For each new member you enroll with MBPA or MFBA you will be able to lock-in a special dues rate of $75.00 annually for life! Act fast as this special dues promotion ends January 31, 2013!
Don’t forget! For each new to BCBSM/BCN group enrolled as members, you have two options:
Receive a $500.00 incentive for each 10+ member group signed up with MBPA or MFBA! Receive a $90.00 incentive for each member group with less than 10 employees that sign up with MBPA or MFBA!
Receive 1 year Free COBRA Administration with our program partner BASIC (Qualifying groups: 20 – 99 lives). Plus, you will receive a $250.00 bonus!
Qualifications for 10+ Membership Incentive Bonus:
We must receive a copy of the groups completed membership application with dues payment AND a copy of the group’s completed Part C Agreement (Showing the number of employees) to qualify for the $500.00 incentive or special COBRA incentive.
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Back By Popular Demand…
Special Dues Offer For Your Clients
For each new member you enroll with MBPA or MFBA you will be able to lock-in a special dues rate of $75.00 annually for life! Act fast as this special dues promotion ends January 31, 2013!
Don’t forget! For each new to BCBSM/BCN group enrolled as members, you have two options:
Receive a $500.00 incentive for each 10+ member group signed up with MBPA or MFBA! Receive a $90.00 incentive for each member group with less than 10 employees that sign up with MBPA or MFBA!
Receive 1 year Free COBRA Administration with our program partner BASIC (Qualifying groups: 20 – 99 lives). Plus, you will receive a $250.00 bonus!
Qualifications for 10+ Membership Incentive Bonus:
We must receive a copy of the groups completed membership application with dues payment AND a copy of the group’s completed Part C Agreement (Showing the number of employees) to qualify for the $500.00 incentive or special COBRA incentive.
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Form W-2 Reporting – Including the Cost of Employer-Sponsored Health Coverage for 2012
Join us for a Webinar on October 16
Please join the Michigan Business & Professional Association for a free Health Care Reform Webinar on October 16 at 2 PM (Eastern Time). During this Webinar, as part of a series of health care reform webinar presentations, we will be discussing the requirements for reporting the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2 will be reviewed. This reporting requirement is first required for the 2012 tax year. This means that the value must be reported on Form W-2 issued in January 2013 for the 2012 tax year.
Space is Limited Click Here to reserve your seat today.
This Webinar will be approximately 60 minutes in length.
Are you prepared to advise your employer or your clients on this new requirement?
From this Webinar, you will learn:
Which employers are subject to the reporting requirement.
What is applicable employer-sponsored coverage?
How to determine the aggregate reportable cost.
Which methods are permitted for calculating the cost of coverage.
Other issues that must be dealt with in calculating the cost of coverage.
Any transition relief available to employers and coverage.
Title: Form W-2 Reporting – Including the Cost of Employer-Sponsored Health Coverage for 2012 Date: Tuesday, October 16, 2012 Time: 2:00 PM – 3:00 PM EDT
This Webinar will be conducted by Attorney Larry Grudzien.
After registering you will receive a confirmation email containing information about joining the Webinar.
System Requirements
PC-based attendees
Required: Windows® 7, Vista, XP or 2003 Server
Mac®-based attendees
Required: Mac OS® X 10.5 or newer
Mobile attendees
Required: iPhone®, iPad®, Android™ phone or Android tablet
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The MBPA & MFBA and FSI of Western Michigan are providing you the opportunity to enroll in a self study pre-licensing course for the Life Insurance Counselor designation. The State of Michigan requires that an independent agent be a licensed Life Insurance Counselor if they bill and receive consulting fees from clients. Click Here to obtain registration information and our discounted program fees.
Our service team is ready to help you at 888.277.6464.
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As part of the federal Affordable Care Act, health carriers and group health plans are now required to provide current and prospective members with a Summary of Benefits and Coverage.
Beginning Sept. 23, 2012, BCBSM and BCN intend to provide the Summary of Benefits and Coverage to individual members and to group customers that request them. The federal government has issued guidance to insurers by providing a form template and detailed rules on the format and content of the SBC.
Underwritten groups and SBC distribution
BCBSM and BCN will create and deliver SBCs to fully insured group customers and will have a joint responsibility with the group to distribute the document to the member.
BCBSM responsibilities to underwritten groups
Blue Cross will make the SBCs available to underwritten group health plans when they log in to Group Secured Services and for their employees through Member Secured Services at bcbsm.com.
You’ll also be able to access your clients’ SBCs by logging in to Agent Secured Services at bcbsm.com. Groups, agents and members will need to register for their particular secured site by visiting bcbsm.com and clicking on the applicable tab to begin the registration process. SBCs will be updated as required and posted to the secured sites.
Groups will be asked to notify their employees when their SBC is available based on the triggering event, as required by the ACA guidelines. The group may also reach out to its agent to assist them in obtaining and delivering the SBC, with you acting on behalf of your client.
If a group reaches out to you and asks for assistance with distributing the SBC, you’ll have four actions to choose from (these are applicable to BCBSM only):
Retrieve the SBC for the group by logging in to Agent Secured Services.
Instruct the group on how it can access its SBC by logging in to Group Secured Services.
Work with the group’s Blues representative to obtain the SBC.
For BCBSM groups without an assigned Blues representative, you can contact Account Services at AcctSvcsSBC@bcbsm.com.
We’ll be updating our rating tools, including RateEase and eQuoting, so they can be used to create SBCs for standard menu options. When using these tools, you’ll be expected to deliver the SBC along with the quote. When quoting benefit designs that aren’t standard menu options, you can work with your client’s Blues representative to obtain the SBC for them.
BCN responsibilities to underwritten groups
BCN won’t have the SBCs posted on Group or Agent Secured Services at this time. If a group asks you to retrieve its SBC, you must use Rate Ease or eQuoting to do so. If these tools aren’t available, email Field Services at BCNSBCRequests@bcbsm.com and request a copy of the SBC. Be sure to include in the request the group name, group number and email or regular mailing address.
Although BCN won’t post SBCs on the secured sites at this time, we’re working to implement a process that will do so in the future. We’ll update you as soon as more details become available.
Additional information concerning distribution of the SBC to BCBSM and BCN underwritten groups will be provided during agent training this fall.
ASC assistance
In contrast to underwritten groups, self-funded group health plans are solely responsible under the regulations for creating and providing SBCs, similar to responsibilities associated with other government-mandated plan documents such as the Summary Plan Description for ERISA groups.
We’ll provide ASC groups with a draft SBC template for BCBSM and BCN-administered coverage only. The draft template will be posted on Agent Secured Services and Group Secured Services. A detailed disclaimer will accompany the draft SBC template. Upon request, BCBSM and BCN will send the draft SBC template directly to the group.
BCBSM and BCN assume no responsibility for SBC rule compliance for our groups. The SBC rules are subject to some interpretation with respect to formatting and content requirements. The group may also have special situations such as account-based arrangements, carve-out coverage, or wellness programs. Therefore, the draft template may not be fully compliant with the SBC requirements for the group’s circumstances if the group interprets the rules differently or if it has special situations that may apply.
The draft template is populated only with benefit information for coverage administered by BCBSM or BCN. The group will remain solely responsible for completing the template and ensuring that its content and format are fully compliant with legal requirements. The group is also solely responsible for distributing the SBC as may be required under the rules.
Any assistance we provide will begin Sept. 23, 2012. SBCs won’t be posted on Member Secured Services for ASC groups.
ASC groups will also need to consult with their legal counsel and independently assess whether additional special circumstances and other plan documents and information, including carve-out benefits, might affect the content of their SBC. The government has recently provided an online calculator to help groups complete the Coverage Examples section of the SBC, along with a sample template and instructions for completing the document.
Individual business and SBC distribution
BCBSM and BCN will create and deliver SBCs for all individual customers. If you sell MyBlueSM individual products, note these updates in relation to the delivery of the SBC in these situations:
At application – A legal disclaimer will appear above the signature on all paper and electronic applications. The disclaimer advises the applicant that the SBC isn’t a contract and includes other information such as how to obtain an electronic copy of the SBC on bcbsm.com and how to request a print copy of the summary. You won’t need additional direction, but you must begin inputting your client’s email addresses in the application, not your own.
On request – Call 1-800-788-7334 and request an SBC on behalf of your clients. You must provide the customer’s name, address and the plan and deductible for which they’re requesting an SBC.
The Blues will continue to provide updates concerning the SBC as more information becomes available. In the meantime, here’s an updated the FAQ (PDF) to reflect the latest developments.
Questions? Contact your managing agent.
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The BCBSM eBilling tool is undergoing enhancements that will make it easier for customers to access billing information.
The enhancements will allow customers to access billing information for all of their group divisions under one transaction, instead of entering each group-division number separately. In addition, customers will be able to make one payment for all of their group divisions.
BCBS has emailed notices to nearly 300 registered eBilling customers assigned to the Group Label System and affected by this change. The enhancements were effective Aug. 14, 2012.
eBilling Label System
Groups are currently provisioned for one of four Label System options:
ASC
Direct Pay
Group
Summary Groups
The Label System represents the set of field values that the user enters to search for invoices.
Following this change, all Group Label System users will be transitioned to Summary Groups. The transition will require a minor change to the way current Group Label System customers perform the General Search function to search for invoices, found under the Client Activity tab.
The email notice BCBSM sent outlines the steps customers should follow to view invoices at the summary level.
Initially, the new feature will be available for invoices generated on or after Aug. 14. Customers can view past invoices under the Summary Label System beginning Aug. 30, 2012. BCBSM advised customers, if they anticipate needing any invoices before Aug. 30, to print copies before Aug. 14. Customers may also contact Group Billing at 800-414-3458 for past billing information.
Once fully implemented, BCBSM believes our customers will find that this enhancement can help improve service and save time.
Questions? Contact the BCBSM Automated Group Reporting Help Desk at 866-676-4858.
The IRS annual contribution limit for health savings accounts will increase in 2013 to $3,250 for eligible individuals with individual coverage and to $6,450 for those with family coverage. The catch-up contribution for those 55 and older remains at $1,000. The minimum deductible amount for individual coverage will increase to $1,250 and to $2,500 for family coverage. The maximum out-of-pocket will increase to $6,250 for individuals and to $12,500 for families.
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By Larry Grudzien, J.D.
September 2012 – On April 13, 2012, the Internal Revenue Service released proposed regulations that provide that the first potential date to pay the new comparative effectiveness research fees that apply to insured and self-insured health coverage for plan years ending on or after Oct. 1, 2012 will be July 31, 2013.
In the proposed regulations, the IRS also provides:
• These fees apply to insured and self-funded group health plans for active or former employees, as well as some health reimbursement arrangements and health flexible spending arrangements. These fees do not apply to plans that provide “excepted benefits.” Excepted benefits include such benefits as stand-alone dental or vision plans; employee assistance, wellness and disease management programs that don’t offer “significant benefits in the nature of medical care or treatment”; most expatriate plans; and stop-loss insurance. Retiree-only plans, however, are not exempt from these fees.
• These fees will be paid by insured and self-insured plans. While insurers will file reports and pay the fees for insured policies, self-insured plan sponsors must do file reports and pay these fees. They cannot delegate this work to third parties or vendors. Plan sponsors and insurers will file IRS Form 720 to report the fees and make annual payments. The form has yet to be updated to reflect the comparative effectiveness fees. This return must be filed each year by July 31 of the calendar year immediately following the last day of the policy year (for insured plans) or the plan year (for self-insured plans).. If a plan or policy year ends on December 31, 2012, Form 720 must be filed by July 31, 2013. If the plan or policy year ends on January 31, 2013, Form 720 must be filed by July 31, 2014.
• These fees will be calculated as the average number of covered lives under a policy or plan multiplied by $1 for plan years ending after October 1, 2012. The multiplier increases to $2 for the next plan year, then may rise with health care inflation through plan years ending before Oct. 1, 2019, when the fees are slated to end. To determine the average number of covered lives, plan sponsors generally can use any reasonable method in the first plan year and will choose from several proposed approaches in later years.
• These fees will fund an institute set up by the health care reform law to perform and promote research on the effectiveness and outcomes of various medical treatments, services, procedures and drugs. This comparative effectiveness research aims to broaden patient, clinician, payer and other access to evidence-based medical information.
Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.
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Health care reform expands ERISA’s disclosure requirements by requiring that a “summary of benefits and coverage” be provided to applicants and enrollees before enrollment or re-enrollment. The summary (referred to as the SBC) must accurately describe the “benefits and coverage under the applicable plan or coverage.” The requirement applies beginning with the first open enrollment period beginning on or after September 23, 2012 for participants and beneficiaries enrolling or re-enrolling through open enrollment. For individuals enrolling other than through open enrollment (e.g., newly eligible individuals or special enrollees), the requirement applies beginning on the first day of the first plan year that begins on or after September 23, 2012. For calendar-year plans, this means that SBCs will first be required during open enrollment in 2012 for the 2013 plan year. But for some non-calendar-year plans, the SBC rules may first apply to newly eligible individuals and special enrollees.
The SBC requirement applies to so-called “grandfathered” health plans under health care reform—that is, it is not one of the requirements from which those existing group health plans and health coverage were excused.
The various governmental agencies released a template and instructions which contained sample language for completing the template and provided a uniform glossary of terms used for health coverage. The SBC template and related materials are available on the websites of the DOL and HHS. Included among the materials are:
• SBC template (available in modifiable format in MS Word)
• Sample completed SBC
• Instructions
• Why This Matters language (to be used when completing this column on the first page of the SBC template)
• Coverage examples (includes information necessary to perform the coverage example calculations)
• Uniform glossary of coverage and medical terms
Plans and insurers are instructed to use the full SBC template, but to the extent a plan’s terms cannot reasonably be described in a manner consistent with the template and instructions, the plan or insurer must accurately describe the relevant terms while using “best efforts” to do so in a manner as consistent as reasonably possible with the instructions and template format.
Which Plans Are Required to Provide the SBC?
The SBC requirement applies to group health plans (both insured and self-insured) and insurers but not to certain “excepted benefits.” The SBC template is intended to be used by all types of plans or coverage designs.
The SBC requirements do not apply to excepted benefits (which include many health FSAs and certain HRAs). Information about health FSAs and HRAs that are not excepted benefits, but are integrated with other major medical coverage, can be included in the appropriate spaces on the major medical SBC for deductibles, co-payments, co-insurance, and benefits otherwise not covered by the major medical coverage. But stand-alone health FSAs and HRAs that are not excepted benefits must satisfy the SBC requirements independently. Since HSAs are generally not group health plans, they are generally not subject to the SBC requirements.
Who Must Provide the SBC?
The SBC must be provided by plan administrators (for self-insured health plans) and plan administrators or insurers (for insured health plans). So, if the group health plan is self-insured, the obligation to provide an SBC lies solely with the plan administrator (usually the plan sponsor unless another entity is named as such in the plan documents). If the plan is fully insured, the obligation to timely provide an SBC lies both with the plan administrator and the insurer.
Who Must Be Furnished the SBC?
The SBC must be distributed to all applicants (at the time of application), policyholders (at issuance of the policy), and enrollees (at initial enrollment and annual enrollment). The plan (including the plan administrator) and the insurer must automatically provide an SBC to participants and beneficiaries with respect to each “benefit package” offered for which the participant or beneficiary is eligible. Information can be combined for different coverage tiers (self-only, employee-plus one coverage and family coverage) in one SBC, provided the appearance is understandable.
When Must the SBC Be Distributed?
Group health plans and insurers are required to provide an SBC to a participant or beneficiary with respect to each “benefit package” offered for which the participant or beneficiary is eligible.
The SBC must be distributed at various times, as outlined below.
At Open Enrollment (Renewal): The SBC must be included with open enrollment materials. If the plan or insurer requires participants or beneficiaries to renew in order to maintain coverage for a succeeding plan year, a new SBC must be provided no later than the date the renewal materials are distributed. If renewal is automatic, the SBC must be furnished no later than 30 days prior to the first day of the new plan year. For insured plans, if the new policy has not yet been issued 30 days prior to the beginning of the plan year, the SBC must be provided as soon as practicable, but no later than seven business days after the issuance of the policy.
In an effort to reduce unnecessary duplication with respect to group health plans that offer multiple benefit packages, in connection with renewal, the plan or insurer only need to automatically provide a new SBC with respect to the benefit package in which a participant or beneficiary is enrolled. SBCs are not required to be provided automatically with respect to benefit packages in which the participant or beneficiary is not enrolled. However, if a participant or beneficiary requests an SBC with respect to another benefit package for which the participant or beneficiary is eligible, the SBC must be provided as soon as practicable, but in no event later than seven business days following the request.
At Initial Enrollment: The SBC for each benefit package offered for which the participant or beneficiary is eligible must be provided as part of any written application materials that are distributed by the plan or insurer for enrollment. If the plan does not distribute written application materials for enrollment, the SBC must be distributed no later than the first date the participant is eligible to enroll in coverage for the participant and any beneficiaries. In the unlikely event that there is any change to the information required to be in the SBC before the first day of coverage (e.g., prior to the end of the plan’s waiting period), the plan or insurer must update and provide a current SBC to a participant or beneficiary no later than the first day of coverage.
At Special Enrollment: The plan or insurer must also provide the SBC to special enrollees (employees and dependents with the right to enroll in coverage midyear upon specified circumstances) within 90 days after enrollment pursuant to a special enrollment right, which is the timeframe for providing SPDs.
Upon Request: The plan or insurer must provide the SBC to a participant or beneficiary upon request, as soon as practicable, but in no event later than seven business days following the request.
How are the SBCs Distributed to Participants and Beneficiaries?
An SBC provided by a plan or insurer to a participant or beneficiary may be provided in paper form. Alternatively, for plans and insurers subject to ERISA (including plans sponsored by private-sector employers) or the Code (including plans subject to ERISA and church plans not subject to ERISA), the SBC may be provided electronically to participants and beneficiaries covered under the plan if the requirements of the DOL’s electronic disclosure safe harbor are met.
For participants and beneficiaries who are eligible but not enrolled, the SBC may be provided electronically if the format is readily accessible and a paper form is provided free of charge upon request. For these participants and beneficiaries only, the SBC may be provided via Internet posting if the individuals are notified in paper form (such as a postcard) or via email that the documents are available on the Internet. The postcard or email must provide the Internet address and indicate that the documents are available in paper form upon request.
How Should the SBC Appear?
The SBC be presented in a uniform format, utilize terminology understandable by the average plan participant, not exceed four pages in length, and not include print smaller than 12-point font.
The SBC is designed to be provided in the form authorized by the agencies and completed in accordance with the instructions and guidance. Plans and insurers may provide the SBC either in color or grayscale. Group health plan SBCs may be provided either on a stand-alone basis or in combination with other summary materials (such as the SPD) if certain requirements are met. If the SBC is provided in combination with other materials, it must remain intact and must be prominently displayed at the beginning of the materials (such as immediately after a table of contents), and the timing requirements for providing the SBC must still be satisfied.
What are the Language Requirements for the SBC?
The SBC must be presented in a “culturally and linguistically appropriate manner.” To satisfy this requirement, a plan or insurer should follow the rules for providing appeals notices in a culturally and linguistically appropriate manner under PHSA § 2719 and its implementing regulations. In general, those rules provide that for materials sent to an address in specified counties of the United States, plans and insurers must provide oral language services in the applicable non-English language, include a one-sentence statement in the English versions of the SBC—prominently displayed in the non-English language—clearly indicating how to access the language services, and must provide written translations of the SBC upon request in the applicable non-English languages. The counties in which this must be done are those in which at least 10% of the population residing in the county is literate only in the same non-English language. This determination is based on U.S. Census data. In order to assist with compliance with this language requirement, HHS will provide written translations of the SBC template, sample language, and uniform glossary in the four applicable languages (Spanish, Tagalog, Chinese, and Navajo) and may also make these materials available in other languages.
What are the Content Requirements for the SBC?
The SBC must include the following information:
• Uniform definitions of standard insurance and medical terms so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage.
• A description of the coverage, including cost-sharing, for each category of benefits identified by the agencies.
• Exceptions, reductions, and limitations on coverage.
• Cost-sharing provisions, including deductible, co-insurance, and co-payment obligations.
• Renewability and continuation of coverage provisions.
• A “coverage facts label”—called “coverage examples” in the regulations—illustrating common benefits scenarios (e.g., pregnancy, serious or chronic medical conditions) and related cost-sharing based on recognized clinical practice guidelines.
• With respect to coverage beginning on or after January 1, 2014, a statement of whether the plan or coverage provides “minimum essential coverage”, and whether the plan’s share of the total allowed cost of benefits provided under the plan meets applicable requirements.
• A statement that the SBC is only a summary and that the plan (or policy or certificate) should be consulted to determine the governing contractual provisions.
• The telephone number to call for additional questions and to obtain a copy of the plan document, insurance policy, or group certificate of coverage (or individual coverage policy), and the Internet web address where the materials are available.
• For plans and insurers that maintain one or more networks of providers, an Internet address (or similar contact information) for obtaining a list of the network providers.
• For plans and insurers that maintain a prescription drug formulary, an Internet address where an individual may find more information about the prescription drug coverage under the plan.
• An Internet address for obtaining the uniform glossary and a contact phone number to obtain a paper copy of the glossary, and a disclosure that paper copies are available.
The coverage examples component of the SBC (referred to as the “coverage facts label” above) is intended to estimate what proportion of expenses under an illustrative benefits scenario might be covered by a given plan to allow participants and beneficiaries to use this information to compare their share of the costs of care under different plan options to make an informed enrollment decision. A benefits scenario is a hypothetical situation consisting of a sample treatment plan for a specified medical condition during a specific period of time, based on recognized clinical practice guidelines. A benefits scenario should include the information needed to simulate how claims would be processed under the scenario to generate an estimate of cost-sharing which a participant or a beneficiary could expect to pay under the benefit package.
When must a Notice of Material Modification to the SBC be provided?
A group health plan or insurer must provide notice of a material modification if it makes a material modification in any of the terms of the plan that is not reflected in the most recently provided SBC.
Only material modifications that would affect the content required in the SBC required would require plans and insurers to provide this notice. In these circumstances, the notice must be provided no later than 60 days prior to the date on which such change will become effective, if it is not reflected in the most recent SBC provided and occurs other than in connection with a renewal (i.e., mid-plan year). The notice may be provided in paper or electronic form, in accordance with the requirements discussed above for providing the SBC.
This requirement for an advance notification could be satisfied either by a separate notice describing the material modification or by providing an updated SBC reflecting the modification.
What are the Consequences of Failing to Provide the SBC?
A penalty of up to $1,000 per failure can be assessed on plan administrators and insurers (for insured health plans) and plan administrators (for self-insured health plans) that “willfully fail” to timely provide the SBC. A failure with respect to each participant or beneficiary constitutes a separate offense. The fine cannot be paid from plan or trust assets.
No penalties will be imposed during the first year on plans and issuers that are working diligently and in good faith to provide the required SBC content in an appearance that is consistent with the final regulations.
Resources:
The foregoing list the most recent of guidance for creating the SBC. Other items will be addressed at a later date, including revised, more flexible timelines for providing the SBC by carriers to plan sponsors, and from carriers/plan sponsors to participants/beneficiaries.
Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.
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My employer has just indicated that it will receive a Medical Loss Ratio (MLR) rebate from the insurer for group health coverage provided in 2011. It will distribute the rebate to employees in the form of a cash payment for any amounts contributed by employees. Will these cash payments be taxable to employees when they receive them?
It will depend if employees made pre-tax or after-tax contributions for their share of premium. See the discussion below:
Pre-tax Contributions: In frequently asked questions (FAQs), IRS clarified the tax treatment of rebates for group health plan enrollees. Employees who paid for health coverage with pretax contributions will be taxed on any cash MLR rebate they receive. Rebates used to reduce employee pretax contributions will lower employees’ salary reduction amounts, resulting in higher wages subject to income and employment taxes.
If an employer uses the MLR rebate received this year to make cash payments to employees who made pretax contributions, the rebate payment will be taxable income to those employees and subject to employment taxes. If the employer instead uses the MLR rebate to reduce employees’ 2012 health plan premiums, each employee’s pretax plan contribution will shrink, causing wages subject to income and employment taxes to increase by the same amount.
Example. For 2011 and 2012, Betty participated in her employer’s insured group health plan, making pretax contributions for coverage. In 2012, her employer sends Betty a check for her share of the MLR rebate after income and employment tax withholding.
Example. John participates in his employer’s group health plan, electing under its cafeteria plan to make $6,500 in pretax contributions for coverage in 2012. John’s employer receives an MLR rebate in July 2012 and applies it to reduce each group health plan participant’s 2012 premiums by $1,000. This requires adjusting the payroll system to lower pretax deductions for the rest of the year. As a result, Robin’s total pretax cafeteria plan contributions will decrease to $5,500, and his taxable income will increase by $1,000 for 2012. Both John and his employer will have to pay employment taxes on that additional taxable amount.
After-tax Contributions. When employees pay group health plan premiums with after-tax contributions, MLR rebates typically won’t be taxable. Whether used to reduce 2012 premiums or paid in cash, any MLR rebates for these employees simply refund their after-tax premium payments. The rebate will be taxable, however, if employees – such as partners in a partnership –deducted the after-tax premiums on their 2011 federal income tax returns. Individuals in this position should work with their personal tax advisers.
The FAQs don’t address the tax treatment of MLR rebates for former employees participating in an employer’s plan, such as COBRA beneficiaries or retirees. Although the tax treatment of rebates presumably would be the same for former and current employees paying with after-tax contributions, any guidance would be helpful.
Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.
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