IRS Proposes Methods for Valuing Employer Health Coverage
By aida | May 14, 2012
The IRS has issued three notices concerning key aspects of the 2010 Affordable Care Act (ACA). Notice 2012-31 proposes three different methods by which sponsors of self-funded health plans could value the coverage they provide to plan participants and their dependents. Notice 2012-32 and Notice 2012-33 then solicit comments on two related employer reporting requirements. This process for valuing and reporting employer health coverage goes to the heart of the ACA’s individual and employer mandates. It will also help target a tax credit designed to help low-income individuals pay premiums for health insurance purchases through a state-wide insurance exchange.
“Minimum Essential Coverage” Versus “Essential Health Benefits”
The “individual mandate” (the constitutionality of which is now under review by the U. S. Supreme Court) refers to the ACA requirement that most U.S. citizens either have “minimum essential coverage” or pay a penalty on their federal income tax return. The emphasis here is on “minimum.” This requirement may be satisfied through virtually any type of health coverage – individual or group, private or governmental, generous or stingy.
Minimum essential coverage should be contrasted with “essential health benefits,” another ACA-created term. This refers to the type of comprehensive health coverage that must be offered by any insurer whose individual or small-group policy is sold through an exchange. Essential health benefits must include at least a benchmark level of coverage for each of ten specific categories of benefits. Notice 2012-31 makes clear that self-funded employer health plans (as well as insured plans maintained by larger employers) need not meet this higher standard.
New Employer Reporting Requirements
To help enforce the individual mandate, a new Section 6055 of the Tax Code will require all providers of minimum essential coverage to report to the IRS on the individuals who receive that coverage. In Notice 2012-32 the IRS indicates that final regulations under Section 6055 will likely make a health insurer responsible for reporting minimum essential coverage under any insured employer health plan, relieving the sponsoring employer of that obligation. In the case of a self-funded employer plan, however, this reporting obligation will fall on the employer. The IRS anticipates that this Section 6055 reporting would be done on an employee’s Form W-2.
A separate reporting requirement will apply only to “large employers” (generally defined as those having 50 or more full-time employees). Under Code Section 6056, a large employer must report the information needed to administer two other provisions of the ACA. These are (1) a premium tax credit available to low-income individuals for the purchase of health insurance through an exchange, and (2) the “shared responsibility” penalty to be assessed against large employers that fail to offer health coverage meeting a “minimum value” standard, or that offer such coverage but charge a premium that is not “affordable.” Notice 2012-33 solicits comments on this Section 6056 reporting requirement.
Importance of “Minimum Value” Determination
Under the ACA, an employer plan fails to provide “minimum value” if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.” Citing a fall 2011 report by the Department of Health and Human Services (HHS), the IRS notes that approximately 98% of the individuals currently covered by employer-sponsored health plans receive coverage that meets this minimum value standard.
This minimum value determination is important to both employees and large employers. An employee may not claim the premium tax credit for the purchase of health insurance through an exchange if the employee (or a family member) is eligible to enroll in an employer-sponsored health plan that meets this minimum value standard – unless the premium for that coverage is not “affordable” (a determination to be made on the basis of the employee’s household income). This premium tax credit is also unavailable to any employee who is actually enrolled in an employer plan – even if that plan fails to provide minimum value or is not affordable.
If any full-time employee of a large employer receives this premium tax credit – either because the employer plan fails to provide minimum value or because it charges a premium that is not affordable – that employer may be assessed a “shared responsibility” penalty. As explained in our May 2011 article, the formula used in calculating the amount of this penalty will depend on whether the “minimum value” standard has been met. For this reason, large employers will need to value the coverage provided through their plans.
Proposed Valuation Methods
In Notice 2012-31, the IRS proposes the following three valuation methods:
- MV Calculator. HHS intends to develop a minimum value (MV) calculator that would allow sponsors of self-funded health plans to input a limited set of information on the benefits offered under a plan, including specified cost-sharing features such as deductibles, co-insurance, and out-of-pocket maximums. The IRS expects that this information would be required for the following four “core” categories of benefits: physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services. According to the fall 2011 HHS report, these four categories of benefits are the greatest contributors to a health plan’s value.
- Safe-Harbor Checklists. Rather than using the MV calculator, an employer whose plan provides benefits in all four of the core categories described above could rely on any of several “safe-harbor checklists” to be developed by HHS and the IRS. Each such checklist would describe the cost-sharing attributes applicable to each of the four core categories of benefits. An employer-sponsored plan would be treated as providing minimum value if its cost-sharing attributes are at least as generous as those shown in any of the safe-harbor checklists.
- Actuarial Certification. Plans with “nonstandard” features, such as quantitative limits on any of the core benefits (e.g., a limit on the number of physician visits or covered hospital days), could start by using the MV calculator and then have a certified actuary make the valuation adjustments needed to reflect the nonstandard features. In certain cases, an employer would even have the option of engaging a certified actuary to make the entire calculation.
Under any of these three valuation methods, an employer could take into account any of its current-year contributions to an employee’s health savings account, or any amounts first made available during the year under a health reimbursement arrangement. Doing so should make it easier for the employer’s comprehensive health plan to satisfy the minimum value standard.
Requests for Comments
All three of these Notices solicit comments. Unfortunately, the deadline for submitting those comments is June 11, 2012. This is likely to be before the Supreme Court has issued its ruling on the constitutionality of the individual mandate – and perhaps the entire ACA.
Source: Kenneth A. Mason
Spencer Fane Britt & Browne LLP
IRS Announces 2013 Amounts for HSAs and HDHPs
By aida | May 9, 2012
On April 27th, the IRS issued Revenue Procedure 2012-26, announcing the 2013 inflation-adjusted dollar limitations applicable to health savings accounts (HSAs) and qualifying high-deductible plans (HDHPs).
The maximum HSA contribution for an individual with self-only coverage under an HDHP will increase to $3,250 – up from $3,100 in 2012. The maximum HSA contribution for an individual with family HDHP coverage will be $6,450 – up from $6,250 in 2012. The “catch-up contribution” limit, for individuals who will attain age 55 by the end of the year, will remain at $1,000.
To qualify as HDHP, a plan must specify a minimum annual deductible amount, with that amount based on whether the coverage is self-only or family. Those deductibles have also been adjusted for inflation. For self-only coverage, the annual deductible must be no less than $1,250 – up from $1,200 in 2012. For family coverage, the annual deductible must be no less than $2,500 – up from $2,400 in 2012.
Finally, to qualify as an HDHP in 2013, the total annual out-of-pocket expenses (deductibles, copayments, and other amounts – but not premiums) may not exceed $6,250 for self-only coverage or $12,500 for family coverage.
Sponsors of HSA arrangements and/or HDHPs will want to incorporate these new dollar amounts into their 2013 open enrollment materials.
Source: Chadon J. Patton
Spencer Fane Britt & Browne LLP
It’s Time to Start Planning for Changes to FSA Annual Contribution Limits
By aida | April 23, 2012
The Supreme Court finished hearing oral arguments on the health care reform law in March. Now, employers can do little except wait. Several judges severely questioned the government over three days on the individual mandate that requires all Americans to have health insurance and whether other provisions of the law could stand without it. The justices likely have already cast their initial votes on the case, but a formal decision on the Patient Protection and Affordable Care Act (PPACA) is not expected until June. No matter how the Court rules, employers will face some tough benefit choices.
A flexible spending account (FSA) can serve as a solid employee benefit that can help workers pay for out-of-pocket costs with pretax dollars, but employers must keep a close eye on new rules from the PPACA that impact the accounts. Starting January 1, 2013, the law will require plan sponsors to limit pre-tax FSA contributions per employee to no more than $2,500 per calendar year. Prior to PPACA, the accounts had no annual limits. Although the rule doesn’t kick in until next year, and even though the law’s fate remains unknown employers should still start planning now for the new limit.
Although a recent report on US job growth has left many observers disappointed, other economic sings are prompting employers to re-evaluate their benefits and retention strategies to avoid a potential talent exodus. The Department of Labor reported that added 120,000 jobs in March, which is down from the previous three months that saw 200,000 or more new jobs. Still, the stock market is up for the year and US employees appear to be more secure in their jobs. An improving economy, however, has a dark side: Talented but unhappy employees will seek better opportunities elsewhere.
To read more about these topics, click here.
Source: United Benefit Advisors, LLC
HR Elements March Newsletter
By aida | March 21, 2012
A big chunk of the hand-wringing over a full-blown wellness program boils down to costs, experts say — specifically, the costs of starting and maintaining an initiative and the difficulty of measuring the financial benefits. Recent research, however, suggests that wellness pays off for employers that are willing to stick with it. Yet even those employers that currently support wellness programs have a hard time wrapping their minds around wellness ROI. Fortunately, employers can rely on a number of simple and low-cost ideas that can help them get over the ROI hump and create a program that improves workers’ lives.
The political storm over the Obama administration’s rule on birth control tops a number of recent developments that affect employers and how they handle certain issues pertaining to the female portion of their workforce. Following a backlash from religious groups, the Obama administration offered a compromise on its rule that will require employers’ plans to cover contraception services for women. According to Business Insurance report, the government said nonprofit affiliates of religious organizations, such as universities and hospitals, will not be required to directly offer prescription birth control coverage. However, employees who wish to have access to those services will still be able to get them at no cost through their employer’s health insurer. The rule will apply to plan years starting on or after August 1, 2013.
High-deductible health care plans with health savings accounts (HSAs) continue to gain steam, but without careful attention, poor savings habits can undermine an employer’s best intentions. Underfunded or neglected HSAs can cause considerable harm to employees, and employers should take care to educate their workers about the importance of these accounts.
To read more about these subjects click here.
Quarter 1 Newsletter 2012
By aida | March 9, 2012
The first quarterly newsletter of 2012 has been released and touches on the following topics. Please feel free to browse the subjects and follow the link to the newsletter below.
MEDICAL LOSS RATIO REBATES: ERISA PLAN ASSETS?: The Department of Labor has issued new guidance on the medical loss ratio (MLR) rules. This guidance reminds plan sponsors of fully insured group health plans that there are potential fiduciary considerations involved in the receipt of any MLR rebate.
YOU ARE YOUR BROTHER’S KEEPER: CO-FIDUCIARY LIABILITY UNDER ERISA: Plan fiduciaries must not only make sure that their own conduct complies with ERISA’s exacting standards; they also have a duty to monitor the conduct of the plan’s other fiduciaries. The failure to do so can result in personal liability under ERISA’s co-fiduciary duty rules.
IRS REVISES PROCEDURES FOR OBTAINING DETERMINATION LETTERS: The IRS has recently made changes to its determination letter program that are designed to (i) eliminate features that are of limited utility to plan sponsors, and (ii) improve efficiency by reducing the time it takes to process applications.
IRS CAUTIONS AGAINST “SHAM”RETIREMENTS: In a recent ruling, the IRS reiterated its long-standing position that a “pension plan” may not allow active employees to obtain a distribution from the plan – at least, not before their attainment of the plan’s normal retirement age (or, if earlier, age 62).
FEDERAL APPEALS COURT UPHOLDS $243,000 DAMAGE AND FEE AWARD FOR EMPLOYER’S FAILURE TO PROVIDE SPD AND ELECTION FORM: A recent ruling from the federal Court of Appeals highlights two critical ERISA basics: fiduciary duties and disclosure requirements. In Kujanek v. Houston Poly Bag, the Fifth Circuit upheld an award of damages and fees of more than $243,000 for an employer’s failure to provide a participant with a copy of a retirement plan’s summary plan description and a distribution election form.
A COMMON PLAN MISTAKE: FAILING TO APPLY THE PROPER “COMPENSATION” DEFINITION: The failure to properly withhold salary deferral contributions from a participant’s compensation is one of the most common mistakes that arise in the administration of a Section 401(k) defined contribution retirement plan. This common mistake generally occurs because the plan sponsor fails to apply the proper definition of compensation under the plan.
IRS GUIDANCE FACILITATES LIFETIME INCOME OPTIONS: The IRS has issued a package of proposed regulations and revenue rulings dealing with “lifetime income options.” These regulations and rulings apply to both defined contribution and defined benefit plans, and to a variety of life situations. What they share in common is an intent to encourage employers to help their employees more prudently manage their retirement assets during the “drawdown” phase of their retirement.
To read more on these subjects please view the full newsletter here.
Source: Spencer, Fane, Britt, & Browne, LLP
Guidance Issued on Automatic Enrollment, Employer Mandate, and Waiting Periods
By aida | February 24, 2012
On the same day that they released final regulations on the Summary of Benefits and Coverage (see our recent blog on SBCs), the Department of Labor, Health and Human Services, and Treasury also issued a joint set of frequently asked questions addressing various topics under the Affordable Care Act (ACA). IRS Notice 2012-17 provides guidance on automatic enrollment, employer shared responsibility, and waiting periods, as well as suggestions regarding various approaches the Departments are considering proposing in future regulations.
Automatic Enrollment
The ACA provision on automatic enrollment requires certain large employers (those with more than 200 full-time employees) to automatically enroll new full-time employees in one of the employer’s health benefit plans (subject to any legally permissible waiting period), and to continue the enrollment of current employees in a health benefit plan. It further requires notice and an opt-out opportunity for employees who have been automatically enrolled. In what will likely come as welcome relief many large employers, in order to ensure coordinated guidance and a smooth implementation process, the DOL has concluded that regulations implementing the ACA’s automatic enrollment provisions will not be ready to take effect by 2014. Until such regulations are finalized, employers are not required to comply with these automatic enrollment provision.
Employer Shared Responsibility
Another key element of the ACA is the employer “shared responsibility” provision. This provision currently scheduled to take effect in 2014, would assess a penalty against certain “applicable large employers” (those with 50 or more full-time employees) that either fail to offer “minimum essential coverage” to their full-time employees, or that offer coverage this is “unaffordable” relative to an employee’s income. “Full-time” is defined to mean an employee who is employed an average of at least 30 hours per week. The FAQs indicate that the Departments intend to issue guidance that would allow employers to use a “look-back/stability period safe harbor” for purposes of determining whether a current employee has averaged at least 30 hours of service per week during the measurement period. The Departments also intend to issue guidance on how to handle newly-hired employees.
Waiting Periods
Under the ACA, effective for plan years beginning on or after January 1, 2014, a group health plan may not have a waiting period that exceeds 90 days. Future regulations will incorporate the existing regulatory definition of ”waiting period.” Under those existing regulations, a waiting period is defined as the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective. This suggests that other eligibility conditions that are not based solely on the lapse of time period will still be permitted. The FAQs also confirm that the Departments intend to issue guidance addressing the coordination of the employer shared responsibility provision with the 90-day waiting period limitation.
Next Steps
This interim guidance may be helpful to employers that are trying to project the financial effect that some of the ACA provisions will have on them in 2014 and beyond. However, because the FAQs are not binding and employers cannot rely on them, additional guidance will be necessary before employers can confirm their final strategies for compliance.
Source: Julia M. Vander Weele
Spencer Fane Britt & Browne LLP
HR Elements February 2012 Newsletter
By aida | February 20, 2012
Final versions of benefits-related rules have been flying out of federal agencies in the early weeks of 2012, with more expected to come over the next few months. One of the hottest compliance topics to emerge from health care reform — the new summary of benefits and coverage (SBC) requirements — received some much-desired guidance and a new deadline. The Equal Employment Opportunity Commission (EEOC) has issued a final rule that defines record-retention requirements under the Genetic Information Nondiscrimination Act (GINA). This rule establishes the same requirements that apply under Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act. The DOL finalized rules regarding fee disclosures for 401(k) plans. The final rules call for service providers to give plan fiduciaries information about any direct or indirect compensation or fees received by the service provider to maintain and manage the plans.
Employers must implement solid cost-control strategies if they want to keep their health care plans viable and valuable. Prevention and early detection of medical problems can stave off high costs in the long run, but many Americans are not doing enough. The practice of induced births to fit around a patient’s (or doctor’s) schedule has become a moneymaker for hospitals but a drain for insurers and employers. In addition to plan design and a push for preventive medical services, employers can control costs by supporting a robust wellness program that gets to the root of many health care problems.
The federal government continues to tweak the rules regarding the Family and Medical Leave Act (FMLA), giving employers another reason to carefully review their leave policies. Most recently, the DOL issued a new proposed rule that would extend leave for family caregivers of US veterans up to five years after the veterans leave the military. Presently, the law only covers family members of service personnel who are currently serving. The proposed rule also would make FMLA more accessible to airline flight crews by altering the eligibility requirements and changing how flight crews’ hours are calculated when determining FMLA leave. This proposal adds yet another wrinkle to FMLA compliance.
Source: Spencer Fane Britt & Browne, LLP
For more info on these topics read the full newsletter here.
For more info on the new SBC guidelines, read our previous blog.
Agencies Finalize Guidance on Summary of Benefits & Coverage
By aida | February 15, 2012
The agencies charged with implementing this requirement has now finalized the regulations they proposed in August 2011 regarding the Health Care Reform mandated “Summary of Benefits and Coverage” (SBC). As enacted, this SBC requirement was to apply as of March 23, 2012. This recent guidance allows compliance to be deferred until the first open enrollment period beginning on or after September 23, 2012. To comply with this requirement, an SBC must be included in any application materials provided as a part of the open enrollment process.
These SBC rules apply to both insured and self-funded plans. This is another health care reform requirement to which even “grandfathered” plans are subject. The same is true for even stand-alone health reimbursement arrangements, as well as “mini-med” plans that have received a waiver from the prohibition on annual benefit limitations. Certain employer plans are exempt from this SBC requirement such as stand-alone dental and vision plans and most flexible spending arrangements. Health savings accounts are also exempt.
Although the final regulations track most of the August 2011 proposals, certain changes should make it somewhat easier to comply with this SBC requirement. These include the following:
- An SBC need not disclose information concerning premiums.
- An SBC may be combined with other plan materials, such as a summary plan description, so long as the SBC is prominently displayed. In the case of an SPD, the agencies suggest that the SBC immediately follow the SPD’s table of contents.
- Although the agencies continue to emphasize the importance of using the published template when preparing an SBC, they now acknowledge that certain modifications are permissible. These might be needed to describe discounts available through provider networks, benefits that vary with the type of facility, multi-tier drug formularies, or incentives for participation in wellness programs.
- The proposed regulations described three examples to be included in the “Coverage Facts” portion of each SBC: maternity care, management of type 2 diabetes, and treatment of breast cancer. Responding to concerns raised by various commenters, the breast cancer example has now been removed. However, the agencies have specifically reserved the right to require up to six different examples, so future guidance may require examples of more acute medical conditions.
- The version of the SBC template issued in August of 2011 was drafted by a task force organized by the National Association of Insurance Commissioners. Perhaps for that reason, it spoke in terms of a “policy” or “insurer.” Recognizing that these terms are not appropriate for self-funded plans, the revised template substitutes “coverage” and “plan” for these two terms.
- The final regulations make it somewhat easier to distribute an SBC via electronic means, rather than on paper. The rules have not changed for participants and beneficiaries who are currently enrolled in the plan (for whom electronic delivery is permissible only in accordance with the DOL’s stringent requirements), but somewhat more liberal rules now apply to individuals who are merely eligible to enroll. Assuming an SBC is in a “readily accessible format,” it may be posted on the Internet. The plan or its insurer would then notify the eligible individual (either on paper or via e-mail) that the document is available online, providing both the Internet address and a statement that the SBC will be provided in paper form upon request.
The penalty for failing to comply with the SBC requirement is $1,000 for each plan participant and beneficiary who fails to receive a timely and accurate SBC. Plan administrators therefore should take immediate steps to prepare appropriate SBCs (one for each benefit option), well in advance of the upcoming open enrollment season. Administrators of insured plans will want to coordinate with their insurers, but self-funded plans should familiarize themselves with both the final regulations and numerous pieces of related guidance.
Source: Kenneth A. Mason
Spencer Fane Britt & Browne LLP
HR Elements January 2012 Newsletter
By aida | January 27, 2012
Under the Patient Protection & Affordable Care Act (PPACA), companies are required to report the value of their employer-sponsored health care coverage on employees’ W-2s. This takes effect for most employers this year, meaning the values must be represented on the forms issued in 2013. Smaller employers – those with fewer than 250 W-2s to distribute, are exempt until at least 2014. To read more about this and the new notices issued by the IRS previous read our previous blog here.
More employers are betting that health plans with higher deductibles will take some of the string out of soaring health care costs. Still, traditional plans continue to dominate the employee benefits scene. Wellness programs, however, were no more attractive to those under CDHPs than those in traditional plans. The apparent lack of enthusiasm for wellness can present a big challenge for employers with high-deductible options.
Most employers say they understand the importance of benefit communications. Unfortunately, many struggle to translate that knowledge into actions. Now more than ever, employers are turning to technology to make those communications easier and more effective. Emerging technologies, especially mobile devices, appear to be spurring interest in the use of technology-based benefit communications. Like mobile devices, social media tools and websites have seen an explosion of use over the past few years.
To read the full newsletter click here.
More IRS Guidance on W-2 Reporting of Health Coverage
By aida | January 24, 2012
Among the provisions contained in the 2010 Patient Protection and Affordable Care Act (PPACA) was a requirement that employers report, on each employee’s W-2, the value of any employer-provided health coverage. As explained in our October 2010 article, this reporting requirement is optional for 2011, but mandatory for 2012 (that is, for W-2s to be provided in January of 2013). The IRS issued an initial round guidance on this reporting requirement in Notice 2011-28 (as summarized in our April 2011 article), but that Notice left many questions unanswered. A number of those questions have now been answered in Notice 2012-9.
Overview of Reporting Requirement
Before addressing the recent guidance, it is worth noting some key points that have not changed. For instance, this reporting requirement remains optional for 2011, but then required for 2012.
Also still in place is the postponement of this requirement for “small” employers. Any employer that is required to issue fewer than 250 W-2s for 2011 qualifies for this postponement. The soonest a small employer might be required to report the value of their employees’ health coverage is January of 2014 (on the 2013 W-2).
Nothing in this new reporting requirement will cause an employee to be taxed on any employer-provided health coverage.
Calculating the Cost of Coverage
The amount to be reported should reflect both the employer and employee portions of that cost, with the annual amount equal to the sum of all monthly amounts (and under all plans sponsored by the same employer). If the plan is insured, the amount to be reported should be the insurance premium charged for whatever level of coverage an employee received. If a plan is self-funded, the general rule is to use the “applicable premium” calculated for COBRA purposes.
Recent Clarifications
- There is no need to report any employee contributions to a flexible spending account. However, if an employee allocates any employer “flex credits” to a health FSA, those employer amounts must be reported.
- Whether the value of dental or vision coverage must be reported on a W-2 depends on whether that coverage constitutes an “expected benefit” under the HIPAA portability and nondiscrimination rules. In general, this would be the case if either the coverage is offered under a separate policy, certificate, or contract of insurance, or participants have the right to elect the dental or vision coverage and must pay an additional premium if they do so.
- An employee assistance program (“EAP”), wellness program, or on-site medical clinic may be subject to this reporting requirement if it constitutes as a “group health plan.” However, the reporting of these benefits will be required only if the employer charges a separate premium for someone to receive COBRA coverage under these benefits.
- Even if an employer is not required to report the value of certain types of health coverage – either the types listed immediately above, or coverage received under a health reimbursement arrangement – the employer may choose to report these amounts.
- Pre-existing rules require an employer to provide a W-2 within 30 days of a request received from an employee who terminates during the calendar year. Under this recent Notice, however, such a W-2 need not report the cost of any health coverage receive by the employee.
- If an employer wait until year-end to supply W-2s to terminated employees (the more usual case), those W-2s must report either the value of the coverage received only while an active employee or the value of the coverage received through the end of the year (thereby including the value of any COBRA coverage). The employer must be consistent, however, in selecting one of these two approaches.
- The Notice provides that an employer need not report the value of health coverage received by any individuals who are not otherwise entitled to receive a W-2. These might include COBRA beneficiaries, retirees, non-employee directors, or independent contractors.
- The IRS Form W-3 need not report the cost of any health coverage.
- In general, this W-2 reporting requirement applies even to the value of any health coverage that must be included in an employee’s taxable income. This might include the value of coverage provided to an employee’s domestic partner, or to a non-dependent child over age 27. However, it is not necessary to report the value of coverage that is taxable only because a self-funded plan discriminates in favor of highly compensated individuals (in violation of Section 105(h) of the Tax Code), or an employee is a 2% or more shareholder in a Subchapter S corporation.
- If a single plan provides both health coverage and non-health coverage (such as disability or life insurance), an employer may use any reasonable method to allocate the total cost of coverage between the two categories – and then report only the cost of the health coverage. Alternatively, if either the health coverage or the non-health coverage is merely “incidental” to the other type of coverage, the employer may treat the plan as though it provided only the primary type of coverage.
- The value of the coverage provided to an employee may be determined on the basis of the facts known to the employer on December 31 of the reporting year. Accordingly, any information learned after that date may be disregarded, even if that information results in the employee’s coverage during the reporting year either increasing or decreasing in value (Example: Increasing – Adding a Child or Decreasing- Removing a Spouse).
- If the final pay period in a calendar year laps over into the following year, an employer may allocate the value of any health coverage received during that pay period between the two calendar years, based on a reasonable allocation of the days falling within each year. Alternatively, so long as it is done consistently, the employer may allocate that entire pay period to either of the two calendar years.
- Although prior guidance suggested that both hospital indemnity insurance and coverage for a specific disease or illness were entirely exempt from this W-2 reporting requirement, the most recent Notice limits this exemption to plans under which an employee pays the full premium for that coverage on an after-tax basis. If an employer pays any portion of the premium – or if an employee pays any portion of the premium on a pre-tax basis – the entire value of the coverage must be reported. As a result, even some “voluntary insurance arrangements” (which are exempt from most requirements of ERISA) must be reported on a W-2 – that is, if employees pay their premiums on a pre-tax basis.
Although the first W-2s on which the value of health coverage must be reported are not due until January 31, 2013, employers will want to ensure that they are able to capture all the data they will need in order to comply with this reporting requirement. The IRS expects to issue still further guidance on this reporting requirement. It will apply only to calendar years beginning at least six months after the additional guidance is issued. For this reason, employers who are subject to this W-2 reporting requirement in 2012 should assume that this is the final guidance they will receive before reaching their compliance deadline.
Source: Kenneth A. Mason, Partner
Spencer Fane Britt & Browne LLP