Compliance Corner Archives
Federal Updates 2021 Archive
The IRS recently released the 2022 Instructions for Forms 1099-SA and 5498-SA. The Form 1099-SA is used to report distributions from health saving accounts (HSAs) and other medical savings accounts. The 5498-SA reports contributions to these accounts for the applicable tax year.
The IRS updates the form instructions annually to incorporate any recent administrative, reporting or regulatory changes. The 2022 instructions reflect no significant changes.
HSA custodians are responsible for filing the forms with the IRS and providing copies to accountholders. However, employers who offer HSAs should be aware of the updated publication.
On December 7, 2021, the IRS provided an updated draft of the 2021 IRS Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation of fringe benefits and applicable exclusion, valuation, withholding and reporting rules.
The IRS updates Publication 15-B each year to reflect any recent legislative and regulatory developments. Additionally, the revised version provides the applicable dollar limits for various benefits for the upcoming year. As standard procedure, the IRS releases a preliminary draft of the updated guide before the final publication.
Further, the IRS will also issue a new draft of the form to alert users of any changes made to the prior version. This publication was most recently updated to note that the American Rescue Plan Act (ARPA) increased the employer-provided dependent care exclusion to $10,500 ($5,250 for a married employee filing a separate return) for calendar year 2021.
As a reminder, the business mileage rate for 2021 is 56 cents per mile, which can be used to reimburse an employee for business use of a personal vehicle and, under certain conditions, to value the personal use of a vehicle provided to an employee. The 2021 monthly exclusion for qualified parking is $270, and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. For plan years beginning in 2021, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,750.
Employers should be aware of the availability of the updated publication and most recent modifications.
The IRS recently released an information letter that reiterates guidance regarding high-deductible health plan’s (HDHPs) coverage of primary and behavioral health care visits before the minimum required deductible is met, as well as HDHP rules generally.
The letter responds to an inquiry that asked the IRS to reconsider prior guidance that stated that male contraceptives are generally not considered to be preventive care. As such, a health plan providing benefits for male sterilization or male contraceptives before satisfying the minimum deductible is not an HDHP. As of now, the IRS considers that request a submission for a guidance recommendation.
In addition, the information letter reiterates general HDHP information, explaining that an HDHP generally may not provide benefits until the deductible for the plan year has been satisfied with an exception for preventive care services (which can be provided prior to the deductible being satisfied). Further, for purposes of HDHP administration, preventive care services include periodic health evaluations, routine prenatal and well-child care, immunizations and various screening services and exclude “any service or benefit intended to treat an existing illness, injury, or condition.”
This letter does not provide any new or updated information, but it does serve as a good reminder of the HDHP deductible requirement and what is considered preventative care for purposes of HDHP administration.
On November 10, 2021, the IRS issued Revenue Procedure 2021-45, providing certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small business tax credit and other adjustments for tax year 2022. Those changes are outlined below.
- Health FSA. The annual limit on employee contributions to a health FSA will be $2,850 for plan years beginning in 2022 (up $100 from 2021). In addition, the maximum carryover amount applicable for plans which permit the carryover of unused amounts is $570 (up $20 from 2021).
- Qualified transportation fringe benefits. For 2022, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking increases to $280, as does the aggregate fringe benefit exclusion amount for transit passes (both up from $270 in 2021).
- QSEHRAs. For 2022, the maximum amount of reimbursements under a QSEHRA may not exceed $5,450 for self-only coverage and $11,050 for family coverage (an increase from $5,300 and $10,700 in 2021).
- Adoption assistance program. The maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $14,890 for 2022 (a $450 increase from the 2021 maximum of $14,440). This exclusion begins to phase out for individuals with modified adjusted gross income greater than $223,410 and will be entirely phased out with $263,410 modified adjusted gross income.
- Small business health care tax credit. Some changes impact the small business health care tax credit since the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. For 2022, the average annual wage level at which the credit phases out for small employers is $28,700 (up $900 from 2021).
Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits and adoption assistance) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
HHS recently announced inflation-adjusted penalty amounts related to Summary of Benefits and Coverage (SBC), Medicare secondary payer (MSP) and HIPAA privacy and security rules violations. These new penalty amounts are calculated based on a cost-of-living increase of 1.01182%. The new amounts are applied to penalties assessed on or after November 15, 2021, for violations occurring on or after November 2, 2015.
Summary of Benefits and Coverage (SBC)
The ACA requires insurers and group health plan sponsors to provide SBCs to eligible employees and their beneficiaries before enrollment or re-enrollment in a group health plan. The maximum penalty for a health insurer or plan’s failure to provide an SBC increased from $1,176 to $1,190 per failure.
Medicare Secondary Payer (MSP) rules
- Penalty on financial incentives to discourage enrollment in a group health plan. The MSP provisions prohibit employers and insurers from offering Medicare beneficiaries financial or other benefits as incentives to waive or terminate group health plan coverage that would otherwise be primary to Medicare. The failure to comply with the MSP rules increased from $9,639 to $9,753.
- Penalty on failure to disclose to HHS when a plan is primary to Medicare. The maximum daily penalty for the failure of an insurer, self-insured group health plan or a third-party administrator to inform HHS when the plan is or was primary to Medicare increased from $1,232 to $1,247.
HHS Administrative Simplification
The HIPAA administrative simplification regulations provide standards for privacy, security, breach notification and electronic health care transactions to protect the privacy of individuals’ health information.
The penalty amounts vary depending on the violators’ level of intentions and situations broken down by HIPAA’s four-tiered penalty structure. The below chart summarizes the new and prior penalty amounts.
Effective | Eff. November 2021 (New) | Prior Amounts (Old) | ||||
Min | Max | Calendar year Cap | Min | Max | Calendar year Cap | |
Lack of knowledge | $120 | $60,226 | $1,806,757 | $119 | $59,522 | $1,785,651 |
Reasonable cause and not willful neglect | $1,205 | $60,226 | $1,806,757 | $1,191 | $59,522 | $1,785,651 |
Willful neglect: corrected within 30 days | $12,045 | $60,226 | $1,806,757 | $11,904 | $59,522 | $1,785,651 |
Willful neglect: not corrected | $60,266 | $1,806,757 | $1,806,757 | $59,522 | $1,785,651 | $1,785,651 |
With this latest increase in penalties, employers may want to review their compliance on SBC, MSP and HIPAA along with other employee benefits compliance requirements to help prevent agency audits and potential penalties.
On November 23, 2021, the IRS, HHS and EBSA published interim final rules related to prescription drug and health care spending reports. The rules are the latest in a series implementing the transparency provisions of the Consolidated Appropriations Act, 2021 (CAA).
The CAA requires health insurers and group health plans to report certain information regarding spending on prescription drugs and health care treatment. The rules do not apply to HRAs (including ICHRAs), health FSAs, or stand-alone vision or dental plans. The insurer is responsible for reporting on a fully insured plan. The employer plan sponsor will be responsible for a self-insured plan if a third-party administrator is not contracted to perform such service. Insurers and administrators are permitted to aggregate spending information across all market segments as long as the general plan information is provided for each specific policy included in the reporting (see the initial three bullet points below).
The rules clarify that the reporting is based on calendar-year data, not policy or plan year data. This is to help facilitate comparison between plans. The annual report must include:
- Beginning and end dates of the plan year.
- The number of enrollees covered.
- Each state in which the plan is offered.
- Average monthly premium paid by employees versus employers.
- Total health care spending broken down by type (including hospital costs; health care provider and clinical service costs, for primary care and specialty care separately; costs for prescription drugs; and other medical costs, including wellness services).
- Prescription drug spending by enrollees versus employers and insurers.
- The 50 most frequently dispensed brand prescription drugs and the total number of paid claims for each.
- The 50 costliest prescription drugs by total annual spending and amount spent for each.
- The 50 prescription drugs with the greatest increase in plan or coverage expenditures from the previous year.
In addition, prescription drug rebates and fees received by the plan or participant must be reported if it impacts premiums or cost-sharing. This includes discounts, chargebacks or rebates, cash discounts, free goods contingent on a purchase agreement, up-front payments, coupons, goods in kind, free or reduced-price services, grants or other price concessions.
Initially, the report for 2020 data was to be due December 27, 2021, and 2021 data due June 1, 2022. If an insurer, administrator or plan sponsor is prepared to report by those dates, the departments are ready to receive the data. However, the rules provide relief in respect to the reporting deadlines. Reports on 2020 and 2021 data will be accepted until December 27, 2022. Future reports will be due on June 1 following the data year. For example, the 2023 report will be due June 1, 2024.
Again, fully-insured plan sponsors will not be required to report but may need to work with the insurer on collecting data. Employer plan sponsors of self-insured plans should review agreements with third party administrators to determine reporting responsibility.
In a DOL fact sheet, the agency announced that over $2.4 billion was recovered from enforcement of ERISA by the Employee Benefits Security Administration (EBSA) through investigations, complaint resolution and other enforcement efforts for the fiscal year 2021.
The EBSA’s oversight extends to almost 734,000 retirement plans, approximately 2 million health plans and 662,000 other welfare plans. The fact sheet explains that over $2 billion was recovered through investigations, and $499.5 million was restored to workers through informal complaint resolution. Of EBSA’s 1,072 civil investigations, over 69% resulted in monetary or other corrective action. Non-monetary corrective action ranged from removal of a plan fiduciary to implementation of new plan procedures.
Where voluntary compliance efforts do not come to fruition, EBSA refers cases to the Solicitor of Labor. In the fiscal year 2021, the agency referred 70 cases to litigation. In addition, EBSA closed 208 criminal cases resulting in 38 guilty pleas or convictions and 72 individuals indicted.
As demonstrated by the data summarized in the fact sheet, ERISA enforcement remains robust. Employers should take note of EBSA’s increased enforcement activity and be mindful of this information when formulating and administering their own ERISA compliance.
The IRS recently released the 2021 final version of Form 1095-B. As background, Form 1095-B is used by self-insured small employers (fewer than 50 full-time employees, including equivalents) to report covered individuals to the IRS to satisfy Section 6055 reporting as required by the ACA. A large, self-insured employer may also use the forms to report coverage for a non-employee (such as a retiree or COBRA participant), though most large employers use Form 1095-C for this purpose.
The forms must be filed with the IRS by February 28, 2022, if filing by paper and March 31, 2022, if filing electronically. Additionally, the completed form must be distributed to covered individuals by January 31, 2022. The penalties for failure to file and report are $280 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to a covered individual would be at risk for a $560 penalty per individual.
For reporting years 2019 and 2020, the IRS granted relief for distributing Form 1095-B to covered individuals. Self-insured employers were not required to automatically provide the form as long as (1) a Form 1095-B was furnished within 30 days after an individual’s request is received; and (2) a notice with information about requesting Form 1095-B was prominently posted on the reporting entity’s website. Such relief has not yet been granted for 2021.
The 2021 form is unchanged from the 2020 version.
As always, self-insured employers should work with reporting vendors to comply with the ACA reporting requirements.
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of HRA that allows employees to be reimbursed for an individual coverage premium, up to a maximum dollar amount that the employer makes available each year. In order to be eligible, an employee must be enrolled in individual health insurance coverage or Medicare Part A, B, or C; and an employer cannot offer a traditional health plan and ICHRA to the same class of employees.
CMS recently released the Plan Year 2022 ICHRA Employer Lowest Cost Silver Plan (LCSP) Premium Look-up Table to help ALEs determine whether their ICHRA offers are considered affordable under the employer mandate provisions. This information will also help determine if the employee is eligible for a Premium Tax Credit in the Marketplace (a.k.a., Exchange).
If an ALE offers ICHRAs to at least 95% of its full-time employees (and their dependents), the ALE will not be liable for the employer mandate’s Penalty A, which is a more severe penalty than the employer mandate’s Penalty B (References: Executive Order 13813 and IRS Notice 2018-88).
ALEs who sponsor ICHRAs can use this LCSP Premium Look-up Table to evaluate if the employer’s contribution to ICHRAs for each employee is considered affordable under the employer mandate. Under the safe harbor rule, an employer may use the lowest cost silver plan for employee-only coverage offered through the marketplace where the employee's primary site of employment is located for determining whether an offer of an individual coverage HRA to a full-time employee is affordable, instead of the lowest cost silver plan for the employee in which the employee resides.
The ICHRA Employer LCSP Premium Look-up Table contains LCSP individual market rates based on an eligible enrollee’s age and geographic location. The LCSP is the least expensive individual silver qualified health plan in a geographic area at the lowest age band. (Note: The ICHRA Employer LCSP Premium Look-up Table does not contain data from states with State-based Exchanges (SBEs) that do not use HealthCare.gov.)
For more information regarding ICHRAs, see the article published in the June 25, 2019, edition of Compliance Corner.
Employers who offer or are considering offering ICHRAs should be aware of this development.
CMS ICHRA Employer LCSP Premium Look-up Table »
IRS Application of the Employer Shared Responsibility Provisions and Certain Nondiscrimination Rules to Health Reimbursement Arrangements and Other Account-Based Group Health Plans Integrated With Individual Health Insurance Coverage or Medicare »
On October 25, 2021, CMS issued a memorandum to group health plans and insurers (among others) regarding agency contact information that must be included on certain No Surprises Act (the Act) notices and disclosures.
The Act is part of the Consolidated Appropriations Act, 2021 (CAA) passed by Congress in late 2020. Among its requirements, group health plans and insurers must post a notice disclosing the prohibition on surprise billing effective for plan years beginning in 2022. The notice must be made publicly available, posted on a public website of the plan or issuer, and included in each explanation of benefits. It is one page and must provide information concerning requirements and prohibitions under the Act, any applicable state balance billing limitations or prohibitions, and contact information for appropriate state and federal agencies if someone believes the provider or facility has violated the requirements described in the notice. A model notice was made available in the initial regulations. (For more information on the Act and the interim final rules, see the article published in the July 7, 2021, edition of Compliance Corner.)
The text of the model notice includes fields that must be completed by entering the URL for a website describing the federal balance billing protections and contact information for the applicable federal and state agencies. In the memorandum, CMS identifies the website to be included in the model notice where federal agency contact information is required. The website provides general information about the Act’s provisions, with additional information to be posted over the next several months. While the website is not fully complete or functional, it will be operational in January 2022 to receive complaints and other inquiries. HHS also operates a telephone number as another mechanism to submit complaints regarding potential violations of the CAA, which will then be routed to the appropriate agency as needed. Importantly, CMS requests that the phone number (1.800.985.3059) not be included in any plan documents for plan or policy years beginning before January 1, 2022.
While agencies indicated that additional guidance might be forthcoming regarding surprise billing disclosure requirements, plans should make good faith efforts to comply using the model notice and agency contact information provided by this memorandum for plan years beginning on or after January 1, 2022.
On October 13, 2021, the EEOC updated its previously issued COVID-19-related compliance guidance concerning employer-provided vaccination incentives for employees and their family members under the Americans with Disabilities Act (ADA), the Genetic Information Nondiscrimination Act (GINA) and other federal employment nondiscrimination laws. Overall, the updated guidance does not significantly change its prior guidance on vaccination incentives; instead, the revised language more clearly describes the COVID-19 vaccination incentive limits under the ADA and GINA.
The updated Q&As state that neither the ADA nor GINA limit the incentives an employer may offer to encourage employees (or their family members) to voluntarily receive a COVID-19 vaccination when the vaccination is administered by a provider that is not affiliated with their employer (e.g., the employee’s personal physician, a pharmacy or a public health department).
However, when the employer or its agent (defined as an individual or entity having the authority to act on behalf of, or at the direction of, the employer) administers the vaccine, the ADA’s rules on disability-related inquiries apply because the pre-vaccination screening questions are likely to elicit information about a disability. In this case, the amount of the incentive cannot be “so substantial as to be coercive.” Unfortunately, the EEOC did not expand on what amount would be considered coercive.
Employers who are considering imposing a surcharge or incentive to encourage COVID-19 vaccinations should also consider the application of the HIPAA wellness program rules. On October 4, 2021, HHS, IRS, and DOL released guidance on COVID-19-related compliance guidance, including the HIPAA wellness rules. We reported those updates in an article in the October 12, 2021, edition of Compliance Corner which can be found here.
Moreover, the updated EEOC guidance states that laws do not prevent an employer from requiring all employees physically entering the workplace to be fully vaccinated against COVID-19. However, if employers decide to implement a vaccine mandate, they are required to provide reasonable accommodations for employees who decline to be vaccinated because of a disability or a sincerely held religious belief, practice or observance, unless providing an accommodation would pose an undue hardship on the operation of the employer’s business.
Employers considering vaccine mandates, surcharges or incentives should consider the EEOC’s guidance and consult with employment law.
On September 30, 2021, HHS, the DOL and the Treasury Department released Part II of interim final rules implementing the No Surprise Billing Act (the Act) that was part of the Consolidated Appropriations Act, 2021 passed by Congress in late 2020. This set of interim rules focus on the independent dispute resolution process (IDR) between the payer and provider outlined in the Act, good faith cost estimates for the uninsured, the dispute resolution process for patients and providers, and rights to external review. Part I of these rules was published in July and is discussed in our July 7, 2021, article in Compliance Corner.
An interim final rule is a rule that an agency promulgates when it finds that it has good cause to issue a final rule without first issuing a proposed rule. Although interim rules are often effective as of the date of their publication, they will have a comment period after which the interim rule may be amended in response to public comments. In this case, the interim final rules are effective 60 days from the date they are published in the Federal Register. The 60 days serve as the comment period for the interim final rules.
IDR Process
The rules describing the IDR process are effective beginning January 1, 2022. They apply to out-of-network providers, facilities, providers of air ambulance services, plans, and issuers in the group and individual markets who need to determine the out-of-network rate for those items and services for which balance billing was prohibited under Part I of the rules.
Under these rules, payers and out-of-network providers have 30 days to negotiate privately to resolve a payment dispute. This “open negotiation” period starts when a provider notifies the payer in writing of its desire to initiate proceedings within 30 days of initial payment or denial from the payer. If the parties fail to settle the matter in that time, then either party can begin the IDR process within four days after the initial 30-day window closes. The parties then may jointly select a certified independent dispute resolution entity (which must certify that it has no conflict of interest with either party) to resolve the dispute (the “arbiter”). Note that if the parties cannot agree to an arbiter, then federal officials will select one.
Once the arbiter is selected, the parties will submit their offers for payment along with supporting documentation. The arbiter works from the presumption that the qualified payment amount (QPA) is the appropriate out-of-network amount for the item or service. The QPA is the insurance plan's median contracted rate for the same or similar service in an area, so the offer of payment closest to the QPA will usually be awarded. However, the arbiter must consider any credible documentation submitted to it by a party, and if it clearly demonstrates that the value of the item or service is materially different from the QPA, then the arbiter can deviate from the offer closest to the presumptive amount. The arbiter has 30 days to issue a binding written determination selecting one of the parties’ offers as the out-of-network payment amount. It should be noted that while both parties pay an administrative fee at the beginning of the IDR, the winning party gets this fee refunded.
The rules also provide a process to follow to become a certified independent dispute resolution entity. Applications must be submitted by November 1, 2021, if an entity wishes to be certified by January 1, 2022. More information about the process can be found here.
Good Faith Estimates for the Uninsured
The rules also require providers and facilities to provide a good faith estimate of the expected charges for items and services to an uninsured individual (or individuals that choose to pay for the item or service themselves). The good faith estimate must include expected charges for the items or services that are reasonably expected to be provided together with the primary item or service, including items or services that may be provided by other providers and facilities.
Since it will take time for providers and facilities to develop procedures for determining good faith estimates and providing them to the uninsured, HHS will exercise its enforcement discretion in situations where a good faith estimate provided to an uninsured (or self-pay) individual does not include expected charges from other providers and facilities that are involved in the individual’s care, for good faith estimates provided to uninsured (or self-pay) individuals from January 1, 2022, through December 31, 2022.
Dispute Resolution Process for Patients and Providers
When an uninsured individual receives a good faith estimate, but the ultimate bill is a substantially higher amount (which is defined in Part I of these rules, but generally is an amount at least $400 more than the good faith estimate), then Part II provides a dispute resolution process by which the uninsured individual can challenge the billing.
External Review
Part II expands on rules previously issued by the Departments regarding external review of claims and appeals. The original rules require plans to provide an external review process that claimants can follow when they receive final internal adverse benefit determinations. The new rules allow claimants to follow this process when they receive determinations that involve whether a plan or issuer is complying with the surprise billing and cost-sharing protections under the Act and its implementing regulations as well. The new rules also extend this requirement to grandfathered plans, but only to the extent that a claimant receives a determination related to the Act.
Employers should be aware of these new regulations, as they would have an impact on how self-insured plans are administered as well as how carriers interact with providers in fully insured plans.
On September 16, 2021, the Departments of Labor, Health and Human Services, and the Treasury (collectively, “agencies”) jointly published proposed rules regarding the implementation of provisions of the Consolidated Appropriations Act, 2021 (CAA), including the No Surprises Act. Among other items, the regulations address required reporting of air ambulance services by group health plans (including grandfathered plans), insurers and providers.
The No Surprises Act prohibits surprise billing of participants for certain out-of-network healthcare services, including air ambulance services, provided under particular circumstances. To increase price transparency, the No Surprises Act also requires group health plans, insurers and air ambulance providers to submit certain information to the agencies, including claims data about air ambulance services. The purpose of the data collection is to provide the regulators with a more complete understanding of air ambulance services provided across the industry. HHS is then required to issue a comprehensive public report summarizing the data and providing an assessment of certain aspects and characteristics of the air ambulance market.
Under the proposed rules, plans and insurers would be required to provide the following information regarding air ambulance claims: whether the services were provided on an emergency basis; whether the service provider is part of a hospital-owned or sponsored program, municipality-sponsored program, hospital independent partnership (hybrid) program, independent program, or tribally operated program in Alaska; whether the transport originated in a rural or urban area; the type of aircraft used for the transport (fixed-wing or rotary-wing air ambulance); and whether the provider of the air ambulance service has a contract with the plan or issuer to provide air ambulance services. Additionally, the plans and insurers would need to submit certain claims-level data, including: the date of service, billing and procedural codes, information about each air transport (such as loaded miles and whether the transport was inter-facility), and claims adjudication and payment information. HHS intends to match this claims-level data with information submitted by the air ambulance providers to complete the analysis necessary to fulfill the public reporting requirement.
The information would be submitted to HHS for a period of two calendar years, beginning with 2022. The 2022 calendar year data would be due by March 31, 2023, and the 2023 calendar year data would be due by March 30, 2024.
To streamline the process and avoid unnecessary duplication of reporting, an insured plan could enter a written agreement with the insurer, under which the insurer could assume responsibility for providing the necessary data on the plan’s behalf. In such case, if the insurer fails to timely report, the insurer (and not the plan) would be in violation of the requirements. Although a self-insured plan could contract with a third-party administrator for assistance, the ultimate reporting obligation remains with the plan.
The proposed rules also provide guidance for insurers regarding broker compensation disclosures for individual health insurance or short-term, limited-duration insurance. (The guidance does not address compensation disclosures in the group health plan context.) To satisfy the transparency provisions of the CAA, insurers are required to make disclosures to enrollees and submit reports to HHS regarding direct and indirect compensation provided by an insurer to a broker associated with enrolling the individuals in such coverage. The proposed rules define direct and indirect compensation, explain that the required disclosures would include the commission schedule and structure for any compensation not captured by this schedule, and discuss the timing of the disclosures (e.g., upon enrollment, renewal or invoicing). HHS proposes that these new requirements apply to contracts executed between brokers and insurers on or after December 27, 2021.
Furthermore, the rules propose amendments to existing regulations to clarify the complaint investigation process, potential investigations with respect to nonfederal governmental plans, and the imposition of civil monetary penalties against plans and insurers.
Sponsors of group health plans should be aware of the proposed rules and should consult with their insurers or service providers regarding implementation of the air ambulance services reporting requirements. Comments regarding the proposed regulations can be submitted through October 18, 2021.
On September 7, 2021, the IRS issued Notice 2021-53. This notice provides guidance on how to report the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 on Form W-2. This guidance includes considerations for such leave taken in accordance with the FFCRA, as amended by the CARES Act, and the American Rescue Plan Act (ARPA).
The FFCRA required employers with fewer than 500 employees to provide emergency paid sick leave (EPSL) and extended FMLA (EFMLA) for those employees for specific reasons relating to the pandemic. The employers had to front the cost of that leave; however, they were reimbursed for those costs by obtaining a tax credit. The CARES Act extended these leaves to March 31, 2021, but it became voluntary. Similarly, the ARPA extended the voluntary leaves until September 31, 2021, allowed employees to use EPSL for reasons related to the vaccine, and expanded the reasons employees could take EFMLA. More information on the ARPA amendments to these leaves can be found in this article in the March 16, 2021, edition of Compliance Corner.
The notice makes clear that employers must report these wages to employees in one of two ways: either on Form W-2, Box 14, or in a separate statement provided with the Form W-2. The guidance provides employers with model language to use as part of the Instructions for Employee for the Form W-2 or on the separate statement provided with the Form W-2.
Employers that chose to extend EPSL and EFMLA to their employees should be aware of this notice.
On August 30, 2021, the IRS published Rev. Proc. 2021-36, which provides the 2022 premium tax credit (PTC) table and the employer contribution percentage requirements applicable for plan years beginning in calendar year 2022.
The ACA's (also known as the "employer mandate") require an employer to provide affordable, minimum value coverage to its full-time employees. The IRS's required contribution percentage is used to determine whether an employer-sponsored health plan offers an individual "affordable" coverage, and the affordability percentage is adjusted for inflation each year. In addition, the ACA also provides a refundable PTC, based on household income, to help individuals and families afford health insurance through affordable insurance exchanges. The IRS provides the PTC percentage table for individuals to calculate their PTC.
For 2022, the ACA's affordability percentage will decrease to 9.61% (down from 9.83% in 2021). For the employer mandate and affordability, this means that an employee's required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.61% of the federal poverty line or of an employee's W2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon).
In addition, the existing ACA premium tax credit was expanded in March 2021 by the ARPA for taxable years 2021 and 2022. The adjusted percentage for 2022 is the same as for 2021, and ranges from zero to 8.5%. The 2022 PTC table used to determine an individual's eligibility can be found in the IRS revenue procedure document.
The revenue procedure is effective for plan years beginning on and after December 31, 2021.
Employers should be mindful of the upcoming 2022 affordability percentages and make sure that the premium offerings for 2022 continue to be affordable for full-time employees, so as to avoid any employer shared responsibility penalties. The penalties related to employer shared responsibility remain the law (despite the fact that the ACA's individual mandate was repealed in 2019).
On June 25, 2021, the IRS released two information letters responding to the inquiries regarding whether the HSA excessive employer contribution error can be corrected and what amounts are counted toward the minimum annual deductible for an HDHP when a discount, rebate or coupon was provided for healthcare services or products. (Letters 2021-0008 and 2021-0014)
The first letter (2021-0008) addresses situations when an employer made excessive contributions to an employee’s HSA beyond the annual HSA contribution limit, as well as when an HSA custodian failed to provide a corrected Form 5948-SA.
The letter reminds that when an employer contributes more than the annual limit to an employee’s HSA inadvertently, the employer may correct the error. Specifically, at the employer’s option, the employer may ask the custodian to return the excess amount to the employer. If the employer does not recover the excess amount, the employer must include the amount on the employee’s Form W-2 as wages for the year the employer made contributions. Though it was not described in the letter, keep in mind that the excess contributions and net income attributable to such excess contributions need to be returned before the account holder’s federal income tax return filing deadline (including extensions) in order to avoid the 6% excise tax. (Reference: IRS Notice 2008-59, Q&A-24).
The letter also advises that the account holder should contact the custodian to obtain a corrected Form 5948-SA. As a reference, while taxpayers should keep a copy of Form 5498-SA, Form W-2 also shows HSA contributions. It also states that HSAs may be governed by ERISA and that the account holder may contact the DOL for information about applicable fiduciary responsibilities.
The second letter (2021-0014) responds to an inquiry about the benefits that can be provided by an HDHP before the minimum annual deductible is satisfied as well as the interaction of copay accumulator rules with the HDHP requirements. The letter reminds that an individual covered by an HDHP who also has a discount card, rebate or coupon for healthcare services or products, may still contribute to an HSA provided that the individual is required to pay the costs of the covered healthcare until the minimum annual deductible for the HDHP is satisfied. As an example, the letter states that if a manufacturer’s discount (including a rebate or coupon) reduces a drug’s cost from $1,000 to $600, the amount that may be credited toward satisfying the HDHP deductible is $600, not $1,000. (Reference: IRS Notice 2004-50, Q&A-9).
The letter also reiterates that HDHPs may not provide benefits other than for preventive care until the minimum deductible for that year is satisfied. The eligible “preventive” care is determined under Section 223, and state-law mandates do not change the outcome. For example, some states mandate male contraception and sterilization services. However, the letter affirms the previous guidance that state mandated benefits that are not included in Section 223 is not considered preventive for the purpose of an HDHP. (Reference: IRS Notice 2018-12).
Though these information letters provide helpful reminders of the existing rules, they do not outline the comprehensive guidance. The readers are recommended to verify any specific situation with the IRS Notices referenced in this section or consult with the legal or tax advisor.
On September 10, 2021, the IRS issued News Release 2021-181, which reminds taxpayers that the cost of COVID-19 home testing kits is a qualified medical expense and therefore eligible for reimbursement through a health FSA, HRA or HSA. A qualified medical expense is an expense related to the diagnosis, prevention or treatment of a health condition. Thus, the cost associated with the diagnosis of COVID-19 is a qualified medical expense.
Additionally, the cost of personal protective equipment (PPE), such as masks, hand sanitizer and sanitizing wipes used for the primary purpose of preventing the spread of COVID-19 is also a qualified medical expense eligible for reimbursement under a health FSA, HRA or HSA.
Employers and service providers that administer these plans should keep this guidance in mind when providing reimbursements.
On September 10, 2021, the Treasury Department released temporary regulations related to tax credits under the American Rescue Plan Act’s (ARPA’s) paid sick and family leave and employee retention provisions under the CARES Act. The rules are effective immediately but are applicable to all paid sick and family leave monies credited or refunded on or after April 1, 2021; and employee retention monies credited or refunded on or after July 1, 2021.
The guidance is technical in nature. Employers should carefully review with their accountants and tax specialists to understand the guidance and its impact on their assessed taxes.
An employer may not receive the employee retention credit for the same wages for which the employee receives the paid sick and family leave credit. For second quarter 2021, if an eligible employer receives the employee retention credit based on wages paid that are also qualified leave wages on which the employer may claim the paid sick and family leave credits, the employer must reduce any paid sick and family leave credits by the amount of the credit allowed under the CARES Act. For the third and fourth calendar quarters of 2021, any qualified leave wages eligible employers take into account for purposes of the paid sick and family leave credits may not be taken into account for purposes of the employee retention credit.
The paid sick and family leave credits are also reduced by the amount of the credit allowed under Section 41 (the credit for increasing research activities). In addition, any wages taken into account in determining paid sick and family leave credits cannot be taken into account as wages for purposes of the credits under Sections 45A (Indian Employment Credit), 45P (Employer Wage Credit for employees who are active-duty service members), and 45S (Paid Family and Medical Leave Credit).
Some employers received an advanced payment of the paid sick and family leave credit. Other employers received a refund if the amount of the credits exceeds their taxes for the quarter.
The new guidance provides that any credits claimed that exceeded the amount to which the employer was entitled and that were actually credited or refunded by the IRS are considered to be erroneous refunds. The IRS will collect these erroneous payments in the normal course of processing employment tax returns by treating the amounts as owed taxes (underpayment of taxes).
Recapture of Excess Employment Tax Credits Under the American Relief Plan Act of 2021 »
On June 25, 2021, the IRS responded to an inquiry from a congresswoman on behalf of her constituent who was concerned that the unused balance in her health FSA was forfeited when she was terminated from her employment because her health FSA was determined not to be eligible for COBRA. She asked for clarification of existing IRS guidance regarding health FSAs and the COBRA requirements (Letter 2021-0004).
In the letter, the IRS confirmed existing guidance and reiterated general information pertaining to COBRA and health FSAs. Specifically, it outlines the situation in which COBRA is triggered and, if triggered, how the COBRA premium for a health FSA should be determined in light of carryover amounts.
COBRA coverage for an FSA is triggered if a participant experiences a COBRA qualifying event (e.g. termination or reduction in hours) and as of the date of the qualifying event the amount the participant may receive from their health FSA for the rest of the plan year exceeds the amount the FSA may require to be paid for the COBRA for the rest of that plan year. The IRS confirmed that any carryover amount is included in determining the amount of the benefit that a qualified beneficiary is entitled to receive during the remainder of the plan year in which a qualifying event occurs.
The below section from the IRS Letter 2021-0004 provides additional information:
If COBRA is available, the amount the participant may be able to receive as a reimbursement for medical care following termination of employment is generally:
- The carryover amount plus the amount of the health FSA contribution elected for the plan year, minus
- The amount the plan has reimbursed the employee as of the date of the qualifying event.
The amount that a participant may be required to pay for COBRA continuation coverage for the rest of the year does not include the carryover amount and is:
- The amount of the health FSA contribution elected for the plan year, minus
- The amount contributed to the health FSA as of the date of the qualifying event.
Furthermore, IRS Notice 2015-87 provides some examples and additional guidance that may be helpful in understanding these rules. Similar to the IRS letter described above, this notice did not provide any new guidance. However, it provides helpful reminders of the applicability of COBRA on health FSA and a carryover.
On August 20, 2021, the DOL, HHS and the Treasury jointly released FAQs regarding implementation of requirements under the Transparency in Coverage (the TiC) final rule and provisions of the Consolidated Appropriations Act of 2021 (the CAA), including the No Surprises Act. Importantly, the FAQs provide an update on the enforcement dates of provisions under these laws pending the issuance of regulatory guidance.
The TiC final rule was issued in 2020 and requires non-grandfathered group health plans to disclose in-network provider negotiated rates, historical out-of-network allowed amounts, and prescription drug pricing information to the public via machine-readable files posted to a website. Additionally, these plans must provide participants with personalized cost-sharing information for covered services via an online self-service tool. The rule includes phased-in effective dates from January 2022 through January 2024.
Subsequently, Congress passed the CAA in December 2020. This budgetary measure includes various provisions to address surprise billing and price transparency in the group health plan context. However, some of the CAA requirements duplicate the TiC requirements, but have different effective dates.
The FAQs address the overlapping TiC and CAA provisions. The guidance also sets expectations regarding the timing of implementing regulations and plan compliance in the interim.
Specifically, FAQs #1 and #2 focus upon the TiC machine-readable file requirements. Under the new guidance, the enforcement date for public posting of a plan’s in-network rates and out-of-network allowed amounts is extended from January 1, 2022, to July 1, 2022. The posting of the TiC prescription drug pricing file is deferred indefinitely pending a determination, through notice and comment rulemaking, of whether it remains necessary. (The CAA pharmacy benefit reporting provisions require plans to report some of the same prescription drug information to regulators.)
FAQ #3 speaks to the overlapping price comparison tool requirements under the TiC and CAA. Under the TiC, plans must make price comparison and cost sharing information available to participants through an internet-based self-service tool and in paper form, upon request. This requirement applies to 500 common items and services effective for plan years beginning on or after January 1, 2023, and for all items and services commencing for plan years beginning on or after January 1, 2024. The CAA requires plans to provide similar price comparison guidance by internet and phone for plan years beginning on or after January 1, 2022. The new guidance indicates that regulators intend to propose rules and seek comments as to whether compliance with the TiC pricing requirements, with the addition of fulfilling participant requests made by phone, would also satisfy the CAA requirements. Furthermore, the guidance indicates that enforcement of the CAA self-service tool requirement is postponed until plan years beginning on or after January 1, 2023, to align with the TiC effective date.
FAQ #4 explains that the CAA requirement for plans to issue updated physical or electronic insurance identification cards remains effective for plan years beginning on or after January 1, 2022. The new cards issued to enrollees must reflect cost-sharing information, including applicable deductibles, out-of-pocket maximum limitations, and a telephone number and website address for assistance. Regulatory guidance will likely not be issued until after the effective date, so plans are expected to implement the ID card requirements using a good faith, reasonable interpretation of the law in the interim.
According to FAQs #5 and #6, enforcement of the CAA provisions that require plans to provide participants with good faith cost estimates of scheduled services or advance explanations of benefits are delayed pending the issuance of regulatory guidance. Such guidance is not anticipated prior to the January 1, 2022 effective dates.
FAQ #7 confirms that the CAA prohibition against gag clauses took effect upon the law’s enactment on December 27, 2020. As a result, plans must ensure that contract provisions regarding provider networks do not directly or indirectly restrict them from accessing cost and quality of care information and providing the information to participants or from electronically accessing de-identified participant claims data. The regulators intend to issue guidance to explain how plans should submit their attestations of compliance with this prohibition and anticipate beginning to collect such attestations starting in 2022.
FAQ #8 indicates that regulatory guidance on the CAA provider directory provisions will likely not be issued prior to the January 1, 2022, effective date. These provisions generally require plans to establish a process to update and verify the accuracy of provider directory information and respond to participant requests about a provider’s network participation status. Pending guidance, plans are expected to comply in good faith and would be deemed in compliance provided that any participants given inaccurate information about a provider’s network status are assessed only the in-network rates.
FAQ #9 explains that regulations addressing the CAA balance billing disclosure requirements will not be issued prior to the January 1, 2022, effective date. Until further guidance is issued, use of the model disclosure notice provided with the July 2021 Interim Final Rules on Surprise Billing will be considered good faith compliance, if all other applicable requirements are met.
Similarly, FAQ #10 indicates that guidance will not be issued regarding the CAA continuity of care provisions before the January 1, 2022, effective date. These provisions are designed to protect participants undergoing care for certain conditions and serious illnesses from unanticipated in-network provider terminations by the plan. Plans must comply in good faith in the interim.
FAQ #11 clarifies that although ACA grandfathered plans are exempt from the TiC requirements, these plans are subject to the transparency and No Surprises Act provisions of the CAA.
Finally, FAQ #12 provides that enforcement of the CAA pharmacy benefit reporting requirements will be deferred from December 27, 2021, to December 27, 2022, pending the issuance of regulations. However, plans are encouraged to start working to ensure they are in a position to report the required information with respect to 2020 and 2021 data by December 27, 2022.
Employers who sponsor group health plans should be aware of this important regulatory update. They should continue to work with their counsel and service providers to ensure compliance with the TiC and CAA provisions by the applicable enforcement dates.
FAQs About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 49 »
On June 28, 2021, CMS issued a technical alert regarding the inclusion of Part D information in the Section 111 Query Only Response File for Responsible Reporting Entities (RREs) that provide primary prescription drug information for purposes of Medicare Secondary Payer (MSP) Section 111 reporting.
The alert notifies group health plan RREs of changes being made to the Query Only Response File. The changes add fields 20 through 22 to account for current Part D enrollment information for a beneficiary. The new fields request information regarding the current Medicare Part D plan contractor number, plan enrollment date and plan termination date.
These changes are effective December 13, 2021. For additional information regarding RREs and reporting primary prescription drug information, see the article “CMS Issues Guidance Regarding Responsible Reporting Entities and Reporting Primary Prescription Drug Information” in the May 11, 2021, edition of Compliance Corner.
As a reminder, an RRE is usually the insurer for a fully insured plan, the third-party administrator for a self-insured plan and the plan administrator for a self-insured plan that self-administers. While employers are not usually the RRE, they should be aware of this guidance.
CMS Technical Alert »
MMSEA Section 111 MSP Mandatory Reporting GHP User Guide »
On July 26, 2021, the HHS and DOJ jointly released guidance on long COVID as a disability under the Americans with Disabilities Act (ADA), Section 504 of the Rehabilitation Act, and Section 1557 of the ACA. These federal laws protect people with disabilities from discrimination.
The guidance recognizes that some people continue to experience symptoms that can last weeks or months after first being infected with COVID-19, or some may develop new or recurring symptoms at a later time. The guidance describes this condition as “long COVID.”
The guidance states that “a person with long COVID has a disability if the person’s condition or any of its symptoms is a ‘physical or mental’ impairment that ‘substantially limits’ one or more major life activities.” “Major life activities” are defined broadly and includes performing manual tasks, thinking, communicating and working. The term also includes the operation of a major bodily function — for instance, the functions of the cardiovascular system or neurological system.
If an individual's long COVID is qualified as a disability, then they are entitled to the same protections from discrimination as any other person with a disability under the respective laws noted earlier, including reasonable modifications and accommodations in certain circumstances.
At this time, it is not explicitly described how this new guidance will affect employee benefit matters. However, this guidance will likely reinforce the EEOC’s COVID-19 related rules. Moreover, employers should consider this guidance when designing and providing wellness programs and benefit plans in order to avoid any discrimination concerning long COVID.
We anticipate that we will have more tangible applications of this guidance for employee benefit purposes through the additional insights from the agencies or through the industry response to the guidance. We will continue to monitor developments relating to the potential impact on employee benefits and provide key updates as they become available.
Guidance on “Long COVID” as a Disability Under the ADA, Section 504, and Section 1557 »
HHS Press Release »
On August 12, 2021, the DOL announced that United Behavioral Health and United Healthcare Insurance Co. (collectively “United”) settled a lawsuit initiated by the agency and the New York State Attorney General’s Office. The suit was initiated after the Employee Benefits Security Administration investigated United based on allegations that, since at least 2013, United “reduced reimbursement rates for out-of-network mental health services, thereby overcharging participants for those services, and flagged participants undergoing mental health treatments for a utilization review, resulting in many denials of payment for those services.” United agreed to pay $13.6 million to affected participants and beneficiaries; pay $2,084,249 in penalties; and take other corrective action to resolve the dispute.
The agency stated that the allegations against United are violations of the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The MHPAEA prohibits ERISA plans from imposing treatment limitations on mental health and substance use disorder benefits that are more restrictive than the treatment limitations they impose on medical and surgical benefits. As a result of these violations, participants and beneficiaries of ERISA plans did not receive the mental healthcare that they were entitled to. In addition, United failed to provide sufficient information about what it did to these plans.
In addition to paying restitution and penalties, United agreed to stop following the procedures that resulted in the alleged violations. United used an algorithm called the ALERT system that would deny claims if a clinical review determined that a utilization review was needed because the claim was for a product or service deemed medically unnecessary. United’s use of the ALERT process led to the denial of the mental healthcare claims at issue in the case.
The settlement highlights the focus that the agency is placing on violations of the MHPAEA, particularly violations involving reimbursement rates. Employers should be aware of these developments and work with their carriers and TPAs to ensure that they are in compliance with the law.
On July 26, 2021, the Congressional Research Service (CRS) issued Surprise Billing in Private Health Insurance: Overview of Federal Consumer Protections and Payment for Out-of-Network Services. The report aims to answer questions about the No Surprises Act (the Act), including its requirements and consumer protections.
As background, the Act was initially part of the CAA passed by Congress in late 2020. Recently, federal agencies issued interim final rules implementing the Act’s requirements. For more information on the Act and the interim final rules, see the article published in the July 7, 2021, Compliance Corner edition, "Federal Agencies Issue Interim Final Rules Implementing the No Surprise Billing Act".
The CRS report reiterates that federal requirements address surprise billing in specific scenarios:
- Out-of-network emergency services.
- Out-of-network services provided to a consumer during an outpatient observation stay or an inpatient or outpatient stay during emergency services.
- Out-of-network nonemergency, ancillary and non-ancillary services provided at an in-network facility.
- Out-of-network air ambulance services.
- Services scheduled at least three business days in advance.
- Out-of-network services from a provider that initially was in network but subsequently became out of network during treatment (i.e., continuity of care).
- Out-of-network services from a provider that the consumer assumed was in network based on incorrect information from the plan.
Further, the CRS explains that the consumer protections take one of two forms, financial protection, and informational protection (via consumer notices), and protections will vary depending on the situation. The report elaborates on the specific protections based on the surprise billing scenario, among other related topics such as enforcement of surprise billing requirements and the interaction with state surprise billing laws. While the report does not provide new guidance, it does elaborate on the Act’s requirements which will soon be effective.
Employers should reference this report to better understand the Act, as its requirements and the interim final rules are applicable to group health plans and health insurance issuers for plan and policy years beginning on or after January 1, 2022.
On July 26, 2021, the IRS issued Notice 2021-46, which lists 11 more FAQs concerning the COBRA premium assistance requirements under the American Rescue Plan Act of 2021 (ARPA). These FAQs provide additional clarification on the following topics: eligibility for premium assistance in cases of extended coverage periods, dental and vision coverage, the applicability of premium assistance to certain kinds of state continuation coverage, and additional discussion concerning which entity is entitled to claim the premium subsidy tax credit.
Extended Coverage Periods
FAQ #1 provides that if an individual had not notified the plan or insurer of the intent to elect extended COBRA continuation coverage before the start of that period but would qualify for COBRA continuation coverage for an extended period due to a disability determination, second qualifying event, or an extension under State mini-COBRA, then that individual is entitled to premium assistance. However, the original qualifying event must have been either a reduction in hours or an involuntary termination of employment. In addition, premium assistance is available only to the extent the extended period of coverage falls between April 1, 2021, and September 30, 2021.
Dental and Vision Coverage
FAQ #2 states that eligibility for COBRA premium assistance ends when the assistance eligible individual (AEI) becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all the benefits provided by the previously elected COBRA continuation coverage. If the AEI had dental or vision coverage through COBRA, and enjoyed the premium assistance provided under the ARPA, that AEI will lose the assistance if they become eligible for group health coverage or Medicare, even if that group health coverage or Medicare does not provide dental or vision coverage.
Limited State Continuation Coverage
FAQ #3 concerns state continuation coverage programs that apply only to a subset of state residents, such as state or local government employees. A state program does not fail to provide comparable coverage to federal COBRA continuation coverage solely because the program covers only a subset of state residents if the program provides coverage otherwise comparable to federal COBRA.
Entities That Can Claim the Premium Subsidy Tax Credit
FAQ #4 provides guidance on determining which entity is the “common law employer” that maintains the plan subject to COBRA coverage. The FAQ states that the common law employer maintaining the plan is the current common law employer for AEIs whose hours have been reduced or the former common law employer for those AEIs who have been involuntarily terminated from employment, which, in both cases, serves as the basis for the AEI’s eligibility for COBRA continuation coverage.
FAQ #5 deals with the situation wherein state continuation is applied in conjunction with federal COBRA and the state continuation program continues to run after the federal COBRA coverage period is exhausted. In that circumstance, the entity that can claim the premium subsidy credit is the common law employer, even if the state-mandated continuation coverage would require the AEI to pay the premiums directly to the insurer after the period of federal COBRA ends. Generally, in fully insured plans subject to state continuation coverage requirements, the carrier will be the entity entitled to claim the tax credit, so the new guidance describes a specific set of circumstances where that may not be the case.
FAQ #6 deals with plans that cover one or more members of a controlled group. If a plan (other than a multiemployer plan) subject to federal COBRA covers employees of two or more members of a controlled group, this FAQ states that each common law employer that is a member of the controlled group is the entity entitled to claim the COBRA premium assistance credit with respect to its employees or former employees. Although all the members of a controlled group are treated as a single employer for employee benefit purposes, each member is a separate common law employer for employment tax purposes. FAQ #8 deals with a potential exception to this principle.
FAQ #7 deals with group health plans (other than multiemployer plans) subject to federal COBRA that cover employees of two or more unrelated employers. This FAQ provides that under this circumstance, the entity entitled to claim the premium assistance credit is the common law employer.
FAQ #8 deals with a potential exception to the principle discussed in FAQ #7 as it pertains to third-party payers. A “third-party payer” for this purpose was defined under previous guidance as an entity that pays wages subject to federal employment taxes and reports those wages and taxes on an aggregate employment tax return that it files on behalf of its client(s). An example of a third-party payer is a PEO. Under previous guidance, a third-party payer can claim the premium tax credit if it: 1) maintains the group health plan, 2) is considered the sponsor of the group health plan and is subject to the applicable DOL COBRA guidance, including providing the COBRA election notices to qualified beneficiaries, and 3) would have received the COBRA premium payments directly from the AEIs were it not for the COBRA premium assistance.
FAQ #8 states that an entity that provides health benefits to employees of another entity, but it is not a third-party payer of those employees’ wages, will not be treated as a third-party payer entitled to the premium assistance tax credit as described in the previous guidance.
FAQ #9 deals with stock sales and assets sales between entities, in which the selling group remains obligated to make COBRA continuation coverage available to the individuals who became qualified beneficiaries because of the sale. In these cases, the FAQ states that the entity in the selling group that maintains the group health plan is the entity entitled to claim the COBRA premium assistance credit, even if the buying group becomes the common law employer after the sale (if the buyer is not obligated to make COBRA continuation coverage available to AEIs).
FAQ #10 covers state agencies that maintain the health plans for other state agencies in the same state government. The FAQ states that if a state agency is obligated to make COBRA continuation coverage available to employees of various agencies of the state and local governments within the state, and the AEIs would have been required to remit COBRA premium payments directly to the state agency were it not for the COBRA premium assistance, the state agency is the entity entitled to claim the COBRA premium assistance credit.
Finally, FAQ #11 deals with employers who offer fully insured plans through a Small Business Health Options Program (SHOP) that are not subject to federal COBRA. Such employers may receive the premium assistance tax credit if certain factors apply:
- The employer participates in a SHOP exchange that offers multiple insurance choices to employees enrolled in the same small group health plan
- The SHOP exchange provides the participating employer with a single premium invoice, aggregates all premium payments, and then allocates and pays the applicable premium amounts to the insurers
- The participating employer has a contractual obligation with the SHOP exchange to pay all applicable COBRA premiums to the SHOP exchange
- The participating employer would have received the state mini-COBRA premiums directly from the AEIs were it not for the COBRA premium assistance.
The FAQ emphasizes that in all other cases of a fully insured plan subject solely to state mini-COBRA, the insurer (and not the common law employer) is the premium payee entitled to the premium assistance credit.
Although only two months remain in the ARPA COBRA premium assistance period, which ends on September 30, 2021, employers should be aware of these new clarifications to the ARPA premium subsidy requirements. Those FAQs that explain which party may claim the tax credit for providing premium assistance in mergers, acquisitions and other complex business arrangements will be particularly useful.
The ACA requires non-grandfathered group health plans to provide coverage for certain preventive care services or items with no cost-sharing provision for the participant. A service or item is covered by this mandate one year after one or more of the following events take place:
- The United States Preventive Services Task Force (USPSTF) recommends the service or item with an “A” or “B” rating.
- The Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention recommend the immunization for routine use in children, adolescents and/or adults.
- The Health Resources and Services Administration (HRSA) supports the screening with respect to infants, children and adolescents.
- The HRSA supports the preventive care or screening for women.
In June 2019, the USPSTF released a recommendation with an “A” rating that clinicians offer pre-exposure prophylaxis (PrEP) with “effective antiretroviral therapy to persons who are at high risk of human immunodeficiency virus (HIV) acquisition.” Accordingly, plans and issuers must cover PrEP for plan years beginning on or after June 30, 2020.
In Part 47 of the ACA Implementation FAQs, issued on July 19, 2021, the DOL, HHS and Treasury Department clarify that coverage must include not only the medication itself, but also the following related services to improve the efficacy.
- HIV testing
- Hepatitis B and C testing
- Creatinine testing and calculated estimated creatinine clearance (eCrCl) or glomerular
- Filtration rate (eGFR)
- Pregnancy testing
- Sexually transmitted infection (STI) screening and counseling
- Counseling for assessment of behavior and adherence to CDC guidelines
If plans are not currently in compliance, plan sponsors should work with insurers and TPAs to amend the plan accordingly. The agencies will take a non-enforcement approach through September 16, 2021.
On July 9, 2021, President Biden signed an executive order instructing various federal agencies to review their regulations and policies with an eye towards encouraging competition, including taking action to reduce healthcare costs.
In addition to other competition concerns, the order focuses on two main sources of rising healthcare costs. The first is the rising cost of prescription drugs. According to the administration, Americans pay at least 2.5 times as much for prescription drugs as peer countries. In order to check these cost increases, the order instructs the FDA to work with states and tribes to safely import prescription drugs from Canada and directs HHS to look for ways to increase support for generic drugs. It also instructs the FDA to issue a comprehensive plan within 45 days to combat high prescription drug prices and price gouging. Further, the order encourages the FTC to ban “pay for delay” and similar agreements (under which drug manufacturers pay generic drug producers to delay releasing cheaper versions of their drugs into the market) by rule.
The second source of rising healthcare costs is hospital consolidation. According to the administration, the ten largest healthcare systems now control a quarter of the market, allowing these systems to set higher prices for the services they provide. Although the previous administration instituted price transparency regulation, hospitals have been slow in complying with them, further obscuring the price increases they charge. The order instructs the FTC and the Justice Department to review and revise their merger guidelines to ensure that patients are not harmed by healthcare system mergers, and directs HHS to support existing hospital price transparency rules and to finish implementing surprise billing regulations.
Also of note is the order’s direction to HHS to propose rules within 120 days that allow hearing aids to be sold over the counter. HHS is also instructed to standardize plan options in the federal insurance marketplace so that people can comparison shop more easily.
Employers should be aware of these upcoming regulatory efforts to curb costs, which may impact healthcare plan premium rates.
Executive Order on Promoting Competition in the American Economy »
Fact Sheet »
On July 1, 2021, HHS, the DOL and the Treasury Department released interim final rules implementing the No Surprise Billing Act (the Act) that was part of the CAA passed by Congress in late 2020. An interim final rule is a rule that an agency promulgates when it finds that it has good cause to issue a final rule without first issuing a proposed rule. Although interim rules are often effective as of the date of their publication, they will have a comment period after which the interim rule may be amended in response to public comments. In this case, the interim final rules are effective 60 days from the date they are published in the Federal Register. The 60 days serve as the comment period for the interim final rules.
Note that when this summary refers to a “plan” it includes group health plans, as well as health insurance issuers offering group or individual health insurance.
Services and Providers Affected by the Act and Interim Final Rules
The Act addresses situations wherein a person covered by a health plan receives services from providers who are not in the plan’s network. In those circumstances, the out-of-network provider may bill the patient the difference between the amount the provider charges for the service and the amount the health plan will pay for that service, a practice called “balance billing.” This often happens when a patient receives emergency care (and post-stabilization care) and is not able to choose who provides them care, but it also happens when out-of-network providers provide services in network facilities (such as hospitals and ambulatory surgical centers) and when a patient is delivered to a hospital via air ambulance. These bills can be very expensive and come as a surprise to the patient, who may have thought that the health plan covered everything. The Act and the rules impose requirements addressing these services and circumstances.
Preventing Surprise Billing
The Act and these interim final rules tackle this problem in several ways. First, they require plans that provide or cover any benefits for emergency services to cover those services without any prior authorization and regardless of any other term or condition of the plan or coverage other than the exclusion or coordination of benefits, or a permitted affiliation or waiting period. In addition, plans must cover these services regardless of whether the provider is an in-network provider or an in-network emergency facility.
The rules also prohibit balance billing for items and services covered under the Act. Specifically, there can be no balance billing for emergency services, air ambulance services provided by out-of-network providers, and nonemergency services provided by out-of-network providers at in-network facilities in certain circumstances.
Determining Consumer Cost-Sharing Amounts
For the out-of-network services covered under the Act cost sharing that is greater than in-network levels is prohibited and such cost sharing must count toward any in-network deductibles and out-of-pocket maximums.
The rule provides a method by which plans determine how much a participant must contribute towards the services covered under the Act. The amount will be determined in one of three ways. First, the plan must look to the applicable All-Payer Model Agreement, which is the agreement between CMS and a state to implement systems of all-payer payment reform for the medical care of residents of the state by allowing Medicare, Medicaid and private insurers to pay the same price for services to hospitals in that state. Second, if there is no such applicable All-Payer Model Agreement, then the plan must look to state law. Finally, if there is no state law or All-Payer Model Agreement, the plan must charge the lesser amount of either the billed charge or the qualifying payment amount, which is generally the plan’s median contracted rate (note that this is the method for determining the cost sharing amount for air ambulances).
Determining the Amount Plans Pay Out-of-Network Providers
The rules also provide plans with three methods of determining the amount they must pay out-of-network providers who provide services to their participants. As described above, the plan must first look to the applicable All-Payer Model Agreement and, if no such agreement exists, to applicable state law. If neither option is available, then the plan and the out-of-network provider must come to an agreement regarding the price. If they cannot agree, then they go through an informal dispute resolution process (IDR) to determine the amount. The agencies plan to issue additional rules describing the IDR at a future date.
Note that in cases where the plan must pay the bill before the participant meets their deductible, the plan must pay the provider or facility the difference between the out-of-network rate and the cost-sharing amount (the latter of which in this case would equal the amount of either the billed charge or the qualifying payment amount, which is generally the plan’s median contracted rate), even in cases where the participant has not satisfied their deductible.
In an example provided in the interim rules, an individual is enrolled in a high deductible health plan with a $1,500 deductible and has not yet accumulated any costs towards the deductible at the time the individual receives emergency services at an out-of-network facility. The plan determines that the recognized amount for the services is $1,000. Because the individual has not satisfied the deductible, the individual’s cost-sharing amount is $1,000, which accumulates towards the deductible. The out-of-network rate is subsequently determined to be $1,500. Under the requirements of the statute and these interim final rules, the plan is required to pay the difference between the out-of-network rate and the cost-sharing amount. Therefore, the plan pays $500 for the emergency services, even though the individual has not satisfied the deductible. The individual’s out-of-pocket costs are limited to the amount of cost sharing originally calculated using the recognized amount (that is, $1,000). Even though such payments would normally cause a high deductible health plan to lose its status, the Act states that a plan shall not fail to be treated as a high deductible health plan by reason of providing benefits pursuant to the Act.
Notice Requirements
The interim rules provide for two different notice requirements. First, under certain circumstances, an out-of-network provider can provide notice to a person regarding potential out-of-network care, obtain the individual’s consent for that out-of-network care and extra costs, and thereby avoid the procedures under these rules. However, this notice and consent exception does not apply to certain types of providers, even if they are not providing services during an emergency, such as anesthesiology or radiology services provided at an in-network healthcare facility.
The second notice is required to be posted by group health plans and health insurance issuers offering group or individual health insurance coverage. It must be made publicly available, posted on a public website of the plan or issuer, and included in each explanation of benefits. It is one page and must provide information concerning requirements and prohibitions under the Act, any applicable state balance billing limitations or prohibitions, and contact information for appropriate state and federal agencies if someone believes the provider or facility has violated the requirements described in the notice.
The interim final rules are generally applicable to group health plans and health insurance issuers for plan and policy years beginning on or after January 1, 2022. Employers who self-insure their health plans, as well as those covered by fully insured plans, should be aware of these developments.
On June 30, 2021, the IRS issued Notice 2021-42, which extends certain tax relief originally provided in Notice 2020-46. Under Notice 2020-46, which was issued on June 11, 2020, cash payments that employers make to qualified tax-exempt organizations for the relief of victims of the COVID-19 pandemic in exchange for vacation, sick or personal leave that their employees elect to forgo will not be treated as income to the employees. In addition, employees electing to forgo leave will not be treated as having constructively received gross income or wages (or compensation, as applicable). The relief provided under Notice 2020-46 applied to payments made before January 1, 2021.
Notice 2021-42 extends this relief to the end of 2021. Employers who have instituted such plans should be aware of this extension.
On June 8, 2021, the IRS Office of Chief Counsel issued a memorandum to the Counsel of IRS Tax Exempt and Government Entities Division. The memo answers the question as to whether IRS Letter 226-J, when sent to an applicable large church employer, is a routine request from the IRS or a church tax inquiry under Section 7611.
Letter 226-J is a notification from the IRS to an applicable large employer proposing an assessment for failure to comply with the employer shared responsibility requirements (known more commonly as the employer mandate). The employer mandate applies to all types of employers, including nonprofits and churches if they had 50 or more full-time employees including equivalents in the previous calendar year. The employer may accept the proposed assessment and pay the penalty amount. Alternatively, it may challenge the proposal by correcting the previously submitted Forms 1094-C and/or 1095-C and submitting supporting documentation. If the employer does nothing, the IRS will begin procedures to collect the assessment.
Section 7611 intends to protect churches from undue interference while allowing the IRS to retain the ability to pursue individuals who inappropriately use the church form as a tax-avoidance device. Section 7611 limits a church tax inquiry to situations that determine whether a church is exempt from tax under Section 501(a) or whether a church is carrying on an unrelated trade or business or otherwise engaged in activities that may be subject to taxation. The inquiry must originate from a written, reasonable belief determination by a high-level Treasury official.
A routine IRS request, on the other hand, may include (but is not limited to) the filing or failure to file any tax return or information return by the church; compliance with income tax or FICA (Social Security) tax withholding responsibilities; information necessary to process applications for exempt status and letter ruling requests; information necessary to process and update periodically a church’s registrations for tax-free transactions (excise tax) or information identifying a church that is used to update the Cumulative List of Tax Exempt Organizations (Publication No. 78); or confirmation that a specific business is or is not owned or operated by a church. Routine requests do not trigger the Section 7611 church tax inquiry procedures.
In 2018, the Office of Chief Counsel considered whether the employer shared responsibility payment compliance program (which involves Letter 226-J) should be handled by the Section 7611 procedures when a church employer was involved. Since the law and its requirements were new at that time, the office chose to adopt a cautious approach to protect churches and applied the Section 7611 procedures to the Letter 226-J process. The office is now reversing that decision as it feels that the required involvement of a high-level Treasury official in the process is causing delayed processing of the letters and church responses. At times, this delay results in a church filing several years of incorrect forms before discovering the reporting errors. The office now feels that the result is less favorable treatment for churches.
Thus, applicable large churches that receive a Letter 226-J from the IRS should likely treat that as a routine request from the IRS and respond accordingly. It should be noted that IRS memorandums cannot be cited as precedent and only show how an IRS representative may view a different situation with similar facts.
On June 11, 2021, the IRS issued guidance related to the calculation of the employer tax credit for emergency paid sick leave (EPSL) and expanded FMLA (EFMLA). The guidance comes in the form of 123 frequently asked questions.
The FFCRA originally required employers with fewer than 500 employees to provide EPSL to employees who were unable to work (including telework) due to an order of quarantine, having COVID-19 symptoms and seeking medical care, caring for someone with COVID-19, or caring for a child whose school or day care was closed due to COVID-19. EFMLA was only available for absences related to childcare. The requirement was effective April 1, 2020, and extended through December 31, 2020. Then the Consolidated Appropriations Act changed the provision of EPSL and EFMLA to allow employers the option to provide EPSL and EFMLA from January 1, 2021, through March 31, 2021.
Finally, the ARPA extended the option to use the leave to September 30, 2021, and revised the reasons for leave effective April 1, 2021, to include absences related to receiving the COVID-19 vaccination, illness or injury related to receiving the vaccine, and awaiting COVID-19 test results. The reasons for EFMLA were also expanded to match those of EPSL and the 80 hours of EPSL reset on April 1, 2021.
Generally, an employer is eligible for a tax credit equal to paid leave wages, the cost of health insurance coverage allocable to the leave time, certain collectively bargained contributions, and the employer's share of social security and Medicare taxes associated with the paid wages.
Highlights of the new guidance include:
- How to claim the credit, FAQ #2: Generally, employers claim the tax credit on their quarterly federal employment tax return (Form 941). However, there are two more options available. An employer may reduce their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, an employer may request an advance payment of the credits from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19, for the relevant calendar quarter.
- Collectively bargained contributions, FAQ #11: An employer may receive a tax credit for collectively bargained defined benefit pension plan contributions and collectively bargained apprenticeship program contributions that are properly allocable to qualified leave wages.
- Governmental employers, FAQ #18: Effective April 1, 2021, nonfederal governmental employers are eligible for the tax credit for qualified EPSL and EFMLA. Federal governmental employers remain ineligible for the tax credit.
- US Territories, FAQ #20: Employers in US Territories are eligible for the tax credit assuming that they otherwise qualify as an eligible employer (i.e., fewer than 500 employees).
- Tribal government employers, FAQ #23: Tribal government employers are eligible for the tax credit assuming that they otherwise qualify as an eligible employer.
- Nondiscrimination rules, FAQ #24: An employer who varies eligibility or benefits related to EPSL or EFMLA by favoring full-time employees, highly compensated individuals or those with more tenure would not be eligible for a tax credit.
- Maximum daily limit, FAQ # 34: The maximum daily limit for leave related to the employee's quarantine, symptoms and vaccination is $511 per day as opposed to the $200 per day limit for leave related to the employee caring for someone else. The daily limit applies to the leave wages and any collectively bargained contributions but does not apply to the allocable qualified health plan expenses or the employer's share of social security and Medicare taxes.
- Information requested from employee, FAQ #64: An employer may request the following from an employee for an absence related to EPSL or EFMLA: employee's name, dates of leave, statement describing reason for leave and a statement that the employee is unable to work. If the leave is related to a quarantine, the employer may request the name of the governmental entity or healthcare professional ordering the quarantine. If the leave is related to a school or childcare provider unavailability, the employer may request the name of the child, the name of the school or childcare provider, and a statement that no other suitable person will be providing care during the leave period. For leaves related to receiving a test or vaccination, an employer may request the date of the test or vaccination.
- Timing of wage payment, FAQ #69: Wages paid after September 30, 2021, are still eligible for the credit if the wages paid are related to leave taken between April 1, 2021, and September 30, 2021.
- State and local leave requirements, FAQ #82: If an eligible employer pays wages mandated by a federal, state or local law for leave that otherwise satisfies the requirements of the EPSLA or EFMLA, the employer is entitled to claim tax credits for those wages.
Employers with questions related to the tax credit will find this guidance helpful as it includes many detailed answers and examples.
On June 11, 2021, the IRS released final regulations on the mandatory 60-day postponement of certain tax-related deadlines due to federally declared disasters, which includes a definition of “federally declared disaster.”
The 60-day timeframe is included in Code §7508A(d), which explains that the period beginning on the earliest incident date for a qualifying disaster and ending 60 days after the latest incident date for said disaster, is disregarded for qualified taxpayers. (However, in no event will the mandatory 60-day postponement period exceed one year.) For these purposes, “qualified taxpayers” include businesses that have a principal place of business in a disaster area (among other individuals).
Per the regulations, the Secretary of the Treasury must determine which deadlines for time-sensitive acts will be extended due to a federally declared disaster (if any). However, time-sensitive acts that are specifically postponed include an extension for making contributions to a qualified retirement plan or IRA, withdrawing excess IRA contributions, re-characterizing IRA contributions, and completing rollovers.
Further, the definition of “federally declared disaster” is clarified for purposes of deadline extension to include both a major disaster and an emergency declared under sections 401 and 501 (respectively) of the Stafford Act.
These final regulations are effective as of June 11, 2021, and employers should be aware of these developments.
On June 14, 2021, the DOL published Information Letter 06-14-2021, confirming that a copy of an audio recording and transcript of a telephone conversation between a participant and the plan’s insurer had to be provided to the participant.
The party requesting the DOL information letter represents a participant whose request for the audio recording was denied. The participant sought after the recording after receiving an adverse benefit determination. The insurer denied the request, arguing that the recordings were for quality assurance purposes and could not be relied upon for claims administration purposes.
The DOL did not agree with the insurer’s interpretation of this issue. ERISA Section 503 requires plans to give participants a reasonable opportunity to conduct a full and fair review of the decision denying the claim, and that would involve providing copies of all documents, records and other information relevant to the participant’s claim for benefits. For those purposes, a document or other record is relevant to the participant’s claim if the information can be characterized as one or more of the following:
- Was relied upon in making the benefit determination
- Was submitted, considered or generated in the course of making the benefit determination, without regard to whether such document, record or other information was relied upon in making the benefit determination
- Demonstrates compliance with the administrative processes and safeguards required pursuant to paragraph (b)(5)
- Constitutes a statement of policy or guidance with respect to the plan concerning the denied treatment option or benefit for the claimant’s diagnosis, without regard to whether such advice or statement was relied upon in making the benefit determination
The DOL homed in on the second numeral above in pointing out that the requested records didn’t have to be the basis for the benefit determination in order to be required. The DOL also discussed the fact that the third reason above would make it appropriate for a call recording to be provided since a quality assurance call would demonstrate compliance with the administrative processes and safeguards in place.
Finally, the DOL confirmed that nothing in the claims regulations indicates that only paper records may be requested. So, the fact that the requested record was an audio file was of no consequence in the analysis of whether the record needed to be turned over.
Accordingly, pursuant to ERISA’s claims regulations, a recording or transcript of a conversation with a claimant would be required to be provided to that claimant if they request it. Any plan administrator that receives such a request should likely honor it unless they receive other advice from legal counsel.
On May 27, 2021, the Government Accountability Office (GAO) publicly released a report on the Employee Benefits Security Administration’s (EBSA’s) ERISA enforcement activities. The report followed a fifteen-month study focused upon the EBSA’s management of and efforts to improve the enforcement process, as well as the immediate and long-term challenges presented by the COVID-19 pandemic. It was the first GAO report issued on EBSA enforcement since 2007.
The EBSA is the DOL agency primarily responsible for protecting the rights of participants in employer-sponsored group health and retirement plans. As of fiscal year 2020, this included about 154 million participants in 722,000 retirement plans and 2.5 million health plans with combined assets of over $10.7 trillion. The EBSA’s ERISA enforcement activities are largely performed by investigators in its 10 regional offices, with policy direction, guidance and oversight provided by the EBSA national offices.
First, the recent GAO report explains that the EBSA generally focuses enforcement efforts in three broad categories of ERISA requirements that apply to both retirement and health plans and their service providers: participant disclosures (e.g., SPDs), plan reporting (e.g., Forms 5500) and fiduciary responsibilities. Enforcement is primarily through civil investigations of plans; two-thirds of such investigations are initiated from leads identified by EBSA staff.
According to the EBSA data, retirement plan investigations typically involve an examination of plan-related financial transactions to assess whether the fiduciary is managing plan assets prudently and in the best interest of participants. Health plan investigations often focus on enforcing federal health plan coverage and availability requirements, and also frequently target financial solvency and fraud in multiple employer welfare arrangements. For fiscal year 2021, the EBSA’s operating plan includes an investigative focus on health plans’ compliance with mental health parity requirements and reimbursement rates, autism treatment limitations, denials of claims for emergency services, and fees paid to insurance companies and other service providers, among other things.
Generally, the EBSA encourages plans to voluntarily remedy identified violations. Remedies may include restoring plan or participant assets, paying erroneously denied claims and making necessary administrative changes. Most investigations are settled at the regional level; however, unresolved civil or criminal cases may be referred to the DOL’s Office of the Solicitor or the Department of Justice, respectively. In fiscal year 2020, approximately 84% of investigations were civil and 16% criminal in nature, resulting in over $3 billion in payments restored to plans and participants.
Next, the GAO report observes that the EBSA has used a variety of approaches to improve its investigative processes. These strategies include improved targeting techniques (to identify plans for investigation) and prioritization of cases by their potential to affect many participants and recover significant assets, such as restored retirement plan contributions or payments for incorrectly denied medical claims. (Prior to 2013, enforcement efforts focused on the number of cases closed, rather than the impact of such cases.) As a result, greater resources are allocated to major cases, national enforcement projects and evolving issues. Additionally, to ensure the consistency and quality of enforcement efforts across regions, the EBSA provides all employees with ongoing training, written protocols and management oversight.
Finally, the report addresses the numerous challenges for benefit plans and the EBSA that resulted from the COVID-19 pandemic. For example, one cited initial challenge for plan administrators was the implementation of COVID-19 relief measures (e.g., under the FFCRA and CARES Act) without regulations. Guidance subsequently issued by the EBSA in the form of FAQs and notices largely addressed these concerns. However, the report also recognizes the ongoing COVID-19 issues faced by plan sponsors, such as the financial difficulties of paying plan health claims with reduced cash flows, the administrative burdens created by the COVID-19 deadline extensions, and the challenges of finding retirement participants entitled to benefits who terminated employment during the pandemic.
The report incorporates numerous charts that reflect the EBSA organizational structure and statistical enforcement data, amongst other items. The appendices provide historical information on national and regional enforcement projects from 2011 through 2021 and common ERISA violations identified in investigations.
Employers that sponsor group health and/or retirement plans may find the GAO report particularly insightful in understanding EBSA ERISA enforcement approaches and current priorities.
On April 9, 2021, the IRS released a private letter ruling regarding the deductibility of medical costs and fees arising from in vitro fertilization (IVF) procedures and gestational surrogacy.
The agency issued the letter in response to a request by a married male same sex couple (the “taxpayers”) planning to have a child using the sperm of one spouse and the egg of the other spouse’s sister, with an unrelated surrogate carrying the child to term. The couple sought a ruling as to whether they could deduct the expenses for the sperm donation and freezing, egg retrieval, and IVF process, as well as the childbirth, medical and legal expenses related to the surrogacy.
Code Section 213 permits a taxpayer to deduct expenses paid for medical care that exceed 7.5% of the taxpayer's adjusted gross income. Medical care includes amounts paid for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.”
In the ruling, the IRS emphasizes that expenses eligible for the Code Section 213 deduction are limited to those of the taxpayer, the taxpayer’s spouse and/or the taxpayer’s dependent. Recent tax court precedents are cited in support of this position.
Accordingly, the letter concludes that expenses involving the egg donation, IVF process and gestational surrogacy are not deductible expenses for the taxpayers. I.e., these costs incurred by third parties are not incurred for treatment of a disease or for the purpose of affecting any structure or function of the taxpayers’ bodies.
However, the medical costs paid for medical care directly attributable to the taxpayers, including the sperm donation and sperm freezing, are deductible medical expenses (subject to the above noted adjusted gross income limitation).
Although the ruling technically only apples to the requesting taxpayers, employers who offer IVF benefits may want to be aware of the recent IRS release.
On May 28, 2021, the EEOC updated its "What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws" webpage. The revised guidance confirms that an employer may require all employees returning to a physical worksite to be vaccinated for COVID-19. However, the employer must provide reasonable accommodation for employees who do not get vaccinated for COVID-19 because of a disability or a sincerely held religious belief, practice or observance.
An accommodation is deemed reasonable if it does not create undue hardship for the employer. Examples of reasonable accommodations include an unvaccinated employee wearing a face mask at the worksite, working at a social distance from coworkers or nonemployees, working a modified shift, getting periodic tests for COVID-19, being given the opportunity to telework or accepting a reassignment.
An employer may offer an incentive to employees to voluntarily provide documentation or other confirmation that they received a vaccination. This could include certification from a pharmacy, public health department or other healthcare provider. However, the incentive cannot be so substantial as to be coercive. Unfortunately, the EEOC did not provide greater detail or examples of acceptable incentive amounts or limits.
Finally, all employee documentation related to vaccinations must be maintained confidentially.
What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws »
On April 13, 2021, the CMS Office of Financial Management issued an alert clarifying who has the responsibility for reporting primary prescription drug coverage as the responsible reporting entity (RRE).
Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) contains mandatory reporting requirements for fully insured and self-insured group health plans. These reporting requirements are commonly known as the “Medicare Section 111 reporting requirements,” and are meant to assist CMS in determining coordination of benefit responsibilities between the group health plan and Medicare. RREs are responsible for the actual Section 111 reporting and are required to report whether active covered individuals are entitled to Medicare Part A, Part B, Part C and Part D coverage. Prior to January 1, 2020, reporting of prescription drug coverage (Part D) was optional, but is now required.
Generally, an RRE is the insurer for a fully insured plan, the third-party administrator for a self-insured plan and the plan administrator for a self-insured plan that self-administers. The alert explains that the entity considered the RRE for primary prescription drug coverage reporting is the entity that has the direct prescription drug relationship with the employer/plan sponsor. CMS provides specific examples to help reduce confusion, including:
- When the employer/plan sponsor contracts directly with the group health plan for hospital, medical and/or prescription drug coverage, the group health plan (and if applicable, its third-party administrator) is the RRE responsible for reporting prescription drug coverage. This is true even if the group health plan has carved out the processing and payment of the primary prescription drug claims to a pharmacy benefits manager (PBM), as the group health plan is still the entity with the direct relationship with the employer/plan sponsor for prescription drug coverage.
- When the employer/plan sponsor contracts with a group health plan for medical and hospital coverage only, and then independently contracts with another third-party PBM to administer prescription drug coverage, the PBM is the RRE responsible for reporting prescription drug coverage.
The above examples reinforce that the RRE is the entity which has the direct contract with the employer/plan sponsor for prescription drug coverage. While this alert does not introduce new guidance, it serves as a good reminder of the Medicare Section 111 reporting requirements for prescription drug coverage.
On May 5, 2021, the DOL announced that it is withdrawing the “Independent Contractor Status Rule” that was first published in the Federal Register on January 7, 2021. This rule established a five-factor test that employers could apply in order to determine independent contractor status. The rule was discussed in an article in the January 10, 2021, edition of Compliance Corner. The rule was under review by the Biden administration pursuant to the administration’s order to re-examine certain proposed regulations promulgated by the previous administration. This order was discussed in an article in the February 2, 2021, edition of Compliance Corner.
The DOL stated that it was withdrawing the rule because it conflicted with the purpose of the Fair Labor Standards Act (FLSA), since the proposed test would make it easier for employers to label workers as independent contractors and therefore no longer subject to that statute’s worker protections. Two of the factors in the proposed test, which focused on whether a worker had control over their work and whether the worker had an opportunity to earn profits or incur losses, shifted the focus of the analysis from reviewing the totality of the circumstances surrounding the employer-worker relationship to a narrower approach which the agency felt flew in the face of longstanding practice and court precedent.
The DOL stated that by withdrawing the rule, the agency preserves essential worker rights and prevent more workers from losing or experiencing reduced benefits such as health insurance and retirement plans.
Employers who were considering the proposed rule’s impact on benefits administration should be aware of this action. Employers should consult with employment law counsel if they have further questions concerning the withdrawal.
On May 3, 2021, the Congressional Research Service (CRS) released “A Comparison of Tax-Advantaged Accounts for Health Care Expenses.” The report summarizes key aspects of and distinctions between health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs).
FSAs are employer-sponsored benefits funded primarily by employees through salary reduction agreements under a cafeteria plan. HRAs are established and funded solely by employers. HSAs are individually owned accounts that can be funded by employees and employers.
The CRS report explains that all three account types permit contributions within applicable limits to be excluded from an employee’s gross income and from payroll taxes. Distributions are also tax-free if used to pay or reimburse qualified medical expenses.
In addition to the similarities, the summary explains the numerous differences between FSAs, HRAs and HSAs. Specifically, the report compares the eligibility requirements, the qualifying health insurance associated with the accounts, contribution limits, the types of medical care considered “qualified medical expenses,” the ability to carry over funds each year or invest account balances, and the availability of funds upon termination of employment.
The FSA section outlines the standard regulatory requirements governing these accounts, as well as applicable COVID-19 temporary relief measures. For example, the summary describes the optional provisions under the Consolidated Appropriations Act of 2021, which allow for greater flexibility with respect to employee contribution elections and access to unused FSA account balances.
The HRA section reviews the five categories of HRAs, which are traditional group health plan HRAs, individual coverage HRAs, qualified small employer HRAs, excepted benefit HRAs and retiree only HRAs. Comparisons are made between the various HRA categories, in addition to the other types of accounts.
The HSA summary highlights the additional advantages of these employee-owned accounts, including the ability to invest balances and benefit from tax exempt earnings. The portable nature of HSAs is also emphasized. Furthermore, the HSA section explains how the standard eligibility requirements have been temporarily modified by the CARES Act, to allow for broader coverage of telehealth services during the COVID-19 pandemic.
The report includes a table that summarizes the general rules for each type of account. Recent statistical data regarding availability and participation levels by account type is also provided.
Employers who offer (or are considering offering) FSAs, HRAs or HSAs may want to review the complete report for further information.
A Comparison of Tax-Advantaged Accounts for Health Care Expenses »
On May 10, 2021, the IRS published Notice 2021-26, Taxation of Dependent Care Benefits Available Pursuant to an Extended Claims Period or Carryover. This guidance clarifies previous Notice 2021-15, which stated that unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not considered in determining the annual limit applicable for the following year. You can find our previous Compliance Corner article on Notice 2021-15 here.
The new guidance clarifies Notice 2021-15 by stating that DCAP benefits that would have been excluded from income if used during the taxable year ending in 2020 or 2021, as applicable, remain eligible for exclusion from the participant’s gross income and are disregarded for purposes of application of the limits for the subsequent taxable years of the employee when they are carried over from a plan year ending in 2020 or 2021 or permitted to be used pursuant to an extended claims period.
The guidance includes several examples, such as the following:
An employee is covered by a calendar year § 125 cafeteria plan that offers a DCAP benefit. The employee elects no DCAP benefits for the 2019 plan year. The employee elects to contribute $5,000 for DCAP benefits for the 2020 plan year but incurs no dependent care expenses during the plan year. Pursuant to § 214 of the Act [CAA], the § 125 cafeteria plan allows the employee to carry over the unused $5,000 of DCAP benefits to the 2021 plan year. The employee elects to contribute $10,500 for DCAP benefits for the 2021 plan year.
The employee incurs $15,500 in dependent care expenses in 2021 and is reimbursed $15,500 by the DCAP. The $15,500 is excluded from the employee’s gross income and wages because $10,500 is excluded as 2021 benefits and the remaining $5,000 is attributable to a carryover permitted under § 214 of the Act.
Employers should be aware of the tax treatment of carryover and extended grace period amounts if they elected to provide them in their cafeteria plans.
On May 10, 2021, the IRS released Revenue Procedure 2021-25, which provides the 2022 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2022 annual HSA contribution limit will increase to $3,650 for individuals with self-only HDHP coverage, up $50 from 2021, and to $7,300 for individuals with anything other than self-only HDHP coverage (family or self + 1, self + child(ren), or self + spouse/domestic partner coverage), up $100 from 2021.
For qualified HDHPs, the 2022 minimum statutory deductibles remain at $1,400 for self-only coverage and $2,800 for individuals with anything other than self-only coverage (the same as for 2021). The 2022 maximum out-of-pocket limits will increase to $7,050 for self-only coverage (up $50 from 2021) and up to $14,100 for anything other than self-only coverage (up $100 from 2021). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum appears to remain $1,000 for individuals aged 55 years or older (this is a fixed amount not subject to inflation).
The maximum amount that may be made newly available for plan years beginning in 2022 for excepted benefit HRAs is $1,800.
The 2022 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with 2022 limits.
On April 6, 2021, the United States Court of Appeals for the Eleventh Circuit (the appellate court) ruled in Ramji vs. Hospital Housekeeping Systems that an employer cannot choose between workers’ compensation laws and federal FMLA obligations.
The plaintiff in the case was an employee of Hospital Housekeeping who injured her knee while at work. Once the employee notified the employer of her injury, the employer gave her time off and light-duty work while she recuperated but did not inform her of her rights under FMLA and did not place her on FMLA leave. She was paid in accordance with workers’ compensation regulations while she was on leave. When she returned to work, the employer tested her to see if she could perform the essential functions of her job. When she failed the test, she was fired.
The employee sued the employer, alleging that the employer violated FMLA when she was placed on leave to recuperate for a short time and then subsequently fired. The employer argued that it treated the injury as a workers’ compensation claim and had complied with workers’ compensation regulations. The employer also asserted that it did not believe that the employee qualified for FMLA because she received clearance from her doctor after taking a few days off and returned to work. In addition, the employer stated that the employee needed to inform it of her need for FMLA leave and did not do so.
The trial court agreed with the employer. However, the appellate court ruled that the employer did not comply with its obligations under FMLA even if it complied with workers’ compensation regulations. FMLA provides eligible employees with 12 weeks of unpaid leave with job protection upon return from that leave. The appellate court determined that the nature of the employee’s injury and the fact that she requested leave to deal with it provided the employer with enough information to determine that she qualified for FMLA. The employer was then obligated to inform her of her rights and responsibilities under FMLA as well as her eligibility for FMLA leave. The employer could not choose between providing the employee with FMLA or with workers’ compensation benefits (in fact, FMLA provides that it runs concurrently with workers’ compensation) and cannot require an employee to accept light duty work in lieu of FMLA leave. The court determined that doing these things interfered with the employee’s right to FMLA.
The appellate court ruling does not resolve the case; rather, it resolved a Motion for Summary Judgement filed by the employer, which would have ended the litigation based upon a determination that the employer wins on the law. If the court had ruled in favor of the employer, the litigation would likely have ended there. However, this ruling allows the plaintiff to resume her litigation in the trial court. It is possible that the trial court and subsequent appeals may change the outcome of the case. However, this case is an instructive reminder to employers about their obligations under FMLA to inform employees of their rights and responsibilities under the law and that doing so is not optional.
On April 19, 2021, the Joint Committee on Taxation released its Present Law and Background on Dependent Care and Paid Leave in preparation for the April 21, 2021, public hearing held by the House Committee on Ways and Means. The report describes the legal background, empirical data and policy considerations related to topics considered in the hearing which include, among other topics, various federal tax rules related to employer-provided dependent care assistance programs (DCAPs) and paid family and medical leave.
DCAPs
The report provides a detailed summary on the legal background of DCAPs (including recent temporary provisions related to COVID-19). Highlights of the overview are included below.
- The excludable amount from an employee’s gross income is generally limited to $5,000 ($2,500 in the case of married individuals filing separately). Temporary relief provided by the American Rescue Plan Act of 2021 (ARPA) permits an increase in the excludable amount to $10,500 ($5,250 in the case of married individuals filing separately) for calendar year 2021 only.
- DCAPs permit an employer to allow a spend-down provision. This means that participants who have ceased participation in a DCAP can apply remaining unused amounts to expenses incurred through the last day of that plan year (including any grace period).
- Generally, a DCAP is not permitted to allow a carryover. However, the special rules for plan years ending 2020 and 2021 related to COVID-19 permit unused balances to be carried over into the subsequent plan year, as provided by the Consolidated Appropriations Act of 2021 (CAA). In addition, a DCAP may extend the grace period applicable to DCAPs to 12 months after the end of the plan year for plan years ending in 2020 and 2021 per the CAA.
- The CAA modified the definition of qualifying individual to include a dependent who has not yet reached the age 14 (normally the cutoff is age 13). This applies to employees enrolled in a DCAP for the plan year for which the end of the enrollment period was on or before January 31, 2020 (including any grace period).
- For plan years ending in 2021, an employer can choose to permit employees to make prospective DCAP election changes.
DCAP amounts are reported on the employee’s Form W-2, Wage and Tax Statement, Box 10, for the taxable year in which the dependent care services were provided.
Paid Family and Medical Leave
The report also elaborates on the employer credit for paid family and medical leave. Employers who provide family and medical leave to their employees may complete Form 8994 to claim a credit. To claim the leave, employers must have a written policy that provides at least two weeks of paid leave to full-time employees (prorated for part-time employees), and the paid leave must be at least 50% of the wages normally paid to the employee. Family and medical leave, for purposes of this credit, is leave granted by the employer in accordance with written policy for one or more of the following reasons:
- Birth of an employee’s child and to care for the child
- Placement of a child with the employee for adoption or foster care
- To care for the employee’s spouse, child or parent who has a serious health condition
- A serious health condition that makes the employee unable to do the functions of their position
- Any qualifying exigency due to an employee’s spouse, child or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the US armed forces
- To care for a service member who’s the employee’s spouse, child, parent or next of kin
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The applicable percentage falls within a range from 12.5% to 25%. An employer can claim credit only for leave taken after the written policy is in place, and the credit is now scheduled to expire December 31, 2025.
Notably, this tax credit is different than the COVID-19-related tax credits for paid leave provided via the FFCRA, CAA and ARPA. The temporary COVID-19 guidance provides that certain employers who pay sick or family leave wages for specified reasons can receive a corresponding payroll tax credit. Under the FFCRA, the paid leave provisions were effective from April 1, 2020, through December 30, 2020 (and required for certain employers); the CAA permitted employers to choose to extend such leave through March 31, 2021; and the ARPA once again extended the leave through September 30, 2021 (also optional for employers). If employers choose to provide this paid leave in 2021, they are eligible for the associated payroll tax credits.
ARPA further provided an additional 80 hours of emergency paid sick leave (EPSL); increased the amount of expanded FMLA (EFMLA) to $12,000 (was $10,000); permits the time it takes to receive or recover from the COVID-19 vaccination as a qualifying reason for EPSL; and all the qualifying reasons for EPSL are now permitted for EFMLA.
Finally, policy considerations regarding employer-provided family and medical leave are discussed – including different leave options such as a public option, through the workplace via employer mandates and providing employer incentives – and the impact to tax efficiencies of each option. The report also includes data on the percentage of certain workforces that have access to different types of leave. Paid leave continues to be a benefit that policymakers are considering for employees.
While this is not new guidance, the report serves as a good reminder of rules and temporary relief provisions applicable to DCAPs and paid family and medical leave.
Present Law and Background on Dependent Care and Paid Leave »
On April 7, 2021, the DOL issued guidance regarding the COBRA subsidy provisions under the American Rescue Plan Act of 2021 (ARPA). As a reminder, the ARPA allows certain individuals to elect COBRA coverage and have that COBRA coverage 100% subsidized by the federal government from April 1, 2021, to September 30, 2021. An individual must have experienced a reduction of hours or termination of their employment (other than by reason of such employee's gross misconduct) in order to apply this subsidy. These individuals are referred to as Assistance Eligible Individuals or AEIs. A person who voluntarily terminates their employment is not eligible for this subsidy. The DOL’s guidance includes a series of FAQs, model notices and related information.
FAQs
The DOL provides 22 FAQs that regarding implementation of the COBRA requirements under ARPA. The topics addressed by the FAQs are as follows:
- FAQs 1 – 6: general information
- FAQs 7 – 9: premiums
- FAQs 10 – 12: notices
- FAQs 13 – 21: individual questions for employees and their families
- FAQ 22 (mis-numbered Q21): additional information
Several of the questions provide clarification of ARPA. According to FAQ number 2, premium subsidy provisions apply to all group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules. They also apply to plans sponsored by state or local governments subject to the continuation provisions under the Public Health Service Act. Premium subsidies are also available for group health insurance required under state mini-COBRA laws.
FAQ number 3 clarifies who is an AEI. In addition to those individuals who experienced a termination of employment (except for those who voluntarily terminated), an individual appears to be an AEI if they experience a reduction of hours, regardless of whether such a reduction is voluntary or involuntary. Examples of a “reduction of hours” include any temporary leaves of absence, an individual’s participation in a lawful labor strike and appears to include medical leave that does not result in the termination of the individual’s employment. If an individual is eligible through a spouse’s plan, then they are not an AEI. An individual is an AEI if they are on Medicaid or a marketplace/exchange plan. However, those who enroll in COBRA continuation with premium assistance will not be eligible for a premium tax credit on the exchange.
FAQ number 10 highlights an important caveat concerning eligibility for premium subsidies: individuals are not AEIs if their maximum COBRA continuation coverage period (if COBRA had been elected or not discontinued) would have ended before April 1, 2021. According to the FAQ, this generally means the COBRA subsidies will not apply to those individuals with applicable qualifying events before October 1, 2019.
The FAQs also clarify issues surrounding enrollment. Note that employers have until May 31, 2021, to provide notice to AEIs of their right to elect COBRA and receive subsidies under the ARPA. According to FAQ number 10, regular rules regarding COBRA notice distribution apply, including distribution by email. FAQ number 13 states that AEIs have 60 days from receipt of the notice to elect COBRA or they forfeit their right to elect COBRA subsidies. FAQ number 5 states that AEIs can choose to have prospective coverage from the date of election or, if they have a qualifying event on or before April 1, retroactive coverage to April 1. FAQ number 16 states that qualified beneficiaries who didn’t independently elect may do so now. Further, individuals who believe that they qualify for premium assistance need to complete and submit a form entitled Request for Treatment as an Assistance Eligible Individual, as well as an election form. And FAQ number 4 states that individuals may have a special enrollment period on the exchange after the subsidy ends.
The last major topic covered by the FAQs concerns enforcement of these requirements. According to both FAQ number 10 and FAQ number 12, employers who violate COBRA rules (including the requirement to offer a COBRA election and subsidies under the ARPA) could be subject to penalties equal to $100 per qualified beneficiary or $200 per family for every day that the employer violates COBRA rules. If individuals believe that they have not received an offer of COBRA due to them, then they are advised to contact the DOL.
Model Notices
The DOL also published four model notices: a “General Notice,” an “Alternative Notice,” a “Notice in Connection with Extended Election Periods” and a “Notice of Expiration of Period of Premium Assistance.”
The General Notice should be provided to all individuals who experience a qualifying event from April 1, 2021, through September 30, 2021. It includes information related to the premium assistance, and other rights and obligations under the ARPA, as well as all of the information required in an election notice. It also includes information on the health insurance marketplace, Medicaid and Medicare. The General Notice satisfies existing requirements for the content of a standard COBRA election notice as well as those required by the ARPA.
The Alternative Notice must be sent by issuers that offer group health insurance coverage subject to continuation coverage requirements imposed by state law that differ from those imposed by federal law (e.g., employers with fewer than 20 employees may be covered by certain state healthcare continuation laws). The Alternative Notice must be provided to all qualified beneficiaries, not just covered employees, who have experienced a qualifying event at any time from April 1, 2021, through September 30, 2021, regardless of the type of qualifying event. The Alternative Notice serves as a template that can be modified for each state’s requirements.
The Notice in Connection with Extended Election Periods must be distributed to AEIs (or any individual who would be an AEI if a COBRA continuation coverage election were in effect) who became entitled to elect COBRA continuation coverage before April 1, 2021. This notice covers the rights of AEIs to elect COBRA coverage as discussed above and provides them with the forms necessary to do so.
The Notice of Expiration of Period of Premium Assistance must be provided 15 – 45 days before the date of expiration of premium assistance and informs AEIs of the expiration and the date that the subsidies will expire. This notice must also provide information concerning eligibility for coverage without any premium assistance through either COBRA continuation coverage or coverage under a group health plan. This notice is not required if an AEI becomes eligible under a group health plan (excluding excepted benefits, a QSEHRA or a health FSA) or for Medicare. This notice may note that the individual and any covered dependents may be eligible for a special enrollment period to enroll in individual market health insurance coverage.
In addition to the specific requirements of each notice, the General Notice, the Alternative Notice and the Notice in Connection with Extended Election Periods must include the following information:
- A prominent description of the availability of premium assistance, including any conditions on the entitlement.
- A form to request treatment as an “Assistance Eligible Individual” (as discussed above).
- The name, address and telephone number of the plan administrator (and any other person with relevant information about the premium assistance).
- A description of the obligation of individuals paying reduced premiums who become eligible for other coverage to notify the plan and the penalty for failing to meet this obligation.
- A description of the opportunity to switch coverage options, if applicable.
The DOL also provided a PDF summarizing the COBRA premium assistance provisions of the ARPA, which includes the forms necessary to request treatment as an AEI.
Model Notices »
Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 »
Related Materials
In addition to the FAQs and model notices, the DOL also linked to a number of publications that provide information on COBRA, retirement and health benefits for dislocated workers and those experiencing job loss, and HHS guidance on the ARPA.
Employers should familiarize themselves with this guidance as they prepare to comply with the ARPA COBRA provisions. The Benefits Compliance team expects that the federal government will provide more guidance in the coming weeks. We will continue to analyze subsequent guidance and provide resources to explain the continued developments.
On April 2, 2021, the DOL, HHS and the Treasury (collectively, “the Departments”) jointly released FAQs regarding recent amendments to the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The guidance is intended to assist group health plan sponsors in understanding the new MHPAEA obligations imposed by the Consolidated Appropriations Act of 2021 (CAA).
As background, the MHPAEA generally provides that financial requirements and treatment limitations imposed on a plan’s mental health or substance use disorder (MH/SUD) benefits cannot be more restrictive than those applicable to medical/surgical benefits in a classification. Furthermore, separate treatment limitations cannot be imposed only on MH/SUD benefits. These MHPAEA provisions apply to both quantitative treatment limitations, such as the number of doctor visits, and non-quantitative treatment limitations (NQTLs), such as preauthorization requirements, step protocols or experimental treatment limitations.
The CAA, which was enacted on December 27, 2020, requires group health plans and issuers to perform and document their comparative analyses of the design and application of any NQTLs imposed upon MH/SUD benefits. Effective February 10, 2021, plans must be prepared to provide the analyses to the Departments (or applicable state authorities or participants) upon request.
Accordingly, the FAQs explain that for an analysis to be treated as sufficient under the CAA, it must contain a detailed, written, and reasoned explanation regarding the bases for the plan’s conclusion that the NQTLs comply with the MHPAEA. FAQ #3 specifies that such analyses should include, but not necessarily be limited to:
- A clear description of the specific NQTLs, plan terms and policies at issue
- Identification of the specific MH/SUD and medical/surgical benefits to which the NQTLs apply within each benefit classification
- Identification of any factors, evidentiary standards or sources, or strategies or processes considered in the design or application of the NQTLs
- Precise definitions and supporting sources for any factors, standards, strategies or processes defined in a quantitative manner
- An explanation as to whether any factors were given more weight than others and the reason(s) for doing so, or whether there was any variation in the application of a guideline or standard used by the plan between MH/SUD and medical/surgical benefits
- If the application of the NQTL turns on specific benefit administration decisions, an identification of the nature of the decisions, the decision maker(s), the timing of the decisions and the qualifications of the decision maker(s)
- If the plan’s analyses relied upon any experts, an assessment of each expert’s qualifications and the extent to which the plan relied upon each expert’s evaluations in setting recommendations regarding both MH/SUD and medical/surgical benefits
- A reasoned discussion of the plan’s findings and conclusions as to the comparability of the processes, strategies, evidentiary standards, factors and sources within each affected classification, and their relative stringency, both as applied and as written
- The date of the analyses and the name, title and position of the person(s) who performed or participated in the comparative analyses
Employers are encouraged to refer to the MHPAEA Self-Compliance Tool, which is accessible on the DOL website, for guidance related to these NQTL requirements and the necessary analyses process. In particular, the Self-Compliance Tool outlines four steps that plans should take to assess their compliance with MHPAEA for NQTLs. The FAQs indicate that plans that have followed the guidance in the Self-Compliance Tool should be well prepared to satisfy a comparative analyses request.
Plans should also be prepared to provide applicable supporting documentation, such as claims processing policies and procedures, referenced studies or internal testing results.
In the near term, the DOL expects to focus on the following NQTLs in its enforcement efforts:
- Prior authorization requirements for in-network and out-of-network inpatient services
- Concurrent review for in-network and out-of-network inpatient and outpatient services
- Standards for provider admission to participate in a network, including reimbursement rates
- Out-of-network reimbursement rates (plan methods for determining usual, customary and reasonable charges)
However, the guidance makes clear that a review, once initiated, may not necessarily be limited to these particular NQTLs. Additionally, a comparative analysis may be requested if the Departments become aware of potential MHPAEA NQTL violations or complaints.
If a plan’s submission of a comparative analysis results in a determination that the plan is not in compliance with the MHPAEA, the plan would be required to submit additional comparative analyses that demonstrate compliance within 45 days. If the Departments make a final determination that the plan is still not in compliance following the 45-day corrective action period, all enrollees would need to be notified within seven days. In addition, the compliance findings would be shared with the state where the group health plan is located.
The FAQs also confirm that the comparative analyses and other applicable information should be made available to ERISA plan participants, beneficiaries and enrollees upon request. Additionally, in the event of a claim appeal, a participant’s right to documents and information would include the MHPAEA analyses and related materials, if relevant to the adverse benefit determination.
Employers that sponsor plans offering MH/SUD benefits should be aware of the enhanced MHPAEA compliance obligations imposed by the CAA and this related guidance. These employers should ensure that NQTL comparative analysis is performed and documented for each NQTL under their plans and be prepared to provide the required comparative analyses upon request. Consultation with carriers and/or TPAs will likely be necessary to verify and coordinate the necessary data to complete the analyses. Employers should refer to the DOL MHPAEA Self-Compliance Tool and consult with counsel for further guidance.
In response to the COVID-19 public health emergency, the federal health insurance marketplace (Healthcare.gov) is accepting new enrollments in a special enrollment period (SEP) from February 15, 2021, through August 15, 2021. On March 23, 2021, CMS issued guidance on this opportunity in the form of frequently asked questions. (The extension was lengthened from the previously set extension to May 15, 2021.) This enrollment opportunity is open to anyone who is in a state that utilizes the federal marketplace and is otherwise eligible to purchase coverage. States that operate their own public marketplace may adopt a similar SEP, but they are not required to do so.
During this time, an individual is not required to have a recent loss of coverage or other triggering event (such as loss of employment-based coverage or marriage). It is considered an open enrollment period. The coverage will be effective on the first of the month after application submission and plan selection. If the individual has a special enrollment event that would permit retroactive coverage (birth, adoption, placement for foster care or pursuant to a court order), they must indicate such on the application.
If an individual is offered coverage through an employer that is considered affordable and meets the minimum value standard or if the individual is enrolled in employer coverage (regardless of affordability), the individual may still enroll in marketplace coverage, but they would not be eligible for a premium tax credit. As a reminder, employees can only drop employer coverage offered through a Section 125 cafeteria plan if they experience a qualifying event. The intended enrollment in marketplace coverage is an optional qualifying event permitting an employee to drop coverage mid-year, if the employer's Section 125 Cafeteria Plan Document allows for such changes.
Although this guidance affects individuals who may enroll in the marketplace, employers should be mindful of this extension.
On February 22, 2021, the United States Court of Appeals for the Tenth Circuit (the appellate court) ruled in Carlile v. Reliance Standard Life, et.al that an employee was entitled to long-term disability benefits, even though he was on notice of his termination and on short-term disability when he requested them. The employer provided the employee with a 90-day notice of termination (“notice period”) and did not require him to work during that time. The employee came to work during the notice period, but he was diagnosed with cancer. He requested and received a short-term disability benefit during the notice period. When the short-term disability was set to expire, the employee requested a long-term disability benefit. The carrier that provided benefits on behalf of the employer denied this request, because he was no longer an active employee, since he was under a notice of termination and not working over 30 hours per week, and therefore no longer eligible for benefits under the terms of the plan.
The employee took the carrier to court, alleging that it denied his claim for long-term disability in violation of ERISA. The trial court found that the term “active” in the plan documents was ambiguous and ruled in favor of the employee. The carrier appealed, asserting that the plan’s definition of “full-time,” that someone must work at least 30 hours during a regular work week, was sufficient to determine whether someone is “active” for this purpose.
However, the appellate court agreed with the trial court, pointing out that in the absence of a specific definition in the plan, the term “active” could be interpreted broadly enough to include employees who worked any number of hours, if they worked. In addition, the employee worked during the notice period, was paid for that work, and was considered a full-time employee during that time. Since the term “active” was not so defined as to exclude employees who did not work 30 hours a week, the appellate court determined that it was ambiguous and ruled in favor of the employee.
Since the ruling came from a federal appeals court, it is possible that the matter will be appealed to the Supreme Court, so this may not be the final word on the matter. However, employers should be aware of the danger of ambiguous terms in their plan documents and should consider consulting with counsel or plan document drafters in order to determine whether important terms are clear and unambiguous.
In March, the US Court of Appeals for the Ninth Circuit (the appellate court) ruled in The ERISA Industry Committee v. City of Seattle that a Seattle local ordinance was not preempted by ERISA. At issue was Seattle Municipal Code (SMC) Section 14.28, which is a health benefits ordinance that requires hotel employers (and other hotel businesses) to either provide money directly to certain employees, or to include such employees in their health benefit plan. The court agreed with the district court that the Seattle ordinance does not relate to employee benefit plan operations in a way that triggers an ERISA preemption.
ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” However, the district court found that the Seattle ordinance does not apply to employee benefits such that would trigger ERISA as it is not a fundamental area of ERISA regulation (e.g., reporting and disclosures). Instead, the district court relied on precedent that provides that an ordinance requiring businesses to make certain minimum healthcare expenditures on behalf of covered employees was not preempted by ERISA. The appellate court agreed, emphasizing that local laws have a presumption against ERISA preemption when operating in an area generally occupied by the states.
The outcome of this case serves as a reminder of ERISA preemption and the extent of its application.
On March 12, 2021, the DOL published a proposal to withdraw the independent contractor rule that was finalized by the prior administration and set to take effect on May 7, 2021 (more info on the prior final rule is available in the January 20, 2021 edition of Compliance Corner).
The DOL finalized the original rule in early January 2021, but then the Biden administration published a regulatory freeze on (among other things) any rules that were final but not yet effective (more info on the regulatory freeze is available in the February 2, 2021 edition of Compliance Corner). The final rule modified the standards and more clearly outlined five factors for employers to consider when determining whether an individual is an employee or an independent contractor. The rule appeared to make it easier for employers to classify the individual as the latter.
In the proposed withdrawal, the DOL explained that the final rule’s analysis would run contrary to the Fair Labor Standards Act’s (FLSA) purpose of providing broad protection of workers as employees, since the rule makes it easier to classify more workers as independent contractors (causing them to lose FLSA protections). The DOL also took issue with the original rule’s cost-benefit analysis, which it believes is flawed.
Because the final rule had not taken effect, the DOL stated that the final rule withdrawal will not be disruptive or burdensome to employers. In addition, the DOL indicated that the withdrawal will give the DOL an additional opportunity to review policy and legal issues relating to the employee versus independent contractor determination and analysis. The proposed withdrawal includes a request for comments. All such comments must be submitted by April 12, 2021.
Since the original final rule never took effect, employers do not have any obligations relating to the original final rule or the proposed withdrawal and the independent contractor analysis remains what it was before. Employers should also keep in mind that the DOL must follow specific procedures in withdrawing rules, and the proposed withdrawal, coupled with the request for comments, is part of that process. The formal, finalized withdrawal of the rule is expected after the comment period.
It remains to be seen whether the DOL will eventually publish additional guidance or rules on the issue. In the meantime, because proper employee/independent contractor classification remains an important issue, employers should work with outside counsel in making that determination.
On March 10, 2021, HHS extended the comment period for the proposed HIPAA privacy rule. As we highlighted in the December 22, 2020 edition of Compliance Corner, HHS proposed modifications to the HIPAA privacy rule to remove barriers to coordinated care and reduce regulatory burdens on the health care industry.
The comment period on the proposed rule is extended through May 6, 2021 (instead of the original March 22, 2021 deadline). HHS wants to maximize the opportunity for the public to provide meaningful input to inform policy development.
Interested entities can take advantage of this extended comment period.
On March 10, 2021, Congress passed the American Rescue Plan Act of 2021 (ARPA). The ARPA includes over $1.9 trillion in COVID-19 relief and contains important updates to certain benefits laws to help employees who have been affected by the pandemic. We will address some of the major benefits-related provisions below.
COBRA
Effective April 1, 2021, ARPA provides a 100% premium subsidy for qualified beneficiaries who elect coverage through COBRA, including state continuation programs. A qualified beneficiary must have experienced an employer-initiated termination of their employment (other than by reason of such employee's gross misconduct), or reduction of hours, in order to apply this subsidy. A person who voluntarily terminates their employment is not eligible for this subsidy. This subsidy applies to COBRA premiums paid for coverage periods between April 1,, 2021, and September 30, 2021 (or when the qualified beneficiary becomes eligible for other group medical or Medicare coverage, whichever comes first). Note that if a qualified beneficiary’s coverage period extends beyond September 30, then premiums charged for coverage after that date will not be subsidized under ARPA.
In addition to the subsidy, ARPA provides an election period for certain qualified beneficiaries. Qualified beneficiaries who can access this election period appear to include those persons who would qualify for the premium subsidy and are still within their 18-month coverage period, but declined COBRA coverage. Qualified beneficiaries who can access this election period also appear to include those who dropped COBRA coverage (regardless of the reason for the COBRA coverage) before the period expired. This election period starts on the date the qualified beneficiary receives a new COBRA election notice and lasts for 60 days. The new election period does not extend the maximum coverage period for any qualified beneficiary who elects COBRA coverage under these circumstances. For example, if a person only had a month left in their coverage period – as calculated from the date of the loss of coverage and qualifying event, such as employment termination – then they would not gain additional months of coverage if they elected COBRA coverage during this new election period.
The premium subsidy is paid through a refundable FICA tax credit to the employer, carrier or plan, as applicable. The credit is claimed by the party to which the premium is due: the carrier for a fully insured plan that is not subject to federal COBRA (i.e., eligible only for state continuation); the employer for all self-insured plans and fully insured plans that are subject to federal COBRA; and the plan for a multiemployer plan. Note that an employer with a fully insured plan subject to COBRA will likely have to front the premiums to the carrier for assistance eligible individuals and then will receive the credit. The credit is calculated each calendar quarter in an amount equal to the premiums not paid by qualified beneficiaries who qualify for the subsidy in that quarter. The credit is limited to the amount of the FICA tax, and any overpayment must be refunded. However, a credit can be advanced through the end of the most recent payroll period in the quarter.
Employers also have the option of allowing qualified beneficiaries to change coverage to other plan options. Normally, qualified beneficiaries must be covered by the same plan that covered them on the day before the date of the qualifying event (although they can change coverage if an open enrollment period occurs during their period of COBRA coverage). If the employer allows it, then it must provide qualified beneficiaries with notice and give them 90 days from the date of the notice to make a change. The qualified beneficiaries who have this choice can only choose coverage that costs the same or less than the coverage they already have.
Finally, employers must provide notice of the subsidy and (if the employer chooses) the option to change coverage to those qualified beneficiaries who are potentially affected by these changes. Qualified beneficiaries potentially affected by these changes are those who qualify for the subsidy (even if they are already covered by COBRA) and those who qualify for the new election period, as described above. Employers can either provide new notices or supplement current notices by including this information in a separate document with the current notice.
The DOL is charged with providing a model notice within 30 days of the date of ARPA’s enactment. Notices should include:
- The forms that are necessary for establishing eligibility for the subsidy described above
- The name, address and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance
- A description of the extended election period described above
- A description of the obligation of the qualified beneficiary to let the plan know when they have become eligible for coverage under another group medial plan or become eligible for Medicare benefits and the penalty for failing to do so
- A description, displayed in a prominent manner, of the qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium
- A description of the option of the qualified beneficiary to enroll in different coverage (if the employer chooses this option)
In addition to this notice, employers are required to provide notice of the expiration of the premium subsidy to those qualified beneficiaries who are benefiting from that subsidy. Employers must provide this notice between 15 and 45 days from the date the subsidies end. The notice must also state that the qualified beneficiary will continue to be covered by COBRA for the remainder of the qualified beneficiary’s coverage period (but without the subsidy) or by other group health plan coverage, if applicable. The DOL is expected to produce a model notice within 45 days of the date of ARPA’s enactment. Note that if the qualified beneficiary notified the plan that they become eligible for another group medical plan or Medicare benefits, then the employer is not required to provide this notice.
Importantly, the notices are an obligation of the plan administrator, which is typically the employer plan sponsor. The administrator should be identified in the summary plan description. The employer may contract with another party, such as a COBRA vendor, to perform the duty on their behalf, but the employer is ultimately responsible for compliance. Failure to comply with the notice requirement would be considered a COBRA failure subject to penalty.
FFCRA: EPSL and Expanded FMLA
An employer can opt to extend EPSL or Expanded FMLA to its employees through September 30, 2021 (an extension of the March 31, 2021, deadline in the CAA). If employers choose to do this, then they can receive payroll tax credits to offset the costs of providing that leave.
Reasons for granting emergency paid sick leave now include time taken when “the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to such immunization.”
ARPA appears to grant an additional 80 hours of sick leave under EPSL effective after the first quarter of 2021.
Reasons for taking Expanded FMLA now include any reason for leave allowed under EPSL, including the additional reason cited above. The first ten days of Expanded FMLA appear to no longer be unpaid and the maximum leave provided under this provision is increased from $10,000 in the aggregate to $12,000.
ACA Premium Subsidy
ARPA reduces the amount that individuals would pay for plans in the exchanges, limiting the amount to no more than 8.5% of the person’s income. This limitation applies even if the person’s income is 400% of the poverty level or higher. Unless future legislation or guidance indicates otherwise, applicable large employers are still required to offer full-time employees minimum value coverage satisfying one of the affordability safe harbors.
Dependent Care FSA (DCAP)
Generally, a participant’s DCAP reimbursement amount in a calendar year is limited to $5,000 if the employee is married and filing a joint return or if the employee is a single parent (or $2,500 if the employee is married filing separately). However, the ARPA provides a temporary increase for this exclusion to $10,500 (or $5,250 if the employee is married filing separately) for taxable years beginning after December 31, 2020, and before January 1, 2022. Retroactive plan amendments are permitted so long as the plan is amended no later than the last day of the plan year in which the amendment is effective and the plan is operated consistent with the terms of the amendment. This new requirement should provide relief to employees whose employers choose to permit the temporary extended carryover and grace period DCAP provisions provided by the CAA. Accordingly, the amounts in excess of $5,000 that are used through a DCAP in a taxable year will not be treated as taxable income for participants (for the taxable year beginning after December 31, 2020, and before January 1, 2022).
Since the law just passed, we expect that the regulatory agencies will provide additional guidance in the future. The NFP Benefits Compliance team will continue to review the law, and will provide clarifying materials where possible.For additional information see the American Rescue Plan Act of 2021.
On February 28, 2021, the IRS issued Notice 2021-15, which provides guidance for the benefits-related provisions in the Consolidated Appropriations Act of 2021 (CAA), specifically those related to health FSA and DCAP relief. The IRS also provided new guidance regarding additional mid-year election changes permitted for plan years ending in 2021.
The IRS guidance provided in Notice 2021-15 explains that:
- With respect to health FSAs and DCAPs, a plan cannot adopt both a carryover and an extended grace period for the same plan year (which is consistent with general rules). Further, any health FSA or DCAP can adopt an extended grace period or carryover, even if the plan did not previously offer such provision.
- An employer may choose to adopt an extended grace period less than 12 months in length. Similarly, an employer may choose to limit the carryover amount to less than the entire unused account balance and may limit the carryover to apply only up to a specified date during the plan year.
- Unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not considered in determining the annual limit applicable for the following year. However, Notice 2021-15 does not indicate whether amounts above $5,000 are subject to taxation. Without further guidance, DCAP benefits used above $5,000 in a calendar year will likely be treated as taxable income when participants file their tax returns. See this edition’s FAQ.
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Prospective election changes may include an initial election to enroll in a health FSA or DCAP, which means that participants who initially waived coverage could make a new election to enroll mid-year without a qualifying life event. Further, employers may allow amounts contributed to a health FSA or DCAP after the prospective election change to be used for claims incurred prior to the election change.
- For example, Deborah elects $1,000 for her calendar year health FSA. Deborah’s employer implements the health FSA election relief allowing for a mid-year election change without a qualifying life event. In March, Deborah increased her election to $2,000. Deborah can be reimbursed on a $2,000 claim from January (even though the claim was incurred prior to her increased election). This also applies if she enrolled in coverage mid-year through an election change.
- A plan can be amended to permit employees, on an employee-by-employee basis, to opt-out of a carryover or extended grace period. In addition, an employer may permit employees to switch from a general-purpose health FSA to an HSA-compatible FSA (e.g., limited-purpose dental/vision or post-deductible FSA) mid-year.
- A plan may limit the time frame for which mid-year election changes may be made. Likewise, a plan can limit the number of mid-year election changes permitted without a qualifying life event.
- Plans may limit post-termination participation in a health FSA to employee contribution amounts made during the plan year prior to termination (also known as the health FSA spend-down provision). In addition, this option is available to participants who cease participation in a health FSA because of termination of employment, change in employment status (such as a furlough), or a new election during calendar year 2020 or 2021. The IRS reiterates that a post-termination participant still has COBRA rights.
- The special age limit relief for certain dependents who turned age 13 during the plan year is separate from the carryover and extended grace period relief. An employer that adopts the special age limit relief does not have to adopt the carryover or an extended grace period for employees to continue to use funds remaining from the previous plan year for such children.
Other Permitted Mid-Year Election Changes
In addition, the IRS provides that plans are permitted to allow participants to make mid-year election changes for employer-sponsored health coverage for plan years ending in 2021. Similar to earlier guidance provided in 2020 via IRS Notice 2020-29, a plan may permit employees to make a new prospective election if they originally declined coverage or revoke an existing election and make a new election to enroll in another group health plan sponsored by the same employer or other health coverage not sponsored by the employer (as long as the employee provides a written attestation to verify that they are or will be enrolled in coverage not sponsored by the employer).
Employer Action
Importantly, employers may choose to implement this relief, but are not required to do so. However, if employers do implement any or all this relief, it should be clearly communicated with employees. In addition, plan amendments are required. Further, the amendments can be retroactive if they are completed by the last day of the calendar year following the end of the plan year for which the change is effective (and, in the meantime, the plan operates in accordance with the terms of the amendment). This means amendments to plan years ending in 2020 would have to be completed by December 31, 2021.
In Festini-Steele v. ExxonMobil Corporation, No. 20-1052 (10th Cir. 2021), the US Court of Appeals for the Tenth Circuit recently held that a divorce decree can satisfy the ERISA requirements for a qualified domestic relations order (QDRO). As a result, the court determined that a deceased employee’s former spouse was entitled to his life insurance proceeds.
Under ERISA, plan benefits are generally not assignable. As federal law, ERISA supersedes any conflicting state law. An exception to the ERISA anti-assignment principle is a QDRO, which allows for a participant’s benefits to be payable to a spouse or dependent pursuant to a divorce or separation.
For a state court order to qualify as a QDRO, certain information must be included. Specifically, the order must include the name and address of the participant and alternate payee(s) (i.e., the spouse or dependent with a right to plan benefits), each plan to which the order applies, the amount or percentage of the participant’s benefits to be assigned (or the way such an amount would be determined), and the number of payments or period to which the order applies.
In this case, Billy Steele and Stela Festini-Steele were divorced in Colorado in 2014. Their separation agreement (which was incorporated in the divorce decree) required Billy, who worked for ExxonMobil, to maintain life insurance with Stela as beneficiary until the couple’s minor daughter, A.S., attained age 18. After the divorce, Billy remarried. In 2017, he died in a car accident; his daughter A.S. was four years old at the time.
Following the death, Stela contacted ExxonMobil, provided a copy of the divorce decree, and requested the benefit from Billy’s ExxonMobil life insurance plan. ExxonMobil denied the request and informed Stela that she was not a named plan beneficiary. In the denial letter, ExxonMobil determined the submitted divorce decree did not meet QDRO requirements because it failed to specify the insurance amount or benefit plan name.
Stela filed an ERISA civil enforcement claim against ExxonMobil. The district court ruled that the divorce decree was not a QDRO because it failed to identify a plan, the life to be insured or the named beneficiary. Additionally, in the district court’s view, the order did not clearly specify the amount or percentage of the participant’s plan benefits to be paid.
On appeal, the Tenth Circuit’s review focused upon the plan administrator’s denial of Stela’s claim (as opposed to the district court’s prior determination). Accordingly, the court discussed arguments raised by ExxonMobil during litigation, but emphasized that their ruling was based upon the issues cited in the plan’s administrative records.
In the opinion, the Tenth Circuit first addressed the requirement that a QDRO clearly specify the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee. The court determined that the divorce decree met this requirement by directing Billy to designate his former spouse as beneficiary and not identifying other beneficiaries, thus indicating she was the sole beneficiary and entitled to the full benefit.
The Tenth Circuit then considered the issue of whether the plan subject to the order was clearly identified. Here, the court highlighted language in the divorce order stating that “[t]he parties agree to the following terms relating to all life insurance accounts.” This provision was interpreted to require the participant to name his former spouse as beneficiary of all life insurance plans or policies insuring his life until their daughter A.S. turned eighteen.
Finally, the court noted that although the parties’ separation agreement warned that a separate QDRO may be necessary with respect to retirement plan benefits, this admonition does not preclude a plan administrator from determining that a DRO within which a separation agreement is incorporated is a QDRO.
As a result, the Tenth Circuit held the terms of the separation agreement incorporated within the divorce decree met the requirements of a QDRO. The district court’s judgment was reversed and the case remanded for entry of judgment in favor of the former spouse.
ERISA plan sponsors of group life insurance benefits, particularly those within the jurisdiction of the Tenth Circuit, should be aware of this ruling. Employers may want to review their QDRO procedures, to determine if any modifications are advisable.
The Office for Civil Rights (OCR) at HHS released its 2016 – 2017 HIPAA Audits Industry Report, which reviews compliance with HIPAA privacy, security and breach notification rules of certain healthcare entities and business associates. The HITECH Act requires a periodic audit of covered entities and business associates to monitor for HIPAA compliance. Pursuant to this requirement, OCR completed audits of 166 covered entities and 41 business associates in 2016 and 2017.
The seven provisions audited include: required content of the notice of privacy practices, prominent posting of the notice of privacy practices on websites, individual right of access, timelines of breach notification, content of breach notification, risk analysis, and risk management. A summary of the findings noted in the industry report demonstrates that:
- Most covered entities met the timeliness requirements for providing breach notification to individuals; and most also satisfied the requirement to prominently post their notice of privacy practices on their website (for those who maintain a website about their service or benefits).
- Most covered entities failed to adequately safeguard protected health information (PHI), ensure individual right of access, provide required content in the notice of privacy practices, and implement risk analysis and risk management as required by HIPAA Security Rule.
The findings identify common areas of noncompliance. For example, while most covered entities met the breach notification timeliness requirement (notice must be sent without unreasonable delay but no later than 60 days following the breach discovery date), the content of the notice did not meet the rule’s requirements for many covered entities. Similarly, while most covered entities satisfied the requirement to post their notice of privacy practices on their website, only 2% fully met the content requirement.
In addition to an analysis of the audit results, the industry report provides details on the specific requirements of each audited provision and outlines the documents requested during the audit. For more information on the process and findings, see the industry report.
The audit serves to improve industry awareness of compliance obligations, among other goals. Employers should be mindful of OCR’s findings when formulating and administering their own HIPAA policies.
The IRS recently released a revised Form 8994: Employer Credit for Paid Family and Medical Leave and its instructions, which are used to claim the tax credit for providing paid family and medical leave. The credit, which was first available only for tax years beginning in 2018 and 2019 and then later extended through 2020, was further extended through 2025 by the Consolidated Appropriations Act of 2021.
It is important to note that this tax credit is different from the COVID-19 related tax credits for paid leave provided via the FFCRA through March 31, 2021. Employers may complete Form 8994 when they provide family and medical leave to their employees, in order to claim a tax credit. In order to claim the credit, employers must have a written policy that provides at least two weeks of paid leave to full-time employees (prorated for part-time employees), and the paid leave must be at least 50% of the wages normally paid to the employee.
Family and medical leave, for purposes of this credit, is leave granted by the employer in accordance with the written policy for one or more of the following reasons:
- Birth of an employee’s child and to care for the child.
- Placement of a child with the employee for adoption or foster care.
- To care for the employee’s spouse, child or parent who has a serious health condition.
- A serious health condition that makes the employee unable to do the functions of their position.
- Any qualifying exigency due to an employee’s spouse, child or parent being on covered active duty (or having been notified of an impending call or order to cover active duty) in the armed forces.
- To care for a service member who’s the employee’s spouse, child, parent or next of kin.
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The applicable percentage falls within a range from 12.5% to 25%. An employer can claim credit only for leave taken after the written policy is in place, and the credit is scheduled to now expire December 31, 2025.
Form 8994 and its instructions have been updated to reflect the extension through 2025 and to explain that wages used to determine COVID-19-related employment credits cannot also be used to determine these credits. In addition, the IRS states that Form 8994 and its instructions will no longer be updated annually. Rather, updates will occur only when necessary.
Employers seeking to claim this credit should work with their accountants or tax professionals to do so.
In Estate of Foster v. Am. Marine Servs. Grp. Benefit Plan, et al., (9th Cir. February 9, 2021), the U.S. Court of Appeals for the Ninth Circuit held that an employer’s obligation to notify a participant of life insurance conversion rights is not necessarily satisfied by furnishing an SPD. Rather, ERISA fiduciary obligations may warrant further explanation under the circumstances.
The case involves ERISA claims brought by the spouse of a deceased employee against his former employer and group life insurance plan sponsor. While employed, the participant was entitled to life insurance coverage under the group plan. Sadly, the participant was diagnosed with terminal esophageal cancer and was later laid off. The employer subsequently assisted the participant with filing for long-term disability benefits. The participant was also permitted to remain on the employer’s payroll for a period of time, using previously accrued paid time off. During this interval, the employer continued to pay for the participant’s group life insurance coverage.
The terms of the group life insurance plan allowed the participant to convert the policy to individual coverage and pay the premiums once the employer provided coverage ended. Under normal circumstances, this conversion was permitted within a 31-day period following the occurrence of specific events. The conversion right was disclosed in the insurance certification and SPD, which were indisputably provided to the participant. However, the participant never converted the group life insurance coverage to an individual policy.
Upon the participant’s death, the spouse (as named beneficiary) filed a claim for life insurance benefits with the group health plan’s insurer. The insurer denied the claim, citing the lapse in coverage due to the participant’s failure to convert the group life insurance coverage to an individual policy within the required timeframe.
Following this denial, the spouse alleged that the employer had violated its ERISA fiduciary obligations (amongst other charges) by failing to timely provide adequate notice of the conversion rights to her husband. The district court ruled that the employer had fulfilled the required notice obligations by providing the participant with an SPD that explained the conversion rights.
On appeal, the Ninth Circuit reversed, holding that the employer’s ERISA notification obligations were not limited to the SPD distribution. The court also observed that the plan policy and SPD did not clearly explain when the participant’s conversion rights commenced under these circumstances. Additionally, the terms provided an exception in the event of total disability, which allowed for continuation of the coverage without premium payments. Furthermore, the employer was aware of the participant’s grave circumstances. As a result, the court held that the employer was not entitled to summary judgment because questions of material fact existed as to whether the participant received sufficient notice that the life insurance coverage would end if he did not convert the policy to an individual one within a specific timeframe. The Ninth Circuit remanded the case back to the district court for further proceedings.
Employers who sponsor ERISA group life insurance plans should be aware of the ruling. Although this decision is most relevant to employers within the Ninth Circuit’s jurisdiction, other courts have adopted similar expansive views of ERISA fiduciary notice obligations. Therefore, employers may want to review their group life insurance plan administrative procedures, SPDs and communications to ensure that applicable conversion rights and deadlines are sufficiently and accurately disclosed.
Estate of Foster v. Am. Marine Servs. Grp. Benefit Plan, et al. »
On February 3, 2021, the U.S. Court of Appeals for the Seventh Circuit addressed the issue of whether the USERRA requires an employer to provide paid military leave to the same extent that it provides paid leave for other absences. In White v. United Airlines, Inc., No. 19-2546 (7th Cir. 2021), the court held that paid leave fell within the rights and benefits defined by USERRA, reversing the district court’s prior ruling.
Congress passed USERRA in 1994 with the goal of prohibiting civilian employers from discriminating against employees because of their military service. USERRA mandates that employees on military leave be accorded the same non-seniority rights and benefits as employees on comparable, nonmilitary leaves, such as jury duty and sick leave. Although USERRA defines “rights and benefits” broadly, it was unclear whether this language was intended to encompass paid leave. Lower court opinions on this matter have varied; White is the first case to be reviewed on the appellate level.
In White, an airline pilot employed by United Airlines also served in the U.S. Air Force on reserve duty. The reserve duty requires his attendance at periodic military training sessions, for which he took short-term leave that was unpaid by United. However, under United’s collective bargaining agreement, pilots were entitled to pay for other types of short-term leave, including sick leave and jury duty. Additionally, United sponsored a profit-sharing plan that provided credits based upon the pilots’ wages; accordingly, pilots did not receive credits for military leave periods.
In the class action suit, White alleged that United’s failure to provide the paid leave and profit-sharing plan credit to reservists on military leave was a denial of “rights and benefits” in violation of USERRA. The complaint was dismissed by the district court, which held that interpreting USERRA to require paid leave would create a burden on employers not envisioned by Congress. Additionally, in the district court’s view, jury duty and sick leave were not comparable to short-term military leave for purposes of determining any entitlement to rights and benefits under USERRA because the military leave was voluntary.
The Seventh Circuit reversed, holding that employees on military leave must be given the same rights and benefits as comparable employees taking nonmilitary leave, with paid leave falling within such rights and benefits encompassed by USERRA. In an opinion largely focused upon statutory language, the court observed that USERRA’s definition of “rights and benefits” captures all “terms, conditions, or privileges,” of employment, with no express limitations. Therefore, an employer’s policy of paying employees during a leave of absence is such a term, condition or privilege of employment. The court rejected United’s position that USERRA limited rights and benefits to work performed for the employer. The court also dismissed United’s arguments that requiring payment of wages and benefits for military leave would result in increased payroll costs, noting that USERRA does not specify how generous an employer’s paid leave policy must be; it only requires equitable treatment for military leave.
As a result, the class action suit for paid leave and related profit-sharing credits was remanded back to the lower court for determination of whether the military leave was comparable to other types of employer-provided paid leave. For purposes of this assessment, the district court was directed to focus upon the leave duration, giving consideration to the leave’s purpose and the employee’s ability to control the leave timing (as opposed to the voluntary nature of the leave).
Employers should be aware of this holding and understand that short-term paid military leave may be required under USERRA, if paid leave is provided for comparable non-military absences. Employers, particularly those with reservist workforces within the Seventh Circuit’s jurisdiction, may want to review their military leave policies with counsel to determine if changes are advisable following this decision.
The DOL and CMS recently released the 2020 Mental Health Parity and Addiction Equity Act (MHPAEA) Enforcement Fact Sheet and Appendix. The fact sheet summarizes regulatory investigations and public inquiries related to MHPAEA during fiscal year (FY) 2020.
The DOL’s Employee Benefits Security Administration (EBSA) enforces Title I of ERISA with respect to 2.5 million private employment-based group health plans. The EBSA’s approximately 350 investigators review welfare benefit plans for compliance with ERISA, including the MHPAEA provisions. The Centers for Medicare & Medicaid Services (CMS) enforces applicable provisions of the Public Health Service Act (PHS Act), including MHPAEA provisions, with respect to nonfederal governmental group health plans, such as plans for employees of state and local governments. CMS also performs market conduct examinations, where issuers are audited for compliance with applicable federal requirements in states where CMS is responsible for enforcement and in states with a collaborative enforcement agreement. EBSA and CMS annually release the MHPAEA enforcement fact sheets and related reports, summarizing enforcement activities in each fiscal year.
The 2020 reports indicate that the categories of investigated MHPAEA violations included:
- Annual dollar limits.
- Aggregate lifetime dollar limits.
- Benefits in all classifications (i.e., requirement that if a plan or issuer provides mental health or substance use disorder benefits in any classification described in the MHPAEA final regulations, mental health or substance use disorder benefits must be provided in every classification in which medical/surgical benefits are provided).
- Financial requirements (e.g., deductibles, copayments, coinsurance or out-of-pocket maximums).
- Quantitative treatment limitations (QTLs), such as limits on benefits based on the frequency of treatment, number of visits, days of coverage or days in a waiting period, and non-quantitative limitations (NQTLs) that otherwise limit the scope or duration of treatment.
- Cumulative financial requirements and QTLs: financial requirements and treatment limitations that determine whether or to what extent benefits are provided based on certain accumulated amounts.
The regulators also reviewed situations involving MHPAEA claims processing and disclosure violations.
The reported statistics show that EBSA closed 180 health plan investigations in FY 2020, 127 of which involved plans subject to MHPAEA, and thus were reviewed for related compliance. Twenty-five of these MHPAEA investigations involved fully insured plans, 86 involved self-insured plans, and 16 involved plans of both types (the plan offered both fully insured and self-insured options). EBSA cited eight MHPAEA violations in four investigations, all of which involved self-funded group health plans. The cited violations involved four QTLs, two NQTLs and two failures to offer benefits in all classifications.
Illustrations of actual violations are also provided. For example, one investigation uncovered a plan that imposed a waiting period before participants qualified for substance use disorder benefits but imposed no comparable eligibility requirement for medical/surgical benefits. EBSA benefits advisors also answered 99 public inquiries, including 92 complaints, in FY 2020 related to MHPAEA.
CMS cited one MHPAEA violation as a result of a market conduct examination involving an issuer that provided third-party administrative services to self-funded non-federal governmental plans. The exam resulted in a total of $651,103.71 in additional benefits for participants of both the issuer’s insured plans and the self-funded non-federal governmental plans.
The report explains that investigators who find violations generally require the plan to remove any non-compliant plan provisions and pay any improperly denied benefits. In addition, the investigators work with the plan service providers (such as TPAs) to obtain broad correction, not just for the plan(s) investigated, but for other plans that work with that service provider.
The fact sheet is accompanied by an introductory page and an appendix. The introduction notes that the EBSA’s 2021 MHPAEA enforcement initiative will focus on several areas. The focus areas include: 1) the processes for determining whether provider reimbursement rates might indicate a MHPAEA violation; 2) the accuracy of provider network directories; and 3) treatment limitations regarding autism spectrum disorder. The appendix references the available guidance to address each FY 2020 category of violation committed.
Employers should be aware of the release of the fact sheet and related appendix. These materials provide insights regarding the types of MHPAEA violations upon which the regulators are focusing. Employers can then review their own plans for compliance in these areas.
FY 2020 MHPAEA Enforcement »
An Introduction: DOL MHPAEA FY 2020 Enforcement Fact Sheet »
FY 2020 MHPAEA Enforcement Fact Sheet Appendix »
In a DOL fact sheet, the agency announced that over $3.1 billion was recovered from enforcement of ERISA by the Employee Benefits Security Administration (EBSA) through investigations, complaint resolution and other enforcement efforts for fiscal year 2020.
The EBSA’s oversight extends to almost 722,000 retirement plans and approximately 2.5 million health plans, among other welfare benefits plans. The fact sheet explains that over $2.6 billion was recovered through investigations, and $456.3 million was restored to workers through informal complaint resolution. Of EBSA’s 1,122 civil investigations, over 65% resulted in monetary or other corrective action. Non-monetary corrective action ranged from removal of a plan fiduciary to implementation of new plan procedures.
Where voluntary compliance efforts do not come to fruition, EBSA refers cases to the Solicitor of Labor. In fiscal year 2020, the agency referred 82 cases to litigation. In addition, EBSA closed 230 criminal cases resulting in 59 guilty pleas or convictions and 70 individuals indicted.
As demonstrated by the data summarized in the fact sheet, ERISA enforcement remains robust. Employers should take note of EBSA’s increased enforcement activity and should be mindful of this information when formulating and administering their own ERISA compliance.
On January 29, 2021, the IRS released updated FAQs on FFCRA paid sick leave and family leave tax credits. The COVID-related Tax Relief Act of 2020 (included in the Consolidated Appropriations Act of 2021) extends employers' ability to apply for such credits through March 31, 2021, and the FAQ updates incorporate that change.
The FFCRA included provisions mandating employers with less than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. To offset the financial burden to covered employers, the FFCRA provides for federal tax credits to fund the leave payments. Originally, the credits applied to qualified leave payments made between April 1, 2020, and December 31, 2020. However, the COVID-related Tax Relief Act of 2020 extends employers' ability to continue to provide paid leave under the FFCRA through March 31, 2021.
This is optional for employers; however, if they do provide such leave, then they can apply for the tax credits available under the FFCRA for leave granted under the extension. Eligible employers can receive a tax credit for the full amount of the paid sick leave and family leave (which includes related health plan expenses and the employer's share of Medicare tax) on the leave provided through March 31, 2021.
Eligible employers can claim these tax credits via Form 941, Employer’s Quarterly Federal Tax Return. Alternatively, employers can benefit by reducing their federal employment tax deposits; however, they should consult with their tax advisors before doing so.
Employers should be aware of these developments and review the updated guidance when applying for available tax credits mentioned above.
IRS News Release »
IRS COVID-19 Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs »
On January 14, 2021, the DOL published a final rule adjusting civil monetary penalties under ERISA. The annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer price index for all urban consumers (CPI-U) from October of the preceding year. The DOL last adjusted certain penalties under ERISA in January of 2020.
Highlights of the penalties that may be levied against sponsors of ERISA-covered plans include:
- Failure to file Form 5500 maximum penalty increases from $2,233 to $2,259 per day that the filing is late
- Failure to furnish information requested by the DOL penalty increases from $159 to $161 maximum per day
- Penalties for a failure to comply with GINA and a failure to provide CHIP notices increases from $119 to $120 maximum per day
- Failure to furnish SBCs penalty increases from $1,176 to $1,190 maximum per failure
- Failure to file Form M-1 (for MEWAs) penalty increases from $1,625 to $1,644 per day
These adjusted amounts are effective for penalties assessed after January 15, 2021, for violations that occurred after November 2, 2015. The DOL will continue to adjust the penalties no later than January 15 of each year and will post any changes to penalties on their website.
To avoid the imposition of penalties, employers should ensure ERISA compliance for all benefit plans and stay updated on ERISA’s requirements. For more information on the new penalties, including the complete listing of changed penalties, please consult the final rule below.
On January 19, 2021, CMS announced an additional one-year extension for specific ACA compliance requirements for certain non-grandfathered individual and small group coverage known as “grandmothered” policies. Under the latest extension, states may permit insurers that have continually renewed eligible grandmothered policies since January 1, 2014, to again renew that coverage for a policy year beginning on or before October 1, 2022, provided that the policies end by January 1, 2023.
On November 14, 2013, CMS issued a letter outlining a transitional policy concerning health care reform mandates for coverage in the individual and small group markets. Under the policy, state authorities could allow health insurance issuers to continue certain coverage that would otherwise have been cancelled for failure to comply with the ACA requirements.
This initiative allowed individuals and small businesses to elect to re-enroll in such coverage. Specifically, the nonenforcement policy provided relief from the following market reforms:
- Community rating
- Guaranteed issue and renewability of coverage
- Prohibition of coverage exclusions based on pre-existing conditions
- Nondiscrimination based on health status
- Nondiscrimination regarding health care providers
- Comprehensive coverage (i.e., coverage of essential health benefits and the application of maximum out-of-pocket limits)
- Coverage for participation in clinical trials
The nonenforcement policy has been continually extended since the initial announcement, thus permitting grandmothered policies to maintain an exemption from the above-mentioned requirements.
Although the CMS bulletin allows for the temporary continuation of these noncompliant plans at the federal level, it is important to note that the practice must still be approved by state regulators for policies to be available in a particular state. Insurers will then have a choice as to whether to keep offering the policies. The bulletin includes a notice that insurers can use in the event they issued coverage cancellation notices and will now provide the policyholder with the option to continue the coverage.
Accordingly, small employers who are currently covered by such grandmothered policies should be aware of the most recent nonenforcement extension. These employers should work with their advisors and insurers regarding possible renewal of the coverage.
On January 27, 2021, the IRS released the 2021 draft Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation and exclusion rules applicable to employee benefits such as accident and health benefits, dependent care assistance, health savings accounts, and group term life insurance coverage. The guide also includes the related valuation, withholding and reporting rules.
The IRS updates Publication 15-B each year to incorporate any recent administrative, reporting or regulatory changes. The revisions also include applicable dollar maximums for certain tax-favored benefits for the current year.
The 2020 updates include the introduction of a new Form 1099-NEC for reporting non-employee compensation paid in 2020. Employers reporting non-employee compensation paid in 2020 should use Form 1099-MISC, which is due February 1, 2021.
The business mileage rate for 2021 is 56 cents per mile, which can be used to reimburse an employee for business use of a personal vehicle, and under certain conditions, to value the personal use of a vehicle provided to an employee. The 2021 monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. For plan years beginning in 2021, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,750.
Employers should be aware of the availability of the updated publication and most recent modifications.
On January 20, 2021, the Biden Administration’s Chief of Staff Ronald Klain issued a memo to the heads of all executive departments and agencies announcing that there will be a freeze on regulations that fit certain criteria, pending review. All proposed rules in the pipeline but not yet in the Federal Register are put on hold, and all rules published in the Register but not yet effective are candidates for an extended 60-day extension, which could include a new 30-day comment period. Rules subject to this memo are to be reviewed by the heads of executive departments and agencies appointed or designated by the president after noon on January 20, 2021. There are several caveats and conditions that may affect whether these rules will be extended or even pulled off the Register, including whether they are subject to statutory or judicial deadlines and whether they meet some critical health, safety, environmental, financial or national security concern.
The independent contractor is one such rule that may be affected by the 60-day extension because its effective date is March 8, 2021. The proposed wellness incentive rules have already been pulled from the Register pending approval of the new EEOC chair, and it is possible that those rules will be put on hold indefinitely or substantially changed. Both of these matters were covered in the January 20, 2021, edition of Compliance Corner.
In addition to the rules that affect health plan benefits, several rules regarding retirement plans are subject to the freeze. Among them include the prohibited transaction exemption for investment advice, discussed in the December 22, 2020, edition of Compliance Corner, which was supposed to take effect on February 16, 2021, and the interim rule on lifetime income illustrations which was discussed in the September 29, 2020, edition of Compliance Corner, and scheduled for an effective date of September 18, 2021.
In addition to this executive action, Congress may also review federal agency rules issued during the last 60 legislative session days and nullify the ones it doesn’t like by a simple majority vote in both chambers. As of the publication of this article, Congress has not done so.
We will keep you updated on the status of these and other rules as they make their way through the federal administrative process.
On January 7, 2021, the EEOC proposed amendments to the wellness program regulations under the ADA and the GINA. The proposed rules provide guidance for designers and administrators of those programs who wish to include incentives, among other matters.
As background, EEOC rules come into play for wellness programs that include disability-related inquiries (e.g., health risk assessment) or medical examinations (e.g., biometric screening). In 2016, the EEOC issued rules under the ADA and GINA that such programs had to be voluntary and could offer incentives to participate up to a 30% limit, among other requirements. However, this incentive limit was soon challenged in court. In AARP v. EEOC, the AARP challenged the 30% limit as involuntary and the court found that the EEOC failed to justify the basis for the limit. This eventually resulted in the removal of the rules related to incentives (effective since January 1, 2019).
As a result, there was no current EEOC guidance related to the incentive limitation, and the proposed amendments provide anticipated replacement guidance. The highlights of the proposed rules include:
- Most wellness programs that include disability-related inquiries and/or medical examinations may offer no more than de minimis incentives to encourage employee participation. Examples of de minimis incentives include water bottles or gift cards of “modest value.”
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There is an exception for certain health-contingent wellness programs. The proposed rules provide a safe harbor for health-contingent wellness programs that are part of or qualify as a group health plan and meet HIPAA’s nondiscrimination requirements. Such programs can offer up to the maximum incentive permitted under HIPAA, which is 30% of the total cost of coverage (and 50% for tobacco cessation programs). Nondiscrimination rules under HIPAA require the following criteria:
- The program must give individuals an opportunity to qualify for the reward at least once a year.
- The reward amount cannot exceed 30% (or 50% for tobacco cessation), based on total cost of single coverage, unless spouse can also participate (then it is based on cost of coverage in which enrolled).
- The reward must be available to all similarly situated individuals.
- The program must be reasonably designed to promote health or prevent disease.
- The program must disclose that reasonable alternative standards are available.
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Four factors provided to help determine if the wellness program is part of a group health plan include:
- The program is only offered to employees who are enrolled in an employer group health plan.
- Any incentive offered is tied to cost sharing or premium reductions (or increases) under the group health plan.
- The program is offered by a vendor that has contracted with the group health plan.
- The program is a term of coverage under a group health plan.
- Since the EEOC is proposing a de minimis incentive standard (for wellness programs that do not meet the safe harbor), it no longer believes that a prior notice describing the type of medical information that will be collected and how it will be used (among other things) is necessary.
- Only a de minimis incentive can be provided for all family members, not just spouses, in exchange for family members providing information about their manifestation of diseases or disorders.
Employers should be aware that these are proposed rules and are not final. The EEOC is soliciting comments for 60 days following the date the rules are published in the Federal Register. The EEOC will review any comments received during that time before issuing a final rule. The final rules could vary from the proposed rules. We are monitoring this process and will provide updates in future editions of Compliance Corner, including when the final rule is available.
Press Release »
Proposed Rules for Wellness Program Rules under ADA »
Proposed Rules for Wellness Program Rules under GINA »
On January 7, 2021, the EEOC issued an opinion letter regarding individual coverage health reimbursement arrangements (ICHRAs) under the ADEA. The letter was in response to an inquiry submitted by a professional association representing health insurance agents, brokers, consultants and employee benefit specialists. Specifically, the opinion considers whether an employer can offer an ICHRA with a defined contribution or specified percentage formula without violating the ADEA.
ICHRAs present potential challenges when offered to older employees. The ADEA prohibits discrimination against those 40 years of age and older with respect to compensation, terms, conditions or privileges of employment (including fringe benefits). ICHRAs are a type of HRA created by 2019 regulations that can be integrated with individual health insurance coverage (as opposed to group health coverage, as is required for other types of HRAs). Employers may sponsor an ICHRA that offers a defined contribution (i.e., a set dollar amount, such as $300 per month) or a specified percentage (e.g., 30%) towards premium costs. However, individual health insurance policies are priced based upon factors that include the applicant’s age, so older individuals often pay a higher cost than younger applicants for the same coverage. If an employer sponsors an ICHRA that offers a defined contribution or a specified percentage towards premium costs, then older employees may pay more out-of-pocket for the policies than younger employees. This disparity in the cost paid by older employees could be discriminatory under the ADEA.
The opinion notes that an employer using the defined contribution formula is making the same amount available to each employee regardless of age, so this does not violate the ADEA prohibition against providing lesser compensation to older employees based on age. Additionally, there is no violation of the contributory fringe benefit rules, which do not allow older workers to assume a greater portion of the cost of a fringe benefit than younger workers, because the employees are not required to contribute to the ICHRAs. Although older workers may pay a greater amount for the individual health insurance policies bought using ICHRA funds, these policies are not considered ADEA-covered employee benefit plans because the employer does not select, offer or make these policies available to employees. Therefore, an ICHRA with a defined contribution formula that provides the same dollar amount to each covered employee does not violate the ADEA.
The opinion goes on to explain that a set percentage design may result in the employer providing larger amounts to older workers. Employers providing a greater level of compensation to older employees because of their age would not violate the ADEA. The opinion explains that this would be the case regardless of whether the employer structured the formula as a set percentage of the premium cost or instead chose to increase the dollar amount available for older workers to offset age-based increases in health coverage costs.
The EEOC opinion is limited to the application of the ADEA to the scenarios presented. However, employers who offer ICHRAs (or are considering doing so) should be aware of this opinion.
On January 7, 2021, CMS issued a toolkit designed to assist insurers and Medicare Advantage plans in covering the COVID-19 vaccine. The document focuses on issues that issuers must consider, and includes:
- A list of operational considerations for issuers and Medicare Advantage plans as they design their approach to promoting COVID-19 vaccinations and information.
- A summary of legislative and regulatory provisions applicable to issuers.
The toolkit also contains advice on how to streamline vaccination coverage and how to maximize the number of enrollees who get vaccinated. It also includes an important reminder that, although the cost of the vaccine itself is paid for by the CARES Act, the costs of administering the vaccine by a provider will be paid for by the payer, such as a private insurance company or Medicare in the case of an Medicare Advantage plan.
Employers who have self-insured plans, as well as those who are fully insured, should be aware of this information.
On January 7, 2021, the DOL's Wage and Hour Division published final regulations related to independent contractor status under the Fair Labor Standards Act (FLSA). The division largely adopted the rules as proposed on September 25, 2020.
As background, many of the standards for determining whether a worker is an independent contractor or employee were developed through case law over the last 80 years. This led to overlapping rules, inconsistent application and confusion.
The division received over 1,800 comments on the proposed rules, and over 900 of them were from UBER drivers. The remaining comments were from other independent contractors, employers, labor unions, consultants and other stakeholders. Most of the comments were in support of the proposed regulations due to the lack of consistent rules in the past.
The DOL estimates that there are close to 19 million individuals that work as independent contractors for their primary or secondary source of employment. The most prevalent industries are construction and professional/business services. Based on various studies, the DOL reports that 79.4% of self-employed independent contractors have health insurance. Most of these workers either purchase insurance on their own (31.5 %) or have access through their spouse (28.6 %).
In adopting the final regulations, the WHD reviewed and considered all comments, which are detailed in the preamble. They specifically considered the widely publicized “ABC test” used in California for determining worker status. The preamble firmly rejects adopting that test as the federal standard, stating "the ABC test would be infeasible, difficult to administer, and disruptive to the economy if adopted as the FLSA standard." The final regulations generally apply across all industries. They replace regulations specific to tenants, sharecroppers, forestry and logging workers.
The rules adopt a distinct five factor test. There are two core factors that are considered to have more weight than the other three.
1) Control. The employer should consider the nature and degree of the worker's control over the work such as setting their own schedule, selecting their projects and the ability to work for others, which might include the potential employer's competitors.
2) Opportunity for profit or loss. The individual is more likely to be an independent contractor if they have an opportunity to earn profits or incur losses based on their exercise of initiative (such as managerial skill, business acumen or judgment) or management of their investment in, or capital expenditure on, such things as assistants, equipment or material.
The rules acknowledge that there may be additional factors to consider, but the additional three factors in the new test are:
3) The amount of skill required for the work. The employer should consider whether the work requires specialized training or skills that the employer does not provide.
4) The degree of permanence of the work relationship between the individual and the employer. This factor weighs in favor of an independent contractor if the work and the relationship are for a definitive period of time or occurs sporadically. The factor weighs in favor of the worker being an employee to the extent the work relationship is instead by design indefinite in duration or continuous.
5) Work integration with company production. The employer should consider whether the work is an integral unit of production. In other words, is the work a part of the employer's integrated process with goods or services or is the work outside of that core process?
Although this rule only addresses workers' independent contractor status under the FLSA primarily for minimum wage and overtime purposes, the DOL assumes that employers are likely to keep the status of most workers the same across all benefits and requirements. When considering the impact these rules have on benefits administration, employers should consider the new test in determining which workers are considered full-time employees for employer mandate and group health plan eligibility purposes. This categorization will also determine if offering benefits to these individuals will create a MEWA. Employers should consult with employment law counsel if they have any questions about this rule.
On December 29, 2020, the DOL’s Wage and Hour Division released Field Assistance Bulletin No. 2020-7, which provides guidance to agency field staff on posting requirements under FMLA, the Fair Labor Standards Act, the Employee Polygraph Protection Act and the Service Contract Act. The bulletin was issued in response to the many questions the division had received about electronic posting requirements, considering that many workers are performing duties remotely during the COVID-19 pandemic.
As background, many notices relevant to these laws must be posted physically at a worksite. If an employer wanted to distribute the notice exclusively by electronic means, all of the following conditions must be met:
- All of the employer’s employees exclusively work remotely.
- All employees customarily receive information from the employer via electronic means.
- All employees have readily available access to the electronic posting at all times.
Some notices may be distributed electronically to each employee if the following conditions are all met:
- The employees have electronic access as part of their essential duties.
- The employees customarily receive information from the employer electronically.
- The employer has taken steps to inform employees of where and how to access the notice electronically.
Under FMLA, the general notice must be posted in a conspicuous place on the worksite where it is visible to both employees and applicants. If all hiring and work is being done remotely due to COVID-19, then the posting requirement would be met by the employer posting the notice on a website. However, remember that the notice must be accessible by applicants as well. Thus, if an employer posts on the intranet and the intranet is not accessible to applicants, the employer should consider posting on an external website or placing an additional posting on the applicant portal.
Employers should be aware of this guidance. For guidance related to the other laws, please see the bulletin.
On December 29, 2020, the DOL’s Wage and Hour Division released Field Assistance Bulletin No. 2020-8, which provides guidance to agency field staff on when telemedicine may be considered treatment under the FMLA.
As background, FMLA provides eligible employees of covered employers with unpaid, job-protected leave for specified family and medical reasons. Eligible employees may take up to 12 workweeks of leave in a 12-month period for, among other things, a serious health condition that renders the employee unable to perform the essential functions of their job, or to care for the employee’s spouse, child or parent with a serious health condition.
A serious health condition is defined as an “illness, injury, impairment, or physical or mental condition that involves” either: 1) “inpatient care” such as an overnight stay in a hospital, hospice or residential medical care facility, including any period of incapacity or any subsequent treatment in connection with such inpatient care, or 2) “continuing treatment by a health care provider.” The regulations define treatment as an in-person visit to a healthcare provider. It does not include a letter, phone call, email or text message.
The division recognizes that during the COVID-19 pandemic telemedicine has been increasingly used by healthcare providers to deliver treatment to patients. In July 2020, the division issued FAQ #12 to its Frequently Asked Questions about the FMLA and Pandemic to address this issue. The FAQ provided that until December 31, 2020, telemedicine would meet the FMLA’s treatment standard if certain conditions were met. The current bulletin extends that provision until further notice that telemedicine will meet the FMLA’s treatment standard if the telemedicine visit satisfies all of the following:
- Involves an examination, evaluation or treatment by a healthcare provider
- Is permitted and accepted by state licensing authorities
- Is generally performed by video conference
Employers should be aware of this guidance.