2021 Inflation-adjusted Limits for HDHPs

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The IRS recently issued several advisories about 2021 inflation-adjusted limits for High Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs), non-grandfathered health plans, and ACA employer shared responsibility penalties under IRC §4980H. The purpose of this post is to summarize these various 2021 limits. We will also comment on Health FSAs.

2021 Inflation-adjusted Limits for HDHPs

HDHPs/HSAs

Although the minimum deductibles of $1,400 for Self-only coverage and $2,800 for Family coverage will not change from 2020, the limits for annual contributions and in-network out-of-pocket expenses will be increased as follows:

Calendar Year 2020Calendar Year 2020Calendar Year 2021Calendar Year 2021
Self-onlyFamilySelf-onlyFamily
Annual Contribution Limit$3,550$7,100$3,600$7,200
HDHP Out-of-Pocket Limit
(includes deductibles and
coinsurance)
$6,900$13,800$7,000$14,000

Non-Grandfathered Health Plans

As you know, the ACA requires “traditional” non-grandfathered plans (other than those HDHPs paired with HSAs) to limit annual out-of-pocket expenses for in-network essential health benefits. The following compares the 2020 and 2021 limits:

Calendar Year 2020Calendar Year 2020Calendar Year 2021Calendar Year 2021
Self-onlyFamilySelf-onlyFamily
Out-of-Pocket Limit (includes deductibles and coinsurance)$8,150$16,300$8,550$17,100

Notes: a) If an employer offers both traditional and HDHP/HSA plans (that are not grandfathered), the plans are subject to both sets of requirements, and the employer must comply with the lowest applicable out-of-pocket maximum.

b) The ACA requires that a per person, embedded out-of-pocket maximum doesn’t exceed the ACA self-only limit, even if the person is in the family tier.

ACA Employer Shared Responsibility Penalties

If an Applicable Large Employer fails to provide essential health benefits to at least 95% of full-time employees, the penalty under IRC §4980H(A) will increase from $2,570/FTE to $2,700. This is in accordance with the premium adjustment percentage rules set out in this IRC provision.

If the Applicable Large Employer fails to provide essential health benefits that are deemed “unaffordable”, the penalty under IRC §4980H(B) will increase from $3,860 to $4,060 for each employee who purchases subsidized coverage on the ACA Market Place (i.e. the “exchange”).

Health Care FSA

The IRS has not yet announced a change from the 2020 maximum Heath FSA salary deferral of $2,750. However, the maximum carryover amount has been increased from $500 to $550 for the plan year beginning in 2021. Thereafter, the carryover amount will be equal to 20% of the maximum Health FSA salary reduction contribution under IRC §125 (i) for that plan year.

To learn more about how Inflation-adjusted Limits can affect HDHPs contact Bruce Davis in the form below.

Published June 3, 2020

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Copyright © 2020 by Findley, Inc. All rights reserved.

It’s Official: Coronavirus Screening and Treatment Covered Pre-Deductible for HDHPs

The Internal Revenue Service and the U.S. Treasury issued guidance this week to employers stating coronavirus screening and treatment can be provided through a high deductible health plan (HDHP) without participants first having to satisfy the plan’s deductible.

According to the American Benefits Council, many companies have been seeking assurances from the federal government that by providing COVID-19 screening on a pre-deductible basis would not disqualify the HDHP from being coupled with an HSA. IRS Notice 2020-15 affirms that an HDHP will not fail to be an HDHP because it provides screening and treatment of the 2019 Novel Coronavirus (COVID-19) without a deductible, or with a deductible below the minimum deductible for an HDHP.

coronavirus screening and testing information for HDHP

For self-insured organizations with an HDHP, this notice allows the plan to cover coronavirus testing at 100% pre-deductible. The guidance also allows the plan to consider costs for coronavirus treatment to be pre-deductible.

Fully-insured organizations should check with your insurance provider to find out how they will be administering coronavirus testing and treatment.

Set Benefit Coverage with Your Plan Administrator

To set the benefit coverage for coronavirus testing and treatment, self-insured organizations will need to determine the coverage level desired (e.g. 100% for screening) and contact the plan administrator. Confirm that the benefits coverage should be applied to all of your organization’s medical plans – not just the HDHP

Communicate with Employees

Once you’ve made the decision to cover COVID-19 testing at 100%, be sure to include that message as you remind employees how to prevent the spread of the coronavirus. Participants in your medical plans should be told:

  • Coronavirus screening is covered at 100% without the deductible
  • Benefits for treatment of coronavirus are included in the plan, without having to satisfy the annual deductible

Vaccinations Continue to Be Preventive Care

Included in IRS Notice 2020-15 is confirmation that vaccinations continue to be considered preventive care and can be covered pre-deductible. Plan participants should be reminded of the importance to receive immunizations according to the CDC’s recommended schedule.

For questions about this topic, contact your Findley consultant or info@findley.com

Published March 13, 2020

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6 Best Practices to Consider When Introducing a Qualified High Deductible Health Plan

Organizations interested in designing a qualified high deductible health plan (QHDHP) have many variables to consider. Begin by developing a strategy that aligns with your company’s goals using these six best practices to guide your efforts.

Background

One of the most common types of health plans that are offered by employers today are QHDHPs. These plans have only been around since 2003 and continue to grow in popularity (66% of Midwest companies with over 500 employees offer an HSA-eligible HDHP[1]).

QHDHPs have minimum thresholds as set by the IRS to keep them qualified and eligible for Health Savings Account (HSA) contributions. The 2019 minimum deductibles and maximum out of pocket limits as set by the IRS are as follows:

  • Deductibles (Single/Family): $1,350/$2,700
  • Maximum Out of Pocket (Single/Family): $6,750/$13,500

One of the biggest advantages provided to those enrolled in a QHDHP, is the ability to fund money for qualified health expenses into the HSA. HSAs are able to be funded with contributions made by both the employee and employer.

Advantages for those enrolled in a QHDHP (known as the “Triple Tax Advantage”) with an HSA are:

  1. Contributions into these accounts are pre-tax
  2. The interest earned on the account grows tax-free.

Withdrawals from the HSA, for qualified health expenses, are tax free.

Best Practices

Unfortunately some employers offer this type of plan only with the intent on cost savings. If your intent is to make this a viable and meaningful alternative for your employees, to promote accountability and to encourage healthcare consumerism, then consider the following best practices in designing your plan:

  • Employer HSA contribution: Helping to fund the HSA accounts and bridge the gap of a higher deductible will demonstrate to your employees that you value this plan offering. When making a contribution, consider offsetting 30-40% of the deductible so that the contribution is also meaningful.
  • Consider a 3-year commitment to the HSA contribution: A three-year commitment for an employer contribution helps give peace of mind to employees that this is not just a one-time incentive and demonstrates this plan is valued by their employer and is viewed as a long-term strategy.
  • Prescription coinsurance or copays after deductible (to promote continued consumerism): Offering drug benefits tied to coinsurance or copays after the deductible is met will continue to promote the consumerism aspect of these plans. Members may be more inclined to continue to look for lower-cost alternatives such as generics.
  • Evaluate cost and transparency tools: Employees will need information to allow them to be consumers of health care. Employers should research the cost transparency tools their vendor offers. This helps employees enrolled in the plan make informed decisions on where to go for their care. Depending on your vendor’s capabilities, consider evaluating a carve-out solution for cost and transparency.
  • Communication/Communication/Communication: Remember that not everyone is a health care expert. If employers want a successful QHDHP adoption, a strong communication strategy is needed. Ideally this involves multiple steps starting with an overview of what a QHDHP plan is followed by plan selection support.
  • Does this align with current benefits strategy and offerings? Consider the plans in place today and what the net impact to the employer would be (gross funding rate, less employee premium contributions, plus any employer HSA contribution = Net Funding by the Employer). When setting up the plan, factor in the company’s cost impact to determine how much employees may contribute to the premium (cost of the plan) or how much employers should fund into an HSA.

In Perspective

Whatever your reason for offering a QHDHP, cost savings, offering employees more choice, or attracting and retaining employees, a formal strategy is essential to ensure alignment with your company’s goals.

Questions? For additional information about developing or enhancing your strategic plan, contact the Findley consultant you normally work with, or Blake Babcock at Blake.Babcock@findley.com or 216.875.1904.

[1] 2017 Mercer National Survey of Employer-Sponsored Health Plans

Posted November 26, 2018

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Reminders of What’s New for Plan Sponsors in 2019

Retirement and health and welfare plan sponsors have a relatively short list of employee benefit changes that begin on or around January 1, 2019. However, some changes were announced so long ago that they could be easily forgotten; here’s a refresher.

For Sponsors of Disability Welfare Plans and Retirement Plans that Provide Disability Benefits

Background

New claims procedures regulations for disability benefits claims, after multiple delays, have finally been set. The Department of Labor (DOL) requires that the new procedures apply to disability claims that arise after April 1, 2018. The rules generally give disability benefit claimants the same level of procedural protections that group health benefit claimants have after the enactment of the Affordable Care Act (ACA). Its aim is to protect disability claimants from conflicts of interest; ensure claimants have an opportunity to respond to evidence and reasoning behind adverse determinations; and increase transparency in claims processing.

What Do Plan Sponsors Need to Do

For most plan sponsors, ERISA claims procedures are described in their summary plan descriptions. That means that the new disability benefit claims procedures require a summary of material modifications. Certain other plan sponsors will want to consider amending their plans to provide that the disability determination under their plan is made by a third party, such as the Social Security Administration or their long-term disability benefits insurer. Plan sponsors are advised to adopt any necessary amendments on or before the last day of the plan year that includes April 2, 2018. For calendar year plans, the amendment deadline is December 31, 2018.

For Sponsors of Retirement Plans

Hardship Withdrawals

Background

Both the December 2017 Tax Cuts and Jobs Act (TCJA) and the February 2018 Bipartisan Budget Act (BBA) made important changes to hardship withdrawals, which can be provided in 401(k), 403(b), and 457(b) retirement plans. The TCJA change made hardship withdrawals more difficult to get for casualty losses, because the damage or loss must be attributable to a federally declared disaster. For more information see our article here. BBA changes generally make hardship withdrawals much more attractive and easier to administer by eliminating certain hurdles for plan participants.

What Changed for Plan Participants

Plan participants no longer need to take the maximum available loan under the plan before requesting a hardship withdrawal for plan years beginning in 2018 (January 1, 2018 for calendar years). Effective on the first day of the applicable plan year beginning in 2019 (January 1, 2019 for calendar year plans), BBA eliminated the rule requiring that employees who take a hardship distribution must cease making salary deferrals for six months. In addition, BBA created a new source of funds for hardship withdrawals— any interest earned on salary deferrals. These hardship withdrawal changes are described here.

What Do Plan Sponsors Need to Do

The TCJA change to hardship withdrawals is an administrative one that impacts internal procedures.  However, BBA changes to hardship withdrawals are likely to require a plan amendment to be adopted on or before the end of the 2019 plan year (December 31, 2019 for calendar year plans), and a summary of material modifications to be issued soon thereafter.

402(f) Special Tax Notices

Background

On September 18, 2018, the Internal Revenue Service (IRS) issued updated model notices to satisfy the requirements of Internal Revenue Code (Code) Section 402(f). The modifications are the result of the TCJA, which extended the time within which a participant can roll over the amount of a plan loan offset to effect a tax-free rollover of the loan offset amount. The new extended period applies to accrued loan amounts that are offset from a participant’s account balance at either plan termination or the termination of employment. A detailed description of these changes and links to the new model notices can be found here.

Defined Benefit Plan Restatements

In March 2018, the IRS released Announcement 2018-15, stating that it intends to issue opinion and advisory letters for preapproved master and prototype (M&P) and volume submitter (VS) defined benefit plans that were restated for plan qualification requirements listed in the 2012 Cumulative List. An employer that wants to use a preapproved document to restate its defined benefit plan will be required to adopt the plan document on or before April 30, 2020.

403(b) Plan Restatements

The deadline to restate preapproved 403(b) M&P and VS plans is March 31, 2020, according to Revenue Procedure 2017-18. 403(b) plans can be sponsored by a tax-exempt 501(c)(3) organization (including a cooperative hospital service organization defined under Code Section 501(c)), a church or church-related organization, and a government entity (but only for its public school employees). For more detailed information, see our article here.

VCP Applications

On September 28, 2018, the IRS issued Revenue Procedure 2018-52, which provides that beginning April 1, 2019, the IRS will accept only electronic submissions to its Voluntary Compliance Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS). The new procedure modifies and supersedes Revenue Procedure 2016-51, which most recently set forth the EPCRS, a comprehensive system for correcting documentary and operational defects in qualified retirement plans. Revenue Procedure 2018-52 provides a 3-month transition period beginning January 1, 2019, during which the IRS will accept either paper or electronic VCP submissions.

2019 Plan Limits

In Notice 2018-83, the IRS issued the cost-of-living adjusted limits for tax-qualified plans. A number of these limits were increased from 2018 levels. For a detailed listing of these limits, see our article here.

For Sponsors of Health Plans

The IRS issued Revenue Procedure 2018-34 in May 2018, which sets the 2019 affordability threshold for the ACA employer mandate at 9.86 percent. Coverage is affordable only if the employee’s contribution or share of the premium for the lowest cost, self-only coverage for which he or she is eligible does not exceed a certain percentage of the employee’s household income (starting at 9.5 percent in 2014, and adjusted for inflation). See our detailed article here.

For Sponsors of High Deductible Health Plans (HDHPs)

In May 2018, the IRS announced in Revenue Procedure 2018-30 the 2019 limits for contributions to Health Savings Accounts (HSAs) and definitional limits for HDHPs. These inflation adjustments are provided for under applicable law. For a more detailed description of the increases, see our article here.

What Do Plan Sponsors Need to Do

Plan sponsors should review their employee benefit plans to determine if any of them are affected by the changes listed above.

Questions?

Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com or 216.875.1927.

Posted November 12, 2018

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