Important Update! 2010-38 Tax Treatment of Health Care Benefits Provided With Respect to Children Under Age 27 http://www.irs.gov/pub/irs-drop/n-10-38.pdf

As we have watched the progression of health care reform, please keep in mind that the primary purpose of Health Care Reform was to get people without access to coverage, access to coverage. Which is great, but can it be affordable? At this time, some employers are taking the initiative to investigate and implement limited or fixed benefit plan options.

Do you currently cover all of your employees? OR, do you currently carve anyone out of the plan based on their employment classification?

The law does allow you to offer a limited plan when affordability is an issue. This allows restricted annual limits on essential benefits; if there is a significant decrease in access to insurance, or if an increase in premiums becomes a factor. Keep in mind that these are NOT major medical plans.

There is a waiver process in some cases. If you currently have a limited benefit plan in place, and kept it, you have already experienced the waiver process. If you do not currently offer a limited benefit plan and would like to implement one, here are three potential options.

Call 281-333-2255 to discuss

It is a common misconception that generic versions of brand-name prescription drugs are inferior. In fact, the FDA requires that generic drugs meet the same standards as their brand-name counterparts. The difference involves the research, development and marketing investment that went into producing the original brand-name drug.

When generic equivalents become available, they have the same active ingredients and chemical purity as the brand-name drugs they imitate. Other ingredients including tablet fillers, coatings, flavors or colors may differ. And because their development costs are significantly less, generic drugs are often much cheaper.

Next time you receive a prescription from your doctor, ask if there is a generic version of the drug available. Many health plans charge a lower copay for generic drugs.

Federal and state laws require that questions on the job application, during the interview and during the testing process be job-related. Employers should not ask about race, gender, religion, marital status, disabilities, ethnic background, country of origin or age. Illegal interview questions are those that single an individual out for reasons that are contrary to equal employment opportunity and anti-discrimination laws. It is important to be aware of the laws to avoid legal penalties and potential lawsuits.

Technically it is not illegal to ask these questions in a certain manner, but if a question has discriminatory implications and employment is denied based on the applicant’s answer, the employer may have broken the law. The following are examples of illegal or inadvisable questions and legal or acceptable alternatives.

1. Subject: Relatives/Marital Status

Illegal: What is your marital status? What is the name of your relative/spouse/children? With whom do you reside? Do you live with your parents? How old are your children? Do you plan to have a family? How many kids do you have? What are your child care arrangements?

Legal: What are the names of relatives already employed by the company or a competitor? Are you willing to relocate if necessary? Are you willing to travel as needed by the job? (Must be asked of all applicants) Are you willing and able to work overtime as necessary? (Must be asked of all applicants)

2. Subject: Residence

Illegal: With whom do you reside? Do you rent or own? Do you live in town?

Legal: Inquiries about address to the extent needed to facilitate contacting the applicant. Will you have problems getting to work by 9 a.m.?

3. Subject: Pregnancy

Illegal: Questions relating to pregnancy and medical history concerning pregnancy. Do you plan on having more children?

Legal: Inquiries to duration of stay on a job or anticipated absences which are made to males and females alike. Do you foresee any long-term absences in the future?

4. Subject: Physical Health

Illegal: Overall general questions which would tend to divulge handicaps or health conditions that do not relate reasonably to fitness to perform the job. Do you have any handicaps or disabilities? What caused your handicap? What is the prognosis of your handicap? Have you ever had any serious illness? Please complete the following medical history. Have you had any recent or past illnesses or operations? What was the date of your last physical exam? How is your family’s health? Have you ever been treated for a mental condition? Are you taking prescribed drugs? Have you ever been treated for drug or alcohol addiction? Have you ever filed a workers’ compensation claim?

Legal: Can you lift 40 pounds? Do you need any special accommodations to perform the job you’ve applied for? How many days did you miss from work (or school) in the past year? The questions have to relate to the job. Are you able to perform the essential functions of this job with or without reasonable accommodations?

5. Subject: Family

Illegal: Questions concerning spouse, or spouse’s employment, salary, child care, arrangements or dependents. How will your husband feel about the amount of time you will be traveling if you get this job? What kind of child care arrangements have you made?

Legal: You may ask whether an applicant can meet specified work schedules or has activities or commitments that may prevent him or her from meeting attendance requirements. Is there any reason why you can’t be on the job at 7:30 a.m.? This job requires that you work overtime on occasion – would you be able and willing to work overtime as necessary?

6. Subject: Name

Illegal: Any inquiries about an individual’s name which would divulge marital status, lineage, ancestry, national origin or descent. If your name has been legally changed, what was your former name?

Legal: It’s legal to inquire whether an applicant has worked for the company or a competitor under any other name and to ask what name it was. Also acceptable: By what name do your references know you? Have you ever been convicted of a crime under another name?

7. Subject: Sex

Illegal: Any inquiry that relates to sex. Do you wish to be addressed as Mr., Mrs., Miss or Ms.? Do you have the capacity to reproduce? What are your plans to have children in the future?

Legal: None

8. Subject: Photographs

Illegal: Requests that an applicant submit a photo at any time prior to hiring.

Legal: Photos may be requested after hiring for identification purposes.

9. Subject: Age

Illegal: Any question that tends to identify applicants age 40 or older. How old are you? When did you graduate from college? What is your birthday? Requests for birth certificate or record are illegal before employment.

Legal: Are you 18 years of age? If hired, can you furnish proof of age?

10. Subject: Education

Illegal: Any question asking specifically the nationality, racial or religious affiliation of a school.

Legal: All questions related to academic, vocational or professional education of an applicant, including the names of the schools attended, degrees/diplomas received, dates of graduation and courses of study. What is the highest level of education you have completed?

11. Subject: Citizenship

Illegal: Asking whether an applicant is a citizen or requiring a birth certificate, naturalization or baptismal certificate. Any inquiry into citizenship that would tend to divulge an applicant’s lineage, descent, etc. Are you a citizen of the U.S.? Are your parents or spouse citizens of the U.S.? On what dates did you, your parents and/or your spouse acquire U.S. citizenship? Are you, your parents or your spouse naturalized or native-born U.S. citizens? What is your native tongue?

Legal: Questioning whether applicant is prevented from lawfully being employed in this country because of visa or immigration requirements is illegal. It is legal to ask an applicant to provide proof of citizenship (passport), visa and alien registration number after hiring. If you are not a U.S. citizen, do you have the legal right to remain permanently in the U.S.? What is your visa status (if no to the previous question)? Are you able to provide proof of employment eligibility upon hire? Are you authorized to work in the U.S.? What languages do you read, speak or write fluently? (Ability must be relevant to performance of the job).

12. Subject: National Origin/Ancestry

Illegal: What is your nationality? How did you acquire the ability to speak, read or write a foreign language? How did you acquire familiarity with a foreign country? What language is spoken in your home? What is your mother tongue?

Legal: What languages do you speak, read or write fluently? This is only legal when the inquiry is based on a job requirement.

13. Subject: Race or Color

Illegal: Any question that directly or indirectly relates to a race or color. What is your race? What is your complexion?

Legal: None

14. Subject: Religion

Illegal: Any question that directly or indirectly relates to a religion. What religious holidays do you observe? What is your religious affiliation?

Legal: Can you work on Saturdays? (Only if it is relevant to the job.)

15. Subject: Organizations

Illegal: To what organizations, clubs, societies and lodges do you belong?

Legal: To what professional organizations do you belong which you consider relevant to your ability to perform this work? (Exclude those names that indicate the race, religious creed, color, national origin or ancestry of its members. These inquiries must only relate to the applicant’s professional qualifications.)

16. Subject: Military

Illegal: The type or condition of military discharge or an applicant’s experience in anything other than the U.S. Armed Forces. A request for discharge papers is illegal. Were you honorably discharged? In what branch of the Armed Forces did you serve?

Legal: Inquiries concerning education, training or work experience in the Armed Forces of the United States. What type of training or education did you receive in the military?

17. Subject: Height & Weight

Illegal: Any inquiries not based on actual job requirements. How tall are you? How much do you weigh? What color are your eyes and hair?

Legal: Inquiries about the ability to perform a certain job. Being of a certain weight or height will not be considered a job requirement unless the employer can show that no employee with the ineligible height and weight could do the work. Are you able to lift a 50-pound weight, an essential function of the job?

18. Subject: Arrests & Convictions

Illegal: All inquiries relating to arrests. Have you ever been arrested? (Arrests are not the same as convictions. An innocent person can be arrested.)

Legal: Legal inquiries about convictions. Have you ever been convicted of any crime? If so, when, where and what was the disposition of the case? Have you ever been convicted under criminal law within the past five years (excluding minor traffic violations)? It is permissible to inquire about convictions for acts of dishonesty or breach of trust. These relate to fitness to perform the particular job being applied for.

Did you know that BCS can assist your company in providing a full spectrum of coverage to expats, third country nationals and local citizens of other countries, hired for your project. This includes life, medical, disability and GAP policies.

Our March workshop will be on International Benefits, Speaker will be Danielle Turner of CIGNA International. Please stay tuned for more information.

UnitedHealthcare has been selected to provide insurance plans for Healthy Texas, an employer-based program designed to help uninsured small business owners offer affordable health insurance to their employees and families.

Healthy Texas uses a state-funded pool to reimburse carriers for above-average health care claims costs. Because of this public/private partnership, Healthy Texas premiums should be on average approximately 25% to 30% lower than commercial market plans. For more information or to get a quote. Call us 281-333-2255 or email: paulac@bcspec.com.

The health care reform legislation grants certain plans grandfathered status, making them exempt from certain new provisions. Regulations were released in June detailing specific changes that would cause a plan to lose grandfathered status.

The Departments of Labor, Treasury, and Health and Human Services have now amended those regulations to permit insured group health plans to change insurance policies or carriers, without automatically losing their grandfathered status.

This amendment applies only to changes to group health insurance that are effective on or after Nov. 15, 2010. It does not apply retroactively to changes that were effective before that date.

It is important to note that making any other prohibited change will still cause a loss of grandfathered status.

Despite changes to health savings accounts (HSAs) precipitated by health care reform, enrollment in high-deductible health plans (HDHPs) paired with HSAs is expected to increase during this enrollment season.

Under new health care reform provisions, employees can no longer use their HSA dollars for over-the-counter drugs, unless they have a prescription, and the penalty for nonmedical withdrawals increases from 10 to 20 percent. These changes are effective Jan. 1, 2011.

However, HSAs are still growing in popularity.

• Employers are facing increasing health care costs and looking to pass costs to employees.

• Employees are looking for ways to save money on their health care and are realizing the potential cost savings of these plans.

Despite their popularity spike, there are still hurdles for employers regarding HSA plans. It takes time for employees who are used to traditional copays to feel comfortable with the higher out-of-pocket costs and the different experience associated with an HDHP/HSA.

Employers implementing an HSA plan need to educate employees about the change and promote health care consumerism to help employees make the most of their HSA. If effectively implemented, an HDHP/HSA plan can help employers and employees alike save money on health care.

The U.S. Department of Labor recently released a new online toolkit to guide employers through the process of hiring veterans.

This free toolkit includes a six-step process to help businesses design a veteran hiring initiative, including recruiting tips, creating a welcoming and accommodating work environment, additional resources and more. Access the toolkit at: www.americasheroesatwork.gov/forEmployers/HiringToolkit.

What employees are eligible to participate in a Section 125 (Cafeteria) plan?  

While there are some exceptions, generally an employer can define which classes of employees and former employees are eligible to participate within a Section 125 plan. Some employers impose a waiting period before new employees are eligible to participate. In addition, some employers allow employees to participate in the Section 125 plan immediately, but impose a waiting period on participation within the Flexible Spending Account portion of the Section 125 plan.

The Section 125 rules specifically prohibit the following employees from participating:

-    Self-employed individuals (including non-employee directors, partners),

-    Partners within a partnership, and

-    2 percent or more shareholders within a Subchapter S Corporation. 

Can former employees elect COBRA and continue to participate in the Section 125 plan?

Generally, COBRA participants receiving severance pay may be permitted to continue to make pretax contributions toward the cost of insurance. 

What are the advantages for employees to participate in a Section 125 plan?

An employee that participates in a Section 125 plan will receive the following advantages:

1. Realize an increase in his or her spendable income by:

-    Paying his or her portion of insurance premiums with pretax dollars, and

-    Paying out-of-pocket medical expenses with pretax dollars set aside within a Flexible Spending Account.

1. Where an employer offers a full cafeteria plan, an employee is provided an opportunity to elect only those benefits which he or she deems most valuable.

Example: The employee’s employer offers medical, dental, vision and life coverage. The employer’s policy is to contribute $100 a month to the cost of benefits elected. The employee elects dental, vision and life coverage and applies the employer’s contribution to the cost of these benefits. The employee waives medical coverage because his spouse’s employer provides medical, but not dental, vision or life. In this case, the employee was permitted to direct the use of the employer funds toward the benefits he or she values most.

What disadvantages should an employee consider before electing to participate in a Section 125 plan?

Before an employee elects to participate in a Section 125 plan, he or she should be aware of the following disadvantages:

-    An employee may not change his or her elections throughout the plan year unless he or she experiences a qualifying status change (e.g., birth of child, marriage).

-    Any unused funds remaining within a Flexible Spending Account at the end of the plan year, or applicable grace period, are lost.

-    While participation within a Section 125 plan reduces the employee’s taxable income, it may also reduce other benefits. Benefits which are calculated using the employee’s income (e.g., social security or retirement benefits) will in turn be reduced. 

What disadvantages should an employer consider before choosing to implement a Section 125 plan?

Before an employer decides to implement a Section 125 plan, it should consider the following disadvantages:

-    While the employer reduces its tax liability, it is responsible for the cost, establishment and maintenance of the plan.

-    Employers offering a Flexible Spending Account bear some risk of loss.

What are the advantages to an employer that establishes a Section 125 plan?

The advantages to an employer that establishes a Section 125 plan include:

-    The employer is able to reduce its tax liability (e.g., FICA, FUTA) because employees reduce their taxable income.

-    Where an employer offers a full cafeteria plan, the employer may see increased employee satisfaction with employee benefit offerings in that employees are provided an opportunity to direct the employer’s contribution to the benefits the employee values most. 

What benefits can be offered under a Section 125 plan?

Benefits that are typically offered within a Section 125 plan include:

-    Health

-    Dental

-    Vision

-    Accidental Death and Dismemberment

-    Short- and Long-term Disability

-    Group Term Life Insurance (up to $50,000 in coverage)

-    Health Flexible Spending Accounts (to cover out-of-pocket medical expenses not covered by insurance)

-    Dependent Care Spending Accounts

What benefits cannot be offered under a Section 125 plan?

The following benefits may not be offered within a Section 125 plan:

-    Educational Assistance Plans

-    Transportation Fringe Benefits

-    Dependent Group Term Life Insurance

-    Medical Savings Accounts

Do nondiscrimination rules apply to a Section 125 plan?

Section 125 plans must pass three somewhat complex nondiscrimination tests. In general, the tests are designed to determine whether the plan discriminates in favor of key employees or highly compensated individuals. They are as follows:

-    Eligibility To Participate Test;

-    Benefits and Contributions Test; and

-    Concentration Test.

Effective for plan years beginning after December 31, 2010, the health care reform law allows certain small employers’ cafeteria plans to qualify as simple cafeteria plans if they meet certain specific requirements relating to eligibility, participation and contributions. If these requirements are met, the applicable nondiscrimination requirements of a classic cafeteria plan are treated as satisfied. 

What is the Eligibility to Participate Test under Section 125?

A plan’s eligibility rules may not discriminate in favor of highly compensated individuals.

Pursuant to Code 125(g)(3), a plan does not discriminate in favor of highly compensated individuals if it meets all of the following:

-    A plan benefits a classification of employees that does not discriminate in favor of highly compensated individuals.

-    The same employment requirement applies to all employees and the plan does not require more than three years of employment to participate.

-    Entry into the plan is not delayed. 

What is the Section 125 Benefits and Contributions Test?

A plan may not discriminate in favor of highly compensated individuals as to benefits or contributions. The IRS rules indicate that a plan will pass or fail the Benefits and Contributions Test based upon the facts and circumstances of each case. The factors the IRS considers when reviewing the facts and circumstances are:

-    Availability. A plan must give each participant an equal opportunity to select nontaxable (qualified) benefits.

-    Utilization. The IRS will review whether highly compensated individuals elected benefits to a greater extent than non-highly compensated individuals. For example, a plan would likely fail this test if benefits were so expensive that only highly compensated individuals could afford to elect the benefits.

-    Nondiscrimination in Operation. A plan may not discrimination in favor of highly compensated individuals in operation. 

What is the Section 125 Concentration Test?

Under a Section 125 plan, key employee contributions cannot exceed 25 percent of the total contributions into the plan.