KB Healthcare Consultants A Division of Kerkering, Barberio & Co., CPAs

Transcription

1 1 1 KB Healthcare Consultants A Division of Kerkering, Barberio & Co., CPAs

2 Principal KATHLEEN A. HARGREAVES, CPA/CFP /CPC (941) (800) Areas of Practice Individual and Business Tax Consulting KB Healthcare Consultants Leader 2

3 MEDICAL LOSS RATIO REBATES: AN EMPLOYER S PERSPECTIVE MLR rebate checks were to be distributed by August 1, Are you getting questions yet? 3 3

4 The Affordable Care Act: A Brief History Health insurance carriers are required to pay a minimum percentage of premium dollars as medical benefits. 85% medical loss ratio, policies covering large employers (i.e., 101 or more employees). 80% medical loss ratio, policies covering individuals and small employers (i.e., fewer than 100 employees and individuals). MLR does not apply to self-insured plans. 4

5 How Much Money Are We Talking About? As of June 21, 2012 Florida: Rebates in the individual market estimated $47M ($240 per family). Rebates in the small group market estimated $50M ($190 per family). Rebates in the large group market estimated $26M ($94 per family). 12.8M people will be affected. 5

6 Carriers Providing Rebates Carriers in the small group market: Blue Cross and Blue Shield of Florida, Inc. ($27M) Humana Health Insurance Company of Florida, Inc. ($500k) United Healthcare Insurance Company ($23M) Carriers in the large group market: Cigna Healthcare of Florida ($240k) Health Options, Inc. ($9M) Humana Medical Plan, Inc. ($500k) Neighborhood Health Partnership, Inc. ($5M) United Healthcare Insurance Company ($10M) 6

7 What Do I Do with the Rebate? ERISA will govern most employer health plans. The plan sponsor (employer) is responsible for dividing the premium up in accordance with ERISA regulations. So you, as an employer, must think of yourself as a responsible fiduciary. 7

8 Yes there is a deadline for rebating The clock started ticking on August 1, 2012 You have 90 days to act!!! 8

9 Step One: Calculate Employer Portion and Employee Portion Example of MLR rebate of $1,000 for 2011: Employer keeps $600 = $1,000 x $7,200/($4,800+$7,200) and the remaining $400 is distributed to subscribers. EE/Subscriber Number of Months Covered Employee Share of Premiums Employer Share of Premiums A 12 $2,400 $3,600 B 12 $1,400 $2,100 C 5 (new hire) $1,000 $1,500 Total 4,800 40% 7,200 60% Total premiums paid = $12,000. 9

10 Dividing the Pie Divide the rebate check based upon who paid the premium. Include terminated employees and COBRA beneficiaries in the calculation. Rebate Received from Carrier Employer pays 100% of premium Employer and employee pay part of premium Employer portion is employer s to keep for its business purposes Portion attributable to employees owed to participants 10

11 Step Two: Determine Distribution Method for Employee Rebate ERISA standard is general. Must be a fair, reasonable and objective allocation method. Direct payment is strongly suggested by DOL. 11

12 Step Two: Distribution Method Exceptions If too expensive OR IF THE BENEFIT IS TAXABLE: o Provide for future premium reductions for current plan participants o Provide additional benefit enhancements 12

13 Example 1a MLR rebate of $1,000, and assume that all participating employees receive share based on relative percent. Employee EE Paid Premium Total Premium % of Total Paid MLR Rebate Kim Jones $ - $ 3, % $ - Tom Smith 1, , % Mike Green 11, , % Betty Steward , % Lindsey Moore 2, , % $ 16, $ 37, % $ Employer keeps the difference between $1,000 and $

14 Example 1b MLR rebate is $1,000 and assume that all employees receive an equal share. Employee EE Paid Premium Total Premium % of Total Paid MLR Rebate Kim Jones $ - $ 3, % 0 Tom Smith 1, , % Mike Green 11, , % Betty Steward , % Lindsey Moore 2, , % $ 16, $ 37, % $ Employer keeps the difference between $1,000 and $

15 Other Considerations Consider that you may have situations where you have rebates from two or more different insurance companies. Employers may participate in multiple plans with some plans rebating and others not. 15

16 COBRA Employees Determine Rebate Amount More than De Minimis De Minimis Write Check Option to Apply to Reduce Contributions by Current Plan Participants 16

17 Step Three (2): Applying the Rebate Toward Future Premiums Questions also arise related to the application of future premiums. Must they be allocated proportionately? Can employers use tiers in the calculation? 17

18 What to do with Rebates A Decision Tree Pre-Tax Contributions? Post-Tax Contributions? Return Amount to Employee as Taxable Income Applied toward Future Plan Expenses De Minimis Amount More than De Minimis Amount Reduce Future Contributions by Current Plan Participants Return Amount to Employee as Non-Taxable Payment Credit toward Premium Payment by Check 18

19 Recap DOL likes cash refunds Employers will prefer to apply the rebate to future premiums for participants who were employees both in 2011 and 2012 Or just 2012 This is only possible if refund is diminimis or pre-tax 19

20 Income Tax Consequences Tax treatment depends on how premium was originally paid. Pre-tax Post-tax The Internal Revenue Service (IRS) provides an FAQ addressing the federal income tax consequences to an employee when an MLR rebate is provided. 20

21 Step Three (1): Bonus Checks Distribution is taxable if original premium was paid with pre-tax dollars. o Bonus check is subject to all withholding taxes, FICA and MCR, as applicable, if original premium was paid with pre-tax dollars. o No special way to handle on the W-2. Treat as additional compensation. 21

22 Step Three (1): Bonus Checks Previous Year After-Tax Contribution. o Issue check to employee with no withholding taxes. o Consider letter of explanation related to possible taxation of rebate. 22

23 Employee Pre-Tax Premium Payments (e.g., 125 Plans) If the rebate is distributed as a premium reduction for the employee, then the amount paid for the coverage is less, resulting in increased taxable wages. 23

24 Employee Pre-Tax Premium Payments (e.g., 125 Plans) Ex Pre tax deduction 2012 $ 100 MLR rebate -25 Recalculated pre-tax deduction 75 So taxable paycheck is $25 more than it usually is! 24

25 Non-ERISA, Non- Governmental Plans Employers have three choices as to what to do with the amount due to meet the for the benefit of subscriber requirement. Provide a cash refund Reduce annual premium for the next policy year for ALL SUBSCRIBERS covered under any group health policy offered by the plan. Reduce annual premium for the next policy year for ONLY THOSE SUBSCRIBERS covered by the group health policy on which the rebate was based. Employers can use whatever method is easiest. 25 Under each of the three options, the rebate is used to reduce premiums or is paid to the employee/subscriber during the year in which the rebate is actually received.

26 Final Action Steps Keep good records of: Premiums paid How the rebates were calculated Proof of rebate distribution in case of audit. 26

27 Sample Employee Letter MLR Sample Employee Letter 27

28 Sample Worksheet MLR Sample Worksheet 28

29 FAQ Can I use two payment methodologies? For example, one for COBRA recipients and the other for the remaining employees. 29

30 How We Can Help Note areas where you need more information or assistance. We will answer your questions and discuss your needs. 30

31 Kerkering, Barberio & Co. Certified Public Accountants Overview Kerkering, Barberio & Co., Certified Public Accountants, is one of the largest independent certified public accounting firms in Southwest Florida and offers a wide range of services to businesses, organizations, and individuals. The firm has been serving clients since Kerkering, Barberio & Co. has two locations: one at 1990 Main Street, Suite 801, Sarasota, FL, and one in Lakewood Ranch at 6320 Venture Drive, Suite 203, Lakewood Ranch, FL. 31

32 Resources The December 2011 final rule (CMS 9998-FC) is available at: The December 2011 Centers for Medicare and Medicaid Services (CMS) press release is available at: Page=10&checkDate=&checkKey=&srchType=1&numDays=3500&sr The MLR final rule fact sheet is available at: The EBSA Technical Release is available at: The CMS model notices are available at: The IRS MLR FAQs are available at: The HHS June 2012 press release on MLR rebates is available at: 32

33 Serving You at Two Offices 1990 Main Street, Suite 801 Sarasota, FL Venture Drive, Suite 203 Lakewood Ranch, FL (941)