The last several weeks of 2014 brought with them a flurry of guidance from the Departments of Health and Human Services (“HHS”), Labor (“DOL”) and Treasury (collectively, the “Departments”) regarding group-health plan employee benefits issues, including issues under the Affordable Care Act (“ACA”), the Employee Retirement Income Security Act (“ERISA”) and the Mental Health Parity and Addiction Equity Act (“MHPAEA”). As we start into 2015, care should be taken not to overlook these important pieces of guidance that came in at years’ end:
1. No More “Skinny Plans”
On November 4, the Internal Revenue Service (“IRS”), in collaboration with HHS, issued guidance (Notice 2014-69) aimed at shutting the door on the use of so-called “skinny plans,” i.e., plans that provide “minimum value” within the meaning of the ACA, and which cover preventive services, but which exclude substantial hospitalization and/or physician services. (Some consultants have argued that such plans technically satisfied the ACA’s “minimum value” standard). The intent of such “skinny plans” is usually not to provide group health coverage, but to allow employers to partially or fully avoid application of any penalties under the ACA’s “pay or play” provisions (and a consequence of such actions is that employees covered under such “skinny plans” are generally ineligible for premium tax credits on ACA exchanges).
The IRS Notice unequivocally states that “plans that fail to provide substantial coverage for in-patient hospitalization services or physician services (or for both) . . . do not provide minimum value.” The Notice goes on to state that HHS and Treasury will amend the applicable regulations to incorporate this reading. The Notice gives limited grandfathering relief, protecting “skinny plans” adopted (through a binding written commitment) before November 4, 2014, but only as to plan years beginning on or before March 1, 2015 (regardless of such grandfathered coverage, employees offered affordable coverage under one of these plans can turn down such coverage and still be eligible for a premium tax credit on the exchanges). However, employers offering a “skinny plan” under this grandfathering provision must not state or imply that the plan precludes the employee from receiving a premium tax credit, and they must timely correct any disclosures to that effect that have previously been made.
2. Premium Reimbursement Plans
On November 6, the Departments issued additional FAQs (Part XXII) on ACA Implementation, specifically addressing premium reimbursement arrangements. The Departments clarified that an employer may not offer employees cash to reimburse the purchase of an individual market health policy, regardless of whether the cash is paid as taxable compensation or not. Any such reimbursement plan or arrangement would be considered by the Departments to be a “group health plan” within the meaning of ERISA and the Public Health Service Act (“PHSA”), and hence would be subject to the market reform provisions of the ACA. In keeping with prior guidance on integration of employer health care arrangements with individual coverage, the Departments stated that such a premium reimbursement plan fails to comply with the ACA’s market reforms because it could not be integrated with an individual market policy (and the reimbursement plan could not, on its own, satisfy the market reforms).
The Departments go on to note, in a separate FAQ, that offering only employees with high claims risk a choice between cash and enrollment in a group health plan would violate the nondiscrimination provisions of the Health Insurance Portability and Accountability Act (“HIPAA”), which prohibit discrimination based on one or more health factors. The Departments note that such employees must forgo the cash in order to receive health care, thus increasing the effective cost of health coverage to such employees and resulting in discrimination based on a health factor.
3. State Regulation of Stop-Loss Insurance
Also on November 6, the DOL issued guidance (Technical Release 2014-01) regarding state regulation of stop-loss insurance. As discussed in the Technical Release, many employers and other sponsors of self-insured group health plans purchase stop-loss insurance to protect against catastrophic or unpredictable claims by covering claims costs that exceed a set amount (an “attachment point”) for either a single enrollee or for aggregate claims over a determined period. Because such stop-loss insurance does not usually guarantee the payment of benefits to plan participants (but rather only insures the employer against losses), it is generally not treated as health insurance under State law.
The Technical Release goes on to note that, unless prohibited by State law, a stop-loss insurer might offer policies with attachment points so low that the insurer effectively assumes nearly all of the employer’s claims risk (e.g., an attachment points of $5,000 per individual). Under such “low-attachment stop-loss” policies, nearly all risk is shifted to the insurer, but the insurer is not required to comply with the ACA’s market reforms for insured plans (because the group health plan is, in design, a self-funded plan). Given all this, the DOL stated in this Technical Release that “States may regulate insurance policies issued to plans or plan sponsors, including stop-loss insurance policies, if the law regulates the insurance company and the business of insurance.” The DOL went on to state that “a State law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not, in the [DOL’s] view, by preempted by ERISA.” Hence, per the DOL, states will be given significant leeway to attempt to combat perceived abuses of low-attachment point stop-loss insurance, without worrying about federal preemption of such efforts under ERISA.
4. Revisions to Form 5500 for Multiple Employer Plans
On November 10, the DOL issued interim final rules that made a significant change to Form 5500 reporting for multiple-employer plans (“MEPs”), including any group health plan that would be considered to be a multiple-employer welfare arrangement (“MEWA”). Under these changes, any MEP or MEWA must, for any plan year beginning after December 31, 2013 (i.e., beginning with the 2014 Form 5500 for any calendar-year plan), attach to the Form 5500 a list of participating employers (including both employer name and employer identification number (“EIN”)), and include, for each participating employer, an estimate of the percentage of the contributions made by each employer (including employer and participant contributions) relative to the total contributions made by all participating employers during the plan year. The regulatory preamble notes that this new requirement is intended to implement a statutory directive (under the Cooperative and Small Employer Charity Pension Flexibility Act of 2014), and specifically notes that, despite the focus of this statute on retirement plans, the regulatory changes are intended to capture MEWAs as well. Finally, the regulatory preamble notes that MEPs or MEWAs that are not required to file an audited financial statement with their Form 5500 (generally because they are fully insured and have fewer than 100 employees) will not be required to include this information regarding participating employers on their Form 5500s.
5. Updated MHPAEA Compliance Tools
On November 19, the DOL issued updated and revised informal guidance on MHPAEA. The DOL updated and expanded the MHPAEA portion of its “Self-Compliance Tool” for the health-care related provisions of ERISA. The MHPAEA revisions largely track the prior version of the self-compliance tool, with small changes and revisions intended to reflect the final MHPAEA regulations issued late in 2013. Additionally, and helpfully, the MHPAEA revisions also contain several examples regarding what the DOL views as proper application of MHPAEA’s non-quantitative treatment limitation (“NQTL”) rules. On the same date, the DOL also issued revised “Questions and Answers on the Mental Health Parity Provisions.” As with the changes to the Self-Compliance Tool, the revisions to the Questions and Answers are largely intended to incorporate changes from the final MHPAEA regulations and to provide additional guidance on NQTLs.
6. Proposed Rules would Address Limited Wraparound Coverage as Excepted Benefits
On December 23, the Departments published a notice of proposed rulemaking that would amend the criteria for deciding when limited wraparound coverage would be considered to be “excepted benefits,” i.e., benefits that are exempt from the portability rules under HIPAA as well as various requirements under ERISA (including MHPAEA) and the ACA, including the ACA’s market reforms (such as the prohibition on lifetime and annual limits, etc.). The Departments had previously issued proposed regulations in this area regarding limited wraparound coverage in December 2013, and, in response to many comments on this subject, have revised many of the criteria of those December 2013 proposed regulations.
Under the revised proposed criteria, employer-sponsored limited wraparound coverage would be an excepted benefit if it:
● Covers additional benefits: The coverage must do more than cover cost sharing; must be specifically designed to wrap around eligible individual health insurance; and cannot provide benefits solely under a coordination of benefits provision, or be solely an account-based reimbursement arrangement.
● Is limited in amount: The annual cost of coverage per employee and covered dependents under the coverage cannot exceed the maximum annual contribution for healthcare flexible spending accounts (“FSAs”) ($2,500 in 2014, $2,550 for 2015, and indexed for inflation thereafter). The “annual cost of coverage” would include both employer and employee contributions towards coverage, and would be determined the same way as premiums for COBRA.
● Meets three nondiscrimination requirements: Specifically, the limited wraparound coverage cannot:
1. Impose preexisting condition exclusions (consistent with the ACA);
2. Discriminate against individuals in eligibility, benefits or premiums based on a health factor; or
3. Discriminate in favor or highly compensated individuals (consistent with the ACA).
● Meets certain plan eligibility requirements: The coverage cannot be made available to individuals already enrolled in a health FSA (if that FSA is also an excepted benefit), and must comply with additional coverage and eligibility rules (either wrapping around multi-state plan coverage or being offered in conjunction with eligible individual health insurance and being limited to employees who are not full-time employees or who are retirees (and the dependents of these employees or retirees)).
● Is properly reported to HHS and the Office of Personnel Management (“OPM”).
Finally, and notably, the proposed rules state that the excepted benefit relief for limited wraparound coverage would only be available under a pilot program under which the wraparound coverage is first offered no later than December 31, 2017. The pilot program will end on the later of three years from the time the wraparound coverage was first offered, or the date on which the last collective bargaining agreement relating to the plan ends after the wraparound coverage is offered, without regard to any later agreed-upon extension of the agreement. Hence, care should be exercised to note the very “limited” nature of this proposed relief.
7. Proposed Changes to Summary of Benefits and Coverage
Finally, on December 30 the Departments published a notice of proposed rulemaking proposing revisions to the ACA-required summary of benefits and coverage (“SBC”) to reflect and incorporate numerous pieces of subregulatory guidance on the SBCs, as well as to shorten and streamline the current SBC template and add new elements. The most notable of these changes includes the following:
● Rules for Providing SBCs: Under the proposed rules, if an SBC is provided by an insurer to a plan (or by an insurer or plan to participants and beneficiaries) before application or request for coverage, the plan or insurer need not automatically provide another SBC upon application, unless there has been a change in the information required to be in the SBC.
● Monitoring Other Parties’ Provision of SBCs: The proposed rules also address situations where an entity required to provide an SBC to an individual contracts with a service provider to provide SBCs on its behalf. Under the proposed rules, the plan would be deemed to have provided the SBC if it monitors performance under the contract and immediately corrects any noncompliance it becomes aware of.
● Using Multiple Insurance Products Provided by Separate Insurers: If a plan uses two or more insurance products (e.g., a major medical product along with prescription drug and mental health carve outs) provided by separate insurers, the proposed regulations generally would make the plan administrator responsible for providing complete SBCs for the plan. The Departments note here that a plan administrator may contract with one of its insurers (or a service provider) to perform this function, but that (absent a contract) an insurer is not required to provide information for benefits it does not insure.
● Third Coverage Example is Required: The proposed regulations would require an additional coverage example (in addition to the currently required examples of Type 2 diabetes or having a baby), a simple foot fracture with an emergency room visit, to reflect a health problem that most individuals could experience. This third coverage example includes a narrative description and claims and pricing data.
● SBC Appearance: The proposed regulations would reduce the size of the current SBC, from four double-sided pages to two-and-a-half double-sided pages. The proposed regulations would accomplish this by eliminating certain information from the SBC that was not required under the ACA.
In addition to the above, the proposed regulations attempt to clarify the application of penalties for SBC violations. The DOL proposes to use the same process and procedures for assessing civil fines for failure to provide SBCs as are used for failure to file Form 5500s, including allowing the plan administrator to give the DOL a “reasonable cause” statement as to why the penalties should not be assessed. The IRS, for its part, proposes to enforce violations of the SBC rules under the excise tax provisions of Section 4980D of the Internal Revenue Code, which likewise contains an exception for failures due to reasonable cause (if corrected within certain periods).
The proposed regulations’ changes would apply for disclosures on and after September 1, 2015, including disclosures for initial enrollment, re-enrollment and disclosures from insurers to plans.