Search aca

During the past 14+ years practicing employee benefits law, I’ve seen many changes, not the least of which has been the Affordable Care Act (ACA). However, with all of the recent changes flowing from the ACA, it is important not to forget some very basic and long-standing aspects of plan compliance, design, drafting and administration, particularly those rooted in significant part in a law enacted 40 years ago, the Employee Retirement Income Security Act, affectionately known as “ERISA.”

This post will discuss a basic ERISA requirement that if left unaddressed can have significant consequences under the ACA – defining who is eligible to participate in an employee benefit plan. Of course, defining who is eligible is not specific to group health plans, and is critically important for all employee benefit plans, including retirement plans, although, here, we are focusing on group health plans.

In short, plan documents that employers receive from their insurance carriers and third party administrators often do not drill down on which employees are eligible to participate. Adding to the long-standing requirement under ERISA to describe the rules for eligibility in plan documents furnished to employees, the employer shared responsibility penalties under Internal Revenue Code § 4980H, added by the ACA, and related regulations, make it critically important to ensure that eligibility provisions are carefully drafted. For many employers, a “wrap-document” may be a useful tool for addressing this and other provisions concerning the plan.

Section 101 of ERISA requires plan administrators to furnish summary plan descriptions (“SPDs”) to plan participants and beneficiaries. DOL regulations provide a laundry list of content requirements for SPDs, which include that the SPD must describe “the plan’s requirements respecting eligibility for participation.” DOL Reg. § 2520.102-3(j). To this day, many continue to believe that the insurance certificate they receive from their insurance carriers (or plan description in the case of a self-funded plan) are compliant “SPDs.” In most cases, they are not.

Does this look familiar:

You are eligible to participate in the plan if you are actively employed by the employer at least 20 or more hours per week and meet the requirements established by your employer.

This is language one might typically find in an insurance certificate for group health insurance. It is not uncommon to find that no additional requirements were specifically established by the employer, or if established, they might be found in an employee handbook, which is not the SPD or a plan document. However, many employers attempt to clarify this basic language, such as by including the following in the SPD – an employee is eligible to participate in the plan if the employee is regularly working 30 or more hours per week.

But what does this really mean? Under the ACA, a large employer (generally one with 50 or more full time equivalent employees) could incur significant penalties if it fails to offer minimum essential coverage to its full-time employees. IRS regulations provide extensive guidance concerning how to determine which employees are “full-time” employees for purposes of the employee shared responsibility penalties (in general, a full-time employee is one that on average works 30 or more hours per week). For those employers seeking to avoid the shared responsibility penalties under IRC 4980H, they must be offering the right kind of coverage to the right kind of “full-time” employees.

Offering coverage to all employees “regularly working 30 or more hours per week,” may result in the employer avoiding 4980H penalties, but it also could result in the company offering coverage to more employees than necessary to avoid the penalties, or not enough, depending on how the language is applied. For employers that have a significant part of their workforce on variable hour schedules, it can be a challenge to determine when employees are “regularly working” the minimum number of hours required for eligibility. This challenge is heightened when employees take leaves of absence, change positions or make other changes in their employment.

In addition to concerns about ACA penalties, employers should also consider that employees may be more likely to closely scrutinize plan documents for eligibility as they seek to avoid penalties of their own under the ACA individual mandate. A variable hour employee may feel she has been “regularly working” 30 hours per week after working 30 hours per week for two or three months, even though her employer is using a twelve-month initial measurement period permitted under IRS regulations to determine her full-time status. Under the terms of a plan stating the eligibility requirement as “regularly working 30 or more hours per week,” she might have a claim under ERISA, regardless of the ACA penalty issues.

The IRS regulations referenced above provide safe harbors to determine when employees are “full-time” employees for purposes of the 4980H penalty. Under one method, employers can “look back” over a period of months (as few as three, but not more than 12) to determine if an employee worked on average more than 30 hours per week, and for an employee that does, treat that employee as a full-time employee during a future period, the “stability period,” even if the employee’s hours worked in some weeks during that future period go below 30. Many employers are following those rules to determine who is eligible under their plans, believing that if they then offer the appropriate level of affordable coverage to those employees, they will avoid the penalties. However, their plan documents and SPDs may not describe these rules; that is, the rules to comply with the IRS safe harbors.

Simply incorporating the IRS regulations into the SPD by reference may not be a practical approach, and may not comply with ERISA and the DOL regulations above. However, employers will want to consider what additional language they need in their plan documents, particularly their SPDs, to appropriately reflect how eligibility is determined for purposes of ACA and to meet the DOL’s content requirements for SPDs.

So, as employers scramble to comply with the ACA employer shared responsibility mandate for 2015, they need to remember their ERISA basics and ask themselves, “What does the plan say?”

A U.S. Surgeon General’s Report issued this month marks fifty years since the Surgeon General’s landmark report in 1964 that set in motion a nationwide campaign to reduce and hopefully eliminate tobacco smoking in the United States. Also during this month, rules under the Affordable Care Act (ACA) go into effect, enhancing employers’ ability to provide financial incentives to employees to “kick the habit!” Employers proceed with caution, however, as the matrix of laws affecting so-called “wellness programs” present significant legal risks and practical obstacles.

Learn more about wellness programs: free webinar.

The 2014 Report is more than 900 pages and is full of information about the success America has experienced in reducing smoking, while noting the challenges that remain. The Report provides some information likely to be interesting to employers, such as:

A 2013 review of smoking and absence from work included several of the studies presented in the 2004 Surgeon General’s report along with more recent studies (Weng et al. 2013). In a meta-analysis of 17 of the studies, current smokers were 33% more likely to have an absence from work than nonsmokers (i.e., a group that combined never smokers and former smokers).

The Report also notes that:

Studies of contingency management interventions, in which quitting is rewarded with financial incentives, show promise, including higher quit rates (34% of women in the intervention arm quit compared to 7.1% of women receiving standard care) and improvements in infant birth weight (Higgins et al. 2010, 2012).

But for employers and their varied wellness programs, design and administration is fraught with risk as wellness programs sit at the crossroads of a range of federal and state laws. These include the American with Disabilities Act, the Health Insurance Portability and Accountability Act, the Age Discrimination in Employment Act, the Equal Pay Act and a host of others. Recent attention by the Equal Employment Opportunity Commission heightens these concerns.

Helping employees (and their dependents) stop smoking tobacco is a worthwhile goal. But some of the tools that can help achieve that goal, such as financial incentives designed to drive healthier behaviors, have significant risks associated with them. Employers should proceed with caution, but recognize that not doing anything also has risks.

The Departments of Labor, Treasury and Health and Human Services issued final regulations on June 3, 2013, that implement PHS Act section 2705, added by the Affordable Care Act (ACA), and existing provisions under ERISA and the Code. The preamble to those regulations stated that the Departments anticipated issuing future subregulatory guidance as necessary. Frequently asked questions issued on January 9, 2014, provide some of that additional guidance.

Some plan sponsors were uncertain as to how the final regulations applied when a participant, after declining an opportunity at initial or open enrollment to participate in a wellness program to avoid a tobacco surcharge, attempts to join the program in the middle of the plan year. Question 8 of the DOL’s FAQs confirm employers need not provide this “second bite at the apple” during the plan year:

No. If a participant is provided a reasonable opportunity to enroll in the tobacco cessation program at the beginning of the plan year and qualify for the reward (i.e., avoiding the tobacco premium surcharge) under the program, the plan is not required (but is permitted) to provide another opportunity to avoid the tobacco premium surcharge until renewal or reenrollment for coverage for the next plan year. Nothing, however, prevents a plan or issuer from allowing rewards (including pro-rated rewards) for mid-year enrollment in a wellness program for that plan year.

Some plan sponsors may desire to provide participants with more flexibility during the plan year to earn a wellness program reward or avoid a surcharge pertaining to tobacco cessation. However, other employers may find doing so creates a significant administrative burden, or they may believe multiple opportunities during the plan year weaken the influence of the incentive. Either way, this flexibility in design is likely to be welcomed by employers, even if not communicated before the 2014 calendar plan year.

 

 

The Department of Labor, Health and Human Services and the Treasury collectively published new FAQs regarding the requirement to provide a summary of benefits and coverage (SBC) under the Affordable Care Act (ACA) (http://www.dol.gov/ebsa/faqs/faq-aca14.html#footnotes).

The FAQs include an updated SBC template and an updated sample completed SBC (available at cciio.cms.gov and www.dol.gov/ebsa/healthreform).  It is noteworthy that the only change to the sample SBC is the addition of statements regarding whether the plan provides minimum essential coverage (MEC) (as defined in Section 5000A(f) of the Internal Revenue Code) and whether the plan meets the applicable minimum value (MV) requirements (i.e., the plan’s share of total allowed costs of benefits provided under the plan is not less than 60% of such costs).

The FAQs provide that no changes are being made to the uniform glossary or instructions to completing the SBC.

Takeaway: Plan sponsors should not need to spend time “reworking” their SBCs in connection with this new guidance if they were diligent in preparing their SBCs in the first year of applicability.

The FAQs also indicate that if a plan sponsor is already in the process of preparing its SBC for next year and it does not include the MEC and MV information in the SBC, it may provide information regarding whether the plan provides MEC and meets the applicable MV requirements in a cover letter.

Finally, the FAQs confirm that the agencies’ approach to compliance with ACA implementation is to work with employers to encourage compliance rather than to penalize employers who are working in good faith to comply with the ACA.  In connection with that approach, some of the enforcement relief published in earlier FAQs is being extended for an additional year.  This includes enforcement relief in connection with the electronic distribution of SBCs, the imposition of penalties for failing to provide SBCs, the provision of coverage examples, an issuer’s obligation to provide an SBC with respect to benefits it does not insure and enforcement regarding expatriate plans.

Last week, the Department of Health and Human Services (“HHS”) and Internal Revenue Service (“IRS”) released a minimum value calculator to determine whether the percentage of the total allowed costs of benefits provided under a group health plan is at least 60% – a requirement in order for the employer plan to be treated as offering minimum essential coverage. If the employer’s plan meets the minimum value test and is affordable (i.e., single coverage does not cost an employee more than 9.5% of income) a fulltime employee cannot obtain subsidized Exchange coverage. An employee who does obtain subsidized Exchange coverage does not trigger employer penalties (see our prior post on this topic). 

The calculator was released “for informal external testing” in conjunction with HHS’ release of final regulations on the standards related to essential health benefits, actuarial value, and accreditation under the 2010 health care reform law. HHS also provided an explanation of the calculator methodology which, among other things, makes clear that the calculator is based on a standard population and data reflecting typical self-insured employee plans.   

As an alternative to the calculator and checklists, an employer may engage an actuary who is a member of the American Academy of Actuaries to determine, using generally accepted actuarial principles and methodologies, whether the plan meets the 60% minimum value threshold.

In addition, IRS said in previous guidance that it would release checklists employers may use as safe harbor methods for determining whether a plan meets the minimum value test. Those checklists have not yet been released but may be crucial for employers with plans that have nonstandard features and for which an actuarial determination is impractical.   

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!           

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. 

The Internal Revenue Service (IRS) has provided guidance regarding the new salary reduction contribution limits to health flexible spending arrangements (health FSAs) under Internal Revenue Code section 125 cafeteria plans in Notice 2012-40, issued May 30, 2012.

Currently, there are no statutory limits on employee salary reduction contributions to health FSAs, but plan sponsors typically impose limits on the amount of salary reduction contributions that employees may elect to make to health FSAs. However, this will change when Code section 125(i) becomes effective. Code section 125(i) (added by the 2010 health care reform law) imposes a $2,500 annual limit on health FSA salary reduction contributions. The Notice clarifies that this new statutory limit is effective for plan years beginning after 2012.

In addition, Notice 2012-40 further clarifies that the limitation only applies to salary reduction contributions under health FSAs and does not apply to certain employer non-elective contributions, i.e., flex credits, or to any types of contributions or amounts available for reimbursement under other kinds of FSAs, health savings accounts, or health reimbursement arrangements or to salary reduction contributions to cafeteria pans that are used to pay an employee’s share of health coverage premiums. Moreover, run-out amounts available during the grace-period following a plan year will not count against the $2,500 limit for the subsequent year.

Cafeteria plan sponsors have until December 31, 2014, to adopt any amendments necessary to conform their cafeteria plans to the requirements of new Code section 125(i). The Notice advises that retroactive adoption of amendments for this purpose is permitted provided that the cafeteria plan operates in accordance with the requirements of section 125(i) for plan years beginning after December 31, 2012. Failure of a cafeteria plan to conform to the requirements of section 125(i) after December 31, 2012, will result in the value of the taxable benefits that an employee could have elected to receive during the plan year being includable in the employee’s gross income for the year, regardless of the benefits actually elected by the employee.

Significantly, the IRS is taking comments, through August 17, 2012, regarding whether the “use-or-lose” rule for health FSAs should be modified to allow for more flexibility. Any employer interested in submitting comments should act on this opportunity quickly. Jackson Lewis attorneys are available to assist in submitting comments as well as amending plan documents.

The US Department of Labor (“DOL”) has released frequently asked questions (“FAQs”) regarding implementation of the federal health care reform law’s summary of benefits and coverage requirement. (This set of FAQs is Part VIII in the general series about implementation of the law.) See our earlier blog post regarding the summary of benefits and coverage regulations that were issued last month.

Among other things, the FAQs (released March 19, 2012) clarify certain points regarding the distribution of summaries of benefits and coverage (“SBC”): The SBC must be provided beginning with the first day of the first open enrollment period that starts on or after September 23, 2012. It must be given to COBRA participants as well as active employees. It must be provided to individuals eligible to enroll outside the open enrollment period beginning with the first plan year that starts on or after September 23, 2012. The SBC can be provided electronically to covered individuals as long as the existing DOL electronic disclosure rules are satisfied. For eligible individuals who are not covered, employers can provide the SBC electronically as long as the format is readily accessible and a free paper copy is provided upon request.       

The FAQs also clarify that certain changes to the SBC content and format are permissible: Information about premium costs and whether the plan is grandfathered may be added to the SBC. Plans and issuers can combine, in a single SBC, information for different coverage tiers, cost-sharing options, and add-ons (such as FSA’s, HRA’s and wellness programs). Finally, the FAQs provide that the SBC table column and row sizes may be altered to accommodate the amount of information and information in a row can roll from one page to the next.   

The DOL reiterated that the federal enforcement agencies’ collective focus is to help plans and insurers to comply with the regulations, as opposed to penalizing them for noncompliance. Other than the addition of minimum value and minimum essential coverage statements for 2014, changes reflecting the elimination of annual limits, additional coverage examples, and refinements described in the FAQs, the DOL does not anticipate more changes to the SBC template. The DOL also stated that it intends to release additional FAQs on the SBC requirement.

The individual mandate provision of the 2010 health care reform law is unconstitutional, the U.S. Court of Appeals for the Eleventh Circuit decided in Florida v. HHS on August 12th. The Sixth Circuit previously held in Thomas More Law Center v. Obama that the individual mandate is constitutional. Therefore, the Eleventh Circuit decision creates a circuit split, making it more likely that the U.S. Supreme Court will tackle the issue.  

The law’s individual mandate requires individuals to maintain a specific minimum level of health insurance coverage beginning January 1, 2014, or pay a federal tax penalty for each month in which such coverage is not maintained. The law also requires an individual taxpayer to maintain the minimum required coverage for his or her dependents.   

The Eleventh Circuit upheld a lower federal court’s decision that Congress exceeded its commerce clause powers in enacting the individual mandate because Congress cannot “mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die.” 

However, the lower court had declared the entire health care reform law invalid because it found the unconstitutional individual mandate to be legally non-severable from the rest of the law. The Eleventh Circuit disagreed, deciding that the individual mandate could be severed from the rest of the health care reform law.   

Despite the Eleventh Circuit’s decision on the legal severability issue, the individual mandate is one of the central tenets on which the health care reform law is based; thus, without it, the health care reform initiative will fail to achieve principle goals. 

The fate of health care reform rests with the U.S. Supreme Court at this point. We will continue to monitor health care reform legal challenges that are pertinent to employers. Meanwhile, the health care reform law provisions that directly impact employers and their group health plans remain “the law of the land,” so employers should continue to comply with applicable provisions and prepare for compliance with provisions having future effective dates.   

Jackson Lewis LLP’s interdisciplinary Health Care Reform task force provides guidance to employers and plan sponsors regarding obligations and strategies under the health care reform law and related laws.  For more information about our resources in this area, please contact Monique Warren (White Plains, warrenm@jacksonlewis.com), Joe Lazzarotti (White Plains, lazzaroj@jacksonlewis.com), or Lisa deFilippis (Cleveland, defilipl@jacksonlewis.com).