Compliance Corner Archives

On December 10, 2020, the US Supreme Court held in Rutledge v. Pharmaceutical Care Management Association that ERISA did not preempt a state regulation of pharmacy benefit managers (PBMs) that required the PBMs to pay pharmacies regulated by the state for drugs at a price equal to or greater than wholesale cost.

PBMs are entities that coordinate and administer prescription drug programs on behalf of group health plans. As such, they reimburse pharmacies for the cost of drugs covered by those plans. Pharmacies in Arkansas complained that PBMs purchased drugs from them at rates below the wholesale price that the pharmacies pay, thereby forcing the pharmacies to lose money. Arkansas passed Act 900, which required PBMs to reimburse the pharmacies for at least the wholesale cost and requires PBMs to update the lists they keep of the costs they will pay for drugs, referred to as the MAC (Maximum Allowable Cost) list, whenever wholesale prices go up. Act 900 also required PBMs to allow pharmacies to challenge the rates posted in the MAC list and it gives pharmacies the right to refuse to supply a drug when the price offered by the PBMs is less than the wholesale price.

 A trade association representing PBMs challenged Act 900, asserting that it was preempted by ERISA. A state statute is preempted by ERISA when it relates to or has a connection with a benefit plan. The PBMs argued that Act 900, by allowing pharmacies to challenge PBM prices for prescription drugs and to refuse to provide drugs, affected matters related to plan administration and interfered with nationally uniform plan administration. Since it is in the interest of benefit plans to contain costs, granting pharmacies these rights interferes with the efficiencies in the PBM arrangement and raises prices. Similarly, by refusing to supply drugs, pharmacies may deny plan beneficiaries the drugs they are entitled to under their plans. So the PBMs claimed that the state statute relates to or has a connection with a benefit plan and is therefore preempted by ERISA, which does not require PBMs to behave in this way.

The Court disagreed with these arguments. For a state statute to be preempted, it must require benefit plans to be structured in certain ways. Act 900, in the Court’s view, does not do this; rather, it focuses on, and affects, costs. The fact that the statute may create inefficiencies in the system is not, by itself, a basis for preemption. Act 900 does not regulate the benefit plans, but instead provides a mechanism whereby the pharmacies have more of a role in determining the costs of drugs paid for by the plan. The procedures established by Act 900 are incidental to this purpose and not enough to call for preemption by ERISA. From this reasoning, the Court ruled that the statute was not preempted.

Employers should be aware of the impact this case will have on prescription drug costs, which may, in turn, cause insurance premiums to rise. This case may also instigate changes in the system under which prescription drug programs are administered, the impacts of which are uncertain but profound enough to merit employers’ attention.

Rutledge v. Pharmaceutical Care Management Association »

On December 10, 2020, HHS released a proposed rule that modifies the HIPAA privacy rules. The proposed rules come after HHS issued a 2018 Request for Information on how HIPAA could be modified to support healthcare coordination. As a result of the comments received, HHS is seeking to amend HIPAA’s privacy regulations in a way that removes barriers to coordinated care and reduces regulatory burdens on the healthcare industry.

The proposed rules make many changes to individuals’ right to access their PHI. Specifically, the rule would allow individuals to use their own electronic devices to access their PHI, and that electronic access would need to be provided to the requestor free of charge. It would also shorten the period of time that covered entities have to respond to requests for access to 15 days (from the current 30-day timeframe). Additionally, any fees related to accessing PHI would need to be posted on covered entities’ websites.

The proposed rules also add additional context to the disclosures that can be made without the need for patient authorization. As background, HIPAA allows disclosures for treatment and healthcare operations to be made without the individual’s authorization. The proposed rule includes care coordination and case management activities within the definitions of “treatment” and “health care operations.” The proposed rule also allows for covered entities to disclose PHI to various social service agencies, community-based organizations, home and community based service providers, and other similar third parties to facilitate coordination of care and case management.

In order to assist individuals in special situations, the proposed rules also allow for covered entities to make certain disclosures when there are emergency circumstances if there is a serious and reasonably foreseeable threat to health and safety. The rule also allows covered entities to make disclosures based on their good faith belief that the disclosure would be in the best interest of the individual (replacing their "professional judgment” as the standard).

Finally, the proposed rule removes the requirement for individuals to acknowledge receipt of the notice of privacy practices in writing. This change will likely ease the administrative burden on care providers.

There will be a 60-day comment period beginning on the date the proposed rule is published in the Federal Register. Since the proposed rule is a part of the Trump administration’s “Regulatory Sprint to Coordinated Care,” and because the rule would potentially be finalized after the start of the Biden administration, it’s hard to know how the rule will proceed through the administrative process. We will continue to report on this rule in Compliance Corner.

Proposed Modifications to the HIPAA Privacy Rule to Support, and Remove Barriers to, Coordinated Care and Individual Engagement »

On December 4, 2020, HHS issued the proposed Notice of Benefit and Payment Parameters Rule for 2022. This notice is issued annually and, once final, adopts certain changes for the next plan year. While the proposed rule primarily impacts the individual market and the Exchange, it also addresses certain ACA provisions and related topics that impact employer-sponsored group health plans. Highlights include:

• Annual Cost-Sharing Limits. As background, the ACA requires non-grandfathered group health plans to comply with an out-of-pocket maximum on expenses for essential health benefits. This maximum annual limitation on cost sharing for 2022 is proposed to be $9,100 for self-only coverage and $18,200 for family coverage (an increase from $8,550 and $17,100 for self-only/family coverage respectively in 2021).
• Medical Loss Ratio Rebates. HHS proposes to amend the MLR calculation so that certain defined prescription drug rebates and other price concessions would be deducted from an insurer’s incurred claims beginning with the 2022 reporting year. Additionally, insurers would be permitted to distribute MLR rebates earlier than the date the insurer currently is required to submit their MLR data to HHS (July 31).
• Employer-Sponsored Coverage Verification. As a reminder, employees are not eligible for a premium tax credit in the health insurance exchange if they are offered coverage by their employer that meets the minimum value and affordability standards. Exchanges are not currently required to verify an employee’s statement that they are not eligible for such coverage. HHS proposes to extend the nonenforcement relief for an exchange to conduct random sampling verification through 2022.
• Exchange Special Enrollment Period. HHS plans to clarify that the complete loss of employer contributions toward an individual's COBRA premium would be a special enrollment period permitting the individual to enroll through the exchange program mid-year outside of the annual enrollment period.

Once final, employers should review the regulations and implement any changes needed for their 2022 plan year.

Proposed Rules »
Fact Sheet »

On December 3, 2020, the IRS provided an early release 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.

As background, the IRS modifies 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 prior to final publication.

Among the changes for 2021 is a new Form 1099-NEC. The Form 1099-NEC will be used to report nonemployee compensation paid in 2020 and will be due on February 1, 2021.

With respect to 2021 annual limits, the monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270 (both unchanged from 2020). For plan years beginning in 2021, the maximum salary reduction permitted for a health FSA under a cafeteria plan remains $2,750. Further, if the health FSA permits a carryover, the maximum carryover amount for plan years beginning in 2021 is $550.

Employers should be aware of the changes reflected in the early release of the fringe benefits guide. The IRS is accepting comments regarding the proposed publication. Accordingly, employers should also recognize that some changes to the released draft may occur prior to finalization, and draft forms should not be used for filing.

Draft Publication 15-B »

On December 7, 2020, the IRS published final regulations relating to the deduction of qualified transportation fringe (QTF) and commuting expenses. Effective for taxable years ending after December 31, 2019, the final regulations adopt the proposed regulations (published back in August 2020) with minimal changes. As background, the 2017 Tax Cuts and Jobs Act (TCJA) disallowed deductions for QTF expenses and deductions for certain expenses of transportation and commuting between an employee’s residence and place of employment (effective for amounts paid or incurred after December 31, 2017). Importantly, QTFs, up to indexed monthly limits ($270 for 2020), are still excludable from employees’ income. The TCJA also provided that a tax exempt organization’s unrelated business taxable income (UBTI) is increased by the amount of the QTF fringe expense that is nondeductible (for amounts paid or incurred after December 31, 2017).

Then, on December 20, 2019, Congress enacted the Further Consolidated Appropriations Act of 2020 (FCAA), which retroactively repeals those provisions of the 2017 TCJA back to the original TCJA enactment date. These final regulations address this retroactive elimination of the deduction for expenses relating to QTFs provided to employees, building off interim guidance published in 2018 and the 2020 proposed regulations. Relevant topics are addressed below.

Qualified Parking
As with the proposed regulations, the final regulations distinguish between qualified parking purchased from a third party and parking provided at an employer-owned or leased parking facility. When through a third party, the disallowed amount is generally the annual qualified parking cost paid to the third party. However, when through an employer-owned/leased facility, the disallowed amount may be determined using a general rule or via any of three simplified methods. Employers may choose the applicable method each year and for each parking facility.

Under the general rule, the employer calculates the disallowed deduction for each employee receiving qualified parking, using a reasonable interpretation of the statute. To be reasonable, the interpretation must: 1) be based on the expense paid/incurred, not on the benefit’s value to employees; 2) disallow deductions for reserved employee spaces; and 3) properly apply the exception for parking made available to the general public.

There are actually three simplified methods. The first is the “primary use” method, which requires the employer to calculate the disallowance for reserved employee spaces, determine if the exception for general public parking applies (and if not, calculate an allowance for reserved nonemployee spaces), and allocate the remaining expense as nondeductible to the extent employees use them during peak demand period. The second is the “cost per space method” (multiplying the cost per space of the employer’s parking by the total number of spaces used by employees during peak demand). The third is the “qualified parking limit” method (multiplying the qualified parking exclusion limit by the total number of spaces used by employees during peak demand or the total number of employees).

Vanpooling and Transit Expenses as QTFs
The final regulations also address vanpooling and transit expenses. Similar to qualified parking, where an employer pays a third party for qualified vanpooling or transit fringe benefits, the nondeductible amount is generally the amount paid. Conversely, if the employer provides these benefits in kind, the disallowed deduction must be calculated based on a reasonable interpretation of the statute (rather than on the value of the benefit to the employee).

Exceptions
Like so many rules, there are exceptions in certain circumstances that would preserve all or a portion of an employer’s deduction for QTFs. An employer’s deduction generally will not be disallowed to the extent the expenses are treated as taxable compensation for withholding and other purposes because they exceed the exclusion for QTFs. Also, expenses may be deductible if they are for transportation or parking made available to the general public. This exception does not apply to reserved employee parking, and is limited if the “primary use” of the parking (more than 50%) is not by the general public. Lastly, expenses may be deductible if the vanpooling, transit pass or parking is sold to customers (including employees) in a bona fide transaction for full consideration. Notably, this exception does not apply to benefits purchased under a compensation reduction agreement.

Tax-Exempt Organizations and UBTI
The TCJA also added a provision (Section 512(a)(7)) stating that a tax-exempt organization’s UBTI is increased by the amount of the QTF expense for which a deduction is not allowable under Sec. 274, effective for amounts paid or incurred after December 31, 2017. In December 2017, though, that TCJA provision was repealed, retroactive to the original date of enactment of the TCJA. Although Sec. 512(a)(7) was retroactively repealed, Sec. 274 and the final regulations still apply to a tax-exempt organization to the extent that the amount of the QTF expenses paid or incurred by an exempt organization is directly connected with an unrelated trade or business conducted by the exempt organization. In that case, the amount of the QTF expenses directly connected with the unrelated trade or business is subject to the disallowance, and thus disallowed as a deduction in calculating the UBTI attributable to that unrelated trade or business. Tax-exempt employers with questions on QTFs and UBTI should work with outside counsel.

Takeaways
Employers should be aware of the final regulations, and should work with their accounting team and/or outside tax counsel to determine appropriate next steps. Despite their complicated nature, the final regulations provide greater clarity on various QTF issues, and employers may find potentially meaningful opportunities to simplify the calculation of nondeductible expenses, which could result in cost savings. The final regulations are effective for tax years ending after December 31, 2019.

Final Regulations »

On September 8, 2020, the IRS issued Letter Number 2020-0024 that addressed a question concerning whether an employee can roll over unused transit benefits into a parking account.

The IRS stated that, as a general proposition, such a rollover is possible provided that the parking benefit is a qualified parking benefit that is offered by the employer’s plan and that the amount rolled over does not result in a total amount that exceeds the maximum monthly limitation established for the respective qualified transportation fringe benefit.

Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. While the letter does not provide any new guidance, this letter does provide general information that may be helpful to employers with questions on this topic.

Letter Number 2020-0024 »

On December 2, 2020, the DOL, IRS and PBGC (the “agencies”) published advance copies of the 2020 Forms 5500, and several related schedules. The following modifications were made to the new versions:

1. Electronic Filing of the Form 5500-EZ: Form 5500-SF can no longer be used by a one-participant plan or a foreign plan in place of filing the Form 5500-EZ with the IRS. Instead, one-participant plans and foreign plans can file the Form 5500-EZ electronically (effective for plan years beginning after 2019).
2. Administrative Penalties: The instructions now reflect an increase to $2,233 per day (as the maximum civil penalty amount assessed under ERISA, which is applicable for civil penalties assessed after January 15, 2020, for violations that occurred after November 2, 2015).
3. Schedule H Part III (relating to the Accountant’s Opinion): The instructions have been revised to align with the language in the new Statement on Auditing Standards 136, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA.”
4. Schedules H and I, Line 4l and Form 5500-SF, Line 10f: The instructions have been revised to increase the required minimum distribution age from 70.5 to 72 in accordance with the SECURE Act.
5. Schedules H and I, Line 5c: If the plan was covered by PBGC at any time during the plan year, then the instructions state that filers should check the “Yes” box on Line 5c.
6. Schedule R: Multiemployer plans now have a choice of three counting methods on Line 14 to count inactive participants and they must provide an attachment depending on the counting method chosen. In addition, plans must now provide an explanation for any difference between numbers reported on lines 14b or 14c and the numbers they reported in the immediately preceding plan year. Plans may no longer leave lines 14a, 14b and 14c blank.

These advance copies are informational only, and they cannot be used to file a 2020 Form 5500 or schedule. The agencies will eventually finalize the forms for actual use; when those forms are finalized, we will announce it in Compliance Corner. So, for now, there is nothing for employers to do other than familiarize themselves with the advance copy forms and changes.

Advance Copies of 2020 Forms 5500 and Related Schedules »
DOL News Release »

As required by law, the OCR provided Congress with a Compliance Report and a Breach Notification Report, in which the agency reported the results of complaints received and investigations conducted for the calendar year 2018. According to the Compliance Report, a significant number of these investigations began as a result of large breach notifications submitted by covered entities and business associates. OCR also resolved eleven investigations with resolution agreements or corrective action plans or the imposition of civil money penalties totaling more than $28 million.

According to the Breach Notification Report, these large breaches affected over 12 million people, and many of those people were affected by breaches at health plans and business associates. Hacking was the cause of many of these breaches, particularly of network servers, although OCR noted other large breaches in 2018, such as the theft of laptops and other electronic media, improper disposal of PHI (where records were simply abandoned in unsecure areas) and the loss of a binder full of PHI.

These reports also provide a primer on what to do in case of a breach, which may help employers in their efforts to comply with HIPAA regulations. Generally, the report reminds covered entities and business associates that they must notify the proper parties in the event of a breach. Covered entities must provide notification of the breach to affected individuals, the Secretary of HHS and, in certain cases, the media. Business associates must notify the covered entity of the breach.

Employers should find this information helpful when formulating and administering their own HIPAA policies.

Compliance Report »
Breach Notification Report »

On November 25, 2020, the IRS updated several FAQs to assist employers in assessing the health plan expenses eligible for a tax credit under the FFCRA. The guidance includes instructions for both insured and self-insured plans.

Under the FFCRA, covered employers are required to provide emergency paid sick leave and expanded FMLA leave to eligible employees who are unable to work or telework due to certain COVID-19-related reasons. The employers are eligible for a payroll tax credit for the amount of the qualified leave wages and the qualified health plan expenses allocable to those wages.

Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan. According to the IRS, these expenses are properly allocated to the leave wages if the allocation is made on a pro rata basis among covered employees and then pro rata on the basis of the time periods of leave coverage.

The FAQs explain that the qualified health expenses generally include both the portion of the cost paid by the employer and the portion paid by the employee on a pre-tax basis. However, employee after-tax contributions are excluded.

The expenses are determined separately for each plan and allocated amongst that plan’s participants. If an employee participates in more than one plan, the allocated expenses of each are combined for that employee.

Employers who sponsor group health plans may use any reasonable method to determine and allocate the plan expenses. For insured plans, these methods may include the COBRA applicable premium for the employee, one average premium rate for all employees, or a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage. For self-insured plans, these methods may also include the COBRA applicable premium for the employee or any reasonable actuarial method to determine the estimated annual plan expenses.

The FAQs include instructions and an example for determining the allocable expense amount per day for a covered employee under an insured plan. However, the guidance explains that the calculation would be similar for a self-insured plan using a reasonable actuarial method to assess plan expenses.

Contributions to an HRA (including an individual coverage HRA) or a health FSA may be included in qualified health plan expenses. To allocate contributions to an HRA or a health FSA, employers should use the amount of contributions made on behalf of the particular employee. Qualified health plan expenses do not include contributions to HSAs or QSEHRAs.

Employers may find this IRS guidance helpful in determining the FFCRA qualified health plan expenses eligible for a tax credit.

IRS FAQS on Determining the Applicable Amount of Allocable Qualified Health Plan Expenses »

On November 25, 2020, the IRS updated its FAQs related to the FFCRA tax credit available to employers whose employees receive qualified family leave wages. The term qualified family leave wages is defined as the wages paid to an employee who takes expanded FMLA leave to care for a child whose daycare center or school is closed for reasons related to COVID-19. An eligible employee may receive up to 10 weeks of qualified family leave wages. The employer must pay the employee two-thirds of their regular rate of pay up to $200 per day ($10,000 for the calendar year 2020).

The revised FAQs clarify that the amount paid to the employee is subject to deductions for the employee’s share of Social Security, Medicare and federal income taxes. The employer is eligible to claim a fully refundable tax credit equal to 100% of the wages paid to the employee, including the employer’s share of Medicare tax. Additionally, the employer may claim allocable qualified health expenses, which would include the prorated cost of health coverage provided to the employee during the employee’s leave. This includes the employer’s portion of premium, the employee’s portion of the premium that is paid with pre-tax salary reductions, health FSA contributions and HRA contributions. It does not include contributions to an HSA or QSEHRA. The IRS website includes examples and steps to calculating the allocable qualified health expenses.

IRS FAQS on Determining the Amount of the Tax Credit for Qualified Family Leave Wages »

On October 29, 2020, the Departments of HHS, Treasury and Labor (the "Departments") released the Transparency in Coverage final rule. First proposed in November 2019 (as directed by Executive Order 13877), the final rule imposes new cost-sharing and pricing disclosure requirements upon group health plans and health insurers.

As background, the Trump administration has focused on promoting price transparency to provide individuals with necessary cost-sharing data to make informed healthcare decisions. Under rules set to take effect in 2021, hospitals will soon be required to disclose standard charges for products and services, including negotiated rates with insurers. The Transparency in Coverage final rule builds upon these regulatory initiatives and is applicable to non-grandfathered group health plans (including self-insured plans) and health insurance issuers. However, account-based plans such as HRAs and FSAs, and excepted benefits (e.g., dental and vision benefits offered under a separate policy), are not subject to these new requirements.

The final rule requires group health plans and health insurance issuers in the individual and group markets to provide increased access to pricing information through two approaches:

1. Disclosing cost-sharing information for all covered healthcare items and services (including prescription drugs) through an internet-based self-service tool and in paper form upon request
2. Making detailed pricing information publicly available (which includes negotiated rates for all covered items and services between the plan or issuer and in-network providers; historical payments to, and billed charges from, out-of-network providers; and in-network negotiated rates and historical net prices for all covered prescription drugs by plan or issuer at the pharmacy location level)

Under the first approach, when requested by a participant, beneficiary or enrollee, disclosures must be provided that include estimates of their cost-sharing liability with different providers (allowing them to better understand and compare healthcare costs prior to receiving care). The content will include estimated cost sharing, actual negotiated rates, out-of-network allowed amounts, real-time accumulated amounts towards deductibles and out-of-pocket maximums, and treatment limitations. Any prerequisites for coverage, such as prior authorization, would also need to be referenced. Where bundled payments are applied, disclosures must be provided if cost sharing is imposed separately for each item and service. Further, the rules do not require disclosure of balance billing amounts for out-of-network providers, but provide for a disclaimer to alert participants of a potential balance bill. This part of the rule will be phased in, with disclosures required for plan years beginning on or after January 1, 2023, for an initial list of 500 items and services, and all items and services to be disclosed for plan years that begin on or after January 1, 2024.

As for the second approach, group health plans and insurers are required to publicly disclose negotiated rates for in-network providers and historical out-of-network allowed amounts in standardized files on their website. These machine-readable files must be updated monthly (clearly indicating the date that the files were most recently updated), and are intended to encourage price comparison and innovation. This part of the rule is effective for plan years beginning on or after January 1, 2022.

The final rule also provides that beginning with the 2020 MLR reporting year, insurers can claim credit towards their MLR for “shared savings” if a participant selects a lower-cost, higher-value provider.

Employers should be aware of the final rule, its new requirements and its phased-in effective dates. Although a good faith safe harbor allows for certain mistakes (as long as the issue is corrected as soon as practicable), plans and insurers face increased compliance obligations to implement these new requirements. For fully insured plans, the insurer is responsible for these new requirements. For self-insured plans, the ultimate responsibility to comply with this rule rests on the plan sponsor; however, they can utilize TPAs to assist. That said, employers should discuss these new disclosure obligations with their insurance carriers and/or TPAs to confirm compliance as applicable.

Transparency in Coverage Final Rule »
HHS Fact Sheet »
HHS News Release »

On October 28, 2020, the IRS, DOL and HHS released interim final regulations regarding various COVID-19 testing and treatment updates. The guidance includes vaccine coverage requirements applicable to group health plans. Price transparency for COVID-19 diagnostic tests is also addressed.

As background, the CARES Act requires that non-grandfathered group health plans provide coverage without cost sharing for qualifying COVID-19 preventive services. Such services include immunizations that are specifically recommended by the CDC.

To ensure rapid access to a COVID-19 vaccine, once available, the guidance incorporates the CARES Act implementation requirements. Specifically, group health plans must provide coverage for COVID-19 immunizations within 15 business days of the CDC’s recommendation for individual usage. (It is not necessary that the vaccine be recommended for routine usage, as is typically required for coverage of preventive services).

The coverage must be provided without cost sharing regardless of whether the immunization is received in-network or out-of-network. Integral items and services (such as a medical professional’s administration of the vaccine) must also be covered without cost sharing. However, cost sharing is permitted for unrelated items and services rendered during the same provider visit, if billed separately.

The CARES Act also required that providers publicize cash prices for COVID-19 diagnostic tests during the public health emergency. This new guidance defines the “cash price” as the charge that applies to an individual who pays cash (or cash equivalent) for a COVID-19 diagnostic test. Each provider must make this cash price available on its website; if the provider does not have a website, the cash price must be made available in writing within two business days upon request and through signage (if applicable). These requirements are intended to assist individuals seeking testing and provide plans with information to better negotiate provider rates.

In the event of noncompliance with this price transparency mandate, the guidance outlines potential CMS enforcement actions. These measures include written warnings, corrective action plans and the imposition of civil monetary penalties.

Group health plan sponsors should be aware of these regulations and prepare to provide coverage for COVID-19 vaccines without cost sharing within 15 days of a CDC recommendation. Grandfathered group health plans and excepted benefits are not technically covered by the rule, but are encouraged to provide similar coverage without cost sharing.

The guidance is effective immediately and extends through the duration of the public health emergency. Comments are requested regarding certain aspects of the rule and can be submitted through January 4, 2021.

Interim Final Rule »
Fact Sheet »
News Release »

Aetna Life Insurance Company and an affiliated covered entity (Aetna) agreed to pay $1,000,000 to the OCR and to implement a corrective action plan in order to resolve an investigation into potential violations of HIPAA. The investigation arose from the disclosure of personal health information in correspondence and web-based services.

On April 27, 2017, Aetna discovered that two of its web services that displayed plan-related documents to health plan members could be accessed without entering login credentials and was indexed by various internet search engines. The breach disclosed the names, insurance identification numbers, claim payment amounts, procedures service codes and dates of service for 5,002 individuals. In June 2017, Aetna submitted a breach report to OCR.

On July 28, 2017, Aetna mailed benefit notices to members in windowed envelopes that revealed the words “HIV medication” to anyone who looked through the window. This breach affected 11,887 people. Aetna submitted a breach report to OCR regarding this matter in August 2017.

On September 25, 2017, a research study sent correspondence to Aetna members participating in an atrial fibrillation study with the name and logo of the study on the envelope, thus revealing the fact that the recipients may have an irregular heartbeat. This breach affected 1,600 people and Aetna submitted a breach report regarding this matter in November 2017.

While investigating these disclosures, OCR alleged that Aetna “failed to perform periodic technical and nontechnical evaluations of operational changes affecting the security of their electronic PHI (ePHI); implement procedures to verify the identity of persons or entities seeking access to ePHI; limit PHI disclosures to the minimum necessary to accomplish the purpose of the use or disclosure; and have in place appropriate administrative, technical, and physical safeguards to protect the privacy of PHI.”

The breach resulted in a settlement in which Aetna agrees to pay the OCR $1,000,000 and implement policies and procedures that comply with federal guidelines for maintaining the confidentiality of personal health information within 90 days, and submit annual reports of its compliance.

Although these HIPAA violations were perpetrated by a health insurance carrier, employer plan sponsors should review their HIPAA policies and procedures for compliance. Correspondence and web services that deal with personal health information should be carefully reviewed in order to ensure that they comply with federal confidentiality guidelines. Additionally, health plans with access to ePHI should ensure the security of that data.

Settlement Agreement »
Press Release »

On October 26, 2020, the IRS published Revenue Procedure 2020-45, which relates to 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), penalties for ACA reporting, the small business tax credit, and other adjustments for tax year 2021. Those changes are outlined below.

Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits and adoption assistance) will need to determine whether their plan documents 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.

Revenue Procedure 2020-45 »

On October 16, 2020, the IRS released Revenue Procedure 2020-43 announcing the maximum benefit amount for excepted benefit health reimbursement arrangements (EBHRAs) for plan years beginning after December 31, 2020, and before January 1, 2022. In brief, the maximum amount is unchanged and remains at $1,800.

As background, EBHRAs are non-integrated HRAs that were first available for plan years beginning after January 1, 2020. Employers of any size can now offer an EBHRA that is not integrated with any health coverage, as long as certain conditions are met. Specifically, the employer must ensure that they offer other traditional coverage; limit the benefit to $1,800 per plan year (indexed for inflation); not reimburse premiums for individual health coverage, Medicare or non-COBRA group coverage; and make the EBHRA uniformly available, among other requirements. For reference, an EBHRA may generally reimburse out-of-pocket Code §213(d) medical expenses, premiums for coverage consisting solely of excepted benefits and premiums for short-term limited-duration insurance coverage. While the benefit limit is indexed each year for inflation, any increase that is not a multiple of $50 is rounded down to the next lowest multiple of $50.

This recent guidance confirms that the benefit amount for plan years beginning after December 31, 2020, and before January 1, 2022, will remain $1,800. Further, the IRS announced that it intends to publish the adjusted amount for plan years beginning after December 31, 2021, by June 1, 2021.

Employers, especially those sponsoring an EBHRA, should be aware of these developments.

Revenue Procedure 2020-43 »

On July 24, 2020, in Lyn M v. Premera Blue Cross, et al., the US Court of Appeals for the Tenth Circuit (the “Tenth Circuit”) ruled that an ERISA group health plan administrator was not entitled to a discretionary standard of review because this standard was not adequately disclosed to plan participants. The Tenth Circuit further held that the plan administrator had failed to refer to the applicable medical policy when evaluating the appealed medical claim at issue.

As background, an ERISA plan’s benefit determinations are entitled to a favorable standard of review, known as the arbitrary and capricious standard, if there is language in the plan document granting the plan administrator discretion to interpret the plan and make benefit determinations. This standard involves a more limited judicial review of participant challenges to plan benefit determinations and often results in the disposal of cases at an early stage in the legal process. Absent such language in the plan document, de novo review applies, and the trial court would typically conduct a more independent and thorough review of a participant’s claim.

In Premera, parents sought medical benefits under the Microsoft Corporation Welfare Plan for their minor child’s psychiatric treatment. The claims administrator, Premera, denied the claim and subsequent appeal as not medically necessary based upon the definition of “medical necessity” in the SPD, rather than the more comprehensive definition in the medical policy.

The district court reviewed Premera’s denial of the appealed claim under the arbitrary and capricious standard because the plan language gave the claims administrator discretionary authority to interpret and administer the plan. Under this standard, the court deferred to the administrator's determination that the disputed services were not medically necessary, and ruled in favor of Premera and the plan fiduciary, Microsoft Corporation.

On appeal, the Tenth Circuit reversed the district court decision and held that the discretionary standard of review was not applicable because participants had not been notified of this more limited scope of judicial review of their claims. In other words, the plan administrator had not specifically disclosed its discretionary authority in the SPD or other distributed materials or the existence of a document with information about such discretionary authority. Additionally, the Tenth Circuit found that Premera erred in failing to consider the definition of medical necessity in the medical policy.

Accordingly, the case was returned to the district court for review of the claim under the de novo standard of review, thus allowing for a broader judicial analysis of the evidence without deference to the plan administrator’s benefit determinations.

ERISA plan sponsors, particularly those within the Tenth Circuit’s jurisdiction, should be aware of this development. The Tenth Circuit includes districts in Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming. Sponsors seeking to benefit from the application of the discretionary standard of review in the event of litigation should consider referencing this standard in the SPD in addition to the plan document. Furthermore, employers should recognize their obligation as plan fiduciaries to oversee claims administrators and ensure their claim review processes and communications adhere to ERISA requirements and the specific plan terms. Plan document providers and/or counsel should be consulted for further assistance.

Lyn M v. Premera Blue Cross, et al. »

On August 21, 2020, the DOL published its “Promoting Regulatory Openness through Good Guidance Rule.” This procedural rule clarifies the agency’s policy regarding guidance it produces for regulations under its purview. Particularly, the agency seeks to make it clearer that its guidance does not have the full force and effect of law. Instead, the DOL issues public “statements of general applicability” setting forth “agency policy or the DOL’s interpretation of a statute or regulation intended to have future effect on the behavior of regulated persons, that sets forth a policy on a statutory, regulatory, or technical issue, or an interpretation of a statute or regulation.” The rule also seeks to make the process of producing such guidance as transparent and helpful as possible.

Pursuant to those goals, the rule requires (among other things) that guidance include a disclaimer that it does not have the force and effect of law, that guidance avoid terms such as “shall,” “must” and “require,” and that the term “guidance” be prominently displayed. The rule creates a review procedure that must be followed before the agency issues its guidance to make sure that these mandates are followed. Special procedures must be followed when guidance deals with matters that could have an economic effect of over $100 million, including a notice-and-comment process. The rule also requires that all of the agency’s guidance be accessible in a public database and that the public has an opportunity to petition the agency to modify or withdraw it.

The rule applies to all guidance issued, modified or withdrawn after September 28, 2020. Employers should be aware of this rule, as it will apply to guidance issued by the DOL regarding benefits.

Promoting Regulatory Openness through Good Guidance Rule »
Guidance Database »

A recent United States Court of Appeals for the Second Circuit decision reminds employers that fiduciary responsibility under ERISA ultimately lies with the employer, even when the actions of a service provider or third-party administrator (TPA) are in question.

In Sullivan-Mestecky v. Verizon Communications Inc., the Second Circuit vacated the district court’s dismissal of Sullivan-Mestecky’s §502(a)(3) claim against Verizon and remanded the claim for further proceedings, among other issues. For reference, §502(a)3 authorizes a beneficiary of an employee benefit plan to bring an action to seek equitable relief as a result of fiduciary breaches, which are violations under ERISA. As further background, ERISA requires fiduciaries to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use.”

In this case, Sullivan-Mestecky, as the beneficiary of a life-insurance policy of her mother Kathleen Sullivan, brought suit against Verizon claiming fiduciary breach for failure to pay the entire life insurance benefit. The facts in this case demonstrate that Sullivan received various communications from Aon Hewitt (a service provider on behalf of Verizon) stating that her life insurance coverage “1x pay” amount was $679,700. However, upon Sullivan’s death, only $11,400 was provided as the death benefit, which was consistent with the terms of the plan.

As it turns out, Aon Hewitt had coded Sullivan’s annual $18,600 income as her weekly income, basing the communicated $679,700 coverage amount on an erroneous salary of $970,920. While the written plan terms were correct, what was repeatedly communicated to Sullivan by Aon Hewitt regarding her coverage amount was incorrect.

The Second Circuit concluded that Sullivan-Mestecky reasonably pled that Verizon breached its fiduciary duties by failing to provide complete and accurate information regarding the plan (supporting its remand of the §502(a) (3) claim). The Second Circuit further explained as part of its conclusion that as the plan administrator, Verizon was responsible for assessing Sullivan’s eligibility and for enrolling Sullivan in her benefits plan. Further, when Verizon arranged for Aon Hewitt to communicate with Sullivan about her benefits as the service provider, Verizon was performing a fiduciary function and bound by ERISA’s fiduciary requirement to properly administer the plan. The Second Circuit explains that Aon Hewitt’s negligence is imputed to Verizon, as Aon Hewitt’s principal, and states that “Verizon cannot hide behind Aon Hewitt’s actions to evade liability for the fiduciary breach that occurred here.”

The outcome of the case serves as a reminder to employers of fiduciary obligations under ERISA, and that such obligations are that of the employer (as the plan administrator) even when utilizing service providers or TPAs. So employers should routinely review and monitor service providers’ work to ensure that it accurately reflects the plans terms.

Sullivan-Mestecky v. Verizon Communications Inc.  »

Lifespan Health System Affiliated Covered Entity (Lifespan ACE), a Rhode Island based non-profit health system comprised of hospitals and other healthcare providers, agreed to pay $1,040,000 to HHS’s Office of Civil Rights (OCR) and to implement a corrective action plan in order to resolve an investigation into potential violations of HIPAA. The investigation arose from the theft of an unencrypted laptop.

Specifically, in April 2017, an affiliated hospital employee’s laptop was stolen. The laptop reportedly had the electronic protected health information (ePHI) of over 20,000 individuals including patient names, medical record numbers, and medication information. The breach was reported to OCR, which oversees enforcement of the HIPAA Privacy and Security rules.

OCR’s investigation found a failure to encrypt ePHI on laptops after Lifespan ACE’s internal polices had determined encryption was reasonable and appropriate. There also wasn’t a business associate agreement in place with Lifespan ACE’s parent company and business associate, Lifespan Corporation.

The breach resulted in a settlement in which Lifespan ACE agrees to pay OCR $1,040,000, implement encryption within 90 days, revise its policies and procedures, and be monitored by OCR for two years.

OCR Director Roger Severino cautioned “laptops, cellphones, and other mobile devices are stolen every day, that’s the hard reality. Covered entities can best protect their…data by encrypting mobile devices to thwart identity thieves.”

Employer plan sponsors should review their policies and procedures for compliance. While encryption is still not required of covered entities or business associates, employers should consider it as an effective defense against a breach of privacy information.

OCR Press Release »
Resolution Agreement »

On July 24, 2020, President Trump issued Executive Order 13939, which seeks to lower drug prices by eliminating or discouraging rebates paid to pharmacy benefit managers (PBMs) and other middlemen involved in purchasing drugs on behalf of Medicare Part D insurance plans. According to the order, PBMs negotiate prices with drug manufacturers at amounts lower than the list prices that a Medicare patient would pay for drugs. The difference between the amount paid by the patient and the amount the PBM negotiated is kept by the PBM as a rebate.

Federal kickback statutes have a safe harbor that protects these rebates, and the order seeks to eliminate or narrow this safe harbor in an effort to discourage or prevent PBMs from contributing to higher drug prices paid by Medicare patients. Accordingly, the order instructs the Secretary of Health and Human Services to begin the rulemaking process to both deny safe harbor protection for these rebates and to create new safe harbor protections for patient discounts while allowing for bona fide PBM service fees. However, the secretary must first determine that these new rules would not add to the federal debt, increase Medicare premiums or patient out-of-pocket costs.

Although the order specifically targets Medicare Part D drug plans, the elimination or narrowing of the federal kickback safe harbor could affect employer plan sponsors. We will continue to follow and report on any potential developments concerning these requirements.

Executive Order 13939 »

Revised FMLA Forms

The DOL recently released updated FMLA Forms. The new forms released by the Wage and Hour Division (WHD) are simpler and designed for electronic use. The information gathered and presented is essentially the same, but the forms now feature more check boxes versus blank spaces for free form answers. For example:

• The Notice of Eligibility & Rights and Responsibilities contains a section regarding Substitution of Paid Leave. The employer has the following options available and would select the appropriate option by marking the checkbox: “Some or all of your FMLA leave will not be paid,” “You have requested to use some or all of your available paid leave,” “We are requiring you to use some or all of your available paid leave,” or “Other” for short/long-term disability, workers compensation, or state leave laws.
• On the revised Heath Care Provider Certification, the health care provider would select one qualifying condition from: inpatient care, incapacity plus treatment, pregnancy, chronic conditions, permanent or long term conditions, or conditions requiring multiple treatments. There is a section with relevant definitions. Also, the form clarifies that specific medical details such as diagnosis and symptoms are not required information as some state laws prohibit such.

WHD believes the changes will reduce the time users spend providing information, improve communications between leave applicants and administrators, and reduce the likelihood of violations.

The forms have a revision date of June 2020 with an expiration date of June 30, 2023. Employers who utilize the model FMLA forms for administration should begin using the revised forms as soon as possible.

WHD Request for Information

On July 17, 2020, the WHD requested information from the public concerning the effectiveness of the current FMLA regulations and related compliance resources. Specifically, the WHD would like to know:

• What changes would help employees better understand and effectuate their rights and obligations under FMLA?
• What challenges if any have employers and employees had in applying the definition of a serious health condition, administering leave on an intermittent basis or reduced leave schedule, and processing medical certifications?
• Should additional guidance on topics addressed in recent opinion letters be addressed through regulatory action? Those topics include individualized education plans, organ donation and compensability of frequent 15-minute breaks.

The WHD hopes to obtain feedback on challenges and best practices in the use and administration of FMLA. Information collected will help the DOL identify areas for additional compliance assistance to ensure that FMLA is understood by both employers and employees.

Comments are due on or before September 15, 2020.

Women’s Bureau Request for Information

On July 16, 2020, the DOL’s Women’s Bureau issued a Request for Information related to paid leave. As background, the Women’s Bureau’s stated mission is to formulate standards and policies that promote the welfare of wage-earning women, improve their working conditions, increase their efficiency and advance their opportunities for profitable employment.

The request included reference to the findings of several studies (both by the DOL and outside parties) indicating that access to paid leave increases a new mother’s likelihood of being employed after childbirth, and that paid leave is offered by more employers in the private sector with higher paid earners versus low-income workers.

The bureau acknowledges that some states and localities have enacted paid family and medical leave laws that provide covered workers with the right to partial wage replacement through a state-run insurance program when they are not working due to their own or a family member’s serious health needs or bonding with a new child. Also, effective October 1, 2020, eligible federal workers will be entitled to 12 weeks of paid parental leave for the birth, adoption or fostering of a new child. This provision was part of the 2020 National Defense Authorization Act. The Families First Coronavirus Response Act (FFCRA), enacted earlier this year, requires certain employers to provide employees with paid sick leave or expanded FMLA for specific reasons related to COVID-19.

The bureau is seeking input from a variety of stakeholders to determine what state, local, private employer, or FFCRA leave provisions could serve as best practices when developing a paid leave program. These stakeholders include state and local officials, employers, unions, workers, individuals who are not currently employed, faith-based and other community organizations, universities and other institutions of higher education, foundations, chambers of commerce and other interested parties with experience or expertise in paid leave.

For the purposes of this information collection, paid leave means absence from work, during which an employee receives compensation, to care for a spouse, parent, child, or his or her own health.

The bureau is specifically requesting information based on 23 questions, including:

• Who benefits from paid leave and who bears the costs?
• What could be done to improve the existing patchwork of programs, which include state and employer-sponsored paid options? What are the impediments, cost and otherwise, faced in implementing those improvements?
• Do employer-provided paid leave programs offer more generous benefits than state paid leave programs?
• What is the ideal leave duration and how much pay should be replaced?
• If you do not have access to paid leave, have you experienced individual or family circumstances for which you would have taken paid leave if it had been available? How might paid leave have affected those particular situations or outcomes?

Comments are due on or before September 14, 2020.

These documents make it clear that the DOL is looking to possibly make changes to FMLA rights and responsibilities. Employers should comment if interested. We will continue to follow developments that come out of this process.

DOL Press Release »
Revised FMLA Forms »
WHD Request for Information »
Women’s Bureau Request for Information »

On June 19, 2020, the IRS published proposed regulations relating to the deduction of qualified transportation fringe (QTF) and commuting expenses. As background, the 2017 Tax Cuts and Jobs Act (TCJA) disallowed deductions for QTF expenses and deductions for certain expenses of transportation and commuting between an employee’s residence and place of employment (effective for amounts paid or incurred after December 31, 2017). (Importantly, QTFs, up to indexed monthly limits ($270 for 2020), are still excludable from employees’ income.) The TCJA also provided that a tax exempt organization’s unrelated business taxable income (UBTI) is increased by the amount of the QTF fringe expense that is non-deductible (for amounts paid or incurred after December 31, 2017).

Then, on December 20, 2019, Congress enacted the Further Consolidated Appropriations Act of 2020 (FCAA), which retroactively repeals those provisions of the 2017 TCJA back to the original TCJA enactment date. These proposed regulations address this retroactive elimination of the deduction for expenses relating to QTFs provided to employees, building off interim guidance published in 2018. Relevant topics are addressed below.

Qualified Parking

As with the interim guidance, the proposed regulations distinguish between qualified parking purchased from a third party and parking provided at an employer-owned or leased parking facility. When through a third party, the disallowed amount is generally the annual qualified parking cost paid to the third party. However, when through an employer-owned/leased facility, the disallowed amount may be determined using a general rule or via any of three simplified methods. Employers may choose the applicable method each year and for each parking facility.

Under the general rule, the employer calculates the disallowed deduction for each employee receiving qualified parking, using a reasonable interpretation of the statute. To be reasonable, the interpretation must: 1) be based on the expense paid/incurred, not on the benefit’s value to employees; 2) disallow deductions for reserved employee spaces; and 3) properly apply the exception for parking made available to the general public.

There are actually three simplified methods. The first is the “primary use” method, which requires the employer to calculate the disallowance for reserved employee spaces, determine if the exception for general public parking applies (and if not, calculate an allowance for reserved non-employee spaces), and allocate the remaining expense as nondeductible to the extent employees use them during peak demand period. The second is the “cost per space method” (multiplying the cost per space of the employer’s parking by the total number of spaces used by employees during peak demand). The third is the “qualified parking limit” method (multiplying the qualified parking exclusion limit by the total number of spaces used by employees during peak demand or the total number of employees).

Vanpooling and Transit Expenses as QTFs

The proposed rules also address vanpooling and transit expenses. Similar to qualified parking, where an employer pays a third party for qualified vanpooling or transit fringe benefits, the nondeductible amount is generally the amount paid. Conversely, if the employer provides these benefits in kind, the disallowed deduction must be calculated based on a reasonable interpretation of the statute (rather than on the value of the benefit to the employee).

Exceptions

Like so many rules, there are exceptions in certain circumstances that would preserve all or a portion of an employer’s deduction for QTFs. An employer’s deduction generally will not be disallowed to the extent the expenses are treated as taxable compensation for withholding and other purposes because they exceed the exclusion for QTFs. Also, expenses may be deductible if they are for transportation or parking made available to the general public. This exception does not apply to reserved employee parking, and is limited if the “primary use” of the parking (more than 50%) is not by the general public. Lastly, expenses may be deductible if the vanpooling, transit pass or parking is sold to customers (including employees) in a bona fide transaction for full consideration. Notably, this exception does not apply to benefits purchased under a compensation reduction agreement.

Tax-Exempt Organizations and UBTI

The TCJA also added a provision (Section 512(a)(7)) stating that a tax-exempt organization’s UBTI is increased by the amount of the QTF expense for which a deduction is not allowable under Sec. 274, effective for amounts paid or incurred after December 31, 2017. In December 2017, though, that TCJA provision was repealed, retroactive to the original date of enactment of the TCJA. Although Sec. 512(a)(7) was retroactively repealed, Sec. 274 and the proposed regulations still apply to a tax-exempt organization to the extent that the amount of the QTF expenses paid or incurred by an exempt organization is directly connected with an unrelated trade or business conducted by the exempt organization. In that case, the amount of the QTF expenses directly connected with the unrelated trade or business is subject to the disallowance, and thus disallowed as a deduction in calculating the UBTI attributable to that unrelated trade or business. Tax-exempt employers with questions on QTFs and UBTI should work with outside counsel.

Takeaways

Employers should be aware of the proposed regulations, and should work with their accounting team and/or outside tax counsel to determine appropriate next steps. Despite their complicated nature, the proposed regulations provide greater clarity on various QTF issues, and employers may find potentially meaningful opportunities to simplify the calculation of nondeductible expenses, which could result in cost savings. Comments on the proposed regulations are due by August 22, 2020, and we anticipate the regulations will be finalized soon thereafter.

Proposed Rule »

On June 23, 2020, FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief and Economic Security Act Implementation Part 43 was issued by the DOL, HHS and Treasury providing clarification on certain topics related to the FFCRA and CARES Act and their impact on benefits administration. Highlights include:

• Part 43 clarifies that the requirement to cover COVID-19 tests without cost sharing only applies to testing for diagnosis or treatment of COVID-19, as determined by a healthcare provider. COVID-19 tests intended for at-home testing must also be covered without cost sharing, when the test is determined medically appropriate and is ordered by a healthcare provider. Further, if an individual receives multiple diagnostic tests for COVID-19, plans are required to cover each test (including applicable items and services) provided the tests are diagnostic and medically appropriate as determined by a healthcare provider.
• Section 6001 of the FFCRA does not require health plans to cover COVID-19 testing for surveillance, employment purposes (such as employee return-to-work programs), or any other purpose not primarily intended for individualized diagnosis or treatment of COVID-19. Rather, health plans are required to cover COVID-19 testing when such testing is done for diagnostic purposes in accordance with DOL guidelines. Testing for other purposes, such as determining whether an employee can return to work, is beyond the scope of the FFCRA.
• In light of the continued public health emergency, group health plans and insurers are able to provide telehealth (or other remote care services) to employees who are not eligible for any other group health plan offered by the employer. The recent guidance specifies that this relief is limited to telehealth and other remote care service sponsored by a large employer (generally, one with at least 51 employees) and is applicable only for the duration of any plan year beginning before the end of the COVID-19 public health emergency. Such plans are exempt from certain group market reforms and mandates, such as prohibition on annual and lifetime limits and preventative services mandate. (However, other mandates, such as the prohibitions of pre-existing condition exclusions and discrimination based on health status, the prohibition of rescissions, and the application of the mental health parity requirements continue to apply.)

The above list is not exhaustive; see the FAQs for additional clarifications and guidance. Employers should be aware of this guidance and be sure they are administering benefits accordingly.

FAQs about FFCRA and CARES Act Implementation Part 43 »

On June 26, 2020, the DOL issued Field Assistance Bulletin No. 2020-04 for its investigators. The bulletin provides guidance for those investigators looking into cases in which an employer allegedly improperly denies an employee FFCRA leave when summer camps, summer enrichment programs or other summer programs are closed. It reiterates previous guidance regarding summer camps and FFCRA leave and adds a discussion of what investigators should look at when determining whether an employer appropriately denied FFCRA leave to an employee seeking it because a summer camp was unavailable for the child.

FFCRA provides up to 80 hours of emergency paid sick leave, and up to twelve weeks of expanded family and medical leave (10 of which may be paid), if an employee is unable to work or telework due to a need to care for their child because that child’s “place of care” is closed due to COVID-19 related reasons. In order to obtain this leave, the requesting employee must provide their employer with information to support this need for leave. This information includes an explanation of the reason for the leave, a statement that the employee cannot work due to that reason, the name of the affected child, the name of the place of care, and a statement that no other suitable person is available to care for the child.

The question is whether summer camps, summer enrichment programs and other summer programs count as places of care for this purpose. The bulletin focuses on whether a particular summer camp or program would have served as a place of care had it not closed for COVID-19 related reasons. Evidence of the employee’s intent to use the camp or program for this purpose should be considered. The bulletin suggests that the matter seems clear enough that summer camps or programs are places of care for this purpose when the employee actually enrolled their child in the camp or program before the camp opted to close due to COVID-19.

However, there are cases where the employee had not enrolled their child in the camp or program. The bulletin applies a preponderance of the evidence standard, under which it must appear that the employee would have more likely than not enrolled their child in the camp in question, when evaluating those cases. Steps taken by the employee short of actual enrollment may indicate that intent, such as paying a deposit, prior attendance in the camp or program or submitting an application to enroll. A mere statement of intent is likely not enough. Similarly, a camp or program that is available for 12-year-old children would not be appropriate for the 13-year-old child of an employee, so such a camp or program would not qualify as a place of care for that child.

Although the bulletin is intended for DOL investigators, it could be helpful for employers to keep this in mind when evaluating an employee request for FFCRA leave for this reason.

Field Assistance Bulletin No. 2020-04 »

On June 23, 2020, the IRS announced in a press release that it will extend the deadline for tax filings for persons and businesses affected by tornados, storms and floods in parts of Mississippi, Tennessee and South Carolina. As of the date of the press release, this relief is extended to people living in the following counties: Clarke, Covington, Grenada, Jasper, Jefferson Davis, Jones, Lawrence, Panola and Walthall counties in Mississippi; Bradley and Hamilton counties in Tennessee; and Aiken, Barnwell, Berkeley, Colleton, Hampton, Marlboro, Oconee, Orangeburg and Pickens counties in South Carolina. This relief automatically extends to people and businesses in others areas designated by the Federal Emergency Management Agency (FEMA) as qualifying for such assistance. The deadline to file personal and business tax returns, and to pay taxes, will be extended from July 15, 2020, to October 15, 2020.

In addition to the tax deadlines, the extension applies to 2019 IRA contributions, estimated tax payments for the first two quarters of 2020, and the third quarter estimated tax payment normally due on September 15. It also includes the quarterly payroll and excise tax returns normally due on April 30 and July 31.

In addition, penalties on payroll and excise tax deposits due on or after April 12 and before April 27 will be abated as long as the deposits were made by April 27.

This extension will apply to various employee benefit filing requirements. For example, the Form 5500 due date for calendar-year plans could likely be extended. Employers in affected areas should be aware of these deadline extensions, and work with service providers to take advantage of the extension. Other employers should keep an eye on FEMA announcements in the event that their county is included in the list in the future.

IRS Press Release »

The Departments of Labor, Treasury and HHS recently released their semi-annual regulatory agendas. The agencies highlight possible action on several different employee benefit plan issues and are meant to help employers plan sponsors and industry professionals prepare for potential changes in the benefits compliance world. The agendas do not provide a final timeline or publication dates, but they do provide insight into what could be on the horizon for the upcoming year. Here are some highlights from the agendas:

DOL

• For health plans: proposed rules on grandfathered group health plans
• For health and retirement plans: final rules amending the Voluntary Fiduciary Correction Program to expand the scope of transactions eligible for the program
• For retirement plans: proposed rules related to fiduciary duties, prohibited transactions and investment advice for a fee or other compensation (please see the “DOL Finalizes Conflict of Interest Rule and Proposes New Class Exemption” article in this edition)
• For employers: the DOL intends to solicit comments on ways to improve its regulations under the FMLA to: 1) better protect and suit the needs of workers; and 2) reduce administrative and compliance burdens on employers
• For employers: proposed rules for determining independent contractor status under the Fair Labor Standards Act

Treasury

• For health plans: proposed rules related to the definition of medical care under Section 213(d) of the IRC
• For health plans: proposed rules on grandfathered group health plans
• For health plans: final rules regarding application of the employer shared responsibility provisions to ICHRAs
• For health and retirement plans: the Treasury intends to issue an Advance Notice of Proposed Rulemaking to describe guidance under consideration and solicit comments on rules for determining whether two or more separate service entities constitute an affiliated service group under section 414(m)
• For retirement plans: proposed rules describing when forfeitures may be used or allocated in a qualified retirement plan
• For retirement plans: proposed rules implementing SECURE Act provisions related to 401(k) plans

HHS

• For health plans: proposed rules on grandfathered group health plans
• For health plans: annual proposed rules setting forth 2022 cost-sharing parameters and guidance on other ACA provisions
• Proposed rules that rescind the adoption of the standard unique health plan identifier (HPID) and other entity identifier
• Proposed rules on miscellaneous Medicare Secondary Payer (MSP) clarifications and updates and related penalties for MSP reporting requirements

We will continue to follow and report on these rules in Compliance Corner as the departments go through the rulemaking process.

DOL Rule List »
Treasury Rule List »
HHS Rule List »

On June 8, 2020, the IRS proposed regulations regarding the tax treatment of amounts paid for certain medical care arrangements, including direct primary care arrangements and healthcare sharing ministries. The proposal would allow individuals who pay for these arrangements to deduct the amounts paid as medical expenses.

As background, on June 24, 2019, President Trump issued Executive Order 13877, “Improving Price and Quality Transparency in American Healthcare to put Patients First.” As part of this transparency effort, the order directed the IRS to propose regulations to treat expenses related to certain medical arrangements as eligible medical expenses under Code Section 213(d). Code Section 213(d) defines medical care broadly to include 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,” as well as insurance covering such medical care.

The proposed regulations define a direct primary care arrangement as a contract between an individual and one or more primary care physicians who agree to provide medical care for a fixed annual or periodic fee without billing a third party. Although this definition currently encompasses contracts only with medical doctors specializing in family medicine, internal medicine, geriatric medicine or pediatric medicine, comments are requested as to whether to expand the definition to include other professionals such as nurse practitioners and physician assistants.

A healthcare sharing ministry is defined as a nonprofit organization under Code Section 501(c)(3) that is tax exempt under Section 501(a) in which members share medical expenses in accordance with a common set of ethical or religious beliefs without regard to state residency or employment. Such a ministry must have been in existence since December 31, 1999 (to be grandfathered from health reform requirements), and conduct an annual audit by an independent certified public accounting firm.

Upon analysis, the IRS concludes that payments for direct primary care arrangements could qualify as medical care (for example, for an annual exam or specified treatments) or medical insurance (i.e., similar to a premium to cover such exams or treatments) depending upon the structure of the particular arrangement. Regardless of the classification, the expense would qualify as a deductible medical expense under Code Section 213(d). By contrast, payments for membership in a healthcare sharing ministry would only be considered medical insurance as the ministry is not providing the medical care, but instead receiving and paying claims for such care.

Furthermore, the regulations clarify that amounts paid for coverage under certain government-sponsored healthcare programs are treated as amounts paid for medical insurance. These include Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), TRICARE and certain veterans’ insurance programs. Therefore, amounts paid for enrollment fees or premiums under these programs would be eligible for deduction as a medical expense.

Generally, HRAs can reimburse expenses for medical care as defined under Section 213(d). Accordingly, the proposal indicates that an HRA integrated with a traditional group health plan, an individual health insurance coverage or Medicare (i.e., an ICHRA), an excepted benefit HRA, or a qualified small employer health reimbursement arrangement (QSEHRA) could provide reimbursements for direct primary care arrangement or healthcare sharing ministry fees.

With respect to HSAs, eligibility to contribute is conditioned upon an individual being covered by a high deductible health plan (HDHP) and having no other impermissible coverage that would pay medical expenses prior to satisfaction of the statutory HDHP deductible. Certain types of other coverage can be disregarded for this purpose, such as accident, dental, vision and preventive care. Direct primary care arrangements typically provide a variety of services such as physical exams, vaccination, urgent care and laboratory testing and, therefore, would be providing impermissible coverage before the HDHP statutory deductible is met. As a result, an individual covered by a direct primary care arrangement or healthcare sharing ministry would generally be ineligible to contribute to an HSA. However, there may be exceptions for arrangements that provide limited coverage, such as preventive care only.

Additionally, if an employer pays direct primary care arrangement fees, whether directly or through payroll deductions, the payment arrangement would be a group health plan that would disqualify an individual from contributing to an HSA.

Employers should be aware of the proposed regulations, for which the IRS is currently accepting public comments. Although the guidance clarifies that direct primary care fees can qualify as deductible medical care expenses, questions remain as to how employers can incorporate direct primary care arrangements in a compliant health benefits program. Hopefully, these concerns will be addressed in the final regulations, once issued. Please stay tuned to Compliance Corner for further updates.

Final Rule on Certain Medical Care Arrangements »

On June 5, 2020, CMS issued a letter providing COVID-19 guidance related to nonfederal governmental plan sponsors in light of the continued public health emergency. Highlights include:

• COVID-19 Related Coverage. CMS reiterates that nonfederal governmental plans are group health plans subject to the requirements under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes the requirement to provide benefits related to COVID-19 testing without cost sharing or prior authorization requirements. In addition, CMS encourages all nonfederal governmental plans to offer services related to COVID-19 treatment without cost sharing or prior authorization.
• Certain Extended Timeframes. CMS agrees with the relief provided by the DOL and IRS regarding the relaxed enforcement of certain timeframes related to group health plans (see previous Compliance Corner articles "Extension of Certain Timeframes for Employee Benefit Plans, Participants and Beneficiaries" and "DOL Announces Relief for Certain ERISA Deadlines" for additional information). To that end, CMS will adopt a similar policy for nonfederal governmental group health plans that will disregard the outbreak period (defined as March 1, 2020, through 60 days after the end of the COVID-19 National Emergency) for similar time frames applicable to nonfederal governmental group health plans. Importantly, unlike plans subject to the DOL and IRS notices, CMS does not require nonfederal governmental plans to provide such relief. Rather, CMS has simply encouraged the extensions and provided enforcement relief for plans that voluntarily comply.
• Expanding Access to Telehealth and Prescription Drugs. CMS strongly encourages all nonfederal governmental plans to expand and promote telehealth services by notifying participants of its availability, ensuring access to robust telehealth services (such as mental health and substance use disorder services), and covering telehealth services without cost sharing (or other medical management requirements). In addition, CMS encourages nonfederal governmental plans that provide prescription drug benefits to disregard any fill restrictions when appropriate.
• Mid-Year Changes. CMS has encouraged any applicable state and local authorities to not take enforcement action against plans that make mid-year changes to provide greater coverage for telehealth or for diagnosis and treatment of COVID-19, or to reduce (or eliminate) cost sharing requirements for such services. Should plans choose to make these changes, CMS encourages prompt employee communication. Further, CMS will not take enforcement action against any plan that makes such changes without the 60-day advance notice required by the PHS Act and final rules regarding Summary of Benefits and Coverage.

Sponsors of nonfederal governmental plans should be aware of the letter’s guidance, and note that while some COVID-19 relief is required, some is merely encouraged. For any subsequent guidance related to COVID-19, CMS encourages plan sponsors to monitor the Center for Consumer Information and Insurance Oversight’s website.

CMS Letter to Nonfederal Governmental Plans »
Center for Consumer Information and Insurance Oversight COVID-19 Guidance »

The DOL recently took action against two employers who failed to comply with the leave provisions under the Families First Coronavirus Response Act (FFCRA).

The DOL’s Wage and Hour Division (WHD) conducted an investigation of a Miami-Dade County employer. An employee of the employer was instructed by a healthcare provider to quarantine for 14 days due to reasons related to COVID-19. The employer granted the employee only 40 hours of paid leave and required the use of accrued paid leave for the remainder. The local DOL Assistance Center worked with the employer to restore the used paid leave and to pay the employee the remaining time under the Emergency Paid Sick Leave under FFCRA. As a reminder, employees of employers with fewer than 500 employees are eligible for two weeks (up to 80 hours) of emergency paid sick leave for certain reasons related to COVID-19. The employer is then eligible for a tax credit equal to the paid leave provided.

Similarly, the WHD got involved with a second Florida employer who failed to comply with FFCRA’s emergency paid sick leave provisions. The employer failed to provide payment to an eligible employee who was absent from work pursuant to a healthcare provider’s instruction to quarantine for reasons related to COVID-19. The WHD worked with the employer to ensure that the employee received the paid leave benefits to which he was entitled.

The DOL encourages employers to contact them with any questions related to the FFCRA. NFP has a library of resources related to COVID-19 including summaries, archived presentations and frequently asked questions (including those discussing leave provisions under FFCRA).

DOL Press Release, Miami-Dade County »
DOL Press Release, Florida Employer »
NFP COVID-19 Resources »

The DOL’s Employee Benefits Security Administration (EBSA) investigated a Las Vegas, Nevada, employer who failed to forward employee contributions to the carrier providing the employer sponsored employee health insurance plan. The employer continued to deduct the employee contributions from employee paychecks. The employer did not timely forward those contributions to the insurance carrier; nor did the employer make any payment to the carrier. This resulted in a retroactive termination of the group health insurance plan.

As background, ERISA requires private employer plan sponsors, as an ERISA fiduciary, to operate the group health plan in the best interest of participants and beneficiaries. Plan assets, including employee contributions, must be used exclusively to provide plan benefits. The employer cannot profit from the plan.

The US District Court for the District of Nevada approved a default judgement against the employer requiring them to pay $99,807 to former participants and beneficiaries. This amount included outstanding medical claims and the employee contributions. Further, the employer’s former president is permanently barred from serving as a fiduciary to any ERISA health benefits plan.

DOL Press Release, ERISA Fiduciary Violation »

On June 19, 2020, the DOL proposed changes to its Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) self-compliance tool. As background, MHPAEA requires that the financial requirements and treatment limitations imposed on mental health and substance use disorder benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. The self-compliance tool was created by the DOL to help group health plan sponsors determine whether their group health plan complies with MHPAEA.

The 2020 version of the self-compliance tool mostly adds additional illustrative examples of when a plan is or is not compliant with MHPAEA. It also adds a new section (Section H) and a new appendix (Appendix II). Section H discusses how employers can establish an internal MHPAEA compliance plan and Appendix II provides a tool for comparing plan reimbursement rates to Medicare.

The DOL is requesting public comments on the revisions to the self-compliance tool by July 24, 2020. Ultimately, this tool does not add any new compliance obligations. Instead, it provides assistance in evaluating compliance with MHPAEA’s requirements. Plan sponsors should review the self-compliance tool to ensure their compliance.

Proposed Updates to 2020 MHPAEA Self-Compliance Tool »
Press Release »

On May 20, 2020, the IRS released Revenue Procedure 2020-32, which provides the 2021 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2021 annual HSA contribution limit will increase to $3,600 for individuals with self-only HDHP coverage, up $50 from 2020, and to $7,200 for individuals with anything other than self-only HDHP coverage (family or self + 1, self + child(ren), or self + spouse coverage), up $100 from 2020.

For qualified HDHPs, the 2021 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 2020). The 2021 maximum out-of-pocket limits will increase to $7,000 for self-only coverage (up $100 from 2020) and up to $14,000 for anything other than self-only coverage (up $200 from 2020). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum remains $1,000 for individuals aged 55 years or older (this is a fixed amount not subject to inflation).

The 2020 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 2021 limits.

Rev. Proc. 2020-32 »

On March 31, 2020, the IRS issued information letter Number 2020-0002 that addressed a question concerning whether a dependent care FSA under a Section 125 plan could reimburse an employee for expenses incurred before they became a participant in the plan.

The IRS reminded the employer that expenses incurred before an employee becomes a participant in the plan are not eligible for reimbursement under the plan. The plan can only pay or reimburse for substantiated expenses incurred on or after the date the employee enrolls in the plan.

Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. While the letter does not provide any new guidance, this letter does provide general information that may be helpful to employers with questions on this particular topic.

Letter No 2020-0002 »

On May 4, 2020, the DOL and the Department of the Treasury (the Departments) issued guidance providing an extension of various compliance deadlines in its “Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak” final rule. Recognizing the potential difficulties for group health plans attempting to comply with certain notice obligations due to the COVID-19 public health crisis, and in effort to minimize the possibility of individuals losing benefits due to a failure to timely meet requirements, the Departments have extended certain timeframes for group health plans, disability and other welfare plans, and pension plans.

The relief provides that all group health plans, disability and other employee welfare benefit plans, and employee pension plans subject to ERISA or the Code must disregard the period from March 1, 2020, until 60 days after the end of the National Emergency (known as the “Outbreak Period”) for certain deadlines, including:

• The 30-day (or 60-day, if applicable) deadline to request a special enrollment under HIPAA
• The 60-day COBRA election period
• The 30-day (or 60-day, if applicable) deadline to notify the plan of a COBRA qualifying event (and the 60-day deadline for individuals to notify the plan of a determination of a disability)
• The 14-day deadline for plan administrators to furnish COBRA election notices
• The 45-day deadline for participants to make a first COBRA premium payment and 30-day deadline for subsequent COBRA premium payments
• Deadlines for individuals to file claims for benefits, for initial disposition of claims, and for providing claimants a reasonable opportunity to appeal adverse benefit determinations under ERISA plans and non-grandfathered group health plans
• Deadlines for providing a state or federal external review process following exhaustion of the plan’s internal appeals procedures for non-grandfathered group health plans

Notably, with this relief applying to deadlines for individuals to file claims for benefits, this may impact health FSA administration. For example: let’s say that under H Company’s health FSA, participants must submit claims incurred in the 2019 plan year by March 31, 2020 (also called the run-out period). Further, for purposes of this example, let’s say that the national emergency is proclaimed to be over on May 31, 2020. The health FSA participants would have until October 28, 2020, to submit claims (90 days following the end of the outbreak period). Note that this relief does not extend a date in which a claim can be incurred for health FSAs. Rather, it extends the time in which a claim can be submitted for reimbursement. This relief will impact health FSAs or even HRAs with a run-out period ending during the outbreak period, as described in the example. Importantly, this extension does not apply to Dependent Care FSAs.

In addition, there is relief for group health plans in furnishing participant notices. More specifically, plans (and responsible plan fiduciaries) will not be treated as having violated ERISA if they act in good faith and furnish any notices, disclosures or documents that would otherwise have to be furnished during the outbreak period (including those requested in writing by a participant or beneficiary) “as soon as administratively practicable under the circumstances.” Here, it’s important to note that acting in good faith includes sending documents electronically as long as the employer believes employees have effective access to electronic means of communications.

Employers should be aware of these developments and confirm with any vendors and administrators, as applicable, that the specified timelines are being administered in accordance with the DOL’s guidance. For more guidance on application, see the examples provided in the DOL’s final rule.

DOL News Release »
Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak Final Rule »
COVID-19 FAQs for Participants and Beneficiaries  »

On April 29, 2020, the DOL’s EBSA issued Disaster Relief Notice 2020-01, which provides certain relief for group health plans, retirement plans, sponsors, fiduciaries, participants and service providers subject to ERISA. Due to the COVID-19 national emergency, parties will have additional time to comply with certain ERISA deadlines occurring on or after March 1, 2020, through the period ending 60 days after the termination of the national emergency. In the case that different regions of the country will have different end dates related to the national emergency, the DOL will issue future related guidance.

In addition to the relief provided separately for deadlines related to COBRA, HIPAA Special Enrollment Rights, claims processing and Form 5500, the new notice provides relief related to:

• Blackout Notices
  Generally, a plan administrator is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited or restricted by a blackout period of more than three consecutive business days. Relief is available if the administrator is unable to provide the notice because of circumstances related to COVID-19. Plans should use good faith effort to comply. Good faith for this purpose includes use of electronic disclosure with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages and continuous access websites.
• Verification Procedures for Plan Loans and Distributions
  If an employee pension benefit plan fails to follow procedural requirements for plan loans or distributions imposed by the terms of the plan, relief is available if the failure is related solely to COVID-19, the administrator makes a good-faith diligent effort to comply, and the administrator makes a reasonable attempt to correct any procedural deficiencies (such as assembling any missing documentation).
• Participant Contributions and Loan Repayments
  Generally, any participant contribution or repayment of a loan to an employee pension benefit plan constitutes plan assets. As such, an employer generally must forward the amounts to the plan on the earliest date on which they can be segregated from general assets, which can be no later than the 15th business day of the month following the month in which the amount was withheld or paid. The DOL will not take enforcement action with respect to a temporary delay in forwarding contributions or repayments if the failure is solely attributable to COVID-19. Employers and service providers must act reasonably, prudently and in the interest of employees to comply as soon as administratively practicable under the circumstances.
• M-1 Filings
  Similar to Form 5500s, filings due between April 1 and before July 15, 2020, are now due July 15, 2020. This would affect any M-1 filing for which the plan administrator sought an extension of time to file from the normal March 1 deadline.

The guidance is effective immediately upon publication. In general, the DOL expects plans to act reasonably, prudently and in the interest of plan participants and beneficiaries. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits or undue delay in benefits payments in such cases and should attempt to minimize the possibility of individuals losing benefits because of a failure to comply with preestablished timeframes.

EBSA Disaster Relief Notice 2020-01 »

On May 7, 2020, the DOL updated questions and answers regarding the novel coronavirus (COVID-19) paid leave under the Families First Coronavirus Response Act (FFCRA). Specifically, the agency added five new questions and answers (#89-93).

As background, the FFCRA includes provisions mandating that employers with fewer than 500 employees provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. The DOL guidance serves to address commonly asked questions with respect to the paid sick leave and expanded family and medical leave requirements.

The newest additions address topics including domestic and temporary work arrangements, leave for childcare reasons and documentation requirements. Question 89 describes the facts and circumstances analysis for determining whether a domestic service worker is an employee (and thus entitled to paid leave) or a contractor. Question 90 explains that a business may be responsible for providing paid leave to a temporary worker hired through a staffing agency, if the business is deemed to be a joint employer of that worker.

Questions 91 through 93 focus upon qualifying reasons for paid leave and the related supporting information. Questions 91 and 92 address, respectively, the employer’s ability to request leave documentation for an employee’s claimed childcare needs or experience of COVID-19 symptoms. Finally, Question 93 explains which circumstances would permit childcare leave to be taken after the school season has ended.

Employers may find this additional guidance helpful in administering the FFCRA leave requirements.

FFCRA Questions and Answers »

On May 1, 2020, the DOL issued a series of questions and answers regarding COBRA, as well as a new set of model notices. As background, regulations governing COBRA require plan administrators to provide persons who enroll in the plan with an initial notice of their right to elect COBRA when they initially sign up for plan coverage. Plan administrators must also provide those persons who lost coverage after the occurrence of certain events with an election notice that explains their rights to coverage through COBRA and provides them with an opportunity to make that election. The agency updated these model notices.

The revisions to the model notices and the question and answer document focus on the interaction between COBRA and Medicare. They make clear that there are circumstances under which a person who is eligible for both Medicare and COBRA, and who chooses coverage through COBRA, may face penalties when they later enroll in Medicare. They also make clear that when a person is enrolled in both Medicare and COBRA coverage, Medicare is the primary payer and COBRA is the secondary payer.

Although certain deadlines in COBRA administration have been extended in response to the COVID-19 outbreak, the revisions to the COBRA materials do not mention them.

Plan administrators may use the model notices to comply with COBRA notice requirements, and they should familiarize themselves with the information provided in the revisions regarding the interaction between COBRA and Medicare.

Model Notices and FAQ »

On April 28, 2020, the DOL’s EBSA published COVID-19 FAQs for Participants and Beneficiaries, including information relating to both health and retirement plans. The FAQs are primarily addressed to participants and beneficiaries (individuals), but have helpful information for employers and plan sponsors.

On the health side, the FAQs include information and reminders on options for employees who may lose their coverage because the employer terminates its business, the plan or the employee’s employment. FAQ 3 outlines these options, including special enrollment in another group health plan (such as a spouse’s employer’s plan), COBRA, Medicaid, CHIP and special enrollment through the exchange (including loss of coverage due to a family member’s death or when an employer stops its COBRA contributions). The FAQs remind employees of the importance of maintaining and submitting documentation for special enrollment periods, and that the employee may have additional flexibility on the timing of notification during the COVID-19 outbreak period.

There are several FAQs relating to business closures. In situations where an employer or the vendor receiving COBRA or other premium payments is closed, or if the employer did not pay the insurance premium for group coverage, the FAQs direct employees to reach out to their employer, a benefit advisor with EBSA or the state insurance commissioner.

Several FAQs remind employees and retirees that employers are under no federal or state obligation to provide benefits and plans, and that employers can terminate benefits and plans at any time. The FAQs do say that such termination depends on the terms of the plan, that notice should be provided in advance (although some notice requirements have been relaxed), and that some benefits may be protected by contractual promise (pursuant to a collective bargaining or other employment agreement). The FAQs remind employees, though, that they have options once benefit eligibility is lost, including the ability to enroll in COBRA and special enrollment rights in another group health plan, a state health insurance exchange or state programs (Medicaid or CHIP). These FAQs point back to plan documents, SPDs, retiree benefit plans/promises and other employment agreements to determine exact benefit promises and obligations.

On the retirement side, FAQs 13 through 15 remind participants to contact their plan administrator regarding filing retirement plan claims, receiving payments and changing investment decisions, and that employees may have to anticipate delays as companies may be slower in processing claims, payments and investment changes. FAQs 16 and 17 relate to preretirement distributions, stating that employees may be able to take early distributions in certain situations (including adverse impact from COVID-19), but that they should remember that the distribution may be taxable and may impact the employee’s ability to qualify for unemployment compensation. FAQs 18 and 19 relate to timing and payment of distributions (which may be delayed), including a reminder that a retirement plan is not required to give an individual a lump-sum distribution. Other FAQs address the concerns relating to retirement plan distributions for a spouse of a deceased employee and to the consequences of a retirement plan termination (which depend heavily on whether the plan was a defined benefit plan or a defined contribution (e.g., 401(k)) plan.

Although directed at individuals, the FAQs contain helpful reminders for employers as plan sponsors. The FAQs also include references to the recently published rules relating to plan notice deadline extensions, which allow for relaxed deadlines for (among other notices) the COBRA and HIPAA SER notices. Employers should review the FAQs and implement processes and procedures to keep employees informed of plan/benefit and administrative changes during the COVID-19 pandemic.

EBSA FAQs »

On May 12, 2020, the IRS issued Notices 2020-29 and 2020-33, which provides guidance for Section 125 plans for calendar year 2020 and related HDHPs, as well as ICHRAs. Together, the two notices relax the rules relating to election changes for health plans offered under a section 125 plan, including health and dependent care FSAs.

Notice 2020-29 provides guidance for HDHPs and increased flexibility for mid-year elections made in calendar year 2020, as well as grace periods for applying unused amounts in health FSAs to medical care expenses incurred through December 31, 2020, and unused amounts in dependent care assistance programs to dependent care expenses incurred through December 31, 2020. Specifically:

• Mid-Year Elections
  For mid-year elections made during calendar year 2020, a § 125 cafeteria plan may permit employees who are eligible to make salary reduction contributions under the plan to:
  1. With respect to employer-sponsored health coverage:
     1. Make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage
     2. Revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis
     3. Revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer
  2. Revoke an election, make a new election, or decrease or increase an existing election applicable to a health FSA on a prospective basis
  3. Revoke an election, make a new election, or decrease or increase an existing election regarding a dependent care assistance program on a prospective basis
• Health FSAs and DCAPs
  For unused amounts remaining in a health FSA or a dependent care assistance program under the § 125 cafeteria plan as of the end of a grace period or plan year ending in 2020, a § 125 cafeteria plan may permit employees to apply those unused amounts to pay or reimburse medical care expenses or dependent care expenses, respectively, incurred through December 31, 2020.
• HDHPs
  The relief provided in Notice 2020-15, 2020-14 IRB 559 regarding HDHPs and expenses related to COVID-19, and in section 3701 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136, 134 Stat. 281 (March 27, 2020)) regarding an exemption for telehealth services, may be applied retroactively to January 1, 2020.

This guidance may be applied on or after January 1, 2020, and on or before December 31, 2020, provided that any elections made in accordance with it apply only on a prospective basis.

Notice 2020-33 modifies the permissive carryover rule for health FSAs and clarifies how health plans reimburse premiums by ICHRAs, specifically:

• Health FSAs
  Notices 2013-71 and 2013-47 IRB 532 are modified to increase the carryover limit (currently $500) of unused amounts remaining as of the end of a plan year in a health FSA under a § 125 cafeteria plan that may be carried over to pay or reimburse a participant for medical care expenses incurred during the following plan year. The increase in the amount that can be carried over from one plan year to the next reflects indexing for inflation, and this indexing parallels the indexing applicable to the limit on salary reduction contributions under § 125(i) of the Internal Revenue Code. The FSA rollover amount for the 2020 plan year is increased from $500 to $550.
• ICHRAs
  The notice clarifies that only payments or reimbursement made by a health plan, including a premium reimbursement plan in a § 125 cafeteria plan or an ICHRA, for medical care expenses incurred by an employee during the plan year may be excluded from income and wages under §§ 105 and 106. Medical care expenses are treated as incurred when the covered individual is provided the medical care that gives rise to the expense, and not when the amount is billed or paid. This notice provides that a plan is permitted to treat an expense for a premium for health insurance coverage as incurred on 1) the first day of each month of coverage on a pro rata basis, 2) the first day of the period of coverage, or 3) the date the premium is paid. Thus, for example, an ICHRA with a calendar year plan year may immediately reimburse a substantiated premium for health insurance coverage that begins on January 1 of that plan year, even if the covered individual paid the premium for the coverage prior to the first day of the plan year.

The IRS intends to revise Prop. Treas. Reg. §§ 1.125-1(o) and 1.125-5(c) to reflect the guidance in this Notice 2020-33. Until then, the IRS states that taxpayers may rely upon the guidance provided in the notice.

IRS Notice 2020-29 »
IRS Notice 2020-33 »

The DOL has added nine additional questions and answers (Questions 80-88) to their guidance related to leaves taken under the Families First Coronavirus Response Act (FFCRA). Among other things, the new guidance provides clarification on the following issues:

• To calculate the available paid sick leave hours for an employee who works irregular hours, the employer would determine the average number of hours the employee was scheduled to work each calendar day in the prior six-month period. To calculate the available expanded FMLA leave for an employee who works irregular hours, the employer would use the average number of hours the employee was scheduled to work each workday (not calendar day).
• When determining an employee’s rate of pay for FFCRA leave purposes, the employer would look at the employee’s average rate for the prior six month period. The employer would include only hours worked, not leave hours. Any period of zero hours worked would be disregarded for the purpose of calculating the employee’s regular rate of pay.
• An employer may not require an employee to use employer provided paid leave (such as vacation, personal time or PTO) concurrently with emergency paid sick leave under the FFCRA. However, an employer may require that an employee use any available accrued paid leave provided by the employer concurrently with expanded FMLA leave. The employee could receive 100% pay under this scenario, but the employer would only receive a tax credit for 2/3 of the employee’s normal wages up to $200 daily maximum.

As the DOL and IRS continue to update their FFCRA-related guidance, NFP’s Benefits Compliance Team will provide you with developments in future editions of Compliance Corner, webinars and the Insights from the Experts podcast.

DOL FFCRA Q&A »

On April 17, 2020, the IRS updated tax credit questions and answers regarding coronavirus (COVID-19) paid leave. Specifically, the agency added a question to address certain leave provided by employers of health care providers or emergency responders.

The Families First Coronavirus Response Act (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. Federal tax credits are available to fund the leave payments.

Employers of health care providers or emergency responders are permitted to exclude these employees from the paid sick leave and expanded family and medical leave requirements. The exclusions could be applied as to leave taken for certain qualifying reasons (e.g., to care for a family member under a quarantine or isolation order), but not other reasons (e.g., to care for employee’s own health upon experiencing symptoms of COVID-19 and seeking a medical diagnosis).

However, if an employer elects to allow a health care provider or emergency responder to take FFCRA paid leave for a specific COVID-19-related reason, it is subject to all other FFCRA requirements with respect to such leave. Accordingly, the new Question #67 clarifies that for a non-excluded employee and reason, the employer providing the paid leave for the health care provider or emergency responder is also entitled to the corresponding tax credit. The employer can claim the credit for the employee’s qualified sick leave wages, the employer’s share of Medicare tax on those wages, and any allocable qualified health plan expenses.

Employers of health care providers and/or emergency responders may find this additional guidance to be helpful.

COVID-19-related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs »

The IRS recently published Notice 2020-23, which extends the due date for some governmental filings as a result of the COVID-19 pandemic. As background, in March the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due. Notice 2020-23 expands this relief to additional returns, tax payments and other actions. As a result, the previously announced extensions generally now apply to all taxpayers who have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.

For Form 5500, this means that Form 5500 filings that would otherwise be due on or after April 1 and before July 15, 2020, are now due on July 15, 2020. This extension is automatic — plan sponsors do not need to file an extension request, form or other letter. This automatic extension to July 15, 2020, would apply to plan years that ended in September, October or November 2019. Normally, Form 5500 would be due for those plan years on April 30, June 1 (since May 31 is a Sunday) and June 30, 2020, respectively. An extension beyond July 15, 2020, would still be available, although the 2.5 month extension would be measured from the regular due date (not the July 15, 2020, due date).

The automatic extension also applies to Form 5500 deadlines that fall within the relief window due to a previously filed extension. For example, if a plan year ended June 30, 2019, and the employer timely filed a Form 5558 extension extending the due date to April 15, 2020 (from January 30, 2020), then the Form 5500 would be due on July 15, 2020.

Importantly, the extension does not apply for calendar year plans (which is the majority of plans). Thus, the deadline for 2019 Form 5500 filings for calendar year plans is July 31, 2020. Because that due date falls outside the special COVID-19-related extension, the July 31, 2020, filing date is not extended. Those plans may obtain a regular 2.5 month extension by timely filing Form 5558.

NFP Benefits Compliance will continue to monitor the situation in case other extensions are granted relating to COVID-19 or other circumstances.

IRS Notice 2020-23 »

On April 6, 2020, the DOL published the final rule regarding paid leave under the Families First Coronavirus Response Act (FFCRA). These temporary regulations provide guidance and implement the emergency family and medical leave (under Title 1 of the FMLA) and emergency paid sick leave provided by the FFCRA and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in light of the COVID-19 global pandemic. The final rule is in effect April 2, 2020, through December 31, 2020; however it became operational on April 1, 2020.

In the final rule, the DOL addresses many details around administering emergency paid sick leave (EPSL) and emergency FMLA (EFMLA) due to COVID-19 related reasons. Highlights include provisions:

• Reiterating the employer’s responsibility to maintain an employee’s group health coverage during EFMLA.
• Explaining how an employer determines if its employee count is 500 or more for purposes of being subject to the FFCRA. The regulations emphasize that independent contractors and employees who have been laid off or furloughed and have been reemployed are not included in the count. Note that for purposes of furloughed employees there is no federal definition of “furlough,” and state law may impact employee count.
• Emphasizing that reasons for EPSL must cause the employee to be unable to work in order to apply. Further, the DOL addresses whether a state’s shelter-in-place (or stay-at-home order) would allow an employee to take EPSL. The guidance explains that the first reason that entitles an employee to EPSL is if the employee is subject to a federal, state or local quarantine or isolation order related to COVID-19, and confirms that a shelter in place order constitutes a quarantine or isolation order. However, an employee who has been furloughed or experienced a reduction in hours because the employer has no work for that employee to perform is not eligible for paid sick leave.
• Providing guidance on the small employer exemption. The final rule explains that the exemption applies for small, private employers under 50 employees on a per-employee basis, only for an employee requesting EPSL or EFMLA due to the need to care for a child whose school (or place of care) is closed or whose child care provider is unavailable for reasons related to COVID-19. And, the requested leave must jeopardize the viability of the business. The regulations further explain the certain conditions that would constitute jeopardizing the business, such as:
  • The provision of paid sick leave or expanded family and medical leave would result in the small business’ expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity.
  • The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities.
  • There are not sufficient workers who are able, willing and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

The final rule also address related employer recordkeeping requirements to document the exemption. As explained, the employer must document the facts and circumstances that meet the criteria described in the regulations to justify such denial. The employer should not send such material or documentation to the DOL, but rather should retain such records for its own files. (Under the FFCRA, an employer is required to maintain such records for at least four years.)

• Providing guidance on documentation needed from the employee to qualify for EPSL and EFMLA. This includes the employee’s name; the date(s) for which leave is requested; the COVID-19-qualifying reason for leave; and a statement representing that the employee is unable to work or telework because of the COVID-19-qualifying reason. Further, there is additional documentation required depending on the reason for EPSL or EFMLA as outlined in the regulations. For example, for a leave request based on a quarantine order or self-quarantine advice, the employee statement should include the name of the governmental entity ordering quarantine (or the name of the health care professional advising self-quarantine, and, if the person subject to quarantine or advised to self-quarantine is not the employee, that person’s name and relation to the employee). Further, for a leave request based on a school closing (or child care provider unavailability), the employee statement should include the name and age of the child (or children) to be cared for, the name of the school that has closed or place of care that is unavailable, and a representation that no other person will be providing care for the child during the period for which the employee is receiving family medical leave. Notably, the regulations indicate that an employer may not require any such documentation to include documentation beyond what is allowed by the regulations.

The above highlights are not exhaustive; the final rule provides the formal regulatory basis for the FFCRA Q&A publication the DOL has previously issued. In addition, it should also be noted that on April 10, 2020, the DOL published a correction to the final rule. These revisions are primarily technical corrections (e.g., to correct spelling and to ensure a consistent style throughout the new regulations).

Employers subject to the FFCRA (i.e., private employers with fewer than 500 employees and public employers of all sizes) should follow the guidance in the final rule when providing emergency FMLA or emergency paid sick leave to employees.

See our previous Compliance Corner articles on the CARES Act (March 31) and the FFCRA (March 17) for additional information.

Final Rule: Paid Leave Under the Families First Coronavirus Response Act »
Final Rule Correction »

The DOL has published a series of questions and answers related to the FFCRA. The guidance was revised to reflect the clarifications provided in the final rules. Additionally, the DOL frequently revises the information and adds additional questions and answers as it deems necessary.

In the last two weeks, the DOL’s revisions to the Q&A include the following:

• Employees on paid FFCRA leave are entitled to be restored to the same or equivalent position upon return. However, employees are not protected from employment action, such as a layoff or furlough, which would have affected the employee if actively at work. There are certain exceptions for key employees and employers with fewer than 25 employees.
• The 12 weeks of expanded FMLA available to employees is reduced by the number of weeks of existing FMLA that an employee has previously used during the employer’s current 12-month determination period.
• An employee who is absent from work on emergency paid sick leave and not actively at work when their waiting period is satisfied will still have coverage effectuated. An employer cannot impose an actively-at-work provision against employees absent from work due to a health condition.
• Employers may exempt certain health care provider employees from taking advantage of the FFCRA paid leave. For this purpose, “health care provider” is defined as anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution, employer, or entity.
• A small employer with fewer than 50 employees is exempt from providing paid leave related to a child’s school closure or unavailability of a day care provider due to COVID-19 if providing leave to a specific employee would jeopardize the viability of the small business.
• Paid leave is generally not available to those who are absent from work and receiving benefits under workers’ compensation or temporary disability.
• Employers must maintain certain records regardless of whether the leave was approved or denied. This includes the name of the employee requesting leave, the dates of requested leave, the reason for leave, and an employee statement indicating that they cannot work due to the stated reason. Depending on the reason, the employer may also ask for the name of the health care provider or governmental entity issuing the order for isolation/quarantine. If the reason for leave is to care for a child whose school is closed or day care provider is unavailable, the employer may also request the name of the school/day care provider and an employee statement indicating that no other suitable person is available to care for the child.
• The DOL will not bring enforcement actions against any employer for violations occurring within 30 days before April 17, 2020, provided that the employer has made reasonable, good faith efforts to comply.

DOL FFCRA FAQs »

On April 11, 2020, the DOL, HHS and the Treasury issued joint guidance on the FFCRA and CARES Act. Specifically, the 14 frequently asked questions provide additional guidance for plans implementing the requirement to provide coverage of COVID-19 testing to participants with no cost sharing.

The guidance includes clarifications of the following:

• The requirement for health plans to provide benefits for COVID-19 testing applies to both individual and group health plans. This includes self-insured, fully insured, church, non-federal governmental, ERISA and grandfathered plans. It does not apply to short-term, limited duration, excepted benefit or retiree plans.
• Plans must provide the coverage of COVID-19 testing without participant cost sharing, effective for expenses incurred on or after March 18, 2020, and continued through the public health emergency related to COVID-19.
• Plans must provide coverage for all items and services provided to the insured during the visit that resulted in the COVID-19 testing. For example, if the health care provider also administered a flu or blood test to determine the necessity of the COVID-19 testing, the flu and blood test would also be covered with no cost sharing.
• In addition to the cost-sharing requirements, the coverage must also not be subject to prior authorization or medical management requirements.
• The departments will not take enforcement action against any plan that fails to comply with the 60-day advance notice requirement to revise and distribute an SBC to reflect modifications to coverage related to COVID-19 testing or treatment or telehealth services. This relief is only applicable to advance notice requirements. The plans must provide notice as soon as reasonably practicable. Plans are still expected to revise plan documents as necessary to reflect any changes to the plan design due to COVID-19.
• An EAP will not lose its status as an excepted benefit solely because it provides benefits for COVID-19 diagnosis and testing during the public health emergency.

DOL, HHS and the Treasury FFCRA and CARES Act FAQs »

On April 1, 2020, the IRS released questions and answers regarding the tax credits for coronavirus (COVID-19) paid leave. The guidance was designed to assist small and midsize employers in claiming tax credits for emergency paid sick and family leave wage payments to employees.

As background, the Families First Coronavirus Response Act (FFCRA) includes provisions requiring employers with fewer than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. The provisions are intended to enable employees affected by the pandemic to remain on the employer’s payroll. To offset the financial burden to covered employers, the FFCRA provides for federal tax credits to fund the leave payments.

The credits apply to qualified leave payments made between April 1, 2020, and December 31, 2020. “Per employee” daily and aggregate maximums apply, depending upon the reason for and type of leave.

Specifically, the guidance explains that covered employers are entitled to refundable tax credits for the FFCRA paid leave amounts (termed “qualified leave wages”) in addition to health plan expenses and the employer’s share of Medicare tax allocable to the qualified leave wages. To claim the credit for these amounts, employers are able to retain an equal amount of all federal employment taxes, rather than depositing this sum with the IRS. The federal employment taxes available for retention by employers include federal income taxes withheld from employees, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes with respect to all employees. If the federal employment taxes yet to be deposited are not sufficient to cover the full credit amount to which the employer is entitled, the employer will be able to file a Form 7200 to request an advance payment from the IRS.

Employers claiming the credits must retain records and documentation to support each employee’s leave and the corresponding credit amount. Additionally, the employer should retain copies of the applicable IRS filings, including Form 941, Employer's Quarterly Federal Tax Return, and as applicable, Form 7200, Advance of Employer Credits Due To COVID-19.

Employers may find these questions and answers valuable in determining the amount of the credit for the leave wages and allocable health plan expenses, as well as the process for claiming the credit. The guidance also addresses related special issues, including the taxation and deductibility aspects. These IRS questions and answers are accessible at the below link:

COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs »

On April 1, 2020, the IRS issued instructions for Form 7200, Advance Payment of Employer Credits Due to COVID-19, which is a new form that employers file in order to receive the refundable tax credits available under the FFCRA and the CARES Act.

As background, the FFCRA provides a tax credit that reimburses employers dollar-for-dollar for certain costs associated with providing employees with required paid sick leave and expanded family and medical leave related to COVID-19, from April 1, 2020, through December 31, 2020. The CARES Act provides a tax credit to refund employers 50 percent of wages paid to employees after March 12, 2020, and before January 1, 2021, while experiencing hardship due to COVID-19.

The IRS encourages employers to utilize the credits by retaining the amount of employment taxes equal to the amount of qualified sick and family leave wages (plus certain related health plan expenses and the employer’s share of the Medicare taxes on the qualified leave wages) and their employee retention credit, rather than depositing these amounts with the IRS. If that amount isn’t enough to cover the cost of qualified sick and family leave wages (plus the qualified health expenses and the employer share of Medicare tax on the qualified leave wages) and the employee retention credit, employers can file Form 7200 to request an advance payment from the IRS.

Employers can file the form for an advance payment of the credits anticipated for a quarter at any time before the end of the month following the quarter in which they paid the qualified wages. If necessary, they can file Form 7200 several times during each quarter. However, Form 7200 should not be filed after Form 941 for the fourth quarter of 2020 is filed, or filed after filing Form 943, 944, or CT-1 for 2020. In addition, the form should not be filed in order to request an advance payment for any anticipated credit for which the employer already reduced its deposits.

Employers should work with their accountant to determine if they are eligible to claim the credits and to file Forms 7200.

Form 7200 »

On March 27, 2020, Congress enacted and the president signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act is a comprehensive economic stimulus package, which (among many other things) includes loans to small businesses attempting to navigate the COVID-19 pandemic and an expansion of unemployment benefits available through states (backed by federal funding). The CARES Act also has several provisions relating to employee benefits, both on the health side and the retirement side, as well as a few miscellaneous provisions on fringe benefits (student loan repayment).

Health Plans: Telehealth
Expanding on the IRS’s prior notice stating that an HDHP can cover COVID-19-related tests and coverage absent cost-sharing without adversely affecting HSA eligibility, the CARES act permits (but does not require) HDHPs to waive deductibles for all telehealth or remote care services without adversely impacting HSA eligibility. This allows HDHPs to cover telehealth with no cost-sharing, whether or not the telehealth relates to COVID-19, without impacting the plan’s status as an HDHP and without impacting the HSA eligibility of those covered under the HDHP. The CARES Act does not mandate telehealth coverage (although laws in some states have been enacted recently to provide additional telehealth coverage, at least for fully insured plans in those states). This expansion on telehealth is temporary — applying to plan years beginning on or before December 31, 2021.

HSAs/HRAs/FSAs: Over-the-Counter Drugs and Menstrual Products
The CARES Act eliminates the ACA rule that employees/individuals cannot be reimbursed from their HSAs, HRAs and FSAs for over-the-counter (OTC) drugs unless the drug was accompanied by a prescription. Under the CARES Act, effective January 1, 2020, employees/individuals can reimburse themselves from those accounts for non-prescribed OTC drugs. Similarly, menstrual care products (defined to include tampons, pads, liners, cups, sponges or similar products) will be considered qualified medical expenses payable from those accounts.

Health Plans: Expansion of COVID-19 Tests Covered Under the FFCRA
The CARES Act amends the recently enacted Families First Coronavirus Response Act (FFCRA) by expanding the types of COVID-19 tests that group health plans/carriers must cover without cost sharing, prior authorization, and other medical management requirements. Specifically, the new tests that must be covered without such restrictions include tests for which the developer has requested “emergency use authorization” under the Federal Food, Drugs, and Cosmetics Act, and tests authorized and used by a state to diagnose patients.

Health Plans: Coverage of Qualifying COVID-19 Preventive Services and Vaccines
The CARES Act also directs the relevant agencies (HHS, DOL and Treasury) to require health plans/carriers to cover any COVID-19 preventive services without cost sharing. That would include vaccines and immunizations, or any other item or service, that are determined by the CDC or the U.S. Preventive Services Task Force to prevent or mitigate COVID-19. This is a preemptive move to ensure that any immunizations and vaccines that are developed will be covered by the group health plan without any participant cost sharing.

Health Plans: Transparency in COVID-19 Test Pricing
The CARES Act attempts to address transparency in pricing by generally requiring providers to publicize the prices of COVID-19 tests. Group health plans and carriers, which are required to pay for the tests under the Families First Coronavirus Response Act (FFCRA), are required to reimburse the provider in accordance with the negotiated rate that it had with the provider before the COVID-19 public health emergency. If there is no negotiated rate, then it will be the publicized cash price. This relates more to the carrier and the provider, but employers may be interested in understanding the pricing of the COVID-19 tests, and how that will be handled.

Fringe Benefits: Student Loan Repayment
The CARES Act adds “eligible student loan repayments” to the list of items that can be reimbursed under an educational assistance program under IRC Section 127. “Eligible student loan repayments” are payments made by the employer, whether paid to the employee or a lender, of principle or interest on any qualified higher education loan (including undergraduate and graduate school) for the education of the employee (but not of a spouse, domestic partner or other dependent).

Student loan repayments are limited to $5,250 (and are combined with other educational assistance provided under the Section 127 program sponsored by the employer — an employer cannot provide student loan repayment and other educational assistance in a combined amount over $5,250). Prior to the CARES Act, Section 127 applied only to educational assistance programs (current employee education, not student loans previously incurred). Also, employees may not double dip on tax benefits — an employee may not deduct student loan repayment amounts that are reimbursed or paid by the employer. This provision is temporary, as it’s effective for payments made after March 27, 2020, and before January 1, 2021. Employers interested in this provision will need to adopt or amend a Section 127 plan document.

Retirement Plans: Increased Hardship Distributions Available
The CARES Act allows “qualified individuals” to take hardship distributions of up to $100,000 from their retirement plan or IRA, without being assessed the 10% early withdrawal penalty tax. They can also pay the tax on this income over a three-year period. For these purposes, plan participants are “qualified individuals” if they:

• Are diagnosed with COVID-19
• Have a spouse or dependent diagnosed with COVID-19
• Experience adverse financial consequences of COVID-19, or
• Are faced other factors as determined by the Secretary of the Treasury

Retirement Plans: Plan Loan Changes
The CARES Act increases the amount that “qualified individuals” may request in plan loans to twice the amount of what is normally allowed, meaning participants can request loans for the lesser of $100,000 or 100% of their vested balance in the plan. (Here, qualified individuals has the same meaning as was described for hardship distributions.) Additionally, participants who currently have loans with repayments due between March 27, 2020, and December 31, 2020, may delay their repayment for up to a year without defaulting.

Retirement Plans: Required Minimum Distributions Temporarily Waived
The CARES Act waives the required minimum distribution (RMD) rules for the 2020 calendar year. As background, individuals must generally begin to take RMDs from their defined contribution plan or IRA when they turn 72. This provision allows participants to keep funds in their retirement account.

Retirement Plans: Plan Administration Changes
The CARES Act allows plan sponsors to adopt these changes immediately, as long as they amend the plan on or before the last day of the first plan year beginning on or after January 1, 2022. The Act also allows the DOL to potentially postpone certain deadlines under ERISA. This could allow the DOL to postpone certain obligations such as the annual Form 5500 filing requirement.

Small Business Loans and Health Insurance Premiums
NOTE: A full analysis of small business loans is beyond our scope; but employers may be interested in understanding how health insurance premiums might be addressed through small business loans.

The CARES Act includes a small business loan program (with loan forgiveness under certain circumstances) which specifically allows employers to use loan amounts for payroll support, including employee salaries (up to $100,000); paid sick or medical leave; insurance premiums; and mortgage, rent and utility payments. Although qualifications, loan forgiveness, and other details of the loan program are beyond the benefits compliance scope, employers may be interested (and should consult outside counsel) in better understanding the loan provisions, as loans could be a source for health insurance-related premium payments during a furlough.

Unemployment Expansion: Potential Impact on Furloughed Employees
NOTE: A full analysis of unemployment benefits is beyond our scope; but employers may be interested in understanding how a furlough may impact employees with respect to unemployment benefits.

The CARES Act creates a temporary Pandemic Unemployment Assistance program (through December 31, 2020), which is intended to provide unemployment benefits to those that have not traditionally been eligible (including furloughed employees). The Act expands benefits from 26 weeks (in most states) to 39 weeks, increases the state benefit level by $600 for up to four months, and waives the usual one-week waiting period for unemployment benefits.

Individuals are not eligible for these expanded benefits if they have the ability to telework with pay or are receiving paid sick leave (including that provided under the recently enacted FFCRA) or other paid leave benefits (under a state law or through the employer’s PTO/leave policy). An individual can qualify for the expanded benefits if they are unemployed or partially unemployed and if one or more of the following is true:

• They or a member of their household has been diagnosed with COVID-19
• They are providing care for a family or household member with a COVID-19 diagnosis
• They are the primary caregiver for a child or other household member who is unable to attend school or daycare as a direct result of COVID-19
• They are unable to reach their place of employment because of a COVID-19 related quarantine
• They are unable to work because a health care provider has advised them to self-quarantine due to COVID-19 concerns
• They have become the major support for a household because the head of household has died as a direct result of COVID-19
• They had to quit their job or their employer has closed as a direct result of COVID-19

The CARES Act provides flexibility for plan sponsors to assist their employees during this pandemic. We will continue to monitor any developments in the law, including agency guidance. Employers should consult with their advisor about any changes that they wish to make to their plan as a result of the law.

CARES Act »

On Wednesday, March 18, 2020, the president signed HR 6201, the Families First Coronavirus Response Act (FFCRA), into law. The law contains several different provisions (also called Acts) that significantly impact employer benefits and leave policies.

In short, the FFCRA: 1) Extends and expands FMLA protections in certain situations; 2) provides a new paid sick leave entitlement for work absences related to the coronavirus (COVID-19); 3) provides tax credits for employers to help address related employer costs of these benefits; and 4) requires group health plans to cover COVID-19 related tests, services and other items without cost sharing. Generally, the first three provisions apply to employers with fewer than 500 employees. They take effect April 1, 2020, and will be in effect through 2020. The fourth applies to any group health plan, takes effect immediately, and will expire when HHS determines that the public health emergency has expired. Importantly, the paid sick leave and expansions to FMLA do not apply to employers with 500 or more employees.

Since the FFCRA passed, the DOL and IRS have provided additional guidance to clarify and answer questions about the Act. Below is a discussion of the FFCRA provisions and the subsequent guidance provided by the federal government.

 

The Emergency Family and Medical Leave Expansion Act:

This provision modifies the FMLA by expanding the circumstances under which an employee is entitled to take leave. Specifically, employees can take FMLA-protected leave if they have a “qualifying need,” which means the employee is unable to work or telework due to a need to care for their child (under age 18) if the child’s school or daycare has closed because of a public health emergency (defined as a COVID-19 emergency declared by a federal, state or local authority).

The first 10 days of this expanded FMLA leave is unpaid, although the employee may utilize accrued vacation, PTO or sick leave during that time (in accordance with the employer’s leave policy). During the first 10 days, the employee may also qualify for paid leave under the Emergency Paid Sick Leave Act (discussed below), in certain circumstances. For each day of FMLA leave taken thereafter, employers are obligated to pay employees at the rate of two-thirds of the employee’s regular pay rate. The amount of paid leave is capped at $200 per day and $10,000 in the aggregate.

Importantly, all employers with fewer than 500 employees must comply with the expanded leave entitlements (a change to the 50-employee threshold that currently applies under FMLA). That said, the law gives the DOL authority to exempt employers with fewer than 50 employees if the paid FMLA provisions would jeopardize the viability of the business.

To help with the expanded FMLA-related tax burden, employers may claim a tax credit of 100% of qualified FMLA wages paid to employees, capped at $200 per day and $10,000 per quarter per employee.

 

Emergency Paid Sick Leave Act: 

This provision applies to employers with fewer than 500 employees and requires employers to provide up to 80 hours of paid sick time to individuals who are:

• Diagnosed with COVID-19, self-isolating or obtaining a diagnosis/care for COVID-19 symptoms
• Under quarantine to comply with an official order or recommendation because of COVID-19 exposure or symptoms
• Providing care to a COVID-19-diagnosed individual or an individual seeking a diagnosis or care for symptoms of COVID-19
• Caring for an individual affected by a school or other care facility closing
• Experiencing similar conditions specified by HHS (in consultation with the DOL and Treasury)

This provision applies to all employees (regardless of how long they’ve been employed). Full-time employees may use up to 80 hours of sick time, while part-time employees may use proportionally less time, based on the average number of hours the employee works over a two-week period. An employee may not carry this sick time over into the next year, nor is an employee entitled to payment of unused sick time upon separation from employment. Emergency paid sick leave does not diminish the rights and benefits to which an employee is entitled under state or local law (such as a state sick leave or paid family and medical leave law), a collective bargaining agreement, or an existing employer leave policy.

During sick leave relating to an employee’s own condition, employers are obligated to pay employees the higher of their regular rate of pay or the applicable minimum wage. That amount is capped at $511 per day and $5,110 in the aggregate. For sick leave taken to care for a family member, the rate of pay is reduced to two-thirds of the employee’s regular rate of pay. That amount is capped at $200 per day and $2,000 in the aggregate.

To help employers shoulder the financial burden, employers can claim a tax credit equal to 100% of qualified sick leave wages paid to employees. These credits, however, are limited to $200 or $511 per day, depending on the qualifying leave event. Employers can claim a full credit for employees earning up to $132,860 in income and a partial credit for higher earners.

Employers must post a notice relating to the Emergency Paid Sick Leave Act in their workplace.

 

Mandated COVID-19 Coverage for Employer-Sponsored Group Health Plans:

Under this provision, group health plans of any size (insured and self-insured, including grandfathered plans) and health insurers in the group and individual market are required to cover COVID-19 tests and related services without cost sharing or prior authorization requirements. Excepted benefits and retiree-only plans are exempt. (Separately, most states have published guidance that requires COVID-19 coverage without cost sharing as well, which would apply to fully insured plans in each state.) Employers should work with their carriers and plan administrators to ensure COVID-19 coverage is provided.

The tests and services include in vitro diagnostic tests (cleared by the FDA) and items and services furnished during an in-office visit, urgent care visit or emergency room visit that result in an order for an in vitro diagnostic test. Thus, an individual visiting an ER who is given several lab tests, an MRI and a chest x-ray may be swept into this “no cost” requirement as there is no qualifier that the other items and services relate to the relevant evaluation.

 

Additional Guidance Provided by the DOL and IRS:

• On March 20, 2020, the IRS released a News Release summarizing the key takeaways of the FFCRA. This release did not provide any new information; it simply announced and described the provisions of the FFCRA.

• On March 24, 2020, the DOL published a set of Questions and Answers on the FFCRA. The document has been modified a few times since the original post, but it currently provides answers to almost 60 questions concerning the FFCRA. Some of the more clarifying answers address the following concepts:
  • Question 1 confirms that the FFCRA’s paid sick leave and emergency FMLA provisions are effective on April 1, 2020, providing leave between April 1, 2020, and December 31, 2020.
  • Question 2 clarifies how employers should determine whether they are under the 500-employee threshold.
  • Questions 4, 58, and 59 address the small business exemption to the Act, in an effort to help employers determine if the exemption is one they can avail themselves of.
  • Questions 6-8 instruct employers on how they will calculate the pay due under the FFCRA’s provisions.
  • Questions 15-16 discuss the records and documents that employers and employees can use to document the need for and provision of leave.
  • Questions 20-22 specify whether an employee may take expanded FML and/or paid sick leave intermittently.
  • Questions 23-28 make it clear that employees that are furloughed, laid off or who don’t have work because of the business closing or shutting down are not eligible for expanded FML or paid sick leave.
  • Questions 31-34 discuss how the leave provided under the FFCRA would interact with the employer’s paid leave policy.
  • Questions 35-37 provide guidance on how an employer can meet their obligations under the FFCRA if they have employees that are subject to a multiemployer collective bargaining agreement.
  • Question 40 clarifies that a “son or daughter” whom an employee may have to use expanded FML or paid sick leave to care for can include a biological, adopted, foster or step child; a legal ward; or a child for whom the employee is standing in loco parentis.
  • Questions 44 and 45 indicate that the additional time provided through the expanded FMLA provision does not entitle the employee to more than 12 weeks of FMLA in the 12 month period chosen by their employer.
  • Questions 48 and 49 define the terms “full-time” and “part-time,” making it clear that full-time employees are those who work 40 hours per week and part-time employees are those who work less than 40 hours per week.
  • Questions 52-54 discuss the applicability of the law as it pertains to public sector employers and employees.
  • Questions 56 and 57 define “health care provider” and “emergency responder” to make it clear who may be excluded from the expanded FMLA and/or paid sick leave.
• On March 24, 2020, the DOL Wage and Hour Division published a fact sheet, summarizing the paid sick leave and expanded FMLA provisions of the FFCRA. The fact sheet does not provide new information; it just describes the FFCRA in laymen’s terms.

• On March 24, 2020, the DOL issued Field Assistance Bulletin 2020-1, announcing a temporary non-enforcement period applicable to the FFCRA. Specifically, the DOL will not bring any enforcement actions against an employer for violating the FFCRA within 30 days of its enactment as long as the employer makes a reasonable, good faith effort to comply.

• On March 25, 2020, the DOL provided a model FFCRA notice and a set of frequently asked questions concerning the requirement to post and distribute the notice. The FAQS describe how and to whom employers should distribute the notice. The notice must be posted by April 1, 2020.

• On March 27, 2020, the IRS released Notice 2020-21. This notice indicates that the tax credits for employers that provide paid sick leave or expanded FMLA leave will only be allowed for the period beginning on April 1, 2020, and ending on December 31, 2020. It also confirms that employers that are not subject to the FFCRA (because they have 500 or more employees) will not be able to receive the credits.

As these issues are rapidly developing, NFP Benefits Compliance will continue to monitor developments on this new legislation, including any additional guidance issued by the DOL or other regulatory agency. In the meantime, please reach out to your NFP advisor with any questions.

FFCRA »
News Release »
FFCRA Q&A »
Field Assistance Bulletin 2020-1  »
Model Notice »
Frequently asked questions  »

On March 25, 2020, the IRS released a set of questions and answers on the recently-extended federal income tax filing and payment deadline. The release was designed to assist taxpayers and tax professionals in understanding the scope and impact of the extension.

As background, in Notice 2020-18, the IRS announced special federal income tax return filing and payment relief in response to the ongoing coronavirus (COVID-19) emergency. This relief extended the federal income tax filing deadline from April 15, 2020, to July 15, 2020.

The new guidance explains that any type of taxpayer, such as an individual, a trust, an estate, a corporation, or any type of unincorporated business entity, with a return or payment due on April 15, 2020, is eligible for the relief. (The taxpayer does not need to have been impacted by COVID-19 in any particular way.) Additionally, the relief extends to both 2019 federal income tax payments (including payments of tax on self-employment income) and 2020 estimated federal income tax payments due on April 15, 2020. However, normal filing, payment, and deposit due dates continue to apply to both payroll and excise taxes.

As a result of the extended filing deadline, taxpayers now also have until July 15, 2020, to make 2019 contributions to their HSAs and IRAs. Employers with April 15, 2020, filing deadlines may also have additional time to make 2019 contributions to certain workplace retirement plans.

Employers may find these questions and answers helpful in understanding the details and effects of the available tax relief. The IRS has indicated the material will be updated periodically in this changing environment. These questions and answers are accessible at the below link:

Filing and Payment Deadlines Questions and Answers »

On March 18, 2020, CMS provided a set of FAQs that discusses the coverage of COVID-19 treatment in catastrophic plans. As background, insurers are generally not permitted to modify the health insurance coverage for a product midyear.

The FAQs address two questions:

• Question and Answer 1 confirms that catastrophic plans must cover essential health benefits (EHB), such as the diagnosis and treatment of COVID-19. However, this coverage is subject to certain limitations, and can vary by plan. A catastrophic plan may not provide coverage of EHB before an enrollee meets their catastrophic plan deductible for that applicable plan year, except as follows: 1) a catastrophic plan must provide coverage for at least three primary care visits per year before reaching the deductible, and 2) in accordance with section 2713 of the Public Health Service Act (PHS Act), a catastrophic plan may not impose any cost-sharing requirements (such as a copayment, coinsurance or deductible) for preventive services.
• Question and Answer 2 confirms that HHS will not take enforcement action against any health insurance issuer that amends its catastrophic plans to provide pre-deductible coverage for services associated with the diagnosis and/or treatment of COVID-19, and encourages states to follow suit.

Employers should consider this guidance as they provide coverage to participants who may be diagnosed with and treated for COVID-19.

FAQs on Catastrophic Plan Coverage and COVID-19 »

Effective March 15, 2020, HHS Secretary Azar issued a waiver of sanctions and penalties against certain entities that do not comply with the following provisions of the HIPAA Privacy Rule:

1. The requirements to obtain a patient's agreement to speak with family members or friends involved in the patient’s care
2. The requirement to honor a request to opt out of the facility directory
3. The requirement to distribute a notice of privacy practices
4. The patient's right to request privacy restrictions
5. The patient's right to request confidential communications

The waiver only applies: 1) in the emergency area identified in the recent presidential public health emergency declaration regarding the COVID-19 outbreak; 2) to hospitals that have instituted a disaster protocol as a result of that declaration; and 3) for up to 72 hours from the time the hospital implements its disaster protocol.

The bulletin also reminds providers that even without a waiver, the HIPAA Privacy Rule already allows patient information to be shared for several reasons, including: when necessary for the treatment of the patient or another patient; when necessary for public health authorities to carry out their public health mission; to the extent necessary to prevent or lessen a serious and imminent threat; and to a patient’s family, friends, and others as identified by the patient as being involved in the patient’s care. However, the bulletin warns that affirmative reporting to the media or the public about an identifiable patient, or about specific information about the treatment of an identifiable patient, may not be done without the written authorization of the patient or the patient’s personal representative.

The HIPAA Privacy Rule applies to disclosures made by employees, volunteers and other members of a covered entity’s or business associate’s workforce. However, employers should consider this guidance as they provide coverage to participants who may be diagnosed with and treated for COVID-19.

Bulletin Concerning HIPAA Enforcement and COVID-19 »

EBSA released a report of its efforts and CMS’ efforts to enforce the MHPAEA during fiscal year 2019. During that year, EBSA investigated and closed 186 health plan investigations, 183 of which involved plans subject to MHPAEA that were reviewed for compliance with the law. These investigations resulted in 12 citations for MHPAEA violations in 9 of those investigations.

As background, MHPAEA requires plans that provide coverage for mental health and substance use disorders to provide them in parity with medical/surgical benefits. The cost sharing and treatment limitations imposed on the mental health and substance use disorders coverage cannot be higher or more restrictive than the limitations imposed on the medical/surgical benefits.

Cases may stem from complaints submitted by participants who believe their mental health or substance use disorder benefits were denied. The agency’s benefits advisors may refer these complaints to investigators where the facts suggest that the problems are systemic and may adversely impact other participants and beneficiaries. In the report, EBSA stated that it investigated alleged violations of annual dollar limits, aggregate lifetime dollar limits, benefit classifications, financial requirements, treatment limitations and cumulative financial requirements. Generally, if violations are found by an EBSA investigator, the investigator requires the plan to remove any noncompliant plan provisions and pay any improperly denied benefits.

Employers should be aware of the EBSA’s efforts to make sure that benefit plans comply with the MHPAEA.

EBSA FY 2019 MHPAEA Enforcement Report »

On March 11, 2020, the IRS issued Notice 2020-15, which makes it clear that until further guidance is issued HDHP participants who receive COVID-19 testing or treatment without cost sharing will not lose HSA eligibility.

As background, HDHP participants are ineligible for HSA contributions if they receive first-dollar coverage for any health care that is not a preventive service. The agency recognizes that, under the circumstances, this prohibition could create administrative delays or financial disincentives to offer COVID-19 testing or treatment to HDHP participants.

To avoid those barriers, the IRS’ Notice has the effect of declaring that COVID-19 testing and treatment will not, alone, cause participants to be deemed HSA-ineligible. The notice also confirmed that any COVID-19 vaccination that is formulated will be considered preventive care like other vaccinations. Because of this guidance, employers and group health plans can proceed in offering these benefits to employees without being concerned about the HSA-eligibility of their participants.

Note that this guidance does not modify any other previous guidance regarding HDHP requirements.

Notice 2020-15  »

On March 9, 2020, the DOL issued guidance on the application of the FMLA during a public health emergency. The release was in the form of questions and answers designed to assist employers with preparing workplaces for the coronavirus crisis.

As background, the FMLA requires covered employers to provide job-protected unpaid leave to employees for specified family and medical reasons. Under the FMLA, employees are entitled to the continuation of group health insurance coverage under the same terms as existed prior to the leave.

The guidance explains that an employee who is sick or whose family members are sick may be entitled to FMLA leave under certain circumstances. Such circumstances may include a viral illness, where complications arise that create a serious health condition. However, FMLA leave does not apply to employees who stay home from work to avoid exposure to a virus or to care for healthy children who have been dismissed from school as a preventive measure.

The release further emphasizes the importance of developing a plan of action for the workplace in the event of a pandemic outbreak, and communicating the plan to employees. Such plan may permit employees showing symptoms of pandemic disease to be sent home, or require certifications that inflicted employees are able to resume work. Any such policy would need to comply with applicable non-discrimination laws. Although paid leave is generally not required by the FMLA or other federal laws, an employer would need to take state and local laws and other obligations (e.g., employment contracts) into account.

Employers may find these questions and answers helpful in addressing various workplace situations and contingencies resulting from the coronavirus pandemic. The complete release is accessible at the below link:

COVID-19 and Other Pandemics and the FMLA »

In February 2020, the IRS released an updated version of Publication 5137, Fringe Benefit Guide. This publication was created by the IRS to help determine the correct tax treatment of employee fringe benefits, including using the appropriate withholding and reporting procedures.

As background, in late 2019 the IRS released the 2020 IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits (see our January 22, 2020 Compliance Corner article). Publication 15-B provides an overview of the taxation and exclusion rules applicable to employee benefits such as accident and health benefits, dependent care assistance, HSAs and group term life insurance coverage. (The guide also includes the related valuation, withholding and reporting rules.)

The updated Publication 5137 Fringe Benefit Guide incorporates any changes from the most recent Publication 15-B (as described in our prior Compliance Corner article). Importantly, it is an additional tool for employers and covers topics such as:

• How to determine whether specific types of benefits or compensation are taxable
• Procedures for computing the taxable value of fringe benefits
• Rules for withholding federal income, Social Security and Medicare taxes from taxable fringe benefits
• Reporting of the taxable value of fringe benefits on Forms W-2, Wage and Tax Statement, and 1099-MISC, Miscellaneous Income
• How to contact the IRS with questions on taxation and reporting requirements

Employers should be aware of the availability of the updated publication for guidance when administering fringe benefits.

IRS Fringe Benefit Guide »
IRS Publication 15-B »

On February 18, 2020, CMS issued proposed regulations that clarify how and when the agency will calculate and impose civil monetary penalties upon responsible reporting entities (RREs) that fail to report information concerning participants in group health plans who are also entitled to Medicare. RREs are usually insurers or TPAs, and CMS uses this data in order to determine when a group health plan must pay claims before Medicare is required to pay.

The proposed regulations describe what violations will be subject to civil monetary penalties and how CMS will calculate them. Under statute, the penalty for noncompliance with this reporting requirement is $1,000 per day, as adjusted annually. Violations subject to the penalties include the failure to report, inaccurate reporting, and the submission of poor quality data. The proposed regulations would have CMS assess this penalty for every RRE that fails to report required information within one year of the effective coverage date. RREs that report timely, but inaccurate reports will be assessed the penalty for every day the RRE fails to correct the errors. Penalties for these violations will be capped at $365,000. Data that exceeds an error tolerance threshold of 20% will face penalties that will be assessed depending upon the type of reporting entity.

The deadline for submitting comments is April 20, 2020. Although these proposed regulations will not directly affect most employers, employers may be asked to help insurers and TPAs gather the information needed to complete required reporting. Any sponsor of a self-funded, self-administered plan would also need to complete this reporting. Accordingly, employers should be aware of these proposed rules and the potential penalties for failing to report.

Proposed Rules »
CMS Fact Sheet »

On February 6, 2020, HHS issued the proposed annual Notice of Benefit and Payment Parameters Rule for 2021. This Notice is issued annually, and once final adopts certain changes for the next plan year. While the proposed rule primarily impacts the individual market and the Exchange, it also addresses certain ACA provisions and related topics that impact employer-sponsored group health plans. Highlights include:

• Annual Cost-Sharing Limits. As background, the ACA requires non-grandfathered group health plans to comply with an out-of-pocket maximum on expenses for essential health benefits. This maximum annual limitation on cost-sharing for 2021 is proposed to be $8,550 for self-only coverage and $17,100 for family coverage (an increase from $8,150 and $16,300 for self-only/family coverage respectively in 2020).
• Drug Manufacturer Coupons. Stakeholders have broadly responded with confusion on how to treat drug manufacturer coupons in relation to the annual limit on cost-sharing. HHS proposes it will permit – but not require – plans and insurers to count direct support offered by drug manufacturers to enrollees for specific prescription drugs toward the annual limit on cost-sharing. Further, HHS proposes to interpret the definition of cost-sharing to exclude expenditures covered by drug manufacturer coupons.
• Excepted Benefit HRAs. HHS proposes to require that excepted benefit HRAs (EBHRAs) offered by non-federal governmental plan sponsors provide a notice to participants. This proposed notice requirement is in response to comments on recent HRA rulemaking that individuals should receive clear information about their HRAs. The content of the notice would generally be consistent with the content of SPDs required by ERISA and include information such as the conditions of eligibility to receive benefits under the HRA, a description of annual or lifetime limits on benefits under the HRA, and a summary of the benefits.

Once final, employers should review the regulations and implement any changes needed for their 2021 plan year.

Proposed Rule »
Fact Sheet »

On January 21, 2020, the IRS released the updated version of Publication 502 (Medical and Dental Expenses). The publication has been updated for use in preparing taxpayers’ 2019 federal income tax returns.

Publication 502 describes which medical expenses are deductible on taxpayers’ federal income tax returns. For employers, Publication 502 provides valuable guidance on which expenses might qualify as IRC Section 213(d) medical expenses, which is helpful in identifying expenses that may be reimbursed or paid by a health FSA, HRA (or other employer-sponsored group health plan), or an HSA. However, employers should understand that Publication 502 does not include all of the rules for reimbursing expenses under those plans.

The recently released Publication 502 is substantially similar to prior versions. Dollar amounts have been updated where appropriate to account for inflation (e.g. the standard mileage rate for use of an automobile to obtain medical care).

Publication 502 »

The IRS recently released an information letter that reiterates the election change rules under Section 125 of the IRC, which applies if employees are allowed to pay premiums on a pre-tax basis. The IRS letter responds to an inquiry concerning a DCAP participant who wanted to make an election change due to “a disrupted or unforeseeable childcare environment” that occurred outside of the plan’s open enrollment. Although the letter doesn’t go into any greater detail on the inquiry, the IRS does reiterate the Section 125 rules.

Specifically, they confirm that election changes must be made before the start of the plan year, and participants may not change their election mid-year unless they experience a qualifying event. Additionally, the letter explains that the plan may allow employees to change their election mid-year if the participant experiences a significant change in coverage or a significant increase or decrease in the cost of coverage. However, the plan is not required to do so, and the plan must be operated in accordance with plan terms.

This letter does not provide any new or updated information, but it does serve as a good reminder to employers that they must follow Section 125’s qualifying event rules. They may choose whether to recognize the IRS’ permissible qualifying events, but it’s important that the events they recognize be reflected in the plan document and that the employer not allow for employees to make mid-year changes without experiencing one of the plan’s permissible events.

IRS Information Letter »

On December 26, 2019, the IRS released the 2020 IRS 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.

As background, 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 2019 should continue to use Form 1099-MISC, which is due January 31, 2020.

The business mileage rate for 2020 is 57.5 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 2020 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 2020, 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.

Publication 15-B »

On January 15, 2020, the DOL published a final rule adjusting civil monetary penalties under ERISA. As background, the annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer-price index-urban (CPI-U) from October of the preceding year. The DOL last adjusted certain penalties under ERISA in January of 2019.

Highlights of the penalties that may be levied against sponsors of ERISA-covered plans include:

• Failure to file Form 5500 maximum penalty increases from $2,194 to $2,233 per day that the filing is late
• Failure to furnish information requested by the DOL penalty increases from $156 to $159 maximum per day
• Penalties for a failure to comply with GINA and a failure to provide CHIP notices increases from $117 to $119 maximum per day
• Failure to furnish SBCs penalty increases from $1,156 to $1,176 maximum per failure
• Failure to file Form M-1 (for MEWAs) penalty increases from $1,597 to $1,625 per day

These adjusted amounts are effective for penalties assessed after January 15, 2020, 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.

Final Rule »

On December 31, 2019, the IRS issued Notice 2020-05, which provides the 2020 standard mileage rate for use of an automobile to obtain medical care. The 2020 mileage rate is 17 cents per mile (a 3 cent decrease from the 2019 rate). Mileage costs may be deductible under Code §213 if the mileage is primarily for, and essential to, receiving medical care.

Generally, use of the standard mileage rate is optional, but it can be used instead of calculating variable expenses (e.g., gas and oil) incurred when a car is used to attain medical care. Parking fees and tolls related to use of an automobile for medical expense purposes may be deductible as separate items. However, fixed costs (such as depreciation, lease payments, insurance, and license and registration fees) are not deductible for these purposes and are not reflected in the standard mileage rate for medical care expenses.

In addition, transportation costs that are qualified medical expenses under Code § 213 generally can be reimbursed on a tax-free basis by a health FSA, HRA, or HSA, assuming the plan document allows for it.

Notice 2020-05 »
IRS News Release »

On January 3, 2020, the HHS extended the comment period for the proposed “Transparency in Coverage” rule that was published on November 27, 2019. The comment period was originally scheduled to close on January 14, 2020. Due to considerable interest and stakeholder requests for additional time, the comment period will remain open an additional 15 days to January 29, 2020. 

As background, the proposed rule imposes new cost-sharing disclosure requirements upon employer sponsored group health plans, including self-insured plans, and health insurance issuers. Further details regarding the proposed rule can be found in the November 26, 2019 edition of Compliance Corner.

Comments are sought on all facets of the proposed rule, including technological aspects. Opinions are also requested as to whether health care provider quality information should be included in the disclosure requirements. Comments can be submitted to HHS electronically, or by regular or express/overnight mail in accordance with the specified instructions. All submissions are made available to the public in their entirety. 

Employers should be aware of the proposed rule and comment period extension. Those wishing to submit comments to HHS can do so through January 29, 2020. The submission should not include any personally identifiable information or confidential business information that the employer does not want publicly disclosed.

Please check in with Compliance Corner for further updates on this cost transparency initiative.

Extension of Comment Period »