How Many Employers Could be Affected by the Cadillac Plan Tax?
Originally posted by Gary Claxton and Larry Levitt on August 25, 2015 on kff.org.
As fall approaches, we can expect to hear more about how employers are adapting their health plans for 2016 open enrollments. One topic likely to garner a good deal of attention is how the Affordable Care Act’s high-cost plan tax (HCPT), sometimes called the “Cadillac plan” tax, is affecting employer decisions about their health benefits. The tax takes effect in 2018.
The potential of facing an HCPT assessment as soon as 2018 is encouraging employers to assess their current health benefits and consider cost reductions to avoid triggering the tax. Some employers announced that they made changes in 2014 in anticipation of the HCPT, and more are likely to do so as the implementation date gets closer. By making modifications now, employers can phase-in changes to avoid a bigger disruption later on. Some of the things that employers can do to reduce costs under the tax include:
- Increasing deductibles and other cost sharing;
- Eliminating covered services;
- Capping or eliminating tax-preferred savings accounts like Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), or Health Reimbursement Arrangements (HRAs);
- Eliminating higher-cost health insurance options;
- Using less expensive (often narrower) provider networks; or
- Offering benefits through a private exchange (which can use all of these tools to cap the value of plan choices to stay under the thresholds).
For the most part these changes will result in employees paying for a greater share of their health care out-of-pocket.
In addition to raising revenue to fund the cost of coverage expansion under the ACA, the HCPT was intended to discourage employers from offering overly-generous benefit plans and help to contain health care spending. Health benefits offered through work are not taxed like other compensation, with the result that employees may receive tax benefits worth thousands of dollars if they get their health insurance at work. Economists have long argued that providing such tax benefits without a limit encourages employers to offer more generous benefit plans than they otherwise would because employees prefer to receive additional benefits (which are not taxed) in lieu of wages (which are). Employees with generous plans use more health care because they face fewer out-of-pocket costs, and that contributes to the growth in health care costs.
The HCPT taxes plans that exceed certain cost thresholds beginning in 2018. The 2018 thresholds are $10,200 for self-only (single) coverage and $27,500 for other than self-only coverage, and after that they generally increase annually with inflation. The amount of the tax is 40 percent of the difference between the total cost of health benefits for an employee in a year and the threshold amount for that year.
While the HCPT is often described as a tax on generous health insurance plans, it actually is calculated with respect to each employee based on the combination of health benefits received by that employee, and can be different for different employees at the same employer and even for different employees enrolled in the same health insurance plan. While final regulations have not yet been issued, the cost for each employee generally will include:
- The average cost for the health insurance plan (whether insured or self-funded);
- Employer contributions to an (HSA), Archer medical spending account or HRA;
- Contributions (including employee-elected payroll deductions and non-elective employer contributions) to an FSA;
- The value of coverage in certain on-site medical clinics; and
- The cost for certain limited-benefit plans if they are provided on a tax-preferred basis.
The inclusion of FSAs here is important. FSAs generally are structured to allow employees the opportunity to divert some of their pay to pretax health benefits, which means that they can avoid payroll and income taxes on money they expect to use for health care. Employees often are permitted to elect any amount of contribution up to a cap (which is $2,550 in 2015), which means that the amount of benefits for an employee subject to the HCPT in a year could vary depending on their FSA election.
The amount and structure of the HCPT provide a strong incentive for employers to avoid hitting the thresholds. The tax rate of 40 percent is high relative to the tax that many employees would pay if the benefits were merely taxed like other compensation, and the ACA does not allow the taxpayers (e.g., the employer) to deduct the tax as a cost of doing business, which can significantly increase the tax incidence for for-profit companies. Further, to avoid the perception that this was a new tax on employees, the HCPT was structured as a tax on the service providers of the health benefit plans providing benefits an employee: insurers in the case of insured health benefit plans; employers in the case of HSAs and Archer MSAs; and the person that administers the benefits, such as third party administrators, in the case of other health benefits. While it is generally expected that insurers and service providers will pass the cost of the tax back to the employer, doing so may not always be straightforward. Because there can be numerous service providers with respect to an employee, the excess amount must be allocated across providers. In some cases, it may not be possible to know whether or not the benefits provided to an employee will exceed the threshold amount until after the end of a year (for example, in the case of an experience-rated health insurance plan), which means that service providers may need to bill the employer retroactively for the cost of the tax they must pay. Amounts that employers provide to reimburse service providers for the HCPT create taxable income for the service provider, which the parties will want to account for in the transaction. The IRS has requested comments on potential methods for determining tax liability among benefit administrators, including a way that could assign the responsibility to the employer in cases other that insured benefit plans. The proposed approach could simplify administration of the tax.
To read the full story go to the Kaiser Family Foundation website at kff.org.
IRS Issues Forms and Instructions for ACA Reporting
Originally posted on shrm.org.
In early February 2015, the IRS released draft versions of the forms that employers subject to the Affordable Care Act (ACA) “shared responsibility” mandate—sometimes referred to as “play or pay”—will be required to file in order to show that the health coverage they offer to their employees is compliant with ACA requirements. The forms implement reporting obligations under Internal Revenue Code sections 6055 and 6066, which the ACA added to the tax code.
The forms are not required to be filed by employers for tax year 2014. However, in preparation for the first required filing of these forms (in 2016 for 2015), reporting entities may, if they wish, voluntarily file.
The IRS also released a new brochure Affordable Care Act: Reporting Requirements for Applicable Large Employers, which discusses getting ready for monthly tracking and preparing to fill out new IRS forms in 2016.
The forms include:
• Form 1095-B: Health Coverage. To be filed with the IRS and provided to taxpayers by insurers, as well as by self-insured employers that are not subject to the employer "shared responsibility" mandate, to verify that individuals have minimum essential coverage that complies with the individual coverage requirements.
• Form 1095-C: Employer-Provided Health Insurance Offer and Coverage. To be filed by employers with 50 or more full-time or full-time equivalent employees to verify their compliance with the employer "shared responsibility" mandate. Form 1095-C will also be used to establish employee eligibility for premium tax credits if the employer does not offer affordable and adequate coverage.
• Form 1094-B: Transmittal of Health Coverage Information Returns and Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. These are the transmittal forms that insurers and employers will use to transmit the individual 1095-Bs and 1095-Cs to the IRS.
“Insurers and self-insured health plans will provide a Form 1095-B to each of their enrollees and members, and file these forms, together with a transmittal Form 1094-B with the IRS,” explained Timothy Jost, J.D., a professor at the Washington and Lee University School of Law, in an earlier post regarding the draft forms on the Health Affairs Blog. “Large employers must provide a Form 1095-C to each employee, and transmit these, together with a transmittal [Form 1094-C] to the IRS.”
The IRS also issued instructions relating to the above forms:
• Text of Instructions for IRS Forms 1094-B and 1095-B.
• Text of Instructions for IRS Forms 1094-C and 1095-C.
“The instructions for the 1094-C and 1095-C are by far the most complex of the instructions...filling 13 pages with dense, two column, print,” noted Jost in a blog post regarding the draft versions (the final instructions reach 14 pages and are in a smaller type face, and thus even longer). “Most of the complexity derives from the options for complying with the employer mandate and the transition exceptions to that mandate that the administration has created,” Jost explained.
The forms “are identical to the draft forms released in the late summer of 2014,” Jost noted in a February 2015 blog post. “The instructions for the transmittal forms 1094-B and 1095-B are virtually identical to the draft instructions. … The final instructions for forms 1094-C and 1095-C, however, contain a number of changes from the draft instructions and should be reviewed carefully by insurers, employers, and those who advise them.”
“We hoped that the IRS was finding a way to streamline and simplify the reporting forms and instructions that employers will use in connection with the...employer and individual mandates. Those hopes were dashed...when the IRS released the final reporting forms and instructions,” stated a February 2015 alert from Lockton, an insurance brokerage. “The reporting forms and instructions remain detailed and complex, with many caveats, exceptions and special rules. Complicating this, reporting continues to be based on the calendar year, regardless of the year on which an employer’s plan operates.”
The Lockton alert further notes:
The final forms and instructions are labeled as “2014” forms, meaning they would relate to coverage during 2014. It is apparent, however, that these materials were created for the required reporting in 2016 with respect to coverage during 2015. In addition to explicitly stating that reporting with respect to 2014 is voluntary, the instructions explain how to indicate use of various transition rules that apply during 2015.
“As the forms must be filed by Feb. 28 (March 31 if filed electronically) and were just released in final form, it is very unlikely that many employers, insurers, or government programs will file for 2014,” noted Jost. “The 2015 forms are likely to be very similar, however, so it is probably important for employers and insurers to review these forms to ensure that they are on track for 2015 reporting.”
Advised a February 2015 alert from Fox Rothchild LLP, “Bear in mind that there is a considerable amount of time between now and the final filing obligation so there may be additional revisions to these instructions, or at least some further clarification. But in the meantime, read the instructions and familiarize yourself with the reporting obligations.”
Tracking and Reporting Employee Data
Companies with 100 or more full-time equivalent employees must begin complying with the ACA coverage requirements in 2015, although they will have two years to phase up to the requirement that they cover 95 percent of their workers. Companies with 50 to 99 full-time equivalent employees will have another year—until 2016—to start complying. Smaller businesses are exempt.
Under tax code sections 6055 and 6056, employers must compile monthly and report annually numerous data points to the IRS and their own employees. This data will be used to verify the individual and employer mandates under the law.
“Although required reporting under sections 6055 and 6056 will not occur until January 2016 to employees and March 2016 to the IRS, the data being reported is based on what happened during 2015,” according to an August 2014 article in HR Magazine. “Therefore, employers should have the necessary infrastructure in place to gather that information by January 2015 or very soon after.”
Given the cross-functional compliance and reporting requirements, having a multidisciplinary team in place is important, with a written workplan that specifies the responsibilities of HR, payroll, finance and other departments. The chief HR officer and the chief financial officer should coordinate their efforts and those of their staffs. Top-level executive sponsorship should ensure that all functions are working together and doing their part.
“Ideally, technology will take much of the reporting burden off of employers, automating significant portions of the data collection and reporting processes,” observed the Lockton alert, adding:
Unfortunately, technology will not produce accurate reporting without accurate data. In addition, while an employer’s current HR technology solutions may capture the information required for ACA reporting, it is unlikely that the employer has any one system that incorporates all of this information. It is also very likely that gathering the information from various sources and entering it into the required forms will be difficult and time-consuming. Employers that have not done so already will want to discuss with their third-party payroll and benefits administration vendors the extent to which they can handle the required information gathering and reporting.
| Reporting Requirement Still Applies to Mid-Size EmployersAlthough mid-size employers (between 50 and 99 full-time employees or equivalents) can take advantage of one year of transitional relief from the employer mandate requirements, delaying compliance until the first day of the employer's 2016 plan year, “these employers are still required to comply with the pay or play reporting requirement and the individual mandate reporting requirement, if the mid-size employer sponsors a self-funded group health plan,” advised law firm Miller Johnson. “In order to qualify for the transitional relief, mid-size employers must certify to the IRS that it meets the necessary requirements. Form 1094-C is used to certify that the mid-size employer meets these requirements.”
The firm added, “The good news is that these forms appear relatively simple to complete. The bad news, however, is that compiling the information necessary to complete these forms will likely impose significant administrative burdens.” |
2015 Monthly Information
“This reporting and disclosure requirement is new for employers and may catch some employers off-guard,” warned an alert by benefits consultancy Hill, Chesson & Woody, which added that the reporting requirements include collecting and disclosing:
- Social Security numbers of employees, spouses and dependents.
- Names and employer ID numbers(EINs) of other employers within the reporting employer’s controlled group of corporations for each month of the calendar year.
- Number of full-time employees for each calendar month.
- Total number of employees (full-time equivalents) for each calendar month.
- Section 4980H transition relief indicators for each calendar month.
- Employees’ share of the lowest-cost monthly premium for self-only, minimum value coverage for each calendar month.
- Applicable Section 4980H safe harbor for each calendar month.
“The first transmittal and returns will not be filed until January 2016, but much of the information must be reported for each calendar month of 2015,” the firm pointed out. “Ensuring internal time and attendance systems, record management, and payroll systems are capable of producing the required information is critical. Although there is much information left to be released by the IRS concerning the Code 6056 reporting requirement, employers subject to this requirement should begin preparing now.”
“The significant amount of information that is required to be reported to both employees and the IRS on these forms may factor in to an employer’s overall strategy for compliance with health care reform’s pay or play penalty requirement,” advised Miller Johnson.
| Steps to TakeIn light of the complexity of the new information reporting requirements, employers should take the following actions, advised McGladrey LLP in an alert:
• Learn about the new information reporting requirements and review the IRS reporting forms. • Develop procedures for determining and documenting each employee's full-time or part-time status by month. • Develop procedures to collect information about offers of health coverage and health plan enrollment by month. • Review ownership structures of related companies and engage professionals to perform a controlled/affiliated service group analysis. • Discuss the reporting requirements with the health plan's insurer/third-party administrator and the company's payroll vendor to determine responsibility for data collection and form preparation. • Ensure that systems are in place to collect the needed data for the reports. |
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| Four Steps Required Prior to ACA E-FilingFor calendar year 2015, applicable large employers must file Affordable Care Act Information Returns (Forms 1094-B, 1095-B, 1094-C and 1095-C) via paper returns by Feb. 28, 2016 or via electronic returns by March 31, 2016, reports the International Foundation of Employee Benefit Plans.
Electronic returns will be filed through the new ACA Information Returns (AIR) system. The AIR system is specifically designed for the IRS to process these new ACA forms. Other IRS e-filing systems do not support the ACA Information Returns. Prior to e-filing, applicable large employers must: (1) identify their responsible official(s) and contacts, (2) register with IRS e-services, (3) apply for the ACA Information Return Transmitter Control Code (TCC), and (4) participate in testing. |
Penalties Increased for Filing Errors
Originally posted on July 7, 2015 on acatimes.com.
Penalties in sections of the Internal Revenue Code relating to the failure to timely file correct and complete information in a return as well as the failure to timely distribute correct and complete statements were substantially increased – by up to 150% – with the passage on June 29 of the Trade Preferences Extension Act of 2015 (“TPE Act”).
The penalties are related to IRC Sections 6721 and 6722. Section 6721 pertains to the failure to file correct and complete information in a return. Section 6722 pertains to the failure to furnish complete and correct information in the payee statements. Section 806 of the TPE Act substantially increases the penalties set forth separately under these IRC Sections.
The penalty for failing to timely file and/or failing to file correct and complete information will be $250 per return (previously $100.) The cap on all such failures is raised to $3,000,000 (previously $1,500,000) under Section 6721.
This increase also applies to penalty for the failure to furnish complete and correct information in the payee statements, under Section 6722.
Under provisions of Section 6721 and 6722 for reduced penalties if corrections are made within 30 days after the required filing date, those lower penalties are now $50 per return (previously $30), with a maximum of $500,000 (previously $250,000).
The reduced penalties under each Section 6721 and 6722 where the corrections are made by August 1 is increased to $100 (previously $60) per return, with a maximum of $1,500,000 (previously $500,000).
The lower limitations under each Section 6721 and 6722 for persons with gross receipts of not more than $5,000,000 have also been increased. Such persons are subject to a cap of (a) $1,000,000 (previously $500,000) for failing to timely file and/or failing to file correct and complete information, (b) $175,000 (previously $75,000) for corrections made within 30 days of filing deadline, and (c) $500,000 (previously $200,000) for corrections made by August 1.
Penalties under Section 6721 and 6722 in case of intentional disregard as would be applicable to ACA reporting is increased to $500 per return (previously $250), and no cap applies.
These penalties apply with respect to returns and statements required to be filed after December 31, 2015.
The timing of when these penalties will impact ACA reporting appears to be after December 31, 2016. This is in view of the IRS’s previously announced availability of short-term relief for 2015 from ACA reporting penalties under Sections 6721 and 6722 if the employer can make a showing of good faith effort to comply with the ACA reporting requirements.
The penalties may also be abated based on reasonable cause and not due to willful neglect.
Presumably, the IRS could continue with that short-term relief and allow the TPE Act to go into effect with respect to ACA reporting penalties starting the following year, after December 31, 2016.
Supreme Court's Ruling Means No ACA Compliance Reprieve
Originally posted by Stephen Miller on June 26, 2015 on shrm.org.
In what many are viewing as an anticlimax, the U.S. Supreme Court’s June 25 ruling in King v. Burwell left the status quo in place regarding the Affordable Care Act’s (ACA's) tax-credit subsidies for individual “marketplace” coverage and, indirectly, the employer mandate to provide group health care coverage. Under the ACA, employer penalties are triggered when employees receive insurance tax credits because their employer-provided plan failed to meet ACA coverage specifications.
But health care policy wonks are pointing out what should have been obvious, though it is a lesson that some plan sponsors may have forgotten: As long as the law is the law, it's the law. In other words, some might wish that the courts, Congress or a future administration will alter or rescind the statute. But unless and until that happens, employers should take all necessary steps to maintain compliance with the ACA's coverage and reporting requirements—and not delay doing so in the hopes of a last-minute penalty reprieve.
Ruling's Impact for Employers
In an online commentary posted the day of the ruling, Timothy G. Verrall and Hera S. Arsen, attorneys with law firm Ogletree Deakins, explained that:
Importantly, the Court’s decision does not alter employer responsibilities under the ACA’s “employer mandate” and its related tax reporting obligations. Since the enforcement mechanism behind the employer mandate—tax penalties under Code Section 4980H—are premised on the availability of tax-credit subsidies for exchange coverage, had the Court rejected the IRS’s approach, the “teeth” of the employer mandate would have effectively been removed in the majority of states where federal exchanges operate. However, the Court’s decision affirms the IRS’s regulatory approach, thereby preserving the employer mandate as well.
“This court’s decision confirms the advice we have given since the Affordable Care Act was adopted,” added Joel A. Daniel, the practice group leader for Ogletree Deakin’s employee benefits practice, in the same commentary. “Employers should plan their compliance strategies based on the assumption that the act and the regulations issued under it are here to stay.”
In a similar vein, Shawn Jenkins, CEO of benefits management and administration firm Benefitfocus, commented that the ruling “is another strong indication that ACA is here to stay. The result is more clarity for employers and carriers as to the stability of ACA allowing them to move confidently forward in their benefits planning.”
Driving the point home, the takeaway highlighted in an analysis of the decision by consultancy PricewaterhouseCoopers confirmed that “full on implementation of the ACA may now proceed,” adding:
Employers and insurers are facing the ACA mandates and associated reporting, and must be diligent to gather all the required information and implement the processes and procedures to comply with these requirements and provide the annual forms to individuals and the IRS next January. Planning to avoid the employer mandate penalties, as well as the 2018 tax on high cost plans, will occupy the attention of tax professionals, HR administrators and payroll departments, as well as internal audit and finance.
Many HR benefit managers will consider that an understatement.
Options for Small Businesses
Maintaining the status quo doesn't imply there will be no other ramifications from the ruling beyond affirming the need for vigilant compliance, but the effects will likely be most pronounced on firms that are not subject to the ACA’s “shared responsibility” mandate to provide health coverage.
By upholding premium tax credits to individual policyholders for health care purchased through the ACA’s public exchanges, including the federal Healthcare.gov marketplace, the King ruling makes it more likely that small employers not subject to the coverage mandate (those with fewer than 50 full-time employees or part-time equivalents) will shift away from group coverage.
“Small business owners, who are most affected by increasing premiums, now have the certainty needed to help transition themselves and employees to the individual market, which we expect to increase to more than 100 million by 2025," predicted Zane Benefits, which helps small businesses reimburse employees for individual health insurance plans. “We expect small businesses [not subject to the employer mandate] to continue to offer health benefits to employees in the form of monthly allowances (or ‘stipends’)” in lieu of providing group health coverage.
Not the End of the Story
While it should not deter employers from complying with the act, there could still be some rather significant fixes and adjustments made to the ACA. “Knowing that the ACA will be upheld, one would expect Congress to get more aggressive in working to improve it rather than rescind it,” said Jenkins.
Congress is already moving to pass and send revisions of the law to the president (which he, of course, may veto). These include, as Zane Benefits pointed out, measures to simplify the overly complex employer IRS reporting requirements, and to change the definition of a full-time employee to 40 hours per week (versus the current 30), while at the same time adjusting the definition of large employers to only include employers with 100 or more employees.
Similarly, the ERISA Industry Committee (ERIC), representing benefit plan sponsors, issued a statement contending that while the Supreme Court had removed a source of potential uncertainty with its decision, much legislative work is still needed to fix the underlying law.
“With the legal case settled, Congress should use this opportunity to repeal the burdensome and unnecessary taxes, mandates and reporting requirements imposed by the ACA,” said Annette Guarisco Fildes, president and CEO of ERIC. “Specifically, we want Congress to repeal the 40 percent health care excise tax, the employer mandate and all the related reporting requirements.”
The Society for Human Resource Management (SHRM) also took note that “While [the tax-credit subsidy] provision of the statute remains intact, other challenges in the ACA remain for employers. SHRM pledges to work with policymakers to address these challenges, including the definition of a full-time employee, the pending excise tax on high-value health care plans, and employer flexibility in offering wellness programs.”
Adding to the litany, the Business Roundtable, representing corporate CEOs, released a statement saying that “Moving forward, we believe Congress and the administration should address the problems that still accompany the Affordable Care Act, such as the medical device tax, insurance tax, pharmaceutical tax and the complexity of complying with the regulatory requirements.”
So while the Supreme Court's ruling ends a frontal assault on the act that could have undermined the foundation on which employer penalties rest, legislative skirmishes will continue. But that's no excuse for employers not complying with the ACA as it currently stands.
Final Rule Issued on Summary of Benefits and Coverage
Originally posted by Stephen Miller on June 16, 2015 on shrm.org.
The departments of Health and Human Services, Labor, and the Treasury issued a final rule regarding the health care Summary of Benefits and Coverage (SBC) and uniform glossary that must be provided to employees under the Affordable Care Act (ACA). The new rule was published in the Federal Register on June 16, 2015.
However, revisions to the SBC template and the uniform glossary included with the SBC, along with new coverage examples, are not anticipated to be finalized until January 2016, after the departments complete consumer testing and receive additional input from the public, including the National Association of Insurance Commissioners. The revisions will apply to SBCs for coverage beginning on or after Jan. 1, 2017.
The final regulation make few changes to the rule proposed in December 2014, which itself was a revision to an earlier final rule published in February 2012. However the new rule does include streamlined processes to help health insurance issuers and group health plans provide the required information to employees. For instance, it allows for avoiding unnecessary duplication when a group health plan uses a binding contractual arrangement in which another party assumes responsibility to provide the SBC. The rule also adopts the safe harbor for electronic delivery set forth in earlier FAQs.
“These clarifications will also make it easier for issuers and group health plans to provide the most accurate health coverage information to consumers,” according to a statement from the federal Centers for Medicare and Medicaid Studies, which also posted a fact sheet about the final rule.
SBC Requirements
In commentary on the final rule posted on the Health Affairs blog, Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va., noted that:
• A group health plan or group health insurer must offer participants and beneficiaries an SBC for each benefit package offered by the plan or insurer for which the participant or beneficiary is eligible.
• If the plan or insurer distributes application materials for plan enrollment, the SBC must be provided with the application materials.
• If the plan or insurer does not distribute application materials, the SBC must be provided no later than the first date on which a participant or beneficiary is eligible to enroll.
Under the new rule, health insurance issuers must also provide online access to a copy of the individual coverage policy for each plan or group certificate of coverage. And these documents must be made publicly available to all potential enrollees so that these individuals are clearly informed about what a plan will and will not offer.
“The SBC must include 12 elements under the statute and the 2012 rule,” Jost said. “The final rule does not address most of these elements, although the proposed template did and the final template is likely to do so.”
Also, the ACA requires that SBCs be presented in a uniform format not exceeding four pages in length, with a font size not smaller than 12 points. The federal departments interpreted the four-page requirement to mean four double-sided pages, or eight pages. “The departments indicated they will address the page length issue upon the publication of the final template,” Jost noted.
New Guidance on Preventive Services Required Under the Affordable Care Act
Originally posted by www.simandlhrlaw.com
Recently, the Departments of Labor, Health and Human Services, and Treasury jointly issued guidance on the coverage of preventive services required under the Affordable Care Act (ACA). By way of background, the ACA requires that non-grandfathered group health plans provide preventive services, such as screenings, immunizations, contraception, and well-woman visits, without cost-sharing requirements. The preventive services are based upon recommendations of the United States Preventive Services Task Force (USPSTF) and comprehensive guidelines supported by the Health Resources and Services Administration (HRSA). The new guidance is outlined in Part XXVI of the series FAQs About Affordable Care Act Implementation and clarifies the coverage of preventive services specifically related to:
- Contraceptives;
- BRCA Testing;
- Gender-Specific USPSTF Recommendations; and
- Pregnancy Care for Dependents.
Contraceptive Coverage
Prior guidance issued by the Departments required that women have access to the full range of FDA-approved contraceptive methods without cost-sharing. However, the guidance also provided that health plans were permitted to use reasonable medical management techniques to control costs such as imposing cost-sharing on brand name drugs to encourage the use of generic equivalents. The new FAQs provide further guidance on the scope of coverage required for contraception and what constitutes "reasonable" medical management techniques.
The individual FAQs on contraception clarified the following requirements:
- Health plans must cover without cost-sharing at least one version of all the contraception methods identified in the FDA Birth Control Guide. Currently, the guide lists 18 forms of contraception including, but not limited to: oral contraceptives; intrauterine devices; barriers; hormonal patches; and sterilization surgery.
- Plans may use reasonable medical management such as imposing cost-sharing on some items and services to encourage individuals to use other items or services within the contraception method. For example, a plan may impose cost-sharing (including full cost-sharing) on brand name oral contraceptives to encourage use of generics or impose different copayments to encourage the use of one of several FDA-approved intrauterine devices.
- If the health plan is using medical management to control costs within a specified contraception method, the plan must have an exception process that is "easily accessible, transparent and sufficiently expedient" and that is not unduly burdensome on the individual, provider or individual acting on the individual's behalf. Also, the plan is required to defer to the determination of the individual's attending provider. Thus, the plan must cover an item or service without cost-sharing if a treating physician deems it medically necessary.
- Plans that try to offer coverage for some - but not all - FDA-identified contraceptive methods will not comply with the health care reform law and its rules. For example, plans cannot cover barrier and hormonal methods of contraception while excluding coverage for implants or sterilization.
BRCA Testing
The preventive services required under the ACA include screening for women who have a family member with breast, ovarian, tubal or peritoneal cancer to identify a family history that may be associated with an increased risk related to the breast cancer susceptibility genes - BRCA 1 or BRCA 2. Prior guidance clarified that women with positive screening results should receive genetic counseling and, if indicated after counseling, BRCA testing. However, there was confusion as to whether or to what extent the recommendation applied to a woman with a personal history of cancer that was not BRCA-related.
The new guidance clarifies that the USPSTF recommendation applies to women with a history of non-BRCA related cancer. Thus, a plan or issuer is required to cover without cost-sharing preventive screening, genetic counseling, and if deemed appropriate by her treating physician, BCRA tests for such women. The new guidance further clarifies that these preventive services must be provided regardless of whether a woman is exhibiting any symptoms and even if she is currently cancer-free.
Coverage of Preventive Services Based on Gender Identity
A number of the preventive services required by the ACA are gender-specific such as mammograms and BRCA testing for women and prostate exams for men. The new guidance clarifies that non-grandfathered health plans cannot limit coverage of preventive services based on an individual's sex assigned at birth, gender identity, or gender recorded by the plan. Rather, if the individual otherwise satisfies the criteria under the recommendation or guideline and is eligible under the terms of the plan, the plan must provide the preventive services that the individual's provider determines are medically appropriate. This means, for example, providing without cost-sharing a mammogram for a transgender man who has residual breast tissue.
Coverage for Dependents of Preventive Services Related to Pregnancy
Traditionally, a group health plan was able to restrict coverage for maternity care to employees and employees' spouses. However, under the ACA those benefits must now be provided to an eligible dependent. The new FAQs clarify that to the extent the maternity care is a preventive service under the ACA, the plan must provide prenatal benefits and other services intended to assist with healthy pregnancies to an eligible dependent without cost-sharing. The guidance further clarifies that an eligible dependent must be provided all other age appropriate women's health services without cost-sharing.
Action Steps
This recent guidance is a clarification of the existing preventive services required under the ACA rather than a modification. Accordingly, there is no delayed effective date typically applied to changes in preventive services. Employers and plan sponsors should review their plan documents and their administrative practices to ensure the plan is providing coverage of preventive services in accordance with the new guidance. Failure to provide the preventive services as required by the ACA could subject the employer to penalties of up to $100 per day per participant.
EEOC Proposed Rule on Wellness and the Americans with Disabilities Act – What Employers Need to Know
Originally posted by M. Brian Magargle and Robin E. Shea on April 30, 2015 on www.thinkhr.com.
The employer community has been waiting for years to receive guidance from the Equal Employment Opportunity Commission on wellness programs and how an employer’s obligations under the Americans with Disabilities Act intersect with its rights and obligations under the Health Insurance Portability and Accountability Act (as amended by the Affordable Care Act).
The EEOC finally issued a proposed rule on April 20. The following is what employers need to know in a “Q&A” format.
What problem is the EEOC trying to resolve?
The quick answer is an apparent conflict between the ADA rules on employer “medical inquiries,” on the one hand, and the “wellness program” provisions of the HIPAA/ACA, on the other.
Title I of the ADA (the part of the ADA that applies to private sector employers) generally prohibits employers from making “medical inquiries” of current employees unless the inquiries are “job-related and consistent with business necessity” (for example, to verify the need for a reasonable accommodation). The general rule is that employers are not supposed to be asking for medical information from current employees.
There are some limited exceptions to this rule, including an exception for medical inquiries made in connection with a “voluntary wellness program.”
As employer wellness programs have become more popular, many employers began offering specific rewards or penalties to employees based on whether they participated in the programs and even on whether they achieved certain “results.” As will be discussed in more detail below, the HIPAA and the ACA specifically authorize wellness programs to offer incentives for “participation” and “outcomes” under certain circumstances. However, the question arose whether the use of such incentives would render the wellness program not “voluntary” for ADA purposes. If the wellness program was not voluntary because of the incentives, then any requests for employee medical information made in connection with the wellness program would violate the ADA.
(Title I of the ADA would not have an impact on medical inquiries made, say, to the family member of an employee who might also be eligible to participate in the employer’s wellness program.)
Thus, it was possible that an employer could offer a wellness program that was authorized and lawful under the HIPAA/ACA but still be vulnerable to charges and lawsuits under the ADA. The EEOC’s proposed rule seeks to address this problem, and for the most part, it should be welcomed by employers who offer wellness programs.
What does the proposed rule say, in a nutshell?
The proposed rule says that a wellness program can still be “voluntary” for ADA purposes if the program provides “incentives” for employees (both rewards and penalties), as long as the employer complies with the wellness incentive requirements of the HIPAA/Affordable Care Act.
There are two caveats: The wellness program would have to be associated with a group health plan (either insured or self-insured), and the EEOC proposals do not exactly match the HIPAA/ACA rules, although they are reasonably close.
Can you give us a recap of the HIPAA/ACA requirements?
Under the HIPAA/ACA scheme, there are two types of wellness programs. A “participatory” program is one that rewards employees just for participating and does not require a specific goal to be met. (An example would be an employer who reimburses employees for fitness club memberships.) Under the HIPAA/ACA, participatory programs can be offered without limitation, as long as they’re available to all similarly situated individuals.
The other type of wellness program is a “health-contingent” program. There are two types of “health-contingent” programs: (1) activity-only programs, in which the employee is rewarded for completing an activity but doesn’t have to achieve or maintain an outcome (for example, “we’ll pay you $100 if you walk a mile three days a week for a year”); and (2) outcome-based programs, in which employees are rewarded for achieving or maintaining results (for example, “we’ll pay you $100 if you keep your BMI at or below 25 for a year, or if you quit smoking”).
If the program is health-contingent, employers are allowed to offer incentives (carrots or sticks) if –
- Employees are allowed to try to qualify at least once a year,
- The total reward offered doesn’t exceed 30 percent of the total cost of employee-only coverage under the plan or the total cost of family coverage if dependents are also allowed to participate in the program (“total” means the employee’s and the employer’s share). The percentage is up to 50 percent for tobacco prevention or cessation,
- The program is reasonably designed to promote health or prevent disease,
- The full reward must be available for all similarly situated individuals, and reasonable alternatives must be offered to those who can’t qualify, and
- The availability of reasonable alternatives must be disclosed in plan materials and in any disclosure telling an individual that he or she did not meet an initial outcome-based standard.
Under the HIPAA/ACA, the 30 percent/50 percent incentive limit applies only to “health-contingent” programs. HIPAA and the ACA have no limit on rewards that apply to “participatory” programs (if the programs are available to all similarly situated individuals).
The EEOC’s proposed rule is slightly different.
How does the EEOC proposed rule contrast with the HIPAA/ACA rule?
The EEOC would allow employers to offer incentives for employee participation in wellness programs associated with group health plans if the total reward does not exceed 30 percent of the total cost of employee-only coverage under the plan for both participatory and health-contingent wellness programs. The EEOC proposed rule does not allow a 50 percent reward level for tobacco cessation programs (unless there are no associated disability-related questions or medical exams), and the total cost used in the reward calculations does not take into account family-level coverage, even where dependents can participate in the program.
In addition, the wellness program must be completely voluntary. The EEOC would define “voluntary” as follows:
- Employees aren’t required to participate in the wellness program,
- Health insurance coverage is not denied or made more difficult to get if the employee chooses not to participate (with the exception of the permitted “incentives”), and
- The employer does not take adverse action against an employee for refusing to participate . . .as this employer allegedly did.
The EEOC invites the public to comment on the proposed rule through June 19. The agency is particularly interested in comments pertaining to how much medical information an employee should be required to disclose to be eligible for an incentive, whether the rule should require that the incentives not render health insurance “unaffordable” within the meaning of the ACA, issues related to the “notice” requirement, how to treat wellness programs that are not associated with group health insurance, as well as other topics.
The employer would also be required to provide a notice “that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods the covered entity will employ to prevent improper disclosure of the medical information.”
The wellness program would be required to disclose medical information to the employer only in aggregated, non-individually-identifiable form, “except as needed to administer the health plan.”
Are there any other issues to consider under the HIPAA/ACA?
Although the EEOC rule is currently in proposed form, we expect any final version to still be somewhat different from the HIPAA/ACA requirements for wellness programs. For example, one of the primary requirements of a outcome-based program under HIPAA is the ability of an employee to meet a “reasonable alternative standard” to receive the reward. Participants in the program must be clearly informed of that option, and it remains to be seen how that notification will be coordinated with the notice proposed by the EEOC. A related issue is the intersection of the “reasonable alternative standard” under HIPAA with the reasonable accommodation and interactive process obligations under the ADA. The EEOC’s Interpretive Guidance to the proposed rule says that provision of a “reasonable alternative standard” along with the required notification will generally satisfy the employer’s reasonable accommodation obligations under the ADA, but no specifics are given. Moreover, the Interpretive Guidance notes that under the ADA an employer would have to make reasonable accommodations for an employee who could not be in a “participatory” program because of a disability, even though the HIPAA/ACA rules do not require a “reasonable alternative standard” for participatory programs.
Also, details about wellness programs commonly appear in ERISA-governed summary plan descriptions, so will the EEOC rules also have to appear there as well?
There are similarities between the employee benefits issues affecting wellness programs, on the one hand, and the ADA and employee-relations issues, on the other, but the differences are equally important and will hopefully be addressed by the EEOC in the final rules expected to be issued later this year.
What should employers do?
The proposed rule describes certain employer “best practices,” as follows:
- Employers should ensure that employees who handle medical information know their obligations under the laws.
- Employers should adopt privacy policies for collection and handling of employee medical information, assuming that they have not already done so.
- If medical information is stored electronically, it should be encrypted and other security measures implemented such as password protection and firewalls.
- If possible, employees who handle medical information should not be “making decisions related to employment, such as hiring, termination, or discipline.” If this is not possible, then the employer should ensure that there is no discrimination based on an employee’s disability.
- Breaches of confidentiality should be promptly and effectively addressed, and the affected employees should be informed immediately.
- Employers should take appropriate action against an employee who breaches confidentiality, and should “consider discontinuing” their relationships with vendors who breach confidentiality.
Why doesn’t the EEOC proposed rule have a 50-percent incentive for tobacco-related programs, since the HIPAA/ACA does?
The EEOC explained that it did not include the 50 percent incentive for tobacco programs because, it said, most of those programs do not seek employee medical information at all. If not, there would be no ADA issue. But if a tobacco program does seek such information (for example, through testing for nicotine, or monitoring blood pressure), then the tobacco program would have to be included in computing the 30-percent limit for incentives.
Did the proposed rule address the employer’s right to get medical information from an employee’s family members, who may be covered under the employee’s health insurance and might be eligible for participation in the wellness program?
No, because Title I of the ADA applies only to employers and employees. Medical inquiries about an employee’s family member would, of course, be covered under the Genetic Information Nondiscrimination Act, which is also enforced by the EEOC. The EEOC says it will issue guidance on wellness and the GINA “in future EEOC rulemaking.”
Did the proposed rule contain anything else of interest?
Yes. The EEOC has explicitly disagreed with a wellness/ADA decision from the U.S. Court of Appeals for the Eleventh Circuit, Seff v. Broward County. At issue in the Seff case was a $20-per-paycheck penalty that employees had to pay if they chose not to participate in the county’s wellness program. The court found that the county’s program fell within a “safe harbor” in the ADA, which provides that a covered entity is not prohibited “from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law.” Because the program fell within the safe harbor, the court said, it was irrelevant whether the program was “voluntary” or whether medical inquiries made in connection with the program violated the ADA.
The EEOC’s position is that this “safe harbor” provision in the ADA does not apply to wellness programs.
Employers who operate in the Eleventh Circuit states of Alabama, Florida, or Georgia can continue to follow Seff for the time being. However, employers who operate in other states may choose to follow the EEOC’s position once its proposal becomes final. The conflict between the EEOC and the Eleventh Circuit will probably be resolved eventually by the courts.
High-Deductible Health Plans Cut Costs, At Least For Now
Originally posted on March 26, 2015 on www.npr.org.
Got a high-deductible health plan? The kind that doesn't pay most medical bills until they exceed several thousand dollars? You're a foot soldier who's been drafted in the war against high health costs.
Companies that switch workers into high-deductible plans can reap enormous savings, consultants will tell you — and not just by making employees pay more. Total costs paid by everybody — employer, employee and insurance company — tend to fall in the first year or rise more slowly when consumers have more at stake at the health-care checkout counter whether or not they're making medically wise choices.
Consumers with high deductibles sometimes skip procedures, think harder about getting treatment and shop for lower prices when they do seek care.
What nobody knows is whether such plans, also sold to individuals and families through the health law's online exchanges, will backfire. If people choose not to have important preventive care and end up needing an expensive hospital stay years later as a result, everybody is worse off.
A new study delivers cautiously optimistic results for employers and policymakers, if not for consumers paying a higher share of their own health care costs.
Researchers led by Amelia Haviland at Carnegie Mellon University found that overall savings at companies introducing high-deductible plans lasted for up to three years afterwards. If there were any cost-related time bombs caused by forgone care, at least they didn't blow up by then.
"Three years out there consistently seems to be a reduction in total health care spending" at employers offering high-deductible plans, Haviland said in an interview. Although the study says nothing about what might happen after that, "this was interesting to us that it persists for this amount of time."
The savings were substantial: 5 percent on average for employers offering high-deductible plans compared with results at companies that didn't offer them. And that was for the whole company, whether or not all workers took the high-deductible option.
The size of the study was impressive; it covered 13 million employees and dependents at 54 big companies. All savings were from reduced spending on pharmaceuticals and doctor visits and other outpatient care. There was no sign of what often happens when high-risk patients miss preventive care: spikes in emergency-room visits and hospital admissions.
The suits in human resources call this kind of coverage a "consumer-directed" health plan. It sounds less scary than the old name for coverage with huge deductibles: catastrophic health insurance.
But having consumers direct their own care also requires making sure they know enough to make smart choices. That means getting vaccines and skipping dubious procedures like an expensive MRI scan at the first sign of back pain.
Not all employers are doing a terrific job. Most high-deductible plan members surveyed in a recent California study had no idea that preventive screenings, office visits and other important care required little or no out-of-pocket payment. One in five said they had avoided preventive care because of the cost.
"This evidence of persistent reductions in spending places even greater importance on developing evidence on how they are achieved," Kate Bundorf, a Stanford health economist not involved in the study, said of consumer-directed plans.
"Are consumers foregoing preventive care?" Bundorf asks. "Are they less adherent to [effective] medicine? Or are they reducing their use of low-value office visits and corresponding drugs or substituting to cheaper yet similarly effective prescribed drugs?"
Employers and consultants are trying to educate people about avoiding needless procedures and finding quality caregivers at better prices.
That might explain why the companies offering high-deductible plans saw such significant savings even though not all workers signed up, Haviland said. Even employees with traditional, lower-deductible plans may be using the shopping tools.
The study doesn't close the book on consumer-directed plans.
"What happens five years or 10 years down the line when people develop more consequences of reducing high-value, necessary care?" Haviland asked. Nobody knows.
And the study doesn't address a side effect of high-deductibles that doctors can't treat: pocketbook trauma. Consumer-directed plans, often paired with tax-favored health savings accounts, can require families to pay $5,000 or more per year in out-of-pocket costs.
Three people out of 5 with low incomes and half of those with moderate incomes told the Commonwealth Fund last year their deductibles are hard to afford.
As in all battles, the front-line infantry often makes the biggest sacrifice.
CMS issues the final HHS Notice of Benefit and Payment Parameters for 2016
Originally posted on February 20, 2015 on www.cms.gov.
The Centers for Medicare & Medicaid Services (CMS) has issued the Final HHS Notice of Benefit and Payment Parameters for 2016. This rule seeks to improve consumers’ experience in the Health Insurance Marketplace and to ensure their coverage options are affordable and accessible. This rule builds on previously issued standards which seek to make high-quality health insurance available to all Americans. The final notice further strengthens transparency, accountability, and the availability of information for consumers about their health plans.
“We work every day to strengthen programs that deliver quality, affordable care to families across the country,” said CMS Administrator Marilyn Tavenner. “CMS is working to improve the consumer experience and promote accountability, uniformity, and transparency in private health insurance.”
The rule finalizes the annual open enrollment period for 2016 to begin on November 1, 2015 and run through January 31, 2016, giving consumers three full months to shop. To further aid consumers in finding a health plan that best suits their needs, the rule clarifies standards for qualified health plan (QHP) issuers to publish up-to-date, accurate, and complete provider directories and formularies. Issuers also must make this information available in standard, machine-readable formats.
To enhance the transparency of the rate-setting process, the final rule includes provisions to facilitate public access to information about rate increases in the individual and small group markets for both QHPs and non-QHPs using a uniform timeline. It also includes provisions to further protect consumers against unreasonable rate increases by ensuring more rates are subject to review.
To ensure consumers have access to high-quality, affordable health insurance, premium stabilization programs were put in place to promote price stability for health insurance in the individual and small group markets. This rule includes additional provisions and modifications related to the implementation of these programs, as well as the key payment parameters for the 2016 benefit year.
Additionally, the rule will help consumers access the medications they need by improving the process by which an enrollee can request access to medications not included on a plan’s formulary. The rule provides more detailed procedures for the standard exception process, and adds a requirement for an external review of an exception request if the health plan denies the initial request. It also clarifies that cost-sharing for drugs obtained through the exceptions process must count toward the annual limitation on cost sharing of a plan subject to the essential health benefits requirement. The rule also ensures that issuers’ formularies are developed based on expert recommendations.
The rule improves meaningful access standards by requiring that all Marketplaces, QHP issuers, and web brokers provide telephonic interpreter services in at least 150 languages in addition to the existing requirements regarding the provision of oral interpretation services, and strengthens other requirements related to language access.
To enhance the consumer experience for the Small Business Health Options Program (SHOP), the rule seeks to streamline the administration of group coverage provided through SHOP and to align SHOP regulations with existing market practices.
The final rule was placed on display at the Federal Register today, and can be found at:
https://www.federalregister.gov/public-inspection
CMS also released its final annual letter to issuer, which provides additional guidance on these and related standards for plans participating in the Federally-facilitated Marketplace. The letter is available here:https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2016-PN-Fact-Sheet-final.pdf
New HHS Regulations “Clarify” that Health Plans Covering Families Must Have “Embedded” Individual Cost-Sharing Limits
Originally posted by Stacy Barrow and Damian A. Myers on March 18, 2015 on www.erisapracticecenter.com.
On February 27, 2015, the Department of Health and Human Services (HHS) released its final HHS Notice of Benefit and Payment Parameters for 2016. The lengthy regulation covers a wide range of topics affecting group health plans, including minimum value, determination of the transitional reinsurance fee, and qualified health plan rates and other market reforms applicable to the group and individual insurance markets.
Within the portion of the regulation’s Preamble explaining insurance issuer standards under the Affordable Care Act (“ACA”), HHS formally adopted a “clarification” to the application of annual cost sharing limitations. By way of background, the ACA requires that all non-grandfathered group health plans adopt an annual cost sharing limit for covered, in-network essential health benefits for self-only coverage ($6,600 in 2015 and $6,850 in 2016) and other than self-only coverage ($13,200 in 2015 and $13,700 in 2016). Until HHS’s clarification, many group health plan administrators applied a single limitation depending on whether the employee enrolled in self-only or other than self-only coverage (e.g., “family” coverage). That is, if an employee enrolled in family coverage, the higher limit applied to the family as a whole, regardless of the amount applied to any single covered individual.
HHS, however, now requires group health plans to embed an individual cost sharing limit within the family limit. For example, suppose an employee and his or her spouse enroll in family coverage with an annual cost sharing limit of $13,000, and during the 2016 plan year, $10,000 of cost sharing payments are attributable to the spouse and $3,000 of cost sharing payments are attributable to the employee. Prior to the HHS’s clarification, the full $13,000 would be payable by the covered individuals because the $13,000 plan limit had not been reached on an aggregate basis. However, with the new embedded self-only limitation, the cost sharing payments attributable to the spouse must be capped at the self-only limit of $6,850, with the remaining $3,150 being covered 100% by the group health plan. The employee would still be subject to cost sharing, however, until the $13,000 plan limit is reached.
The HHS clarification is not effective until plan years beginning on or after January 1, 2016. It is important to note that, at the moment, it is unclear whether the HHS clarification is intended to apply to self-insured plans. The 2016 Benefit and Payment Parameters are rules related to the group and individual insured market, including the Marketplace, and the Preamble section under which the clarification is found is titled “Health Insurance Issuer Standards under the Affordable Care Act, Including Standards Related to Exchanges.” Additionally, all previous cost sharing guidance applicable to self-insured plans have been issued jointly by the HHS, Department of Treasury and Department of Labor. As of the date of this blog entry, the Departments of Treasury and Labor have not issued a similar clarification. Nevertheless, although the HHS clarification is potentially unenforceable with respect to self-insured plans, employers and plans sponsors with self-insured plans should be prepared to adopt an embedded cost sharing limit should the other two agencies follow suit.