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  • Payroll Update: Health Costs Reported on 2011 W-2s

    The other day, I received an email with some propaganda-like information about the impending tax hikes coming in 2011 as a result of the tax cuts that are set to expire this December 31st.  At the end of the email was a rant about how you will be taxed on your health insurance costs next year because of the new W-2 reporting requirement.  I’m not sure how prevalent this belief is, but this is not true! The employee will not be taxed on the employer’s cost of health insurance, and the employee’s tax liability will not change.  As of right now, the only tax on health insurance will be on the high cost “Cadillac plans” starting in 2018.

    As a background, part of the PPACA healthcare reform laws is a new requirement for employers beginning in 2011.  Employers will need to calculate the total cost of providing health insurance for each individual employee, and report this number on the employee’s W-2.  Just because this number is reported on the W-2, it does not mean the employee will be taxed on this money.  The W-2 form contains boxes used for informational purposes.  The IRS has yet to issue specific guidance on where exactly this number needs to be reported, but we suspect it will either be Box 12 or 14, or perhaps the W-2 will be redesigned to accommodate this new number.  Regardless, this new reporting requirement will not increase taxes to the employee or employer.

    The IRS says the main purpose of this reporting requirement is to show employees the true cost of their health insurance costs, so they may be more informed consumers.  Other purposes are said to be served as well, including the government getting a better idea of exactly how many people are covered by employer-provided healthcare coverage, the loss of tax revenue as a result of this tax sheltered money, and the values of the high cost Cadillac plans that will begin to be taxed in 2018.

    Two Things To Start Preparing Now:

    1. Prepare Your Payroll System:  Check with your payroll service provider or internal IT staff to confirm that the health insurance cost can be tracked in your payroll software for W-2 reporting purposes.  In our case, we use “Company Contributions” that show informational numbers such as 401(k) match and the employer share of benefits.  Make sure that wherever the amount is stored in your payroll system that it does not affect the employee’s gross pay.  Also, make sure that your payroll system gives you the capability to report such non taxable money in a specific box on the W-2 Form.  If the IRS ends up using Box 12 or 14, you will also need the ability to apply a label or code (whichever is applicable).
    2. How To Calculate:  A total annual amount of both the employee plus employer costs needs to be calculated for each individual employee.  You can use the COBRA premium amount, minus the 2% administration fee, as the monthly base amount.  This amount will then need to be annualized for the number of months they were covered under the health plan.  Note that if the employee had a coverage change some time during the year, whether it was changing the number of people covered in the family, or changing plan choices, this will need to be taken into account.  Every single employee could have a different number, based on their activity.  So fire up your spreadsheets now!  Here are the types of group health plans that need to be included in the aggregate number:
      •   Medical plans
      •   Prescription Drug Plans
      •   Executive Physicals
      •   Onsite clinics providing more than “de minimus” care
      •   Medical Supplemental Policies
      •   Employee Assistance Programs

    If your dental or vision coverage is part of your group medical plan, these costs must be included too.  If they are stand-alone plans, meaning your employees can individually elect or decline coverage independent of their medical coverage, these do not need to be included.  Contributions to FSA’s, HSA’s, long term care, disability, and voluntary supplemental policies are also not included.

    Even though technically these health insurance costs don’t have to be reported until January of 2012, when W-2’s are issued for the year 2011, there may be a situation where you need to issue a W-2 to a terminating employee who leaves before the end of 2011.  Therefore, your company must be ready by February 1, 2011 to report these costs.  Now is the time to plan how your company will meet this requirement.

    Over the Counter Meds and FSAs in 2011

    One of the provisions of the Patient Protection and Affordable Care Act (PPACA) is the elimination of over-the-counter medicines as eligible expenses that can be paid for tax-free through a Flexible Spending Account (FSA), Health Reimbursement Account (HRA), or Health Savings Account (HSA).  The addition of over-the-counter medicine to the list of tax free medical items was added back in 2003.  So the rules are simply reverting to how they were eight years ago.

    Beginning January 1, 2011, FSA participants will need to be more careful in estimating their annual election amount.  With the “use it or lose it” rule, there may be a greater chance of “losing” instead of “using” the money since they won’t have the option to use up any FSA balance by going to the pharmacy and buying seven boxes of sinus medicine at the end of the year.

    There will be a couple of exceptions to the new OTC rules.

    1)      Insulin for diabetics that is currently purchased over-the-counter can still be purchased tax free with an FSA.

    2)      If you have a doctor’s prescription for a specific over-the-counter medicine, you can continue to use your FSA/HSA to purchase this medicine.  If your FSA provider offers you a debit card, you most likely will not be able to use your debit card to pay for this.  Instead, you will need to request reimbursement from your FSA provider.  Your FSA provider will ask you for a copy of the doctor’s prescription and a letter of medical necessity.

    So there are ways to still pay for OTC medicine with your FSA, but your doctor must agree that you need it for medical purposes.  HSA participants must also keep their doctor’s documentation on file, in case of a personal IRS audit.

    The IRS has yet to come out with the specific list of what will be excluded beginning next year, but the general rule is any over-the-counter medicines used to treat an ailment will no longer be an eligible item.  Examples would be medicines for allergies, sinus and colds, digestive ailments, and pain relievers.  Other medical supplies, such as bandages and thermometers, are still eligible expenses.

    Two other changes made by the PPACA affecting tax free accounts:

    HSA’s:  Beginning January 1, 2011, the tax penalty for HSA funds spent on non-approved medical expenses will increase from 10% to 20%.  So you’ll want to think twice before using your HSA money to buy that large screen TV.  This penalty is reported to the IRS at the time you file your income taxes.

    FSA’s:  Beginning January 1, 2013, employees can only elect up to $2500.00 per year.  While this limit may not affect those who usually don’t elect that much, it will affect those who put away higher amounts for orthodontia and other upcoming big ticket medical expenses.   Currently, there is no IRS imposed limit on the amount of money you can elect to contribute to an FSA.  The employer has the option to set their own limit for their employees, since the employer takes the risk of paying out the entire amount if the employee leaves mid-year, and is not able to recoup the rest of the money through payroll deductions.

    The CLASS Act: Facts and Fallacies About Long Term Care Insurance

    There has been a great deal of information – and some false information – circulating about the long term care insurance portion of Healthcare Reform.

    The Community Living Assistance Services and Supports Act (CLASS Act) is Title VIII of the Affordable Care Act.  The law specifies that it is “a national voluntary insurance program,” the key word being “voluntary.” Although the law requires employers to enroll workers automatically, workers may choose to waive coverage “at any time.”

    There was a chain email being passed around earlier this year with false information claiming that everyone will be subject to a new tax of $150 to $250 per month to pay for this new coverage.  This is not true.  Here is a quick look at what is true. . . and what is not.

    Facts about the CLASS Act:

    • It is a national, voluntary insurance program.
    • Anyone who is over age 18 and active at work is eligible to enroll in the plan.
    • The plan provides a modest cash benefit of at least $50 per day to help pay the cost of assistance with daily living activities such as bathing, dressing, eating, etc.
    • There is a five year waiting period before benefits can be paid.
    • Even though the provisions are effective January 1, 2011, the Secretary of Health and Human Services (HHS) must develop the plan an implement it by October 1, 2012.  Until the plan details are made available, most will not enroll until 2012 or 2013.

    What the CLASS Act does not include:

    • There is no tax to fund coverage. It will be funded only by the premiums paid by participants, which can be increased at any time to keep the plan solvent.
    • It does not provide disability insurance or any income replacement – it covers only care for help with basic daily living activities.
    • It does not provide a benefit amount sufficient to cover the high expense of long term care.

    Obviously, this new insurance coverage is only meant to cover the very basic necessities of long term care.  Similar to Social Security benefits for retirement income, it’s not meant to be a total replacement for your own savings or other long term care insurance products available.  It’s also not clear how exactly premiums will be calculated, so it remains to be seen whether the premiums are worth the $50 daily benefit.

    Updated: The Class Act was repealed on January 1, 2013

    Electronic Signing and Storage of I-9s

    All U.S. employers, regardless of size, are required to complete Form I-9 for each employee who began work after 1986.  The employee completes the top section of the form, and the employer, after viewing the employee’s documentation showing their eligibility to work, completes the bottom section of the form.  Civil monetary penalties are imposed for failure to complete an I-9.  Completed Form I-9’s must be retained for three years after the hire date or one year after the termination date, whichever is later.

    The Department of Homeland Security has mandated these rules:

    • Employers must complete a Form I-9 within three business (not calendar) days
    • Employers may use paper, electronic systems, or a combination of both
    • Employers may change electronic storage systems as long as the systems meet the performance requirements of the regulations
    • Employers need not retain audit trails of each time a Form I-9 is electronically viewed, but only when the Form I-9 is created, completed, updated, modified, altered, or corrected
    • Employers may provide or transmit a confirmation of a Form I-9 transaction, but are not required to do so unless the employee requests a copy.

    Health Care Reform: Dependent Coverage to Age 26

    One of the changes of The Affordable Care Act is extending coverage for dependent children.  Previously, children were normally covered until age 19 or age 24 if they are a full-time student. For plan years beginning September 23, 2010, health plans must cover dependent children up to age 26, regardless of their student status, marital status, whether they live with their parents, or are claimed as a dependent on their parents’ tax return, as long as the dependent is not eligible to enroll in other employer-provided coverage.  After January 1, 2014, dependent coverage up to age 26 will be required, even if the child is eligible to enroll in other employer-provided coverage.

    State Rules Could Be More Generous
    Keep in mind that some states have regulations that define the maximum dependent child eligibility age, before the Affordable Care Act was passed.  Some states have age limits higher than age 26, but may reduce them when the federal law goes into effect on September 23rd.  The state definition of dependent could be different than the definition under the Affordable Care Act.  Check with your State Department of Insurance to see how the Affordable Care Act will affect the dependent rules in your state.

    Tax Benefits
    As with other healthcare premiums, the employer share of this extended dependent care premium is excluded from the employee’s taxable income.  If the employer has a cafeteria plan in place, the employee’s share of the premium is also excluded from taxable income.

    If an employer extends dependent coverage beyond the child’s 26th birthday, the value of the coverage is excluded from the employee’s income for the entire taxable year in which the child turned 26.  So if the child turns 26 early in the year, and stays on the plan for the rest of the year, none of the premium would be taxable that year.

    Insurance Carriers Taking Action Now
    Many health insurance carriers have made the decision to voluntarily cover these dependents sooner than required, in order to spare the administrative burden of dis-enrolling those dependents who would have lost coverage when they graduated from school this past May, and re-enrolling them after their plan year renews after this September 23rd.  Check with your health insurance carrier to see if they have already extended dependent coverage – chances are they have.  If early coverage is not an option, the dis-enrolled child will have the opportunity to re-enroll during a special enrollment period.

    Unemployment Benefits Restored and Extended

    On July 22, 2010, President Obama signed into law the Unemployment Compensation Extension Act of 2010.  This will reinstate long term unemployment benefits to over 2.5 million unemployed workers through November 2010.  Unemployed workers will need to reapply for benefits through their state unemployment offices, and the benefits will be reinstated retroactively back to June 2nd, when the benefits originally expired.

    COBRA subsidy benefits were not extended as part of this law. Workers who lose their jobs after May 31, 2010 are not eligible for the subsidy.

    Congress has been at a “stalemate” for the past two months on this issue, debating how to pay for this unemployment benefit extension.  The Senate finally voted to extend benefits on July 21, the House quickly voted to approve the measure on July 22, followed by the President.  See the full SHRM article.

    Health Care Reform: Lifetime and Annual Limits Rules

    Interim final regulations have been issued by the Department of Health and Human Services (HHS), Department of Labor, and Treasury for annual and lifetime limits within group health insurance plans.

    Lifetime Limits
    Under the Affordable Care Act, a plan may not impose a lifetime dollar limit on essential benefits provided to an individual.  This requirement is effective for plan years beginning after September 23, 2010, so for plans with calendar year renewals, it would be effective January 1, 2011.  This requirement applies to both grandfathered and non-grandfathered plans.

    According to the Act, essential health benefits include, at a minimum, items and services in the following categories: ambulatory patient services; emergency services; hospitalization, maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Interestingly, the regulations provide no further guidance on the definition of “essential health benefits” except to say that, until HHS issues such guidance, the regulatory agencies will take into account good-faith efforts to comply with the “guidelines” set forth in the Act.

    A group health plan may still impose lifetime limits on non-essential health benefits. Thus, the key will be for the health plan to determine which benefits are “essential.”

    Special Enrollment Notice
    For those who have already reached their lifetime limit on essential benefits, the health plan will need to provide them a notice to let them know that the lifetime limit no longer applies, and (assuming they are still eligible) they have a 30 day special enrollment period to re-enroll in the plan.  This notice must be provided no later than the first day of the plan year beginning on or after September 23, 2010.  The DOL has issued model language for this notice.

    Annual Limits
    Prior to January 1, 2014, both grandfathered and non-grandfathered plans may impose a “restricted” annual limit on the dollar limit of essential benefits provided to an individual.  The annual limit is restricted in that it provides a three year phase-out.  The annual limit may not be less than:

    • $750,000 for any plan year beginning from September 23, 2010 to September 22, 2011
    • $1.25 million for any plan year beginning from September 23, 2011 to September 22, 2012
    • $2 million for any plan year beginning from September 23, 2012 to December 31, 2013

    Health Care Reform: What Is a Grandfathered Plan?

    When the Affordable Care Act (the Act) was passed on March 23, 2010, various health care coverage rules were imposed on health plans.  Some of these rules do not apply to health plans that were in effect as of March 23, 2010.  These plans are referred to as “grandfathered.”

    Recently, the three agencies charged with administering the Act (HHS, DOL, and Treasury) have issued clarification as to what exactly a grandfathered plan is, and the various changes made by health plans that would lose their grandfathered status.

    Grandfathered plan protection

    If a plan is grandfathered, the plan will still need to comply with many of the Act’s mandates.  However, grandfathered plans are exempt from the following mandates:

    • Required coverage for in-network emergency services;
    • Required first-dollar coverage for certain in-network preventive services
    • A prohibition on restricting the designation of primary care providers or requiring referrals for OB/GYN services;
    • Required coverage of routine expenses for participation in clinical trials;
    • Enhanced claim appeal procedures, including implementation of an external appeals process;
    • A prohibition on discriminating in favor of highly compensated individuals (i.e., applying the same nondiscrimination rules to both insured and self-funded plans).

    Keeping grandfathered status

    In order for a plan to retain its grandfathered status, it must not make any significant coverage or cost sharing changes to the plan.  Here are the changes that grandfathered plans would be prohibited from making, or else they would lose grandfathered status:

    • Cannot significantly cut or reduce benefits.
    • Cannot raise co-insurance charges.
    • Cannot significantly raise co-payment charges.
    • Cannot significantly raise deductibles.
    • Cannot significantly lower employer contributions.
    • Cannot add or tighten an annual limit on what the insurer pays.
    • Cannot change insurance companies, however self funded plans may change Third Party Administrators. [As of 11/15/10, HHS has removed this requirement. Plans can change insurance companies and remain grandfathered if the remaining items stay the same.]

    Grandfathered health plans pros and cons

    Employers will need to consider whether the advantages of keeping grandfathered status protection outweighs the cost sharing flexibility associated with non-grandfathered plans.  There are many unknowns at this point how the insurance exchanges beginning in 2014 will affect group health plans, but the HHS estimates that only about 55% of large employers and 34% of small employers will remain grandfathered by 2013.

    For more information about grandfathered plans, see www.Heathcare.gov

    Grandfathering FAQs on the HHS website

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    Health Care Reform Update: Preventive Care Rules Clarified

    New regulations were issued on July 14, 2010, by The Department of Health and Human Services (HHS), the Department of Labor, and the Treasury regarding preventive care coverage requirements.  The HHS estimates that Americans currently use preventive services at about half of the recommended rate, due to the cost of these services.  According to the HHS, the intention of these regulations is to make preventive care more affordable, so that chronic diseases, which are often preventable, can be detected and treated or prevented early, thereby reducing healthcare costs and promoting health and wellness.

    Health plans that are not “grandfathered plan” will be required to include preventive care services beginning with plan years renewing after September 23, 2010, which would be January 1, 2011 for plans that renew each calendar year.  Grandfathered plans, which are plans that have not made certain substantial changes to plan design or costs will not have to meet this preventive care requirement.

    The covered preventive services would be available at no cost to the employee.  In other words, these services are not subject to a deductible, co-pay, or co-insurance, and would be covered 100% by the health plan, as long as they received services from an in-network provider.  Plans are still allowed to share the cost of preventive services provided by an out-of-network provider.

    Included in the preventive services are:

    • Screenings for diseases such as cancer, diabetes, high cholesterol, and high blood pressure
    • Vaccines for both children and adults
    • Pediatric care
    • Prevention for women including pregnancy related screenings and mammograms.

    For further information about the new preventive care rules, please visit www.healthcare.gov

    Ohio Mandating Electronic Child Support Payments

    The State of Ohio has passed legislation that requires employers with at least 50 employees to remit their payments electronically.  Prior to the legislation, large employers had the option of sending paper checks to the Ohio Child Support Payment Central processing center in Columbus.

    Ohio still encourages employers with less than 50 employees to also make child support payments electronically.  Electronic payments are more efficient and less costly for both employers and the State of Ohio.

    Employers have two options for remitting child support payments electronically:

    1) Online debit through www.ExpertPay.com
    This is a secure site that is free for employers to use.  Once an employer has registered as a user, they can initiate child support payments directly on this website.  The site offers reporting for previous payments.

    2) Electronic Funds Transfer
    You can send a special NACHA ACH credit file to your bank that contains details about the support payment, including employee and case information.  Check with your online payroll provider to see if this option is available.

    If you are on Ohio employer with at least 50 employees, and are currently remitting child support payments with a paper check, you will need to determine which of the two electronic methods will work best for your company.

    Payroll Update: Health Costs Reported on 2011 W-2s

    The other day, I received an email with some propaganda-like information about the impending tax hikes coming in 2011 as a result of the tax cuts that are set to expire this December 31st.  At the end of the email was a rant about how you will be taxed on your health insurance costs next year because of the new W-2 reporting requirement.  I’m not sure how prevalent this belief is, but this is not true! The employee will not be taxed on the employer’s cost of health insurance, and the employee’s tax liability will not change.  As of right now, the only tax on health insurance will be on the high cost “Cadillac plans” starting in 2018.

    As a background, part of the PPACA healthcare reform laws is a new requirement for employers beginning in 2011.  Employers will need to calculate the total cost of providing health insurance for each individual employee, and report this number on the employee’s W-2.  Just because this number is reported on the W-2, it does not mean the employee will be taxed on this money.  The W-2 form contains boxes used for informational purposes.  The IRS has yet to issue specific guidance on where exactly this number needs to be reported, but we suspect it will either be Box 12 or 14, or perhaps the W-2 will be redesigned to accommodate this new number.  Regardless, this new reporting requirement will not increase taxes to the employee or employer.

    The IRS says the main purpose of this reporting requirement is to show employees the true cost of their health insurance costs, so they may be more informed consumers.  Other purposes are said to be served as well, including the government getting a better idea of exactly how many people are covered by employer-provided healthcare coverage, the loss of tax revenue as a result of this tax sheltered money, and the values of the high cost Cadillac plans that will begin to be taxed in 2018.

    Two Things To Start Preparing Now:

    1. Prepare Your Payroll System:  Check with your payroll service provider or internal IT staff to confirm that the health insurance cost can be tracked in your payroll software for W-2 reporting purposes.  In our case, we use “Company Contributions” that show informational numbers such as 401(k) match and the employer share of benefits.  Make sure that wherever the amount is stored in your payroll system that it does not affect the employee’s gross pay.  Also, make sure that your payroll system gives you the capability to report such non taxable money in a specific box on the W-2 Form.  If the IRS ends up using Box 12 or 14, you will also need the ability to apply a label or code (whichever is applicable).
    2. How To Calculate:  A total annual amount of both the employee plus employer costs needs to be calculated for each individual employee.  You can use the COBRA premium amount, minus the 2% administration fee, as the monthly base amount.  This amount will then need to be annualized for the number of months they were covered under the health plan.  Note that if the employee had a coverage change some time during the year, whether it was changing the number of people covered in the family, or changing plan choices, this will need to be taken into account.  Every single employee could have a different number, based on their activity.  So fire up your spreadsheets now!  Here are the types of group health plans that need to be included in the aggregate number:
      •   Medical plans
      •   Prescription Drug Plans
      •   Executive Physicals
      •   Onsite clinics providing more than “de minimus” care
      •   Medical Supplemental Policies
      •   Employee Assistance Programs

    If your dental or vision coverage is part of your group medical plan, these costs must be included too.  If they are stand-alone plans, meaning your employees can individually elect or decline coverage independent of their medical coverage, these do not need to be included.  Contributions to FSA’s, HSA’s, long term care, disability, and voluntary supplemental policies are also not included.

    Even though technically these health insurance costs don’t have to be reported until January of 2012, when W-2’s are issued for the year 2011, there may be a situation where you need to issue a W-2 to a terminating employee who leaves before the end of 2011.  Therefore, your company must be ready by February 1, 2011 to report these costs.  Now is the time to plan how your company will meet this requirement.

    Over the Counter Meds and FSAs in 2011

    One of the provisions of the Patient Protection and Affordable Care Act (PPACA) is the elimination of over-the-counter medicines as eligible expenses that can be paid for tax-free through a Flexible Spending Account (FSA), Health Reimbursement Account (HRA), or Health Savings Account (HSA).  The addition of over-the-counter medicine to the list of tax free medical items was added back in 2003.  So the rules are simply reverting to how they were eight years ago.

    Beginning January 1, 2011, FSA participants will need to be more careful in estimating their annual election amount.  With the “use it or lose it” rule, there may be a greater chance of “losing” instead of “using” the money since they won’t have the option to use up any FSA balance by going to the pharmacy and buying seven boxes of sinus medicine at the end of the year.

    There will be a couple of exceptions to the new OTC rules.

    1)      Insulin for diabetics that is currently purchased over-the-counter can still be purchased tax free with an FSA.

    2)      If you have a doctor’s prescription for a specific over-the-counter medicine, you can continue to use your FSA/HSA to purchase this medicine.  If your FSA provider offers you a debit card, you most likely will not be able to use your debit card to pay for this.  Instead, you will need to request reimbursement from your FSA provider.  Your FSA provider will ask you for a copy of the doctor’s prescription and a letter of medical necessity.

    So there are ways to still pay for OTC medicine with your FSA, but your doctor must agree that you need it for medical purposes.  HSA participants must also keep their doctor’s documentation on file, in case of a personal IRS audit.

    The IRS has yet to come out with the specific list of what will be excluded beginning next year, but the general rule is any over-the-counter medicines used to treat an ailment will no longer be an eligible item.  Examples would be medicines for allergies, sinus and colds, digestive ailments, and pain relievers.  Other medical supplies, such as bandages and thermometers, are still eligible expenses.

    Two other changes made by the PPACA affecting tax free accounts:

    HSA’s:  Beginning January 1, 2011, the tax penalty for HSA funds spent on non-approved medical expenses will increase from 10% to 20%.  So you’ll want to think twice before using your HSA money to buy that large screen TV.  This penalty is reported to the IRS at the time you file your income taxes.

    FSA’s:  Beginning January 1, 2013, employees can only elect up to $2500.00 per year.  While this limit may not affect those who usually don’t elect that much, it will affect those who put away higher amounts for orthodontia and other upcoming big ticket medical expenses.   Currently, there is no IRS imposed limit on the amount of money you can elect to contribute to an FSA.  The employer has the option to set their own limit for their employees, since the employer takes the risk of paying out the entire amount if the employee leaves mid-year, and is not able to recoup the rest of the money through payroll deductions.

    The CLASS Act: Facts and Fallacies About Long Term Care Insurance

    There has been a great deal of information – and some false information – circulating about the long term care insurance portion of Healthcare Reform.

    The Community Living Assistance Services and Supports Act (CLASS Act) is Title VIII of the Affordable Care Act.  The law specifies that it is “a national voluntary insurance program,” the key word being “voluntary.” Although the law requires employers to enroll workers automatically, workers may choose to waive coverage “at any time.”

    There was a chain email being passed around earlier this year with false information claiming that everyone will be subject to a new tax of $150 to $250 per month to pay for this new coverage.  This is not true.  Here is a quick look at what is true. . . and what is not.

    Facts about the CLASS Act:

    • It is a national, voluntary insurance program.
    • Anyone who is over age 18 and active at work is eligible to enroll in the plan.
    • The plan provides a modest cash benefit of at least $50 per day to help pay the cost of assistance with daily living activities such as bathing, dressing, eating, etc.
    • There is a five year waiting period before benefits can be paid.
    • Even though the provisions are effective January 1, 2011, the Secretary of Health and Human Services (HHS) must develop the plan an implement it by October 1, 2012.  Until the plan details are made available, most will not enroll until 2012 or 2013.

    What the CLASS Act does not include:

    • There is no tax to fund coverage. It will be funded only by the premiums paid by participants, which can be increased at any time to keep the plan solvent.
    • It does not provide disability insurance or any income replacement – it covers only care for help with basic daily living activities.
    • It does not provide a benefit amount sufficient to cover the high expense of long term care.

    Obviously, this new insurance coverage is only meant to cover the very basic necessities of long term care.  Similar to Social Security benefits for retirement income, it’s not meant to be a total replacement for your own savings or other long term care insurance products available.  It’s also not clear how exactly premiums will be calculated, so it remains to be seen whether the premiums are worth the $50 daily benefit.

    Updated: The Class Act was repealed on January 1, 2013

    Electronic Signing and Storage of I-9s

    All U.S. employers, regardless of size, are required to complete Form I-9 for each employee who began work after 1986.  The employee completes the top section of the form, and the employer, after viewing the employee’s documentation showing their eligibility to work, completes the bottom section of the form.  Civil monetary penalties are imposed for failure to complete an I-9.  Completed Form I-9’s must be retained for three years after the hire date or one year after the termination date, whichever is later.

    The Department of Homeland Security has mandated these rules:

    • Employers must complete a Form I-9 within three business (not calendar) days
    • Employers may use paper, electronic systems, or a combination of both
    • Employers may change electronic storage systems as long as the systems meet the performance requirements of the regulations
    • Employers need not retain audit trails of each time a Form I-9 is electronically viewed, but only when the Form I-9 is created, completed, updated, modified, altered, or corrected
    • Employers may provide or transmit a confirmation of a Form I-9 transaction, but are not required to do so unless the employee requests a copy.

    Health Care Reform: Dependent Coverage to Age 26

    One of the changes of The Affordable Care Act is extending coverage for dependent children.  Previously, children were normally covered until age 19 or age 24 if they are a full-time student. For plan years beginning September 23, 2010, health plans must cover dependent children up to age 26, regardless of their student status, marital status, whether they live with their parents, or are claimed as a dependent on their parents’ tax return, as long as the dependent is not eligible to enroll in other employer-provided coverage.  After January 1, 2014, dependent coverage up to age 26 will be required, even if the child is eligible to enroll in other employer-provided coverage.

    State Rules Could Be More Generous
    Keep in mind that some states have regulations that define the maximum dependent child eligibility age, before the Affordable Care Act was passed.  Some states have age limits higher than age 26, but may reduce them when the federal law goes into effect on September 23rd.  The state definition of dependent could be different than the definition under the Affordable Care Act.  Check with your State Department of Insurance to see how the Affordable Care Act will affect the dependent rules in your state.

    Tax Benefits
    As with other healthcare premiums, the employer share of this extended dependent care premium is excluded from the employee’s taxable income.  If the employer has a cafeteria plan in place, the employee’s share of the premium is also excluded from taxable income.

    If an employer extends dependent coverage beyond the child’s 26th birthday, the value of the coverage is excluded from the employee’s income for the entire taxable year in which the child turned 26.  So if the child turns 26 early in the year, and stays on the plan for the rest of the year, none of the premium would be taxable that year.

    Insurance Carriers Taking Action Now
    Many health insurance carriers have made the decision to voluntarily cover these dependents sooner than required, in order to spare the administrative burden of dis-enrolling those dependents who would have lost coverage when they graduated from school this past May, and re-enrolling them after their plan year renews after this September 23rd.  Check with your health insurance carrier to see if they have already extended dependent coverage – chances are they have.  If early coverage is not an option, the dis-enrolled child will have the opportunity to re-enroll during a special enrollment period.

    Unemployment Benefits Restored and Extended

    On July 22, 2010, President Obama signed into law the Unemployment Compensation Extension Act of 2010.  This will reinstate long term unemployment benefits to over 2.5 million unemployed workers through November 2010.  Unemployed workers will need to reapply for benefits through their state unemployment offices, and the benefits will be reinstated retroactively back to June 2nd, when the benefits originally expired.

    COBRA subsidy benefits were not extended as part of this law. Workers who lose their jobs after May 31, 2010 are not eligible for the subsidy.

    Congress has been at a “stalemate” for the past two months on this issue, debating how to pay for this unemployment benefit extension.  The Senate finally voted to extend benefits on July 21, the House quickly voted to approve the measure on July 22, followed by the President.  See the full SHRM article.

    Health Care Reform: Lifetime and Annual Limits Rules

    Interim final regulations have been issued by the Department of Health and Human Services (HHS), Department of Labor, and Treasury for annual and lifetime limits within group health insurance plans.

    Lifetime Limits
    Under the Affordable Care Act, a plan may not impose a lifetime dollar limit on essential benefits provided to an individual.  This requirement is effective for plan years beginning after September 23, 2010, so for plans with calendar year renewals, it would be effective January 1, 2011.  This requirement applies to both grandfathered and non-grandfathered plans.

    According to the Act, essential health benefits include, at a minimum, items and services in the following categories: ambulatory patient services; emergency services; hospitalization, maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Interestingly, the regulations provide no further guidance on the definition of “essential health benefits” except to say that, until HHS issues such guidance, the regulatory agencies will take into account good-faith efforts to comply with the “guidelines” set forth in the Act.

    A group health plan may still impose lifetime limits on non-essential health benefits. Thus, the key will be for the health plan to determine which benefits are “essential.”

    Special Enrollment Notice
    For those who have already reached their lifetime limit on essential benefits, the health plan will need to provide them a notice to let them know that the lifetime limit no longer applies, and (assuming they are still eligible) they have a 30 day special enrollment period to re-enroll in the plan.  This notice must be provided no later than the first day of the plan year beginning on or after September 23, 2010.  The DOL has issued model language for this notice.

    Annual Limits
    Prior to January 1, 2014, both grandfathered and non-grandfathered plans may impose a “restricted” annual limit on the dollar limit of essential benefits provided to an individual.  The annual limit is restricted in that it provides a three year phase-out.  The annual limit may not be less than:

    • $750,000 for any plan year beginning from September 23, 2010 to September 22, 2011
    • $1.25 million for any plan year beginning from September 23, 2011 to September 22, 2012
    • $2 million for any plan year beginning from September 23, 2012 to December 31, 2013

    Health Care Reform: What Is a Grandfathered Plan?

    When the Affordable Care Act (the Act) was passed on March 23, 2010, various health care coverage rules were imposed on health plans.  Some of these rules do not apply to health plans that were in effect as of March 23, 2010.  These plans are referred to as “grandfathered.”

    Recently, the three agencies charged with administering the Act (HHS, DOL, and Treasury) have issued clarification as to what exactly a grandfathered plan is, and the various changes made by health plans that would lose their grandfathered status.

    Grandfathered plan protection

    If a plan is grandfathered, the plan will still need to comply with many of the Act’s mandates.  However, grandfathered plans are exempt from the following mandates:

    • Required coverage for in-network emergency services;
    • Required first-dollar coverage for certain in-network preventive services
    • A prohibition on restricting the designation of primary care providers or requiring referrals for OB/GYN services;
    • Required coverage of routine expenses for participation in clinical trials;
    • Enhanced claim appeal procedures, including implementation of an external appeals process;
    • A prohibition on discriminating in favor of highly compensated individuals (i.e., applying the same nondiscrimination rules to both insured and self-funded plans).

    Keeping grandfathered status

    In order for a plan to retain its grandfathered status, it must not make any significant coverage or cost sharing changes to the plan.  Here are the changes that grandfathered plans would be prohibited from making, or else they would lose grandfathered status:

    • Cannot significantly cut or reduce benefits.
    • Cannot raise co-insurance charges.
    • Cannot significantly raise co-payment charges.
    • Cannot significantly raise deductibles.
    • Cannot significantly lower employer contributions.
    • Cannot add or tighten an annual limit on what the insurer pays.
    • Cannot change insurance companies, however self funded plans may change Third Party Administrators. [As of 11/15/10, HHS has removed this requirement. Plans can change insurance companies and remain grandfathered if the remaining items stay the same.]

    Grandfathered health plans pros and cons

    Employers will need to consider whether the advantages of keeping grandfathered status protection outweighs the cost sharing flexibility associated with non-grandfathered plans.  There are many unknowns at this point how the insurance exchanges beginning in 2014 will affect group health plans, but the HHS estimates that only about 55% of large employers and 34% of small employers will remain grandfathered by 2013.

    For more information about grandfathered plans, see www.Heathcare.gov

    Grandfathering FAQs on the HHS website

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    Health Care Reform Update: Preventive Care Rules Clarified

    New regulations were issued on July 14, 2010, by The Department of Health and Human Services (HHS), the Department of Labor, and the Treasury regarding preventive care coverage requirements.  The HHS estimates that Americans currently use preventive services at about half of the recommended rate, due to the cost of these services.  According to the HHS, the intention of these regulations is to make preventive care more affordable, so that chronic diseases, which are often preventable, can be detected and treated or prevented early, thereby reducing healthcare costs and promoting health and wellness.

    Health plans that are not “grandfathered plan” will be required to include preventive care services beginning with plan years renewing after September 23, 2010, which would be January 1, 2011 for plans that renew each calendar year.  Grandfathered plans, which are plans that have not made certain substantial changes to plan design or costs will not have to meet this preventive care requirement.

    The covered preventive services would be available at no cost to the employee.  In other words, these services are not subject to a deductible, co-pay, or co-insurance, and would be covered 100% by the health plan, as long as they received services from an in-network provider.  Plans are still allowed to share the cost of preventive services provided by an out-of-network provider.

    Included in the preventive services are:

    • Screenings for diseases such as cancer, diabetes, high cholesterol, and high blood pressure
    • Vaccines for both children and adults
    • Pediatric care
    • Prevention for women including pregnancy related screenings and mammograms.

    For further information about the new preventive care rules, please visit www.healthcare.gov

    Ohio Mandating Electronic Child Support Payments

    The State of Ohio has passed legislation that requires employers with at least 50 employees to remit their payments electronically.  Prior to the legislation, large employers had the option of sending paper checks to the Ohio Child Support Payment Central processing center in Columbus.

    Ohio still encourages employers with less than 50 employees to also make child support payments electronically.  Electronic payments are more efficient and less costly for both employers and the State of Ohio.

    Employers have two options for remitting child support payments electronically:

    1) Online debit through www.ExpertPay.com
    This is a secure site that is free for employers to use.  Once an employer has registered as a user, they can initiate child support payments directly on this website.  The site offers reporting for previous payments.

    2) Electronic Funds Transfer
    You can send a special NACHA ACH credit file to your bank that contains details about the support payment, including employee and case information.  Check with your online payroll provider to see if this option is available.

    If you are on Ohio employer with at least 50 employees, and are currently remitting child support payments with a paper check, you will need to determine which of the two electronic methods will work best for your company.

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