by Lexi Garcia | Mar 21, 2024 | Blog
In a recent news release, the Internal Revenue Service (IRS) has reiterated important guidelines regarding the eligibility of health and wellness expenses for deductions and reimbursements under health Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Medical Savings Accounts (MSAs).
What Qualifies as a Medical Expense? According to the IRS, for an expense to be considered a medical expense under Code § 213, it must be directly related to the diagnosis, cure, mitigation, treatment, or prevention of disease, or must affect the structure or function of the body. This definition excludes expenses that are solely for general health benefits.
The Risk of Nonmedical Reimbursements: The IRS warns that if health FSAs or other account-based health plans reimburse nonmedical expenses, it could result in all plan payments, including those for legitimate medical expenses, being included in participants’ taxable income.
Misleading Claims and the Importance of Diagnosis-Specific Documentation: The IRS has expressed concerns about companies misleading individuals by suggesting that a doctor’s note can transform general food and wellness expenses into medical expenses. However, without a clear connection to a diagnosis-specific treatment or activity, these expenses do not qualify as medical expenses.
Case in Point: The Denied Claim Highlighting the issue, the IRS shared an instance where an individual with diabetes was denied reimbursement for healthy food expenses through his health FSA. Despite obtaining a doctor’s note from a company that advertised such services, the claim was rejected because the food did not meet the criteria for a medical expense.
Guidance for Taxpayers: For those seeking clarity on what constitutes a reimbursable medical expense, the IRS points to its FAQs on nutrition, wellness, and general health expenses. These resources clarify that food or beverages purchased for health reasons, such as weight loss, can only be reimbursed if they do not fulfill normal nutritional needs, are used to alleviate or treat an illness, and are substantiated by a physician’s prescription.
Understanding the fine line between general wellness and medical care is crucial for taxpayers and plan administrators. As the IRS emphasizes, only expenses that meet the stringent criteria set forth in the Code will be considered for deductions and reimbursements, ensuring the integrity of health-related financial plans.
Source: Thomson Reuters
by admin | Jan 25, 2024 | Blog
QUESTION: Our company has just received a letter from a participant in our health plan, asking for copies of numerous documents relating to the plan. What are our responsibilities?
ANSWER: ERISA § 104(b)(4) requires a plan administrator to furnish copies of specified plan documents within 30 days after a written request from a participant or beneficiary. Failure to timely provide requested documents could lead to financial penalties, so it is important to quickly evaluate the participant’s request and provide copies of the documents that are subject to the disclosure obligation. Here are some issues to consider in responding to the request.
- Plan Administrator’s Responsibility. The ERISA disclosure obligation and penalties for noncompliance fall on the plan administrator. Unless the plan document designates a different person or entity, the plan administrator is the plan sponsor, which in a single employer plan is the employer. We assume that your company is the “plan administrator” under ERISA. Courts are authorized, in their discretion, to impose penalties of up to $110 per day for each day that requested documents are not provided, starting on the 31st day after the request.
- Covered Documents. The specified documents that must be furnished upon request are the latest updated SPD (including any interim SMMs); the latest Form 5500; any final Form 5500 for a terminated plan; and any applicable bargaining agreement, trust agreement, contract, or “other instruments under which the plan is established or operated.” It can be challenging to determine what documents fall within the “other instruments” category. This is ultimately a facts-and-circumstances determination. The DOL and the courts have found this category to include plan documents, insurance policies, usual and customary fee schedules and guidelines, TPA contracts (if they affect plan administration), and minutes of plan meetings (affecting plan administration). The plan administrator is generally not obligated to furnish documents that are not within the plan administrator’s possession—for example, an insurer’s or claims administrator’s claim processing guidelines.
- How to Furnish. While the statute specifically refers to mailing requested documents, it appears that, like other ERISA-required disclosures, these documents are to be furnished using a method “reasonably calculated to ensure actual receipt of the material.” This would include any of the methods appropriate for furnishing SPDs, including mail, hand-delivery, or electronically (preferably in a manner that satisfies the DOL’s safe harbor for electronic delivery). A reasonable charge may be imposed for copying (up to 25 cents per page but not more than the actual cost), but not for postage or other tasks associated with handling the request.
Keep in mind that other situations may trigger an obligation to furnish documents to participants or beneficiaries. In addition to the requirement to furnish SPDs and other materials automatically, ERISA’s claims procedure rules require that a claimant be given, upon request and free of charge, “reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” Also, the courts and the DOL have sometimes relied on a generalized fiduciary duty to require that additional information be provided to participants and beneficiaries in individual situations.
Source: Thomson Reuters
by Lexi Garcia | Dec 28, 2023 | Blog
QUESTION: Our company will soon begin offering coverage under our group health plan to employees’ domestic partners. What rights do domestic partners have under COBRA? May terminating employees elect to continue coverage for their domestic partners?
ANSWER: A terminating employee who elects to continue group health plan coverage under COBRA may also elect coverage for a domestic partner who was covered under the plan immediately before the employee’s termination. The domestic partner’s COBRA coverage will be contingent on the employee’s, meaning that the domestic partner will be entitled to coverage until the employee’s COBRA coverage ends (e.g., for failure to pay required premiums or at the end of the maximum coverage period). This is based on the general principle that COBRA coverage must ordinarily be the same coverage that the qualified beneficiary (in this case, the terminating employee) had on the day before a qualifying event. In addition, under general principles, a qualified beneficiary receiving COBRA coverage under a plan that provides domestic partner benefits would have the right to add an otherwise eligible domestic partner to his or her COBRA coverage at open enrollment if active employees are permitted to do the same.
That being said, domestic partners—unlike spouses—do not qualify as qualified beneficiaries under COBRA and, therefore, do not have independent COBRA rights. But if you wish to provide continuation coverage rights like those provided to spouses, you may do so through plan design. Many employers choose to extend “COBRA-like” rights to domestic partners, including the right to make continuation coverage elections independent of the employee (e.g., upon the employee’s termination of employment or upon termination of the domestic partnership). In general, sponsors of self-insured plans may have more flexibility in this area than sponsors of insured plans, who must obtain agreement from their insurers before they can provide fully equivalent continuation coverage rights. As you implement domestic partner coverage, you will want to consult with your insurer or stop-loss carrier, as applicable, and confirm that your plan document and summary plan description explicitly address COBRA and other continuation coverage rights and any notice requirements that will be imposed (such as the requirement to notify the plan within a specified period that a domestic partnership has terminated).
Source: Thomson Reuters
by Lexi Garcia | Oct 12, 2023 | Blog
QUESTION: We understand that our group health plan can terminate COBRA coverage early if a qualified beneficiary becomes entitled to Medicare after electing COBRA. What does it mean to be “entitled” to Medicare?
ANSWER: When qualified beneficiaries (including covered employees) first become entitled to Medicare after electing COBRA coverage, their COBRA coverage can be terminated early—before the end of the maximum coverage period. For this purpose, the Medicare terms “eligibility” and “entitlement” are not synonymous, and it is important to understand the difference. “Entitlement” means that an individual who is eligible for Medicare has actually enrolled in Medicare and may currently receive benefits. An individual who must take additional steps to enroll in Medicare before receiving benefits is not yet “entitled” to Medicare for purposes of the COBRA rules.
Individuals who become eligible for Medicare Part A (hospital insurance) based on age, disability, or end-stage renal disease (ESRD) must apply to become entitled to Part A coverage in many cases, but entitlement is automatic for individuals who have already applied for and are receiving Social Security or Railroad Retirement Act benefits. Individuals become entitled to Medicare Part B (physicians’ services and other health expenses) either automatically when they become entitled to Part A, or later during specified enrollment periods.
Although group health plans are allowed to terminate a qualified beneficiary’s COBRA coverage early upon Medicare entitlement, it is important to remember that the COBRA rights of other qualified beneficiaries in the family unit who are not entitled to Medicare are not affected. For example, the plan could not terminate the COBRA coverage of the spouse and dependent children of a Medicare-entitled former employee.
Source: Thomson Reuters
by Lexi Garcia | Sep 21, 2023 | Blog
QUESTION: At the beginning of the year, we distributed new SPDs to participants in our company’s ERISA-covered group health plan. We are planning to make some changes to the plan’s terms. When and how do we need to communicate these changes to participants?
ANSWER: ERISA requires that participants be notified of any material modification in a welfare plan’s terms or any change in the information required to be in an SPD. This can be done by providing a summary of material modifications (SMM) describing the change. In addition, under a special rule for group health plans, notice must be provided when there is a material modification in plan terms that affects content required to be included in the summary of benefits and coverage (SBC) and is not reflected in the most recently provided SBC. Here is an overview of the SMM rules:
- What Is a “Material” Change? Except for the definition of a material reduction in group health plan covered services (discussed below), there is no guidance regarding when a modification is material. It appears to be a facts and circumstances determination. We suggest that you err in favor of preparing and distributing SMMs.
- Who Must Receive SMMs? SMMs must be provided to the same individuals who must receive SPDs—generally, participants but not beneficiaries. Note that individuals who do not have the right to automatically receive SPDs or SMMs may have the right to receive a copy upon written request to the plan administrator.
- Deadlines for Providing SMMs. The timing requirements depend on the nature of the change. Any modification that is considered a “material reduction in covered services or benefits provided under a group health plan” must be disclosed no later than 60 days after the date the modification was adopted. (If participants regularly receive SMMs at intervals of not more than 90 days, a plan administrator may wait beyond the 60-day limit to describe the modification in the regularly published form.) Reductions in covered services or benefits include, among other things, the elimination or reduction of benefits payable under the plan, a premium increase, and the imposition of new conditions or requirements. For other changes (i.e., group health plan changes that are not material reductions and changes to plans other than group health plans), the SMM must be provided no later than 210 days after the end of the plan year in which the modification or change was adopted. We suggest a common-sense approach to these deadlines—depending on the type of modification, it may be advisable to provide the SMM before the statutory deadline. This is particularly true if the plan administrator wants the modification to apply on its effective date. Delivery methods must comply with the SPD distribution rules. If the change is included in an SPD that is distributed by the applicable SMM deadline, a separate SMM need not be furnished.
- Style and Content. Like SPDs, SMMs should be written in plain language and must comply with general understandability requirements. The SMM also must work in an understandable way with the SPD it is modifying—for example, by clearly identifying the SPD being modified and the affected SPD provisions. The DOL has provided no prescribed format or model language for SMMs. We suggest including the plan name, the SPD to which the SMM relates, a description of the changes (or the language to be substituted in the SPD) and their effective dates, an explanation that the SMM and SPD must be read together and should be kept together, and whom to contact with questions.
Source: Thomson Reuters
