Compliance Update: 2013 Year-end Summary

Distributed December 30, 2013

2013 Year-end Summary

As we reflect back on this busy year, we’ve seen numerous compliance-related changes to the benefits and services CONEXIS administers. While many health care reform changes were anticipated, the Supreme Court’s decision to overrule Section 3 of DOMA and the new health flexible spending account (FSA) carryover provision certainly surprised the benefits industry. Below is a summary of federal guidance issued this past year that’s related to CONEXIS plans and services.

Same-sex Spouses

On June 26, 2013, the Supreme Court held in Windsor v. United States that Section 3 of DOMA was unconstitutional, and under federal law, the definition of "spouse" now includes a spouse of the same sex. This ruling has significant impact to employee benefits. Our initial Compliance Flash explains the ruling’s impact to employee benefits, and subsequent communications explain federal tax treatment of same-sex spouses and provide answers to frequently asked questions posed by many of our clients.

Recently, the IRS released Notice 2014-1, which provides guidance for the application of rules related to mid-year elections for cafeteria plans, including FSAs; maximum limits associated with dependent care FSAs and health savings accounts (HSAs); and immediate action required by employers and plan participants. For further information, please see our Compliance Update distributed on December 26, 2013.

Sources: United States v. Windsor, Hollingsworth v. Perry, Revenue Ruling 2013-17, IR-2013-72, and Notice 2014-1

Health FSA Carryover

Employers are permitted (but not required) to amend their health FSA plans to allow their participants to carry over up to $500 of unused funds into the following plan year. However, health FSA plans may not include both a grace period and the $500 carryover — employers must make that choice and decide whether to include either of these plan features.

The $500 carryover of unused funds does not count toward the maximum amount of salary reduction contributions that the employee may elect. In addition, the guidance did not change the maximum amount of employee salary reduction contributions, which continues to be $2,500 per plan year (this amount may be indexed for inflation in the future). Plus, the modification to the use-it-or-lose-it rule does not impact dependent care FSAs. For details to consider before amending plan documents, please see our Compliance Update.

Source: Notice 2013-71

HRA Plan Design

Beginning January 1, 2014, the plan designs of some HRAs are affected by the Affordable Care Act (ACA). HRAs, particularly stand-alone HRAs and premium reimbursement arrangements (PRAs). Clients offering HRAs and PRAs in their employee benefits should carefully review their plan design and confirm the HRA or PRA is compliant with health care reform regulations.

Sources: Notice 2013-54 and DOL FAQs

Excessive Waiting Periods Eliminated for 2014

PHSA Section 2708, which was added by the ACA, prohibits group health plans and insurers from applying a waiting period exceeding 90 days. The regulations apply to plan years beginning on or after January 1, 2014 for any individuals who are otherwise eligible to enroll in a plan based on the applicable terms and conditions. However, there are certain instances in which this prohibition does not apply:

Excepted benefits such as a limited-scope dental plan that is otherwise exempt from the PHSA requirements.
Plans that require specified hours of work per week as a condition of eligibility, and if an employee’s hours vary, it cannot be reasonably determined the employee will regularly meet the plan’s terms and conditions.

In addition, some states may have a shorter time frame requirement for plans subject to those state insurance laws. For example, California Assembly Bill 1083 prohibits insurers and HMOs from applying waiting periods that exceed 60 days for fully-insured contracts issued for plan years beginning on or after January 1, 2014.

Prior to the beginning of the 2014 plan year, employers sponsoring group health plans should check with their insurance carriers for details to ensure compliance. Employers may also need to update enrollment materials, plan documents, and other employee communications to reflect any changes.

Source: Technical Release No. 2012-02

New HIPAA Regulations in Force

Now that the deadline for compliance with the new Health Insurance Portability and Accountability Act (HIPAA) has passed, it is up to employers to uphold its regulations. However, since the standard for breaches of protected health information (PHI) is lower and enforcement of privacy rights and protection greater, this may take some dedicated effort.

Under the final rule, which became effective on September 23, 2013, an impermissible use or disclosure of PHI is "presumed to be a breach unless the covered entity demonstrates that there is a low probability that the protected health information has been compromised." This means covered entities (including business associates) should act as though a breach has occurred until they have investigated sufficiently to prove otherwise. The assessment must be documented and producible in court.

Source: Federal Register

Transition Relief for Information Reporting and Minimum Essential Coverage

In July 2013, the IRS announced transition relief for various reporting requirements and employer-shared responsibility for minimum essential coverage — provisions originally mandated by the ACA for 2014. The transition relief gives employers and other reporting entities additional time to modify systems and to provide input for simplifying information reporting required by the ACA.

It also postpones the coverage requirements so employers, insurers, and other providers have time to modify their health plans and reporting systems. However, this delay does not affect employees’ access to premium tax credit and ability to enroll in qualified health plans through the various Marketplaces.

Both reporting requirements and essential coverage provisions will be fully effective in 2015, and the postponement of the requirements noted above have no effect on other ACA provisions.

Source: Notice 2013-45

Health Coverage from Marketplaces and Employer Notification Responsibility

Annual enrollment for Marketplaces began on October 1, 2013, and the enrollment date was extended due to issues on the Healthcare.gov website. The ACA mandate for employers to notify employees of health coverage options available from Marketplaces was extended and became effective on October 1, 2013. Now employers must notify new hires of coverage options, a message that must be delivered within 14 days of the employees’ start dates. Links to sample notices and additional information is available in our Compliance Update.

Sources: Technical Release No. 2013-02 and HHS Shared Responsibility Provision FAQs

Health Care Reform and Early Renewals

As many provisions of health care reform become effective as of the first plan year beginning on or after January 1, 2014, many insurance carriers in recent weeks are offering certain employers "early renewal" options. By renewing early — for example, December 1, 2013 — an employer would change its plan year and would thereby delay the impact of many of the ACA provisions until December 1, 2014.

For these employers who are also subject to COBRA, there are potentially other factors to consider before making the decision to renew their health plan(s) early.

COBRA premiums are based on the "applicable premium," which is generally the total cost to the plan for providing coverage. For fully-insured plans, this applicable premium is usually the amount of the premium paid to the insurer. For self-funded plans, the applicable premium is usually calculated based on actuarial estimates.

In either case, COBRA regulations require all plans to determine this applicable premium in advance of a period of 12 months, known as the determination period, and plans are generally prohibited from increasing the applicable premium during this 12-month determination period. However, there are generally three exceptions to this prohibition in which an increase to the COBRA premium is allowed within a determination period:

During a period of disability (in which the COBRA premium can be increased from 102 percent to 150 percent of the applicable premium);
If the plan is requiring payment of less than the maximum amount permitted under COBRA (i.e., less than 102 percent or, if during a disability extension, 150 percent of the applicable premium), then an increase is allowable up to 102 (or 150) percent; and
If a qualified beneficiary changes coverage from one benefit package or coverage level to another (e.g., changing from an indemnity plan to a PPO; increasing coverage from individual to family) and those changes had a higher applicable premium calculated before the determination period, then the plan may increase the qualified beneficiary’s COBRA premium to 102 (or 150) percent of the premium for the new benefit package or coverage level.

Outside of these three instances, COBRA prohibits a plan from increasing the applicable premium during the determination period.

COBRA regulations do not expressly prohibit or permit changes to a plan’s determination period, such as changing the period to accommodate an off-cycle rate increase. The regulations state only that the determination period must be a 12-month period that is applied consistently from year to year.

Please note: Because of this lack of guidance, CONEXIS strongly encourages employers to consult with appropriate legal counsel for benefits and welfare plans before making any decisions concerning a change to your plan. If you decide you wish to proceed with changing your plan’s determination period, please advise us accordingly in writing, and we will be happy to accommodate your request.

2014 Plan Limits

The chart below outlines the various plan limits applicable in 2014. While the annual limits for the health FSA maximum salary reduction and dependent care FSA remain the same, monthly maximum limits for commuter benefits change due to the expiration of the American Taxpayer Relief Act (ATRA) and indexing for inflation. In addition, other changes include medical mileage rates decreasing slightly in 2014, the increase of the compensation limit for key employees under Section 416(i), and increased limits related to HSAs and qualifying high deductible health plans (HDHPs).

2014 IRS Plan Limits
Plan Year	2014	2013	2012
Health FSA Maximum Annual Salary Reduction	¹$2,500	¹$2,500	No Limit
Dependent Care Assistance Program (Unless Married Filing Separately)	²$5,000	²$5,000	²$5,000
Dependent Care Assistance Program (If Married Filing Separately)	²$2,500	²$2,500	²$2,500
Medical Mileage Rate (Per Mile)	³$0.235	³$0.24	³$0.23
Transit Passes and Vanpooling (Combined) Monthly Maximum	⁴$130	⁴$245	⁴$240
Parking Monthly Maximum	$250	$245	$240
Highly Compensated Employee — Section 414(q)	$115,000	$115,000	$115,000
Key Employee — Section 416(i)	$170,000	$165,000	$165,000
HSA Maximum Annual Contribution Limit (Self-only)	⁵$3,300	⁵$3,250	⁵$3,100
HSA Maximum Annual Contribution Limit (Family)	⁵$6,550	⁵$6,450	⁵$6,250
HSA Catch-up Contribution Limit	$1,000	$1,000	$1,000
HDHP Minimum Annual Deductible (Self-only)	$1,250	$1,250	$1,200
HDHP Minimum Annual Deductible (Family)	$2,500	$2,500	$2,400
HDHP Maximum Out-of-pocket (Self-only)	$6,350	$6,250	$6,050
HDHP Maximum Out-of-pocket (Family)	$12,700	$12,500	$12,100

¹ As a result of the Affordable Care Act (ACA), health flexible spending account (FSA) salary reductions are limited to $2,500 effective for taxable years beginning on or after January 1, 2013 (the maximum limit may be indexed for inflation each year).

² Under Code Sections 129 and 21, the deemed income of a spouse who is incapable of self-care or a full-time student is $250 per month for one qualifying individual or $500 per month for two or more qualifying individuals.

³ The use of a personal automobile to obtain medical care may be a deductible medical expense if primarily for, and essential to, medical care. The medical mileage is an eligible expense under health flexible spending accounts (FSAs) and health savings accounts (HSAs), and employers may include mileage as an eligible expense under their health reimbursement arrangements (HRAs).

⁴ The American Taxpayer Relief Act (ATRA) made a retroactive change to the monthly pre-tax limit for eligible transit expenses incurred in 2012, and on January 1, 2013, the 2012 limit increased from $125 to $240 per month. That amount was indexed for inflation in 2013. As of January 1, 2014, the amount adjustment is due to the expiration of the temporary increase under the ATRA.

⁵ An employee is treated as being eligible for the entire calendar year as long as he or she is eligible during the last month of the calendar year. However, failure to maintain eligibility during the "testing period" will result in adverse tax consequences (including an additional excise tax). The testing period begins in December of the year in which the employee becomes eligible and ends the last day of December of the following year.

Sources: Revenue Procedure 2013-35 and Notice 2012-01

877.CONEXIS | WWW.CONEXIS.COM

CONEXIS does not offer legal, accounting, or other professional advice. If you need additional guidance, please contact your attorney or tax advisor.

CONEXIS uses reasonable efforts to ensure that the information provided in this email is accurate as of the date of distribution. However, information of this nature can change at any time. You should confirm the accuracy of any such information prior to taking any action.

View our Email Privacy Policy