Turning 26 and Coverage On Parent’s Health Insurance

26th birthday

Background:

Under the Patient Protection and Affordable Care Act (ACA) plans and issuers that offer dependent child coverage must “continue to make such coverage available for an adult child until the child turns 26 years of age.” This requirement is regardless of the child’s dependent status, residency, student status, employment status or marital status.  This rule applies to all health plans in the individual market and to all employer health insurance plans. (29 CFR 2590.715-2714 – Eligibility of children until at least age 26.)

Termination of coverage:

The ACA requirement for adult coverage applies only until the date that child turns 26. However, some states have laws extending coverage through the end of the month the child turns 26, or until the end of the billing cycle or calendar year or possibly beyond age 26. Check with your carrier, or policy documents to verify when coverage for a child who turns age 26 ends.

COBRA:

In general, employees must notify the employer in writing within 60 days of their dependent turning 26. In turn, employers with 20 or more employees, must provide a notice of COBRA eligibility, enrollment forms, duration of coverage and terms of payment to the individuals who are no longer eligible for coverage as a dependent under their parents plan.  (Employers with 20 or fewer employees, may have similar obligation under State law e.g. Mini-Cobra, instead of under COBRA.)

Note:  

Most states have an exception to the limiting age for disabled children. For instance, for group policies issued in Texas, a child who is not capable of self-sustaining employment because of mental retardation or physical disability and who is chiefly dependent on their parents for support and maintenance must be allowed to remain on his or her parent’s insurance, without regard to age. The employee must provide to the insurer proof of the child’s incapacity and dependency:

(1)  not later than the 31st day after the date the child attains the limiting age;  and (2)  subsequently as the insurer requires, except that the insurer may not require proof more frequently than annually after the second anniversary of the date the child attains the limiting age.

(Sec. 1201.059. TERMINATION OF COVERAGE BASED ON AGE OF CHILD IN INDIVIDUAL, BLANKET, OR GROUP POLICY.)

Why does it matter?
  1. Financial benefit: Dependents represent a large portion of the cost of many employers’ health plans. Older children who have passed age 26 are often inadvertently included on an employee’s health plan because of a lack of understanding on the part of the employee or a lack of communication on the part of the employer, including not having a process to update the status of dependents.
  2. Rejected claims: Often, ineligibility isn’t determined until a dependent makes a very large claim, at which point the provider might deny coverage.

Ensuring dependents do not remain enrolled longer than they are eligible, protects not just the employer, but also the employee and his or her loved ones from future legal and financial risk.

Did you receive a Medical Loss Ratio (MLR) Rebate?

check in the mail

Summary of Medical Loss Ratio (MLR) rebates

The ACA requires health insurers to spend a minimum percentage of their premium dollars, or MLR, on medical care and health care quality improvement. This percentage is:

  • 85 percent for issuers in the large group market; and
  • 80 percent for issuers in the small and individual group markets.

Issuers that do not meet these requirements must pay rebates to the policyholder (employer) by Sept 30 of each year and the rebates are based upon aggregated market data in each state, not upon a particular group health plan’s experience. In other words, even if a particular employer’s plan’s MLR was below the applicable required standard, they will not receive a rebate unless the particular insurance product they purchased in their market size in their state qualifies for an MLR rebate.

NOTE: Carriers are required to mail out MLR (medical loss ratio) rebates by September 30.

Who does this apply to?

  • Fully insured health plans only. This does not apply to self-funded health plans or to polices for “excepted benefits” such as stand-alone dental or vision coverage.

How should employer handle MLR rebates?

>>Determine which plan or policy is covered by the rebate they received. (The issuer should include policy information as part of the rebate.)

>>Decide how much of the rebate must be paid to plan participants, and how much the employer may keep.

  • If the plan documents do not specify otherwise, the portion of the rebate that will be considered “plan assets” is the same percent of the total premium that was paid by participants. Under ERISA, the portion of the rebate considered “plan assets” can only be used for the exclusive benefit of plan participants and beneficiaries and therefore, must be paid to or used for the benefit of plan participants (more on this below).

  e.g. If ER contributes 55% of total premiums, EE contributes 45%, then 45% of  the MLR rebate are plan assets

>>Must or should the rebate be allocated to both prior year and current year participants?

  • If the employer finds that the cost of distributing shares of a rebate to former participants approximates the amount of the proceeds, the employer may decide to allocate the portion of a rebate attributable to employee contributions only to current participants using a “reasonable, fair, and objective” method of allocation.  (Technical Rel. 2011-04)

>>Decide how the rebate be paid or used

  • If distributing cash payments to participants is not cost-effective (for example, the payments would be de minimis amounts, or would have tax consequences for participants) the employer may apply the rebate toward future premium payments (e.g. premium reduction) or benefit enhancements.
  • An employer may also “weight” the rebate so that employees who paid a larger share of the premium will receive a larger share of the rebate.

Distribution examples:

        1. Pay the rebate to current employees by including the amount in their paychecks and withholding taxes.
        2. Reduce employees next month’s premiums (e.g. premium reduction) by the rebate amount or discount to all employees participating in the plan at the time the rebate is distributed.

>>When must the rebate be paid to participants?

  • The “plan asset” portion must be paid within 3 months of the date the employer receives the check from the insurer, or the employer must establish a trust to hold plan assets.

If an employer receives a rebate, and part of the rebate is “plan assets,” the employer is required to return the appropriate amount to participants. There is no minimum amount (de minimis exception) below which employers do not have to comply with the MLR rebate rules.

Therefore, employers should review all relevant facts and circumstances when determining how the rebate will be distributed and ensure they have procedures in place for determining the amount of any MLR rebate issued by an insurer that would be considered “plan assets” and required to be provided to participants.

 

There are 2 Federal Poverty Level Safe Harbor Amounts Each Year

scale

In 2019, the Federal Poverty Level (FPL) affordability safe harbor employee contribution amount is $99.75/mo and $102.63/month.

Background: 

Applicable Large Employers (ALE’s) with 50 or more employees are subject to the Affordable Care Act’s (ACA) provisions that require employers provide affordable coverage to employees working 30 or more hours per week. If an ALE does not offer affordable coverage, they may be subject to an employer shared responsibility payment.

Currently, coverage is considered affordable if the employee’s required contribution for employee only coverage on the employer’s lowest-cost plan that offers minimum essential coverage and minimum value, as defined by the ACA does not exceed 9.86% of the employee’s household income. In 2020, the affordability percentage decreases slightly to 9.78%.

If certain conditions are satisfied, an ALE may use one or more of the three affordability safe harbors to determine if it’s offering affordable coverage under the ACA: W-2, Rate of Pay, and Federal Poverty Level (FPL).

An ALE may choose to use one safe harbor for all of its employees or to use different safe harbors for employees in different categories, provided that the categories used are reasonable and the employer uses one safe harbor on a uniform and consistent basis for all employees in a particular category.

Federal Poverty Level:

The federal poverty level safe harbor requires just one calculation. Under this safe harbor, coverage is affordable if the employee’s monthly cost for self-only coverage under the plan does not exceed the federal poverty level for a single individual.  The employer can ignore the employee’s actual hours and wages, which is very helpful when calculating premiums for a workforce with fluctuating schedules and compensation.  But, the federal poverty level safe harbor often results in high cost sharing by the employer and relatively low premiums for employees.

In 2019, the FPL affordability safe harbor employee contribution amount for calendar year plans that an employer can use is $12,140 x 9.86% = $1,197/12 =$99.75/mo.

However, the FPL for 2019 non-calendar year plans may be different.

HHS posts the FPL compensation amount annually by February, so the FPL amount used to calculate the safe harbor in December 2018 for a calendar (1/1/2019) plan year, $12,140 was the only FPL compensation level amount available. Whereas, in February 2019, the FPL compensation level changed to $12,490. 9.86%($12,490)=$1,231.51/12 =$102.63/month.

The IRS recognizes ALE’s need to know well in advance of open enrollment how to set rates, therefore per the final regulations employers are:

“permitted to use the guidelines in effect six months prior to the beginning of the plan year, so as to provide employers with adequate time to establish premium amounts in advance of the plan’s open enrollment period.”

If that six month look-back period reaches into a prior calendar year and two different FPL compensation amounts (and corresponding FPL affordability safe harbor contribution amounts) are available (one from the prior year and the other from the current year), the employer can choose between the two calculations in applying the FPL affordability safe harbor.

Example: A plan that started June 1, 2019 may “look-back” to the FPL safe harbor in effect 6 months prior which was $99.75/mo, or use the FPL safe harbor in effect using the FPL amount released in 2019, $102.63. Whereas a plan starting September 1, 2019, looking back six months would bring up only one possible FPL safe harbor employee contribution amount the employer may use, $102.63.

Note: When applying the look-back approach, the affordability percentage that applies for the year in which the plan year starts must be used. e.g. Any plan starting in 2019, 9.86% is the percentage that applies even when using the FPL amount ($12,140) for 2018 to do the calculation.

So although you will see articles sharing the FPL in 2020 is $101.79/mo ($12,490 x 9.78% = $1,221.52/12), keep in mind this is for calendar year plans and a second FPL amount will be available for non-calendar year plans when the FPL amount is released for 2020.

 

 

REMINDER – PCORI Fees Due July 31, 2019

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Background:

The ACA imposes a Patient-Centered Outcomes Research Institute (PCORI) fee for all medical plans* ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

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 7/31/2019.

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.

Plan Year

Fee per average covered life

When fee must be paid

February 1, 2017 through January 31, 2018

$2.39

July 31, 2019

March 1, 2017, through February 28, 2018

$2.39

July 31, 2019

April 1, 2017 through March 31, 2018

$2.39

July 31, 2019

May 1, 2017 through April 30, 2018

$2.39

July 31, 2019

June 1, 2017 through May 31, 2018

$2.39

July 31, 2019

July 1, 2017 through June 30, 2018

$2.39

July 31, 2019

August 1, 2017 through July 31, 2018

$2.39

July 31, 2019

September 1, 2017 through August 31, 2018

$2.39

July 31, 2019

October 1, 2017 through September 30, 2018

$2.39

July 31, 2019

November 1, 2017 through October 31, 2018

$2.45

July 31, 2019

December 1, 2017 through November 30, 2018

$2.45

July 31, 2019

January 1, 2018 through December 31, 2018

$2.45

July 31, 2019

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 play 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.

Some tips for completing Form 720 for PCORI fees:

An employer/plan sponsor needs to complete:

  • Company information and quarter ending “June 2019” (e.g. for 2018 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, 2018, – enter “Avg. number of lives covered for self-insured health plans”

OR

    • Column (a) row (d) if plan ended on or after October 1, 2018 and before October 1, 2019 – 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
      Cincinnati, OH 45999-0009

July 31, 2020 will be the final year for paying PCORI fees under the current ACA Risk & Market Stabilization Programs for plan years ending before October 1, 2019.

e.g.

Plan Year Fee per average covered life When fee must be paid
February 1, 2018 through January 31, 2019 $2.45 July 31, 2020
March 1, 2018, through February 28, 2019 $2.45 July 31, 2020
April 1, 2018 through March 31, 2019 $2.45 July 31, 2020
May 1, 2018 through April 30, 2019 $2.45 July 31, 2020
June 1, 2018 through May 31, 2019 $2.45 July 31, 2020
July 1, 2018 through June 30, 2019 $2.45 July 31, 2020
August 1, 2018 through July 31, 2019 $2.45 July 31, 2020
September 1, 2018 through August 31, 2019 $2.45 July 31, 2020
October 1, 2018 through September 30, 2019 $2.45 July 31, 2020
November 1, 2018 and all following renewals Fee expires for plans ending before 10/1/2019. No further payments required.

Intern is not synonymous with seasonal employee

summer

It’s important for employers to classify their employees correctly – especially Applicable Large Employers (ALEs) who must comply with the “pay or play” employer mandate.

The ACA does not require an ALE to offer coverage to a “seasonal” employee, however it’s 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”

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 employer 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 noncompliance penalties. i.e.  If the interns are less than 5% of the employee population, $312.50 per month. If they make up more than 5%, there is exposure to the §4980Ha penalty, 1/12($2,500) per month x total number of full-time employees minus 30.

Intern is not synonymous with seasonal employee but it is possible under the right circumstances for an intern to be seasonal.