Recently, the IRS announced a mid-year increase to mileage rates associated with business, medical, and moving expenses, and you can find the details in our first Compliance Corner feature. While you're there, check out the specifics associated with IRS health care coverage reporting requirements that become effective next year as well as the 2012 contribution limits for health savings accounts (HSAs).

HSAs continue to be a top benefits news item, and 2011 data shows that the number of Americans who have HSAs is on the rise - our lead article in News & Trends. We also feature financial woes experienced by employees caring for aging parents and how your benefits can be used to retain employees. Finally, we wrap up with another intriguing COBRA question associated with Medicare entitlement answered by our own COBRA expert, Ouida Peterson.

Along with many of our marketing communications, the CONEXIS Comment has a new look and feel. We welcome your questions, comments, and feedback regarding our updated newsletter, so feel free to drop us a line at comment@conexis.com.

Until next time, thanks for reading.

Jason Culp
Senior Director of Marketing and Sales Operations

Mid-year Mileage Rate Increase

On June 23, 2011, the IRS announced a 4.5-cent increase to optional standard mileage rates due to the rise in gasoline prices. The new six-month rate for computing deductible business, medical, and moving expenses is effective July 1, 2011 through December 31, 2011. Business mileage increased from 51 cents to 55.5 cents per mile; medical and moving mileage increased from 19 cents to 23.5 cents per mile.

The use of a personal automobile to obtain medical care may be a deductible medical expense if primarily for, and essential to, medical care. This mileage is an eligible health flexible spending account (FSA) expense, and employers may include mileage as an eligible expense under their health reimbursement arrangement (HRA).

For additional information, please see Internal Revenue Service Notice 2011-40 on the IRS website.

Reporting Requirements for Health Care Coverage

Health care coverage reporting requirements as a result of the Patient Protection and Affordable Care Act of 2010 (PPACA) will soon require employers' attention. This reporting requirement was established to provide useful consumer information about the cost of health care coverage to employees, and it does not cause otherwise excludable employer-provided health care coverage to become taxable. IRS Notice 2011-28 provides interim guidance regarding the requirement to report to employees, on their Form W-2, the cost of their employer-sponsored group health plan coverage.

For health FSAs funded solely through employee salary reduction (i.e., the amount the employee elects to contribute to their FSA), the amount of the FSA is not reported on the Form W-2 and is excluded from the reported cost of coverage. However, if the health FSA is funded by both employee salary reduction and employer contributions and is equal to or less than the employee's aggregate salary reduction amount, the amount is excluded from the reported cost of coverage (see example 1 below).

Example 1: An employer's cafeteria plan offers an employer contribution of $1,000. An employee makes a $2,000 salary reduction election, which is split between her health FSA ($1,500) and other qualified benefits (such as medical, dental, and vision coverage). The amount of the employee's salary reduction election ($2,000) for the plan year equals or exceeds the amount of the health FSA ($1,500) for the plan year. For W-2 reporting purposes, the amount of the health FSA is not included in the reported aggregate cost of coverage.

If the amount of an employee's health FSA is greater than the aggregate salary reduction amount (for all qualified benefits) due to employer contributions, then the amount of the health FSA that is in excess of the employee's salary reduction amount must be included in the aggregate cost of coverage reported on Form W-2 (see example 2 below).

Example 2: An employer's cafeteria plan offers a contribution in the form of an equal match of each employee's salary reduction contribution. The employee makes an annual health FSA salary reduction election of $700. The employer contributes an additional $700 to match the employee's election so the total amount of the health FSA for the plan year is $1,400. The amount of the employee's health FSA ($1,400) exceeds the employee's annual salary reduction election ($700) for the plan year, so the employer must include $700 in determining the aggregate reportable cost.

The reporting requirement mostly applies beginning with 2012 Forms W-2 (i.e., forms for calendar year 2012 provided to employees in January 2013). However, transition relief that delays the effective date relates to the following:

• Small employers filing fewer than 250 Forms W-2 for calendar year 2011
• Multiemployer plans
• Health reimbursement arrangements (HRAs)
• Dental and vision plans that are not integrated into another group health plan
• Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements
• Employers furnishing Forms W-2 to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year

The Notice also includes many other topics, including which types of coverage must be included in the reported amounts, how to calculate cost of this coverage, and the method for reporting cost of coverage. Employers should carefully review all information to ensure they comply with all applicable rules and requirements. To view the full text of this guidance, go to http://www.irs.gov/pub/irs-drop/n-11-28.pdf.

2012 HSA Contribution Limits

Health savings accounts (HSAs) are designed to help individuals save for future qualified health care and retiree medical expenses on a tax-free basis. Among other requirements, individuals who want to own and contribute to an HSA must have coverage under a high deductible health plan (HDHP), a plan that typically offers lower premiums in exchange for higher annual deductibles compared to traditional health plans. HSAs and HDHPs are subject to certain limitations and requirements regarding contributions, deductibles, and out-of-pocket expenses.

The IRS recently announced increases to contribution limits for HSAs. For 2012, HSA contribution limits were raised approximately 1.63 percent due to the inflation rate from last year. For individuals with a self-only HDHP, the 2012 HSA contribution limit increased by $50 to $3,100. The HSA contribution limit for individuals with a family HDHP increased $100 to $6,250.

For persons age 55 or older at any time during the 2012 tax year, the HSA catch-up contribution limit remains the same at $1,000. This provision allows soon-to-be retirees the ability to add an additional $1,000 to the amounts listed above.

The HDHP minimum required deductibles have not changed from the 2011 amounts of $1,200 for self-only coverage and $2,400 for family coverage. The 2012 maximum annual limit on out-of-pocket expenses (including items such as deductibles, co-pays, and co-insurance, but not premiums) is $6,050 for self-only coverage and $12,100 for family coverage.

Click here for more information at the IRS website.

HSA Participation Increases in 2011

An annual census of U.S. health insurance carriers conducted by America’s Health Insurance Plans (AHIP) shows an increase in the number of people who have health savings accounts (HSAs) and high deductible health plan (HDHP) coverage. Participation rates totaled 11.4 million in January 2011 – an increase of 5 million from the previous January.

The large group market was the fastest growing market and showed significant growth (increase of 50 percent), and the individual market participation rates rose as well. However, the small group market showed a slight reduction in enrollment from 2010.

States with the largest enrollment levels included California (1,073,319 covered lives), Texas (844,832), Ohio (728,868), Illinois (690,509), and Florida (656,243). Further details are available on the AHIP website.

Sandwich Generation Faces Reduced Finances

The rate of adult children taking care of their parents has tripled in the past 15 years. A quarter of adult children over age 50, commonly referred to as the “sandwich generation,” provide personal care and financial assistance to their aging parents. This affects about 10 million U.S. adults, and the care is taking a significant financial toll on caregivers’ lost wages, pension, and Social Security benefits – totaling nearly $3 trillion.

Because of caregiving responsibilities, women tend to leave the workforce or reduce hours worked more than men do. A woman’s individual lost wages, Social Security benefits, and pension equals about $324,000, compared to an average of $284,000 for a man.

Furthermore, caregivers experience more chronic health issues as a result of caring for others. Adult children who work and provide care are more likely to have fair or poor health compared to their workforce peers who don’t provide care to their parents.

The need to review workplace flexibility was addressed in the June 2011 report developed by the MetLife Mature Market Institute, the National Alliance for Caregiving, and the Center for Long Term Care Research and Policy at New York Medical College. Employers are encouraged to put policies in place that address the needs of working caregivers. Click here to review this report in its entirety.

Benefits Engagement Tied to Employee Retention

A survey conducted by Aflac shows that employees are not fully informed of their employee benefits. And many employers agree with the results. About 60 percent of employers state their employees need to be more engaged, and only half believe that their workforce takes full advantage of the benefits package offered. Whether this is because of lack of communication or lack of benefits offered, more than 50 percent of employees state they would change jobs for better benefits and without a pay increase.

About half of the 4,200 surveyed employees indicated they plan to change jobs in the next year; however, more than 40 percent stated they would stay in their current roles if they were better informed about their benefits. To help retain talented employees, employers are encouraged to seize the opportunity to better promote their employee benefits throughout the year instead of once a year during open enrollment. Click here to review more results of the survey.

Background

We have an employee, John, who is covering his spouse on our group health plan. Our employee has just turned age 65 and has Medicare. John is still working but wants to drop his health insurance and just have coverage under Medicare and a Medicare supplement plan.

Question

What type of qualifying event is this for John's spouse, and how long can his wife have COBRA? Is it 18 months or 36 months because of entitlement to Medicare?

Answer

Please don't send that COBRA notice just yet!

Let's talk about a few COBRA basics first and then answer the questions above. In my two-hour "COBRA Ugly" course, we discuss quandaries like this one. There have been so many changes to COBRA law and Medicare over the years – some logical changes but some things that simply make you scratch your head. This question falls into the second category.

COBRA Qualifying Events

A COBRA qualifying event is a specified event noted in the law that causes someone to lose insurance benefits. It's not the event but the fact that the individual (qualified beneficiary) is losing insurance that is the COBRA qualifying event.

Having an event happen doesn't necessarily mean it's a qualifying event. For example, reduction of work hours is a qualifying event that's listed in the COBRA law. Let's say my contract states that full-time employees (those who work a minimum of 30 hours) are eligible for group health plan coverage. If I worked 40 hours a week but my employer reduced my time to 35 hours per week, I experienced a reduction of work hours. However, this didn't cause me to lose my health insurance benefits, so I didn't experience a qualifying event. The loss of coverage must be a direct result of the qualifying event.

Medicare Entitlement

Now, let's get back to the question that's on the table. An active employee has become entitled to Medicare, and he has activated part of his Medicare coverage. Now John wants to drop his group health plan coverage and just go with Medicare and a Medicare supplemental plan. Dropping his group health insurance will cause John's wife to lose coverage, so is this a qualifying event?

Remember our rule – a COBRA qualifying event must cause someone to lose coverage. John is still an active employee, and he's still eligible for group health plan coverage. When John becomes entitled to Medicare, he is voluntarily dropping his group coverage. His Medicare entitlement will not cause John to lose coverage under his employer-sponsored group plan – he will voluntarily drop his health insurance. If someone drops coverage during open enrollment, it's not a COBRA qualifying event. John's case is the same.

John has a coverage problem and may want to consider staying enrolled in the group health plan. A dependent can't be covered under an active group health plan without the employee. Since John plans to voluntarily drop his group health insurance, he and his dependents will no longer have group coverage. And as mentioned above, this is not a COBRA qualifying event for John's wife.

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