The lists below outline what is required to be reported on the Forms W-2, and what does not need to be included.

What needs to be included:

• Major Medical
• Medicare Supplemental
• Medicare Advantage
• Mini med plan
• On-site medical clinics
• Employer contributions to health FSA
• Employer contributions to hospital or fixed indemnity plan, or specified disease or illness insurance
• Wellness benefits
• Employee Assistance Plan
• Executive medical coverage

What does NOT need to be included:

• Non- integrated dental or vision
• Long-term care
• HSA
• HRA
• Health FSA coverage funded solely through employee salary reduction elections
• Accident, disability, and AD&D
• Coverage under a self-insured group health plan that is not subject to COBRA (such as a church plan)
• Employer contributions to multiemployer plans
• Commercial insurance including Workers’ Compensation, liability, credit-only, and automobile medical insurance
• Coverage provided by the government for members of the military and their families
• Excess reimbursements of highly compensated individuals
• Health insurance costs for self-employed individuals

The Supreme Court will hear challenges to Health Care Reform Law in March 2012, with a ruling expected in June 2012. Specifically, the justices will make rulings on: 

• Constitutionality of the individual mandate—The court will determine if the provision that requires all individuals to obtain qualified health insurance coverage or pay a tax penalty in 2014 is constitutional.
• Severability—If the individual mandate is found unconstitutional, the court will determine if all or some of the remaining provisions under the Affordable Care Act will be preserved.

In addition to the Supreme Court arguments, there are several other proposed changes you should be aware of:

Summary of Benefits & Coverage, and the Uniform Glossary

Insurers and plans will be required to provide uniform coverage documents, called Summary of Benefits and Coverage (SBC) and a uniform glossary of terms commonly used in the health insurance industry. The SBC is intended to help consumers understand and evaluate their health insurance, and should be a concise document detailing, in plain language, simple and consistent information about health plan benefits and coverage. It should summarize key features of the plan, such as covered benefits, cost-sharing provisions, and coverage limitations and exceptions.

• The proposed deadline for providing the SBC was March 23, 2012, but this deadline has been extended. Plans and issuers now have until after final regulations are issued to begin providing the SBC. It is unknown as to when the final regulations will be issued, but plans and issuers should have sufficient time after they are issued to prepare the SBC.

60 – Day Notice of Plan Changes

Group health plans and issuers are required to provide a 60-day advance notice of a material modification to the plan as reflected in the Summary of Benefits and Coverage. A material modification consists of any change in wording of the SBC. It may be sent as a separate notice, or by providing an updated SBC reflecting the modification. It does not apply to renewals. This will become effective with the timing of the SBC.

Comparative Effectiveness Research Fee

A new research fee will be imposed on self-funded plans in order to fund a nonprofit corporation, which will undertake clinical effectiveness research relating to patient-centered outcomes. It will include research to evaluate risks and benefits of medical treatments, services, procedures, and drugs that treat, manage, diagnose or prevent illness or injury. The fee will start at $1 per covered individual for plan years ending on or after October 1, 2012. It will increase to $2 for plans ending after September 30, 2013.

Medical Loss Ratio

The Health Plan Reporting Requirement will require insurers to report plan costs for the purpose of calculating the insurers’ medical loss ratio. Large group insurers must spend at least 85 percent of premium dollars on claims and activities to improve health care quality. Individual and small group insurers must spend at least 80 percent of premium dollars on claims and activities to improve health care quality. Beginning in August 2012, health plans must provide rebates to enrollees if their medical loss ratio—the percentage of premiums spent on reimbursement for clinical services and activities that improve health care quality– does not meet the minimum standards for a given plan year.

Preventive Care Services

Health insurance plans must now cover women’s preventive services without charging a copayment, coinsurance or a deductible effective for plans beginning or renewing August 1, 2012. The services will continue to include well-women visits, and will add FDA approved contraceptives, as well as breastfeeding support, supplies, and counseling.

W-2 Reporting

Beginning with the 2012 tax year, employers that are required to issue 250 or more W-2 forms must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 forms. Not all benefits need to be included in the reporting, and a checklist of those to be included will be provided in a separate document.

• The cost must be reported beginning with the 2012 W-2 Forms, which are issued in January 2013.
• The requirement is optional for smaller employers for the 2012 tax year until further guidance is issued.
• The reporting is for informational purposes only and does not affect the taxability of benefits.

If you need additional information about any of the Health Care Reform topics, please contact Stahl & Associates Insurance.

• Workers’ Compensation Worst Case Scenarios & How to Avoid Them
• Cyber Liability Threats
• Employee Benefits Compliance
• Measuring Wellness Success
• Social Media’s Impact on Insurance

Stahl & Associates December Newsletter

The Medicare Part D prescription drug benefit affects Medicare eligible participants and legislation requires employers to take the following action each year:

• Determine whether the prescription drug coverage for each of your medical plans (if more than one) is “Creditable Coverage”, meaning that it is equivalent to or better than the benefits offered to Medicare eligibles under Medicare.
• Inform all Medicare-eligible participants via a notice each year (this includes dependents, as well as employees), that the prescription coverage through the group medical plan is/is not creditable. We recommend that each participating employee is given a notice as this will prevent any oversight in perhaps overlooking a Medicare-eligible dependent. This notice MUST be provided by October 15th of this year. The notices are available on the Centers for Medicare & Medicaid Services “CMS” website: https://www.cms.gov/CreditableCoverage/Model%20Notice%20Letters.asp#TopOfPage (Please note that “Name of Entity” is Employer Name).
• Provide a disclosure statement to CMS regarding the status of whether the group medical plan includes creditable or non-creditable prescription drug coverage. This can be done online via the Disclosure to CMS Form at https://www.cms.gov/CreditableCoverage/45_CCDisclosureForm.asp. The disclosure should be completed no later than 60 days from the beginning of the plan year, within 30 days after termination of the prescription drug plan, or within 30 days after any change in creditable coverage status.

A Medicare-eligible participant (employee or dependent) that is enrolled in a group health plan will only be able to access the new Medicare Part D benefit at the lowest cost if they sign up for the benefit between October 15th and December 7th of the year. If the participant fails to sign up for the benefit by the deadline, or goes 63 days or longer without creditable coverage, they will have to pay higher premiums permanently when they subsequently enroll in Medicare Part D.

Most employers will find that their prescription drug benefit provides “creditable coverage,” meaning that the prescription drug benefit they offer to their Medicare eligibles is as comprehensive as Medicare Part D. Please refer to your current medical carrier for specific clarification of your group’s creditable status. Please note: HSA-compatible High Deductible Health Plans are NOT creditable.

If you have any questions, please contact the Employee Benefits Department here at Stahl & Associates.

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On March 31, several Federal agencies released for public comment various documents regarding Accountable Care Organizations (ACOs). The central document includes the Proposed Rule released by the Centers fo Medicare & Medicaid Services (CMS) on ACOs under the Medicare Shared Savings Program.

The proposed Rule includes several elements impacting the beneficiary experience, including:

• Required ACO-participating providers to notify beneficiaries that they are receiving care in an ACO and that the provider is eligible to receive additional payment or be liable for potential losses, depending on whether the provider delivers high quality, cost-effective care
• Requires each ACO-participating provider to notify the beneficiary with the opportunity to opt-out of those data sharing arrangements.
• Prohibits providers from requiring that a beneficiary obtain services from another provider or supplier in the same ACO.

Participation Requirements

The Proposed Rule elaborates on the statutory requirements provided in the Affordable Care Act concerning participation in the Share Savings Program (SSP), and notes the following:

• ACOs must complete an application in order to participate in the SSP, and must document how the ACO plans to deliver high quality care at lower costs for the beneficiaries it serves. CMS will not automatically accept ACOs into the SSP.
• Each ACO will be responsible for routine self-assessment, monitoring and reporting of the care it delivers.
• The ACO must agree to accept responsibility for at least 5,000 beneficiaries, and agree to participate in the SSP for three years.

Payment

The Proposed Rule establishes quality performance measures and a methodology for linking quality and financial performance that will serve as the foundation for the ACO payment. The Proposed Rule also requires ACOs to publicly report certain aspects of their performance and operations as a condition for participation in the SSP.

Early Retiree Reinsurance Program Application Process to End

Also on March 31, CMS issued a noticed entitled “Early Retiree Reinsurance Program”. This notice announces that the ERRP will no longer accept new applicants after April 30, 2011. The ERRP was provided for by section 1102 of the Affordable Care Act, and was planned to provide early retiree health coverage for enrolling employers through 2014.

With 1,300 employers already enrolled in its first year, the ERRP will exhaust its $5 billion in funding earlier than expected. In order to fund the retiree coverage of current enrollees through 2014 it became necessary to close the application period earlier than expected.

W-2 Guidance

On March 29, 2011, the Internal Revenue Service (IRS) issued interim guidance (Notice 2011-28) on how employers will be required to inform employees of the cost of their “applicable” employer-sponsored group health plan coverage. This informational reporting is required as part of the Affordable Care Act to provide comparable information to employees to inform them of the cost of their health care coverage. This is an informational reporting obligation and does not cause excludable employer provided health care coverage to become taxable. HIPAA “excepted benefits” plans are not subject to the W-2 reporting requirements (E.g., accident, disability income, supplemental liability, workers’ compensation insurance). In addition, amounts contributed to an Archer MSA, FSA, HSA and HRA are not reportable.

Effective Date

The guidance makes clear that the reporting requirements generally apply beginning with the 2012 W-2 forms (required for the calendar year 2012 to be furnished to employees in January 2013). Employers are not required to report the cost of health coverage on any forms required to be furnished to employees prior to January 2013. Employers must provide the written statement before January 31 of the succeeding year. Employees who terminate employment mid-year must receive the report within 30 days after the employee requests a copy. Notice 2010-69, issued last fall, made the reporting requirement optional for all employers for the 2011 Forms W-2 (generally furnished to employees in January 2012). Employers may rely on the guidance provided in this Notice if they voluntarily choose to report the cost of coverage on 2011 Forms W-2.

Using a question-and-answer format, the Notice includes information on how to complete the reporting, what employers are impacted and the coverage that needs to be included, and how to determine the cost of the coverage.

Transition Relief

The Notice also provides additional transition relief for certain employers. This includes smaller employers that are required to file fewer than two hundred and fifty 2011 W-2 forms. These small employers will not be required to report the cost of health coverages on any forms required to be furnished to employees prior to January 2014. This transition relief will continue until the issuance of further guidance. To the extent that future guidance impacts additional employers, or categories of employers, or additional types of coverage, this supplemental guidance will apply prospectively only and will not apply to any calendar year beginning within six months of the date the guidance is issued.

Technical Notice Extends Claims and Appeals Grace Periods

The Departments of Labor (DOL), Health and Human Services (HHS), and Treasury (the Agencies) issued Technical Release 2011-01 (TR 2011-01) on March 18, 2011. TR 2011-01 extends the grace period established last year by the DOL as part of its technical release 2010-02.

Tr 2010-02 was issued by the DOL on September 20, 2010, and establishes an enforcement grace period for compliance with certain new internal claims and appeals provisions. TR 2011-01 now extends the enforcement grace period for most of the same provisions until January 1, 2012. There is also no requirements that plans work in good faith to implement such requirements because more federal guidance is anticipated shortly.

Extension Details

TR 2011-01 extends the enforcement grace period set forth in TR 2010-02 until plan years beginning on or after January 1, 2012 for most bu not all provisions. This extension is being provided to give the Agencies time to publish more detailed regulations in order for plans to implement the internal claims and appeals provisions. The provisions subject to the extension include:

• Notices must be provided in a culturally and linguistically appropriate manner.
• Time frames for making urgent care claims decisions (as soon as possible, taking into account the medical exigencies, but not later than 24 hours after the receipt of the claim).
• Strict compliance requirements or plan participants will be able to initiate certain expedited appeal rights (e.g., to an independent external review agent).
• Automatic disclosure of diagnosis and treatment information.

The enforcement grace period will be extended with respect to the other disclosure requirements until the first day of the first plan year beginning on or after July 1, 2011 (which is January 1, 2012 for calendar year plans). Therefore, enforcement with respect to the following provisions will take effect on a rolling plan year basis, starting on the first day of the first plan year beginning on or after July 1, 2011:

• The disclosure of information sufficient to identify a claim (other than the diagnosis and treatment information as noted above).
• The description of available internal appeals and external review processes.
• The disclosure of the availability of, and contact information for, an office of health consumer assistance program or ombudsman for plans and issuers in States in which one is established.

Next Steps and the Good Faith Effort Requirement

The Agencies intend to issue an amendment to the interim final regulation issued on July 23, 2010 (IFR) in the near future that takes into account comments and other feedback received from the public in response to the requirements set forth in the IFR. Although TR 2010-02 required plans to work in good faith to implement such standards during the enforcement grace period, this requirement was lifted in TR 2011-01. Therefore no such requirement will apply during either the extended or the original enforcement grace period.

Constitutional Challenge Update

To date five U.S. District Courts have ruled on the constitutionality of the individual mandate provision contained within the Affordable Care Act. Two courts ruled the mandate unconstitutional with one finding the entire law must be struck down. The latest court ruling by Judge Roger Vinson in Florida agreed to stay his January 31 ruling that the Affordable Care Act is unconstitutional, while the appeal by the Department of Justice is pending.

The insurance carriers will incorporate many of the required changes into their updated plan documents; however, employers will be required to provide special enrollment opportunities as well as distribute several notices prior to renewal.

At Stahl & Associates Insurance, our entire Employee Benefits Department is thoroughly committed to helping our clients plan ahead. We have compiled this compliance checklist to help our clients review the changes and requirements in advance of the 2010-2011 plan years and open enrollment season.

Click here to download the entire compliance checklist.

Additional Downloads:

• Department of Labor MODEL NOTICE 1
• Department of Labor MODEL NOTICE 2
• Department of Labor MODEL NOTICE 3
• Department of Labor MODEL NOTICE 4

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010.  The following questions and answers provide information on the credit as it applies for 2010-2013, including information on transition relief for 2010. An enhanced version of the credit will be effective beginning in 2014. The new law, the Patient Protection and Affordable Care Act, was passed by Congress and was signed by President Obama on March 23, 2010. Employers Eligible for the Credit

1. Which employers are eligible for the small employer health care tax credit?

A. Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a Federal income tax credit for health insurance premiums they pay for certain employees.  In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement” described in Q/A-3.  See Q/A-9 through 15 for further information on calculating FTEs and average annual wages and see Q/A-22 for information on anticipated transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement.

2. Can a tax-exempt organization be a qualified employer?

A. Yes. The same definition of qualified employer applies to an organization described in Code section 501(c) that is exempt from tax under Code section 501(a).  However, special rules apply in calculating the credit for a tax-exempt qualified employer.  See Q/A-6.

Calculation of the Credit

3. What expenses are counted in calculating the credit?

A. Only premiums paid by the employer under an arrangement meeting certain requirements (a “qualifying arrangement”) are counted in calculating the credit.  Under a qualifying arrangement, the employer pays premiums for each employee enrolled in health care coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage.  See Q/A-22 forinformation on transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement.

If an employer pays only a portion of the premiums for the coverage provided to employees under the arrangement (with employees paying the rest), the amount of premiums counted in calculating the credit is only the portion paid by the employer.  For example, if an employer pays 80 percent of the premiums for employees’ coverage (with employees paying the other 20 percent), the 80 percent premium amount paid by the employer counts in calculating the credit.  For purposes of the credit (including the 50-percent requirement), any premium paid pursuant to a salary reduction arrangement under a section 125 cafeteria plan is not treated aspaid by the employer.

In addition, the amount of an employer’s premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State (or an area within the State) in which the employer offers coverage were substituted for the actual premium.  If the employer pays only a portion of the premium for the coverage provided to employees (for example, under the terms of the plan the employer pays 80 percent of the premiums and the employees pay the other 20 percent), the premium amount that counts for purposes of the credit is the same portion (80 percent in the example) of the premiums that would have been paid for the coverage if the average premium for the small group market in the State were substituted for the actual premium.

*Source: http://www.irs.gov/businesses/index.html

4. What is the average premium for the small group market in a State (or an area within the State)?

A. The average premium for the small group market in a State (or an area within the State) will be determined by the Department of Health and Human Services (HHS) and published by the IRS. Publication of the average premium for the small group market on a State-by-State basis is expected to be posted on the IRS website by the end of April.

5. What is the maximum credit for a qualified employer (other than a tax-exempt employer)?

A. For tax years beginning in 2010 through 2013, the maximum credit is 35 percent of the employer’spremium expenses that count towards the credit, as described in Q/A-3. Example. For the 2010 tax year, a qualified employer has 9 FTEs with average annual wages of $23,000 per FTE. The employer pays $72,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer’s State) and otherwise meets the requirements for the credit.  The credit for 2010 equals $25,200 (35% x $72,000).

6. What is the maximum credit for a tax-exempt qualified employer?

A. For tax years beginning in 2010 through 2013, the maximum credit for a tax-exempt qualified employer is 25 percent of the employer’s premium expenses that count towards the credit, as described in Q/A-3. However, the amount of the credit cannot exceed the total amount of income and Medicare (i.e., Hospital Insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages.

Example. For the 2010 tax year, a qualified tax-exempt employer has 10 FTEs with average annual wages of $21,000 per FTE.  The employer pays $80,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer’s State) and otherwise meets the requirements for the credit.  The total amount of the employer’s income tax and Medicare tax withholding plus the employer’s share of the Medicare tax equals $30,000 in 2010.

The credit is calculated as follows:
(1) Initial amount of credit determined before any reduction: (25% x $80,000) = $20,000
(2) Employer’s withholding and Medicare taxes: $30,000
(3) Total 2010 tax credit is $20,000 (the lesser of $20,000 and $30,000).

7. How is the credit reduced if the number of FTEs exceeds 10 or average annual wages      exceed $25,000?

A. If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the amount of the credit is reduced as follows (but not below zero).  If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which isthe number of FTEs in excess of 10 and the denominator of which is 15.  If average annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the amount by which average annual wages exceed $25,000 and the denominator of which is $25,000.  In both cases, the result of the calculation is subtracted from the otherwise applicable credit to determine the credit to which the employer is entitled.  For an employer with both more than 10 FTEs and average annual wages exceeding $25,000, the reduction is the sum of the amount of the two reductions.  This sum may reduce the credit to zero for some employers with fewer than 25 FTEs and average annual wages of less than $50,000.

Example. For the 2010 tax year, a qualified employer has 12 FTEs and average annual wages of $30,000.  The employer pays $96,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer’s State) and otherwise meets the requirements for the credit.

The credit is calculated as follows:
(1) Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600
(2) Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480
(3) Credit reduction for average annual wages in excess of $25,000:($33,600 x $5,000/$25,000) = $6,720
(4) Total credit reduction: ($4,480 + $6,720) = $11,200
(5) Total 2010 tax credit: ($33,600 – $11,200) = $22,400.
*Source: http://www.irs.gov/businesses/index.html

8. Can premiums paid by the employer in 2010, but before the new health reform legislation was enacted, be counted in calculating the credit?

A. Yes. In computing the credit for a tax year beginning in 2010, employers may count all premiumsdescribed in Q/A-3 for that tax year.

Determining FTEs and Average Annual Wages

9. How is the number of FTEs determined for purposes of the credit?

A. The number of an employer’s FTEs is determined by dividing (1) the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by
(2) 2,080.  The result, if not a whole number, is then rounded to the next lowest whole number.  See Q/A¬12 through 14 for information on which employees are not counted for purposes of determining FTEs. Example. For the 2010 tax year, an employer pays 5 employees wages for 2,080 hours each, 3 employees wages for 1,040 hours each, and 1 employee wages for 2,300 hours.
The employer’s FTEs would be calculated as follows:
(1) Total hours not exceeding 2,080 per employee is the sum of:

.     10,400 hours for the 5 employees paid for 2,080 hours each (5 x 2,080)

.     3,120 hours for the 3 employees paid for 1,040 hours each (3 x 1,040)

.     2,080 hours for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080)
These add up to 15,600 hours

(2) FTEs: 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number)

10. How is the amount of average annual wages determined?

A. The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer to employees during the employer’s tax year by (2) the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000).  For this purpose, wages means wages as defined for FICA purposes (without regard to the wage base limitation). See Q/A-12 through 14 for information on which employees are not counted as employees for purposes of determining the amount of average annual wages.

Example. For the 2010 tax year, an employer pays $224,000 in wages and has 10 FTEs. The employer’s average annual wages would be: $22,000 ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000)

11. Can an employer with 25 or more employees qualify for the credit if some of its employees are part-time?

A. Yes. Because the limitation on the number of employees is based on FTEs, an employer with 25 or more employees could qualify for the credit if some of its employees work part-time.  For example, an employer with 46 half-time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and therefore may qualify for the credit.

12. Are seasonal workers counted in determining the number of FTEs and the amount of average annual wages?

A. Generally, no. Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer on more than 120 days during the tax year.

13. If an owner of a business also provides services to it, does the owner count as an employee?

A. Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit.  Thus, the wages or hours of these business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.

*Source: http://www.irs.gov/businesses/index.html

14. Do family members of a business owner who work for the business count as employees?

A. Generally, no. A family member of any of the business owners or partners listed in Q/A-13, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes ofthe credit.  Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.  For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.

15. How is eligibility for the credit determined if the employer is a member of a controlled group or an affiliated service group?

A. Members of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are treated as a single employer for purposes of the credit. Thus, for example, all employees of the controlled group or affiliated service group, and all wages paid to employees by the controlled group or affiliated service group, are counted in determining whether any member of the controlled group or affiliated service group is a qualified employer. Rules for determining whether an employer is a member of a controlled group or an affiliated service group are provided under Code section 414(b), (c), (m), and (o).

How to Claim the Credit

16. How does an employer claim the credit?

A. The credit is claimed on the employer’s annual income tax return.  For a tax-exempt employer, the IRS will provide further information on how to claim the credit.

17. Can an employer (other than a tax-exempt employer) claim the credit if it has no taxable income for the year?

A. Generally, no. Except in the case of a tax-exempt employer, the credit for a year offsets only an employer’s actual income tax liability (or alternative minimum tax liability) for the year.  However, as a general business credit, an unused credit amount can generally be carried back one year and carried forward 20 years.  Because an unused credit amount cannot be carried back to a year before the effective date of the credit, though, an unused credit amount for 2010 can only be carried forward.

18. Can a tax-exempt employer claim the credit if it has no taxable income for the year?

A. Yes. For a tax-exempt employer, the credit is a refundable credit, so that even if the employer has notaxable income, the employer may receive a refund (so long as it does not exceed the income tax withholding and Medicare tax liability, as discussed in Q/A-6).

19. Can the credit be reflected in determining estimated tax payments for a year?

A. Yes.  The credit can be reflected in determining estimated tax payments for the year to which the credit applies in accordance with regular estimated tax rules.

20. Does taking the credit affect an employer’s deduction for health insurance premiums?

A. Yes. In determining the employer’s deduction for health insurance premiums, the amount of premiumsthat can be deducted is reduced by the amount of the credit.

21. May an employer reduce employment tax payments (i.e., withheld income tax, social securitytax, and Medicare tax) during the year in anticipation of the credit?

A. No. The credit applies against income tax, not employment taxes. Anticipated Transition Relief for Tax Years Beginning in 2010

*Source: http://www.irs.gov/businesses/index.html

22. Is it expected that any transition relief will be provided for tax years beginning in 2010 to make it easier for taxpayers to meet the requirements for a qualifying arrangement?

A. Yes. The IRS and Treasury intend to issue guidance that will provide that, for tax years beginning in 2010, the following transition relief applies with respect to the requirements for a qualifying arrangement described in Q/A-3:
(a) An employer that pays at least 50% of the premium for each employee enrolled in coverage offered to em-ployees by the employer will not fail to maintain a qualifying arrangement merely because the employer does not pay a uniform percentage of the premium for each such employee.  Accordingly, if the employer otherwise satis¬fies the requirements for the credit described above, it will qualify for the credit even though the percentage ofthe premium it pays is not uniform for all such employees.
(b) The requirement that the employer pay at least 50% of the premium for an employee applies to the premium for single (employee-only) coverage for the employee.  Therefore, if the employee is receiving single coverage, the employer satisfies the 50% requirement with respect to the employee if it pays at least 50% of the premium for that coverage. If the employee is receiving coverage that is more expensive than single coverage (such as family or self-plus-one coverage), the employer satisfies the 50% requirement with respect to the employee if the employer pays an amount of the premium for such coverage that is no less than 50% of the premium for single coverage for that employee (even if it is less than 50% of the premium for the coverage the employee is actually receiving).
*Source: http://www.irs.gov/businesses/index.html

Small Business Health Care Tax Credit Scenarios Examples of Employers Receiving the Credit

Example 1: Auto Tire Store with 10 Employees, Employer pays 100% of Health Care Costs.

Main Street Tire Store:
Employees:  10
Full Time Wages: $250,000 Total, or $25,000 per worker average
Employee Health Care Costs:  $42,000 ($350 per month per employee)

2010 Tax Credit: $14,700 (35% credit)

2014 Tax Credit: $21,000 (50% credit)

Example 2: Computer/Technology Service Center with 10 Employees, Employer pays 50% of Health Care Costs and Employee pays 50% of Health Care Cost.

Main Street Computer Center:
Employees:  10
Full Time Wages: $250,000 Total, or $25,000 per worker average
Employee Health Care Costs:  $54,000 ($450 month per employee)
Employer pays 50% of Health Care Costs, remaining 50% paid by employee. Employer is eligible for a tax credit of $27,000.

2010 Tax Credit: $9,450 (35% credit)

2014 Tax Credit: $13,500 (50% credit)

Example 3: Foster Care Non-Profit with 9 Employees, Employer pays 100% of Health Care Costs.

Main Street Family Services.org:
Employees:  9
Full Time Wages: $198,000 total, or $22,000 per worker average
Employee Health Care Costs:  $43,200

2010 Tax Credit: $10,800 (25% credit, non-profit rate)

2014 Tax Credit: $15,120 (35% credit, non-profit rate)

If you are a small employer (business or tax-exempt) that provides health insurance coverage to your employees, determine if you may qualify for the Small Business Health Care Tax Credit by following these three simple steps:

1

Determine the total number of your employees (not counting owners or family members):

Full-time employees: _________________
(enter the number of employees who work at least 40 hours per week)

+

Full-time equivalent of part-time employees: __________________
(Calculate the number of full-time equivalents by dividing the total annual hours of part-time employees by 2080.)

= ________________ total employees

If the total number of employees is fewer than 25, GO TO STEP 2

2

Calculate the average annual wages of employees (not counting owners or family members):

Take the total annual wages paid to employees: _________________________

Divide it by the number of employees from STEP 1: _________________________
(total wages / number of employees)

= ________________ average wages

If the result is less than $50,000, AND

3

You pay at least half of the insurance premiums for your employees at the single (employee-only) coverage rate, then

you may be able to claim the Small Business Health Care Tax Credit. Find out more information at IRS.gov

The first rules and regulations for those provisions that are immediately effective in 2010, (retroactive to January 1, 2010), should be available from the United States Department of Labor, Employee Benefits Security Administration, and the U.S. Department of Health & Human Services, by the end of April, 2010.

There is a second set of regulations that “begin the plan year that begins six months after the date of enactment”. Since the enactment date of the bill was March 23, 2010, this second set of regulations will be for those changes effective 9/23/2010, and are due out in late June or early July. Examples of effective dates for the “9/23” provisions are as follows:

October 1, 2010 for plan years that begin October 1
January 1, 2011 for calendar year plans
April 1, 2011 for plan years that begin April 1

The new law applies fewer requirements to employer-sponsored health plans that were in existence on March 23, 2010. These are known as “grandfathered” plans and will not be subject to some of the provisions of the law that will come down the road for employers not already sponsoring a plan.

Employers will be required to give notices to their employees in 2010 advising them of certain changes brought about by the Health Reform legislation. These notices will include availability of 2011 coverage for pre-existing conditions for children under age 19; availability of 2011 coverage for adult children under age 26; and the long-term care (CLASS Act) program effective January 1, 2011. Once the initial regulations are issued we will be able to provide more guidance to you on the timing and content of these notices.

Our staff has spent considerable time over the last few weeks filtering through massive amounts of data, some good and some quite vague, in order to give our clients and other business associates what we feel is a good “snapshot” of where Health Care Reform stands right now. This communication is not meant to cover every aspect or nuance of the new law. It is simply a compilation of public material that we hope will answer some of the questions that we have heard from our clients and friends.

In the coming months, as the insurance carriers adapt to the changing marketplace and new regulations, Stahl & Associates Insurance will provide further communication regarding these changes. Our intention is to communicate with you in an efficient manner as the rules and regulations of this complicated piece of legislation become available.

Immediate Changes – 2010

Small Business Tax Credits – Effective 1/1/2010 Through 2013

Employers with fewer than 25 employees and average annual wages of less than $50,000 will be eligible for a tax credit of up to 35% of the employer’s contribution toward health insurance if the employer pays at least 50% of the total premium cost or 50% of a yet to be determined benchmark premium. This will be a sliding scale which should be issued as part of the initial wave of regulations.

Employers with ten or fewer employees and average annual wages of less than $25,000 would be eligible for the full tax credit without the sliding scale.

These provisions will change in 2014 when Health Insurance Exchanges become operational but could be delayed or modified at a later date.

Dependent Coverage

Group health plans that provide dependent coverage must continue to offer coverage until age 26 unless the child qualifies for health coverage under their own employer’s plan. The child does not have to be a dependent for tax purposes to qualify for this coverage, nor living in the home of the employee to be covered under the plan. They can be married and they can have a job. This provision applies to stepchildren and foster children however; coverage does not apply to the child of a child. There will be more clarification on this coming from HHS. Coverage will not be considered taxable income to the employee or child, regardless of whether or not the child is a tax dependent. You should consider notifying your employees now that children under age 26 previously ineligible will become eligible under the new law.

Medicare

Starting in 2010, the “donut hole” is eliminated over a period of 10 years. For 2010, Medicare Part D participants will receive a $250 rebate after, and only if, they enter the “donut hole”. In 2011, enrollees will get a 50 percent discount on brand-name drugs and biologics that are in the coverage gap. In 2020 there will no longer be a “donut hole” of any type.

Special Retiree Health Coverage Provisions

For employers who provide health insurance to retirees who are ages 55-64, there will be a reimbursement by the government for certain claims. Employers must apply for this reinsurance which has been limited to $5 billion over the life of the program.

Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition

Provides eligible individuals access to coverage that does not impose any coverage exclusions for pre-existing health conditions. This provision ends when Exchanges are operational. Effective 90 days after enactment which is June 23, 2010.

Elimination of Lifetime Limits

Lifetime caps on essential benefits provided under group health plans are eliminated. Specific covered benefits that are non-essential health benefits may have annual or lifetime limits imposed. Essential benefits are those for ambulatory care, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, rehabilitative service and devices, laboratory services, preventative and wellness services, chronic disease management and pediatric services. The definition of essential services will not be left up to the insurer or self-insured groups. It will be prescribed by Health and Human Services (HHS) based on the scope of benefits provided by a typical employer plan. You should consider notifying your employees that people whose coverage was capped under previous lifetime limits will become eligible for coverage under the new law.

In 2014, annual limits will be eliminated however; they may be eliminated earlier than 2014 if Health & Human Services (HHS) decides to move up this implementation date.

Preexisting Condition Exclusion

Group health plans may not impose preexisting condition exclusions for children under the age of 19. This provision is scheduled to apply to all other plan participants in 2014. You should consider notifying your employees of this change as it may apply to their children.

Prohibition of Rescission

Coverage extended to an individual enrolled in a health plan can only be rescinded because of fraud or intentional misrepresentation of material fact.

Changes Effective 2011

Health Care Spending Account – FSA’s

Starting 2011, the definition of a “qualified medical expense” changes. Non-prescribed items such as over-the-counter medications will no longer be a qualified medical expense. In order for an over-the-counter medication to be covered after December 31, 2010, it must be prescribed by a doctor. The current limit for FSA accounts is determined by the employer. Starting in 2013, these plans cannot exceed $2,500.

Health Savings Accounts

The nonqualified distribution from a HSA increases the excise tax from 10% to 20% for distributions after December 31, 2010.

W-2 Reporting

Starting in 2011, employers will be required to report on the employee’s W-2 form the value of employer-sponsored coverage, including medical, dental and vision, (but not FSA) using the COBRA rules.

Wellness Initiatives

Establishes grants for three to five years to small employers that establish wellness programs in 2011.

Cafeteria Plan Changes

Creates a Simple Cafeteria Plan for employers of under 100 employees. This is to provide a vehicle in which small businesses can provide tax free benefits without the administrative burden of sponsoring a cafeteria plan. The provision also exempts employers who make contributions for employees under a simple cafeteria plan from pension plan nondiscrimination requirements applicable to highly compensated and key employees.

Long Term Care (CLASS Act)

Effective January 1, 2011, employees can elect to participate in a long term care plan that will pay a flat monthly amount toward long term care after 5 years of participation in the plan. This will be done through payroll withholding.

Things to Watch For Down the Road – 2014 to 2018

As stated earlier in this communication, many of the provisions of the current law will not take effect until 2014 and later. These provisions will most likely be modified and, at the very least, clarified as rules are issued by HHS, IRS, etc. Because there are so many rules yet to be written, we feel that trying to get into the details of these provisions at this juncture is premature. Our intention is to keep you informed as these pieces progress through all of the various entities that will be involved.

Plan years beginning after January 1, 2014 – no annual limits and no limit for pre-existing conditions for ages 20 and up.

Employer Mandate – “Play or Pay” – will impose penalties on employers of 50 or more who do not provide qualified health plans to employees.

Waiting Periods – The maximum waiting period to join an employer sponsored plan will be 90 days.

Free Choice Voucher – employee’s making less than 400% of the Federal Poverty Level will be eligible for vouchers to purchase insurance in an exchange if their cost of coverage through an employer’s plan exceeds 8% of the employee’s income. (Other rules also apply.)

Automatic Enrollment – Employers with more than 200 employees who have a qualified health plan in place will be required to automatically enroll new employees in the plan. The employee may then opt out of the group health plan. This is scheduled for 2014 but may be implemented by HHS prior to that time.

Individual Mandates – those individuals not insured under a group health plan and are without “minimum essential coverage” will pay a tax penalty starting in 2014 that will take full effect in 2016.

Excise tax on “Cadillac Plans” not effective until at least 2018. Currently there is no indexing on this provision which could result in a large number of middle income taxpayers falling into this category. Look for changes down the road!