President Trump Issues Executive Order and CSR Announcement
On Oct. 12, 2017, President Trump issued an Executive Order related to the availability and expansion of association health plans (AHPs), short-term limited duration insurance (STLDI) policies and health reimbursement arrangements (HRAs).
On the same day, the White House also announced that it will no longer pay cost-sharing reduction subsidies to insurers.
In an effort to increase competition and provide access to alternative coverage in the health insurance market, the Order encourages the DOL to propose regulations that expand access to AHPs and allow coverage sales across state lines.
A similar provision was included in two previous Republican Senate proposals. Also, many states currently allow association plans. In those states, employers with a certain “commonality of interest” – who are not part of a controlled group – are permitted to come together to purchase health insurance in a move known as a “multiple employer welfare arrangement” under ERISA.
Such plans have increased reporting requirements to both the state Department of Insurance and the Employee Benefits Security Administration. However, most states prohibit or restrict self-insured association plans and discourage employer participation across state lines. This Order encourages the DOL to propose regulations permitting both practices as well as to review the definition of “commonality of interest” to grow the number of employers allowed to participate in an association plan.
This arrangement may be helpful to some employers who are currently in the small group market with age-banded rates and mandated essential health benefits. If they joined an AHP with other employers, they would escape community rating and move to large group experience premium rating, which can lead to lower premiums for an older, yet healthy employee population.
Another portion of the Order encourages the Treasury Department, DOL and HHS (the Departments) to propose regulations that allow individuals to continue STLDI coverage for a longer period of time. Access to an individual policy offered through an exchange is restricted in terms of when an individual may enroll. Enrollment through the exchange occurs during the annual open enrollment period. If an individual misses the opportunity, he or she may only enroll mid-year following a qualified special enrollment period event — such as birth, adoption, change in residence, becoming eligible for a premium tax credit or losing other coverage. To accommodate for the period of time in which they would be otherwise uninsured, an individual may purchase STLDI.
STLDI is, importantly, not minimal essential coverage (MEC), not required to cover essential health benefits and limited in coverage. The individual may still owe an individual mandate penalty, but the policy provides protection for some health care costs. Currently, an individual may only be covered under STLDI for a maximum of three months. The Order encourages the Departments to propose regulations that allow individuals to continue STLDI coverage for a longer period of time.
Finally, the Order encourages the Departments to consider proposing regulations or revising guidance to increase the usability of HRAs; more specifically, the Order encourages the use of HRAs with non-group coverage.
As background, a large employer may currently only offer and maintain an HRA when it is integrated with a major medical group plan. The HRA cannot reimburse the cost of individual policy premiums. A small employer who does not offer a group health plan may reimburse the cost of individual policy premiums through the use of a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The maximum reimbursement under a QSEHRA is $4,950 per employee. In the proposed regulations, the Departments may consider increasing the annual maximum QSEHRA contribution or provide a way for large employers to reimburse the cost of an individual policy through an HRA.
Cost-Sharing Reduction Subsidies
Also on Oct. 12, 2017, the White House announced that the administration will not continue payment of cost-sharing reduction subsidies. As we’ve reported in the past, these payments provide reduced cost-sharing – for example, deductible, copayments and coinsurance – to lower income individuals who purchase an individual health policy through the exchange and have household income between 100 percent and 250 percent of the federal poverty level.
Although CSR subsidies have been the subject of ongoing litigation, both the Obama and Trump administrations have been continuing payments during ongoing legal proceedings. Without payments from the administration, the insurers will still be required by the Affordable Care Act to provide the subsidies — which is why this issue has been the driving factor behind insurer decisions to pull out of the individual market in 2018 and increase premiums to better account for increased cost.
What Happens Now?
From here, the Departments will begin the traditional rulemaking process. The Order indicates that the DOL shall consider proposing regulations related to AHPs (within 60 days), while all three Departments shall consider proposing regulations related to STLDI (within 60 days) and the expansion of HRAs (within 120 days). Following the issuance of proposed regulations, the Departments will receive public comments. Final regulations won’t be issued until the comments are considered and evaluated by the Departments.
This process won’t be completed in 2017 and will continue into early 2018.
What Does This Mean for Individuals and Employers?
Looking ahead, employers may have alternatives available to them. Joining AHPs or reimbursing individual policy premiums through an HRA are both on the table, but for now nothing has changed.
Many employer groups are currently preparing for their 2018 offerings with renewal discussions and open enrollment. Those decisions and efforts should continue, as these announcements have no immediate impact on 2018 group coverage. Similarly, individuals who are preparing to purchase individual coverage for 2018 will be able to do so starting Nov. 1, 2017. The options and rates for those individual policies were finalized before the announcement regarding the payment of cost-sharing reduction subsidies.
As always, we’ll continue to watch for future developments that affect employers and their health care plans. Please contact your advisor with any specific questions.
Agencies Issue Interim Final Rules to Broaden Exemption from Contraceptive Coverage
Effective Oct. 6, 2017, the HHS, the Treasury Department and the DOL (the Departments) jointly issued interim final rules that broaden the exemption from the PPACA’s contraceptive mandate. As background, the PPACA requires plans to cover certain preventive services with no cost-sharing. Since the implementation of the PPACA, a number of religious institutions objected to being required to offer certain contraceptives, prompting the Obama administration to provide a waiver and accommodation process for those institutions. Additionally, in a case that went all the way to the Supreme Court, the Court ruled in favor of Hobby Lobby, holding that closely held employers could also choose not to cover certain contraceptives.
The Trump administration’s interim final rules basically allow any employer to claim a religious or moral objection to offering certain contraceptives, including non-closely held companies and even publicly traded companies. Specifically, the rule on religious exemptions allows any individual or nongovernmental entity (including churches, nonprofit and for-profit entities, whether or not they’re closely held) to object to providing coverage for all or some subset of contraceptives if they have sincerely held religious beliefs against offering such coverage.
Additionally, the rule on moral exemptions allows an entity or individual to object to contraceptive coverage based on sincerely held moral convictions (that are not religious in nature). This rule does not apply to publicly traded companies.
Interestingly, the rules don’t actually define or determine when an entity has sincerely held religious or moral beliefs. Instead, the preambles of both rules ascertain that religious or moral objections would be determined according to state law. Both rules also make the accommodation process optional for entities.
Further, the rules also allow employees to claim a religious objection to being covered by a plan that provides coverage for contraceptives (if their insurance provider/employer plan allows individuals to obtain other health coverage that doesn’t cover contraceptives).
Employers should keep in mind that the rules require employers to notify employees of any change in contraceptive coverage, in accordance with current ERISA rules. So, for example, where the decision not to cover certain contraceptives is a material modification or reduction in covered services, the employer will need to provide employees with Summaries of Material Modification. In addition, if that decision is made outside of open enrollment/renewal, the employer may also be responsible for an advance notice under the summary of benefits and coverage (SBC) rules, which may require 60-days’ advance notice of such a change.
Employers who wish to avail themselves of these exemptions should work with counsel to ensure that they understand the exemption and implement it in a compliant manner.
The Departments are soliciting comments on the rules (which will be due by Dec. 5, 2017). As with many of the proposed changes to the PPACA, this rule has already sparked litigation, as major women’s rights groups and some states oppose the rule. We’ll continue to follow developments on these rules.
PCOR Fee Increased for 2017-2018 Plan Years
On Oct. 6, 2017, the IRS released Notice 2017-61, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after Oct. 1, 2017, and before Oct. 1, 2018, is $2.39. This is a $.13 increase from the amount in effect for plan and policy years ending on or after Oct. 1, 2016, but before Oct. 1, 2017.
As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee doesn’t apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee is, however, required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives, and is reported and paid on IRS Form 720 (which hasn’t yet been updated to reflect the increased fee). It’s expected that the Form will be updated prior to July 31, 2018, since that’s the first deadline to pay the increased fee amount for plan years ending between October and December 2017.
IRS Releases Final Instructions for Forms 1094-C, 1095-C, 1094-B and 1095-B
On Oct. 3, 2017, the IRS released final instructions related to IRC Sections 6055 and 6056 reporting. The 2017 instructions appear to have no substantial changes from the 2016 instructions, and the final forms were reported on in the Oct. 3, 2017, edition of Compliance Corner . For example, the multiemployer interim relief rule remains in place for applicable large employers that contribute to a multiemployer plan.
The most notable change is that no Section 4980H transition relief is available beginning with the 2017 reporting year. Thus, all references to such relief have been removed. Specifically, boxes B and C on Line 22 of the Form 1094-C (which were previously used to claim transition relief) have now been marked as “reserved.” Similarly, column (e) of Part III of the Form 1094-C has also been marked “reserved.”
Here are some other minor changes from last year:
- Updates have been made to references for items that have been adjusted for inflation, such as the affordability percentage (9.69 percent for 2017).
- There is new language in the instructions for Forms 1094-C and 1095-C in the section regarding corrected returns that may cause confusion for employers (please see our Sept. 6, 2017, Compliance Corner for additional information). It states that an incorrect entry of the employee’s cost of coverage on Line 15 would not necessitate a corrected filing if the entry differs from the correct amount by $100 or less. This safe harbor is based on guidance provided in IRS Notice 2017-9 for certain de minimis errors.
- The IRS provides clarification for Form 1095-C that there is no specific code to enter on Line 16 to indicate that a full-time employee who was offered coverage either did not enroll in the coverage or waived the coverage. This is consistent with the previous interpretation, which generally instructed that the line either be left blank or be completed with an affordability safe harbor code, as applicable.
- In Part II of the Form 1095-C, it was anticipated that the “Plan Start Month” box would be mandatory for 2017. In the final version of the instructions, the box remains optional for 2017.
Importantly, the final instructions provide no mention of relief from penalties for a good faith compliance effort. This is similar to the 2016 version of the instructions. However, the IRS later provided such relief through communication on their website in regards to the 2016 reporting year. While the IRS could potentially provide a similar communication closer to the 2017 filing deadlines, employers should assume for now that no such good faith relief will be available.
As a reminder, Forms 1094-B and 1095-B (the forms used for Section 6055 reporting) are required of insurers and small self-insured employers that provide MEC. These reports will help the IRS administer and enforce PPACA’s individual mandate. Form 1095-B, the form distributed to the covered employee, will identify the employee, any covered family members, the group health plan and the months in 2017 for which the employee and family members had MEC under the employer's plan. If the plan is fully insured, Form 1094-B identifies the insurer (for a fully insured plan) or the employer (for a self-insured plan) and is used by the insurer to transmit corresponding Forms 1095-B to the IRS.
Additionally, PPACA requires all employers with 50 or more full-time-equivalent employees to file Forms 1094-C and 1095-C with the IRS and to provide statements to employees to comply with IRC Section 6056 (meant to help the IRS enforce the PPACA’s employer mandate). Specifically, large fully insured employers will need to complete and submit Forms 1094-C and 1095-C (Parts I and II). Large self-insured employers, which are subject to both Sections 6055 and 6056, may combine reporting obligations by using Form 1094-C and completing all sections of Form 1095-C (Parts I, II and III). Small self-insured employers would need to file Forms 1094-B and 1095-B. Employers with grandfathered plans must comply with the reporting requirements as well.
Finally, the due dates for 2017 employer reporting are:
- Jan. 31, 2018, to provide 2017 information returns to employees or responsible individuals.
- Feb. 28, 2018, for paper filings with the IRS of all 2017 Forms 1095-C or 1095-B, along with transmittal Form 1094-C or 1094-B. Employers filing fewer than 250 forms may file by paper or electronically.
- April 2, 2018, for electronic filings with the IRS of all 2017 Forms 1095-C or 1095-B, along with transmittal Form 1094-C or 1094-B. Employers filing 250 or more forms must file electronically with the IRS.
DOL Proposes 90-Day Delay of Disability Claims Regulations
On Oct. 12, 2017, the DOL released proposed regulations providing a 90-day delay – through April 1, 2018 – in the effective date of the final regulations concerning claims procedures for plans that provide disability benefits. The final regulations – which subject disability claims procedures to requirements similar to health care reform’s enhanced requirements for group health plans – were discussed in our Jan. 10, 2017, edition of Compliance Corner and are scheduled to apply to claims for disability benefits under ERISA-covered employee benefit plans that are filed on or after Jan. 1, 2018.
According to the DOL, it’s undertaking efforts to examine regulatory alternatives that meet its objectives of ensuring the full and fair review of disability benefit claims while not imposing unnecessary costs and adverse consequences (pursuant to President Trump’s Feb. 24, 2017, Executive Order 13777). The DOL believes that this delay will allow an additional opportunity to collect comments and reexamine the impacts of the final regulations. Ultimately, the DOL is seeking public comments on the proposed delay and on the regulations themselves.
Plan sponsors involved in the adjudication of disability claims should carefully review these regulations. Once the dust has settled, there may be administrative challenges when attempting to implement the new procedures in a timely manner. Note that the regulations’ applicability is based on a specific date and isn’t currently tied to the plan year.
IRS Allows Paid Leave Donation for Hurricane Maria Relief Victims
On Oct. 6, 2017, the IRS released Notice 2017-62, which provides guidance for the treatment of cash payments made by employers under leave-based donation programs to assist victims of Hurricane Maria. This notice is similar to previous IRS guidance released for Hurricanes Harvey and Irma.
In general, under leave-based donation programs, employees may elect to forego sick, vacation or personal time off in exchange for cash payments the employer makes to charitable organizations. According to the notice, cash payments made under leave-based donation programs will not constitute income or wages for employees as long as the payments are made to charitable organizations for the relief of Hurricane Maria victims prior to Jan. 1, 2019.
Therefore, employers who participate in leave-based donation programs for relief of Hurricane Maria victims should work with their tax professional or tax counsel to determine applicable tax accounting and reporting.
HHS Withdraws Proposed Rules Requiring Certification of Compliance with HIPAA Standard Transactions
On Oct. 4, 2017, HHS withdrew the proposed rules requiring certification of compliance with HIPAA Standard Transactions. As background, those rules implemented the PPACA's statutory requirement for health plans to certify compliance with HIPAA's electronic transaction standards and operating rules. Specifically, health plans that are “controlling health plans” (CHPs) had to certify compliance (on behalf of themselves and their sub-health plans) with the standards and operating rules for electronic transactions by obtaining one of two credentials from the Council for Affordable Quality Healthcare Committee (CAQH) on Operating Rules for Information Exchange (CORE).
HHS indicated that they "decided to withdraw the January 2014 proposed rule in order to reexamine the issues and explore options and alternatives to comply with the statutory requirements." This withdrawal is likely due to the Trump administration’s commitment to reviewing the rulemaking process.
Although the rule is now withdrawn, it remains to be seen whether HHS will revise it or propose it again in the future. We’ll continue to monitor any developments pertaining to this rule.
Legislation Provides Retirement Plan Relief to Hurricane Victims
Recently enacted legislation (the Disaster Tax Relief and Airport and Airway Extension Act of 2017) and recently released guidance provide retirement plan relief for hurricane victims (including Hurricanes Harvey, Irma and Maria). The legislation specifically relates to retirement plan distributions and loans. On distributions, the 10 percent penalty tax would not apply to qualified hurricane distributions taken by individuals whose principal residence is in a hurricane area (as designated by the President) and who sustained an economic loss due to the hurricane. These non-penalized distributions must be taken between the hurricane start date and Jan. 1, 2019, and are limited to an aggregate of $100,000 (whether received in one or more taxable years). Such distributions can be repaid (in whole or in part), through contributions to the retirement plan. Repayments would be treated as timely rollover contributions, which has the effect of deferring taxation. Instead of repayments, individuals can elect to spread the applicable distribution taxation over a three-year period.
The legislation also provides a special rule relating to hardship withdrawals taken within certain specified dates to build or buy a house in a hurricane area (but only if the withdrawals were not used to build or buy the house because of the hurricane). Specifically, all or a part of the hardship withdrawal amount may be repaid or contributed to an eligible retirement plan on or before Feb. 28, 2018. In that case, the repayment will be treated as a timely rollover contribution.
For loans taken between Sept. 29, 2017, and Dec. 31, 2018, the legislation increases the plan loan limit to $100,000, or 100 percent of an individual’s vested account balance. To take advantage of the increased plan loan limit, the individual must have a principal residence in the hurricane area and must have suffered an economic loss due to the hurricane. Also, such individuals may delay for one year the due date for outstanding loan payments.
Retirement plan sponsors should review their plan designs and work with employees who may have been impacted by any of these three hurricanes. Ultimately, employers may need to work with outside counsel to ensure the relief described above is properly administered.
What are the most common COBRA mistakes made by employers?
Even though COBRA has been around since 1985, it’s still fairly easy for an employer to get tripped up by its extensive requirements. Whether an employer utilizes a third party to administer COBRA or it administers the requirements in-house, compliance is ultimately the employer’s responsibility.
As a reminder, COBRA applies to employers who average 20 or more employees in the previous calendar year. Governmental entities and churches are exempt.
So, what are the most common mistakes that we see employers make when it comes to COBRA?
COBRA Initial Notice
Most employers are familiar with the COBRA Election Notice that needs to be sent to participants who have lost eligibility under the plan. However, many are not in compliance with another COBRA notice requirement — the COBRA Initial Notice.
This notice informs newly enrolled employees and spouses of their rights under COBRA as it applies to their group health plan. It also details how they must notify the plan within 60 days of a divorce or child ceasing to be eligible under the terms of the plan.
The notice must be distributed to employees and spouses anytime they become newly enrolled in the plan. This includes all of the following scenarios:
- After a newly hired employee enrolls
- When a previously waived employee enrolls during open enrollment
- Following an employee adding a new spouse upon marriage
- After an employee enrolls him/herself and a spouse mid-year due to a qualifying event
Most employers remember to send the notice to newly hired employees upon enrollment but forget or are unaware of the requirement to send the notice following the other occurrences. Other employers distribute the notice in a manner that does not ensure that the spouse also receives it (such as via intranet or email).
It’s important to comply so that the employer may enforce the 60-day deadline when an employee provides late notice of a divorce. Consider an employee who notifies the plan of her divorce four months after a divorce. If the notice had been previously provided to the employee, the ex-spouse would not be offered COBRA because of the late notification. However, if the employer cannot prove that it ever sent the Initial Notice to the employee and spouse, then the plan may be required to provide COBRA to the ex-spouse regardless of when the plan was notified. Further, an insurer or stop-loss carrier can deny claims for the ex-spouse because of the employer’s non-compliance, which may leave the employer self-insuring the ex-spouse’s claims.
If an employer hasn’t been in full compliance with this requirement, it’s recommended that the employer send the Initial Notice to all currently enrolled employees and spouses to catch up. Then, the notice could be sent prospectively to all newly enrolled employees and spouses for ongoing compliance.
Health FSA and COBRA
Health FSAs are a COBRA-eligible benefit. However, COBRA is only offered for participants who have a health FSA balance upon losing eligibility for the plan (also called an underspent account). The applicable premium would be the employee’s regular monthly health FSA contribution plus the two percent administrative fee, if selected by the employer.
The health FSA may only be continued through COBRA through the end of the plan year. In other words, the participant isn’t given the opportunity to make a new election during open enrollment. There’s a limited exception to this rule. If the employer has adopted the rollover provision for the plan and the participant has funds remaining at the end of the plan year, the participant may continue participation into the new plan year in order to spend down the rollover funds. A premium would not be charged in Year 2, as the employee has already contributed the funds for the rollover amount.
Remember, an employee who has waived coverage in the employer’s group medical plan but enrolls in the health FSA should still receive a COBRA Initial Notice in regards to the health FSA.
Open Enrollment Rights
A qualified beneficiary who is continuing coverage of any benefit through COBRA has the same open enrollment rights as active eligible employees. For example, a COBRA beneficiary who is continuing coverage for self-only medical has the right to add employee plus family dental coverage during open enrollment if active employees have the same right.
These are just some of the common mistakes that PPI regularly sees employers make. If you’d like additional information on any of these requirements or have other questions, please contact your advisor for assistance.
Law Mandates Prescription Drug Price Transparency
On Oct. 9, 2017, Gov. Brown signed SB 17 into law. This new legislation generally requires prior notice of prescription drug rate increases and better understanding of prescription drug costs for health plans and insurers.
Specifically, this law requires pharmaceutical companies to notify health insurers and issuers at least 60 days prior to the effective date of a price increase that exceeds 16 percent over a two-year period. This requirement will apply to prescription drugs that have a wholesale price of at least $40 for the course of therapy.
Manufacturers must also provide information to justify drug price increases, such as factors that lead to such a decision and documentation of increased clinical effectiveness (if any). Health plans and insurers must also annually report the 25 most frequently prescribed medications, the 25 most expensive drugs by total annual spending and the 25 drugs with the highest year over year increase in total annual spending. Lastly, regulators must assemble this data to create a consumer-friendly report that illustrates the overall impact of drug costs on health care premiums.
No employer action is required, but employers in California should be aware of this legislation’s effects on group health plans. This law becomes effective on Jan. 1, 2019.
Small Employers Required to Provide Unpaid Leave for Baby Bonding
On Oct. 12, 2017, Gov. Brown signed SB 63 (the New Parent Leave Act) into law. This law will require certain employers to provide 12 weeks of protected, unpaid leave for parents to bond with a new child within one year of birth, adoption or foster care placement.
This law applies to employers with 20 to 49 employees within a 75-mile radius of one another. To be eligible for parental bonding leave, an employee must have at least 12 months of service and 1,250 hours of service during the 12-month period prior to the beginning of the leave.
Employers must maintain and pay for the employee’s group health plan coverage at the same level and conditions as if the employee were still an active employee. It also protects the employee from discrimination, refusal to hire, termination, retaliation or any other prohibited action for exercising their right to parental leave. However, employers subject to the New Parent Leave Act may recover their portion of the premium if the employee fails to return to work once the leave is exhausted and the failure to return to work is not due to the continuation, reoccurrence or onset of a serious health condition, or “other circumstances beyond the control of the employee.” Further, upon funding from the legislature, the Act also provides for the creation of a two-year pilot mediation program, which aims to quell the impact of civil litigation on small employers by requiring mediation before an employee could file a civil suit.
Therefore, small employers in California should determine whether they are subject to the New Parent Leave Act and update leave policies, forms and procedures to ensure compliance with this law. Because the law impacts other employment law issues, outside counsel is the best option to assist employers with questions and policy drafting and amendments. This law is effective Jan. 1, 2018.
NY Mandates Health Insurance Coverage for Naloxone
On Sept. 28, 2017, the New York (NY) Department of Financial Services published Circular Letter No. 16 (2017). The letter relates to health insurance coverage for naloxone. Previously, NY published Circular Letter No. 6 (2016), which makes coverage for naloxone mandatory when medically necessary.
According to the federal Substance Abuse and Mental Health Services Administration’s website, naloxone is an FDA-approved prescription drug used to block or prevent the effects of opiates and opioids, such as oxycodone. Naloxone is often used in emergency situations to prevent or reverse the effects of an opioid overdose.
Based on federal and state law, DFS takes the position that carriers must provide coverage for naloxone on an outpatient basis when prescribed to an individual by an authorized provider, as they would for any other prescribed drug. In addition, naloxone must also be covered on an inpatient basis when medically necessary. Furthermore, carriers may not impose any arbitrary limits on coverage for naloxone. As an example, carriers may not place an annual limit on coverage for an unused naloxone prescription refill, unless medically warranted. In addition, when determining the appropriate dosage for naloxone coverage, carriers should consider that there have been cases of overdoses that involve fentanyl and that have required two or more doses of naloxone to reverse the effects of the fentanyl overdose.
While the letter contains no new employer compliance obligations, employers should be aware of the coverage requirements relating to naloxone. Such awareness will help address any employee questions that may arise relating to opioid addiction and coverage of naloxone.
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.
Industry news topics covered in the Compliance Corner are chosen based on general interest to most employers and may include articles about services not available through PPI.
What are the most common COBRA mistakes made by employers?