Employers Cannot Pay for Individual Health Policies
Many small employers were unable or reluctant to sponsor group health plans. So, instead, they reimbursed or paid for all or part of the premiums for the employees’ individual health policies. Oftentimes, the carriers even sent the bills to the employers. The employer would then pay all or a portion of the premiums and then withhold the employee’s share of the premiums on a pre-tax basis. The government is really cracking down on this practice. In the latest of a series of rulings, the government has said that employers can no longer pay any portion of the premiums on individual health plans or policies on either a pre-tax or post-tax basis.
The government is saying that employers cannot even pay the premiums on a post-tax basis. So, for example, the employer cannot terminate its group health plan and then give additional taxable compensation to the employees so that they can buy individual health policies. The employer could, however, provide the same additional compensation to all the employees. In short, there can be no link between the additional compensation and the employee getting individual health coverage. So the employer could not give the additional wages to only those that buy health coverage or vary the amount of the additional compensation based on the amount the employee is paying for his or her health coverage. The penalty for violating this rule is $100 per day or $36,500 per year for each violation (i.e. each employee).
Employers Need to Prepare for Health Care Reform Reporting Requirements
Almost all large employers (i.e. those with 50 or more full-time and full-time equivalent employees) are aware of the employer mandate or play or pay rules that require them to offer quality/affordable health coverage to the full-time employees (i.e. those that work 30 hours or more per week) or pay a penalty. Also, most employers know that the rules apply next year for employers with at least 100 full-time and full-time equivalent employees and that employers with between 50 and 99 full-time and full-time equivalent employees do not have to comply until 2016. However, employers with 50 or more full-time and full-time equivalents and all employers regardless of size that sponsor self-funded health plans have to comply with complex reporting requirements starting Jan. 1, 2015, regardless of the employer’s group health plan year.
The reporting rules will help the government enforce the individual mandate that requires most Americans have health coverage or pay a penalty as well as the employer play or pay rules. The IRS has issued Form 1094 and Form 1095 that employers will use to submit the data to the government. The forms are extremely complicated, and the employer’s size and whether or not the health plan is self-funded or fully insured dictate which forms and what part of the forms the employer must complete.
The forms are similar to the IRS Form W-2 and Form W-3. That is, Form 1094 is a transmittal form that gets filed with the IRS along with Form 1095 with another copy of Form 1095 going to the employee. Gathering the information for the forms is going to be a daunting task and employers need to prepare now! We urge employers to contact their payroll vendor or review their payroll systems to ensure the information is being gathered. It will be almost impossible to gather the data after the fact. In other words, the information needs to be collected during the year and tying the process into the payroll system makes the most sense.
Should You Consider Self-Funding?
Health care reform imposes a number of requirements and restrictions on group health plans, as well as various taxes and assessments. Additionally, small employer group health plans will be subject to community rating which many people believe will substantially increase the premiums for most small employers.
Therefore, more employers are looking at self-funding as a way to reduce the increases and avoiding some of the rules that only apply to fully insured health plans.
Traditionally, self-funding only made sense for larger employers. However, with health care reform, the carriers are developing products that make self-funding feasible for smaller employers. Therefore, you may want to consider self-funding your group health plan when reviewing your options.
Can You Discriminate with Respect to Health Insurance?
Some people are under the impression you have to treat all the employees the same when it comes to the group health plan. However, that may not be the case. There have been discrimination rules applicable to self-funded health plans under the Internal Revenue Code for some time. Basically, those rules preclude the employer from disproportionately benefitting the higher paid employees with respect to eligibility and benefits. The rules impose an affirmative obligation on the part of the employer sponsoring a self-funded health plan to test the plan each year to ensure the self-funded health plan does not discriminate. Although the rules have been around for some time, it has not been a high enforcement area for the IRS. Health care reform imposed discrimination rules on fully insured health plans. However, those rules applicable to fully insured health plans have been postponed until the IRS issues the regulations.
So where we are today is (1) self-funded health plans are (and have been) subject to discrimination rules under the Internal Revenue Code, but they have not been given a lot of attention from the government and (2) fully insured health plans currently are not subject to discrimination rules, but that will change when the IRS issues the regulations and no one knows when that will be. So, at least for the time being, you can charge employees different amounts for the coverage under a fully insured health plan.
Can the Government Speak with One Voice?
More and more employers are adopting wellness programs as a way to control health cost and to encourage employees to adopt a healthier lifestyle. Health care reform adopted new rules governing wellness programs. That is, the wellness program has to comply with some pretty detailed rules laid out under health care reform. However, there is a dispute between Federal statutes. What has happened is employers have adopted wellness programs that comply with health care reform, BUT the EEOC has filed lawsuits against a couple of employers saying the programs violate the Americans with Disabilities Act (“ADA”) and Genetic Information Nondiscrimination Act (GINA).
The rules are complicated to begin with, and it is extremely frustrating to develop a program that complies with one set of laws only to be challenged by the government under another set of laws. Hopefully, the government will get its act together and rule that if the wellness program complies with health care reform that is the end of the story.
Paul Routh and Bob Dunlevey, of Dunlevey, Mahan & Furry, provide Legal Counsel for NUCA of Ohio. For more information about health care benefits, contact them at 937.223.6003.