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IRS Sheds Light on Credit for Employer-sponsored
Health Coverage
Most
of the regulations regarding the Patient Protection and Affordable Care
Act are still under construction by federal agencies. The IRS, however,
has hurried guidance concerning a provision that is actually good news
for many companies -- the small-business tax credit.
 The tax credit,
which is available immediately, is granted to companies that pay at
least half the cost of single coverage for their employees, have fewer
than 25 full-time-equivalent (FTE) employees and pay wages averaging
less than $50,000 annually. In 2010, the smallest employers --
those with 10 or fewer FTEs and paying annual wages of $25,000 or less
-- will receive the biggest break: 35 percent of premiums paid.
According to the law firm Ivins, Phillips & Barker, the IRS
addresses a number of credit-related questions that stem from the
language of the health care reform legislation in its recent Notice
2010-38. They include:
Coverage of adult children: The
IRS states that medical care for an employee's child who has not turned
27 as of the end of the taxable year is excluded from gross income,
even if the employee does not claim this child as a dependent on his or
her taxes. Reimbursements for health care for an employee's child under
age 27 from a health savings account also are nontaxable. In addition,
while some insurers are already starting to expand coverage to
employees' adult children, the law does not require coverage until Jan.
1, 2011, for calendar-year plans, the notice states.
FSAs: Employers
can allow employees to increase their pre-tax contributions to their
flexible spending accounts to help cover expenses for their adult
children under age 27. However, a plan amendment likely will be
required because FSAs generally only cover employees' children who are
declared as dependents by the employees. Because the health care reform
law extends coverage to adult children who are not dependents, the
typical plan will need an amendment, the law firm advises.
In a separate publication released in late May -- Notice 2010-44 -- the
IRS clears up more murky issues, according to an Employee Benefit News report.
Clarifications include:
State tax credit:
An employer's tax credit will not be reduced by a state tax credit or
subsidy, except in limited situations to prevent credit abuse. The IRS
points out that an employee will receive the full federal credit as
long as the credit doesn't surpass the employer's net contribution to
health coverage. About 20 states offer some sort of health insurance
tax credit to employers.
Dental/vision:
Employers can receive credit for dental and vision plans, as well as
traditional medical plans. However, an employer's dental and vision
plans still must meet the requirements that apply to medical health
coverage -- including paying 50 percent of the premium for single
coverage.
Although up to 4 million businesses are expected to be eligible for the
credit, critics say it's far from a free lunch, primarily because it
does not address the rising cost of health insurance.
"As long as costs keep going up, the credit is going to become
less valuable," Bill Rys, tax counsel for the National Federation
of Independent Business, told Kaiser
Health News.
The tax credit also might become a victim of its own success. Companies
that save money through the credit and decide to expand their workforce
might make themselves ineligible, according to a new report by the National Center for Policy Analysis
(NCPA).
As a company hires more workers, it runs the risk of surpassing the
25-worker/$50,000 wage limit set by the law, the NCPA points out. Even
if a company doesn't gain jobs, it could pass the salary mark if it
raises wages or hires a high-earning employee.
"The tax credit is supposed to offset part of the burden of a new
employer mandate to provide health insurance for their employees,"
Pamela Villarreal, co-author of the report, said in a PRNewswire
release. "However, as firms grow, they will be penalized if they
hire more workers or raise employee wages."
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Government Holds Limits Steady as HSA Popularity
Keeps Growing
With
the cost of living flat, the IRS is not changing the 2011 maximum
contribution limits for health savings accounts (HSAs).
 A Business Insurance report notes that
the IRS will carry over the 2010 maximum HSA contribution limits of
$3,050 for single coverage and $6,150 for family coverage. The IRS also
is maintaining the minimum deductible at $1,200 for single coverage and
$2,400 for family coverage. Maximum out-of-pocket expenses, including
deductibles, remain at $5,950 and $11,900 for single and family
coverage, respectively.
A new report by America's
Health Insurance Plans (AHIP) reveals that that about 10 million
Americans are enrolled in HSAs -- a 25 percent jump since 2009.
Thirty percent of those with an HSA were in the small-group market, the
study found. States with the most people covered by HSAs were California (1 million), Ohio
(651,000), Florida (639,000), Texas (637,000), Illinois
(575,000) and Minnesota
(361,000).
As the popularity of consumer-driven health plans (CDHPs) -- which
often include HSAs -- has ballooned, employers have started to look for
ways to help their employees get the most out of their coverage. A new
survey by Workscape found that more than 75 percent of large employers
with CDHPs offer decision-making tools for their employees. In
addition, sixty-one percent of small-group employers offer tools, which
include web-based resources, cost calculators and plan comparison
tools.
Simply having a CDHP tool available isn't enough for some employers,
the Workscape survey finds. Nearly a quarter of respondents offer
incentives to encourage employees to actually use the CDHP tools when
making decisions about their health care. Enticements include gift
certificates, cash, premium reductions and contests.
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As Hiring Heats Up, Employers Take Another Look at
Value of Benefits
The
U.S.
job market appears to be on the verge of a summer sizzle, and employers
are banking on employee benefits to recruit and retain top talent, a
set of surveys shows.
 Nearly half (49
percent) of employers polled by Dice Holdings said they will add up to
10 percent more employees in the second half of 2010 compared with the
first six months of the year. Twenty-eight percent expect their hiring
to increase between 11 percent and 20 percent.
As the hiring picture begins to improve, some employers are turning their
attention to hiring -- and keeping -- the best people. To
strengthen their retention footing, more than a third of employers say
they are boosting benefits and incentives as a way to keep their top
employees, according to a new poll by NuView Systems Inc. Only 15
percent said they were relying on pay raises and bonuses to keep their
star employees in the fold.
Employers polled in a separate Workscape study also revealed their
commitment to benefits as a recruitment/retention tool. Two-thirds (66
percent) of employers said employer-sponsored medical benefits are
critical to their recruitment and retention efforts, and 46 percent
expect they will consider benefit increases as the economy recovers.
However, one-fifth of respondents said they weren't planning on doing
anything to shore up retention, the NuView poll revealed. Also,
Workscape found that while 71 percent of employers fear they will face
retention problems as the job market improves, few expect those
problems to arise in 2010.
Still, experts say retention could become a big challenge, especially
considering the hard knocks that employees have absorbed during the
recession, including pay freezes, benefit cuts and furloughs.
In fact, the Bureau of Labor Statistics reported that the number of workers
voluntarily quitting in February surpassed the number being fired or
laid off for the first time since October 2008. That trend likely
will continue, according to research by Right Management, which found
that 60 percent of workers said they aim to leave their current job as
soon as the hiring market improves.
"Employees feel disengaged with their jobs, which is going to lead
to a lot of churn as we come out of the recession," Brett Good of
Robert Half International, an executive recruiting firm, told The Wall Street Journal.
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RETIREE CLAIM PROGRAM
The Department of Health and Human Services has posted a draft
application for companies that wish to participate in the federal
government's reimbursement program for retiree health care claims. The program,
part of the recent health care reform legislation, will partially
reimburse employers for claims made by retirees who are at least 55 years
old but not eligible for Medicare, as well as retirees' covered
dependents, regardless of age. The $5 billion in reimbursements will be
distributed on a first-come, first-served basis. The draft is available
at: http://www.reginfo.gov/
public/do/PRAViewDocument?
ref_nbr=201005-0938-012
The final application is expected to be available by the end of
June.
GROUP RATES JUMP
Small and mid-size employers are seeing significant increases in health
insurance rates at renewal, according to a new poll of benefit advisors.
The Council of Insurance Agents & Brokers notes that 86 percent of
polled brokers reported rate increases for small accounts (50 or fewer
employees). More than half of those were between 11 percent and 20
percent. Brokers said 58 percent of mid-size accounts (51 to 500
employees) are seeing hikes between 6 percent and 15 percent.
EFAST2 ADDITON
The Employee Benefits Security Administration has announced that service
providers that manage the filing process for plans can get their own
signing credentials and submit the electronic Form 5500 filings for the
plan. The service provider must confirm it has written authorization from
the plan administrator to submit the filing, and the administrator must
manually sign a paper copy of the completed filing, which must be saved
as a PDF and attached to the EFAST2 filing.
A FEW MORE DAYS TO
COMPLY
Many plan sponsors face an Aug. 2 deadline to file their Form 5500
returns, according to the IRS. Plan sponsors must file on the last day of
the seventh month after their plan year ends. For those with
calendar-year plans, that deadline is Aug. 2 because July 31 is on a
Saturday this year.
WORK AS HEALTH HUB
More than 62 percent of polled employers said the workplace must play a
key role in helping to foster a healthier workforce, according to a new
Workforce Management poll. Almost 75 percent of employees say they would
be more willing to adopt healthier habits if their co-workers did as
well, while 60 percent said they'd be encouraged if company executives
led healthy lifestyles.
GOING VOLUNTARY
The rough economy has prompted many employers to take a close look at
voluntary benefits as a way to shore up their overall compensation
package, a new study shows. A recent poll by Colonia Life & Accident
Insurance Co. found that nearly 60 percent of advisors said their clients
have added voluntary benefits options for employees. Nearly half the
respondents said their clients shifted more benefit costs to the workers.
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