The Latest Developments in Health and Welfare Plans Larry Grudzien

Transcription

1 The Latest Developments in Health and Welfare Plans Larry Grudzien Attorney at Law

2 AGENDA IRS Updates Guidance on Employer Shared Responsibility, Including 2018 Penalty Amounts Proposed Regulations Would Expand Availability of Short-Term, Limited-Duration Insurance IRS Revises Some 2018 Benefit Limits Due to Tax Cuts and Jobs Act and then revises it again IRS Clarifies That Male Sterilization and Male Contraceptives Are Not Preventive Care for HDHP Purposes, Provides Transition Relief HHS Finalizes 2019 Benefit and Payment Parameters and Extends Transition Policy Allowing Certain Noncompliant Policies Agencies Issue More Mental Health Parity Guidance, Including Additional FAQs and a New Disclosure Form IRS Announces 2019 HSA Contribution Limits, HDHP Minimum Deductibles, and HDHP Out-of-Pocket Maximums IRS Announces ACA Indexing Adjustments for Affordability and Premium Tax Credit Determinations for 2019 Employer Tax Credit for Paid Family Medical Leave DOL Releases Final Rules for Association Health Plans

3 IRS Updates Guidance on Employer Shared Responsibility, Including 2018 Penalty Amount

4 IRS Updates Guidance on Employer Shared Responsibility, Including 2018 Penalty Amount IRS UPDATES The IRS has updated guidance relating to Code 4980H employer shared responsibility for applicable large employers (ALEs). Here are highlights: 2018 Adjusted Penalty Amounts the IRS has announced the adjusted penalty amounts per full-time employee for Code 4980H failures occurring in the 2018 calendar year $2,320 under Code 4980H(a) and $3,480 under Code 4980H(b) Adjustment to Affordability Standard the 2018 indexing adjustment has been updated for the required contribution percentage used to determine whether employer-sponsored health coverage is affordable for purposes of employer shared responsibility (see our article) the affordability threshold for 2018 is 9.56% Expired Transition Relief no transition relief will be available for 2017 and future years transition relief that was available for the 2015 plan year (including months falling in 2016 for non-calendar-year plans) has now expired

5 Proposed Regulations Would Expand Availability of Short-Term, Limited-Duration Insurance

6 IRS UPDATES Proposed Regulations Would Expand Availability of Short- Term, Limited-Duration Insurance The DOL, HHS, and IRS have jointly issued proposed regulations that would expand the availability of short-term, limited-duration health insurance The agencies are proposing to amend the definition of short-term, limited-duration insurance so that an insurer may offer any coverage period of less than 12 months, including any extensions that may be elected by the policyholder This extension would restore the previously applicable maximum coverage period reversing the October 2016 final regulations that reduced the maximum coverage duration to any period of less than three months, including any possible extensions

7 IRS UPDATES Proposed Regulations Would Expand Availability of Short-Term, Limited- Duration Insurance Required notice that must appear in enrollment materials for short-term, limited-duration insurance have been revised to require the use of one of two versions depending on whether the coverage start date is before January 1, Both versions of the notice are intended to warn consumers that short-term, limited-duration policies are not required to comply with certain federal health insurance mandates, principally those contained in the ACA.

8 IRS Adjusts Some Benefit Limits for 2018

9 IRS Revises Some Benefit Limits for 2018 IRS released Revenue Procedure which modifies and supersedes certain sections of Revenue Procedure and supersedes Revenue Procedure to reflect by new tax law (pub. L no enacted December 22, HSA: As a result, only the HSA family contribution limit has been affected for The limit has been decreased from $6,900 to $6,850. All the other contribution limits, HDHP limits and out-of-pocket limits remain the same for Adoption Assistance: The amount for the adoption credit or the amount excluded for adoption assistance allowed for an adoption of a child with special needs has been decreased from $13,840 to $13,810. Employee Health Insurance Expense of Small Employers: The dollar amount for employee health Insurance expense of small employers has been decreased from $26,700 to $26,600. This used for the tax credit.

10 IRS Revises Some Benefit Limits for In Revenue Procedure , the treasury department and the IRS have determined that it is in the best interest of sound and efficient tax administration to allow taxpayers to treat the $6,900 annual limitation originally published in Rev. Proc as the 2018 inflation adjusted limitation on HSA contributions for eligible individuals with family coverage under an HDHP An individual who receives a distribution from an HSA of an excess contribution (with earnings) based on the $6,850 deduction limit published in Rev. Proc may repay the distribution to the HSA and treat the distribution as the result of a mistake of fact due to reasonable cause under Q&A-37 of Notice , C.B. 196

11 Male Sterilization and Male Contraceptives Are Not Preventive Care for HDHP Purposes, Provides Transition Relief

12 Male Sterilization and Male Contraceptives Are Not Preventive Care for HDHP Purposes, Provides Transition Relief In Notice , the IRS has clarified that health plans covering male sterilization or male contraceptives without a deductible, or with a deductible below the statutory minimum deductible for high-deductible health plans (HDHPs), are not HDHPs under current IRS guidance regarding requirements for health savings accounts (HSA) These benefits are not preventive care under the SSA or under IRS or treasury department guidance, nor are they preventive services that must be provided without cost-sharing under health care reform Plans that provide these benefits before the HDHP minimum deductible is satisfied are not HDHPs, even if the benefits are required under state law, and an individual who is covered under such a plan is not eligible to make or receive HSA contributions

13 Male Sterilization and Male Contraceptives Are Not Preventive Care for HDHP Purposes, Provides Transition Relief The IRS has provided transition relief for periods before 2020 Under the relief, individuals will not be treated as failing to qualify as HSA-eligible merely because they are or were covered by an insurance policy that is not an HDHP solely because it covers male sterilization or male contraceptives without a deductible, or with a deductible below the HDHP minimum deductible

14 CMS Extends Transitional Policies

15 CMS Extends Transitional Policies Guidance/Downloads/Extension-Transitional-Policy-Through-CY2019.pdf On April 9, 2018, the Centers for Medicare & Medicaid Services ("CMS") released a bulletin which extends its transitional policy to policy years beginning on or before October 1, 2019, provided that all such policies end by December 31, 2019 Policies subject to the transitional relief are not considered to be out of compliance with the certain provisions of the Public Health Service Act (PHS Act)

16 CMS Extends Transitional Policies Policies subject to the transitional relief are not considered to be out of compliance with the following provisions of the Public Health Service Act (PHS Act): Section 2701 (relating to fair health insurance premiums) Section 2702 (relating to guaranteed availability of coverage) Section 2703 (relating to guaranteed renewability of coverage) Section 2704 (relating to the prohibition of pre-existing condition exclusions or other discrimination based on health status), with respect to adults, except with respect to group coverage Section 2705 (relating to the prohibition of discrimination against individual participants and beneficiaries based on health status), except with respect to group coverage Section 2706 (relating to non-discrimination in health care) Section 2707 (relating to comprehensive health insurance coverage) Section 2709 as codified at 42 U.S.C. 300gg-8 (relating to coverage for individuals participating in approved clinical trials)

17 Agencies Issue More Mental Health Parity Guidance

18 Agencies Issue More Mental Health Parity Guidance The DOL, HHS, and IRS have proposed additional FAQs on mental health parity implementation, along with a revised disclosure form and other guidance The guidance was prompted by the 21st Century Cures Act, which required the agencies to improve mental health parity compliance by issuing additional guidance and soliciting feedback on a variety of mental health parity topics, including how to improve required disclosures

19 Agencies Issue More Mental Health Parity Guidance FAQs on Experimental Limitations: Several FAQs address the application of experimental or investigative treatment exclusions to mental health or substance use disorder benefits. One question focuses on applied behavioral analysis (ABA) therapy for autism spectrum disorder, explains that a medical management standard limiting or excluding benefits based on whether a treatment is experimental or investigative is a non-quantitative treatment limitation The FAQ concludes that a plan violates the parity rules if it operationally applies such a limitation or exclusion more stringently to mental health benefits by excluding all claims for ABA therapy Another question examines an unconditional exclusion of experimental or investigational mental health and substance abuse benefits based on a medical management ratings standard

20 Agencies Issue More Mental Health Parity Guidance FAQs on Drug Limitations: One question explains that even though prescription drug dosage limitations (e.g., limits on buprenorphine to treat opioid use disorder) are medical management techniques that result in numerically expressed limitations, the techniques are nevertheless non-quantitative treatment limitations It concludes that if a plan follows the dosage recommendations in professionally recognized treatment guidelines to set dosage limits for prescription drugs to treat medical and surgical conditions, it must follow comparable treatment guidelines, and apply them no more stringently, in setting dosage limits for prescription drugs to treat mental health and substance use disorder conditions (including buprenorphine for opioid use disorder) Another question considers a plan s exclusion of prescription drugs for bipolar disorder, and concludes that a general exclusion of all benefits (including prescription drugs) for a particular condition or disorder (such as bipolar disorder) is not a treatment limitation for purposes of the parity rules

21 Agencies Issue More Mental Health Parity Guidance FAQs on Disclosures: Two FAQs address out-of-date and otherwise inadequate mental health provider directories One question explains that DOL regulations require SPDs to provide a general description of a plan s provider network, including a list of providers that is up-to-date, accurate and complete Another question is a reminder that a hyperlink or URL for a provider directory may be used in enrollment and plan summary materials, so long as the DOL s electronic disclosure safe harbor requirements are met

22 Agencies Issue More Mental Health Parity Guidance Revised Draft Form. The agencies have also revised the draft model disclosure form (initially released with the June 2017 trove of guidance) that participants, enrollees, and their authorized representatives may use to request information from their plan or insurer about their plan s non-quantitative treatment limitations (Plans and insurers are required to disclose the criteria for medical necessity determinations with respect to mental health and substance use disorder benefits to any current or potential participant, beneficiary, or contracting provider on request and must make available the reason for any denial of reimbursement or payment for services to the participant or beneficiary) One question explains that the draft form has been revised in response to comments on the previous draft, and requests further comments by mid-june

23 HSA Contribution and Coverage Limits for 2019

24 HSA Contribution and Coverage Limits for 2019 IRS has just issued Revenue Procedure , which provides the 2019 cost-of-living contribution and coverage adjustments for HSAs, as required under Code Section 223(g). Annual HSA Contribution Amounts Coverage Levels Individual $3450 $3500 Family $6,900 $7,000 Catch-up $1,000 $1,000

25 HSA Contribution and Coverage Limits for 2019 Annual Maximum Out-Of-Pocket Limits for HDHP Coverage Levels Annual Minimum Deductible Amount Limits for HDHP Coverage Levels Individual $6,650 $6,750 Individual $1,350 $1,350 Family $13,300 $13,500 Family $2,700 $2,700

26 IRS Announces ACA Indexing Adjustments for Affordability and Premium Tax Credit Determinations for 2019

27 IRS Announces ACA Indexing Adjustments for Affordability and Premium Tax Credit Determinations for 2019 The IRS has announced 2019 indexing adjustments for two key percentages under the Affordable Care Act (ACA) The first percentage, which is the required contribution percentage used to determine whether employer-sponsored health coverage is affordable for purposes of employer shared responsibility under Code 4980H, has increased from the 9.56% for 2018 to 9.86% for 2019 The second percentage, used to determine the amount of household income that individuals eligible for premium tax credits must contribute toward the cost of Exchange coverage, will also see small increases the adjusted percentage, ranging from 2.08% to 9.86%, varies across household income bands

28 Employer Tax Credit for Paid Family Medical Leave

29 Employer Tax Credit for Paid Family Medical Leave The FMLA Tax Credit, as provided under Internal Revenue Code 45S, enables eligible employers to claim a general business tax credit of up to 25% of the wages paid to qualifying employees while they are on family and medical leave, subject to certain conditions.

30 Employer Tax Credit for Paid Family Medical Leave On April 9, 2018, the IRS posted a set of frequently asked questions (FAQs) and answers regarding the new employer credit for paid family and medical leave, created by the 2017 tax cuts and jobs Qualified employers must have a written policy for employees that provides at least two weeks of paid FML annually for qualified employees, and no less than 50 percent of normal wages (prorated for part-time employees) The IRS further notes that a qualified employee must be employed for one year or more and does not receive compensation beyond defined limits; for 2017, an employee s income may not exceed $72,000 to claim the 2018 credit

31 Employer Tax Credit for Paid Family Medical Leave Employee reasons eligible for taking this FML are broad and may include a diverse population of employees. The IRS specifically addresses the following permitted reasons for taking Family Medical leave: Birth of an employee s child and to care for the child Placement of a child with the employee for adoption or foster care To care for the employee s spouse, child, or parent who has a serious health condition A serious health condition that makes the employee unable to perform the functions of his or her position Any qualifying exigency, due to an employee s spouse, child or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces To care for a service member who is the employee s spouse, child, parent or next of kin Any wages paid for leave taken outside of the above reasons will not qualify for the tax credit

32 Employer Tax Credit for Paid Family Medical Leave One difference between the rules for the tax credit and for FMLA leave in general is that, if an employer provides paid vacation leave, personal leave, or medical or sick leave (other than paid leave specifically for one or more of the purposes stated above), that paid leave is not considered family and medical leave for purposes of the tax credit Moreover, any leave paid by a state or local government or required by state or local law will not be taken into account in determining the amount of the tax credit

33 Employer Tax Credit for Paid Family Medical Leave Once qualified paid employee family and medical leave is identified, qualified wages paid may be included for each employee while on leave for up to 12 weeks per taxable year A minimum of 12.5% is applied to qualified wages paid and increases 0.25% for each percentage point paid to qualifying employee that exceeds 50% of the employees wages, to a maximum of 25% Wage amounts deducted on the employer s tax return must be reduced by the amount determined as a credit In addition, wages included in other general business credits (e.g. Credit for Increasing Research Activities) must be excluded in determining this credit

34 Employer Tax Credit for Paid Family Medical Leave Not all questions concerning written employee policy requirements, the impact of state and local requirements and controlled group credit reporting requirements are addressed. In addition, employers have expressed concerns on how to quantify wages paid by the employer s insurance provider in the event of employee disability Furthermore, employers will seek clarification as to whether to include disability benefits as wages in the credit calculation or simply include premiums paid on relevant disability insurance policies

35 DOL Releases Final Rules for Association Health Plans

36 DOL Releases Final Rules for Association Health Plans What happened? On June 19, 2018, the Department of Labor (DOL) released final regulations under 29 CFR Section that offers new options for associations to sponsor health plans for their members. These new options allow more small businesses to come together to create large employer plans free from many of the Affordable Care Act (ACA) mandates applicable to individual and small group insurance plans.

37 DOL Releases Final Rules for Association Health Plans Why are these final regulations important? Under existing law, multiple employers are treated as a single employer under the Employee Retirement Income Security Act of 1974 ( ERISA ) if they are members of a bona fide group or association of employers To qualify as a bona fide group or association, the employer members must have a commonality of interest, which the DOL had narrowly defined To satisfy this requirement, the law required the members of an Association Health Plan (AHP) to be in the same geographic location and industry, thereby prohibiting national health plans in the same industry or plans with membership based on common geography but no industry or business ties

38 DOL Releases Final Rules for Association Health Plans Why are these regulations important? The new final regulations revises prior DOL guidance regarding what constitutes a commonality of interest, providing that the association members have a commonality of interest if they are: trade, industry, line of business or profession, or are located in same state or metropolitan area even if the metropolitan area includes more than one state Under ACA, such a plan would be treated as a single large plan.

39 DOL Releases Final Rules for Association Health Plans Do these final regulations apply to existing AHPs that were formed to comply with previous guidance? No the final regulations expressly preserve existing AHPs that were formed to comply with the previous guidance on association coverage under the Health Insurance Portability and Accountability Act (HIPAA) Some argued that because those AHPs did not design their operations with the new requirements in mind, they "may not be able to comply with the new conditions without reducing existing options for affordable healthcare" DOL agreed "AHPs may continue to rely upon the Department's previous guidance, and DOL noted, "This final rule provides an additional mechanism for groups or associations to meet the definition of an 'employer' and sponsor a single... group health plan; it is not the sole mechanism"

40 DOL Releases Final Rules for Association Health Plans To be a valid AHP under the new final regulations, what other requirements must it meet, besides the commonality of interest? Purpose/Sponsorship: The sponsoring group or association must have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its members and their employees; however, the primary purpose can be to offer health coverage to members A safe harbor under the final regulations deems a substantial business purpose to exist where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan

41 DOL Releases Final Rules for Association Health Plans To be a valid AHP under the new final regulations, what other requirements must it meet, besides the commonality of interest? Organizational Structure: A group or association must have a formal organizational structure with a governing body as well as by-laws or other similar indicia of governance establishing the legal form in which the group or association operates

42 DOL Releases Final Rules for Association Health Plans To be a valid AHP under the new final regulations, what other requirements must it meet, besides the commonality of interest? Control: The functions and activities of the group or association must be controlled by its members, and the group or association s members that participate in the group health plan must control the plan. Control must be present both in form and in substance and is a facts and circumstances test. Factors that will be considered include: whether members regularly nominate and elect directors, officers, trustees, or other similar persons that constitute the governing body or authority of the employer group or association and plan whether members have authority to remove directors, officers, trustees, or other similar persons with or without cause whether participating members have the authority to approve or veto decisions or activities that relate to the formation, design, amendment, and termination of the plan, such as material amendments to the plan, including changes in coverage, benefits and premiums

43 DOL Releases Final Rules for Association Health Plans To be a valid AHP under the new final regulations, what other requirements must it meet, besides the commonality of interest? Eligibility: Eligible AHP participants include employees of a current employer member of the group or association, former employees of a current employer member of the group or association who became entitled to coverage under the group s or association s group health plan when the former employee was an employee of the employer, and beneficiaries of such individuals (e.g., spouses and dependent children)

44 DOL Releases Final Rules for Association Health Plans Can an association consider claim experience in determining whether an employer is eligible to join the association for coverage or charge them more for premiums? It Depends: In applying the final regulations, HIPAA nondiscrimination provisions will have to be met AHPS are not permitted to separate experience-rate employer members, but must treat all businesses within a particular category the same regardless of the health factors of their employees or their claims experience Separate groups can be created and separately rated, provided that the different classifications are legitimate and not based on health factors Where an AHP implements any permitted distinctions in premiums as between its various employer member groups (e.g., based on geographic location, worker classification, etc.), careful consideration should be given to ensure that those distinctions may not be deemed to be based on health factors

45 DOL Releases Final Rules for Association Health Plans Can working owners without common law employees participate in an AHP? Yes. Individual "working owners" may participate in AHPs. A "working owner" is an individual that is both an employer and an employee of a group or association member that: has an ownership right in the trade or business that is a group or association member earns wages or self-employment income from the trade or business that is a group or association member for providing personal services to such trade or business, and either... o works on average at least 20 hours per week or 80 hours per month providing personal services to the trade or business that is a group or association member o has wages or self-employment income from the trade or business that is a group or association member that at least equals the working owner's cost of coverage for participation

46 DOL Releases Final Rules for Association Health Plans What benefit rules apply to AHPs? AHPs are required to comply with the ACA and ERISA rules applicable to large group health plans; and to the extent they are fully insured, state mandated benefit laws will also apply While AHPs are not required to provide essential health benefits or minimum value coverage, they are subject to other significant benefit mandates, including, for example, no pre-existing condition exclusions, coverage of adult dependent children to age 26, coverage of preventive care with no cost-sharing and enhanced patient protections and claim and appeal rights

47 DOL Releases Final Rules for Association Health Plans Are AHPs subject to state rules regulating Multiple Employer Welfare Arrangements (MEWAs)? Yes in the preamble to the final regulations, DOL indicates that these final regulations do not modify existing state authority to regulate MEWAs Such state regulation will prevent self-funded AHPs in a number of states

48 DOL Releases Final Rules for Association Health Plans What is the effective date of these final regulations? September 1, 2018 for fully insured AHPs January 1, 2019 for existing self-insured AHPs complying with the DOL prior rules that choose to qualify as AHPs under the final regulations April 1, 2019 for new self-insured AHPs formed pursuant to the final regulations

49 What are the Pros and Cons of Association Health Plans? Pros: Exemption from various Affordable Care Act requirements The final rule allows unrelated small employers and self-employed individuals to join together for the purpose of providing health insurance coverage to their employees. The AHP coverage is exempt from various requirements of the Affordable Care Act ( ACA ), the most notable of which is the requirement to cover essential health benefits ( EHBs ). Reduced reporting and disclosure requirements AHPs that meet the requirements of the final rule are treated as a single employer plan for purposes of the Employee Retirement Income Security Act of 1974, as amended ( ERISA ). This means that the AHP will need only a single ERISA plan document and a single summary plan description ( SPD ). In addition, the AHP will need to file a single Form 5500 annual report and a single Form M-1. This differs significantly from current law under which each employer member is treated as maintaining its own health plan and having its own reporting and disclosure requirements. Economies of scale The AHP structure will provide employer members greater bargaining power and reduced administrative costs. The ability to spread the administrative costs of the AHP over the employer members may be significant.

50 What are the Pros and Cons of Association Health Plans? Cons: AHPs are MEWAs the single biggest impediment to forming an AHP may be that the arrangement will be a multiple employer welfare arrangement ( MEWA ) Sponsors of AHPs will need to exercise care to ensure compliance with those standards, including those established by the ACA. The drawback of being a MEWA is that under ERISA, states may regulate both fully insured and self-funded MEWAs In some states MEWAs are illegal For AHPs that operate in a single state, MEWA status may not be a significant impediment. However, for AHPs that operate in a number of states, MEWA status could pose a significant problem

51 What Are the Pros and Cons of Association Health Plans? Cons: AHPS are subject to ERISA and other laws that apply to group health plans the preamble provides that an AHP sponsored by a bona fide group or association under this final rule is a group health plan and an employee welfare benefit plan under ERISA. Accordingly, the AHP is subject to all ERISA provisions applicable to group health plans and employee welfare benefit plans, including Title I of ERISA. AHPs must comply with the full array of laws that apply to an ERISA single employer plan such as: Fiduciary responsibility rules Prohibited transaction rules ERISA disclosure requirements including SPD, SMMs and SBCs Form 5500 filings Form M-1 filings COBRA Mental Health Parity ACA mandates (such as coverage for kids to age 26, bans on preexisting condition exclusions, free preventive care, and no annual or lifetime dollar limits on essential health benefits)

52 What Are the Pros and Cons of Association Health Plans? Cons: An AHP must also comply with HIPAA portability, privacy, and security rules Small employers may become subject to Mental Health Parity, COBRA, and other requirements that apply to large employers Taxation of health coverage and benefits the preamble is silent on how the taxation of health coverage under Code Sections 104, 105, and 106 apply to AHPs Liability concerns the preamble clarifies that compliance with applicable legal requirements rests with the bona fide group or association that sponsors the AHP if the AHP fails to comply with applicable law, it appears that in most cases the liability for such failure will rest with the AHP sponsor another issue to be resolved is what happens if an AHP fails to meet some or all of the requirements of the final rule Legal uncertainty given that AHPs are a new creation, they will inevitably face legal challenges, creating uncertainty regarding their long term viability o For example, the Attorneys General of Massachusetts and New York have already indicated that they intend to challenge the final rule on the theory that it allows some plans to avoid compliance with various provisions of ACA The future of AHPs may rest on how the various states decide to regulate them

53 Final Thought? There are a multitude of compliance obligations that attach to AHPs under various state and federal laws, including the fiduciary, reporting and disclosure obligations under Title I of ERISA A MEWA s status alone has significant state and federal legal implications A legally compliant and properly administered AHP requires much more than off-the shelf documentation and a group insurance policy Before joining an AHP, an employer should consider all of these issues discussed

54 QUESTIONS?