Janet LeTourneau

In my October column, “Affordable Care Act Reporting May Be In Your Future,”  I discussed the latest employer requirements to report minimum essential coverage (MEC) and coverage offered by applicable large employers (ALEs). Reporting on Forms 1094 and 1095 is set to begin in early 2016 with information gathered throughout the 2015 calendar year.

Based on initial IRS drafts, I stated that “No reporting is required on Forms 1094-B and 1095-B for health reimbursement arrangements (HRAs) integrated with group health plans that provide MEC. New IRS drafts were subsequently issued on August 7, 2015. The revised drafts of 2015 Instructions for Forms 1094-B and 1095-B, which are used to report MEC coverage provided by all employers regardless of their size, stated that HRAs were required to submit separate forms for an HRA integrated with group health plans.

However, before the ink was dry on the revised draft forms and instructions, Notice 2015-68 was issued on September 17, 2015, along with Final 2015 Instructions and Forms 1094-B and 1095-C.

The new final instructions state: Coverage in More Than One Type of Minimum Essential Coverage

• If an individual is covered by more than one type of minimum essential coverage, reporting is required of only one of the types, if one of the following rules applies. If an individual is covered by more than one type of minimum essential coverage provided by the same provider, the provider is required to report only one of the types of coverage.
   
• A provider of minimum essential coverage generally is not required to report coverage for which an individual is eligible only if the individual is covered by other minimum essential coverage for which reporting is required. (For employer-sponsored coverage, this exception applies only if both types of coverage are under group health plans of the same employer).

Under the first exception, if an individual is covered by a self-insured major medical plan and a health reimbursement arrangement (HRA) provided by the same employer, the employer is the provider of both types of coverage and therefore is required to report the coverage of the individual under only one of the arrangements.

Also included as a “caution”: If an individual is covered by an HRA sponsored by one employer and a non-HRA group health plan sponsored by another employer (such as spousal coverage), each employer must report the coverage the employer provides.

What if an employee does not have employer’s MEC coverage?
Once an employee is no longer covered by the employer’s group health coverage that provides MEC, then reporting of MEC coverage under the HRA must begin. The employer must report coverage under the HRA for the months after the employee retires or drops the employer’s group health coverage if the employee continues to be covered by the HRA. 

If an employee is enrolled in an employer’s HRA and in a spouse’s group health plan, the participant’s employer would be required to report MEC coverage for the HRA while the spouse’s employer would report MEC coverage under the spouse’s group health plan.

Other Miscellaneous Changes or Clarifications:

• Minimum value (MV) means that insurance coverage must provide at least 60 percent of the cost of benefits provided by the plan and the plan provides substantial coverage of inpatient hospital and physician services. This new definition will not apply before the end of the plan year for plans beginning after March 2, 2015.
   
• Extensions for either reporting requirement are automatic by submitting a Form 8809 on or before the due date of the return. Or employers can send a letter as we outlined in our previous Compliance Alert to obtain an extension of time to file.
   
• COBRA participant reporting was clarified in the new instructions for 1095-C reporting purposes. When a former employee terminates employment, an offer of COBRA coverage should not be reported as an offer of coverage in all circumstances.
   
• Catastrophic coverage. The IRS intends to propose regulations that require issuers of catastrophic plans, enrolled in through an Exchange, to report the coverage on Form 1095-B. The regulations are intended to apply to coverage in 2016, with the returns filed in 2017.
   
• Multiemployer plans have modified guidance relating to the employer shared responsibility rules.
   
• Basic Health Program. The state agency that administers the Basic Health Program is the entity that must report that coverage for MEC purposes. 

The IRS is receiving comments until November 16, 2015 on the final instructions. I anticipate a few more changes or clarification to the final instructions after that time and will, of course, update future columns accordingly. 

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

The Affordable Care Act (ACA) has made many changes to the health insurance industry and to employers’ delivery of health insurance products. The latest employer requirement is to report minimum essential coverage (MEC) and details regarding coverage offered by applicable large employers (ALEs), also widely referred to as Forms 1094 and 1095 obligations. Do all employees have to report, when are the forms due, and what information is required? In other words, what are the simple facts? 

Background
With new Marketplaces providing insurance coverage and premium subsidies, a large amount of information needs to be verified; including income, current insurance coverage and what employer-sponsored plans are available. Since individuals may acquire health insurance coverage from their employer, through an individual broker or agent, or at the Marketplace, verifying information on millions of Americans is a formidable task. 

Specific information needed on individuals receiving coverage and premium tax credits at the Marketplace includes: 

• Individuals already covered by a health plan.
• Individuals eligible and offered ACA-compliant employer-sponsored group health coverage.
• Individual’s income.

Two IRS filing requirements will supply most of this data. One involves every employer that sponsors a self-insured health plan and every insurance carrier. Employers with self-funded plans and insurance carriers are responsible for Internal Revenue Code Section 6055 information filing and statements to employees. This is called “Provider Reporting.”

The second IRS filing requirement, under Code Section 6056, is required of ALEs to report coverage offered to their employees and provide statements to employees. The IRS will use the information provided on this filing to administer the employer shared responsibility provisions of Code Section 4980H.

Provider MEC Reporting
Employers have certain obligations to provide ACA-compliant health insurance that is both affordable and offers minimum value (MV) – which makes up minimum essential coverage (MEC). 

• Minimum value (MV) means that the insurance coverage must provide at least 60 percent of the cost of benefits provided by the plan.
• Affordability means that the lowest-cost option does not exceed 9.5 percent of the employee’s household income.

MEC reporting includes data on each employee and their dependents, whether they are eligible for employer-sponsored plans, government-sponsored programs, individual market plans and other miscellaneous coverage. Eligible employer-sponsored group coverage includes COBRA coverage and retiree coverage.

MEC does not include coverage consisting solely of excepted benefits, including separate vision and dental coverage, workers’ compensation, and specified disease or illness coverage. No reporting is required for Health Reimbursement Arrangements (HRAs) integrated with group health plans that provide MEC, on-site medical clinics, or wellness programs that provide reduced premiums or cost-sharing under the group health plan. 

However, while retiree HRAs may be exempt from annual and lifetime limits, if they provide MEC, reporting obligations for section 6055 exist. Remember, this information is being used to determine if an individual is eligible for the premium tax credit if they purchase coverage at the Marketplace. 

If additional or supplement benefits are not MEC or are excepted benefits, they are not required to file. An example of excepted benefits would include on-site medical clinics or health flexible spending accounts (FSAs) within a cafeteria plan. 

Who must report?
Health insurers for all insured coverage or plan sponsors (generally the employer) are responsible for reporting for self-insured health coverage. In fact, every person that provides MEC coverage to an individual during a calendar year must file a form, regardless of size. That means that even “small” employers, with fewer than 50 employees, must file if they sponsor a self-insured health plan. And government employers must also report under section 6055 if they maintain self-insured health plans.

Forms required for filing include Form 1095-B (Health Coverage) and Form 1094-B (Transmittal). However, employers subject to shared responsibility provisions (ALEs) sponsoring self-insured group health plans will report information about coverage in Part III of Form 1095-C instead of Form 1095-B.

Statements to employees may be a copy of the IRS return or a substitute. In order for statements to be sent to employees in an electronic manner, the employer needs confirmative consent from the employees.

Information required for Form 1095-B

• Name, Address, and SSN of everyone covered. Date of birth may be provided if SSN not available, plus SHOP Marketplace identifier, if applicable.
• General information for coverage provider.
• Months of coverage for each individual (1 day of coverage equals coverage for the entire month). 
• Employer identity.

ALE Reporting
ALEs, employers with at least 50 full-time employees (working an average of 30 or more hours per week) on business days in the prior calendar year—including full-time equivalent employees—must offer all full-time employees, plus their dependents, health insurance within a specified period of time that provides minimum value (MV) and is affordable, to meet the requirements for minimum essential coverage (MEC). The information contained in this filing helps the IRS determine eligibility for premium tax credits for qualified health plans (QHPs) purchased at the Marketplace and whether 4980H penalties are assessable under the employer shared responsibility provisions and in what amount. ALEs are subject to the employer shared responsibility provisions under Code Section 6056.

What about Health Reimbursement Arrangements (HRAs)? Code Section 6055 does not require separate reporting for coverage that supplements the employer’s primary plan. The same exception does not appear in the regulations under Code section 6056.

Who must report?
Employers subject to the employer shared responsibility provisions under Section 4980H must file information forms for each employee who was a full-time employee of the employer for any month of the calendar year.

Employers that provide health coverage through an employer-sponsored self-insured health plan must complete Form 1095-C, Parts I and III, for any employee who enrolls in the health coverage, whether or not the employee is a full-time employee for any month of the calendar year. If the employee is a full-time employee for any month of the calendar year, the employer must also complete Part II. 

Forms required for filing include Form 1095-C (Health Insurance Offer and Coverage) and Form 1094-C (Transmittal). As stated above, employers subject to shared responsibility provisions (ALEs) sponsoring self-insured group health plans will report information about coverage in Part III of Form 1095-C instead of Form 1095-B.

Statements to employees may be a copy of the IRS return or a substitute. If statements are sent to employees in an electronic format, the employer needs confirmative consent to provide statements electronically to employees.

Information required for Form 1095-C

• Name, address, and employer identification number (EIN ) of the provider, along with contact phone number.
• Employee’s name, address and SSN or date of birth if SSN is not available.
• Names and SSNs or dates of birth of each individual enrolled in coverage and entitled to receive benefits.
• Employer Offer and Coverage informational codes for offer of coverage, share of lowest cost monthly premium for self-only coverage of MEC, and applicable Section 4980H Safe Harbor (if applicable).
• Number of covered months for each employee and covered individual.

All this information will be compared to who enrolled in Marketplace coverage and received a premium tax credit.

When are the forms due? 
Originally, reporting was required for insurance plans, whether calendar-year or fiscal-year, starting on or after January 1, 2014. Reporting would have been due in early 2015. However, this reporting requirement was delayed for one year. Information gathering needed to start January 1, 2015 with reporting forms due in early 2016, similar to W-2 deadlines. This is calendar-year reporting with no special deadlines for non-calendar year plans. In addition, electronic filing is required of all forms if 250 or more returns are contained in one filing.

Penalties for Noncompliance
The ALE Form 1095-C is designed to be used in determining whether an employer owes payments under the employer shared responsibility provisions of Section 4980H. Even one full-time employee that purchases coverage at the Marketplace and receives a subsidy can trigger a penalty.

It is not within the scope of this article to provide all the nuances of counting full-time and part-time employees, whether employees were timely offered coverage, whether MEC was provided in the employer’s health plans or all transition rules. A simple calculation is provided for illustration purposes only.

If an ALE does not offer MEC to 95 percent (first year transition rate will be 70 percent) or more of all full-time employees and their dependents, a sample of the “subsection (a)” penalty would be:

• $2,000 times all full-time employees, minus a count of 30 employees (first year transition rate will be minus a count of 80 employees). 

If an ALE does not offer affordable coverage that provides minimum value, and at least one full-time employee is certified as having purchased health insurance through an Exchange and received a premium tax credit, a sample of the “subsection (b)” penalty would be:

• $250 (1/12 of $3,000) times the number of full-time employees for any month who received premium tax credits (not to exceed (a) penalty amount). Generally, no penalties for smaller employers.

If employers have not already started to count their full-time employees and created a data-gathering plan in order to complete and file Forms 1095-B and 1095-C, now is the time for them to seek competent counsel and take action. 

Late-breaking News
On July 2, 2015 it was announced that extensions of time will be available for filing information returns with the IRS and furnishing ACA statements to payees. The extension of the deadline to furnish the ACA forms to employees will be noted in an upcoming revision to the IRS Publication 1220. 

This extension is requested by submitting a letter to the IRS that contains certain information. The extension is not automatic and, if approved, will allow for a maximum of 30 additional days from the original due date.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations. 

The Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services (HHS), collectively known as the Departments, released their final rule on cost-sharing parameters and cost-sharing reductions on February 27, 2015. It finalizes the medical loss ratio programs and a myriad of other related topics in 80 FR 10750. Of particular interest is the finalization of the annual limitation on cost sharing for self-only coverage that applies to all individuals regardless of whether the individual is covered by a self-only plan or by a plan that is other than self-only (family) coverage.

Why is this important? With the proliferation of qualified high deductible health plans (HDHPs) that are paired with health savings accounts (HSAs), HSA-eligible health insurance plans that cover more than one individual with a family deductible required that the family deductible be met prior to paying medical expenses. For example, if a family plan’s deductible is $10,000 and one individual in the family plan incurred expenses of $15,000, the individual would be required to pay the $10,000 family deductible before the plan would begin coverage. However, non-HSA eligible plans that generally begin coverage for one individual prior to reaching the family deductible would be considered to have an individual embedded deductible.

These final rules on cost sharing for essential health benefits (EHBs) require that the individual be responsible for paying the cost sharing related to the costs of medical care EHBs up to the annual limit on cost sharing for self-only coverage regardless of whether the individual has family coverage. The annual limitation on cost sharing applies on an annual basis regardless of whether it is a calendar year or non-calendar year plan. This is a major change in HDHPs for HSAs and could require carriers to change their systems and perhaps impact underwriting and rates for such plans.

HHS and CMS did point out that the deductible limit is not regulated in the same manner as the annual limitation on cost sharing. Therefore, family high-deductible health plans that count the family’s cost sharing to the deductible limit can continue to be offered under this ruling. The only limit will be that the family high-deductible health plan cannot require an individual in the family plan to exceed the annual limitation on cost sharing for self-only coverage. Final rules become effective for plans beginning on or after January 1, 2016.

CMS FAQs

On May 8, 2015, CMS published two FAQs, one of which is related to embedded deductibles in family policy deductibles. Some issuers or plans required participants to exhaust the entire family deductible, regardless of which member incurred health care expenses, before paying the insurance portion of health care expenses. CMS references the final rule published February 27, 2015.

In the final 2016 Notice of Benefit and Payment Parameters (2016 Pay Notice) (80 FR 10750), HHS clarified that the self-only annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in a self-only or other than self-only plan in regard to qualifying HDHPs for HSA compatibility.

Q2. How can an issuer be in compliance with the requirements that the self-only annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in a self-only or in an other than self-only plan, and offer a family high deductible health plan with a $10,000 family deductible?

A2. For 2016, the maximum annual limitation on cost sharing for self-only coverage is $6,850. Consequently, for 2016, an issuer can offer a family HDHP with a $10,000 family deductible as long as it applies a maximum annual limitation on cost sharing of $6,850 to each individual in the plan, even if the family $10,000 deductible has not been satisfied. This standard does not conflict with IRS rules on HDHPs.

Under the requirements for an HDHP, except for preventive care, an HDHP plan may not provide benefits for any year until the minimum statutory annual deductible for that year has been met. The minimum annual deductible for a family HDHP is $2,600 for 2016. Because the $6,850 self-only maximum annual limitation on cost sharing will exceed the 2016 minimum annual deductible amount for family HDHP HSA coverage, it will not cause the plan to fail to satisfy the requirements for a family HDHP.

What about large and self-funded group health plans? On May 26, 2015, the Departments issued FAQ Part XXVII to clear up any uncertainty about the type of group health coverage that must contain self-only embedded deductibles. All non-grandfathered group health plans, including self-insured and large group health plans, must comply with the maximum annual limitation on cost sharing.

This clarification applies for plan or policy years that begin in or after 2016. The purpose of cost-sharing proposals was to ensure that issuers could not reset the annual limitation on cost sharing more frequently than once a year.

Further clarification would be welcome for plans that do not run on a calendar year. WageWorks will keep you apprised of developments as they are issued. 

The information contained in this article is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Frequently Asked Questions (FAQs) are regularly sent out by the Department of Labor (DOL), Health and Human Services (HHS) and the Treasury (collectively, the Departments). FAQ Part XXVI answers questions about cost-sharing expectations for preventive services.

The Affordable Care Act (ACA) required that coverage offered in the individual or group market provide benefits for, and prohibit covered individuals to pay for, certain preventive services. These are called cost-sharing requirements. Preventive services generally cover:

 1. Certain evidence-based services or items recommended by the United States Preventive Services Task Force (USPSTF);

 2. Routine immunization for children, adolescents and adults recommended by the Advisory Committee on Immunization Practices (ACIP);

 3. Preventive care and screenings for infants, children and adolescents supported by the Health Resources and Services Administration (HRSA); and

 4. Preventive care and screening provided to women for comprehensive guidelines supported by HRSA.

Following the release of the first set of cost-sharing requirements in September 2010, many questions arose concerning all the various charges surrounding preventive service requirements. For instance, colonoscopies were to be performed with no cost-sharing to participants. It then became a general practice to charge the participant for anesthesia services and other peripheral items or services.

BRCA Testing

Q. Must a plan or issuer cover without cost sharing recommended genetic counseling and BRCA genetic testing for a woman who has not been diagnosed with BRCA-related cancer but who previously had breast cancer, ovarian cancer or other cancer?

A. Yes. Primary care providers should screen women who have family members with breast, ovarian, tubal or peritoneal cancer with tools designed to identify a family history that may be associated with an increased risk for potentially harmful mutations—BRCA1 or BRCA2. As long as the woman has not been diagnosed with BRCA-related cancer, a plan or issuer must cover preventive screening, genetic counseling and genetic testing without cost sharing.

FDA-Approved Contraceptives

Q. If a plan or issuer covers some forms of oral contraceptives, some types of IUDs, and some types of diaphragms without cost sharing, but excludes completely other forms of contraception, will the plan or issuer comply with Public Health Service (PHS) Act Section 2713 and its implementing regulations?

A. No. Plans and issuers must cover without cost sharing the full range of FDA-identified methods. Thus, plans and issuers must cover without cost sharing at least one form of contraception in each of the 18 methods that are identified by the FDA. A plan or issuer generally may use reasonable medical management techniques and impose cost sharing (including full cost sharing) to encourage an individual patient to use specific services or FDA-approved items within the chosen contraceptive method. Plans and issuers must have an easily accessible, transparent and sufficiently expedient exceptions process that is not unduly burdensome on the individual, provider or patient’s representative to ensure coverage without cost sharing of any service or FDA-approved item within the specified method of contraception as described in the next Q&A, below.

Because the Departments’ prior guidance may reasonably have been interpreted in good faith as not requiring coverage without cost sharing of at least one form of contraception in each FDA method, the Departments will apply this clarifying guidance for plan or policy years beginning on or after the date that is 60 days after publication of these FAQs. That date is July 10, 2015.

Q. If multiple services and FDA-approved items within a contraceptive method are medically appropriate for an individual patient, what is a plan or issuer required to cover without cost sharing?

A. If the individual’s attending provider recommends a particular service or FDA-approved item based on a determination of medical necessity with respect to that individual, the plan or issuer must cover that service or item without cost sharing.

Q. If a plan or issuer covers oral contraceptives, can it impose cost sharing on all items and services within other FDA-identified hormonal contraceptive methods (such as vaginal contraceptive ring or the contraceptive patch)?

A. No. Plans and issuers must cover without cost sharing at least one form of contraception within each FDA method. For the hormonal contraceptive methods, coverage therefore must include, but is not limited to, all three oral contraceptive methods (combined, progestin-only and extended/continuous use), injectables, implants, the vaginal contraceptive ring, the contraceptive patch and emergency contraception. Accordingly, a plan or issuer may not impose cost sharing on the ring or the patch.

Sex-specific Recommended Preventive Services

Q. Can plans or issuers limit sex-specific recommended preventive services based on an individual’s sex assigned at birth, gender identity or recorded gender?

A. No. Preventive service, regardless if sex-specific, that is required to be covered without cost sharing if medically appropriate for a particular individual is determined by the individual’s attending provider. The plan or the issuer must provide coverage for the recommended preventive service, without cost sharing, regardless of sex assigned at birth, gender identity or gender of the individual otherwise recorded by the plan or issuer.

Well-woman Preventive Care for Dependents

Q. If a plan or issuer covers dependent children, is the plan or issuer required to cover without cost sharing recommended women’s preventive care services for dependent children, including recommended preventive services related to pregnancy, such as preconception and prenatal care?

A. Yes. All participants and beneficiaries under a group or individual health plan must cover the eight preventive care services for women, issued August 1, 2011, without cost sharing. If the plan or issuer covers dependent children, such dependent children must be provided the full range of recommended preventive services applicable to them without cost sharing where an attending provider determines that well-woman preventive services are age- and developmentally-appropriate for the dependent.

Colonoscopies

Q. If a colonoscopy is scheduled and performed as a preventive screening procedure for colorectal cancer pursuant to the USPSTF recommendation, is it permissible for a plan or issuer to impose cost sharing with respect to anesthesia services performed in connection with the preventive colonoscopy?

A. No. The plan or issuer may not impose cost sharing with respect to anesthesia services performed in connection with the preventive colonoscopy if the attending provider determines that anesthesia would be medically appropriate for the individual.

Previous FAQs cited that polyp removal was an integral part of a colonoscopy. Accordingly, the plan or issuer may not impose cost sharing with respect to polyp removal during a colonoscopy performed as a screening procedure. On the other hand, a plan or issuer may impose cost sharing for a treatment that is not a recommended preventive service, even if the treatment results from a recommended preventive service.

To see the complete list of all FAQs issued in conjunction with the ACA implementation, go to: http://www.dol.gov/ebsa/health

reform/regulations/acaimplementationfaqs.html

For a list of preventive services, go to: http://www.hhs.gov/healthcare/facts/factsheets/2010/07/preventive-services-list.html

The information contained in this article is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Here’s a “Top Ten” list of reasons why employers and employees should establish Health Savings Accounts (HSAs).

 10. HSA-eligible high-deductible health plans can save premiums for both employers and employees.

 9. HSAs belong to the account holder and are retained by the participant when changing jobs.

 8. HSA contributions are non-taxable.

 7. HSA growth through interest and dividends is non-taxable.

 6. Disbursements for qualified medical expenses are non-taxable.

 5. There is no dollar limit to the amount that may accumulate in an HSA.

 4. The maximum annual contribution may be deposited into an HSA even if it is established mid-year.

 3. HSAs roll forward from year to year. Funds can accumulate for expenses incurred during retirement.

 2. Anyone, including both the employer and the employee, can contribute to an individual’s  HSA during the year.

 1. HSAs’ indexed figures are released earlier than any other benefits’. Below are the 2016 HSA limits.

Congress mandates that cost-of-living adjustments for HSAs must be released by June 1 of every year. The early release of HSA minimums and maximums each calendar year ensures that plan sponsors and their employees have ample time to review plan design options and prepare brochures and educational materials ahead of open enrollment.

Find out more about HSAs at: https://www.wageworks.com/employer/health-care/Health_Savings_Account/default.htm.

The information contained in this article is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Early in 2014 the Internal Revenue Service (IRS), Department  of Labor (DOL) and Health and Human Services (HHS) jointly proposed regulations¹ for dental and vision benefits, employee assistance plans (EAPs) and limited wraparound coverage that would make these coverages “excepted” benefits and not subject to all the laws attached to other group health insurance coverage.

Subsequently, the proposed regulations for dental and vision benefits and EAPs were finalized.² This is an update to the February 2015 column “Final Rules For Excepted Benefits,” discussing the dental and vision finalized regulations. After comments were received, the agencies published a new set of final regulations³ that provides for a “pilot program” which would allow employers to offer benefits to those acquiring individual coverage at the marketplace and certain multi-state plan (MSP) coverage that is comparable to group health plan coverage.

The pilot program is for wraparound coverage that is first offered no earlier than January 1, 2016, and no later than December 31, 2018, and ends no later than on the later of:

1. the date that is three years after the date wraparound coverage is first offered; or

2. the date on which the last collective bargaining agreement relating to the plan terminates after the date wraparound coverage is first offered.

Wraparound coverage cannot replace group coverage but can deliver additional coverage through a group health plan to individuals and families enrolled in nongrandfathered, nontransitional, individual health insurance that does not consist solely of excepted benefits, basic health program (BHP) coverage or certain MSP coverage when employees might find employer coverage unaffordable.

There are five requirements that wraparound coverage must follow in order to be considered excepted benefits:

1. Covers Additional Benefits

The limited wraparound coverage would have to be specifically designed to wrap around eligible individual health insurance, BHP or MSP coverage. The limited wraparound coverage must not only provide benefits under a coordination-of-benefits provision and must not consist of an account-based reimbursement arrangement.

Meaningful benefits offered in wraparound coverage may include reimbursement for the full cost of primary care, the cost of prescription drugs not on the ­formulary of the primary plan, 10 physician visits per year, services for out-of-network providers or onsite clinics.

2. Limited in Amount

The wraparound plan must be limited in amount. The total cost of the coverage per employee (and any covered dependents) under the limited wraparound coverage cannot exceed the greater of the amount of:

 a. the maximum annual contribution for health flexible spending accounts (FSAs) which is $2,500 (indexed) ($2,550 in 2015); or

 b. 15 percent of the cost of coverage under the primary plan.

In either calculation, the cost of the limited wraparound coverage must include both employee and employer contributions toward coverage and be determined in the same manner as premiums calculated under COBRA.

3. Nondiscrimination

Three requirements must be met. The wraparound plan:

 a. cannot impose any preexisting condition exclusion;

 b. cannot discriminate against individuals in eligibility, benefits or premiums based on any health factor of an individual or his family members; and

 c. cannot discriminate in favor of highly compensated employees.

4. Plan Eligibility Requirements

 ndividuals eligible for the limited wraparound coverage cannot be enrolled in excepted benefit coverage that is a health FSA. In addition, plans must comply with one of two alternative sets of standards relating to eligibility and benefits.

 a. Either it applies to wraparound benefits offered in conjunction with eligible individual health insurance or BHP coverage.

  i. The employer offering wraparound coverage offers its full-time employees coverage that is substantially similar to coverage that the employer would need to offer to its full-time employees in order not to be subject to a potential assessable payment under the employer shared responsibility provisions.

  In the event the employer has no full-time employees for any plan year limited wraparound coverage is offered, the requirements of this standard are met.

  ii. Must be offered to employees who are not full-time employees (and their dependents) or who are retirees (and their dependents). Full-time employees are those employees who are reasonably expected to work at least an average of 30 hours per week.

  iii. The other employer group health plan, not limited to excepted benefits, must be offered to individuals eligible for the wraparound coverage. Only employees eligible for other group health plan coverage may be eligible for the wraparound coverage.

 b. Or, it applies to coverage that is a wraparound of certain MSP coverages and must satisfy four requirements. The Office of Personnel Management (OPM) may verify that plans and issuers have reasonable mechanisms in place to ensure the contributing employers meet these standards.

  i. The limited wraparound coverage must be reviewed and approved by the OPM to provide benefits in conjunction with coverage under an MSP, under Section 1334 of the Affordable Care Act (ACA).

  ii. The employer must have offered coverage in the plan year that begins in either 2013 or 2014 that is substantially similar to coverage that the employer would need to have offered to its full-time employees in order not to be subject to the employer shared responsibility provisions.

  iii. In the plan year that begins in either 2013 or 2014, the employer must have offered coverage to a substantial portion of full-time employees that provided minimum value and was affordable. In the event the employer has no full-time employees for any plan year limited wraparound coverage is offered, the requirements of this standard are met.

  iv. For the duration of this pilot program, the employer’s annual aggregate contributions for both primary and limited wraparound coverage must be substantially the same as the employer’s aggregate contributions for coverage offered to full-time employees in 2013 and 2014. This condition is met if contributions were at least 80 percent of contributions made in 2013 or 2014, applied on an average, to full-time worker basis.

5. Reporting Requirements

The fifth and final requirement of this proposed regulation is a reporting requirement for group health plans and group health insurance issuers, as well as group health plan sponsors.

A self-insured group health plan or group health insurance issuers offering wraparound coverage in connection with MSP coverage will report to OPM. In addition, the plan sponsor of any group health plan offering limited wraparound coverage that wraps around eligible individual health insurance, BHP or MSP coverage must report to HHS.

The reporting requirements will allow HHS to determine if plan sponsors provide workers with comparable benefits or if the wraparound coverage offered by the plan sponsor is causing an erosion of coverage. The entire set of final regulations can be found at: http://www.gpo.gov/fdsys/pkg/FR-2015-03-18/pdf/2015-06066.pdf.

Footnotes:

 1. 26 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 78 Fed. Reg. 77632 (Dec. 24, 2013)

 2. 26 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 79 Fed. Reg. 59130 (Oct. 1, 2014)

 3. 26 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 146, 80 Fed. Reg. 13995 (March 18, 2015)

The information contained in this article is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Although an election to a cafeteria plan is generally irrevocable, there are times when a participant may change his election. For information about permissible changes, please refer to the change in status rules and Internal Revenue Service  (IRS) Regulation 1.125-3. This regulation summarizes the effect of the Family and Medical Leave Act (FMLA) on the operation of a cafeteria plan.

The leading principle outlined mandates that employers offer coverage under the same conditions as would have been provided if the employee were continually working during the entire leave period.

The article examines the IRS Regulation 1.125-3 rules for participants going on an unpaid FMLA leave. It summarizes employees’ rights to continue or revoke coverage and cease payment for health flexible spending accounts (FSAs) when taking an unpaid FMLA leave and specifications for participants returning from leave.

Coverage Continuation

Employers may require an employee who chooses to continue coverage while on FMLA leave to be responsible for the share of premiums that would be allocable to the employee if the employee were working. FMLA requires the employer to continue to contribute their share of the cost of employees’ coverage.

Cafeteria plans may offer one or more payment options to employees who continue coverage while on unpaid FMLA. These options are pre-pay, pay-as-you-go and catch-up.

 • Pre-pay is paying for coverage in advance of the FMLA leave. This may be a difficult method of continuing coverage for a couple of reasons. The first consideration is if participants cannot afford to have extra funds taken from their paychecks, and the second consideration is a timing issue. Most leaves involve an incident or circumstance that is not planned, making the pre-pay option impossible to deduct from participants’ paychecks. However, if planning in advance is feasible, the coverage can be paid on a pre-tax basis through the cafeteria plan.

 • The pay-as-you-go option means that participants pay their share of coverage payments on a schedule as if they were not  on leave. This method would require the participant to write a check to the employer each month or pay period in order to continue coverage. Since no payroll is taking place, this payment is with after-tax dollars.

 • Catch-up contributions allow employees to continue coverage but suspend coverage payments during their leave. Contributions are made up upon their return. The advantage is that contributions can be taken out on a pre-tax basis through a cafeteria plan. The downside for the employer is if the participant does not return from the leave, the employer may have reimbursed expenses in anticipation of the participant making up the coverage payments.

The cafeteria plan may offer one or more of the payment options and may include the pre-pay option for employees on an FMLA leave even if this option is not offered to employees on a non-FMLA leave. However, the pre-pay option may not be the only option offered.

As long as employees continue health FSA coverage, or employers continue it on their behalf, the full amount of the election for the health FSA, less any prior reimbursements, must be available to the participant at all times, including the FMLA leave period.

Coverage Revocation

Prior to taking an unpaid leave participants may revoke existing health FSA coverage. Failure to make required payments during an FMLA leave may also result in lost coverage. Regardless of the reason for the loss of coverage under FMLA, plans must permit employees to be reinstated in the health FSA upon their return.

Depending on the plan document language, returning employees may decide not to elect coverage into the health FSA; or plans may require returning employees to be reinstated in health coverage. If the employer requires reinstatement into the plan, they must also require those returning from an unpaid leave not covered by the FMLA to also resume participation upon return from leave.

The employer also has the right to recover payments for benefits when the employee revokes coverage.

If coverage under the health FSA terminates while employees are on FMLA leave, employees are not entitled to receive reimbursement for claims incurred during leave. Even if employees wish to be reinstated upon return for the remainder of the plan year, employees may not retroactively elect health FSA coverage for claims incurred during leave when coverage was terminated.

Employees have the right to reinstate coverage at the level before their FMLA leave and make up unpaid coverage payments; or they may resume coverage on a pro-rated basis at a level that is reduced for the period during FMLA leave for which no premiums were paid. This pro-rated level of coverage is further reduced by prior reimbursements and future coverage payments are due in the same monthly amounts payable before the leave.

Examples

Annual Election   $1,200          

Contribution prior to FMLA employees paid twice per month      $400 (8 pay periods)

Disbursed prior to FMLA   $600     

FMLA  from  May 1 to July 31   6 pay periods

Number of pay periods remaining in plan year   10

 • Reinstate coverage. Using the above facts, and upon the participant’s return from FMLA, their annual election will remain at $1,200. Their election, or coverage amount, for the remainder of the year is as follows: original annual election minus reimbursed to date ($1,200 – $600) = $600. The new per pay period contributions will increase to $80 per pay period. Remember, they are making up contributions from the three-month leave.

The employee will contribute $1,200 ($400 contributed prior to the leave + $800 [$80 x 10]). The employer exposure is $1,200 ($600 disbursed prior to leave + $600) available upon their return. Now let’s see what happens if employees choose to prorate coverage upon their return from FMLA leave.

 • Prorate coverage. The calculation is different in this instance. A new annual election is determined. This is done by prorating the original annual election for the months participants were absent. Using the same facts as above, the annual election amount – six pay periods that were missed ($1,200 – $300) = $900. The new prorated annual election, reduced by prior reimbursements ($900 – $600) = $300. The per pay period contribution remains the same as before at $50 per pay period. In this instance the employee will contribute $900 ($400 + $500) with an employer exposure of $900 ($600 + $300).

In either scenario, employees are not covered for the time they are on FMLA if coverage is revoked. They may not turn in claims that were incurred during leave whether they choose reinstatement or prorated coverage upon their return.

Certain restrictions apply when an employee’s FMLA leave spans two cafeteria plan years. A cafeteria plan may not operate in a manner that enables employees on FMLA leave to defer compensation from one plan year to a subsequent cafeteria plan year. In other words, employees may not pre-pay for coverage in one plan year that pays for coverage in the subsequent plan year.

And finally, employees on FMLA leave have all the rights to change their elections according to the change in status rules under IRS Regulation 1.125-4 when returning from an unpaid leave of absence. They may also enroll in benefits for new plan years or any benefits that may have been added by the employer while they were on leave.

If on paid FMLA leave, the employer may mandate that the employee’s share of premiums be paid by the method normally used during the time the employee was working.

The information contained in this article is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Additional guidance, plus some transition relief, has been issued from “The Departments” (Department of Labor, Department of Health and Human Services, Treasury Department and the IRS) in Notice 2015-17 that reiterates previous guidance addressing employer payment plans (EPPs) as outlined in Notice 2013-54.

Notice 2015-17 provides transition relief from the assessment of excise taxes, under IRS Code Section 4980D, for failure to satisfy market reforms in certain circumstances. The transition relief applies to employee healthcare arrangements that constitute:

 • EPPs that are sponsored by employers that are not “applicable large employers (ALEs);”

 • S corporation health care arrangements for 2 percent shareholder employees;

 • Medicare premium reimbursement arrangements;

 • TRICARE-related health reimbursement arrangements (HRAs); and

 • Taxable increases to compensation to provide health care coverage.

Bottom line, EPPs that reimburse or pay for all or a portion of individual health insurance policy premiums are group health plans, must comply with the Affordable Care Act (ACA) market reforms and cannot be integrated with individual market policies. So what exactly are employer payment plans, some of the ACA market reform requirements, the meaning of integrating plans—and why should employers care?

Background

EPPs are defined as arrangements under which employers provide reimbursements or payments that are dedicated to providing medical care, such as cash reimbursements for the purchase of an individual market policy.

ACA market reforms are wide-ranging and some are downright complicated. This notice is most concerned about just a couple of health plan rules:

Health plans may no longer have an overall dollar limit (this is in the original ACA statute). Some components of a group health plan may have limits, but there is an annual limit prohibition for the overall plan. There is also a requirement that health plans provide certain cost-free preventive services (this too is in the original ACA statute). However, EPPs that have fewer than two participants who are current employees (for example, a retiree-only plan) on the first day of the plan year are not subject to the ACA market reforms and therefore do not need to satisfy the market reforms.

There are rules on how ancillary health plans such as health flexible spending accounts (FSAs) and some HRAs must be integrated with employers’ group health insurance coverage in order to adhere to ACA market reform. In other words, putting two plans together to become one that has no annual limit and provides cost-free preventive services. However, as previous notices have recited, EPPs cannot be integrated with individual market policies to satisfy market reforms.

Employers not meeting these requirements and offering EPPs would be mandated to pay an excise tax under Code Section 4980D. Excise taxes are accumulated at a rate of $100 per day per employee. That amount can be quite overwhelming for any employer but can be especially burdensome for small employers.

For an in-depth explanation of EPPs and ACA market reform, please see my columns Three New Facts About Individual Insurance Reform, Affordable Care Act Changes For Health Reimbursement Arrangements and Affordable Care Act Changes For Flexible Spending Accounts.

Notice 2015-17, which was issued February 18, 2015, answers more EPP questions and contains transition relief from excise taxes for small employers.

Transition relief for small employers: ACA excise relief under Section 4980D. In the past, small employers may have offered EPPs as described in Notice 2013-54. It was a general practice for employers to provide health insurance premium assistance for both group and individual insurance policies. However, when Notice 2013-54 was issued in September 2013 it eliminated employers’ abilities to help employees pay for individual health policies on a tax-free basis.

Because the marketplace is still transitioning and other alternatives will take time to implement, Notice 2015-17 provides relief for employers that are not considered ALEs, defined as employers who average fewer than 50 full-time employees, including full-time equivalents, on all business days during the preceding calendar year.

Transition relief from Code Section 4980D excise taxes only extends from January 1 through June 30, 2015, and only for employers who:

 • were not considered ALEs for 2014 and

 • are not ALEs for 2015.

After June 30, 2015, employers who are not ALEs may be liable for the excise tax. Of course, this is pending further guidance or congressional action. However, now is the time for small employers to review health care offerings and bring them into compliance.

Treatment of S corporation health care arrangements for 2 percent shareholder employees. The Departments are contemplating publication of additional guidance on ACA market reforms and whether they apply to 2 percent shareholder employee healthcare arrangements. A 2 percent shareholder employee is defined as any person who owns (or is considered as owning within the meaning of Section 318 rules of attribution) on any day during the S corporation taxable year, more than two percent of the outstanding stock.

ACA reforms do not apply to group health plans that have fewer than two participants who are current employees on the first day of the plan year. This statute can be applied to a health care reimbursement plan that has a 2 percent shareholder employee or other employee as the only participant at the beginning of any plan year.

Conversely, when an S corporation maintains more than one such arrangement, all such arrangements are treated as a single arrangement and must comply with ACA market reforms. However, if an employee is covered by a reimbursement arrangement with family coverage that includes a spouse or dependent who is also employed by an S corporation, that plan is considered to cover only the one employee.

Until such new guidance is released, or at least through the end of 2015, the excise tax will not be asserted for failure of 2 percent shareholder employee health care arrangements to comply with ACA market reforms.

As the rules stand now, a 2 percent shareholder employee is allowed both the deduction under Code Section 162(l) and the premium tax credit. Revenue Procedure 2014-41 provides guidance on computing the deduction and the credit with respect to the 2 percent shareholder.

Integration of Medicare and TRICARE-related HRAs with a group health plan. An EPP may not be integrated with Medicare coverage to satisfy ACA market reforms because Medicare is not a group health plan. However, for purposes of the annual dollar limit prohibition and the preventive services requirement, an EPP may be considered integrated if:

 • Employer offers a group health plan (other than the EPP) that does not consist solely of excepted benefits and offers minimum value;

 • employees in the EPP are actually enrolled in Medicare Parts A and B;

 • EPP is available only to employees who are enrolled in Medicare Part A and Part B or Part D; and

 • EPP is limited to premiums for Medi­care Parts B or D and excepted benefits, including Medigap premiums.

If this type of arrangement is available to active employees, it may be subject to restriction under other laws, such as the Medicare secondary payer provisions.

Similar rules apply for integrating TRICARE-related HRAs with a group health plan if:

 • Employer offers group health plan (other than the HRA) that does not consist solely of excepted benefits and provides minimum value;

 • employees participating in the HRA are actually enrolled in TRICARE;

 • HRA is only available to employees who are enrolled in TRICARE;

 • HRA is limited to reimbursement of cost sharing and excepted benefits, including TRICARE supplemental premiums.

Increases in employee compensation for individual market coverage. Employers may increase employees’ taxable compensation with no condition that the funds be used for health coverage. This is not considered a group health plan and is not subject to ACA market reforms. Providing employees with information about the marketplace or premium tax credit is not an endorsement of a particular policy, form or issuer of health insurance.

Treatment of an employer payment plan as taxable. The misconceptions surrounding Revenue Ruling 61-146 are fully explained in this notice as well. Although Revenue Ruling 61-146 continues to apply, it does not address the application of ACA market reforms. As soon as the employer invokes the requirement for reimbursements or payments to be dedicated to providing medical care, such as cash reimbursements for individual policies, the payment plan becomes a group health plan. And, group health plans are subject to ACA market reforms and cannot be integrated with individual policies to satisfy market reforms.

As you can see, this notice sets the stage for additional guidance. WageWorks will keep you informed of changes and clarifications as they become available. 

The information contained on this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Revenue Ruling 2014-32 released November 21, 2014, reads like a primer for transportation fringe benefits provided through electronic media. The Revenue Ruling is written in a scenario format with eight different detailed scenarios followed by a thorough explanation of the law, including code sections, regulations numbers and Q/A references. An analysis of each scenario follows to explain why each particular scenario can or cannot be provided as a non-taxable fringe benefit to employees.

Below are outlined the employer transit payment processes followed, in bold italic, by the IRS holding for each scenario indicating whether or not the processes described allow for transit expenses to be excluded from the employee’s gross income. In all the following scenarios, it is assumed that the participant is not receiving a pre-tax benefit in excess of the monthly transit limit.

Situation 1. Transit system provides smartcards that employers use to provide transportation benefits to their employees. The amount stored on the smartcards can be used only for fare media and cannot be used for any other purpose. Employer makes monthly payments to the transit system, which loads these funds onto each employee’s smartcard as instructed by the employer. Employer does not require its employees to substantiate their use of the smartcards.

Qualifies as a transit pass and the value of the fare media may be excluded from employees’ gross income.

Situation 2. Employer provides to its employees terminal-restricted debit cards for use only at merchant terminals at which only fare media for local transit systems is sold. Employer sends funds to debit card provider on behalf of employees and debit card provider allocates the funds to each employee’s terminal-restricted debit card as instructed by the employer. Employer does not require its employees to substantiate their use of the debit cards.

Qualifies as a transit pass and the value of the fare media may be excluded from employees’ gross income.

Situation 3. Employer provides to its employees debit cards restricted by merchant category codes (MCCs) indicating that the merchant sells fare media. However, the merchant may or may not also sell other merchandise. A voucher or similar item exchangeable only for a transit pass is not otherwise readily available for purchase by the employer for direct distribution to employees.

For the first month that the employee participates in the program, employee pays for fare media using after-tax dollars. Employee then substantiates the expenses for that first month to his employer following reasonable substantiation procedures as described in Regulations Section 1.132-(9)(b) Q/A-16(c). The employer then sends an amount equal to the substantiated amount to the debit card provider to be electronically allocated to the debit card assigned to the employee.

For subsequent months, the employer reimburses the employee for fare media expenses incurred by providing funds to the debit card provider to be allocated to the employee’s debit card equal to the amount of fare media expenses substantiated under the following procedures. Employer receives and reviews periodic statements providing information on the use of each debit card which includes:

 • The identity of the merchants at which the debit card was used.

 • Dates and amounts of debit card transactions.

In addition, for the first month that the debit card is used, prior to providing any additional reimbursement through the debit card provider, the employer requires that employees certify that the debit card was used only to purchase fare media.

For subsequent months, the employer does not require any additional employee certifications prior to reimbursement of recurring expenses that match the seller and the time period covered for expenses previously substantiated (e.g., for employees who purchase a transit pass every month in the same amount from the same seller). In addition, the employer requires a recertification at least annually from each employee that the debit card was used only to purchase fare media.

If expenses increase (still within the monthly transit limit), participants pay the increased fare media expenses by some method other than the use of the debit card and submits all required information to the employer who substantiates the additional amount using a reasonable substantiation method. Once properly substantiated, this newest substantiated claim is now the basis for a recurring claim and future debit card purchases in the new amount using the same vendor. If the vendor changes, the employee re-substantiates the expenses for the first month incurred with the new vendor following reasonable substantiation procedures.

The MCC-restricted debit card is not a voucher, but is part of a bona fide reimbursement arrangement. Therefore, the value of the fare media provided to employees through the MCC-restricted debit cards may be excluded from employees’ gross income.

Situation 4. Employers obtain debit cards from a debit card provider in order to provide transportation benefits to their employees. The debit cards are restricted to MCCs indicating that the merchant sells fare media. However, the merchant may or may not sell other merchandise. A voucher or similar item exchangeable only for a transit pass is not otherwise readily available for purchase by the employer for direct distribution to employees.

The employer provides the MCC-restricted debit card to its employees as soon as they begin employment. Employer requires a certification from employees prior to using the debit card that the card will only be used to purchase fare media. In addition, written on each debit card is the statement that the card is to be used only for fare media and, by using the card, the employee certifies that the card is being used only to purchase fare media. At no time do the employees substantiate to the employer the amount of fare media expenses that have been incurred.

This debit card process is not a transit voucher and not a qualified reimbursement plan. The amounts the employer provides to its employees through the MCC-restricted debit cards are included in its employees’ gross income.

Situation 5. Employers obtain debit cards from a debit card provider in order to provide transportation benefits to their employees. The debit cards may be used to purchase fare media on several transit systems within the metropolitan area in which the employer is located. The debit cards are restricted to MCCs indicating that the merchant sells fare media. However, the merchant may or may not sell other merchandise. The employer, along with the debit card provider, places additional restrictions on the debit card based on the Merchant Identification Number (MIN). These restrictions block all purchases from any merchant in the area with an acceptable MCC that sells any items other than fare media. These restrictions have been tested and effectively prohibit recipients of the debit cards from using them to purchase any items other than fare media. Employer sends monthly payments to debit card provider who allocates the funds to each employee’s debit card as instructed by the employer. Employees are not required to substantiate their use of the debit cards.

Qualifies as a transit pass. The value of the fare media provided through the MCC-restricted debit cards is excluded from the employees’ income without requiring the employees to substantiate the use of the debit card. The value of the fare media is also excluded from its employees’ gross income.

Situation 6. Same facts as Situation 5, except the employer also provides the debit card to employees who commute using commuter highway vehicles (often called “vanpools”). The vanpool voucher provider does not sell any other merchandise. However, if purchases are made online by the employee, a reasonable and customary delivery charge is added to the vanpool voucher purchase.

Qualifies as a transit pass, including the delivery charge (aggregate cost cannot exceed the statutory monthly limit). The value of the fare media (and delivery charge) provided through MCC-restricted debit cards is excluded from employees’ income without requiring employees to substantiate the use of the debit card.

Situation 7. Two different employers provide employees with smartcards that may be used on a particular transit system. The smartcard includes separate accounts that separately track (a) funds provided directly by the employer that are available only for transit use, (b) funds provided directly by an employer that are only available for non-transit use (e.g., parking), and (c) funds added by the cardholder/employee that are available for either transit or non-transit use. Funds cannot be transferred between accounts.

A debit card provider has available debit cards, which may be used by employers to provide transportation benefits to their employees. Similar to Situation 5, the debit cards are restricted for use only at merchants that have been assigned an MCC indicating that the merchant sells fare media and the cards also contain restrictions based on a merchant’s MIN. Except as provided below, these restrictions block all purchases from any merchant in the area with an acceptable MCC that sells any items other than fare media.

One employer allows its employees to use the debit card to load fund onto the smartcard. When funds are loaded onto the smartcard using this debit card, the funds are automatically put into the account on the smartcard that allows these funds to be used for either transit or non-transit use. This employer does not require its employees to substantiate their use of the debit card.

To the extent the debit card is used to add funds, it does not qualify as a transit pass. The value of the benefits provided by this employer to its employees through the MCC-restricted debit card for use to fund the smartcard is included in the employees’ income.

By contrast, another employer provides funds directly to the transit system. Each month the transit system loads each of the employees’ smartcard accounts that can only be used for transit. The employer does not require its employees to substantiate their use of the smartcard.

Qualifies as a transit pass. The value of the fare media added to the employees’ transit accounts is excluded from the employees’ income and is excluded from employees’ gross income.

Situation 8. Employer has been providing transit benefits to its employees via a bona fide reimbursement arrangement. A debit card provider offers a terminal-restricted debit card, which is readily available for use in the employer’s geographic area of business. The terminal-restricted debit card is the only readily available voucher or similar item in the area.

Beginning after December 31, 2015, employers may not provide qualified transportation fringe benefits in the form of cash reimbursement for transit passes because the terminal-restricted debit cards qualify as transit passes and are readily available. The amount of cash reimbursed for transit passes is included in its employees’ gross income.

Employers should confirm that their transit debit card provider offers terminal-restricted debit cards for all regions of the country that comply with all the approved scenarios outlined by the IRS including pass fulfillment for transit and vanpooling.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

This is an update to my article from April 2014. The agencies have finalized the proposed regulations for dental and vision benefits and employee assistance programs (EAPs) that outline the definitive excepted benefit rules for these types of coverage. Final regulations to address limited wraparound coverage, sketched out in the proposed regulations, will be issued in the future.

Background

Health flexible spending accounts (FSAs) must be excepted benefits to be offered to employees, and health reimbursement arrangements (HRAs) must be integrated, a retiree-only plan, a limited-scope HRA that provides only dental and vision expense reimbursement, or a spend-down account in order to continue to be offered by employers. Maintaining excepted benefit status for certain benefits relieves employers and plan sponsors from added requirements under the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA).

Health FSAs, HRAs and

Long Term Care Benefits

Limited-scope vision and dental benefits do not have to be offered in connection with a separate offer of major or “primary” group health coverage under the plan in order to meet the statutory criteria that such benefits are “otherwise not an integral part of the plan.” To meet this criterion, limited-scope vision and dental benefits may be offered without connections to a primary group health plan or may be the only plan offered by the employer.

Effective for plan years starting on or after January 1, 2015, limited-scope vision and dental benefits will be treated as excepted benefits if provided under a separate policy, certificate or contract of insurance or are otherwise not an integral part of a group health plan, which means:

 • Participants may decline coverage or

 • Claims for the benefits are administered under a contract separate from claims administration for any other benefits under the plan.

Long term care benefits are also subject to the “not an integral part of a group health plan” standard in order to be classified as excepted benefits.

Employee Assistance Programs

EAPs are programs offered by employers that typically provide very limited benefits to address circumstances that might otherwise adversely affect employees’ work and health. Unfortunately, some EAPs that provide a few benefits beyond the scope of very limited benefits might be enough to disqualify employees from obtaining premium assistance at the marketplace.

The Department of Labor’s final guidance provides that, starting in 2015, EAPs will be excepted benefits if the program:

 • Does not provide significant benefits in the nature of medical care. For this purpose, the amount, scope and duration of covered services are taken into account;

 • Is not coordinated with benefits under another group health plan;

 1) Participants in the other group health plan must not be required to use and exhaust benefits under the EAP before eligibility for benefits under the other group health plan; and

 2) Participant eligibility under the EAP must not be dependent on participation in another group health plan;

 • Does not require any employee premiums or contributions to participate; and

 • Does not impose any employee cost sharing.

Unfortunately, although the proposed regulations suggested a definition of “significant benefits,” these guidelines were not included in the final regulations. The departments may, through additional guidance, provide clarification regarding when a program provides significant benefits in the nature of medical care. 

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.