Small Business Article Featuring Dan Sheridan, President of Extensis

Don Mallo, VP of Human Resources and General Council for Extensis, publishes article on the potential impacts of the Fair Labor Standards Act in the Sept, 2010 edition of Limo Digest

Dan Sheridan Quoted in Industry Article on the Dangers to Brokers and their Clients from Payroll Administration Firms bundling benefits and cutting out Insurance Brokers from their Clients

In an effort to reduce benefit costs, I have found that many employers are implementing the following cost-containment strategies:

Rewards For Good Health

Offer financial incentives to employees who have healthy habits and lifestyles or those who participate in wellness programs at work. Penalize workers with higher premiums for engaging in unhealthy activities such as smoking.

Offer discounted rates for those who participate in wellness programs and maintain good health.

Preventative Care Benefits

Offer full coverage for employees who seek preventative medical care and preventative drugs without a deductible, including vaccinations, exams and screenings for diseases such as breast, colon and cervical cancer, and blood pressure and cholesterol.

Catering to Individualized Needs

Offer voluntary benefit options that meet personal and family needs such as homeowners, automobile and group life insurance. Also, offer discounts on vision, dental, massage therapy, chiropractic care, health club memberships and weight-control programs.

Communication Tools

Provide online tools for employees on health education and estimation on their health care expenses.

Health Care Savings Accounts (HSAs)

Offer HSAs with a high-deductible health plan (HDHP) as a way to promote consumerism and reduce costs. Reduce plan options.

Analyze Dependent Coverage

Always pay close attention to the spouses and dependents that employees enroll for benefits. Some companies require employees to pay higher premiums if their spouse can obtain health coverage through his/her employer. Conduct an eligibility audit to prove that dependents are considered legal dependents and remove ineligible dependents from the plan.

Align Your Goals

Weave business goals with health goals and devise a way for individuals or departments to lose weight, start exercising and/or stop engaging in unhealthy habits.

Co-insurance

Instead of having employees pay a copayment of $10 or $15, require them to pay a percentage of their health care expenses (known as co-insurance). This may make your employers more aware of their expenses as well.

 Encourage the Use of Generic Drugs

Suggest that employees utilize the generic form of their prescriptions (if available) to save your organization and them money.

Dan Sheridan, President of Extensis Publishes

“Payroll Giants Move Into Agents’ Turf?”

in September PIA Magazine

“Insurance agents and brokers who serve the small-business market should keep an eye on the rapid expansion of large payroll companies onto their client base.

For both benefits and property/casualty books of business, these payroll giants offer small businesses bundled payroll and human resource outsourced services—and direct writing of both benefits and property/casualty insurance. In this process, they are cutting out the role of the agent and broker as a trusted small-business adviser…” 

What is a health savings account?

Otherwise known as an HSA, a health savings account can be funded with your tax-exempt dollars, by your employer, or both, to help pay for eligible medical expenses not covered by an insurance plan, including the deductible, coinsurance, and even in some cases, health insurance premiums.

Who is eligible for an HSA?

Anyone who is:

•          Covered by a High Deductible Health Plan (HDHP);

•          Not covered under another medical plan that is not an HDHP;

•          Not entitled to Medicare benefits; or

•          Not eligible to be claimed on another person’s tax return.

When do I use my HSA?

After visiting a physician, facility or pharmacy, your medical claim will be submitted to your HDHP for payment. Your HSA dollars can be used to pay your out-of-pocket expenses (deductibles and coinsurance) billed by the physician, facility or pharmacy, or you can choose to save your HSA dollars for a future medical expense.

What is the difference between an HSA and Flexible Spending Account (FSA)?

•          An HSA can roll over unused funds from year to year.

•          An FSA cannot roll over unused funds from year to year.

Can I contribute to both an HSA and an FSA in the same year?

Yes, a “limited FSA” is permissible. A limited FSA only allows reimbursement of expenses that are not eligible for payment under the HDHP or HSA. For example, an employer may establish a limited FSA to allow employees to contribute pre-tax dollars to an account which only reimburses expenses for dental services.  

 If you are covered under an FSA plan that includes a grace period, you are eligible to establish an HSA in the following year if your FSA had a zero balance at the end of the plan year or if you transfer your unused balance into the HSA at the end of the FSA plan year.

Why should I elect an HSA?

1.  Cost Savings

-    Tax benefits

• HSA contributions are excluded from federal income tax
• Interest earnings are tax-deferred
• Withdrawals for eligible expenses are exempt from federal income tax

-    Reduction in medical plan contribution

-    Unused money is held in an interest-bearing savings or investment account

Note: Many states have not passed legislation to provide favorable state tax treatment for HSAs. Therefore, amounts contributed to HSAs and interest earned on HSA accounts may be included on the employee’s W-2 for state income tax purposes.

2.  Long-Term Financial Benefits

-    Save for future medical expenses

-    Funds roll over from year to year

-    This is your account – you take it with you

3.  Choice

-    You control and manage your health care expenses.

-    You choose when to use your HSA dollars to pay your health care expenses.

-    You choose when to save your HSA dollars and pay health care expenses out-of-pocket.

Employer-sponsored health care costs are expected to continue growing in 2010 & 2011. Below are 10 strategies you may use to control your health care costs in 2010.

1. Conduct a dependent eligibility audit to weed out ineligible dependents. Begin with an amnesty period to allow employees to voluntarily remove ineligible dependents without penalty.
2. If you have retirees on your health plan, make sure your claims administrator is correctly integrating with Medicare.
3. Audit your claims administrator to ensure that all claims eligible for stop-loss reimbursement have been accurately reported to your excess risk carrier.
4.  If self-insured, negotiate changes in your ASO fees to reflect probable changes in your company’s wages and salaries next year.
5. Consider offering a Consumer-Driven Health Plan (CDHP). This often comes in the form of a high-deductible health plan paired with a health savings account (HSA).
6.  Examine your prescription drug plan and consider adding alternate drug plans, such as a CDHP option. Or, if you have a three-tier Rx plan, redesign the tiers to encourage lower-cost generics. Consider adding a fourth tier for pricey “lifestyle” drugs.
7. Analyze carrier data to identify common chronic diseases or conditions within your company, and implement a disease management program.
8. Routinely educate employees on smart consumerism strategies, the importance of preventive care, and the availability of low-cost medical or prescription options in your area.
9. Raise your employee deductibles, copayments and/or out-of-pocket maximums. This will encourage employees to think twice about their health care expenditures, plus will save you money.
10. Increase your use of health and wellness incentives. Offer incentives for behaviors such as taking a health risk assessment or participating in a smoking cessation, weight management or fitness program. Incentives may include gift cards, cash or discounted premiums.

Health care reform brings a number of changes to employers and plan sponsors. One such change is the requirement to report the aggregate cost of employer-sponsored health coverage on an employee’s Form W-2, effective for tax years beginning after December 31, 2010.

Form W-2 Reporting Requirement

PPACA provides that, beginning with the 2011 tax year, employers must disclose the aggregate cost of applicable employer-sponsored coverage provided to employees on the employee’s Form W-2. PPACA specifically adds this information to the list of other items that must be included on the Form W-2. These items include information such as the individual’s name, social security number, wages, tax deducted, the total amount incurred for dependent care assistance under a dependent care assistance program and the amount contributed to any health savings account (HSA) by the employee or his or her spouse.

The inclusion of this information on the Form W-2 does not change the requirements with respect to taxable income, or the tax exclusion for amounts paid for medical care or coverage. Those items are addressed in another portion of the tax law that is not affected by this change. However, this information may be used to determine whether a plan is a “Cadillac plan” for purposes of the excise tax on high-cost health plans that will take effect in 2018.

Coverage That Must Be Reported

Under this new requirement, the information that must be reported relates to “applicable employer-sponsored coverage.” Applicable employer-sponsored coverage is, with respect to any employee, coverage under any group health plan made available to the employee by the employer which is excludable from the employee’s gross income under Code sect. 106.

For purposes of this reporting requirement, it does not matter whether the employer or the employee pays for the coverage – it is the aggregate cost of the coverage that must be reported. The aggregate cost of the coverage is determined using rules similar to those used for determining the applicable premiums for purposes of COBRA continuation coverage.

Some types of coverage do not need to be reported on the Form W-2 under this requirement. These are:

-    Long-term care, accident or disability income insurance;

-    Coverage for a specific disease or illness;

-    Hospital indemnity or other fixed indemnity insurance; and

-    Salary reduction contributions to a health flexible spending arrangement (FSA) under a cafeteria plan.

This requirement also does not apply to amounts contributed to an Archer medical savings account (Archer MSA) by the employee (or his or her spouse) or amounts contributed to a health savings account (HSA) by the employee (or his or her spouse). Those amounts are already required to be separately accounted for on the Form W-2.

Compliance Steps for Employers

Although this requirement is not applicable until the 2011 tax year, employers should ensure that they (or their payroll provider) are prepared to gather this information in advance of having to complete the Forms W-2 for 2011. In doing so, they should make sure they can identify the applicable employer-sponsored coverage that was provided to each employee and be prepared to calculate the aggregate cost of that coverage. Employers may also have to address questions from employees regarding whether their health benefits are taxable under this new requirement.

On March 23, 2010, President Obama signed into law the health care reform bill, the Patient Protection and Affordable Care Act. This legislation, along with the Health Care and Education Reconciliation Act of 2010, makes sweeping changes to the U.S. health care system. These changes will be implemented over the next several years.  

This Legislative Brief provides a timeline of the implementation of key reform provisions that affect employers and individuals. Please read below for more information and contact Marquis Agency with any questions about how you can prepare for health care reform.

2010

Expanded Insurance Coverage

The health care reform law contains some provisions designed to provide immediate improvements in access to health care coverage.

·         Extended Coverage for Young Adults. Group health plans and health insurance issuers offering group or individual health insurance coverage that provides dependent coverage of children must make coverage available for adult children up to age 26. There is no requirement to cover the child of a dependent child. This requirement will apply to grandfathered and new plans.

Note: a “grandfathered plan” is one in which an individual was enrolled on March 23, 2010, and to which there is no change to existing coverage. Many requirements of the new law do not apply to grandfathered plans and nothing in the law requires individuals terminate coverage in which they were enrolled when the law was passed. A plan can still be a grandfathered plan even if family members or new employees are allowed to join.    

·         Access to Insurance for Uninsured Individuals with Pre-Existing Conditions. The health care reform bill provides for the establishment of a temporary high risk health insurance pool program to provide health insurance coverage for certain uninsured individuals with pre-existing conditions. The program will end when the health insurance exchanges, set to be established in 2014, are operational.

·         Identifying Affordable Coverage. The Secretary of Health and Human Services is required to establish an Internet website through which residents of any state may identify affordable health insurance coverage options in that state. The website will also include information for small businesses about available coverage options, reinsurance for early retirees, small business tax credits, and other information of interest to small businesses. So-called “mini-med” or limited-benefit plans will be precluded from listing their policies on this website.

·         Reinsurance for Covering Early Retirees. The new law requires the establishment of a temporary reinsurance program to provide reimbursement to participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees and their spouses, surviving spouses and dependents. This program will end on January 1, 2014. 

Health Insurance Reform

The new law also imposes requirements on health insurance issuers to reform certain insurance practices and improve the coverage available.

·         Eliminating Pre-Existing Condition Exclusions for Children. Group health plans and health insurance issuers may not impose pre-existing condition exclusions on coverage for children. This provision will apply to all employer plans and new plans in the individual market.This provision will also apply to adults in 2014.

·         Coverage of Preventive Health Services. Group health plans and health insurance issuers offering group or individual health insurance coverage must provide coverage for preventive services. These plans also may not impose cost sharing requirements for preventive services.

·         Prohibiting Rescissions. The health care reform law is designed to prohibit abusive rescissions of coverage by insurance companies when an individual gets sick as a way of avoiding covering the cost of the individual’s health care needs. Group health plans and health insurance issuers offering group or individual insurance coverage may not rescind coverage once the enrollee is covered, except in cases of fraud or intentional misrepresentation. Plan coverage may not be cancelled without prior notice to the enrollee. This provision applies to all new and existing plans. 

·         Limits on Lifetime and Annual Limits. In general, group health plans and health insurance issuers offering group or individual health insurance coverage may not establish lifetime limits on the dollar value of benefits for any participant or beneficiary or impose unreasonable annual limits on the dollar value of benefits for any participant or beneficiary. This requirement applies to all plans. Annual limits will also be prohibited beginning in 2014.  

Health Plan Administration

In addition to any administrative changes required by the coverage improvements described above, health plans will be subject to increased administrative duties under health care reform.

·         Improved Appeals Process. Group health plans and health insurance issuers offering group or individual health insurance coverage must implement an effective appeals process for appeals of coverage determinations and claims. At a minimum, plans and issuers must:

o    have an internal claims process in effect;

o    provide notice to enrollees, in a culturally and linguistically appropriate manner, of available internal and external appeals processes, and the availability of any applicable office of health insurance consumer assistance or ombudsman to assist them with the appeals processes; and

o    allow enrollees to review their files, to present evidence and testimony as part of the appeals process, and to receive continued coverage pending the outcome of the appeals process.

The internal claims process must initially incorporate the current claims procedure regulations issued by the Department of Labor in 2001. Plans and issuers must also implement an external review process that meets applicable state requirements and guidance that is to be issued.

·         Nondiscrimination Rules for Fully-Insured Plans. Fully-insured group health plans will now have to satisfy nondiscrimination rules regarding eligibility to participate in the plan and eligibility for benefits. These rules prohibit discrimination in favor of highly compensated individuals. This section does not appear to apply to grandfathered plans. 

Medicare/Medicaid

The health care reform law will further affect individuals by making certain changes to Medicare and Medicaid.

·         Rebates for the Medicare Part D “Donut Hole.” Currently, there is a gap in Medicare prescription drug coverage. The coverage gap falls between $2,830 and $6,440 in total drug spending. The health care reform bill provides a $250 rebate check for all Medicare Part D enrollees who enter the “donut hole.” Beginning in 2011, a 50 percent discount on brand-name drugs will be instituted and generic drug coverage will be provided in the donut hole. The donut hole gap will be filled by 2020.

·         Medicaid Flexibility for States. States are given a new option under the health care reform law to cover additional individuals under Medicare. States will be able to cover parents and childless adults up to 133 percent of the Federal Poverty Level (FPL).

Fees and Taxes

With a total estimated cost of over $900 billion dollars, the reform of the nation’s health care system comes with additional costs and fees. These fees will also be implemented over the next several years. However, health care reform also includes some subsidies, in the form of tax credits, to help individuals and businesses pay for coverage.

·         Small Business Tax Credit. The first phase of the small business tax credit for qualified small employers begins in 2010. These employers can receive a credit for contributions to purchase health insurance for employees. The credit is up to 35 percent of the employer’s contribution to provide health insurance for employees. There is also up to a 25 percent credit for small nonprofit organizations. When health insurance exchanges are operational, tax credits will increase, up to 50 percent of premiums.

·         Indoor Tanning Services Tax. One additional tax imposed by the health care reform law is a 10 percent tax on amounts paid for indoor sun tanning services.

2011

Expanded Insurance Coverage

·         Voluntary Long-Term Care Insurance Options. The health care reform law creates a long-term care insurance program for adults who become disabled. Participation will be voluntary and the program is to be funded by voluntary payroll deductions to provide benefits to adults who become disabled.

Health Plan Administration

·         Improving Medical Loss Ratios. Health insurance issuers offering group or individual health insurance coverage (including grandfathered health plans) must annually report on the share of premium dollars spent on health care and provide consumer rebates for excessive medical loss ratios.

·         Reporting Health Coverage Costs on Form W-2. Beginning in 2011, employers will be required to disclose the value of the health coverage provided by the employer to each employee on the employee’s annual Form W-2.

·         Standardizing the Definition of Qualified Medical Expenses. The health care reform law conforms to the definition of “qualified medical expenses” for HSAs, FSAs and HRAs to the definition used for the itemized tax deduction. An exception to this rule is included so that amounts paid for over-the-counter medicine with a prescription still qualify as medical expenses. Costs for over-the-counter medications obtained without a prescription would not qualify.

·         Cafeteria Plan Changes. The new law creates a Simple Cafeteria Plan to provide a vehicle through which small businesses can provide tax‐free benefits to their employees. This plan is designed to ease the small employer’s administrative burden of sponsoring a cafeteria plan. The provision also exempts employers who make contributions for employees under a simple cafeteria plan from pension plan nondiscrimination requirements applicable to highly compensated and key employees.

Medicare/Medicaid

·         Medicare Part D Discounts. In order to make prescription drug coverage more affordable for Medicare enrollees, the new law will provide a 50 percent discount on all brand-name drugs and biologics in the “donut hole.” It also begins phasing in additional discounts on brand-name and generic drugs to completely fill the donut hole by 2020 for all Part D enrollees.

·         Additional Preventive Health Coverage. The new law provides a free, annual wellness visit and personalized prevention plan services for Medicare beneficiaries and eliminates cost-sharing for preventive services beginning in 2011.

Fees and Taxes

·         Increased Tax on Withdrawals from HSAs and Archer MSAs. The health care reform law will increase the additional tax on HSA withdrawals prior to age 65 that are not used for qualified medical expenses from 10 to 20 percent. The additional tax for Archer MSA withdrawals not used for qualified medical expenses would increase from 15 to 20 percent.

2013

Health Plan Administration

·         Administrative Simplification. Beginning in 2013, health plans must adopt and implement uniform standards and business rules for the electronic exchange of health information to reduce paperwork and administrative burdens and costs.

·         Limiting Health Flexible Savings Account Contributions. The new health care law will limit the amount of contributions to health FSAs to $2,500 per year, indexed by CPI for subsequent years.

Fees and Taxes

·         Eliminating Deduction for Medicare Part D Subsidy. Currently, employers that maintain prescription drug plans for their Medicare Part D eligible retirees are entitled to a tax deduction. This deduction will be eliminated in 2013.  

·         Increased Threshold for Medical Expense Deductions. The health care reform law increases the income threshold for claiming the itemized deduction for medical expenses from 7.5 percent of income to 10 percent. However, individuals over 65 would be able to claim the itemized deduction for medical expenses at 7.5 percent of adjusted gross income through 2016.

·         Additional Hospital Insurance Tax for High Wage Workers. The new law increases the hospital insurance tax rate by 0.9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly). The tax is also expanded to include a 3.8 percent tax on net investment income in the case of taxpayers earning over $200,000 ($250,000 for joint returns). 

·         Medical Device Excise Tax. The law also establishes a 2.3 percent excise tax on the first sale for use of a medical device. Eye glasses, contact lenses, hearing aids, and any device of a type that is generally purchased by the public at retail for individual use are excepted from the tax.

2014

Coverage Mandates

·         Individual Coverage Mandates. The health care reform legislation requires most individuals to obtain acceptable health insurance coverage or pay a penalty, beginning in 2014. The penalty will start at $95 per person for 2014 and increase each year. The penalty amount increases to $325 in 2015 and to $695 (or up to 2.5 percent of income) in 2016, up to a cap of the national average bronze plan premium. After 2016, dollar amounts are indexed. Families will pay half the penalty amount for children, up to a cap of $2,250 per family. Individuals may be eligible for an exemption from the penalty if they cannot obtain affordable coverage.

·         Employer Coverage Mandates. Employers with 50 or more employees that do not offer coverage to their employees will be subject to penalties if one employee receives a government subsidy for health coverage. The penalty amount is up to $2,000 annually for each full-time employee, excluding the first 30 employees. Employers who offer coverage, but whose employees receive tax credits, will be subject to a fine of $3,000 for each worker receiving a tax credit, up to an aggregate cap of $2,000 per full-time employee. Employers will be required to report to the federal government on health coverage they provide.

Health Insurance Exchanges

The health care reform legislation provides for health insurance exchanges to be established in each state in 2014. Individuals and small employers will be able to shop for insurance through the exchanges. Small employers are those with no more than 100 employees. If a small employer later grows above 100 employees, it may still be treated as a small employer. Large employers with over 100 employees are to be allowed into the exchanges in 2017. Workers who qualify for an affordability exemption to the coverage mandate, but do not qualify for tax credits, can use their employer contribution to join an exchange plan.

Health Insurance Reform

Additional health insurance reform measures will be implemented beginning in 2014. Specifically, health insurance companies will not be permitted to:

·         Refuse to sell or renew policies due to an individual’s health status;

·         Exclude coverage for treatments based on pre-existing health conditions;

·         Charge higher rates due to heath status, gender or other factors (premiums will be able to vary based only on age (no more than 3:1), geography, family size, and tobacco use);

·         Impose annual limits on the amount of coverage an individual may receive; or

·         Drop coverage because an individual chooses to participate in a clinical trial for cancer or other life-threatening diseases or deny coverage for routine care that they would otherwise provide just because an individual is enrolled in such a clinical trial.

Fees and Taxes

·         Individual Health Care Tax Credits. The new law makes premium tax credits available through the exchanges to ensure people can obtain affordable coverage. Credits are available for people with incomes above Medicaid eligibility and below 400 percent of poverty level who are not eligible for or offered other acceptable coverage. The credits apply to both premiums and cost-sharing.

·         Small Business Tax Credit. The second phase of the small business tax credit for qualified small employers will be implemented in 2014.  These employers can receive a credit for contributions to purchase health insurance for employees, up to 50 percent of premiums.

·         Health Insurance Provider Fee. The health care reform law imposes an annual, non-deductible fee on the health insurance sector, allocated across the industry according to market share. The fee does not apply to companies whose net premiums written are $25 million or less.

2018

High-Cost Plan Excise Tax

A 40 percent excise tax is to be imposed on the excess benefit of high cost employer-sponsored health insurance (also known as a “Cadillac tax”). The annual limit for purposes of calculating the excess benefits is $10,200 for individuals and $27,500 for other than individual coverage. Responsibility for the tax is on the “coverage provider” which can be the insurer, the employer, or a third-party administrator. There are a number of exceptions and special rules for high coverage cost states and different job classifications.