Employee Benefit Consultants, Risk Managers and Administrators
September 2017 Newsletter
Medicare Part D Notices Due to Employees Before October 15
It's hard to believe that it's time of year again-Medicare open enrollment starts October 15 and ends December 7. For any Medicare-eligible employees covered under the group health plan, they will need to know if the group health plan's drug coverage is considered by the Centers of Medicare and Medicaid Services (CMS) to be creditable or noncreditable as explained below. This information is needed because if a Medicare-eligible employee delays Medicare Part D enrollment, and does not have creditable coverage through the group health plan for moret han 63 days, they will be liable for a late enrollment penalty when they finally do enroll in Medicare Part D.
This is a reminder concerning two pieces of information regarding the employer-sponsored group health plan and Medicare Part D benefits.
1. Medicare Part D Disclosure to the Centers of Medicare and Medicaid Services (CMS)
When to Disclose to CMS: Group health plans must complete the Medicare Part D Disclosure to CMS within 60 days after the beginning of the new plan year.
In the event there has been a change in creditable coverage, plan sponsors must submit a new disclosure form to CMS within 30 days after the change in creditable coverage status of a prescription drug plan. The change in status includes a change in coverage no longer making the plan creditable or the termination of a creditable coverage option. A group that does not offer outpatient prescription drug benefits to any Part D eligible individuals on the first day of its plan year is not required to complete the CMS disclosure form for that plan year.
What is creditable coverage? It is coverage that provides equal or better prescription benefit coverage than the Medicare Part D coverage.
Why must a plan sponsor provide a Notice to Medicare Part D-eligible employees?
Individuals who do not enroll in Medicare Part D prescription drug coverage when they are first eligible will become subject to a late enrollment penalty if they have gone 63 days or more without creditable prescription drug coverage. That is why it is important that employees know whether their employer-sponsored prescription drug plan is creditable or , so that they can make an informed decision to avoid the penalty. That is why Medicare Part D eligible individuals and CMS need to know whether a group health plan is creditable or non-creditable. Individuals who do not enroll in Medicare Part Prescription drug coverage when they are first eligible will become subject to a late enrollment penalty if they have gone 63 days or more without creditable prescription drug coverage.
This link on the Centers for Medicare and Medicaid (CMS) website gives you step-by-step instructions on how to complete the disclosure. The disclosure instructions start in Section III, on page 8. Click on the following link:
You will receive a confirmation from CMS that your information has been accepted. Please print a copy for your records.
2. Creditable Coverage Status Notice to Employees
When to provide Notice to employees: The Notice is to be given to employees by October 15th of each year.
Employers offering group health plan coverage with a prescription drug benefit are required to notify all Medicare participants before October 15 of each year whether that coverage constitutes creditable prescription drug coverage. Creditable coverage here is defined as the employer-sponsored drug benefit is, on average for all plan participants, expected to pay out as much as the Medicare prescription drug coverage pays. If the plan offers creditable coverage, the notice must indicate that it does, define creditable coverage, and explain why it is important. If the plan does not offer creditable coverage, the notice is still required and must clearly state this, as well as information about when to enroll in Part D.
The notice requirement is to provide a written disclosure notice to all Medicare eligible individuals annually to the following:
• Medicare eligible individual when he/she joins the plan.
• Medicare eligible active working individuals and their dependents,
• Medicare eligible COBRA individuals and their dependents,
• Medicare eligible disabled individuals covered under your prescription drug plan
• Medicare eligible retirees and their dependents.
Employees must receive the notice:
• Prior to an individual’s Initial Enrollment Period for Part D
• Prior to the effective date of coverage for Medicare-eligible employees that enroll in the employer’s plan,
• When prescription drug coverage ends or becomes non-creditable, or
• Upon request
If you have any questions, please contact us at 704-525-9666.
2018 Limits for HSAs, HDHPs
HSA and HCHP Limits for 2018
HSAs are subject to annual aggregate contribution limits (i.e., employee and dependent contributions plus employer contributions). HSA participants age 55 or older can contribute additional catch-up contributions. Additionally, in order for an individual to contribute to an HSA, he or she must be enrolled in a HIgh Deductible Health Plan (HDHP) meeting minimum deductible and maximum out-of-pocket requirements.
The Affordable Care Act (ACA) also applies an out-of-pocket maximum on expenditures for essential health benefits. However, the HDHP and ACA out-of-pocket maximums differ in two ways:
Employers should keep in mind that the HDHP and ACA out-of-pocket maximums differ in two ways
The ACA out-of-pocket maximums are higher than the maximums for HDHPs. They were originally the same, but the Department of Health and Human Services (which sets the ACA limits) uses a different calculation than the IRS (which sets the HSA/HDHP limits) to determine the inflation increase. This difference has now resulted in a higher out-of-pocket maximum under the ACA.
The ACA requires that the family out-of-pocket maximums include an “embedded” self-only maximum on essential health benefits. For example, if an employee is enrolled in family coverage and one member of the family reaches the self-only out-of-pocket maximum on essential health benefits ($7,350 in 2018), that family member cannot incur additional cost-sharing expenses on essential health benefits, even if the family has not collectively reached the family maximum ($14,700 in 2018).
But the HDHP rules don't have that provision, so one family member could incur expenses above the HDHP self-only out-of-pocket maximum ($6,650 in 2018). For example, suppose that one family member incurs expenses of $10,000, $7,350 of which relate to essential health benefits, and no other family member has incurred expenses. That family member has not reached the HDHP maximum ($14,700 in 2018), which applies toallbenefits, but has met the self-only embedded ACA maximum ($7,350 in 2018), which applies only to essential health benefits. Therefore, that family member cannot incur additional out-of-pocket expenses related to essential health benefits, but can incur out-of-pocket expenses on non-essential health benefits up to the HDHP family maximum (factoring in expenses incurred by other family members).
The ACA is Still Here... An Important Change You Need To Know
It is now anyone's guess what is going on in Washington with health care. The latest failed attempt to repeal and replace the ACA makes at least one thing clear: the Affordable Care Act (ACA) is still the law. 2018 is right around the corner, and the IRS has released the Affordability Percentage for 2018, for Applicable Large Employers to use in two of the three safe harbors below to calculate whether the group health plan meets the affordability test for the Employer Shared Responsibility (ESR) compliance. They are:
Form W-2 (Box 1)
Rate of pay
Federal poverty line (FPL)*
The ACA affordability percentage will decrease from 9.69% in 2017 to 9.56% in 2018.
If your lowest-paid employee's income remains the same from 2017 to 2018, you will want to check if it will affect the W-2 and Rate of Pay safe harbors. Both will be slightly lower, so in order to satisfy the affordability test the monthly employee contribution may need to be lowered. Failure to meet the affordability test will trigger the smaller of the penalties (sometimes referred to as the tackhammer penalty) under Code 4980H(b). Consider the following examples:
2017: $15/hour x 9.69% x 130 hours** = $188.96
2018: $15/hour x 9.56% x 130 hours = $186.42
*The impact on the third safe harbor, using the Federal Poverty Line (FPL) is yet to be determined because the FPL percentages are not released until after the 2018 tax year begins.
** The definition of a full-time employee is one who has 130 hours of service for a calendar month. Click Here for more detailed information from the IRS
Currently, Congress and the President have indicated that there is still a slight chance that a plan to repeal and replace (or repair) the ACA may still be considered in 2018. But until any change is made, the ACA requirements (of which the Employer Shared Responsibility is a part) still hold.
Level Funding-What Is It?
Due to the ever-increasing cost of health care coverage, employers are evaluating every option to deliver quality health care coverage and at the same time contain the associated costs. In the past, the only choice for a small group was a fully-insured health plan. Fully insured plans offers a level, predictable premium payment, but offers plan designs that give the employer little control to contain costs. On the other hand, a self-funded plan offers the employer significant control to contain costs, but claims expenses may vary from month to month. An alternative method of funding a health care plan is Level Funding. A level-funding plan provides an attractive blend of features from both fully-insured and self-funded plans. It brings financial predictability with a monthly payment that is the same each month of the plan year. Because it is an ERISA plan, it is exempt from state mandated benefit laws and some ACA provisions. This opens up a myriad of plan design options to the small employer.
How Does a Level-Funded Plan Work?
Under a fully insured plan, the monthly premium costs are locked in. Even if a group is healthy and has no claims, the savings are kept by the insurance company. In a level-funded plan, the employer establishes a claim fund. The claim fund is a predetermined monthly cost equal to 1/12 of the maximum annual claim liability. Stop loss insurance is purchased for full protection from larger claims and has a feature to advance the necessary funds to pay claims if the claim fund does not contain sufficient money to cover claims for a particular month. The monthly payment will remain the same for the entire plan year, regardless of the dollar amount of claims in any month. After all claims are paid for the year, any unused money in the claim fund is returned to the plan.
A level-funding plan provides an attractive blend of features from both fully-insured and self-funded plans.
Defined and Contained Risk
The employer’s maximum exposure and annual costs are determined up front through the purchase of stop loss insurance.
Stabilized Cash Flow
Maximum annual claim liability is equally spread over 12 months. If the employers claim fund does not contain sufficient money to cover claims, the stop loss insurance coverage will advance the necessary funds (commonly referred to as "accommodation”). No requests for additional money from the employer are made. Subsequent monthly payments into the claim fund will be used to repay this advance.
After the claim run-out period, remaining funds are released or rolled over to the next year as credit. This is the essence of alternative funding—money not spent on benefits remains with the employer’s benefit plan, rather than the insurance company.
As with a standard self-funded plan, the employer receives periodic reports on all claims paid during the month and the plan year-to-date. This reporting provides a detailed breakout of claims data to track utilization and identify trends that are specific for the group, such as Rx usage, outpatient services and hospitalizations. Armed with this information, the employer can be shown areas when plan spending might be curtailed. The level-funding plan allows the employer the freedom to consider plan design options that can be tailored to the working population and company preferences.
Not every group is appropriate for the level-funded plan. To evaluate appropriateness of a level-funded plan and the proper placement of stop loss, the employer needs to engage someone who is experienced in the area of self-funding, has the technology to administer the plan, provide detailed claims reports, and can provide superior customer service from implementation to ongoing service throughout the plan year.