Final Wellness Regulations Expand Employer Compliance Duties

On June 3, 2013, the departments of the Treasury, Health and Human Services, and Labor (the “Agencies” or “Departments”) published final regulations defining how wellness programs may comply with the Affordable Care Act’s prohibition against discrimination based on one or more “health factors,” a term that includes an individual’s health status, medical condition, disability, and claims experience. The final regulations make some significant changes to proposed wellness regulations published in November 2012, which were the subject of an earlier post on this blog.  I outline the key changes, which take effect for plan or policy years[1] beginning on or after January 1, 2014, in the following Frequently Asked Questions list.

Q. 1.       What is the most significant change the final regulations make to wellness program compliance duties?

A.1.     The final regulations treat certain wellness programs that formerly were classed as “participatory-only” programs as “health contingent” programs that must meet five criteria designed to permit individuals with health limitations to still qualify for the wellness reward.  Examples include walking programs or other programs that do not require that employees attain a specific result, but that do require their physical participation or other activity that may be ruled out by health issues.

Q. 2.       How do the final regulations change the terminology of wellness programs?

A. 2.    As referenced above, wellness programs generally were classed in two categories: “participatory” or “participation only” programs that merely required the employee to take part in wellness programs and activities in order to attain the related reward, and “results-based” programs that conditioned a reward on the employee meeting a standard or criteria that is related to a health factor, such as actually reducing Body Mass Index (BMI) or blood pressure readings.  The proposed regulations introduced the term “health-contingent wellness programs” to replace “results-based” programs (which was never an official regulatory term to begin with), but did not change the definition of participatory plans.  The final regulations retain the participatory category, but break the “health contingent” category down into two sub-categories:  “activity-only” health-contingent wellness programs – many of which formerly met the “participatory-only” category, and “outcome-based” health-contingent wellness programs, as follows:

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Q. 3.       How do the final regulations define “activity-only” health-contingent wellness programs?

A. 3.    An activity-only health contingent wellness program requires an individual to perform or complete an activity related to a health factor in order to obtain a reward, but does not require the individual to attain or maintain a specific health outcome.  Examples include walking, diet or exercise programs, which some individuals may be unable to participate in or complete, or have difficulty in doing so, due to health factors such as asthma, pregnancy, or recent surgery.

Q. 4.       How do the final regulations define “outcome based” health-contingent wellness programs?

A. 4.    An outcome-based health-contingent wellness program requires an individual to attain or maintain a specific health outcome, such as smoking cessation, or reducing BMI or blood pressure below a set threshold, in order to obtain a reward.  As the regulations explain, however, such programs usually contain an “activity-only” subcomponent for individuals who do not attain the desired health outcome.  For instance, if the program provides a reward to employees who reduce their BMI or blood pressure by a set amount, employees who, for health reasons, cannot or should not attempt to attain those results may receive the same reward by participating in a walking program or by attending healthy cooking classes.  As a consequence, the special rules for activity-only health-contingent wellness programs generally will apply to that subcomponent of outcome-based health-contingent wellness programs.

Q. 5.       When is a participation-only or “participatory” wellness program nondiscriminatory under the final regulations?

A. 5.    A participatory wellness program – such as a program that provides a 10% reduction in premiums to employees who take part in biometric testing, without any required result – is nondiscriminatory provided that it is made available to all similarly situated individuals, regardless of health status.  The “similarly situated” rule permits differences among “bona fide employment-based classifications” such as work location, union versus non-union, etc.   There is no dollar or percentage limit on financial rewards for taking part in a participatory-only wellness program.

Q. 6.       When is a “health-contingent” wellness program nondiscriminatory under the final regulations?

A. 6.    All health-contingent wellness programs – whether activity-only or outcome-based, must meet five separate requirements designed to make wellness rewards attainable regardless of health factors such as disabilities or medical conditions.   The five criteria are: (a) that employees be able to qualify for the reward at least annually; (b) that the financial reward not exceed certain thresholds, as applied to the total premium cost for individual coverage; (c) that the wellness program be reasonably designed to promote health or prevent disease; (d) that the wellness program be made available to all similarly situated individuals, including through waiver of the health goal or offer of a reasonable alternative means of attaining the reward when health factors present an obstacle; and (e) that all written plan materials disclose the availability of other means of qualifying for the reward. These criteria are found in final nondiscrimination regulations under HIPAA from 2006 as well as in Section 2705(j) of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA § 1201(4)).  Most of the changes in the final regulations involve criteria (d), which is referred to below as the “universal availability/reasonable alternative standard” requirement.

Q. 7.       What is the maximum financial reward that a health-contingent wellness program may provide?

A. 7.    Under current law the maximum financial reward is an amount equal to 20% of the total premium cost (employer and employee portions) for individual coverage under a group health insurance policy or self-funded plan. (The percentage may be based on family or self plus one coverage costs only to the extent that the added spouse/dependents may participate in the results-based wellness program.[2])   For plan or policy years beginning on or after January 1, 2014, the final regulations increase the maximum to 30% of the total premium cost.  An additional 20% incentive is allowed (for a total incentive of 50%) but only if it is offered in connection with a program that reduces or stops tobacco use.  Employers must be sure that their results-based wellness program incentives do not exceed the 30% and 50% thresholds either separately or when added together.  Examples are described in my earlier post on the proposed regulations.

Q. 8.       What special requirements apply to activity-only, health-contingent wellness programs?

A. 8.    The five criteria listed above all apply, but special rules apply under the universal availability/reasonable alternative means requirement, as follows:  The program must either waive the activity requirement, or offer a reasonable alternative standard for obtaining the reward, for any individual for whom it is either (a) unreasonably difficult due to a medical condition to participate in the activity or (b) medically inadvisable to attempt to do so.  For example, for individuals recovering from hip replacement surgery, a requirement to participate in a walking program would need to either be waived, or a substitute offered.  The following additional rules apply:

• Employers do not need to “pre-design” reasonable alternative standards but instead  may design them once an employee requests alternative standards.
• If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available or assist the employee in finding such a program, and may not require the individual to pay for the program.
• The time commitment must be reasonable.  The regulations state that requiring attendance at a nightly one-hour class would not be reasonable.
• If the reasonable alternative standard is a diet program, the employer does not need to pay for the cost of food but must pay any membership or participation fee.
• If the reasonable alternative standard that is offered meets the definition of an activity-only wellness program, it must independently comply with the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.
• If the reasonable alternative standard that is offered meets the definition of an outcome-based wellness program, it must independently satisfy the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.

Q. 9.       What special requirements apply to outcome-based, health-contingent wellness programs?

A. 9.    The five criteria listed in response to Q. 5 all apply, but special rules apply under the universal availability/reasonable alternative means requirement, as follows:  The program must either waive the required health outcome, or offer a reasonable alternative standard for obtaining the reward, for any individual for whom it is either (a) unreasonably difficult due to a medical condition to attain the health outcome or (b) medically inadvisable to attempt to do so.  For example, a requirement to lower blood pressure below a certain threshold would need to either be waived, or a substitute offered, to individuals with chronic hypertension.  The following additional rules apply:

• Employers do not need to “pre-design” reasonable alternative standards but instead may design them once an employee requests alternative standards.
• If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available or assist the employee in finding such a program, and may not require the individual to pay for the program.
• The time commitment must be reasonable.  The regulations state that requiring attendance at a nightly one-hour class would not be reasonable.
• If the reasonable alternative standard is a diet program, the employer does not need to pay for the cost of food but must pay any membership or participation fee.
• The reasonable alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s circumstances.  The final regulations use an example of an initial standard of reducing BMI below 30, and state that a reasonable alternative standard cannot be to achieve a BMI less than 31 on the same date that the original standard was required.  Instead, reducing BMI by a small amount or percentage over a realistic period of time, such as a year, is a permitted alternative goal.
• An individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard to meeting the reasonable alternative standard defined by the plan, but only if the physician joins in the request.  The individual can make a  request to involve a personal physician’s recommendations at any time and the personal physician can adjust his or her recommendations at any time, consistent with medical appropriateness.
• If the reasonable alternative standard that is offered meets the definition of an activity-only wellness program, it must independently comply with the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.
• If the reasonable alternative standard that is offered meets the definition of an outcome-based wellness program, it must independently satisfy the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.

Q. 10.    When may an employer request verification, from an employee’s medical provider, that health factors prevent the employee from earning a reward under a health-contingent wellness program?

A. 10.  Employers may request such verification only in connection with activity-only wellness programs (or in connection with activity-only subcomponents of outcome-based wellness programs).  The proposed regulations would have permitted employers to make such requests whenever it was “reasonable under the circumstances” to do so, but the final regulations conclude that it is never reasonable to require verification that an employee’s inability to attain, or attempt to attain, a specific health outcome is based on one of the enumerated health factors such as a medical condition or disability.  As mentioned, however, if an employee who cannot attempt to lower his or her blood pressure under an outcome-based program is offered the alternative of a walking program or other activity-only program, an employer may request verification that a health factor prevents the employee from taking part in the walking program, as it is an activity-only subcomponent of the outcome-based wellness program.  Under the final regulations, verification requests still must be “reasonable under the circumstances,” and further must be sought only when it is “reasonable to determine that medical judgment is required to evaluate the validity of the request” for a reasonable alternative standard.

Q. 11.    How do the final wellness regulations increase the role and authority of employees’ personal physicians?

A. 11.    The proposed regulations limited the role of an employee’s personal physician to that of rebutting the alternative compliance methods recommended, under a health-contingent wellness program, by a medical professional hired or employed by the employer.  The final regulations permit an employee’s personal physician to prescribe reasonable alternative standards for earning a wellness reward in any instance where original health-contingent program standards are deemed to be medically inappropriate for an employee, including, but not limited to, instances in which the plan or employer’s medical professional has recommended an alternative method.  As described above, outcome-based wellness programs also must include, as a second reasonable alternative standard (in place of the reasonable alternative standard proposed by the plan), the opportunity to comply with recommendations of the employee’s personal physician.  Employees in outcome-based programs also may request to involve a personal physician’s recommendation at any time, and if the physician agrees to participate he or she may adjust recommendations at any time consistent with medical appropriateness.
Regular insurance co-pays or costs will apply to medical items and services furnished in accordance with the physician’s recommendations.[3]

Q. 12.    Must health-contingent wellness programs provide a never-ending series of reasonable alternative standards?

A. 12.  No.  This was a possible interpretation of the preamble to the proposed regulations, which stated that employers must continue to offer alternative standards despite a low success rate, particularly where addictive behavior is involved, and which gave the example of offering different weight loss programs or different nicotine replacement therapies when predecessors failed to have an effect.  The final regulations make clear that employers need not get caught in an endless cycle of suggesting alternative standards, and introduce two new requirements for outcome-based programs designed to shortcut the reasonable alternative standard process.  These requirements are described more fully in Q&A 9, above; the first requirement is that a reasonable alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s circumstances, and the second is that the individual be given the opportunity to comply with the recommendations of the individual’s personal physician in lieu of meeting an alternative standard set by the program or a program physician.

Q. 13.    How do the final regulations change the notice requirements for wellness programs?

A. 13.  The proposed regulations contain several alternative model notices that reasonable alternative standard will be offered to individuals who cannot attain health-contingent program goals, and required that the notice be set forth in all written materials that describe a wellness program, but not to materials that simply make reference to the existence of the program. For instance, it need not be set forth in the Summary of Benefits and Coverage document (which is provided by carriers to employers with insured plans).  The final regulations maintain the notice requirement but add to the model notice language reference to the role that personal physicians may play in designing reasonable alternative standards, as follows:

“Your health plan is committed to helping you achieve your best health.  Rewards for participating in a wellness program are available to all employees.  If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means.  Contact us at [insert contact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.”

Q. 14.    Do the final regulations expand on notice requirements for wellness programs?

A. 14.  Arguably, yes.  A footnote to the preamble provides that, if compliance with a wellness program affects premiums, cost sharing, or other benefits under the terms of a group health plan, then the wellness program terms (including the availability of any reasonable alternative standard) are generally required to be disclosed in governing plan documents as well as in the summary plan description (SPD).  This is not a new rule as much as it is a valid interpretation of the required contents of an SPD, including a description of employee contributions (which are impacted by wellness program participation).  However group health plan documents and SPDs – particularly for fully insured group plans – do not always integrate wellness program terms with the provisions for employee contributions and cost sharing.  As a result, many employers will need to revisit their group health plan documentation and revise as necessary to describe the impact of wellness program participation.

Q. 15.    Do the final regulations shed any light on when or whether a wellness program is “voluntary” as required under the Americans with Disabilities Act?

Q. 15.  No.  Clarification on this topic will have to come from the Equal Employment Opportunity Commission (“EEOC”), which regulates compliance with the Americans with Disabilities Act.  EEOC has not yet clearly defined what makes a wellness program “voluntary” or not, but did recently hold a meeting at which business and advocacy groups spoke to the issue and urged the Commission to provide guidance on this point without future delay.

Q. 16.    What can be done when smoking cessation/reduction rewards are provided to an employee who is later found to have lied about stopping or reducing smoking?

A.16.

Q. 1.       What can be done when smoking cessation/reduction rewards are provided to an employee who is later found to have lied about stopping or reducing smoking?

A.16.   The Affordable Care Act prohibits rescission of coverage under any group or individual plan other than instances of fraud or misrepresentation of a material fact.  With regard to small group and individual policies subject to the tobacco rating surcharge, insurance market reform regulations prohibit rescission on the basis of misrepresentation of smoker status, but permit the plan to seek recovery of premium amounts that would have been paid to the plan if the employee had provided accurate information about tobacco use.  It is possible that future guidance will address the rescission remedy in this context for large group and self-funded plans, but a footnote to the regulations states that the Departments view is that misrepresentation of this type would not be a “material” fact that would trigger rescission, because the lesser remedy of recouping premiums is available.  Please note that the right to recoup the surcharge would need to expressly be permitted in the governing health plan documentation and would otherwise need to be carried out in compliance with ERISA.  State wage and hour laws may prevent or limit the use of payroll deductions to recover the surcharge amounts.  In a related note, final insurance market reform regulations published in February 2013 propose a definition of “smoking” as use of tobacco on average of four or more times per week within a period no longer than the prior six months.

Q. 17.    Are all wellness programs subject to the final regulations?

A. 17.  The final regulations apply to wellness programs that are teamed with small and large group health plans, whether grandfathered or non-grandfathered, insured or self-funded.  They do not apply to wellness programs teamed with individual health insurance policies.  The 50% maximum wellness incentive that includes a smoking cessation or reduction program teams with the tobacco use surcharge (up to 50% of the applicable premium) that applies in the small group market beginning in 2014, such that tobacco users who participate in the cessation or reduction programs can cancel out the effect of the surcharge.  The surcharge would apply to large group plans only when such plans are offered on an exchange; in California this would pertain to plans with more than 50 participants and only in 2016 and subsequent (the California exchange is closed to groups of more than 50 in 2014 and 2015.)

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[1] As wellness programs generally do not comprise self-standing group health plans, the applicable plan or policy year is that of the group health plan to which the wellness program relates.

[2] The regulations do not provide direct guidance on how to apportion the reward among employee family members when they are allowed to participate in wellness programs, but the Agencies will likely issue future “soft” guidance – for instance in the form of an FAQ – on that topic in the future.

[3] The final regulations do not directly address the privacy concerns under GINA, HIPAA and comparable state laws, raised by the personal physician’s increased role in wellness program design.

Model “Notice of Marketplace Coverage Options” Released

The U.S. Department of Labor released, on May 9, 2013 Technical Release 2013-02 on the “Notice of Exchange” employer disclosure responsibility under the Affordable Care Act, together with an updated initial notice of COBRA coverage that includes information on health coverage alternatives offered through the exchanges, now formally referred to as the “Health Insurance Marketplace.” Together with the guidance, the DOL also published two model notices of coverage on the “Marketplace,” one for employers that offer group health coverage, and one for employers that do not.

Publication of the model notices in early May comes a good bit earlier than the “late summer or fall of 2013,” which the DOL announced in January when it postponed the original March 1, 2013 employer disclosure deadline.  This is the result of numerous employer requests that that the Notice be made available earlier in the year, to provide more time for them to inform employees of upcoming coverage options through the Marketplace.  Therefore employers may use the model Notices and rely on the Technical Guidance earlier than the proposed distribution date of October 1, 2013, although only employers with self-funded group health plans will be likely to do so, given that 2014 premium rates for insured plans are not yet known. The Guidance will remain in effect until regulations on the Notice requirements are published.

Technically, the notice requirement, which is set forth in Section 18B of the Fair Labor Standards Act (FLSA), applies only to employers subject to the FLSA.  However that is a very broad category, including employers involved in interstate commerce with an annual dollar volume of business of at least $500,000.  Other categories of employer, including schools, hospitals, institutions of higher learning, nursing homes, and federal, state, and local government agencies, are automatically covered under the FLSA.  The guidance provides a link to an internet compliance tool that employers can use to determine whether or not they are subject to the FLSA, and hence the disclosure requirement.

Employers must provide the Notice of Marketplace Coverage to current full-time and part-time employees – regardless of their enrollment status under existing group plans – no later than October 1, 2013, which is also the date on which open enrollment in the Health Insurance Marketplace will begin.  Thereafter employers must provide the Notice to each new employee upon hire, which the Guidance defines as within 14 days of an employee’s start date.  Employers wanting to provide the Notice to current employees and new hires in advance of the October 1, 2013 deadline may use the Model Notices and rely on the terms of the Technical Release in doing so.

There is no requirement to provide a Notice to dependents or other individuals or are or may become eligible for coverage under the plan but who are not employees.

As outlined in my earlier post, the Notice must do all of the following:

• Inform employees of the existence of the Marketplace, describe the services they provide, and the manner in      which the employee may contact the Marketplace to request assistance (i.e., at http://www.HealthCare.gov);
• Inform employees that they may be eligible for a premium tax credit or for cost-sharing reductions if the      employer’s plan provides less than 60% actuarial value and they purchase coverage through the Marketplace; and
• Inform employees that, if they purchase coverage through the Marketplace, they may lose the employer      contribution (if any) to any health plan sponsored by the employer, and that unlike exchange coverage, which is purchased with after-tax dollars, all or a portion of the employer contribution towards coverage under its own plan, if received, would be excludable from the employee’s income for Federal income tax purposes.

All of these disclosures are set forth in “Part A” of the Model Notices.  The Model Notice for employers with group health coverage also requires that the employer add a name and contact information for someone with more information about employer-sponsored coverage, which may include a human resources personnel or even a broker or third party administrator contact.

“Part B” of the Model Notices contains information on the employer and on employer-sponsored coverage, if any, in sections that are numbered to correspond to line items the employees must complete when enrolling for coverage and/or financial aid on the Marketplace.  Employers are not required to complete this section of the Model Notice unless and until an employee requests the information from them as needed to enroll on the Marketplace.  Supplying the information up front in the standardized format is a good idea, however, as it will allow employees to enroll in the Marketplace without seeking individualized assistance from the employer.  The additional information sought from employers that do not provide group health coverage is as follows:

• Employer name
• Employer Identification Number (EIN)
• Employer address
• Employer phone number
• City
• State
• Zip code
• Contact information for employer representative
• Phone number of contact person, if different from employer general number
• Email address for contact person.

The additional information sought from employers that do provide group health coverage is identical except they must identify a contact person with information about employer sponsored coverage.  There are also entries for the employer to describe plan eligibility rules, whether or not dependent coverage is offered, and whether the plan meets minimum value (60% actuarial value) and affordability standards.  It notifies employees that, even if the employer plan provides minimum value and is affordable, they may qualify for financial aid on the Marketplace based on their household income.  (Note that this likely would happen only if certain deductions such as alimony or payment of student loan interest reduced someone’s household income to a point lower than the income the individual received from employment.  In such an instance the employer would not be subject to an IRC Section 4980H penalty tax so long as their plan met “affordability” for that individual, based on the safe harbor definition of compensation they selected and use.)

The Model Notice for employers that do provide coverage also contains a section corresponding to the “Marketplace Employer Coverage Tool” that employers voluntarily may complete and provide to employees.  The questions it covers are as follows:

• Whether the employee currently is eligible for employer-sponsored coverage or will be eligible in the next 3 months
• Whether the employer offers a health plan that meets the minimum value standard
• Premium amounts (on a weekly, bi-weekly, semi-monthly, monthly, quarterly, or annual basis) for the lowest-cost plan offered by the employer that meets minimum value standards, factoring in any discount offered for tobacco cessation programs (but not any other wellness incentives).  (This is consistent with the proposed regulations on Minimum Value and other premium tax credit eligibility issues that were published on May 3, 2013).
•  For employers whose plan year will end soon (at the time they prepare the Notice) and who know that the health plans they offer will change, a description of the changes to be made, including that the employer will not offer coverage, or will begin offering affordable, minimum value coverage, in which case premiums (on a weekly, bi-weekly, semi-monthly, monthly, quarterly, or yearly basis) must be estimated, along with the date on which the changes will occur.

Employers are free to prepare their own versions of the Notice of Marketplace Coverage provided that it covers all the required disclosures and provides the information that employees will need to enroll for coverage, and financial aid, on the Marketplace.  In addition, the Guidance states that the Notice must be provided in writing in “a manner calculated to be understood by the average employee,” a standard which presumably is met by the Model Notices.   Employers may deliver it by first-class mail, in person at the workplace, or electronically if DOL safe harbor requirements  - set forth at 29 CFR § 2520.104b-1(c) – are met.

ACA Implementation for Small to Mid-Sized Employers: A Short Podcast

Recently, Mark Weiss of the Advisory Law Group interviewed me on Affordable Care Act compliance issues for small to mid-sized employers. You can listen to the resulting podcast on Mark’s Wisdom.Applied blog by clicking here.   Topics covered include preparing for pay or play, employee interaction with the exchanges, exchange readiness (or un-readiness), and the viability of wellness programs in a small employer setting.  Thank you, Mark, for giving me the opportunity to share my views with your audience.

Mark’s practice focuses on medical groups, physicians and other healthcare providers, and I hope to soon interview him on the ACA as seen from the provider perspective, including how it is changing – in several different aspects - the ways in which healthcare is delivered in the U.S.     The law is not much more popular among healthcare providers, than it is among employers, but for different reasons Mark will ably explain.  Check back soon for more good information along those lines.

Agencies Update SBC Language for 2014; Extend Enforcement Relief

The Departments of Labor, Health and Human Services (HHS) and the Treasury (collectively, the “Departments”) on April 23, 2013 issued the fourteenth in a series of Frequently Asked Questions on the Affordable Care Act.

The new FAQ updates Summary of Benefits and Coverage (SBC) model language for plans or policies beginning on or after January 1, 2014, but before January 1, 2015.[1]  It also extends, for an additional year, certain safe harbors and enforcement relief set forth in earlier FAQs.  A summary of the new guidance is set forth below.

• An updated SBC template, and sample completed SBC are now available online.  
• The only change made to the new templates is the addition of:
  • a statement as to whether the plan or policy provides minimum essential coverage; and
  • a statement as to whether the plan or policy meets the minimum value requirements (no lower than 60% actuarial value).  These statements appear on page 4 of the blank template and page 6 of the completed template. 
• Self-funded plans and insurers that have already committed to SBC templates that do not contain the new information – and for whom it would be an administrative burden to include it – may provide that information in a separate cover letter or similar disclosure accompanying their SBCs for 2014, without incurring liability for penalties.
• No additional changes to the SBC or the Glossary of health insurance coverage terms are required.  Nor does the SBC need to contain any examples of coverage costs other than the existing examples, for childbirth (normal delivery) and managing Type 2 diabetes (routine maintenance of a well-controlled condition).
• Although annual dollar limits on coverage of “essential health benefits” (“EHB”) are disallowed for plan years starting on or after January 1, 2014, the SBC does not need to contain a specific statement to this effect.  Instead, in completing the first page of the SBC, plans should answer “no” in responding to the question “Is there an overall annual limit on what the plan pays?”  If the plan imposes any permissible limits on specific covered services, such as office visits, the SBC must direct readers, in the corresponding “Why this Matters” column on page one, to the chart on page 2 of the SBC that includes explanations of limitations and exceptions.
• Alternatively, where applicable, plan sponsors or issuers may delete the entire corresponding row from this “Important Questions” section of SBC.  
• Failure to comply with SBC requirements can trigger excise taxes under Internal Revenue Code § 4980D and financial penalties enforced by the Department of Labor (the terms of which have yet to be defined in proposed regulations).  However, the Departments will continue through 2014 specific compliance safe harbors and an overall emphasis on cooperation rather than enforcement, as announced in prior FAQs.  Some of the specific relief that has been extended includes the following (not an exhaustive list):
  • Cooperating with, rather than penalizing, employers that are shown to be working diligently and in good faith to provide the required SBC content in an appearance that is consistent with the final regulations.
  • Nonenforcement with regard to Medicare Advantage plans;
  • Nonenforcement with regard to expatriate health plans;
  • Nonenforcement against plan sponsors or insurers with regard to SBCs for “carve out” benefit arrangements such as through pharmacy benefit managers and behavioral health organizations (where the vendor has contracted to provide the SBCs, and where the sponsor or insurer monitors for vendor compliance and is either unaware of any noncompliance or identifies and corrects noncompliance);
  • Safe harbors for providing SBCs to participants and beneficiaries electronically, including in connection with online enrollment or online renewal of coverage, or in response to requests for copies made online.

In all, FAQ XIV offers plan sponsors and insurers terms for a smooth transition through the ACA “watershed” year of 2014, at least with regard to SBC requirements.

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[1] The FAQ refers to 2014 as the “second year of applicability” for SBC rules.  2013 was the “first year of applicability.”

New Rules on 90-Day Waiting Period Limitation Announce End of “Certificates of Creditable Coverage”

Proposed Regulations published in the Federal Register on March 25, 2013 explain how the maximum 90-day limitation on waiting periods will operate under employer-sponsored group health and insured individual health plans, beginning January 1, 2014.   The rules, set forth in Section 2708 of the Public Health Service Act (PHSA), apply to insured and self-funded group health plans, and to individual insured coverage, and apply equally to grandfathered and non-grandfathered plans.

The Proposed Regulations on waiting periods is consistent with earlier guidance issued in the form of IRS Notice 2012-19, which I summarized, in FAQ format, in this earlier post.   For your convenience, however, the key provisions of the regulations are set forth below:

• The Proposed Regulations define a waiting period consistent with prior HIPAA regulations, as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.”
• Once eligibility requirements are met, coverage must begin once 90 calendar days, including weekend and holiday days, have elapsed.  If the 91^st day falls on a weekend or holiday, the carrier or plan sponsor may elect to have coverage to be effective earlier than the 91^st day, for administrative convenience, but may not delay coverage past the 91^st day.
  • This means that the popular eligibility provision under which coverage begins 90 days after the first day of the first month following the date of hire is no longer permissible.  The new safe harbor is to ensure that coverage begins no later than 60 days after the first day of the first month following the date of hire.
  • As was described in Notice 2012-59, an employer or issuer has fulfilled the 90-day waiting period limitation so long as an employee can elect to begin coverage no later than 90 days after satisfying eligibility criteria, even if the employee is late in completing and submitting enrollment materials.
    • The Proposed Regulations describe, as permissible, language calling for coverage to begin “on the first day of the first payroll period on or after the date an employee is hired and completes the applicable enrollment forms,” provided that enrollment materials are provided to the employee on his or her start date and can reasonable be completed within 90 days.
    • In provisions mainly applicable to group health plans, whether self-funded or insured, a plan may impose eligibility criteria such as completion of a period of days of service (which may not exceed 90 days), attainment of a specific job category, or other criteria, so long as they have not been designed to avoid compliance with the 90-day waiting period.
      • As an example, a plan provides coverage only to employees with the title of sales associate.  Sarah is hired on October 17, 2014 as a junior sales associate.  On April 3, 2015, she is promoted to sales associate.  She must be offered coverage no later than July 3, 2015.
      • When a plan conditions eligibility on a cumulative service requirement, such as completion of a set number of hours of service, the hours-of-service requirement must not exceed 1,200.
      • When a “variable hour” or seasonal employee is hired – i.e., someone who cannot be classified as full-time (30 or more hours per week) or part-time, an employer is allowed to classify the employee as full-time (or not full time) over a measurement period not to exceed 12 months, consistent with proposed regulations on employer shared responsibility duties.   If the employee is determined to be full-time at the end of the measurement period, an employer will be deemed to have met the 90-day waiting period limitation period if the employee enters the plan no later than 13 months from the employee’s start date, plus the time remaining until the first day of the next calendar month (in instances when the employee’ start date is not the first day of a month).
    • The Proposed Regulations are effective for plan years beginning on or after January 1, 2014, however elimination of the requirement to provide Certificates of Creditable Coverage has a later effective date of January 1, 2015, as discussed below.
      • For employees who are in a waiting period for coverage when the Proposed Regulations go into effect on January 1, 2014 , the 90-day maximum period is applied to the entire waiting period, including time “served” prior to January 1, 2014.  The Regulations use an example of a calendar year plan with a 6-month waiting period and an employee hired on October 1, 2013, and require that that person be offered coverage no later than January 1, 2014, which is 93 days after her start date, because otherwise the plan would be applying, on January 1, 2014, a waiting period that exceeds 90 days.   The Regulations specify, however, that coverage is not required to be made effective before January 1, 2014.
      • The proposed regulations do not provide an example using a fiscal year plan, but presumably the same rule would apply to employees in a waiting period for coverage as of the start of the 2014-2015 fiscal plan year.
    • Notice 2012-59 stated that employers and insurance carriers could rely on its guidance through the end of 2014, and the Proposed Regulations take the position that they are consistent with, and no more restrictive than, the provisions of Notice 2012-59.  Accordingly, compliance with the terms of the Proposed Regulations will constitute compliance with Section 2708 of the PHSA at least through 2014.  If final regulations are more restrictive, they will not take effect prior to January 1, 2015.
    • Applicable large employers must be mindful that compliance with the 90-day waiting period limitation does not insulate them from penalty taxes under employer shared responsibility rules going into effect January 1, 2014.  For instance, a “full-time” employee (30 hours or more/week) who is required to complete 1,000 hours of service to meet plan eligibility rules may qualify for financial aid on a health exchange/marketplace while such eligibility period is met, even if the waiting period which follows does not exceed the 90-day maximum.

One significant change the regulations announce is that the “Certificates of Creditable Coverage” required under Title I of HIPAA will be phased out by 2015, having been made obsolete by the Affordable Care Act’s prohibition on exclusions from coverage due to pre-existing health conditions.  HIPAA limits exclusions from coverage due to a pre-existing condition to a maximum of 12 months (18 months in the case of special enrollment) which periods are reduced, month-for-month, by proof of prior “creditable coverage” under a group or individual health plan or policy.  Such proof takes the form of Certificates of Creditable Coverage.   The Affordable Care Act wholly eliminated the “pre-ex” condition exclusion for dependent children up to age 19 for plan years beginning on or after September 23, 2010, and the exclusion fully will be repealed for group or individual health plans with plan or policy years beginning on or after January 1, 2014.  Elimination of the pre-ex condition exclusion eliminates the need for Certificates of Creditable Coverage.

However, it will remain necessary for employer sponsors of self-funded group health plans, and for insurers, to continue to provide Certificates of Creditable Coverage through to December 31, 2014, to allow individuals joining plans in 2014 that have non-calendar plan years to avoid or reduce application of a pre-existing condition exclusion.  The agencies issuing the Proposed Regulations (IRS, DOL, Health and Human Services) invite public comment about those proposed applicability dates.

 

 

ACA Guidance on Cost-Sharing Limits, Preventive Care and More

In FAQ XII on Affordable Care Act implementation, issued February 20, 2013, more helpful guidance was provided to plan sponsors and insurers (“issuers,” in ACA parlance) on a variety of topics.  The FAQ is the latest in a series issued by the three government agencies that administer the ACA (the Departments of Labor, Health and Human Services, and Treasury). The FAQs are “soft guidance” intended to clarify existing regulations under the ACA and provide temporary guidance on issues for which regulations have not yet been issued.  Here is a very brief summary of the key points in FAQ XII:

• Annual Limits on Cost-Sharing[1]
  • Annual Maximum Deductible:  Under the ACA, non-grandfathered health plans offered in the small group market (on or off the exchange) must limit annual deductibles to $2,000 single/$4,000 family for plan years starting on or after January 1, 2014.  These amounts will be indexed to the increase in U.S. health insurance premiums in subsequent years.  Large group and self-funded health plans do not need to limit deductible amounts until further regulations issue (no deadline is mentioned).  “Small group market” is defined under applicable state rate filing laws, but in states that do not have a definition, the ACA definition will apply.  In California, small group will mean up to and including 50 employees for 2014 and 2015; the ACA definition is up to and including 100 employees.  Some small group coverage may exceed the annual deductible limit if doing so is necessary to reach a given “metal tier” level of coverage.
  • Annual Maximum Out of Pocket Expense:  The FAQ makes clear that beginning in 2014, all non-grandfathered group health plans of any size (insured or self-funded) must limit out of pocket expenses to no more than the maximum limits allowed for high-deductible plans that are combined with HSAs ($6,250 single/$12,500 family in 2013).  Plans that use multiple providers (such as major medical carrier, pharmacy benefits manager, managed behavioral health organization), each of which may impose a separate deductible, have transition relief from the dollar limit only for the first plan year beginning on or after January 1, 2014.  The relief is available only if the major medical component plan complies with the maximum dollar limits, and any separate component also does not exceed the limits.  However the FAQ warns that mental health parity rules prevent prohibit separate annual OOP maximums just on mental health and substance use disorder benefits.
• General Preventive Services
  • If a preventive service that the ACA requires be provided “first-dollar” (i.e., with no cost sharing) is not available from a plan’s in-network providers, the plan’s out of network providers must offer the preventive service with no cost sharing.
  • Over the counter items recommended for preventive care (such as daily aspirin tablets to reduce heart attacks) will be covered without cost sharing only when prescribed by a health care provider.
  • No cost-sharing will apply to separate preventive services – such as polyp removal during a colonoscopy – that are an “integral part” of the preventive screening procedure.  The professional standards applicable to each preventive service will govern what is “integral” to the preventive service, and what is not.
  • When a woman’s family history suggests she is “high risk” for developing breast cancer, genetic counseling and testing for mutations in the BRCA 1 or BRCA 2 genes must be provided with no cost sharing.  Currently it is not uncommon for the patient co-pay for this testing to exceed $500.
  • Identification of “high risk” individuals eligible for genetic testing will be determined by clinical expertise based on doctor-patient communications.
  • When an immunization is recommended for certain individuals, rather than an entire age- or risk-based population, no cost-sharing will apply so long as the immunization is prescribed by a health care provider under terms that are consistent with recommendations by the Advisory Committee on Immunization Practices (ACIP).
  • First-dollar coverage of immunizations that newly are recommended by ACIP must begin with the plan year (or policy year, for individual coverage) that begins on or after the date that is one year after the date that ACIP makes the recommendation.  The FAQ contains details about when an ACIP recommendation is considered to have been “issued.”

• Women’s Preventive Services

By way of background, the ACA requires first-dollar coverage of women’s preventive services recommended by the Health Resources and Services Administration (HRSA) for plan years beginning on or after August 1, 2012.  Covered services include at least one annual “well-woman” visit, annual testing for HPV (human papillovirus), annual testing and counseling for HIV, annual counseling for sexually transmitted infections, contraceptive methods and counseling (as prescribed), breastfeeding support and supplies (per each birth), and annual screening and counseling for interpersonal and domestic violence.   This is in addition to the “general” preventive care rules which require first-dollar coverage of mammograms, screenings for cervical cancer, prenatal care, and other items, some of which may overlap with the “well woman” visits described below.  An exception from the requirement to provide no-cost contraception methods and counseling applies to certain religious employers, including churches and other houses of worship, as well as to non-profit organizations with religious objections to contraception.

• The FAQ provides that, although the HRSA guidelines list preventive services individually, they do not “promote” multiple visits for the separate preventive services, and permit the provision of multiple services at a single visit provided that it is consistent with reasonable medical management techniques.
• The FAQ defines a “well-woman” visit to include age- and developmentally appropriate preventive services listed in the HRSA guidelines as well as other “general” preventive services such as mammograms, and states that, if a health care provider determines that more than one well-woman visit is needed in a year to cover all preventive screening and counseling requirements, the second or subsequent visits must be covered without cost-sharing, subject to reasonable medical management.
• The FAQ describes where to find online assessment tools and other information that may be used to perform counseling for interpersonal and domestic violence.
• The FAQ provides that women age 30 or older with normal cytology results should be tested every three years for certain types of HPV DNA that are strongly linked to cancer, and that HIV testing must be made available yearly, with no cost-sharing.
• The FAQ provides that an employer that is not exempt from providing no-cost contraceptive methods must provide access to all FDA-approved contraceptive measures and cannot cover only birth control pills.  Plans may, however, provide first dollar coverage only of generic contraceptive drugs, except in cases where a generic is not available, or where generic substitution is not medically appropriate for a particular patient.
• The FAQ provides that over-the-counter (OTC) contraception methods can be provided with no cost sharing only if a health care provider prescribes the particular contraceptive method, and also states that the HRSA guidelines do not include contraception for men.
• The FAQ provides that services related to contraceptive measures, including follow-up visits, management of side effects, counseling for continued adherence, and intrauterine device/implant removal, must be provided without cost-sharing, subject to reasonable medical management.
• The FAQ provides that first-dollar coverage of breastfeeding counseling includes prenatal and postnatal lactation support, counseling, and equipment rental, subject to reasonable medical management (which may include equipment purchase instead of rental).  No-cost lactation support and benefits is available for the duration of breastfeeding, subject to subject to reasonable medical management techniques.

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[1] The cost-sharing provisions are consistent with terms of the final HHS regulations defining “essential health benefits,” which also were issued on February 20, 2013.

  

“Notice of Exchange” Deadline Postponed Until Further Guidance Issues

Employers will have additional time in which to provide written notice to employees of the availability of health exchanges, per a “Frequently Asked Questions” issued on January 25, 2013 by the tri-agencies administering the Affordable Care Act (HHS, DOL and IRS).

Specifically, the guidance extends the initial notice deadline from March 1, 2013, to sometime after the Department of Labor issues regulations describing the notice requirements in more detail.  Per the guidance this will likely be in the “late summer or fall of 2013.”  Subsequent to the initial Notice deadline, which applies to all active employees, employers will be required to provide the notice to each new hire.  The Notice must:

• Inform employees of the existence of the exchanges, describe the services they provide, and the manner in which the employee may contact the exchanges to request assistance;
• Inform employees that they may be eligible for a premium tax credit or for cost-sharing reductions if the employer’s plan provides less than 60% actuarial value and they purchase coverage through an exchange; and
• Inform employees that, if they purchase coverage through an exchange, they may lose the employer contribution (if any) to any health plan sponsored by the employer, and that unlike exchange coverage, which is purchased with after-tax dollars, all or a portion of the employer contribution towards coverage under its own plan, if received, would be excludable from the employee’s income for Federal income tax purposes.

The new guidance states that the Department of Labor may issue a model Notice of Exchange along with the coming regulations, but in the meantime suggests that employers may want to adapt for this purpose a proposed template that summarizes employer-sponsored coverage options for purposes of determining eligibility for financial aid on the exchanges.[1]

The template consists of pages 34 – 38 of the recently released streamlined individual application for exchange coverage, Medicaid and CHIP (CMS 10440).   The data elements that it contains include the following:

• Employer name
• EIN
• Employer contact information
• Hours worked per week  (e.g., full-time, or not)
• Whether an offer of health coverage is made
• Date of future enrollment
• Name of lowest cost plan providing minimum value; and
• Employee contribution amount and frequency

Employers can either provide this information on each streamlined application presented to them by an employee, or can pre-populate a template themselves for this purpose.  It is the pre-populated template that the FAQ guidance suggests as a temporary stand-in for the Notice of Exchange.  Presumably an employer adapting the template for use as a Notice of Exchange would add to these data elements the three exchange-related disclosures described above.

The Notice of Exchange requirement is set forth in Section 18B of the Fair Labor Standards Act (FLSA), which was added by the Affordable Care Act.  As such it applies to “employers” as defined under the FLSA.  The FLSA defines employers in a fashion similar to that under ERISA:  as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”  See 29 U.S.C. § 203(d); ERISA Section 3(5).

Note that employers will fall within this broad and somewhat circular definition of an “employer” – and hence will be obligated to provide the Notice of Exchange – even if they are not subject to the FLSA’s minimum wage provisions, described here.

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[1] Such subsidies, in the form of premium tax credits and cost-sharing measures, are available when employer coverage is either “unaffordable,” or has an actuarial value of less than 60%.  More information on affordability and actuarial value is available at this earlier post.