The four Cs of employee benefits every business should follow

It should be no secret: The employee benefits broker of the past will not provide the necessary strategic approach required to achieve the goals of a successful and comprehensive employee benefits program.

The traditional broker-employer approach of gathering census information, marketing to insurance companies and implementing changes close to open enrollment deadlines is a Band-Aid solution for one year at best. In today’s world an employer needs to evaluate the level and expertise of service when it comes to risk management, creative solutions, consulting and compliance.

Smart Business spoke with Michael Galardini, director of sales at JRG Advisors, about the most progressive ways to develop and manage your employee benefits.

How should business owners be adapting with employee benefit management?

Old habits can be hard to break. In the wake of the Affordable Care Act (ACA) and costly health insurance premiums, a company’s strategy and approach needs to adapt to the changing health care landscape.

A company should focus on the four Cs of employee benefits — cost, creative solutions, consulting and compliance. The concept of this four Cs approach is maximized by using a three-year strategy in developing a benefits program.

The traditional broker will not achieve significant cost reductions by simply raising their plan deductible, co-pays, shifting contributions to the employees or leap frogging from insurance company year after year to save a few percentage points on renewal increases.

What exactly is involved with implementing each of the Cs?

  • Cost: Utilizing risk analysis software tools, a company can now identify medical conditions that are present within their employee population. This risk analysis can also be done by properly dissecting claims, if the employer is large enough to receive appropriate data from the insurance company. Armed with an accurate risk assessment, the broker can work with the employer in a variety of ways to correct or improve the identified medical conditions and implement a customized risk management solution tailored to the group’s specific needs.
  • Creative Solution: Various strategies can then be implemented in order to shift the curve to lower costs and favorably impact premiums. These strategies can include gap insurance, self-funded/level-funded premium options, defined contribution-private exchange or voluntary insurance products to help offset employees’ out-of-pocket costs.
  • Consulting: Through ongoing consultative analysis an experienced, knowledgeable broker should work closely with the company’s HR team or benefits administrator to closely monitor the changes and results throughout the benefit year. Proper monitoring of the benefits strategy and a proactive approach to any needed changes are imperative to ensure the program is on pace to meet the goals of the company. The broker should also conduct periodic strategy meetings to provide both the employer and employees on-going education, as well as updates on industry or insurance company changes.
  • Compliance: Employers need to consider legal issues relating to employee benefits and the increased taxes, reporting and penalties imposed by the ACA. Choosing a broker that can provide specialized knowledge, experience and guidance with ACA and the Employee Retirement Income Security Act of 1974, or ERISA, is critical to ensure that any audit fees and penalties are avoided.

By following this approach to employee benefits, employers are able to identify the risk in their employee population, implement a risk strategy through creative solutions and monitor results through consultative analysis to ensure they are achieving their coverage and budget requirements.

Insights Employee Benefits is brought to you by JRG Advisors

Time to review Health Reimbursement Arrangements for 2017

Late last year, the IRS provided guidance on compliance under the Affordable Care Act (ACA) for group health plans, particularly Health Reimbursement Arrangements (HRAs).

In preparing for 2017, employers that offer HRAs should review plan documents and plan operation to ensure compliance with some of the new requirements.

Smart Business spoke with Frances Horn, employee benefits compliance officer at JRG Advisors, about what employers need to know about HRAs for the coming year.

How do HRAs generally work?

In 2013, the IRS advised that in order for an HRA to meet the ACA market reforms, it must be integrated with group health plan coverage. Generally, market reform requires that a health plan provide preventive services at no cost and no lifetime/ annual limits on essential health benefits. An HRA is integrated with group health plan coverage, if it meets the following requirements:

  • The employer offers group health plan coverage, other than the HRA, that is ACA compliant.
  • Employees receiving HRA benefits are enrolled in group health plan coverage.
  • HRA eligibility is limited to employees enrolled in group health plan coverage.
  • Employees have the opportunity to opt out of the HRA annually and upon termination of employment, or upon termination unused balances are forfeited.
  • Reimbursements are limited to copayments, coinsurance, deductibles and medical care expenses that aren’t essential health benefits, or the other non-HRA coverage provides minimum value.

Due to these integration requirements, an HRA that covers more than one current employee is unable to reimburse the cost of premiums for individual health coverage.

What’s critical to know about reimbursement of spouse or dependent expenses?

The usual practice of employers offering an HRA as a benefit to employees was to permit the qualified medical expenses of spouses and dependents to be reimbursed, regardless if they were covered under the employer’s plan or not.

With the integration requirement, this capability no longer exists. The integration rule states that an HRA may not be used to reimburse expenses for a covered employee’s spouse or dependent, unless that spouse or dependent is also covered under the employer’s integrated group health plan.

The 2015 IRS notice clarified this, and this rule is applicable to those plan years beginning on or after Jan. 1, 2017.

What about retiree HRAs and individual health expenses?

Information provided in the 2013 IRS notice for a HRA plan that has less than two current employees was confirmed in the 2015 notice. An HRA covering only retirees or an HRA covering only one employee isn’t subject to the ACA market reforms.

Therefore, it is permissible for a retiree HRA to reimburse the expense of individual market coverage. This type of HRA is deemed an eligible employer-sponsored plan and would cause individuals to be ineligible for a premium tax credit on the exchange.

To apply this provision, the HRA must only cover retirees. Thus, an HRA plan covering both retirees and current active employees cannot reimburse individual health care covered purchased by retirees.

This rule was applicable for any plan years beginning on or after Dec. 15, 2015.

In summary, providing employee benefits through a HRA has been popular for many years. The ACA market reforms, however, changed the practice such that HRAs for current active employees cannot reimburse the expense of individual coverage. Improper payment of individual coverage can result in a penalty of $100 per day per affected individual.

As 2016 winds down, employers should review their HRA practices to ensure compliance in 2017.

Insights Employee Benefits is brought to you by JRG Advisors

The new technology that enhances employee benefits

As we near the presidential election most of us are wondering about the impact to our health insurance plans and costs. The Affordable Care Act (ACA) has had significant impact on companies of all sizes. But there has also been some good born out of the law, and most of it is centered on development of technologies to support new plan designs and pricing, data accessibility and transparency.

Smart Business spoke with Aaron Ochs, consultant at JRG Advisors, about technology that is enhancing how employee benefits can be managed today.

How is technology improving health plan designs and pricing?

A new approach is to consider self-funded and level funded quotes from multiple carriers. Self-funding is typically viewed as out of reach for small and midsized employers, but that can be overcome with health risk data and stop loss insurance.

A risk analysis can gather employee information. It generates an assessment and utilization summary that most employers with fewer than 100 employees never see. Armed with meaningful data, an employer can confidently consider alternative premium funding. And, employers can educate employees about health, wellness and cost-effective purchasing choices. The data also can be used to create the plan that achieves a company’s goals — reducing claims costs, improving employee health and/or incentives to make cost-effective health purchases —  putting the employer in a position to obtain better premium rates.

Another new health plan delivery model is the private exchange platform, which fits with a defined premium contribution and provides choice and online shopping.

New technology helps employees find affordable options by comparing independent pricing information among providers and hospitals, showing the cost of care before you receive it, for both in- and out-of-network coverage.

Family health insurance premiums rose 397 percent since 1995, while household salary rose only 15 percent. So, transparency is critical. The only way to offer affordable health insurance coverage is to ensure employees have access to affordable care. Higher medical costs don’t result in better medical care — only higher medical bills.

What are examples of how the new technologies are working?

Example 1 — A company with 40 full-time equivalents (FTEs) and 30 employees that are fully insured receives double digit increases year-after-year. About 60 days before renewal, the company provides its employees with an online link to complete a family profile and answer 15 health questions. The data is compiled to a group-based risk assessment, and if feasible, used to shop for self-funded options. Now, when the company receives its renewal, it already has a self-funded quote option, or knows that fully insured is the best fit. Either way the enrollment is complete, as the information provided by employees is fed electronically into any health insurance company quoting and enrollment system.

Example 2 — A company with 30 FTE and 19 employees that are fully insured receives a single-digit increase. The group completes the online risk analysis and learns it’s overpaying premium. The employer then provides a member dashboard that gives employees real claims data on outpatient services, making them better shoppers. This saves the company even more money, as its self-funded quote assumed the worst and was still a more cost-effective option. The business gained composite rates, based on tier, not age, bands, eliminated ACA fees and taxes and saved thousands.

Example 3 — The company’s risk analysis determines its health history isn’t good. It needs to remain fully insured, but the premium is unaffordable. The company determines a dollar amount it can support, and the employees shop from a menu of plans, which are delivered on a private exchange. The employer can provide many benefits, but still control costs and reduce administration. During the benefit year, the company uses the data to implement a wellness program. Within two years, the group has control of its health care costs, has more educated employees and is a fit for self-funded plans on the private exchange.

The changed landscape of health insurance requires a new approach to benefits, in order to control costs, provide options and create a quality benefit experience for everyone.

Insights Employee Benefits is brought to you by JRG Advisors

What you need to know about proposed updates to Form 5500

The Employee Retirement Income Security Act (ERISA) imposes an annual reporting obligation on welfare and retirement benefit plans. In general this reporting requirement is met by annually filing a Form 5500.

This is the primary source of information about the operation, funding and assets of employee benefit plans. Thus, the annual report contains certain financial and other information about a plan, such as name and addresses of plan fiduciaries, number of covered employees, plan name, number and year, says Frances Horn, employee benefits compliance officer at JRG Advisors.

The Form 5500 is also the primary source of information for both the federal government and the private sector for assessing employee benefit, tax, and economic trends and policies.

Smart Business spoke with Horn about how Form 5500s work and the proposed revisions that were recently announced.

What are employers’ responsibilities with Form 5500?

Generally, the annual report must be filed with the Department of Labor (DOL) and be readily available for inspection by participants and beneficiaries.

Before panic sets in, be advised that currently there is an exemption from the welfare benefit plan Form 5500 requirement for small unfunded, insured or combination unfunded/insured plans. To qualify for the exemption, a plan must cover ‘fewer than 100 participants at the beginning of the plan year.’ Please, keep in mind this exemption is NOT applicable to retirement plans.

Depending on the type and size of the plan, the plan administrator may have to attach a report of an independent auditor, or other required schedules and attachments.

There are a lot of nuances that determine whether a Form 5500 is required to be filed by an employer. Any uncertainty about a Form 5500 obligation should be discussed with a benefit advisor.

What’s important to know about updates to these forms?

On July 21, 2016, the DOL and IRS published a notice to revise the Form 5500 Annual Report. The revisions are intended to meet several goals, including:

  • Modernizing the financial statements and investment information filed about employee benefit plans.
  • Updating the reporting requirements for service provider fee and expense information.
  • Requiring Form 5500 reporting by all group plans covered by Title I of ERISA.

One of the biggest changes is the addition of a new Schedule J-Group Health Plan Information. This schedule would gather a broad range of information, such as:

  • Number of persons offered and receiving COBRA coverage.
  • Information on whether the plan offers coverage for employees, retirees and dependents.
  • The type of benefits the plan offers.
  • Plan funding.
  • Grandfather status of the plan.
  • Whether the plan is a high deductible health plan, a health flexible spending account or a health reimbursement arrangement.
  • Information on receipt of rebates, refunds or reimbursements from a service provider.
  • Stop loss information including premium, individual and aggregate claim limits.
  • Information on compliance with the Summary Plan Description, Summary of Material Modifications and Summary of Benefits and Coverage.
  • Information on compliance with applicable federal laws and DOL regulations, such as, among others, HIPAA and the Affordable Care Act.

The key concern of the smaller employer is that these proposed revisions would eliminate the current small insured and self-insured welfare benefit plan exemption. Thus, every private employer offering its employees a welfare benefit plan would be subject to the Form 5500 reporting. It should also be noted that small employers would only be required to answer limited questions on the new Schedule J.

These proposed rules, if adopted, would become applicable for plan years beginning on or after Jan. 1, 2019. In the meantime, employers should follow any updates on these proposed revisions, since generally every private employer offering a welfare benefit plan could be affected.

Insights Employee Benefits is brought to you by JRG Advisors

How alternate funding and tools can help control small group health plans

Today’s health care environment is riddled with complex plan designs and rigorous government regulations, leaving many employers to feel as though their hands are tied when it comes to unique, innovative and cost-saving solutions.

But a new concept is emerging that will enable small employees to identify current and future risk, influence behavior and control cost.

Smart Business spoke with Amy Broadbent, VP of Client Services at JRG Advisors, about strategic analysis and risk management in the small group health insurance market.

How is the small group health insurance market changing?

Typically, small employers have been unable to maximize the value of their medical benefits due to lack of claims utilization and analysis from the insurance company. The typical buying arrangement in the small group market is a fully insured contract that does not offer the employer much control over the health plan. Self-funding works differently.

In addition to providing protection against excessive costs in years with high claims and the opportunity to keep the profits from favorable years, the availability of data, including claims utilization, is a significant advantage for the employer. Knowing the health and risk factors of the employee population helps the employer determine the appropriate benefits strategy.

Self-funding is not a new concept; but it is new to the smaller employer — with many insurance companies offering level-funding premium options (a form of self-funding) to groups with as few as 10 insured employees.

With level funding, the employer puts aside enough money to cover anticipated claim expenses and the monthly premium remains level for the entire plan year. If claims are less than the funded amount at the end of the year, a rebate or credit is issued. If claims exceed the funded amount, the employer is protected by stop loss.

How can employers use data as a tool to help?

The ability to anticipate or predict claims costs haven’t been available in the small group market due to the absence of claims data from the insurance companies — until now.

This is where newly developed risk management and predictive modeling tools come into play, making it possible to take a much ‘deeper dive’ into the composition and risk of the smaller employer, proactively identifying members with markers for chronic illness to predict health risks and determine if self-funding is a viable solution.

The deeper dive begins with employee data that is captured through a custom access portal, scrubbed and reviewed. The portal is an insurance company-accepted, Affordable Care Act and HIPAA compliant online benefits application tool designed to reduce the amount of time, cost and paperwork for employers. Employees are asked to complete an online enrollment interview. The employer receives a confidential de-identified aggregate report with an overall analysis.

This expert analysis guides the business owner through the benefit decision process with the power of knowledge. Gaining insight into the composition and health status of the group means plan design decisions can be strategic rather than an annual game of ‘pinning the tail on the donkey’ to find a tolerable solution.

What kind of results can employers expect?

Often, the same portal technology can reduce or eliminate many administrative burdens by providing the added support of employee enrollment, communication and plan election/waivers. The solution is a faster and more efficient approach to benefits. This means the employer can essentially build their own health plan, which can lead to generous cost savings, greater transparency and understanding and better overall cost control.

Over half of the average employer’s health care budget is spent on members with preventable conditions. It’s time for small employers to take control of their health care plans. Talk to your advisor to learn how these funding arrangements and risk analysis tools can help with your strategic benefits planning needs.

Insights Employee Benefits is brought to you by JRG Advisors

Friend or foe? Employers struggle to find the FMLA answer

The Family and Medical Leave Act (FMLA) took effect in 1993 to help balance workplace demands with the medical needs of employees and their families. Under it, an employee is entitled to take up to 12 weeks of unpaid leave during a 12-month period for a serious health condition, or to care for an immediate family member who has a serious health condition.

Smart Business spoke with Douglas Fleisner, sales executive at JRG Advisors, about solutions for the concerns employers have about the FMLA.

What challenges do employers face with the FMLA?

Nearly 70 percent of employers are worried about employees abusing the FMLA and similar laws.

Employers are not only concerned with abuse but also with staying compliant and ensuring their policies and implementation procedures are in accordance with current law. What makes this even more difficult is that FMLA definitions and specifics can vary from state to state.

Also, each FMLA request requires a case-by-case analysis. You cannot have a one-size-fits-all approach. FMLA overlaps with many other laws and policies, such as collective bargaining agreements, short- and long-term disability policies, workers’ compensation, absenteeism policies and paid time off. It is hard to remember and consider all of them every time a leave question arises. The intersection of responsibilities under the FMLA and the Americans with Disabilities Act remains problematic as well.

The evolving nature of mental and physical conditions makes each FMLA case different and that makes it harder for employers to develop a more foolproof, standardized system of handling FMLA issues. More and more employees are presenting with conditions that fall outside of the ‘easy’ or more straightforward 12 weeks application of leave.

How can a company implement solutions for some of these situations?

With all of the laws out there protecting employee rights, many employers feel that FMLA abuse is a problem they are powerless to stop. As a result, they don’t closely question employees about their FMLA requests. That can be very costly.

An employer needs to have clear policies about what can be covered by the FMLA and what the employee needs to do to give notice of upcoming leave. Establish a set of call-in rules and specify when an employee must call in, to whom and what information must be shared/left when calling in.

Make employees hand in leave request forms; create and enforce a call-in policy; keep the lines of communication open; require them to certify their absence and seek recertification when circumstances change; and give managers/supervisors a list of questions to ask all employees when they call in sick — be careful though because they can only ask certain questions.

Remember that not every employee is eligible for extended leave under the FMLA. Eligible employees must have worked for their employer for at least 12 months prior to requesting the leave, and they must also have worked at least 1,250 hours in those 12 months. For someone who works an eight-hour day, that translates to approximately 156 days. Your company also must have at least 50 employees who work within 75 miles of its location. Once again, various states have different provisions.

What are some next steps for employers?

An effective absence management program is imperative. It reduces lost worker productivity and limits the liability for mismanagement of employee absences, ultimately producing a positive impact on a company’s bottom line.

While all employers continue to grapple with managing absenteeism, certain tasks have become less burdensome thanks to increased access to expert advice, third-party technology and more outsourcing options. Brokers and advisors can play an important role in ensuring employers address this need.

By understanding the basics of sound absence management, they can help reduce the regulatory, decision-making and reporting challenges, particularly when complying with newer Affordable Care Act regulations and coordinating a variety of absence types. They can review your FMLA policy to make sure it is compliant, and help maximize its usefulness while minimizing its abuse.

Insights Employee Benefits is brought to you by JRG Advisors

Know your rights and obligations under the HIPAA Privacy Rule

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that sets rules and limits as to the use and disclosure of Protected Health Information (PHI). A piece of that is the HIPAA Privacy Rule, which is very complex — partially due to the fact that it regulates three very different types of organizations (defined as covered entities), and the rules related to each vary.

“In order to determine what an organization must do, if anything, in repose to the HIPAA Privacy Rule, it must first determine if it is a covered entity or has access to PHI,” says Amy Broadbent, vice president of JRG Advisors.

Smart Business spoke with Broadbent about the requirements of the HIPAA Privacy Rule and how it impacts your business and workforce.

Who is governed by the HIPAA Privacy Rules?

Covered entities that are governed by HIPAA include health plans; health care providers that conduct certain transactions electronically — this includes most doctors, clinics, hospitals, pharmacies, psychologists, chiropractors, nursing homes and dentists; and health care clearinghouses.

Contractors, subcontractors and other outside persons/companies that are not employees of a covered entity may have the need to access health information when providing services to the covered entity. These individuals are known as ‘business associates.’

Covered entities must have contracts in place with their business associates, ensuring that they only use or disclose PHI as permitted under HIPAA. HIPAA has been amended such that business associates, although not a covered entity, must comply with the HIPAA rules in the same manner as a covered entity.

What are the administrative requirements under the HIPAA Privacy Rule?

If the plan sponsor has access to PHI, other than for enrollment or termination of coverage under the plan, then it must comply with HIPAA’s administrative requirements.

Administrative requirements include limiting use and disclosure of PHI to activities related to treatment, payment or health care operations. You also must designate a privacy officer who is responsible for:

  • The development and implementation of privacy policies and procedures.
  • Training workforce members, known as designated employees, on those policies and procedures with regard to PHI.
  • Having a complaint procedure.
  • Providing a Notice of Privacy Practice to plan participants.
  • Refraining from taking retaliation against an individual who makes a complaint alleging a HIPAA violation.
  • Establishing sanctions against designated employees that fail to comply with the HIPAA requirements.

The HIPAA Privacy Rule permits a plan sponsor to receive summary health information from the insurance company for the purpose of obtaining premium bids from health plans for the purpose of providing health insurance coverage, and modifying, amending or terminating a group health plan. If a plan sponsor’s access to medical information is limited to summary health information, it will not be required to comply with the HIPAA administrative requirements.

The HIPAA Privacy Rule also sets limits as to who can review and receive protected health information. Covered entities and business associates are required to comply with an individual’s rights. These include the right to access and obtain a copy of health records, have corrections made to those records, limit communications and receive an accounting of PHI disclosures.

It is important for employers and employees alike to know their rights and obligations under HIPAA.

The HIPAA Privacy Rule is complex and includes additional requirements besides those discussed in this article — work with your advisor to ensure you fully understand this rule and how it impacts your business and workforce.

Insights Employee Benefits is brought to you by JRG Advisors

Are you ready for DOL health and welfare plan audits?

The Department of Labor (DOL) has routinely conducted compliance audits on health and welfare plans.

“In the past, audits were either random, based on targeted industries with a history of compliance problems, or triggered by participant complaints,” says Frances Horn, employee benefits compliance officer at JRG Advisors. “Perhaps you have heard though, that health and welfare plan audits are on the upswing, with the DOL expressing its goal to audit all employee benefit plans. So, like it or not, they’re coming.”

Smart Business spoke with Horn about health and welfare plan audits today, including how to prepare.

How do health and welfare plan audits typically work?

A health and welfare plan audit is a review of documents and other plan materials. Its purpose is to ensure plan sponsors comply with federal law by maintaining accurate documents and administering those documents in accordance with federal laws and regulations.

An agency investigator looks at many things, each with a nod toward compliance or a menu of fines for noncompliance. Investigations will begin with the DOL requesting the plan sponsor to provide copies of Summary Plan Descriptions, plan documents, Summaries of Material Modifications, 5500 filings and other materials distributed to employees (such as enrollment packages) or filed with the government.

The DOL also may request proof of distribution of notices — including those connected with the Employee Retirement Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA), Children’s Health Insurance Program Reauthorization Act (CHIPRA) and the Women’s Health and Cancer Rights Act. Requirements under the Affordable Care Act (ACA) have extended the list of requested documents to include the summary of benefits and coverage and notices on grandfather status, rescission of coverage, patient protection rights, lifetime maximums and dependent coverage to age 26.

Why do so many employers fear these audits?

Employers fear DOL audits because not being compliant with the myriad rules regulating welfare plans can put an employer at risk of being subject to significant penalties. ERISA’s disclosure requirements can carry a fine of $110 per day. In addition, failure to comply with group health plan standards can trigger IRS excise taxes of $100 per affected person for each day of noncompliance.

How can employers get ready for DOL audits?

The DOL has made available a compliance guide for health benefits coverage, which includes a two-part self-compliance tool. The publication is written to represent the topics a typical investigator would likely examine during a health plan audit. The publication doesn’t cover all the specifics associated with each law governing employee benefits but it does provide a basic understanding of your obligations.

Employers need to take steps in order to be as ‘audit-ready’ as possible. That means ensuring documentation and procedures are in place to support group health plan compliance, paying particular attention to the requirements under the ACA. The employer should be ready to identify its plan year and the plan’s status as to compliance with federal mandates and market reforms.

What actually needs to be reviewed and retained by a plan sponsor can vary. Considerations include the type of benefits offered, the laws that apply to those benefits, whether a benefit is fully or self-insured, number of plan participants and whether there is a third-party service provider.

The number of employers receiving audit notices for their health and welfare plans is on the upswing. Being prepared and organized is in the best interest of any employer. An employer’s proactive compliance review of its health and welfare plans may be cumbersome but could demonstrate a good effort to understand and comply with the law.

Insights Employee Benefits is brought to you by JRG Advisors

Understanding health care exchanges for employers and individuals

Health care reform has had a significant impact on individuals and employers, to say the least.

“The creation of public and private exchanges has changed the approach to purchasing health insurance. Whether you obtain health insurance through an employer or on your own, there is a good chance you are doing so through an exchange or will be doing so in the not too distant future,” says Aaron Ochs, consultant and project manager at JRG Advisors.

Studies indicate that by 2017, 1 in 5 Americans will be purchasing benefits from some type of health insurance exchange.

Smart Business spoke with Ochs about what you need to know about exchanges.

What is the public exchange?

The Affordable Care Act (ACA) requires each state to have a competitive marketplace known as an Affordable Health Insurance Exchange or exchange for individuals and small businesses to purchase health insurance.

The public exchange, also known as the Federally-Facilitated Marketplace, performs a variety of functions, including certifying that health plans are qualified health plans (QHP) and eligible for inclusion on the exchange; operating a website to facilitate comparisons among plans; operating a toll-free hotline for consumer support; determining if a person is eligible for a subsidy that lowers their monthly premium; and determining individuals’ eligibility for Medicaid and/or their dependents eligibility for the Children’s Health Insurance Program.

The Navigator program is an essential component of the public exchange. Navigators help consumers learn about and choose coverage. For example, a navigator provides information on the various health programs in a manner that is ‘culturally and linguistically’ appropriate to the needs of the population being served by the exchange. Exchanges have set training standards for navigators to ensure expertise in the needs of the populations served, eligibility and enrollment procedures, and the exchange’s privacy and security standards.

Is there a public exchange for businesses?

There is a public exchange for small businesses known as the Small Business Health Options Program (SHOP). According to the Department of Health and Human Services, the SHOP gives small businesses the same purchasing power as large businesses and will allow small employers to provide their employees with a choice of health plan options.

The ACA defines a small employer for purposes of eligibility for SHOP participation as one that has up to 50 employees.

A SHOP must allow employers the option to offer employees all qualified health plans at a level of coverage chosen by the employer — bronze, silver, gold or platinum. This is called the employee choice model. Under this model, the employer chooses a level of coverage and a contribution amount, and employees then select any QHP at that level.

How does a private exchange differ?

A private exchange is offered by an insurance company or third-party administrator and is available for a business to buy group (versus individual) insurance products. Private exchanges are gaining momentum due to rising premiums and the need for an improved solution for employers.

In this model, an employer determines the dollar amount or ‘defined contribution’ it will make toward the employees’ insurance. The concept of defined contribution is not a new one, but it is newer for small and midsized employers.

Historically, insurance companies placed restrictions on the number of medical benefit options a small employer could offer. As health care costs continue to rise, so did the need for a new model or solution to offering employee benefits.

Most private exchanges offer additional benefits including dental, vision, life and disability, health savings accounts, flexible spending accounts and more. Employers achieve greater cost control, while employees gain choice and flexibility with regard to their benefit elections based on their particular needs.

The purpose of both public and private exchanges is to create an online shopping experience that will simplify the health insurance buying process.

Insights Employee Benefits is brought to you by JRG Advisors

How to set up your cafeteria plan for pretax employee benefits

It’s common for employers to require employees to pay a share of premiums for many employee benefits. To take a bite of this cost-sharing requirement, many employers permit employees to pay for their premium share of contributions on a pretax basis through cafeteria plans, which provide a special exception to general federal income tax rules applicable to an employee’s income.

“Generally, this choice takes the form of allowing employees to purchase benefits, such as health insurance, with pretax dollars. This allows employees to have more take-home pay,” says Frances Horn, employee benefits compliance officer at JRG Advisors.

But when providing this, there are requirements that must be met.

Smart Business spoke with Horn about the rules that govern these cafeteria plans.

How do cafeteria plans work?

Section 125 of the Internal Revenue Code (IRC) governs cafeteria plans. Thus, regardless of whether the cafeteria plan is from a private, government, church or nonprofit employer, it remains subject to the cafeteria plan rules.

Although all cafeteria plans must satisfy key Section 125 provisions, not all plans are the same. The simplest form is a premium-only-plan (POP), which permits employees to pay premiums with pretax dollars. An employer can also combine the premium payment feature with account-based plans to create a more robust plan. Account-based plans, or spending accounts, permit employees to set aside part of their salary on a pretax basis for unreimbursed expenses.

Cafeteria plans are often referenced by other names — most notably, POP, section 125, pretax plan and flexible benefits plan. Regardless of what employers call it, if they provide pretax benefits to employees, the plan must adhere to the IRC 125 rules.

What do employers need to understand about the IRC 125 rules?

The IRC rules governing 125 plans are numerous, but the most important one is that the cafeteria plan must be established pursuant to a written plan instrument, known as a plan document. Any changes made to the plan also must be set out in writing. This establishes the terms as to how the plan must be governed and any failure to operate in accordance with the terms or the IRC requirements will disqualify the plan.

The rules specifically define what must be included in the plan document:

  • Specific description of the available benefits and when they are provided.
  • Participation rules.
  • Employee election procedures — when they can be made, effective date and that elections are irrevocable except for IRS permissible midyear election changes.
  • The manner in which employer contributions may be made.
  • Maximum amount of employer contributions available through the plan.
  • The plan year.
  • Provisions for complying with spending account arrangements, if offered.
  • If the plan provides for any grace periods or carry-overs when permitted.

Without a plan document, the IRS takes the position that the employer has under-withheld the taxes for participating employees. Such under-withholding could lead to payroll tax underpayments and IRS penalties for an employer.

How does this differ from Employee Retirement Income Security Act (ERISA) plan documents?

This requirement shouldn’t be confused with the requirement that a benefit subject to ERISA is required to have a written plan document. Whether the cafeteria plan must meet ERISA’s plan document requirement depends on whether the plan contains an ERISA benefit. For example, this would occur if the cafeteria plan permits pretax salary reductions for a health flexible spending account, because it is a self-insured group health plan and subject to ERISA.

What else would you like to share?

If there is no cafeteria plan document, if the document doesn’t satisfy the plan document requirements or if the plan fails to operate in accordance with the terms of the plan or Section 125 rules, the plan isn’t a cafeteria plan and an employee’s election between taxable and non-taxable benefits results in gross income to the employee.

Make sure you discuss the proper establishment of cafeteria plans with your employee benefit advisors.

 

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