Eat Well to Live Well
Maintaining a healthy diet is a huge component in leading a long, healthy life. Share this video with your friends and co-workers to offer important healthy eating tips.
Maintaining a healthy diet is a huge component in leading a long, healthy life. Share this video with your friends and co-workers to offer important healthy eating tips.
Many employers provide health insurance coverage to the domestic partners of their employees. Domestic partner benefits generally include medical and dental insurance, but they may also include disability and life insurance, family and bereavement leave, education and tuition assistance, relocation and travel expenses, and inclusion of partners in company events.
Since same-sex marriage is now legal in every state, some employers are dropping their domestic partner benefits and requiring that couples get married in order to qualify for employee benefits. However, some employers—especially those that offer same-sex and opposite-sex domestic partner benefits—are continuing to provide domestic partner benefits for a variety of reasons.
Employers that decide to drop their domestic partner benefits should consider providing a grace period before the change takes effect in order to allow domestic partners time to marry or to make other benefits arrangements.
Companies offer domestic partner benefits for many reasons. Some of the most commonly cited reasons for providing domestic partner benefits include:
State law requirements—Some states, such as California, have laws that require health insurance coverage for domestic partners.
Companies choose not to offer (or to eliminate) domestic partner benefits for many reasons. Some of the most commonly cited reasons for not providing domestic partner benefits include:
There are no uniform rules defining a domestic partner, and not all areas have state or local laws or regulations that define the term. Some employers choose to establish their own definitions, while others reference state or local law domestic partner registration systems. Commonly used plan requirements stipulate that domestic partners:
Some plans require that affidavits affirming domestic partner status be submitted to plan administrators, and that an employee submit a “termination of domestic partnership” form if the partnership ends.
When drafting plans, employers should clearly state what benefits are available to domestic partners. They should also consider whether the plan will extend eligibility to the dependents of domestic partners. Beyond that, summary plan descriptions (SPDs) must clearly state the eligibility rules for domestic partners and the scope of the benefits provided to domestic partners.
Legally married same-sex couples are entitled to the same benefits and protections under federal law as opposite-sex married couples. This rule applies only to same-sex marriages that are valid under state law. It does not affect same-sex couples in civil unions or domestic partnerships. These couples are generally ineligible for the federal benefits provided to spouses.
A domestic partner is not a legal spouse for federal tax purposes. An employer is obligated to report and withhold taxes on the fair market value (FMV) of a domestic partner’s health coverage to the extent the coverage is paid for by the employer. This is not true for health insurance coverage for legal spouses (including same-sex spouses).
There is no clear rule on what constitutes FMV. The FMV of coverage is determined based on the amount an individual would have to pay for the particular coverage in an “arm’s-length” transaction. It does not depend on usage of the coverage or claims actually paid or the cost incurred by the employer. FMV is usually determined by calculating the difference between the cost of employee and employee-plus-one coverage or by using the plan’s applicable COBRA premium for the coverage, without the 2 percent surcharge. Also, any amount paid by the employee on an after-tax basis for the coverage should be subtracted from the FMV to determine the taxable amount.
Some employers “gross up” an employee’s salary to cover the cost of additional taxes from the imputed income of domestic partner benefits. Employers should disclose the methodology used for imputing employee income to employees. This would allow affected employees to make informed decisions about the cost of coverage and the tax consequences of providing their domestic partners with health coverage through their employers.
Domestic partner benefits may be considered non-taxable only if the domestic partner qualifies as a “dependent” under the definition of a “qualifying relative” pursuant to Internal Revenue Code (IRC) Section 152. To qualify as a dependent, the domestic partner must have the same primary address as the employee/taxpayer for the year and be a member of the employee/taxpayer’s household. In addition, the domestic partner must receive more than half of his or her support for the year from the employee/taxpayer. Traditionally, plans ask that the employee certify the following: that the domestic partner is the employee’s tax dependent as of the date that the annual enrollment form is completed; and that the employee expects that the domestic partner will continue to be the employee’s tax dependent for the upcoming year.
If an employee’s domestic partner qualifies as a tax dependent, the value of the health coverage and benefits paid under the health plan are tax-free to the employee and domestic partner. A domestic partner does not have to be claimed as a “dependent” on the employee’s federal tax return in order to be eligible for tax-free health coverage. Furthermore, a domestic partner’s child is unlikely to be the employee’s dependent because, in most cases, the child will be the qualifying child of another taxpayer, such as the domestic partner or the child’s other parent.
Some states have laws that address domestic partner benefits, such as laws requiring that any employer that provides health insurance benefits to employees’ spouses must offer the same benefits to domestic partners of employees. States may also have laws that allow employees to take job-protected leaves to care for their domestic partners. Employers should stay up to date with applicable state laws impacting domestic partner benefits.
The Employee Retirement Income Security Act of 1974 (ERISA) and the IRC are federal laws that are directly applicable to domestic partner benefits. ERISA governs private sector, employer-sponsored welfare and retirement plans. ERISA generally preempts state laws that relate to employee benefit plans but not state laws that regulate insurance. As such, state insurance law may require coverage of domestic partners in plans that are otherwise regulated by ERISA. However, a fully insured health plan may be treated differently than a self-insured health plan.
The following paragraphs discuss federal employee benefit provisions as they relate to domestic partner benefits:
Money contributed on a pretax basis to an FSA can be used to pay for medical expenses not covered by health insurance. Unless a domestic partner qualifies as a tax dependent under the IRS definition, an FSA cannot be used to cover the medical expenses of a domestic partner, even if the employer offers domestic partner health insurance benefits.
Medical expenses incurred by, or on behalf of, a domestic partner are ineligible for tax-free reimbursement from an HSA unless the domestic partner qualifies as a tax dependent.
Group-term life insurance on an employee is excludable from income, up to a certain limit. This exclusion does not apply to group-term life insurance for a spouse, another family member or any other person. In terms of this exclusion, domestic partners are treated no differently than spouses.
Specifically, domestic partners cannot obtain group-term life insurance in an employer’s group insurance plan on a tax-advantaged basis. Domestic partners can, however, be named as a beneficiary of life insurance purchased by an employee (his or her domestic partner) or by an employer for the employee to the same extent as legal spouse.
Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), special enrollment rights apply when employees gain new dependents or when dependents lose coverage. The extent to which domestic partners are eligible for special enrollment depends in large part on the particular health plan’s eligibility rules. However, HIPAA special enrollment rights are not triggered when an employee acquires a domestic partner.
The Consolidated Omnibus Budget Reconciliation Act of 1995 (COBRA) requires that a group health plan provide continuation of coverage when certain triggering events cause an employee, the employee’s spouse and/or a dependent child to lose coverage under the plan terms. COBRA-triggering events may include termination of employment, divorce or a dependent no longer qualifying as a dependent under the plan terms. Domestic partners cannot qualify as “spouses” for COBRA purposes and do not have their own COBRA election rights.
Even though an employee’s domestic partner has no independent COBRA rights in the instance of a qualifying event, an employer may choose to extend comparable benefits with the approval of the insurance carrier or HMO. If the former employee elects and pays for COBRA coverage in a timely way, he or she can add the domestic partner to the plan during an open enrollment period. The domestic partner’s plan coverage will end when the former employee’s COBRA coverage ends. If the domestic partner’s children are covered as dependents under the plan, they will be qualified beneficiaries in connection with any COBRA qualifying event.
The Family and Medical Leave Act of 1993 (FMLA) is a federal policy designed to offer leave annually for certain family or medical reasons. A domestic partner is not considered a spouse for FMLA leave purposes, even if the partner qualifies as a tax dependent. Though many do, an employer is not legally required to extend family and medical leave to an employee to care for a domestic partner.
Also, the Department of Labor (DOL) has recognized the eligibility of same-sex partners, whether married or not, to take FMLA leave to care for a partner’s child, provided that they meet the in loco parentis requirement of providing day-to-day care or financial support for the child.
Employers need to be aware of the complicated benefits, employment and tax issues that accompany domestic partner benefits. Before extending benefits to domestic partners, an employer should determine the status of the domestic partner rules in each state in which it operates. Understanding the needs and changing nature of your workforce will make it easier to decide whether to offer domestic partner benefits.
A Section 125 plan must offer employees a choice between at least one taxable benefit (such as taxable compensation) and one or more qualified benefits. Benefits that are not qualified benefits cannot be offered under a Section 125 plan. The following table lists commonly offered employee benefits and indicates whether they are qualified benefits that can be offered under a Section 125 plan.
Participant elections under a Section 125 cafeteria plan must be made before the first day of the plan year or the date taxable benefits would currently be available, whichever comes first. Typically, employees make their elections each year during an annual open enrollment period, with the elections taking effect on the first day of upcoming plan year. Employees who become eligible for benefits during a plan year (for example, new hires), will usually make their elections during an initial enrollment period.
There are two exceptions to the general rule that Section 125 plan elections must be made on a prospective (not retroactive) basis:
• Limited exception for new hires – Elections that new employees make within 30 days after their hire date can be effective on a retroactive basis. Elections made during this enrollment window can be effective as of the employee’s date of hire.
• HIPAA special enrollment – Special enrollment rights apply when an employee acquires a new dependent through marriage, birth, adoption or placement for adoption. When a new dependent is acquired through birth, adoption or placement for adoption, coverage must be effective retroactively to the date of birth, adoption or placement for adoption. Employees’ elections under a Section 125 plan may be retroactive to correspond with this HIPAA special enrollment right.
Participant elections generally must be irrevocable until the beginning of the next plan year. This means that participants ordinarily cannot make changes to their cafeteria plan elections during a plan year. Employers do not have to permit any exceptions to the election irrevocability rule for cafeteria plans. However, IRS regulations permit employers to design their cafeteria plans to allow employees to change their elections during the plan year, if certain conditions are met.
Cafeteria plans may recognize certain events as entitling a plan participant to change his or her elections (if the change is consistent with the event). Although a cafeteria plan may not be more generous than the IRS permits, it may choose to limit to a greater extent the election change events that it will recognize.
For an employee to be eligible to change his or her cafeteria plan election during a plan year, the following general rules apply:
1. The employee must experience a midyear election change event recognized by the IRS.
2. The cafeteria plan must permit midyear election changes for that event.
3. The employee’s requested change must be consistent with the midyear election change event.
Also, employees’ midyear election changes must be effective prospectively. The one exception to this rule is for retroactive election changes that are permissible under the HIPAA special enrollment event for birth, adoption or placement for adoption.
Some of the IRS’ midyear election change events apply to all qualified benefits that can be offered under a cafeteria plan. However, other midyear election change events only apply to certain qualified benefits—for example, not all of the IRS’ midyear election change events apply to elections for health FSAs.
The irrevocable election rules do not apply to a cafeteria plan’s HSA benefit. An employee who elects to make HSA contributions under a cafeteria plan may start or stop the election or increase or decrease the election at any time during the plan year, as long as the change is effective prospectively. If an employer places additional restrictions on HSA contribution elections under its cafeteria plan, then the same restrictions must apply to all employees. Also, to be consistent with the HSA monthly eligibility rules, HSA election changes must be allowed at least monthly and upon loss of HSA eligibility.
Next, Part 4 – Permitted Election Change Events
Return to Part 2
This 90-second video breaks down how a health savings account (HSA) works and why employees should consider one.
If you have questions about HSA’s or anything relating to employee benefit programs, please contact us using the form below.
By Christopher Nunnally, LIA
Chris Nunnally is an Account Executive with Group Benefits Strategies.
Chris has been working in insurance and benefits his entire career. He was formerly the Director of Broker Sales for Teladoc. Prior to that, he was a Sales Representative for Sun Life Financial and New York Life where he gained extensive knowledge of Employee Benefits and Stop Loss Insurance.
Most employers have an understanding of what self-insuring their medical cost involves. But let’s take a look at why company self-funds. What does it mean for their employees? 3 out of 5 American workers are currently being covered by employer-based self-insured health plans. By 2020 nearly 35,000 companies will join the employers that already self-fund their health care cost.
Most employees have no idea they are covered by a self-insured plan. From the outside, a self-funded health plan looks like a traditional health plan. Weekly or bi-weekly deductions from their paychecks go towards health insurance premiums. They go to the doctor or pick up a prescription and pay a copay. For most employees, that is the extent of the interaction with their health insurance plan. However, a self-insured health plan can be so much more.
A self-funded health plan has the ability to be at its strongest when a member is at their most vulnerable. Self-insurance, when done correctly, is a living, breathing apparatus a company uses as a means to take care of their employees. A company has the ability to contract with vendors to help manage the most complex diseases empowering the insured to live a more independent, productive and happy life. For example, personal cancer case managers can help guide cancer patients to better outcomes. Telemedicine is a tool a single parent can use late at night for a sick child, and avoid having to pack up all their kids and drive to the emergency room. Employers can build a high performance health plan that meets the needs of their employees and fits with the culture of the company. A self-insured plan has the opportunity to empower its members to live happier healthier lives.
Members’ health and happiness and over-all well-being are why a company should consider self-funding their health care cost.
Mitigating cost is just the byproduct.
For more information on self-funding, contact GBS today.
Importance of Plan Modeling
Changing plan designs is an incredibly tough decision for an employer. It’s hard to know how changes will impact the overall budget. However, sometimes plan design changes are necessary to manage costs, particularly when cost drivers could be reined in by adjusting plan specifics.
Employers also need to consider how plan design changes will affect current and future employees—providing a quality benefits plan is of vital importance to attract and retain quality employees.
The best solution to this problem is to engage in plan modeling. Plan modeling allows managers to determine the best use of resources and to engage in experimentation without taking on risks.
Plan modeling makes it possible to ask various questions regarding how claims would have been paid differently given a modified design.
Many employers start this process by looking at historical claims data and conducting claims analysis to identify problem areas in their health plans. With the results of the analysis, employers can explore potential solutions for lowering costs. (For instance, if emergency room costs were disproportionately high, an employer could consider raising the emergency room copay.)
Even if you are just thinking about making plan design adjustments because you suspect it would drive better claims results, the use of modeling can help you test-drive those changes before implementing them. The results of the modeling will help you see the outcome of suggested changes to your current benefit structure.
Some of the types of decisions plan modeling allows employers to see beforehand include:
With access to all the data provided by plan modeling, employers are able to uncover ways to help control costs. By viewing how much money new strategies have the potential to save over time, employers eliminate the risk of benefits missteps, like implementing drastic changes to popular benefits offerings. With these data points, an employer can make educated, strategic decisions that balance its financial benefit with its employees’ needs. Some models even illustrate how many employees will be affected by each change, allowing employers to truly balance value and cost.
For most employers, identifying and managing even just a fraction of their costs can generate significant savings. That’s because the smallest percentages of identified high-spending areas represent the most promising potential for savings.
The better the model, the greater the potential for cost savings. The more models employers run, the more likely they’ll find hidden ways to curb benefits costs. Employers are free to consider novel and cutting-edge changes to employee benefits without having to wait until after implementation to measure success. In a burgeoning, costly area where employers are trying to limit expenses, plan modeling programs are essential.
Contact Group Benefits Strategies for more information on how to put plan modeling to work for your office.