Client Alert: Broker & Consultant Fee Transparency to Group Health Plans

As the health care arena continues to evolve following the ACA and its progeny, one common theme in the regulations has been to increase transparency in the marketplace. Following on that theme, the Department of Labor recently issued its Field Assistance Bulletin No. 2021-03 aimed at the fees charged by group health insurance brokerages and consultants. The language of the Bulletin sets forth the Department’s short to medium term enforcement policy in regard to the amendments made to ERISA section 408(b)(2)(B), which was included as part of the Consolidated Appropriations Act of 2021 (CAA). Taken together, these documents set forth one method the Department will take to achieve the government’s goal of requiring group health plan sponsors, who are charged to act in a fiduciary capacity, to consider the costs of the services provided by certain vendors.

Who is affected?

ERISA section 408(b)(2)(B) applies to all group health plans, regardless of group size, and includes both insured and self-funded plans; all of which are “covered plans.” The sole exception applies to certain small employer health reimbursement arrangements.

The new language applies to “covered service providers” who provide plan related services to “covered plans.” Covered service providers include individuals and entities that enter into a contract or arrangement to provide one or more of the following services to a covered plan:

  • Brokerage services with respect to selection of:
    • Insurance products (including vision and dental);
    • Plan management services, vendors, and administrative supports; and
    • Stop-loss, pharmacy benefit, wellness, and other plan services.
  • Consulting services related to the development or implementation of:
    • Plan design, insurance or insurance product selection (including vision and dental);
    • Plan management services, vendors, group purchasing organization agreements, and services; and
    • Stop-loss, pharmacy benefit, wellness, and other plan services.

In addition to providing covered services, the broker, consultant, or other covered service provider must reasonably expect $1,000 or more in direct or indirect compensation in connection with its contract or arrangement with the covered plan.

Additionally, the Bulletin clarifies that only covered service providers who are a party to the contract or arrangement with the covered plan are required to make the disclosure. In this way, the amended statute does not require affiliates or subcontractors, solely by virtue of offering services to the covered plan as an affiliate or subcontractor of the covered service provider, to individually make the disclosures, as they will not have entered into the contract or arrangement with the covered plan.[1]

What information must be disclosed?

Covered service providers must disclose to covered plans specified information regarding the services to be provided and the compensation the covered service provide reasonably expects to receive in connection with its services. At a minimum, this information must include:

  • A description of the services to be provided by the covered service provider;
    • Including, where applicable, information about those services for which the covered service provider will provide or reasonably expects to provide services directly to the covered plan as a fiduciary.
  • A description of the direct compensation that the covered service provider expects to receive in connection with the contract or arrangement with the covered plan. In most instances, such direct compensation will include some form of commission.
  • A description of all indirect compensation that the covered service provider, its affiliates, or subcontractors expect to receive.
    • Where a covered service provider employs the use of affiliates, subcontractors, or both, the disclosure should also include a description of the arrangement between the covered service provider and the affiliate or subcontractor.
    • Indirect compensation disclosures should also include (1) an identification of the services for which such indirect compensation will be received, (2) any formulae relied up in the calculation of such indirect compensation,  (3) identification of the payer of such indirect compensation, and (4) a description of the arrangement and any formula amongst and between the payer of the indirect compensation and the covered service provider, affiliates, or subcontractors.
  • A description of any compensation the covered service provider expects to receive in connection with the termination of the contract, along with a calculation of how any prepayments will be calculated and refunded.

In addition to describing the types of compensation, the covered service provider notice should also include the manner in which such compensation will be received.

Finally, a covered service provider must set forth the services that the covered service provider is rendering to the covered plan as a fiduciary.

When are the disclosures required?

The CAA amendments became applicable on December 27, 2021. Covered service providers, therefore, are required to make their fee disclosures for any new contracts or arrangements as of that date. The Bulletin clarifies that the “effective” date of the contract or arrangement is the date the contract or arrangement was executed, which may not necessarily be the beginning of a new plan year. Therefore, covered plans should consult with and collect the requisite information from their covered service providers for any contracts or arrangements that are written, renewed, or extended in 2022.

Furthermore, in order to meet the objectives of the policy (i.e. allowing covered plans to perform cost-benefit analysis related to the fees charged and services provided by their brokers and consultants), covered service providers are required to make the disclosures set forth above “reasonably in advance” of the date on which the contract or arrangement is entered into, extended, or renewed. Furthermore, any change in such disclosures are required to be made as soon as practicable.

How does a covered plan ensure disclosure?

While the disclosures contemplated by the statutory provision are intended to come from the covered service provider, the fiduciary responsibility rest with the covered plan sponsor. The primary enforcement mechanism, therefore, is to deem nonconforming deals to be prohibited transactions under the statute. However, no such determination shall be made provided covered plans meet the following requirements:

  • “The responsible plan fiduciary did not know that the covered service provider failed or would fail to make required disclosures and reasonably believed that the covered service provider disclosed the information required to be disclosed.
  • The responsible plan fiduciary, upon discovering that the covered service provider failed to disclose the required information, requests in writing that the covered service provider furnish such information.
  • If the covered service provider fails to comply with a written request…within 90 days of the request, the responsible plan fiduciary notifies the Secretary of the covered service provider’s failure…”

Conclusion

As plan fiduciaries consider their options this year, whether its with a new carrier or a renewal, they should begin working with their brokers and consultants to gain a better understanding of the fees that are charged and prepare to answer inquiries about the reasonableness thereof.

[1] Affiliates and subcontractors should review the nature of their relationship to covered plans to ensure that their services do not extend beyond the scope of the services provided on behalf of a covered service provider, thus possibly triggering the need for the affiliate or subcontractor itself to disclose.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.


Robert D. Burgee is an attorney at Fraser Trebilcock with over a decade of experience counseling clients in business transactions, civil matters, regulatory compliance, and employee matters. Bob also has a background in employee benefits, having been a licensed agent since 2014. You can reach him at 517.377.0848 or at bburgee@fraserlawfirm.com.


Aaron L. Davis works in employee health and welfare benefits. He is also Chair of the firm’s labor law practice and serves as Firm Secretary. He has litigation experience in a diverse range of employment matters, including Title VII, the Age Discrimination and Employment Act, the Americans with Disabilities Act, the Family Medical Leave Act, and the Fair Labor Standards Act. You can reach him at 517.377.0822 or email him at adavis@fraserlawfirm.com.

Client Alert: Transparency Rules Are In Full Force – Be Sure You Are Ready!

As you know, both the Affordable Care Act from 2010 (ACA) and the Consolidated Appropriations Act of 2020 (CAA, 2021) contain various transparency rules and requirements upon group health plans. Some of the rules are similar; others vary and have different effective dates.

Thankfully, the Departments of Labor, Treasury, and Health and Human Services (collectively, the Departments) issued FAQ Part 49 to reconcile some of these issues.

BACKGROUND

In November of 2020, the Departments promulgated numerous rules to create greater transparency in health coverage requirements as required under the ACA. The rules disseminate price and benefit information directly to consumers and to the public, enabling consumers to evaluate health care options and to make cost-conscious decisions. The Departments rely on the legal authority provided in 2715A of the Public Health Service Act (42 USCA § 300gg-15) and section 1311(e) of the Patient Protection and Affordable Care Act (42 USCA 18031(e)(3)). While the rules went into effect January 11, 2021, the Departments were set to begin enforcement January 1, 2022.

Meanwhile, on December 27, 2020, the Further Consolidated Appropriations Act, 2021 (PL 116-260) (CAA, 2021) was signed into law. The CAA, 2021, in part, provides protections against surprise billings and also contains numerous transparency rules. These rules are similar to the ACA transparency in coverage rules, but have varying terms and effective dates.

The Departments have decided to delay enforcement of certain provisions to reconcile contradictions between the ACA’s transparency in coverage rules and those provided under CAA, 2021. See FAQ Part 49.

Below is a summary of the Departments’ guidance as well as new dates by which plans and issuers must comply.

DEPARTMENTS’ GUIDANCE

Machine Readable Files

As it pertains to public disclosure, the ACA rules require that certain non-grandfathered group health plans and health insurance issuers offering non-grandfathered coverage in the group and individual markets disclose in three machine readable files on a public website:

  • their in-network provider rates for covered items and services (enforcement begins July 1st, 2022);
  • out-of-network allowed amounts and billed charges for covered items and services (enforcement begins July 1st, 2022); and
  • negotiated rates and historical net prices for covered prescription drugs (enforcement deferred until further notice).

See 85 FR 72158 (Nov. 12, 2020). Machine-readable files are defined as: a digital representation of data or information in a file that can be imported or read by a computer system for further processing without human intervention, while ensuring no semantic meaning is lost. The files must be accessible free of charge, without having to establish a user account, password, or other credentials, and without having to submit any personal identifying information such as a name, email address, or telephone number. Plans and issuers have flexibility to publish the files in the locations of their choosing based upon their superior knowledge of their website traffic and the places on their website where the machine-readable files would be readily accessible by intended users.

Generally, the machine-readable files must contain the following content elements:

FOR ALL FILES

– name and identifier for each coverage option (Ex: EIN or HIOS ID)

– billing codes or other common payer code identifiers (Ex: a CPT code, HCPCS code, DRG or NDC)

– national provider identifiers (NPI), tax identifier numbers (TIN) and place of service codes

FOR IN-NETWORK RATE FILES

– rates that apply to each item or service that is associated with the last date of the contract term or the contract expiration date for each provider as identified by NPI, TIN, and Place of Service Code

– For contractual arrangements under which a plan or issuer agrees to pay an in-network provider a percentage of billed charges and is not able to assign a dollar amount to an item or service prior to a bill being generated, plans and issuers may report a percentage number, in lieu of a dollar amount.

– In situations in which alternative reimbursement arrangements are not supported by the schema, or in instances where the contractual arrangement requires the submission of additional information to describe the nature of the negotiated rate, plans and issuers may disclose in an open text field a description of the formula, variables, methodology, or other information necessary to understand the arrangement.

FOR ALLOWED AMOUNT FILES

– historical out-of-network allowed amounts for covered items and services

FOR PRESCRIPTION DRUG FILES

– negotiated rates for prescription drugs (rates for prescription drugs should not be included in the other two files)

– historical net prices of prescription drugs (the retrospective average amount a plan or issuer paid for a prescription drug, inclusive of any reasonably allocated rebates, discounts, chargebacks, fees, and any additional price concessions received by the plan or issuer with respect to the prescription drug)

PRACTICE NOTE: While the ACA rules do not apply to grandfathered plans, the CAA, 2021 transparency rules do!

Price Comparison Tools

Plans and issuers are required to develop price comparison information for a list of health-related items and services and make it available to plan participants, beneficiaries, and enrollees through an internet-based self-service tool, and in paper form upon request. See 26 CFR 54.9815-2715A2(b), 29 CFR 2590.715-2715A2(b), and 45 CFR 147.211(b).

  • Departments have provided a list of 500 items and services that plans and insurers must include in their self-service tools. Enforcement will begin January 1, 2023. A list of the items can be found in table 1 of the preamble of the final rule.
  • By January 1, 2024, plans and insurers must include the price information for all items and services in their self-service tool.

To fulfill the requirements of the cost-sharing rules, several items of content are required, including: an estimate of the cost sharing liability; a participant’s, beneficiary’s, or enrollee’s accumulated amount; in net-work rates (including negotiated rates, underlying fee schedule rates and prescription drug rates); out of network allowed amounts; items and services content list; notice of prerequisites of coverage; and a disclosure notice.

PRACTICE NOTE: The CAA, 2021 added price comparison tool requirements as well (by telephone or Internet website) of the plan or issuer with respect to plan year, geographic region and participating providers to compare the amount of cost-sharing  required for a specific item/service.  See PHSA 2799A-4; IRC 8919; ERISA 719.

Insurance Identification Cards

Plans and issuers are required to include applicable deductibles, applicable out-of-pocket maximum limitations, and telephone numbers and web addresses for individuals to receive consumer assistance on plan ID cards issued to participants, beneficiaries and enrollees. This requirement has been in effect since January 1st, 2022. The Departments have not issued further guidance on an enforcement date but expresses that plans and issuers are expected to implement the ID card requirements using a good faith, reasonable interpretation of the law. See Code section 9816(e), ERISA section 716(e), and PHS Act section 2799A–1(e), as added by section 107 of division BB of the CAA.

Good Faith Estimates

Providers and facilities, upon an individual’s request or scheduling of items or services, are required to inquire if the individual is enrolled in a health plan or health insurance coverage, and to provide a notification of the good faith estimate of the expected charges for furnishing the scheduled item or service and any items or services reasonably expected to be provided in conjunction with those items and services, including those provided by another provider or facility, with the expected billing and diagnostic codes for these items and services. See PHS Act section 2799B–6, as added by section 112 of division BB of the CAA.

Providers and facilities must provide this good-faith estimate information to the plans of individuals who have coverage. And for those who don’t have coverage or who don’t wish to make an insurance claim with their coverage, this information must be provided to the individual. As of now, enforcement is deferred.

Advanced Explanation Of Benefits

When plans and issuers receive a good faith estimate from a provider or facility regarding a covered individual’s request or scheduling of an item or service, the plan or issuer must send the participant, beneficiary, or enrollee an advanced explanation of benefits. The explanation must contain:

  1. the network status of the provider or facility;
  2. the contracted rate for the item or service, or if the provider or facility is not a participating provider or facility, a description of how the individual can obtain information on providers and facilities that are participating;
  3. the good faith estimate received from the provider;
  4. a good faith estimate of the amount the plan or coverage is responsible for paying, and the amount of any cost-sharing for which the individual would be responsible for paying with respect to the good faith estimate received from the provider; and
  5. disclaimers indicating whether coverage is subject to any medical management techniques.

Note: The last content element for the explanation is a disclosure advising recipients that the information provided based on the good faith estimate is only an estimate of costs and that all items and services are subject to change. See Code section 9816(f), ERISA section 716(f), and PHS Act section 2799A-1(f), as added by section 111 of division BB of the CAA.

As of now, enforcement is deferred.

Prohibition on Gag Clauses on Price and Quality Information – CAA, 2021

The CAA, 2021 prohibits group health plans and issuers from entering into agreements with health care providers, networks or association of providers, TPAs, or other services providers which offer access to a network of providers if that agreement directly or indirectly restricts a group health plan or insurer from:

  • Providing provider-specific cost or qualify of care to referring providers, the plan sponsor, participants or beneficiaries, or individual eligible to become participants or beneficiaries under the plan;
  • Electronically accessing de-identified claims data, including financial information, provider information, service codes, or other data included in claim or encounter transactions; or
  • Sharing such information or data with a business associate.

Group health plans must annually submit to the Secretary an attestation that such plan is in compliance with these rules.

However, in FAQ Part 49 Q/A-7, the Departments indicated that they will not be issuing regulations on this issue. Instead, plans and issuers are expected to implement these requirements using a good faith and reasonable interpretation of the statute. Additionally, the Departments to intend to issue guidance explain how plans should submit their attestation starting in 2022.

Accurate Provider Directory Information – CAA, 2021

The CAA, 2021 also added the requirements that plans must provide accurate provider directories and update them regularly. See new Code section 9820(a) an d(b), ERISA section 720(a) and (b), and PHSA section 2799A-5(a) and (b). Plans must respond to participant and beneficiary requests about provider network participation status. If a participant, beneficiary, or enrollee receives services or is furnished an item from an out-of-network provider but was incorrectly given information that the provider was in-network, only in-network levels can be charged by the plan and the plan must count these cost-sharing amounts toward any in-network deductible or in-network out-of-pocket maximum. This is effective for plan years beginning on or after January 1, 2022.

In FAQ Part 49, Q/A-8, the Departments indicate that they will not be providing regulations prior to the effective date. Plans must use good faith efforts to comply. Plans will not be penalized if the plan sponsors limit cost-sharing to in-network amounts if wrong information is given as above.

Balance Billing Disclosures – CAA, 2021

Code section 9820(c), ERISA section 720(c), and PHS Act section 2799A-5(c) were added by CAA, 2021 and require plans to make certain disclosures regarding balance billing protections to participants, beneficiaries, and enrollees. In general, plans must make publicly available, post on a public website of the plan, and include on each Explanation of Benefits information regarding the No Surprise Billing law including relevant state laws and contact information for state and federal agencies in case of violations. The Departments issued a model notice to assist with the disclosure requirements. These rules are effective for plan years beginning on or after January 1, 2022.

FAQ Part 49 Q/A-9 similarly states that regulations were not to be issued prior to the effective date and plans must use a good faith, reasonable interpretation of the law.

Continuity of Care – CAA, 2021

Continuity of care protections are set forth in CAA, 2021. These ensure continuity of care in cases of an individual with benefits under a group health plan when termination of certain contractual relationships result in change in provider or facility network status. See Code section 9818, ERISA section 718, and PHSA sections 2799A-3 and 2799B-8.

FAQ Part 49, Q/A-10 states that while these requirements are also effective January 1, 2022, regulations won’t be issued until later. Such guidance will include prospective applicability date to afford plans and other entities with a reasonable amount of time to comply with any new requirements. Plans are again expected to use a good faith, reasonable interpretation of the law.

Grandfathered Health Plans – CAA, 2021

While certain provisions of the ACA are not applicable to grandfathered health plans, the CAA, 2021 does not include such an exception. Therefore, while transparency rules under the ACA were not applicable, grandfathered plans must be prepared to comply under the CAA. See FAQ Part 49, Q/A-11.

Prescription Drug Pricing – CAA, 2021

Under the CAA, 2021, Plan sponsors must submit numerous information regarding prescription drug expenses to Departments including:

  • Plan year beginning and ending dates;
  • Enrollment census information, including the number of enrollees and each state where the plan is offered; and
  • Specific information regarding the 50 most frequently dispensed brand drugs (and the total number of paid claims for each), the 50 most expensive drugs annually (and the annual amount spent for each), and the 50 drugs with the greatest yearly increase in expense from one plan year to the next (and the change in cost for each drug per year).

Plans must also report other information, including the average monthly premiums, prescription expenditures and impact of drug manufacturer rebates on expenditures.

In FAQ Part 49, Q/A-12, the Departments state that the intend to issue regulations to address these pharmacy benefit and drug cost reporting requirements. Until such guidance is issued, the Departments strongly encourage plans to start working to ensure they are in a position to report the 2020 and 2021 plan year data by December 27, 2022.

PRACTICE TIPS AND TAKEAWAYS…

Undeniably, plan sponsors will not have the detailed information to comply and must rely on their insurers and TPAs. However, this regulatory guidance makes clear thatplan sponsors are ultimately responsible and must ensure the transparency rules are followed!

The transparency rules do set forth protections for insured arrangements when the group health plan requires the insurer to provide such information via a written agreement. If insurer fails to comply, then the insurer violates transparency disclosure requirements, not the group health plan.

It’s a bit more difficult for self-funded arrangements. The group health plan here too can enter into a written agreement requiring the TPA to provide the information. However, the plan is still responsible if the TPA fails to comply.Therefore, it is imperative to have an indemnification agreement with the TPA.

Plans failing to comply with the transparency rules could be subject to an enforcement action under ERISA and to the $100 per day excise tax penalty under Section 4980D of the Code (which applies to any failure to comply with the ACA’s market reforms).

Therefore, plan sponsors should immediately ensure their insurers and/or TPAs are prepared to comply with these rules and should enter into written agreements with each, as well as add indemnification language to protect themselves from potential penalties due to noncompliance.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.


Lauren  D.  Harrington is an associate attorney at Fraser Trebilcock focusing on Employment Law. You can reach her at 517.377.0874, or email her at lharrington@fraserlawfirm.com.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

FAQs Spell Out Employer-Sponsored Health Plan Requirements for Reimbursing Over the Counter COVID Tests Effective as of January 15, 2022

Effective January 15, 2022, employer-sponsored group health plans and health insurers are required to provide reimbursement to plan participants, or to provide coverage to plan participants, for over-the-counter (“OTC”) COVID-19 self-tests. No cost sharing (such as deductibles), prior authorization or other medical management requirements can apply.

These and other explanations of coverage requirements for OTC COVID-19 testing are addressed in guidance issued in a “Frequently Asked Questions” format on January 10, 2022. The FAQs were prepared jointly by the Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the “Departments”) regarding implementation of the Families First Coronavirus Response Act (FFCRA), the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the Affordable Care Act.

Some of the important issues addressed in the FAQs include the following:

  • A plan or insurer is not required to provide coverage by reimbursing sellers of OTC COVID-19 tests directly (i.e., direct coverage). Instead it may require a participant, beneficiary, or enrollee to submit a claim for reimbursement to the plan or insurer. However, the FAQs state that plans and insurers are strongly encouraged to provide direct coverage for OTC COVID-19 tests without requiring participants, beneficiaries, or enrollees to provide upfront payment and seek reimbursement.
  • To the extent a plan or insurer provides direct coverage for tests, it may not limit coverage to only tests that are provided through preferred pharmacies or other retailers, and must take reasonable steps to ensure that participants have adequate access to tests through an adequate number of retail locations (including in-person and online locations).
  • Reimbursement of tests from non-preferred pharmacies or other retailers may be limited to no less than the actual price, or $12 per test (whichever is lower); however plans and insurers may elect to provide more generous reimbursement up to the actual price of the test.
  • A plan or insurer may limit the number of tests covered to no less than 8 tests per 30-day period.
  • Plans and insurers are permitted to address suspected fraud and abuse. The FAQs state, for example, that a plan or insurer may require (i) an attestation that the OTC COVID-19 test was purchased by the participant for personal use, not for employment purposes, and (ii) reasonable documentation (such as a UPC code) of proof of purchase with a claim for reimbursement.

The Centers for Medicare and Medicaid Services also issued a set of FAQs on January 10, 2022, explaining to consumers “How to get your At-Home Over-The-Counter COVID-19 Test for Free.”

We will continue to keep you updated regarding new developments on these issues. Given the nationwide lack of availability of tests, and many insurers indicating that they cannot meet the January 15 deadline, it may be a rocky start for this program.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.


Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.


Lauren  D.  Harrington is an associate attorney at Fraser Trebilcock focusing on Employment Law. You can reach her at 517.377.0874, or email her at lharrington@fraserlawfirm.com.

[Client Alert]: 2021 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability

HHS Announces OOP Limitations for 2021

With the passage of the Affordable Care Act (ACA), group health plans became required to apply an out-of-pocket limitation to certain in-network benefits… meaning that once an individual or family out-of-pocket (OOP) limit was met, the plan could not charge additional OOP costs for essential health benefits. These OOP limits include both the plan’s deductible as well as cost-sharing amounts for essential health benefits (EHB) in-network as set forth under the ACA.

Although self-insured plans and large-group insured plans are not required to cover all EHBs (while small-group insured plans are), to the extent they do, in-network OOP expenses for EHBs cannot exceed the maximum OOP limit. Additionally, group health plans may not impose annual or lifetime dollar limitations on EHBs whether offered in-network or out-of-network.

The Department of Health and Human Services (HHS) has released the 2021 plan year inflation-adjusted OOP limits applicable to non-grandfathered plans.

  • Self-only coverage:      $8,550 (was $8,150 for 2020)
  • Family coverage:         $17,100 (was $16,300 for 2020)

See PPACA; HHS Notice of Benefit and Payment Parameters for 2021.

Employers with non-grandfathered group health plans must update their maximum annual OOP limits.

These rules do not apply to ACA grandfathered plans. [Please note that these cost-sharing limits are different than the maximum out-of-pocket limits for purposes of being HSA-qualifying high deductible health plans.]

HHS Announces ACA Employer Mandate (Pay or Play) Penalty Amounts for 2021

Under the ACA, applicable large employers must offer certain group health plan coverage to their full-time employees; otherwise they will risk significant penalties.

Applicable large employers are those who employ 50 or more full-time or full-time equivalent employees in the preceding calendar year. Employees of related employers (within a controlled group or affiliated service group) are counted in this determination.

  • Part A requires employers to offer minimum essential coverage to 95% of their full-time employees.  See Section 4980H(a).
  • Part B requires the offered coverage be affordable and meet the minimum value standards.  See Section 4980H(b).

Specifically, the Part A Penalty is imposed on an employer who fails to offer minimum essential coverage (MEC) to at least 95% of the employer’s full-time employees (FTEs) and dependents as defined under the ACA, and if one of its FTEs receives subsidized coverage through the Marketplace or public health insurance exchange. The penalty amount is multiplied by the number of FTEs, minus 30. Special rules exist for applicable large employer members which are part of a controlled group.

The Part B Penalty amount is imposed on an employer who fails to offer coverage that meets the minimum value (MV) requirements or fails to be affordable, again as defined under the ACA, with respect to each one of its FTEs who receives subsidized coverage through the Marketplace or public health insurance exchange.

The Internal Revenue Service (IRS) has released the 2021 inflation-adjusted penalty amounts under the Affordable Care Act’s Employer Shared Responsibility Mandate (Pay or Play):

  • Part A Penalty:     $2,700 (was $2,570 for 2020)
  • Part B Penalty:     $4,060 (was $3,860 for 2020)

See Q&A 55 on Employer Shared Responsibility Provisions under the ACA.

Specifically, HHS finalized the premium adjustment percentage as 1.3542376277 for the 2021 benefit year, which is then multiplied by the original 2015 penalty amounts (Part A was $2,000 and Part B was $3,000) and rounded down to the nearest multiple of ten.

By way of example, an employer with 200 FTEs who fails to offer MEC to 95% of those employees (and if at least one of those FTEs receives subsidized coverage through the Marketplace or an exchange), the penalty assessed for the year will be $459,000 (200-30 = 170 x $2,700). The larger the employer, the larger the penalty.  If the same employer offers coverage to 95% of its FTEs but that coverage is not affordable or doesn’t provide minimum value, the penalty assessed will be based on the number of employees who receive subsidized coverage through the Marketplace or an exchange. If 20 FTEs receive subsidized coverage for each month of the year, the 2021 penalty would be $81,200 ($4,060 x 20).

Affordability Rates for 2021

As discussed above with respect to ACA penalties, an applicable large employer who does not offer affordable employer-sponsored group health plan coverage could face steep penalties.

For 2021, the ACA affordability requirement applies to the lowest-cost self-only coverage option that offers minimum value and must not exceed 9.83 percent of an employee’s household income. Please see Rev. Proc. 2020-36. This is a increase from 2020 (which was 9.78%).

As it is difficult to determine an employee’s household income, three safe-harbors are available for employers to use to determine affordability:

  1. Form W-2, based on an employee’s W-2 wages as reported in Box 1;
  2. Rate of Pay, based on the employee’s hourly wage rate, multiplied by 130 hours per month; and
  3. Federal Poverty Line, based on the individual federal poverty level as of six months prior to the beginning of the plan year, divided by 12…

Employers must be sure to carefully consider the safe harbors available and calculation of the lowest-cost employee coverage that should be charged.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Client Alert: 2020 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability

Government has Issued the 2020 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability

HHS Announces OOP Limitations for 2020

With the passage of the Affordable Care Act (ACA), group health plans became required to apply an out-of-pocket limitation to certain in-network benefits… meaning that once an individual or family out-of-pocket (OOP) limit was met, the plan could not charge additional OOP costs for essential health benefits. These OOP limits include both the plan’s deductible as well as cost-sharing amounts for essential health benefits (EHB) in-network as set forth under the ACA.

Although self-insured plans and large-group insured plans are not required to cover all EHBs (while small-group insured plans are), to the extent they do, in-network OOP expenses for EHBs cannot exceed the maximum OOP limit. Additionally, group health plans may not impose annual or lifetime dollar limitations on EHBs whether offered in-network or out-of-network.

The Department of Health and Human Services (HHS) has released the 2020 plan year inflation-adjusted OOP limits applicable to non-grandfathered plans.

  • Self-only coverage:      $8,150 (was $7,900 for 2019)
  • Family coverage:         $16,300 (was $15,800 for 2019)

See https://www.govinfo.gov/content/pkg/FR-2019-04-25/pdf/2019-08017.pdf.

Employers with non-grandfathered group health plans must update their maximum annual OOP limits.

These rules do not apply to ACA grandfathered plans. [Please note that these cost-sharing limits are different than the maximum out-of-pocket limits for purposes of being HSA-qualifying high deductible health plans.]

HHS Announces ACA Employer Mandate (Pay or Play) Penalty Amounts for 2020

Under the ACA, applicable large employers must offer certain group health plan coverage to their full-time employees; otherwise they will risk significant penalties.

Applicable large employers are those who employ 50 or more full-time or full-time equivalent employees in the preceding calendar year. Employees of related employers (within a controlled group or affiliated service group) are counted in this determination.

  • Part A requires employers to offer minimum essential coverage to 95% of their full-time employees.  See Section 4980H(a).
  • Part B requires the offered coverage be affordable and meet the minimum value standards.  See Section 4980H(b).

Specifically, the Part A Penalty is imposed on an employer who fails to offer minimum essential coverage (MEC) to at least 95% of the employer’s full-time employees (FTEs) and dependents as defined under the ACA, and if one of its FTEs receives subsidized coverage through the Marketplace or public health insurance exchange. The penalty amount is multiplied by the number of FTEs, minus 30. Special rules exist for applicable large employer members which are part of a controlled group.

The Part B Penalty amount is imposed on an employer who fails to offer coverage that meets the minimum value (MV) requirements or fails to be affordable, again as defined under the ACA, with respect to each one of its FTEs who receives subsidized coverage through the Marketplace or public health insurance exchange.

The Department of Health and Human Services (HHS) has released the 2020 inflation-adjusted penalty amounts under the Affordable Care Act’s Employer Shared Responsibility Mandate (Pay or Play):

  • Part A Penalty:                  $2,570 (was $2,500 for 2019)
  • Part B Penalty:                  $3,860 (was $3,750 for 2019)

Specifically, HHS finalized the premium adjustment percentage as 1.2895211380 for the 2020 benefit year, which is then multiplied by the original 2015 penalty amounts (Part A was $2,000 and Part B was $3,000) and rounded down to the nearest multiple of ten.

By way of example, an employer with 200 FTEs who fails to offer MEC to 95% of those employees (and if at least one of those FTEs receives subsidized coverage through the Marketplace or an exchange), the penalty assessed for the year will be $436,900 (200-30 = 170 x $2,570).  The larger the employer, the larger the penalty.  If the same employer offers coverage to 95% of its FTEs but that coverage is not affordable or doesn’t provide minimum value, the penalty assessed will be based on the number of employees who receive subsidized coverage through the Marketplace or an exchange.  If 20 FTEs receive subsidized coverage for each month of the year, the 2020 penalty would be $77,200 ($3,860 x 20).

Affordability Rates for 2020

As discussed above with respect to ACA penalties, an applicable large employer who does not offer affordable employer-sponsored group health plan coverage could face steep penalties.

For 2020, the ACA affordability requirement applies to the lowest-cost self-only coverage option that offers minimum value and must not exceed 9.78 percent of an employee’s household income. Please see Rev. Proc. 2019-29. https://www.irs.gov/pub/irs-drop/rp-19-29.pdf. This is a decrease from 2019 (which was 9.86%).

As it is difficult to determine an employee’s household income, three safe-harbors are available for employers to use to determine affordability:

  1. Form W-2, based on an employee’s W-2 wages as reported in Box 1;
  2. Rate of Pay, based on the employee’s hourly wage rate, multiplied by 130 hours per month; and
  3. Federal Poverty Line, based on the individual federal poverty level as of six months prior to the beginning of the plan year, divided by 12…

The reduction in the affordability percentage may likely mean that employers will have to reduce what employees pay for self-only coverage in order to maintain compliance, depending on what safe-harbor the employer uses.

Employers must be sure to carefully consider the safe harbors available and calculation of the lowest-cost employee coverage that should be charged.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Client Alert: IRS Releases Final ACA Employer Reporting Forms & Instructions (1094-B, 1094-C, 1095-B, and 1095-C)

IRS Releases Final ACA Employer Reporting Forms & Instructions (1094-B, 1094-C, 1095-B, and 1095-C)

The Internal Revenue Service (“IRS”) has finalized Forms 1094/1095-B and 1094/1095-C for the 2018 tax year, as well as their related instructions, which are required to be filed under the Affordable Care Act.

As provided in previous Client Alerts, information reporting requirements are applicable under two Internal Revenue Code (“Code”) sections as follows:

  • Section 6055 for insurers, self-insuring employers, and certain other providers of minimum essential coverage; and
  • Section 6056 for applicable large employers.

By way of background, the IRS requires applicable large employers and sponsors of self-insured health plans to report on the health coverage offered and/or provided to individuals beginning calendar year 2015. Although the reporting requirements extend to other entities that provide “minimum essential coverage” (such as health insurance issuers), this Client Alert focuses on the requirements imposed on employers.

Employers who are deemed applicable large employers, as well as employers of any size who offer self-funded health coverage, must carefully review and study these instructions, which set forth numerous details, definitions and indicator codes that must be used to complete the requisite forms. The instructions address the “when, where and how” to file, extensions and waivers that may be available, how to file corrected returns, and potential relief from penalties imposed for incorrect or incomplete filing.

The IRS utilizes information from these returns to determine which individuals were offered minimum essential coverage, whether individuals were eligible for premium tax credits in the Marketplace, as well as to determine any penalties to be imposed on employers under Pay or Play (Code section 4890H; Shared Responsibility for Employers Regarding Health Coverage, 26 CFR Parts 1, 54, and 301, 79 Fed. Reg. 8543 (Feb. 12, 2014)). Due to the impact of proper reporting, a clear understanding of these forms and instructions is essential.

Code section 6056 applies to applicable large employers (generally employers with at least 50 full-time employees, including full-time equivalent employees). Information with respect to each full-time employee (whether or not offered coverage) must be reported on Form 1095-C. Transmittal Form 1094-C must accompany the Forms 1095-C; all the Forms 1095-C together with the Transmittal Form 1094-C constitute the Code section 6056 information return that is required to be filed with the IRS. For applicable large employers who self-insure, there is a separate box to complete which incorporates the information required under Code section 6055.

Code section 6055 applies to employers of any size who self-insure. Non-applicable large employers with self-funded plans must report their information on Form 1095-B, as well as on Transmittal Form 1094-B. All of the Forms 1095-B together with the Transmittal Form 1094-B constitute the Code section 6055 information return that is required to be filed with the IRS. Again, if the employer who self-insures is also an applicable large employer, the employer will instead use Forms 1095-C and 1094-C, which include a section for self-insured plans.

Employers subject to these requirements must report in early 2019 for the entire 2018 calendar year.

Additionally, employers must provide informational statements to the individuals for whom they are reporting. Form 1095-C or Form 1095-B (as applicable) may be used as this informational statement.

The links to the Final Forms and Instructions are below:

2018 Forms for Applicable Large Employers (Code Section 6056):

2018 Forms for Employers who Self-Fund (Code Section 6055):

These instructions and forms reflect only minor changes, such as a few formatting modifications and the reflection of indexed penalty amounts for reporting failures.  The increased penalties are now as follows for 2018 tax year returns (and may be waived in certain circumstances):

  • The penalty for failure to file a correct information return is $270 for each return for which the failure occurs, with the total penalty for a calendar year not to exceed $3,275,500.
  • The penalty for failure to provide a correct payee statement is $270 for each statement for which the failure occurs, with the total penalty for a calendar year not to exceed $3,275,500.
  • Special rules apply that increase the per-return and per-statement and total penalties with no maximum limitations if there is intentional disregard of the requirement to file the returns and furnish recipient statements.

Additionally, the instructions for Forms 1094-B and 1095-B also now state that health insurance issuers and carriers are encouraged (but not required) to report coverage in catastrophic health plans enrolled in through the Marketplace for months in 2018.

The remainder of the provisions remain intact, including the mandatory electronic filing for Forms reaching the 250-return threshold.

Deadlines for distribution and filing are:

  • January 31, 2019 to furnish returns to individuals
  • February 28, 2019 for paper filing with the IRS
  • April 1, 2019 for electronic filing with the IRS

There is no current indication of filing deadline relief, so it is essential to ensure your reporting and collection of data procedures are intact.

If you should have questions regarding employer reporting requirements or other ACA mandates, the Employee Benefits team at Fraser Trebilcock can assist.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

October 15th Deadline: Medicare Part D Notice of Creditable (or Non-Creditable) Coverage

Medicare Part D notices (of either creditable or non-creditable coverage) are due for distribution prior to October 15th. Continue reading October 15th Deadline: Medicare Part D Notice of Creditable (or Non-Creditable) Coverage

Attorney Elizabeth Latchana honored among Michigan’s ‘Women in the Law’

Elizabeth Latchana Honored by Michigan Lawyers Weekly

When the entire country was seeking to understand and respond to the myriad of employee benefit changes, mandates and associated penalties accompanying the passage of the Patient Protection and Affordable Care Act, Fraser Trebilcock attorney Elizabeth Latchana stepped up to the challenge and became a leading advisor to employers of all sizes across the state of Michigan – and beyond.

“Her dedication to providing clients and the community with the most current information and updates has inspired one of the most active blogs for this legal practice in the state of Michigan,” said Fraser Trebilcock President Brian Morley. “With the proposed changes under the new administration and, for that matter, all future administrations that may aim to continue tweaking or outright changing the laws, Beth’s legal guidance and leadership will be needed for many years to come. We are grateful to have her experience on our side at Fraser.”

Beth found her niche in the transactional health and welfare employee benefits practice just a few years into her legal career.  “With the incredible training and assistance of my predecessor and others, I was able to learn, grow, and expand Fraser’s health and welfare employee benefits practice area, sevenfold, and am sincerely honored to have received some accolades along the way,” she says.

Selected in 2015 as “Lawyer of the Year” for Employee Benefits (ERISA) Law in Lansing by Best Lawyers, the Genesee County native has achieved an AV Preeminent peer review rating by Martindale-Hubbell, and continues to be selected by Leading Lawyers and Best Lawyers. Her most recent accolade is selection as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly, and she will be among those honored at a Sept. 7 luncheon in Troy.

When the graduate of Alma College and University of Notre Dame Law School first joined Fraser Trebilcock as an associate, she set a number of goals, from hitting certain billable hour thresholds, to attaining shareholder status, to growing a client base and expanding her practice, to serving on the Board of Directors, all while volunteering in the community and raising a family.

“Nearly 19 years later, I’m happily still a member of the Fraser Trebilcock family, and I’m pleased to say I’ve met each one of my goals,” she says. “I’m proud of my longevity at this great law firm and happy to be of service to it.”

A vice president on Fraser Trebilcock’s Board of Directors, co-chair of the Employee Benefits practice, and an employee benefits coordinator, Latchana became a leading advisor to employers following the passage of the Patient Protection and Affordable Care Act.

She recalls a tip from a senior associate in the early years: make the boss’ job easier. “It led me to focus on working as a team, not just completing a legally correct and hopefully impressively shiny project, but going the extra mile to reach beyond the assignment to simplify the shareholder’s own work,” she says.

“I’ve taken that advice to heart to this day, now with my own clients, helping navigate them through legal hoops and finding creative solutions while ensuring this is done in a way to allow them to focus on what’s most important to them, their own business. I’m able to use creative thought to develop solutions for clients while ensuring they are complying with the plethora of legal mandates thrown at them in the ever-evolving world of employee benefits.”

[pjc_slideshow slide_type=”women-in-the-law-2017″]

The legal industry is one which focuses on serving others, which Beth feels drawn to.  Giving of oneself to the assistance and hopefully betterment of others is, she says, what life is all about.  “As lawyers, we are held to incredibly high ethical and professional standards, as well as displaying an excellent work ethic.  We have been trained this way, and it is ingrained in our very being.  Therefore, it’s almost impossible for these standards not to trickle over in one’s personal life and activities, and in all ways we serve.”

With her own legal practice in the health and welfare benefits arena, she is able to use creative thought to develop solutions for clients while ensuring they are complying with the plethora of legal mandates thrown at them in the ever-evolving world of employee benefits.  “My goal is serve my clients in a way that allows them to have full confidence in their benefit structure so they can focus on their own business…”

Personally, her practice has enabled her to balance professional life with things she enjoys outside of work.  A mother of three, Latchana serves as being a role model for youth and assists her community through activities including participating in alumni career fairs, coaching and managing youth in various recreational sports leagues, assisting with creating a community dog park, organizing and collecting donations for local shelters, or serving in leadership capacities of local non-profit organizations, most recently the Board of Directors for the Food Bank of Eastern Michigan.

And if Beth commits to something, she utilizes those high standards she was taught to ensure the task is completed to the best of her ability, no matter the subject.

Click HERE to sign up to receive updates and alerts on matters related to Employee Benefits Law. You can also learn more about the legal services provided by Beth and our Employee Benefits attorneys, in their own words:

 

 


business-legal-checklist

Business Legal Compliance Checklist

A critical overview of laws and regulations governing businesses of all sizes.

Download the Checklist

 

The Future of the Patient Protection and Affordable Care Act May be Uncertain… But HIPAA is Here to Stay

While the future of the Patient Protection and Affordable Care Act and any potential replacement legislation is still in question, the Office for Civil Rights (“OCR”) within the U.S. Department of Health and Human Services (“HHS”) has clarified through its recent actions that the HIPAA privacy, security, and breach notification rules contained at 45 C.F.R. Parts 160 and 164 (the “Administrative Simplification Rules”) are here to stay. Audits initiated by OCR and investigations resulting from reported violations reveal that HIPAA compliance continues to be a governmental priority under the new administration. Indeed, nine representative resolution agreements have been released by HHS thus far in 2017 (the latest being released earlier this week) assessing a range of penalties from $31,000 to $5.5 million for a covered entity’s failure to comply with various aspects of HIPAA (including but not limited to failure to conduct a thorough and accurate risk analysis, failure to have a business associate agreement in place, failure to have comprehensive policies and procedures in place and implemented, and failure to protect protected health information (“PHI”) from improper use and disclosure). Thus, it is as important as ever for employer-sponsored group health plans to ensure that they are complying with HIPAA’s encompassing and technical requirements. As the various resolution agreements detail, failure to do so can have dire financial consequences on the group health plan (and correspondingly on the sponsoring employer).

HIPAA’s Administrative Simplification Rules require covered entities and their business associates to protect the confidentiality, integrity, and availability of PHI from improper use and disclosure. A group health plan falls within the definition of “covered entity.” Third parties who create, receive, maintain and/or transmit PHI for or on behalf of a covered entity are generally considered “business associates.” See 45 C.F.R. 160.103. Complying with HIPAA’s Administrative Simplification Rules can be a daunting task for group health plans and the employers sponsoring them. For example, administratively, group health plans are required to create, maintain, implement, and periodically review and update several written documents. The following provides a “checklist” approach of some important documents that group health plans need to have in place in order to comply with the Administrative Simplification Rules. Please keep in mind, however, that merely having the documents in place is insufficient from a HIPAA compliance standpoint; group health plans (and plan sponsors) also need to ensure that they are actually implementing, adhering to, and periodically reviewing the substance of the documents. Thus, it is imperative for employer-sponsored group health plans to continually evaluate their HIPAA compliance position with experienced HIPAA legal counsel. Even minor deficiencies can result in substantial penalties.

1. Business Associate Agreements

A covered entity may permit a business associate to create, receive, maintain or transmit PHI on its behalf only after it obtains satisfactory assurances in the form of a written business associate contract that the business associate will appropriately safeguard the information. See 45 C.F.R. sections 164.502, 164.504, and 164.314. A business associate agreement is a cornerstone HIPAA requirement that is commanding more and more scrutiny by the government.

For example, a resolution agreement released on April 20, 2017, demonstrated that a covered entity’s failure to have a business associate agreement in place with a third party vendor that had access to the covered entity’s PHI was a $31,000 mistake.  Interestingly, the compliance review of the covered entity was initiated by OCR following OCR’s investigation of the business associate. The two-year corrective action plan associated with the $31,000 fine required, among other things, that the covered entity revise its HIPAA policies and procedures to require: (1) the designation of one or more individual(s) who are responsible for ensuring that the covered entity enters into a business associate agreement with each of its business associates prior to disclosing PHI to the applicable business associate; (2) the creation of a standard template business associate agreement; (3) a process for assessing current and future business relationships to determine whether each relationship is with a “business associate;” (4) a process for negotiating and entering into business associate agreements with business associates prior to disclosing PHI to the business associate; (5) a process for maintaining documentation of business associate agreements for at least six years beyond the date of when the business associate relationship is terminated; and (6) a process to limit disclosures of PHI to business associates to the minimum necessary amount of PHI that is reasonably necessary for business associates to perform their duties.

The government’s demand for the creation of a standard template business associate agreement is of particular note for employers sponsoring group health plans for some important reasons. First, HIPAA’s Administrative Simplification Rules contain detailed provisions that must be included in a business associate agreement; variations from these strict regulatory requirements can make the agreement noncompliant. If a group health plan has a template business associate agreement in place prepared by experienced HIPAA legal counsel, it can be assured that the agreement is HIPAA compliant. When the document has been prepared by another party (such as the business associate), the group health plan should have the agreement carefully reviewed to ensure each of the regulatory provisions are correctly stated. Second, like any contract, business associate agreements can be drafted in a one-sided manner. A group health plan will want to have its standard business associate agreement prepared to adequately address, among other items, reporting time limits and indemnification requirements in the group health plan’s favor. While the HIPAA Administrative Simplification Rules set forth minimum requirements, keep in mind that additional information can be included within the agreement. Thus, each contract should be reviewed to ensure that the additional provisions are in fact desirable to be included from the group health plan’s perspective.

2. Security Policies and Procedures

A covered entity is required to implement reasonable and appropriate written policies and procedures to comply with the standards, implementation specifications, and other requirements of the security rules. See 45 C.F.R. 164.316. This requires the covered entity to implement administrative, physical, and technical safeguards to protect the confidentiality and integrity of electronic PHI (“EPHI”). Various resolution agreements highlight the need: (1) for comprehensive security policies and procedures; (2) to train workforce members on the policies and procedures; and (3) periodically evaluate the scope of the policies and procedures.

One of the cornerstones of a covered entity’s security policies and procedures is its security management process. This requires the covered entity to: (1) periodically conduct an accurate and thorough risk analysis of potential risks and vulnerabilities to the confidentiality, integrity, and availability of EPHI held by the covered entity; (2) implement security measures sufficient to reduce the detected risks and vulnerabilities to a reasonable and appropriate level; (3) apply appropriate sanctions against workforce members who fail to comply with the security policies and procedures; and (4) implement procedures to regularly review records of information system activity, such as audit logs, access reports, and security incident tracking reports.

Indeed, two April 2017 resolution agreements demonstrate the need to conduct a thorough and accurate risk analysis to assess the potential risks and vulnerabilities to the confidentiality, integrity, and availability of EPHI and to implement security measures sufficient to reduce those risks and vulnerabilities. In an April 24, 2017 resolution agreement, the covered entity’s HIPAA deficiencies resulted in a $2.5 million settlement. A resolution agreement released April 12, 2017 resulted in a $400,000 settlement. Among other things, the corrective action plan in both cases requires the covered entity to conduct and provide the results of a comprehensive risk analysis to HHS. Thereafter, the covered entity is required to review the risk analysis annually (or more frequently, if appropriate) and promptly update the risk analysis in response to environmental or operational changes affecting the security of EPHI. Thus, through its resolution agreements, HHS is emphasizing the fluid need to ensure that electronic systems adequately safeguard EPHI and that covered entities are appropriately minimizing risk.

3. Privacy Policies and Procedures

Pursuant to 45 CFR 164.530, a covered entity is required to implement written policies and procedures with respect to PHI that are designed to comply with the HIPAA privacy rules and breach notification rules. A limited exception to this requirement is available under 45 CFR 164.530(k) for certain fully-insured group health plans that maintain a “hands off” status (i.e., the group health plan does not create or receive PHI except for certain summary health information and/or enrollment/disenrollment information). Among other items, the privacy policies and procedures must address how a covered entity may use and disclose PHI. They also must address an individual’s rights with respect to his or her PHI and which employees will be granted access to PHI. One May 2017 resolution agreement resulted from a covered entity’s improper disclosure of PHI to the media and various public officials without proper authorization. Another May 2017 resolution agreement resulted from a covered entity’s improper disclosure of PHI to his workplace. The corrective action plans associated with the resolution agreements required the covered entity to develop/review, maintain, and revise as necessary written policies and procedures (which relevantly would set forth the permissible uses and disclosure of PHI), to distribute such policies and procedures to the workforce, and to assess, update, and revise, as necessary, the policies and procedures at least annually. Thus, implementation of comprehensive privacy policies and procedures is deemed a necessity by HHS.

4. Notice of Privacy Practices

Pursuant to 45 CFR 164.520, an individual has a right to adequate notice of the uses and disclosures of PHI that may be made by the covered entity and of the individual’s rights and the covered entity’s legal duties with respect to PHI. The notice of privacy practices is essentially a summary of the covered entity’s privacy policies and procedures. The plan sponsor is obligated under the privacy rules to ensure that the notice is prepared and timely and appropriately distributed to plan participants, except in the case of certain fully-insured group health plans that maintain a hands off status, in which case the insurer has the duty. The content and distribution requirements for notices of privacy practices are strict. Thus, it is imperative for plan sponsors to ensure legal compliance.

5. Plan Sponsor Certifications

A group health plan may disclose PHI to the plan sponsor for plan administration functions only after: (1) the plan document has been amended to incorporate various regulatory requirements related to the plan’s use and disclosure of PHI, and (2) the plan sponsor has certified to the plan, in writing, that the plan has been amended and that the plan sponsor agrees to the restrictions contained in the amendment. See 45 C.F.R. 164.504 and 164.314. Plan sponsors must ensure that their plans have been appropriately amended and that proper written certification is in place.

6. Workforce Training

A covered entity is required to provide training to all members of its workforce on its HIPAA policies and procedures, as necessary and appropriate for the members of the workforce to carry out their functions within the covered entity. Various resolution agreements stress the necessity of conducting and documenting comprehensive training. For example, two May 2017 resolution agreements indicate that training must be reviewed at least annually, and, where appropriate, updated to reflect changes in the law, issues discovered during internal or external audits, and other relevant developments. Thus, plan sponsors must continually evaluate the need for workforce training and tailor such training to their internal structure.

These are just some of the written documentation requirements that group health plans must adhere to under HIPAA’s Administrative Simplification Rules. Regulatory provisions must be reviewed in conjunction with the group health plan’s administrative practices when drafting these documents. The resolution agreements released this year reaffirm the notion that employer-sponsored group health plans must evaluate their HIPAA compliance position with experienced HIPAA legal counsel. Deficiencies can result in substantial penalties. Please feel free to contact us with any questions you may have with respect to your HIPAA compliance endeavors.

Copies of the resolution agreements are available by clicking HERE.

This email serves solely as a general summary of complex proposed legislation and government initiatives.  It does not constitute legal guidance.  Please contact us with any questions related to the Proposed Legislation and what impact finalization might have on your employer-sponsored plans.

Questions? Contact us to learn more.

Employer-Sponsored Plans Take Note: The Legislative Process to Amend, Repeal, and Replace Aspects of the Patient Protection and Affordable Care Act has Begun

FB - FinalTree

Employer-plan sponsors need to be ready to act as changes to the landscape of the Patient Protection and Affordable Care Act (“PPACA”) as applied to employer-sponsored group health plans are looming on the horizon.

On January 20, 2017, President Trump signed Executive Order 13765 titled “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” (the “Executive Order”).  The Executive Order indicates a clear intent to repeal the PPACA in the future and in the meantime urges federal government agencies to take legally permissible leniencies in enforcing certain aspects of the PPACA: “To the maximum extent permitted by law, . . . [executive departments and agencies] . . . shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”  A copy of the Executive Order is available at: https://www.gpo.gov/fdsys/pkg/FR-2017-01-24/pdf/2017-01799.pdf

While the Executive Order serves as a general mission statement for the new administration, it does not provide an instantaneous change to the PPACA (the President cannot, by unilateral action, repeal final regulations).   Furthermore, while the Executive Order provides a clear overall goal, it does not include details regarding how this goal will be achieved.  Moreover, the Executive Order does not specifically mention any relief for employers or plan sponsors, nor does it discuss if and how any PPACA provisions regulating employers and employer-sponsored plans are expected to be impacted.  Since the release of the Executive Order, all eyes in the benefits community have been on the status of the PPACA.

In the wake of the Executive Order, in February 2017, the IRS became the first agency to follow the Executive Order’s directive to start unwinding certain provisions of the PPACA.  Specifically, the IRS released a statement indicating that individual tax returns will not be automatically rejected during processing merely because the taxpayer fails to indicate his or her health coverage status.  This IRS statement appears to have loosened the IRS’ enforcement of the individual shared responsibility mandate.  The IRS’ statement related to the individual shared responsibility mandate can be found at: https://www.irs.gov/affordable-care-act/individuals-and-families/individual-shared-responsibility-provision

It is important to note that the IRS statement did not indicate that the IRS would waive penalties for individuals who fail to maintain compliant health insurance coverage: “However, legislative provisions of the ACA are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe.”   And, again, the IRS statement does not address anything about its enforcement of the employer shared responsibility mandate or other PPACA provisions regulating employer-sponsored plans.  Thus, the Executive Order and IRS statement have left the employee benefits community uncertain as to how the new administration intends to address the PPACA as it relates to employer-sponsored plans.

Yesterday, however, the House Republicans addressed this looming issue.  On March 6, 2017, the House Ways and Means Committee and the House Energy and Commerce Committee each released proposed legislation to repeal and replace certain aspects of the PPACA, entitled the American Health Care Act (the “Proposed Legislation”).  The Proposed Legislation provides insight into how the landscape of the PPACA may be altered with respect to employer-sponsored plans.

If enacted as drafted, the Proposed Legislation, as summarized, would dismantle certain taxes imposed under the PPACA, eliminate both the individual and employer shared responsibility mandate penalties, while keeping other portions of the PPACA in place, such as prohibiting pre-existing condition exclusions from coverage and allowing dependents to continue coverage under their parents’ health plans until the age of 26.

Other provisions of the Proposed Legislation establish a patient and state stability fund to provide states financial assistance to design programs aimed at each state’s own population and needs for affordable health care, transition Medicaid to a “per capita allotment,” increase the contribution maximums for health savings accounts (HSAs), repeal the tax on over the counter drugs, repeal the limitations of contributions to health flexible spending accounts, and assist those in the low to middle-income brackets with monthly tax credits to assist with health care costs.

A summary of the Proposed Legislation impacting employers, as prepared by the Committee on Ways and Means Majority Staff, is as follows:

“SUBTITLE _ — REPEAL AND REPLACE OF HEALTH-RELATED TAX POLICY”

“SECTION_04: SMALL BUSINESS TAX CREDIT

“This section repeals Obamacare’s small business tax credit beginning in 2020. Between 2018 and 2020, under the proposal, the small business tax credit generally is not available with respect to a qualified health plan that provides coverage relating to elective abortions.”

“SECTION_06: EMPLOYER MANDATE

“Under current law, certain employers are required to provide health insurance or pay a penalty. This section would reduce the penalty to zero for failure to provide minimum essential coverage; effectively Prepared by the Committee on Ways and Means Majority Staff March 6, 2017 repealing the employer mandate. The effective date would apply for months beginning after December 31, 2015, providing retroactive relief to those impacted by the penalty in 2016.

“SECTION_07: REPEAL OF THE TAX ON EMPLOYEE HEALTH INSURANCE PREMIUMS AND HEALTH PLAN BENEFITS

“Obamacare imposed a 40 percent excise tax on high cost employer-sponsored health coverage, also known as Cadillac plans. Under current law, the tax will go into effect in 2020. This section changes the effective date of the tax. It will not apply for any taxable period beginning after December 31, 2019, and before January 1, 2025. Thus, the tax will apply only for taxable periods beginning after December 31, 2024.

“SECTION_08: REPEAL OF THE TAX ON OVER-THE-COUNTER MEDICATIONS

“Under current law, taxpayers may use several different types of tax-advantaged health savings accounts to help pay or be reimbursed for qualified medical expenses. Obamacare excluded over-the counter medications from the definition of qualified medical expenses. This section effectively repeals the Obamacare tax on over-the-counter medications. The effective date begins tax year 2018.

“SECTION_09: REPEAL OF INCREASE OF TAX ON HEALTH SAVINGS ACCOUNTS

“Distributions from an HSA or Archer MSA that are used for qualified medical expenses are excludible from gross income. Distributions that are not used for qualified medical expenses are includible in income and are generally subject to an additional tax. Obamacare increased the percentage of the tax on distributions that are not used for qualified medical expenses to 20 percent. This section lowers the rate to pre-Obamacare percentages. This change is effective for distributions after December 31, 2017.

“SECTION_10: REPEAL OF LIMITATIONS ON CONTRIBUTIONS TO FLEXIBLE SAVINGS ACCOUNTS

“Obamacare limits the amount an employer or individual may contribute to a health Flexible Spending Account (FSA) to $2,500, indexed for cost-of-living adjustments. This section repeals the limitation on health FSA contributions for taxable years beginning after December 31, 2017.”

“SECTION_12: REPEAL OF ELIMINATION OF DEDUCTION FOR EXPENSES ALLOCABLE TO MEDICARE PART D SUBSIDY

“Prior to Obamacare, as an incentive for employers to offer retiree drug coverage, employers who offered sufficient prescription drug coverage to their employees qualified for the Retiree Drug Subsidy to help cover actual spending for prescription drug costs. Obamacare eliminated the ability for employers to take a tax deduction on the value of this subsidy. This section repeals this Obamacare change and re-instates the business-expense deduction for retiree prescription drug costs without Prepared by the Committee on Ways and Means Majority Staff March 6, 2017 reduction by the amount of any federal subsidy. This section applies to taxable years beginning after December 31, 2017.”

“SECTION_14: REPEAL OF MEDICARE TAX INCREASE
“Obamacare imposed a Medicare Hospital Insurance (HI) surtax based on income at a rate equal to 0.9 percent of an employee’s wages or a self-employed individual’s self-employment income. This section repeals the additional 0.9 percent Medicare tax beginning in 2018.

“SECTION_15: REFUNDABLE TAX CREDIT FOR HEALTH INSURANCE

[***]

“The program also calls for simplified reporting of an offer of coverage on the W-2 by employers. Reconciliation rules limit the ability of Congress to repeal the current reporting, but, when the current reporting becomes redundant and replaced by the reporting mechanism called for in the bill, then the Secretary of the Treasury can stop enforcing reporting that is not needed for taxable purposes.

“SECTION_16: MAXIMUM CONTRIBUTION LIMIT TO HEALTH SAVINGS ACCOUNT INCREASED TO AMOUNT OF DEDUCTIBLE AND OUT-OF-POCKET LIMITATION

“This section increases the basic limit on aggregate Health Savings Account contributions for a year to equal the maximum on the sum of the annual deductible and out-of-pocket expenses permitted under a high deductible health plan. Thus, the basic limit will be at least $6,550 in the case of self-only coverage and $13,100 in the case of family coverage beginning in 2018.

“SECTION_17: ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS

“This section would effectively allow both spouses to make catch-up contributions to one HSA beginning in 2018.

“SECTION_18: SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE ESTABLISHMENT OF HSA

“This section sets forth certain circumstances under which HSA withdrawals can be used to pay qualified medical expenses incurred before the HSA was established. Starting in 2018, if an HSA is established during the 60-day period beginning on the date that an individual’s coverage under a high deductible health plan begins, then the HSA is treated as having been established on the date coverage under the high deductible health plan begins for purposes of determining if an expense incurred is a qualified medical expense.”

“SUBTITLE _ — REPEAL AND REPLACE OF CERTAIN CONSUMER TAXES”

“SECTION_02: REPEAL OF HEALTH INSURANCE TAX

“Obamacare imposed an annual fee on certain health insurers. The proposal repeals the health insurance tax beginning after December 31, 2017.”

For the full summary of the Proposed Legislation, please see: https://waysandmeans.house.gov/wp-content/uploads/2017/03/03.06.17-Section-by-Section.pdf and http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/documents/Section-by-Section%20Summary_Final.pdf

Please note that the American Health Care Act is proposed legislation; the changes which may be made to the PPACA through final legislation are still uncertain.  The Committees for both the House Ways and Means and the House Energy and Commerce have scheduled a markup of this proposed legislation for tomorrow, Wednesday March 8th.  Unless and until any legislation is finalized, employers must stay their current course, including complying with ACA employer reporting requirements and the employer shared responsibility mandate.

We will keep you posted as the legislative process progresses.

This email serves solely as a general summary of complex proposed legislation and government initiatives.  It does not constitute legal guidance.  Please contact us with any questions related to the Proposed Legislation and what impact finalization might have on your employer-sponsored plans.

Questions? Contact us to learn more.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Click HERE to sign up to receive email updates and alerts on matters related to Employee Benefits.