Keeping Up with the Health Care Reform Changes

For all plan years beginning on or after September 23, 2010, employers are required to dole out an array of reform notices to all plan participants. Here are six notices that should be provided to employees:

• Dependent coverage notice. All health plans are required to offer a one-time enrollment opportunity to participants’ children who are under age 26. In addition, participants must have 30 days to enroll their dependents. Participants must be notified of the changes no later than the first day of the plan year beginning on or after September 23, 2010.
• Lifetime limits notice. Under the new law, plans are prohibited from putting lifetime limits on the dollar amount of coverage plan participants receive. Participants who had previously reached the limits of their healthcare coverage must be given a special enrollment notice that lets them know they are once again eligible for coverage.
• Primary care designation and OB/GYN notice. Employers must communicate to employees that they have the right to designate a primary care physician within the plan’s network to coordinate their medical care. Additionally, female employees need to be informed they can obtain OB/GYN care without prior authorization.
• Grandfathered status notice. All participants must be notified as to whether or not their health plan will retain its grandfathered status. If the plan does keep its grandfathered status, participants must be told that the plan is exempt from certain reform law provisions.
• Cancellation of coverage notice. Participants’ healthcare coverage cannot be cancelled or terminated retroactively except in cases of deliberate fraud or similar situations. However, if a plan does cancel a participant’s coverage, the individual must still be given at least 30 days advance notice of the cancellation.
• Claims appeals notice. A notice must be given to all participants who have a claim denied, explaining their right to appeal the denial. It must also outline the plan’s procedures for internal appeals and external reviews of those decisions.

For model language to satisfy these six notice requirements, see http://bit.ly/model384. Health plan providers may also furnish you with the proper notices.

What You Need to Know About Medical Expenses and 2011

The impact of health care reform begins to pick up speed after 2010. While churches received a reprieve on one health care-related issue, other changes are right on schedule even if little information is available to carry out some of the provisions.

The reporting reprieve. Churches were scheduled to report the value of employer-provided health coverage on Form W-2’s for 2011 to be filed in 2012. However, the IRS has now given churches (and other employers) a one-year reprieve (Notice 2010-69). Reporting the value of the health coverage for 2011 is now optional. The IRS has determined that this relief is necessary to provide churches (and employers) the time needed to make changes to payroll systems or procedures in preparation for compliance with the new reporting requirement. So, the information will now be required on Form W-2s for 2012 filed in 2013.

In addition, the IRS announced that it has issued a draft Form W-2 for 2011. When churches report the value of coverage under a church-sponsored group health plan (optional for 2011 Form W-2s/required for 2012), the data must be reflected in Box 12 with a code of DD.

Remember: The cost of church-provided health insurance is not taxable. The new reporting requirement is intended to be informational only and to provide employees with greater transparency into overall health care costs.

A 2011 change that is right on schedule. Over-the-counter drugs and medicines are not eligible for tax-free reimbursement under an employer-sponsored health plan beginning January 1, 2011 (insulin is not a medicine or drug for purposes of this rule).

A few large churches have cafeteria plans and many other churches have health care flexible spending accounts (FSAs). This new limitation imposed by the Patient Protection and Affordable Care Act impacts reimbursements under these plans (OTC drugs and medicines were never deductible as medical expenses on Schedule A.)

It is very important to determine whether a particular OTC item is a medicine or drug because the new rules do not apply to OTC medical supplies and equipment (such as contact lens solutions, bandages, crutches or durable medical equipment or diagnostic devices such as blood sugar test kits.)

The new OTC rules apply to medicines or drugs (other than insulin) incurred on or after January 1, 2011, without regard to the plan year of the plan. Thus, a plan with a fiscal plan year must begin complying with the rules mid-plan year. And, expenses for OTC drugs and medicines incurred during the two-and-a-half-month grace period following the end of a 2010 calendar plan year must be accompanied by a prescription.

What to do. Churches should make the following preparations:

• Form W-2’s for 2012 to be filed in 2013. Even though reporting the value of coverage under a church-sponsored group health plan, it might be a good plan to report the data on Form W-2s for 2012 to get ready for the reporting required for Form W-2s for 2013.
• Establish a flexible spending account. Your church doesn’t have to even be close to megachurch size to have a FSA. The smallest church in the U.S. can set up an FSA at virtually no cost to the church and allow church staff to have amounts reduced from salary and used to reimburse medical expenses tax-free (free of federal income and social security taxes—and often free of state income taxes).
• Amend existing cafeteria and FSA plans. Existing plans must be amended to reflect the new OTC rules. Fortunately, plans may be retroactively amended effective January 1, 2011 so long as the amendment is adopted no later than June 30, 2011.

Health Care Reform Legislation Requires that W-2s Show Value of Health Coverage

Thanks to the health care reform legislation, employers are required to report the value of the health insurance coverage they provide on each employee’s annual Form W-2 beginning in tax year 2011.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers, according to the IRS.

There has been considerable confusion generated concerning the reporting of the value of health insurance coverage—with rumors spread that the amount is taxable for income tax purposes. To be clear, the amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income and it is not taxable. For more information: http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6

It might appear that this additional reporting requirement does not impact nonprofits until January 2012 when the 2011 Form W-2s must be filed. However, departing workers can ask for a W-2 within 30 days of the final paycheck or the date the request is made, whichever is later. Even though few people do this, charities will need to be ready in early 2011. The calculation of the health plan’s value is the same as the value used to figure the allowable premium for COBRA coverage.

Preparedness to comply with these new government regulations is the key.

Preparing for the Impact of the Government’s Health Care Reform

No matter what you think about health care reform, one expectation is clear: health insurance costs are going up soon. Based on a recent Mercer study, employers expect health insurance costs to jump as early as the 2011 plan year. [1]

The Mercer study also revealed health care reform provisions that concern employers the most. Here are a couple of the areas of concern:

• Dependent care coverage. Beginning September 23, 2010, all organizations must extend dependent coverage to all dependent children—even married ones—up to, and including, age 26. Most employers will need to change their dependent eligibility rules to comply with the reform law.

• Providing coverage to more part-time workers. The reform law will require employers to offer “affordable” health care coverage to all employees who average 30 hours per week or more in a month—starting in 2014. This provision will especially impact organizations that heavily rely on part-time labor at the 30 or more hours a week level.

Making appropriate plans to meet the health care reform laws are very important (adherence to laws is required by ECFA’s Standard 4) but it will not be easy. The temptation will be to simply offset increased health insurance by decreasing benefits to staff. But should staff shoulder the burden of increased health care cost? The issue is more complex.

Most surveys of workers show that benefits are second in importance only to job security. The importance of compensation usually ranks last or nearly so.

So, if benefits are so important, why do employers considering cutting benefits as one of the first cost-saving options? As long as employer-provided health insurance is tax-free, why not maximize the tax-free benefit and make other adjustments to balance the budget!

Consider offsetting the coming increases in health care costs with employee engagement, motivation and efficiency. Even after making recession-related adjustments, most organizations have many ways to increase efficiencies and reduce costs by focusing on issues that are really important.

[1] http://www.mercer.com/summary.htm?idContent=1380755