Supreme Court will Hear ACA Appeal During Fall Term
On March 2, 2020, the Supreme Court announced that it will review a ruling by the U.S. Court of Appeals for the Fifth Circuit that found the individual mandate of the ACA – and possibly other provisions of the ACA – are unconstitutional. The Court will take up TX v. US during its October 2020 term. As such, the Court will not likely issue its own decision until after the November 2020 elections.
The ACA is still in force and plan sponsors should continue to comply with the various mandates imposed by the law. We will continue to follow any developments as this case makes its way through the appeals process.
IRS Legal Memorandum Concludes that No Statute of Limitations Applies to Section 4980H Penalty Assessment
On February 21, 2020, the IRS Office of Chief Counsel released a memorandum confirming that there is no applicable statute of limitations on an Employer Shared Responsibility Payment (ESRP) imposed by IRC §4980H. As background, applicable large employers (ALE) may be liable for two separate payments:
- Per 4980H(a), an ALE may be assessed a penalty if it fails to offer minimum essential coverage (MEC) to substantially all of its full-time employees; and
- Per §4980H(b), an ALE can also be subject to a penalty if it offers MEC to the required number of full-time employees, but coverage is not affordable or does not meet minimum value.
The IRS concludes in the memorandum that because no tax return is filed to report an ALE’s liability for the ESRP, there is no statute of limitations for the ESRP.
Explained further in the memorandum, the IRS generally imposes a three year statute of limitations that begins upon the filing of a “return.” However, the Supreme Court has established a four-part test to determine when a document filed with the IRS constitutes a “return” for this purpose. Specifically, one requirement is that the document provided includes sufficient data to calculate tax liability. While ALEs are required to report information about offers of coverage on Forms 1094-C and 1095-C, this reporting does not include sufficient data to calculate tax liability. This is because the reporting does not provide information specific to an employee’s eligibility for a premium tax credit, which is necessary to calculate the ESRP. Rather, the penalty is only calculated after cross-referencing information provided via the forms with the full-time employees’ individual tax returns.
That said, because there is no return that contains the necessary data to calculate the amount of an ESRP that could be owed by an ALE, the IRS’s three year statute of limitations does not apply and, as such, there is no statute of limitations for the ESRP. Importantly, ALEs should be aware that they can be liable for an ESRP assessment indefinitely and should continue to maintain compliance with the ACA’s employer mandate. Additionally, while the instructions for forms 1094-C and 1095-C advise filers to maintain copies of returns (and supporting documents) for a minimum of three years, implementing a longer retention period may be prudent in light of this memorandum.
CMS Proposes Rules Imposing Medicare Reporting Penalties
On February 18, 2020, CMS issued proposed regulations that clarify how and when the agency will calculate and impose civil monetary penalties upon responsible reporting entities (RREs) that fail to report information concerning participants in group health plans who are also entitled to Medicare. RREs are usually insurers or TPAs, and CMS uses this data in order to determine when a group health plan must pay claims before Medicare is required to pay.
The proposed regulations describe what violations will be subject to civil monetary penalties and how CMS will calculate them. Under statute, the penalty for noncompliance with this reporting requirement is $1,000 per day, as adjusted annually. Violations subject to the penalties include the failure to report, inaccurate reporting, and the submission of poor quality data. The proposed regulations would have CMS assess this penalty for every RRE that fails to report required information within one year of the effective coverage date. RREs that report timely, but inaccurate reports will be assessed the penalty for every day the RRE fails to correct the errors. Penalties for these violations will be capped at $365,000. Data that exceeds an error tolerance threshold of 20% will face penalties that will be assessed depending upon the type of reporting entity.
The deadline for submitting comments is April 20, 2020. Although these proposed regulations will not directly affect most employers, employers may be asked to help insurers and TPAs gather the information needed to complete required reporting. Any sponsor of a self-funded, self-administered plan would also need to complete this reporting. Accordingly, employers should be aware of these proposed rules and the potential penalties for failing to report.
Supreme Court Defines “Actual Knowledge” Standard for Fiduciary Breach Cases
On February 26, 2020, the Supreme Court of the United States clarified the meaning of "actual knowledge" in Intel Corp. Inv. Policy Comm. V. Sulyma (U.S., No. 18-1116). As background, Sulyma brought the case against Intel’s investment committee, alleging that the committee had breached their fiduciary duty by failing to make participants aware of the risks, fees and expenses associated with the plan’s investment in various hedge fund and private equity investments.
Intel moved for summary judgment based on the fact that Sulyma’s claim came more than three years after the company had provided various disclosures to Sulyma about the investment. ERISA imposes a three year statute of limitations based on when the individual had "actual knowledge" of a claim’s underlying facts. As such, Intel reasoned that the statute of limitations had passed because Sulyma had access to numerous disclosures about the investments more than three years before the filing. However, Sulyma alleged that although he had access to the disclosures, he never actually read or remembered reading them.
The District Court ruled in favor of Intel, arguing that having access to the disclosures was enough to meet the "actual knowledge" standard. The Court of Appeals for the Ninth Circuit disagreed and remanded the case, finding that if Sulyma never looked at the documents, then he didn’t have actual knowledge. Looking to the plain meaning of the words "actual knowledge", the Supreme Court agreed with the Ninth Circuit and remanded the case.
Specifically, the Court made it clear that simply having access to the disclosures did not actually mean that Sulyma viewed the disclosures. Instead, having actual knowledge of information means that the person did, in fact, become aware of that information. Further, the court argued that accepting the idea that simply having access to disclosures is enough to be considered actual knowledge is more of a "constructive knowledge" standard — and that’s not what ERISA requires. The Court ultimately found that ERISA’s language was not ambiguous or unclear; "actual knowledge" means just that.
While this ruling makes it more difficult for employers to prove that they provided effective notice to participants, it is possible for employers to take steps to prove that their disclosures were actually viewed by employees. They may just want to have employees indicate, in writing, that they read the disclosures. Likewise, employers should work with their adviser to analyze their investment strategy and fund line-up.
IRS Releases 2020 Instructions for Forms 1099-R and 5498
On February 14, 2020, the IRS released the 2020 Instructions for Forms 1099-R and 5498. The Form 1099-R reports distributions from pensions, annuities, IRAs and other retirement vehicles. The Form 5498 reports contributions to IRAs. The instructions provide specific guidelines for completing the forms.
As background, the IRS updates the form instructions annually to incorporate any recent administrative, reporting or regulatory changes. The 2020 updates to the Form 1099-R include a new section for qualified birth and adoption distributions. This addition was necessitated by a provision of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which permits such a retirement plan distribution of up to $5,000 that is exempt from the 10% early distribution tax and can be repaid.
Correspondingly, the Form 5498 updates include a new code to report the repayment of a qualified birth and adoption distribution. Additionally, this form reflects the SECURE Act increase in the required minimum distribution age from 70.5 to 72 for taxpayers turning 70.5 after December 31, 2019.
Employers should be aware of the availability of the updated publication and most recent updates to encompass the SECURE Act provisions. For further details, employers can access the 2020 Instructions for Forms 1099-R and 5498 at the following link:
What are an employer’s responsibilities regarding HIPAA training for a self-funded plan? Is HIPAA training required each year?
HIPAA training should be tailored to the employer’s involvement with the group health plan – and, specifically, PHI – as well as the dynamics of the employer’s workforce.
It is important to keep in mind that a self-funded plan is required to comply with all of the HIPAA privacy and security requirements. Typically, the employer as plan sponsor is the fiduciary responsible for the plan's compliance. As such, the employer may choose to be hands-on with respect to PHI and handling the plan administrative functions and therefore, have more regular and direct access to PHI. By contrast, the employer may delegate the plan administrative functions and tasks necessary to comply with HIPAA to TPAs or other service providers which would act on behalf of the plan, but the employer would remain ultimately responsible for compliance with the regulations.
However, even if a TPA or other service provider performs most of the administration functions for a self-funded plan, the employer will retain some functions requiring access to PHI. For example, many TPA arrangements require that the plan sponsor serve as the named fiduciary for appeals of denied claims. Deciding appeals almost always requires access to PHI.
Accordingly, the employer would need to be sure to protect the PHI in accordance with the privacy and security requirements. The necessary measures may include, but are not limited to creating a firewall to protect the PHI, ensuring staff is aware of and adhering to the limitations on the use of information, and providing covered individuals with notice of certain rights with respect to their own PHI. Additionally, if PHI is provided in electronic format, compliance with security requirements (e.g., encryption) must also be observed.
Employees may not necessarily be aware of the HIPAA privacy and security requirements absent training. The general rule is to train all members of the workforce, which would include new employees upon hire. A broad training regime demonstrates the employer’s commitment to HIPAA compliance and raising awareness throughout the organization. Most importantly, the training should focus upon employees that will be administering and involved with the health plan (i.e., those that will actually have access to PHI). Instruction on an annual basis (if not more frequently) is generally recommended. It is also advisable that the employer document each employee’s completion of the program (for example, by collecting a certification statement).
The current global viral outbreak highlights the importance of a well-trained workforce. Even under these circumstances, the HIPAA privacy rule still applies. Therefore, a group health plan must continue to apply administrative and technical safeguards to protect the confidentiality of PHI. Accordingly, any PHI disclosure must be the minimum amount necessary (e.g., to treat an employee or dependent, protect the public health) in accordance with applicable guidelines.
In addition to educating the staff and protecting the privacy of employees, an ongoing HIPAA training regime may be advantageous to the employer in the event of a security incident or breach. Should there be a complaint to a regulator, the employer can demonstrate that it took its compliance obligations seriously, which could possibly be considered a mitigating factor in terms of damage assessments.
With respect to the training format, the employer has flexibility to design a program appropriate for the employee population and logistics. Accordingly, the employer can use videos, webinars, live meetings, newsletters/bulletins, a review of compliance guidelines, etc. The approach selected should clearly explain the employer's formal policies and procedures on HIPAA security and privacy.
If the employer is interested in a suggestion for a vendor to assist with HIPAA training, Total HIPAA can provide a comprehensive training program with formal record keeping at a reasonable price. Contact your adviser for more information about Total HIPAA.
March 3, 2020
Grandmothered Plans Extended
On February 10, 2020, the Department of Commerce, Community, and Economic Development, Division of Insurance, issued Bulletin 20-02, granting insurers the option of renewing non-ACA-compliant individual and small group coverage if coverage has been continuously in effect since December 31, 2013. Policies may continue to be renewed on or before October 1, 2021, provided that all such coverage comes into compliance with the specified requirements by January 1, 2022. Insurers may early renew coverage or issue coverage for periods less than one year if a policy terminates prior to December 31, 2021.
If insurers opt to renew these plans, then they must disclose to their enrollees information concerning how such renewal will affect their premiums. Employers should be aware of this extension and of the notice requirement to those employees enrolled in these plans.
March 3, 2020
Excepted Benefit Form Filings Not Approved Until Rules in Place
On February 25, 2020, the Office of Superintendent of Insurance issued a statement that the office will not approve excepted form filings until rules and standards are in place to protect the public from purchasing insurance products that may not provide benefits or protections required under the ACA. Excepted benefits, such as limited health benefits and accident and sickness coverage, are not intended to replace major medical plans. However, the office has become aware that some excepted benefit plans are being packaged and sold as replacements.
The Short-Term Health Plan and Excepted Benefit Act, effective June 14, 2019, requires the office to promulgate rules to establish permissible content and terms of those plans. In the meantime, the office will not approve excepted plan filings.
Employers should be aware of these developments and alert to attempts to sell excepted benefit plans as medical plans.
March 3, 2020
2020 HCRA Covered-Live Assessment Rates
New York recently posted the 2020 covered-lives assessment (CLA) rates for professional education under the Health Care Reform Act (HCRA). These rates are applicable to health claim payers – including self-insured plans – that elect to pay the assessment directly to the state rather than facing higher surcharges for in-state hospital expenses. The annual amount owed by the payer is calculated based upon the number of covered individuals and families residing in New York.
As background, following New York’s deregulation of hospital fees in 1996, the HCRA was enacted to provide financial assistance to hospitals through special taxes on health plans and medical services. The CLA assessments are intended to support the funding of graduate medical education. The CLA rates (or alternative surcharges) vary by state region. Accordingly, the applicable charge is based upon where the covered individual resides or receives in-state care.
The CLA assessment is in addition to the indigent care surcharge on services at state hospitals, diagnostic and treatment centers and free-standing clinical laboratories. The indigent care surcharge is payable regardless of the residency of the covered individual or group health plan sponsor. The current rate, which remains in effect through December 31, 2020, is 9.63% for payers electing to pay the amount directly to the state Public Good Pool and 28.27% for non-electing payers that pay the surcharge to healthcare providers.
Accordingly, group health plan sponsors should be aware of the 2020 rates and surcharges. In some cases, electing plans may have already been notified of the 2020 amounts through the state’s Office of Health Insurance Programs. Employers may want to consult with their insurers or third party administrators regarding any related administrative concerns. The specific assessment amounts and surcharges by region are available at the below link.
March 3, 2020
Cyber Reserve Members Protected Under USERRA
Effective as of January 24, 2020, when an Ohio Cyber Reserve member is ordered by the governor to perform duties or training under certain state laws, such Cyber Reserve member has the same protections under USERRA as employees who are on active duty. As background, the Ohio legislature passed Ohio Senate Bill 52 in October 2019, creating a civilian cyber force within the Ohio National Guard to respond to cyberattacks.
Per USERRA, if employees take leave to serve in the uniformed services (or any state's organized militia), they are entitled to re-employment rights and continuation of health-care benefits. With this new legislation, Cyber Reserve members who perform duties under certain state laws as ordered by the governor have the same USERRA protections as employees who are on federal active duty.
Employers with employees in Ohio should be sure to comply with USERRA, including its requirements for continuation of health-care benefits, when administering leave related to a Cyber Reserve member fulfilling duties as ordered by the governor.
March 3, 2020
Grandmothered Plans Extended Through 2021
On February 19, 2020, the Department of Insurance issued Bulletin Number 2020-01 to announce a one-year extension of the renewal policy with respect to certain non-grandfathered individual and small group policies known as “grandmothered” policies. The bulletin follows an extension by CMS of the federal non-enforcement policy with respect to specific ACA compliance requirements for these grandmothered plans.
As background, on November 14, 2013, CMS issued a letter outlining a transitional policy with respect to the healthcare reform mandates for coverage in the individual and small group markets. This non-enforcement policy provided relief from certain market reforms, such as the prohibition of coverage exclusions based on pre-existing conditions and non-discrimination based on health status. Under the policy, state authorities could allow health insurance issuers to continue eligible coverage that would otherwise have been cancelled for failure to comply with the ACA requirements. The Department originally announced the state’s intent to allow insurers to continue such coverage via Bulletin 2013-12 issued on November 19, 2013. The transitional policy has continually been extended by CMS and the Department since the initial announcement.
Accordingly, small employers who are currently covered by such grandmothered policies issued in South Carolina should be aware of the most recent non-enforcement extension through December 31, 2021. These employers should work with their advisors and insurers regarding possible renewal of the coverage.
March 3, 2020
State Law Applies to Certain HRA Arrangements
On February 20, 2020, the Commissioner of Insurance issued Bulletin B-0003-20, stating that Texas law applies to certain HRA arrangements in both small and large group health plans. If a small employer pays part or all of the cost of its employees' individual health insurance, but does not use a QSEHRA, an ICHRA, or an excepted benefit HRA, the employer's arrangement will continue to be regulated under Insurance Code Section 1501.003 as a small group health plan. If a large employer pays part or all of the cost of its employees' individual health insurance, but does not use an ICHRA or an excepted benefit HRA, the employer's arrangement will continue to be regulated under Insurance Code Section 1501.004 as a large group health plan.
Texas Insurance Code Section 1501.003 (for small employers) and Section 1501.004 (for large employers) apply employer HMO and health insurance requirements under Texas law to an individual's health coverage when the individual's employer pays a portion of the premium or claims a federal tax benefit for providing employee health care benefits.
Employers who use HRAs with plans issued in Texas should be aware of this interpretation of Texas law.
March 3, 2020
MEWA Forms Available
Wyoming recently provided new application forms for MEWAs operating in the state. Plan sponsors establishing MEWAs in Wyoming can find the initial application and renewal application forms here:
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.
What are an employer’s responsibilities regarding HIPAA training for a self-funded plan? Is HIPAA training required each year?