Tag Archives: benefit plans

The Obamacare Squeeze


Supreme Court building, from Wikipedia

Supreme Court building, from Wikipedia

We will know much more about the future of Obamacare (the Affordable Care Act, or ACA) after the Supreme Court rules later this month in King v. Burwell.  That case will decide the future of tax-credit subsidies to individuals purchasing health insurance on exchanges run by the federal government, rather than by the states. These subsidies are an important element of the ACA design that encourages lower- and middle-income individuals to buy coverage.

But King v. Burwell is not the only issue under Obamacare that confronts Americans, their employers, state governments, and the federal government. There are other structural issues in the ACA design that will require rethinking, no matter what the Supreme Court decides.

The U.S. system of financing healthcare has been a morass at least since employers became involved in the 1940s, when employers began offering health insurance to their workers in lieu of raising wages under World War II price and wage controls. Healthcare financing got more even complex when healthcare costs started rising much faster than inflation, requiring employers to start managing costs more closely.

Healthcare Reform: Know Thine EnemyAnd now, with Obamacare, the financing of healthcare is being complicated even further. Under the ACA design, consumers and providers are getting squeezed on all fronts, and the squeezes will get tighter in the years ahead, no matter what the Supreme Court decides in King v. Burwell.

Here are the reasons for the squeeze on employer plans:

1. MANDATED BENEFITS

Healthcare plans must include an ever-broadening list of products and services. This started prior to the ACA with a variety of state mandates. But the ACA federalized the mishmash of state requirements. Now, to qualify as an acceptable plan under the ACA, healthcare insurance must provide “essential health benefits” in ten categories. There are only narrow exceptions permitting people to choose catastrophic coverage, and they still cannot any categories of benefits they don’t think they will need. This is like requiring every car owner to carry not only liability coverage, but also collision coverage to the full replacement value of the vehicle and roadside assistance as well.

     2.  “AFFORDABLE” COST

Healthcare plans cannot cost too much. Employer plans under the ACA must have an option that offers “minimum essential coverage.” This coverage must include all the “essential health benefits” and must cover at least 60% of the cost of those benefits. Moreover, such a plan must not charge more than 9.5% of household income for the employee’s share of individual coverage. If the employer does not provide such an option under its healthcare plans, the employer will have to pay a substantial penalty per employee.

     3.  BUT NOT TOO GENEROUS

Employer healthcare plans cannot provide too much in the way of subsidies. In 2018, the so-called “Cadillac tax” will kick in for employers who provide more than $10,200 in individual coverage or $27,500 in family coverage to their employees (amounts adjusted for inflation). The Wall Street Journal reports that most employers think they will exceed these thresholds with their plans as currently designed by 2018 or soon after.

Because of these factors, employer-provided healthcare benefits plans are in a vise. The floor is the benefits that must be covered . . . and Obamacare raised that floor. Both sides of the cost equation are pushing in. Obamacare sets the maximum that employees can pay (and the 9.5% maximum will rise only as fast as wages rise) and also sets the maximum that employers can pay (which will go up at the rate of inflation).

Over time, more and more employers will be forced into a Hobson’s choice: (1) pay the increasing costs of healthcare to keep their plans “affordable”, which leads to the Cadillac surtax, or (2) drop employee healthcare benefits, which leads to employers paying the penalties for not offering “minimum essential coverage”.

Regardless what happens in the Burwell case, Obamacare is not sustainable from employers’ perspective.

We are long past the days of complaining about President Obama’s inaccurate statement “if you like your healthcare plan you can keep it.” We now must wonder if we can keep employer-provided healthcare at all. And if we can’t keep employer-provided healthcare, how will Americans pay the unaffordable costs of “essential health benefits” without subsidies?

Should we reconsider linking healthcare coverage with employment?

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Keeping Your Wellness Programs Well: EEOC Notice of Proposed Rulemaking


EEOC sealWellness programs are a popular component of many employee benefit plans. Employers use these programs to encourage healthy behaviors among their employees, thereby reducing long-term medical costs. In addition, these programs often provide financial incentives to employees to engage their interest and sometimes include contests and classes that promote camaraderie and improve the workplace culture.

Over the last fifteen years, I have worked with several employers in a variety of workplaces to design and implement wellness programs. The employers are usually concerned about how to balance the costs and benefits of the programs and how to measure whether the program has a positive impact on employee health. It is also important to focus on changing behaviors that employees can control, while not penalizing them for health issues they cannot control.

On April 20, 2015, the EEOC released a Notice of Proposed Rulemaking addressing how Title I of the Americans with Disabilities Act (ADA) applies to employer wellness programs.

Previously, federal regulations defined acceptable wellness programs under HIPAA. After passage of the Affordable Care Act in 2010, several government agencies approved wellness programs that offered financial incentives to employees, so long as the incentives did not exceed 30% of the cost of coverage to employees. Incentives of up to 50% of coverage were permitted for programs related to preventing or reducing the use of tobacco products.

However, the EEOC was not one of the agencies involved in the earlier regulatory effort. The EEOC took the position that wellness programs designed under the earlier regulations may not comply with Title VII of the Civil Rights Act of 1964 or the ADA. The EEOC challenged several wellness programs in court, most notably in a lawsuit filed against Honeywell International, Inc. Honeywell’s program imposed a penalty on workers who refused to undergo biometric testing. Such penalties are a common component in wellness program design.

The EEOC’s enforcement efforts against Honeywell and other companies has made many employers hesitant to develop new wellness programs, despite the desire of employers to promote healthy behaviors among their employees and to manage their rising health care costs.

With its recent Notice of Proposed Regulations, the EEOC is finally providing guidance on how to design wellness programs it believes are acceptable under the ADA.

First, the EEOC says, wellness programs must be voluntary.

Wellness programs must be voluntary.

  • Employees may not be required to participate in a wellness program, may not be denied health insurance or given reduced health benefits if they do not participate, and may not be disciplined for not participating.
  • Employers also may not interfere with the ADA rights of employees who do not want to participate in wellness programs, and may not coerce, intimidate, or threaten employees to get them to participate or achieve certain health outcomes.
  • Employers must provide employees with a notice that describes what medical information will be collected as part of the wellness program, who will receive it, how the information will be used, and how it will be kept confidential.

Next, the programs can only offer limited incentives for employee participation or for achieving health outcomes.

Employers may offer limited incentives for employees to participate in wellness programs or to achieve certain health outcomes.

  • The amount of the incentive that may be offered for an employee to participate or to achieve health outcomes may not exceed 30 percent of the total cost of employee-only coverage.
  • For example, if the total cost of coverage paid by both the employer and employee for self-only coverage is $5,000, the maximum incentive for an employee under that plan is $1,500.

This 30% “incentive” basically accepts the existing HIPAA regulatory definition of “reward”, although there are some differences. Most notably, the EEOC proposed regulations cap smoking cessation rewards at 30%, instead of the HIPAA 50%, although if all the employer requires is that the employee answer a question about tobacco use, then a 50% incentive is permitted.

The Notice also limits incentives to 30% for programs that ask an employee to respond to a disability-related inquiry or undergo a medical examination. This is contrary to the HIPAA safe harbor exempting bona fide benefit plans from the ADA prohibition on medical examinations.

The Notice also specifically states that compliance with the proposed rules will not mean that an employer has complied with Title VII of the Civil Rights Act, nor with the Age Discrimination in Employment Act.  Thus, the EEOC’s proposed rules are narrowly limited to compliance with the ADA.

Moreover, the rules state that employers must provide reasonable accommodations to disabled employees who seek to participate in wellness programs, such as sign language interpreters at classes for hearing-impaired participants.

Thus, the EEOC’s proposed regulations are of limited help to employers seeking to design wellness programs. It is of some benefit to know that 30% incentives are acceptable, but the regulations do not go far enough.

For more information, see

EEOC Issues Proposed Rule on Employee Wellness Programs and ADA Compliance, by Terri Gillespie, HRLegalist.com, April 21, 2015 

Wellness Programs: Agencies Issue Helpful Guidance but Look Before You Leap, by Nancy Campbell, SWLaw.com, April 21, 2015

EEOC Publishes Proposed Rule on How the ADA Applies to Employer Wellness Programs, McGuireWoods.com, April 23, 2015

EEOC Finally Releases Notice of Proposed Rulemaking for Wellness Programs, EmployeeBenefitsUpdate.com, Monday, April 27, 2015

The EEOC’s New Wellness Program Regulations: Notable or Needless, by Michael Mishlove, GSHLLP.com, April 30, 2015

New Guidance On Wellness Programs, by Mathew Parker, LaborLawyers.com, May 2, 2105

What should employers do as a result of the new EEOC Notice of Proposed Rulemaking?

  1. Read the proposed regulations and evaluate your wellness programs for compliance
  2. Consult your attorney and/or benefit plan advisors about possible changes to your wellness plans.
  3. Send your comments on the proposed regulations to the EEOC by June 19, 2015, if you so choose.

What has been your experience with employee wellness programs? What has worked best at your company?

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Increasing Problems for the Affordable Care Act—In the Courts and In the Boardrooms


In recent weeks, the Affordable Care Act (popularly known as Obamacare) has suffered several setbacks and conflicting interpretations in the courts. These decisions and the impact of the law on employers show the increasingly urgent need for changes in the ACA. Unfortunately, our political mood is unlikely to result in the kinds of changes businesses need for clarity.

Recent Legal Decisions:

The Supreme Court ruled in Burwell v. Hobby Lobby Stores, Inc., June 30, 2014, that privately held corporations need not comply with the HHS mandate to cover birth control methods and services that violate the owners’ religious beliefs in their employee healthcare plans.

A few days later, the Supreme Court ruled in Wheaton College v. Burwell, July 3, 2014, that Wheaton College need not comply with the HHS work-around for employers who disagree with the birth control mandate. Wheaton College was allowed to avoid sending the notification HHS required until after its case is decided sometime next spring.

HHS sealAnd then on July 22, two Circuit Courts ruled opposite ways on the question of whether Obamacare subsidies are available to individuals who purchased their insurance through the federal Healthcare.gov exchange instead of through state exchanges. In Halbig v. Burwell, a panel of the D.C. Circuit Court ruled that the Obamacare subsidies were not available through the federal exchange, while in King v. Burwell the Fourth Circuit ruled that the subsidies were available.

The D.C. Circuit panel held that the plain language of the ACA states that subsidies are available only on marketplaces “established by the state.”  This ruling eliminates—or at least places on hold—subsidies to around 4.5 million people, which may make health insurance unaffordable for many, and yet will subject them to penalties if they drop their coverage.

In contrast, the Fourth Circuit held that the Internal Revenue Service interpretation permitting federal subsidies for purchases through Healthcare.gov was “a permissible exercise of the agency’s discretion.”

These cases set up a clear split in the lower courts that the Supreme Court will likely have to decide.

Impact of the ACA on Employers:

Increasing numbers of employers are finding themselves squeezed between the mandated coverages (more generous and more detailed than most employers offered before passage of the ACA) and the required level of premiums (where at least one plan that an employer offers must have premiums for individual coverage that are no more than 9.5% of any employee’s wages).

When the Cadillac coverage provisions go into effect after 2017, employers will face yet another constraint. If they pay too much for their employees’ coverage, they will face huge surtaxes. Beginning in 2018, a 40 percent excise tax will be imposed on high-value healthcare plans

Thus, the sweet spot of permissible healthcare plans under the ACA is being compressed in three directions—by the coverages required, by the amounts that employees can be charged, and by the subsidies that employers can provide.

And now, depending on how the Supreme Court rules on the subsidy issue, the federal government may not be able to subsidize healthcare coverage either.

Moreover, if the federal subsidy is ruled to be unlawful, then the employer penalties for employees who get the federal subsidies will fall apart as well.

At that point, the ACA scheme is likely to collapse.

I have talked with benefit plan managers in recent weeks about the increasing problems and uncertainties they face in complying with the ACA. Some are considering eliminating their employee health insurance altogether, and taking the chance that the employer penalties will survive.

Others are considering moving to fully insured plans to eliminate the complexities of complying with the uncertain ACA requirements. These employers believe they have so little flexibility in designing plans to suit their employee populations that they see no benefit to maintaining any in-house expertise in managing healthcare. Instead of continuing the tailored benefit plans they have sponsored for decades, they will turn their employees over to private exchanges, and let the employees find their own plans.

None of these benefit managers believes that employee healthcare coverage will last many more years. As crafted under the ACA and as interpreted by current HHS regulations, employee healthcare coverage has outlived its usefulness.

The Need for Change:

Most complicated statutes need “technical corrections” after the language that Congress passed is examined more carefully by regulatory agencies and by those impacted by the new law. It was to be expected that the ACA would need modification.

I have written before that the ACA needs to be amended. Not repealed, as Republicans would have it, but amended substantially. Unfortunately, changing the statutory language will require compromise between sharply divided political parties.

Employers, Be Strategic In Implementing Health Care ReformBecause of the way that the ACA was passed—with only Democrat votes in support, and all Republicans in Congress opposed—the law has no bipartisan underpinning to foster compromise. The Democrats are now reaping the effect of their actions in cramming the legislation down an unready nation’s throat.

In the meantime, we must muddle along with imperfect legislation.

Unfortunately, President Obama’s unilateral actions in delaying and re-interpreting the ACA the way he wants is not the way to fix the law.

So the healthcare industry holds its breath, hoping that the myriad issues associated with the poorly written ACA get fixed before the industry collapses due to the uncertainty.

And all of us who need healthcare hold our breaths as well.

What do you foresee happening with the ACA?

 

 

 

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Retirement Planning: Start Saving Young, Keep Saving—How Employers Can Help


I recently had a conversation with a young professional woman around thirty years old. She bought a house in the past year and has found it difficult to save beyond her 401(k) plan at work while making her mortgage payment and furnishing the house.

But she hasn’t stopped her 401(k) contributions of ten percent of her income. I told her she was on the right track.

She explained how she planned to resume her deposits to her savings account, and I told her she was on an even better track.

I wish I saw more young employees with this mentality about the importance of savings.

That’s why I was interested to read “401(k)s With ‘Automatic’ Steering Drive Savings Success,” by Patty Kujawa, July 2, 2014, in Workforce Magazine online. Employers can do a lot for their employees’ future financial health by automatically deducting a portion of their wages and depositing it into a 401(k) account.

Most young workers don’t think about retirement. It’s not that they don’t want to save, it’s that they don’t spend any time worrying about what financial resources they will need thirty or more years out.

Employers can help by setting up automatic deductions. Inertia will keep most young workers in their 401(k) accounts, which means most employees will save without any effort on their parts, and will be better off in the future for doing so.

New York Life published an infographic showing how 401(k) plans can grow, based on a variety of assumptions about employee contributions and how automatic enrollment features can encourage employees to save.

nylrps_auto-solutions

Accounting Degree Review has another good infographic showing the power of compounding interest. (And, no, you don’t need an accounting degree to understand it.)

exponential-growth

Employers committed to best practices will also educate their workers about the importance of savings and match a portion of their employees’ contributions.

The best thing that employers can do is provide a company match in 401(k) plans. But even those that cannot afford a match can talk to their employees about how participating in the 401(k) plan can jumpstart their retirement income.

One of my previous employers stressed during frequent employee discussions about retirement planning how (1) Social Security, (2) employee and employer contributions to 401(k) plans, and (3) outside savings provided three sources of income in retirement—and together these three sources could provide financial security.

Now that I’m almost ready to tap these retirement income sources, I appreciate the lessons I learned, and that is what I hope my young friend learns also.

How do you educate employees about retirement planning?

 

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Four Proposals to Amend Dependent Care Flexible Spending Accounts


100227-N-0995C-010On Memorial Day weekend, the seasons turn from spring to summer—societally, if not meteorologically. For many families, their child care arrangements change also. School lets out, and after-school programs are no longer in session.

Lucky parents have teenage babysitters or summer-long camps. Other parents cobble together a week at one camp, a week at another, a week with grandparents, etc., hoping that none of these arrangements falls through at the last minute.

But all parents struggle not only with arranging for good summer care, but with the year-round costs of paying for child care.

One solution—although not a panacea—would be increased use of dependent care flexible spending accounts. A dependent care FSA, authorized under Section 125 of the Internal Revenue Code, lets parents use pretax dollars to pay for child care expenses. Many employers permit employees to put away pre-tax money in Section 125 accounts, but these accounts are not as valuable to parents as they could be, for a number of reasons.

Here are four proposals to increase the value of dependent care FSAs to parents:

1.  Increase the $5,000 limit

The maximum amount that parents can set aside in a Section 125 account for dependent care is $5,000. Child care expenses typically are far greater than that amount. The limit has not changed since Section 125 was adopted in 1978, despite the fact that child care costs have risen dramatically in the past thirty-five years.

If this benefit is to remain meaningful, the limit should be increased to $10,000, and perhaps indexed to inflation.

2.  Permit Reimbursement In Advance of Funding

Employees cannot obtain advance reimbursement of child care expenses out of their dependent care FSAs the way they can out of health FSAs for medical expenses. Parents must put the money in the dependent care FSA out of their paychecks before they can claim reimbursement of the pre-tax funds. The rationale is that dependent care expenses are more predictable and regular than medical expenses.

Nevertheless, changing the dependent care FSAs to match the advance reimbursement procedures of health FSAs would provide parents with some additional flexibility in using these accounts.

3.  Reduce or Eliminate Carryover Restrictions

Currently, dependent care FSAs must be used each calendar year, or the funds in the account are lost. This “use it or lose it” aspect of dependent care FSAs limits their attractiveness to many parents. Amending the rules for dependent care Section 125 accounts to permit the carryover of funds from year to year would enable parents to save in advance for child care expenses.

Some legislative proposals have recommended that parents be allowed to carry over up to $500. Even this would be a benefit.

4.  Provide Pre-Tax  Savings Vehicle Outside of Employer Plan

Currently, Section 125 accounts are only available to employees whose employers chose to sponsor such accounts. Perhaps an HSA-like or IRA-like pretax account for parents whose employers don’t provide Section 125 accounts would help. This, combined with the ability to roll over unused funds to a Section 529 educational savings plan might make saving for child care more feasible.

None of these ideas will solve the issue parents have in finding and paying for good quality child care. But these proposals might be steps in the right direction.

What other ideas do you have for expanding use of dependent care flexible spending accounts?

 

 

 

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Obamacare: Get People Enrolled, then Amend It—Fast!


doctor holding an injectionBased on my earlier posts about Obamacare (see here, here, and here), readers might think I hope the new law fails. That is not the case. I do not agree with the legislation’s design. I originally hoped Congress would repeal it or the Supreme Court would invalidate it. I still hope it will be changed significantly (as outlined below).

But we are well past the time when anyone—even the staunchest Tea Party member—should hope Obamacare (formally known as the Affordable Care Act) fails completely. The quality of every American’s future healthcare is at stake. We are beyond the point when we could return to the healthcare system of the past.

In the short term, it is clear that we cannot return to the past for the reasons we have heard since President Obama asked insurance companies to consider reinstating their old plans, so he could keep his promise that if we liked our plans, we could keep them. (A promise that was never true, as the rapid decline in the number of grandfathered employer plans demonstrated in 2012 and 2013.)

Through the course of 2013, insurance companies blew up their old policies, provider networks, coverage options, premium levels, and every other aspect of their healthcare delivery systems to comply with the mandates of the ACA. Even if state insurance commissioners permitted healthcare insurance companies to reinstitute their old plans, most insurers could not do so before January 1, 2014. Even if they could, they would likely see adverse selection, with younger, healthier people selecting the cheaper old plans, and older, sicker people selecting plans that meet the ACA standards.

If we don’t get people enrolled in the insurance plans we now have, many families will suffer when they incur medical costs starting in January. But, it is also time to step back and reassess Obamacare.

We first need to recognize that healthcare insurance will only survive with some form of subsidy. For the past several decades, our healthcare system—as bollixed up as it has been—survived because of employer subsidies. Employees paid nothing or very little for their healthcare coverage. Even in recent years, employees have paid only a fraction of the cost of their coverage; the rest was paid for by their employers.

Government subsidies have supported the healthcare system also, in the form of Medicare and Medicaid, but employer subsidies have been what kept the young and healthy workers in the healthcare system and allowed the sick and elderly to pay less than their healthcare cost. Employer and government subsidies also led to the lack of consumer knowledge about healthcare pricing and quality, and the consequent overuse and wastefulness in our healthcare system.

It was an accident of history that led to the development of employer subsidies. We had an opportunity to correct that accident before the passage of Obamacare, which we let slip by. The failure of the Obamacare rollout gives us another opportunity to correct the past.

So, where do we go from here?

1.  Get People Covered: The first order of business should be to get as many people as possible covered under some healthcare plan—whether it be an ACA-compliant plan or a resurrected individual plan or an employer-sponsored plan. Republicans and Democrats, state and federal agencies should all work toward that short-term goal in the next month . . . and continuing until the March deadline.

HHS seal2.  Amend Obamacare: Both Democrats and Republicans recognize the ACA is far from perfect. Any other legislation of this magnitude would have gone through one or more rounds of “technical corrections” after its passage. Unfortunately, the acrimony around the passage of the ACA insured no technical corrections bills could be passed. Only Democrats voted for the ACA, when the Senate bill that was never intended as final legislation was rammed through the House. We now need a bipartisan replacement for Obamacare.

3.  Keep Parts of the ACA: Some of the Obamacare provisions are popular and should be retained. One of those is the requirement that young adults be permitted to stay on their parents’ coverage. Easier transfer between healthcare plans, regardless of pre-existing conditions also needs to be a component of future legislation, but how to keep insurers whole is the crux of the problem.

4.  Revise Other Aspects of the ACA:  Even the Obama Administration has acknowledged that some aspects of the ACA are unworkable. Implementation of some provisions has been delayed. Regulations have changed other provisions away from the clear language of the statute. Other provisions are wildly unpopular.

Here are some broad suggestions for reform:

  • Put all forms of health insurance on an equal footing: Allow all taxpayers to deduct their healthcare premiums, up to a maximum amount, regardless of whether healthcare is obtained through employment or on an open market. In addition, employer subsidies of healthcare costs should be taxable as ordinary income. Some employers will continue to provide healthcare plans, and others will convert that benefit to wages. Those that do neither will lose employees.
  • Permit a wide variety of insurance plans: Individuals should be free to purchase only catastrophic plans, to choose high-deductible plans, or to buy a wide variety of coverage and exclusions. They should be allowed to buy plans that exclude preventative coverage or certain types of coverage (psychiatric, substance abuse, maternity and contraceptive, etc.). Then we need to be willing to hold people accountable for their choices, but permit movement between plans at some price.
  • Provide direct subsidies to the poor and seriously ill: We should provide subsidies directly to the poor and the seriously ill to permit them to purchase healthcare coverage on the open market, and to make the transfers between plans as their healthcare needs change beyond their ability to pay. There should be a robust pool to fund these subsidies, paid for by premiums of those who are covered and by both state and federal governments. States should be allowed to change their Medicaid programs to integrate coverage for the indigent into the private market.
  • Repeal the individual and employer mandates: It would be better to repeal the unpopular individual mandate, but if any mandate is retained, it should be limited to requiring that people maintain catastrophic coverage or be taxed on their share of the pool needed to fund public subsidies. (Yes, call it a tax—that is what the Supreme Court said it is.) In addition, the employer mandate would no longer be necessary if private insurance would be taxed on the same terms as employer coverage.

In short, the type of healthcare insurance to buy should become a decision that individuals make, not the government. Insurers should be free to design policies that consumers want, and to price them at levels that are profitable. We should abandon the notion that the federal government knows what one-size-fits-all insurance programs are “best” for Americans.

If we do not abandon the central-planning model in Obamacare, we will drift—and I think drift quickly—into a world where healthcare is rationed by the lack of providers and by the government decisions on what services will be covered at what level, where fewer and fewer Americans have access to the doctors they want, and where the quality of care suffers.

Will Republicans and Democrats be able to compromise to reform Obamacare during the 2014 mid-term election year? What do you think?

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Navigating Obamacare


Like Every Function, To Be Strategic, HR Must Bring Expertise to the TableMost Human Resources professionals have been through a benefits open enrollment season at some point in their career. Many have presented at numerous open enrollment meetings to explain to employees what their benefits options are.

Employees always have more questions about their health benefits during these meetings than HR has thought about in advance. And this is particularly true when a company is changing insurance carriers or making substantial revisions to what is covered or to the costs to employees.

HR can never anticipate every nuance or issue that might apply to a particular employee’s situation, even though those who present at open enrollment meetings have usually been involved in the benefit plan design and/or have had substantial involvement in negotiating plan terms with their carriers.

Pity the poor “navigators” who will have to explain Obamacare to the millions of people who will need to enroll through the healthcare exchanges so they do not incur a penalty (which the Supreme Court called a “tax”) for failing to have insurance come January 1, 2014.

According to Amy Schatz in the Wall Street Journal on August 7, 2013,

“Grants to hire and train the workers aren’t expected to be released for another two weeks for the 34 states where the federal government is running all or part of the marketplaces, which will offer insurance to those who don’t get it on the job or from Medicare or Medicaid. That leaves just 32 business days to hire and train thousands of helpers in these states.”

As an HR professional, would you want to hire and train people in the intricacies of enrolling millions of people in plans that are newly designed – and maybe still in design – using a new online enrollment system? All in thirty-two days?

What are the odds of being able to hire “navigators” who can explain the enrollment system to enrollees who may never have used a computer before? Or who can explain the terms “co-pay” and “third-tier drugs” to people who have never had health insurance before?

HHS sealAnd with only twenty hours of training, what are the odds these poor navigators will know what to do when the first customer calls?

HHS had better hope that the scripts written for their new hires are well-written. But if the scripts are anything like the HHS regulations, the system is doomed from the beginning.

Or perhaps the Administration will rewrite the Affordable Care Act to delay implementation of the individual mandate until 2015, as it has the business mandate.

What do you think the impact of the Affordable Care Act will be on your organization, as of January 2014?

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Complex Impact of DOMA Decision on Employee Benefit Plans


In mid-June, I wrote about the potential impact of the Supreme Court’s same sex marriage opinion on employers. Well, now we know what that impact is – or rather, now we know what we still don’t know.

The Perry v. Hollingsworth decision from California is likely to only impact employers in California. But the U.S. v. Windsor decision holding that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional will impact employers across the nation. Unfortunately, the Windsor decision raised as many questions for employers as it answered.

Because the Court only overturned Section 3 of DOMA, the rest of DOMA remains in place. Most importantly, the Court did not mandate that same-sex marriages be recognized, nor did it overturn Section 2 of DOMA. Section 2 provides that the states are not required to give effect to same-sex marriages entered into in other states. Therefore, the federal laws related to marriage must still accept each state’s definition of marriage.

What does this mean for employers? We are only now beginning to figure this out. We will need to wait for guidance from the myriad federal agencies that regulate and enforce the federal laws related to marriage. In essence, however, it means that employers will have to adapt to a variety of definitions of marriage in different states.

Here are a few of the many recent articles on the impact of the Windsor decision on employers: from the Littler law firm, from SHRM, and from two benefits consultants (Towers Watson and Aon Hewitt).

Major issues after Windsor include:

  • Which state’s law should an employer consider – the state where the employee resides, the state where the employee was married, or the state where the employee works? The answer may vary depending on what federal right or benefit is involved. Moreover, keep in mind that Windsor said nothing about civil unions, domestic partnerships, or anything other than that where same-sex marriages are recognized by state law, they must be recognized for federal purposes.
  • Can multi-state employers standardize on a single practice for their benefit plans (probably using the most liberal definition of marriage and spouse), or will they have to have multiple methods of administering their plans, depending on state law? Most likely, they will a complex maze of plan administration – because for some purposes same-sex partners who have married will be spouses and entitled to certain benefits, and sometimes same-sex partners (whether married or unmarried) will be prohibited from claiming other benefits.
  • What differences will there be under ERISA’s requirements for pension plans and welfare plans? As with most benefit plan issues, the starting points are not only the requirements set forth in statutes and regulations, but also the language of the benefit plan documents. Spouses have more rights under pension plans (for example, for purposes of spousal notice requirements, mandated survivor benefits, and qualified domestic relations orders) than under welfare plans (where definitions in plan documents and insurance contracts may adopt different definitions than required in pension plans).
  • When does Windsor become effective? Is the Windsor decision retroactive? In other words, how soon must employers have systems in place to accurately record same-sex marriages, and must employers un-do and re-do a variety of past benefit plan actions, such as distributions? That’s why employers need prompt guidance from the IRS, DOL, SSA, and other regulatory agencies.

Employers can assume that the Obama Administration will issue guidance that favors quick, and maybe even retroactive, recognition of same-sex marriages. So HR professionals and corporate executives involved with benefit plans need to stay on alert. Read the linked articles in this post for a good start in understanding the specific complications the Windsor decision has raised.

What issues has the Windsor decision raised for your benefit plans?

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Supreme Court Opinions in Same-Sex Marriage Cases Could Impact Employers


Last week I wrote about the Supreme Court’s pending decision in Fisher v. University of Texas.  This week I’m discussing the implications for employers of the Supreme Court’s upcoming decisions on same-sex marriage.

The Court has heard arguments in two cases testing whether gay and lesbian couples have a fundamental right to wed. Those cases are Hollingsworth v. Perry (involving California’s definition of marriage and the Equal Protection Clause) and United States v. Windsor (involving the constitutionality of the federal Defense of Marriage Act, hereinafter “DOMA”).

Currently, many employers grant spousal benefits to same-sex partners, but many others do not. For employers that do permit gays and lesbians to add their partners to health benefits, those benefits must be tracked, because they are taxable under DOMA, whereas heterosexual spousal benefits are not taxable. DOMA differentiates between all other federal benefits as well – heterosexual and homosexual couples are treated differently. This is a significant issue for employers, and becoming a greater issue as more states permit same-sex marriage.

The Hollingsworth case deals with California’s Proposition 8, which amended the state’s constitution to make same-sex marriage impermissible. In Hollingsworth, the issues are (1) whether the petitioners had standing in the case, and (2) if the petitioners did have standing, whether the federal Equal Protection Clause prohibits California from defining marriage as the union of a man and a woman.

The SCOTUS Blog has outlined many possible outcomes in Hollingsworth.  The Court may decide not to decide, finding that the case was improvidently granted, because the petitioner before the Court does not have standing. Alternatively, the Court may decide the cases in such a way that only California is impacted – either permitting or denying marriage to same-sex couples in that state. Or it is possible the Court might remand the case to the California courts to reconsider in light of the Windsor decision. For a lengthy review of the options, see the SCOTUS Blog. 

It is possible that the Court will issue a broad opinion covering the laws of all states regarding marriage, but most commentators think that is unlikely.  Thus, only California employers are likely to face implications from Hollingsworth. (Of course, interstate employers with workers in California are included in this group.)

Moreover, the implications of Hollingsworth are also limited by California’s domestic partner statute. Under that statute, same-sex couples can enter into domestic partnerships that require these couples to be treated the same as heterosexual couples. Thus, Hollingsworth primarily differentiates between domestic partnerships and marriage, which will not have as big an impact on employers as Windsor.

In Windsor, the issues are (1) whether the House of Representatives had standing to pursue the case when the Administration chose not to, (2) whether the Supreme Court can even consider the case, since the Executive Branch agrees with the lower court that DOMA is unconstitutional, and (3) if the Court determines it should rule in the case, whether Section 3 of the Defense of Marriage Act (DOMA) violates the Fifth Amendment’s guarantee of equal protection of the laws as applied to persons of the same sex who are legally married under the laws of their state

As in Hollingsworth, the Court’s opinion in Windsor could go in a number of directions, according to Employee Benefit News. First, the Court could decide the parties didn’t have standing, and the case shouldn’t even be before the Court, which would leave DOMA as valid law. Second, the Court could uphold DOMA as meeting constitutional muster. This would have the same result as throwing the case out for lack of standing, in that DOMA would remain valid. With either of these rulings, federal law would be unchanged, and employers could continue administering their employee benefit plans as they do today.

Finally, the Court in Windsor could find DOMA to be unconstitutional, which would require that federal laws accept the marriage laws of all the states. In this case, couples validly married under state law, regardless of sexual orientation, would have to be treated the same. This would have significant impact on employee benefit plans, both retirement plans (such as pension plans and 401(k) plans) and health and other welfare benefit plans.

Both Hollingsworth and Windsor deal with the government’s response to same-sex marriages, rather than with private employers’ responses. In fact, most large employers are ahead of the federal government in developing benefit and leave policies to deal with these issues. The Supreme Court’s opinions in Hollingsworth and Windsor may force all employers to move in this direction.

Is your company ready for the Supreme Court’s decisions on same-sex marriage?

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Obama’s Plan to Cap Retirement Savings — How Much Is Too Much Income or Too Much Taxation?


????????????????????????????????????????????????????????????????????????????????????In addition to limiting itemized deductions for higher income taxpayers, President Obama’s recent budget proposal also includes a cap on the amount that individuals can accumulate for retirement on a tax-deferred basis. For years, taxpayers have been advised to save as much as possible for retirement in 401(k)s and IRAs. The President’s proposal limits the tax-deferred nature of these plans.

The President wants to limit the tax advantage of all retirement plans to the amount needed to buy an annuity of $205,000/year. Under current interest rate and inflation assumptions, this amount is about $3.4 million. See Blake Ellis, Obama: Limit retirement tax breaks for the rich, CNNMoney, April 10, 2013. The proposal combines pensions, 401(k) plans, and IRAs – all forms of retirement savings accounts – in reaching this cap.

While $205,000 is a very nice income for a retiree, why should the President dictate the standard of living for anyone in retirement? Why should $205,000 be the maximum income that people can accrue through tax-deferred savings? What is his philosophical underpinning for this amount, beyond the President’s frequent theme of “the rich have too much”?

As Robert Lenzner, wrote for Forbes on April 14, 2013, in Obama Goes Against the Grain of What America Represents,

“The whole thrust of this recommendation goes against the grain of becoming self-sufficient, taking care of your own finances rather than depending on handouts.”

presidential sealThe intent of President Obama’s cap on tax-deferred retirement plan savings is clearly to bring more money into the tax system sooner rather than later – and, like many of his proposals, his proposal is aimed at the top 1% of wage earners.

One consequence of President Obama’s proposal may be for employers to reduce their support for retirement savings of any type.  An April 14, 2013, editorial in Investment News, titled Limiting 401(k) tax advantage is unwise, explains the problem. Defined benefit plans (pensions) decreased each time Congress capped the maximum salary on which employers could make tax-exempt pension contributions.  Each reduction led to more defined benefit plans being terminated, and accelerated the move to defined contribution 401(k) plans. Now, 401(k)s will be limited, too.

Moreover, depending on the returns in 401(k) plans over time and the assumptions made about what an inflation-adjusted annuity of $205,000 would cost, the savings cap in the President’s proposal could be as low as $2.2 million. At that level, 6% of young workers could be cut back in their retirement savings before they turn 65. If interest rates increase – which they are likely to do over time – even more young employees could see their ability to save for retirement on a tax-deferred basis limited.

For more analysis, see Could Obama’s Plan To Curb The Boss’ Tax Breaks Hurt Workers’ Retirements?, by Janet Novack, in Forbes, on April 10, 2013, or the Wall Street Journal editorial on April 12, 2013, Now He’s After Your 401(k).

Employers and HR executives should watch the development of the President’s proposal carefully, to determine what the impact is on employees at all levels of their organization.

President Obama isn’t the first politician to advocate limiting tax deferrals on retirement savings. But combined with his other attacks on wealthy Americans, he appears dead set on reducing what top earners can save in any way he can – by taxing more of their income now, and by limiting tax-deferred savings in the future.

I am not entirely opposed to increasing taxes on the top earners, nor even on the middle class. But before we increase taxes further, I think it is important to ask ourselves how much taxation is too much. President Obama has never answered that question. I can’t tell if he has even asked it of himself or his advisors. All he talks about is wanting more from the top 1%.

The President’s  answer to how much is too much taxation might define the philosophical difference I have with him and his supporters.

How much do you think is the maximum that the government should take of anyone’s income? Should the government set limits on tax-deferred retirement savings?

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