Since the Affordable Care Act (ACA) was passed into law in 2010, employers who offer employee health benefits have absorbed additional costs to provide quality health-care coverage to their employees.

These costs have taken the form of expanded eligibility for adult dependents, routine and preventive services covered at no member cost share for non-grandfathered plans, and removal of lifetime and annual limits on essential benefits. In addition to increased employer-plan costs associated with expanded benefits, ACA also imposed three significant taxes and fees on employer-sponsored health care to further the goals of the health-care reform law.

Employers offering health coverage are subject to the fees annually, but the rates are variable and are determined by eligible membership, among other factors. For 2015, employers will need to be prepared for remitting payment for the Patient Centered Outcomes Research Institute (PCORI) fee, the Transitional Reinsurance Fee, and fully insured plans will continue to feel the impact of the health-insurance tax.

In 2014, ACA’s health-insurance tax went into effect for fully insured health plans. Self-funded group health plans are not subject to the tax, nor are voluntary employee beneficiary associations. Unlike the PCORI and Transitional Reinsurance fees that impose a fixed amount per covered member, the health-insurance tax is defined as a fixed amount of revenue to be collected annually on the entire health-insurance industry.

In 2014, the tax will raise $8 billion. That amount will increase to $14.3 billion in 2018. The total annual amount will be allocated across all insurance carriers in proportion to their market share as measured by total premiums.

While insurance-carrier profits are expected to increase because of increased health-plan enrollment under ACA, the funds needed to pay these annual fees will be incurred through increased costs passed on to policyholders, whether in the form of higher premiums, or possibly higher out-of-pocket costs or reduced benefits. It is projected that in order to accommodate the tax, the average premiums for employees in fully insured, employer-sponsored plans in 2014 have increased by $77 for single coverage and $266 for family coverage. These amounts are expected to increase by 2018 to almost an additional $200 for single coverage and an additional $500 for family coverage. The tax is not deductible relative to federal income.

The Transitional Reinsurance Fee was established under ACA to help fund the high-risk pool that was expected to enroll in ACA’s marketplace exchanges. The fees have been scheduled to be levied on both fully insured and self-funded plans for the 2014, 2015, and 2016 plan years. The fees for 2015 will be reduced to $44 per covered life, from the $63 per-covered-life fee that was implemented in 2014. Under the proposed regulations, about $8.025 billion will be collected for benefit-year 2015.

The final regulations issued by HHS confirm that the fee will be collected in two parts each year. For the 2014 fee of $63 per covered life, the first installment of $52.50 per covered life will be due in January 2015 and the second installment of $10.50 per covered life will be due later in 2015. The first installment will be used to fund reinsurance payments and administrative expenses, while the second installment will be used to fund the Treasury Department’s administrative costs associated with the Early Retiree Reinsurance Program (ERRP) which was established in 2010 and terminated in 2012 when available reimbursement dollars for employers were exhausted.

Insurance carriers will remit payment on behalf of fully insured plans. To accommodate the fee, carriers have factored in the additional cost to their annual premium increases. Self-funded group health plans are responsible for payment of the transitional reinsurance fee; however a third-party administrator (TPA) may remit payment of the plan’s behalf. To issue payment, self-funded plans and insurers should report to HHS the number of covered lives enrolled in major medical coverage by Nov. 15. HHS will then notify self-funded plans and insurers of the final fee amounts due, which must be remitted within 30 days.

ACA has granted an exception to the mandate for 2015 and 2016 for self-insured, self-administered group health plans that do not utilize a TPA for processing medical claims. While only a small number of employers manage a self-funded, self-administered plan, some of those groups eligible for the exception are likely to include collectively bargained multiemployer plans.

PCORI tax
The Patient Centered Outcomes Research Institute was created under ACA in order to research, evaluate, and compare health outcomes, and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services. Employers have been subject to the tax for the past two benefit-plan years, beginning with the 2012 benefit-plan year, and will continue paying for seven years through the 2019 benefit plan year. In the first year of the mandate, employers were subject to a tax of $1 per covered individual. That fee increased to $2 for the 2013 plan year and is expected to increase by a rate of medical inflation beyond the 2013 plan year.

In compliance with IRS guidelines, insurance carriers are responsible for remitting payment of the fee for fully insured plans, and the employer is responsible for remitting payment of the fee for self-funded plans. For fully insured plans, the cost of the PCORI fee has been factored in to the carrier’s annual premium-equivalent rates. The fee is treated like an excise tax by the IRS, in that it is to be incorporated into the overall cost of offering employee health coverage. To pay the fee, employers or insurance carriers must remit payment by filing IRS form 720 by July 31 of the calendar year immediately following the last day of the plan year.

It is projected that 52.4 percent of ACA’s total financing will come in the form of taxes and fees (including those levied per the employer-mandate provision), 6.5 percent of which is levied on employers. While the short- and long-term impact from an individual employer perspective will vary, it is important for employers to work with their TPA or insurance carrier now to project the long-term budgetary impact of these provisions on their plans, so that proper cost-control measures can be put into place sooner rather than later to offset potentially significant plan cost increases.

Vanessa Flynn is vice president, client services at POMCO Group 

Of course, most of us have probably heard the legendary song “(I can’t get no) Satisfaction” by The Rolling Stones many times. Unfortunately, the words are also a feeling shared by many people these days. All you have to do is check your Facebook newsfeed or Twitter account to find people who “can’t get no satisfaction.” If that feeling spreads into the workplace, it can become costly and problematic. A recent statistic published by the Harvard Business Review pointed out that lost productivity due to employee disengagement costs more than $300 billion in the U.S. annually. So how do you find out if your employees are truly engaged and satisfied with their job? One way is to ask them.

Employee-satisfaction surveys measure how content or satisfied employees are with their jobs. Businesses have several reasons why they would want to perform a satisfaction survey, including:

• To prevent loss of productivity
• When there is a merger or affiliation with a new organization
• When hiring a new HR manager who must establish workplace-satisfaction measurements   
• While creating a bonus structure that is based on employee-satisfaction scores
• When required in the industry
• During major growth in the organization
• As a component of strategic planning
• During succession planning
• Amid a decrease in sales or customer satisfaction

The process to conduct an employee-satisfaction survey is fairly straightforward and simple. Employee-satisfaction surveys can be structured to identify and evaluate all the different components of the employee experience including:

• Company culture
• Training
• Understanding of roles
• Teamwork and cooperation
• Management-related issues
• Safety concerns
• Loyalty
• Compensation and benefits
• Performance reviews
• Workload
• Perceptions of management
• Flexibility
• Resources

A team of employees can help determine the topics covered in the survey. The questions in the survey should relate to the perceived likes, dislikes, and challenges employees might experience in the organization. Questions should be evaluated to make sure they are not leading to a desired response, vague, or open to interpretation, depending on the employee reading the question.

Whether you decide to manage the survey in-house or outsource it, the results can provide many insights beyond just the data returned. The results can help to establish new benchmarks for departmental measurements and can uncover areas in need of improvement that are not readily apparent. Typically, employees will provide more honest feedback in an anonymous survey than they would normally tell their managers or even fellow co-workers.

For accurate and reliable results however, employee-satisfaction surveys should be developed by professionals who understand how to put questions together to obtain unbiased information. They should also be administered appropriately with care and consideration for the organization’s culture and communication. The main value of such research is to receive honest feedback from employees. Many people will be hesitant to give a “tell all” assessment of the company or to even participate in the employee survey if they do not have the trust of anonymity. A third-party vendor can provide that anonymity as well as objectivity in analyzing potentially sensitive findings.

The results should also be communicated effectively and acted upon quickly in an effort to maintain a relationship of honesty, integrity, and trust among organization employees. The employer must be committed to report the results to employees and dedicated to make changes to the work environment. Transparent communication about the changes, their impact, and future plans are all part of a positive satisfaction-survey process. Without transparent communication, results reporting, and employee updates, employees will not trust the employer’s motives in collecting survey data. Over time, employees will cease to respond or respond only with answers that they believe the employer wants to hear. This makes the data collected on the survey useless.

Improving employee satisfaction can be a lengthy process, but taking the time and effort to do it properly can pay off in the end in terms of productivity, stability, and ensuring a positive customer experience. Employee-satisfaction surveying can be an important first step in the path towards organizational excellence. 

Lori Lichorobiec is the communications coordinator for Research & Marketing Strategies, Inc., or RMS, a full-service marketing and market-research firm based in Baldwinsville. Contact her at loril@rmsresults.com

In June 2013, Section 3 of the Defense of Marriage Act (DOMA) was ruled unconstitutional by the U.S. Supreme Court in United States v. Windsor. In particular, Section 3 of DOMA defined marriage for the purposes of federal law as being between one man and one woman, therefore, legally married same-sex couples were not considered married for purposes of federal law. As a result, legally married same-sex couples were denied a significant number of benefits that legally married opposite-sex couples enjoyed. However, after the Windsor decision and the repeal of Section 3 of DOMA, significant benefits are now available to legally married same-sex couples including in the areas of income tax and employee benefits.

How has the repeal of Section 3 of DOMA affected income taxes?
As a result of the Windsor decision, the Internal Revenue Service (IRS) ruled that effective Sept. 16, 2013, all legally married same-sex couples must file their income-tax returns as either “married filing jointly” or “married filing separately.” Note that civil unions or domestic partnerships are not considered legal marriages for this purpose. The IRS determines whether a marriage is legal based on whether the marriage was legally entered into in the “state of celebration.” This means that a same-sex couple residing in Alabama but marries in New York in 2014, will be considered legally married by the IRS, even though their state of residency does not allow same-sex marriage and may not recognize same-sex marriages entered into in another state for other purposes. 

The IRS may owe same-sex couples money
The IRS ruling also allows same-sex couples to file amended returns when the couple was legally married prior to the Windsor decision, but was forced to file as “single” because of DOMA. Generally, this is permitted for a period of three years from the date of filing the original return, including extensions.

Any legally married, same-sex couple that wants to take advantage of this opportunity should contact their accountant to determine if it is advantageous to amend prior year income-tax returns. There are many factors to consider before amending, such as the date of marriage, the state the marriage was celebrated, anticipated refund or balance due, and income tax preparation fees. Amending one prior-year tax return does not require that you amend other years. The IRS allows taxpayers to choose which year(s) they will amend if any at all. 

The following scenarios compare the tax implications of changing the filing status from single to married filing jointly in 2011:

Note: For all scenarios below, we assumed that wages were the only source of income subject to 2011 income-tax rates and that the taxpayers are claiming the standard deduction. In addition, the taxpayers do not have any dependents and do not qualify for any tax credits.

As illustrated in scenarios 1 and 3, in some cases when one spouse earns all of the income, the couple will pay less tax by filing jointly than they would if they filed as single taxpayers. On the other hand, when comparing scenarios 2 and 4, when each spouse has similar but higher incomes, they are often subject to a “marriage penalty.” The marriage penalty takes effect when the taxes you pay jointly exceed what you would have paid if each of you had remained single and filed as single taxpayers.

Tax planning saves money; what should I do now?
With 2014 quickly coming to a close, it is important to talk to your accountant about how this ruling may impact you. Depending upon your specific situation, many previously unavailable credits and deductions may be available. With this in mind, proper tax planning before year-end and implementing various strategies may minimize your joint income-tax liability and maximize your federal income-tax refund.

How did the Supreme Court’s decision affect retirement plans?
Most retirement plans sponsored by employers are subject to the Employee Retirement Income Security Act of 1974 (ERISA). These types of plans are referred to as “qualified plans.” Because ERISA is a federal law, Section 3 of DOMA restricted spousal rights and benefits under such plans only to a spouse in an opposite-sex marriage.

For example, in defined-contribution plans (i.e., 401(k) plans), ERISA requires that if a plan participant names anyone other than his or her spouse as the primary beneficiary of the participant’s account, the participant must obtain the spouse’s consent to such designation. However, because Section 3 of DOMA required plans to treat a same-sex spouse as a non-spouse beneficiary, there was no requirement for the participant to obtain the same-sex spouse’s consent.

Similarly, in defined-benefit plans (i.e., pension plans), there was no requirement for a same-sex spouse to consent to a distribution option that would eliminate the possibility of a lifetime benefit for the spouse after the participant’s death.

Same-sex spouses also had fewer options for rolling over the participant spouse’s interest in a plan after the participant’s death and were barred from obtaining a share of the participant spouse’s interest in a plan when assets were divided in the course of a divorce.

Because of the Supreme Court decision overturning Section 3 of DOMA, the limitations on the rights of a same-sex spouse of a participant in a qualified plan have been eliminated. Same-sex spouses now enjoy all of the rights and privileges enjoyed by opposite-sex spouses under ERISA. In addition, the IRS decision to use “state of celebration” for determining whether a marriage is valid for purposes of federal tax law includes the sections of the tax law that apply to qualified plans. The Department of Labor issued concurrent guidance requiring that “state of celebration” apply for all other purposes under ERISA. Therefore, for all retirement plans governed under federal law, the determination of whether the marriage of a plan participant is valid is based on whether the marriage was valid in the place it was established.

How has this change affected other employer-sponsored benefit plans?
In addition to governing most retirement plans, ERISA also governs most group health and other employee-welfare benefit plans sponsored by an employer (or employee organization, such as a union). As a result, prior to the Supreme Court’s decision, same-sex married couples were not afforded all of the rights and benefits of opposite-sex married couples in one spouse’s health or welfare benefit plan. Even in states that recognized same-sex marriage and in plans that were open to covering same-sex spouses, couples faced a number of issues that did not affect opposite-sex married couples.

One of the most significant issues that same-sex married couples faced in the area of employer health coverage was the taxation of the cost of coverage. If an employer paid any portion of a non-employee spouse’s premium, the amount of the employer contribution was treated as income for the employee spouse (for purposes of calculating the employee’s taxes and the employer’s share of Medicare and Social Security taxes). Furthermore, the amount that the employee spouse contributed toward the cost of coverage for the non-employee spouse had to be paid on an after-tax basis (unless the non-employee spouse could be considered a “dependent” of the employee spouse within the meaning of the Internal Revenue Code, which was often difficult).

Same-sex married couples faced other issues related to health and welfare benefits. For example, a spouse who lost coverage mid-year could not enroll in the other spouse’s plan until open enrollment at the end of the year. In addition, same-sex married couples could not use one spouse’s health flexible-spending account (FSA) or health-savings account (HSA) for health-related expenses of the other spouse. Furthermore, a same-sex spouse would not have any right to spousal continuation coverage under the Consolidated Omnibus Reconciliation Act (COBRA).

As with retirement plans, the restrictions that same-sex couples faced in health and welfare benefit plans changed after the Windsor decision. The IRS issued guidance applying “place of celebration” to health plans as well. Employees who had been affected by the rule imputing income for the cost of a same-sex spouse’s coverage may have the ability to file an amended tax return and claim a refund for income taxes paid on such imputed income. The IRS has also issued guidance on how an employer may claim a refund of the employer’s share of taxes paid on such imputed income.

What should an employer do to comply?
Employer-sponsored plans should be reviewed to ensure that language related to spousal rights and benefits are gender-neutral and compliant with the Supreme Court’s determination, as well as subsequent guidance issued by the IRS and the Department of Labor.

Regarding health and welfare-benefit plans, plan sponsors should keep in mind that there is no requirement that a plan provide coverage for spouses. However, if an employer chooses to provide coverage to opposite-sex spouses, the Affordable Care Act requires that coverage must be provided to same-sex spouses on the same terms and conditions. This requirement applies in all states, including states that prohibit same-sex marriage.

It should be noted that the Supreme Court’s decision has afforded same-sex married couples with the same rights as opposite-sex married couples. However, unmarried couples and domestic partners, whether same-sex or opposite-sex, do not have any of the same rights as married couples in retirement or health and welfare benefit plans.

Conclusion
In the year since the Windsor decision, the landscape has changed dramatically for same-sex married couples and their employers. Same-sex married couples do not face all of the hurdles that they once did. With the abundance of recent cases relating to marriage equality, changes will undoubtedly continue. We encourage individuals and employers to stay informed and consider how those changes may affect them.

M. Paul Mahalick, CPA, partner at Grossman St. Amour CPAs PLLC, leads the firm’s LGBT and Non-Traditional Families Practice Group. Contact him at (315) 701-6340, (800) 422-1385 or email: pmahalick@gsacpas.com. Julia J. Martin is an associate at the law firm of Bousquet Holstein PLLC. Martin works in the Employee Benefits and ERISA Practice Group. Contact her at (315) 701-6474 or email: jmartin@bhlawpllc.com

Amy manufactures miniature springs. Brad wants to buy those springs to install in plastic frogs he sells to a burger chain as kids’ meal prizes. Brad knows that if a spring in one of his frogs malfunctions and injures someone, he’ll be sued. So, he insists that the contract with Amy include both an indemnification provision and an insurance provision to protect him from a product-liability suit, caused by Amy’s springs. He will have Amy assume responsibility for the cost of any claim made against him and make sure she has enough insurance to pay the damages.

These provisions, in some form, exist in most business contracts, especially between buyers and sellers. Their strength and coverage are, of course, negotiable. As the indemnified person, Brad wants the strongest protections possible.

In Amy and Brad’s contract, Paragraph 10 contains the following:

“Indemnification. Amy hereby agrees to indemnify and hold harmless Brad from and against any and all claims arising out of Amy’s performance under this Agreement.”

Paragraph 11 states:

“Insurance. During the term of this Agreement, Amy shall maintain adequate insurance and name Brad as an additional insured.”

Brad signs the contract and sells his plastic frogs to the burger chain. Soon after, a child is hurt when a spring breaks. The child’s parents sue the restaurant, claiming the springs in the toy frogs are so flimsy they caused the child’s injury. As a result, the burger chain rushed to another toy manufacturer to buy plastic horses instead. The burger chain wants Brad to not only pay for the child’s damages, but also reimburse it for the cost of the replacement plastic horses, and its lost profits and costs.

Brad calls Amy, demanding she indemnify him and the restaurant, pursuant to the terms of their contract. Amy says she cannot help him because she’s about to go out of business. Brad tells Amy to call her insurance company.

Brad is about to learn the hard way why indemnification and insurance provisions are two of the most important provisions of a business contract. The improperly drafted and misunderstood provisions may very well cost him tens of thousands of dollars in damages and litigation costs.

Recall Paragraph 10 of Amy’s and Brad’s contract above — here is what Brad should have been aware of before he signed that contract:

• Include the word, “defend.” An agreement to indemnify someone does not mean to defend someone. “Indemnify” means to compensate another party for loss or damage that has already occurred. Defending an action is not included. Brad now has to hire a lawyer to defend him, even if he has done nothing wrong. Amy’s insurance has no duty to defend him under the contract.
• The secret password. Referred to by insurance companies as a “savior clause,” Brad should have considered adding the words, “to the fullest extent permitted by law.” Some insurance companies require that language be included before they will cover a dispute and want to see the language included in both the indemnification clause and the insurance clause. While this language may not be a legal requirement for indemnity and insurance provisions to be enforceable, if it is recommended by the insurance companies and has the potential to enable them to pay claims faster, then it is worth including.
• Bind and protect broadly. This provision only binds Amy. What if she sells her business or later incorporates? What if Brad’s employees are sued too? A strong indemnification provision also binds and covers others who may be affected.
• Cover widely. This provision does not spell out exactly what falls under its umbrella. Look for a laundry list so there are no questions as to what is covered, such as “claims, demands, liabilities, causes of action, losses, damages, fines, taxes, penalties, costs, expenses, and reasonable attorney fees.” It may look like repetitive legalese, but a repetitive yet robust indemnification agreement is always better than a flimsy and insufficient one. Also, spell out exactly what types of disputes trigger coverage, such as breach of contract and negligence. But, caution: one cannot be indemnified for one’s own negligence.

Now let’s look at the above insurance provision in Paragraph 11.

• Clearly define the insurance coverage. The contract provision doesn’t spell out exactly what coverage and how much coverage Amy is required to maintain. What is “adequate”? For instance, some general liability policies may only cover bodily injury and property damage, not financial losses, such as Brad’s situation with the spring. Amy would have had to purchase that coverage separately for Brad to be covered.
• Be a “named insured.” Brad should have made sure he was not merely an “additional insured” on Amy’s policy, but a “named insured” instead. This distinction is important for triggering coverage. If Brad is sued but Amy is not also sued (as is the situation here), Amy’s insurance will likely only cover Brad if Brad is a “named insured.” It will only cover Brad as an “additional insured” if Amy is also sued. As merely an “additional insured,” if Brad brings a third-party action against Amy, it will not trigger his coverage under her policy. Brad should also have made sure the provision states that Amy must supply him with certificates, demonstrating she has complied with the insurance requirements of the agreement, and inform him at least 30 days in advance of any changes, cancellations, or lapses.

Ideally, here’s what Brad should have put into his contract with Amy:

• Paragraph 10. Indemnification. Amy and her successors, agents, and assigns hereby agree, to the fullest extent permitted by law, to indemnify, defend, and hold harmless, Brad and his successors, assigns, agents, employees, directors, and officers from and against any and all claims, demands, liabilities, causes of action, losses, damages, fines, taxes, penalties, costs and expenses, including reasonable attorneys’ fees, arising out of or in relation to or in connection with (1) any defects in the product, including but not limited to design and manufacturing defects or (2) Amy’s or her successors’, agents’, or assigns’ a) negligent acts or omissions, b) any breach of representations and warranties, and c) breach of contract.
• Paragraph 11. Insurance. Amy shall, on or before the effective date and during the entire term of this Agreement, procure and maintain at least the following minimum insurance coverage and limits: Commercial General Liability Insurance and supplemental insurance written on an occurrence basis with limits of at least $1,000,000 per occurrence and $2,000,000 aggregate to include coverage for, but not limited to, premises/operations liability, contractual liability, personal injury, and product liability, including bodily injury, property damage, and financial loss. To the fullest extent permitted by law, Amy shall list Brad as a named insured on all commercial liability policies and provide certificates of insurance and copies of such policies to Brad. Amy shall not cancel, change, or allow a policy to lapse without providing at least 30 days’ notice to Brad.

Yes, it reads like legalese, until, of course, there is a dispute. Once lawyers and insurance companies get involved, vigorous and well-drafted indemnification and insurance provisions are imperative to protecting the financial health of a business — a lesson Brad learned too late.

Pam Lundborg is a business attorney at Bond, Schoeneck & King, PLLC. Contact her at plundborg@bsk.com