

Click here for additional information about the waiver process.

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IRS Releases 2011 Versions of Publications 502 and 503

January 31st, 2012 | No Comments |
Category: Compliance and Regulatory, IRS, Taxes

  The IRS recently issued the 2011 versions of Publication 502 (Medical and Dental Expenses) and Publication 503 (Child and Dependent Care Expenses). Publication 502 describes what medical expenses are deductible on taxpayers’ 2011 federal income tax returns. The 2011 version includes clarifications with respect to breast reconstruction surgery, guide dogs/service animals, hearing aids, nursing services and provisions regarding health insurance costs for self-employed persons, and the health coverage tax credit. Publication 502 is used by taxpayers to determine what qualifies as a medical expense under Code 213(d), and many use this publication to help identify expenses that may be reimbursed or paid by health FSAs, HSAs or HRAs. However, employers sponsoring these plans who refer to Publication 502 must do so with caution, as it addresses the expenses that are deductible, but does not describe the various rules that need to be considered when administering health FSAs, HSAs or HRAs.

Publication 503 describes the requirements that taxpayers must meet in order to claim the dependent care tax credit (DCTC) under IRC § 21 for child and dependent care expenses. The 2011 version includes an explanation of how to calculate the DCTC when the taxpayer has multiple qualifying individuals, but one of them has no dependent care expenses. Following a similar concept of Publication 502, employers relying on Publication 503 should do so with caution, as the expenses reimbursable under an employer-sponsored dependent care assistance program may have different rules than the DCTC.

Click here to view Publication 502.

Click here to view Publication 503.

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Massachusetts Individual Health Mandate Penalties for Tax Year 2012 Over $2500 per Family

January 9th, 2012 | No Comments |
Category: CDHC, Compliance and Regulatory, Health Care Reform, State Legislation, Taxes, Uncategorized
 Personal Income Tax

Technical Information Release 12- 2

  Massachusetts

Department of

Revenue

Individual Mandate Penalties for Tax Year 2012

Pursuant to G.L. c. 111M, § 2, the Department of Revenue is issuing this Technical Information Release to announce the penalty schedule for individuals who fail to comply in 2012 with the requirements under the Massachusetts Health Care Reform Act (the Act). See St. 2006, c. 58, as amended. The Act requires most adults 18 and over with access to affordable health insurance to obtain it. In 2012, individuals must be enrolled in health insurance policies that meet minimum creditable coverage standards defined in regulations adopted by the Commonwealth Health Insurance Connector Authority (the Connector). Individuals who are deemed able to afford health insurance but fail to comply are subject to penalties for each month of non-compliance in the tax year (provided that there is no penalty in the case of a lapse in coverage of 63 consecutive days or less). The penalties, which will be imposed through the individual’s personal income tax return, shall not exceed 50% of the minimum monthly insurance premium for which an individual would have qualified through the Connector.[1] 

These penalties apply only to adults who are deemed able to afford health insurance. On an annual basis, the Connector establishes separate standards that determine whether individuals, married couples and families can afford health insurance, based on their incomes and affordable health insurance premiums. Those who are not deemed able to afford health insurance pursuant to these standards will not be penalized. Individuals also have the opportunity to file appeals with the Connector asserting that hardship prevented them from purchasing health insurance (and, thus, that they should not be subject to tax penalties).[2]

 

For 2012:

  • Individuals with incomes up to 150% of the Federal Poverty Level are not subject to any penalty for non-compliance, as those at this income level are not required to pay an enrollee premium for Commonwealth Care health insurance. 

 

  • Penalties for individuals with incomes from 150.1 to 300% of the Federal Poverty Level will be half of the lowest priced Commonwealth Care enrollee premium that could be charged to an individual at the corresponding income level, based on the Connector’s Commonwealth Care enrollee premiums as of January 1, 2012.

 

  • Penalties for individuals with incomes greater than 300% of the Federal Poverty Level will be:

 

  • ages 18-26: half of the lowest priced individual Commonwealth Choice Young Adult Plan premium without drug coverage; and 
  • ages 27 and above: half of the lowest priced individual Commonwealth Choice Bronze premium with drug coverage, based on the Connector’s prices for these plans as of January 1, 2012.

 

  • The Department anticipates issuing an updated penalty schedule for tax year 2013.

 

  • Penalties for married couples who do not comply with the individual mandate rules (with or without children) will equal the sum of individual penalties for each spouse.

 

Penalties for 2012
IndividualIncome

Category*

 150.1-200% FPL 200.1-250% FPL 250.1-300% FPL Above 300% FPLAge 18-26 Above 300% FPL

Age 27+
Penalty $19/month$228/year $38/month$456/year $58/month$696/year $83/month$996/year $105/month$1,260/year

* Compare individual’s annual family household income to chart immediately below to determine applicable Federal Poverty Level (FPL).

** Yearly penalty amounts listed above based on non-compliance for entire year.

 Federal Poverty Level – Annual Income Standards

Family Size 150% FPL 200% FPL 250% FPL 300% FPL
1 $16,344 $21,780 $27,228 $32,676
2 $22,068 $29,424 $36,780 $44,136
3 $27,804 $37,068 $46,332 $55,596
4 $33,528 $44,700 $55,884 $67,056
5 $39,264 $52,344 $65,436 $78,516
6 $44,988 $59,988 $74,976 $89,976
7 $50,724 $67,620 $84,528 $101,436
8 $56,448 $75,264 $94,080 $112,896
For each additional person add +$5,736 +$7,644 +$9,552 +11,460

 

This Schedule reflects the Federal Poverty Level standards for 2011 and will be updated when the 2012 Federal Poverty Level standards are published in 2012.

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HSA Contributions Changes and the Last Month Rule

January 5th, 2012 | No Comments |
Category: Cafeteria Plans, Compliance and Regulatory, HSA, Health Savings Accounts, Taxes, Uncategorized

Q. How much can an individual contribute if she’s HSA eligible all year but changes from self-only to family coverage after her May 18, 2011, wedding?

 A. This individual can take one of two approaches. 

General Rule: “Sum of the Monthly Contribution Limits Rule.” Accountholders’ annual HSA contributions are pro-rated based on the number of months they are HSA eligible under each contract type during the year. When this individual is enrolled in a self-only contract, she can contribute $254.17 per month (the statutory maximum annual contribution of $3,050 divided by 12 months). During the months that she is enrolled on a family contract, she can contribute $512.50 per month (the $6,150 statutory maximum annual contribution divided by 12 months). In this case, her month-by-month maximum contribution is as follows:

 Month Maximum Contribution
January $254.17
February $254.17
March $254.17
April $254.17
May $254.17
June $512.50
July $512.50
August $512.50
September $512.50
October $512.50
November $512.50
December $512.50
Total $4,858.33

 

 

Special Rule: “Last-Month Rule.” This special rule (which comes with a testing period requirement noted below) permits the individual to make a full year’s family contribution as long as she is enrolled in a family contract as of Dec. 1, 2011, regardless of when during the first 11 months of 2011 she is married and switches to a family contract. If she takes this approach, she must remain eligible through the end of the following 12-month “testing period.” The testing period ends on December 31 of the following year (2012 in the above example). If she loses HSA eligibility any time before December 31, 2012, she must include any contributions for months during which they were not eligible, except for the last-month rule, in her taxable income in the year she loses eligibility. In addition, excess contributions are subject to a 10% additional tax that year. Accountholders incur this penalty regardless of age.

If she loses HSA eligibility during the testing period, she must include in her 2012 taxable income any contribution she made in 2011 that is in excess of the pro-rated contribution maximum. Her maximum contribution would be $4,858.33, and any amount above that figure would be included in her 2012 taxable income, and she would pay an additional 10% tax on the excess contribution as well.

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