PORTFOLIO

Medical Plans — COBRA, HIPAA, HRAs, HSAs and Disability (Portfolio 389)

Tax Management Portfolio, Medical Plans — COBRA, HIPAA, HRAs, HSAs and Disability, No. 389-5th, analyzes the requirements of §§104, 105, 106, 220, 223, 401(h), 420, 4980B, 4980D, 7702B, 9801 through 9803, and 9831 through 9834. It examines the exclusions from gross income provided by §104 for workers’ compensation and other statutory benefits, accident and health insurance benefits not financed by an employer, and damages for personal injuries; the exclusion provided under §105 for employer-financed sickness and personal injury benefits; the exclusion provided by §106 for employer-financed coverage; and the health care continuation rules under §4980B (i.e., “COBRA”).

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DESCRIPTION

Tax Management Portfolio, Medical Plans — COBRA, HIPAA, HRAs, HSAs and Disability, No. 389-5th, analyzes the requirements of §§104, 105, 106, 220, 223, 401(h), 420, 4980B, 4980D, 7702B, 9801 through 9803, and 9831 through 9834. It examines the exclusions from gross income provided by §104 for workers’ compensation and other statutory benefits, accident and health insurance benefits not financed by an employer, and damages for personal injuries; the exclusion provided under §105 for employer-financed sickness and personal injury benefits; the exclusion provided by §106 for employer-financed coverage; and the health care continuation rules under §4980B (i.e., “COBRA”).
Included are analyses of the use of pension plan assets to provide retiree medical benefits under §§401(h) and 420. The Portfolio also describes the provisions of the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), including the privacy standards for protected health information; the rules governing Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs); the treatment of long-term care insurance as amounts provided under an accident or health plan; and the application and enforcement of the group health plan portability, access, and renewability requirements. The federal legislation mandating certain benefits and mental health coverage parity also is covered.
In addition, this Portfolio discusses the requirements of ERISA applicable to welfare benefit plans, including qualified medical child support orders, and the impact of federal employment discrimination and medical and family leave legislation.


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AUTHORS

GRETA E. COWART
Greta E. Cowart, Indiana University Kelly School of Business (B.S. 1982), Indiana University Maurer School of Law (J.D. 1985).

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

II. Statutory and Nonemployer Financed Benefits

Introductory Material

A. Workers’ Compensation Act Benefits

B. Damages for Personal Injuries

1. Prior Law

2. Interpretive Authority

C. Accident and Health Benefits Not Financed by an Employer

1. In General

2. Self-employed Individuals

D. Military and Certain Other Federal Disability Benefits

1. Persons in Service Before September 25, 1975

2. Persons in Service After September 24, 1975

3. Disability from Foreign Terrorist Attack

III. Employer-Financed Sickness and Personal Injury Benefits

A. In General

B. Medical Benefits

1. In General

2. Self-Insured Plans

a. Discrimination in Eligibility

b. Discrimination in Benefits

c. Excess Reimbursements

d. Health Reimbursement Arrangements

3. Medical Care

a. Definition

b. Dependents

C. Permanent Injury Payments

D. Disability Retirement Benefits

E. Plan Requirement

1. Existence of Plan

2. Sickness or Injury Benefits

a. Employee Election

b. Pension and Profit-Sharing Plans

c. Other Employee Plans

3. Plan for Employees

F. Funding

1. VEBAs

2. The 401(h) Account

a. Contribution and Other Limits

b. Use of Excess Pension Plan Assets

G. Withholding

IV. Employer-Provided Accident and Health Coverage

A. In General

B. Who Is a Dependent?

C. Taxability of Benefits

D. Reimbursements

E. Partners and S Corp. Shareholders

V. Employer Deductions

A. General Rule

1. Common Law Employees

2. Self-employed Individuals

B. Contributions to a Fund

VI. Treatment of Long-Term Care Insurance as Provided Under an Accident and Health Plan

A. General

B. Tax Attributes of a Qualified Long-Term Care Contract

C. Requirements for Qualified Status

D. Effective Date

E. Reporting Requirements

F. Consumer Protection Requirements

VII. Elective Continuation of Medical Coverage (COBRA)

Introductory Material

A. Scope of COBRA

1. Plans Affected

a. Group Health Plans

b. Flexible Spending Account Exemption

c. Small Employer Exemption

d. Other Exemptions

e. Identification of Multiple Plans

f. Plan Year

2. Qualifying Events

a. Statutory Categories

b. Loss of Coverage

c. Termination or Reduction in Hours

d. Gross Misconduct

3. Qualified Beneficiaries and Covered Employees

4. Effect of Family and Medical Leave Act on COBRA Coverage

a. In General

b. Occurrence of Qualifying Event

c. Other Rules

B. Procedural Requirements

1. Notices

a. Notice to Employees and Spouses

b. Notice by Employer to Plan Administrator

c. Notice by Employees/Qualified Beneficiaries

d. Notice by Disabled Qualified Beneficiaries

e. Method of Giving Notice

2. Election of Coverage Continuation

a. Election Period

b. Initial Premium

c. Incompetent Qualified Beneficiary

d. Waiver of COBRA Rights

C. Benefits Provided

1. Type of Coverage

a. Similarly Situated Non-COBRA Beneficiaries

b. Deductibles and Coinsurance; Benefit Limits

c. Multiemployer Plan Withdrawal

d. Special Privileges

e. Business Reorganizations

2. Duration of COBRA Coverage

a. In General

b. For Disabled Qualified Beneficiaries

c. For Military

d. Extension Because of Second Qualifying Event

e. Trade Adjustment Assistance Election

f. Early Termination

3. Payment of Premiums

a. Applicable Premium

b. Special Rule for Self-Insured Plans

c. Premium Based on Similarly Situated Beneficiaries

d. Method of Payment

e. Health Coverage Tax Credit

D. Penalties

1. Excise Taxes

a. Determination of Amount

b. Persons Liable

c. Correction of Violations

2. Plan Administrator Fine

3. Other Sanctions

E. State Statutes

F. Temporary COBRA Premium Subsidy

1. Eligible Individuals and Special Enrollment Rights

a. Individuals Who Previously Elected COBRA

b. Individuals Who Did Not Previously Elect COBRA

c. Income Restrictions

2. Affected Employers and Eligible Coverage

3. Notice Requirements

a. General Notice Requirements

b. Notice of Extended Election Periods

c. Qualified Beneficiaries Required to Provide Notice to Employers

VIII. HIPAA: Group Health Plan Portability, Access and Renewability Requirements

A. Background

1. In General

2. Regulations

B. Scope of Act

1. Plans Affected

a. Group Health Plans

b. Exemptions for Small Plans

c. Other Exemptions

d. Self-employed Individuals

2. Effective Dates

C. Pre-existing Condition Exclusion Limitations

1. In General

2. Creditable Coverage

a. Definition

b. Method of Crediting Coverage

c. Certification of Creditable Coverage

3. Prohibition of Certain Pre-existing Condition Exclusions

D. Special Enrollment Periods

1. Individuals Losing Other Coverage

2. Dependent Beneficiaries

E. Prohibition Against Discrimination

1. Discrimination Based on Health Factors

2. Exception for Grandfathered Church Plans

3. Wellness Programs

4. Genetic Nondiscrimination in Health Insurance

F. Guaranteed Renewability in Multiemployer Plans and MEWAs

G. Enforcement

1. Excise Taxes

a. Liability

b. Determination of Amount

c. Persons Liable

2. ERISA Remedies

H. Privacy

1. Application to Health Care Plans

a. Group Health Plan with Benefits Provided Solely Through an Insurance Contract or Through an HMO; Plan Has Limited PHI and Discloses Limited PHI to Sponsor

b. Group Health Plan with Benefits Provided Solely Through an Insurance Contract or Through an HMO; Plan Has More Extensive PHI but Discloses Limited PHI to Sponsor

c. Group Health Plan with Benefits Provided Solely Through an Insurance Contract with Insurer or Through an HMO; Plan Has More Extensive PHI and Permits More Extensive Disclosure to Sponsor

d. Group Health Plans with Benefits Self-Insured by the Plan Sponsor

e. Types of Plans

2. Obligations of Plan Sponsor

a. Employment Records

b. Administrative Requirements

c. Protection of Health Information

d. Business Associates

3. Rights of Participants

a. Notice of Rights

b. Protected Health Information

c. Authorization

4. Remedies

5. Effective Dates

IX. Federal Regulation of Medical Benefits

Introductory Material

A. Mandatory Minimum Hospital Length of Stay for Mothers and Newborns

1. Federal Law Standard

2. Preemption by State Law

3. Enforcement

B. Parity in Mental Health Benefits

1. Lifetime and Annual Limits

2. Exemptions

a. Small Employer Exemption

b. Cost Exemption

(1) Plan Years Beginning On or Before October 3, 2009

(2) Plan Years Beginning After October 3, 2009

3. Penalties and Enforcement

4. Effective and Sunset Dates

C. Reconstructive Surgery Following Mastectomy

1. Covered Entities

2. Notice to Covered Persons

3. Enforcement

D. Coverage of Dependent Students on Medically Necessary Leave of Absence

X. Medicare Secondary Payer Rules

Introductory Material

A. Basic Rules

1. Working Aged

2. Disability

B. Enforcement

1. Action by CMS

2. Excise Tax

3. Other Enforcement Provisions

4. CMS Regulations

XI. Health Savings Accounts

A. In General

B. Eligible Individuals Under HSA Rules

1. Permitted Coverage

a. Permitted Insurance

b. Health FSA Grace Period Coverage

2. Noneligible Individuals-Medicare

C. Deductibility of HSA Contributions

1. Rollover Contributions

a. IRA Rollovers

b. Health FSA and HRA Rollovers

2. Maximum Deductible Amount

3. Excise Tax

D. HSA Comparability Requirement

E. High Deductible Health Plan

F. Taxation of Distributions

G. Establishing and Maintaining HSAs

1. Institutional Trustee or Custodian

2. Reporting by Trustees and Custodians

3. Prohibited Tax Shelter Transactions

H. Applicability of ERISA to HSAs

I. Employer Contributions

XII. Medical Savings Accounts (Archer MSAs)

A. In General

B. Eligible Employees and Employers

C. Deductibility of Archer MSA Contributions

D. Comparability Requirement for Archer MSAs

E. High Deductible Plan for Archer MSAs

F. Taxation of Distributions for Archer MSAs

G. Maintaining Archer MSAs

1. Institutional Trustee or Custodian

2. Reporting by Trustees and Custodians

H. Medicare Advantage MSAs

XIII. Compliance with ERISA

Introductory Material

A. Scope of Coverage

B. Reporting and Disclosure

1. Annual Report

2. Summary Annual Report

3. Summary Plan Description

4. Summary of Material Modifications

5. Access to Plan Documents

6. Exemptions

7. Enforcement

C. Fiduciary Standards

1. Duties of Fiduciaries

2. Prohibited Transactions

3. Fidelity Bonding

D. Plan Requirements

1. Documentation

2. Trust Fund

3. Claims Procedure

a. Disclosure Requirements

b. Time Limits for Processing Claims

(1) Medical Claims

(2) Disability Claims

(3) Appeal of Denied Claims

(4) State Law Claim Procedures

E. Preemption of State Law

1. Scope

a. State Health Care Reform

b. Insurance Exception

2. Status of Business Owners

F. State Court Domestic Relations Orders

1. Assignment of Benefits to Relative

2. Qualified Medical Child Support Orders

a. Characteristics

b. Required State Legislation

c. Notice Requirements

d. Impact on Plan

G. Retiree Medical Benefits

1. Analysis of Plan Documents

2. Collectively Bargained Plans

3. Noncollectively Bargained Plans

a. Plan Documents

b. Different Classes

XIV. Compliance with Other Laws

A. Age Discrimination

B. Pregnancy Discrimination

C. Disability Discrimination

D. Family and Medical Leave Act

E. Military Service

F. Bankruptcy Code and Retiree Medical Benefits

G. State Laws

XV. MEWAs

A. Purpose

B. Effect of State Regulation

1. Application of State Law

2. Collective Bargaining Exemption

3. Definition of ERISA Plan

C. Special Reporting Requirement


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Model Medical Expense Reimbursement Plan

Worksheet 2 Multiple Employer Welfare Arrangements Under ERISA: A Guide to Federal and State Regulation

Worksheet 3 Model Notice of COBRA Continuation Rights

Worksheet 4 Model COBRA Continuation Coverage Election Notice

Worksheet 5 Health Savings Accounts: A New Option for Consumer-Directed Health Plans

Worksheet 6 Choosing a New Health Plan Design? Differences Among HRAs, HSAs and FSAs Beyond the Basics

Worksheet 7 Model Health Savings Account

Worksheet 8 Model Health Reimbursement Account

Worksheet 9 Pension Protection Act of 2006: Summary of Provisions Affecting Health and Long-Term Care Plans

Worksheet 10 Department of Labor Field Assistance Bulletin 2008-02

Bibliography

OFFICIAL

Statutes:

Regulations:

Treasury Rulings:

Cases:

UNOFFICIAL

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