If the last few years were an age of reform, then weve definitely entered a new era a time of compliance. Perhaps the most obvious looming compliance concern is the potential for clients to experience a U.S Department of Labor audit. From financial and benefits experts to the National Association of Health Underwriters government relations team, the industry agrees that there are more auditors in the field knocking on employers doors than seemingly ever before.
I think clients are going to be subject to random tests, says Perry Braun, executive director of Benefit Advisors Network. Today, smaller employers are subject to similar tests [while] larger employers were traditionally a target.
But when EBA anecdotally surveyed its advisory board a benefits lawyer, a large consulting firm and several brokers the worry about a DOL audit was just the tip of the iceberg of compliance issues they brought up as important for advisers to be wary of in the coming year.
Additionally, Joe Torella, president and national practice leader of HUB Internationals employee benefits division, points out that now is not the time to be complacent and the key to becoming a strong broker for your clients means a lot more work and knowledge than it did a few year ago. Brokers need to be super vigilant and a true adviser [needs to ask], Can we manage the risk?
Following are the compliance issues that brokers should have on high alert for themselves and their clients alike:
1) Are the exchanges really working?
While not an overly apparently compliance issue, its very important for brokers to watch the Affordable Care Acts public exchanges quite closely, says Bill Sweetnam, principal at Groom Law Group in Washington. If employee benefit advisers are going to be advising employers about what kind of coverage they should or shouldnt be providing, Id think that a broker would want to understand the details of how the health care exchanges are working to decide whether the employer should continue to provide coverage or not, he says. Its more just for them to know what their marketplace is going to be like.
On Feb. 12, the U.S. Department of Health and Human Services said that 3.3 million people had enrolled in health plans as of Jan. 31 leaving two months for enrollment to reach the Obama administrations goal of 7 million people by the end of March. And while the HHS report shows young adult participants increased 65% from the month before, it still remains to be seen if the exchanges will obtain the right balance of people to make them successful. Also, Republicans have made it clear that they will continue to try to repeal the ACA through a piecemeal strategy, including legislation and multiple hearings and investigations on Capitol Hill on different portions of the law, like the SHOP exchange and the various delays.
2) Employer shared responsibility rules
Judy Bauserman, operations leader of the Washington Resource Group at Mercer, calls this a top issue for 2014. And with the Feb. 10 issuance by the U.S. Department of Treasury and Internal Revenue Service on the final rules, advisers have more work to do than ever on this matter. With over 200 pages of regulations and numerous effective date and phase in periods, advisers will have a lot of information to digest, Groom Law Groups Sweetnam adds. In addition, there is sure to be further guidance that plan sponsors will have to understand. So, my colleagues and I will be very busy trying to advise our clients on ways to address the employer mandate.
Bauserman contends that identifying who your employees are could be a very challenging set of data. So advisers with clients large or small even those that will not have to decide whether to play-or-pay with health coverage until 2016 should be taking advantage of time to get ready. And HUBs Torella thinks there will be tough enforcement in this area moving forward by auditors. While Bauserman agrees, she says that regulators understand that small employers are especially not accustomed to this level of detail of compliance work. Health reform has just become a much more complex animal and there are a lot more opportunities to do things wrong, she says about small groups in particular. The regulators understand that the rules are complicated so hopefully the risk of penalties arent imminent.
Advisers who are looking to start to understand this area can use the recently issued DOL M1 form, which has an attached self-audit guide, Bauserman says.
3) Defined contribution health plans
In September, the DOL issued guidance confirming that health reimbursement accounts cannot be used as standalone health plans. But Grooms Sweetnam says there are some entities saying there are ways around the ruling. There are some companies that are out there saying that they read those and the IRSs regulations very narrowly, and you can still have some type of plan where the employee goes in and purchases individual health insurance and that meets the ACA I dont agree with that at all, he says.
This is a potential compliance landmine for advisers if their client gets wind of one of these companies still trying to offer standalone HRAs and if they push to pursue it as a coverage option. An adviser needs to be armed with the knowledge and literature to inform their clients otherwise.
4) Mental health parity ruling
Bauserman explains that this rule was issued in November and it will take effect for calendar-year plans in 2015. The rule is very consistent with the interim rules in 2009, she says. If [a plan] provides mental health coverage, then you have to provide it in parity with the way medical services are covered. There are two sets of tests, she adds, that have to be applied to a plan that advisers need to be aware of.
5) Tax reform
In late January three Republicans, Sens. Orrin Hatch of Utah, Richard Burr of North Carolina and Tom Coburn of Oklahoma, proposed an alternative to the ACA that would take effect in 2017 and would include a cap on the value of employer-sponsored insurance exempt from federal income tax. This cap is proposed in order to pay for other parts of the plan, like the removal of the individual mandate, which would be replaced with a subsidy for all Americans under a certain percentage of the poverty level. The problem is, there is an interest in Washington for broader tax reform before the next presidential election, which Sweetnam says will be tricky if the one-off tax credit in the ACA proposal continues to be pursued as well.
The employer exclusion is one of the top tax expenditures right now, so if youre looking to do overall tax reform, youd want to look at all the various exclusions and credits and determine on a big-picture basis what way wed want our tax system to work, he explains. But it makes it more difficult when youve pulled out one portion of the tax system and addressed it separately. He adds that, overall tax reform aside, the employer cap could create compliance issues in the years to come, for example with flexible spending accounts and cafeteria plans.
Turn the keys over
As a result of the increase in compliance issues, an advisers role has changed no matter if their book of business lies with larger employers or smaller, according to BANs Braun. A larger employer likely has a significant HR infrastructure, so an adviser will supply ACA advice and recommendations. Whereas a smaller employer may turn the keys over to the broker to do the gap analysis and all other HR tasks, he says.
Brokerages can handle the increased HR needs in a few ways. First, they can outsource it or second, they can develop almost third-party administrator-like capabilities to do billings, communications, plan-policy review, audits, compliance and reporting, Braun explains. In these new roles, advisers will have to explore how they update their own way of charging the client for their work. I think brokerage firms now know they cant keep giving stuff away, he says. Their time is their inventory, the sort of need to balance out a charge-based approach. I think theyre going to feel their way through that process unless they already have an internal way of going to fee-based.
Most of these issues still lead to a potential DOL audit, the larger concern of the year. I think clients and brokerages need to be audit-ready and be efficient so that theyre spending less time in the area of an audit, he says. If youre having to pull resources out of the business to track down documents, that takes time away from your business. Put in the time now, be audit-ready, know where your documents are. What were really talking about is building a system.
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