Don’t Forget to Update Benefit Plan Documents
This year came with notable compliance changes that may require updating group health plan materials extending into the new year. Employers should review these requirements and make the necessary changes to materials offered to participants at plan renewal.
The Affordable Care Act’s (ACA) employer shared responsibility provision (§ 4980H), also referred to as “play or pay,” took effect January 1, 2015. Under the employer mandate, large employers may be assessed a penalty for failure to offer health coverage to full-time employees if at least one employee receives a government subsidy to buy individual coverage through an Exchange (Marketplace). However, some employers were able to take advantage of one or more transition relief provisions to avoid potential penalties for part or all of 2015 (and part of 2016, in some cases). This relief expires in 2016, along with transition relief impacting calculations of the possible assessable payment.
Applicable large employers (ALEs) must ensure their group health plans are designed to meet minimum value coverage and are deemed affordable to limit assessment of penalty. For plan years after 2015, the required contribution percentage under the affordability safe harbor is 9.5 percent, based on employee-only coverage. ALEs who have variable hour employees should establish and document their designated measurement periods for determination of “full-time” employees.
The employer shared responsibility provision also establishes employer reporting requirements. For calendar year 2015, the first reports are due February 1, 2016 and are required annually thereafter on January 31st. These reporting requirements include:
- Under I.R.C. § 6056, large employers must report information about health coverage offered to full-time employees.
- Under I.R.C. § 6055, large employers with self-funded plans must report information about the coverage provided to each individual.
ALEs should review their Summary Plan Descriptions (SPDs) to ensure measurement periods used in the determination of the employee counts are documented. To comply with the Employee Retirement Income Security Act (ERISA), the health plan’s SPD must describe the plan’s eligibility requirements. The SPD’s description of the measurement method should clearly define the measurement periods and plan eligibility requirements so that it is understandable to the average participant.
Employers should review their ability to maintain grandfathered status for 2016. While grandfathered plans can continue, ALEs will need to determine if offering these plans conforms to the play or pay rules to limit assessable payment. If the plan will lose its status, the plan should include all of the additional patient rights and benefits required by the ACA for nongrandfathered plans (e.g. coverage of preventive care without cost‐sharing requirements).
Several indexed inflation increases have been announced, which may require updates to Summary of Benefits and Coverage (SBC) documents and other participant plan materials, such as contributions to health savings accounts (HSAs), out-of-pocket spending under high deductible health plans (HDHPs), and essential health benefits (EHBs).
The annual cost-sharing and out-of-pocket maximums increase for plan years beginning on or after January 1, 2016. A health plan’s out‐of‐pocket maximum for EHBs may not exceed $6,850 for self‐only coverage, and $13,700 for family coverage.
The out‐of‐pocket maximum, however, continues to apply to all nongrandfathered group health plans, including self‐insured health plans and insured plans.
The minimum annual deductible and out-of-pocket expenses for HDHPs renewing on or after January 1, 2016 have increased in 2016:
- The minimum annual deductibles under an HDHP must be at least $1,300 for self-only coverage (no change from 2015) and $2,600 for family coverage (no change from 2015).
- The maximum out-of-pocket expense limit for self-only HDHP coverage for 2016 is $6,550, which is up from $6,450 in 2015. For family HDHP coverage, the maximum out-of-pocket expense limit for 2016 is $13,100, which is up from $12,900 in 2015.
The annual dollar limit on the combination of employer and employee contributions to HSAs remains at $3,350 for an individual with self-only coverage under a HDHP; however, this limit increases to $6,750 for an individual with family coverage under an HDHP (an increase of $100 dollars from 2015).
Note: The HDHP maximums for HSA-qualified HDHPs are lower than the ACA out-of-pocket maximums. Employers offering HSA-qualified plans will need to ensure they satisfy these lower HDHP out-of-pocket maximums.
The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSAs) is $2,550 (no change from 2015).
Under the small business health care tax credit, the employer must employ fewer than 25 full-time equivalent employees (FTEs) whose average annual wages are less than $50,800 (indexed for 2015). The tax credit phases out for eligible small employers when the number of its FTEs exceeds 10 or when the average annual FTE wages exceeds $25,900 for tax year 2016 (up from $25,800 in 2015). Only qualified health plan coverage purchased through a Small Business Health Options Program (SHOP) marketplace is available for the tax credit, and it is available only for a two-consecutive year period.
Employers managing compliance with benefits-related mandates under the ACA and other benefits rules for coverage, documentation, and reporting requirements should be aware of applicable penalties that compliance failures may trigger. Potential fines and penalties vary depending upon the provision under the Internal Revenue Code, ERISA, or the Department of Health and Human Services and Department of Labor rules. While these agencies are working towards helping plan sponsors comply with the new rules, compliance failures can be costly. Take the best approach and make it a new year’s resolution to be aware of the compliance requirements and develop plans for meeting them!