By Susan K. Bilbro
With fall approaching, the general populace is preparing for crisp weather, the return of football and pumpkin-spiced everything, but employers with calendar year benefit plans are preparing diligently for open-enrollment season: the period of time when employees may elect or change the benefit options – such as medical, dental, vision, and life insurance – available from their employers. While there is a lot to consider, here are three questions plan sponsors should ask themselves as they start preparing for a successful open enrollment process for 2018.
Are You Including the Right Disclosures in Your Open Enrollment Materials? ERISA has multiple participant disclosure requirements that apply to plan sponsors at the time of eligibility or enrollment and periodically thereafter for employee welfare benefit plans. The following is a brief description of some of the key items required to be provided at least once annually and/or specifically during open enrollment:
- Summary Plan Description (SPD). An SPD is designed to inform participants of their benefits, rights and obligations under the plan and to describe how the plan operates. It should also include a notice of grandfathered health plan status if the plan is believed to be “grandfathered” under the Patient Protection and Affordable Care Act (ACA), as well as the patient protections notice required by the ACA. The current SPD and any summaries of material modifications (which document material changes to the plan between updates to the full SPD) must be provided to each participant within 90 days of enrollment in the plan. Many plan sponsors choose to provide this as part of the open enrollment process.
- Summary of Benefits and Coverage (SBC). The ACA requires group health plans to provide a standardized summary of benefits and coverage available under each applicable group health plan benefit package, and the SBCs must be provided to individuals as part of annual open enrollment. New SBC templates for use during annual open enrollment periods beginning on or after April 1, 2017, are available on the Department of Labor (DOL) website.
- General COBRA Notice. Participants and their covered family members must be given notice of their right to purchase a temporary extension of group health plan coverage when coverage is lost due to certain “qualifying events” under COBRA. The notice must be provided to each covered employee and covered spouse no more than 90 days after group health plan coverage begins, but many plan sponsors include this as part of their enrollment materials. The current model general COBRA notice is available on the DOL website.
- HIPAA Notice of Privacy Practices. A group health plan subject to HIPAA privacy rules must provide a notice describing the uses and disclosures of protected health information (PHI), as well as the individual’s rights and the plan’s duties with respect to that PHI. This notice must be provided to new enrollees in the health and welfare benefit plans at the time of enrollment. Thereafter, a notice of the availability of the HIPAA privacy practices notice is required at least once every three years; many plan sponsors include the notice of availability in the annual enrollment materials in order to ensure compliance.
- Notice of Special Enrollment Rights under HIPAA and Children’s Health Insurance Program Reauthorization Act (CHIPRA). Certain individuals have the right to enroll in a group health plan upon the happening of certain events (and under certain circumstances) such as the loss of other coverage or gaining a new dependent through marriage, birth, adoption or placement for adoption. A notice describing these rights must be provided to each eligible employee at or before the time the employee is initially offered the opportunity to enroll in the group health plan.
- Notice Regarding Premium Assistance under Medicaid or CHIP. If an employee resides in a state in which medical premium assistance is or may be available under that state’s Medicaid or CHIP program, that employee (regardless of his or her medical plan enrollment status) must be provided notice of this opportunity annually. Many plan sponsors choose to distribute this with their open enrollment materials. This model notice is updated by the DOL once or twice a year, so plan sponsors should visit the DOL website before distributing the notice to ensure the most current notice is being used.
- Women’s Health and Cancer Rights Act (WHCRA) Notice. This annual notice describes the requirement under WHCRA that a group health plan providing mastectomy benefits must also provide coverage for breast reconstruction, prostheses, and physical complications in connection with the mastectomy.
- Medicare Part D Notice of Creditable Coverage. Employers that provide prescription drug coverage to Medicare Part D eligible individuals must notify these individuals annually, before October 15, whether the drug coverage they have is creditable or non-creditable. If an employer mails annual enrollment materials by this deadline, this notice could be included with the other enrollment materials. A sample notice and related guidance is available on the Centers for Medicare and Medicaid Services website.
Is Your Cash in Lieu of Benefits Payment Program Compliant? As the cost of healthcare rises, some plan sponsors are choosing to offer cash payments to employees who decline employer-sponsored health coverage (called an “opt-out arrangement”), but employers need to know that there are both excise tax and affordability issues to consider in how such programs are structured.
- Excise Tax. The IRS has made clear that an “employer payment plan,” under which an employer reimburses an employee for some or all of the premium expenses incurred for individual health insurance coverage or uses its funds to directly pay the premium for individual health insurance coverage will not comply with ACA market reforms. Because they are not in compliance, they may be subject to a $100/day/applicable employee excise tax. However, according to IRS Notice 2015-17 and subsequent proposed regulations, if an employer increases an employee’s taxable compensation, such as through an opt-out arrangement, but does not condition the payment of the additional compensation on the purchase of health coverage, this arrangement is not an employer payment plan, and does not require compliance with the ACA market reforms.
- Affordability Calculations. In addition to market reform concerns, an opt-out arrangement may also need to be included in the calculation to determine whether coverage offered by the employer is “affordable” for purposes of the ACA’s employer mandate. Under the current proposed IRS regulations, an applicable large employer (with 50 or more full-time and full-time equivalent employees) must include the amount of any potential cash payment in lieu of benefits in its affordability calculation, unless the opt-out arrangement qualifies as an “eligible opt-out arrangement.” An “eligible opt-out arrangement” is one in which an employer offers cash in lieu of insurance if the employee provides reasonable evidence of enrollment in other employer-sponsored coverage (such as a spouse’s plan) or evidence they will have minimum essential coverage (other than an individual market coverage plan) during the plan year for themselves and their expected tax dependents. Reasonable evidence may include an annual signed statement by the employee that they are (or will be) enrolled in appropriate health coverage to qualify for the opt-out payment.
What Do You Need to Know (and Tell Employees) About Your HSA? Health savings accounts (HSAs) have been around for several years, but they continue to be a source of confusion for employees and occasionally plan sponsors. A few things to keep in mind when utilizing an HSA are:
- Limits for 2018. The contribution limits for individual accounts are $3,450 for 2018 and $6,900 for family coverage.
- Tax Advantages. HSAs are triple-tax-advantaged. Deposits into an HSA are tax-free, contributions in the HSA grow tax-free, and distributions are tax-free as long as the money is used for out-of-pocket, qualifying health care expenses.
- Interaction with FSAs. Employees covered under a general purpose health flexible savings account (FSA) are ineligible to contribute to an HSA. If a plan sponsor has a general purpose health FSA with a grace period or permits carryover of up to $500 in unused funds from the prior year, this may impact the eligibility of an employee to participate in an HSA in the subsequent year. For example, if an employee participates in a general purpose health FSA in year one, and that FSA has a grace period for the first two-and-a-half months of year two, the availability of general purpose health FSA funds during the grace period is disqualifying coverage, and will make someone ineligible to contribute to an HSA during those months. In order to be able to contribute to an HSA during those first three months of year two, the health FSA balance must be $0 on December 31 of year one. Even if there is a small amount left at the end of year one, and it is brought down to $0 through payment of claims early in year two, that will still prevent the employee (or the employer) from being able to contribute to an HSA for the entire three months at the beginning of year two. A similar outcome would apply if a carryover balance is permitted in the general purpose health FSA, though the impacts could go further into year two.
These are just three of many issues that plan sponsors should consider before open enrollment begins, but considering these, along with other changes and updates in law, will help plan sponsors prepare for a successful open enrollment.