Compliance Q&A: Calculating HRA COBRA rates, Dependent Care FSA Contributions, PCORI Fee Discrepancy
- May 30, 2024
- Posted by: Gus Altuzarra
- Category: Compliance Q&A
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4.18.24 | CALCULATING COBRA HRA RATES
Q. What is the best way to calculate COBRA rates for an HRA?
A. The best way to determine the HRA COBRA rate is for the group to see what the HRA reimbursed on a per employee/family basis for each of the last three years. For example, if the HRA, on average, reimbursed $600 for single employees and $1,200 for families, the monthly COBRA premiums could be set at $50 for single and $100 for family (plus the 2% COBRA surcharge). If the group has access to an actuary (unlikely), they could also work with the actuary to set the COBRA rates. But assuming no free actuarial services are available, I recommend focusing on the historical cost of the HR in setting future COBRA premiums.
A. The best way to determine the HRA COBRA rate is for the group to see what the HRA reimbursed on a per employee/family basis for each of the last three years. For example, if the HRA, on average, reimbursed $600 for single employees and $1,200 for families, the monthly COBRA premiums could be set at $50 for single and $100 for family (plus the 2% COBRA surcharge). If the group has access to an actuary (unlikely), they could also work with the actuary to set the COBRA rates. But assuming no free actuarial services are available, I recommend focusing on the historical cost of the HR in setting future COBRA premiums.
4.25.24 | DEPENDENT CARE FSA CONTRIBUTIONS
Q. Can an employee stop their Dependent Care FSA contributions mid-year as they realized their spouse was contributing as well and they would reach the annual maximum before the end of the year?
A. Yes, the employee can stop dependent care elections mid-year to avoid exceeding the maximum limit. The IRS suggests that the employer obtain some documentation from the employee demonstrating that the spouse also elected to contribute to their DCFSA and that the mid-year change is needed to avoid contributing more than permitted. Note that employers do not have to permit employees to change their elections, but most do.
A. Yes, the employee can stop dependent care elections mid-year to avoid exceeding the maximum limit. The IRS suggests that the employer obtain some documentation from the employee demonstrating that the spouse also elected to contribute to their DCFSA and that the mid-year change is needed to avoid contributing more than permitted. Note that employers do not have to permit employees to change their elections, but most do.
5.2.24 | MEDICARE, SPOUSE EXCLUSIONS
Q. Can an employer exclude Medicare eligible employees (age 65+) or spouses from medical coverage?
A. An employer could only do this if the employer has fewer than 20 employees AND none of the excluded spouses are eligible for Medicare as a result of End Stage Renal Disease (ESRD). If any of the spouses have ESRD, or if the employer has more than 20 employees, this type of exclusion would violate the Medicare Secondary Payer Statute. The group could possibly do a spousal exclusion for ALL spouses, but could not limit it just to Medicare-eligible spouses.
A. An employer could only do this if the employer has fewer than 20 employees AND none of the excluded spouses are eligible for Medicare as a result of End Stage Renal Disease (ESRD). If any of the spouses have ESRD, or if the employer has more than 20 employees, this type of exclusion would violate the Medicare Secondary Payer Statute. The group could possibly do a spousal exclusion for ALL spouses, but could not limit it just to Medicare-eligible spouses.
5.9.24 | PCORI FEE DISCREPANCY
Q. I understand that the PCORI fee for plans that ended in December 2023 is $3.22 (up from $3.00 in 2022). However, the current IRS Form 720 states that the fee should be $3.00 for that period. Should the client pay the $3.22 rate or the $3.00 rate listed on the IRS form?
A. It often takes the IRS many months to update the IRS Form 720s. For plan years ending between October and December 2023, the 2023 PCORI fee is $3.22 and it is due July 2024. If the client is using the current Form 720 for a plan year that ended between October and December 2023, they should use the $3.22 rate regardless of what the form says. Form 720 is a quarterly form, but the PCORI fee only needs to be filed and paid annually by July 31.
A. It often takes the IRS many months to update the IRS Form 720s. For plan years ending between October and December 2023, the 2023 PCORI fee is $3.22 and it is due July 2024. If the client is using the current Form 720 for a plan year that ended between October and December 2023, they should use the $3.22 rate regardless of what the form says. Form 720 is a quarterly form, but the PCORI fee only needs to be filed and paid annually by July 31.
Answers to the Question of the Week are provided by Kutak Rock LLP. Kutak Rock provides general compliance guidance through the UBA Compliance Help Desk, which does not constitute legal advice or create an attorney-client relationship. Please consult your legal advisor for specific legal advice.
