More and more organizations are pressured to have their employee benefit plans fully compliant with all employee benefit laws (Affordable Care Act (ACA), ERISA, COBRA, HIPAA, etc.) or face fines, penalties, and loss of tax favorable status or even criminal charges. The Employee Benefits Security Administration (EBSA), a division of the Department of Labor (DOL), has been conducting extensive ERISA audits on pension and welfare benefit plans and show no signs of letting up.
In this article, we cover critical areas of consideration in keeping your health and welfare benefit plans fully compliant. We do not cover compliance for retirement/pension plans or required benefit plans such as social security taxes, unemployment, workers compensation or disability.
All plan administrators and individuals managing benefits must follow judiciary requirements, looking out for the best interests of participants while managing plans to comply with all requirements and must follow these fiduciary requirements:
• Making sure participants receive promised benefits;
• Establish and maintain plans in a fair and financially sound manner;
• Manage plans for the exclusive benefit of participants and beneficiaries;
• Carry out their duties in a prudent manner and refrain from conflict of interest;
• Fund benefits in accordance with the law and plan rules;
• Report and disclose information on the operations and financial condition of plans to the government and participants; and
• Provide documents required in the conduct of investigations to ensure compliance with the law.
If the plan administrator’s duty or activity creates a risk in which funds or property could be lost due to fraud, they may be required to maintain a fiduciary bond. If they have physical contact with cash or checks, including access to a safe deposit box, power of custody or power to transfer property, they may need a fiduciary bond.
Employers with insured plans usually are not subject to the bonding requirements for those plans. No bonding is required when premiums or other payments made to purchase benefits, including health benefits, are paid directly from the employer’s general assets to an insurance carrier.
Disclosure and Notification Requirements
There are numerous notifications that are required, based on benefits offered and the number of employees. Below is a summary of the various notification requirements.
• Summary of Benefits & Coverage (SBC)
Plan administrator or issuer must provide a uniform summary of benefits and coverage to participants and beneficiaries in medical insurance upon application for coverage and at renewal. Plan administrators and issuers must also provide a 60-day advance notice of material changes to the summary that take place mid-plan year. Plans and issuers must begin providing the summary to participants and beneficiaries who enroll or re-enroll in plans. The SBC is typically created by insurance providers or third party administrators and distributed by the employer.
• Notice of Patent Protections and Selection of Providers. (All who offer medical insurance)
Plan administrators or issuers must provide a notice of patient protections and selection of providers whenever the summary plan description (SPD) or similar description of benefits is provided to a participant. These provisions relate to the choice of a health care professional and benefits for emergency services.
• Grandfathered Plan Disclosure/Notice (Only grandfathered plans)
Organizations who offer a grandfathered plan are required to provide participants with a special grandfather notice periodically with materials describing plan benefits. These types of plans seem to be phasing out, with fewer and fewer employers offering grandfathered plans.
• Mental Health Parity and Addiction Equity Act (MHPAEA) Notice (50+ employees)
The MHPAEA applies to group health plans offering mental health and substance use disorder benefits who have 50 or more employees. The MHPAEA imposes parity requirements on group health plans that provide benefits for mental health or substance use disorder benefits. For example, plans must offer the same access to care and patient costs for mental health and substance use disorder benefits as those that apply to general medical or surgical benefits.
• Health Care Reform – Employee Notice of Exchange (All employers)
The Employee Notice of Exchange requirement applies to all employers who are subject to the Fair Labor Standards Act (FLSA). Employers are required to provide all new hires and current employees with a written notice about the health care reform law’s health insurance exchanges (Exchanges). This notice is designed to inform employees about the existence of the Exchange and give a description of the services provided by the Exchange. It explains how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer’s plan does not meet certain requirements. It informs employees that if they purchase coverage through the Exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes. Finally, the notice includes contact information for the Exchange and an explanation of appeal rights. Provide this notice to all employees regardless of whether or not they are on the medical insurance plan at least one time.
• COBRA Notices (20+ employees)
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), group health plans sponsored by an employer with at least 20 employees must provide various notices to participants. Organizations must provide each covered employee and covered spouse and dependents (if any) with written notice of their individual COBRA continuation coverage rights under the plan. These notices must be provided within 90-days of beginning coverage and written in plain language so that the average participant can understand.
Send an Initial COBRA notice informing participants of COBRA rights and the need for them to notify the employer anytime a special a qualifying event occurs for which you may not know otherwise such as divorce, or child turning 26 year’s old.
Send a COBRA Election Notice or Qualifying Event Notice within 14-days of a qualifying event such as termination of employment.
Other COBRA notices may apply if participants are no longer eligible, are late on a payment or the employer is terminating the medical plan.
Note: Employers with less than 20 employees may be subject to state continuation requirements. Contact your state insurance commission or state labor department for more information.
• Qualified Medical Child Support Order Receipt and Determination Letters
(All who offer medical coverage)
Group health plans are required to establish written procedures for determining the qualification of a Medical Child Support Order. The employer respond to an order is required within 20 business days of the date of the Notice.
• HIPAA Certificate of Creditable Coverage
(Any employer offering medical coverage)
A participant or beneficiary is entitled to demonstrate prior creditable coverage under an earlier plan, to reduce the amount of time for which a current health plan can impose exclusions based on a preexisting condition. The participant or beneficiary may obtain a certificate of creditable coverage from the plan sponsor or insurer that provided benefits previously.
• HIPAA Privacy Policies and Practices
(Any plan with protected health information (PHI))
Health Plans are required to establish written privacy policies and procedures regarding protected health information (PHI). Policies should include: 1) Permitted uses and disclosures, 2) Authorization requirement for other uses and disclosures, 3) Designation of privacy official, and privacy contact, 4) Sanctions for violations, 5) Privacy safeguards, 6) Complaints procedure, 7) Prohibition of retaliation and waiver of rights, 8) Documentation and record retention, and 9) Business Associates agreements. HIPAA notice must be provided to participants at time of enrollment and within 60-days of a material change.
• HIPAA Security Policies and Practices
Plans that store, receive or transmit PHI are required to establish written policies and procedures regarding the maintaining and transmission of PHI. Business Associates agreements may need to be amended. Fully insured plans are excluded.
• Notice of Special Enrollment Rights (All medical plans)
Administrators are to notify eligible participants of special enrollment rights when offered the opportunity to enroll in group health insurance, including a description of special enrollment events and enrollment procedures (e.g. birth, adoption, marriage, etc.).
• Medicare Part D Notice of Creditable Coverage (All who offer plans with prescription drugs)
The Medicare Part D requirements apply to group health plan sponsors that provide prescription drug coverage to individuals who are eligible for Medicare Part D coverage. Medicare Part D requires a disclosure notice must be provided to Medicare Part D eligible individuals who are covered by, or apply for, prescription drug coverage under the employer’s health plan. It must be provided at certain times, including before the Medicare Part D Annual Coordinated Election Period (October 15 through December 7 of each year). Because of the difficulty in knowing if an employee or their dependents quality, it is recommended to provide this notice to the employee and dependents annually.
Employers must disclose to the Centers for Medicare and Medicaid Services (CMS) whether the plan’s coverage is creditable on an annual basis (within 60-days after the beginning of the plan year) and upon any change that affects the plan’s creditable coverage status.
• Women’s Health Act Notice (All offering these benefits)
Plans that provide medical and surgical mastectomy benefits are required to notify participants that such benefits are available. This notice must be provided to participants upon enrollment and annually.
• Newborns’ and Mothers’ Health Protection Act (All who offer maternity)
If the plan provides maternity or newborn infant coverage, a statement that a stay for a normal delivery must be no less than 48 hours and 96 hours for a cesarean section should be provided annually.
• Children’s Health Insurance Program (CHIP) Reauthorization Act Notice (All who offer medical insurance in a state where CHIP is offered)
The CHIPRA requirements applies to employers that maintain group health plans in states that provide premium assistance subsidies under a Medicaid plan or CHIP. This notifies employees of potential opportunities currently available in the state in which the employee resides for premium assistance under Medicaid and CHIP for health coverage of the employee or the employee’s dependents. Employers that maintain a group health plan in a state that provides medical assistance under a state Medicaid plan or CHIP must distribute the notice to participants upon enrollment and annually.
• Summary Plan Description (SPD) or SPD Wrap (All who offer ERISA covered plans)
The SPD informs participants and beneficiaries of their rights and obligations under the plan. It must be written in a manner understandable to the average participant. This is generally more than is provided by the insurance company and must be provided for all ERISA covered benefits (i.e. medical, dental, vision, life, disability, HRA, FSA, POP, etc.). Generally, benefits where the employers share in the cost, endorse the plan or allow the plan to run through a 125 Plan paying for premiums on a pre-tax basis would be considered covered by ERISA and would require an SPD. Organizations excluded from this requirement include government plans, public schools and churches.
An SPD must include the following: plan name; employer/sponsor name; EIN; type of plan; type of administration; plan administrator’s name, address, telephone number; name of person designated as agent for service of legal process; plan year; plan eligibility requirements; description of benefits; information regarding plan contributions and funding; information regarding claims and procedures; and a statement of ERISA rights.
A common approach is to use an SPD Wrap that creates one overall SPD wrapping in all covered benefit plans, pulling in the missing insurance company information. SPD Wraps may include the plan document and the SPD in the same document or they can be separate.
• Summary of Material Reduction Notice
(All ERISA benefit plans)
Any modification in the terms of the plan that is a “material reduction” in covered services or benefits must be furnished to participants no later than 60-days after the date of adoption of the reduction. A reduction in covered services or benefits generally will include any plan modification or change that:
• Eliminates benefits payable under the plan;
• Reduces benefits payable under the plan;
• Increases premiums, deductibles, coinsurance, copayments or other amounts to be paid by a participant or beneficiary;
• Reduces the service area covered by a health maintenance organization; or
• Establishes new conditions or requirements (e.g., preauthorization requirements) to obtaining services or benefits under the plan.
• Summary of Material Modification
(All ERISA benefit plans)
Any modification in the terms of the plan that is “material” and any change in the information required to be in the SPD, must be reported to plan participants within 210 days after the end of the plan year in which a modification or change is adopted.
Other benefit laws
Genetic Information Nondiscrimination Act (GINA) (All employers)
GINA prohibits health plans and health insurance issuers from discriminating based on genetic information. GINA generally prohibits group health plans and health insurance issuers from: (1) adjusting group premium or contribution amounts on the basis of genetic information; (2) requesting or requiring an individual or an individual’s family members to undergo a genetic test; and (3) collecting genetic information, either for underwriting purposes or prior to or in connection with enrollment.
Family and Medical Leave Act (FMLA) (50+ size groups)
The FMLA provides eligible employees with job-protected leave for certain family and medical reasons or military exigency situations. An employer must maintain group health coverage during the FMLA leave at the level and under the conditions that coverage would have been provided if the employee had not taken leave.
The FMLA requires employers to provide the following notices/disclosures:
1. General Notice – Covered employers must prominently post a general FMLA notice where it can be readily seen by employees and applicants for employment. If the employer has any FMLA-eligible employees, it must also include the general notice in the employee handbook or other written employee guidance or distribute a copy of the notice to each employee upon hiring.
2. Eligibility/Rights and Responsibilities Notice – Written guidance must be provided to an employee when he or she notifies the employer of the need for FMLA leave. The employer must detail the specific expectations and obligations of the employee, and explain the consequences for failing to meet these obligations.
3. Designation Notice – After the employer has sufficient information, it must provide a designation notice informing the employee whether the leave is designated as FMLA leave. Model forms from the DOL are available at: dol.gov/whd/fmla/index.htm
Form 5500 (100+ participants)
Plan administrators must report specified plan information to the Department of Labor each year. Fringe benefit plans and welfare plans with less than 100 participants at the beginning of the plan year that are unfunded, fully insured or a combination of both are not required to file the form. Form 5500 must be submitted to the Employee Benefits Security Administration (EBSA) by the last day of the 7th month following the end of the plan year. Applicable schedules (i.e., Schedule A, C, H or I) may need to be attached. Employers using an SPD Wrap document would submit one 5500 report for the SPD Wrap, instead of submitting one for each benefit plan.
Summary Annual Report (SAR) (If filed 5500 report)
The SAR summarizes the form 5500 financial information as a narrative summary of the Form 5500, and includes a statement of the right to receive a copy of the plan’s annual report. The SAR must generally be provided within nine months after the end of the plan year to participants and beneficiaries.
Health Care Reform – W‑2 Reporting (250 Employee Size Groups)
The Form W‑2 reporting obligation applies to employers sponsoring group health plans who have 250 or more W‑2 forms the prior year.
Employers must disclose the aggregate cost of employer-sponsored coverage provided to employees on the employees’ W‑2 Forms. The purpose of the reporting requirement is to provide information to employees regarding how much their health coverage costs. The reporting does not mean that the cost of the coverage is taxable to employees.
ACA Reporting (50 + FTE or self-funded plans)
Organizations who are Applicable Large Employers (ALEs), meaning they had 50 or more full-time (FT) or full-time equivalent (FTE) employees during the previous year, are required to provide anyone who was full-time for one month or more with Form 1095‑C by January 31st (extended to March 31, 2016 for 2015 reporting year). ALEs are then required to submit transmittal document 1094‑C to the IRS, along with copies of the 1095-Cs given to full-time employees by February 28th (extended May 31, if submitted manually or to June 31 if filing electronically for 2015 reporting year).
Organizations who offer self-funded plans, who have less than 50 FT or FTE are required to provide FT employees with Form 1095‑B, then submit transmittal Form 1094‑B to the IRS on the same dates shown above for ALEs.
There are a number of recommended benefit administration practices that help you comply with the various laws, while maximizing benefits received by participants.
Plan Year and Open Enrollment
Organizations should define a plan year, then hold open enrollments prior to each plan year, reviewing coverage and provider options. Participants are allowed an opportunity to enroll or make changes to their plans during open enrollments. Though not recommended, organizations can have more than one open enrollment date for different benefits. Do not allow mid-year changes to selected benefit plans unless they experience a qualifying event or you risk violating section 125 plans (Premium Only or Flexible Spending Account) tax-favorable status of your plans, if applicable, and may violate agreements with insurance providers.
ALE Medical Insurance Coverage Offers
Most ALEs will elect to offer coverage to at least 95% of eligible employees that meets Minimum Essential Coverage (MEC), Minimum Value (MV) at affordable rates to avoid penalties. A plan meets MV if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. It is affordable if the medical insurance rates charged for the employee-only, MV coverage does not exceed 9.56% of the employee’s W‑2 wages, federal poverty level or rate of pay safe harbors.
It is a good practice to collect either an application or waiver of coverage from all employees offered coverage. Keep these on file demonstrating they were offered coverage.
Eligibility & Waiting Periods
Employers are to set up practices that comply with required Affordable Care Act (ACA) requirements related to waiting periods and eligibility. The waiting period must allow participants to join a medical plan within 90-days of their date of hire. Employers may elect a 30-day orientation period that occurs before the normal waiting period. The most common waiting periods are the first of the month following 30 or 60-days of employment.
Classify employees as full-time if you anticipate they will on average work 30-hours or more per week, and make them eligible to join your medical insurance plan, if applicable. It is a good practice to also clearly define job classifications of part-time, full-time, temporary and seasonal to identify variable hour employees, helping you manage benefit eligibility. Monitor work hours for all employees to effectively manage eligibility over defined measurement periods. In addition to actual hours performed, work hours include vacation, sick leave, paid-time off, holiday pay or time out on an injury.
Establish a set measurement period where you will monitor work hours for new variable hour employees (part-time, temporary and seasonal) of 30 days to 12 months or you may elect to use the monthly measurement method. Those who average 30-hours or more during the measurement period would be eligible to participate in the medical plan. Have all measurement periods begin as of the first of the month following dates of hire, making it so you only have to review eligibility twelve times per year. If desired, you can have a separate measurement period for on-going employees, those who are past one standard measurement period.
Define an administrative period of 30 to 90-days, which is your allowed time between the measurement period and the insurance effective date to calculate eligibility, provide enrollment materials to eligible employees and perform other administrative functions. The combination of your selected measurement period for newly hired employees and administrative period may not exceed 13 months.
Individuals who qualify for medical insurance coverage after completing the measurement period are eligible to remain on medical coverage, regardless of changes to their average work hours, for a period of time equal to your defined measurement period or 6 months, whichever is greater.
ACA Reporting Data
Because of the need to meet ACA reporting requirements, ALE’s need to establish tracking systems to monitor the following data used to complete documents 1095‑C and 1094‑C:
• Employee names
• Employee SS#
• Employee address
• Employee telephone number
• The month coverage was offered to each employee and each month thereafter for which the employee was eligible for coverage
• Number of employees (full-time and full-time equivalent)
• Employee’s cost of the lowest cost monthly premium for self-only
• Name, SS# OR DOB if no SS# is attainable for spouse and dependents for ALL self-funded plans (ALE and small employers)
125 Premium Only Plans (POP) or Flexible Spending Accounts (FSA)
Many organizations offer a POP, helping participants pay for premiums on a pre-tax basis, and/or an FSA, to set aside funds to cover anticipated uncovered medical costs (e.g. deductibles, co-pays, etc.) or to pay for work related dependent care, if applicable.
It is important to maintain up-to-date POP or FSA documents and to communicate these services along with other benefits through distribution of Summary Plan Descriptions (SPDs) or SPD Wrap documents. There were recent updates to definition of spouse, new qualifying events for marketplace enrollment for POP documents, new health FSA maximums, and $500 rollovers for FSA that must be updated in these plan documents.
If offering these plans, make sure to conduct annual discrimination testing of eligibility to participate, benefits and contributions, and key-employee-concentration to ensure plans do not violate discrimination testing requirements.
As previously discussed, make sure to have procedures in place to provide required COBRA notices, manage COBRA payments and properly manage coverage for these participants. It is good to provide them with the same communication and rights as employee participants. Even if you outsource this administration, you still want good practices to ensure all participant rights are allowed and you are adding and taking someone on and off coverage in accordance with these laws. There are huge risks and penalties that can result for mishandling COBRA.
In conclusion, there are many laws you need to know, many communication and notices to distribute to participants, and the need for clear, effective benefit administrative practices to help you offer effective benefits for employees. It is essential to have a knowledgeable insurance broker to help you manage your benefit systems and navigate the many benefit laws.
By Ken Spencer, President & CEO, HR Service, Inc. & ERISA Solutions, www.HRServiceInc.com