Plans May Exclude Drug Coupons from Annual Cost Sharing Limits
On August 26, 2019, the DOL, HHS, and Treasury (the “agencies”) jointly issued an FAQ to address group health plan concerns regarding the application of drug coupons towards annual cost-sharing limits under the ACA. The FAQ recognized potential conflicts in prior agency guidance and provided temporary enforcement relief to plans and issuers pending further clarifying regulations.
Under the ACA, cost sharing by enrollees in non-grandfathered group health plans cannot exceed specified annual limits. The agencies have reached different conclusions as to whether coupons issued by drug manufacturers to offset the cost of patient prescriptions can be applied towards the applicable annual limits.
The HHS final Notice of Benefit and Payment Parameters for 2020 (2020 NBPP Final Rule) states that plans can exclude the value of manufacturer’s drug coupons from satisfaction of the cost sharing limits, provided that a generic equivalent is available for the prescribed drug. This rule was intended to encourage the use of generic drugs and promote cost savings. However, plans were left unclear as to whether drug coupons should be counted towards the annual limits if the prescribed drug did not have a generic equivalent.
The 2020 NBPP Final Rule also appeared to conflict with previous IRS guidance regarding the application of drug coupons by HDHPs designed for compatibility with HSAs. HDHPs must meet specific federal requirements with respect to annual deductibles and out of pocket expenses. With the exception of preventive care, HDHPs generally cannot provide coverage below the annual deductible amount. In Notice 2004-50, the IRS specified that an HDHP must disregard drug discounts and only apply the amount actually paid by the employee in determining if the annual deductible has been satisfied. So, although the 2020 NBPP Final Rule could be interpreted to allow the coupon amount to be applied towards the deductible when a generic equivalent is not available, the IRS notice requires the exclusion of the amount in order for an individual to maintain HSA eligibility.
The agencies plan to address these inconsistencies in upcoming regulations in 2021. In the interim, the agencies will not take any enforcement actions against plans or insurers for excluding the drug coupon amounts from the cost sharing limits.
For group health plan sponsors, the FAQ is an acknowledgement of the ambiguous and potentially conflicting agency guidance previously provided. Until the 2021 regulations are released, group health plans can continue to exclude drug coupon amounts from the annual cost-sharing limits, regardless of whether a generic equivalent is available. Once the new guidance is issued, employers and issuers will need to review their plan designs and policies with respect to drug coupons and make any necessary updates.
DOL Provides Guidance on USERRA’s Application to Retirement Plans
On August 9, 2019, the DOL published a fact sheet that discusses retirement plan sponsors’ obligations under the USERRA. The guidance applies to any retirement plan that provides retirement income to employees or defers payment of income to employees until after employment has ended.
As background, USERRA provides certain protections for employees who must be absent from work due to uniformed service. These protections include reemployment rights, protection from discrimination, and the right to the continuation of group health coverage. As it pertains to retirement plan benefits, USERRA generally requires employers to credit employees with the time they spent on military leave (since many retirement plan contributions are based on employee compensation or time in service).
The fact sheet provides practical guidance on how employers should administer their retirement plans when an employee takes USERRA leave. Since USERRA requires employers to provide returning service members with the same benefits that they would have been entitled to had they remained continuously employed, employers must determine the employee’s eligibility, vesting, and accrual of benefits as if the service member had not left for military service.
Employer contributions to the retirement plan must be made no later than 90 days following the service member’s reemployment. The service member must also be given the chance to make up any missed employee deferrals, although they are not required to do so. The fact sheet also describes how the employer should determine the rate of compensation used to calculate contributions by taking into account the service member’s hours worked prior to the military leave.
Employers should familiarize themselves with this guidance and work with their advisers to provide service members the appropriate retirement benefits upon reemployment.
Circuit Court Allows Arbitration for ERISA Breach of Fiduciary Duty Claims
On August 20, 2019, the U.S. Court of Appeals for the Ninth Circuit, in Dorman v. Charles Schwab Corp., held that claims relating to a breach of ERISA’s fiduciary duties may be arbitrated. As background, previously, the Ninth Circuit (in Amaro v. Continental Can Co.) held that ERISA lawsuits cannot be arbitrated. The Ninth Circuit found that as a result of post- Amaro U.S. Supreme Court decisions, Amaro is no longer applicable law; so, the Dorman decision overturns Amaro.
In Dorman, the plaintiff (Dorman) – a former Charles Schwab employee – had, as an employee, participated in the company’s 401(k) plan. In 2014, an amendment was added to the 401(k) plan that stated any claim, dispute, or breach arising out of or connected to the 401(k) plan “shall be settled by binding arbitration.” The amendment also provided a waiver of class or collective action — meaning that employees waive their right to be part of any class action. In 2014, Dorman was promoted to a consultant role, and he enrolled in a consultant compensation plan. That compensation plan also included an arbitration clause, and also stated that benefit claims would be resolved pursuant to the terms of the 401(k) plan. In 2015, Dorman terminated employment with Charles Schwab, and two months later ceased participation in both the 401(k) and the compensation plan, and received a full distribution of his benefits.
Then, in 2017, Dorman filed a class action complaint against Charles Schwab, the 401(k) plan, fiduciaries of the 401(k) plan, and company executives, claiming that those defendants had breached their ERISA fiduciary duties of loyalty and prudence by selecting 401(k) plan investments that were affiliated with Charles Schwab. Dorman also claimed that the board of directors had breached their ERISA fiduciary duty to monitor plan fiduciaries. In response, Charles Schwab and the other defendants filed a motion to compel arbitration (instead of resolving the case in court); their motion was based on the 401(k) and compensation plan terms relating to arbitration as the medium for resolving plan-related disputes, as outlined in the 2014 401(k) plan amendment.
In January 2018, the district court denied the defendants’ arbitration motion, holding that – despite the plans’ terms – neither the 401(k) nor the compensation plan required arbitration. The court reasoned that the 401(k) arbitration provision didn’t apply because it took effect after Dorman’s 401(k) participation ended, and that because Dorman’s claims were benefit claims, they were not included in the compensation plan’s arbitration provision. The court also concluded that even if Dorman’s claims were within the plans’ arbitration scope, because Dorman’s claims were brought on behalf of the plan (as a class action) and not on Dorman’s own behalf, he could not waive 401(k) plan rights without the plan’s consent.
On appeal, the Ninth Circuit found several reasons to disagree with the district court’s findings and reasoning, and ultimately overturned its own precedent (the Amaro case). The court relied on several U.S. Supreme Court rulings that arbitrators are competent to interpret and apply laws (one argument in denying arbitration was that arbitrators are incompetent). The Ninth Circuit (in an unpublished memorandum), reasoned that the district court’s reasoning was flawed in several ways.
First, the record showed that Dorman was actually a 401(k) plan participant for almost a year while the arbitration provision was in effect. Second, Dorman was actually bound by the 401(k) arbitration provision because the plan had agreed to arbitrate benefit claims. Third, arbitration was not a subterfuge for fiduciaries to avoid ERISA liability, but rather a quicker and cheaper form of resolution for benefit claim disputes. As a result, the Ninth Circuit sent the case back to the district court with instructions to order arbitration with regard to Dorman’s claims.
For employers, the case signals a bit of a shift in how courts might treat ERISA fiduciary claims where arbitration is outlined in the related plan documents. The court’s holding means that arbitration agreements and class and collective action waivers in ERISA fiduciary duty breach claims can be enforced, at least where the plan documents explicitly include those provisions and waivers. Generally speaking, ERISA fiduciary breach claims are not commonly arbitrated; rather, they are usually put before courts. As a takeaway, employers’ plan sponsors will want to discuss the issue with outside counsel. In some situations, adding arbitration provisions and class/collective action waivers to plan documents may help employers avoid costly court appearances; in other situations, court proceedings may be the best process to an equitable resolution.
Reminder: Calendar Year SAR Must Be Distributed by September 30, 2019
Plans that are subject to ERISA and Form 5500 filing must distribute the SAR to participants within nine months of the end of the plan year; thus, a calendar year plan is required to distribute the SAR for the 2018 plan year by September 30, 2019. If the plan applied for an extension to the Form 5500 filing, the SAR is then due within two months following that filing.
The SAR is a summary of the plan’s information reported on the Form 5500. If a plan is not subject to Form 5500 filing, then it is exempt from the SAR notice requirement — this would include church plans, governmental plans and unfunded or insured plans with fewer than 100 participants. Also, large, unfunded self-insured plans that are unfunded are exempt from the SAR requirement even though they are subject to the Form 5500 filing requirement.
It’s MLR Rebate Time Again!
The ACA requires insurers to submit an annual report to HHS accounting for plan costs. If the insurer does not meet the medical loss ratio standards, they must provide rebates to policyholders. Rebates must be distributed to employer plan sponsors between August 1, 2019, and September 30, 2019. Employers should keep in mind that if they receive a rebate, there are strict guidelines as to how the rebate may be used or distributed.
Not all of our employees have work computers. Is posting the SPD and other required notices on a shared computer or sign-in kiosk sufficient for distribution purposes?
No, posting required notices on a shared computer or kiosk is not sufficient to meet the DOL’s Electronic Disclosure rules. The preamble to the final 2002 regulations specifically state that merely posting documents to a shared computer kiosk in a common area at a workplace is not an appropriate means by which to deliver documents required to be furnished to participants.
An SPD, Employer CHIP Notice, HIPAA Special Enrollment Rights notice, Medicare Part D Disclosure Notice and other required notices may be sent via email to participants who have electronic access as an integral part of their job. The plan administrator must take the necessary steps to ensure that the email system "results in actual receipt of transmitted information" (which would be satisfied by return receipts or failure to deliver notices), protects the participant's confidential information, maintains the required style/format/content requirements, includes statement as to the significance of the document, and provides a statement as to the right to request a paper version.”
The documents may also be posted to an intranet, benefits admin portal, or HR information system, but the employees must still have electronic access as an integral part of their job. It is not enough to simply post the documents on the intranet; there must be a separate notification sent to each participant notifying them of the document’s availability, the significance, and their right to request a paper copy. The notice may be a paper document or it may be electronic (email). If it is sent via email, the above procedures must be followed.
If an employee does not have electronic access at work, then the employer may request a personal email address from an employee. The employee must give affirmative consent to receive benefit-related notices in such manner.
If the employee does not have electronic access as an integral part of their job, and they do not authorize the employer to send benefits documentation to a personal email address, there is really no compliant method other than delivering by paper (either by hand or mail). If the employer provides the documents in person, it is advisable for them to get the employee’s signature confirming receipt. Otherwise, the employer has no documentation that they have distributed the notices. If delivering by mail, the employer should document their procedures and the date that the documents were mailed to specific employees.
The employer should document and retain all methods of delivery used for each employee.
New Bulletin on Identification of Plan’s Funding Status on Insurance ID Cards
On July 2, 2019, the Insurance Department published Bulletin No. 6-2019, which is titled “Health Plan and Prescription Drug Coverage Identification Cards.” The bulletin is directed to health benefit plan issuers in the fully insured and self-insured health benefits markets, including TPAs and pharmacy benefits managers servicing such plans for enrollees in Arkansas. Arkansas recently enacted a law (effective April 4, 2019) that requires disclosure by health care payors of whether its plans are fully or self-insured on health plan identification (ID) cards. As a result, plans in both the fully insured and self-insured markets are to provide their insureds or enrollees with plan benefit ID cards that state whether the plan is insured (by an insurer or HMO) or whether it is a self-insured employer plan. According to the bulletin, the language needs to be simple, clear, and aimed toward consumers and health care payors who are not versed in insurance industry parlance or third-party network administration structures. The bulletin includes some example language that could be used.
The bulletin applies to both fully insured plans and self-insured plans that operate in Arkansas. Employers with fully insured Arkansas plans should work with their carriers in correcting ID cards. Self-insured employers in Arkansas should work with their TPAs in facilitating new ID cards with appropriate information on the plan’s self-insured status.
State Individual Mandate
On June 28, 2019, Gov. Newsom signed SB 78 into law, establishing a state individual mandate, effective January 1, 2020. This state-based individual mandate will require California residents to maintain minimum essential coverage or pay a penalty, beginning in 2020. In an effort to address health insurance affordability issues, the law also offers subsidies to individuals and families with income between 400% and 600% of the federal poverty level. Currently, only individuals and families with income between 100% and 400% are eligible for federal government subsidies for purchasing health insurance through Healthcare.gov or a state-exchange.
It is important to remember that large employers who are subject to the employer mandate are at risk for a penalty if a full-time employee purchases an individual policy through the exchange and receives a premium tax credit from the federal government to subsidize their premiums. If an employee receives premium assistance through the state of California because their income is between 400% and 600% of the federal poverty level, this should not trigger a penalty for the employer.
This new mandate was enacted in response to the effective elimination of the federal individual mandate penalty under the ACA. The ACA’s individual mandate penalty was reduced to zero under the Tax Cuts and Jobs Act, beginning in 2019.
Insurers and self-insured employers will need to report coverage information to the California Franchise Tax Board beginning in January 2021 for coverage year 2020. The law states that it will be the same information that is required on Form 1095-C. So, it may be possible that the forms will be submitted to California as well as the IRS. This will be determined in future regulations.
Revised Definition of Domestic Partner
On July 30, 2019, Gov. Newsome signed AB 30 into law, revising the definition of a domestic partner in California.
Previously, to register as a domestic partnership in California, the couple must meet all of the following criteria:
- Both are capable of consenting to the partnership.
- Neither is married.
- Neither is a party to another partnership.
- Both are at least 18 years of age. An individual younger than 18 may register as a domestic partner with a court order and parental permission.
- Both must be of the same sex; or in an opposite sex couple, at least one partner must be over the age of 62.
It is this last requirement that has changed. Effective immediately, individuals of the opposite sex are now permitted to register as domestic partners, without regard to one being over the age of 62.
As a reminder, any group insurance policy covering a California resident must provide coverage for registered domestic partners in California. This applies regardless of where the fully insured policy is issued. Coverage provided to domestic partners must be on the same terms and conditions as that offered to spouses. The cost of coverage for a registered domestic partner would not be subject to state taxation. However, the federal government does not recognize domestic partners. Thus, if the partner is not a tax dependent, the cost of coverage would be subject to federal taxation. If an employer does not request relationship documentation (such as a marriage certificate) from married employees, it should not make a domestic partner’s coverage contingent upon submission of evidence of the domestic partnership.
Employers should work with outside counsel to revise plan documentation to reflect the change.
Special Enrollment Period Available for Consumers Enrolled in Trinity Healthshare
On August 28, 2019, the Division of Insurance published Bulletin No. B-4.102. According to the bulletin, the Division issued cease and desist orders for Trinity Healthshare and its administrator, Aliera Healthcare, which require the companies to immediately cease and desist conducting insurance business in Colorado. Those orders were issued because Trinity Healthshare and Aliera Healthcare offer non-compliant insurance products within the state of Colorado.
As a result, those enrolled in Trinity Healthshare plans have experienced a special enrollment period (as that term is defined in Colorado law). The trigger date of the special enrollment period is August 28, 2019 (the date of this bulletin), and therefore carriers must provide a special enrollment period for all affected consumers for a period of 60 days (from August 28, 2019).
The bulletin is directed to Colorado consumers who enrolled in Trinity Healthshare, and to carriers who issue on-exchange and off-exchange (private) health benefit plans issued in Colorado. Thus, employers with fully insured plans in Colorado may need to allow a special enrollment if any of their employees were enrolled in the Trinity Healthshare plan. Such employers should work with their carriers to facilitate the special enrollment.
New Rules on Copayments for Partial Prescription Refills for Opioid Products
On August 29, 2019, the Division of Insurance published Bulletin 2019-04, which relates to copayments for partial prescription fills of opioid products. According to the bulletin, carriers should take steps, in collaboration with their network pharmacies, to ensure that covered individuals who elect to fill a prescription for certain narcotic substances (opioids, as identified by the Massachusetts Department of Public Health) in a lesser quantity than prescribed should not be subject to cost-sharing and copayments when filling the remainder of the prescription.
The bulletin adds compliance obligations only for carriers, so there is no new employer requirement. But employers with fully insured plans in Massachusetts should be aware of the bulletin and the requirements, should employees ask questions regarding coverage.
New Bulletin Addresses Coverage for Naloxone
On August 29, 2019, the Division of Insurance published Bulletin 2019-05, which relates to coverage for naloxone. As background, as part of Massachusetts’ commitment to addressing the opioid epidemic, the Department of Public Health issued a statewide standing order for the broad distribution of naloxone and other opioid antagonists to any Massachusetts resident. The bulletin is meant to provide guidance to carriers regarding that standing order.
According to the bulletin, an "opioid antagonist" means "naloxone or any other drug approved by the [FDA] as a competitive narcotic antagonist used in the reversal of overdoses caused by opioids." The bulletin requires carriers to take whatever steps are necessary to modify their systems so that covered persons can obtain naloxone without the need to present a prescription written to the covered person. The bulletin states that the Division would consider it appropriate if carriers establish criteria that only require covered persons to go through prior authorization if they seek to obtain more than two naloxone kits per member within a 30-day period (if the person wants more than two kits within that 30-day period, the carrier could utilize prior authorization).
The bulletin contains no new employer obligations. Employers with fully insured plans in Massachusetts, though, will want to be aware of the coverage requirements and the general focus on coverage of naloxone and other opioid antagonists.
New Bulletin Addresses Coverage Guidelines for Pain Management Alternatives to Opiate Products
On August 29, 2019, the Division of Insurance published Bulletin 2019-06, which provides coverage guidelines for pain management alternatives to opiate products. According to the bulletin, the Division expects carriers to take all appropriate steps to ensure that fully insured plans make coverage for methods other than opiate treatment available to covered persons to manage pain. Specifically, the plan must provide at least two alternative medication treatment options and at least three alternative non-medication treatment modalities. Such alternatives may include other types of prescriptions, supplies, services or treatments that the carrier may determine are appropriate for covered individuals.
Carriers must also make appropriate updates to drug formularies and network directories, so as to make access to such treatment options readily available to covered persons. Also, carriers that identify an alternative method that involves coverage for services provided by specific types of providers (such as massage therapists, acupuncturists, and/or chiropractors) will be required to contract with a sufficient number of providers to have the alternative services available throughout the carrier’s service area.
There are no new employer obligations under the new bulletin, but employers with fully insured plans in Massachusetts should be aware of the coverage requirements.
Updates to Family Leave Act Law Took Effect Recently
Recently, New Jersey made some changes to the Family Leave Act (FLA) law. Beginning June 30, 2019, New Jersey FLA applies to all employers with 30 or more employees anywhere worldwide (previously it was 50 or more employees). The change was a result of a law passed previously this year (HB 3975). New Jersey also recently updated its fact sheet and FAQ, both of which reflect the applicability change from 50 to 30 employees.
DFS Announces PFL Premium Rate for 2020
On August 30, 2019, the New York Department of Financial Services (DFS) announced the New York Paid Family Leave (NY PFL) premium rates for 2020. The announcement came via a DFS decision titled “Decision on Premium Rate for Family Leave Benefits and Maximum Employee Contribution for Coverage Beginning January 1, 2020.”
On employee contributions, according to the DFS PFL decision, effective January 1, 2020, the NY PFL premium rate will increase to 0.270% of the first $72,860.84 of an employee’s annual earnings, for a maximum per employee premium contribution of $196.72 per year. As a reminder, NY PFL premium caps and benefit levels are tied to the New York state average weekly wage (NYSAWW). The NYSAWW that applies to PFL calculations for calendar year 2020 is $1,401.17; the annualized equivalent is $72,860.84. Comparatively, the NYSAWW that applies to PFL calculations for 2019 is $1,357.11; the annualized equivalent is $70,569.72).
On PFL benefits, according to the DFS PFL decision, the benefit percentage payable will increase from 55% (for PFL claims commencing in 2019) to 60% (for PFL claims commencing in 2020) of an employee’s average weekly wage, up to a maximum of 60% of the NYSAWW. The benefit duration, however, remains the same in 2020 — 10 weeks (less any PFL time taken in the prior 52-week lookback period).
Employers should continue to monitor compliance with the NY PFL rules. Employers will need to coordinate with their payroll providers to ensure employee contributions are taken correctly, depending on whether the employer is absorbing the cost of PFL premiums (partially or fully) on behalf of New York employees. Employers with questions on these NY PFL adjustments can reference the NY PFL employer resource on model language for employee materials, linked below.
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.
Not all of our employees have work computers. Is posting the SPD and other required notices on a shared computer or sign-in kiosk sufficient for distribution purposes?