Recently, HHS issued the first in a series of five annual reports to Congress on the impact of the No Surprises Act (NSA). The NSA was enacted in 2020 to address certain instances of surprise billing, where individuals receive unexpectedly high medical bills after receiving treatment, either unknowingly or unavoidably, by an out-of-network (OON) provider, facility, or provider of air ambulance services subject to NSA requirements.

This first report establishes a framework for evaluating the NSA’s impact on surprise billing, healthcare costs, and consolidation that will be used in future reports. It focuses on key trends such as the impact of state surprise billing laws already in effect, trends in market consolidation and concentration related to prices, quality, and spending, and overall OON billing trends.

The report notes that the law went into effect on January 1, 2022, and it may take time to see the full impact. Existing healthcare trends such as demographic changes, economic conditions, technology changes that affect healthcare delivery, and healthcare policies that alter financial incentives may impact the NSA trends being studied, and additionally, distinguishing between these factors is challenging. Future reports will identify the most promising study designs and methods to capture the NSA impact on key outcomes such as price, spending, quality, and access to healthcare.

The first key factor discussed is the effect of state surprise billing laws. Prior to the NSA, 33 states had surprise billing protections, but those laws generally only applied to insured plans written in that state. The NSA covers both self-insured plans, which may not have been subject to individual state laws, and fully insured plans. Additionally, the NSA fills the gap where federal law prohibits states from regulating the prices of air ambulance services. State methods for addressing surprise bills can vary markedly either by the approach used or the terms of the benchmark rates being used. The report includes examples of differences across states. Studies show that the impact of surprise billing laws is greatly influenced by the approach taken by the respective state. Therefore, while evaluating existing state data is important, the NSA will need to be cautious in making comparisons, especially since the NSA was written to defer to existing state laws in some situations.

The second key factor discussed is market consolidation and concentration. NSA protections may have a downstream effect on other areas of healthcare markets, such as a change in network structures or provider bargaining power due to lower OON prices, which they refer to as market power. The report focuses on two aspects of market power — consolidation and concentration. Consolidation of market power are things like mergers and acquisitions, which modify markets and increase market power, or arrangements such as affiliations between organizations that allow joint negotiations. Consolidation can lead to weakened competition, resulting in less competitive prices and quality, or it may lead to increased efficiencies and patient outcomes. Concentration of market power looks at the size and number of competitors in a market, which may feel an impact from a consolidation of market power. Health insurance, hospital, and physician organization markets have become increasingly concentrated over recent years, but reports are thus far mixed as to the impact of concentration on pricing and patient care.

The final key factor discussed is the overall trend in OON billing to help determine items and services most likely to be affected. Providers, items, and services most closely associated with OON billing prior to the enactment of the NSA will likely feel the impact of the NSA the most. Therefore, it is important to examine historical data as part of the overall analysis. The report looked at Health Care Cost Institute (HCCI) data from 2012–2022, comprising claims and enrollment data for 55 million commercially insured individuals from four insurers (Aetna, Blue Health Intelligence, Humana, and Kaiser). The data shows an overall decrease in OON claims during this timeframe, although a substantial variation in OON claims by state, age, and gender exists. Insurance plan type also made a difference, with point of service (POS) carrying the highest share and preferred provider organizations (PPO) with the lowest share.

Estimating the true impact of the NSA will take time as analysis and methodologies evolve. This first annual report is an important reminder of the importance of the NSA and its potential impact on patients and the healthcare market as a whole.

HHS NSA First Annual Report »

On August 11, 2023, the DOL, HHS, and IRS (“the agencies”) issued FAQs regarding administrative fees charged to group health plans, insurers, and out-of-network providers involved in payment disputes subject to the independent dispute resolution (IDR) provisions of the No Surprises Act (NSA).

An administrative fee is levied against each party to the IDR process. In late December 2022, the agencies increased this fee from $50 per party to $350 for 2023.

The Texas Medical Association (TMA), which has been contesting agency rules promulgated pursuant to the NSA since its inception, challenged the 2023 fee on the grounds that its imposition violated the Administrative Procedure Act’s (APA’s) notice-and-comment requirements. The TMA also challenged the agencies’ restrictions on combining, or “batching,” related claims for resolution altogether in a single proceeding on the same grounds. Generally, the APA’s notice-and-comment requirements prohibit administrative agencies from making final rules without first providing notice of the rules and allowing the public a reasonable opportunity to comment upon them.

As it has on previous occasions, on August 3, 2023, the US District Court for the Eastern District of Texas ruled against the agencies and in favor of the TMA. The court vacated both the fee increase as well as the rule restricting the batching of claims. Accordingly, the agencies suspended the IDR process for a short time thereafter, pending further instructions, which were then provided in the form of FAQs.

The FAQs provide that the administrative fee amount for disputes initiated on or after August 3, 2023, will revert to $50 per party per dispute until further notice and that IDR entities should reissue invoices to parties for open disputes initiated on or after January 1, 2023, through and including August 2, 2023, for which the administrative fees have not been paid.

Notably, however, because the court held that it did not have jurisdiction to order the repayment of paid fees, the FAQs make clear that no refunds will be forthcoming to any parties who have already paid the now vacated $350 fee, even in cases where one disputing party has paid the $350 fee and the other has yet to do so. (In these cases, the nonpaying party will be invoiced for $50).

The FAQs do not address the batching issue. However, a notice on the NSA website indicates IDR entities will resume processing certain disputes, including single and bundled disputes, initiated before the court’s decision. Meanwhile, processing of other batched disputes remains suspended.

This legal development adds further uncertainty to an already backlogged IDR process. Employers with self-insured plans that are involved in payment disputes with OON providers should be aware of this development and monitor for further guidance.

On August 9, 2023, the Congressional Research Service (CRS) issued the Medicare Secondary Payer (MSP) Coordination of Benefits report. The CRS serves Congress in the legislative process by providing policy and legal analysis to committees and members of both the House and Senate, regardless of party affiliation. This report reviews the MSP system, reporting requirements, Medicare beneficiary responsibility, payer liability issues, and issues for Congress. One report section also discusses the coordination of benefits between Medicare and group health plans, which is important for employer plan sponsors to understand.

As background, Congress initiated MSP requirements beginning in 1980 to ensure certain insurers met their contractual obligations to beneficiaries and to reduce Medicare expenditures, thus extending the life of the Medicare Trust Fund that pays Medicare benefits. The MSP program spells out specific conditions under which other insurers are required to pay first, and Medicare is responsible for secondary payments. The application of these coordination of benefit rules depends on factors such as the employer size, coverage type (active or COBRA), and category of covered beneficiaries, as reflected below. (Note: Employer size is determined based on the number of employees, not the number of individuals covered under a group health plan. Further, employer size must be counted based on the size of the entire company or corporation worldwide, according to the CMS MSP Employer Size Guidelines.)

• Working Aged. For an employer with 20 or more employees, Medicare is the secondary payer for a beneficiary with group health insurance aged 65 or older who is working or whose spouse is working. Under federal law, an employer with 20 or more employees must offer workers aged 65 and older the same group health insurance coverage offered to other employees. Further, employers are not allowed to take into account that an individual (or the individual’s spouse) who is covered by the plan is entitled to Medicare benefits.
• Working Disabled. If the employer has 100 or more workers, Medicare is the secondary payer for disabled Medicare beneficiaries who are under age 65 and have employer-sponsored health insurance based on their own current employment, a spouse’s current employment, or as a dependent of an employed worker. However, if the employer has fewer than 100 workers, Medicare pays first for a disabled beneficiary under age 65 with employer-sponsored health coverage through their current employment or the current employment of a spouse or dependent.
• Persons with End-Stage Renal (ESRD) Disease. Individuals who are under the age of 65 may qualify for Medicare based on a diagnosis of ESRD, a medical condition in which the kidneys are failing, and a person cannot live without dialysis or a kidney transplant. For individuals whose Medicare eligibility is based solely on ESRD, any group health plan coverage they receive through their employer or their spouse’s/parents’ employer is the primary payer for the first 30 months that an individual is entitled to enroll in Medicare because of ESRD. After 30 months, Medicare becomes primary.
• COBRA. COBRA is generally secondary to Medicare because an individual’s insurance coverage is based on COBRA law rather than on current employment status. Employers are not allowed to terminate COBRA coverage due to Medicare entitlement if an individual who is first entitled to Medicare then enrolls in COBRA. However, employers can terminate COBRA coverage if a person who has first elected COBRA coverage subsequently becomes entitled to Medicare (with limited exceptions). When an employee loses COBRA coverage due to Medicare entitlement, however, their spouse and children still may be eligible for COBRA coverage.

This report also discusses Medicare coverage coordination of benefits with other types of insurance, including workers’ compensation and no-fault and liability insurance. For the MSP rules for other types of coverage, please refer to this report.

According to the CMS, MSP laws and regulations reduced Medicare spending by about $9.7 billion in fiscal year (FY) 2021, and about $63 billion from FY 2015 through FY 2021.

Lastly, the MSP data is collected primarily from the Section 111 mandatory reporting requirement. Insurers for fully insured plans, TPAs for self-insured plans, and plan administrators for self-insured plans that self-administer plans are responsible for submitting the reporting on a quarterly basis.

Employers should review this report to verify their coordination of benefits between administration of their plans and Medicare and be educated on the specific MSP rules.

Medicare Secondary Payer: Coordination of Benefits »

On August 4, 2023, the Ninth Circuit Court of Appeals affirmed in part and reversed in part the US District Court for the Central District of California’s granting of summary judgment to the defendants in an ERISA class action brought by former AT&T employees who contributed to AT&T’s retirement plan (the plaintiffs), a defined contribution plan. Defendants in the case are the plan’s administrator, AT&T Services, Inc., and the committee responsible for some of the plan’s investment-related duties, the AT&T Benefit Investment Committee (the defendants).

The plaintiffs alleged that when the defendants amended their contract with the recordkeeper to allow the recordkeeper to engage a brokerage account platform and investment advisory services for participants, it failed to investigate and evaluate all the compensation that the plan’s recordkeeper received for these additional services. According to the plaintiffs, this failure resulted in the contract between the defendants and recordkeepers being a “prohibited transaction” under ERISA Section 406. The plaintiffs also alleged that the failure to consider the compensation to the recordkeeper was a breach of the defendants’ fiduciary duty of prudence. By granting the defendants’ summary judgment motion, the district court was, in effect, finding that, even if the plaintiffs proved all their allegations, there was still no violation of the law.

By reversing the grant of summary judgment, the Ninth Circuit concluded that when the defendants amended their contract with the plan recordkeeper to add brokerage and investment advisory services, it engaged in a prohibited transaction under ERISA. This conclusion is contrary to what two other circuit courts have found, creating the possibility of an appeal to the Supreme Court.

The Court remanded the case to the district court to determine if any exemptions from the prohibited transaction rule exist, whether the contract was “reasonable,” whether the services were “necessary,” and whether no more than “reasonable compensation” was paid for services. Specifically, the district court was instructed to consider whether the plan recordkeeper received no more than “reasonable compensation” from all sources, both direct and indirect, for the services provided to the plan. The Court also reversed the granting of summary judgment for the breach of fiduciary duty claim, in the context of failure to monitor the compensation the recordkeeper received from the brokerage services company.

While this case involved a retirement (401(k)) plan, the ERISA sections involved apply also to ERISA health plans. This ruling reflects an expansion of which types of contracts between plan administrators and plan service providers constitute prohibited transactions. Health plan and retirement plan administrators should keep the prohibited transactions section of ERISA in mind when contracting with service providers to make sure service providers receive only reasonable compensation.

Bugielski v. AT&T Services, Inc. »

On August 11, 2023, the DOL published a request for information (RFI) soliciting public comments on certain SECURE 2.0 provisions that impact ERISA’s reporting and disclosure framework. The public feedback will inform future DOL rulemaking or other guidance.

Numerous sections of SECURE 2.0 establish new, or revise existing, ERISA reporting and disclosure obligations. In some cases, SECURE 2.0 also requires the DOL to undertake a review of existing or new requirements and submit reports to Congress on their findings.

Accordingly, the RFI is comprised of questions on specific topics affected by SECURE 2.0 reporting and disclosure changes, including:

1. Pooled Employer Plans (PEPs). Section 344 of SECURE 2.0 directs the DOL to study the PEP industry and report their findings to Congress and the public every five years, with recommendations on how PEPs can be improved through legislation. The RFI seeks data sources to perform this study, including information on PEP selection and monitoring, investment ranges and fees, and participant disclosures.
   
2. Pension-linked Emergency Savings Accounts (PLESAs). Section 127 of SECURE 2.0 amended ERISA to add PLESAs. PLESAs allow non–highly compensated employees in section 401(k), 403(b), or governmental 457(b) plans to make after-tax Roth contributions to a separate account and withdraw from that account to pay for unexpected short-term emergency expenses. If a plan offers PLESAs, the employer must provide participants with initial and annual disclosures that explain the PLESA’s purpose, limits, tax treatment, investment options, fees, contributions and withdrawal process, among other items. The RFI asks whether employers need further guidance to implement PLESAs and whether they would benefit from model notices to comply with disclosure obligations.
   
3. Performance Benchmarks for Asset Allocation Funds. Section 318 of SECURE 2.0 specifies criteria for blended performance benchmarks applicable to designated investment alternatives that contain mixed asset classes. The RFI asks if additional factors should be included to ensure employers and participants can effectively use the benchmarks and how to assess participants’ understanding of the benchmarks.
   
4. Defined Contribution Plan Fee Disclosure Requirements. Section 340 of SECURE 2.0 requires the DOL to review and report on ERISA 404a-5 disclosure requirements in participant-directed individual account plans. The report must include recommendations for legislative changes to help participants better understand defined contribution plan fees and expenses, including the cumulative effect over time. The RFI seeks comments on the adequacy of the current disclosures and changes to the content, design, format, or delivery method that may improve the effectiveness.
   
5. Eliminating Unnecessary Plans Requirements Related to Unenrolled Participants. Section 320 of SECURE 2.0 amended ERISA to eliminate disclosure obligations to unenrolled employees, except for an annual reminder notice of their plan eligibility and election deadlines or if the disclosure is requested. The RFI asks whether employers need additional guidance, such as a model annual notice, to implement this change.
   
6. Requirement to Provide Paper Statements in Certain Cases. Section 338 of SECURE 2.0 directs the DOL to update their 2002 electronic delivery safe harbor to provide that employees who first become eligible to participate after December 31, 2025, must be furnished a one-time initial paper notice of their right to request all ERISA documents in paper form prior to the electronic delivery of any pension benefit statement. The RFI seeks input on any needed updates to existing electronic delivery rules to effect this requirement and whether an employer’s continued use of electronic delivery should be conditioned on access in fact (meaning the employer’s verification that an individual has accessed the document).
   
7. Consolidation of Defined Contributions Plan Notices. Section 341 of SECURE 2.0 requires the DOL and IRS to issue regulations providing that plan administrators may consolidate certain notices, such as notices for qualified default investment alternatives, automatic contribution arrangements, and nondiscrimination safe harbors. The RFI seeks input regarding any current legal impediments to consolidation and the pros and cons of such an approach.
   
8. Information Needed for Financial Options Risk Mitigation. Section 342 of SECURE 2.0 changed disclosure rules for defined benefit pension plans that offer lump sum payments. The new rules require plans to provide certain information to participants before the lump sum becomes available, such as the value of the lump sum relative to annuities available under the plan, the interest rate and mortality figures used to calculate the lump sum and the related tax implications. The DOL must develop a model notice for this purpose. The RFI asks for sample model notices and whether additional implementation guidance is needed.
   
9. Defined Benefit Annual Funding Notice. Section 343 of SECURE 2.0 modifies the content requirements for defined benefit plan annual funding notices. The RFI seeks certain input regarding the content requirements and suggestions for updating the existing funding notice to reflect the changes.

Employers that sponsor retirement plans should be aware of this RFI. Those wishing to submit comments to the DOL for consideration must do so by October 10, 2023, in accordance with the specific RFI instructions.

Federal Register: Request for Information-SECURE 2.0 Reporting and Disclosure »

Yes, employer-provided group term life insurance (GTLI) is subject to nondiscrimination rules under Section 79 of the Internal Revenue Code. Section 79 allows for the value of up to $50,000 of GTLI coverage on an employee’s life to be excluded from the employee’s gross income. However, certain nondiscrimination requirements must be satisfied in order for all employees to benefit from the $50,000 coverage tax exclusion.

At a high level, the nondiscrimination rules provide that employer-provided GTLI plans cannot discriminate in favor of certain “key employees” with respect to eligibility to participate in the plan or contributions or benefits under the plan. A key employee is defined as an officer with annual compensation in excess of the specified threshold ($200,000 for 2022; $215,000 for 2023), a more-than-5% owner/shareholder, or a more-than-1% owner with compensation in excess of $150,000. Part-time or seasonal employees, full-time employees with fewer than three years of service, and certain employees covered by a collectively bargained agreement may be excluded from testing. Former employees (e.g., retirees) are tested separately from active employees.

GTLI plans that offer all full-time employees the same fixed-dollar or multiple-of-salary benefit will pass the relevant eligibility and benefits nondiscrimination tests (Section 79 provides a safe harbor for these coverage designs). By contrast, GTLI plans that provide benefits exclusively or at a lower cost to key employees, or that provide a higher fixed-dollar or multiple-of-salary benefit to one or more key employees (such as a plan that provides a $200,000 benefit to the company’s CEO but a $100,000 benefit to all other employees), are at risk of being discriminatory. Any GTLI plan that does not cover all benefits-eligible employees at the same fixed-dollar amount or multiple-of-salary formula requires further scrutiny under the nondiscrimination rules.

When a GTLI plan fails a Section 79 nondiscrimination test as to one or more key employees, all key employees lose the benefit of excluding from income tax the value of the first $50,000 of employer-provided coverage. However, non-key employees are not affected by a discriminatory plan design. Employers are encouraged to review the proper taxation of their specific GTLI benefits with their tax advisors.

For further information, download our publication, Group Term Life Insurance: A Guide for Employers.