Employers should note upcoming cafeteria plan design changes that require an amendment no later than December 31, 2014 and other upcoming 2015 action items.
Required Amendment to a Cafeteria Plan
Since the 2010 passage of the Affordable Care Act (ACA), employers have witnessed what often feels like a lifetime of plan design changes. Fortunately, regulators have consistently allowed employers to delay amending their plan documents to address these changes—unfortunately, in 2014, these delays come to an end. As noted in prior communications, cafeteria plans must be amended by December 31, 2014 to adopt the $2,500 limit ($2,550 for 2015) on an employee's annual pretax contributions made to a health flexible spending account (FSA).
Optional Amendments to a Cafeteria Plan
Special Enrollment. In Notice 2014-55, the Internal Revenue Service (IRS) allowed two new permissible midyear cafeteria plan election changes. The first change is intended to allow employees who were expected to average 30 hours of service per week to revoke their elections and elect other minimum essential coverage if they experience a change in employment status, after which they are not expected to average 30 hours of service a week, even if they do not lose eligibility under the plan. The second change is designed to allow employees enrolled in a group health plan and eligible to enroll in the Marketplace to elect Marketplace coverage, either during a special enrollment period or during the Marketplace’s annual enrollment period. Employers that wish to implement these permissible midyear cafeteria plan election changes must adopt the changes by the end of the plan year in which they become effective. This means that an amendment must be adopted by December 31, 2014 for calendar-year plans to take advantage of these new permissible midyear changes for the 2014 plan year.
Carryover of Funds. Cafeteria plans are now allowed to be amended to provide for up to a $500 carryover of unused health FSA contributions, which allows a portion of any health FSA contribution to be exempt from the “use-it-or-lose-it” rule. This optional amendment must be adopted on or before the last day of the plan year from which amounts may be carried over. So, for example, if a calendar-year plan sponsor wishes to have up to $500 of a participant’s health FSA contributions from 2014 carried over to 2015, it must amend its cafeteria plan no later than December 31, 2014.
Note that a cafeteria plan may not adopt the $500 carryover and provide for a grace period to allow health FSA funds to be used to cover eligible expenses incurred during the two and a half–month period following the end of the plan year. Those two options are mutually exclusive, and so, if a cafeteria plan already provides for a grace period, it cannot simultaneously adopt the $500 carryover, but the plan may be amended to switch options.
Continuing Employer Obligations for 2015
Out-of-Pocket Maximum Limits. The out-of-pocket maximum limits for in-network benefits became effective for nongrandfathered group health plans for the 2014 plan year. For the 2015 plan year, the out-of-pocket maximums were increased to $6,600 for individual coverage and to $13,200 for family coverage. For the 2015 plan year, plan sponsors may have separate out-of-pocket maximums on different categories of benefits as long as the combined amount for all categories does not exceed the allowed amount.
Transitional Reinsurance Fee. The transitional reinsurance fee for 2014 is due on January 15, 2015. The transitional reinsurance fee applies to grandfathered and nongrandfathered health plans. The total fee for 2014 is $63 per covered life and may be paid in two installments. If paid in two installments, the first contribution amount is $52.50 per covered life and is due January 15, 2015, and the second contribution of $10.50 per covered life is due November 15, 2015.
Patient-Centered Outcomes Research Institute (PCORI) Fee. The PCORI fee for the 2014 plan year is due on July 31, 2015 and is $2.08 per covered life. Employers that sponsor self-funded health plans must calculate and report the PCORI fee on Form 720. The insurer is required to report and pay the PCORI fee on fully insured products.
Same-Sex Spouse Definition. The U.S. Supreme Court’s decision in Windsor v. United States held that section 3 of the Defense of Marriage Act was unconstitutional and that for federal law purposes, the definition of “spouse” includes same-sex spouses who are married in a jurisdiction that recognizes same-sex marriage. The IRS has issued guidance that permits employees to pay for health coverage for same-sex spouses on a pretax basis and be reimbursed from a health FSA for eligible expenses related to his or her same-sex spouse. Plan sponsors should carefully review the definition of “spouse” in their health and welfare plans to ensure that it is properly defined.
New Employer Obligations for 2015
ACA Reporting Requirement. The ACA added Internal Revenue Code (Code) sections 6055 and 6056, which impose significant reporting obligations on employers for health coverage provided during the 2015 calendar year, with the first returns due in early 2016. The Code section 6055 reporting is designed to assist the IRS with enforcing the individual mandate under the ACA, and generally requires entities that provide minimum essential coverage (e.g., insurers and plan sponsors of self-insured group health plans) to file annual returns that report information about the entities, as well as specific information about each individual for whom minimum essential coverage is provided, and to provide statements to their employees. The Code section 6056 reporting requires applicable large employers (i.e., those employers with at least 50 full-time employees or 100 full-time employees for 2015) to file information returns with the IRS and provide statements to each full-time employee about the health insurance coverage that the employer offers. The IRS will use the information provided to enforce the employer-shared responsibility provisions of Code section 4980H.
Delayed Employer Obligations
Health Plan Identifier. Large group health plans were required to obtain health plan identifier numbers (HPIDs) by November 5, 2014. The HPID requirement is an effort by the Department of Health and Human Services (HHS) to standardize data for covered electronic transactions under the Health Insurance Portability and Accountability Act (HIPAA) and is rooted in requirements under the ACA. On October 31, 2014, the Centers for Medicare & Medicaid Services (CMS) Office of e-Health Standards and Services, the division of HHS responsible for enforcing compliance with HIPAA standard transactions, code sets, unique identifiers, and operating rules, announced a delay in enforcement action for this requirement until further notice. Although the deadline for obtaining an HPID was delayed by CMS, plan sponsors should note that the requirement has not been repealed. Accordingly, plan sponsors should keep in mind that this requirement lingers and may require action sometime in 2015 or beyond.
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