What are pay-per-use Health Insurance plans?

Level Funding

As health care costs continue to rise, level funding and self-funding are becoming a more and more attractive option for smaller companies. Technically speaking Benefit Administration Group uses level funded health insurance and insurance captives as the funding mechanisms for each pay-per-use health plan. In more simple terms, here is what that means for customers like you:

  1. Each plan has fixed monthly premiums and no change in monthly costs regardless of how many claims are incurred each month.
  2. Instead of your premium rates being determined by community rates set by your employees’ age and zip code, premium rates are determined by proper underwriting and the actual risk (demographics and health history) of your employees. This is accomplished through the use of a simple online health questionnaire and allows many companies to get far lower rates than they would otherwise from regular fully insured products.
  3. At the end of each year, if you incurred fewer claims than expected, your company gets a refund for the unused claims dollars.
  4. You have stop loss insurance fully baked into your plan rates so that if you incur more claims than expected during any given month, or throughout the year, you still never pay more than the fixed monthly premiums.
  5. If at any time you don’t like your plan, or you don’t like your renewal rates you can always leave and go back to your old carrier or a new one.

Human Resources Q & A of the Day

Question:

We’ve hired a new employee and have agreed to reimburse their COBRA premium until they become eligible for our insurance. They provided us with proof (copies of checks and invoices) that they paid a 3rd party administrator for their COBRA coverage. Is this reimbursement taxable to the employee when processing through payroll?

 

Answer:

An employer could choose to offer to pay for COBRA for some period of time but keep in mind that COBRA premium payment arrangements while sometimes convenient, can expose an organization to potential liability so we also recommend discussing any arrangements with legal counsel to ensure compliance. Specifically, any agreement in writing to pay for COBRA should be reviewed in partnership with legal and be explicit in terms of the boundaries of what will be provided and for exactly how long. Paying the COBRA fees directly to the employee is not unusual but it has different tax implications than paying the insurance carrier directly or paying the employee based on substantiated expenses (i.e. receipts).

Below is a link to a copy of IRS Information Letter 2006-0042 (INFO 2006-0042) discussing a particular case. In that case, the employer paid its former employee’s COBRA premiums. The IRS determined that the payments were excludable from gross income (thus exempt from income taxes and employment taxes) provided that the employer either (a) paid the insurer directly, or (b) paid the employee based on documented expenses. If, however, the employee had the discretion to use the funds for any other purposes (i.e. he or she just got a lump sum cash “COBRA” payment from the employer) the amount would be taxable income. Please note that we cannot provide tax advice to clients and recommend seeking guidance from a tax professional where appropriate.

Human Resources Q & A of the Day

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Question:


Should an employee’s background check, interview notes, and benefit information be kept separate from the personnel file?

Answer:


As a best practice (and in certain instances it is legally required), employers should keep certain employee records and information in a confidential file separate from the personnel or employee file. Below is general best practice guidance regarding personnel and confidential files and recordkeeping you may find useful.

Personnel Files

A personnel file may contain documents that fall into one of the following categories of records (note that a Social Security number should not be accessible via the personnel file and is a good indicator that the document should be filed elsewhere):

  • Basic Information. This category includes personal information such as the employee’s full name, address, and emergency contact information.
  • Hiring Documents. Many employers retain documents related to the hiring process, including signed job descriptions, employment applications, and resumes. (Note that other recruiting documents are typically retained in a recruitment file along with information about other candidates, indicating why one candidate was selected over others as well as other information regarding the hiring process.)
  • Job Performance and Development. This is a broad category that may encompass documents such as performance evaluations and supervisory or management notes regarding performance issues; corrective action or disciplinary letters; awards, nominations, and other commendation letters; promotion records; and records of trainings or education.
  • Employment-Related Agreements. Any aspect of the employment relationship which is governed by an agreement between the parties, such as an employment agreement, union contracts, noncompetition agreement, confidentiality or nondisclosure agreement, should be kept in the personnel file.
  • Compensation. This category includes documents related to compensation and relevant changes to an employee’s pay and position for future reference. (Payroll records should be retained by the payroll department or in a separate file along with Forms W-4, garnishment documentation, time records, absences, etc.).
  • Termination and Post-Employment Information. Information related to an employee’s termination should be kept on file should a dispute later arise. Compile all documents and retain in archive including exit interview forms (if applicable) and any final employee performance appraisal, as well as a record of documents provided to the employee along with the final paycheck (e.g., termination letter, benefits notices, unemployment compensation forms, etc.).

Confidential Files — Keep Separate from the Personnel File

As stated previously, it is a best practice (and in certain instances a legal requirement) to keep certain employee records and information in a confidential file separate from the personnel file, such as the following:

  • Medical benefit records and documents that relate to an injury or disability.
  • Material relating to workers’ compensation claims.
  • Family and medical leave documents.
  • Employment verification information.
  • Wage garnishment documentation.
  • Forms W-4, if not maintained in payroll.
  • Documents pertaining to sensitive matters, such as harassment investigation records or any information pertaining to an employee’s religion (such as a request for Jewish holidays off as a reasonable accommodation).
  • I-9 documents must be maintained in a separate file or binder for all active and inactive employees until appropriate destroy dates are met.

Some employers may also retain aptitude test scores, background check results, and credit reports in the employee’s confidential file, though it is recommended that documents relative to a hiring decision should also be retained in the recruiting file, yet still maintain protection of private information (i.e. date of birth and Social Security number).

 

Human Resources Q & A of the Day

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Question:
We recently made some changes to our handbook policies regarding benefits offered to employees and have a disclaimer stating, “The Company reserves the exclusive right to change or terminate any benefits or related policy at any time in accordance with applicable law.” Are we required to have employees sign a new acknowledgment of the handbook because of these recent changes?

Answer:
Yes, employees should be required to sign an acknowledgment noting that they are aware of any new policies or changes to existing policies.

Any new or changed policy should be provided to employees through the distribution of a new handbook accompanied by a brief memo directing the employees to the locations of the changes and requesting an updated acknowledgment signature. Without distributing and getting proof of receipt, the changed policies may be difficult to point to when correcting, disciplining, or terminating an employee. Most employers update their handbooks every one to two years. If there is a major change to an integral policy, that may be distributed separately and added to the handbook as an addendum until the next revision.

While not required, handbooks are a best practice in order to minimize risk. Clearly articulated and distributed handbooks can supplement a defense against many compliance issues such as, but not limited to, claims of sexual harassment, wrongful termination, and discrimination.

Handbooks are a general overview of policies and procedures. Key handbook policies include:

Definitions of commonly used terms.
Explanation of to whom the Handbook and its policies apply.
At-will employment policy.
Disclaimer that handbook is not a contract and the right to change policies without notice.
Antiharassment Policy.
Equal employment opportunity/discrimination/accommodation policies.
Leave of absence and family and medical leave policy (if applicable).
Maternity leave policy.
Drug-free workplace policy.
Standards of conduct.
Timekeeping and overtime.
Paid time off/vacation/sick leave policies.
Lastly, because a handbook is not legally mandatory, it may contain whatever information an employer wishes to impart to its employees. In addition, handbooks are traditionally separate from benefits summaries and other health and welfare plan materials, although the handbook may discuss employee status (full time, part-time, etc.) and may refer employees to benefit plan materials. Further, handbooks do not need to outline company job positions or titles; this can be maintained separately in the job descriptions.

As a best practice, we recommend reviewing new or modified policies with counsel prior to implementation.

Ease the Annual Benefit Enrollment Uncertainty This Year

If you’re like most human resources practitioners, you face the annual benefits enrollment with a mixture of dread and anticipation each year. Dread for the expected price increases and anticipation for newer, less expensive and better plans that may be easier to administer and more valued by employees.

This year brings an added complication—uncertainty. With the Trump administration and Congress proposing significant changes in healthcare and tax reform and new twists being reported in the news every day, you and your employees undoubtedly have questions about what these proposals might mean for your insurance plans. New appointees to the federal regulatory agencies, such as the Occupational Safety and Health Commission, the National Labor Relations Board and the Equal Employment Opportunity Commission, to name a few, also have the potential to impact your safety and employment law risks.

Our advice? Get ahead of the game and start the planning early. Open discussions with your broker and begin to consider how to best ensure your employees get all the information they need in a format that works for them.

Be Prepared to Overcommunicate
Together with your broker and internal management teams, develop an employee communication strategy. Keeping in mind that employees are hearing and reading about health care reform, you’ll need to be prepared to help them separate the fact from the speculation. This year, anxiety could be playing a large role in your employees’ lives. In fact, a recent survey by Woman’s Day magazine found that 82 percent of respondents worry about finances, particularly the rising cost of healthcare, and 84 percent of women are concerned about the status of health care reform.

Understand the Power of a Strong Benefits Package
Properly designed, positioned, and communicated, the employee benefits package is one of the best tools in your arsenal to attract the right talent, enhance employee engagement, and retain the most valuable employees. Today’s employees expect more. In fact, according to a recent survey sponsored by Anthem Life Insurance Company, more than one in three millennial job applicants have turned down job offers with poor health insurance that didn’t meet their needs. Although millennials are the largest group in the workforce today, they are not alone in their expectations. The same survey found that 27 percent of those from other age brackets responded that they also declined job offers due to an employer’s lackluster benefits offer.

Other surveys are finding the same results relating not only with attracting new employees but also in retaining them. Employees today expect their employers to be creative, consider employee needs, make the benefits easy to use, and offer them choices to help manage their lifestyles. Besides health insurance, benefits protecting their incomes, such as disability insurance, financial planning and retirement benefits are important. In addition, consider that employees are tech savvy and expect to have online tools and calculators, along with complete communications, to assist them in making decisions regarding their insurance options.

Steps for Success
To prepare for this year’s enrollment, work with your broker early determine the best benefits packages and communications program. Make the most of marketing your benefits programs to employees by:

 

  1. Reviewing workforce demographics and benefits usage to get a better understanding of employees’ stages in the lifecycle. Knowing your audience and targeting benefits communications to meet those lifecycle needs makes the benefits more personal and relevant. Employees with young families, older workers preparing for retirement, empty nesters, and young singles all have distinctly different benefits needs and interests.
  2. Packaging benefits by target group and promoting messaging that speaks to that group’s needs while consistently reinforcing the overall benefits strategy and employer branding in the messaging. Different communications delivery systems may also be important to different employee groups.
  3. Starting the messaging with “why” the benefits are structured as they are and “what” the company’s overall benefits strategy is designed to accomplish for employees. Most employees are smart, so don’t sugarcoat any bad news about changes in the benefits program. This is a good time to highlight the important value of their benefits programs, promote wellness, encourage retirement savings, and incent cost-effective usage of benefits programs.
  4. Being ready to address the questions triggered by the federal and state proposals to change tax and benefits rules. Clear the misconceptions and incomplete information and focus on how the benefits package has been designed to comply with the current laws in place.
  5. Keeping the messaging straightforward. Provide clear information, checklists, and decision support tools that are easy to follow. Have the details available but keep the key messages and “what you need to do for enrollment” information central to the enrollment materials.
  6. Bringing company managers and supervisors into the discussions prior to launch. Give them a heads up regarding the upcoming benefits changes and enlist their help in the process.
  7. Tackling the “how” of the benefits communications program, including:
  1. Communications delivery methods. With the variety of mediums available, the world is your oyster. Consider electronic communication, mobile apps, webinars, in-person company meetings, text messages, direct mail home to involve the entire family, social media, or even a live hotline for questions.
  2. Enrollment methods. Will enrollment be online? Manual? Mobile? Make it as administratively simple as possible for employees. Use electronic tools if the budget allows.
  3. Timing. Establish a timeline working backwards from the date that the information must be completed then work forward to deliver the communications program.
  4. Frequency. Employees need time to consider their options and allow the information to soak in. Consider sending employee prompts and reminders so that the enrollment process is completed in a timely manner.

The annual open enrollment communications opportunity is precious—you can influence how employees see benefits or cost changes, alleviate any fears about federal and state benefits or tax law changes that are still being considered by lawmakers and regulators, motivate employees to change their health or savings habits, and let employees know that management is listening, considering their feedback valuable, and responding to their needs.

Top Questions on Dependent Care Spending Accounts

School’s out! Summer is here, and it’s the time of year when working parents have questions about using their Dependent Care Spending Accounts (DCSAs). Are summer camp expenses eligible? What about day versus overnight camps? Employers and benefit advisors want to be ready with answers about this valuable benefit program.

The following are the top summertime questions about DCSAs and reimbursable expenses:

1. What are the basic rules for reimbursable expenses?

Dependent care expenses, such as babysitting and daycare center costs, must be work-related to qualify for reimbursement. Work-related means the expenses are for the care of the employee’s child under age 13 to allow the employee to work. If the employee is married and filing jointly, the employee’s spouse also must be gainfully employed or looking for work (unless disabled or a full-time student).

In some cases, expenses to care for a disabled dependent, regardless of age, may be reimbursable. This article focuses on expenses for children under 13 since those are by far the most common type of DCSA reimbursement.

2. One of our employees and his family are taking a two-week vacation this summer, but his children’s daycare center will charge its regular fee. Are the expenses reimbursable even if the employee and spouse are off work?

Yes. In most cases, expenses are not eligible unless the dependent care services are necessary for the parents to work, but some exceptions apply. The IRS rules for DCSAs provide that expenses during short, temporary absences are eligible if the employee has to pay the child’s care provider. Absences of up to two weeks are automatically considered short, temporary absences. Depending on the circumstances, longer absences also may qualify.

3. During the school year, our employee uses her DCSA for her 10-year old’s after-school daycare center expenses. This summer, the child’s daycare will be provided by her 20-year old sister. If the older daughter bills for her services, are the costs eligible for reimbursement?

The answer depends on whether the employee or spouse can claim the older daughter as a tax dependent. If the older daughter can be claimed as a dependent, whether or not the employee actually claims her, she is not a qualifying dependent care provider under the DCSA rules.

If the older daughter cannot be claimed as a tax dependent, her charges for providing care are eligible expenses. The specific rule is that a child of the employee, whom the employee cannot claim as a dependent, may be a qualifying provider if the child is age 19 or older by the end of the year.

Note that the employee’s spouse or the child’s parent is never a qualifying provider.

4. One of our employees has to pay an application fee and deposit before her child starts attending a daycare center this summer. Are those expenses eligible for reimbursement?

Prepaid expenses are eligible for DCSA reimbursement, provided the costs are required in order for the child to receive care. In this case, after the daycare center begins providing care, the employee can be reimbursed for the application fee and deposit she paid. On the other hand, if the employee cancels and her child does not attend, then the application fee and deposit are not eligible expenses.

5. An employee will pay day camp expenses for his 8-year old son and overnight camp expenses for his 12-year old daughter this summer. Are both types of expenses eligible for reimbursement?

The day camp expenses generally are reimbursable. Expenses for overnight camp, however, are not eligible since overnight care is not work-related.

Under the IRS rules for DCSAs, expenses for food, lodging, clothing, education and entertainment are not reimbursable. If, however, such expenses are small, incidental expenses that cannot be separated from the cost of caring for the child, they may be included for reimbursement. For instance, the day camp may include lunch, snacks, and some sports activities in its basic fee which would be eligible for reimbursement.

6.  An employee’s children go to private year-round schools. He pays tuition for one child’s grade school and fees for the other child’s nursery school. Are both types of expenses eligible for reimbursement?

Educational expenses are not reimbursable, unless the educational services are merely incidental as part of a child care service. Expenses to attend kindergarten or a higher grade are educational, so the older child’s school fees are not eligible for DCSA reimbursement. (Expenses for before- or after-school care, however, may qualify as reimbursable expenses.)

On the other hand, expenses for a child in nursery school, preschool, or a similar program for children below the level of kindergarten are expenses for care. Such expenses are not considered educational even though the nursery school may include some educational activities.

For detailed information about expenses eligible for DCSA reimbursement, the IRS provides a helpful guide: Publication 503 “Child and Dependent Care Expenses.” Have a fun summer!