Compliance Corner

Healthcare Reform

Fifth Circuit Prevents Enforcement of Certain Section 1557 Nondiscrimination Provisions

September 13, 2022

On August 26, 2022, in Franciscan Alliance, Inc., et al v. Becerra, et al, the US Court of Appeals for the Fifth Circuit upheld a federal district court injunction against HHS that stopped the agency from interpreting and enforcing Section 1557 of the ACA in a way that would require a Catholic hospital system and other religious institutions to provide coverage for (or to perform) gender-reassignment surgeries or abortions in violation of its sincerely held religious beliefs.

Section 1557 prohibits healthcare programs that receive federal funds from discriminating against patients based on sex, using the definition of prohibited sex discrimination found in Title IX. HHS has the authority to issue regulations implementing and enforcing Section 1557, and this case highlights the agency’s efforts to do so over the course of the last several years. In 2016, the Obama administration promulgated rules that interpreted this section to include discrimination based on gender identity and the termination of pregnancy. The Franciscan Alliance, a group of Catholic hospitals, along with a handful of other plaintiffs, challenged this interpretation by asserting that the agency exceeded its authority by extending the definition of sex discrimination beyond that established in Title IX. The plaintiffs also asserted that the rule violated the Religious Freedom Restoration Act (RFRA) by forcing it to perform abortions and gender-reassignment surgeries inconsistent with its sincerely held religious beliefs.

The district court agreed with Franciscan Alliance and vacated the parts of the 2016 rule that the plaintiffs complained of but declined to issue a permanent injunction against the agency. However, the plaintiffs wanted a permanent injunction, so they appealed.

The litigation was stayed pending the result of a US Supreme Court case, Bostock v. Clayton County, in which the definition of sex discrimination under Title IX was an issue. In the meantime, HHS (now part of the Trump administration) promulgated an amended version of the regulations in 2020 that removed the 2016 definition. Within days of that change, the Supreme Court issued its ruling in the Bostock case, holding that Title IX prohibited discrimination based on gender identity or homosexuality. The Court’s decision became the basis of several other court decisions that resurrected parts of the 2016 rule. We discuss the ramifications of this decision in the May 11, 2021, edition of Compliance Corner.

The Fifth Circuit heard the plaintiff’s appeal in 2021 and, with the changes to the regulatory landscape that had occurred, remanded the case back to the district court. This time, the district court agreed with the plaintiffs and issued the permanent injunction against the agency enforcing both the regulations and Section 1557. The appeal of the permanent injunction serves as the basis for the Fifth Circuit’s recent decision.

Although the Fifth Circuit acknowledged that the recent changes to the regulatory landscape made challenges to the 2016 version of the rules moot, the appellate court did rule that the regulations violated the RFRA and that an injunction against enforcing Section 1557 was appropriate since the agency had made clear that it intended to enforce it (and did not decline to say that it would not enforce it against the plaintiffs).

Employers should be aware of these developments and that the situation concerning Section 1557 continues to develop. Although the Fifth Circuit upheld the permanent injunction against HHS, the agency could appeal that decision. In addition, several cases in other federal appeals courts with implications for Section 1557 are pending.

Franciscan Alliance, Inc., et al v. Becerra, et al »

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IRS Updates 2023 Required Contribution Percentage for Affordable Coverage

August 16, 2022

On August 1, 2022, the IRS published Revenue Procedure 2022-34, which provides the 2023 premium tax credit (PTC) table and the employer contribution percentage requirements applicable for plan years beginning after December 31, 2022.

The ACA's employer-shared responsibility rules (also known as the "employer mandate") require an employer to provide affordable, minimum value coverage to its full-time employees. The IRS' required contribution percentage is used to determine whether an employer-sponsored health plan offers an individual "affordable" coverage, and the affordability percentage is adjusted for inflation each year. In addition, the ACA also provides a refundable PTC, based on household income, to help individuals and families afford health insurance through insurance exchanges. The IRS provides the PTC percentage table for individuals to calculate their PTC.

In 2023, the ACA's affordability percentage will decrease to 9.12% (down from 9.61% in 2022). For the employer mandate and affordability, this means that an employee's required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.12% of the federal poverty line or of an employee's W-2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon).

The 2023 PTC table used to determine an individual's eligibility for PTCs is provided below:

Household Income Percentage of Federal Poverty Line Initial Percentage Final Percentage
Less than 133% 1.92% 1.92%
At least 133%, but less than 150% 2.88% 3.84%
At least 150%, but less than 200% 3.84% 6.05%
At least 200%, but less than 250% 6.05% 7.73%
At least 250%, but less than 300% 7.73% 9.12%
At least 300%, but not more than 400% 9.12% 9.12%

The revenue procedure is effective for plan years beginning on and after December 31, 2022.

Employers should be mindful of the upcoming 2023 affordability percentages and make sure that the premium offerings for 2023 remain affordable for full-time employees to avoid any employer-shared responsibility penalties.

Revenue Procedure 2022-34 »

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HHS Proposes Revisions to Nondiscrimination Regulations in Health Programs and Activities

August 02, 2022

On July 25, 2022, HHS issued a proposed rule revising regulations that implement Section 1557 of the Affordable Care Act. Section 1557 prohibits healthcare providers, health plans and insurers from discriminating on the basis of race, color, national origin, sex, age and disability. The previous administration scaled back many of these protections, despite court rulings that prevented the previous administration from implementing those changes. The proposed rule will reinstate the protections.

The proposed revisions clarify that Section 1557 generally applies to health insurance issuers that receive federal financial assistance and prohibits discrimination in health insurance and other health-related coverage (including telehealth services).

HHS states that the proposed rule will align Section 1557 regulation with legal precedent. On June 12, 2020, HHS issued a final rule that scaled back explicit protections based upon gender identity introduced by the previous administration, relying instead on broader protections against discrimination on the basis of sex provided for in the ACA. However, the Supreme Court ruled in Bostock v. Clayton County that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. You can find a discussion of these events in the June 23, 2020, edition of Compliance Corner. The proposed revisions delete the changes made by the previous administration and reassert that Section 1557 prohibits discrimination on the basis of sex, including gender identity and sexual orientation. The proposed rule also clarifies that discrimination on the basis of sex includes discrimination on the basis of pregnancy or related conditions, including “pregnancy termination.” The revisions will also update the related CMS regulation to reflect these changes.

In addition to reinstating these protections, the proposed rule requires health insurance issuers that receive federal financial assistance to implement Section 1557 anti-discrimination policies and procedures (with reasonable modifications to policies and procedures for people with disabilities), and to provide language assistance services for limited English proficient individuals. They will also be required to train relevant staff on these policies and procedures and provide a notice of nondiscrimination along with a notice of the availability of language assistance services and auxiliary aids and services.

In addition, the proposed rule provides a process by which health insurance issuers that receive federal financial assistance (among others subject to Section 1557) under investigation for alleged violations of Section 1557 may inform the HHS Office of Civil Rights (OCR) of their views that the application of a specific provision or provisions of this part to them would violate federal conscience or religious freedom laws. The OCR may then decide that they are exempt from, or entitled to a modification of the application of, applicable provisions of Section 1557.

Group health plan sponsors should be aware of the proposed rule, which is open for public comment for 60 days after it is published in the Federal Register. It is anticipated the rule may undergo changes by HHS and through court challenges. Employers should consult with their counsel on the proposed rule’s potential impact on their group health plans.

Notice of Proposed Rulemaking: Nondiscrimination in Health Programs and Activities »

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ACA FAQs Issued on Preventive Services Requirements for Contraceptive Coverage

August 02, 2022

On July 28, 2022, the DOL, IRS and Department of Treasury jointly issued Part 54, FAQs About Affordable Care Act Implementation. The newly issued guidance includes 14 frequently asked questions related to coverage of preventive services, specifically women’s preventive services and contraception. As a reminder, the ACA requires non-grandfathered group health plans to provide coverage for certain preventive care services with no cost-sharing for participants. Please note that male sterilization is not considered preventive care for this purpose.

The preventive services requirement includes coverage for items and services that are integral to the preventive service, regardless of whether the item or service is billed separately. For example, previous guidance provided that plans must cover the cost of polyp removal and anesthesia without cost-sharing when connected with a preventive screening colonoscopy. Similarly, the new guidance clarifies that anesthesia must be provided without cost-sharing when in connection with a tubal ligation and a pregnancy test when in connection with an insertion of an intrauterine device, as these are preventive services under the ACA.

Plans must also cover without cost-sharing any contraceptive services and FDA-approved, cleared, or granted contraceptive products that a participant and their healthcare provider have determined to be medically appropriate for the participant. The requirement applies even if the service or product is recently approved, cleared, or granted by the FDA and does not fit into one of the previously identified 17 categories of FDA-approved contraceptive methods. If there are multiple substantially similar services or products, the plan may use reasonable medical management techniques and cover only one.

The following are considered by the departments to be unreasonable medical management techniques:

  • Denying coverage for all or particular brand name contraceptives, even after the participant’s healthcare provider determines and communicates to the plan that a particular service or FDA-approved contraceptive product is medically necessary with respect to that participant.
  • Requiring individuals to fail first using numerous other services or FDA-approved contraceptive products within the same category of contraception before the plan or issuer will approve coverage for the service or product that is medically necessary for the individual, as determined by the participant’s healthcare provider.
  • Imposing an age limit on contraceptive coverage instead of providing these benefits to all individuals with reproductive capacity.

This coverage must also include the clinical services, including patient education and counseling, needed to provide the contraceptive product or service. Similarly, in relation to fertility awareness-based methods, lactation and amenorrhea, instruction must be included in coverage.

The guidance clarifies that plans and insurers must cover emergency contraception (levonorgestrel and ulipristal acetate) and over-the-counter (OTC) products when the product is prescribed for an individual by their healthcare provider, including an advanced prescription. Plans and insurers are further encouraged to cover these products even when they are not prescribed.

An HSA, health FSA or HRA may be used to reimburse an individual for the cost (or portion of the cost) incurred for OTC contraception to the extent that cost is not paid or reimbursed by another plan or coverage. Thus, if the cost of OTC contraception is not covered by the plan, the cost may be reimbursed from the HSA, health FSA or HRA.

Importantly, in light of the Supreme Court’s Dobbs decision and the discussion involving ERISA preemption, the guidance states that federal law (specifically PHS Act section 2724(a) and ERISA section 731) preempts state law that prevents the application of PHS Act section 2713 (requiring coverage of preventive services). A state law is considered to prevent application if it makes it impossible for an insurer to comply with the federal requirements.

Employer plan sponsors, particularly those who sponsor a self-insured plan, should familiarize themselves with the new guidance to make sure that their plan’s design complies.

ACA FAQs Part 54 »

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IRS Releases Updated Form 720 and Instructions

May 24, 2022

The IRS recently released an updated Form 720, Quarterly Federal Excise Return, and instructions. The new versions reflect the PCOR fee applicable rate increase announced in IRS Notice 2022-4.

Specifically, the form and instructions now indicate that the PCOR fee for policy and plan years ending on or after October 1, 2021, but before October 1, 2022, is increased to the applicable rate of $2.79, multiplied by the average number of lives covered under the policy or plan. The fee for policy and plan years ending on or after October 1, 2020, but before October 1, 2021, remains at the applicable rate of $2.66, multiplied by the average number of lives covered under the policy or plan.

PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee doesn’t apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is required for retiree-only plans. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.

Affected employers should be aware of the availability of the updated form and instructions and ensure they file and pay the applicable fee by the July 31 deadline.

Instructions for Form 720 »
Form 720 »

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HHS Issues 2023 Notice of Benefits and Payment Parameters Final Rule

May 10, 2022

On April 28, 2022, CMS released the Final Benefit and Payment Parameters for 2023, along with an accompanying fact sheet. The regulations are primarily intended for health insurers and the marketplace but include important information that also affects large employers and self-insured group health plans. The effective date is July 1, 2022.

These annual parameters specify the uniform standards for health plans subject to the Affordable Care Act (ACA). The guidance also describes related regulatory and reporting issues. Accordingly, the guidance can serve as a useful planning tool for insurers and employers.

Overall, the 2023 regulations cover a range of topics, including standardized plan options requirements for issuers in the marketplaces, marketplace network adequacy standards, special enrollment period verifications, a framework for discriminatory benefit design, and indirect quality improvement activity (QIA) exclusions from medical loss ratio (MLR) calculations.

For the standardized plan options requirement, CMS requires issuers in the marketplaces to offer standardized plan options for every product network type, at every metal level, and throughout every service area where they offer non-standardized options in plan year 2023. For example, if an issuer offers a non-standardized gold HMO plan in a particular service area through a marketplace, the issuer needs to also offer a standardized gold HMO plan set by CMS in the same service area. Further, beginning for plan year 2023, CMS will evaluate plans sold in many of the marketplaces for compliance with quantitative network adequacy standards based on time and distance standards. CMS will use this information to add appointment wait time standards in plan year 2024.

Additionally, the 2023 regulations confirmed that issuers’ expenditures for activities that improve health care quality (a.k.a., quality improvement activity (QIA)) that can be included in the MLR formula and that would improve the MLR ratio must be restricted to only direct QIA expenses, such as salaries of the staff performing QIA functions and not indirect expenses, such as issuers’ IT infrastructure expenditures.

CMS did not finalize the proposed changes that would have amended the ACA guaranteed-availability regulations to explicitly bar discrimination based on sexual orientation and gender identity across a range of requirements. Those changes will be deferred to future rulemaking on Section 1557 of the ACA.

Employers may find this annual guidance helpful in designing their plan benefit offerings.

2023 Benefit and Payment Parameters Final Rule »
2023 Benefit and Payment Parameters Fact Sheet »

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HHS Extends Public Health Emergency an Additional 90 Days

April 26, 2022

On April 13, 2022, the HHS renewed the COVID-19 pandemic Public Health Emergency (PHE) for an additional 90 days, effective April 16, 2022. With this extension, the PHE is now set to expire on July 15, 2022. The PHE is being extended for the ninth time since it was initially declared in January 2020, when the coronavirus pandemic began. The Biden Administration has said that it will give states a 60-day notice before the PHE expires. The PHE impacts several important benefits for employer sponsored plans, including coverage of COVID-19 testing and treatment.

Private insurers have been required to cover the full cost of COVID-19 tests and vaccines for the duration of the PHE. Beginning January 15, 2022, this requirement expanded to include up to eight over-the-counter at-home COVID-19 tests authorized or approved by the FDA per covered member per month. Once the PHE is ended, private insurers can charge co-pays or other costs so that COVID-19 tests and vaccines will no longer be free for insureds. The federal government has been paying for tests, vaccines and certain treatments for those covered by its Medicare and Medicaid health insurance programs.

Employers should be aware of the latest PHE extension and monitor the developments as the current July PHE ending date approaches to assess the impacts on their plans, including COVID-19 tests and vaccine coverage.

HHS: Renewal of Determination That a Public Health Emergency Exists »

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Fifth Circuit Upholds ACA Risk-Adjustment Program

April 12, 2022

On March 17, 2022, in Vista Health Plan, Inc. v. US Department of Health & Hum. Servs., the US Court of Appeals for the Fifth Circuit ruled in favor of the Department of Health and Human Services’ (HHS) risk-adjustment program.

The ACA prohibits health insurers from denying coverage or charging higher premiums based on someone’s health status. To disincentivize these prohibited practices, HHS administers the risk-adjustment program by redistributing enrollees’ actuarial risk among health insurers. Plans with healthier enrollees in any given state pay fees into a pool from which funds are distributed to plans insuring sicker individuals in that same state.

Several small health insurers around the country have unsuccessfully argued that risk-adjustment calculation favors larger insurers. In this case, Vista Health Plan, Inc., a small insurer in Texas, was assessed risk-adjustment fees that exceeded its premium revenue, causing it to cease operations in 2019. After Vista sued HHS, this advanced many constitutional, statutory interpretation, and administrative procedure arguments challenging the program.

The Fifth Circuit’s decision to uphold the program serves less as an assessment of HHS’s risk-adjustment calculation but rather more of an analysis of the administrative process the government undertook to implement the program. Although this case is focused on carriers, employers should be aware that the risk-adjustment program will remain a fixture in health insurance markets, having survived yet one more test by judicial review. This is especially important in the small group market, where premiums are community rated and stabilized in part by the risk-adjustment program.

Vista Health Plan, Inc. v. US Department of Health & Human Services »

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IRS Issues Proposed Rule on Affordability of Employer Coverage for Family Members

April 12, 2022

On April 5, 2022, the IRS and Treasury Department announced a proposed rule to fix the “family glitch” in eligibility rules for the ACA premium tax credit (PTC). In a press statement, the Biden administration reported the “family glitch” affects about 5 million people.

A PTC for purchasing health insurance on the ACA’s marketplace is available to people who do not have access to “affordable” coverage through their jobs. Under current regulations, spouses and children are ineligible for the PTC if an employee’s access to employer-sponsored coverage is deemed affordable (for 2022 plan years, less than 9.61% of household income) based on the cost of self-only coverage, without considering any additional cost of family coverage.

To increase access to the PTC for low-income families, the proposed rule applies a separate PTC affordability standard for family members based on the full cost of family coverage. As a result, an employee’s family may qualify for the PTC even if the employee does not. Importantly, the proposed rule does not increase exposure to employer shared responsibility penalties. Penalties will continue to be triggered only by an employee’s receipt of a marketplace PTC, not their spouse’s or dependents’ PTC. However, employers may see an indirect impact with more families dropping employer-sponsored coverage for newly subsidized ACA marketplace coverage.

As part of the rulemaking process, comments may be submitted through June 6, 2022. If finalized, the new PTC affordability standard would take effect on January 1, 2023.

Proposed Rule »
Fact Sheet »

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CMS Extends Nonenforcement of ACA-Compliance for Certain Policies

March 29, 2022

On March 23, 2022, CMS announced an extension of its nonenforcement policy for specific ACA compliance requirements for certain non-grandfathered individual and small group coverage known as “grandmothered” policies. Under the latest extension, states may permit insurers that have continually renewed eligible grandmothered policies since January 1, 2014, to renew that coverage again for a policy year beginning on or before October 1, 2022. The nonenforcement policy remains in effect until the agency announces that coverage renewed under this policy must comply with the relevant requirements.

On November 14, 2013, CMS issued a letter outlining a transitional policy concerning health care reform mandates for coverage in the individual and small group markets. Under the policy, state authorities could allow health insurance issuers to continue certain coverage that would otherwise have been canceled for failure to comply with the ACA requirements.

This initiative allowed individuals and small businesses to elect to re-enroll in such coverage. Specifically, the nonenforcement policy provided relief from the following market reforms:

  • Community rating
  • Guaranteed issue and renewability of coverage
  • Prohibition of coverage exclusions based on pre-existing conditions
  • Nondiscrimination based on health status
  • Nondiscrimination regarding health care providers
  • Comprehensive coverage (i.e., coverage of essential health benefits and the application of maximum out-of-pocket limits)
  • Coverage for participation in clinical trials

Since the initial announcement, the nonenforcement policy has been continually extended, thus permitting grandmothered policies to maintain an exemption from the above-mentioned requirements.

Although the CMS bulletin allows for the temporary continuation of these noncompliant plans at the federal level, it is important to note that the practice must still be approved by state regulators for policies to be available in a particular state. Insurers will then have a choice as to whether to keep offering the policies. The bulletin includes a notice that insurers can use in the event they issue coverage cancellation notices and will now provide the policyholder with the option to continue the coverage.

Accordingly, small employers who are currently covered by such grandmothered policies should be aware of the most recent nonenforcement extension. These employers should work with their advisors and insurers regarding the possible renewal of the coverage.

CMS Bulletin »

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