Hatch, Paulsen Introduce Bill to Enhance HSAs, FSAs

Legislation Aims to Ease the Burden of Rising Health Care Costs*

Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee member, Erik Paulsen (R-MN) recently introduced the Health Savings Act of 2016, which seeks to simplify and expand HSAs and FSAs.

Created to give Americans control over their personal health care spending, these plans have grown in popularity despite needing critical updates to match our changing health care system. For example, when HSAs were first made available back in 2003, these plans only covered 454,000 lives. Today, 19.7 million individuals are covered under a health plan that is HSA-eligible.

Among other things, the comprehensive legislation clarifies that individual employees’ contributions to HSAs and FSAs should not be counted toward the calculation of the Cadillac Excise Tax. Some additional highlights include:

HSA catch-up contributions (spouses)                                                             Current law allows HSA-eligible individuals age 55 or older to make additional catch-up contributions each year. However, the contributions must be deposited into separate HSA accounts even if both spouses are eligible to make catch-up contributions. This section would allow the spouse who is the HSA account holder to double their catch-up contribution to account for their eligible spouse. 

Prescription and Over-the-Counter Med. Allowance                                              The bill stipulates that a reimbursement of expenses incurred for any prescription or over-the-counter medicine or drug shall be treated as a reasonable medical expense. 

HSA Interaction                                                                                                      The HOPE Act of 2006** allowed employers that offered FSAs or HRAs to roll over unused funds to an HSA. However, unused FSA funds could not be rolled over to a HSA unless the employer offered a “grace period” (instead of the usual Dec. 31 “use or lose”). Furthermore, the amount to be rolled over was prohibited from exceeding the amount in said account as of Sept. 21, 2006 – effectively limiting most employees from accessing/utilizing these unused funds in order to help seed their HSAs. This section provides employers greater opportunity to roll-over funds from employees’ FSAs or HRAs to their HSAs in a future year in order to ease the transition.

TASC is dedicated to maintaining/expanding employee benefit programs on a tax-advantaged basis, and we applaud Congress’ recognition of the importance of enhancing access to health-based accounts. These tools provide a means of financing evolving health care needs and services, helping American families save for and manage their medical expenses. (Note: On average, FSA and HSA Participants are middle class families…meaning, they earn roughly $57,000 per year, which is less than 300% of the federal poverty level).

Full text of S. 2499 / H.R. 4469:                      https://www.congress.gov/114/bills/s2499/BILLS-114s2499is.pdf

*Health care costs are expected to rise by an average of 5.8% annually between now and 2024.

**Public Law 109-432

Obama’s Budget Proposal Tweaks Cadillac Tax

Administration’s outline also has a potential impact on Flex Plans

Last week, the Obama Administration released its (final) budget proposal for the 2017 fiscal year. And although presidential budgets are usually viewed as highly partisan documents, there are a few noteworthy provisions in this particular budget proposal that will be of interest to TASC Providers / Clients.

Cadillac Tax Changes                                                                                                   As ACA supporters attempt to ease the opposition toward this controversial policy item, which is unpopular with both political parties,* the administration is backing what they’ve dubbed “sensible improvements” in an effort to decrease the likelihood that employer plans will trigger the excise tax.

Health plan costs by geographic regions                                                                   Under the proposal, a health plan would be considered high cost and subject to the tax if it exceeded the greater of the current law threshold ($10,200 for individual coverage and $27,500 for family coverage) or a new “gold plan average premium” which would be determined/calculated and published for each state.** A family multiplier would be applied to this amount to create the family threshold. This reform is intended to protect employers from paying the tax only because they are in high-cost locales and ensure that the penalty remains targeted at the appropriate population (i.e. those with overly generous plans).

GAO study                                                                                                                     The President’s budget also requires that the Government Accountability Office (GAO) study the potential effects of the excise tax on entities with unusually sick employees…presumably leading to legislative measures if the study finds that such firms are adversely impacted.

FSA salary reduction                                                                                            Currently, each employee’s actual FSA salary reduction contribution is counted in determining whether the cost of coverage for that employee exceeds the limit and is subject to the excise tax. But under the new recommendations, employers would determine the average amount of FSA salary reduction contributions for similarly situated employees and use that average amount in determining the cost of coverage.

Elimination of Dependent Care FSAs                                                                          As part of the administration’s attempt to increase the child and dependent care tax credit and create a larger credit for taxpayers with children under the age of 5, dependent care FSAs would no longer be permitted.  The executive branch believes that the new credits would provide better assistance to families with children then is currently available through a dependent care FSA.

Of course, the budget request of a president in his final year in office – particularly one facing a hostile Congress – is unlikely to lead to enacted legislation. That said, this proposal at least offers an insight into some of the interesting options that the next president might pursue, depending on his/her political leanings.

Overall, these provisions simply fall short of the mark and do not address TASC’s core concerns; in fact, they seem to be just as – if not more – administratively complex than the rule it attempts to replace. While we appreciate recognition of the budget’s implicit acknowledgment that the excise tax is imposed inequitably on those who live in high-cost geographic areas, this adjustment completely disregards the other uncontrollable factors that are used to calculate the tax, as well as the detrimental effects the tax could have on employer-sponsored health care plans.

The Cadillac Tax does nothing to help reduce the cost of health care or improve its quality. Instead, it places unparalleled financial challenges on employers, siphoning off resources that otherwise could sustain or improve benefits for workers and their families. Therefore, TASC continues to support full repeal of the tax or at the very least a carve-out exempting contributions to FSAs, HRAs and HSAs from the tax’s calculation. 

* Clear bipartisan majorities of both the House and Senate have voted to repeal the tax, and ALL presidential hopefuls – including both Democratic candidates – have also publicly called for repeal.

** A “gold” level plan is a tier of coverage found on a state-based or federally-facilitated public marketplace; would be calculated based on a weighted average of the lowest cost (self-only) silver level plans, multiplied (by 8/7) to simulate the cost of an actuarially equivalent gold plan.

Tax Change is Good News for VEBAs

New law overturns 2006 IRS ruling; improves VEBA Death Benefits

Last month, President Obama signed legislation that will fund the federal government – through September 2016 – and extend certain expiring tax provisions. The Protecting Americans from Tax Hikes (PATH) Act, which was enacted effective December 18, 2015, includes an amendment to Section 105(j) of the Internal Revenue Code that prevents the forfeiture of death benefits by allowing the taxable reimbursement of medical expenses for designated beneficiaries such as adult children, siblings, parents and others.

Section 105(j) allows for certain funded HRAs, sponsored by a State retirement system, to provide reimbursements to designated beneficiaries (other than the Participant’s spouse and tax dependents) without jeopardizing the tax advantages of the Plan. The PATH Act expands the types of Plans to which Section 105(j) applies to include HRAs sponsored by any State or political subdivision that is funded through a Section 115 trust* or a Voluntary Employee Beneficiary Association (VEBA) trust.

As amended, Section 105(j) provides that benefits provided to Participants and tax dependents will not be included in income “solely because such plan, on or before January 1, 2008, provides for reimbursements of health care expenses of a deceased employee’s beneficiary.” Accordingly, only those Clients who had adopted a funded HRA and provided reimbursements to designated beneficiaries on or prior to January 1, 2008, would be able to take advantage of the special designated beneficiary rule.**

Note: This change does not authorize cash distributions to designated beneficiaries or the participant’s estate; the law authorizes only “reimbursements of health care expenses of a deceased employee’s beneficiary.

Rick Allen, TASC’s Executive Vice President of Public Sector & Strategic Markets, was heavily involved throughout the process, spending years advocating for this change. “Although a small part of the overall (2,000 page) bill, this fix is a huge victory for VEBA Plan Participants,” said Rick, who has more than 25 years of employee benefits advisory and consulting experience working with public and private sector employers across the United States.

For those groups that wish to take advantage of the amendment to Section 105, TASC will follow up in the near future with a more detailed communication (including next steps – if any).

 

*An HRA that is funded through a Section 115 would not be able to take advantage of this special rule unless the employer has obtained a private letter ruling from the IRS that the trust’s income is not includable in gross income under Section 115.

**The impact of the reference to January 1, 2008, is not entirely clear; those employers opting for the more aggressive interpretation of the statute, are encouraged to consult legal/tax counsel in order to determine whether the new rule applies to their Plan.

IRS Extends ACA Reporting Deadlines

As a third-party vendor for Affordable Care Act (ACA) Employer Reporting, TASC stays on top of developments that may affect our Clients. On December 28, 2015, the Internal Revenue Service (IRS) released a Notice that may affect compliance with the ACA Employer Reporting requirements. Please review the following information to determine the best way to proceed.

IRS Notice 2016-4 extends the due dates for furnishing and filing the new ACA reporting forms for the 2015 calendar year. The new extended deadlines are as follows:

  • For the distribution of Forms 1095-B and 1095-C to individuals, the deadline is now March 31, 2016 (previously February 1).
  • For the filing of Forms 1094-B / 1095-B and 1094-C / 1095-C with the IRS, the deadline is now May 31, 2016 (previously February 29)…and June 30, 2016 if filed electronically. (previously March 31).

IRS Transitional Relief                                                                                                     For 2015 only, individuals who rely upon this information from their coverage providers or employers – but do not receive their Form 1095-B or Form 1095-C prior to filing their income tax returns – need not amend their returns once they finally obtain the appropriate documentation. Individuals also need not send this information to the IRS, but should keep it with their tax records.

What Does This Mean?                                                                                             TASC recommends that Clients furnish the necessary data to complete the Employee Statements as soon as possible. Despite the due date extension, Clients are encouraged to provide the applicable Forms to individuals on or before the original due dates. Completing these items now will allow employees who rely on the Employee Statements to complete their tax returns on time…and with confidence.

Therefore, in order for TASC to file by the initial deadlines, Clients have until January 11, 2016 to submit the required data. Note: If the original deadline is missed, TASC will furnish Clients with instructions on how to file taxes (without Form 1095) that can be supplied to employees.

Thank you for trusting TASC for your compliance needs!

Planes, Trains & Automobiles

After a series of temporary extensions, transit and parking benefits finally have a permanent fix

In a flurry of year-end activity, Congress adopted a massive tax and spending package that contains a litany of employee benefit provisions…including one which will help employers lower travel costs for their employees who commute to work. Signed into law by the President on December 18th, the Consolidated Appropriations Act of 2016 (Public Law 114-113) provides a permanent extension of eligible transit and parking benefits, retroactive to the beginning of 2015.

The Act increases the maximum monthly exclusion amount for transit benefits provided under a qualified transportation plan, making it equal to the limit for qualified parking benefits.* As a result of this equivalence – often referred to as “transit parity” – the transit limit for 2015 will jump to $250; and to $255 for 2016, pursuant to cost-of-living adjustments.**

In order to accommodate this legislative change, TASC will be implementing the following plan:

2015                                                                                                                           There will not be a change to MyTASC pertaining to the 2015 limit. The Participant would have needed to already elect an amount in excess of $130/month in order for any retroactive amounts to apply.

However, if a Participant did elect an amount greater than $130, then the excess transit benefits already taken can be re-characterized as pretax deductions up to the new amount of $250 (for 2015). Note: This is the employer’s responsibility.

2016                                                                                                                            TASC is currently working on updating the 2016 limits from $130/month to $255/month. Once completed, we will also automatically update the Client’s elected maximum; this amount will be increased by $125 for each month of the plan in 2016 (see examples below). Note: If a Client does not want their elected maximum to change, they will need to log into their account and update Plan Management or contact TASC to update the Plan.

  • Example 1 – Plan Start Date 10-01-2015 / End Date 09-30-2016

The system will increase the elected transit amount by $125.00 for each Plan month in 2016 (9 months X $125.00 = $1,125.00).  If the Plan’s original elected transit amount is $1,560.00, the system will update the elected transit amount to $2,685.00.

  • Example 2 – Plan Start Date 01-01-2016 / End Date 12-31-2016

The system will increase the elected transit amount by $125.00 for each plan month in 2016 (12 months X $125.00 = $1,500.00). If the plan’s original elected transit amount is $1,560.00, the system will update the elected transit amount to $3,060.00.

Once the Plan is updated, the Client may increase Participant elections, as applicable. Participants that would like to increase their transit election amount for 1/1/16 will need to request a change through their employer. Change requests must be completed and updated in MyTASC by 1/31/16 to be effective as of 1/1/16.

This is good news for employees typically in urban and suburban areas around the country who wish to utilize public transit. In fact, many cities now require employers to offer both transit and parking benefits to their employees on a pre-tax basis.

Happy New Year!

 

*Effective January 1st, parking will increase from $250/month to $255/month; TASC has already added the new limit to MyTASC and automatically increased the Client’s elected maximum amount.

**These amounts reflect increases of $120 and $125 respectively. Until enactment, the exclusion for transit benefits has been limited to $130 monthly.

New Card Requirement for Transit Benefits

Parking benefits not affected

The purpose of this communication is to inform you of recent guidance (Revenue Ruling 2014-32)* that will impact current Transit Benefit Plans.

Effective January 1, 2016, the Internal Revenue Service (IRS) will no longer allow manual cash reimbursements for pre-tax transit benefits. Instead, those employers who offer transit benefits will be required to provide a debit card to their employees.

This means that Clients who participate in a FlexSystem Transit Benefit Plan are strongly discouraged from submitting manual claims for reimbursements after December 31, 2015. However, they will be able to use the TASC Card to purchase transit passes from a qualified merchant.

TASC Card purchases for transportation expenses will be automatically approved when made at designated vendors for eligible transit expenses. This will ensure that the pre-tax funds placed in an employee’s account will only be used for eligible expenses, further enhancing the compliance of the Plan.

Please take a moment to review the important information below detailing TASC’s response to this new regulation.

Current Plan Status

Action

FlexSystem Plan without the TASC Card

TASC will issue TASC Cards for participating employees.

FlexSystem Plan with the TASC Card  (not activated for Transit)

TASC has revised the Plan Settings to activate the Transit Plan on the TASC Card for all current cardholders.

FlexSystem Plan with the TASC Card (activated for Transit)

No action required; the Plan is already in compliance with the new regulation.

Your cooperation is greatly appreciated!

*This new guidance provides that cash reimbursements may be offered by an employer for transit benefits only if a voucher – or a similar item that may be exchanged for a transit pass – is not readily available. In the past, the IRS permitted cash reimbursement arrangements where a debit card product was available to pay for the transit fare. However, after December 31, 2015, employers are no longer permitted to provide qualified Transportation Benefits in the form of cash where vouchers or terminal-restricted debit cards are readily available.

 

IRS Guidance: Notice 2015-87

Late yesterday, the IRS provided further guidance on the application of the market reforms that apply to group health plans (under the ACA) to various types of employer health care arrangements. Among other things, the notice covers (1) HRAs – including HRAs integrated with a group health plan, and similar employer-funded health care arrangements – and (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee.  This notice supplements the guidance provided in Notice 2013-54; FAQs Part XXII; Notice 2015-17; and the final regulations published on November 18, 2015.

TASC Governmental Affairs is currently in the process of reviewing this latest release in order to assess the effect–if any–on our NESP/NEFSA Plan. We will communicate further on this topic in the near future.

ALERT – Cadillac Tax & Transit Parity

Early this morning, Congressional negotiators reached an agreement on legislation to fund the federal government through September 2016 and to extend certain expiring tax breaks. The package deal contains at least two provisions that will have a positive impact on TASC’s Clients/Participants…first and foremost the ACA’s Cadillac Tax* has been delayed for two years (from 2018 to 2020), and secondly, parity has been permanently restored between qualified parking and transit benefits, meaning that the monthly limitations will now reflect equal dollar amounts.

The deal – which has bipartisan support – is expected to pass both the House and the Senate prior to December 22, when Congress will adjourn for the year.

We are continuing to review the language to see if any additional changes have been made to other TASC interests, but wanted to make you aware of these important items as soon as possible.

* The legislation also makes the excise tax deductible by businesses and calls for a study to determine suitable benchmarks for the age and gender adjustment that could result in an increase in the base thresholds.

 

 

 

 

If at first you don’t succeed…try, try again (AND AGAIN)

Congressional Republicans have voted to repeal the health care law 56 times

On Thursday, the Senate passed legislation repealing the core pillars of the Affordable Care Act (ACA), marking the first time such a bill has reached the president’s desk.  The measure attempts to gut the law by eliminating the individual and employer mandates, the medical device tax and the so-called “Cadillac” tax.  The Senate version also includes a delay of Medicaid expansion and exchange subsidies until 2018, among other things.

Republicans wrapped the measure in a special budgetary, filibuster-proof process (known as reconciliation) that required just 51 votes for Senate passage, circumventing the 60-vote hurdle usually required for controversial bills.  Ironically, Democrats used the same obscure budget procedure to pass the ACA back in 2009.

Not surprisingly, the White House has already promised a veto, saying the bill would “take away critical benefits and health care coverage” from families.

A significant — if only symbolic — victory

During the vigorous debate on the reconciliation bill, Senators adopted an amendment sponsored by Sen. Dean Heller (R-NV) to repeal the so-called “Cadillac” tax on high cost health plans by a vote of 90-10…providing momentum to the campaign being championed by companies across the nation in an effort to protect middle class workers who could see their benefit accounts scaled back or eliminated.

Created by the ACA, the Cadillac Tax is intended to discourage employers from offering health insurance plans with excessively rich benefits. Upon implementation in 2018, it will be equal to 40 percent of the value of any coverage in excess of $10,200 for an individual and $27,500 for a family. To determine whether these cost thresholds are exceeded, an overly broad net has been cast – one that includes many employer sponsored and consumer directed arrangements.  In particular, the statute is being interpreted such that employer and employee contributions to FSAs, employer contributions to HRAs, and employer and employee pre-tax contributions to HSAs are subject to the calculation. .

As the largest privately-held third party administrator in the United States, TASC – along with the Employers Council on Flexible Compensation (ECFC) – is leading the charge to lobby Congress in hopes of repealing the excise tax.  And while continuing to advocate for a full repeal, we recognize that achieving that goal by years end is unlikely given the various political realities, funding issues and time constraints.  Therefore, TASC believes Congress should enact legislation that would carve-out employee contributions to FSAs and HSAs, thus ensuring that they are not counted toward the calculation of whether an employer maintains high cost health coverage.

The simple reality is that these contributions are the employees’ own money and including them will harm the very people the ACA was trying to help.  Exempting employee contributions from the tax is an immediate step that will go a long way towards ensuring that American families will continue to be able to access important health benefits.

TASC will continue to keep you informed on this very important issue.

2016 Inflation Adjustments

Some Benefits Increase Slightly; Others Are Unchanged

Yesterday, the Internal Revenue Service (IRS) announced annual inflation adjustments for the 2016 tax year. The items of greatest interest to most taxpayers include the following dollar amounts:

Refundable Credit for Coverage under a Qualified Health Plan                                    The limitation on tax imposed for excess advance credit payments is determined using the following table…

Household Income (expressed as a % of FPL) Limitation Amt.    (unmarried individuals) Limitation Amt.                 (all other taxpayers)
Less than 200% $300 $600
At least 200%,                  but less than 300% $750 $1,500
At least 300%,                  but less than 400% $1,275 $2,550

Employee Health Insurance Expense of Small Employers                                           Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,900.

Cafeteria Plans                                                                                                              The dollar limitation (under Sec. 125) on voluntary employee salary reductions for contributions to health FSAs remains at $2,550.

Qualified Transportation Fringe Benefits                                                                       The monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking.

Medical Savings Accounts                                                                                        (Family coverage) The term “high deductible health plan” is defined as a plan that has an annual deductible that is not less than $4,450 and not more than $6,700, and under which annual out of pocket expenses do not exceed $8,150.

(Self-only coverage) The term “high deductible health plan” is defined as a plan that has an annual deductible that is not less than $2,250 and not more than $3,350, and under which annual out of pocket expenses do not exceed $4,450.

PCORI Fee                                                                                                                    The applicable dollar amount for plan and policy years ending on or after October 1, 2015 and before October 1, 2016 is $2.17.*

Click here to access the full text of Revenue Procedure 2015-53: https://www.irs.gov/pub/irs-drop/rp-15-53.pdf

*Source: IRS Notice 2015-60