Agency FAQs Address a Variety of Preventive Care Questions

On May 11, 2015, the Departments of Labor, Treasury, and Health and Human Services issued the 26th in a series of Frequently Asked Questions on implementation of the Affordable Care Act.  The FAQs provide needed clarification on several aspects of no-cost preventive health services required to be provided under the Act.  Key points are summarized below.

Expanded BRCA Genetic Testing and Counseling

  • The FAQ extends BRCA genetic testing and counseling without cost sharing to women who do not have a family history of the specified cancers, but who themselves have had breast, ovarian, or other cancer that was not diagnosed as BRCA-related. Medical studies cited in the FAQ found that these women show an increased risk of gene mutation, even in the absence of a family history of cancer, such that genetic testing could identify and prevent later disease. No-cost genetic testing and counseling for these women, even when asymptomatic and cancer free, is thus a logical extension of current preventive care guidelines triggered by family disease history.

Dependent Access to Well-woman Preventive Care

  • Dependent children may receive recommended preventive care services without cost sharing under non-grandfathered group health plans and individual policies; the ACA defines “dependent” as children up to age 26. Accordingly, female dependents may receive well-woman preventive services through age 25, including preconception care and prenatal care, where those services are determined to be age- and developmentally appropriate. Dependent coverage need not be extended to the child of a child receiving dependent coverage.

Access to Sex-Specific Preventive Care

  • Sex-specific preventive care and screening must be provided at no cost whenever an individual’s attending provider determines that it is medically appropriate, irrespective of the individual’s sex assigned at birth, gender identity, or recorded gender. In the example given, a transgender man with residual breast tissue would qualify for a mammogram with no cost sharing if other criteria for the preventive service, and for coverage, are met.
    • Note: “attending provider” includes licensed individual healthcare providers to the patient in question, and does not include plans, issuers, hospitals or HMOs.

Clarification re: No-Cost Coverage of Contraceptive Methods

  • Group health plans and issuers must cover, without cost sharing, at least one form of each of the 18 methods of birth control methods for women that are identified in, among other sources, the current version of the FDA Birth Control Guide. The no-cost coverage of the contraception method must also include related clinical services, such as patient education and counseling.
  • This rule takes effect for plan or policy years beginning on or after July 10, 2015; the delayed effective date allows time for changes to be made by plans and issuers who reasonably interpreted prior guidance as not requiring that at least one form of contraception in each of the 18 methods be offered without cost sharing.  Based on this principle, it is not permitted to cover oral contraceptives with no cost sharing, while imposing cost sharing on other FDA-identified hormonal contraceptive methods such as emergency contraception or the contraceptive patch.
  • Within each of the 18 methods of contraception, plans and issuers may use reasonable medical management techniques and impose cost sharing to encourage use of specific services or FDA-approved items within that method. For instance, a plan could provide generic birth control pills at no cost and impose cost sharing for brand name pills. However, the plan would need to make exceptions, and waive cost sharing for name brand drugs, for women for whom it was medically inadvisable to take the generic version.
  • When multiple medically appropriate services and FDA-approved items exist within a given contraceptive method, plans and issuers may use reasonable medical management techniques to encourage use of some services and methods over others. However, if a woman’s attending provider recommends a specific service or item based on medical necessity, the plan or issuer must cover the service or item without cost sharing.
    • “Medical necessity” in this context may take into account the severity of side effects, differences in permanence and reversibility of contraceptives, and the ability to adhere to the appropriate use of the item or service, as determined by the attending provider.
  • In either instance (exception to medical management technique, or recommendation of specific service or item) the process for obtaining coverage must be efficient, transparent, easily accessible and not unduly burdensome to the patient, her attending provider, or other authorized representative, and the plan or issuer must defer to the determination of the attending provider regarding medical necessity. In addition, the plan or issuer must determine the claim within the time periods, and in the manner, applicable to a pre-service, post-service, or urgent care claim, as is appropriate under the circumstances. (Requests that involve urgent care must be resolved as soon as possible, but no later than 72 hours after receipt.)
  • Note that group health plans established by or maintained by religious employers (generally limited to “steeple” churches or other houses of worship) are exempt from the requirement to cover contraceptive services, and accommodations are available to group health plans maintained by certain nonprofit organizations founded on religious principle.  Guidance related to the religious exemption is summarized here.

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Filed under Affordable Care Act, GINA/Genetic Privacy, Health Care Reform, PPACA, Preventive Care

Proposed EEOC Rules Further Complicate Wellness Program Design

On April 20, 2015, the Equal Employment Opportunity Commission (EEOC) published proposed regulations and interpretive guidance (collectively, “rules”) under Title I of the Americans with Disabilities Act (ADA) applicable to incentive-based wellness programs commonly offered in connection with group health plans.  The new rules add to existing wellness regulations under HIPAA and the ACA, which are published and enforced by the Departments of Treasury, Labor, and Health and Human Services (the “Departments”).

The new guidance primarily impacts wellness programs that condition large financial incentives (or penalties) on employees undergoing biometric testing and/or completing health risk assessments (HRAs).  However it has broader implications – and complications – for all wellness program designs.  Below we explain why certain wellness program designs fall under the ADA, how the EEOC’s proposed rules, if finalized in their current form, would limit design options for these programs, and what employers might consider doing in the meantime.

Wellness Programs Subject to the ADA

As mentioned, the EEOC rules primarily impact wellness programs that provide a high financial reward for merely undergoing biometric testing and/or completing an HRA, or that impose a penalty on employees who choose not to participate in such testing.

This specific plan design is permitted under existing HIPAA/ACA wellness regulations, which aim to prevent discrimination on one or more “health factors,” including a disability, illness, claims experience or medical history.  As we have discussed in an earlier post, those regulations permit employers to tie any size financial incentive or penalty to a wellness program that requires mere participation (“participation-only”), and restrict the incentive (and impose other design criteria) only when the incentive is conditioned on physical activity or attainment of a specific health outcome (“health-contingent”).

The Departments consistently have maintained, however, that satisfaction of HIPAA/ACA requirements does not equal satisfaction of other laws governing wellness programs, including the ADA.  They most recently reiterated this position in ACA FAQ XXV, published on April 16, 2015.  And the EEOC in past guidance has identified biometric testing as a workplace medical examination, and HRAs as containing “disability-related inquiries,” such that participation must be “voluntary” on the part of the employee.   EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the ADA, Q&A 22. (July 27, 2000).   That guidance clarified that a wellness program is “voluntary” as long as an employer neither requires participation nor penalizes employees who do not participate.  Even since, the EEOC requirement of voluntary participation has been on a collision course with the unlimited financial incentives that HIPAA and the ACA permit under “participation-only” wellness plans.

What was not clear, until publication of the new rules, was the point at which a financial wellness incentive crossed the border from voluntary to coercive, in the eyes of the EEOC.   Employer uncertainty on this point reached a crescendo in the latter part of 2014, when the EEOC brought three separate enforcement actions against employers whose “participation only” wellness programs included biometric testing and HRAs, but met applicable HIPAA/ACA design guidelines for same.  In the third and most prominent action, against Honeywell, the wellness program imposed a potential annual surcharge of up to $4,000 on employees who refused, along with their spouse, to undergo biometric testing including a blood draw, performed by a third party vendor.  The federal court rejected the EEOC’s attempt to stop Honeywell’s use of the program, but the case had a “chilling effect” on employers whose wellness programs followed similar designs.

Proposed Design Restrictions

Under the proposed EEOC rules, an incentive or reward under a wellness program that includes biometric testing and/or an HRA crosses the line from voluntary to coercive when it exceeds a dollar amount equal to 30% of the total cost of employee-only health coverage (employer and employee contributions, combined).  An additional incentive or penalty of up to 20% may be imposed in exchange for the employee disclosing whether or not they use tobacco, but not in exchange for blood testing for nicotine or cotinine.  Most significant, this cap on incentives applies to biometric testing and HRAs (or to other forms of medical examination or disability-related inquiries under a wellness program) even when the program is “participation-only” under HIPAA/ACA rules.  Note that only employers with 15 or more employees are subject to Title I of the ADA; smaller employers are outside the EEOC’s jurisdiction.

By contrast, the HIPAA/ACA rules apply these limits only to health-contingent wellness programs, and also permit the maximum percentage limits to apply to the cost of dependent coverage when the wellness program allows participation by dependents.  The EEOC rules do not address dependent participation, most probably because their jurisdiction is limited to the employer-employee relationship.  Nor do they address whether participation by spouses in biometric testing/HRAs triggers concerns under the Genetic Information Nondisclosure Act, or “GINA.” The EEOC did take this position in the Honeywell case, however, and in the new guidance reserves the topic for future comment.

In addition to the cap on incentives, the EEOC rules would also impose other criteria for “voluntariness” on wellness programs that include biometric testing/HRAs, including that:

  • the employer may not require participation in the wellness program;
  • the employer may not deny access to health coverage (other than through imposition of the permitted reward/penalty percentage) to those who do not participate; and
  • the employer may not take adverse employment action or otherwise retaliate against employees who do not participate, or who participate but do not attain a desired health outcome.

Additionally, for all wellness programs that are used in conjunction with a group health plan, whether or not they include biometric testing/HRAs, employers must provide a written notice explaining what medical information will be obtained under the wellness program, how it will be used, and the restrictions on disclosure that apply, including HIPAA privacy and security rules.  Note that this is in addition to the notification of reasonable alternative methods of attaining a wellness reward that the HIPAA/ACA rules require be included in all health-contingent wellness program materials.

The EEOC rules also impose confidentiality requirements on all wellness programs, not just that include biometric testing/HRAs, and further require that wellness programs be “reasonably designed to promote health or prevent disease.”  The EEOC confidentiality and reasonable design rules are quite similar to existing requirements under HIPAA/ACA regulations, with the following modifications:

  • The EEOC confidentiality rules require that medical information be disclosed to employers only in aggregate form, except as is necessary to administer the health plan.
  • The EEOC reasonable design rules would apply to participation-only wellness programs; under HIPAA/ACA regulations they only apply to health-contingent programs.
  • The EEOC reasonable design rules would require that a wellness program that collects medical information (such as through biometric testing) provide follow-up information or advice with regard to health issues.
  • The EEOC reasonable design rules would prohibit wellness programs that require an overly burdensome investment of time in order to attain an incentive, involve unreasonably intrusive procedures, or act primarily to shift health costs onto employees.

Finally, the EEOC rules require that all wellness programs satisfy reasonable accommodation requirements under the ADA.  Under existing HIPAA/ACA regulations, accommodation (in the form of an offer of alternative ways to attain a reward) is only expressly required for health-contingent wellness programs.  The example given is provision of a sign language interpreter to allow a hearing-impaired employee to attain a reward by taking part in nutrition classes.

What to Do Now  

It is likely that the EEOC will receive a large number of public comments on the proposed regulations and guidance.  They have asked for comments on a number of points in addition to the proposed guidance, including whether wellness incentive limits should link to the ACA concept of “affordable” coverage.

Public comments are due on June 19, 2015 and it may take some time for the EEOC to incorporate them into final regulations and guidance.  Although compliance with the proposed rules is optional in the meantime, the standards they outline likely will function as a “safe harbor” from challenge on ADA grounds, such that risk-averse employers may want to take steps to comply with them proactively.    In the interim, employers can also expect business lobbies to challenge the dual standard the EEOC rules would impose on several aspects of participation-only wellness programs. (A House bill that would insulate ACA/HIPAA compliant wellness incentives from attack under GINA or the ADA was proposed before the EEOC rules were published.)  All employers maintaining wellness programs should consider distributing the notice re: wellness program data collection, use and privacy, and should work with their wellness vendors and benefit advisors to craft the appropriate language.   Pending further guidance on whether participation by family members triggers GINA concerns, it seems premature to eliminate, or modify wellness incentives for participation by spouses and dependents.

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Filed under Affordable Care Act, Benefit Plan Design, HIPAA and HITECH, PPACA, Wellness Programs

Possible Outcomes from King v. Burwell

On March 4, 2015, the United States Supreme Court heard oral argument in King v. Burwell, a case that variously has been characterized as an attack on the ACA and the potential death knell of that complicated law.  There is no question that the Supreme Court’s decision in this matter, which is expected to issue in late June 2015, will have immediate and significant ramifications for millions of individuals, their employers, and the health care industry.  Specifically at issue is whether the approximately 6 million individuals who receive federal subsidies towards the purchase of health insurance on the “federally facilitated exchange” or “FFE,” also known as healthcare.gov, can continue receiving those subsidies, or whether the subsidies may only be awarded in the approximately 17 states, including California and the District of Columbia, that sponsor their own health exchanges.  The impact of the King decision naturally will be largest in the approximately 34 states whose residents use the FFE, but its likely damage to the health insurance market as a whole will be felt in every state.  It also will have a major impact on “applicable large employers” (“ALEs”) under the ACA (those employing, on average, 50 or more full-time employees, including full-time equivalents).  That is because no employer “pay or play” penalty taxes apply to an ALE unless at least one of its full-time employees (30 or more hours/week) has qualified for premium tax credits on a health exchange.[1]  Below we look at the facts of the case, the legal arguments on both sides, possible outcomes in the Supreme Court decision, and finally what might happen if the Court decides in favor of the King plaintiffs.

Facts Relevant to the Case

There are fairly few facts relevant to King v. Burwell because it is essentially a “test case” funded by a conservative think tank, the Competitive Enterprise Institute.  The plaintiffs (technically, “Petitioners”) are several lower-income residents of Virginia, a state that did not establish its own exchange.  Lead plaintiff David King is a limousine driver.  The grievance that the plaintiffs have in common is that the Federally Facilitated Exchange that functions in Virginia gives them access to premium tax credits at www.healthcare.gov, which are received in the form of immediate subsidies towards coverage, then reconciled against actual household income each April.  As a consequence of access to tax credits, individual health coverage is “affordable” to them (premiums do not exceed 8.1% of income).  Because affordable coverage is available to them, effective January 1, 2014 they must either purchase the coverage or pay a penalty tax.  If the premium tax credits were not available in Virginia, a non-state-exchange state, coverage would be unaffordable to them and they would not have to either buy coverage or pay a tax penalty.  In essence they are arguing that access to premium tax credits in a non-exchange state exposes them to a tax they would not have to pay if there were no federally-run exchanges.  This argument failed to succeed in federal district court and the 4th Circuit Court of Appeals affirmed that decision.

The Legal Arguments

King v. Burwell is materially different from the Supreme Court’s prior major ACA case, National Federation of Independent Business (NFIB) v. Sebelius, 567 U.S. ___ , 132 S. Ct. 2566, 183 L. Ed.2d 450 (2012).  The NFIB case challenged the constitutionality of the individual mandate, which requires individuals to secure health insurance for themselves and their families, or pay a tax penalty.  The challengers to the law characterized this as an overreach of Congress’ powers under the U.S. Constitution.  In a 5 to 4 decision, the Supreme Court ruled that the individual mandate was within Congress’ powers to impose taxes on U.S. citizens.

In the King case, by contrast, the challengers are not claiming that the ACA violates the Constitution.  They are instead looking at a few lines of text of the 906-page law that relate to how premium tax credits are calculated. The language, which is codified at Internal Revenue Code (“Code”) Section 36B(b)(2)(A), is as follows (italicized text):


(b) Premium assistance credit amount

For purposes of this section—

(1) In general

The term “premium assistance credit amount” means, with respect to any taxable year, the sum of the premium assistance amounts determined under paragraph (2) with respect to all coverage months of the taxpayer occurring during the taxable year.

(2) Premium assistance amount

The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of—

(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act [. . . . ]

The challengers argue that Congress would not have defined the calculation of premium tax credits with specific reference to “State” exchanges unless it intended to limit access to premium tax credits to state-run exchanges.

The government argues that the ACA must be interpreted as a whole, and that other section of the law are meaningless or absurd if premium tax credits are limited to state-run exchanges.  In particular they point to Section 1321 of the ACA which authorizes the Secretary of Health and Human Resources to establish an exchange on behalf of a state, and argue that a federally-run exchange would have no function or purpose if it did not award premium tax credits.    The government also argues that, if the Court found the ACA to be ambiguous on this point, it must defer to the federal agency charged with interpreting the provision, and that agency, the IRS, had already issued final regulations under Code Section 36B stating that premium tax credits are equally available on state-run and federally-run exchanges.

Oral Argument in King v. Burwell

During approximately 90 minutes of oral argument on March 4, 2015, it became fairly clear that the four “liberal” Justices (Ginsburg, Breyer, Sotomayor and Kagan) favored the government’s arguments, and that the three “conservative” justices (Alito, Scalia and Thomas) favored the challengers’ position.   The swing votes that will decide the outcome belong to Chief Justice John Roberts, who was almost silent during oral argument, and Justice Kennedy, whose line of questioning could be viewed as potentially sympathetic to the government’s position.

One issue that appeared to have traction with Justice Kennedy, and thus could possibly determine the outcome, was whether, under the challenger’s interpretation of the law, the ACA “coerced” states into starting their own exchanges by making them the only route to premium tax credits.  Federal coercion of the states would present a serious Constitutional problem, in Justice Kennedy’s words.   In fact, the Supreme Court held in its prior ACA decision that the federal government could not coerce states into expanding access to Medicaid by conditioning their access to all Medicaid money on their agreement to expand Medicaid.

Further, all of the Justices who commented seemed very conscious that a decision for the challengers could push individual insurance markets in the non-exchange states into a “death spiral” and eventual collapse.  This is because the ACA’s three main components are insurance market reforms, such as prohibiting pre-existing condition exclusions, that increase insurers exposure to risk, the individual mandate, which brings young and healthy people into the individual insurance market to mitigate that risk, and finally the premium tax credits, which make individual coverage available to people who otherwise could not afford it.  Without premium tax credits to attract younger, healthier people towards insurance, the argument goes, only the sickest individuals would purchase insurance and the health insurance industry would enter a “death spiral.”   A similar phenomenon has occurred in the past in individual states that attempted aggressive market reforms without mitigating measures.

Most Supreme Court observers concluded that the government fared slightly better during oral argument than did the ACA challengers, but were quick to add that this has little predictive value with regard to the Court’s eventual written opinion.

Possible Outcomes from the Court

It is important to note that the Supreme Court did not need to hear the King v. Burwell case; it voluntarily agreed to review the 4th Circuit court decision against the challengers even though there was no direct conflict at the federal appeal court level.  (ACA challengers had succeeded in the D.C. Circuit court in Halbig v. Burwell, a similar ACA challenge case, but that “panel” decision by the D.C. Circuit had been vacated so that all sitting judges could hear the case.  The “en banc” hearing of Halbig is on hold pending decision in King v. Burwell. )   Thus it is fair to conclude that the Supreme Court is acutely aware of the case’s very high stakes for many newly-insured Americans, for the administration that championed the law, for applicable large employers, and for the insurance industry as a whole.

What that may mean is that, even if the Supreme Court upholds the ACA challenge, and prohibits premium tax credits from being awarded in non-exchange states, it may rule in such a way that protects stakeholders from the immediate withdrawal of premium tax credits.   Here are a few of the possible ways the decision could fall:

  • Majority Verdict for the Government: if Justice Kennedy or Chief Justice Roberts cast their vote for the government, the resulting decision will preserve the “status quo” under the Affordable Care Act as we know it. Healthcare.gov will continue to award premium tax credits in the non-exchange states and individual insurance markets in those states will remain intact. This outcome would make it harder for any alternatives to the ACA, which the Republican-controlled Congress is already proposing, to gain traction and succeed.
  • Majority Verdict for the Challengers: If Justice Kennedy or Chief Justice Roberts sides with the more conservative faction of the Court, the operation of healthcare.gov in 34 states would grind to a halt and individual insurance markets in those states would soon become dysfunctional. In the non-exchange states, it is possible that individuals and families who must drop their now-unaffordable health insurance coverage will assail Governors’ mansions and the offices of Republican lawmakers with demands that they restore access to coverage, including life-saving cancer treatments and the like. Because applicable large employers in the non-exchange states will not be subject to pay or play penalty taxes, they may drop coverage they had only recently extended to employees working 30 or more hours per week. It is also possible that there will be business flight to the non-exchange states, for this reason. At the same time, non-exchange state residents may try to relocate in states that have their own exchanges, in order to receive subsidies. In essence, jobs and workers to fill them would be propelled in opposite directions.
  • A Possible Third Way: Justice Alito, who almost certainly will vote for the ACA’s challengers, raised the possibility in oral argument of a verdict for the challengers, but one whose effect is delayed by a year in order to give non-exchange states time to develop an alternative to healthcare.gov.   As this would be a voluntary process, it runs the risk that no alternative measures would be available in some states whose Governors and other elected representatives firmly oppose the ACA. Even in states that were willing to find alternatives, one year may not be enough time in which to do so. Supporters of the ACA would view this outcome as preferable, however, to a ruling for challengers that takes effect immediately. It is also possible that the justices could rule in favor of the challengers but interpret “state exchange” to include federal-state partnership exchanges, several of which already exist, and more of which are in the works already. This is consistent with the Supreme Court’s prior decision in NFIB v. Sebelius that Medicaid expansion was not something that the federal government could coerce the states into doing.

Legislative Resolutions to the Problem

In oral argument Justice Scalia asserted that Congress would take action to avert massive loss of coverage leading to a death spiral of the individual insurance market in non-exchange states.  Arguing for the government, the Solicitor General’s comment was to pause and ask “this Congress…..? to wide laughter in the courtroom.  And in fact, were Congress not so deeply divided over the ACA a simple legislative amendment would have resolve the supposed “drafting error” at the heart of King v. Burwell.

However, it is not at all impossible that members of Congress would view a Supreme Court decision for ACA challengers as a prime opportunity to gain political ground with voters by “rescuing” their health insurance, and access to subsidies, through legislation.  In fact, some legislative proposals are already being drafted and considered in Congress, however only by traditionally anti-ACA factions.   The official word from the Department of HHS is that it has no ready fix or alternative to shutting down healthcare.gov (but it is likely that the administration is considering workarounds nonetheless.  While all eyes are on the Court and its likely late-June decision, those with political ground to gain will not be standing idle.

[1] The IRS postponed employer shared responsibility duties from 2014 to 2015 in Notice 2013-45.  Under separate transition relief, generally only employers with 100 or more full-time employees (including full-time equivalents) in 2014 must offer coverage or pay the penalty for 2015, but all applicable large employers must do so in 2016 and subsequent.  The transition relief is explained in Q&A 34 of this IRS FAQ.

 

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Filed under Affordable Care Act, Employer Shared Responsibility, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace, PPACA, State Exchange

IRS Offers Limited Transition Relief for Certain Premium Reimbursement Plans

On February 18, 2015 the IRS issued Notice 2015-17 which provides limited transition relief from $100 per day, per employee excise taxes under Internal Revenue Code § 4980D that otherwise would apply in 2014 and 2015 to certain arrangements under which employers subsidize individual health insurance coverage, whether through reimbursing employees for premiums paid, or paying them directly to the carrier.  The guidance, which was issued with the support of the Departments of Labor and Health and Human Services, refers to these arrangements as “employer payment plans.”  The main problem that employer payment plans have is that they generally constitute “group health plans” for ACA purposes, but unless they are paired or “integrated” with ACA-compliant group health coverage they fail to meet ACA market reform requirements, including the requirement to cover preventive care, and the prohibition on an annual dollar limits.  I have attached an updated chart of “Disallowed Pay or Play Tactics” to reflect the transition guidance; this prior post discusses the chart in its original form.  The main takeaway points are listed below; please note in all regards that a “group health plan” is one that covers 2 or more active employees:

  • Employers that are not “Applicable Large Employers” (ALEs) will not be subject to excise taxes in relation to an employer payment plan that reimburses employees on a pre-tax basis for individual health insurance premiums (or pays the premium directly) that is maintained in 2014, or is maintained between January 1 and June 30, 2015.
    • For the relief to apply in 2014 the employer must not be an ALE for 2014, which means that they did not employ 50 or more full-time employees, including full-time equivalents (FT/FTE), on average, based on any period in 2013 of at least 6 consecutive months.
    • For the relief to apply from January 1 – June 30, 2015, the employer must not be an ALE for 2015, which means that they did not employ 50 or more FT/FTE employees, on average, based on any period in 2014 of at least 6 consecutive months.
    • Note that this is “transition” relief which implies that the employer payment plan predated the guidance issued on February 18, 2015.
  • There is no transition relief for employers that are Applicable Large Employers maintaining pre-tax individual premium reimbursement plans.  They are subject to the excise tax for 2014 and 2015 and must pay and report it on IRS Form 8928.
  • Post-tax reimbursement or payment of individual health premiums remains a non-ACA-compliant employer payment plan that is subject to excise taxes.  No transition relief applies.
  • However, no excise taxes will apply if an employer simply increases employees’ taxable compensation in order for them to pay for individual health premiums, without conditioning the extra compensation in any way on payment for premiums.  An employer may communicate with employees about health exchange coverage and premium tax credits without violating this rule.
  • Until further notice from the IRS, an arrangement that reimburses 2% S-Corporation shareholders for health premium costs, or pays them directly, is not subject to excise taxes as a non-ACA compliant group health plan.   The IRS plans to issue further guidance on these arrangements, and on federal taxation of health benefits to 2% S-Corporation shareholders generally.

Disallowed Tactics 2015 FINAL

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Filed under Affordable Care Act, Benefit Plan Design, Employer Payment Plans, Health Care Reform, Health Reimbursement Accounts, PPACA, Preventive Services

Updated SBC Rules Reflect Full ACA Implementation

As 2014 came to a close, the federal agencies charged with ACA implementation (the Treasury, Labor & Health and Human Services Departments) published proposed regulations governing the contents and delivery of Summaries of Benefits and Coverage or “SBCs,” and made corresponding changes to the SBC template, and related glossary of medical and insurance terms.   The proposed regulations, if finalized, would apply to SBCs required to be provided for open enrollment periods beginning on or after September 1, 2015, and as of the first day of the plan year beginning on or after September 1, 2015 (January 1, 2016 for calendar year plans) for other SBD disclosures (such as for special enrollments).   With the proposed regulations the agencies also released updated SBC templates (blank, and completed), and an updated uniform of key medical and insurance terms.  If finalized, the proposed regulations would amend final SBC regulations published on February 14, 2012.

SBC Update:  Contents

In essence, the proposed regulations refresh SBC contents and terminology to reflect full ACA implementation, in particular its group market reforms and the rollout, over 2014 – 2016, of both individual and employer shared responsibility regimes.   Prior to the proposed regulations, these upgrades occurred piecemeal, in the form of Frequently Asked Questions, no fewer than six of which addressed SBC issues since the final regulations were published.  (See ACA Implementation FAQs Parts VII, VIII, IX, X, XIV and XIV, located here.)  The proposed regulations helpfully consolidate all that earlier guidance and make additional changes consistent with the post-ACA coverage landscape.  With particular regard to SBCs provided to participants and beneficiaries for group health coverage (insured, or self-insured) they include the following:

  • The mandated contents of the SBC template are reduced from 4 double-sided pages to only 2 ½ double-sided pages, freeing up 1 ½ pages for voluntary disclosures such as premium costs, if practical for the coverage arrangement, or additional “coverage examples,” as described below.   There is no requirement that the extra space be filled so long as all required template disclosures are made.
  • The extra space is gained in part by removing references to annual limits on essential health benefits and pre-existing condition exclusions, which are now obsolete.
  • Added to the SBC template is a third “coverage example” which is a hypothetical walk-through of likely covered and out-of-pocket expenses an individual would experience under the benefit package or plan for specific health issues. The new coverage example is a simple foot fracture with emergency room visit.
  • The SBC template also updates pricing data for the other two coverage examples, which are normal delivery of a baby, and well-regulated Type 2 diabetes. As mentioned, carriers and self-insured plan sponsors could add additional coverage examples so long as they remain within the maximum length of 4 double-sided pages (with at least a 12 point font).
  • Added to the uniform glossary are definitions for the following medical terms: “claim,” “screening,” “referral,” “specialty drug” as well as ACA terms such as “individual responsibility requirement,” “minimum value,” and “cost-sharing reductions.” These additions increase glossary page length from 4 to 6.
  • For insured or HMO coverage, the SBC must provide a web address at which individuals can view actual insurance policies, certificates, or HMO contracts related to the SBCs. (A sample certificate for group coverage may be posted while the terms of the actual certificate are under negotiation.) Existing regulations require web addresses for lists of in-network medical providers and drug formularies as well as the uniform glossary of insurance and medical terms.
  • The proposed regulations require that the SBC state whether or not the benefit package qualifies as “minimum essential coverage” or “MEC,” or whether or not it provided at least “minimum value”; these were not required by the 2012 final regulations, but were later added for coverage effective on or after January 1, 2014.
    • Note: Although this information was somewhat esoteric in 2012 and 2013, it has now become essential for most employees to complete their income tax returns for 2014. The MEC disclosure is needed to demonstrate they met individual mandate duties first in effect last year, and the minimum value disclosure is needed in relation to advance payment of premium tax credits. This tax season is the first time that individuals who received tax credits must reconcile them against actual household income, through use of the very complicated IRS Form 8962.  Compliance with the individual mandate is also required to be demonstrated on Form 1040, at line 61, or through reporting of an exemption from the mandate via Form 8965.

SBC Update:  Delivery

The proposed regulations are intended to streamline SBC delivery rules and prevent duplicate delivery of SBCs in certain situations:

  • When an insurer/HMO (“issuer”) or self-funded plan provides an SBC upon request to someone before they have applied for coverage, it need not re-supply one upon actual application for coverage unless the SBC contents have changed in the meantime (or if the person applies for a different benefit package).
  • When a plan sponsor provides an SBC to an applicant during negotiation of terms of coverage, and the terms of coverage change, the sponsor need not provide an updated SBC until the first day of coverage (unless separately requested).
  • A group health plan that uses two or more benefit packages, such as major medical coverage and a health flexible spending account, may synthesize the information into a single SBC, or provide multiple SBCs.
  • The rule permitting a plan sponsor or issuer, upon renewal or reissuance, to provide a new SBC only with respect to the benefit package that is being renewed or reissued is extended to apply to cases in which a plan or issuer automatically reenrolls participants and beneficiaries.
  • Where a plan sponsor or carrier required to provide an SBC with respect to an individual (“original provider”) enters into a binding contract with a third party (“contracted provider”) to provide the SBC to the individual, the original provider will be considered to have met their SBC delivery duties if all of the following requirements are met:
    • The original provider monitors the contracted provider’s performance under the contract;
    • The original provider corrects noncompliance by the contract provider under the SBC delivery contract as soon as practicable, if it has knowledge of the noncompliance and has all information necessary to correct the noncompliance; and
    • The original provider communicates with participants and beneficiaries about noncompliance of which it becomes aware, but which it is unable to correct, and takes significant steps as soon as practicable to avoid future violations.
  • In instances where an insured group health plan uses two or more insurance products provided by separate issuers to insure benefits under the plan, the plan administrator will be responsible for providing complete SBCs but may contract with one of the carriers or another service provider to provide the SBC; absent such an agreement one carrier has no obligation to provide SBCs describing benefits provided by the other carrier. (It remains permissible under prior FAQ guidance to also provide several separate partial SBCs under cover of a letter or notation on the partial SBCs explaining their interrelation.)
  • The proposed rules also incorporate prior FAQ guidance that “providing” an SBC means “sending” an SBC, and an SBC is timely provided if it is sent within seven business days of request, even if it is not received within that time period. This same timing rule applies to requests to receive copies of the uniform glossary. Provisions in the final regulations on electronic delivery of the SBCs continue to apply.

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Filed under Affordable Care Act, Employer Shared Responsibility, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace, Individual Shared Responsibility, Plan Reporting and Disclosure Duties, PPACA, State Exchange, Summaries of Benefits and Coverage

Summary Chart of Disallowed Pay or Play Tactics

With the January 1, 2015 employer shared responsibility deadline fast approaching, the three government agencies charged with ACA compliance (IRS, DOL and HHS) have provided recent guidance on several strategies or tactics that have been marketed to applicable large employers as legitimate ways to reduce their coverage costs and exposure to shared responsibility penalty taxes (assessable payments).   Employer reimbursement of individual health insurance premiums is a common but not universal feature of these arrangements.  The Internal Revenue Service ruled out pre-tax reimbursement of individual health premiums in Notice 2013-54, but more recent guidance in ACA FAQ XXII and in IRS Notice 2014-69 expands the prohibition to include after-tax individual premium reimbursements, as well as other shared responsibility cost reduction strategies.  The chart attached below summarizes:

  • the disallowed strategies;
  • the reasons why they were disallowed;
  • the penalties that may apply to applicable large employers that persist in pursuing these strategies; and
  • other relevant facts and concerns.

Disallowed Tactic Chart

As with all content provided on this blog, the chart is meant to serve as a general summary of legal developments and the information it contains should not be applied to any particular factual situation without first consulting experienced tax or benefits counsel.

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Filed under Affordable Care Act, Benefit Plan Design, Cafeteria Plans, Employer Shared Responsibility, ERISA, Flex Plans, Health Care Reform, HIPAA and HITECH, PPACA

IRS Announces Increased 2015 Retirement Plan Contribution Limits

On October 23, 2014 the IRS announced 2015 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   A 1.7% rise in the September CPI-U over 2013 triggered $500 increases to the annual maximum salary deferral limit for 401(k) plans, and the catch-up limit for individuals age 50 or older. Citations below are to the Internal Revenue Code.

Limits That Increase for 2015 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $17,500, increases $500 to $18,000.

–The age 50 and up catch-up limit also increases $500, to $6,000 total. This means that the maximum plan deferral an individual age 50 or older in 2015 may make is $24,000.

–Maximum total annual contributions to a 401(k) or other “defined contribution” plans under 415(c) increased from $52,000 to $53,000 ($59,000 for employees aged 50 and older).

–Maximum amount of compensation on which contributions may be based under 401(a)(17) increased from $260,000 to $265,000.

–The compensation threshold for determining a “highly compensated employee” increased from $115,000 to $120,000.

–The compensation threshold for SEP participation increased from $550 to $600.

–The SIMPLE 401(k) and IRA contribution limit increased $500 to $12,500.

–The Social Security Taxable Wage Base for 2015 increased from $117,000 to $118,500.

Limits That Stayed The Same for 2015 Are As Follows:

–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.

–The compensation dollar limit used to determine key employees in a top-heavy plan remains unchanged at $170,000.

–The maximum annual benefit under a defined benefit plan remained at $210,000.

 

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Filed under 401(k) Plans, 403(b) Plans, COLA Increases, ERISA, IRA Issues, Profit Sharing Plan