New FSA rules from the IRS: Some Considerations

This past week, the IRS has provided two notices (IRS Notice 2020-29 and IRS Notice 2020-33) related to health flexible spending accounts and dependent care flexible spending account plans, commonly referred to as health FSAs and DCAP plans. Many employers and employees have been hoping for, or even expecting this type of guidance, which was a relaxation of strict IRS rules related to health FSA and DCAP plans.  

Given the current COVID-19 public health emergency, childcare facilities have been shut down for a period of time nationwide. Elective surgeries have been deferred and for some people, may not be rescheduled this year. This means that money employees have set aside in DCAP or health FSA accounts may not be needed this year. Unlike other employee healthcare-related accounts, such as health savings accounts (HSAs), funds deferred into health FSAs and DCAPs have limited rollover capabilities. This new guidance from the IRS is a welcome effort to offer flexibility to these programs and it certainly makes sense in this unprecedented time.

A summary of specific changes can be found here.

However, as an employer, there are a couple of things you should keep in mind.

New FSA rules from the IRS

Communication Plan

If you have a DCAP and/or a Health FSA, and you choose to implement these flexible options for 2020 you will want to take some action to notify your employees. Because these changes can have a significant financial impact on your employees during this unusual time, you may want to consider putting some extra efforts toward educating your employees as to their specific new options. You should also expect to work with your FSA and DCAP administrator(s), if applicable, to coordinate upcoming changes and necessary file feeds.  This may be as simple as an email and you may be able to rely on your vendors or broker/consultant to draft communications.

Depending on the needs of your employees, you may feel a more robust communication plan is required. If that is the case, please reach out to the contact below or your Findley consultant and they can help.

Effects on Non-discrimination testing

In general, employers who sponsor DCAP and Healthcare FSA plans are subject to Cafeteria plan non-discrimination testing under IRS Code section 125.  DCAPs are additionally subject to DCAP plan testing under IRS Code section 129. Employers should know that the IRS notices do not suspend non-discrimination testing for the 2020 plan year and employers should be mindful that they still must pass applicable non-discrimination tests in order to maintain tax-qualified benefit plans. If you have already reviewed your current plan year and have passed testing related to IRS codes section 125 and 129, you may need to revisit those tests with updated information.

Particularly for DCAP testing under IRS code section 129, passing the average benefits test can be an annual source of anxiety for some employers. Adding deferral flexibility may change a plan from passing or failing this test in a given year, depending on changes your employees elect.

If you have questions regarding the impact of additional deferral changes on your ability to pass non-discrimination testing, you should reach out to whoever handles your testing annually. This may be your FSA or DCAP administrator or a consultant.

Here at Findley, we offer this type of expertise to our clients. If you should have any questions, please reach out to the Findley consultant you normally work with or Dave Tighe at Dave.Tighe@findley.com or 419.327.4194

For the actual IRS notices click here

Published May 21, 2020

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

Employer Sponsors of Health Benefits Part 3: Possible 2020 Election Scenarios

In Part 2, we looked at how the Trump Administration’s executive actions between now and the 2020 election could shape the direction of employer-sponsored health benefits. But let’s now consider eight potential outcomes of the 2020 Presidential election and how they could impact employer-sponsored healthcare. As you refer to the grid above, you will note Scenario A represents the status quo. Earlier in this series we reviewed those dynamics.

A:   Status Quo-White House (WH) issues healthcare-related Executive Orders (EOs) and directs release of DOL/HHS/Treasury regulations. Senate does not act on House Democrat bills not supported by White House. House Democrats and states with Democratic Attorneys General (AGs) raise court challenges to EOs & regulations.

B: GOP takes back control of the House. Laws enacted to bolster HSAs/HRAs/AHPs, reform Medicare/Medicaid Rx purchasing and provider payments and give states more flexibility to reform healthcare. Democrats in Congress and states with Democratic AGs challenge these laws in court.

C: Democrat-controlled Senate does not act on House GOP bills. White House issues EOs/regs that are challenged by Democrats.

D: Democrats in Congress pass bills that are vetoed by the White House. Congress likely fails to override the vetoes. White House issues EOs/regs, but face court challenges from Democrats.

E:   Democrats capture the White House. GOP Senate does not act on House Democrat bills. White House issues EOs/regs but face court challenges from GOP Senate and states with GOP AGs.

F:   White House vetoes legislation passed by GOP. Congress likely fails to override vetoes. White House issues EOs/regs but face court challenges from GOP.

G: Democrat-controlled Senate does not act on House GOP bills. White House issues EOs/regs that are challenged by the GOP.

H: Democrats enact bills to phase out employer-sponsored health benefits in favor of a Medicare-for-All system. GOP files court challenges where the outcome depends on the post-2020 make-up of SCOTUS.

Wild Card: Current makeup of the US Supreme Court (SCOTUS) gives White House a narrow advantage, but does Chief Justice Roberts evolve into a swing vote? Does President Trump have the opportunity to appoint another Justice? If yes, is that confirmation process concluded by November 2020? These answers will have a bearing on appeals of any health benefit-related cases heard by SCOTUS in 2019, 2020, and beyond.

Scenario B assumes a best case scenario for the GOP, where President Trump is re-elected, and the GOP regains control of the House. In this case, you could expect to see more measures passed that promote state experimentation (e.g.., via CMS waivers to expand access and control costs while upholding quality of care), HSA and HRA expansion, prescription drug payment reform, and AHPs. However, you could also anticipate these laws to be challenged in the courts.

Scenarios C and D illustrate two more examples of divided government where a Trump Administration resorts to EOs and regulations that would be challenged in the courts.

Scenario H is the best case for Democrats, where they recapture the White House and Senate. As a result, you could expect the Democrats to lay the groundwork to implement a Medicare-for-All system.  Employer-sponsored health benefits would be transformed into a supplemental coverage form. The supplements would probably be similar to the Medicare Supplements purchased today by post-65 retirees, and not unlike what many Canadian employers do in wrapping their plans around Canada’s version of Medicare.

Scenarios E, F, and G feature a Democrat President working with a divided Congress. For instance, in Scenario E, a Republican Senate will not act on bills passed by the Democrat-controlled House. This leads to the President and the Administration issuing EOs and regulations respectively that will likely be challenged in court. This is where the makeup of SCOTUS will play a crucial part in the outcome of those challenges. The divided government in Scenario G is similar to E, except in G the House is in GOP hands.

Scenario F is the reverse of Scenario D where the President and Administration are faced with both the Senate and House controlled by the GOP and as a result, they initiate change through regulation instead of legislation, but those executive actions will be challenged in the courts.

So what is the key takeaway for employers? Regardless of what political party wins in 2020, the healthcare debate will remain contentious. Any EOs, regulations, or laws originating from one party will be challenged by the other to the fullest extent possible. Many of these challenges could take years to work themselves through the appeals process and some could wind up with SCOTUS.

Conclusion

Although employers need to assume gridlock will continue, they will also need to pay close attention to all future healthcare-related EOs, regulations, and laws. Depending on the content and scope of those directives, employers must be ready to quickly adapt their benefits strategies accordingly. Employers will also want to monitor the strength and vitality of the individual health insurance marketplace in order to execute appropriate changes in how they might deliver future health benefits.

Through all this gridlock, changes will come. It seems inevitable, and, hopefully, they will be for the better. We should all be reminded what John F. Kennedy said about this, “Change is the law of life. And those who look only to the past or present are certain to miss the future.”

Questions? Contact the Findley consultant you normally work with, or Bruce Davis at 419.327.4133, Bruce.Davis@findley.com.

Published on March 12, 2019

© 2019 Findley. All Rights Reserved.

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Read Part 1 in the series: Possibilities to Sustain Healthcare Costs

Read Part 2 in the series: More Gridlock Ahead

Building a Strategic Plan for Your Health Benefits Program

Attracting and retaining the right people drives the performance of your organization. In today’s economy, employees and candidates are making their job decisions based on the benefits and perks offered. Your health benefits program is the #1 benefit candidates seek over all other benefits and perks– by a wide margin.[1] At the same time, health benefits costs continue to rise at rates well above general inflation[2]. These competing factors make maintaining competitive but cost-effective health benefits a strategic business priority.

Given the changes occurring in the healthcare market, employers have a significant opportunity to redefine their benefits mission and build a multi-year healthcare strategy. Employers should continue to evaluate traditional approaches, such as plan design and cost-sharing. It’s also critical to take advantage of emerging new resources, such as: changes in health delivery by the providers and new networks; changes driven by payment reform; and provider shifts to value-based care.

To build a multi-year benefits strategy successfully, leadership support and effective change management are critical.

We recommend utilizing The Findley Process, as follows:

Phase 1 – Gather data for actuarial analytics and benchmarking and build a multi-year financial modeler.

Phase 2 – Develop a strategic plan using action-oriented Compression Planning to develop objectives, prioritize tasks, and define change management steps.

Phase 3 – Implement the multi-year strategy and new benefits philosophy statement.

Phase 1: Construct Background Data and Strategic Tools

Phase 1 of your process should focus on developing analysis to give stakeholders a baseline understanding of your health benefits program design, cost drivers, and competitiveness. Actuarial data analytics, projections, and benchmarking provide the critical data for stakeholders to weigh the benefits of maintaining the status quo vs. considering, prioritizing, and launching forward-thinking strategies.

Gather and analyze your plan’s cost in recent years then identify the key drivers of cost under your current plan design. Next, identify any immediate plan design opportunities to build into your multi-year plan. Finally, build an annual financial projection model to fit your strategic planning horizon (for example, five years). The model should take into account projected claims, contribution strategies, and reserve/risk monitoring. It should be used to set metrics and evaluate the effectiveness of your strategic plan going forward.

Phase 2: Define Your Objectives Using Action-Oriented Strategic Planning

Defining your multi-year strategy requires key leadership engagement and effective change management. As you know, your organization’s leaders understand the importance of strategic planning to drive business performance, but may not have the time required for the typical multi-day approach. Instead, consider using Compression Planning – a facilitation technique designed for busy business leaders to rapidly identify and build consensus around key goals and action items to form the basis of the strategic plan.

Before the Compression Planning session, your leaders should receive the actuarial data analytics, benchmarking results and analysis of your current plan, and your baseline for strategic planning and changes. In the Compression Planning session, a trained facilitator poses prepared questions to guide leaders through brainstorming and action planning. Typical questions may include:

  • Three years from now, what does a culture of health and well-being look like at your organization?
  • What do you want your health and welfare benefits environment to look like in 20XX?
  • What should employees be responsible for? What should the organization be responsible for?
  • What unique challenges exist in your environment (either within or external to the organization)?
  • What changes with healthcare providers can be leveraged?

The facilitator then leads a prioritizing activity to define and build consensus around the top goals and objectives that become part of your strategic plan. Action steps for your strategic plan are then developed in Phase 3.

Phase 3: Create, Implement, and Monitor Your Multi-Year Strategic Plan

In Phase 3, your project leaders define the multi-year milestones and metrics for the objectives and develop a high level change management strategy consisting of the major initiatives and timelines for implementation.  Once this strategic framework is in place, the interactive forecast modeling tool established in Phase 1 becomes the key tool for defining plan design changes and modeling annual budgets to achieve your financial goals.

Beyond the strategic plan, many organizations develop a healthcare benefits philosophy statement. This statement serves as the mission for health and well-being at your organization; defining the organization’s commitments and employee responsibilities that serve as the foundation for the strategic and tactical steps taken each year.

Once the strategic plan is set, a detailed change management project plan defines each year’s implementation steps and timing. Educating and empowering participants to understand benefits, use healthcare wisely, and take responsibility for their health and well-being are critical elements to achieving the strategic plan objectives.

Monitoring actual vs. forecast experience begins immediately and continues throughout the course of the multi-year strategic plan, measuring and evaluating your actual experience against the metrics and milestones set in the planning process.

In Perspective

Organizations that have a strategic plan and process for managing their benefits programs report better company performance and more success in attracting and retaining employees.[3] Employer-provided health benefits are an organization’s biggest benefits cost,[4] and the key employer-provided benefit that attracts new employees and retains your current talent. Your employer-provided health benefits are also likely your most complex benefits offering. That’s why a strategic approach and process is a must to maintain a health benefits program that helps your business keep its competitive edge.

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

Posted November 15, 2018

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[1] Which Benefits Drive Employee Satisfaction? GlassDoor Economic Research, June, 2016.

[2] Kaiser Family Foundation Employer Health Benefits Survey, 2018.

[3] 2017 Strategic Benefits Survey-Strategize with Benefits, Society for Human Resource Management

[4] Health benefits average 8.2% of total compensation nationally. Employer Costs for Employee Compensation, Bureau of Labor Statistics, June 2018.

IRS Issues Annual Increase to PCORI Fee

As part of the Affordable Care Act, the fee to fund the Patient-Centered Outcomes Research Institute (PCORI) has been in effect since 2012, and by now, plan sponsors and insurers are very familiar with it. The fee itself was imposed as part of Sections 4375 and 4376 of the Internal Revenue Code, and is scheduled to be in effect for plan years ending after September 30, 2012 and before October 1, 2019. The amount of the PCORI fee is equal to the average number of lives covered during the plan year multiplied by the applicable dollar amount for the year. Of note, the applicable dollar amount is indexed each year.

The IRS has recently released Notice 2018-85; stating that for plan years ending on or after October 1, 2018, and before October 1, 2019, the fee will be increased from $2.39 to $2.45 per covered member. This will be the used to calculate the amount payable in July 2019 using the IRS Form 720. View the IRS notice directly by clicking here. Please also note that for calendar year plans, the 2018 plan year is the last year for which PCORI fees will apply given the sunset of the fees.

Posted November 8, 2018

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