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The CAA Transparency Rules Will Let Plans and Participants Know.  The Department of Labor, Health and Human Services, and the IRS (collectively the Departments) recently released the Interim Final Rules with a request for Comment (IFC), Prescription Drug and Health Care Spending.  These rules implement Section 204, Title II, another phase of the transparency provisions of the Consolidated Appropriations Act (CAA) of 2021.  The IFC is open for public comment through January 24, 2022.

This most recent IFC requires Reporting Entities — group health plans, both fully insured and self-funded, and issuers of insured group health plans or individual coverage — to report annually information about prescription drug and health care spending.  Unlike the Affordable Care Act (ACA), the CAA does not include exceptions for grandfathered plans.  Instead, the CAA rules apply broadly to grandfathered plans, church plans, non-federal government plans, and individual coverage through or outside of an exchange.  This IFC, however, does NOT apply to Health Reimbursement Accounts (HRAs), other account-based group health plans, e.g., Individual Coverage Health Reimbursement Accounts (ICHRAs), coverage consisting solely of excepted benefits, e.g., dental or vision plans, or short-term, limited-duration insurance coverage.

Reporting Content

The Departments designed these rules to solicit data that would allow an accurate comparison of apples to apples across all the Reporting Entities.  The IFC includes specific instructions concerning:

  • Calculation of covered lives,
  • What to do if a merger occurs, and
  • The timeframe (Reference Year, aka, calendar year) for the data calculations, regardless of the plan year.

The data the plans and insurance issuers must submit ranges from general plan identifying information and the states in which the plans operate to more precise information, e.g.:

  • The top 50 most often dispensed prescription drugs and the number of paid claims for each drug,
  • The top 50 most costly drugs by total annual spending and the total annual spending by the plan for each drug, and
  • The top 50 drugs with the greatest increase in plan expenditures over the previous year and each drug’s increased amount.

Other data required includes:

  • Total spending on healthcare services by the plan broken down by type;
    • Hospital
    • Healthcare
    • Specialty
    • Primary care
    • Prescription drugs
    • Wellness, etc.
  • Total Spending by Plan and Participant on;
    • Premiums
    • Prescription drugs
  • Impact on premiums of rebates, fees, and other remuneration paid by drug manufacturers to the plan or issuer or its administrators or service providers;
  • The top 25 drugs yielding the highest amounts of rebate or other remuneration during the Reference Year for each therapeutic class of drugs; and
  • Any reduction in premiums or out-of-pocket costs associated with the rebates or other remuneration.

The level of information sounds daunting, and the Departments acknowledge the magnitude of the burden for each plan to collect and report this information on an annual basis. Plans and insurers may collect and submit the data themselves, or they may rely on another party (TPA, PBM, health insurance providers, etc.), pursuant to a written agreement, to report the data on their behalf.  Regardless of who submits the data, the plan or issuer is ultimately responsible for complying with the IFC’s reporting requirements.  The Departments plan to build a portal to ease the submission burden on the Reporting Entities.  The Departments must then assemble an aggregate report from the submitted data and publish it on the internet within 18 months of the first submission deadline and biannually after that.

Deadlines

This brings us to the deadlines by which the Reporting Entities must submit the mass of data.  The IFC states the first deadline for plans and insurers for 2020 data is one year after the enactment of the CAA, which would be December 27, 2021.  The deadline for 2021 data is June 1, 2022, and each subsequent year’s data is due on each following June 1st.  Fortunately, the Departments have the discretion to defer the enforcement of deadlines.  They have elected to defer enforcement of the deadline for 2020 and 2021 data submission until December 27, 2022, when reporting for both years is due.  The Departments strongly encourage Reporting Entities to work on their procedures now.  Meanwhile, the Departments will build the reporting portal and provide further instructions for the actual data submission, which will provide Reporting Entities with the level of detail the Departments expect in the submissions.

The Bottom Line:

  • All group and individual health plans are subject to this IFC.
  • The required information is extensive and detailed.
  • Plans may enlist other entities to submit the required data on their behalf pursuant to a written agreement.
  • The ultimate deadline for compliance is December 27, 2022, which must include the submission for Reference Years 2020 and 2021. Reference Year 2022 will be due June 1, 2023.
  • The Departments will assemble and aggregate the information into a public report published on the internet. The report should help plan sponsors and individuals see where their healthcare dollars are used year over year.

The Departments have now deferred several deadlines into 2022, adding to other employee benefit deadlines already required in 2022. We previously published information on upcoming deadlines to assist with planning, but this means the year ahead is shaping into another busy year for plan sponsors.  We are available to help plan sponsors and administrators understand and implement the IFC requirements and other deadlines in the year(s) ahead.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

As employers consider implementing a vaccine mandate to encourage employees to get vaccinated against COVID-19, we have recently discussed the merits of imposing a “vaccine surcharge” on monthly health insurance premiums for those employees who remain unvaccinated.  There were unanswered questions about specific legal issues, but now the Department of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) issued FAQ guidance (the “FAQ”) to confirm that employers can incentivize employees by offering discounts on monthly insurance premiums for those who have been vaccinated for COVID-19 or impose insurance “surcharges” for those who choose not to be vaccinated (for reasons other than due to a medical condition.)  In making such clarifications, the FAQ also confirmed:

Insurance discounts/surcharges for COVID-19 vaccinations must adhere to existing Health Insurance Portability and Accountability Act (HIPAA) wellness guidelines for activity-based wellness programs.  Q/A-3 of the FAQ confirms that requiring an employee to be vaccinated for COVID-19 to receive the benefit of lower health insurance premiums does require the employee to perform or complete an activity related to a health factor and thus must satisfy the existing five criteria for activity-based wellness arrangements under HIPAA:

  • The program must be reasonably designed to promote health or prevent disease (the FAQ suggests helping schedule vaccination appointments and establishing a toll-free hotline to answer questions);
  • The program must provide a reasonable alternative standard to qualify for the discount on health insurance premiums (the FAQ suggests providing the discount if the individual can verify it would be unreasonably burdensome or medically inadvisable to be vaccinated for COVID-19 due to an existing medical condition);
  • The program must provide notice of the availability of a reasonable alternative standard (the FAQ suggests mandating compliance with the CDC’s mask guidelines for any employee who cannot otherwise be vaccinated because of an existing medical condition);
  • The incentive award (or penalty) cannot be more than 30% of the total cost of employee-only coverage when combined with all other wellness program awards or penalties; and
  • All employees must be offered the opportunity to qualify for the incentive at least once per year.

Note that the FAQ does not require an accommodation for religious or other non-medical reasons.  There is also no prohibition against allowing employees to meet the vaccination criteria at any time during the year.  However, the FAQ does advise employers considering adopting COVID-19 vaccination incentive programs to consult Section K of the Equal Employment Opportunity Commission’s What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws.

The premium discount/surcharge amount must be included in affordability calculations under the Affordable Care Act.  As we have discussed previously, Q/A-5 confirms that wellness incentives for COVID-19 vaccinations are considered the same as any other non-tobacco incentive.  To determine whether the employee’s monthly premium cost is “affordable” under Code Section 4980H(b), employers with over 50 full-time employees or full-time equivalents must disregard any premium discount amounts and include any vaccine surcharge amounts in the total cost of employee-only coverage.

Employers may not exclude employees from eligibility or coverage under a group health plan solely because of an employee’s COVID-19 vaccination status.  As an alternative to using a vaccine surcharge to incentivize employees, several employers have considered providing an exclusion from coverage under a group health plan for COVID-related claims for nonvaccinated employees.  Q/A-4 clarifies that such exclusionary practices would violate HIPAA nondiscrimination mandates and thus are not permissible.

Employers must provide 100 percent coverage of all COVID vaccination costs, including boosters.  The FAQ confirms that employers must provide coverage under their non-grandfathered group health plan for 100 percent of the cost of all vaccine shots (in compliance with Section 3203 of the CARES Act,) and Q/A-1 confirms this coverage mandate also includes the cost of any booster doses authorized or approved by the Food and Drug Administration or through an Emergency Use Authorization through the Centers for Disease Control.  But in a welcomed clarification, Q/A-1 and 2 indicate that because of confusion from prior guidance, the mandate for 100 percent coverage under a group health plan will not be enforced for periods before the release of this FAQ, October 4, 2021.

Conclusion:  Other questions remain, such as how the vaccine surcharge program should work during mid-year periods and whether it uniformly applies to other dependents (or other questions raised in our previous articles).  The FAQ clarifies many questions for employers considering implementing these arrangements just in time for the upcoming health plan renewal season.  For more information about imposing a vaccination surcharge on unvaccinated employees or other wellness program related questions, please contact the authors or the Jackson Lewis attorney with whom you regularly work.

In light of the lingering COVID-19 pandemic and its impact on employee productivity and health care expenses, employers are considering imposing a premium surcharge on employees participating in the company’s health plan who are not vaccinated against COVID-19.

As we have discussed here, several federal laws must be taken into consideration when designing such a surcharge including the Affordable Care Act (ACA), the Americans with Disabilities Act (ADA), the Health Insurance Portability and Accountability Act (HIPAA), and wellness rules.  As employers engage in the requisite legal analysis, the opening question is, “How much can the surcharge be?”

Health insurance coverage must still be “affordable,” as defined by the ACA.  Under IRS regulations, when determining whether an employee’s cost of coverage is “affordable,” an employer generally may not consider any incentives offered under wellness programs.  The lone exception to this rule is a non-smoking incentive, where employers may use the premium amount for non-smokers in the affordability calculation. While the current administration’s policies point toward encouraging vaccination, at this time, there is no exception to complying with the ACA’s affordability rules for a vaccine surcharge.  As a result, health insurance must still be “affordable,” as defined by the ACA, or else penalties might apply, as we discussed earlier.

What is Affordable:  For plan years beginning in 2021, employer-sponsored coverage will be considered affordable if an employee’s required contribution for self-only coverage for the least-expensive plan option that meets ACA requirements does not exceed 9.83% of the employee’s household income for the year.  The IRS publishes the percentage rate each year; for 2022, the rate is 9.61%.  Because employers rarely have the household income information of their employees, the regulations under Internal Revenue Code Section 4980H provide three safe harbors under which an employer may determine affordability based on information readily available to the employer.

  1. The federal poverty line safe harbor.  This safe harbor provides employers a predetermined maximum amount of employee contribution that in all cases deems the coverage to be affordable.  The federal poverty line is $12,880 for an individual in 2021. (The amount is slightly different for any employees in Hawaii and Alaska.)  That amount divided by 12 and multiplied by 9.83% equals an allowable premium of $105.51 for 2021.
  1. The rate of pay safe harbor.  To calculate this amount, multiply 130 hours by the lower of (a) the employee’s hourly rate of pay as of the first day of the coverage period (generally the first day of the plan year) or (b) the employee’s lowest hourly rate of pay during the calendar month.
  1. The Form W-2 wages safe harbor.  Application of this safe harbor is determined after the end of the calendar year and on an employee-by-employee basis, taking into account the Form W–2 wages and the required employee contribution for that entire year.

Total Surcharges Cannot Exceed 30 Percent.  In determining the amount of a premium surcharge, employers must also consider the rule established under HIPAA (as amended by the ACA), which provides that it is allowable for employers to encourage participation in certain types of wellness programs by offering incentives of up to 30 percent of the total cost of an employee’s health insurance premiums for self-only coverage.  Thus, any surcharge imposed on an unvaccinated worker cannot be more than 30 percent of the total cost of an employee’s health insurance premiums for self-only coverage when combined with any existing surcharge.

What’s the Answer?  The allowable surcharge amount will vary for every employer depending on the cost of health insurance, any other surcharges or incentives under an existing wellness program, the level at which health insurance is currently subsidized, and the rate at which employees are compensated.

For more information about imposing a health insurance premium surcharge on unvaccinated employees or other health insurance related questions, please contact the author or the Jackson Lewis attorney with whom you regularly work.

With the end-of-the-year hustle already around the corner, now is a great time to dust off your company’s ERISA fiduciary liability policy to ensure your plan fiduciaries have robust, comprehensive coverage.  Fiduciary liability policies provide coverage for claims related to the administration and operation of retirement and health and welfare plans.  Unlike D&O coverage, fiduciary liability policies rarely get much attention but can similarly provide significant protection to a company’s Board or other plan fiduciaries.

While renewing a fiduciary liability policy is one of the yearly items that employers often do automatically, it’s essential to know before the renewal what a policy covers—and what it excludes—to identify and address any gaps in protection. A review of a policy, to ensure it provides robust coverage, should consider issues such as whether the policy covers all plan fiduciaries (including a committee) and whether the level of coverage is adequate to cover full liability exposure for issues like statutory taxes/penalties (e.g., IRS penalties for retirement plans, HIPAA violations, ACA coverage, and reporting assessments), pre-claim investigations, audits, regulatory correction program participation, and cybersecurity, to name a few.

Having a robust fiduciary liability policy in place is a crucial element to an employer’s comprehensive benefits program.  And fully understanding the scope of coverage before a claim arises or renewing the policy is a best practice to avoid surprises later.

The attorneys at Jackson Lewis have deep experience working with fiduciary liability policies and helping employers negotiate new or renewed comprehensive fiduciary liability insurance coverage.  If you have questions or would like assistance in reviewing your company’s fiduciary liability insurance policy, please contact a team member or the Jackson Lewis attorney with whom you regularly work.

According to Forbes.com, more employers are considering imposing a premium surcharge on employees participating in the company’s health plan who are not vaccinated for COVID-19. Whether positioned as rewards or penalties, wellness program incentives have become vehicles of choice for encouraging behaviors believed to be healthy and reducing health plan costs. For years, tobacco users have faced health plan premium surcharges if they failed to cease using tobacco products (and if they also failed to comply with reasonable alternatives, such as completing a smoking cessation program). More COVID-19 “unvaccinated” employees may start facing similar surcharges if they choose to remain unvaccinated for COVID.

Implementing a COVID-19 premium surcharge wellness program to provide an incentive for more plan participants to get vaccinated comes with some compliance challenges. Those challenges depend largely on the design of the program and the administration of it. And, unfortunately, the guidance surrounding wellness programs, particularly from the Equal Employment Opportunity Commission (EEOC), remains less than clear. Check out a brief history of the EEOC’s position on wellness (prior to recent updated to its pandemic guidance).

Employers considering a health plan premium surcharge for plan participants who remain unvaccinated have some issues to consider in structuring the program, such as:

  • How much will the surcharge be?
  • How does a vaccination surcharge interact with other wellness incentives the employer offers?
  • Will the surcharge apply only with respect to employees who remain unvaccinated? What about spouses and dependents (assuming a COVID-19 vaccination is available)?
  • How long should plan participants have to get fully vaccinated?
  • What proof will be required to establish vaccination? There has been a rise in fake vaccination cards, and a warning from the FBI that making or buying such cards is a crime. What are the consequences under the plan for a participant who submits a fake card?
  • Is the vaccination requirement “participatory,” or is it “health-contingent”? If health contingent, and considered “activity only,” what reasonable alternative standard will be made available should vaccination be medically inadvisable for the participant?
  • What protections are in place for the handling of vaccination data and, in some cases, medical data supporting a reasonable alternative standard, all of which constitute protected health information under HIPAA?
  • Does the Americans with Disabilities Act apply even if vaccination does not constitute a disability-related inquiry or a medical examination? In other words, what reasonable accommodations need to be made available, if any?
  • As COVID-19 variants continue to emerge along with more talk of vaccine boosters, should the program also include boosters, if available?

On May 28, 2021, the EEOC updated its pandemic guidance to clarify that employers may offer employees an incentive if the confirm they have been vaccinated on their own from a pharmacy, public health department, or other health care provider. According to the same guidance, employers may even offer an incentive to employees for voluntarily receiving a vaccination administered by the employer or its agent, so long as the incentive (a reward or penalty) is not “so substantial as to be coercive.” However, the incentive may not extend to the employee’s family members receiving a vaccination administered by the employer or its agent as that could violate Title II of the Genetic Information Nondiscrimination Act, according to the EEOC.

Prior to its May 2021, guidance, the EEOC had issued a notice of proposed rulemaking (NPRM) attempting to clarify its position on wellness program. Withdrawn by the incoming Biden Administration, the NPRM is summarized here. Notably, the general rule that would have permitted only de minimis incentives, came with an exception for health-contingent wellness programs that (i) are part of, or qualify as, group health plans and (ii) are subject to and comply with the applicable provisions of the ACA/HIPAA wellness rule. Such programs would have been able to provide more than de minimis incentives, provided there were not greater than what is permitted under the ACA/HIPAA wellness rules.

Some employers are moving beyond incentives, including surcharges, to simply mandate COVID-19 vaccinations on the condition of employment. That approach comes with its own set of issues and risks. However, organizations choosing a health plan premium surcharge wellness program approach will want to consider these and other related issues carefully.

For years (and we do mean years), the EEOC has waffled about whether incentives were permissible in connection with a medical inquiry under a voluntary wellness program.  Friday, the EEOC issued its most recent pronouncement on the topic, this time related to incentives for COVID-19 vaccinations.

The ADA prohibits employers from requiring medical examinations or making “disability-related inquiries” except in very limited circumstances.  One such exception is in the case of a voluntary wellness program.  But it has never been clear what voluntary means in this situation. Is it voluntary if an incentive is provided?

A Brief Primer on Incentives and “Voluntary” Wellness Programs Under The ADA

The EEOC stated its position on voluntariness in 2000, in its Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act: a wellness program is “voluntary” as long as an employer “neither requires participation nor penalizes employees who do not participate.”  In 2014, the EEOC sued several employers claiming they had crossed the line in terms of when a penalty connected with a wellness plan makes the wellness plan involuntary.  But in oral argument the EEOC refused to identify what the particular line was. See Court Denies EEOC’s TRO Motion Seeking to Halt Employer’s Wellness Program | Benefits Law Advisor

In other contexts, the Affordable Care Act (ACA) permitted incentives, significant incentives, under group health plans. The other federal agencies, the IRS, HHS, and DOL issued joint implementing regulations for such programs.  Acknowledging congressional intent for some form of incentivized wellness programs, the EEOC then issued regulations which generally allowed employers to offer an incentive of up to 30% of the total cost of self-only insurance coverage.  But, its rules were quickly challenged in the United States District Court for the District of Columbia.  The court ordered the incentive provisions vacated, concluding the EEOC did not provide sufficient reasoning to justify the incentive limit adopted, even though the limit was largely based on the ACA’s approach.  As a result, the EEOC revised the regulations by removing the section permitting incentives, but leaving in place the remaining portions:

An employee health program that includes disability-related inquiries or medical examinations (including disability-related inquiries or medical examinations that are part of a health risk assessment) is voluntary as long as a covered entity:

(i)     Does not require employees to participate;

(ii)    Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation, or limit the extent of benefits (except as allowed under paragraph (d)(3) of this section) for employees who do not participate;

(iii)   Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees within the meaning of Section 503 of the ADA, codified at 42 U.S.C. 12203; and

(iv)    Provides employees with a notice that:

(A) Is written so that the employee from whom medical information is being obtained is reasonably likely to understand it;

(B) Describes the type of medical information that will be obtained and the specific purposes for which the medical information will be used; and

(C) Describes the restrictions on the disclosure of the employee’s medical information, the employer representatives or other parties with whom the information will be shared, and the methods that the covered entity will use to ensure that medical information is not improperly disclosed (including whether it complies with the measures set forth in the HIPAA regulations codified at 45 CFR parts 160 and 164).

29 CFR 1630.14(d)(2).  See Has the Grinch Stolen Wellness Plans this Christmas? | Disability, Leave & Health Management Blog (disabilityleavelaw.com)

Then in January of this year the EEOC proposed new regulations allowing only de minimis incentives, unless the wellness program was connected to a group health plan.  See Wellness Programs and Water Bottles, the EEOC Proposes New Rules under the ADA and GINA | Benefits Law Advisor

To help guide employers on “voluntariness,” the agency provided examples of what would and would not meet the test. For what would be considered de minimis, the EEOC provided two examples: a water bottle or gift card of modest value. A quick online search reveals an approximate price range for water bottles is between $5 and $50. On the other end of the voluntariness continuum, the EEOC observed that charging an employee $50 per month more for health insurance (or, the “carrot” approach, offering a $50 per month reduction in the charge for health insurance, either way totaling $600 per year), would be too great an incentive and violate the ADA.  Similarly, paying for an employee’s annual gym membership or rewarding an employee with airline tickets would be considered more than de minimis. Of course, these examples provide little insight about the incentive’s value.  So, assuming a $25 or even $50 gift card would meet the “a water bottle or gift card of modest value” test, and $600 incentive clearly would not, what about incentives with a value in the middle, say $100? It is worth noting that the EEOC’s proposed rule would permit more liberal incentives for wellness programs structured as part of a group health plans, provided they follow the ACA rules referenced above.

Unfortunately, these proposed regulations were quickly pulled back under the new administration, leaving once again a black hole in terms of what, if any, incentive an employer could provide in connection with voluntary disability-related medical inquiries or medical examinations in connection with a voluntary wellness program.

New “Very Large” and “So Substantial” Guidance

Last week the EEOC updated the technical assistance it maintains on its website with respect to COVID-19 issues.  See EEOC UPDATES ITS GUIDANCE ON VACCINATIONS | Disability, Leave & Health Management Blog (disabilityleavelaw.com)  The EEOC, which had already opined that the pre-vaccination screening questions may be a disability-related medical inquiry, stated that if an employer offers to vaccinate employees on a voluntary basis, the employer does not have to show the pre-vaccination screening questions are job-related and consistent with business necessity. “However, the employee’s decision to answer the questions must be voluntary.”   The EEOC then went on to explain what type of incentive could be offered in connection with vaccination provided by the employer or its agent.  According to the EEOC, the incentive (which includes both rewards and penalties) must not be “so substantial as to be coercive.”  “[A] very large incentive could make employees feel pressured to disclose protected medical information.”  Although this particular guidance is related to COVID-19, presumably the same analysis would apply to other voluntary inquiries where employers seek to take advantage of the voluntary wellness program exception.

While it is nice to see some explanation as to the EEOC’s position on this topic, the EEOC’s language: “not so substantial as to be coercive” or not “very large” as to make employees feel pressured, is certainly not the epitome of clarity.  What does “substantial” or “very large” mean in practice?  Does it allow more than a water bottle?  The EEOC did not provide examples this time, presumably because it is being pulled in two directions.  On the one hand the government has made clear that it does not want to say anything that would discourage vaccinations (and is also looking to encourage vaccinations), at the same time what it says here may be used in other settings with respect to wellness programs.

Incentives Related to the COVID-19 Vaccine

The good news for employers, at least with respect to incentives offered in connection with COVID-19 vaccinations, is that the EEOC has stated that merely asking whether an employee has been vaccinated is not a disability-related medical inquiry under the ADA and, therefore, does not need to meet the voluntary wellness program exception.  The EEOC made this clear in its guidance last week: “Requesting documentation or other confirmation showing that an employee received a COVID-19 vaccination in the community is not a disability-related inquiry covered by the ADA.  Therefore, an employer may offer an incentive to employees to voluntarily provide documentation or other confirmation of a vaccination received in the community.”

However, if the employer is offering the vaccine or having an agent offer the vaccine, the pre-vaccination inquiries may be disability-related medical inquiries. In that case, the incentive offered must comply with the voluntary wellness program regulations.  In that regard, the EEOC reiterated that the amount of the incentive is not the only issue of compliance with respect to vaccinations offered by employers or its agents.  In order to be voluntary, the “ADA prohibits taking an adverse action against an employee, including harassing the employee, for refusing to participate in a voluntary employer-administered vaccination program.  An employer also must keep any medical information it obtains from any voluntary vaccination program confidential.”  Indeed, presumably, all of the requirements of 29 CFR 1630.14(d)(2) (referenced above) continue to apply.

Some employers also have expressed interest in incentivizing employees’ family members to get the vaccine. The EEOC’s recent COVID-19 technical assistance addressed this as well. Remember that under the Genetic Information Nondiscrimination Act, family medical history information, in general, constitutes genetic information of the employee. As a result, the EEOC’s guidance confirmed that an employer may not offer an incentive to an employee in return for an employee’s family member getting vaccinated by the employer or its agent because the pre-vaccination questions of a family member would constitute family medical history of the employee. However, employers may offer an incentive to employees to provide documentation or other confirmation that their family members received a vaccination from their own health care provider.

The years long battle over what is and is not an appropriate incentive in connection with voluntary medical inquiries or wellness programs is far from over.  To avoid “very large” penalties of their own, employers should consult with counsel whenever they are designing a wellness program with incentives (carrots or sticks) attached.

The Consolidated Appropriations Act, 2021 (CAA) amended the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) to include substantial new compliance requirements. The Department of Labor (DOL), Health and Human Services, and the Treasury (collectively, the Departments) have released much-anticipated guidance for group health plans necessitating action from plan sponsors.  More…

Providing incentives for employees to get the COVID-19 vaccine continues to be on the minds of organizations as vaccinations pick up speed. However, concerns about privacy and the shifting positions on wellness program regulation has left many employers wary about implementing more robust incentives. According to Bloomberg, two GOP members of Congress are urging the Equal Employment Opportunity Commission (EEOC) to provide some clarity.

Employer-sponsored wellness programs come in many forms, such as:

  • An education campaign to inform employees about healthier eating habits.
  • A gym membership subsidy.
  • A health risk questionnaire to help employees be more informed about their health risks.
  • A walking program designed to decrease sedentary lifestyles.
  • Making health coaches available for engagement on general wellness and/or chronic health issues.
  • Satisfaction of key health-related measures – heart rate, cholesterol level, body mass index (BMI).

Such programs are often tied to group health plans and the incentives for satisfying program requirements come in the form of cash payments, reduced contributions toward premiums, points that can later be redeemed, and other creative arrangements. A key compliance challenge for many of these programs is the size of the incentive – the underlying issue being whether the size of the incentive causes a loss of voluntariness. Programs that are part of group health plans generally are subject to regulations issued under the Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act (HIPAA), although other rules including those referred to below may apply. The ACA/HIPAA regulations are relatively clear on incentive limits and are not what GOP members of Congress and business leaders have expressed concerns about.

Under the Americans with Disabilities Act, disability-related inquiries of employees generally must be job-related and consistent with business necessity, unless made in connection with a voluntary wellness program. It is that exception, specifically whether the program is voluntary, that is causing much of the concern about vaccination incentive programs. We outlined a brief history of the EEOC’s position on voluntariness here.

Depending on the design of a COVID-19 vaccination incentive program, disability-related inquiries may be involved, raising the question about voluntariness. Is a $50 gift card too much, what about $500, will that render the program involuntary? How about 2 days off with pay? It is worth noting that, according to the EEOC,

“[s]imply requesting proof of receipt of a COVID-19 vaccination is not likely to elicit information about a disability and, therefore, is not a disability-related inquiry.” 

On January 7, 2021, the EEOC proposed a new approach that might wind up providing employers some certainty, but those regulations have been withdrawn following a regulatory freeze issued by the White House on January 20, 2021. Under those proposed rules, however, incentives are permitted under such programs provided they are de minimis.

Sen. Richard Burr (R-N.C.) and Rep. Virginia Foxx (R-N.C.) observed to the EEOC in a letter obtained by Bloomberg, looking for a response by April 20, 2021:

“Employers actively working to protect their employees by increasing the number of workers receiving vaccinations through incentive programs are seeking assurance this action is allowable and does not violate important labor laws such as the Americans with Disabilities Act (ADA) and other statutes within the jurisdiction of the EEOC”

Additionally, the data privacy, confidentiality, security, and record retention of the information needed to administer such programs also raises compliance issues under federal and state law. This includes the confidentiality rule under the ADA, the HIPAA privacy and security regulations for programs that are part of group health plans, OSHA record retention requirements, and state reasonable safeguard and breach notification requirements.

Many organizations have moved forward offering a variety of incentive programs to spur employees to get a COVID-19 vaccine. The level of legal risk, if any, for those programs is a function of several factors – does the program include a disability-related inquiry, how large is the incentive, is the program part of a group health plan, how is the program administered and enforced, and how is the privacy and security of the data maintained.

It remains to be seen whether the EEOC will provide greater clarity on the voluntariness of incentives for COVID-19 vaccination programs. In the meantime, employers will need to think carefully about the design and implementation of their programs.

You didn’t know it was a thing?  Or maybe, like most, you just lost track of what day it is?  Or maybe it ranks somewhere behind New Beer’s Eve (the day before the end of prohibition) and National Tartan Day, both of which are most certainly things and also fall on April 6th.

If there was ever a year to celebrate National Employee Benefits Day, this is the year.  The last year needs no introduction, but it is worthwhile to take just a moment to acknowledge the role employee benefits and all the tireless employee benefit professionals have played in getting us through.

Last year showed us how central employer provided benefits are to our daily lives.  And in the time of the largest national crisis for most, employers, their benefits providers, and the entire system of employer-provided benefits rose to the occasion to provide flexibility and much-needed support to workers.  Whether it was voluntarily extending subsidized health coverage to those who would typically lose coverage because of a reduction in hours or termination, offering needed access to 401(k) assets through coronavirus related distributions and loans through the CARES Act, or allowing flexibility for mid-year changes in health care and flexible spending account elections, employers, vendors, and Washington, D.C. moved rapidly to respond.  At the same time, retirement plan fiduciaries weathered the increased threats of class action litigation over plan investment fees, new concerns related to protecting plan data, investment processes related to ESG funds and proxies, and a roller-coaster market.  Not to mention responding in real time to the ever expanding state and federal leave requirements.

So far, the year ahead appears to be full of its own twists and turns, albeit of a different vein.  As evidenced by the recent COBRA subsidy provisions in the American Rescue Plan Act of 2021, health care will continue to take center stage and the role of employer provided coverage against the backdrop of strengthened ACA Marketplaces, a bright spotlight on pharmacy benefits, transparency requirements, and rollouts of vaccines (and incentives) will keep us on our toes.  There will be other areas of focus for employers too—new opportunities to assist employees with student debt, expanding options in 401(k) plans such as withdrawals for birth and adoption assistance, and a new focus on voluntary benefits offerings alongside the traditional core offerings, plus new legislation around the bend on qualified retirement plans.  And as some begin the long march back to the office (and others continue to work remotely), we will confront pesky remote worker tax questions, a renewed focus on wellness benefits (including mental health), and a growing demand for financial wellness programs alongside changes that address our new normal, like the ability to pay for face masks, hand sanitizer and disinfecting wipes from our health flexible spending accounts.  There is much to do and no offseason for benefits professionals, but great opportunity to reevaluate benefit offerings, given changing employee needs and demands and a changing regulatory landscape under an ambitious new administration.

So, for now, take a minute and raise your copy of ERISA (and, of course, your favorite libation) to appreciate how much has been accomplished over the past year in the face of unchartered demands and stressors.  We are all looking forward to the year ahead for so many reasons and the changes (and opportunities) it brings in employee benefits and beyond.

The American Rescue Plan Act of 2021 (ARPA) is the latest federal COVID-19 relief bill, which the President signed into law on Thursday, March 11, 2021. ARPA includes new COBRA continuation coverage election, notice, and subsidy requirements; pension plan funding relief; and some cost-saving benefit opportunities employees may be able to leverage.  Some of these changes are required and could take effect as early as April 1, 2021, requiring immediate action by employers (or their insurers or administrators).  Other provisions are optional, enabling employers to weigh the costs and benefits in considering their implementation.   This is the first of a series of articles addressing the important employee benefit changes under ARPA, including employer tax credits, executive compensation changes, and multiemployer funding relief.

COBRA Premium Subsidies:  Fulfilling a commitment of the Biden Administration, ARPA includes COBRA subsidy provisions aimed at making health insurance coverage accessible and affordable.  Bearing a striking resemblance to the American Recovery and Reinvestment Act of 2009, ARPA creates a 6-month subsidy period (April 1 to September 30, 2021) during which certain “assistance eligible individuals” (AEI) may qualify for a 100% subsidy for COBRA coverage.  Qualifying AEI would pay no cost for monthly COBRA premiums for medical, dental, or vision coverage if the individual is eligible for COBRA coverage during the subsidy period.  The subsidy period does not extend the maximum COBRA coverage period.  ARPA simply suspends the AEI’s obligation to make COBRA premium payments for up to 6 months.

These rules are not optional for employer sponsored group health plans.  All group health plans subject to COBRA, except health flexible spending accounts (FSA), must provide this subsidized coverage.

The employer (or plan, in the case of a multi-employer plan; or insurer for non-ERISA fully-insured plans) has an obligation to provide this group health plan coverage under its plan, advances the premium cost, and recovers the cost of such coverage from the federal government by claiming a credit against its quarterly Medicare payroll tax liability.  The credit can be advanced and is refundable, meaning the entity can claim a refund if the subsidy exceeds the taxes due.

Only those qualified beneficiaries who trigger COBRA continuation coverage because of an involuntary termination of employment or a reduction in hours and whose current COBRA continuation coverage period would cover some or all of the subsidy period are considered AEI, but only if they elect COBRA coverage.  Individuals who qualify for COBRA because of voluntary termination, retirement, or death would not be considered AEI.

ARPA also creates an extended COBRA election period for AEI so even AEI who previously declined COBRA coverage, or whose coverage was terminated because of nonpayment of premiums, may enroll and receive the subsidized coverage for the length of the subsidy period.  This provision in particular will require careful administration to ensure compliance, given the previous COBRA deadline extensions and the recent re-starting of the clock, which we discuss here and here. ARPA does not change the fact that COBRA continuation coverage still can end because of other group health coverage, Medicare eligibility, and other circumstances.

ARPA imposes new notice requirements on group health plans, which provide AEI with the information they need to enroll in subsidized coverage.  There is a required notice of the availability of the subsidy, a notice of the extended election period for COBRA coverage, and a notice of the expiration of the subsidy.  The U.S. Department of Labor will issue model notices that plan administrators may use.

Group health plans may, but are not required to, allow AEI to enroll in different coverage options available from the employer, subject to certain conditions.  If offered, the notices would need to describe this option.

Affordable Care Act Premium Tax Credit Expansion:  Following the coverage theme noted above, ARPA also expands eligibility for Premium Tax Credits (PTCs) under Internal Revenue Code Section 36B.  These PTCs, which are part of the Affordable Care Act (ACA), make securing coverage through the Healthcare Marketplace or other state exchange more affordable.  Generally, the changes temporarily eliminate the phaseout of eligibility for households over 400% of the federal poverty level, reduce the contributions eligible households must make toward the premium cost, suspend the recapture of excess credits previously provided, and consider anyone who receives unemployment compensation during any week in 2021 as eligible.

For employers, this may mean more “full-time” employees claim the PTCs, which correspondingly may lead to greater scrutiny of employers’ ACA compliance by the IRS and a shift in employer group health plan enrollment.  This may increase the pool of individuals who qualify for subsidized coverage, a key trigger for employer shared responsibility penalties under the ACA. We recommend employers review and confirm their ACA compliance and reporting regularly to understand penalty risk and exposure, especially because of this change.

Increase in Dependent Care Assistance:  For the 2021 calendar year only, ARPA increases from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) the maximum amount that can be excluded from income under Section 129 of the tax code for qualifying dependent care expenses.  Employers who sponsor dependent care flexible spending arrangements may amend their plans on or before the last day of the plan year to allow their eligible employees to benefit from this increased limit.  Fiscal plan year sponsors will need to consider how to implement the relief given their plan year limits, noting that the increased contribution limit ends on December 31, 2021.  The Consolidated Appropriations Act, 2021, discussed here, permits employers to amend their Section 125 plans to permit mid-year election changes when the same normally would not be permitted.  That relief will need to be implemented in tandem with any increased limits allowed under ARPA.  For employers who decide not to increase the dependent care flexible spending account limit for 2021, employees still may qualify for the child and dependent care tax credit that was substantially enhanced and made refundable for 2021.

Pension Plan Funding Stabilization:  For employers who sponsor single employer defined benefit plans, ARPA provides several avenues to stabilize funding, including implementing 15-year (up from 7) amortization periods, fresh start rules, and an increase in interest rates used for minimum funding determinations.  These changes should reduce the minimum required contribution amounts, but would need to be weighed against the cost of obtaining an updated valuation, among other considerations.  Employers with these plans should consult with their plan actuaries.  As previously discussed, ARPA also includes long-awaited multiemployer funding relief.

If 2020 taught us anything, it is to be flexible and prepared for change.  Just three months into the 2021 calendar year, we now have the second substantial piece of legislation affecting the employee benefits area under our belts, and imminent implementation guidance.  This underscores how substantially the COVID-19 pandemic continues to change the value-proposition for employer provided benefits.