Quarterly Insurance Brief: January 2020
Updated: Sep 15, 2020
In this Issue:
PCORI Fee Revived, SF HCSO Updates, Section 125 FSA Law for CA Employers
PCORI Fee Revived
Congress enacted the Further Consolidated Appropriations Act, 2020, at the end of December. In this bill, as reported in the Brown & Brown 2019 ACA update, the Cadillac Tax, the Health Insurance Tax, and the medical device tax were all repealed.
The other major benefit related provision involves the PCORI (Patient- Centered Outcomes Research Institute) fee. 2019 was supposed to be the last year most self-insured group health plans had to worry about paying the annual PCORI fee, as it was set to expire for plans ending before October 1, 2019. As a reminder, the PCORI fee was put into place by the ACA to help fund the Patient Outcomes Research Institute. It is based on the average number of covered lives under the plan. The Appropriations Act has extended the PCORI fee for another 10 years, meaning that the fee will be in effect until 2029 for most plans (2030 for others, depending on the plan’s year-end).
The fee amount is determined annually by the IRS. Once they announce the rate for plan years ending on or after October 1, 2019 through September 30, 2020 we will notify our clients. File Form 720 annually to report and pay the fee no later than July 31 of the calendar year immediately following the last day of the policy year to which the fee applies.
If you file Form 720 only to report the fee, do not file it for any other quarters. If you file Form 720 to report quarterly excise tax liability, do not make an entry on the line for IRS No. 133 on those filings. Deposits are not required for this fee so plan sponsors are not required to pay the fee using EFTPS.
Calculating the Fee: For self-insured plans, plan sponsors may choose from three different methods. Once chosen, the plan sponsor must use only the one method for that reporting year.
Actual Count Method: Plan sponsors calculate the sum of lives covered for each day of the plan year and then divide that sum by the number of days in the year. This count includes employees plus dependents.
Snapshot Method: Plan sponsors calculate the sum of the lives covered on one or more dates in each quarter of the plan year and then divide that number by the number of dates used. Each date must be within three days of the date used for the first quarter. E.g. If using February 15th (1st quarter), then must use a day between May 12 – 18th (2nd quarter). Under this method, the plan sponsor can count the number of covered employees and multiply that number by 2.35 to obtain the spouse and dependents count.
The 5500 Method: By adding the total number of employee lives on the first day of the plan year to the total number of lives on the last day of the plan year, as reported on the Form 5500 (without dividing by 2). Can only use this method if the 5500 for that plan year is filed no later than the due date for the fee imposed for that plan year (e.g., calendar plan year, the 5500 is due by 7/31, and the employer obtains an automatic 2 ½-month extension). The employer is not eligible to use the Form 5500 method because they did not file by the 7/31 fee due date.
Health Reimbursement Accounts (HRAs)
Self-funded medical plan and an integrated HRA: the fee will be payable on the self-funded medical plan. There is not a separate fee for the HRA.
Fully insured medical plan and an integrated HRA: The employer must pay the fee on the HRA while the carrier pays the fee on the medical plan. Special counting rule for HRAs: Only the employees are counted—no dependents are included.
Retiree Coverage: The fee applies to health insurance policies and self-insured health plans that provide accident and health coverage to retirees, including retiree-only policies and plans. COBRA Continuation Coverage: COBRA and similar continuation coverage (Cal-COBRA, for example) must be taken into account when determining the CER fee.
SF HCSO Updates
The following updates were announced via email from the San Francisco Office of Labor Standards Enforcement: Health Care Expenditure Rates Under the Health Care Security Ordinance, employers must spend a minimum amount on healthcare for their San Francisco employees.
As of January 1, 2020, the rates are as follows:
$3.08 per hour for employers with 100 or more workers worldwide
$2.05 per hour for employers with 20-99 workers worldwide New San Francisco Labor Law
Posters OLSE has released two updated posters that must be placed at each job site or workplace location where employees can read them easily.
The HCSO poster must be posted as of January 1, 2020. The Health Care Security Ordinance poster should be printed on 8.5” x 14” paper. The Fair Chance Ordinance poster may be printed on 8.5” x 11” paper. You may also receive copies of these posters in the mail.
Section 125 FSA Law for CA Employers
Most of you will have heard from your Sec. 125 administrators about AB 1554, a short piece of legislation aimed at improving notifications to participants. This new law went into effect on January 1, 2020.
Existing California law requires all employers to notify employees of information relating to employment and benefits. This additional bill requires employers to notify employees, who participate in flexible spending accounts and work in California, of any deadlines applicable to withdrawing funds before the end of the plan year.
Generally, flexible benefits plans are written to accommodate a “run out” period, after the formal end of the plan year, for participants to turn in claims incurred during the plan year. Some plans may allow a 2 ½ month extended period of coverage (grace period), after the end of the plan year, in which to incur expenses during the current year and use left-over funds from the previous plan year. Additionally, plans may allow participants to carry over up to $500 from a previous plan year to the current year from their healthcare flexible spending accounts.
The deadline to withdraw funds may be different according to the benefits selected. For instance, the dependent care portion of the plan may have a run out period for turning in claims incurred in the previous plan year, while the healthcare flexible spending account (FSA) may allow for a grace period or carry over, and thus a separate run out period.
These factors need to be taken into consideration when creating and distributing employee notices including, whether the FSA account is for dependent care, healthcare or adoption assistance.
The Notice needs to be delivered to participants before the plan’s year end advising them of all deadlines to withdraw funds. The Notice also must be provided in two different forms, one of which may be electronic. Notices may be provided as outlined below, but are not limited to the following:
Electronic mail communication
Text message notification
Postal mail notification
Benefit plans ending any time in 2020, up to and including December 31, 2020, will be required to provide two notices to California employees prior to their plan’s year end. Notices may be delivered at any time during the plan year and may include the delivery of the Summary Plan Description. As more detail is published in regard to the notice timing and form, we will provide additional information on this new requirement.
If you have any questions, please reach out to your Sec. 125 administrator or your Brown & Brown Account Team.
The information The 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.