HHS Releases Final Notice of Benefit and Payment Parameters for 2019
On April 17, 2018, the 2019 Notice of Benefit and Payment Parameters was published in the Federal Register. These final regulations adopt most of the proposed regulations, which were issued on Oct. 27, 2017, although there are some deviations in the final regulations.
The rules – which are generally effective for plan years beginning on or after Jan. 1, 2019 – are intended to enhance the role of states in the individual and small group markets, provide states with additional flexibilities, reduce regulatory burdens associated with the ACA and improve affordability.
Many of the rules are aimed primarily at insurers as they are technical in nature and related to the parameters and provisions for the risk adjustment program. The rules which may be of interest to employers are summarized below.
Small Business Health Options Program (SHOP) Premium Rating
Issuers offering coverage through a SHOP are not required, under federal law, to offer average enrollee premiums (commonly referred to as composite rates). They may be required or permitted to do so under applicable state law.
SHOP Guaranteed Availability of Coverage
Effective for plan years beginning on or after Jan. 1, 2018, an insurer may limit enrollment of an employer to the annual enrollment period of November 15 through December 15 of each year if the employer fails to comply with the group participation rules.
Off-Exchange Special Enrollment Periods
Individuals are permitted to enroll mid-year in off-exchange coverage following the gaining of a dependent through marriage, birth, adoption, placement for adoption, placement in foster care or through a child support order (or other court order). The individual may enroll in or change coverage along with their dependents, including the newly gained dependent and any existing dependents. The new dependent also has an independent right to enroll in coverage without the parent or spouse.
Broker-assisted SHOP Enrollment
SHOP rules relax the requirements for interested small employers to enroll in the SHOP online. Small employers who desire to participate in the SHOP will have the option to utilize a broker rather than use the online enrollment platform.
As a result, a state exchange on the federal platform will no longer be able to utilize the federal platform for the functions of employee eligibility, enrollment and premium aggregation functions.
Verification of Employee's Eligibility for Premium Tax Credit
The proposed rules requested information on ways to improve verification of whether an exchange applicant reasonably expects to be enrolled in employer-sponsored coverage or is eligible for minimum value, affordable coverage from an employer — as such coverage renders the individual eligible for an advanced premium tax credit.
The final rules discuss the need for a comprehensive database of information on employer-sponsored coverage, but acknowledges that one does not currently exist and the building of such a database would be costly. The federally facilitated exchange (FFE) conducted a pilot study that involved the exchange contacting the employers of individuals receiving a premium tax credit. The employers were contacted by telephone based on contact information provided by the individual on the application.
Though only a small sampling of employers were contacted, the FFE found that this approach was not cost-effective. At this time, exchanges will continue to perform verifications using the federal employment database, SHOP database and any alternative method approved by HHS. This means that employers may not have an advanced opportunity to verify an employee's eligibility for a premium tax credit.
If an employee is ineligible for a premium tax credit due to an employer's offer of coverage, a large employer would have an opportunity to appeal any associated employer mandate penalty assessed after the fact through the Letter 226J process.
Essential Health Benefits (EHB) Benchmark Plans
States will have greater flexibility in how they select their EHB benchmark plans for plan year 2020 and beyond.
A state's benchmark plan directly impacts a group health plan's design in that it serves as a reference plan that defines the scope and limits applied to EHBs. Beginning in 2020, states will be able to select a new benchmark plan annually, select another state's benchmark plan or substitute categories of benefits from another state's benchmark plan. Under the proposed rules, CMS requested comments regarding a federal default definition of EHB with states having the ability to expand benefits beyond the default definition.
This specific provision is not being implemented at this time.
Stand-Alone Dental Plans (SADP)
Effective in 2019, SADPs will not be required to meet any specific actuarial valuation. This rule is intended to increase the number of options and plan designs available to consumers.
Medical Loss Ratio (MLR)
Rather than an insurer tracking and reporting their actual Quality Improvement Activity expenses, they will be able to use a standardized amount based on 0.8 percent of the insurer's earned premium for the year.
This could affect the frequency and amount of MLR rebate checks distributed by insurers to fully insured group health plans.
Maximum Out-of-Pocket Annual Limits
The maximum out-of-pocket limits for 2019 will be $7,900 for single coverage – up from $7,350 in 2018 – and $15,800 for family coverage (up from $14,700 in 2018).
Similar to the preamble of the proposed rules, CMS continued to encourage insurers to offer more qualified high deductible health plans to HSA-eligible individuals. This is consistent with several proposed congressional bills that would expand HSA funding.
Lastly, CMS stated an intention to consider proposals in future rulemaking that would help reduce drug costs and promote drug price transparency.
The rules are generally effective for plan year 2019, unless otherwise indicated. Employers should work with their insurers and administrators to implement the new out-of-pocket limits. Small employers should work with their advisors concerning any questions related to the SHOP and participation requirements.
IRS Publishes Guidance on New Employer Credit for Paid FMLA
On April 9, 2018, the IRS released FAQ guidance on the newly-created tax credit available to employers who offer paid FMLA leave. As background, the 2017 Tax Cuts and Jobs Act (2017 Tax Reform) added Section 45S to the Internal Revenue Code to establish a new temporary tax credit for employers that voluntarily offer paid family and medical leave to employees.
Section 45S is intended to incentivize employers to offer FMLA leave on a paid basis. To be eligible for the new federal tax credit, an employer must have a written policy that offers at least two weeks (annually) of paid family and medical leave to full-time employees and a proportionate amount to part-time employees that is based on the employee's expected work hours. The paid leave must be available to all employees who have been employed by the employer for at least one year and who, for the preceding year, had compensation of not more than 60 percent of the highly compensated employee threshold for the preceding year — for 2018, that means employees making more than $72,000, as 2017 is the preceding year. Extending the offer of paid family leave to employees above the threshold is permissable, but the credit would not be available.
The FAQs add further detail as to what qualifies as "family and medical leave" for purposes of the credit. Section 45S mirrors the federal Family and Medical Leave Act (FMLA), to include one or more of the following:
- Because of the birth of a son or daughter of the employee and in order to care for such son or daughter;
- Because of the placement of a son or daughter with the employee for adoption or foster care;
- In order to care for the spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition;
- Because of a serious health condition that makes the employee unable to perform the functions of the position of such employee;
- Because of any qualifying exigency (as determined by the Secretary of Labor) arising out of the fact that the spouse, or a son, daughter, or parent of the employee is on covered active duty (or has been notified of an impending call or order to covered active duty) in the Armed Forces; or
- In order for the employee to care for a covered service member (if the employee is the spouse, child, parent, or next of kin of the service member).
If the employer provides paid leave as vacation leave, personal leave, or medical or sick leave – other than leave for one or more reasons above – that paid leave is not considered family and medical leave.
The FAQ also explains how to calculate the general business credit, which is equal to 12.5 percent of the amount of wages paid to a qualifying employee while on family and medical leave when the employer provides at least 50 percent of normal wages for up to 12 weeks per taxable year. The credit increases incrementally up to a maximum of 25 percent for employers that offer 100 percent of normal wages during a qualifying leave, is currently available for wages paid in taxable years beginning after Dec. 31, 2017 and is scheduled to expire after Dec. 31, 2019. Essentially, it's available for employers that offer paid FMLA leave in 2018 and 2019.
The Section 45S tax credit is available to all employers, even those that are not subject to FMLA, so long as they offer certain FMLA-like protections to employees. Section 45S does not mandate that employers provide FMLA leave on a paid basis and does not change any aspect of FMLA. It also does not take into account any paid leave required by state or local law in determining the amount of paid leave the employer provides. Further, it is unclear how employers that pay in excess of State or local requirements may qualify for the credit under Section 45S.
The IRS intends to publish additional guidance on the credit. An example of the items to be addressed include, but are not limited to: when the written policy must be in place, how paid family and medical leave relates to an employer's other paid leave, how to determine whether an employee has been employed for one year or more, the impact of state and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.
Employers that currently offer a paid leave opportunity to full-time employees (and part-time employees) should review the FAQs to determine if the current program qualifies for the available tax credit. If an employer currently does not offer an FMLA program or the program offered does not meet the standard established under Section 45S, they should consider the tax benefits of a paid family and medical leave policy, keeping in mind that this program is temporary (at least currently). Employers may also want to work with outside counsel, since a review of current leave policies and procedures would be necessary.
Congressional Research Service Publishes Report on Paid Family Leave
On March 20, 2018, the Congressional Research Service (CRS) released its 2018 U.S. paid family leave report, giving an overview of paid family leave in the United States — including employer-sponsored paid family leave and state-run paid family leave insurance programs. It also compares paid family leave policies in other advanced-economy countries and addresses recent legislative activity as it relates to federal paid family leave.
As a reminder, FMLA provides workers with an entitlement of up to 12 weeks of unpaid leave for their own serious health condition, to care for an immediate family member (spouse, child, or parent — but not a parent "in-law") with a serious health condition, or following birth/adoption/placement for foster care, but no federal law currently provides workers entitlement to paid leave of any kind.
The report discusses state mandated paid family leave for eligible employees engaged in certain caregiving activities, including California, New Jersey, New York, Rhode Island, Washington State and the District of Columbia, and highlights recent federal legislation which allows employers to receive tax credits for a portion of wages paid to employees out on FMLA.
The report also illustrates trends in voluntary employer-provided paid family leave within the U.S. private sector. Not surprisingly, the statistics show that employer-provided paid leave is more prevalent among professional and technical occupations and industries, high-paying positions, full-time employees, and employees working for large companies. It also indicates, however, that there may be a shift in company-provided family leave due to recent company announcements emphasizing paid parental leave and more expansive uses of family leave.
While no mandated federal paid leave legislation has been enacted as of yet, employers should be aware of state law and city ordinances mandating paid leave for certain caregiving situations. Therefore, employers wishing to keep abreast of paid leave mandates and trends may find this report useful.
District Court Finds TPA Not Responsible for Determining Plan Eligibility Under Administrative Services Agreement
On March 8, 2018, the United States District Court for the Northern District of Alabama (the court) ruled in favor of Blue Cross Blue Shield of Alabama (BCBS) in Birmingham Plumbers and Steamfitters Local Union No. 91 Health and Welfare Trust Fund v. Blue Cross Blue Shield of Alabama, 2018 WL 1210930 (N.D. Ala. 2018) . In this case, the Union alleged that BCBS had breached their fiduciary and contractual duties by continuing to pay a participant's claims on a primary basis after the participant had received 30 months of treatment for end stage renal disease (ESRD).
As background, Medicare generally becomes the primary payer once a participant has been receiving ESRD treatment through the plan for 30 months. In this situation, the Union claimed that BCBS knew that the participant was diagnosed with ESRD and subsequently treated for 30 months and should've known that he was eligible for Medicare. BCBS argued that while they were a fiduciary as the plan's TPA, they were not a fiduciary for purposes of determining plan eligibility (and more specifically, eligibility for Medicare).
The court agreed, asserting that the Administrative Services Agreement (ASA) clearly made the employer the party that was responsible for ascertaining participant eligibility (under the plan and Medicare). As such, it was the employer who should've notified BCBS that this employee was eligible to enroll in Medicare coverage. Additionally, BCBS' fiduciary duty of administering the plan's claims was limited by the eligibility information provided by the employer. As a result, the court dismissed the Union's claims against BCBS.
Although we don't generally report on federal district court cases, we thought this was a good case to remind employers of their responsibilities in determining the eligibility of their participants. This would not only be important in the event that a participant is treated for ESRD, but could also occur if a dependent were to age out of the plan. Ultimately, employers should be aware of the responsibilities assigned to them through the ASA or any other plan documents, as those are the documents that a court would rely upon should a dispute arise.
Our SPDs are available on our intranet. Does that meet ERISA distribution requirements?
No. Simply posting the SPDs on your intranet is not enough. Employers must ensure the intended recipients receive the SPDs. For example, merely providing employees with access to a computer in a common area (e.g., a computer kiosk) is not a permissible means to electronically furnish ERISA-required documents.
As background, ERISA requires a plan administrator to obtain written consent prior to electronically delivering ERISA disclosures to beneficiaries and other plan participants who do not have work-related access to a computer. Plan administrators are required to use measures reasonably calculated to ensure actual receipt of the material by plan participants and beneficiaries (e.g., the plan administrator must make use of electronic mail features such as return-receipt or notice that the email was not delivered). The plan must also conduct periodic reviews to confirm receipt of the transmitted information.
In general, the regulations recognize two groups of employees when determining whether electronic distribution is sufficient: those who have electronic access as an integral part of their job and those who don't. These categories are determined by whether the employee can access electronic documents at a location where they are reasonable expected to perform their job duties.
Importantly, the first group are not just employees with a work email or who have access to a computer station at work (clock-in locations/kiosks included). Instead, they actually have to have the ability to access electronic documents at a location where they normally work. Thus, an employer should consider their workforce and determine which employees (if any) fit into the first category.
So, if an employee does not have access as an integral part of their job, the employee may provide the employer with an email address to send the notices, but the employee must affirmatively give consent to receiving electronic notices before the documents are distributed with that personal email. The email must explain what documents will be provided electronically, that their consent can be withdrawn at any time, procedures for withdrawing consent and changing the email address, the right to request a paper copy of the document and if there is an applicable fee, and what hardware or software would be required. If an employee doesn't give consent, then the employer should mail them a hard copy or provide it through another verified delivery method.
Further, whenever an email is sent to the employee with the notice (e.g., SPD), the employer must also explain what the notice is, explain the importance of the document, and advise on the ability to access and obtain a paper copy. So there is supplementary language that should be included in the email with the notice the employer should be aware of.
Finally, some notices are not appropriate for electronic disclosure. For example, the COBRA initial and election notices must be sent to covered spouses as well as to covered employees upon enrollment in the plan. Thus, the group should deliver these documents through another verifiable method if not included under the DOL safe harbor.
Please ask your advisor for a copy of our white paper ( Required Group Health Plan Notifications for Employees ) that describes which documents should be included in the eligibility/enrollment packet, which documents should be distributed upon enrollment, and which documents should be distributed upon termination from the plan. It identifies the required notices that may be provided electronically (indicated by an asterisk). Additionally, to assist with understanding the electronic disclosure requirements, take a look at this helpful chart regarding the DOL's electronic disclosure safe harbor describing the requirements for certain employee groups to receive (or provide consent to receive) documents electronically.
San Francisco: Employer Annual Reporting Due
Employers who are subject to the San Francisco Health Care Security Ordinance (HCSO) or the Fair Chance Ordinance must submit the 2017 Employer Annual Reporting Form by April 30, 2018.
The HCSO applies to employers with 20 or more total employees worldwide and at least one employee who performs work within the city or county of San Francisco. The ordinance requires the employer to meet a certain spending threshold for each San Francisco employee related to health care. Employers must report the number of employees covered by the ordinance per quarter in 2017 and detail the health care expenditures made each quarter (payments for health insurance, contributions to the City Option or irrevocable expenditures to a reimbursement account).
The Fair Chance Ordinance applies to employers who have 20 or more total employees worldwide and at least one employee who performs work within the city or county of San Francisco. Additionally, employers who have a service contract with the City of San Francisco are also subject to the ordinance, regardless of the number of employees. The ordinance prohibits employers from asking about arrest or conviction records on a job application. Employers must report whether their employment application in San Francisco asks about arrest or conviction information; and whether they conducted background checks on conviction or arrest records before a live interview (including telephonic).
Failure to comply with the annual reporting may result in a penalty of $500 per quarter assessed against the employer.
Proposed Regulations Published on Rhode Island's Paid Sick Leave Law
In March 2018, the Rhode Island (RI) Department of Labor and Training published proposed rules relating to RI's new Paid Sick and Safe Leave Time (PSSLT) law, which takes effect July 1, 2018. As background, the PSSLT requires employers with 18 or more employees in RI to provide 24 hours of paid sick and safety leave. The hour entitlement will increase to 32 hours in 2019 and 40 hours in 2020 and beyond. Employees can take paid leave to deal with their own or their household members' illness or domestic violence.
The proposed regulations clarify that a 'household member' includes not only a tax dependent of the employee, but also any person who resides at the same physical address as the employee. This is slightly different than other leave laws, which generally include only the employee's federal tax dependents (or their registered domestic partner).
In determining if the PSSLT law applies to an employer, the proposed regulations state that it applies to employers who maintained an average of 18 or more employees in RI 'during the previous payroll year's highest two employment quarters'. This is also different from other state and federal counting rules, which generally rely on the previous calendar year count for employees.
The proposed regulations define "employee” to include full time, part time and per diem employees, among others. According to the regulations, employees can accrue earned sick time/PSSLT benefits for all hours worked and all hours paid while collecting paid time off benefits (which includes holiday and vacation pay, personal time, and sick time).
Finally, the regulations state that the requirement of employee documentation (doctor's certification or something similar) after a three-day absence would be considered unreasonable and waived if the cost to the employee (for administration, governmental or medical fees, or transportation costs) exceeds two times his or her hourly rate of pay.
RI employers should review the proposed regulations and work with outside counsel in developing their leave policies in a way that meets the requirements of the upcoming law.
New Bulletin Addresses Medical Coverage for Part-Time Employees
On March 12, 2018, the Vermont Department of Insurance published Bulletin 171, which is a revision to a previous bulletin regarding the out-of-pocket (OOP) maximums for prescription drugs. As background, Vermont law (8 V.S.A. Sec. 4089i, enacted in 2012) established OOP maximums for prescription drugs, and as a benchmark for OOP maximums, the Vermont law relies on IRC Section 223 (relating to qualifying HDHPs and HSA eligibility). Bulletin 171 is intended to provide clarification for insurers, in the form of FAQs, on how the law should apply.
According to the bulletin, the new law applies to all plans, including large and small group plans. One FAQ explains that the new law requires prescription drug OOP maximums be no higher than the federal statutory annual minimum deductible for qualifying HDHPs (as outlined under IRC Section 223). Another FAQ states that the OOP maximums apply to all drug plans administered by the health plan, including by its PBM.
The bulletin clarifies the definition of 'out-of-pocket expenditure', explains which expenses count towards the OOP max and the deductible, and that prescription drugs administered in a doctor's office, hospital or clinic that are not obtained through retail or mail-order are counted toward the OOP maximum.
The FAQs include additional clarifications, such as when prescription drug benefits begin under the HDHP, whether out-of-network prescription drug expenses count towards the OOP maximum, and how the preventive services rules apply.
The bulletin contains no new employer obligations, but employers should be aware of it to better understand their plan designs and assist with employee questions.
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.
Our SPDs are available on our intranet. Does that meet ERISA distribution requirements?