Officials at the Employee Benefits Security Administration, an arm of the U.S. Department of Labor, recently proposed a sweeping update to a form employers love to hate: the Form 5500 annual report form.
The Form 5500 and its sister, the Form 5500-EZ, are benefit plan sponsors what the Form 1040 and its sisters are to individual taxpayers.
Employers scramble to come up with the information needed to fill out the form and get it in on time, and often fail.
Insurance agents, brokers, consultants, plan administrators, insurers and other people and entities struggle to supply the required facts and figures.
Compliance specialists have turned filling out the forms into an industry. Just knowing which employers have to fill out which part of the form is a complicated job.
Many of the Form 5500 changes that the Labor Department has proposed would mainly affect sponsors of retirement plans. But the department has also responded to talk of a gap in information about small health plans, and self-insured plans, by creating a new Schedule J form for all health plan sponsors.
Today, only a relatively about 6,200 health plan sponsors have to file annual 5500 reports. The Labor Department proposal could increase the number of 5500-related reports filed each year to about 2.2 million. Many employers would have to file the equivalent of just a cover sheet and the Schedule J, but even that modest requirement could seem to daunting to the kinds of harried microbusiness owners who can barely get their periodic corporate filings into the secretary of state’s office on time.
The proposal appeared in the Federal Register July 21.
Rory Akers, a compliance services lawyer at Kansas City, Missouri-based Lockton Cos., an insurance brokerage, noted in a recent analysis that, under the schedule given in the proposal, any new filing requirements would not take effect until 2019, at the earliest.
By that point, the next president’s administration may have withdrawn or changed the proposal.
But Akers writes that, based on a reading of the Schedule J proposal, “it appears these proposed revisions are primarily geared toward enforcement efforts.”
If the Labor Department ends up requiring use of a real Schedule J that looks like what’s described in the proposal, and has employers start to use the form in 2019, the Labor Department “could and likely will use the information obtained from the new Form 5500 to identify red flags that might trigger the opening of substantially more health plan audits after 2020,” Akers writes.
For a look at some of the specific kinds of information the proposed version of the form would request, read on:
1. The number of persons that the plan covered at the end of the plan year.
“Persons, for purposes of this line, include participants, beneficiaries, and dependents of participants covered under the plan,” according to the regulation text.
This provision looks simple, but counting provisions in other federal laws and regulations have led to complicated efforts to set counting rules.
For purposes of the proposed Schedule J, “Blue Cross” won’t do. The Labor Department wants insurer ID numbers. (Image: Thinkstock)
2. The identification numbers for any health plan coverage providers.
The plan sponsor must provide the names of the carriers, the carriers’ employer identification numbers and the carriers’ National Insurance Product Registry Numbers.
If some or all benefits options are self-insured, the sponsor must check boxes to indicate that.
Looking at Schedule J COBRA numbers might be a way to see if a company is growing or shrinking. (Photo: Thinkstock)
3. The number of persons offered COBRA continuation coverage under the plan during the plan year.
Federal law requires employers to offer continuation coverage, under rules first set by the Consolidated Omnibus Budget Reconciliation Act of 1985, to many departing employees, and those employees’ dependents.
Outsiders might see COBRA numbers as a helpful indicator of how stable an employer’s workforce is.
DOL also wants to know the percentage of workers that take up COBRA coverage.
If current Affordable Care Act restrictions on medical underwriting stay in effect, and an active individual health market continues to exist and lure consumers away from COBRA coverage, employers could use Schedule J reports showing dropping COBRA take-up rates as justification for killing the COBRA program.
Some group health plan sponsors may not be thrilled to give information about late health coverage payments. (Photo: Thinkstock)
4. Information about health premium payment delinquencies.
“Indicate whether there were any premium delinquencies during the reporting year,” the draft form states. “You must answer ‘Yes’ or ‘No.’ Do not leave [that line] blank.”
What if an employer admits that it did pay some or all premiums late?
In that case, “you must indicate both the number of times delinquent for premiums due but unpaid during the year, and for each delinquency, the number of days delinquent,” DOL says. “If any premium payments that were not made within the time required by the insurance carrier resulted in a lapse of health insurance coverage, you must answer ‘Yes’ … even if coverage was retroactively reinstated.”
The proposed Schedule J could open a window onto small employers’ use of benefit plan administrators and other service providers. (Image: Thinkstock)
5. Information about insurers, benefit plan administrators and service providers not reported elsewhere on Form 5500 schedules.
The plan sponsor must list any other insurers, plan administrators, mental health benefits managers, substance use disorder benefits managers, pharmacy benefit managers and independent claim review organizations.
The Labor Department wants the list to be comprehensive.
“Repeat as many line entries as necessary to report all service providers under each category,” the Labor Department says.
When a service provider has a National Producer Number, the sponsor is supposed to give the service provider’s NPN.
The NPN is a number that the National Association of Insurance Commissioners assigns to insurance agents, brokers, adjusters and navigators.
In recent years, the Obama administration has expressed mixed feelings about wellness programs. (Image: Thinkstock)
6. Wellness provider information.
The proposed Schedule J would include a separate line a plan sponsor could use to give information about its wellness program manager.
That requirement could reflect the Obama administration’s ambivalence about wellness programs. The Affordable Care Act encourages use of wellness programs to improve the quality of care and lower the cost, but the Equal Employment Opportunity Commission has filed suits in connection with allegations that some wellness programs may discriminate against employees with health conditions.
A stop-loss program can cushion a self-insured employer health plan against catastrophic claims. (Photo: Allison Bell/LHP)
7. Stop-loss information
In this category, the Labor Department wants to get the name of the provider, the number of policies, involved, the total premium paid to the stop-loss provider, the attachment points (stop-loss plan deductibles) for the coverage, and any stop-loss coverage limits.
Some supporters of the Affordable Care Act say letting small employers escape from some Affordable Care Act requirements by self-insuring will leave the fully insured small-group market stuck with the small employers with the oldest, sickest employees and, eventually, lead to a death spiral, or self-sustaining cycle of premium increases and sales decreases.
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