Employment Resources

Employers increasingly are looking to promote lifestyles that can help employees avoid higher health care costs, reduce absenteeism, and raise productivity in the workplace. Wellness programs can be part of this strategy. To encourage participation in wellness initiatives, an employer might consider offering an incentive, such as a premium reduction. In offering incentives, however, an employer must remain cognizant of the nondiscrimination rules under the Health Insurance Portability and Accountability Act (HIPAA), which prohibit health plans from charging similarly situated individuals different premiums or contributions or imposing different deductibles, copayments, or other cost-sharing requirements based on a health factor.

HIPAA carves out an exception that allows plans to offer wellness programs. Previously, the exception was for “bona fide” wellness programs. Recent final regulations issued by the federal agencies responsible for HIPAA oversight abandon this term, and instead spell out five requirements that wellness programs must follow. These requirements are:

The total reward for all of the plan’s wellness programs that require satisfaction of a standard related to health must be limited to no more than 20% of the cost of employee-only coverage under the plan (cost encompasses both employer and employee contributions). If dependents may participate in the program, the reward cannot exceed 20% of the cost of the coverage in which the employee and dependents are enrolled. The reward can be in the form of a discount or rebate of a premium or contribution, a waiver of all or part of a copayment, deductible or coinsurance, the absence of a surcharge, or the value of a benefit that would otherwise not be provided under the plan.

The program must be reasonably designed to promote health and prevent disease. The agencies state that they intend for this requirement to be an easy standard to satisfy, but do clarify that the program cannot be overly burdensome or a subterfuge for health-based discrimination.

The program must give individuals eligible to participate the opportunity to qualify for the reward at least once per year.

The program must include a reasonable alternative standard for obtaining the reward for individuals for whom it is medically unadvisable or unreasonably difficult to meet the regular requirement of the program. The plan may seek verification (for example, from the employee’s physician) that is it unreasonably difficult or medically unadvisable for the employee to satisfy the plan’s regular requirement.

The plan must disclose, in all materials that describe the program, that there are alternative ways to obtain the program reward. The agency guidance suggests standard language that can be used to meet this requirement.

It is important to note that these requirements are for wellness programs that base a reward on the employee satisfying a standard related to a health factor. If satisfaction of a standard related to a health factor is not required — for example, if employees earn the reward simply by participating in the wellness program — the program is not subject to these five requirements. The guidance gives these examples of specific programs not subject to the five requirements:

1. Reimbursing employees for all or part of the cost of membership in a fitness center.
2. Providing a reward for participation rather than for outcomes.
3. Encouraging preventive care by waiving the copayment or deductible for the cost of services, such as prenatal care or well-baby visits.
4. Reimbursing employees for the cost of a smoking cessation program without regard to whether the employee actually quits smoking.
5. Providing a reward to employees for attending a monthly health education seminar.

These new rules apply to plan years beginning on or after July 1, 2007. In the preamble to the final rules, the agencies note that in the past (before this final guidance was issued) they had not taken enforcement action against plans that simply were acting in good faith in designing their wellness initiatives. Now, with the publication of final guidance, “the nonenforcement policy ends” with the effective date of the final rules. Thus, this is a good time to review any wellness programs for compliance.

While Health Care Flexible Spending Accounts (FSAs) offer tax-saving benefits to employees, they also can provide tremendous advantages to employers that sponsor them. Salary-reduction contributions that employees make to an FSA are not subject to Social Security and Medicare (FICA) taxes. Thus, employers save their 7.65% FICA contribution on the dollars that employees contribute to an FSA. If FSA participation is high, FICA savings can be substantial. Even small amounts of savings are “true” savings, since a health care FSA can be a no-cost benefit for the employer to offer: Typically, an employer makes no contribution to the plan and can pass on any associated administrative costs to employees.

Health care FSAs offer employers strategic advantages, too. With seemingly ever-rising health care costs, implementation of a new health care FSA — or enhanced communication of an existing plan — can be used in tandem with health plan changes that require increased employee cost-sharing. Such communications can help employees see how FSAs can lessen the financial burden of higher premiums, co-payments, or deductibles. Offering a health care FSA also gives an employer a hiring advantage over competitors without one, a fact that will become more important as the economy improves and unemployment rates decrease.

So, from an employer’s perspective, is there any downside in offering a health care FSA? The one financial risk employers face from FSAs is the impact of an IRS regulation known as the “uniform coverage” or “insurance risk” rule. The rule requires that the entire annual election amount (reduced by any reimbursements already made) be available to a health care FSA participant at all times during the plan year. For example, if an FSA participant elects to contribute $600 to the plan, and contributions are made through monthly payroll deduction, in February the participant would have contributed $100. The participant submits a substantiated claim for $500. The claim is paid, and the participant quits. The plan is out $400.

IRS regulations do not permit plans to operate in a way that eliminates or substantially reduces this risk, but there are ways to moderate it, making the plan more effective for employers. First, however, consider how real the risk is for your workplace. Because employees make FSA contributions through payroll deduction, only terminating employees potentially present this type of risk to a plan. How high is your employee turnover? Unless turnover is an issue for an employer, the insurance risk rule is unlikely to present a significant problem.

Also remember that employees face their own risk as FSA participants, that of forfeitures. Amounts employees have elected to contribute to the plan cannot carry over to a subsequent plan year. Even small amounts unclaimed by participants can add up to offset any losses the plan suffers from terminating participants who have been “over-reimbursed.” This (in addition to the FICA savings discussed above) is another reason why it is in the employer’s interest to keep plan participation as high as possible. Briefly, techniques that can enhance participation include maintaining frequent and effective communications that show employees the value of participation; offering easy tools for employees to enroll or obtain information about the plan; and facilitating employees’ claim filing (this could include use of stored-value debit-type cards for employees to use in making their FSA-related purchases or payments).

Beyond these, simple ways to lessen the chances that a plan will suffer a large hit from a terminating employee include setting a maximum amount that an employee can contribute to the health care FSA; limiting reimbursable expenses to exclude some types of big-dollar, elective expenses over which an employee can readily control the timing (such as multiple pairs of prescription eyewear); and requiring a longer period of service for eligibility, since the highest turnover typically occurs among newest employees (note that while the law sets a maximum three-year period of service for eligibility, most plans require far less).

More extreme techniques to control the risk of loss include accelerating the frequency of contributions or requiring full-year participation (and withholding the balance of contributions due for the remainder of the plan year from all terminating participants). Such techniques should be considered more aggressive and fully explored before implementing; they are not necessary for most employers and are considered by some to stretch the legal limits of FSA operation.

Remember that design constraints on the plan might run counter to encouraging employee participation and, for the vast majority of employers, a plan with healthy participation will work effectively, both for the plan sponsor and participants.

Benefits administrators are all too familiar with the amount of work associated with open enrollment season. You can make it less labor intensive if you assess the effectiveness of your company’s enrollment processes before open enrollment begins.

This list of best practices can help you determine where adjustments are needed to make the process more efficient:

Take advantage of the pre-planning phase – The first step is to clarify your company’s objectives. As you are evaluating benefit plan designs, whether it’s consumer-directed health plans, health savings accounts or reimbursement accounts, decide which options are in sync with your employee population and the company’s overall goals. Also consider how technology will be used to ensure the efficiency of the enrollment process. Other factors to consider include whether benefits administration will be provided in-house or outsourced, and your organization’s budget constraints for benefit-related costs.

Define your project plan – An effective project plan should stipulate:

• Enrollment period dates
• Necessary tasks, including duration and resources required from other departments
• Availability of resources and how they will be allocated
• The amount of lead-time required for adding new populations or changing carriers/vendors
• A training schedule for benefits staff and customer service representatives

When developing a project plan, it’s essential to manage the process at every stage. In addition, you should have a contingency plan to help minimize risks.

Educate your employees about maximizing their benefits – According to MetLife’s 2005 Employee Benefits Trend Study, more than 80% of employees among certain life stages, such as singles, believe their employers need to provide more benefits education to enable workers to select the best benefits options. Clearly, communication has risen in importance as a crucial piece of the enrollment puzzle.

Employees should be provided with tools to help them navigate the health care system along with education on making smart health care decisions. This can be accomplished through direct mail benefits information, health and wellness fairs, employee meetings and online decision-making tools, such as benefits calculators.

It’s also important to inform employees about benefit trends in the industry, how much the employer is contributing for benefits, and when the employer adds more value to the health care plan. This will help employees understand the overall value of the benefit plan.

Anticipate post enrollment activity – The tasks performed in the post enrollment period are just as important to the process as those performed during open enrollment. These include:

• Timing the distribution of ID cards
• Preparing a schedule for payroll feeds
• Timing the last payroll period
• Automating payroll deductions
• Following up on carrier inaccuracies
• Conducting quarterly audits with carriers
• Preparing for the new plan year

Form 5500 filing is an essential part of any employee benefit plan sponsor’s compliance responsibilities. These annual reports, required to be filed with the Internal Revenue Service (IRS) and Department of Labor (DOL), provide information to these agencies on employee benefit plans that are subject to ERISA.

Unless the type of plan or plan sponsor meets a Form 5500 filing exception (for example, certain insured and unfunded welfare plans sponsored by small employers, and church plans, are among those not subject to the Form 5500 filing and disclosure requirements), substantial penalties can apply for failing to file the annual report. Penalties can be assessed against late filers — those filing after the deadline — and non-filers. Incomplete forms, such as those missing any required schedules or which are not signed or dated, are not considered properly filed until these errors are corrected. Penalties from the IRS can run as high as $25 per day, up to $15,000, and those from the DOL can run up to $1,100 per day, with no maximum.

Most failures to file a Form 5500 when due are not willful. An employer might be under the mistaken impression that a certain plan it sponsors does not require a filing, or it might overlook the deadline on account of other more pressing business concerns, or it might file the 5500 but forget to attach a required schedule. When the plan sponsor then discovers the oversight, it could be in a quandary as to how to proceed — especially if a significant amount of time has passed since the filing deadline — knowing that a late filing will bring on potentially sizable penalties.

In an effort to encourage voluntary correction of these inadvertent non-filings, the DOL offers the Delinquent Filer Voluntary Compliance Program (DFVC). The program is designed to encourage plan sponsors, or their administrators, to file overdue annual reports by assessing a reduced penalty instead of the penalty amount that would otherwise apply. For example, the basic penalty under the program is $10 per day for delinquent filings, with the maximum penalty of $750 for a single late report for a small plan (generally, a plan with fewer than 100 participants at the beginning of the plan year) and $2,000 for a large plan. In the event that a report has not been filed for several years, the program also has a per-plan cap, which generally limits the penalty to $1,500 for a small plan and $4,000 for a large plan, regardless of the number of late reports filed at the same time for a single plan.

Although the program is offered by the DOL, the IRS also provides penalty relief for late Form 5500 filings that meet the requirements of the DFVC program.

The DFVC program is only open to plan sponsors that have not been notified in writing by the DOL of Form 5500 filing noncompliance. The plan sponsor calculates the applicable penalty and submits it at the time of the DFVC filing, which must include the late report(s) and any required attached schedules. The plan sponsor or administrator is liable for the required penalty, and cannot pay it out of plan assets. By paying the penalty under the DFVC program, the plan sponsor or administrator waives the right to contest the penalty amount at a later date.

Given the steep penalties that can apply for neglecting to file 5500s for the employee benefit plans you sponsor, all employers would be well-advised to ensure that they are up to date with this annual requirement. If you have not filed reports for any plans believing that they are not subject to the annual reporting and disclosure requirement, consider double-checking with your company’s employee benefits, tax or accounting professional to make sure that this indeed is the case. If you’ve overlooked meeting the filing requirement for any plan, see if you can use the DFVC program to keep your penalties in check.

Although the overall quality of health care delivered by U.S. providers continues to improve, use of prevention tools lags, resulting in missed opportunities to avoid certain serious diseases and their complications, according to annual reports from the Agency for Healthcare Research and Quality (AHRQ).

“Less than Optimal”

The most recent editions of the National Healthcare Quality Report and the National Healthcare Disparities Report found less than optimal participation in cancer screenings, obesity counseling, and disease management strategies by individuals with chronic conditions such as diabetes and asthma. These missed opportunities can increase health care costs and deter effective prevention and treatment of disease.

The AHRQ quality measures look at the extent to which health care providers deliver evidence-based care for specific services, as well as the outcomes of the care provided. Forty-two core measures focus on four aspects of quality — effectiveness, patient safety, timeliness and patient-centeredness — during four stages of care: Staying healthy, getting better, living with an illness or disability, and coping with the end of life.

Modest Improvements

Overall, most measures show improvement, though on a modest basis, according to the report on quality. Hospitals demonstrated most improvement, outpacing other centers of care, such as ambulatory care, nursing home care and home health care. Specifically, hospital care for heart attack patients improved 15%, for pneumonia patients almost 12%, and for avoidance of complications after surgery more than 7%.

The median rate of improvement for acute care quality measures was about twice that for preventive and chronic care quality measures. Delving further into this difference, while vaccinations for children, adolescents and the elderly showed high rates of overall improvement, the improvement rate for other preventive measures — screenings, advice and prenatal care — was low.

For example, only half of adults received recommended colorectal cancer screenings; fewer than half of obese adults reported receiving diet counseling from a health care professional; less than half of asthmatics received advice on how to change their environment and only 28% said they had received an asthma management plan; and less than half of diabetics received the screenings recommended for this disease (blood sugar tests, foot exams and eye exams) to prevent disease complications.

The second AHRQ report examined disparities related both to the quality of and access to health care among racial, ethnic and socioeconomic groups in the U.S. The measures of quality were the same used in the report discussed above, while access measures assessed how easily patients are able to get needed care and their actual use of services.

Disparities Pervade Health Care System

According to the report, disparities continue to “pervade” almost all aspects of the U.S. health care system, with racial/ethnic minorities receiving lower quality care and worse access to care on most measures, and poorer populations receiving lower quality care on most measures and worse access to care on all measures. Disparities were particularly apparent in the area of prevention. Neighborhood solutions and focused community-based projects are the keys to eliminating these disparities, the report says.