HomeMy WebLinkAboutDocumentation_Regular_Tab 07_05/09/2013 VILLAGE CLERK'S OFFICE
AGENDA ITEM TRANSMITTAL FORM
Meeting Date: Meeting Type: Regular Ordinance #:
5/9/2013
Consent Agenda: No Resolution #:
Originating Department: Human Resources
AGENDA ITEM TITLE: (Wording form the SUBJECT line of your staff report)
Determination of the Taxable/Fair Market Value of Overage Dependant Health Insurance Coverage
BUDGET / FINANCIAL IMPACT:
Account #: N/A Amount of this item: N/A
Current Budgeted Amount Available: Amount Remaining after item: $0.00
N/A
Budget Transfer Required: No Appropriate Fund Balance: No
EXECUTIVE SUMMARY OF MA.IOR ISSUES: (This is a snap shot description of the agenda item)
Dependants over the age of 26 are not "qualified dependants" as defined by the IRS. However,
Section 627.6562, Florida Statutes requires that group health insurance policies offer the covered
employee the option to insure a child until the child is 30 years old, referred to by the carriers as
"Overage dependant." The fair market value (FMV) of the benefit provided to the employee is
considered taxable income; however the IRS has not given any specific guidance to employers on
how to calculate the FMV of the benefit. The Council is being asked to provide guidance on the
FMV that they would like the Village to use. Data is provided on how other municipalities/ agencies
have been treating this matter.
APPROVALS: SIGNA
Department Head � ,,� ;�� �'
Finance Director
Reviewed for Financial Sufficiency ❑
No Financial Impact ❑
Attorney: (for legal sufficiency) T be circulated
Village Manager:
Submit for Council Discussion: � ���
Approve Item: ❑
Deny Item: �
SPECIAL INSTRUCTIONS FOR CLERK: (if you wish to have agreements signed, be sure to include the
number of copies you want signed and place "Sign Here" sticker on them)
Form Amended: 10/20/11
, . - . - •
Memo
To: Michael R Couzzo, Jr., Village Manager
From: Merlene Reid, HR Director /`.�
`��
Date: Apri129, 2013
Re: Deterrnining the tauable/fair market value of Overage dependant health insurance
coverage
BACKGROUND:
Employee provided health insurance is generally a tar exempt benefit, i.e., the cost of the benefit is
not considered taxable income to the employee. However, IRS rules only allow for this tax
exemption when the insurance coverage is for "qualified dependants." Dependants over the age of
26 are not "qualif'ied dependants" as defined by the IRS; therefore, the fair market value (FMV) of
the benefit provided to the employee is considered taxable income.
Section 627.6562, Florida Statutes however requires that group health insurance policies offer the
covered employee the option to insure a child until the child is 30 years old, referred to by the
insurance carriers as"Overage dependant" coverage (OAD). The Village's health insurance plan
offers that option, in compliance with the law.
NEED TO DETERMINE F'MV OF OVERAGE DEPENDANT HEALTH COVERAGE:
An employee who opts to enroll an overage dependant in the health insurance plan is receiving a
benefit that is considered t�able by the IRS and they require that the fair market value of the
coverage be treated as income to the employee (even if the cost of the coverage does not increase as
a result of adding the overage dependant). The Village needs to determine the FMV of the overage
dependant benefit in order to properly report the employee's income (and imputed income) to the
IRS.
OPTIONS AVAILABLE:
The IRS has not given any specif'ic guidance to employers on how to calculate the FMV of the
benefit in this situation. With the assistance of our brokers, HR and Finance have requested and
received data from surrounding agencies/municipalities outlining how they established the amount
of income that should be imputed to their employees who opted to receive this benefit and a
summary of the fmdings is attached. Based on the information provided, we are requesting
guidance in respect of the rate that the Council would like us to consider for the FMV.
The Gehring Group has confirmed that, of the 60+ public sector entities they serve, the majority are
utilizing one of the following methods to determine the Fair Market Value of overage dependent
coverage:
Fair Market Value
1. Utilize the single rate of the health plan as the fair market OAPIN PPO-$692.45
value of the OAD coverage. OAP HSA-$539.11
2. Utilize a discounted proportion of the single rate (60%- Assuming 60%
70%) of the health plan due to the younger demographic OAPIN PPO-$415.47
and statistically lower risk of this age group (26—30) as it OAP HSA-$323.47
compares to the employer group as a whole.
3. Utilize the difference between the Single rate and the OAPIN PPO-$587.89
Employee+Child rate(as this would be the increase in cost to OAP HSA-$454.07
add an OAD to the plan)
4. Engage an actuary to calculate a rate to be utilized. (To be deternuned)
• Page 2
Overage Dependent (OAD) Value - Entity Comparison
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Pal�� B � i'llNllh �i'�I"�n�i�Yl''I nty�l� � ���� .��� i �l i,���1!91�f�llillullll�ll �.� � .��� � 70�0 � f the single ���� e lliil9��� ��''if�lllll�,,�'I� w�� ��� Yes .�, � � �„. i. � � I �'!I .
Martin County School District 100% of the single rate extra fee No
HMO - 66 9�0 of the single rate
Solid Waste Authority POS - 60�0 of the single rate Yes
Clerk & Comptroller, PBC 60�0 of the single rate Yes
Tax Collector, PBC 1009�0 of the single rate extra fee No
Cocount Creek difference between the single rate and employee + child rate No
Jupiter 51�'o Medical underwriting recommendation*
West Palm Beach 509�o Medical underwriting recommendation*
Clearwater 559�o Medical underwriting recommendation*
Children's Services Council 679�o Medical underwriting recommendation*
Royal Palm Beach 609�o No
* Some medical carriers initially provided a value equal to 17 - 20% of the family rate, but have since declined to provide OAD values