SECTION 1. PURPOSE This revenue procedure provides the 2013 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under § 223 of the Internal Revenue Code.

SECTION 2. 2013 INFLATION ADJUSTED ITEMS Annual contribution limitation. For calendar year 2013, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,250. For calendar year 2013, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $6,450. High deductible health plan. For calendar year 2013, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,250 for self-only coverage or $12,500 for family coverage.

SECTION 3. EFFECTIVE DATE This revenue procedure is effective for calendar year 2013.

SECTION 4. DRAFTING INFORMATION The principal author of this revenue procedure is Bill Ruane of Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding § 223 and HSAs, contact Leslie Paul at (202) 622-6080 (not a toll free call). For further information regarding the calculation of the inflation adjustments in this revenue procedure, contact Mr. Ruane at (202) 622-4920 (not a toll free call).

Notice 2012-32 invites comments on the reporting requirements under § 6055 of the Internal Revenue Code for health insurance issuers, government agencies, employers that sponsor self-insured plans, and other persons that provide minimum essential coverage to an individual.  Minimum essential coverage includes individual health insurance coverage, eligible employer-sponsored plans, and government-sponsored coverage such as Medicare, Medicaid, TRICARE, and veterans’ health care.  Entities  providing minimum essential coverage after January 1, 2014, must file annual returns reporting information for each individual covered.

Notice 2012-33 invites comments on reporting under § 6056 by applicable large employers (as defined in § 4980H(c)(2)) that are subject to § 4980H.  Section 6056 requires reporting of certain information on employer-provided health care coverage provided on or after January 1, 2014.  Notice 2012-33 advises the public that the Treasury and IRS intend to propose regulations implementing § 6056 and invites comments on issues arising under § 6056, including on possible approaches for coordinating and minimizing duplication between the information required to be reported and furnished by employers under § 6056 and information required to be reported and/or furnished by employers or other persons under other applicable Code provisions.

Notice 2012-31, 32 & 33 will be published in Internal Revenue Bulletin 2012-20 on May 14, 2012.

FEATURED SOLUTION ARC: What benefits managers need to know about health care reform

WASHINGTON—A House panel next week will hold a hearing on an unpopular provision in the health care reform law that restricts the use of flexible spending accounts to reimburse employees for over-the-counter medications.

Under that provision, FSA reimbursement is only permitted if the employee obtains a prescription for the medication.

“Physician groups have suggested that the OTC medication prescription requirement has imposed an unreasonable administrative burden, resulted in longer waits for appointments, and increased health care costs,” according to a statement released by the House Ways and Means Health subcommittee, which will hold the April 25 hearing.

Sixty-two percent of employers responding to a Midwest Business Group on Health survey said they favored repeal of the provision, which made it the second-most unpopular health care reform law provision among respondents. The most unpopular was the provision, effective in 2013, that will place a $2,500 annual cap on FSA reimbursements. Sixty-six percent of respondents favored repeal. There is no cap now, though employers typically limit annual FSA reimbursement to between $4,000 and $5,000.

April 12, 2012

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 them.  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, John’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.

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.

For a copy of the Frequently Asked Questions released by the IRS, please click on the link below:

http://www.irs.gov/newsroom/article/0,,id=256167,00.html 

If you have any comments or questions regarding any of above information, please do not hesitate to call (708) 717-9638 or e-mail larry@larrygrudzien.com

How to Pick a Good TPA

Written by:  Ric Joyner

As an agent or broker, have you scrutinized your client’s pre-tax benefit plan documents?  Often brokers mention their current CDH Third Party Administrator (TPA) sends their client the required plan documents, and the documents are inaccurate.  Nobody likes to play attorney, and it is important that you find a TPA that has worry free compliance built into their fees.

In 1986, I dove into pre-tax benefit administration and the market had little resources, even at the IRS, to gather answers to basic questions. I forged ahead and made section 125 administration my career focus. To be frank, after all these years, I still see a lack of comprehension about all forms of Consumer Driven Health Plans (CDHP); and excuse my bluntness, but brokers and CPAs can churn out some real doozies. Those brokers that are careful about their answers are the best. Brokers that shoot from hip with answers and expect us to pick up the pieces of their credibility are the worst. But before you take offense and skip this entire article, my passion is to educate brokers and their clients on how to pick the right TPA.

I recently spoke with a broker who noticed mistakes in his clients plan documents.  He complained to the TPA and they irritatingly responded, “We provide documents as a sort of courtesy.”  Compliance is not a courtesy, and here are just a few tips to ensure that the TPA you are using takes correct plan administration seriously:

1.        Compliance paired with balance-Some TPAs approach compliance from a conservative stance. This means they interpret the law strictly. Employee Benefits Institute of America (EBIA) is an excellent example of the conservative approach. Because of the amount of people that use their resources, it is common for EBIA to present the least risk adverse scenario in their material. Another approach is lenient (aggressive) with the regulations. The key is balance.  For example, I know a TPA who has an audit guarantee they promote, but doesn’t ask for any claim documentation for their debit cards or mailed/faxed claims. TPA review is required to meet the insurance principle in IRS Section 125-2! Interesting fact, their audit guarantee only pays the last six months of their fees! This TPA’s sales people also will tell the client and the broker that “the individual is responsible for the claim not the employer”. Individual responsibility is true for HSAs because it is designed to be an individual and portable account.  Section 125 FSA and HRAs are employer sponsored plans. The employer attests to the fact they are the plan sponsor and are hiring a TPA to do the administration. So don’t be fooled by these two sales pitches. Most TPAs have E&O insurance that ranges in policy size from $1-5 million of coverage. This translates to more than the cheating TPAs miniscule guarantee! Guess who the IRS turns to when this TPA is caught?  Your client.  If any of you are using a TPA with these sketchy standards, run for the hills.  The IRS does audit, in fact, I received a letter in 1998 from the IRS thanking me for helping train their agents on what to look for in Premium Only Plans. Other TPAs clients were audited over the last few years due to lenient debit card practices and no one wants an audit from the IRS. Why? Because the IRS’s philosophy is that if the employer will cheat on debit cards they will cheat in other areas. Once the employer is audited you are next. The only people who profit in this situation are lawyers. Find a TPA that operates with integrity.

2.       Consistent service throughout the year-January 1^st is a high volume time for most plans. Your TPA should demonstrate to you that they understand and know how to manage workflow. This is called the “theory of constraints”. The voice of the customer says; “give me the same service throughout the year”. At eflex we know how to manage work volume with our Lean Six Sigma training. We post our service metrics on our homepage. In other words, we prove our service.

3.       Fast and accurate claim payments-If claims are processed and paid quickly employees and HR will get excited. In fact, lack of participation due to slow and inaccurate claims procesed  means lower tax savings for everyone. When claims are paid within 3 days (in the employees hands) the phones stop ringing. We have studied the effects of paying claims on varying payment cycles and regardless of what is promised for the payment timing, employees begin to call and inquire about the status of their check after 3 days and escalate every day thereafter. Ringing phones are not good. They go from us to HR to you. Ringing phones waste your time and ours. Fast payments equal satisfied employees. Our average claim and paid processing time is ½ a day!

4.       Top-notch software system-Is it homegrown?  Not bad it if is, but HG software ages, so what resources does the TPA use for maintenance?  I know a TPA that almost lost their head programmer in the middle of a large project! Another question to ask is whether or not their software system is client-server based or web-based (SaaS)? Both are good options, however web-based is best because the SaaS provider is protecting your client’s data at a remote location. Lastly, it is important to check into the TPAs disaster recovery plan regardless of the software.  Ask for a copy.  If a disaster plan isn’t produced this the sign post for you to bail.

5.        Knowledgeable staff-If the TPA doesn’t have a highly trained and experienced staff, who will you turn when the client has questions?  The TPA of choice will have years of compliance expertise, and attorney’s available for counsel whenever complicated questions or new regulations arise. Eflex hired an educator that has a Masters in online education that produces our training tools for all staff. All staff is trained on how to pay claims from the CEO down to the scanning clerk. We are proactive in our training.

Compliance is not a courtesy, and screening your TPA will help you and your clients avoid the pitfalls of sloppy administration. Working with an administrator who produces  service consistency all year that is fast and accurate in claim review and payments, who also has top-notch software system, knowledgeable compliance staff and has integrity. Look for these qualities and your clients will love you for it!

Ric Joyner, CEO, MBA, CEBS, GBA, CFCI is co-founder of eflexgroup.com and ecobra.com. He speaks regularly for SHRM, NAHU, NAPBA and a host of other entities. He can be reached at rj@eflexgroup.com.

Published March 26, 2012 | FoxNews.com

That technicality was the focus of the opening round of hearings Monday. The  issue before the judges was whether an obscure 1867 tax law prohibits lawsuits,  like the ones challenging the health care law, from going forward until someone  actually pays the insurance tax penalty — the penalty for not buying health  insurance, as required under the law.

If the justices decided the 1867 law applies here, opponents might have to  wait until early 2015, when the IRS collects its first payments from uninsured  taxpayers, to formally challenge the law.

But all parties in this case happen to agree, albeit for different reasons,  that the law doesn’t preclude the Supreme Court from moving forward.

And from the outset of arguments the justices appeared to be on the same  page, as the first day of hearings wrapped up Monday around noon — though  little was said about the propriety of the health care law itself.

The justices disputed the notion that the insurance penalty is tantamount to  a tax and therefore subject to that 1867 provision.

“This is not attached to a tax,” said Justice Stephen  Breyer.

Pressing the matter further, Justice Ruth Bader Ginsburg said the purpose of  the fine for non-compliance is to get people to leave the ranks of the  uninsured. “This is not a revenue raising measure. If it’s successful, no  revenue will be raised,” she said.

Attorney Robert Long was assigned to defend the provision at issue in  Monday’s hearing.

Justice Sonia Sotomayor at one point asked Long a question about what “parade  of horribles” would follow if the Court allowed the suits to proceed. Not  finding Long’s response satisfactory, Justice Antonin Scalia interrupted to say  there would be no such parade and that Long would be unable to answer the  question.

After the 90-minute opening hearing, some observers felt the Court would  ultimately be unanimous in ruling that the health law challenges before them  Tuesday and Wednesday should go forward.

The justices heard arguments as demonstrators from both sides gathered  outside the courthouse in Washington, D.C.

The second day of hearings on Tuesday will be devoted to the most prominent  dispute over the health care law — whether it is constitutional for the federal  government to require Americans to buy health insurance.

Click here for full coverage of the ObamaCare  hearings.

Fox News’ Lee Ross and Jake Gibson contributed to this  report.

Read more: http://www.foxnews.com/politics/2012/03/26/supreme-court-signals-health-care-case-wont-be-held-up-over-technicality/print#ixzz1qFYlY5VB

March 24, 2012

My client currently sponsors a PPO, an HMO and an HDHP. For the next policy year, it wants to eliminate the PPO for cost reasons and transfer all the employees to the remaining two plans it sponsors. Will such elimination affect the grandfathered status of the other two plans it sponsors?   It may.  See the discussion below:   A plan will lose its grandfathered status if a plan transfers employees to another plan in a circumstance where the transfer, if treated like a plan amendment to the transferor plan, would cause that plan to lose its grandfathered status, unless there is a bona fide employment-based reason for the transfer, as provided in Treasury Regulations Section 54.9815-1251T(b)(2)(ii);DOL Regulations Section 2590.715-1251(b)(2)(ii);HHS Regulations Section 147.140(b)(2)(ii). However, employees may voluntarily change from one grandfathered health plan to another without endangering the grandfathered status of either plan, as provided in Treasury Regulations Section 54.9815-1251T(b)(3), Example 1; DOL Regulations Section 2590.715-1251(b)(3), Example 1; HHS Regulations Section 147.140(b)(3), Example 1.   What is a bona fide employment-based reason for this purpose?   Treasury Regulations Section 54.9815-1251T(b)(2)(ii)(C);DOL Regulations 2590.715-1251(b)(2)(ii)(C);HHS Regulations Section 147.140(b)(2)(ii)(C) specifically note that changing terms or cost of coverage is not a bona fide employment-based reason. Similarly, dropping one of two benefit options solely for cost reasons is impermissible, although dropping a benefit option following a plant closure may be permissible, as provided in Treasury Regulations Section 54.9815-1251T(b)(3), Examples 2 and 3; DOL Regulations Section 2590.715-1251(b)(3), Examples 2 and 3; HHS Regulations Section 147.140(b)(3), Examples 2 and 3.   Agency FAQs provide further guidance, describing several circumstances under which an employer may transfer employees from one grandfathered benefit package to another without causing a loss of grandfathered status:   * when the insurance issuer is exiting the market or will no longer offer the product to the employer;   * when low or declining participant enrollment makes it impractical for the employer to continue to offer the benefit package;   * when the benefit package is eliminated under a multiemployer plan as part of a collective bargaining process; and   * when the benefit package is eliminated for any reason, provided multiple benefit packages covering a significant number of other employees remain available to the transferring employees, as provided in FAQs About the Affordable Care Act Implementation Part VI, Q/A-1.

To view these FAQs, please click on the link below:   http://www.dol.gov/ebsa/faqs/faq-aca6.html   In the FAQs, the DOL indicates that the list is not intended to be an exhaustive list of circumstances that will be deemed to satisfy the bona fide employment-based reason condition. There may be many other circumstances in which a benefit package is considered to be eliminated for a bona fide employment-based reason.

Today, HHS officially published the guidance requiring plan sponsors to use all ERRP reimbursements by December 31, 2014.  http://www.gpo.gov/fdsys/pkg/FR-2012-03-21/pdf/2012-6728.pdf

This notice did not change how the proceeds must be used, however.  In general, ERRP requires a sponsor to use ERRP proceeds (1) to reduce the sponsor’s health benefit premiums or health benefit costs, (2) to reduce plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs, or (3) to reduce any combination of the costs specified in (1) and (2). ERRP proceeds may not be used as general revenue of the sponsors. Thus, to the extent a sponsor decides to use the reimbursement for its own purposes, it may use the reimbursement only to offset increases in the sponsor’s health benefit premiums or health benefit costs.

Mark L. Stember
Kilpatrick Townsend & Stockton LLP
Suite 900 | 607 14th Street, NW | Washington, DC  20005-2018
office 202 508 5802 | cell 202 714 5019 | fax 202 585 0018
mstember@kilpatricktownsend.com | My Profile | VCard

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