We’re no longer poised on the brink of the new year or health care reform. We’ve already jumped into another year of changes and uncertainty. Everyone from participants to advisors has loads of questions about what’s going to happen. While I can’t predict the future, we can look at what has changed and is in effect right now and what you and your employer clients should be considering.
Over-The-Counter Drugs and Debit Cards
As of this article’s writing, beginning January 1, 2011, participants may not use their health care debit cards to purchase over-the-counter (OTC) drugs or medicines. The IRS granted a grace period so that vendors could update their lists and programming to comply with these new rules. So, depending on the vendor, OTC drugs or medicines may be available at one vendor up to January 15, 2011, while other vendors may have updated their lists sooner.
This can cause confusion among participants who use different merchants and will increase phone calls to TPAs and floods of visits to the employers’ human resources departments.
Participants are going to have all kinds of questions about how to pay for OTC drugs or medicines through their flex plans. They first must obtain a prescription from their physician that complies with state prescribing laws. I’ve had lots of questions about what the prescription should say. Different states have different requirements for prescriptions. The participants’ physicians are familiar with the rules for their states and will fill out a prescription accordingly.
Prescriptions may be filled through a pharmacy or participants may turn in claim forms to the TPAs with a detailed receipt for the item(s) and a copy of their prescription attached. The SIGIS Association (Special Interest Group for IIAS Standards) is still working with the IRS and Treasury to clarify the use of the card for prescribed OTC drugs and medicines.
Update on W-2 Reporting
As I reported in November 2010, the value of all employer-provided health insurance must be disclosed on an employee’s W-2. However, the IRS announced October 12, 2010, that this new reporting requirement will be optional for 2011. The draft version of Form W-2 that is currently available includes the codes and boxes for reporting.
Guidance on this new requirement is expected by the end of 2010. Necessary information appears to include the COBRA rate of all health coverage whether fully insured or self-insured, employer contributions to health reimbursement arrangements (HRAs), employer contributions and cafeteria plan salary reductions to HSAs or employer contributions to MSAs, and both non-elective and salary reductions to health FSAs. Dental and vision costs, accident and disability insurance, long term care insurance and after-tax funded hospital indemnity and/or specified disease coverage are not included in this W-2 reporting requirement.
It’s important to note that this value is simply to be reported starting next year; it does not affect the employee’s taxable income in any way.
HRA Reporting to CMS
Employers who sponsor certain health reimbursement arrangements (HRAs) may be asked for additional information from their HRA plan administrators. The Centers for Medicare and Medicaid Services (CMS) now requires the entity that pays the claims for the employer’s HRA report participant, spouse and dependent information. CMS wants to make sure that they are second payer if the HRA participant, spouse or dependent is enrolled in Medicare and has other health coverage. Unfortunately, “other health coverage” includes HRAs.
HRAs that need to report include:
• HRAs that cover essential benefits (CMS has not yet provided a definition of “essential”). Providers that pay claims (i.e., plan service providers or third party administrators) are responsible for reporting. They are referred to as the responsible reporting entity (RRE).
• All HRAs, whether the HRA would be considered a standalone or embedded HRA.
• Participants who are actively at work and enrolled as a Medicare recipient or dependent of an active worker who is a Medicare beneficiary.
Exceptions to HRA reporting consist of:
• HRAs that only cover non-essential benefits. For instance, a limited-purpose HRA that covers just dental or vision would not have to report.
• No retroactive reporting. The first filing will generally be for new coverage that starts October 1, 2010, and subsequent plan year starts. HRA coverage should be reported as soon as possible after the effective date of coverage.
• Retiree-only plans.
• Participants with an account balance of less than $1,000 at the beginning of the coverage period.
Participant, spouse and dependent information is gathered from the employer and/or participant and sent via file to CMS by the plan’s TPA.
If your employer client sponsors an HRA, make sure they know that reporting is required. They should contact their TPA to ensure timely reporting to CMS and quickly respond to requests from their TPA for information to complete the report.
Do you or your employers want more information about this reporting requirement? Take a look at the CMS website at: www.cms.gov/mandatoryinsrep/.
What to Do Right Now
As I mentioned in my November 2010 column, employers need to optimize their plans now. Don’t wait for rules to change or see how health care reform is all going to shake out.
• Ensure that employee contributions toward premiums are being paid with pre-tax dollars.
• Maximize savings for both the employer and employees by raising the health care flexible spending account limits in the Section 125 cafeteria plans when their plan year renews.
• Provide debit cards for convenience and security to not only pay for health care related expenses but for parking and transit plans.
The plan year has already begun for those with January 1 start dates, but employers still have options to maximize benefits and tax savings. The employer can allow enrollment in a new benefit after the beginning of the new plan year. Think about voluntary products that won’t cost the employer any money—but employees see as a real benefit.
Of course, health care reform is a moving target with promises and threats of repeals and changes in the coming months. I will keep my ear to the ground and continue to report the latest changes on the health care reform front.
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.
