The Department of Labor’s (DOL’s) Wage and Hour Division has issued an opinion on whether contributions to an employee’s health savings account (HSA) can be considered wages for purposes of garnishment in a Consumer Credit Protection Act (CCPA) legal action. The DOL’s opinion notes that the applicant requesting the letter sought it out of concern that wage garnishments of employees who are receiving HSA contributions may be “withheld in error and in excess of CCPA limits” that define wages that are subject to garnishment to satisfy certain debts.
In Wage and Hour Opinion Letter CCPA2019-1, the DOL ruled that contributions to an employee’s HSA generally would not be considered wages for purposes of garnishment as long as the amount of such contributions does not vary based on “the amount or value of [the] employee’s services” to the employer, and the employee does not have the option to receive the amount in cash instead of as an HSA contribution (as in a 401(k) plan deferral election).
The Department of Labor (DOL), Health and Human Services (HHS), and Internal Revenue Service (IRS) jointly released an FAQ on August 26, 2019, that explain whether health plans should be including drug manufacturers’ coupons in determining the annual cost-sharing limits under the Affordable Care Act (ACA). HHS regulations that announced the 2020 benefit and payment parameters (including the maximum annual cost-sharing limits) indicated that plans and insurers may exclude the value of drug manufacturers’ coupons when determining the annual cost-sharing limits when a medically appropriate generic equivalent is available. This applies for plan years beginning on or after January 1, 2020.
Feedback received following the release of these regulations was that this provision implies that such coupon amounts must be counted toward the annual cost-sharing limit in any other circumstance, and that a requirement like this could lead to a conflict with the certain rules for high deductible health plans (HDHP) and the establishment of health savings accounts (HSA). IRS guidance surrounding HSA’s provide that drug manufacturer coupons would not affect an individual’s HSA eligibility as long as the plan did not apply the value of the coupon towards their deductible.
Since plan sponsors and insurers may not be able to comply with both the impending HHS rules and the existing IRS regulations simultaneously, the agencies jointly intend to address this conflict in the HHS regulations that announce the 2021 benefit and payment parameters. Until then, enforcement action will not be initiated in cases where a health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost sharing, including in circumstances in which there is no medically appropriate generic equivalent available.
Although members of the House of Representatives have officially begun their annual August recess, among bills that have recently been introduced and referred to committee is H.R. 4117, the “IRA Preservation Act of 2019.” Its chief co-sponsors are Reps. Ron Kind (D-WI) and Mike Kelly (R-PA). The bill’s main thrust is expanding the IRS Employee Plans Compliance Resolution System (EPCRS) to cover certain errors under individual retirement plans, and providing for reduced penalties for certain self-corrections.
The bill has been referred to the House Ways and Means Committee. The House of Representatives’ 2019 session resumes on September 9.
Key provisions of H.R. 4117—based on bill text provided by Rep. Kind’s office—include the following.
- Require the Treasury Department to provide public education materials on IRA contribution and deduction limits, rollovers, required minimum distributions (RMDs), prohibited transactions, the 10 percent early distribution excise tax, and common IRA errors.
- Reduce the IRA excess contribution penalty from six percent to three percent if corrected within a specified time window.
- Reduce the penalty for failure to fully distribute an RMD from 50 percent to 10 percent of the undistributed amount if corrected within a specified time window (no reference is made to the existing procedure by which a full waiver of this penalty can be obtained).
- Exempt earnings withdrawn in a timely IRA excess contribution correction from the 10 percent excise tax on early distributions (which generally applies to those under age 59½)
- Eliminate the IRA prohibited transaction (PT) consequence of complete IRA disqualification; H.R. 4117 would apply the same rule to HSA, Archer MSA, and Coverdell ESA PTs.
- Liability for an IRA, HSA, MSA, or ESA PT would be the general 15 percent (primary) and 100 percent (secondary) tax on the PT amount, unless the infraction is a pledging of assets within the account, in which case—while no excise tax—the pledged portion of the account would be deemed distributed and subject to normal taxation consequences.
- A three-year statute of limitations on PT tax liability would apply.
- Expand the IRS’s EPCRS program to allow IRA custodians, trustees, and issuers to self-correct errors “for which the owner of an IRA was not at fault;” to include, “but not limited to,” failure to complete a rollover within 60 days, and allow indirect rollover by a nonspouse beneficiary who had reason to believe that due to service provider error, an indirect rollover was permissible.
- Permit self-correction of “inadvertent” RMD failures in retirement plans (those subject to EPCRS) and IRAs—presuming the existence of practices and procedures designed to prevent such failure—within 180 days; for an IRA owner, “inadvertent” to mean “due to reasonable cause.”
- The effective date, in general, is as of the date of enactment, with transition provisions; the education elements required of the Treasury Department are to occur “as soon as reasonably practicable after the enactment,” but no later than one year following the date of enactment.
The U.S. House of Representatives has overwhelmingly passed the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748), which eliminates the so-called “Cadillac tax” element of the Patient Protection and Affordable Care Act—often referred to simply as the Affordable Care Act, or ACA.
The Cadillac tax was intended to fund certain benefits provided by ACA, and—as some economists claimed it could—exert downward pressure on rising healthcare costs. Application of this tax—40 percent on the value of healthcare benefits exceeding specified thresholds—has been delayed twice by Congress.
The Cadillac tax was to apply to what were claimed to be the most generous and expensive employer-provided healthcare plans. Opponents contended, however, that, in operation, it would have been levied on employer-provided health plans offered to many middle-class workers, and adversely affect employer incentives to offer health benefits. Notably, health benefits included in the calculation to determine application of the Cadillac tax included employer-provided health savings account (HSA) and health reimbursement arrangement (HRA) benefits.
While the 419-6 vote in the House is an indication of broad bipartisan support for repeal of the Cadillac tax, it is unclear at this time when—or whether—the legislation will be taken up in the U.S. Senate in the limited time remaining in the 2019 session of Congress. Repeal cannot occur without the Senate and House passing identical legislation, enacted with President Trump’s signature.
The IRS has issued Notice 2019-45, in which it identifies certain chronic health conditions whose treatments will be considered “preventive.” As a result, such treatments can be covered by a health insurance plan without first meeting the minimum deductibles generally required of high deductible health plans (HDHPs) for health savings account (HSA) contribution eligibility purposes. This guidance is effective July 17, 2019.
This guidance, which is effective July 17, 2019, notes that it is a response to an Executive Order issued by President Trump on June 24, 2019. The President charged the Secretary of the Treasury with the task of issuing guidance that would “expand the ability of patients to select HDHPs that can be used alongside an HSA, and that cover low-cost preventive care before the deductible, that helps maintain health status for individuals with chronic conditions.”
In general, “preventive” care does not include treatment for existing illnesses or conditions. Under current HDHP/HSA rules, treatments of a nonpreventive nature that are covered or reimbursed by a health plan without first satisfying HDHP conditions would generally disqualify a covered individual from HSA contribution eligibility.
Notice 2019-45 identifies the following conditions whose ongoing treatment may now be considered preventive, and, therefore, may be covered by a health plan without first satisfying an HSA-qualifying deductible.
- Congestive heart failure
- Coronary artery disease
- Hypertension (high blood pressure)
- Liver disease
- Bleeding disorders
- Heart disease
The treatments listed for the above conditions include certain inhibitors, therapies, monitors, medications, screenings, tests, and statins, which will be considered preventive expenses for HDHP purposes. Items not listed in Notice 2019-45 will not be considered preventive for HDHP purposes.
The U.S. House of Representatives this week approved legislation to provide appropriations for funding various financial services provided by federal agencies. Added to the bill before its passage was an amendment by House Financial Services Committee Chair Maxine Waters (D-CA) that would block federal funding for administration and enforcement of guidance recently issued by the Securities and Exchange Commission (SEC). The vote was largely along party lines in the Democrat-controlled House.
Targeted by this amendment was the SEC’s recently finalized Regulation Best Interest and accompanying guidance, which provide standards of conduct for broker-dealers in making investment recommendations to retail customers. Elements of the guidance also impact registered investment advisors. In addition to retail investment accounts, the SEC guidance also applies to investment recommendations made for an individual’s own account in an employer-sponsored retirement plan, or an IRA, health savings account (HSA), Archer medical savings account (MSA), IRC Sec. 529 plan, or Coverdell education savings account (ESA).
Rep. Waters and others have criticized the SEC guidance as allegedly being insufficient to protect investor interests. This guidance generally is considered less restrictive than Department of Labor fiduciary investment advice guidance that was vacated by an appeals court in June of 2018.
Because appropriations bills must be identical in House and Senate versions, and there is a Republican majority in the Senate, many feel that de-funding the SEC investment guidance is unlikely to ultimately occur. The Senate has not yet taken up financial services appropriations.
On June 24, 2019, President Trump signed an Executive Order designed to “enhance the ability of patients to choose the healthcare that is best for them.”
The order has multiple directives that touch on different aspects of healthcare. It includes a request for the Department of Health and Human Services to produce a report on steps that the administration may take to eliminate surprise medical billing. It also instructs multiple departments to issue guidance on topics such as increasing price transparency for medical services, and developing rules to expand the use of health savings accounts (HSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs).
The order specifically directs the Secretary of the Treasury to do the following.
- Issue guidance that would permit HSA-compatible high deductible health plans to cover certain costs for individuals with chronic conditions before satisfying the plan deductible
- Propose regulations that would expand eligible medical expenses under Internal Revenue Code Section 213(d) to include direct primary care arrangements and healthcare sharing ministries
- Issue guidance that would increase the permitted FSA carryover amount (currently limited to $500)
The order places deadlines ranging from 120 to 180 days for the Treasury Department to produce the relevant guidance.
Watch Ascensus.com for any further information about this extensive guidance.
The IRS has issued Revenue Procedure (Rev. Proc.) 2019-25, providing inflation-adjusted amounts for health savings accounts (HSAs) for calendar year 2020. Maximum annual HSA contributions will rise from $3,500 to $3,550 for those with self-only insurance coverage, and from $7,000 to $7,100 for those with family coverage. Minimum deductible amounts for qualifying high-deductible health plans will rise from $1,350 to $1,400 for self-only coverage, and from $2,700 to $2,800 for a family plan. Maximum annual out-of-pocket amounts under self-only coverage will rise from $6,750 to $6,900, and from $13,500 to $13,800 for family coverage. IRS Rev. Proc. 2019-25 can be found here.
In a recent USA Today article, president David Musto explains how the triple tax breaks offered by HSAs help fast track retirement savings.”Longer-term advantages, after the age of 65, may include the payment of Medicare premiums and other long-term care expenses. The HSA becomes an important aspect of both solving near-term medical expenses, but also for larger expenses well into retirement with those accumulated earnings,” notes Musto.
In a recent Wealth Management article, Chief Operating Officer Rick Irace comments on the key developments that retirement plan consultants should monitor in 2019. Irace focuses mainly on recent proposals related to multiemployer plans (MEPs) and the convergence of health savings and retirement savings efforts.
“Most recently, the concept of the ‘open MEP,’ in which employers would not be required to have common ownership or business purpose, has gained some serious traction,” notes Irace. “The most recent DOL regulations stop short of permitting ‘open MEPs,’ but they do broaden the definition of an employer. This could be a step in the right direction…,” concludes Irace.