On October 18, 2023, the IRS released Notice 2023-70, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after October 1, 2023, and before October 1, 2024, is $3.22. This is a $0.22 increase from the $3.00 amount in effect for plan and policy years ending on or after October 1, 2022, but before October 1, 2023.

PCOR fees are payable by insurers and sponsors of self-insured plans (including level-funded plans, HRAs, and many point solution programs). The fee does not apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is required for retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives and is reported and paid on IRS Form 720. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.

The PCOR fee requirement was reinstated through the Further Consolidated Appropriations Act, 2020 and will be in place until the plan years ending after September 30, 2029.

For more information, download a copy of our ACA: A Quick Reference Guide to the PCOR Fee publication.

IRS Notice 2023-70 »

The IRS recently released both the final forms and instructions for Forms 1094-B/C and 1095-B/C for the 2023 reporting year. Forms 1094-C and 1095-C are filed by applicable large employers (ALEs) to provide information that the IRS needs to administer the employer mandate penalties and eligibility for premium tax credits, as required by the ACA under Section 6056. Form 1094-B and 1095-B are filed by minimum essential coverage providers (e.g., insurers and self-insuring employers) to report coverage information in accordance with Section 6055.

Overall, most of the formats and rules remain the same as those in the previous year. No new codes or lines were added, so the forms should be very familiar to employers with reporting obligations in prior years. As a reminder, employers can rely on the permanent extension for distribution of forms to covered individuals, which is now March 2 of each year.

Major Change for Small Employers
The major change for reporting beginning in 2024 (for the 2023 reporting year) is the new requirement that filers may only file via paper if they are filing fewer than 10 forms. Filers with 10 or more forms must file electronically, which is a significant change for smaller employers who may have relied on paper filings in the past. Employers may request a hardship waiver from the required electronic filing by submitting Form 8508. Employers who are required to file electronically but fail to do so without reasonable cause (and do not have an approved waiver) may be subject to a penalty of up to $310 per return. Additional information on the new electronic filing requirement can be found in our March 2, 2023 Compliance Corner article and in the respective form instructions below.

2023 Form 1094-C »
2023 Form 1095-C »
2023 Form 1094-B »
2023 Form 1095-B »
2023 Instructions for Forms 1094-C and 1095-C »
2023 Instructions for Forms 1094-B and 1095-B »

On October 6, 2023, the DOL, HHS, and IRS (the departments) issued new FAQs on the status of the No Surprises Act rules and their application to the Independent Dispute Resolution (IDR) process. The guidance follows the August 24, 2023, Texas District Court decision in Texas Medical Association vs. HHS (the TMA case), which is the latest ruling in the series of ongoing disputes between the parties regarding implementation of the No Surprises Act. The FAQs are intended to help stakeholders understand the laws and promote compliance.

In July 2021, the departments issued No Surprises Act interim final rules that provided that cost-sharing requirements for out-of-network emergency services cannot be greater than the requirements that would apply if the services were provided by a participating provider or participating emergency facility and must be calculated based on the “recognized amount.” If there is no established amount set by an All-Payer Model Agreement under the Social Security Act and there is no state law on the applicable amount, then the recognized amount, according to the interim final rules, would be the lesser of billed charges or the qualifying payment amount (QPA).

On August 24, 2023, in the TMA case, the Texas District Court held that several provisions of the regulations were unlawful and vacated and remanded them for further consideration. Some of the QPA determination provisions that the court vacated were allowing the inclusion of “ghost rates” (rates for services that a particular provider has not provided) and rates for providers outside the applicable specialty, excluding bonus or other incentive provisions from the rate calculation, and allowing self-insured plan calculations to be based on the rates of other self-insured plans administered by the same TPA.

The October 6, 2023, FAQs were released in reaction to the TMA case. In the FAQs, the departments acknowledge that the August 24, 2023, Texas District Court ruling is the current law and that they would appeal the decision. In the meantime, the departments instruct plans and issuers to calculate QPAs using a good faith, reasonable interpretation of the applicable statutes and regulations that remain in effect after the TMA case. To address some concerns from plans and issuers that the TMA case might require all the independent reviews prior to August 24, 2023, to be revisited and the QPAs re-calculated, the departments will exercise their “enforcement discretion” for any payment dispute that uses a QPA calculated in accordance with the methodology under the July 2021 interim final rules (in effect immediately before the decision in the TMA case) for items and services furnished before May 1, 2024 (the first day of the calendar month that is six months after the issuance of the FAQs Part 62).

Although the IDR process is typically handled by insurers and TPAs, employers should be aware of the recent guidance and monitor future developments.

FAQs About Consolidated Appropriations Act, 2021 Implementation Part 62 »

HHS recently announced inflation-adjusted penalty amounts related to violations of Summary of Benefits and Coverage (SBC), Medicare secondary payer (MSP), and HIPAA privacy and security rule requirements. These new penalty amounts are calculated based on a cost-of-living increase of 1.07745%. The new amounts are applied to penalties assessed on or after October 6, 2023, for violations occurring on or after November 2, 2015.

Summary of Benefits and Coverage (SBC)
The ACA requires insurers and group health plan sponsors to provide SBCs to eligible employees and their beneficiaries before enrollment or re-enrollment in a group health plan. The maximum penalty for a health insurer or plan's failure to provide an SBC increased from $1,264 to $1,362 per failure.

Medicare Secondary Payer (MSP) Rules
The MSP provisions prohibit employers and insurers from offering Medicare beneficiaries financial or other benefits as incentives to waive or terminate group health plan coverage that would otherwise be primary to Medicare. The failure to comply with the MSP rules increased from $10,360 to $11,162.

In addition, the maximum daily penalty for the failure of an insurer, self-insured group health plan, or a third-party administrator to inform HHS when the plan is or was primary to Medicare increased from $1,325 to $1,428.

HHS Administrative Simplification
The HIPAA administrative simplification regulations provide standards for privacy, security, breach notification, and electronic healthcare transactions to protect the privacy of individuals' health information.

The penalty amounts vary depending on the violators' level of intentions and situations broken down by HIPAA's four-tiered penalty structure. The following chart summarizes the new and prior penalty amounts.

With this latest increase in penalties, employers may want to review their compliance with SBC, MSP, HIPAA, and other employee benefits compliance requirements, to help prevent agency audits and potential penalties.

HHS Adjustment of Civil Monetary Penalties for Inflation and the Annual Civil Monetary Penalties Inflation Adjustment for 2023 »

On September 25, 2023, the Congressional Research Service (CRS) published a comprehensive report on Paid Family and Medical Leave (PFML), incorporating studies and statistics published by the Bureau of Labor Statistics and other research organizations. This report:

• Provides an overview of PFML in the US.
• Summarizes the current state-level PFML program provisions.
• Provides examples of some large employers’ leave programs.
• Describes recent federal legislative action to increase access to PFML.
• Reviews PFML policies in other advanced-economy countries (OECD).

State-Run PFML Programs
The report discusses that among the state-run PFML and temporary disability insurance programs that are currently enacted, there are significant differences in benefit durations, benefit amounts, eligibility terms, contribution amounts, and availability of job protection during PFML leave. For instance, the weekly benefit amounts range from 50% to 100% of an employee’s average weekly earnings, and the maximum weekly amount ranges between $170 per week for New York disability insurance and $1,620 per week for California paid family leave and disability insurance in 2023.

Employers’ Leave Policy
While short-term disability insurance that covers an employee’s serious health condition and disability is widely available, family leave insurance is not generally available from private insurance companies. Few states, such as Arkansas and Virginia, have enacted laws establishing family leave insurance as a class of insurance in the state. As a result, many employers seeking to provide leave for family caregiving or parental leave (i.e., bonding leave) must provide the leave benefit directly rather than through insurance.

Federal Initiatives
The IRS currently provides a tax credit for employers who provide PFML to their employees. This temporary incentive is scheduled to expire at the end of 2025. Proposals to expand national access to PFML have been recently introduced in Congress. For example, the Family and Medical Insurance Leave Act (FAMLI) proposes a national wage insurance program for persons who are engaged in family caregiving activities, who are unable to work as a result of their own serious health condition, or for needs related to domestic violence, sexual assault, or stalking. The FAMLI Act also proposes to provide benefits to individuals with certain military family needs. Using a different approach, the Expanding Small Employer Pooling Options for Paid Family Leave Act of 2021 would have allowed multiple employer welfare arrangements (MEWAs), as covered by the ERISA, to include PFML benefits, which may potentially create additional opportunities for certain employers to pool risk and affect the costs of providing such benefits.

As more states are implementing their PFML programs, it is particularly important for multistate employers to verify the applicability of any state PFML programs and understand their compliance obligations with respect to each state’s PFML program. This report includes helpful comparison charts and resources of state-run PFML programs, which may be helpful for employers to understand the differences among state-run PFML programs and to create an employer’s leave policy that complements the state-run PFML programs.

CRS Reports on Paid Family and Medical Leave in the US, September 2023 »

On October 20, 2023, the IRS published final regulations prescribing mortality tables under Code Section 430 that apply to defined benefit pension plans. The IRS also issued proposed regulations to update the requirements for a single-employer-defined benefit plan to use customized mortality tables as a substitute for the IRS-prescribed tables.

The mortality tables are used to calculate the present value of a stream of expected future benefit payments to determine the minimum funding requirements for a defined benefit plan and are also relevant to determining the minimum required amount of a lump-sum distribution from such a plan.

Although the tables must be updated at least every 10 years, the IRS generally provides annual mortality improvement scales that reflect adjustments based on recent and projected mortality experience. The last such adjustments were proposed in April of 2022 to take effect in 2023, but that was delayed in December 2022.

The final regulations adopt the April 2022 proposed regulations with some modifications to reflect the expected ongoing impact of COVID-19 on mortality rates and the 0.78% annual cap on mortality improvement rates as required by the SECURE 2.0 Act.

The final regulations apply to valuation dates occurring on or after January 1, 2024, and restrict the use of static mortality tables to plans with 500 or fewer participants, multiemployer plans and cooperative and small employer charity pension plans. All other plans must use the generational mortality tables.

The proposed regulations are intended to apply to plan years beginning on or after January 1, 2025, and allow any previously approved plan-specific substitute mortality tables to continue until amendments to the plan-specific substitute mortality regulations are finalized, and an updated revenue procedure that reflects those final regulations is issued.

Employers that sponsor defined benefit pension plans should be aware of the updated guidance and consult with their plan actuaries and consultants regarding any potential impact on plan costs. The deadline for submitting comments to the IRS on the proposed regulations is December 19, 2023.

IRS Mortality Tables for Determining Present Value Under Defined Benefit Pension »
IRS Plan-Specific Substitute Mortality Tables for Determining Present Value »

With any wellness program, the compliance considerations and required disclosures vary depending upon the specific design, activities, and rewards. Numerous benefits compliance laws can be implicated, as explained at a high-level below.

ERISA, COBRA, and Other Group Health Plan Laws
First, some wellness programs provide medical care (e.g., a medical exam); others simply provide general health and fitness information (e.g., a nutritional webinar). The determination of whether a program provides medical care is normally based upon whether it involves individualized diagnosis and treatment as opposed to broad-based education and general recommendations.

If a wellness program provides medical care, it generally would be considered a group health plan and thus required to comply with group health plan laws, including the ACA, ERISA, COBRA, and HIPAA. In such case, the employer would typically offer the wellness program only to those participating in the major medical plan because it would be difficult for the wellness program to satisfy these laws independently. Among other items, the ERISA plan documents and COBRA materials would need to be updated to incorporate the wellness program, and a HIPAA business associate agreement should be entered with the wellness vendor.

HIPAA, ADA, and GINA Wellness Plan Rules
Second, specific wellness plan nondiscrimination rules may be implicated.

HIPAA’s health status nondiscrimination rules classify wellness programs as “participatory” or “health contingent”. Participatory programs provide a reward to participants who complete some wellness-based health activity that does not require satisfying a health standard. Participatory standards may involve completing a health risk assessment or receiving preventive care. Participatory programs must be made available to all similarly situated individuals.

Health contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. Health contingent programs can be either activity-based, requiring completion of a physical activity (e.g., walking) or outcome-based, requiring attainment of a particular outcome (e.g., not smoking, achieving certain blood pressure level). HIPAA requires such programs to be reasonably designed and available to all similarly situated employees at least once per year, with the reward amount not more than 30% (or 50% if tobacco-related) of the group health premium. Additionally, and importantly, notice of a reasonable alternative standard (i.e., another way to achieve the reward) must be included in all materials, including enrollment materials, involving the health contingent wellness program. HHS has provided sample language for this purpose.

The ADA wellness rules apply if the wellness program involves a medical exam (e.g., biometric screening) or disability-related inquiries (e.g., as part of a health risk assessment). The ADA rules require voluntary participation, confidentiality, and reasonable design and accommodation (so those with a disability can participate). Notice must also be provided explaining how any medical information is collected and used. The EEOC, which enforces the ADA, has provided a sample notice.

The Genetic Information Nondiscrimination Act (GINA) comes into play if the wellness program involves the collection of genetic information, such as family medical history (including that of a spouse), as part of a health risk assessment. GINA requires, among other items, specific written authorization from a program participant using a form that describes the type of genetic information that will be collected, the purposes for which it will be used, and the restrictions that will apply.

A concern with any wellness program that implicates the ADA or GINA is the lack of any current guidance regarding permitted reward incentive limits. (Prior EEOC rules were withdrawn in 2019 after a legal challenge and never replaced.) Employers should consult with legal counsel for guidance on this issue.

Internal Revenue Code
Third, employers should consider potential tax implications when providing wellness program rewards. Generally, employer contributions towards the group medical premium or to an HSA, HRA or FSA (within permitted limits) would be nontaxable. However, cash or cash equivalent rewards (e.g., gift cards) are taxable, and the employer should make sure these amounts are properly reported.

ACA Employer Mandate
Additionally, an applicable large employer subject to the ACA employer mandate would need to consider the effect of any premium discount on the determination of whether the coverage offered to a full-time employee is affordable. Generally, employer wellness program discounts, except for tobacco-related discounts, are not factored into the employee premium rate for ACA affordability purposes.

Enrollment season is a great time for employers to review their wellness program compliance and ensure any required notices are provided to employees. Given the complexity of laws that can be implicated with any wellness program, it is advisable for employers to engage their legal counsel in the review process.

For further information regarding wellness program compliance, please ask your consultant or broker for copies of our related publications, including our employer guides on Point Solution Programs and the Final HIPAA Wellness Program Rules.