As expected, the government issued guidance (in the form of frequently asked questions posted on the Department of Labor’s website) postponing the due date for employers to issue notices regarding the availability of health coverage under state exchanges.

Under the 2010 health care reform law, a provision added to the Fair Labor Standards Act requires employers to provide employees with notices – by March 1, 2013 – regarding the availability of health coverage under state-based exchanges and how to obtain more information. In addition to general availability and contact information for state exchange coverage, the employer notice must include a statement regarding an employee’s potential eligibility for federal subsidy to buy exchange coverage, if the employer’s coverage (if any) fails to meet a “minimum value” test. The notice also must contain a statement regarding the loss of any employer contribution toward the cost of coverage (which is nontaxable) if employees opt for exchange coverage instead of employer coverage.

Because meaningful guidance has not yet been issued on how to determine whether an employer plan meets the minimum value test and because the information about most of the exchanges is not yet available, the government is delaying compliance with the notice requirement until late summer or early fall. The government is considering providing a template notice for employers to use. Stay tuned!           

We are pleased to announce the launch of Jackson Lewis’ Health Care Reform Resource Center. Our Resource Center provides one convenient place for you to obtain key health care reform-related law, agency guidance, Jackson Lewis articles and related information. We hope you find this resource helpful.

The IRS released proposed regulations last week that amplify and modify earlier guidance issued on the 2010 health care reform law’s employer penalty provision. 

Highlights of the proposed regulations include:

  • For purposes of determining whether an employer has the threshold 50 full-time employees, an employer can use any consecutive 6-month period in 2013, instead of the whole year, to calculate the average number of employees.  (If an employer does not have an average of at least 50 full-time or full-time equivalent employees in 2013, the employer penalty provision won’t apply at all in 2014.)
  • Whether an employee works full-time (i.e., at least 30 hours per week) will be determined by counting hours for which he’s paid or entitled to pay (including paid leave) or, for employees not paid on an hourly basis, using equivalency rules (i.e., credit 8 hours if one hour credited for a day; credit 40 hours if one hour credited for a week).  Special hours-counting rules will apply for educational institutions, employees paid on a commission basis, and the like.
  • All common-law employees of all entities that are part of the same controlled group must be aggregated to determine whether the 50-employee threshold is met.
  • To avoid the penalties, an employer must offer coverage to at least 95% of its full-time employees and their dependent children up to age 26.  For this purpose, full-time may be determined using the look-back/stability period safe harbor the IRS described in earlier guidance.
  • Spouses are not dependents for purpose of the penalty that’s triggered for failure to offer coverage to full-time employees and their dependents.  Also, for 2014, an employer won’t be penalized solely for the failure to provide employees’ children coverage, as long as the employer takes steps to put that coverage in place during 2014. 
  • To deal with schemes designed to avoid the penalties by taking advantage of ambiguities in the penalty rules, IRS intends to include an anti-abuse provision.
  • Comments to the proposed regulations will be accepted by the IRS until March 18th.

For more details, see our website article describing the proposed regulations. We also will provide a webinar covering the employer penalty provisions on our website later this month.

The Internal Revenue Service issued updated correction procedures for employer-sponsored retirement plans on New Years’ Eve. Revenue Procedure 2013-12 updates the Employee Plans Compliance Resolution System (“EPCRS”) previously set forth in Revenue Procedure 2008-50.  Now, nonprofit employers sponsoring 403(b) plans can correct document failures with the IRS’s blessing.

A 403(b) plan document failure can be corrected under the voluntary compliance program (“VCP”) and, if submitted before December 31, 2013, the VCP fee will be halved. Therefore, 403(b) plan sponsors that failed to comply with the 2009 regulations to timely adopt a 403(b) plan document are encouraged to use VCP this year to correct that failure. 

Under the updated EPCRS, new IRS Forms 8950 and 8951 must be included with each submission made using VCP. 

In addition to the changes made to cover 403(b) plan document failures, the updated EPCRS includes many unsurprising clarifications and expected modifications to reflect changes in applicable law and regulations that have occurred in the last few years.

For corrections that must be submitted to the IRS for approval, the updated procedures apply to submissions made on or after April 1, 2013. 

Employers that have had their group health plans audited by the Employee Benefits Security Administration (EBSA, the arm of the U.S. Department of Labor that enforces Title I of ERISA) are aware of the broad nature of the document requests and compliance reviews carried out under these audits. The EBSA has updated its audit protocols to include a review of plans’ compliance with the Patient Protection and Affordable Care Act (PPACA), the Genetic Information Nondiscrimination Act (GINA), and wellness programs, in addition to the laundry list of other federal benefits laws pertaining to group health plans. An uptick in PPACA enforcement appears to be underway, resulting in many plan sponsors receiving EBSA audit notices. Click here to see an example of an EBSA audit letter which provides insight into the kinds of information EBSA is requesting in these audits.

EBSA audits examine compliance with a range of federal statutes and regulations, such as ERISA, HIPAA, COBRA, and the Women’s Health and Cancer Rights Act. However, as employers begin to ramp up in earnest concerning the PPACA’s employer shared responsibility requirement and other provisions of the health care reform law going into effect in 2014, many will be facing audits on the full range of PPACA mandates. The DOL’s audit letters are looking for information and documentation concerning aspects of the PPACA, such as the plan’s grandfather status, coverage for adult children, lifetime and annual limits, and claims and appeals procedures. See questions 18-20 in the letter at the link above.

The DOL also is beginning to look at the design of wellness programs offered in connection with group health plans, and the required notices that have to be provided in connection with outcome-based programs. See question 17 in the letter at the link above. These inquiries will allow the DOL to begin looking at how employers have complied with the HIPAA nondiscrimination regulations concerning wellness programs, as well as Title I of GINA. Of course, the rules for wellness programs will be changing beginning in 2014.

Employers need to take a serious look at their group health plans not only for compliance with the PPACA, but also with the long standing mandates for group health plans – ERISA, HIPAA, COBRA and others laws.
 

Employers wrestling with how to budget for the additional costs associated with the 2010 health care reform law have one more cost to consider: the “transitional reinsurance program” fee. Barely discussed in the public forum up to now (probably because the amount per plan was not determinable), the government has clarified how this fee could impact employers sponsoring group health plans. It has issued proposed regulations estimating that the annual contribution rate to cover this fee for 2014 will be $63 per individual covered under a group health plan. 

The fee is intended to help stabilize premiums in the individual insurance market for the three-year period 2014 through 2016 by giving transitional funding to insurers that incur high claims in the individual insurance market.  Since health insurers cannot deny coverage or charge higher premiums to unhealthy or otherwise high-risk individuals to offset for the risk that the insurer will pay more in claims for such individuals, those insurers who cover such individuals essentially get a safety net. This transitional reinsurance program fee is one of three premium stabilization programs established under health care reform.  

Contributions for the transitional reinsurance program are assessed on insurers of fully-insured group health plans and third-party administrators of self-funded group health plans. Naturally, it is expected that insurers will pass along the cost of this fee to employers sponsoring insured group health plans and, since a self-funded plan generally is funded by employer assets, employers with self-funded plans will pay the fee, too.    

The transitional reinsurance program fee is in addition to the “comparative effectiveness” or “patient-centered outcomes research” fee ($1 per covered individual for the first plan year ending on or after October 1, 2012, then $2 per covered individual for subsequent plan years until 2019).

Many employers put off making plans to deal with the employer shared responsibility penalty provision of the 2010 health care reform law until after the November elections.  With President Obama’s re-election and no real possibility of legislative repeal, procrastinating further would be ill-advised.  Employers need to understand now the way the penalty can be triggered in 2014, its potential financial impact for them, and how alternatives to avoid the penalty could affect their businesses. 

Beginning in 2014, the health care reform law requires each employer with 50 or more “full-time” equivalent employees to either – 

  • provide at least a specified minimum level of health coverage that its employees can afford or
  • pay a penalty. 

If minimum essential coverage is not offered to substantially all full-time employees (and dependents) and at least one full-time employee obtains subsidized exchange coverage, the employer must pay an annualized penalty equal to $2,000 multiplied by the number of full-time employees in excess of 30 full-time employees. 

If affordable minimum essential coverage is offered to substantially all full-time employees (and dependents) but at least one full-time employee nevertheless obtains subsidized exchange coverage, the employer must pay an annualized penalty equal to the lesser of – 

  • $3,000 multiplied by the number of full-time employees who decline employer coverage and receive subsidized exchange coverage, or
  • $2,000 multiplied by the total number of full-time employees in excess of 30 full-time employees.

To avoid being blind-sided by unanticipated costs in 2014, employers that have not already done so must strategize now and complete their game-plans early in 2013.  Among other things, an employer must know how to determine whether it has the threshold number of full-time equivalent employees, whether it is offering the minimum level of coverage to all full-time employees and dependents, what its projected health plan costs are, how important its health plan is to attracting and retaining employees and meeting other objectives, the cost of various alternative changes necessary to avoid penalties, what “full-time” means and alternative methods for measuring and classifying workers as full-time or not full-time, and how a full-time employee can qualify for subsidized exchange coverage. 

If you need help understanding and planning for the employer penalty (or any other aspect of the health care reform law that impacts employers), please contact a member of the Jackson Lewis LLP health care reform task force (Monique Warren, Joe Lazzarotti, Lisa deFilippis, Randy Limbeck, Kathy Barrow, Melissa Ostrower, Jay Knight; or, for collective bargaining issues, Kelvin Berens or Eric Simon) or the benefits attorney with whom you normally work.

The IRS has extended the deadline for amending many defined benefits pension plans under Internal Revenue Code Section 436. Section 436 was added by the Pension Protection Act of 2006 (“PPA”) and provides a series of limitations on the accrual and payment of benefits under an underfunded plan. (For more information, see Your Defined Benefit Pension Plan May Need Amending Prior to December 31, 2012.)  At the end of November, the IRS extended the deadline for this amendment to the last day of the first plan year that begins on or after January 1, 2013. For more information, see IRS Notice 2012-70.

With Thanksgiving only two days away, the Departments of Health and Human Services, Labor and the Treasury (collectively, the "Departments") jointly released proposed rules on wellness programs to reflect the changes to existing wellness provisions made by the Affordable Care Act (ACA). The proposed rules would be effective for plan years starting on or after January 1, 2014.

The proposed rules would retain many of the existing rules pertaining to "participatory wellness programs" (generally, programs providing rewards without regard to an individual’s health status) and "health-contingent wellness programs" (generally, programs that require individuals to meet a specific standard related to their health to obtain a reward). However, the Departments propose a number of changes, some of which are summarized below. They also seek comments from employers and others on a range of issues concerning wellness programs which must be submitted approximately 60 days from the date of this post.

What are some of the key changes:

  • In addition to implementing the statutory change in the ACA that increases the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of health coverage, the Departments would further increase the maximum reward to 50 percent for programs designed to prevent or reduce tobacco use.
  • If a reasonable alternative standard is an educational program, the plan cannot require individuals to find such a program on their own, nor may the plan require individuals to pay for the program. Similarly, in the case of diet programs, while the plan does not have to cover the cost of food, it must pay the cost of admission to the program.
  • The Departments would continue to permit employers to obtain physician verification that an individual’s health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard, provided doing so is reasonable as required under the ACA. The regulations propose that it would not be reasonable for a plan to seek verification of a claim that is obviously valid based on the nature of the individual’s known medical condition.
  • In order to be reasonably designed to promote health or prevent disease, where the initial standard for the reward is based on a measurement, test or screening, programs would be required to offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test or screening.
  • The proposed regulations also confirm that adverse benefit determinations dealing with whether a participant or beneficiary is entitled to a reasonable alternative standard for a reward are situations eligible for Federal external review under the ACA claims and appeals procedures.
  • The Departments would also provide new language to communicate to program participants the opportunity for a reasonable alternative to achieving the reward under the program:

Your health plan is committed to helping you achieve your best health status. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you to find a wellness program with the same reward that is right for you in light of your health status.

Over the past few years, many employers have implemented wellness programs hoping to provide employees opportunities to enhance their health, manage unhealthy behaviors and control plan costs. The Departments are hopeful that once final the regulations will provide clarity to some of the biggest challenges facing wellness programs, although some critical issues remain for employers, including the effects of other laws, such as the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, federal and state privacy laws, and off-duty activity laws. For this reason, employers may want to take advantage of the opportunity to submit comments concerning these programs in the hope of shaping the law to suit their needs. 

Under Internal Revenue Code Section 436, which was added by the Pension Protection Act of 2006 (“PPA”), calendar year defined benefit pension plans must be amended by December 31, 2012. Section 436 provides a series of limitations on the accrual and payment of benefits under an underfunded plan.

The provisions of Section 436 apply only to significantly underfunded pension plans. However, all defined benefit plans must be amended to reflect these benefit restriction provisions. The amendment period was extended by the Internal Revenue Service from 2009 to the last day of the first plan year that begins on or after January 1, 2012, i.e., December 31, 2012, for calendar year plans.

Most plan sponsors adopted PPA amendments in 2009. Those PPA amendments may not have included the benefit restrictions required by Code Section 436 because the IRS extended the deadline for adopting the benefit restriction amendments.

In December 2011, the IRS issued Notice 2011-96, which included IRS model language as a safe harbor for the Code Section 436 provisions. Even employers who previously adopted the Code Section 436 benefit restriction provisions with their PPA amendments should consider amending their plans to adopt the IRS’ safe harbor model language. Upon an IRS audit or the next IRS determination letter application review, the adoption of this safe harbor language will be helpful and will avoid the risk that an amendment adopted to comply with Code Section 436 does not actually comply with the Internal Revenue Code requirements. Of course, for those plans that have not adopted Code Section 436 benefit restriction provisions at all, the safe harbor model language should be adopted in a timely manner.