PPI in the News Compliance Corner - July 26, 2018 Archive
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On July 3, 2018, the IRS released draft versions of the 2018 informational reporting forms that insurers and self-insured employers will use to satisfy their obligations under IRC Section 6055. In addition, on July 11, 2018 the IRS released 2018 draft versions of the forms that large employer plan sponsors and health plans will use to satisfy their obligations under IRC Section 6056. These forms, once finalized, will be filed in early 2019 relating to 2018 information. The IRS is currently accepting comments on the draft forms. A 2018 draft version of Form 1095-B and draft instructions for these forms have not yet been released.

As a reminder, Forms 1094-B and 1095-B (6055 reporting) are required of insurers and small self-insured employers that provide minimum essential coverage. These reports will help the IRS to administer and enforce the 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 2018 for which the employee and family members had minimum essential coverage under the employer's plan. Form 1094-B identifies the insurer or small self-insured employer and is used to transmit the corresponding Form 1095-B to the IRS.

Forms 1094-C and 1095-C (6056 reporting) are to be filed by applicable large employers that are subject to the employer mandate (as they will help the IRS administer and enforce the employer mandate). Employers will use Form 1095-C to identify the employer, the employee, whether the employer offered minimum value coverage meeting the affordability standard to the employee and dependents, the cost of the lowest plan option and the months for which the employee enrolled in coverage under the employer's plan. Further, if the plan is self-insured, the employer will use the form to fulfill its Section 6055 reporting obligations by indicating which months the employee and family members had minimum essential coverage under the employer's plan.

Whereas Form 1095-C reports coverage information at the participant level, Form 1094-C reports employer-level information to the IRS. The applicable large employer will use this form to identify the employer, number of employees, whether the employer is related to other entities under the employer aggregation rules and whether minimum essential coverage was offered.

The 2018 draft forms appear to have only a few minor changes compared to the 2017 forms. Highlights of the changes are as follows:

• 1094-B - Appears unchanged.
• 1094-C - Appears unchanged. However, this could change upon the release of the draft instructions.
• 1095-B - No draft form released at this time.
• 1095-C - Line 1 in Part I and Column (a) in Part III provide dividers for the entry of the individual's first name, middle initial and last name. This new layout will likely ensure all Forms 1095-C are completed with an identical name structure, thus leading to more uniformity and fewer TIN issues.

Employers should become familiar with these forms in preparation for filing information returns for the 2018 calendar year. However, these forms are only draft versions, and they shouldn't be filed with the IRS or relied upon for filing. In addition, despite the repeal of the individual mandate penalty in 2019, large employers will still need to continue to offer affordable, minimum value coverage to all full-time employees and prepare to comply with employer reporting requirements as to 2018 coverage.

2018 Draft Form 1094-C >>
2018 Draft Form 1094-B >>
2018 Draft Form 1095-C >>

On July 11, 2018, the U.S. Court of Appeals for the Seventh Circuit ruled in Cehovic-Dixneuf v. Wong , No. 17-1532 (7th Cir. July 11, 2018), that a supplemental life insurance policy was subject to ERISA because it satisfied the five requirements for being an ERISA employee welfare benefit plan. The court reasoned that the policy wasn't exempt from ERISA under the DOL's regulatory safe harbor for voluntary plans because it didn't satisfy all four of the exception requirements. As a result, the policy's death benefits were payable to the designated beneficiary, the participant's sister and plaintiff, without regard to equitable arguments asserted by the participant's ex-wife, the defendant.

As background, this fully insured supplemental life insurance policy was offered by the participant's employer with a death benefit of $788,000. The participant listed his sister as the sole beneficiary for both the supplemental policy and a basic life insurance policy with a death benefit of $263,000. However, after the participant died, his ex-wife claimed that she and the child she had with the participant were entitled to the death benefits from the supplemental policy. The participant's sister sued the ex-wife, seeking a declaration that the sister was entitled to the death benefits.

The district court ruled in favor of the sister, and the Seventh Circuit affirmed that decision, finding that the supplemental life insurance policy was subject to ERISA and that the sister was entitled to death benefits under the policy. Any equitable arguments asserted by the defendant couldn't succeed if the supplemental life insurance policy is covered by ERISA because ERISA generally requires plan administrators to manage plans according to the governing documents, including beneficiary designations.

To avoid ERISA application, the defendant argued that the court should sever the supplemental life insurance policy from the basic life insurance policy. They also argued that the plan was voluntary since the premiums were paid in full by participants with no employer contributions. However, the court explained that under Seventh Circuit precedent, ERISA covers a welfare arrangement that meets five elements based on ERISA's definition of "employee welfare benefit plan."

Quickly, here are the following five elements that must be present for ERISA to cover an employee welfare plan:

1. A plan, fund, or program
2. Established or maintained
3. By an employer or by an employee organization, or by both
4. For the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits
5. To participants or their beneficiaries

All of those criteria were deemed satisfied because the supplemental life insurance policy was part of a program established by the participant's employer for the purpose of providing death benefits to participants or their beneficiaries.

Moreover, the Seventh Circuit noted that an arrangement isn't excluded from ERISA under the DOL's voluntary plan safe harbor if it fails to satisfy any of the safe harbor's four requirements. Specifically, the safe harbor requires that:

• The plan must be completely voluntary for employees
• No employer contributions toward coverage are allowed
• Employer involvement (without endorsing the program) must be limited to only specified activities allowed by the regulations
• The employer must not profit from the plan

The court's opinion was pretty straightforward, as the Seventh Circuit concluded based on key information from the SPD that the policy failed the safe harbor's third requirement because the employer had performed all administrative functions associated with maintenance of the policy. In other words, the employer's functions exceeded the very limited ones permitted under the safe harbor. Specifically, the employer was listed as the policyholder of the supplemental life insurance policy and the SPD described the policy as being part of or related to the ERISA covered basic life policy.

In summary, employers should be aware of ERISA application of certain benefits and the compliance obligations that follow, such as SPD distribution. Ultimately, this case demonstrates that when ERISA applies to an arrangement, ERISA's broad preemption rule may supersede many state laws that would otherwise apply to the arrangement. In this case, the Seventh Circuit's conclusion that the supplemental life insurance policy was covered by ERISA meant that the ex-wife couldn't make certain equitable arguments that might otherwise have been available.

Cehovic-Dixneuf v. Wong >>

On July 20, 2018, the IRS issued final regulations amending the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) relating to certain qualified retirement plans that contain cash or deferred arrangements or that provide for matching contributions or employee contributions.

The final regulations are virtually unchanged in comparison to the proposed regulations (which were proposed in January 2017). Under these regulations, employer contributions to a plan would be able to qualify as QMACs or QNECs if they satisfy applicable nonforfeitability and distribution requirements at the time they're allocated to participants' accounts, but they need not meet these requirements when they're contributed to the plan. This change allows amounts held as forfeitures in a 401(k) plan to be used to fund QNECs and QMACs.

The final regulations are effective on July 20, 2018, and apply to plan years beginning on or after that date. However, the IRS will allow taxpayers to rely upon these rules in earlier periods.

Employers maintaining tax-qualified plans that contain cash or deferred arrangements or provide for matching contributions or employee contributions should take note of these proposed changes.

Final Rule >>

The IRS has released an updated version of Form 4419, dated June 2018. The form is used to request authorization from the IRS to transmit certain information returns electronically through the Filing Information Returns Electronically (FIRE) system. FIRE is used to file the following forms electronically with the IRS: Forms 1042-S (Foreign Person's U.S. Source Income Subject to Withholding), 1097 (Bond Tax Credit), 1098 (Mortgage Interest Statement), 1099 (Miscellaneous Income), 3921 (Exercise of an Incentive Stock Option Under Section 422(b), 3922 (Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), 5498 (IRA Contribution Information), 8027 (Employer's Annual Information Return of Tip Income and Allocated Tips), 8955-SSA (Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits) and W-2G (Certain Gambling Winnings).

Importantly, FIRE is not used to file Forms 1094-C, 1095-C, 1094-B or 1095-B, which are filed through the Affordable Care Act Information Return (AIR) system.

In order to transmit files electronically through FIRE, the filer must have appropriate software, a capable service provider or an in-house programmer that will create the file in the proper ASCII format. The Form 4419 must be submitted at least 45 days before the due date of the return to allow time for approval and a Transmitter Control Code to be assigned.

The updated version is substantially the same as the previous version, but filers must take care to use the most recent version of the form.

Form 4419 >>

On May 7, 2018, the San Francisco Office of Labor Standards Enforcement (OLSE) published revised rules related to the Paid Sick Leave Ordinance. As a reminder, the ordinance, which has been in place since 2007, requires San Francisco employers to provide paid sick leave to all employees working in San Francisco, including part-time employees, temporary employees and undocumented immigrant employees.

Employees must accrue at least one hour of paid sick leave for every 30 hours worked. Accrual begins after the first 90 days of employment. If the employer has fewer than 10 employees, maximum accrual is 40 hours. Maximum accrual for larger employers is 72 hours. Accrued time rolls over from year to year; however, hours in excess of the total allowed for employers of each size are forfeited. To determine the number of employees, the employer must count all employees, not just the ones who work in San Francisco.

Under the new rules, an employer may not require a doctor's note or other documentation for the use of paid sick leave of three or fewer consecutive work days. This practice is considered unreasonable with two noted exceptions:

1. An employer may request documentation to verify an employee's absences when there's a pattern or clear instance of abuse, even in absences of three or fewer days.
2. Further, an employer may request documentation when an employee's use of paid sick leave is used to attend an appointment.

The new rules clarify treatment of an employee who terminates employment prior to completion of the 90-day waiting period. If that employee returns to employment with the employer within one year, all prior days of employment shall count toward the employee's new waiting period.

The ordinance applies to employees who perform work in San Francisco, including working from home. The new rules clarify that the ordinance only applies to employees who perform at least 56 hours of work in San Francisco within a calendar year. If an employee stops in the city for pickups or deliveries, all hours worked in the city are covered by the ordinance, including travel time between stops.

In regards to employer size, the OLSE has clarified that an employer's size is based on the average number of employees in the previous calendar year. For new employers, their size will be based on the number of employees in the employer's first 90 days.

Under the new rules, an exempt employee's accrual is based on 40 hours worked per week unless evidence shows that the employee's regular work week is less than 40 hours.

If the OLSE determines that an employer has failed to comply with the ordinance, they will send the employer a Notice of Preliminary Determination. The employer will have 15 days to pay the amount due or appeal the determination by requesting an OLSE Review Meeting. If the failure is related to retaliation, the employer will only have seven days to respond. The penalty for noncompliance is the dollar amount of paid sick leave owed to the employees multiplied by three or $250, whichever is greater. The penalty for retaliation is $50 per day per affected employee. Additionally, the OLSE may charge the employee up to $50 per day per impacted employee to compensate the city for its investigation costs.

The new rules were effective June 7, 2018.

Paid Sick Leave Revised Rules >>

On May 21, 2018, Gov. Hickenlooper signed HB 18-1007 into law. This law requires all health benefit plans to provide coverage for a five-day supply of at least one FDA-approved drug for the treatment of opioid dependence. The plan cannot request prior authorization for this drug if the request is the first in a 12-month period. The bill also clarifies that an "urgent prior authorization request" includes a request for authorization of medication to treat substance use disorders.

Although the insurance carriers will implement this law, employers should be aware of the change. The law is effective Jan. 1, 2019.

HB 18-1007 >>

On June 30, 2018, Gov. Carney signed SB 139 into law. The new law requires group health plans to cover certain services related to fertility. Participants are eligible if they have a diagnosis of infertility or are at risk of iatrogenic infertility, which is an impairment of fertility due to surgery, radiation, chemotherapy or other medical treatment. Subscribers, spouses and non-spouse dependents are equally covered.

The law mandates coverage for sixteen identified services, including cryopreservation of eggs/sperm/embryos, storage of eggs/sperm/embryos, intrauterine insemination and embryo transfers. Coverage for in vitro fertilization (IVF) is only available to participants who have been unable to obtain a successful pregnancy through less costly treatments. Retrievals must be completed before the participant is age 45 and transfers must be completed before the participant is age 50. Plans aren't required to provide monetary payment to surrogates or provide coverage for reversal of voluntary sterilization.

The requirement doesn't apply to self-insured group health plans or plans maintained by employers with fewer than 50 employees. An exemption is available for religious employers for whom the coverage conflicts with their bona fide religious beliefs and practices.

The new law was effective upon the governor's signature.

S.B. 139 >>

On July 5, 2018, Gov. Ige signed SB 2340 into law. The new law amends Hawaii's Revised Statutes to impose the following requirements on group health insurance policies issued in the state:

• Provide coverage to children until age 26 (if the policy already provides coverage for children)
• Prohibition on pre-existing health conditions exclusions
• Prohibition on using a participant's gender to determine premiums or contributions

This doesn't currently impact group health insurance policies, as they're already required to be in compliance with these provisions under the ACA. The purpose of this new law is to protect these provisions in case they're repealed at the federal level. If that were to happen, policies issued in Hawaii would still be required to be in compliance with these three requirements.

The law was effective upon the governor's signature.

S.B. 2340 >>

On May 20, 2018, Gov. Edwards signed SB 285 into law, creating Act No. 372. This law prohibits insurance carriers from denying coverage of a physician-prescribed nonopioid medication in favor of an opioid prescription drug. Further, when an opioid prescription is prescribed as medically necessary, the insurer cannot deny coverage of the opioid and attempt to substitute an alternative that requires an increased number of pills per prescription, is a higher Drug Enforcement Administration schedule medication than the one prescribed, or substitutes an extended-release medication that doesn't have defined abuse deterrent properties for a prescription of a medication that does.

Although the insurance carriers will implement this law, employers should be aware of the change. The law is effective Jan. 1, 2019.

Act No. 372 >>

On May 23, 2018, Gov. Edwards signed HB 460 into law, creating Act No. 494. This law requires plans to provide coverage for minimum mammography examination. Specifically, plans must allow mammographic examinations, including digital breast tomosynthesis. These examinations must be allowed as follows:

• Female participants who are age 35 to 39 must be allowed one baseline mammogram
• Female participants who are age 40 to 49 must be allowed one mammogram every 24 months, or more frequently if recommended by the participant's physician
• Female participants who are age 50 and older must be allowed one annual mammogram

Plans cannot apply deductibles to mammography, and participants don't need a referral from a physician to receive their mammogram.

Although the insurance carriers will implement this law, employers should be aware of the change. The law is effective Jan. 1, 2019.

Act No. 494 >>

On May 23, 2018, Gov. Edwards signed HB 690 into law, creating Act No. 461. This law requires plans to provide coverage for annual cancer screening for participants who were previously diagnosed with breast cancer, completed treatment for breast cancer, underwent a bilateral mastectomy and were later determined to be cancer-free.

The law also requires plans to issue a written notice regarding this available screening. The notice must be provided at enrollment and annually.

Although the insurance carriers will implement this law, employers should be aware of the change. The law is effective Jan. 1, 2019.

Act No. 461 >>

On July 1, 2018, HB 487 became law. This law provides that plans must provide plan participants with at least 60 days' notice of any adverse changes to formularies, unless prescription drugs are being removed from formularies because of safety concerns. A change is considered adverse if items are removed and plan participants affected by the change must be notified and given an ability to request exceptions to the formulary limitation. Plans must continue to honor existing prior authorizations until they expire, so long as plan participants continue to be covered under the same health plan and the drugs haven't been removed from formularies because of safety concerns.

This bill becomes effective for plans issued or renewed on or after Jan. 1, 2019. This bill contains no new employer obligations, but employers with fully insured plans in Maine should review the new law to better understand the required changes.

HB 487 >>

On June 1, 2018, Gov. Parson signed HB 1252 into law. This bill amends the insurance code to add digital mammography and breast tomosynthesis to the definition of low-dose mammography screening and requires reimbursement rates to accurately reflect the resource costs including any increased resource cost of breast tomosynthesis. Participants aged 35-39 must be allowed one low-dose mammography screening and participants aged 40 and older must be allowed one annually. The law takes effect Jan. 1, 2019.

HB 1252 >>

On June 8, 2018, Gov. Sununu signed HB 1822 into law. This legislation requires initial screening provided through pharmacies to be regarded as outpatient contraceptive services. Outpatient services include consultations, examinations and medical services provided on an outpatient basis, including the initial screening provided though pharmacies (as required by law at rates established by contracts between pharmacies and insurers or their PBM), and related to the use of FDA-approved contraceptive methods to prevent pregnancy.

This new law allows pharmacists with a standing order authored by one or more licensed physicians or advanced practice registered nurses to dispense hormonal contraceptives without a prior prescription and with specific dispensing guidelines.

This bill becomes effective on and after Jan. 1, 2019. This bill contains no new employer obligations, but employers with fully insured plans in New Hampshire should review the new laws to better understand the required changes.

HB 1822 >>

On July 5, 2018, Gov. Sununu signed SB 421 to require plans that provide coverage for hospital and medical expenses and prescription drug coverage to also provide coverage for all FDA-approved prescription contraceptive drugs and devices under the same terms and conditions that apply to other prescription drugs. Specifically, employers can't impose utilization review requirements or other limitations to control the prescribing or dispensing of contraceptives to amounts that are less than a 12-month supply, if that quantity is prescribed. Insurers aren't required to provide coverage for more than a 12-month supply of a contraception prescription in a single dispensing per plan year.

This bill becomes effective on and after Jan. 1, 2019. This bill contains no new employer obligations, but employers with fully insured plans in New Hampshire should review the new law to better understand the required changes.

SB 421 >>

On June 1, Gov. Murphy signed S485, creating the Out-Of-Network Consumer Protection, Transparency, Cost Containment and Accountability Act . This Act imposes new disclosure obligations for "surprise" out-of-network services and caps the pricing for such health care services. The bill also creates an arbitration system to quickly resolve billing disputes -- and imposes significant penalties for noncompliance. Though the act primarily affects health care facilities, health care professionals and health insurance carriers, it also impacts self-insured health benefit plans (those subject to ERISA).

The bill generally requires health care facilities to disclose to patients whether the facility is in-network or out-of-network in respect to the patient's plan, advise patients that, if in-network, the patient won't incur any out-of-pocket costs outside of typical costs (e.g. copayment, deductible, etc.) unless the patient knowingly, voluntarily and specifically selects an out-of-network provider to provide services. For "emergency or urgent" services administered out-of-network, the act generally limits the amount a provider can charge to the deductible, copayment or coinsurance amount applicable to in-network services.

The Act incudes an "opt-in" procedure for self-insured health benefit plans (those governed by ERISA). For those plans that want to be subject to the act, they can do so by filing an annual notice with the state and amending their plan document to reflect that the benefits of the statute apply to the plan's members. If the plan opts in, the participants wouldn't be balance billed for out-of-network charges for emergency care in excess of the deductible, copayment or coinsurance amount applicable to in-network services, and the plan can take advantage of the act's binding arbitration agreements. Self-insured health plans that don't want to opt in don't need to do anything.

The act goes into effect on or near Aug. 30, 2018 (90 days after enactment). Self-insured plans in New Jersey must determine whether to opt in to be subject to the act by the end of August 2018. Additional regulatory guidance will be forthcoming.

S485 >>

On July 10, 2018, Insurance Commissioner Godfread issued Bulletin 2018-1. This Bulletin requires plans that cover autism spectrum disorder to comply with the federal MHPAEA laws, which require that treatment limitations on mental health/substance use disorders be in parity with treatment limitations imposed on substantially all medical/surgical treatments. The bulletin specifically notifies insurers that they cannot exclude applied behavior analysis (ABA) therapy to treat children with autism spectrum disorder on the basis that ABA therapy is experimental.

Although the insurance carriers will implement this law, employers should be aware of the change. The law is effective Oct. 1, 2018.

Bulletin 2018-1 >>

On July 2, 2019, Gov. Raimondo signed HB 7625 to provide coverage for prescription contraceptive drugs and require that carriers can't restrict reimbursement for dispensing covered prescription contraceptives for up to 365 days at a time. Employers that are nonprofit entities organized to promote religious beliefs, such as churches, and primarily employ employees who share employers' beliefs aren't required to offer plans that provide contraceptive coverage if contraceptive use conflicts with employers' religious beliefs.

This bill becomes effective for policies issued or renewed on or after April. 1, 2019. This bill contains no new employer obligations, but employers with fully insured plans in New Hampshire should review the new laws to better understand the required changes.

HB 7625 >>

On July 2, 2018, Gov. Raimondo signed HB 7002, which modified the coverage requirements for mastectomies. Plans that provide medical and surgical benefits with respect to mastectomies are permitted to apply annual deductibles and coinsurance provisions to coverage for mastectomies consistent with other benefits covered under the plan only until Jan. 1, 2019.

This bill contains no new employer obligations, but employers with fully insured plans in Rhode Island should review the new laws to better understand the required changes.

HB 7002 >>

On Sept. 27, 2017, Gov. Raimondo signed HB 6124 to require cost-sharing for behavioral health counseling visits and medication maintenance visits to be consistent with the cost-sharing applicable to primary care office visits, regardless of providers' professional licensure, as long as the care provided is consistent with providers' scope of practice and plans' credentialing and contracting provisions.

This bill becomes effective for plans issued or renewed on or after Jan. 1, 2019. This bill contains no new employer obligations, but employers with fully insured plans in Rhode Island should review the new laws to better understand the required changes.

HB 6124 >>

On July 9, 2018, Vermont issued Ins. Bulletin #201 to serve as transitional guidance for health benefit associations regarding H 16. The bulletin clarifies that existing and new health benefit associations must review their bylaws, articles, plans, membership agreements and other similar documents to ensure compliance with H 16.

As background, on July 1, 2018, Gov. Scott allowed H 16 to become law without his signature. The primary purpose of the bill is for budgetary purposes, but it includes a provision to create the Commission on Public School Employee Health Benefits to determine the amounts of the premiums and out-of-pocket expenses for school employee health benefits that will be the responsibility of supervisory unions and school districts and the amounts that will be the responsibility of school employees. The bill also removes health care benefits and coverage from the subjects for local collective bargaining between a supervisory union or school district and school employees.

The law and Ins. Bulletin #201 don't have any impact on private employers. They do impact school districts in the way that premiums and out-of-pocket expenses are negotiated with the unions and school employees.

Insurance Bulletin #201 >>
H 16 >>