NEWS

Health Care Reform changes starting January 1, 2011

 Industry Update - April 2010

HR Concepts strives to keep our clients and partners informed with the most up to date information as it relates to Health Care Reform. HRC has provided various updates to parts of the reform as it relates to Section 125, Flexible Spending Accounts (FSA), and Health Reimbursement Arrangements (HRA). This HRC Insider was written to address the various questions that HRC has been receiving regarding the final changes to these plans as of today.
As a part of the Patient Protection and Affordable Care Act signed into law on March 23, 2010 there are changes to the classification of OTC eligible expenses for reimbursement from flexible spending accounts, health reimbursement arrangements and health savings accounts that limit the list to a few items unless a doctor provides a prescription for OTC expenses. Additional changes include required health coverage for children under age 26, tax favored health coverage for children under 27, and the reduction of maximum FSA contributions starting January 1, 2013.  HRC is committed to providing accurate and relevant information as it pertains to these changes and the impact upon the administration of these services.

OTC reimbursement eligibility

Due to the new health care reform legislation, over-the-counter (OTC) drugs, medicines and biologicals will be eligible for reimbursement only if the request is accompanied by a doctor's prescription. As of January 1, 2011 a doctor's prescription submitted along with the reimbursement request will be required in order to be reimbursed for such expenses as pain relievers, allergy medicines, or diaper rash creams for example. One exception to this is the use of insulin will remain eligible as a tax-free reimbursement without a prescription. Please refer to the list below for additional information on how this will impact your flexible spending account plan.

Please be aware this change in eligible OTC will be effective January 1, 2011. The change to OTC will apply to all plans, regardless of when the plan was effective. Therefore, this will affect all plans and participants at the same time regardless of the plan year's begin date. Expenses incurred on and after January 1, 2011 will require a doctor's prescription, however OTC expenses incurred prior to January 1, 2011 will still be eligible.

This change will also impact how participants use their HRC Total Access Card. OTC purchases will no longer be eligible for payment using their Total Access Card as of January 1, 2011. HRC is still in the process of clarifying the specific list of items affected and we will provide participants a list of affected items closer to the effective date. The current list of affected items includes the following items:

Employer-Provided Health Coverage for Dependent Children
With the recent passage and enactment of Health Care Reform and the Affordable Care Act effective March 30, 2010, there are a series of changes related to the medical coverage of dependent children under the age of 27.  Per IRS Notice 2010-38, group health Plans and health insurance issuers are required to “provide dependent coverage of children to continue to make such coverage available for an adult child until age 26”. An additional amendment to this notice states that the IRS would “extend the general exclusion from gross income for reimbursements for medical care under an employer-provided accident or health plan to any employee’s child who has not attained age 27 as of the end of the taxable year”. Simply put, although the new law requires coverage for dependent children under 26 it allows for tax favored coverage for dependent children up to 27. Also, the IRS notice explains that flexible spending accounts can be modified to pay for uncovered expenses of employees' dependent children under age 27.   The tax free reimbursement of medical care for children under 27 takes effect March 30, 2010 while the Public Health Service Act which requires coverage of dependent children under the age of 26, will take effect on or after September 23, 2010 when the next plan year begins. For this particular change a child includes a son, daughter, stepchild, adopted child, or eligible foster child who is already covered or added to the employee's insurance plan before the end of the year.

FSA Annual Limits
Beginning January 1, 2013, FSA's will have an annual maximum election limit of $2,500 per year. This maximum limit will be increased annually based upon inflation to allow the FSA maximum election to be adjusted in accordance with the cost of living. FSA's will continue to be "use-it-or-lose-it" accounts. That is, any unused balance for one year can't be used to fund health care spending in the next year.
HRC will continue to update all enrollment and educational materials along with our web site to keep all of our brokers, partners, clients, and participants informed of any additional changes based upon the Health Care Reform legislation.

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American Recovery & Reinvestment Act

 Industry Update - February 13, 2009

What is the American Recovery & Reinvestment Act?
On February 17, 2009 President Barack Obama signed into law the Economic Stimulus bill called the American Recovery & Investment Act. The Act has several different considerations, but in this addition of the HRC Insider we will talk about how it affects COBRA and the administration of COBRA. This new law requires immediate action from all employers that are subject to the rules and regulations of COBRA and its requirements go into effect on March 1, 2009. 
 
Overview of the Act as it relates to COBRA
 All employees that were involuntarily terminated on or after September 1, 2008 are eligible to enroll through COBRA onto their previous company's health plans. A special notice and election period will begin March 1, 2009 for all the employees that either did not elect COBRA after their qualifying event, or did choose a health plan on COBRA, but now are eligible to make an election change between the health plans offered and have 65% of the premium covered by the government.  The following is an overview of the Act:

• Anyone who was or becomes involuntarily unemployed between September 1, 2008 and December 31, 2009 and was making less than $125,000 (single) or $250,000 (filing jointly) is eligible for this government subsidy.
• The legislation authorizes the government to subsidize 65% of the monthly COBRA premiums that a participant must pay in order to have the health, dental, or vision coverage on COBRA.
• The 65% subsidy will only be provided for 9 months and will commence upon the election of the participant onto COBRA, however, no subsidy will be paid towards premiums incurred before March 1, 2009.
• The subsidy will begin with the March 1, 2009 premiums and continue for 9 months commencing on the date the coverage begins on or after March 1, 2009.
• The subsidy will terminate if the participant becomes eligible for coverage under another group health plan or becomes eligible for Medicare coverage.
• The subsidy does not cover the premiums for HRA and FSA’s.
• The Act does not increase the initial 18 months of coverage allowed under COBRA.
• Eligible participants who did not enroll onto COBRA coverage when eligible will have an effective date of March 1, 2009 for coverage, but their 18 months of coverage will begin on the original qualifying date.
• Employers have to notify existing and or new eligible participants of their rights and this new subsidy as well as allow currently enrolled COBRA participants to change between the different plans the employer currently offers.
• The employer will fund the 65% subsidy and be reimbursed through a credit they apply for through their payroll taxes. (Employers will need to contact their accountant or advisor for clarity on the process and forms to use.)

How will HR Concepts administer this new regulation?
 HR Concepts will be contacting all our existing COBRA clients to gather the necessary information on each employee who we were notified that they terminated on or after September 1, 2008. As soon as the Secretary of Labor releases the new language for the notification letter and our systems are updated, HR Concepts will send out new COBRA notification letter sets to each terminated employee outlining their eligibility and rights to enroll. These new letters we will be sending are considered new COBRA notification letters and will enable eligible participants to enroll or change their election on COBRA.
 
As a COBRA client of HR Concepts you will not need to do anything different with us other than notify us each time you have a qualifying event, if the event was an involuntary termination.  The participants that qualify for this subsidy will be billed for their portion of the 35% of premiums. Each month we will send to you the premiums collected, along with a billing report, minus any 2% commissions we are entitled to.
(HR Concepts strives to keep you updated in the regulations and changes that affect all your qualified plans. However, HR Concepts can never provide legal or tax advice. This outline is for discussion purposes only and should not be construed as legal advice or guidance. Any questions regarding COBRA laws, an employer is directed to seek their own independent counsel.
 
Please do not hesitate to contact your client manager if you have further questions. Thank you for using HR Concepts as your administrator of choice!)

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Healthcare Reimbursement Arrangements (HRA) and COBRA

What is an HRA?
A Healthcare Reimbursement Arrangement (HRA) is a self insured health plan sponsored by an employer for the purpose of reimbursing an employee for certain out of pocket expenses associated with being enrolled in the group health plan. With the ever increasing premiums for healthcare coverage, employers are finding it necessary to offer a high deductible health plan to reduce their premium cost. Employers then offer to reimburse some or all of the deductible/co-pays associated with the high deductible health plan that a participant will incur. The HRA allows the employer to reimburse the employee for the covered expenses as outlined by the HRA legal document. Because an HRA is considered a self insured health plan, it is subject to the COBRA laws and regulations.
 
 
HRA and COBRA
Because the HRA is a company sponsored health plan, it is subject to COBRA. Under COBRA, employees have the right to elect to maintain their enrollment in the HRA. By electing to have their HRA while covered under COBRA, employees are able to submit their claims against the account for reimbursement. The real questions is not are employees allowed to have the account, but rather who is going to pay for the HRA expenses?
 
There are two schools of thought regarding who should be funding the HRA while it covers someone on COBRA. Most employers do not charge any premium assessment to the participant on COBRA because of the belief that no premium is being charged for regular employees who are enrolled on the HRA while employed. However, employers do have the right to charge a premium plus 2% to any COBRA participant who elects to have their HRA while on COBRA. To calculate the premium amount, several different methods have been developed; however, no specific guidance has been given by the government. The following methods appear to be the most popular:
 

If it is the first year of the HRA offering, an actuarially method must be used. Some guidance suggest taking the actual maximum claims that could be paid for each category of coverage (single, 2-person, family) and simply calculate this amount by 75%, add 2% for COBRA administration, and divide by 12 months to get a monthly premium per category.

Second year method might use an actuarially method or "past-cost" basis whereby a plan sponsor takes the past claims for the previous year per each category of coverage (single, 2-person, family) and adds the claims up, divide by the amount of covered participants per category, add 2% for COBRA administration, and divide by 12 to get the monthly premium per category.

 
All of the above rates would be calculated each year and rolled out to the COBRA participants. Regardless of which method is used, the entire balance of the annual election could be used from day one of the plan year by the COBRA participant.
 
HR Concepts strives to keep you updated in the regulations and changes that affect all your qualified plans. However, HR Concepts can never provide legal or tax advice. This outline is for discussion purposes only and should not be construed as legal advice or guidance. Any questions regarding COBRA laws and HRA's, an employer is directed to seek their own independent counsel.
 
Please do not hesitate to contact your client manager if you have further questions. Thank you for using HR Concepts as your administrator of choice!

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