Monthly Updates

May 2010

Monthly Updates

REMINDER:
Please make yourself
familiar with the most
recent updates on
COBRA and HIPAA
Laws......If you did not
receive the Newsletter
and Updates that we
sent by mail, please
give us a call and we
will send another copy
to your office....

THIS MONTH'S
HELPFUL LINK:

Maryland Insurance
Administration

Health Reform Official
Government Site

IRS Issues Guidance on Covering 26 Year Olds

The IRS issued guidance on 4/27/2010, Notice 2010-38, entitled "Tax Treatment of Health
Care Benefits with Respect to Children under Age 27". This has an immediate impact on
Health Care Flexible Spending Accounts (FSA), Health Reimbursement Arrangements (HRA)
and Health Savings Accounts (HSA) reimbursements. It will also allow tax free premium
elections under the 125 Premium Only Plan. HFS is sending this announcement to our
clients to provide the documentation needed for your participants to take immediate
advantage of this change.

Please note, the tax changes explained below are effective March 30, 2010, however the
health plan requirement to allow coverage for these children is in effect for plans that
renew after September 23, 2010.

What is the change?

A 125 Premium Plan, the Health Care FSA, HRA and HSA can now be used to provide tax
free medical benefits for a child of your employee who has not reached the age of 27 in the
calendar year in which the claim is submitted, or premium paid (e.g., If the child’s 27th
birthday is in 2010, the child’s 2010 expenses are not eligible for tax free treatment). This is
effective for services rendered, supplies provided and premium paid on or after March 30,
2010. The amendments at www.hfsbenefits.com must be signed no later than December
31, 2010.

A child is defined as an individual who is the son, daughter, stepson or stepdaughter of the
employee. It also includes both a legally adopted individual, an individual who is lawfully
placed with the employee for legal adoption, and a foster child placed with the employee by
an authorized placement agency or court. It does not matter if the child resides with the
employee, is a full time student or not a full time student, files their own taxes and has an
income more than $3200, or is married.

How does it affect tax free health benefits?

Your employees will now be able to pay premium for these children for group sponsored
health coverage under your 125 Premium Conversion plan without receiving imputed
income. Once your health plan complies with the new age limits and these children are
added back to the health plan, the employee contributions can be taken pre-tax under
Section 125 Plan (Premium Conversion Plan).

If you sponsor an HRA that reimburses out of pocket medical expenses associated with
your employer sponsored health plan, your HRA plan will be able to provide tax free benefits
for these children when enrolled. Stand alone HRA plans, not tied to a health plan, can begin
paying tax free benefits for these children today.

Your health FSA plan can now provide tax free benefits for these children today. At www.
hfsbenefits.com, we have a communication piece for your distribution to Health Care FSA
participants.

How do you amend your Plan(s)?

We have provided amendments at www.hfsbenefits.com for our clients that have a Section
125 Premium Plan, a Health Care FSA, and/or HRA. In order for the participants to take
advantage of this new benefit you will need to sign the amendments and save them in your
files with your existing Plan Documents. You do not need to sign or return the Amendments
to HFS. No action is required if you offer an HSA as the change automatically applies to
HSAs. HSA account holders can be reimbursed for services for claims with service dates
on or after March 30, 2010.

Can an employee change their election(s)?

For the Health Care FSA Plan, the IRS will allow election changes for any participant who
wants to increase their health FSA election due to this new benefit. In order for the election
change to be valid, the participant has to have a child under the age of 27 whose claims
could not be submitted to the Plan prior to this extension of coverage. If HFS prepared your
Health Care FSA Plan Document, it is written in a manner that allows all election changes
permitted by the IRS.

PLEASE STAY TUNED IN FOR COMING DETAILS ON
THE NEW HEALTH REFORM AND WHAT IT MEANS
FOR YOU AND YOUR EMPLOYEES......SEE THE
ADDRESS BELOW TO THE GOVERNMENT'S
OFFICIAL HEALTH REFORM WEBSITE

http://www.healthreform.gov/

Please don't hesitate to call our office with any
questions 410-771-4600.

Key Health Reform Provisions That Take Effect
Immediately:

SMALL BUSINESS TAX CREDITS—Offers tax credits to small businesses to make employee
coverage more affordable. Tax credits of up to 35 percent of premiums will be available to
firms that choose to offer coverage. Effective beginning calendar year 2010. (Beginning in
2014, the small business tax credits will cover 50 percent of premiums.)

NO DISCRIMINATION AGAINST CHILDREN WITH PRE-EXISTING CONDITIONS—Prohibits new
health plans in all markets plus grandfathered group health plans from denying coverage to
children with pre-existing conditions. Effective 6 months after enactment. (Beginning in 2014,
this prohibition would apply to all persons.)

HELP FOR UNINSURED AMERICANS WITH PRE-EXISTING CONDITIONS UNTIL EXCHANGE IS
AVAILABLE (INTERIM HIGH‐RISK POOL)—Provides access to affordable insurance for
Americans who are uninsured because of a pre-existing condition through a temporary
subsidized high‐risk pool. Effective in 2010.

ENDS RESCISSIONS—Bans insurance companies from dropping people from coverage when
they get sick. Effective 6 months after enactment.

BEGINS TO CLOSE THE MEDICARE PART D DONUT HOLE—Provides a $250 rebate to Medicare
beneficiaries who hit the donut hole in 2010. Effective for calendar year 2010. (Beginning in
2011, institutes a 50% discount on prescription drugs in the donut hole; also completely closes
the donut hole by 2020.)

FREE PREVENTIVE CARE UNDER MEDICARE—Eliminates co‐payments for preventive services
and exempts preventive services from deductibles under the Medicare program. Effective
beginning January 1, 2011.

EXTENDS COVERAGE FOR YOUNG PEOPLE UP TO 26TH BIRTHDAY THROUGH PARENTS’
INSURANCE—Requires new health plans and certain grandfathered plans to allow young people
up to their 26th birthday to remain on their parents’ insurance policy, at the parents’ choice.
Effective 6 months after enactment.

HELP FOR EARLY RETIREES—Creates a temporary re‐insurance program (until the Exchanges
are available) to help offset the costs of expensive premiums for employers and retirees for
health benefits for retirees age 55‐64. Effective in 2010.

BANS LIFETIME LIMITS ON COVERAGE—Prohibits health insurance companies from placing
lifetime caps on coverage. Effective 6 months after enactment.

BANS RESTRICTIVE ANNUAL LIMITS ON COVERAGE—Tightly restricts the use of annual limits to
ensure access to needed care in all new plans and grandfathered group health plans. These
tight restrictions will be defined by HHS. Effective 6 months after enactment. (Beginning in
2014, the use of any annual limits would be prohibited for all new plans and grandfathered group
health plans.)

FREE PREVENTIVE CARE UNDER NEW PRIVATE PLANS—Requires new private plans to cover
preventive services with no co‐payments and with preventive services being exempt from
deductibles. Effective 6 months after enactment.

NEW, INDEPENDENT APPEALS PROCESS—Ensures consumers in new plans have access to an
effective internal and external appeals process to appeal decisions by their health insurance
plan. Effective 6 months after enactment.

ENSURES VALUE FOR PREMIUM PAYMENTS—Requires plans in the individual and small group
market to spend 80 percent of premium dollars on medical services, and plans in the large
group market to spend 85 percent. Insurers that do not meet these thresholds must provide
rebates to policyholders. Effective on January 1, 2011.

COMMUNITY HEALTH CENTERS—Increases funding for Community Health Centers to allow for
nearly a doubling of the number of patients seen by the centers over the next 5 years. Effective
beginning in fiscal year 2011.

INCREASES THE NUMBER OF PRIMARY CARE PRACTITIONERS—Provides new investments to
increase the number of primary care practitioners, including doctors, nurses, nurse
practitioners, and physician assistants. Effective beginning in fiscal year 2011.

PROHIBITS DISCRIMINATION BASED ON SALARY—Prohibits new group health plans from
establishing any eligibility rules for health care coverage that have the effect of discriminating in
favor of higher wage employees. Effective 6 months after enactment.

HEALTH INSURANCE CONSUMER INFORMATION—Provides aid to states in establishing offices of
health insurance consumer assistance in order to help individuals with the filing of complaints
and appeals. Effective beginning in fiscal year 2010.

HOLDS INSURANCE COMPANIES ACCOUNTABLE FOR UNREASONABLE RATE HIKES—Creates a
grant program to support States in requiring health insurance companies to submit justification
for all requested premium increases, and insurance companies with excessive or unjustified
premium exchanges may not be able to participate in the new Health Insurance Exchanges.
Starting in plan year 2011.