Quarterly Insurance Brief: October 2020
Updated: Oct 20
In this Issue:
California Expands Family and Medical Leave; California Employer Reporting for Its Individual Mandate; Medicare Part D Notice Reminder; San Francisco Health Care Security Ordinance (HCSO)
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California Expands Family and Medical Leave
Effective Jan. 1, 2021, Senate Bill 1383 repeals the current California Family
Rights Act (CFRA) and New Parent Leave Act (NPLA) and replaces them with
expanded family and medical leave rights.
What is the Same?
The law provides 12 weeks of unpaid, job-protected leave.
The employer must maintain benefits at the same level of coverage and premium contribution.
It can be used by eligible employees to bond with a new child or to care for themselves, a child, a parent, or a spouse.
Employees still must have 12 months of service and 1,250 hours worked for the employer in the previous 12-month period to qualify for leave.
What has changed?
It applies to employers with five or more employees
Eliminated the 75-mile requirement
Family members include grandparents, grandchildren, siblings, and domestic partners and their children
Leave can be used for exigencies related to a family member’s active military duty
Parents who work for the same employer will now each be allowed to take 12 weeks of child-related leave; and
Eliminated the job reinstatement exemption for salaried employees in the highest-paid 10% of the employer’s employees.
Employers will need to update their employee handbooks to include the new rules. We will be watching for additional information on any notice requirements and changes to existing notices under CFRA and NPLA.
California Employer Reporting for Its Individual Mandate
Beginning on January 1, 2020, California residents were subject to the State’s individual mandate. The State’s individual mandate closely resembles the federal Affordable Care Act (ACA) individual mandate, which was neutered beginning in 2019 when its penalty was reduced to $0. Similar to other states that have enacted an individual mandate, California’s individual mandate includes employer reporting responsibilities.
To date, the most detailed document California has released regarding employer reporting for the State’s individual mandate is the draft copy of publication 3895C. The State wisely decided to allow employers to use the same forms the employer submits to the federal government to satisfy the California employer reporting requirement.
Applicable large employers (ALEs) who sponsor a self-insured health plan that is offered to California residents will be required to submit the Forms 1094-C and 1095-C to the State’s Franchise Tax Board. Additionally, these ALEs will have to furnish a Form 1095-C to California residents. As of the date of this publication, employers are still required to furnish a Form 1095-C to employees under federal law so every ALE should already be complying with this portion of the California law.
An employer must only complete part I of the Form 1094-C for the State of California. However, an employer does not need to complete line 19 of Part I as it is irrelevant for California reporting purposes. Parts II, III, and IV of the Form 1094-C should not be completed for the State of California, as these sections are not relevant to the State’s
enforcement of its individual mandate. An employer will complete Parts I, II, and III of the Form 1095-C to submit to the State of California, just as they do for the IRS submission.
One potentially burdensome aspect in regards to California reporting that is highlighted by the draft publication 3895C is in regard to the due date for furnishing the Form 1095-C to California residents. California’s draft publication incorrectly states that Notice 2019-63 automatically extends the federal due date for furnishing the federal Form 1095-C from January 31, 2021 to March 2, 2021. In reality, the Notice extended the due date from
January 31, 2020 to March 2, 2020 for the 2019 reporting season. As of the date of this publication, the IRS has not provided a similar extension for the 2020 reporting season. However, it is fair to presume, because it has happened every year of reporting, that the IRS will again extend the due date to furnish the Form 1095-C to the requisite employees to March 2, 2021 (it was extended longer for the 2015 reporting year). What some employers
may find worrisome is the draft publication states the California due date to furnish the Form 1095-C to California residents will remain January 31, 2021 regardless of any federal extension.
This could be problematic for some employers. If California remains rigid on its due date to furnish the Form 1095-C by January 31, 2021, employers with California residents will have to comply with the more restrictive California standard compared to the presumed March 2, 2021 federal deadline to furnish the Form 1095-C. Many employers have struggled to meet the January 31 furnishing deadline in the past, which is the reason the IRS has always
provided at least an automatic 30-day extension. California may not be so generous as the information provided on the Form 1095-C may be necessary for Californians to complete their State tax returns.
Finally, and importantly, it is vital that employers only report to the State of California the requisite employees who were residents of California for one or more months in 2020. The Form 1095-C includes sensitive and personal data. Therefore, non-California residents should not be submitted to the State of California.
ALEs with California residents will have to file the Forms 1094-C and 1095-C with the State’s Franchise Tax Board. These employers will have to continue to monitor the due date of furnishing the Form 1095-C to the requisite employees. If the California deadline is more burdensome, the employer will have to prepare and furnish the Form 1095-C for California residents prior to the federal deadline. We will provide an update on the California reporting
requirements as more details are disclosed.
Check with your ACA reporting vendor to confirm that they can prepare the forms with the modifications needed to meet the CA requirement, as well as sending forms only for CA residents.
Medicare Part D Notice Reminder
It’s that time of year again! The Centers for Medicare and Medicaid Services (CMS) requires entities to provide an annual notice to Part D eligible individuals before October 15 indicating whether its plan’s coverage is creditable or non-creditable. The Disclosure Notice requirement applies to Part D eligible individuals who are active or retired employees, as well as those who are covered as spouses or dependents under active or retiree coverage.
If your plan data does not include dependent data in the detail necessary to identify eligible dependents who may be Medicare Beneficiaries, you may choose to provide the notice to all eligible employees to ensure proper notice to all Medicare Beneficiaries. Notice to the employee will constitute notice to dependents unless you have a separate address for a non-resident spouse/dependent.
Plan Sponsors must also provide a Medicare Part-D notice:
A) Prior to an individual’s Initial Enrollment Period for Part-D;
B) Prior to the effective date of coverage for any Medicare eligible individual that joins the Plan;
C) Whenever the entity no longer offers prescription drug coverage or changes the coverage offered so that it is no longer creditable or becomes creditable; and,
D) Upon the request by the individual.
“Prior to” means the individual must have received the Disclosure Notice within the past twelve months. So, plans that issue the Part-D notice at time of policy renewals do not need to provide another notice.
The notices have not changed since April 2013. Therefore, if the status of your plans is the same you can use last year’s notice. The notices are provided in English and Spanish at http://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/Model-Notice-Letters.html.
You can also contact your Brown & Brown Account Team to request a copy be emailed to you.
Plan Sponsors may mail the notice as a stand-alone mailing or choose to incorporate the notice into other documents or disclosures, so long as there is prominent first-page, 14-point reference to the incorporated notice language.
Plan Sponsors may also deliver the notice electronically to plan participants who have the ability to access the Plan Sponsor’s electronic information system on a daily basis as a part of their work duties. Plan Sponsors should inform participants that they are to share the electronic notice with all family members who are covered under the group health plan.
Disclosure to CMS Form
Don’t forget you must also disclose to CMS whether your plan’s coverage is creditable or non-creditable. This is done online at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosureForm.html.
This disclosure must be made within 60 days following the start of the plan year, within 30 days after termination of a prescription drug plan, and within 30 days after any change in the plan’s creditable coverage status.
San Francisco Health Care Security Ordinance (HCSO)
The San Francisco Health Care Security Ordinance (HCSO) established several employer health care-related obligations for covered employers. The HCSO, which generally applies to for-profit businesses with 20 or more employees and nonprofit businesses with 50 or more employees, took effect on Jan. 9, 2008. However, it was amended in 2014 to phase out the use of revocable health care expenditures. Final revised HCSO regulations took effect on Oct. 29, 2017.
This Employment Law Summary provides an overview of the San Francisco HCSO.
Overview of the HCSO
Under the HCSO, all covered employers must:
Satisfy an employer spending requirement (ESR) by calculating and making required health care expenditures on behalf of all covered employees;
Maintain records sufficient to establish compliance with the ESR;
Post an HCSO Notice in all workplaces with covered employees; and
Submit an HCSO Annual Reporting Form to the Office of Labor Standards Enforcement (OLSE) by April 30 of each year.
An employer is covered under the HCSO if it:
Is a for-profit business with 20 or more employees, or a nonprofit business with 50 or more employees; and
Has employees who work in San Francisco.
However, public sector employers (such as the City and County of San Francisco, the San Francisco Unified School District, the University of California, or other agencies of the state or federal government) are not covered under the HCSO.
Covered employers are only required to make health care expenditures to or on behalf of their “covered employees.” With some exceptions, an employee is covered by the HCSO if he or she works for an employer covered by the HCSO and:
Is entitled to be paid at least the minimum wage;
Has been employed by the employer for at least 90 calendar days; and
Works at least eight hours per week in San Francisco.
However, covered employees do not include:
Managerial, supervisorial or confidential employees who earn more than the applicable salary exemption amount (for 2020, $104,761 per year or $50.37 per hour);
Individuals who are eligible to receive benefits under Medicare or TRICARE;
Employees who are employed by a nonprofit corporation for up to one year as trainees in a bona fide training program consistent with federal law;
Employees who receive health care benefits pursuant to the San Francisco Health Care Accountability Ordinance (HCAO).
In addition, employees may voluntarily choose to waive their right to have their employers make health care expenditures for their benefit by signing an Employee Voluntary Waiver Form. However, an employee’s voluntary waiver is not valid unless the employee is receiving benefits through another employer.
Employer Spending Requirement
The HCSO requires covered employers to satisfy the ESR by making required health care expenditures on behalf of all covered employees at the following rates:
For this purpose, “hours payable” include both the hours for which an employee is paid and the hours for which the employee is entitled to be paid, including, but not limited to, paid vacation hours, paid time off and paid sick leave hours, but not exceeding 172 hours in a single month. However, hours payable includes only those hours during which the employee is working within the geographic boundaries of the City and County of San Francisco.
A “health care expenditure” is defined as any amount paid by a covered employer to its covered employees (or to a third party on behalf of its covered employees) for purposes of providing or reimbursing the cost of health care services for covered employees and their family members. Health care expenditures generally include any amounts paid for health care services for covered employees and their family members (including for health, dental, and vision insurance).
These required health care expenditures must be made at least quarterly, within 30 days of the end of the preceding quarter. Covered employers can comply with the ESR through various options, including:
Payments for health, dental and/or vision insurance;
Payments into health savings accounts (HSAs) or health reimbursement accounts (HRAs);
Costs incurred by the employer in the direct delivery of health care services for a covered employee;
Payments to a covered employee to reimburse costs incurred for health care services; and
Payments to the San Francisco City Option Program.
Payments made directly or indirectly for workers’ compensation or Medicare benefits do not qualify as health care expenditures. Similarly, increasing hourly wages, or otherwise giving employees extra money in their paychecks, is not a valid health care expenditure and does not satisfy the ESR.
Note that the ESR applies regardless of whether the covered employee waives employer-sponsored coverage. If the employee declines to participate in the employer’s health plan, the employer must satisfy its ESR in some other manner.
Employer Reporting and Recordkeeping Requirements
Covered employers must submit an Annual Reporting Form to the OLSE by April 30 of each year. This is a web-based form that must be submitted online, and becomes available on the HCSO website by April 1 each year. The OLSE strongly encourages employers to review the instructions for the Annual Reporting Form to ensure compliance with this reporting requirement. Employers may sign up for the HCSO email list to receive an email notification each year when the Annual Reporting Form is available.
On Feb. 25, 2020, San Francisco Mayor London Breed issued an emergency proclamation due to the COVID-19 pandemic. As a result of this emergency proclamation, the city cancelled the employer requirement to submit the 2019 HCSO Annual Reporting Form. This means that the 2019 Annual Reporting Form does not need to be submitted to OLSE. However, employers must continue to make health care expenditures on behalf of their covered employees by making City Option payments and/or paying for health insurance.
The HCSO (along with all other San Francisco labor laws) remains in full effect. HCSO-mandated health care expenditures are not a tax and, therefore, there are no deferrals for these expenditures. The OLSE expects that all covered employers will continue to fully comply with their legal obligation to make full payments within 30 days of the end of each quarter. The deadline for Q1 2020 expenditures was April 30, 2020.
In addition, covered employers must keep, for a period of four years from each covered employee’s dates of employment, the following records:
Itemized pay statements;
The employee’s address, telephone number and first day of work;
Records of health care expenditures made, including calculations of health care expenditures required under the law for each covered employee and proof documenting that those expenditures were made each quarter of each year;
Documentation supporting an employee’s exemption from coverage (such as a signed Employee Voluntary Waiver Form) for each employee for whom the employer is claiming an ESR exemption; and
Information demonstrating that the required health care expenditures were made quarterly (unless the employer meets the requirements for the exception for self-funded plans).
Employer Notice-Posting Requirement
Covered employers must post the HCSO Notice in a conspicuous place at any workplace or job site where any covered employee works. The official OLSE Notice must be used; drafting and posting a different version will not satisfy the HCSO’s requirement. The HCSO Notice must be posted in English, Spanish, Chinese and any other language spoken by at least 5 percent of the employees at the workplace. For employees working in a location that is not controlled by the employer (for example, those working from home or outsourced to a third party), the employer must ensure that each employee is provided a copy of the HCSO Notice.
Health Care Surcharges
Businesses are neither required to, nor prohibited from, imposing surcharges (such as an extra fee or cost) on the goods or services they sell to consumers to offset the cost of complying with the HCSO. However, employers that elect to impose these surcharges must comply with specific requirements.
First, any covered employer who imposes a health care surcharge on its customers as a result of the HCSO must report the following information to the OLSE as part of its HCSO Annual Reporting Form each year:
The amount collected from the surcharge for covered employee health care; and
The amount spent on covered employee health care.
Second, if the amount collected from the surcharge is greater than the amount spent on covered employee’s health care, the employer must spend the excess surcharges on health care for covered employees within a full calendar year (in addition to spending any health care surcharge funds collected in that year).
In addition, the State Board of Equalization issued a special notice regarding the taxability of these health care surcharges on May 1, 2009.
The information contained in this newsletter is intended to provide accurate and authoritative information on legislative and market news. It is distributed with the understanding that Brown & Brown is not rendering tax or legal advice. Employers should consult their attorneys or tax advisors for specific compliance information and assistance.