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.

Proposed Regulations on Employer Shared Responsibility Provide Some Welcome News, Some Measures to Thwart Abuse

On December 28, 2012, the Internal Revenue Service and Treasury Department issued proposed regulations on the employer coverage mandate (“employer shared responsibility” rules) under Section 4980H of the Internal Revenue Code (“Code”), which was added as part of the Affordable Care Act.  On that date the IRS also posted on its website a list of Questions and Answers on the new guidance, written in more colloquial terms than the regulations.   Employer shared responsibility rules apply only to “applicable large employers” (ALEs), i.e., businesses that employed an average of 50 or more full-time employees (those working 30 or more hours/week, or 130 or more hours/month) or full-time equivalent (FTE) employees on business days in the preceding calendar year.  Therefore, smaller employers need not concern themselves with the new proposed regulations  — with one very significant caveat:  if they share common ownership with or are otherwise related to other business entities with their own employees, the proposed regulation may require that employees of all entities are combined for purposes of the 50 FTE headcount, such that the entire group of businesses constitutes a single ALE and must comply with the employer mandate.[1]

The proposed regulations incorporate a significant body of prior guidance on the employer mandate published in the form of IRS Notices in late 2011 and during 2012, which I addressed in an earlier post.[2]  The proposed regulations build on this prior guidance in response to public comments it received, resolve some questions the guidance left open, and depart from the prior guidance in certain instances.  The proposed regulations also contain several new “anti-abuse” rules that anticipate and attempt to thwart ways in which employers might manipulate employment status and thus reduce their employer mandate obligations starting in 2014.  A summary of key provisions follows.  In reviewing it, please bear in mind that it only skims the surface of a 144-page regulation (including an 89-page preamble), every page of which contains important guidance for employers who, this current calendar year, will or are likely to exceed the 50 full time/FTE threshold and thus have shared responsibility duties in 2014.

• Affordability Based on Self-Only Coverage.  The proposed regulations finally resolve the question of whether the “affordability” yardstick for group health coverage will be based on the employee’s share of self-only coverage, or on its share of the always much higher dependent coverage.  “Affordable” in this context means coverage for which the employee-paid share of premiums does not exceed 9.5% of the employee’s compensation from the employer reported in Box 1 of Form W-2 for the year just ended.  ALEs that offer coverage to their full-time employees can still be subject to excise taxes under Code Sec. 4980H(b) if the coverage that they do offer is either unaffordable, as described above, or fails to provide “minimum value” meaning that the plan’s share of costs is at least 60%.  The proposed regulations make clear that the 9.5% of W-2 income threshold applies to the employee’s share of self-only coverage available under the lowest-cost plan or option the employer offers, that also provided minimum value.  This will come as a relief to large employers.  In response to comments that criticize the Box 1 of Form W-2 standard on the grounds that it excludes employee salary deferrals under 401(k) and cafeteria plans, the proposed regulations propose two other affordability safe harbors – one based on rates of pay and one based on the Federal Poverty Level.

• Grace Period with Regard to Dependent Coverage.  The proposed regulations provide that, for ALEs that do not now offer dependent coverage to full-time employees, no assessable payments will be required for an ALE’s failure to offer dependent coverage during their 2014 plan year, provided that the employer takes steps during the plan year that begins in 2014 toward satisfying Code Section 4980H in full.  In addition, the proposed regulations define “dependents” for purposes of employer shared responsibility rules as the employee’s children up to age 26 (their 26^th birthday), and as not including spouses.

• 95% “Margin of Error” Rule.  To understand this provision of the proposed regulations, a bit of review is in order.  The Affordable Care Act imposes two different types of excise taxes on ALEs, called “assessable payments,” depending on whether or not the ALE fails to offer coverage to its full-time employees entirely, or offers inadequate coverage.  Inadequate coverage is coverage that fails to provide minimum value and/or is not “affordable” as defined above.  In the “no coverage” scenario, the excise tax under Code Section 4980H(a) applies.[3]  In the inadequate coverage scenario, the excise tax under Code Section 4980H(b) applies.[4]  With regard to the first excise tax for “no” coverage, the proposed regulations state that this tax will apply to ALEs that do not offer coverage at all, as has always been the rule, but also provide that the tax will not apply to an ALE that offers coverage to at least 95% of its full-time employees (or, if greater, 5 employees), but less than 100% of full-time employees.  This margin of error rule applies whether or not the failure to offer coverage to 100% of full-time employees is inadvertent.   However, the ALE could still pay an excise tax under Code Section 4980H(b), if at least one of the full-time employees not offered coverage qualifies for premium tax credits or cost-sharing reduction on an exchange.  Beginning in 2015 for ALEs who do not currently offer dependent coverage, the 95% minimum threshold will apply to full-time employees and their dependents.

• Flexibility with Regard to Seasonal Employees.  Seasonal hires come into play in determining whether an employer is, or is not, an “applicable large employer” or “ALE” subject to shared responsibility rules, and again when determining which employees are “full-time.”   For purposes of determining ALE status, an employer counts seasonal workers who work full-time hours (30 or more per week; 130 or more per month) towards their “full-time” employee headcount.  The employer also counts less-than-full-time seasonal workers towards their “full-time equivalent” or FTE headcount.  Once an employer determines that the monthly average was 50 or above, it needs to determine whether the seasonal worker exception applies.   Under that exception, if the sum of an employer’s full-time employees and FTEs exceeds 50 for 120 days or less during the preceding calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days are “seasonal workers,” the employer is not considered to employ more than 50 full- time employees (including FTEs) and the employer is not an applicable large employer for the current calendar year.   Notice 2011-36 permitted four calendar months to be treated as the equivalent of 120 days, for these purposes, and the proposed regulations add even more flexibility by allowing that neither the four calendar months nor the 120 days used for these purposes need be consecutive.  Right now, the “seasonal worker” term is borrowed from Department of Labor regulations that primarily define seasonal workers as agricultural workers, and retail workers employed exclusively during the holiday season.  Contrast this with “seasonal employees,” which is a term used in the context of assessing full-time status.  Seasonal workers are classified with “variable hour employees” – employees who cannot accurately be predicted to be full-time or not upon hire – for purposes of the look-back “measurement period” and subsequent “stability period” safe harbors described in Notices 2011-36, 2012-17 and 2012-58, and incorporated into the proposed regulation with some changes.    “Seasonal employee” could include more types of employees than “seasonal worker” because the proposed regulations allow employers to use a “reasonable good faith interpretation” of the DOL “seasonal worker” definition, in applying the seasonal worker exception.  The preamble to the regulations specifically provide that treating an educational employee who takes the summer off from employment as a seasonal worker would not be a reasonable interpretation of the seasonal worker standard.

• Service Counted Towards Full-Time Status Includes Paid Leave.  The proposed regulations provide that employees’ full-time status will be based on 30 (per week) or 130 (per month) “hours of service” which term will include non-work time for which pay is provided or due to be provided including absences for vacation, holidays, illness, incapacity (including disability), layoff, jury duty, military duty, and paid leaves of absence.  A proposed maximum allocation of 160 hours of paid time off was rejected because legally protected leaves of absence could exceed this budget, and thereby expose employers to discrimination claims if the limit were applied.  The proposed regulations also provide guidance on averaging hours of service, over look-back measurement periods, when an employee missed work due to one or more special unpaid leaves of absence including FMLA, USERRA (military duty) and jury duty, so that an employee is not misclassified as less than full-time as a result of such absences.

• Ability to Use Pay Periods Start or End Dates for Certain Measuring Functions. The process of determining which employees are “full-time” and entitled to an offer of group health coverage is based on a chosen look-back “measurement period.” If an employee averages 30 or more hours per week or 130 or more per month during the measurement period, the ALE must offer the employee and his or her dependents (subject to the 2014 exception mentioned above) group health coverage for a subsequent “stability period,” whether or not the employee retains a full-time schedule during the stability period.   Notices 2011-36, 2012-17 and 2012-58 generally refer to measurement and stability periods based on periods of calendar months or month-long periods (e.g., April 15 to May 14).  However, public comments requested that employers be allowed to start or end a measurement period at the beginning or end of a payroll period.  The proposed regulations grant this request for payroll periods that are one week, two weeks, and semi-monthly in duration, and explain how to handle gaps between the payroll period start- or end-date, and the related measurement period start- or end-date.   In an example given, an employer using the entire calendar year as a measurement period, but wanting to start or end the measurement period on a payroll period start- or end-date, could either exclude the entire payroll period that included January 1 (the beginning of the year) if it included the entire payroll period that included December 31 (the end of that same year), or, alternatively, could exclude the entire payroll period that included December 31 of a calendar year if it included the entire payroll period that included January 1 of that calendar year.

• Anti-Abuse Provisions.  The proposed regulations contain some anti-abuse rules aimed at anticipated employer efforts to manipulate the nature or length of the employment relationship so as to avoid application of shared responsibility rules.
  • Rehires/Returns from Unpaid Leave.  The employee rehire/return from unpaid leave of absence rules come into play in determining an employee’s status as full-time, or less than full-time, during a measurement period.  Specifically, when an employee works full-time hours during a portion of a look-back measurement period, later terminates employment, or goes on an unpaid leave of absence, and then is rehired or returns from that leave of absence, at what point may the employer disregard the hours of service worked prior to the absence and treat the employee as a new hire for purposes of evaluating full-time status?    The proposed regulations provide that an employer may treat an employee as terminated, and newly rehired, if the employee performs no service for a period of at least 26 consecutive weeks.  The employer can also use a “rule of parity” for periods less than 26 weeks, but at least four weeks long.  Under the rule of parity, the employee will be treated as a new hire if the period of absence (of at least four weeks) exceeds the length of the employment period that immediately preceded it.  For instance, if an employee works three weeks for an applicable large employer, terminates employment, and is rehired by the same employer ten weeks after terminating employment, the rehired employee is treated as a new hire.  An employee who is treated as a continuing employee (as opposed to an employee who is treated as terminated and rehired under the 26-week or “rule of parity” periods) is subject to the measurement period, and entitled to coverage during the stability period (presuming full-time status is attained over the measurement period) that would have applied to the employee had the employee not experienced the absence from service.
  • General Anti-Abuse Rule.  The proposed regulations also provide that any hour of service will be disregarded if the hour of service is credited, or the underlying services are requested or required of the employee, for the purpose of circumventing employer shared responsibility rules.
  • Use of Temporary Employment Agencies.  Thepreamble to the regulations identify practices that the IRS and Treasury anticipate employers may try to exploit, using temporary employment agencies as purported common law employers, and state that final regulations on employer shared responsibility duties will expressly prohibit such practices.  In one scenario the employer would purport to employ individuals only part of a week, such as 20 hours per week, but would then hire the same individuals through a temporary employment agency who acts as their common law employer for the remaining hours in the week, with the result that the individuals do not qualify as full-time employees, for shared responsibility purposes, of either the employer “client” nor the temporary employment agency.  An alternative scenario would split the hours between two separate temporary employment agencies.  The preamble minces no words in commenting on these strategies:

“The Treasury Department and the IRS anticipate that only in rare circumstances, if ever, would the “client” under these fact patterns not employ the individual under the common law standard as a full-time employee. Rather, the Treasury Department and the IRS believe that the primary purpose of using such an arrangement would be to avoid the application of section 4980H.”

As this excerpt makes clear, the government intends that the employer shared responsibility duties will attach to businesses based on “common law” employment relationships, irrespective of third party involvement.  Very generally, a common law employment relationship exists if the employee is subject to the will and control of the employer not only as to what work must be done but as to how the work will be performed.  (This is a gross oversimplification; the IRS follows a 20-point test.)  This is a straightforward inquiry if the employer directly employs its entire staff.  However, complications arise for employers that use employee leasing companies/Professional Employer Organizations (PEOs) and temporary hire agencies.  Such employers will need to closely examine those relationships and determine where the common law employment relationship lies.    There is no better guide to such matters than Derrin Watson’s publication “Who’s the Employer” (6th Edition, 2012), however as is the case with common ownership issues, employers likely will need a seasoned ERISA attorney or other tax practitioner to determine where the true employment relationship lies.

• Transition Relief for Fiscal Year Plans, Including Cafeteria Plan Election Changes.  The proposed regulations are effective for months beginning after December 31, 2013 but employers may rely upon them until a final regulation issues.   In addition, special transition rules are provided for employers with fiscal year plans.  If an applicable large employer member maintains a fiscal year plan as of December 27, 2012, the relief applies with respect to employees of the applicable large employer member (whenever hired) who, under the plan eligibility rules in effect as of December 27, 2012, would be eligible for coverage as of the first day of the first fiscal year of that plan that begins in 2014 (the 2014 plan year).  If an employee described in the preceding sentence is offered affordable, minimum value coverage no later than the first day of the 2014 plan year, no excise taxes will be due with respect to that employee for the period prior to the first day of the 2014 plan year.   Additional transition relief applies to employers who cover a significant percentage of employees under one or more plans with the same fiscal year as of December 27, 2012, and want to expand coverage under those plans, effective as of the first day of the 2014 plan year, to other, currently excluded employees in order to satisfy shared responsibility duties.  Finally, the proposed regulations contain transition relief for fiscal year Section 125/cafeteria plans, so that in January 2014, employees of an applicable large employer making salary reduction elections to pay for group health coverage can stop those deferrals in order to purchase individual coverage on an exchange.  In addition, employees who had not chosen to enroll in employer group health coverage could enroll effective January 1, 2014, in order to avoid penalties under the individual mandate going into effect that year, and could elect to pay their portion of premiums on a pre-tax basis through the cafeteria plan.   This cafeteria plan transition rule only applies to fiscal year plans and then only to employees’ elections to pay for group health coverage on a pre-tax basis and not to health flexible spending accounts or dependent care accounts.  These change in election rules, if adopted by an applicable large employer, must be set forth in the written cafeteria plan document.  Retroactive amendments may be made any time by December 31, 2014 and must be effective retroactively to the date of the first day of the 2013 plan year of the cafeteria plan.

 

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[1] There is no better guide to shared ownership issues than Derrin Watson’s publication “Who’s the Employer” (6th Edition, 2012), however employers likely will need a seasoned ERISA attorney or other tax practitioner to carry out the analysis.  Keep in mind, also, that certain types of “affiliated service groups” can lead to a combined group of businesses for these purposes, even without any shared ownership between the entities.

[2] See Notice 2011-36 (definitions of employer, employee, and hours of service; proposed look-back/stability period safe harbor for determining full-time status); Requests for Comments set forth in Notice 2011-73 (“affordability” safe harbor based on 9.5% of Form W-2 compensation received from employer sponsoring health plan): Notice 2012-17 (proposed methods of determining full-time status of new employees); Notice 2012-58 (establishment of look-back/stability period safe harbors that employers may rely on through the end of 2014; guidance on determining full-time status of newly hired variable hour and seasonal employees).

[3] The “assessable payment” in such instance is determined on a month-to-month basis and is equal to 1/12^th of $2,000 for all full-time employees for each month (after disregarding the first 30 full-time employees), regardless of which employees receive exchange subsidies.  The 30 full-time employee exclusion must be allocated among employers related by ownership, or otherwise, in proportion to each employer’s number of full-time employees as measured against total full-time employees in the controlled group, etc.

[4] The “assessable payment” in such instance is determined on a month-to-month basis and is equal to 1/12^th of $3,000 for each full-time employee for each month that receives exchange subsidies.  However in no event will the assessable payment under Code Section 4980H(b) be larger than the penalty would be under Section 4980H(a) if no coverage were offered.

[5]

New Rules Defined for “Results Based” Wellness Programs

Proposed regulations issued by the IRS, DOL and HHS (the “Agencies”) on November 20, 2012 increase, for plan years beginning on or after January 1, 2014, the maximum permitted reward that “health-contingent wellness programs” (i.e., “results-based” programs) may offer, from 20% of the total health insurance premium applicable to individual coverage, to 30%, with an additional 20% incentive permitted only in connection with programs to reduce or eliminate tobacco use.  The proposed regulations, which amend final regulations from 2006 on HIPAA’s nondiscrimination provisions, make other changes to the five “consumer-protection conditions” that such programs must satisfy.[1]  Below, I highlight key changes under the new regulations:

Financial Incentives

• As mentioned, the maximum financial incentive that a results-based wellness program may offer in 2014 is an amount equal to 30% 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.)
• 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.
  • An example in the regulations describes a wellness program that offers an annual premium rebate of $600 to employees who attain goals under a program for reducing weight, blood sugar and other biometric measurements, and also imposes an annual $2,000 surcharge on employees who have used tobacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program.  The annual individual premium under the related group health plan is $6,000, of which the employer pays $4,500.  This program design meets the maximum incentive thresholds because the total of all rewards (including not imposing the tobacco use surcharge) is $2,600 ($600 + $2,000) which does not exceed 50% of the total cost of individual coverage, which is $3,000 ($6,000/2).  Also, tested separately, the $600 reward for the non-tobacco wellness program does not exceed 30% of the total annual cost of individual coverage, which is $1,800) ($6,000 x 30%).
  • The regulations make clear that rewards for participation-only wellness program components do not need to be factored in to the maximum reward calculation, even if the participation-only component (such as completion of a health risk assessment) is teamed with a results-based component (such as required smoking cessation).
  • The regulations reassert that permitted financial rewards may take the form of a premium rebate or contribution, a waiver of all or part of a cost-sharing mechanism (such as deductibles, co-insurance, or co-payments), the absence of a surcharge, the value of a benefit that would not otherwise be provided under the plan, or other financial or nonfinancial incentives or disincentives.
    • Compliance Note:  All wellness programs must be “voluntary” in order to meet the requirements of the Americans with Disabilities Act.  The Equal Employment Opportunity Commission (EEOC), which administers the ADA, has not clearly defined what makes a wellness program “voluntary” or not voluntary.  This remains a compliance grey area for employers.
  • The new rules apply to non-grandfathered and grandfathered plans under the Affordable Care Act (ACA), and to insured and self-funded group health plans, whether “small” or “large” plans.  They do not yet apply to individual insurance policies.  The uniformity among group plans will permit consistent coordination between the 50% wellness incentive that includes smoking cessation measures, and the tobacco use surcharge (up to 50% of the applicable premium).  That premium surcharge is set forth in proposed regulations on guaranteed availability and premium rating that HSS issued on the same day as the wellness regulations.[2]   (The HHS regulations cover other insurance market reform provisions under the ACA and will be the topic of a future post at http://www.EforERISA.com.)

Offers of Reasonable Alternative Standards

The regulations provide substantial new information on how employers and insurers may comply with the requirement of offering a “reasonable alternative standard” – or waiver of the otherwise applicable standard – to employees who cannot attain the results-based goals due to medical reasons.  (The specific criteria are that the goal either is “unreasonably difficult” to attain “due to a medical condition,” or that it is “medically inadvisable” for the employee to attempt to reach the goal.)  References below to “employers” apply equally to group insurance carriers where applicable.

• First, the regulations provide two examples of new model language notifying employees of the reasonable alternative standard concept.  The new language replaces the prior, more opaque notice, which may have a chilling effect on some employees.  The standard model language, and a permitted variation, both are repeated below:

 “Your health plan is committed to helping you achieve your best status.  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 to find a wellness program with the same reward that is right for you in light of your health status.”

“Fitness is Easy! Start Walking!  Your health plan cares about your health.  If you are overweight, our Start Walking program will help you lose weight and feel better.  We will help you enroll. (**If your doctor says that walking isn’t right for you, that’s okay too.  We will develop a wellness program that is.)”

• The notice of a reasonable alternative standard must be set forth in all written materials that describe the wellness program but does not need to be added 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).
• Employers do not need to “pre-design” reasonable alternative standards but instead may design them once an employee requests alternative standards.  As provided in the 2006 regulations, and in comparable language under the ACA, however, employers may design alternative standards for specific sub-populations, such as cholesterol reduction programs tailored to employees whose high cholesterol readings make it unreasonably difficult or medically inadvisable for them to attempt to attain lowered readings.
• If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available, instead of requiring the employee to locate one, and may not require the employee to pay for the program.
• 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 is compliance with the recommendations of a medical professional, and the medical professional is hired or employed by the employer, the employer must offer a reasonable alternative standard if the employee’s own physician determines that recommendations made by the employer’s physician are not medically advisable for that employee.  Regular insurance co-pays or costs will apply to medical items and services furnished in accordance with the physician’s recommendations.
• The new regulations provide that, only where it is “reasonable under the circumstances,” employers may request a written statement from an employee’s personal physician that the standard wellness goal presents unreasonable difficulties to the employee or that it is medically inadvisable for the employee to attempt to attain it.  When the medical problem or health status that is at issue is clearly apparent, for instance confinement to a wheelchair, the employer does not have a reasonable basis for requesting the physician’s note.
• An example in the regulation illustrates that “stacking” of reasonable alternative methods of attaining financial rewards may be necessary.  For instance if the wellness goal is reducing body mass index (BMI) to 26 or lower, a reasonable alternative method of attaining the same reward may be a program of walking 150 minutes a week.  An employee who cannot walk that much for health reasons could still attain the same financial reward by following recommendations set by his or her own physician.
• Finally, the preamble to the new regulations indicates that employers may not stop offering a reasonable alternative method simply because employees fail to attain the alternative goal, particularly where addictive behavior is involved.  Noting (as did the prior wellness regulations) the “cycle of failure and renewed effort” that addicts experience, the preamble states that employers must continue to offer the alternative standard despite a low success rate, or must offer a new reasonable alternative standard such as a different weight loss program or nicotine replacement therapy.

Developing Issues

The Agencies invited public comments on a number of topics that are on their radar screens but not yet defined enough to regulate, including the following:

• How to apportion financial rewards among family members where the health goal may not be applicable to all of them (for instance smoking cessation).
• How best to define “tobacco use” (comments on this topic actually are requested in the insurance market reform regulations issued by HHS).
• How the percentage limits apply to a financial reward whose amount may not be known initially (such as waiver of copayments, which will vary depending on the employee’s health during the course of the plan year).
• Whether evidence- or practice-based standards are needed to ensure that wellness programs are reasonably designed to promote health or prevent disease, and best practices regarding use of these strategies.
• Other suggestions for avoiding a “one size fits all” wellness program design.

Limited as they are to results-based programs, the regulations are not of pressing importance to employers and advisors who work with “participation-only” wellness programs, under which no health-related goal or result must be achieved in order to receive the financial reward.  To comply with HIPAA, these plans must only offer participation to all “similarly situated individuals,” with differences permitted among “bona fide employment-based classifications” such as work location, union versus non-union, etc.  (The “similarly situated” rule equally applies to results-based programs.)  Surveys cited in the preamble to the regulations indicate that participation-only programs comprise the vast majority of wellness programs, with the most prevalent design offering a three to 11% premium discount or other cash reward to employees who complete a health risk assessment.  However, the trend towards results-based wellness programs – particularly those for smoking cessation – likely will increase in tandem with rising premium costs for group HMO, PPO and even high-deductible insurance policies.  This trend is anticipated to continue through implementation in 2014 of the state exchanges, the individual mandate, and the employer shared responsibility rules (pay or play) under the ACA.  For that reason, employers and benefits advisors cannot afford to ignore rules governing results-based wellness programs.

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[1] The five criteria are:  (a) that employees be able to qualify for the reward at least annually; (b) that the financial reward not exceed the percentage thresholds outlined above, 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 that a waiver of the health goal or a reasonable alternative means of attaining the health goal be offered to employees whose 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 the 2006 HIPAA final regulations as well as in Section 2705(j) of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA § 1201(4)).

[2] The HHS proposed regulations would permit the tobacco use surcharge in the small group market only in connection with a wellness program that meets HIPAA nondiscrimination standards.

Thanksgiving Feast of Benefits Regulations Issued

On Tuesday, November 20, 2012 over 300 pages of proposed regulations were issued on the following key benefits topics: (1)  the definitions of “essential health benefits” and “actuarial value” applied to insurance products offered on the health exchanges; (2) nondiscriminatory incentives for wellness programs; and (3) a bundle of ACA insurance market reforms including guaranteed availability, restrictions on insurance premium rating differences, risk pools and catastrophic plans.

I will be reading and digesting these new regulations in the coming days and will have updates for you soon after, so stay tuned.

It is likely that the current guidance has been ready to go for some time but was held back to avoid any potential controversy prior to the November 6 presidential election. However, employers and advisers should ready themselves for a steady stream of ACA regulations and other guidance to be issued through the end of the year and throughout 2013.

IRS Comments on Timing of Nondiscrimination Regs. for Insured Health Plans

The IRS will not issue regulations on nondiscrimination rules applicable to insured health plans until after it has published regulations on employer “pay or play” (shared responsibility) duties, and if they have not issued nondiscrimination regulations by the end of June 2013 then, in keeping with the general requirement of at least six months’ advance notice of such changes, nondiscrimination rules likely will not apply in 2014.  In the meantime, the IRS non-enforcement policy set forth in Notice 2011-1 will remain in place. 

This was the gist of informal comments made on October 12, 2012 by Stephen Tackney, IRS Deputy Associate Chief Counsel (Employee Benefits), Tax Exempt and Government Entities Division, and Kevin Knopf, from the Treasury Department’s Office of Benefits Counsel, at a two-day conference on health and welfare benefit plans, sponsored by the American Bar Association’s Joint Committee on Employee Benefits.

I did not attend the conference but confirmed the nature of the statements with a Wolter Kluwers/CCH journalist whose summary of the statements is posted here.  I will continue to post updates on the progress of nondiscrimination regulations as they become available.