CMS Letter Questions Idaho's Authorization of Non-ACA-Compliant Individual Policies
On March 8, 2018, CMS issued a letter to Idaho Gov. Otter and Insurance Director Cameron that states that health insurance products sold under the state insurance department's Bulletin No. 18-01 don't comply with several provisions required under the ACA. As such, CMS acknowledged its duty, somewhat reluctantly, to take over enforcement responsibility if it determines that a state fails to substantially enforce the requirements.
As background, Idaho Bulletin No. 18-01 was released in January 2018 in response to Gov. Otter's executive order directing the Idaho Department of Insurance to pursue creative options that encourage carriers to offer lower-cost health plans, including options that don't meet ACA requirements. Generally, the bulletin requires that insurers follow some ACA mandates, but it substantially relaxes others. For example, the bulletin allows carriers to impose preexisting condition exclusions when an individual experiences a break in coverage, omits certain essential health benefits, permits premium increases for individuals who report having particular health conditions and authorizes annual benefit dollar limits.
CMS's letter identifies eight categories in which the bulletin authorizes provisions that fail to meet ACA requirements. It also gives the state 30 days to respond, spells out the process of determining whether the state is properly enforcing the ACA, and mentions the consequences if CMS has to assume enforcement authority, including potential civil penalties levied against noncompliant insurers. However, the letter suggests that the Idaho plans could possibly be offered under the proposed exception for short-term, limited-duration plans.
While these plans don't directly affect the employer-sponsored insurance market, it may be helpful for employers to understand these developments in order to assist with employee inquiries.
IRS Updates Publication 969 Addressing HSAs, HRAs and Health FSAs
On March 1, 2018, the IRS released an updated version of Publication 969 for use in preparing 2017 individual federal income tax returns. While there are no major changes to the 2017 version (as compared to the 2016 version), the publication provides a general overview of HSAs, HRAs and health FSAs, including brief descriptions of benefits, eligibility requirements, contribution limits and distribution issues.
Minor changes include the 2017 limits for HSA contributions (the single-only contribution limit increased to $3,400, while the family contribution limit remained at $6,750) and the updated annual deductible and out-of-pocket maximums for HSA-qualifying HDHPs. While the deductible limit remains $1,300 for single-only coverage and $2,600 for family coverage, the out-of-pocket maximum limit increased to $6,550 for single-only coverage and remained at $13,100 for family coverage. The publication also reminds employers that for plan years beginning in 2017, salary reduction contributions to a health FSA cannot be more than $2,600 per year. The publication serves as a helpful guide for employers with these types of consumer reimbursement arrangements, particularly for employees that may have questions in preparing their 2017 individual federal income tax returns.
IRS Publishes 2018 Version of Publication 15-B, Employer's Tax Guide to Fringe Benefits
The IRS recently published the 2018 version of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Publication 15-B contains information for employers on the tax treatment of certain fringe benefits, including accident and health coverage, employer assistance for adoption, dependent care and educational expenses, discount programs, group term life insurance, HSAs, FSAs and transportation benefits.
The 2018 version is similar to the 2017 version but includes the 2018 dollar amounts for various benefit limits and definitions, including the maximum out-of-pocket expenses for HSA-qualifying HDHPs, maximum contribution amounts for HSAs and the monthly limits under qualified transportation plans.
Specifically, for plan years beginning in 2018, salary reduction contributions to a health FSA are limited to $2,650 (it was $2,600 for plan years beginning in 2017). In addition, for 2018, the monthly exclusion for qualified parking is $260 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $260. Finally, the publication states that the business mileage rate for 2018 is 54.5 cents per mile (it was 53.5 cents per mile in 2017).
It has also been updated to include legislative changes. For example, employees cannot contribute to biking-related expenses on a pretax basis anymore under an employer-sponsored transportation program. To clarify, the Tax Cuts and Jobs Act (2017 tax reform) suspends the exclusion from gross income and wages for qualified bicycle commuting reimbursements for taxable years beginning after Dec. 31, 2017. Additionally, 2017 tax reform repealed the exclusion from gross income and wages for employment tax purposes of qualified moving expense reimbursements, except in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station.
Publication 15-B is a useful resource for employers on the tax treatment of fringe benefits. Employers should familiarize themselves with the publication, as well as other IRS notices and publications referenced in Publication 15-B, which further describe and define certain aspects of those benefits.
IRS Revises Certain Annual Limits Due to Tax Reform Legislation
In the last edition of Compliance Corner , we announced that the IRS had decreased the maximum HSA contribution for family coverage in 2018 from $6,900 to $6,850. This was one of several adjustments needed to be made to inflation amounts due to changes made in the Tax Cuts and Jobs Act (2017 tax reform). Two of the other adjusted limits announced in Rev. Proc. 2018-18 (as part of Bulletin 2018-10) on March 5, 2018 were the adoption assistance exclusion/adoption credit and the small business health care tax credit.
Under an employer-sponsored adoption assistance program, an employee may exclude up to $13,810 from gross income in 2018 for the adoption of a child. This is a decrease from the previously announced amount of $13,840. Employers with such a program will need to revise program documentation and communicate the new limit to employees.
The small business health care tax credit is available to employers who have fewer than 25 full-time employees, including equivalents (FTEs), pay at least half of employee health insurance premiums and have an average annual wage below the maximum limit. The maximum limit for 2018 was previously $53,400 but is now $53,200. The revised limit shouldn't impact employer eligibility for the tax credit. This is because of the calculation used to determine an employer's average annual wage. After dividing the aggregate amount of wages paid by the employer by the number of FTEs, the employer is permitted to round down to the next lowest $1,000. Thus, regardless of whether the employer's average annual wage is $53,400 or $53,200, employers are permitted to round down to $53,000 and qualify.
Fifth Circuit Reverses Standard of Review for ERISA Cases
On March 1, 2018, in Ariana M. v. Humana Health Plan of Tex., Inc., 2018 WL 1096980 (5th Cir. 2018), the U.S. Court of Appeals for the Fifth Circuit issued a landmark decision, changing how the court will review cases involving ERISA claims.
As background, there are generally two standards of review for ERISA benefit cases: de novo and deferential. With a de novo standard of review, the court examines the plan document and evidence to render a decision on merit. In contrast, a deferential standard of review gives preferential treatment to the plan administrator's decision. The court examines the plan administrator's decision to see if it's supported by substantial evidence and confirm it wasn't an abuse of discretionary authority. Under deferential treatment, a plan administrator's decision could be upheld even if it's technically in contradiction to the plan language, as long as it's supported by reasonable evidence and wasn't capricious or arbitrary.
The Fifth Circuit had previously used the de novo standard of review only for cases that involved issues of plan interpretation. If the case involved a factual determination (such as medical necessity), the court used the deferential standard regardless of whether the plan administrator had reserved discretionary authority in the plan document. This was based on prior precedent established over 25 years ago.
Other circuit courts already use the de novo standard for both factual determinations and plan interpretations if the plan administrator doesn't reserve discretionary authority or if the discretionary clause is unenforceable under state law. The Fifth Circuit will now decide cases applying the same standard as the other circuit courts.
At issue in this case was whether a participant's partial hospitalization was medically necessary as treatment for an eating disorder. The insurer had approved such treatment for a period of time and then denied continued hospitalization, ruling that it was no longer medically necessary for the patient. The district court reviewed the case using the deferential standard, as it involved a factual determination, not plan interpretation. The district court ruled that the plan hadn't abused its authority and thus ruled in favor of the plan. The participant appealed to the Fifth Circuit, which has now sent the case back to the district court to be reviewed using the de novo standard.
While this case is a bit technical in its facts, it serves as an important reminder for employer plan sponsors to carefully draft plan language with outside counsel, reserving discretionary authority for the plan administrator, where appropriate. Self-insured employers should also take care in establishing internal appeal procedures, including a reasonable review of appealed claims, in light of plan language.
Fifth Circuit Vacates the Fiduciary Rule
On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit (the Court) vacated the fiduciary rule (the Rule) in a 2-1 decision in U.S. Chamber of Commerce v. DOL , 5th Circ., No. 17-10238. As background, the Rule amended ERISA's definition of "fiduciary" by considering a larger subset of communications to be investment advice that renders the person providing that advice a fiduciary.
The plaintiffs in U.S. Chamber of Commerce v. DOL , which were all financial service industry groups, were the first to file suit against the DOL. They challenged the Rule on multiple grounds, including allegations that the Rule is inconsistent with ERISA, that the DOL is overreaching by using the Rule to regulate services and providers that aren't covered under ERISA, and that the DOL imposed legally unauthorized contract terms to enforce the Rule. Although the district court disagreed with the allegations and held in favor of the DOL, the Fifth Circuit agreed with many of the plaintiff's allegations and vacated the Rule in its entirety.
In launching into a background of the Rule, the Court pointed out that the Rule was fundamentally transforming "over fifty years of settled and hitherto legal practices in a large swath of the financial services and insurance industries." The Court went on to discuss the congressional history of ERISA and highlight the definition of "fiduciary" that was in place before the Rule.
Ultimately, the Court found that the DOL was expanding the scope of the regulations in "vast and novel ways" and, in doing so, the DOL was overstepping its authority by seeking to "rewrite the law that is the sole source of its authority." They essentially held that it wasn't Congress's intent to render any person who renders any investment advice for a fee a fiduciary; instead, the DOL's 1975 regulations reflect the idea that "investment advice for a fee" reflects an intimate relationship of trust between advisor and client.
Additionally, the Court argued that the DOL's imposition of the Rule failed the Chevron doctrine. As background, the Chevron doctrine draws upon the U.S. Supreme Court precedence in the Chevron U.S.A. v. Natural Resources Defense Council, Inc. , which essentially provided a two-part test in determining if the courts must defer to federal agencies in their application of the law. The first part of the test determines whether Congress was clear on the issue in question. If Congress was clear, then the agency must defer to Congress's intent. If the Congressional statute was unclear or ambiguous, then the second part of the test is to determine if the agency's interpretation is based on a permissible construction of the statute.
Considering the Chevron doctrine, the Court found the DOL's imposition of the Rule to be unreasonable, even if there was an assumption that Congress was unclear. Further, the Court held that the DOL's creation of the Best Interest Contract Exemption (BICE) was an abuse of power that was only necessary to "blunt the overinclusiveness of the new definition" of fiduciary. Not only did they find the BICE to be proof of the unreasonableness of the Rule, but they also held that in promulgating the BICE, the DOL was creating a private right of action against advisors where Congress had not allowed one.
Since the Court found it impossible to separate the Rule from the BICE, they deemed the whole rule unreasonable and vacated it in toto .
Although this ruling seems to represent the demise of the Rule, it's important to note that there's now a split in the circuit courts. As we've reported on in this edition of Compliance Corner , the U.S. Court of Appeals for the Tenth Circuit ruled in favor of the Rule a few days before this ruling was published (in Mkt. Synergy Grp., Inc. v. U.S. Dep't of Labor ).
Furthermore, although the court vacated the Rule in its entirety, there are still procedural limitations that give time for additional action by the DOL. The DOL has the following choices. They could:
- Appeal the case to the Fifth Circuit for an en banc hearing (which would be in front of the full Fifth Circuit) and even appeal the case all the way to the U.S. Supreme Court.
- Do nothing and let the rule become vacated after the appropriate procedural stays have been exhausted.
- Attempt to amend the rule in a way that addresses the Fifth Circuit's concerns and salvages a portion of the Rule.
It's hard to know how they'll proceed. On one hand, the Trump administration seems opposed to the Rule as written (as evidenced by their attempts to review it and delay it). On the other hand, many in the industry have already begun to comply with the rule and accept its standards. Only time will tell how the DOL chooses to proceed.
Tenth Circuit Rules in Favor of DOL Fiduciary Rule on Issue of Fixed Indexed Annuities
On March 13, 2018, the U.S. Court of Appeals for the Tenth Circuit issued a ruling upholding the DOL's fiduciary rule (the Rule). As background, the Rule was adopted by the DOL in April of 2016, and it amended ERISA's definition of "fiduciary" by considering a larger subset of communications to be investment advice that renders the person providing that advice a fiduciary. Additionally, the DOL introduced new prohibited transaction exemptions (PTEs) and amended others in order to permit common compensation structures and to cover certain types of transactions. The PTEs that were central to this case are the new Best Interest Contract Exemption (BICE) and PTE 84-24, which allows an exemption for commissions paid to insurance brokers in connection with a plan's purchase of insurance or annuity contracts.
In this case, Market Synergy Group (MSG) alleged that the DOL didn't follow the Administrative Procedure Act (APA) in promulgating the Rule. Specifically, they claimed that the DOL had arbitrarily excluded fixed indexed annuities (FIAs) from being covered under PTE 84-24 (opting instead to cover them through the BICE). They also claimed that the DOL didn't provide adequate notice of that decision and that the DOL's actions would cost MSG roughly 80 percent of their revenue (as their business revolved around working with independent marketing organizations to distribute FIAs). MSG asked the district court for a preliminary injunction, which the district court denied.
On appeal to the Tenth Circuit, MSG again asserted that the DOL had violated the APA. However, the Tenth Circuit found that the DOL provided adequate notice and didn't arbitrarily treat FIAs differently from fixed annuities or fail to consider the economic impact of the Rule on the FIA industry. As such, the Tenth Circuit affirmed the district court's ruling in favor of the Rule.
Although the Tenth Circuit joined other circuit courts in upholding the Rule, the Rule was vacated by the Fifth Circuit less than a week after this ruling. As such, it's hard to know what impact these circuit decisions have on the Rule. We'll continue to follow the developments and report on them in future editions of Compliance Corner .
IRS Memo Provides Guidelines for Missing Participant Audits of 403(b) Plans
On Feb. 23, 2018, the IRS issued a memorandum to employee plans auditors that discusses the steps an employer should take in attempting to locate missing plan participants. As background, the memo specifically addresses how to locate missing participants who may be due required minimum distributions from their 403(b) plan. However, the IRS guidance is also helpful for any situation where an employer must locate participants for purposes of distributing benefits.
Keep in mind, though, that this guidance is virtually identical to the guidance provided to auditors examining 401(k) plans and any issues with required minimum distributions. (We reported on that guidance in the Nov. 14, 2017 edition of Compliance Corner .)
The memo specifies that IRS auditors won't challenge employers for a failure to make certain employee distributions if they did all of the following:
- Searched for alternative contact information in plan, plan sponsor and publicly available records for directories
- Used a commercial locator service, credit reporting agency or a proprietary internet search tool for locating individuals
- Sent mail via United States Postal Service to the last known mailing address and attempted contact "through appropriate means for any address or contact information," which includes email addresses and telephone numbers
These requirements line up with prior DOL guidance on the subject of locating missing participants, and so 403(b) employer plan sponsors who take such steps to locate employees would likely be considered to have met their search obligations as imposed by both the DOL and IRS. The guidance became applicable after Feb. 23, 2018.
Reminder: Sections 6055 and 6056 Reporting Deadlines
Applicable large employers (ALEs — those with 50 or more full-time employees, including equivalents) during 2016 must comply with IRC Section 6056 reporting in 2018. Specifically, ALEs should have completed and distributed a Form 1095-C to full-time employees by March 2, 2018. Additionally, self-insured employers should have completed and distributed Forms 1095-B to employees by March 2, 2018 (as required under IRC Section 6055 reporting requirements).
While the deadline for filing paper forms with the IRS passed on Feb. 28, 2018, employers filing electronically must file their forms with the IRS by March 31, 2018. Employers that file 250 or more Forms W-2 are required to file electronically. Lastly, the employer is required to a file the transmittal Form 1094-C (if filing Forms 1095-C) or Form 1094-B (if filing Forms 1095-B).
We have an employee moving from full-time to part-time. Do we need to continue offering benefits?
An employee who regularly works 30 or more hours per week is considered full-time and, therefore, must be offered health coverage by an employer, subject to the employer mandate. If an employee is reasonably expected to work full-time hours, based on determinative factors such as comparable full-time positions, how it was advertised in a job description, etc., the employee should be offered coverage no later than the first day of the fourth month and shouldn't be placed in a look-back measurement period. In other words, the normal new-hire waiting period would apply and coverage would be effective following the waiting period. However, if an employee's hours vary above and below 30 hours per week and there's no reasonable expectation that they'll always work full-time hours upon hire, they should be placed in a look-back measurement period. Importantly, employees shouldn't be moved back and forth from variable hour to full-time just because they start working more or fewer hours.
If an employer is using the look-back measurement method for variable-hour employees and if the employee was determined to be full-time and eligible for benefits during the defined standard measurement period, the employee should remain eligible through the end of the corresponding stability period, regardless of the number of hours worked during the stability period. In other words, when an employee earns full-time status during the measurement period, their status as an eligible full-time employee is essentially locked in for the entire stability period, even if their hours drop below 30 hours per week. This is true even if the employee's hours drop voluntarily.
In addition, there's an exception that says if an employee transfers to a position that would have been considered part-time if originally hired into that position, the employer can switch to the monthly measurement period starting on the first day of the fourth full month following the month of transfer, However, this only applies if both of these conditions are met: 1) The employee actually averages less than 30 hours/week for the full three calendar months after the transfer and 2) the employer has continuously offered minimum value coverage starting no later than the first day of the month after the employee's first three months of employment through the calendar month in which the transfer occurs. This means the second condition would only apply if the employee was offered minimum value coverage after their first three months of employment. This condition wouldn't apply if the employee were offered coverage after meeting the measurement period. Thus, both conditions listed above would need to be satisfied for this exception to apply. If this exception doesn't apply, the employer would need to offer coverage for the full stability period for which it was determined they were a full-time, eligible employee.
Importantly, though, COBRA must be offered whenever there's a loss of eligibility and a triggering event. The triggering events include reduction of hours, termination of employment, divorce, death of the employee, and child ceasing to be eligible under the terms of the plan. So, if an employee was previously eligible because they averaged 30 hours or more per week and are now ineligible because they didn't average at least 30 hours during the corresponding standard measurement period (i.e., at the end of the stability period), then they've lost eligibility due to reduction of hours. COBRA would then be offered for the plan that the employee (and covered dependents and spouse) had before the COBRA event.
Moratorium on Health Insurance Tax Impacts Carrier Rates
On Feb. 21, 2018, the Connecticut Insurance Department published Bulletin HC-119, which relates to the 2019 moratorium on the health insurance provider fee (also known as the health insurance tax, or HIT). As background, the fee was placed on a moratorium for 2019 as part of 2017 tax reform. According to the bulletin, insurance carriers in Connecticut have included a portion of the 2019 fee as part of the 2018 premium charged to employer groups with plan years beginning between Jan. 1, 2018, and Dec. 1, 2018. The bulletin directs such carriers to refile their rates for the second, third and fourth quarters of 2018 to remove the fee for the portion of the plan year in 2019. The bulletin also directs carriers to provide a credit or refund of the 2019 fee to the employer group in the 2018 plan year.
While the bulletin is directed at carriers, employers with fully insured plans in Connecticut may want to reach out to their carriers for additional information regarding a potential credit or refund relating to the fee's moratorium in 2019.
Healthy Working Families Act — Sample Policies Now Available
On March 9, 2018, the Maryland Department of Labor, Licensing and Regulation (DLLR) released a revised series of frequently asked questions (FAQs). The FAQ document identifies which responses have been revised and added with the notations "REVISED" and "NEW," respectively.
Included in the new guidance is a clarification of the construction exemption. Employees in the construction industry are exempt from the earned safe and sick leave law if they're covered by a collective bargaining agreement (CBA) that was entered into before June 1, 2017. The exemption will remain in place for the duration of the contract, excluding any extensions. If the CBA was entered into on or after June 1, 2017, the employees may be subject to the earned safe and sick leave law, depending on the specific terms of the CBA.
The DLLR also clarifies that an employer may use different accrual methods for different types of employees. For example, an employer could front-load leave time for full-time employees while requiring part-time employees to earn leave time on an accrued basis.
Paid safe and sick leave may be credited toward the fringe benefit requirement on a Maryland Prevailing Wage project. However, the DLLR doesn't address whether the paid leave could be credited toward the fringe benefit requirement under the Davis Bacon Act, deferring to the DOL who administers the federal law.
Finally, the DLLR also provides a revised poster and sample model policies for an employer to adopt and communicate to employees. There are three different samples: one for employers that front-load the leave time at the beginning of the year, one for those that award leave time on an accrued basis throughout the year and a third policy specifically for restaurant employees with tipped employees. The policies require some customization regarding whether the leave is paid or unpaid, and employee notice procedures.
Step Therapy Protocols Must Be Established
On Feb. 28, 2018, Gov. Martinez signed SB 11 into law, which mandates certain actions in regards to step therapy protocols. As background, step therapy protocol means issuers require plan participants to use certain prescription drugs, other than prescription drugs recommended by participants' health care providers, or to take prescription drugs in a certain order before plans provide coverage for recommended prescription drugs.
This bill requires insurers that require step therapy before providing prescription drugs to establish, implement and administer the step therapy protocol in accordance with industrywide clinical practice guidelines. Clinical review criteria must be based on clinical practice guidelines that do all of the following:
- Recommend that prescription drugs subject to step therapy protocols be taken in specific order required by step therapy protocols
- Are developed and endorsed by an interdisciplinary panel of experts that manage conflicts of interest
- Are based on high-quality studies, research and medical practice
- Are created by an explicit and transparent process that minimizes bias and conflicts of interest, explains relationships between treatment options and outcomes, rates quality of evidence used to support recommendations and considers relevant subgroups and preferences
- Consider the needs of atypical populations and diagnoses
The law also outlines when participants should be able to request step therapy exceptions and specifies that plans must provide participants with decisions those exceptions within 72 hours (or within 24 hours in emergency situations).
This law will become effective for plans delivered, issued for delivery or renewed on or after Jan. 1, 2019.
Dental Anesthesia and Hospitalization Requirements Revised
On March 1, 2018, Governor Daugaard signed HB 1205 into law. This law requires plans to cover dental procedure anesthesia and access to a hospital or ambulatory care center for plan participants that are children younger than age five or individuals who are severely disabled, suffering from developmental disabilities, or have other medical conditions that place plan participants at serious medical risk. Issuers can require that plan participants obtain prior authorization for such services in the same way that prior authorization is required for other covered conditions.
Austin Institutes Paid Sick Leave
On Feb. 19, 2018, Austin City Council passed a paid sick leave provision. The new law requires employers to provide employees with paid sick and safe leave. Specifically, employers must allow employees who work at least 80 hours in a calendar year to accrue at least one hour of paid sick leave for every 30 hours worked. Importantly, there are no exclusions for part-time employees, paid interns, seasonal employees or temporary employees. Additionally, employers will have to permit a rollover of up to 64 hours (or 48 for smaller employers) of accrued/unused sick leave to the following year.
Employees must be able to use the paid time off for their own personal health condition, a family member's health condition or because they or their family member is a victim of a crime, sexual assault or stalking. The term "health condition" also includes preventive care.
The law is effective Oct. 1, 2018. However, transition relief is available to employers with one to five employees in the previous 12 months; the law would be effective Oct. 1, 2020, for them.
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.
We have an employee moving from full-time to part-time. Do we need to continue offering benefits?