Frequently Asked Questions about Health Insurance Proposal
1. What is the Connecting Council proposing? The Connecting Council is recommending to the lay and clergy members of the Annual Conference that we discontinue our Conference health insurance plan for clergy appointed to local churches and enrolled lay employees. Those persons would receive a health insurance allowance and would then be required to purchase their own insurance in whatever way is best for them. 2. What was proposed by the Pension and Health Benefits Team? The Great Plains Conference Pensions and Health Benefits Team considered five alternatives, and after lengthy discussion approved the following by unanimous vote: Double the traditional in‐network deductible from $1,000/$2,000 to $2,000/$4,000. Double the traditional out‐of‐network deductible from $2,000/$4,000 to $4,000/$8,000. Double the HDHP in‐network deductible from $2,000/$4,000 to $4,000/$8,000. Double the HDHP out‐of‐network deductible from $4,000/$8,000 to $8,000/$16,000. Cover 100% after deductible for HDHP. H.S.A. funding from Board reserves remain the same as 2014. H.S.A. funding from church remain the same as 2014. Move the 17 incapacitated members to One Exchange of a Medicare Supplement when possible. The monthly cost of that policy to the conference would be the following: Traditional PPO Plan $2000 individual/$4000 family deductible ‐ Maximum out of pocket cost $12,000 Employee Only $830.05 Employee & Spouse $1,664.45 Employee & Child(ren) $1,581.01 Employee & Family $2,665.70 High Deductible Health Plan $4000 individual/$8000 family deductible ‐ Maximum out of pocket cost $8,000 Employee Only $718.17 Employee & Spouse $1,438.79 Employee & Child(ren) $1,366.74 Employee & Family $2,303.56 However the conference has not billed each church the exact cost of their pastor’s policy. Rather we have adopted a “blended” or average rate to pay a portion of the cost. In 2015 that amount would need to rise to $17,196 annually. In addition clergy would contribute an amount equal to 3.5% of their base salary. The Pension and Health Benefits Team also agreed to subsidize the health insurance program with approximately $1.25 million of their reserves (basically exhausting the health insurance reserves). 3. Why are these increases required of us? Our insurance carrier (Cigna) has paid out more in claims than they have received in premiums so far this year. Our claims have been significantly higher than in the past. For many months claims have been 120% or more of premiums. 4. Did the Pension and Health Benefits Team have any expert assistance is researching insurance options? The Conference Pension and Health Benefits Team used an insurance broker whose job it is to find the best alternatives for us. Because our claims record is so bad, they could find only one carrier willing to bid on our contract.5. Were any other options considered? As news spread of the increased costs to the church and increased deductibles to the clergy persons, laity and clergy began contacting conference leadership strongly urging us to investigate a system whereby clergy could shop for their own insurance with the possibility of lower premiums and lower deductibles. After an investigation of this possibility (including contacting other Annual Conferences that have already moved in this direction) a second proposal was brought to the Connecting Council. After examining both alternatives at their meeting on October 3‐4 that group brings the recommendation to end our group health insurance plan for all local church pastors. Local church pastors serving ¾ and full‐time would receive a “health care allowance” of $14,232 (freezing costs to the church at 2014 levels) and would be free to find their own health insurance through exchanges, private companies or spouse coverage. Should this recommendation be approved by Annual Conference members we will contract with the Lockton company to provide assistance to individuals in finding the best possible health insurance coverage either on or off the exchanges. This service is at no cost to the conference or the individual using the service. Lockton will receive a commission from whatever insurance company an individual chooses. 6. Aren’t there penalties under the Affordable Care Act for corporations/businesses that end group insurance? Yes, but the General Board of Pension and Health Benefits has received a ruling that, since local churches pay their pastors and provide the W‐2 at year‐end, they are free to be outside of group insurance without penalty as long as that church has 50 or fewer full‐time equivalent employees. That does mean that conference staff including district superintendents must remain on group health insurance since the conference itself has more than 50 employees. Clergy serving any church with more than 50 full‐time‐equivalent employees must, by law, continue to be covered by group health insurance plans as well and are therefore not required to provide the health care allowance. We believe there is only one such church in the Great Plains Conference. If the recommendation of the Connecting Council is approved then the conference will bid and obtain health insurance for conference staff only. 7. What are the implications of our pastors going on the Affordable Care Act’s insurance exchange? 1) It is not clear if they will qualify for ACA subsidies in 2015 because of a technicality in the law which may prohibit participants in states that do not have a state‐run exchange from receiving federal subsidies. We expect the Supreme Court to rule next spring on that matter. The exchange may indicate a person qualifies but it is possible the Court will invalidate that portion of the law. No one should assume that to be available as they consider this option. 2) Further, if a local church gives the pastor $14,232 to purchase health insurance that is taxable income. If the pastor pays FICA on that income at 13.3% and then 15% federal tax and then 4.5% state tax, she has about $10,000 after‐tax to purchase insurance. Pastors will no longer have 3.5% withheld from base salary for their portion of health premiums. That money also becomes available to assist with an increase in taxes and/or to pay for health insurance. (Obviously, clergy in different tax brackets will experience different results). It is possible to appropriately shelter a portion of the health allowance from tax. Pastors may offset Schedule C income (such things as wedding and funeral honoraria) with the amount paid for health insurance and any additional outlay for medical whether insurance premiums, co‐pays, or deductibles can become an itemized deduction thus sheltering an additional portion of the allowance. It is important to also take into account that, should the pastor buy a health insurance plan with a deductible lower than $8,000 for a family, those savings are also available to assist with these other costs. 3) Finally, the health care allowance increases the base compensation on which pension is figured according to rules in the Book of Discipline. Therefore, a health care allowance of $14,232 will cause an increase in the pension bill of $1,423 per year (still much less than a $3,000 increase in health insurance should we stay with traditional group health insurance). 8. What happens to our sickest clergy who are experiencing high medical bills? Under the Affordable Care Act no one can be denied insurance when purchasing through the exchange. Additionally, pre‐existing conditions cannot be excluded in policies purchased there and a person’s health condition cannot affect rates for policies purchased there.
9. What happens to my Health Savings Account if we drop group health insurance? The account belongs to you and will not go away if we drop group health insurance. However, if you are not on a high deductible health insurance plan in 2015 you cannot add more money to the account. You may continue to draw on to pay health bills until the balance is used up. 10. Will there be any High Deductible Plans offered on the exchange? Lockton assures us there are such options on the exchange and that contributions to a health savings account can be done on an after tax basis and deducted on form 1040 if one purchases such a policy. 11. Can a person who is a citizen of another country working legally under a Religious Worker visa buy insurance on the exchange? Yes they may. 12. What policies are offered on the exchange in our two states and what are the rates for those policies? Policies and rates for 2015 are just now being loaded into the exchange websites. Two websites can be instructive for you. One is www.healthcare.gov which is the site where persons will ultimately shop for health insurance if they wish to buy through the exchange. You are free to explore that now. Additionally anyone can go to www.ehealthinsurance.com to explore rates and policies available on the exchange without having to go through the motions of starting an application process on the exchange itself. In addition, for Kansans, the Kansas Health Institute has done a great deal of research which can be found at
http://www.khi.org/news/2013/nov/12/health‐insurance‐costs‐kansas‐marketplace/ . Kansans may also go to http://insureks.org/rates.php for even greater detail. While the state of Nebraska has not had quite this level of detail available, we have been able to obtain a document that enables Nebraskans to view all policies and rates for their geographic area. That document is posted on our website along with this document. 13. Are we starting this discussion too late to purchase insurance on the exchange? No, open enrollment on the exchange begins November 15 and goes through February 15, 2015. 14. Will other insurance policies beyond basic health insurance still be offered by the Conference? Yes, the Pension and Health Benefits Team will still offer such things as vision, dental, and life insurance that clergy may choose to enroll in. If they do, clergy will pay the full cost of those policies (just as they do today). Additionally the Pension and Health Benefits Team will continue to offer to clergy at no cost access to the Virgin Pulse (formerly known as Virgin Health Miles) program. 15. Who are the members of the Connecting Council that brings this recommendation? The Connecting Council is described in the Plan of Organization which can be found at www.greatplainsumc.org/plan. Its members are listed in the Nominating Committee report near the end of that document. 16. When will more information be available? The Conference will present a webinar on Thursday, Oct. 9 at 7 p.m. CDT (6 p.m. MDT) at www.greatplainsumc.org/livestream. After presenting information, including the Connecting Council’s final decision, leaders will answer email questions sent to info@greatplainsumc.org. 17. How will the health allowance effect retired clergy serving three‐quarter or full‐time? Churches served by retired clergy serving three‐quarter or full‐time currently pay a blended rate for health insurance. The proposal for 2015 still requires such churches to continue paying the same amount in 2015 but now to the pastor as a health allowance. Such pastors can use it to pay premiums for Medicare parts A, B and D, as well as for a Medicare supplement policy. They, too, would have to pay additional taxes out of the allowance just like active clergy.
18. What about health insurance for lay staff of local churches? 1) Those currently insured thru the GP Conference group health insurance: a. If the vote results in a discontinuance of group health insurance for clergy then these lay staff will also need to find insurance elsewhere. Churches have at least two options. i. Shop for group insurance for your church’s lay staff. That can be thru an insurance agent or there is a small business section on the exchange that has been used successfully to obtain such insurance in 2014 by at least one of our congregations. ii. Or a church may do as the conference is considering which is to provide an allowance to each lay staff member and allow them shop for insurance wherever they like. 2) Those currently not insured thru the GP Conference group health insurance: a. These churches are free to establish such benefits for their lay staff any time they so choose. They can provide an allowance or shop for group insurance as described above. 19. What if I need a “Letter of creditable coverage” to obtain insurance for 2015? If our group insurance is dropped effective Dec. 31, 2013 then our carrier will provide these letters to persons who have been covered thru our group insurance. Some choices that our folk might make for the purchasing of insurance may require such a letter to be provided. Carol Fusaro, Senior Benefits Officer, will work with our carrier to make sure this happens in a timely way. This should not be necessary if you buy a policy on the exchange or even privately. It will most likely be necessary if a clergy person decides to be added to their spouse’s coverage thru that person’s employment. 20. Are subsidies available when I purchase insurance on the exchange? Currently the exchanges in Kansas and Nebraska will indicate that, based on family income, some clergy may qualify for subsidies as they purchase insurance on the exchange. However, there are a number of court cases pending, specifically around subsidies for persons in states (like Nebraska and Kansas) that use the federal exchange instead of creating their own state‐run exchange. We understand that the Supreme Court may take up this issue this session with a possible hearing in February and a decision no earlier than next May or June. If they hold to the letter of the ACA then subsidies in states like Kansas and Nebraska may not hold up. If they believe the intent of Congress was to cover all 50 states regardless of the type of exchange the subsidies may be ruled legal and therefore continue. We do not know the outcome of that so persons should shop not expecting to receive the subsidy the exchange promises. If the court rules in our favor that, of course, would be welcome news to our lowest income clergy. 21. I understand that when I purchase insurance I will have to pay my first month’s premium prior to first receiving a portion of the new health care allowance? What help is there if I struggle to afford that? 1) Some persons currently have an HSA account. At any time you can work with Benefit staff to lower or even end your contribution to that account to free up money to use to make that first premium payment. 2) Your current HSA account can be used to pay for premiums other than a group plan (so, they can be used for Cobra, Medicare and Exchange plans). 3) If that is not an option for you or acting on that does not free up sufficient money and you find it difficult or impossible to come up with the necessary funds talk with your DS. 22. Do people shopping for insurance off the Exchange have any protection afforded them by the Affordable Care Act? Please note that Gary Beach answered this question differently in the Oct. 9 webcast. This is an updated response. The short answer to the question, is yes, the “market reforms” in the Affordable Care Act (ACA) apply to individual insurance policies and plans sold by any commercial insurance company (issuer) whether the policy
is sold through an ACA Exchange (Marketplace) or in the private individual insurance market (off‐Exchange). The ACA Market Reforms, e.g., prohibition on pre‐existing conditions, prohibition on rescissions, guaranteed issue and guaranteed renewal (i.e., no medical underwriting or cancellation for claims), nondiscrimination due to health status, and community premium rating (age rating restrictions), all apply fully to any individual policy of insurance issued on or after Jan. 1, 2014. That goes for Marketplace qualified health plans as well as individual plans off‐Exchange. Only “grandfathered” plans, that were in place (covering someone) on March 23, 2010, would be exempt from some of these requirements. There are very few of those left, and none can be issued to a new subscriber. Moreover, the issuers who sell in both markets, on the Marketplace and in the off‐Exchange individual market, have to combine those two populations as one risk pool for premium rating purposes. So, if an individual busy an off‐Exchange plan from an issuer that also sells on the Marketplace, he or she benefits from that same large risk pool. The other ACA reforms, like coverage of essential health benefits, preventives services with cost‐sharing and appeals protections also apply to individual insurance policies purchased off‐Exchange. 23. What if I am in Kansas in January and then get appointed to Nebraska in July (or the reverse)? What happens to my insurance? It is our broker’s understanding that moving will be considered a qualifying event. Therefore, the individual will be eligible to purchase new coverage through the Exchange/Marketplace for the new state in which they reside. The individual should ultimately call their insurance provider, or the Lockton Marketplace to confirm the best way to proceed if and when they move. 24. What does the General Board of Pension and Health Benefits have to say about tax liability? Anyone with questions about the taxability of premiums paid for individual insurance plans bought through an Affordable Care Act (ACA) Marketplace or off‐Marketplace in the private market should carefully review IRS Notice 2013‐54 (http://www.irs.gov/pub/irs‐drop/n‐13‐54.pdf). The following information should not be construed as legal advice, but as information and analysis of the applicable guidance under the ACA. Cafeteria Plans/Premium Only Plans (POPs) Premiums for coverage elected through the ACA Marketplace or a state‐based exchange cannot be paid for or reimbursed through an employer’s Cafeteria (Section 125) plan. Cafeteria plans include “premium‐only” plans (POPs). POPs cannot reimburse employees or allow employees to pay on a pre‐tax basis for premiums for individual health insurance plans purchased in the ACA Marketplaces. It is unclear whether premiums for individual health insurance plans purchased in the private market (outside of the ACA Marketplaces) can be paid on a tax‐advantaged basis through a premium‐only plan. Effective January 1, 2014, employees are not permitted to pay for ACA Marketplace individual insurance on a pre‐tax basis through their employer’s Cafeteria Plan or POP. The ACA amended the Code so that Marketplace‐based individual coverage (whether or not a premium tax credit is claimed) may not be offered as a “qualified benefit” subject to the preferential tax treatment of Code Section 125. This is a statutory change, and appears to be very clear. The ACA amended Section 125 to prohibit any ACA Marketplace plan from being a qualified benefit under a cafeteria plan. Notice 2013‐54 prohibits Employer Payment Plans (employers directly paying for individual insurance plans or reimbursing employees for the premiums for such plans with nontaxable employer dollars) used for
purchasing individual insurance. What is less clear, however, is whether employers are allowed to offer a POP where the employer does not sponsor a group health plan but sponsors only a Section 125 Plan for purposes of allowing an employee to pay for an individual health insurance policy (off‐Marketplace only) on a pre‐tax basis through salary reduction. The tricky part is that for federal tax purposes, the amounts that are reduced from salary via a Code Section 125 plan (including a POP) are generally treated legally as “employer contributions.” The IRS could view a POP as a type of Employer Payment Plan, and therefore prohibited from being combined with any type if individual insurance policy (even off‐Marketplace). Thus, the question of whether individual health insurance policies purchased outside of the ACA Marketplaces may be paid through a POP remains uncertain yet doubtful. In addition, Church Alliance representatives attended a meeting with IRS and Treasury Department officials on September 9. A few lawyers from the Church Alliance met with these regulators to discuss the issues related to Notice 2013‐54. At the meeting we discussed questions raised in our comment letter to Notice 2013‐54, which you can read here: http://church‐alliance.org/sites/default/files/images/u2/Church‐Alliance‐
Comments‐Notice‐2013‐54.pdf One of those questions (Question #2) was about POPs and individual policies. Though the officials did not give the Church Alliance a direct answer at the meeting, the general feeling attendees got from the regulators’ tone in response to that question was that they were not likely to rule favorably on it in future guidance. To be clear, ACA Marketplace plans cannot be paid through a POP/cafeteria plan of an employer, as a result of a change in Code Section 125 made by the ACA (Section 1515 of the ACA). It appears that the only way for an employer to offer a tax‐favored arrangement for ACA Marketplace coverage is through the SHOP, which applies only to small employers (fewer than 50 full‐time equivalent employees in 2014). Employer can adopt ACA Marketplace plans as their employer plans through the SHOP Exchange in each state. The SHOP Exchanges were a bit less than robust in 2014, but are expanding in many states in 2015. Flexible Spending Accounts (FSAs) Since the ACA’s “Market Reforms” apply to group health plans, they apply to health FSAs under Section 125, which are considered group health plans. However, the ACA included an exception from its Market Reforms if a health FSA is considered an “excepted benefit”. An “excepted benefit” health FSA must meet both of the following requirements: FSA eligible individuals must be eligible for other group health plan coverage through the employer The maximum benefit payable to any participant cannot exceed: o two times the participant’s salary reduction election for the year or o if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election.
Non‐excepted FSAs are no longer permitted as a result of the ACA. They would violate the Market Reforms.
Employers that cover any employees not eligible for other group health plan coverage through the employer
likely are offering a non‐excepted FSA. So, health FSAs can be offered to employees only if those employees also are eligible for the employer’s group health plan. The employee is not required to be enrolled in the group health plan in order to be eligible for the health FSA. This passage is directly from Notice 2013‐54: The Code, ERISA, and the PHS Act impose various requirements on group health plans, but certain of these requirements do not apply to a group health plan in relation to its provision of excepted benefits. Code § 9831(b), ERISA § 732(b), PHS Act §§ 2722(b) and 2763. Although a health FSA is a group health plan within the meaning of Code § 9832(a), ERISA § 733(a), and PHS Act § 2791(a), a health FSA may be considered to provide only excepted benefits if other group health plan coverage not limited to excepted benefits is made available for the year to employees by the employer, but only if the arrangement is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the
arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). 26 C.F.R. §54.9831‐1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. §146.145(c)(3)(v). Individuals not covered in group health plans are no longer meant to be covered in health FSAs. The tax advantage of paying out of pocket costs with pre‐tax dollars through a health FSA is limited to employees covered in employer plans (as that will be part of the Cadillac plan tax calculation down the road in 2018); it is not intended to be available to individuals covered in ACA Marketplace plans (there are cost‐sharing reductions (as second subsidy aside from the premium tax credits for the plan itself) in some Marketplace plans based on lower incomes, and this rule prevents double‐dipping tax benefits. And it appears to be prohibited for individuals in off‐Marketplace individual plans as well. Consequences The consequence for being on the wrong side of these rules is a substantial excise tax penalty. The Penalties under Code §4980D for violations of ACA Market Reforms (the prohibition on annual limits and the preventive services rule, in these cases) are $100 per day for each affected individual (employee and covered dependents). That comes to $36,500 annually per employee provided a noncompliant plan. These penalties are applicable to the plan sponsor, which in the case of a POP or FSA at the local church level would be the local church. Moreover, a health FSA that violated this rule, i.e., a stand‐alone FSA, would be a non‐excepted FSA, which would be a “group health plan” and would be considered minimum essential coverage (MEC) offered by the employer (the local church). As such the FSA would be subject to the new reporting requirement under Code Section 6055. Code Section 6055 requires, beginning with 2015 calendar year coverage, that all plan sponsors of MEC report the MEC offered and the lives covered by it (the employee and dependents covered) to the IRS by January 31, 2016 on a Form 1095‐B (one copy for each covered participant to the IRS and a copy to each covered participant). And, naturally, there are penalties associated with failing to report MEC to the IRS under Section 6055, similar to those associated with failures to report wages in a W‐2. It appears that some organizations offer an “audit guarantee”, so that if the IRS investigates the plan the provider will defend the plan sponsor and pay the penalties. Though we cannot render legal advice, plan sponsors/employers should be wary of these representations unless expressly in a written contract. The penalties are assessed on the plan sponsor (i.e., the employer), under the ACA and its regulations. The IRS will levy the penalty on the plan sponsor, i.e., the local church, up to $36,500 annually. The service provider would then have to indemnify the church, and if the services provider didn’t step up, the church would have to sue them and hope the contract holds up. Any such representation should be scrutinized to ensure that the service provider agrees to pay any penalties assessed under the Code, ACA or HIPAA, specifically including the Section 4980D penalties and any penalties for failing to report any POP or FSA as MEC if it is deemed to be MEC by the IRS. And that the service provider would pay late fees and interest. In addition, if the violating plan requires correction and re‐characterization of any employer contributions as taxable salary, then the service provider should pay any and all costs associated with that, which may include, withholding costs, penalties for failure to withhold, costs to reissue tax reporting forms and the like. IRS Meeting As mentioned above, Church Alliance representatives met with the IRS on these issues in September. We got the impression that the IRS was aware of aggressive interpretations of Notice 2013‐54 by some brokers and consultants. They indicated that they did not agree with the interpretation that many of these groups had taken in trying to read narrow exceptions into the guidance, i.e., trying to find ways to pay for individual coverage on a non‐taxable or pre‐tax basis. The IRS is aware of the many of these organizations. The officials said that they intend to issue more guidance on these issues soon. The regulators did appear open to one suggestion that an employer plan, even an Employer Payment Plan or
health reimbursement arrangement (HRA), that has only one employee, perhaps a local church with only one clergyperson, could fit a statutory exemption under the Code (Section 9831). However, the IRS could not and would not confirm that either verbally or in writing, only that they found it somewhat persuasive and may consider clarifying that in future additional guidance. Until the IRS expressly states that such an exception works, it would not be prudent to rely on it in the face of the potential penalties. 24. What level of coverage are clergy obliged to get? Clergy will be free to obtain health insurance from whatever source best meets their needs (e.g., insurance exchanges, spouse’s policies, independent companies). Clergy are expected to procure adequate insurance for their needs and will be required to attest that they have done so as part of the annual review and approval of their Clergy Compensation. Adequate insurance is defined as a policy equivalent to the silver level as defined by the Affordable Care Act. Clergy who fail to obtain appropriate insurance will not have recourse to conference funds for medical purposes.
November 7, 2014
