Spousal Carve-Outs

As health care costs continue to rise there has been an increasing number of employers considering the implementation of a spousal carve-out or spousal surcharge as a strategy to reduce costs.  In its simplest form, an employer will either impose a surcharge for a spouse’s coverage, or make that spouse ineligible for the plan when the spouse is eligible for their own employer-sponsored coverage. 


The impact on costs will vary obviously from employer to employer.  For example, fully-insured plans may see little or no rate reduction from the insurance carrier depending on the size of the group, and how the group’s claims experience is factored into the final rate calculation.  In contrast, self-funded plans tend to experience a more direct benefit since removal of a spouse from the plan means that the employer will no longer be liable for claims incurred by that individual. Before implementing this strategy, employers should carefully consider a number of design and compliance issues.

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IRS-SSA-CMS Data Match Employer Reporting Requirement Suspended

Congress enacted a law (Section 6202 of the Omnibus Budget Reconciliation Act of 1989) to provide CMS with better information about Medicare beneficiaries’ group health plan (GHP) coverage. The law required the Internal Revenue Service (IRS), the Social Security Administration (SSA), and CMS to share information that each agency had about whether Medicare beneficiaries or their spouses were working. The process for sharing this information was called the IRS-SSA-CMS Data Match. The purpose of the Data Match was to identify situations in which another payer might have been primary to Medicare.

Under the program, employers were required to provide CMS with information about health coverage of their Medicare-eligible workers and spouses. CMS would send a questionnaire to employers requiring the employer to provide certain participant data. To respond to the data request, the employer was required to set up an account with CMS. Once the account was activated, the employer was required to provide information about their health plan and to answer questions about relevant employees and participants.

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Independent Contractors – Benefit Compliance Considerations

Employers enter into a variety of different staffing arrangements for things such as handling special projects, meeting varying capacity needs, and filling temporary employment gaps. When entering into such arrangements, it’s important for employers to properly categorize such individuals as independent contractors or employees and then to ensure that benefits are handled accordingly. Determining employee status is critical for several purposes beyond that of handling benefits, but this issue brief focuses specifically on benefit considerations.

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2019 “Affordability” Percentage

Under §4980H, applicable large employers (50 or more full-time equivalents (FTEs)) must offer coverage to full- time employees that is affordable to avoid potential §4980H(b) penalties. In addition, individuals enrolling for coverage through a public Exchange will not qualify for subsidized coverage if they are eligible for employer- sponsored group health coverage that is affordable.

Coverage is generally considered “affordable” if the employee contribution for employee-only (single) coverage does not exceed a set percentage (9.86% in 2019) of household income. Note – Coverage is considered affordable for dependents as well, regardless of the contribution amount, so long as the employee-only (single) coverage is affordable. Coverage is also considered “affordable” for purposes of the employer’s satisfying §4980H(b) requirements so long as the employee contribution satisfies at least one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2), all of which use the same percentage (9.86% for 2019) in their calculations.

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Disability Claim Regulations Take Effect April 1, 2018

There have been claims and appeals rules for disability plans subject to ERISA for many years. These new regulations are an attempt to increase transparency of the review process; prevent conflicts of interest with respect to claims reviews and denials; and align the disability claims process with the process that already applies to claims for group health benefits.

The effective date of the regulations was originally January 1, 2017, but the applicability date was delayed until January 1, 2018. In November of 2017, in response to President Trump’s Executive Order 13777, the DOL delayed the applicability date until April 1, 2018. In early January of 2018, the DOL issued a statement indicating that the comments provided by stakeholders “did not establish that the regulations impose unnecessary burdens or significantly impair workers’ access to disability benefits.” The statement confirmed that the applicability date would remain April 1, 2018, and that the agency would not further delay nor change the regulations.

The regulations apply only to disability plans subject to ERISA. Most long-term disability (LTD) plans are subject to ERISA (assuming the employer who sponsors the plan is subject to ERISA). Many employers also offer short-term disability programs. Many STD plans satisfy the conditions of the DOL payroll practice exemption (DOL Reg. §2510.3-1(b)(2)). These STD programs would not be an ERISA disability plan and are not subject to the claims and appeals regulations. Note that if an STD plan is insured, it is subject to ERISA and these new regulations.

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Change in 2018 HSA Contribution Limits

On March 6th, 2018, the IRS released Rev. Proc. 2018-18, addressing a variety of changes to tax rates and inflation-adjusted thresholds in accordance with the Tax Cuts and Jobs Act passed late in 2017. Under the new tax legislation, the methodology for determining adjustments to limits for things such as contributions to health flexible spending accounts (FSAs) and health savings accounts (HSAs) is tied to a "chained CPI," probably resulting in slower upward adjustments over time. Although the IRS guidance does not affect health FSA contribution limits for 2018, HSA contribution limits for family coverage were reduced by $50.00 for 2018.

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Spousal and Dependent Carve-Outs and Surcharges

As healthcare costs continue to rise, more and more employers are considering implementing eligibility carve-outs and premium surcharges as a strategy to reduce costs. Some employers may choose to completely exclude spouses or dependents from being eligible for coverage, but others take a less aggressive approach, excluding only certain spouses or dependents (e.g. those who are eligible for or enrolled in other group health coverage). Another option, rather than excluding such individuals from being eligible for benefits, is to impose a surcharge for those who choose to enroll. Although spousal carve-outs and surcharges are generally allowed, carve-outs and surcharges for dependent coverage will often violate requirements under the Affordable Care Act (ACA). For those considering making changes to spousal and/or dependent coverage, the design and administration of those changes should be considered carefully.

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Summary of Tax Cuts and Jobs Act Employee Benefit Provisions

We are very close to final passage of the Tax Cuts and Jobs Act. Many expect the legislation to make it to the President’s desk by the end of this week. As far as employer-provided benefits are concerned, the final version of the Act contains fewer changes than many expected. There will be a number of checklists and detailed summaries in the coming weeks as all details are analyzed. This Update provides some general information on benefits provisions in the final bill and what to expect in 2018.

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IRS Letter 226J

The Affordable Care Act (ACA) contains requirements called the employer shared responsibility rules (often called the employer mandate). Code §4980H requires applicable large employers (ALEs – those with 50 or more full-time equivalents) to offer coverage to full-time employees and their dependent children. Employers who fail to do so face two different potential penalties. The IRS has begun to send letters to employers (Letter 226J) to begin the collection process for employers who have failed to meet the §4980H requirements for benefits offered during 2015. Penalty calculations are based on data provided by employers to the IRS on Forms 1094 and 1095. There are two different penalties that could apply to ALE, but only one would apply for any particular tax year.

We believe that many of the 226J proposed employer assessments will be applied due to mistakes made in employer reporting, rather than to an actual violation of a §4980H requirement.

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President Trump Signs Executive Order Permitting the Creation of “Association” Health Plans

President Trump has signed an executive order instructing regulatory agencies to draft new rules permitting the creation of “association” health plans, expanding Health Reimbursement Accounts (HRAs), and extending the time for which coverage can be offered under short-term health insurance policies. It is important to note that the executive order only instructs the regulatory agencies to develop new rules— it does not immediately change any existing rules or laws. New regulatory rules must also be written in a manner that complies with existing benefits laws such as ERISA, HIPAA, the Affordable Care Act (ACA), and provisions of the Internal Revenue Code.

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Employer Reporting – 2017 FINAL Forms and Instructions

The IRS has released the 2017 final forms and instructions for the ACA employer reporting requirement. Not surprisingly, the final forms are identical to the draft forms and instructions. We described the minor changes from 2016 forms and instructions in a previous alert, which may be found at http://www.verusinsurance.com/issues/2017/9/27/employer-reporting-2017-draft-instructions-released.

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Employer Reporting – 2017 Draft Instructions Released

The IRS released the 2017 draft forms and instructions for the ACA employer reporting requirement. The 2017 draft forms and instructions are very similar to those used for 2016. Given that they have only minor changes throughout along with a few clarifications of existing requirements, the most significant change is the deletion throughout of anything referring to §4980H transition relief, which is expired and no longer applicable.

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Wellness Program Updates

New developments have arisen in the wellness area recently. One recent court case challenges the validity of the final regulations, and another alleges that Macy's failed to comply with the final rules. The final rules establish how a wellness program should be structured to avoid violating nondiscrimination rules under HIPAA, the Americans with Disabilities Act (ADA), and the Genetic Information Nondiscrimination Act (GINA). There are no big changes here—at least not yet. Our general advice is to stay the course with your wellness programs and monitor the developments. None of the recent news requires immediate changes, but the court decisions discussed in more detail below could lead to changes in the future.

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Senate Tries to Repeal ACA One More Time

On September 13, 2017, Senate Republicans introduced a bill (referred to as The Graham-Cassidy bill) to try, one more time, to repeal and replace portions of the ACA. The bill contains many of the provisions included in legislation proposed earlier this year. In fact, it was originally designed to be an amendment to prior legislation that was proposed in the Senate. New to this bill is a system that changes current federal spending on a number of ACA programs to block grants to states. Beginning in 2019, federal expenditures for ACA premium tax credits, cost-sharing reductions, Medicaid expansion, and the Basic Health Plan Program would be redirected to states through a funding formula based principally on state demographics.

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IRS Decreases ACA Affordability Percentage

The IRS issued guidance in Revenue Procedure 2017-36 that decreases the percentage from 9.69% to 9.56% for purposes of determining the affordability of employer-sponsored group health coverage in 2018. This percentage affects which applicable large employers may face potential penalties under §4980H(b) for failure to provide affordable coverage and which individuals may qualify for subsidized coverage through a public Exchange (Marketplace).

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The Senate Releases the Better Care Reconciliation Act of 2017

On Thursday, June 22nd, the Senate released the Better Care Reconciliation Act of 2017 (BCRA), its version of a bill designed to make significant changes to the Affordable Care Act (ACA). The Senate bill is very similar to the American Health Care Act (AHCA), passed by the House in May. Like the AHCA, much of the BCRA is focused on reductions in federal Medicaid spending and on a repeal (or delay) of most taxes included in the ACA. Both bills eliminate the individual and employer “mandate” and make changes to the small group and individual health insurance markets. Like the AHCA, the BCRA leaves many other existing ACA insurance rules in place.

Much has already been written about various aspects of this legislation. This issue brief will focus on the specific elements of the Senate bill that most directly affect employers and the health benefits offered to employees. When it comes to the employer-related provisions, the BCRA is almost identical to the AHCA.

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And Now We Have the BCRA of 2017

On Thursday, the Senate released the Better Care Reconciliation Act of 2017 (BRCA), its version of a bill making significant changes to the Affordable Care Act (ACA). The Senate bill is very similar to the American Health Care Act (AHCA), passed by the House in May. Like the AHCA, the majority of the BRCA is focused on reductions in Medicaid spending and a repeal (or delay) of most taxes included in the ACA. Both bills leave many of the ACA insurance rules in place.

As with earlier posts, we are going to focus here on the specific elements of the Senate bill that most directly affect employers and the benefits offered to employees. When it comes to the employer-related provisions, the BRCA is almost identical to the AHCA.

Applicable Large-Employer “Penalties” Under §4980H Reduced to $0
Most importantly for employers, both the BRCA and the AHCA eliminate the penalty for violating the §4980H employer shared responsibility requirements. The rules are not repealed, but the employer penalty is reduced to $0. This is as good as a full repeal for employers. Employers will not need to worry about the “look-back measurement period” or any other ACA rules related to full-time employee eligibility requirements. If this bill becomes law, we expect that many employers will revert to defining health plan eligibility in ways they did prior to the ACA

Employer Reporting
Neither the AHCA nor the BRCA directly addresses employer reporting requirements. However, both bills continue to make some sort of tax credits available to those who purchase individual health insurance. Eligibility for these tax credits will be dependent to some extent on whether the individual has employer-sponsored health insurance available, so the IRS will continue to need some kind of employer reporting. The hope is that the reporting will be much simpler in the future than it is currently.

Other Employer-Related Provisions
Both the AHCA and the BRCA include several other interesting employer-related provisions:

  • The Cadillac tax is delayed until 2026.
  • States will have flexibility to make additional changes to insurance rules, such as those regarding essential health benefit requirements.
  • The limit on contributions to Health Flexible Spending Accounts (currently $2,600) would be repealed.
  • Both bills would repeal the Health Insurance Tax (HIT). This tax applies to health insurance companies, but is reflected in rates charged to employers.
  • Over-the-counter medications would be treated as an eligible expense in HSA and HFSA.
  • The penalty for HSA withdrawals used for ineligible expenses would be reduced from 20% to 10%.
  • HSA contribution limits would be raised to the current maximum out-of-pocket that applies to a High Deductible Health Plan (currently $6,550 for self-only and $13,100 for family), and catch-up contributions for both spouses may be made into the same HSA.

Will It Pass?
There is still a long way to go before this legislation becomes law. Will the Senate be able to pass this version of the bill? Will the Senate parliamentarian decide that some aspects of the bill do not meet the budget reconciliation requirements? Will the Senate and the House be able to reconcile differences between the two bills?

Importantly, under the budget reconciliation rules being used, Congress must pass current health legislation under consideration by the end of September. Since Congress will be on break most of August, the bill must be moved forward quickly.

Please contact your Verus account management team or info@verusinsurance.com for more information.

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

House Republicans Pass Amended AHCA

On May 4, 2017, members of the U.S. House of Representatives voted 217-213 to pass the American Health Care Act (AHCA), after it had been amended several times. The AHCA is the proposed legislation to repeal and replace the Affordable Care Act (ACA).
The AHCA needed 216 votes to pass in the House. Ultimately, it passed on a party-line vote, with 217 Republicans and no Democrats voting in favor of the legislation. The AHCA will only need a simple majority vote in the Senate to pass.
If it passes both the House and the Senate, the AHCA would then go to President Donald Trump to be signed into law.

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ACA Status Update

It appears that the Affordable Care Act (ACA) will live on as the “law of the land,” in the words of Speaker Ryan. Last week left many heads spinning as voting on the American Health Care Act (AHCA) was first delayed and then called off entirely. Employers must continue to administer their plans in compliance with existing ACA rules and regulations, including the employer mandate and employer reporting requirements, for the foreseeable future. The only thing that has changed is that the IRS is accepting 2016 tax returns with no proof that individuals obtained minimum essential coverage. So now the question is…what’s next?

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