December 2012 – After a long, expensive and exhausting election season, the legislature finally returns to Lansing for the final weeks of the 96th legislature. In what is expected to be an exceptionally busy and aggressive agenda, members of the Michigan State House and Senate are expected to tackle a number of significant public policy decisions before all bills introduced in the 2011-2012 legislative cycle “die” and must be re-introduced in 2013 for consideration.
Senate Bill 1359 remains among the myriad of bills awaiting potential deliberation. The content of the legislation may be familiar to some — the bill proposes to amend the ‘Health Insurance Claims Assessment Act’ which became law in 2011, but did not take effect until January of 2012. The current legislation assesses a 1.0% tax on the “paid claims” of insurance carriers, third party administrators and self-insured entities that pay health insurance claims on health services provided in Michigan to Michigan residents. The “claims tax” was introduced as a means of preserving Medicaid dollars. The tax was intended to raise roughly $400 million annually and would help Michigan leverage or “draw down” additional federal Medicaid matching dollars. Over the last 10 months, however, the tax has not been generating the amount of revenue the state needs to adequately meet expectations regarding Medicaid funding — hence, the introduction of SB 1359.
The bill would allow the Department of Treasury the authority to increase or decrease the rate of the tax to meet the “base need.” The base need in 2012 is $400 million as stated previously, but for 2013 and each year thereafter, the base need would be calculated by the immediately preceding year’s base need adjusted by the medical inflation rate. The bill effectively allows the department to raise the rate, as appropriate, if revenues are not meeting “need.” The original legislation also established a mechanism for a proportional credit against the carrier or third party administrator’s assessment (in the immediately preceding year) if the revenue collected exceeded $400 million. This provision is no longer included in SB 1359.
The Michigan Business and Professional Association and the Michigan Food and Beverage Association have joined a coalition of business interests across the state to oppose SB 1359. The Associations will continue to apprise members of developments regarding this important piece of legislation.
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A business is reimbursing its executives for the annual physical examinations under its Health Reimbursement Arrangement and no one else. Wouldn’t such a practice be discriminatory and taxable to the executives?
No. Under Treasury Regulation Section 1.105-11(g), a special exception applies from the Code Section 105(h) nondiscrimination rules for reimbursements paid for medical diagnostic procedures for a highly compensated individual. Reimbursements of these expenses are not considered part of the self-insured health plan.
For example, the reimbursement of an employee’s annual physical examination conducted at the employee’s physician’s office is not considered part of the self-insured health plan (and thus is not subject to the Code Section 105(h) rules). An employer can rely on this exception to provide free “executive physicals” to certain employees, often including only highly compensated individuals.
This is permitted discrimination in favor of highly compensated individuals for a narrowly defined type of expense. The exception does not apply to an employee’s dependents.
The allowable procedures include routine medical examinations, blood tests, and X-rays. They do not include expenses for the treatment, cure, or testing of a known illness, disability, or physical injury. Thus, a routine dental examination with X-rays qualifies, but X-rays and treatment for a specific dental problem do not.
In addition, such procedures do not include activities undertaken for exercise, fitness, nutrition, recreation, or general improvement of health unless they are for medical care, as provided in Treasury Regulation Section 1.105-11(g). The diagnostic procedures must be performed at a facility that provides no services other than medical and ancillary services. Physical proximity between a medical and non-medical facility does not necessarily mean that the medical facility will not qualify. Transportation expenses that are primarily for the diagnostic procedure (but not incidental expenses for food or lodging) are allowed only if they are “ordinary and necessary,” as provided in Treasury Regulation Section 1.105-11(g).
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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December 2012 – An area of much discussion within the Patient Protection and Affordable Care Act are aspects relative to the ‘Employer Mandate’ that will go into full effect January 1, 2014. Since we are just a bit more than a year from the effective date of this provision, it’s a good idea to start evaluating your company’s situation and assess your options.
Under the Act, there are different provisions for Large and Small companies. So, when is a company considered Small or Large?
The first step in evaluating how this aspect of the Act may impact your organization is to determine if your business is considered a ‘Small’ or ‘Large’ employer under the Act. For the purposes of health insurance requirements, the Act designates businesses with fewer than 50 full time equivalent employees to be a ‘Small Employer’, while businesses employing 50 or more full time equivalent employees are considered to be a ‘Large Employer’. Be aware that the computation of full time equivalents under the Act has its complexities, especially if your employee base is reliant upon part-time or seasonal employees. Therefore it is a good idea to seek counsel from your health benefits advisor as you assess your compliance with this aspect of the Act.
Are there penalties ‘Small Employers’ need to be concerned about?
If you fall into this classification of being a ‘Small Employer’, the good news is that no penalties currently exist for not offering insurance coverage. In fact, through December 31, 2013, if you employ 25 or fewer full-time workers whose average wages do not exceed $50,000 annually and you offer employer sponsored health insurance, you may qualify for the Small Employer Health Insurance Credit. This could help offset the costs of voluntarily offering health insurance coverage to your employees. After 2013, the provisions and requirements of the Small Employer Health Insurance Credit will change. Those of you who think your business may qualify for this Credit should consult your tax advisor.
What penalties (excise tax) will Large Employers face if no health insurance is offered?
Unfortunately, ‘Large Employers’ may incur an additional tax if they don’t offer eligible employees the option to enroll in an employer sponsored health plan. Under the terms of the Act, if the company chooses to not offer employee health coverage, and at least one of its employees is certified to receive a premium tax credit or cost sharing subsidy in an eligible State Exchange (public insurance program), the company will then subject itself to a nondeductible excise tax. This excise tax is what is referred to by many as a ‘penalty’. The calculation of this penalty can be somewhat complex, but in simple terms, could amount to $2,000 per full time employee in excess of the first 30 employees. It is a good idea to discuss your specific circumstances with your health benefits advisor and your CPA.
What about Large Employers who offer Insurance, are they exempt from an excise tax?
The simple answer is …it depends. If the company offers what the government considers to be ‘inadequate or cost prohibitive’ coverage, they may end up incurring an excise tax liability. There are two tests that must be met to avoid these taxes:
1. The first test relates to the level of coverage offered. The coverage must on average pay for a minimum of ‘60% of covered health care claim costs for a typical population’.
2. The second test focuses on the overall affordability of the coverage to the employee. Generally, the coverage is deemed unaffordable if the employee has to pay more than 9.5% of family income to obtain it.
These calculations become complex, but in simple terms, the excise tax could amount to as much as $2,000 to $3,000 for every fulltime employee whose coverage fails to meet one or both of these criteria. Therefore, it’s a good idea to discuss the impact of these regulations with your benefits consultant.
What are some of the Tax and Financial implications a Large Employer should consider:
As with many business decisions, the tax and financial implications are often key aspects to consider in the assessment of the impact of this Act. If your business is currently offering health insurance to its employees, under current regulations the costs of these benefits are tax deductible. But, if a ‘Large’ business elects to discontinue offering health insurance coverage or changes to a level of coverage that the regulations describe as ‘inadequate or cost prohibitive’, the business may likely be subjected to a non-deductible excise tax. Proper business planning around this Act will require one to assess the financial impact of these excise taxes in comparison to the costs of offering health insurance coverage. Such considerations must be done carefully, especially in a union environment. Additionally, whether a union environment or not, we all know how sensitive it can be to adjust benefit levels for your employees as it certainly has an impact on employee morale and productivity.
As we all continue to learn about PPACA’s constantly evolving regulations, there are a great number of considerations and unknowns a business must wade through in determining how the Act will impact them. The Employer Mandate component is no different than the other sections of the Act in that it will take a great deal of planning to make sure you are ready for its aspects come January 1, 2014.
With extensive experience providing financial solutions to clients – from business operation & efficiency assessments to consulting & corporate tax guidance – Don McAnelly is ideally positioned to provide the support today’s businesses need. Don serves as Rehmann’s primary CPA contact for health care clients in East Michigan and his experience extends to tax, valuation and financial matters. Don has been with Rehmann for 18 years, with prior Big Five national accounting firm experience. Additionally, he is a member of the Michigan Association of CPAs, has authored overviews on the Patient Protection and Affordable Care Act for the Firm’s BWD magazine and has spoken on the Act to various chambers of commerce.
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Can an employer reimburse individual medical insurance premiums under a Health Reimbursement Arrangement (HRA)?
Although employers may permit their HRAs to reimburse health insurance premiums under the IRS Notice 2002-45, they should be cautious in reimbursing individual health insurance premiums. By including individual health insurance policies in an HRA, these policies may be treated as group health insurance coverage. If they are, the following compliance issues might arise. They could be subject to: (a) the HIPAA portability, privacy & security requirements (b) ERISA requirements for disclosure, claims and fiduciary liability, (c) other federal mandates, including FMLA, Mental Health Parity, Reconstructive Surgery After Mastectomy, Newborns’ and Mothers’ Health Protection Act and other federal mandates, and( d) state insurance mandates for group insurance policies.
At the current time, there is no guidance in the area. Employers should be warned and cautioned before establishing such an HRA. This uncertainty has arisen because since HRAs provide medical care, they are considered “group health plans” and must comply with additional ERISA requirements such as HIPAA and COBRA.
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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December 2012 – The Patient Protection and Affordable Care Act (PPACA) requires that certain employers report the cost of employer-sponsored health care costs on an employee’s W-2 beginning with W-2s issued for the 2012 calendar year. This does not mean that the cost of employer-sponsored health care is taxable to employees, but rather the reporting of such costs is a means by which employees, and the government, are notified of the cost of health care coverage.
Which Employers Are Subject to This Reporting Requirement?
With very limited exceptions, all employers sponsoring a group health plan and filing more than 250 W-2s in the previous calendar year must comply with PPACA’s W-2 reporting requirement. This includes governmental employers and churches.
The IRS has provided that the “small employer exception” (e.g., less than 250 W-2s in the previous calendar year) will apply to all future calendar years until the IRS issues additional guidance providing otherwise. It is important to note that the small employer exception is determined based on the individual employer and not on a controlled group basis.
How are the Reportable Costs Calculated?
Employers must report “aggregate reportable cost” of all the coverage it provides. Aggregate reportable cost is defined as the total cost of all applicable employer-sponsored coverage which includes both the employee and employer portion of the benefit costs, regardless of whether it is paid on a pre-tax basis. (See below for information on which group health plans to include in these calculations.) For insured plans, costs are usually based on the premiums charged. For self-funded plans, employers can use the costs calculated for purposes of COBRA premium calculations, minus the 2% administration fee.
Which Group Health Plans Are Exempt From Cost Reporting?
Not all employer-sponsored group health plans are subject to the W-2 reporting requirements. For example, employers do not need to include the cost of the following group health plans in its calculation of aggregate reportable costs:
• HIPAA excepted benefits (e.g., standalone dental, standalone vision, certain health flexible spending account plans)
• Health Savings Account (HSA) contributions
• Health Reimbursement Arrangements (HRAs)
• Self-funded plans that are not subject to COBRA or other similar continuation coverage
• Long-term care coverage
• Accident or disability income
• Multi-employer plans
What Are the Reporting Requirements For Former Employees?
The IRS has issued guidance which provides flexibility for employers with regard to reporting aggregate reporting costs for employees who terminate employment during the calendar year. In general, as long as the employer is consistent in reporting the cost of coverage under a particular health plan for all employees who terminate employment during the year, any reasonable method may be used.
For example, an employer may report only the costs for the portion of the year during which employees were active employees covered by the plan, and ignore any costs for post-employment coverage, such as COBRA continuation coverage. Alternatively, the employer may choose to report the cost of both pre-and post-employment coverage on the employee’s W-2 for the year of termination, as long as this is the treatment for all covered employees who terminated during the year.
The IRS also provided that employers are not required to report the cost of coverage on a W-2 furnished to a former employee who requests their W-2 before the end of the calendar year in which the employee terminated employment.
With respect to retirees, or other former employees who received no compensation during the calendar year, the employer is not otherwise required to issue a W-2 in order to report the cost of any employer-provided coverage to such former employees.
Immediate Employer Action Required
Employers must comply with these new W-2 reporting requirements for 2012 reporting, which will take place in January 2013. Therefore, if they have not already done so, employers should review their employer-sponsored health plans to determine which plans will be subject to the W-2 reporting requirements. Employers also need to implement payroll and reporting processes to comply with the requirement, including working with any applicable third-party administrators that assist the employer with its payroll processing.
*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.
Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.
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The MBPA wants to ensure that the agent community is given the right tools and information to get you and your clients through Health Care Reform. The MBPA is pleased to present Health Care Reform Connect™ to help you and your clients navigate reform.
Highlights of Health Care Reform Connect™ include:
LIC coursework and discounts.
You can email healthreformanswers@michbusiness.org for quick, accurate answers to your complex questions for your clients and MBPA members. Experts from across the country are available to MBPA agents.
Webinars and workshops to address complex issues like SBCs, W2 reporting, and tax penalties/credits, along with timely reform updates to help you and your clients prepare.
Reform presentations and educational/compliance tools are available for you and your clients.
These services are available to MBPA members through the agent community. Ensure you write your Blue Cross business with the MBPA with Sponsored Plan Acronym AL. MBPA’s “AL” has your back during reform.
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As a writing agent with MBPA and MFBA, you now have the answers that you need to help you navigate reform issues with your clients. Health Care Reform Connect™ will give you:
Expert advice on complicated compliance issues and technical guidelines to assist you.
Access to monthly webinars and seminars on Reform
An Email Hotline for specific client questions that you need answered
Links and Feeds on the latest news on PPACA and Health and Human Services
A plethora of tools that you can use in your agency including client presentations, white papers and reform PDFs for your clients
Compliance Solutions such as W2 compliance payroll services
The ability to request the MBPA Legislative team to come out and make a presentation to your team or for your client meetings
IRS and tax compliance, credits and penalty, information and tools
Experts that you can lean on for implementation of reform for your clients.
To view our latest edition of the Health Care Reform Connect™ Newsletter, please click here.
To take advantage of these services continue to write your Blues with the MBPA.
Our service team is ready to help you at 888.277.6464.
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As BCBS announced in a Sept. 21, 2012, the Michigan claims assessment factor is changing for all BCBSM experience-rated group customers.
BCBS has mailed a letter to all ERS groups as of Nov. 21, explaining the adjustment to their claims assessment factor. The new factor should appear on the group’s January 2013 invoice however, there may be some groups with early December billing dates that will not receive the factor until February. If this occurs, the adjustment will be made on their February invoice.
Questions? Contact your managing agent or Blues sales representative.
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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 for details on MBPA’s program with FSI West MichiganClick 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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The Michigan Business and Professional Association (MBPA) and its sister group, the Michigan Food and Beverage Association (MFBA), make it priority #1 to keep you up to date on the federal healthcare law and how it affects you, your business, and/or clients. Today the Michigan House Health Policy Committee, when given a second chance to approve a state based exchange, rejected that opportunity. The Speaker of the House made a statement today that establishing a state based exchange in Michigan will not happen this year, but has potential in next year’s session.
As a refresher, in the state-based healthcare exchange, Michigan would be allowed to participate in essentially twelve different areas, making decisions on what is best for our region. In the state/federal partnership plan, Michigan is allowed to participate in two out of the twelve decision areas, which stated by law is Planned Management and Customer Service. Lastly, in the complete federal run plan, Michigan is not granted any decision making power. The continued inaction by the House of Representatives leaves no other choice but for Michigan to pursue a state/federal partnership, giving Michigan less decision making power.
Per the ACA, if Michigan choses now to pursue the state/federal partnership, it still has the opportunity in 2013 to switch over to a state based exchange, if approved by the legislature and governor. Also, per the ACA, the 9.8 million dollars in federal grant funding to lay the ground work for establishing a state-federal partnership is still available.
The 9.8 million dollars in federal grant monies in no way ties our state to any permanent healthcare decisions; it merely gives us much needed revenue to begin technical compliance, while saving our general fund dollars. The time to act is now. This is the last remaining option we have for Michigan to maintain some control over decisions made in regards to our healthcare.
If you have any questions please do not hesitate to contact our government relations team by phone at: 586-393-8800 or by email: BBochniak@michbusiness.org
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