Legal Alert: IRS Adjusts 2018 HSA Contribution Limit – Again

Posted on April 27th, 2018

IRS Adjusts 2018 HSA Contribution Limit – Again

The IRS has announced it is modifying the annual limitation on deductions for contributions to a health savings account (“HSA”) allowed for taxpayers with family coverage under a high deductible health plan (“HDHP”) for the 2018 calendar year. Under Rev. Proc. 2018-27, taxpayers will be allowed to treat $6,900 as the annual limitation, rather than the $6,850 limitation announced in Rev. Proc. 2018-18 earlier this year.

The HSA contribution limit for individuals with family HDHP plan coverage was originally issued as $6,900 last May in Rev. Proc. 2017-37. Earlier this year, the IRS announced a $50 reduction in the maximum deductible amount from $6,900 to $6,850 due to changes made by the Tax Cuts and Jobs Act.

Due to widespread complaints and comments from individual taxpayers, employers and other major stakeholders, the IRS has decided it is in the best interest of “sound and efficient” tax administration to allow individuals to treat the originally released $6,900 as the 2018 family limit. The IRS acknowledged that many individuals had already made the maximum HSA contribution for 2018 before the deduction limitation was lowered and many other individuals had made annual salary reduction elections for HSA contributions through employers’ cafeteria plans based on the higher limit. Additionally, the costs of modifying various systems to reflect the reduced maximum would be significantly greater than any tax benefit associated with an unreduced HSA contribution.

 

Revised 2018 HDHP and HSA Limits Single / Family
Annual HSA Contribution Limit $3,450 / $6,900
Minimum Annual HDHP Deductible $1,350 / $2,700
Maximum Out-of-Pocket for HDHP $6,650 / $13,300

 

Rev. Proc. 2018-27 provides guidance for those taxpayers who already took a distribution in 2018 from their HSA based on the reduced maximum limit of $6,850. Anyone who receives a distribution from an HSA in excess of the $6,850 limit may treat that distribution as the result of a “mistake of fact due to reasonable cause.” The portion of a distribution (including earnings) that an individual repays to the HSA by April 15, 2019, will not be included in the individual’s gross income or be subject to the 20% additional tax for non-medical distributions. The repayment will not be subject to the 6% excise tax on excess contributions either. Mistaken distributions that are repaid to an HSA are not required to be reported on Form 1099-SA or Form 8889 and are not required to be reported as additional HSA contributions.

Alternatively, if an individual decides not to repay such a distribution it will not have to be included in gross income or subject to the additional 20% tax as long as the distribution is received by the individual’s 2018 tax return filing due date. This tax treatment, however, does not apply to contributions from an HSA that are attributable to employer contributions if the employer does not include any portion of the contributions in the employee’s wages because the employer treats $6,900 as the annual contribution limit. In that scenario, the distribution would be included in the individual’s gross income and subject to the 20% additional tax unless it was used to pay for qualified medical expenses.  In other words, if the employee withdraws the $50 and does not return it to the HSA, it’s not includible in income or subject to the 20% additional tax unless the $50 is reported as an employer contribution on the employee’s W-2 (in box 12, code W), in which case it would be includible in income and subject to the 20% additional tax.

Employers who previously informed employees that the limit was lowered should consider informing them now about the new limit and repayment option.

About the Author.  This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

 

Alera Group Acquires California Life Insurance Firm

Posted on April 26th, 2018

Latest Acquisition Expands Firm’s Financial Services Expertise

DEERFIELD, IL — Alera Group, a leading national employee benefits, property and casualty, risk management and wealth management firm, has acquired California-based firm Tippett Moorhead & Haden. Terms of the transaction were not announced.

Tippett Moorhead & Haden (TMH) is a life insurance planning firm located in Costa Mesa, California, that has been serving individuals and businesses for over 40 years. TMH is guided by their five core values: enthusiasm, energy, integrity, professionalism and responsiveness. Their industry knowledge allows them to create customized financial solutions while providing personal attention to each client.

“Tippett Moorhead & Haden’s expertise in executive benefits and high net worth life insurance strategies are a wonderful compliment to Alera Group’s existing capabilities,” said Alan Levitz, CEO of Alera Group. “We are thrilled to welcome this outstanding firm to Alera Group as their core values align extremely well with Alera Group’s culture.”

“As an Alera Group company, we are now able to meet our clients growing needs with the breadth and depth of the tools, industry-leading products and services that Alera Group brings to the table. Our goal is to always help our clients create pathways to successful outcomes,” said Don Tippett, Managing Partner of Tippett Moorhead & Haden. “We look forward to joining the collaborative culture of Alera Group, sharing expertise with firms across the country.”

Alera Group was formed in early 2017 and is one of the nation’s foremost independent insurance agencies and privately-held employee benefits firms. For more information on partnering with Alera Group, visit Partnership Opportunities at www.jmjwebconsulting.com.

 

About Alera Group
Based in Deerfield, IL, Alera Group’s over 900 employees thousands of clients nationally in employee benefits, property and casualty, risk management and wealth management. Alera Group was created by merging 24 high-performing, entrepreneurial firms across the U.S. It is the 15th largest independent insurance agency and the 7th largest independent employee benefits firm in the country. For more information, visit www.jmjwebconsulting.com or follow Alera Group on Twitter: @AleraGroupUS.

Legal Alert: EEOC’s Status Report in AARP v. EEOC Creates Uncertainty for Wellness Programs

Posted on April 17th, 2018

In its March 30 status report to the U.S. District Court for the District of Columbia in American Association for Retired Persons (AARP) v. EEOC, the EEOC stated that “it does not currently have plans to issue a Notice of Proposed Rulemaking addressing incentives for participation in employee wellness programs by a particular date certain, but it also has not ruled out the possibility that it may issue such a Notice in the future.”

Employers continue to face uncertainty as to wellness program incentives subject to the ADA and GINA (i.e., those with medical exams or disability-related inquiries) as the EEOC awaits confirmation of Janet Dhillon as EEOC Chair and considers “a number of policy choices available.”  In other words, the EEOC may wait until the Senate confirms outstanding nominations before re-engaging in the rulemaking process, leaving wellness programs open to challenge in 2019 by employees who feel that the incentives (or penalties) are so great that they render the program involuntary.

Background

As background, under the ADA, wellness programs that involve a disability-related inquiry or a medical examination must be “voluntary.”  Similar requirements exist under GINA when there are requests for an employee’s family medical history (typically as part of a health risk assessment).  For years, the EEOC had declined to provide specific guidance on the level of incentive that may be provided under the ADA, and their informal guidance suggested that any incentive could render a program “involuntary.”  In 2016, after years of uncertainty on the issue, the agency released rules on wellness incentives that resemble, but do not mirror, the 30% limit established under U.S. Department of Labor (DOL) regulations applicable to health-contingent employer-sponsored wellness programs.  While the regulations appeared to be a departure from the EEOC’s previous position on incentives, they were welcomed by employers as providing a level of certainty.

However, the AARP sued the EEOC in 2016, alleging that the final regulations were inconsistent with the meaning of “voluntary” as that term was used in ADA and GINA.  AARP asked the court for injunctive relief, which would have prohibited the rule from taking effect in 2017.  The court denied AARP’s request in December 2016, finding that AARP failed to demonstrate that its members would suffer irreparable harm from either the ADA or the GINA rule, and that AARP was unlikely to succeed on the merits.  This was due in part to the fact that the administrative record was not then available for the court’s review.

In August 2017, the court ordered the EEOC to reconsider the limits it placed on wellness program incentives under final regulations under the ADA and GINA.  As part of the final regulations, the EEOC set a limit on incentives under wellness programs equal to 30% of the total cost of self-only coverage under the employer’s group health plan.  The court found that the EEOC did not properly consider whether the 30% limit on incentives would ensure the program remained “voluntary” as required by the ADA and GINA and sent the regulations back to the EEOC for reconsideration.  To avoid “potentially widespread disruption and confusion,” the court decided at that time that the final regulations would remain in place while the EEOC determined how it would proceed.

In September 2017, the EEOC filed a status report with the court stating that the EEOC did not intend to issue new proposed regulations until August 2018, did not intend to issue final rules until August 2019, and did not expect the new rules to take effect until early 2021.

In December 2017, the court vacated, effective January 1, 2019, the portions of the final regulations that the EEOC issued in 2016 under the ADA and GINA addressing wellness program incentives.  In that decision, the court found that the EEOC’s proposed timetable (until 2021) to reissue new regulations was not timely enough.  The court was concerned about the slow timeframe that the EEOC proposed for devising a replacement rule, ordering the EEOC to provide a status report to the court and to the AARP no later than March 30, 2018.

In January 2018, the court once again reconsidered its judgment and vacated the portion of its order that required the EEOC to issue proposed regulations on the court’s timeline but retained the March 30 status report requirement.

What’s Next for Employers?

For 2018, employers may continue to rely on the EEOC’s final regulations.  However, as employers begin to prepare for 2019, the EEOC’s delay causes employers to again face uncertainty as to their wellness program incentives subject to the ADA and GINA (including incentives paid in 2019 for activities performed in 2018).

While it is possible, unless the AARP pushes back and attempts to force a course of action, it seems unlikely that the EEOC will issue guidance in time for open enrollment season.

Given the current state of limbo regarding the permissibility of incentives tied to wellness programs subject to the ADA and GINA and potential EEOC enforcement and private lawsuits, employers wishing to avoid such exposure may want to design wellness programs that do not contain incentives tied to such activities. Instead, they could tie all incentives to activities not subject to the ADA and GINA, such as, tobacco user surcharges with no medical testing, participatory programs such as health seminars or gym use that do not contain disability-related inquiries, and activity-based programs with no medical tests such as walking challenges.  (These incentives would need to comply with HIPAA and other applicable rules.)  Employers paying incentives subject to the ADA and GINA in 2019 for activities in 2018 may want to, after consulting with counsel, consider accelerating the payments of those incentives to 2018.

However, some believe that wellness programs designed to comply with existing rules, specifically the 30% cap, are unlikely to be challenged by the EEOC since the EEOC has disputed the court’s findings. After considering the potential risk, employers wishing to continue to offer incentives subject to the ADA and GINA in 2019 should be prepared to make adjustments to incentives (e.g., decrease incentives to participating employees or make additional contributions to non-participating employees).  At a minimum, employers should consider their wellness programs holistically and ask the question – would our employees feel compelled to participate in wellness based on the size of the incentive?  If the answer is yes or maybe, the more risk-averse approach would be to reduce the incentives to a level that better supports the argument that the wellness program is “voluntary” (although there is no guarantee that even that approach would prevent a challenge).  Of course, an employer could provide additional means of earning incentives that do not involve medical examinations or disability-related inquiries (e.g., attending lunch-and-learns, participating in walking challenges, etc.); however, this may result in a less effective wellness program.

Employers designing and maintaining wellness programs should continue to monitor developments and work with employee benefits counsel to ensure their wellness programs comply with all applicable laws.

About The Authors: This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

Legal Alert: CMS Extends Transition Relief for Non-Compliant Plans through 2019

Posted on April 12th, 2018

CMS Extends Transition Relief for Non-Compliant Plans through 2019

On April 9, 2018, the Centers for Medicare & Medicaid Services (CMS) announced a one-year extension to the transition policy (originally announced November 14, 2013 and extended several times since) for individual and small group health plans that allows issuers to continue policies that do not meet ACA standards.  The transition policy has been extended to policy years beginning on or before October 1, 2019, provided that all policies end by December 31, 2019.  This means individuals and small businesses may be able to keep their non-ACA compliant coverage through the end of 2019, depending on the policy year.  Carriers may have the option to implement policy years that are shorter than 12 months or allow early renewals with a January 1, 2019 start date in order to take full advantage of the extension.

Background

The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies. For example, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.

Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms.

Transition Relief Policy

Under the original transitional policy, health insurance coverage in the individual or small group market that was renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be out of compliance with specified ACA reforms.  These plans are referred to as “grandmothered” plans.

To qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancellation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancellation or termination notice with respect to the coverage).

The transition relief only applies with respect to individuals and small businesses with coverage that was in effect since 2014. It does not apply with respect to individuals and small businesses that obtain new coverage after 2014. All new plans must comply with the full set of ACA reforms.

One-year Extension

According to CMS, the extension will ensure that consumers have multiple health insurance coverage options and states continue to have flexibility in their markets. Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.

Under the transition relief extension, at the option of the states, issuers that have issued policies under the transitional relief in 2014 may renew these policies at any time through October 1, 2019 and affected individuals and small businesses may choose to re-enroll in the coverage through October 1, 2019. Policies that are renewed under the extended transition relief are not considered to be out of compliance with the following ACA reforms:

  • community premium rating standards, so consumers might be charged more based on factors such as gender or a pre-existing medical condition, and it might not comply with rules limiting age banding (PHS Act section 2701);
  • guaranteed availability and renewability (PHS Act sections 2702 & 2703);
  • if the coverage is an individual market policy, the ban on preexisting medical conditions for adults, so it might exclude coverage for treatment of an adult’s pre-existing medical condition such as diabetes or cancer (PHS Act section 2704);
  • if the coverage is an individual market policy, discrimination based on health status, so consumers may have premium increases based on claims experience or receipt of health care (PHS Act section 2705);
  • coverage of essential health benefits or limit on annual out-of-pocket spending, so it might not cover benefits such as prescription drugs or maternity care, or might have unlimited cost-sharing (PHS Act section 2707); and
  • standards for participation in clinical trials, so consumers might not have coverage for services related to a clinical trial for a life-threatening or other serious disease (PHS Act section 2709).

 

About The Authors: This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

Alera Group Acquires Colorado Property & Casualty Firm

Posted on April 4th, 2018

New Acquisition Increases Risk Management Expertise

DEERFIELD, IL — Alera Group – a leading national employee benefits, property and casualty, risk management and wealth management firm – has acquired Rich & Cartmill Insurance of Colorado, adding to the firm’s existing risk management expertise. Terms of the transaction were not disclosed. The firm adopted the new name “Professional Risk, an Alera Group Agency, LLC” at closing, eliminating their previous name.

Professional Risk, an Alera Group Agency, LLC (Professional Risk), is a professional service agency based in Greeley, Colorado, that specializes in risk management. The Professional Risk team works tirelessly to analyze and reduce the overall total cost of risk for each of its clients through a long-term commitment to relationships.

The firm handles standard insurance coverages, including property, general liability, commercial auto, workers’ compensation and umbrella policies. Their areas of expertise include elder care, trucking, construction and bonding. Professional Risk offers specialty coverages including employment practices liability, excess liability and errors and omissions special coverage.

“We welcome Mike Schmitt and the Professional Risk team to Alera Group,” said Alan Levitz, CEO of Alera Group. “We continue to focus on acquiring terrific organizations who fit our culture of collaboration. Professional Risk has a history of collaborating with our benefits firms in Colorado. We anticipate that the acquisition of Professional Risk will deepen that relationship and add value across Alera Group’s entire organization.”

“As an Alera Group company, we are excited about the national resources and industry knowledge we will now be able to offer each of our clients,” said Mike Schmitt, Managing Partner of Professional Risk. “The relationships formed with other Alera Group firms will further enhance our firm offerings, as we collaborate to provide our clients with the best possible solutions to meet their needs.”

With this new acquisition, Alera Group now has more than 60 locations across the United States. Alera Group was formed in early 2017 and is one of the nation’s foremost independent insurance agencies and privately-held employee benefits firms. For more information on partnering with Alera Group, visit Partnership Opportunities at www.jmjwebconsulting.com.

About Alera Group
Based in Deerfield, IL, Alera Group’s over 900 employees thousands of clients nationally in employee benefits, property and casualty, risk management and wealth management. Alera Group was created by merging 24 high-performing, entrepreneurial firms across the U.S. It is the 15th largest independent insurance agency and the 7th largest independent employee benefits firm in the country. For more information, visit www.jmjwebconsulting.com or follow Alera Group on Twitter: @AleraGroupUS.

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