On July 7, 2023, the DOL, HHS and IRS (the departments) issued a proposed rule (with an accompanying fact sheet) to amend certain requirements regarding limited duration insurance and excepted benefits coverage. The proposed rule also clarifies the tax treatment of fixed amounts received from accident and health coverage. Additionally, the departments are requesting comments regarding specific disease policies and level-funded plans.

The proposed rule follows several Biden Administration Executive Orders, which directed the departments to review policies for consistency with the goals of strengthening ACA protections and providing access to affordable, comprehensive healthcare. The Biden Administration also sought to ensure individuals understand their coverage options so they do not unknowingly purchase low-quality coverage (referred to as “junk insurance”) that may result in burdensome household medical debts. Accordingly, the proposed rule imposes new restrictions on coverage not fully subject to the ACA mandates.

First, the proposed rule requires short-term limited duration insurance (STLDI) to be truly short-term. STLDI is health insurance primarily designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another, such as a waiting period for a new employer’s plan. Under the ACA, STLDI is not health insurance, so it is not subject to certain ACA requirements (e.g., prohibitions on exclusions for pre-existing conditions and discrimination based on health status).

Specifically, the proposed rule would change the maximum duration of STLDI policies to four months (a three-month initial term with a one-month extension or renewal permitted within a year of the original effective date). This proposed duration is much shorter than the current 36-month maximum permitted under a 2018 Trump Administration rule. Additionally, the proposed rule updates STLDI notice requirements to highlight coverage limitations.

Second, the proposed rule changes the requirements for hospital and fixed indemnity plans to qualify as excepted benefits, which are not subject to certain ACA mandates (e.g., preventive care requirements or annual and lifetime limit prohibitions). Generally, to qualify as an excepted benefit, fixed indemnity coverage must pay a fixed amount per day or period under specified conditions (e.g., hospitalization or illness), be provided under a separate insurance policy, and not be coordinated with other employer group health coverage (e.g., with respect to exclusions or benefit payments). The proposed rule explains that fixed indemnity insurance is designed to provide income replacement in the event of a hospitalization or illness but notes that policies sold today often include certain features resembling comprehensive coverage (e.g., benefits paid based on receipt of a medical service or directly to a healthcare provider).

Therefore, the proposed rule reaffirms that fixed indemnity policies must pay benefits only on a per-period basis (without regard to medical services received, expenses incurred, illness severity or other treatment characteristics) to qualify as excepted benefits. That is, coverage that pays benefits on a per medical item or service basis would not be considered an excepted benefit. Additionally, the departments propose to require that a disclosure notice be provided to employees in relation to group market fixed indemnity excepted benefits coverage.

Third, the proposed rule clarifies the tax treatment of fixed amounts received through certain employment-based accident or health insurance, including hospital indemnity and specified disease coverage, which are paid without regard to the amount of medical expenses incurred. Specifically, if the premiums for the coverage are paid on a pre-tax basis through a cafeteria plan, such fixed amounts are not excludable from income and are subject to payroll taxes.

Fourth, the departments request comments regarding specified disease excepted benefits coverage, including benefit design features, data on policies sold and whether additional protections are needed to distinguish it from comprehensive coverage.

Finally, the departments request comments and data on level-funded plan arrangements to better understand their key features and characteristics and whether guidance is needed to clarify plan sponsors’ obligations regarding level-funded plan coverage.

Employers should be aware of the proposed regulations and consult with their advisors regarding any potential future impact on their coverage offerings. Comments can be submitted to the departments through September 11, 2023. Generally, the changes are proposed to apply to coverage sold or issued after the final rule’s effective date (with respect to plan years that begin on or after such date). However, later effective dates are proposed to apply to coverage sold prior to the final rule’s effective date. Employers should check Compliance Corner for additional updates regarding the proposed changes and final rule issuance.

Federal Register: Short-Term, Limited-Duration Insurance; Independent, Noncoordinated Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax Treatment of Certain Accident and Health Insurance »
Fact Sheet »

On July 7, 2023, the DOL, HHS and Treasury (collectively, the departments) released new FAQs (Part 60) addressing the coordination between the No Surprises Act (NSA) and the ACA annual out-of-pocket (OOP) maximum limit. The FAQs also address the interaction between the NSA and the ACA Transparency in Coverage (TiC) rules with respect to facility fees, which are increasingly charged for services provided even outside of hospital settings. Below is a key summary:

• Q/A-1 states that cost-sharing for services furnished by a provider or facility or provider of air ambulance services that are “nonparticipating” under the NSA is considered cost-sharing for “out-of-network” services for purposes of the ACA annual OOP maximum limit. Correspondingly, cost-sharing for services furnished by a “participating” provider or facility for purposes of the NSA is considered “in-network” cost-sharing for purposes of the ACA annual OOP maximum limit.
• Q/A-2 states when plans and insurers have contractual relationships with providers, facilities, or providers of air ambulance services that are not considered part of their network, they are not allowed to consider the providers or facilities as “participating” for purposes of the NSA while treating them as “out-of-network” under the ACA annual OOP maximum limit.
• Q/A-3 addresses disclosure requirements under the TiC rules and the NSA rules regarding facility fees. The departments are concerned that individuals are increasingly being charged facility fees unexpectedly, particularly for services received outside hospital settings. The overview section of the FAQ explains when facility fees are covered by the participant’s plan as essential health benefits provided in-network, cost-sharing for these fees is subject to the ACA annual OOP maximum limit. However, when facility fees are not covered as essential health benefits, these fees can expose individuals to financial risk.

The FAQ confirms that the TiC and NSA’s definition of "items and services" includes facility fees. Therefore, plans and insurers are required to make price comparison information for charged facility fees available to plan enrollees through an internet-based self-service tool and in paper form upon request.

These FAQs provide some clarifications as to how the NSA rules coordinate with the ACA annual OOP maximum limit and the TiC rules on facility fees. Employers should monitor the departments’ future proposed rules that are expected to address facility fees regarding the advanced explanation of benefits (EOB) requirement. The CAA requires that plans provide a participant with an advanced EOB for a service scheduled at least three days in advance or upon request. However, the effective date of this requirement has been delayed pending the release of related guidance.

FAQs About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 60 »

On June 14, 2023, the CMS launched a dedicated website with resources and customer service information to educate patients, providers and insurers about the No Surprises Act surprise billing rules that protect patients from unexpected out-of-network medical bills.

The website also has a link to connect to the national customer service hotline, where patients can get answers about their medical billing issues or file a complaint if they believe surprise billing protections apply to them.

CMS No Surprises Act Main Site: Medical Bill Rights »

On June 7, 2023, the Eighth Circuit Court of Appeals affirmed the district court’s denial of a bariatric surgery patient’s claims. The ruling was based upon the plan’s exclusion of claims for weight loss procedures and related complications.

Darin Shafer underwent bariatric surgery in April 2015 and started his job at Zimmerman Transfer, Inc. a few months later. While employed at Zimmerman, Shafer participated in Zimmerman’s group health plan, a self-insured plan for which Benefit Plan Administrators of Eau Claire, LLC (“BPA”) served as the third-party administrator.

In 2017, Shafer began to suffer nausea, vomiting, and abdominal pain, and emergency room doctors determined he had a bowel obstruction caused by his prior bariatric surgery. The doctors admitted Shafer for monitoring after getting his nausea and pain under control. However, Shafer soon began vomiting again, and he was transferred to Nebraska Methodist Hospital, where the same doctor who performed Shafer’s bariatric surgery surgically fixed his bowel obstruction.

BPA had initially precertified the treatment but later denied Shafer’s claim for benefits after having a physician conduct an independent medical review. The plan’s terms excluded bariatric surgery from coverage. Since Shafer’s surgery was due to a complication of bariatric surgery, the reviewing physician concluded that it was not covered since the plan’ also excluded any “treatment, service or supplies due to complications of a non-Covered Expense” from coverage. The hospital and the surgeon each appealed the denial on Shafer’s behalf. After both of these appeals were denied, Shafer requested an external review. The external physician reviewer also recommended the denial of Shafer’s claim.

After exhausting his administrative appeals, Shafer sued Zimmerman and BPA for benefits, after which the defendants moved for summary judgment, which the district court granted. Shafer appealed this decision to the Eighth Circuit, which affirmed the trial court’s ruling.

Because the plan gave the administrator discretionary authority to determine eligibility and construe the terms of the plan, the Eighth Circuit applied an “abuse-of-discretion” standard to its review and would therefore only reverse the administrator’s decision “if it was arbitrary and capricious, meaning it was unreasonable or unsupported by substantial evidence.”

Using this standard, the Eighth Circuit rejected Shafer’s claim that the denial of his claim was contrary to the clear language of the plan providing for the coverage of emergency services without any exclusions since the plan excluded coverage for complications arising from bariatric surgery. The court also rejected Shafer’s claims that the surgery was covered as a “Medically Necessary Covered Expense Incurred” since the plan’s terms included any such expenses only if they were “not excluded under the exceptions provisions of the policy.”

Shafer also argued that Affordable Care Act (ACA) provisions relating to emergency services coverage required coverage for the procedure, but the court disagreed, observing that the ACA’s patient protections do not require a plan to cover all emergency services. Rather, these protections require plans that already cover emergency services to satisfy certain additional requirements (such as covering out-of-network treatments) while also specifically stating that emergency coverage under the plan can be subject to the plan’s exclusions.

Employers should be aware of the Eighth Circuit’s opinion, which highlights that not all emergency services may necessarily be covered by the ACA protections. However, other courts could potentially reach a different conclusion where the denial of emergency services is based on a general plan exclusion that applies to items and services other than emergency services. Particularly with the new surprise billing protections, it will be important to monitor case law developments in this area.

Shafer v. Zimmerman Transfer, Inc. »

On July 11, 2023, the Pension Benefit Guaranty Corporation (PBGC) issued a final rule on benefits administration for terminated single-employer pension plans. The final rule aims to increase transparency of benefits administration for terminated plans while also clarifying and simplifying regulatory language.

Key updates include clarification on the following:

• PBGC’s rules on payment of a lump sum are unaffected by the election of a lump-sum distribution before plan termination.
• A de minimis benefit of a married participant who dies after plan termination will be paid as an amount due a decedent, not as a qualified preretirement survivor annuity.
• Benefits will be paid to estates only as a lump sum.
• Accumulated mandatory employee contributions may not be withdrawn if benefits are in pay status when the plan becomes trusteed.
• The form of benefit in pay status when a plan becomes trusteed will not be changed.
  

Additionally, the final rule:

• Changes wording that refers to the current statutory dollar amount subject to cash out ($5,000) to instead refer to the statutory provision that specifies the maximum dollar amount to avoid the need for annual regulatory updates.
• Requires that fair market value or fair value, as appropriate, be used for purposes of valuing assets to be allocated to participants’ benefits and in determining employer liability and net worth.
  

The final rule is effective August 10, 2023, and applies to plan terminations thereafter. However, PBGC notes that the final rule codifies practices PBGC has followed for many years and will continue to follow in the interim. Employers who sponsor single-employer pension plans should be aware of this final rule.

Federal Register: Benefit Payments and Allocation of Assets »

“Point solution” programs are specific services that add value to an employer’s major medical plan or benefits program. Point solution programs are generally provided through third-party vendors. They often target benefit plan enhancements that range from specific condition management to digital solutions and apps to overall benefit program simplification. Some common examples of services provided through point solution programs include fertility, musculoskeletal, developmental disability, and mental and behavioral health.

Whether ERISA (which governs the Form 5500 requirement) or the ACA (which includes the PCOR fee requirement) applies to any particular point solution program depends on whether the program provides medical care. “Medical care” is broadly defined to include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease or for the purpose of affecting any structure or function of the body. Although each point solution program should be analyzed on a case-by-case basis, it essentially boils down to whether the program provides individualized diagnosis, treatment or prescription services for an employee (or an employee’s family member, if applicable). If it does, then the program is typically a group health plan and is therefore subject to these and other laws.

Point solution programs that provide medical care are subject to ERISA, including the Form 5500 and Summary Annual Report (SAR) reporting requirements. Point solution programs that are integrated or wrapped together with the major medical plan can comply with the Form 5500/SAR requirements by adding the program benefits to the medical plan Form 5500. Non-integrated/non-wrapped plans must file a separate Form 5500 (and they may have to do so without a Schedule A since many vendors take the position that their products are not “insurance products” subject to Schedule A reporting; see the Form 5500 Instructions for more information about filing Form 5500 without Schedule A).

Note: If your fully-insured medical plan is administered and billed by PPI, your coverages will be included in the Form 5500 filing for the ACSA or BIEB Trusts. However, any point solutions as described above are not included in the ACSA/BIEBT filing. Therefore, you will need to file them separately from what PPI files for your medical plan.

Note that point solution programs that provide significant benefits in the nature of medical care or treatment are likely considered self-insured plans that are subject to the PCOR fee. This is especially relevant for point solution programs that are structured as a reimbursement that is outside of a self-insured medical plan or pairs with a fully insured medical plan. The PCOR fee count for such point solution programs follows the same rule as for HRAs: the employer simply counts one covered life per program, exclusive of spouses, domestic partners or dependents.