New Restrictions on Employer-Provided Medical Expense Reimbursement Plans

The IRS issued Notice 2013-54 on September 13, 2013, eliminating the opportunity for employers to reimburse most medical costs in all but limited circumstances. The change is effective for plan years beginning on or after January 1, 2014. The notice eliminates an employer’s ability to use a stand-alone medical reimbursement plan, health reimbursement arrangement (HRA), or other tax-favored arrangements, such as a cafeteria plan, to help employees pay for individual health insurance policies or other out-of-pocket medical costs.


“The notice does this by pointing out that these arrangements would fail to satisfy the Affordable Care Act’s (ACA) market reform provisions requiring no dollar limits on essential health benefits and no-cost preventive health services,” says Andy Biebl, a tax principal at CliftonLarsonAllen.
For example, the market reforms prohibit any limit on certain essential health benefits. But stand-alone Section 105 plans limit the amount for which an employee may seek reimbursement. The sanction for violating these rules is a punitive $100-per-day, per-employee penalty, or $36,500 per participant per year — effectively a total prohibition.

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Insure Your Part-Time Workers at No Cost

	Part-time and variable-hour employees are more likely to lack employer-provided benefits than other workers. Voluntary benefits let employers provide benefits to these workers at no cost. In October 2014, more than 7 million U.S. workers worked part-time due to “financial reasons.” Although they’d prefer to work full-time, these individuals work only part-time due to slack business conditions or the inability to find a full-time job. Although these figures represent an improvement of 10 percent over 2013’s figures, reluctant part-timers still comprise a significant portion of the U.S. workforce. Unfortunately for part-timers, employers are much less likely to provide benefits to part-timers. This leaves many young and underemployed workers with no access to affordable life, health and other benefits. According to Bureau of Labor Statistics figures, a significant gap exists between the benefits part-time workers in private industry have access to* versus their full-time peers: Medical insurance: Among full-time private industry workers, 86 percent had access to employer-provided medical insurance in 2014. By contrast, only 23 percent of part-time workers had medical care benefits available. The Affordable Care Act (ACA) requires employers with 50 or more full-time equivalent (FTE) employees to provide affordable health insurance to FTE employees or pay a penalty. ACA defines full-time workers as those who work an average of 30 or more hours per week, so many workers formerly considered part-time now have access to employer-paid medical insurance. Retirement benefits: These follow a similar pattern to medical care benefits. In private industry, 74 percent of full-time workers had access to a retirement plan, significantly higher than the 37 percent of part-time workers who had access. Life insurance: Seventy-two percent of full-time workers had access to life insurance benefits. In contrast, only 13 percent of part-time workers in private industry had access. Dental insurance: Among full-time workers, 56 percent had access to dental insurance, versus 13 percent of part-time workers. Vision insurance: Thirty percent of full-time workers had vision benefits; 7 percent of part-timers did. Short-term disability coverage: Forty-nine percent of full-time private industry workers had access to this benefit; 15 percent of part-timers had it. Long-term disability: Among full-time workers, 44 percent had coverage versus 5 percent of part-time workers. Long-term care insurance: Twenty percent of full-timers had long-term care benefits; only 7 percent of part-timers did. What Are Voluntary Benefits? Under a voluntary benefit program, the employer offers employees a menu of benefits; employees pay for the ones they want through payroll deduction. The employee pays the cost and the benefits provider handles all administration and provides all needed education materials. With a voluntary benefits program, part-time workers can have access to the benefits they might lack otherwise. Voluntary medical plans, such as cancer insurance, have no minimum participation requirements, unlike employer-sponsored medical coverage. And with a voluntary plan, employees whose health might disqualify them from individual coverage can often get at least minimal coverage. The most popular voluntary benefits include: Life insurance. Options include term life insurance, interest-sensitive whole life (variable life) and dependent life coverages. Dental insurance. Vision insurance. Supplemental health coverages, including cancer/specified disease insurance, critical care insurance and hospital indemnity plans, which pay specified flat amounts. Long-term care insurance. Short-term disability insurance. Long-term disability insurance. Accidental death and dismemberment insurance. Group auto and homeowners insurance. Nontraditional benefits, such as prepaid legal services, pet insurance and more. Advantages of Voluntary Benefits Results from the MetLife 2014 Study of Employee Benefit Trends indicate that voluntary benefits should play an important role in any employer’s benefit program. Between 2012 and 2013, the percentage of employees who strongly agreed with the statement, “I am looking to my employer for more help in achieving financial security through employee benefits” increased dramatically, from 29 to 40 percent. Employees are also willing to pay for their benefits. Sixty percent said they’d be willing to bear more of the cost of benefits to have a choice that met their needs. A whopping 80 percent strongly agreed with the statement, “I would value more personalized benefits geared to my individual circumstances and age.” Why should employers care about these emerging employee preferences? Research indicates that benefits are a strong driver of employee loyalty. The MetLife researchers found that “…employees who are very satisfied with their benefits are more likely to feel loyal to their company and to believe their company is loyal to them.” And 65 percent of employees surveyed strongly agreed with the statement, “Having benefits customized to meet my needs would increase my loyalty.” Voluntary benefits let employees do just that. For information on what voluntary benefits can do for your organization, please contact us.  info@amsinsure.com 800-334-7875

Coming January 1, 2015: The Employer Mandate and Health Coverage

Reporting Requirements

Two requirements of health care reform that affect employers will be going into effect on January 1, 2015. First, after much debate and delay, the first phase of the Employer Mandate (or “Play or Pay” Provision) will begin. Once it is fully implemented, this provision of the Affordable Care Act will require all employers with 50 or more full time equivalent (FTE) employees to offer a certain level of health insurance coverage at an affordable rate to all full-time employees or face a possible penalty.

For 2015, only non-compliant large employers (those with 100 or more FTE employees) will face penalties. Midsized employers (those with 50-99 FTE employees) will have an additional year of reprieve (until 2016) so long as the organization did not (1) reduce its workforce or workers’ hours to get below the 99 employee threshold without a bona fide reason or (2) materially reduce its health care plan as it existed on February 9, 2014. Employer Mandate penalties are incurred on a monthly basis, but paid annually.

With the implementation of the Employer Mandate comes new IRS reporting requirements. Employers with 50 or more FTE employees must begin Section 6056 (Employer Mandate) reporting for the 2015 tax year. These forms will be filed with the IRS and provided to employees in early 2016. Although the actual reporting will not be performed until early 2016, some of the data included in the reporting must be classified by month. So now is the time to begin tracking this data. The IRS draft samples for both required reporting forms (1094-C and 1095-C) are available in your HR Support Center.

The 2015 plan limits and standard mileage rates are shown below.

2015 IRS Plan Limits Plan Year 2015 2014 2013 Health FSA Maximum Annual Salary Reduction 1$2,550 1$2,500 1$2,500 Standard Mileage Rate for Travel to Obtain Medical Care $0.23 $0.235 $0.24 Dependent Care Assistance Program (Unless Married Filing Separately) 2$5,000 2$5,000 2$5,000 Dependent Care Assistance Program (If Married Filing Separately) 2$2,500 2$2,500 2$2,500 Transit Passes and Vanpooling (Combined) Monthly Maximum $130 3$130 3$245 Parking Monthly Maximum $250 $250 $245 Highly Compensated Employee — Section 414(q) (Officer Group) $120,000 $115,000 $115,000 Key Employee — Section 416(i) $170,000 $170,000 $165,000 HSA Maximum Annual Contribution Limit (Self-only) 4$3,350 4$3,300 4$3,250 HSA Maximum Annual Contribution Limit (Family) 4$6,650 4$6,550 4$6,450 HSA Catch-up Contribution Limit $1,000 $1,000 $1,000 HDHP Minimum Annual Deductible (Self-only) $1,300 $1,250 $1,250 HDHP Minimum Annual Deductible (Family) $2,600 $2,500 $2,500 HDHP Maximum Out-of-pocket (Self-only) $6,450 $6,350 $6,250 HDHP Maximum Out-of-pocket (Family) $12,900 $12,700 $12,500 1As a result of the Affordable Care Act (ACA), health flexible spending account (FSA) salary reductions are limited for taxable years beginning on or after January 1, 2013 (the maximum limit may be indexed for inflation each year). 2Under Code Sections 129 and 21, the deemed income of a spouse who is incapable of self-care or a full-time student is $250 per month for one qualifying individual or $500 per month for two or more qualifying individuals. 3The American Taxpayer Relief Act (ATRA) made a retroactive change to the monthly pre-tax limit for eligible transit expenses incurred in 2012, and on January 1, 2013, the 2012 limit increased from $125 to $240 per month. That amount was indexed for inflation in 2013. On January 1, 2014, the expiration of the temporary increase under the ATRA caused the reduced amount. 4An employee is treated as being eligible for the entire calendar year as long as he or she is eligible during the last month of the calendar year. However, failure to maintain eligibility during the "testing period" will result in adverse tax consequences (including an additional excise tax). The testing period begins in December of the year in which the employee becomes eligible and ends the last day of December of the following year.