Compliance Trap: HSA & FSA – When There Is a Grace Period Or Carryover

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, FSA, HSALeave a comment
Despite an employer’s best intentions, many entities do not have processes in place to ensure that they are compliant with the IRS’s health savings account (HSA) rules. Others are not even aware of the compliance risks and find themselves in violation, which creates risks for both the company and their employees.

There are four main HSA compliance “traps” that fall into 4 main categories:

  • Disqualifying Coverage – eligibility violations
  • Contribution issues – excess or ineligible contributions, failure to open an account
  • Cafeteria Plan Issues
  • Mistaken Contributions

This is the second blog post on disqualifying coverage. As mentioned previously, a health flexible spending arrangement (FSA) or a spouse’s FSA (unless it is limited purpose or post-deductible) is problematic.

However, employers who offer a health FSA also need to understand the complications if they also offer an HSA. Especially employers who have a calendar year FSA and their medical plan renews off calendar year. Or employers who add an HDHP when they already have a health FSA established. Their health FSA plan design may impact HSA eligibility, preventing employees from being eligible to participate in an HSA when they first enroll in a HSA compatible high deductible health plan (HDHP).

Grace Period

For instance, a grace period is an optional plan design feature that permits participants with unused amounts at the end of the plan year to continue incurring reimbursable claims from that unused balance for up to 2 ½* months following the end of the plan year. This plan design disqualifies an individual from HSA eligibility unless they have a zero balance on the last day of plan year.

A zero balance means the claims have been processed and the account balance shows $0.00. If they have any amount in their FSA as of the last date of the plan year, they are not eligible to contribute (or receive contributions) to an HSA until first of the month following the end of the grace period. Even if they spend the remaining money during the grace period.

EXAMPLE:

  • Kelsey is a full-time employee at Jam Studios. For 2020, Kelsey is enrolled in a PPO plan and contributes $2,750 to the calendar year health FSA with a 2 ½ month grace period.
  • Jam Studios for 2021 open enrollment adds an HDHP plan with a $100/month employer HSA contribution.
  • Kelsey decides the HDHP is a better option for her and elects this new plan option in November at open enrollment effective for the 1/1/2021 plan year.
  • On December 31, 2020, Kelsey’s health FSA account had a $300 balance remaining. Kelsey is not eligible to open an HSA, make or receive any HSA contributions until the first of the month after the 2 ½ month grace period, or 4/1/2021. Even if Kelsey submits a claim for reimbursement during the grace period.

Carryover

Likewise, a carryover is an optional plan feature that permits health FSA participants to carryover up to $550 (2020 maximum*) of unused amounts the subsequent plan year. This may also create a problem.

Solutions

There are ways for the health FSA plan to be designed to avoid these hiccups. For instance, a plan with a:

  • Grace Period or Carryover: Plans could be designed to permit participants to opt out or waive the grace period or carryover prior to the beginning of the following year.
  • Carryover: Plans with a carryover could be designed so a minimum threshold amount is required to create a new annual election and if the employee’s balance is less than the minimum their health FSA participation does not automatically continue.
  • Carryover: The employer with a carryover could offer a limited purpose FSA and design their plan so remaining funds automatically carry over to the limited purpose FSA for employees who elect an HDHP.

But these plan design options need to be made prior to the start of the plan year.** Therefore, employers need to be aware of these traps in order to educate their employees prior to being permitted to enroll in an employer’s HSA.

*The grace period timeframe and carryover limits mentioned are under generally applicable FSA rules. Because of the COVID-19 pandemic and unanticipated changes in the availability of certain medical care, the IRS recognized employees may be more likely to have unused health FSA amounts at the end of plan years, or grace periods, ending in 2020. Notice 2020-29 provides temporary special rules that allowed employers to amend their cafeteria plans to extend the period employees could be permitted to use health FSA amounts remaining in their accounts as of the end of the grace period or plan year. However, an individual is not eligible to make contributions to an HSA during a month in which the individual participates in a general purpose health FSA to which unused amounts are carried over or the grace period is extended.

**The IRS made exceptions for plan amendment rules due to the pandemic. Employers may amend their plans to allow employees, on an employee-by-employee basis, to opt out of the carryover or to opt out of any extended period for incurring claims in plan years ending in 2021 and 2022, to preserve their HSA eligibility.

This is Part 2 of HSA Compliance Traps. Be sure to follow our blog to learn about the additional HSA Compliance Traps published later this year.

If you have a question, we are here to help! Let us end your employee benefits compliance confusion. Send us an email today!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on our website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

REMINDER – PCORI Fees Due July 31, 2021

On By Michelle Turner, MBA, CEBSIn ACA, HRA, self-insuredLeave a comment

OLYMPUS DIGITAL CAMERA

Background:

The Affordable Care Act (ACA) imposes a Patient-Centered Outcomes Research Institute (PCORI) fee for all self-funded medical plans* ending on or before September 30, 2029. If the plan is fully insured, the insurance carrier pays the fee on behalf of the plan sponsor (employer). If the plan is self-insured, the plan sponsor has the obligation to file Form 720 with the IRS by 7/31/2021.

NOTE: Health reimbursement arrangements (HRAs) are considered a self-insured health plan and are subject to PCORI fees. When an employer has an HRA with a fully insured medical plan, it’s considered two separate plans. The carrier pays the PCORI fee for the medical plan and the plan sponsor pays the fee for the HRA. When the employer has an HRA with a self-insured medical plan, they may be treated as one plan for purposes of calculating the PCORI fee.  

*PCORI Fees do not apply to

  • Plans providing HIPAA-excepted benefits e.g. stand-alone dental, vision, health FSAs (if other group health coverage is available and the employer contributes $500 or less)
  • Health Savings Accounts (HSAs)
  • Wellness programs, EAPs, disease management programs that do not provide significant benefits for medical care
  • Stop-loss insurance policies

Calculating the fee:

The amount of PCORI fees due for a self-insured medical plan is based upon the average number of covered lives (i.e. employees, dependents, COBRA participants, and covered retirees) under the self-insured medical plan and the applicable ERISA plan year (see table below).

The amount of PCORI fees due for an HRA is based upon the average number of covered employees (not belly buttons) under the HRA and the applicable plan or policy year.

There are 3 acceptable methods for calculating the average number of covered lives:

  1. Actual Count Method – A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the plan year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method – A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method – An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Once the average number is calculated, Form 720 is what is used to report and pay to the IRS the amount of the PCORI fee due.

2019 New & Renewal Plan Dates Fee per average covered life When fee must be paid
January 1, 2019 through December 31, 2019 $2.54 July 31, 2020
February 1, 2019 through January 31, 2020 $2.54 July 31, 2021
March 1, 2019 through February 28, 2020 $2.54 July 31, 2021
April 1, 2019 through March 31, 2020 $2.54 July 31, 2021
May 1, 2019 through April 30, 2020 $2.54 July 31, 2021
June 1, 2019 through May 31, 2020 $2.54 July 31, 2021
July 1, 2019 through June 30, 2020 $2.54 July 31, 2021
August 1, 2019 through July 31, 2020 $2.54 July 31, 2021
September 1, 2019 through August 31, 2020 $2.54 July 31, 2021
October 1, 2019 through September 30, 2020 $2.54 July 31, 2021
November 1, 2019 through October 31, 2020 $2.66 July 31, 2021
December 1, 2019 through November 30, 2020 $2.66 July 31, 2021
2020 New & Renewal Plan Dates Fee per average covered life When fee must be paid
January 1, 2020 through December 31, 2020 $2.66 July 31, 2021
February 1, 2020 through January 31, 2021 $2.66 July 31, 2022
March 1, 2020 through February 28, 2021 $2.66 July 31, 2022
April 1, 2020 through March 31, 2021 $2.66 July 31, 2022
May 1, 2020 through April 30, 2021 $2.66 July 31, 2022
June 1, 2020 through May 31, 2021 $2.66 July 31, 2022
July 1, 2020 through June 30, 2021 $2.66 July 31, 2022
August 1, 2020 through July 31, 2021 $2.66 July 31, 2022
September 1, 2020 through August 31, 2021 $2.66 July 31, 2022
October 1, 2020 through September 30, 2021 $2.66 July 31, 2022
November 1, 2020 through September 30, 2029 PCORI fee increases by rate of Medical inflation per average covered life (To be announced)

Tips for completing Form 720 for PCORI fees:

An employer/plan sponsor needs to complete:

  • Company information and quarter ending “June 2021” (e.g. for 2020 plan year filing) – although the fee is paid annually, the tax period for the fee is the 2nd quarter of the year
  • Part II, IRS No. 133 Applicable self-insured health plans
    • Column (a), row (c) if plan ended before October 1, 2020, – enter “Avg. number of lives covered for self-insured health plans”

OR

    • Column (a) row (d) if plan ended on or after October 1, 2020 and before October 1, 2021 – enter “Avg. number of lives covered for self-insured health plans”

AND

    • Column (c) – enter total Fee (lives x $)
  • Part II, Line 2 – enter Total Tax (from calculation in IRS No. 133)
  • Part III, Line 3 – enter Total Tax (from Part II, Line 2)
  • Part III, Line 10 – enter Balance Due (from Part III, Line 3)
  • Signature section
  • Payment voucher with “2nd Quarter” checked,
    • Send the form, payment voucher, and check to:
      Department of the Treasury
      Internal Revenue Service
      Ogden, UT 84201-0009

If you have questions about the above, need help with calculating your PCORI fee obligation, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

When A Cafeteria Plan Mistake Is Discovered – The Solution Is Not Universal

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, eligibilityLeave a comment
Mistakes happen
Cafeteria plan mistakes happen. How are they corrected?

Regardless of how excellent an employer’s cafeteria plan administrative processes are, it’s not uncommon for oversights to occur. Whether it’s discovering the wrong amount of premiums being deducted during a payroll audit, an employee is enrolled in a benefit plan different from what they signed up for during open enrollment, or an HSA contribution was missed. Mistakes happen!

Unfortunately, neither IRS regulations nor the Code sections which govern cafeteria plans provide guidance. There are IRS publications and a Chief Counsel Advice memorandum which address correction for a few specific areas (e.g., Form W-2 corrections, improper health FSA reimbursements), however, other mistakes, in general, the IRS has not provided information nor a standardized process for correcting.

What Is An Employer To Do?

It is our experience, the best way to correct a mistake is to put the employee and the plan back into the position they would have been in had the mistake never occurred. Failure to do so could disqualify the entire cafeteria plan! This could mean employees’ pretax elections suddenly become gross income to employees, and they would be required to pay all the employment and income taxes that go along with it.

The specific correction will depend on the facts and circumstances (e.g., what type of mistake was made and was it discovered before, during, or after the plan year).

Example: Four months after open enrollment, an employer discovers an employee was enrolled in the correct benefits with the carriers, but somehow the wrong employee pretax deductions occurred and too little premium was withheld. The employer would want to let the employee know an oversight occurred and depending on the amount of the money needed to be made up, either ask for the employee to pay the entire amount or perhaps have double-premiums deducted until the shortfall is corrected.

Employers should make a reasonable good faith effort to correct past errors and document everything (e.g. date the failure was discovered, the decision made & why, the process to correct & steps to ensure won’t occur going forward). 

If an employer is audited, their documentation could explain how the mistake occurred, show it was an honest mistake, that once realized corrective steps were taken to fix it in the least disruptive way. It will also outline the procedures implemented to ensure the mistake didn’t occur again. This could show an employer acted in good faith and was never intentionally trying to circumvent the tax code.

Note: Correcting payroll errors involves a variety of federal & state laws. Prior to implementing corrections, be sure all federal & state wage/tax laws are considered. Contact an experienced benefits attorney before implementing corrective measures if uncertainty exists.

Do you wish you had someone to bounce your situation off of? We’re here to explain complex compliance issues in layman’s terms. Contact us today. Let’s discuss your compliance needs.

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

WARNING: Keeping an Employee on Benefits When They Are Not Actively at Work Is Risky

On By Michelle Turner, MBA, CEBSIn COBRA, eligibility, leave of absence, self-insured1 Comment
Employers who are trying to be generous by keeping employees on their benefits plan, may be making a costly mistake.

There are eligibility rules known as “actively at work clauses” for employer group benefits including medical, dental, vision, life, and disability. These provisions allow the insurer to exclude coverage for employees who are not working a minimum number of hours each week, such as when they are on a leave of absence because of an illness or furloughed.

If you have a fully insured plan, the carriers define the rules on how long an employee who is on an unprotected leave of absence (e.g., not out due to a reason covered by the Family Medical Leave Act (FMLA)) may remain on the plan before coverage must be terminated and continuation coverage (e.g., COBRA) offered. If you are self-insured, it is a conversation that should have been discussed when creating plan documents with the stop-loss carrier.

If an employer does not follow this provision and fails to terminate an employee and offer them continuation coverage, then the carrier may not cover any claims, leaving the employer financially responsible. It has been my experience, although the carrier leaves eligibility verification up to the employer, before paying a large claim, many carriers are thorough and review an employee’s status by asking for payroll records.

There is no standard rule for when an employee who is not actively at work must be terminated from active coverage. Often, for ease of administration, carriers will permit an employee to remain on the plan for up to 12 weeks to be the same as a protected leave of absence under the FMLA. However, an employer must check their plan documents and never assume. Once the employee no longer meets the definition of actively working, the employer should terminate the employee and offer continuation coverage. This includes providing port/covert paperwork for life and disability coverage.

If you have questions about the above, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Summer Is Almost Here. Do We Have To Offer Our Interns Benefits?

On By Michelle Turner, MBA, CEBSIn ACA, eligibilityLeave a comment
Are interns eligible for benefits?

The term “intern” is a common word which most everyone understands is a person who works (sometimes unpaid) for a temporary period of time for a company.  The classification of “intern” however, is not something recognized by the ACA. They are not defined for ACA purposes. Rather, for an Applicable Large Employer (ALE) to avoid exposure to the employer shared responsibility penalties, all their W-2 employees should be classified on their start date as either full-time (FT), part-time (PT), variable hour (VH), or seasonal depending on the facts and offered benefits accordingly.

Can’t an intern just be classified as seasonal?

Although it is true, the ACA does not require an ALE to offer coverage to a “seasonal” employee, seasonal is not synonymous with ‘intern’ so it is imperative to understand how the ACA defines seasonal, to avoid exposure to penalties.

Per Treas. Reg. 54.4980H-1(a)(38) the term seasonal employee means “an employee who is hired into a position for which the customary annual employment is six months or less”. 

“Customary” means “that by the nature of the position an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter” [Emphasis added].

Examples:

  • Ski resort instructor hired each year from November until March
  • A cattle ranch who hires extra ranch hands during foaling season, April – Sept.

However, there are no special pay or play rules for internships. Therefore, when deciding how to classify an “intern”, a key part of the seasonal definition that needs to be considered is “approximately the same part of the year”.

An employer who only hires temporary, full-time positions (i.e. interns) at a specific time of the year (e.g., summer) and they work for less than six months, it may be possible to classify them as seasonal. However, an employer who hires interns at various times of the year, those interns may not satisfy the seasonal definition.

Why does it matter?

An ALE mislabeling their interns as seasonal and not offering coverage for any month in which they were required to be treated as full-time, may face ACA non-compliance penalties. i.e. If the interns are less than 5% of the employee population, $338.33 per month, the §4980H(b) penalty in 2021. If they make up over 5%, there is exposure to the §4980H(a) penalty, 1/12($2,700) per month x total number of full-time employees minus 30.

It is possible under the right circumstances for an intern to be seasonal, however, an intern is not synonymous with a seasonal employee.

Employee Benefits

If interns are hired with the intent to work 30 or more hours a week on average, then they are full-time employees, even if their employment is temporary.  Thus, for an ALE to avoid a shared responsibility penalty, they would need to be offered ACA compatible coverage after the applicable waiting period, but no later than their 91st day of employment.

Options to Consider

  1. Exclude interns from coverage (if they make up fewer than 5% of the employer’s full-time population) and accept the risk exposure to the §4980H(b) penalty for any month in which the intern is required to be treated full-time.
  2. Offer interns the same coverage as permanent, full-time employees. (Many interns, if they are college students may be on their parent’s insurance and are uninterested in paying for their own coverage.)
  3. Establish a separate class for interns with a longer waiting period than the permanent, full-time employees (e.g., the 91st date of employment) with the intent of the intern not working longer than 90 days and never becoming eligible for benefits.*

*Note: This option requires carrier approval (some carrier’s systems are not set up to handle mid-month enrollment, nor prorate premiums) and the employer would want to continue to perform applicable nondiscrimination testing to ensure it doesn’t negatively affect the testing.

FT, PT, VH, or seasonal are the only classification options for ACA purposes. Mis-classifying an intern (i.e. failing to treat them as FT for ACA purposes) may expose an ALE to ACA penalties.

If you have a question, we are here to help! Let us end your employee benefits compliance confusion. Send us an email today!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Turning 65 Does Not Prevent HSA Eligibility

On By Michelle Turner, MBA, CEBSIn HSA, MedicareLeave a comment

Medicare entitlement (entitlement=eligible & enroll) is no longer automatic for everyone when they turn 65, rather most will need to sign up to get Medicare Part A and Part B.  Medicare is only automatic for individuals who:

  • Are getting benefits from Social Security or the Railroad Retirement Board (RRB) at least 4 months before they turn 65
  • Are under age 65 and have disability benefits from Social Security or RRB for 24 months
  • Have ALS (also called Lou Gehrig’s Disease)

Therefore turning 65 and gaining eligibility for Medicare in and of itself, does not disqualify an employee from continuing to receive employer contributions or making their own contributions to an HSA. Only if one voluntarily enrolls in any part of Medicare would they then be disqualified. 

Employees wanting to work a few more years and delay retirement can continue to reap the triple tax advantage benefit of an HSA if they are otherwise an eligible individual.  Keep in mind however if an employee delays their enrollment in Medicare and continues to work beyond age 65, once the individual’s employment sponsored coverage ends, they have an eight-month special enrollment period to sign up for Medicare Part A. The first month of Medicare entitlement may be retroactive to the month they turned 65, or up to 6 months prior to enrollment, whichever is less. Therefore, an individual may become ineligible for an HSA & have to stop HSA contributions for up to 6 months before they apply for Medicare Part A benefits to ensure they do not over contribute to their HSA.

If you have a question on this or are stumped on another employee benefits compliance question, send us an email today! We’re here to explain complex compliance issues in layman’s terms.

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Are You Prepared for a DOL Audit?

On By Michelle Turner, MBA, CEBSIn ERISA1 Comment
EBSA, a division of the DOL responsible for ensuring the integrity of nearly 722,000 retirement plans, approximately 2.5 million health plans, and a similar number of other welfare benefit plans, such as those providing life or disability insurance in the United States, closed 1,122 civil investigations with 754 of those cases (67%) resulting in monetary results for plans or other corrective action in Fiscal Year 2020. EBSA recovered:

• over $3.1 billion in direct payment to plans, participants and beneficiaries
• 456.3 million in connection with 171,863 “complaints” with an employee benefit plan by an individual

The risk is real! It is not a matter of “if” but “when” you get audited! In today’s information age, the government agencies easily share information too, so a “complaint” and investigation by one entity could lead to an audit by another. There are no “absolutes”.

What is your risk tolerance?

3 Tips for Proactive Employee Benefits Compliance

Tip #1 – Maintain written plan documents for every employee benefit plan. 

If you are ever selected for a DOL audit, it is important to have documents showing you are complying with ERISA and that you are maintaining these documents. This may not only reduce your exposure to penalties but also make the audit process more manageable and less time-consuming.

Plan documents are the foundation of any ERISA plan that you sponsor (i.e., all employer-sponsored plans, except churches and governments). ERISA requires that every employee benefit plan have a written plan document that describes the benefit structure and guides the plan’s day-to-day operations.  

Documents from the carrier are not usually ERISA plan documents. Carriers are not subject to ERISA. Their documents may have about 80% of what ERISA requires but typically are missing critical information (e.g., plan #, named fiduciary, ERISA discretionary authority language).  So, plan sponsors (e.g., employers) need to do something on top of the carrier documents. 

Tip #2 – Establish formal process for providing required ERISA documents to plan participants and beneficiaries.

ERISA has two primary requirements and satisfying both requirements fall on the plan administrator (typically the employer). In addition to the plan document requirement mentioned above, ERISA also requires that plan participants and beneficiaries receive specific documents at certain times of the year.  For instance:

  • Summary Plan Description – upon enrollment and at various other times, providing information the participant may rely on about the plan’s terms, including who is eligible and what the benefits are.
  • Summary of Benefits and Coverage (SBC) – upon enrollment and within 7 days upon request
  • Marketplace Coverage Notice – within 14 days of employee’s start date
  • Children’s Health Insurance Program Reauthorization Act (CHIPRA) – on the first day of each plan year, to all employees who reside in a state which medical premium assistance is available, regardless of the employer’s location, and at the time of initial enrollment.

There are potential penalties associated with not providing the document when required. Employers should keep a record of when these documents are provided, to whom and how. The DOL during an audit is likely to ask for proof of the required participant communications.

Tip #3 – Have a formal document retention policy.

ERISA generally requires employee benefit plan documents to be retained at a minimum of six years after the plan’s Form 5500 filing due date. (Employers who do not have a Form 5500 filing obligation also must maintain the documents for six years after the date a Form 5500 would have been filed if it were not for an exemption.)

Documents that should be retained include but not limited to:

  • Original signed plan documents and amendments
  • Corporate resolutions and/or committee actions related to the plan
  • Plan disclosures and communications to participants (including Summary Plan Descriptions and Summary of Material Modifications) –notices, open enrollment guides
  • Financial reports, audits, and related statements
  • Form 5500s
  • Trust documents
  • Nondiscrimination and coverage testing results
  • Disputed claim records in the event of future litigation
  • Payroll and census data used to determine eligibility and contributions

Best practice is to maintain these documents for the life of the plan, providing a paper trail of the plan from its beginning.

Bonus Tip: Do not let your first audit be with the DOL!

Plan sponsors on a regular basis should complete an internal compliance audit or “check-up” of their employee benefit plans for compliance with ERISA and other legal requirements. The check-up can uncover areas that an employer should be doing differently or need to be changing prospectively, making the DOL audit process more manageable and less time consuming.

Regardless of how sound your business practices are, every organization should be prepared for a DOL audit.



If you have any questions about the above, or want assistance with an internal compliance checkup, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

State Mini-COBRA ARPA Subsidy Obligations

On By Michelle Turner, MBA, CEBSIn ARPA, COBRALeave a comment

There are 21 FAQs in the DOL’s guidance released on April 7, 2021 providing clarification on the COBRA subsidy added by the American Recue Plan Act of 2021 (ARPA). Generally, when we think of COBRA, the focus is on federal COBRA laws, that are typically applicable to private sector employers subject to ERISA with twenty or more employees and governmental plans. State continuation, or ‘mini-COBRA” laws have been adopted by over 40 states and often fill in gaps where the Federal COBRA laws do not apply or extends coverage after Federal COBRA has been exhausted.

The COBRA subsidies under ARPA are also available to Assistance Eligible Individuals (AEIs*) enrolled in a state continuation program; however, ARPA does not change any state program requirements or time periods for election of state continuation. This means there are important differences on how the subsidies work for health plans only subject to state continuation (e.g., church plans or employer plans when the employer has less than 20 employees).

  • It does not add a Notice requirement for States if the State does not have a notice requirement now. The general notice, second election notice and subsidy expiration notice requirements are only applicable to federal COBRA plans. The DOL did provide a model alternative notice to satisfy mini-COBRA subsidy notice requirements.
  • If the state’s mini-COBRA laws do not provide continuation coverage due to a reduction in hours, an AEI is not eligible for a subsidy if they lost coverage because their hours were reduced.
  • Individuals must elect to receive state continuation within the state’s required original election time period, unless the state issues guidance permitting a second election period. The section of ARPA that provides for the second election period references ERISA, the Internal Revenue Code, and the Public Health Service Act—but does not explicitly address state law programs. 

*AEIs are those whose involuntary termination or reduction in hours occurred:

  • During the subsidy period (4/1/2021 – 9/30/2021)
  • Prior to the subsidy period but they have existing COBRA coverage extending into the subsidy period
  • Prior to the subsidy period and have not elected COBRA. But if they had elected, coverage would have extended into the subsidy period.
    • Includes those who elected and subsequently dropped COBRA coverage before the subsidy period begins.

If you have any questions regarding the COBRA subsidy guidance, contact: questions@thecompliancerundown.com

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Compliance Trap: HSA & Spouse’s FSA

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, eligibility, FSA, HSA7 Comments

Despite an employer’s best intentions, many entities don’t have processes in place to ensure that they are compliant with the IRS’s HSA rules. Others are not even aware of the compliance risks and find themselves in violation, which creates risks for both the company and their employees.

There are four main health savings account (HSA) compliance “traps” that I regularly find myself providing guidance on regarding HSAs, which fall into 4 main categories:

  • Disqualifying coverage – eligibility violations
  • Contribution issues – excess or ineligible contributions, failure to open an account
  • Cafeteria Plan Issues
  • Mistaken Contributions

All are equally problematic, however, for many employers open enrollment season is upon them and the one top of mind is disqualifying coverage, or what makes one ineligible for an HSA account.

According to the IRS, to be an eligible individual and qualify for an HSA, an individual must meet the following requirements:

  • Must be covered under an HDHP on the first day of the month
  • Cannot have disqualifying health coverage
  • Cannot be enrolled in Medicare
  • Cannot be claimed as a dependent on someone else’s tax return for the year

One of the most overlooked disqualifying coverages is a health flexible spending account (FSA) or a spouse’s health FSA (unless it is limited purpose or post-deductible).

The most common mistake I come across is when both spouses enroll in their own employer’s sponsored health coverage and one spouse elects a non-high deductible health plan (HDHP) plan with a general purpose health FSA and the other elects an HDHP plan and makes HSA contributions. Under the IRS tax rules, the health FSA could be used to reimburse qualified medical expenses on the employee, spouse or all dependents claimed on the employee’s tax return, therefore it is considered “disqualifying health coverage’ and it disrupts HSA eligibility. I often here, “but my spouse doesn’t spend their FSA $ on me”….that doesn’t matter. The FSA could be spent on the spouse, therefore, it disrupts HSA eligibility

For example:

  • Marcy and Charlie are married, Marcy is a full-time employee at Peanut’s Place and Scott is a full-time employee at Snoopy Hotel.
  • Marcy enrolls in single coverage PPO (e.g. non-HDHP) with Peanut’s Place and elects the health FSA.
  • Charlie enrolls in single coverage HDHP with Snoopy Hotel and wishes to enroll in the accompanying HSA but is ineligible. This is because Marcy has a health FSA (which is disqualifying coverage) and she is permitted to spend her health FSA dollars on her qualifying medical expenses, and those of her spouse and dependents.
  • Even if Marcy does not spend her health FSA dollars on Charlie, Charlie is still ineligible for Snoopy Hotel’s HSA.

It is important during open enrollment meetings that employers are providing education to employees and helping them be aware of this ‘trap’ so employees are enrolling in the health plan that works best for their situation and/or family.

This is Part 1 of HSA Compliance Traps. Be sure to follow my blog to learn about additional HSA Compliance Traps published later this year.




Affordable Care Act (ACA) Measurement Methods

On By Michelle Turner, MBA, CEBSIn ACA, eligibilityLeave a comment

The ACA has established rules on how to measure an employee’s hours to ensure an employee isn’t denied benefits based on a job title or classification of “part time” when in actuality they are working what the ACA considers full time (i.e. 30 hours a week or 130 hours a month). Part of these rules also includes when an employee must be offered benefits. 

Unfortunately, the measurement rules may be confusing, and often it’s easiest to understand the concept with an illustration (above). First, a few definitions:

  • Standard measurement period (SMP): a period of time (recommended is 12 months) for counting hours of service to determine full-time status for all ongoing employees
  • Ongoing employee: an employee who has been employed for at least one standard measurement period
  • Administrative period: allows time for enrollment and disenrollment, typically it’s 1 or 2 months
  • Standard Stability Period: when coverage must be provided if the employee averages full-time hours during the prior standard measurement period, this timeframe coincides with an employer’s plan year
  • Initial measurement period (IMP): lasts between three and 12 consecutive months, as chosen by the employer (we recommend 12), it begins on the first day of the calendar month following the employee’s start date
  • Initial stability period: when coverage must be provided if the employee averages full-time hours during their initial measurement period. If an employee does not average 30 hours/week during the IMP, the stability period cannot be more than one month longer than the IMP, typically this is the same length as the IMP

The above illustration is what these periods look like assuming a 1/1 plan year.

When an employee is hired as PT, their initial measurement period (IMP) starts the first day of the month after they were hired (e.g., date of hire 3/15/16, IMP starts 4/1/2016) and may last for up to 12 months (this diagram 11 months is used). During the IMP (e.g., 4/1/16 – 2/28/17) their hours are being tracked. At the end of the IMP (e.g., 2/28/2017), if the employee averaged 30 hours a week (or 130 hours a month) they must be offered benefits by the first day of their 13th month of employment which is the first date of their initial stability period (e.g., 5/1/2017). The employee also then must continue to be offered coverage for their entire initial stability period regardless of the number of hours they are working. 

These employees are also being measured during the SMP (e.g., 11/1/2016 – 10/31/2017) being used for all ongoing employees. If during the SMP they measure FT, the employee is eligible for benefits for the duration of the standard stability period (e.g., 1/1/2018 -12/31/2018), which means at the end of their IMP (e.g., 2/28/2017), benefits continue until the end of the standard stability period (12/31/2018). So, in the diagram above, on 4/30/2018 when the initial stability period ends, if from 11/1/16 – 10/31/17 (the standard measurement period) the employee measured full time, their benefits would continue until 12/31/2018. If, however, on 4/30/2018 the employee did not measure full time during the SMP (11/1/16 – 10/31/17) the employee would no longer be eligible for coverage. 

The other method that is available to use is the monthly measurement method, which means each month an employer determines whether an employee is/is not eligible for benefits based on the # of hours they worked the previous month and they would enroll/term accordingly monthly. Not a method that makes administrative sense for an hourly employee with fluctuating hours. 

Reference/Resource:

“The Five Ws, and One H of Affordable Care Act (ACA) Measurement Methods.” Alera Group, 23 Dec. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-affordable-care-act-aca-measurement-methods-102120/.