Thursday, August 1, 2013

California SHOP Exchange Announces 2014 Health Plans and Rates

Today, Covered California™, the state’s new health insurance marketplace (formerly called an exchange), announced the insurance carriers and rates for its small-group market, the Small Business Health Options Program (SHOP). Click here to access the Fact Sheet and click here to access the SHOP Health Insurance Plans book.

The Six Carriers Who Will Offer Health Insurance Policies in the SHOP Marketplace are:

·        Blue Shield of California
·        Chinese Community Health Plan
·        Health Net
·        Kaiser Permanente
·        Sharp Health Plan
·        Western Health Advantage

What Employers Can Purchase Group Coverage in the SHOP Marketplace?

Small businesses with 50 or fewer employees may offer coverage to their eligible employees through the Covered California SHOP plans when the health insurance marketplace is launched on October 1. Coverage will not be effective until January 1, 2014. In 2014 and 2015, only small businesses with 50 or fewer employees may offer coverage through the SHOP Marketplace. In 2016, this increases to 100 employees. In 2017, California has the option of allowing employers of all size to purchase group coverage through the SHOP Marketplace.

What Are the Rates for SHOP Coverage?

Rates vary by level of insurance policy (e.g., bronze, silver, gold or platinum); insurance carrier; employee's age; and geographic region (there are 19 different geographic regions in California). Today's Covered California announcement said "the SHOP premiums are generally comparable to 2013 small-group market rates and, in some cases, can save small businesses money on their premiums." Page 9 of the SHOP Health Insurance Plans book issued today (August 1, 2013) provides some examples of average SHOP rates for a 40-year old employee in different counties (geographic regions).

For example, for a 40-year old employee in Sacramento County (region 3), the average rate for the three lowest-priced silver plans was $329 per month. The specific monthly rates were $295 for Kaiser HSA, $328 for Western Health Advantage HSA and $365 for Health Net PPO.

The average rates for the three lowest-priced silver plans in selected counties were as follows:

·        $329 for Sacramento County (Region 3)
·        $316 for San Francisco County (Region 4)
·        $384 for Alameda County (Region 6)
·        $274 for Los Angeles - North (Region 15)
·        $309 for Los Angeles - South (Region 16)
·        $290 for San Diego County (Region 19)

Will Small Employers Buy Directly from the SHOP Marketplace Rather than Through Licensed Insurance Agents?

No. The SHOP plans will be sold through licensed agents who are trained and certified by Covered California.

Will the Policies Offered Outside the Marketplace be the Same as those Offered Through the Marketplace?

Yes and no. All Covered California’s SHOP plans offer a standardized set of benefits, and all policies offered through the Marketplace must also be offered outside the Marketplace. Additionally, some or all carriers also might offer other policies outside the Marketplace. All policies must be at least actuarially equivalent to policies offered inside the Marketplace. Although policies in and outside the Marketplace will be the same or actuarially equivalent, it is unclear at this time whether the provider networks for policies offered in the Marketplace will be the same as those for policies offered outside the Marketplace.

Are Small Businesses Eligible for a Federal Tax Credit for Providing Health Insurance?

Yes. Small businesses are eligible for a federal health care tax credit if they buy coverage through the SHOP Marketplace and pay at least 50% of the cost of their employees' health insurance premiums, they have fewer than 25 full-time-equivalent employees for the tax year, and they pay employees an average of less than $50,000 per year. Employers with 10 or fewer full-time-equivalent employees with wages averaging $25,000 or less per year are eligible for the maximum amount of the tax credit, and it phases out between 11 and 25 employees, and between average wages of $25,000 to $50,000. The amount of the tax credit is 50% of the premium amount a private sector employer pays, and 35% of the premium amount a not-for-profit employer pays. To be eligible for the federal tax credits, small businesses must purchase coverage through Covered California’s SHOP.

Tuesday, July 23, 2013

ALERT! Self-Funded Plans: PCORI Fees Due by July 31, 2013

Patient-Centered Outcomes Research Institute (PCORI) fees are due by July 31, 2013 for plan years ending on or after October 1, 2012 and before January 1, 2013. For plan years ending in 2013, the PCORI fees are not due until July 31, 2014, so many off-calendar year plans will have a reprieve.

Employers who sponsor self-funded health plans must calculate and pay the fees using federal tax Form 720 (the Quarterly Federal Excise Tax Return, which has been revised for use in payment of annual PCORI fees also). Employers who sponsor insured health plans are not required to take any action to pay the PCORI fees; instead, health insurers will pay the fee and no doubt pass forward the cost to plan sponsors. The PCORI fee is $1 per “covered life” for plan years ending on or after October 1, 2012 and before October 1, 2013 (increasing to $2 per covered life for the following year).

We have received a flurry of questions recently, as the July 31 deadline draws near. This Bulletin addresses the following issues for sponsors of self-funded plans:

·        How and When the Fee is Paid
·        How to Determine the Number of “Covered Lives” on Which the Fee is Based
·        Which Plans are Subject to the PCORI Fee

How and When the Fee is Paid

The fee is paid only once a year, using Tax Form 720 (Quarterly Federal Excise Tax Return), on the second quarter filing (even though this form is otherwise used for quarterly filings). As noted above, the annual PCORI fee deadline is July 31 of the calendar year immediately following the last day of the policy or plan year. For example, for a plan year ending on or before December 31, 2012 the form must be filed (and the fee paid) by July 31, 2013. However, for a plan year ending in 2013 (e.g., plan year end March 31, 2013), the PCORI fee and Form 720 are not due until July 31, 2014. This is because the calendar year immediately following March 31, 2013 is the 2014 calendar year.

The plan sponsor is responsible to pay the fee for self-funded plans. The plan sponsor may have a third party calculate the amount due (and even prepare the Form 720), but the employer must actually file the Form 720 and is ultimately liable for ensuring the correct amount is timely paid. Late fees that apply for late filing and/or payment may be waived if the issuer or plan sponsor has reasonable cause and the failure was not due to willful neglect. Fees may not be waived for inadvertent error. (Sponsors of insured plans do not have these concerns, because the carrier is the responsible party to pay the fees.)

The IRS instructions for Form 720 PCORI fee reporting are fairly clear: See Part II (Page 8) of the instructions. The Form 720 is filed with the IRS as follows:

·        By Mail. Mail to Department of Treasury, Internal Revenue Service, Cincinnati, OH 45999-0009.
·        Electronically. Using the e-File program (
·        PrivateDelivery Services. Instructions are available at

PCORI fees must be paid by the plan sponsor and not from plan assets (e.g., not from participant contributions or trust assets). PCORI fees are not a permissible "plan expense" under ERISA, because by law they are imposed on the plan sponsor and not on the plan itself. ERISA's prohibited transaction rules prohibit the use of plan assets to pay expenses that are the employer's obligation. The good news is that the PCORI fee paid is a tax-deductible expense (under Code section 162(a)) for self-insured plan sponsors and for health insurers. (June 2013 IRS legal opinion.)

How to Calculate the Number of “Covered Lives”

Sponsors of self-insured plans may use any one of the following three methods to determine the average number of covered lives on which the fee is calculated. “Covered lives” includes not only employees, but also covered spouses, dependents, retirees and COBRA qualified beneficiaries.

1) Actual count method

Add the number of lives covered for each day of the plan year, and divide the total by the number of days in the plan year. E.g., the number of lives on each of 365 days / 365 = the actual count.

2) Snapshot method

Add the total number of lives covered on one or more dates in each quarter, and divide by the total number of dates on which the count was made.

A plan need not pick exactly the same date in each quarter, but each date used for the second, third and fourth quarters must be within three days of the date in that quarter that corresponds to the date used for the first quarter, and all dates used must fall within the same policy year or plan year.

If a plan uses multiple dates for the first quarter, the issuer or plan sponsor must use dates in the second, third, and fourth quarters that correspond to each of the dates used for the first quarter or are within three days of such corresponding dates, and all dates used must fall within the same policy year or plan year.

There are two types of snapshot methods.

·        Snapshot Factor method: The sum of:
o   the number of participants with self-only coverage on the selected date(s), plus
o   the number of participants with coverage other than self-only coverage on the same date(s), multiplied by 2.35

·        Snapshot Count method: The number of lives equals the actual number of lives covered on the designated date or dates. This includes employees, spouses, other dependents, retirees and COBRA qualified beneficiaries.

3)  Form 5500 method

This number is derived from the number of total participants reported on the Form 5500. It is only allowed as long as the 5500 is filed no later than the July 31 PCORI fee due date.

·        If the plan only provides self-only coverage: add the number of plan participants at the beginning and end of the plan year (as reported on the 5500), divided by two.
·        If the plan offers coverage other than self-only: add the number of plan participants reported on the 5500 at the beginning and end of the plan year.

Which Health Plans and Policies are Subject to the PCORI Fee

Subject to the fee: Plan sponsors only need to count “covered lives” in the plans that are subject to the PCORI fee. Plans subject to the fee are: plans that provide accident or health coverage primarily for individuals living in the U.S., including HMOs and retiree-only health plans. Some HRAs are subject to PCORI, as specified below in item #3.

Not Subject to the fee: The fee does not apply to the following plans or policies:

·        Limited-scope dental and vision benefits that are “excepted benefits”— which means they must meet one of the following two tests:

o   insured benefits must be under a separate contract from insured medical benefits, or
o   medical plan participants must be able to elect not to receive the limited scope benefits, and if they elect to receive them they must pay an additional amount for them.

·        Health FSAs that are “excepted benefits” — which means the following two tests must be met:

o   the maximum benefit for the year does not exceed two times the participant’s salary reduction election for the year, or, if greater, the participant’s salary reduction election plus $500; and
o   the employee has other regular medical coverage (that is not an excepted benefit) available under a group health plan of the employer for that year.

·        An HRA that is bundled with a self-insured major medical plan (e.g., PPO or HDHP) is not subject to a separate fee. However, an HRA that is bundled with a fully-insured major medical plan is subject to a separate fee (calculated by including only employees - not dependents - in the total participant count).

We have not had many questions on the following types of plans that are NOT subject to the PCORI fee: Health Savings Accounts (HSAs); Accident and disability benefits; Workers’ compensation; On-site medical clinics; Long-term care benefits; Employee assistance programs, disease management programs and wellness programs that do not provide significant medical benefits; Expatriate policies; Stop-loss or indemnity reinsurance policies.

Thursday, July 18, 2013

MLR REBATES in 2013: What Sponsors of Insured ERISA Plans Need to Know

If you are the sponsor of an insured ERISA health plan, you might already have received a notice from your insurer that your plan will receive a Medical Loss Ratio (MLR) rebate before August 1.  Plan sponsors who receive rebates must share with plan participants that portion of the rebate that constitutes “plan assets.”  This Bulletin:

·        Summarizes the MLR and ERISA requirements and the tax consequences,
·        Explains employers’ options, and
·        Answers the many questions plan sponsors have been asking.

Background on the MLR Rebate Provisions of the Affordable Care Act

The MLR provisions of the Patient Protection and Affordable Care Act (PPACA) require health insurers to pay rebates to policyholders if the insurers fail to meet specified MLRs. The MLR provisions do not apply to self-funded health plans or to insurance policies for “excepted” benefits such as stand-alone dental or vision coverage. The MLR is the percentage of total premium revenue (not including taxes and fees) that is spent on medical claims and health care quality improvement activities (as opposed to administrative and marketing expenses and profits). The requirements are as follows:

·        In the large group market insurers must spend at least 85% of premium revenue on medical claims and quality improvement activities. PPACA defines a large employer as one who employed an average of more than 100 employees on business days during the prior year and had at least two employees on the first day of the plan year, but states have the option until 2016 to define a small employer as one who employs up to 50 employees.
·        In the small group and individual markets the MLR is 80%.

Calculation of Medical Loss Ratios

Each health insurer calculates its MLR and rebates based on aggregate data it files in each State, for each market segment (e.g., large group, small group, individual).  Insurers must file MLR reports with HHS by June 1, reporting data for the prior calendar year.  Rebates issued before 2014 are calculated based on data reported for the prior year.  Beginning in 2014, the rebate amount is calculated based on the average MLR (ratio) over the prior three years.

The rebates are not calculated separately for each employer group health plan’s experience.  Even if your particular plan’s MLR was below the applicable required standard, you will not receive a rebate unless the aggregate MLR for the insurance product you purchased in your market size in your state was below the required MLR.

Insurers who failed to meet the MLR standards for 2012 must pay rebates to policyholders by August 1, 2013.  This also was the timeframe for 2011-2012; however, beginning with the 2013-2014 MLR cycle (next year), the date by which insurers must report data will be July 31 (rather than June 1), and the date by which insurers must pay the rebates to policyholders will be September 30 (rather than August 1).  The reason the dates were moved back two months is because HHS revised the MLR calculation to include premium stabilization amounts, so the reporting and rebate dates need to be after the premium stabilization payment and receipt amounts are calculated.

Similar MLR rules apply to non-ERISA and non-federal government group health plans, and to individual health insurance policies, but this article focuses on insured group (or employer) ERISA plans.

Plans Subject To the Employee Retirement Income Security Act (ERISA)

A group health plan is subject to ERISA if it:

·        Is established or maintained by a non-governmental, non-church U.S. employer or a union, and
·        Provides medical benefits (including hospitalization, sickness, prescription drugs, vision, or dental) to employees and their families, and
·        Pays benefits either directly by the employer, through insurance, reimbursement or other funding methods.

Who will Receive the MLR Rebates?

For insured ERISA plans, insurers will send:

·        Notices and the rebates to the group policyholder (plan sponsor), and also
·        A notice to each of the employees who participated in the plan in 2012 and who also is enrolled in the plan when the insurer provides the rebate notice.  (The insurer also may elect to—but is not required to—notify former participants who no longer work for the plan sponsor.)

The notices will inform affected participants of the rebates, so plan administrators should be prepared to respond to questions and to proactively send their own notices to employees.

In 2012 only, insurers were required to send MLR notices even for products that met or exceeded the applicable MLR standards in 2011.  This is no longer required in 2013 (for the 2012 reporting year).

What do ERISA Rules Require of Plan Sponsors?

Plan sponsors are responsible to properly allocate the rebates among plan participants.  ERISA plan sponsors that receive MLR rebate checks from their insurers must make four determinations:

·        How much of the rebate must be paid to plan participants, and how much can the employer keep?
·        Must or should the rebate be allocated to both prior year and current year participants?
·        How may the rebate be used?
·        When must the rebate be paid?

ERISA’s prohibited transaction and exclusive benefit rules require that “plan assets” be used solely for the benefit of plan participants and beneficiaries. Thus, plan sponsors (ERISA fiduciaries) must first determine what part of any MLR rebate constitutes “plan assets.” Even if you receive a MLR rebate check from your insurer, do not assume you can use the entire amount for corporate purposes.

Second, if any amount of the rebate is “plan assets” you must decide how to allocate that amount among current and/or former participants and how to use the money for the benefit of participants and beneficiaries (e.g., whether to pay rebates, reduce premiums or fund enhanced benefits). The Department of Labor issued Technical Release 2011-04 (December 2, 2011), which provides the following guidance on these issues:

How much of the rebate must be paid to plan participants, and how much can the employer keep?

If the plan sponsor is the policyholder (as is the case for most ERISA plan sponsors), it must first review plan or policy language to determine what portion of the rebate is plan assets. If the documents are silent or unclear, the determination will likely be based on what percentage of total premiums were paid by plan sponsors and participants in the past. For example, if the plan sponsor paid 60% of total premiums in 2012 and participants paid 40%, then 60% of the MLR rebate for 2012 would belong to the plan sponsor and 40% would be plan assets that must be used for plan participants.

If the plan documents specify that participants pay a set dollar amount (e.g., $80 per month) and the balance of the premium is paid by the plan sponsor (employer), then the rebate belongs to the plan sponsor up to the total amount it contributed, and the balance is plan assets.   If the plan document specifies that the plan sponsor pays a fixed dollar amount, and participants pay the balance, then the rebate belongs to the participants up to the amount they contributed.

If the plan or trust is the policyholder (which is not the case for most ERISA plan sponsors), the entire rebate is plan assets, unless there is specific plan or policy language to the contrary. Plan assets must be used only for the benefit of plan participants and beneficiaries or to pay reasonable administrative expenses. The plan sponsor can keep none of the rebate for itself if the plan or trust is the policyholder.

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

Current year participants must receive at least part of the rebate amount that is plan assets. The employer may decide to allocate part of the rebate amount to prior-year participants as well. The legal guidance does not require that former participants be included or excluded.  The employer should make a prudent decision based on all the facts and circumstances and document the reasons for its decision. Technical Release 2011-04 provides that ERISA’s general standards of fiduciary conduct apply and that the plan fiduciary may allocate the MLR rebate only to current participants—and not to former participants—if the fiduciary finds that the cost of distributing amounts to former participants approximates the amount of the proceeds.  The plan sponsor can decide, subject to ERISA fiduciary rules, to pay the rebate to:

·        Only current year participants, or
·        Current employees who are current-year participants and were prior-year participants, or
·        Current employees who are current-year participants, and to all individuals who were prior-year employee participants (even if they are now former employees).

If the employer decides to allocate the rebate only among current participants, the allocation must be based on a reasonable, fair, and objective allocation method. The Technical Release allows plan sponsors to divide the rebate or refund in any of the following three ways (which were listed in HHS guidance that was issued the same day as Technical Release 2011-04), so long as they meet ERISA fiduciary standards:

·        Evenly among subscribers – this will be the easiest and most straightforward to calculate; or
·        Based on each subscriber’s actual contributions to premium; or
·        In a manner that reasonably reflects each subscriber’s contributions to premium.

How may the rebate be used?

Employers may find that reducing premiums for plan participants in 2013 is the easiest way to administer the rebates. Since the intent of the MLR provision is to return money to those individuals who paid premiums in the prior year, one obvious way to apply the rebate is to provide cash amounts to participants (either current year and/or prior year participants). Under the DOL Technical Release, the plan fiduciary is given discretion in applying the rebate, subject to ERISA fiduciary obligations. Specifically, if cash rebate amounts to individuals are de minimis or would result in tax consequences to participants or the plan, the fiduciary may use the rebate for other permissible plan purposes including applying it toward future participant premium  payments or toward benefit enhancements. As explained below in the Tax Consequences section, the type of rebate the plan sponsor provides does not affect the tax consequences.

When must the rebate be paid?

Plan fiduciaries should apply MLR rebates that are plan assets within three months of the date the MLR check is received from the insurer. ERISA generally requires that “plan assets” must be held in trust; however, an exception applies if the assets consist of insurance policies or if an insurance company holds the assets. Thus, a fully insured plan does not need a trust. The portion of the MLR rebate that constitutes “plan assets” technically should be held in a trust; however, Technical Release 2011-04 provides that the trust requirement will not be enforced if the MLR rebate is applied within three months. (DOL has applied a similar long-standing non-enforcement policy to employee pre-tax contributions paid via a cafeteria plan, which is why such plans are not required to hold employee contributions in a trust.)

Other Considerations for ERISA Plan Sponsors

Multiple policies under one ERISA plan

If an employer offers multiple policies under one ERISA plan, the plan might receive MLR rebates for some policies and not for others, or may receive different MLR rebate amounts for different policies. Technical Release 2011-04 directs plan fiduciaries to provide the MLR rebate to participants covered by the policy to which the rebate relates provided doing so would be prudent and solely in participant interests (according to general ERISA fiduciary standards). This seems to give fiduciaries the flexibility to decide whether to allocate rebates separately to participants under different policies, or to aggregate all MLR rebate amounts and allocate them among participants in the same ERISA plan who are covered under different policies if it would be too costly or would be an administrative burden to allocate only to participants covered by the specific policy. However, a fiduciary cannot use rebates from one ERISA plan to benefit participants under another plan. (Each ERISA plan has a separate plan number and Form 5500 filing. An employer has two separate ERISA plans if it files its POS policy as plan 501 and its HMO as plan 502; however, an employer has only one ERISA plan if it files both its POS and HMO policies under one Form 5500 as plan 501.)

Is there a de minimis amount, under which rebates need not be paid to participants?

No, there is no de minimis amount for plan sponsors. HHS rules apply to determine whether or not an insurer must pay rebates, but these same rules do not apply to plan sponsors who receive a MLR rebate. The HHS rules that apply to insurers are:

·        Group market: Insurer is not required to pay the rebate if the rebate amount is less than $20 for the combined policyholder and subscriber portion of the rebate.
·        Individual market or if insurer pays rebate directly to each subscriber in a group: Insurer is not required to pay the rebate if the rebate is less than $5 per subscriber.

Thus, if the insurer pays a rebate to the policyholder (employer), and all or part of the rebate is “plan assets,” the policyholder is required to return the appropriate amount to participants in one of the methods outlined earlier, even if the amount the employer must pay to each participant is less than $5.

Federal Tax Consequences and Why That Might Affect How Sponsor Chooses to Allocate Rebates

On April 2, 2012, the government issued guidance on the federal tax consequences for participants in insured group health plans who receive an MLR rebate (in the form of either a premium reduction or cash rebate). The primary points in these FAQs are:

·        If participants paid their share of the premium on a pre-tax basis, then any MLR rebate will be subject to income and employment taxes in the year the rebate is received.
·        If participants paid their share of the prior-year premium on an after-tax basis, and rebates are paid only to employees who were participants in both the year on which the rebate is calculated (2012) and the year in which it is issued (2013), the tax consequences vary depending on whether a particular participant did or did not deduct the premium payment on their Form 1040 for that year:
o   The MLR rebate will not be subject to income or employment taxes in the year the rebate is received if the participant did not deduct the premium on his/her 2012 Form 1040.
o   The MLR rebate will be subject to income and employment taxes in the year the rebate is received if the participant did deduct the premium payment on his/her 2012 Form 1040.

Next Steps for Plan Sponsors of Insured ERISA Plans

1.    Consider the options described above (e.g., allocating the rebate to current-year and prior-year participants or only to current-year participants).
2.    Amend your written plan document and summary plan description to specify how the plan assets portion of the rebate will be determined (e.g., the percentage of any rebate that will be “plan assets” is the same percentage of total premiums that were paid by participants), the methods by which rebates may be provided (e.g., cash payments or premium reductions), and/or whether the plan assets portion can or will be applied toward plan administrative expenses paid by the employer.
3.    Document your decisions above, in case you are later audited by the Department of Labor.
4.    Notify your plan participants as soon as you receive notice from your carrier as to whether or not your plan will receive a MLR rebate in 2013 (for the 2012 reporting year).
5.    Implement the method you have selected (e.g., cash rebates, premium reductions or benefit enhancements) within 90 days after you receive the MLR rebate from the carrier.

Government Guidance on MLR Reporting and Rebates

·        Frequently Asked Questions on the Federal Tax Consequences of MLR Rebates
·        Model notices insurers must provide to policyholders
·        Medical Loss Ratio (MLR) Interim Final regulations on Rebate Requirements (20 pages):
·        MLR Final regulations (78 pages):
·        CMS, MLR Fact Sheet:
·        DOL Technical Release 2011-04 (on MLR rebates) (Guidance for Rebates on Group Health Plans Paid Pursuant to the Medical Loss Ratio Requirements of the Public Health Service Act):
·        HCR law: section 2718(b) of the PHS Act