Governor Signs Illinois Exchange Bill

Illinois Governor Pat Quinn signed SB 1555 to establish a health benefits exchange in Illinois. The bill creates a legislative study commission and requires the State to establish the Illinois Health Benefits Exchange (Exchange).

SB 1555 requires establishment of the Exchange beginning October 1, 2013, for individuals and small employers with no more than 50 employees. It further declares that the Exchange shall supplement, not replace, existing private health insurance markets for individuals and small employers.

The Exchange law requires the Legislative Committee to report all findings concerning the implementation and establishment of the Exchange to executive and legislative branches by September 30, 2011. The report is to include, but not be limited to, the following.

• Governance and structure of the Exchange
• Financial sustainability of the Exchange
• Stakeholder engagement, including an ongoing role for the Legislative Committee or other legislative oversight of the Exchange

The Legislative Committee must also report its findings with regard to the operating model of the Exchange, the size of the employers to be offered coverage through the Exchange, coverage pools for individuals and businesses within the Exchange and the development of standards for the coverage of full-time and part-time employees and their dependents.

The bill requires members of the Legislative Committee to be appointed within 30 days after the effective date of the law and they must convene their first meeting no later than 45 days after the effective date of the law.

Watch for public meetings on this issue in the coming weeks.

Highlighting Health Insurance Value on Forms W-2

The Patient Protection and Affordable Care Act (PPACA) requires that employers report the cost of providing health insurance to an employee on the employee's Form W-2. This provision raises many questions: Which employers must report the cost of providing health insurance? What, precisely, must employers report and when? Most of these questions have been answered by the Internal Revenue Service (IRS) in Notice 2011-28, which provided a bit more time for some employers to comply.

It’s critical to note that health insurance benefits are not being taxed. Reporting the cost of health insurance on W-2s might seem like a path to taxation, but the reason for reporting is to convey to employees the value of their health insurance, because many employees do not realize how expensive it is. While the PPACA does include a provision to tax health insurance starting in 2018, this applies only to so-called "Cadillac" health insurance coverage that is more valuable than that provided by most employers. In short, health insurance coverage will not be taxed under current law unless it is very expensive.

When Must Employers Report?

Large employers must report the cost of health insurance coverage on 2012 Forms W-2. Small employers (those that filed 250 or fewer Forms W-2 for the 2011 tax year) must report this information on their 2013 Forms W-2. Remember, employers issue Forms W-2 in January following the tax year they cover, so this means the first required reporting starts in January 2013. IRS Notice 2010-68 and IRS Notice 2011-28 clarify that reporting the cost of health insurance coverage is optional for the years before it is mandatory.

Which Employers Must Report?

The reporting requirement applies to all employers, including churches and other religious organizations, all levels of government, and employers not subject to COBRA continuation coverage requirements.

The reporting requirement, however, does not apply to all types of coverage offered under plans. The cost of coverage under church plans—plans that are offered by religious organizations and are not subject to the Employee Retirement Income Security Act or COBRA continuation—does not have to be reported. So while the reporting requirement applies to religious organizations, if a religious organization offers only church plans, it has nothing to report.

Calculating and Reporting the Cost Coverage

Employers must report the "aggregate cost of applicable employer-sponsored coverage," which is the total cost of coverage under all the group health insurance provided to the employee. The IRS provides employers with a few different options for how to relay this. The key principle underlying the employer’s options for cost calculation is that once the employer chooses a method, the employer must apply that method uniformly to all employees receiving coverage under the same plan.

Essentially, employers must report the cost of medical coverage under their group health plan that is tax-free. There are several benefits and lines of coverage that do not count toward the reportable aggregate cost:

• Stand-alone dental and vision plans.

• Amounts contributed to Archer medical savings accounts, health savings accounts (HSAs) and health reimbursement arrangements (HRAs).

• Amounts contributed by the employee to health flexible spending arrangements (FSAs), although amounts contributed by the employer to FSAs are included in reportable cost.

• "Excepted benefits," including accident, death and disability (AD&D) insurance; liability insurance; and automobile health insurance.

• Long-term-care insurance.

• Any health-like insurance (for example, covering a specific condition) that is not excludable from taxable income.

The aggregate reportable cost includes the entire amount of the coverage, including employer and employee contributions. For fully insured plans, this is easy enough to calculate: Employers may report just the premium charged for the employee’s coverage. Employers with self-insured plans (and those with fully insured ones, if they wish) can use the COBRA premium rate to determine the aggregate cost of covering an employee. Alternatively, if the employer does not calculate precise COBRA premiums from year to year, it can use a good-faith estimate of the total COBRA premium, including employer subsidization.

Cost Changes During the Year

When the reportable cost changes in the middle of a tax year, employers must ensure that the reported cost accounts for the changes. Most employers probably will calculate the costs on a monthly basis, which makes adjusting for changes easier. Sometimes a change—such as the employee’s beginning, ending or changing coverage—occurs in the middle of a month. In that case, the employer may include, exclude or prorate the changes in costs for that month, as long as the employer uses the same method for all employees covered by that plan.

In addition, employers must incorporate in the calculation any method changes, such as when the employer recalculates the COBRA premium in the middle of the year. When calculated on a monthly basis, the reportable cost is simply the annual sum of the monthly costs.

Once the cost of coverage is determined, employers must report it in Box 12 on the Form W-2 using code DD. As usual, employers must distribute the Forms W-2 to employees in January following the applicable tax year and must file the forms with the Social Security Administration.

From the Society for Human Resource Management

Impact of Civil Union Law

Executive Summary: The Illinois Religious Freedom Protection and Civil Union Act (Public Act 096-1513), which took effect June 1, 2011, provides civil union partners in Illinois all of the legal rights and obligations to which opposite-sex spouses are entitled under Illinois law. Employers who offer welfare benefit plans (such as health, dental and vision plans) using insurance contracts issued in Illinois are affected by the new law, as those insurance contracts must extend benefits to civil union partners to the same extent as they are offered to opposite sex spouses.

Definitions

Although the law does not change the definition of marriage under Illinois law, it provides that the term "party to a civil union" "means and shall be included in, any definition or use of the terms 'spouse', 'family', 'immediate family', 'dependent', 'next of kin', and other terms that denote the spousal relationship, as those terms are used throughout the law." Additionally, the law provides that Illinois will recognize as a civil union any same-sex marriage, civil union or substantially similar legal relationship other than common law marriage entered into in other states.

Impact on Employee Benefit Plans

Employers who offer welfare benefit plans (such as health, dental and vision plans) using insurance contracts issued in Illinois are affected by the new law, as those insurance contracts must extend benefits to civil union partners to the same extent as they are offered to opposite sex spouses. Employers who provide such benefits through self-funded plans are not required to extend coverage to civil union partners.

The Illinois Department of Insurance has issued guidance stating that all insurance policies issued on or after June 1, 2011, must immediately conform to the Civil Union Law. The Department also stated that all in-force insurance policies subject to the Law (generally, all insurance policies issued in Illinois) are amended by operation of law to conform with the Civil Union Law on that date. The guidance, in question and answer form, is available on the Department's web site at: http://www.insurance.illinois.gov/.

Health Insurance Continuation Coverage

COBRA is the federal law requiring employers to offer an extension of health insurance coverage to employees and their "eligible beneficiaries" (spouses and dependents) in certain situations. Because of the federal Defense of Marriage Act (DOMA), which defines marriage as a legal union between a man and a woman, civil union partners of employees are not "eligible beneficiaries." However, continuation coverage may be required under the Illinois Spousal Continuation Law.

Tax Issues Relating to Benefits

The new law may complicate the analysis of the tax treatment of employer-provided benefits. Although the Internal Revenue Code and its regulations do not define spouse, they must be interpreted in a manner consistent with DOMA. Thus, for federal tax purposes, benefits provided to an Illinois civil union partner (who is not a dependent of the employee) generally will not be treated the same way as benefits provided to an opposite-sex spouse or to a dependent. For example, the Code excludes from an employee's gross income the value of employer-provided accident or health plan coverage of the employee and the employee's spouse and dependents. If an employer provides such coverage to a civil union partner, the value of the coverage provided to the partner must be included in the employee's gross income and is treated as taxable wages that must be reported on a W-2 form and are subject to federal income tax and Social Security tax withholding.

Additionally, the Illinois Department of Revenue has stated that the Civil Union law did not change the Illinois tax law, which conforms to, and is applied in the same manner as, federal tax laws. Thus, the value of employer-provided benefits provided to an employee's civil union partner is generally included in the employee's income for state income tax purposes as well.

Employers should also remember that benefits offered through a cafeteria plan (a/k/a Section 125 plan), which are subject to favorable tax treatment under Code § 125, will not be eligible for this favorable treatment when offered to civil union partners who do not meet the definition of spouse or dependent under federal law. Employees may still be offered the choice to purchase coverage for a civil union partner, but it would have to be offered either as a taxable benefit under a cafeteria plan, or outside the plan altogether.

Other types of benefits that are available only to employees' dependents or spouses under federal law are also not available to civil union partners, such as Health Savings Account payments for medical expenses or reimbursements under Health Reimbursement Accounts or Flexible Spending Accounts.

Retirement Benefits

As noted above, civil union partners are not "spouses" under the DOMA. Accordingly, they are not required to receive "spousal" protection under their partners' retirement plans, including pension plans, 401(k) plans, and 403(b) plans that are subject to ERISA. An employee may designate his or her civil union partner as a beneficiary under a plan, but that designation will not be automatic, as it often is for a spouse.

Other Employment Related Issues

State leave laws, such as the Illinois Family Military Leave Act, may be interpreted to apply to civil union partners. However, the federal Family and Medical Leave Act (FMLA) is interpreted in accordance with the DOMA. Accordingly, an employee is not entitled to take leave to care for a civil union partner under the FMLA. If an employee is permitted to take such leave, the employer could not count this against the employee's twelve weeks of FMLA leave.

Employers may want to review their leave policies to ensure they comply with both federal and state law.

From SHRM Online

Illinois State Tax Treatment of Domestic Partner Health Coverage

The Illinois Religious Freedom Protection and Civil Union Act became effective June 1, 2011. The Illinois Act provides for civil unions between same-sex or opposite-sex couples to have the same rights, protections and benefits of spouses.

The Illinois Department of Revenue confirms that there is no change for state income tax purposes. Illinois will continue to follow the federal tax rules. As a result, civil union partners in Illinois will have imputed income for purposes of state income tax (unless the partner is certified as a tax dependent). There should be no changes to payroll systems. The result is somewhat unexpected considering the breadth of the Illinois civil union law, but the Department explained that the Illinois tax code incorporates the federal tax code. Illinois Department of Revenue published an announcement that confirms Illinois state income tax does not recognize civil unions.

The key components of implementing a wellness program

Implementing a wellness plan is much easier said then done if you want to roll out a successful program. There are key elements necessary for success to happen; the most important being how your company defines success.

What is a successful program for us?

Ask senior level what they expect and by when. The answer to this question will allow you to determine what the program goals should and how aggressive a plan you need to develop. If your senior level want to control health care costs, ask them what is specifically driving the costs. While you have senior level available, ask them what your budget is for the program, what types of incentives they support and if they will support the program by actively participating as well as sharing success stories.

Write your plan!

Once you know your goals, put the plan in writing. Remember: The document can always be tweaked and should be reviewed regularly. The plan should include your goals, specific programs you plan to implement, communication plan, timeline, how you plan to evaluate movement toward your goals and your incentive strategy. This is a great document to help keep staff on track and to share with your senior level staff.

One size fits one.

You may not know all the answers to complete your plan. If not, ask your employees! Gather feedback from them by implementing an employee interest survey. You can ask your employees what types of programs they would participate in, how often, where and what types of incentives would keep them motivated. In addition, you can ask employees if they would like to be wellness champions or part of a wellness committee. This is a great way to get and keep employees involved in the program, get others excited to participate, and to obtain regular feedback from employees on how the program is going and what they’d like to see. Remember: the program must be a good fit for your employees and your culture to be successful.

Ready, set, launch…

Once you have a structure in place with either a wellness committee and/or champions, your plan is in writing and your budget is set, then you are ready to launch your program. Give yourself plenty of time to communicate with employees and provide them with enough time to ask questions and feel comfortable with the program. This is especially important if you are implementing an outcomes-based program or including spouses in your program. Make sure you monitor participation as you go. If you are working with a vendor program or your health care carrier program, they should provide you with reports on both participation and aggregate reports showing outcomes for each program. If something looks like it isn’t working, address it right away.

Good luck! And remember, implementing a new program takes time. Ask for feedback as much as you can and share your success with both your senior level management and your employee population.

Employee Benefit News recently published hundreds of tips on improving open enrollment. Log on and view the collection of pdf documents today.

— Robyn Harmon is the assistant vice president and director of Health Risk Management for Lockton Companies.

Health Reform Prompts Most Employers To Begin Modifications

from Spencer’s Benefits Reports: In the year since the Patient Protection and Affordable Care (ACA) was enacted, employers continue to maintain their health care benefits, implement cost-sharing methods, and assess the long-term impact of reform on their organizations, according to a recent survey released by the International Foundation of Employee Benefit Plans (IFEBP). The survey, Health Care Reform: Employer Actions One Year Later, reviewed actions employers have taken in the 12 months since the ACA became law and explored their plans for the upcoming year. It is the second in a series of IFEBP surveys on the effect of the (ACA) on single employer plans. The majority of survey respondents (62.5%) are focused on making necessary changes to make their plans ACA compliant, the IFEBP found.

“For the most part, employers have moved beyond the ‘wait and see’ phase they were in just a year ago and are beginning to take action,” explained Sally Natchek, senior director of research at the IFEBP. “Although many employers are concerned about rising costs, very few have drastically altered or ended their health care benefits. Most employers remain committed to offering quality health care benefits to their employees.”

Rising Costs, Employee Cost-Share Expected

The majority of employers (60%) have conducted an analysis to determine how the ACA will affect their 2011 plan costs. Among respondents analyzing ACA cost effects, 85% expect their health care costs to rise, with the largest proportion (36%) estimating a cost increase in 2011 of 1%-2% due to the ACA. Although extending coverage to adult children to age 26 is still seen as the top driver of cost increases (by 33.4% of respondents), administrative costs and cost-shifting due to reduced Medicare/Medicaid payments to providers have emerged over the past year as major concerns by 27.5% and 28% of respondents, respectively. Approximately one in ten responding organizations (10.5%) currently is redesigning their primary health plan to reduce premiums and avoid triggering the 2018 excise tax on “Cadillac plans” with vlaues that exceed a specified dollar amount.

In anticipation of increased costs, employers are boosting employees’ share of premium costs (40%), in-network deductibles (29%), and employees’ proportion of dependent coverage cost (28%). Many employers also plan to increase out-of-pocket limits and copayments or coinsurance for primary care (27% and 24% respectively). Also, about one-third of (32.4%) employers have conducted dependent eligibility audits in the past 12 months, or plan to do so in the next 12 months.

Although many employers are looking for employees to help manage rising costs, few plan to eliminate or reduce their health plan benefits as the result of health care reform. Just 2.6% are planning to cut health benefits for new hires, 1.6% are planning to drop dependent coverage, 0.9% will close health benefits to new hires, and 0.8% will discontinue health benefits for active workers or retirees. Less than 1% of employers (0.7%) plan to stop providing employees with health care coverage in 2014, when “play or pay” provisions become effective. This finding is radically different from the McKinsey & Company survey conclusion that 30% of employers will definitely or probably stop offering employer-sponsored insurance in the years after 2014.

Additionally, although required only to extend health care benefits to adult children until age 26, 60% of employers are extending the eligibility requirements to other benefit plans (primarily for dental and vision benefits) to conform to the requirements of their medical plans.

Few Will Maintain Grandfathered Status

Although employers report some benefits of maintaining their plan’s grandfathered status—such as the exemption from the appeals process and the mandatory coverage for preventive care with no cost sharing or annual limits—just 30% (of the 44.6% of respondents whose primary plan is currently grandfathered) expect to maintain grandfathered status beyond the next three years.

“Maintaining grandfathered status will be very challenging for employers,” stated Ms. Natchek. “Plans can lose the status in numerous ways, including reducing benefits, raising coinsurance or significantly raising copayments or deductibles. To remain grandfathered, an employer will be able to make only limited changes in their health care plan. This does not appear feasible for most organizations.”

More Wellness And Related Programs

In light of the ACA, 18% of employers have adopted or expanded their use of wellness initiatives in the last 12 months, and more than one-quarter (27%) plan to do so in the next 12 months. Additionally, 38% are expanding the use of financial incentives to encourage healthy behaviors, and 27% are adopting or expanding their disease management offerings.

High-Deductible Plan Interest Continues

Employers continue to perceive value in the role of high-deductible health plans (HDHPs) for cost management. As a result of the ACA, approximately one-third of responding organizations (33%) are increasing their emphasis on or assessing the feasibility of HDHPs with a health savings account (HSA). Rarely are employers reducing their emphasis or assessing the feasibility of dropping HDHPs.

The survey is based on responses from 1,350 individuals, including benefits and human resources professionals, general and financial managers, and other professionals, who are members of the IFEBP and the International Society of Certified Employee Benefit Specialist (ISCEBS). For more information, visit http://www.ifebp.org/books.asp?7051E.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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Lower health care costs: Employers struggle to change employee behavior

By Pat Speer, Employee Benefit News

Employers are putting the onus on employees to help curb rising health care costs, and the inability to motivate and change employee habits is prompting concern, according to Aon Hewitt, a global human resource consulting and outsourcing business of Aon Corp.

“As employers wrestle with the reality of continued increasing costs, they are ramping up efforts to ensure cost efficiency, including negotiations with insurers, elimination of ineffective programs, and pursuit of new approaches to motivate employees to use cost effective, high quality providers,” Jim Winkler, Large Employer Segment leader in the Health & Benefits Practice with Aon Hewitt, told Insurance Networking News.

In its 2011 Health Care Survey, Aon Hewitt surveyed 1,028 employers nationwide, and discovered that the top health care outcomes that organizations would like to achieve this year are improving employee health habits (56%), lowering the health care cost trend (49%), decreasing worker health risk (44%), increasing participant awareness of health issues (37%) and enhancing participation in health improvement/disease management programs (37%).

This survey suggests that success may be difficult, as 56% of respondents say motivating participants to change unhealthy behaviors is the most significant challenge to accomplishing 2011 health care program goals. This was followed by issues involving reluctance to change (26%), unpredictability of costs (23%), government regulations/compliance (22%) and managing the health of an aging workforce (21%).

Both companies and health insurers have a vested interest in taking a proactive approach to wellness. In particular, the survey revealed that many companies offer disease management (70%), health and wellness improvement (64%) and behavioral health (60%) as key components to health care strategies. In an acknowledgement that more needs to happen to achieve success, many organizations are looking to expand efforts during the next three to five years and implement strategies that focus on total well being to improve physical and mental health (60%), absence management (53%), and integrated safety and health improvement efforts (50%).

"Despite reform, organizations still face rising costs and worsening population health," says John Zern, Americas Health & Benefits Practice leader with Aon Hewitt. "It's clear that traditional annual trend mitigation tactics alone won't work. As a result, leading employers are implementing a 'house money, house rules' environment, using a mix of incentives, penalties and targeted messaging to reward healthy behaviors."

While some companies are budgeting for a medical trend increase during the next four years, many do not have a long-term increase built into their budgets as of yet. Nearly one-third of respondents (30%) have budgeted an annual medical trend increase between 4% and 7% from 2011 to 2015, and 22% have budgeted an increase of more than 8% during that time. Meanwhile, 42% have not built an annual long-term increase into their budget at this point.

"Employers are spending millions of dollars annually on health care, and yet many report they do not have a specific plan for how best to manage that investment," Winkler says. "Given the risks and opportunities presented by health care reform, it is imperative that employers develop a written strategy for controlling cost and improving health."

Rewarding & penalizing participants

The Aon Hewitt survey also showed that 22% of employers will have programs in place by the end of 2011 to reward participants for achieving specific health outcomes, and 10% will have similar programs to penalize participants for exhibiting unhealthy behavior. However, by 2016, 64% of organizations said they will add programs that reward for good health, while 46% said they will add programs that penalize for unhealthy outcomes.

Respondents currently offer incentives to employees for participation in key initiatives, such as biometric screenings (33%), health risk assessments (33%), wellness programs (31%) and tobacco cessation programs (27%). Conversely, some employers are imposing a penalty for non-participation in biometric screenings (5%), health risk assessments (5%), wellness programs (2%) and tobacco cessation programs (6%).

Money serves as the primary incentive and penalty these employers use to promote employee participation in key programs, including health risk assessments (66% have a monetary incentive; 9% have a monetary penalty); biometric screenings (65% have a monetary incentive; 8% have a monetary penalty); disease/condition management (54% have a monetary incentive; 9% have a monetary penalty); and wellness programs (59% have a monetary incentive; 6% have a monetary penalty).

"In a challenging economy, organizations are using financial incentives, as a mix of rewards and penalties, to motivate behavior change," says Jennifer Boehm, principal in the Aon Hewitt Health & Benefits Practice, and a project leader for the survey. "However, leading employers also recognize that success requires more than just dollars; those organizations also focus on marketing health improvement services, eliminating barriers to needed care and measuring the impact of specific interventions."

Insurers have long sponsored employers’ use of wellness programs to reduce health care costs. But these workplace health care programs have a downside, reports wellnessprograms.com. At issue from a company’s perspective, notes the site, is an insurance carrier’s ability to use information gathered during a wellness program as justification for increasing an employer’s rates at renewal.

(Aon Hewitt contributed to this story.)

Speer is the Editor-in-Chief of Insurance Networking News, a SourceMedia publication.