Compliance Corner Archives

Effective for plan years beginning on or after January 1, 2023, the Transparency in Coverage Final Rule (TiC) requires most group health plans and carriers to make personalized out-of-pocket cost information available to participants through an internet-based self-service tool or in paper format (upon request). The requirements do not apply to grandfathered plans, account-based plans (e.g., HRAs and FSAs) and excepted benefits (e.g., stand-alone dental and vision benefits).

The purpose of the self-service tool is to provide participants with real-time, accurate estimates of their cost-sharing liability for healthcare items and services from different providers. This information may help participants to understand how costs for covered items and services are determined by their plan and to shop and compare healthcare costs prior to receiving care.

Specifically, the internet self-service tool must provide a participant with the following information:

• An estimate of the participant’s cost-sharing liability for a requested covered item or service.
• Accumulated amounts to date that the participant has incurred towards the plan deductible and out-of-pocket limit.
• The in-network (INN) rate (expressed as a dollar amount) and if applicable, the fee schedule for an INN provider’s services.
• The out-of-network (OON) allowed amount if the request is for an OON provider’s services.
• If the request involves a bundled payment arrangement, a list of the items and services for which the cost-sharing information is being disclosed.
• Any prerequisites (e.g., pre-authorization, concurrent review, step therapy or first-fail protocols) applicable to an item or service.

The information must be provided in plain language and be accompanied by a notice that reflects certain disclosures. Amongst other items, the notice must indicate that the cost-sharing is only an estimate, not a guarantee of coverage, and that participants may still be balanced billed for OON services.

Participants must be able to conduct a search using the tool by entering a descriptive term (e.g., rapid flu test) or billing code, provider name and other factors relevant to determine cost-sharing (e.g., facility name, service location). Where there are multiple results for in-network services, the search must allow participants to reorder information by geographic proximity and estimated cost-sharing amount. If information is requested in paper form, it must be mailed not later than two business days after the request is received.

Importantly, the TiC provided phased-in effective dates for the internet self-service tool requirement. An initial list of 500 “shoppable” items and services must be made available through the tool for plan years beginning on or after January 1, 2023. The current list of 500 items and services is available on the CMS website: CMS 500 Items and Services List for Price Comparison Tool. The list will be updated quarterly. For plan years beginning on or after January 1, 2024, all items and services, including prescription drugs and durable medical equipment (e.g., blood testing strips for diabetics), must be made available.

Employers that sponsor group health plans should consult with their carriers or third-party administrators (TPAs) to ensure the implementation of the self-service tool requirement, including any instructional materials for participants, is on schedule. Like the other TiC requirement (the machine-readable file disclosures), it is anticipated that employers will contract with their carriers and TPAs to assist with fulfilling the requirements. Fully insured plans can contract with their carrier to assume liability for the tool disclosures. Self-insured plans can contract with TPAs or other vendors but remain responsible for satisfying the requirements. It is advisable for employers to engage counsel in the contracting process.

For further information regarding the TiC and self-service tool requirements, please review the following: November 10, 2020 article.

Because the failure to file Forms 5500 would be a compliance failure, it would be best to consult with legal counsel to determine a path forward. One option that counsel could suggest would be to utilize the DOL’s Delinquent Filer Voluntary Correction Program (DFVCP) to file delinquent filings.
 
The DFVCP gives delinquent plan administrators an opportunity to avoid higher civil penalty assessments if they satisfy the program’s requirements and voluntarily pay a reduced penalty amount. The program is only an option if the DOL or IRS has not already contacted the employer concerning the delinquent filings.

Participating in the DFVCP is a two-part process. First, the employer would electronically file a complete Form 5500 with EFAST2 for each year for which relief is requested. The employer would then electronically submit the filing information and payment to the DFVCP using the DFVCP calculator and webpage.

The basic penalty under the program is $10 per day for delinquent filings. However, the DFVCP allows for a “per plan” cap, which is designed to encourage reporting compliance of employers who have failed to file a Form 5500 for one plan for multiple years. Under the per plan cap, the penalty for small plans is limited to $1,500, and the penalty for large plans is limited to $4,000.

For more information, see the following DOL resources:

DFVCP FAQs »
DFVCP Penalty Calculator, Online Payment Instructions, Examples and Manual Calculations »

Employers with employees in Massachusetts should be aware of MCC and HIRD requirements and take necessary actions even when their primary business is located outside of the state. These two requirements are outlined below.

Health Insurance Responsibility Disclosure (HIRD)

About HIRD: The HIRD form is a state annual reporting requirement in Massachusetts. The HIRD form collects employer-level information about employer-sponsored health insurance plans to assist MassHealth (the state’s Marketplace) in identifying members who can participate in and who may be eligible for premium assistance from MassHealth.

Covered employers: An employer who has (or had) six or more employees in Massachusetts any month during the past 12 months prior to the HIRD due date must comply with the HIRD form requirement.

Due date: December 15 of the reporting year annually (the form is available on the MassTaxConnect website starting November 15).

Information reported on HIRD: Covered employers must report a separate HIRD form for each FEIN. Further, employers that maintain multiple plan options must file a separate HIRD form for each plan.

The HIRD form(s) should include information on the plan(s) offered to Massachusetts employees for the employer’s upcoming plan year. If plan information for the upcoming plan year is not available, then employers must provide information only for a plan or plans offered to Massachusetts employees for the current plan year. If the employer’s current plan year ends on or before December 31 (e.g., a calendar year plan), an employer must report plan information for the upcoming plan year.

Though the employer is ultimately responsible for ensuring the information is provided in a timely and accurate manner, the form may be completed by its payroll vendor.

Filing method: The HIRD reporting is filed through the MassTaxConnect (MTC) web portal electronically only, and paper forms are not accepted.

MA HIRD Form FAQs »
MassTaxConnect (MTC) »
MA HIRD Form Instructions »

MA Individual Mandate — Minimum Credible Coverage (MCC) and Form MA 1099-HC

About MCC and Form MA 1099-HC: Massachusetts requires its residents (over the age of 18) to carry minimum creditable coverage (MCC) or pay a penalty. It is a similar requirement to the now repealed ACA Individual Mandate; however, a MCC determination involves a more in-depth review. Employers that provide MCC to Massachusetts residents are required to distribute Form MA 1099-HC to those residents and submit reporting electronically to the Department of Revenue (DOR) by January 31, following the end of the medical plan year. However, employers are not required to offer MCC, and there's no penalty if the coverage the employer offers does not meet the MCC standard. For fully insured plans issued in MA, the insurers generally administer these requirements on behalf of the employers.

Covered employers: All employers with at least one Massachusetts resident employee must comply with the Form MA 1099-HC requirement. For fully insured plans sitused in the state, insurers generally prepare and provide Form MA 1099-HC to the state resident employees and report to the DOR on behalf of employers. It is recommended that employers that sponsor fully insured group health plans confirm with their carriers accordingly. For self-insured plans and non-Massachusetts employers, employers are required to distribute Form MA 1099-HC with their Massachusetts resident employees and file with the DOR by January 31. Employers can obtain draft copies of Form 1099-HC on the DOR website.

If an employer is unsure if its plan is considered MCC, the employer can request the Health Connector to make the determination.

Due date: January 31, following the end of the medical plan year.

Information reported on MA Form 1099-HC: A Form 1099-HC indicates the months that the employees and any dependents had MCC in the previous year.

Filing method: Employers must submit Form MA 1099-HC information to DOR electronically in properly formatted XML through MassTaxConnect. For additional information about how to file Form MA 1099-HC information, please refer to the state site, “Submitting Information to DOR.”

The Form MA 1099-HC needs to be sent only to the primary subscriber.

Mass Healthcare – Frequently Asked Questions for Employers »
Health Connector – Employer Advisory »
Health Connector – HDHPs and MCC Requirements »

When eligibility for coverage is lost due to a change in relationship status, employees and employers may assume COBRA is always offered to the individual losing coverage. However, when a domestic partnership ends that is not necessarily the case.

Federal COBRA requires most employers to offer qualified beneficiaries who lose coverage as a result of a COBRA qualifying event (e.g., termination of employment, reduction of hours, divorce) the opportunity to continue health coverage for a specified time period. Unlike spouses and dependent children, domestic partners are not considered qualified beneficiaries under COBRA and therefore do not have independent election rights. In the event a domestic partnership ends, the nonemployee domestic partner does not have continuation rights under COBRA.

However, children of the domestic partnership who were considered dependents under the plan terms may have COBRA continuation rights. (Termination of a domestic partnership that causes a domestic partner's child to lose coverage under the plan is likely a qualifying event for the child, if the child will have ceased to be a dependent under the terms of the plan).

Some states have their own continuation of coverage laws (often known as “mini-COBRA”) which may apply to domestic partnerships. Employers should review state continuation laws to determine whether mandatory coverage continuation rules apply.

Additionally, employers that offer domestic partner coverage can design their health plans to provide domestic partners with COBRA-like continuation coverage. Employers interested in adding continuation coverage need to work with their insurance carrier or TPA and stop-loss provider prior to implementing continuation of coverage. Any addition to continuation coverage rights beyond what COBRA requires should be drafted in clear terms with the assistance of legal counsel.

NFP has a whitepaper that can assist you in addressing benefits issues involving domestic partners. Please ask your consultant for a copy of “Domestic Partner Benefits: A Guide for Employers.”

The answer will depend on what “offered to” employees means. Unless the employer’s actions vis-à-vis the supplemental plan stay within the “voluntary plan safe harbor” or another exemption applies, the benefit will be subject to ERISA. Generally, ERISA applies to any employer-maintained plan, fund, or program providing medical, dental, vision, prescription drug, health FSA, HRA, accident, disability, or death benefits. Despite ERISA’s far-reaching application, certain types of plans and programs are exempt from ERISA. Governmental plans (including state, city, county and public school plans) and church plans are exempt. Programs maintained solely to comply with state law requirements for workers’ compensation, unemployment compensation or disability insurance and payroll practices that pay benefits solely out of the employer’s general assets are also exempt.

In addition, ERISA’s regulations provide a safe harbor from the law’s application for certain insurance arrangements where the employer maintains minimal involvement (referred to as the voluntary plan safe harbor). Under these arrangements, coverage must be voluntary, and employees must pay the full premium. Further, the employer’s role must be limited to allowing an insurer to offer and publicize a program to employees, collecting premiums through payroll deductions, and remitting these premiums to the insurer. The employer must not put any conditions on an employee’s election of benefits nor profit from the program.

Importantly, the employer must not “endorse” the program. Practically speaking, this is the most difficult safe harbor requirement to satisfy. Unfortunately, endorsement is not clearly defined in the regulations. However, from a series of court cases and DOL advisory opinions, we know that the following actions may be seen as an endorsement:

• Recommending the program
• Selecting the insurer
• Negotiating terms
• Allowing premiums to be paid pre-tax through the cafeteria plan
• Linking coverage to employee status
• Using the employer’s name (i.e., the “ABC Company Supplemental Life Plan”)
• Assisting employees with enrollment and claims
• Saying ERISA applies

These endorsement factors – alone or in combination – could push the program outside the voluntary plan safe harbor. Employee perceptions regarding employer endorsement are particularly important. Since it is not easy to predict what a reviewing court or the DOL will view as an endorsement, an employer wishing to maintain a voluntary safe harbor must be very careful in their communications regarding the program. For example, enrollment materials should make clear that the coverage is not an employer-sponsored ERISA plan (in contrast to other available benefits), and employee questions about the program should be redirected to the insurer.

Accordingly, the fact that an employee pays their premiums post-tax is not a conclusive factor in whether ERISA applies. The plan must be scrutinized for employer endorsement. Offering supplemental life coverage in association with the employer’s other benefits (including basic life with the same insurer) is strong evidence of endorsement, thereby falling outside the voluntary plan safe harbor. This means the supplemental life benefit is subject to ERISA’s plan document, summary plan description, Form 5500 reporting, disclosure, claim procedures, and fiduciary requirements. But a detailed factual analysis of the offered coverage in question is necessary to say with certainty whether ERISA’s voluntary plan safe harbor requirements are met. Since the consequences of ERISA noncompliance are significant and the endorsement determination is highly-fact specific, employers should seek a determination from their legal counsel before relying on the safe harbor to conclude ERISA does not apply.

To comply with Medicare Part D, an employer that sponsors a group health plan offering prescription drug coverage must satisfy two basic disclosure requirements.

First, the plan must notify all Medicare Part D eligible individuals whether or not the prescription drug coverage is creditable, meaning it is expected to pay on average as much as the standard Medicare Part D coverage. The creditable status of the coverage can be determined through actuarial analysis or via the CMS Creditable Coverage Simplified Determination. If a plan has several benefit options (e.g., PPO and HMO), the creditable coverage status must be determined separately for each option. However, generally, an employer can provide a single notice for an HRA integrated with a major medical plan.

CMS has provided Model Disclosure Notices (in English and Spanish) that an employer may use to meet this requirement. The notice must be provided annually prior to October 15, which is the beginning of the annual enrollment period for Medicare Part D. The notice must also be provided when a Medicare Part D eligible individual joins the plan, when the creditable coverage status changes, or upon request.

Medicare Part D eligible individuals may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents. Because an employer cannot always identify these individuals (particularly if eligibility is not based on age), a practical approach is to provide notices to all enrolled in or eligible to enroll in the prescription drug coverage. Generally, a single disclosure notice may be provided to the employee and any dependents residing at the same address; the employee should be instructed to share the notice with any Medicare Part D eligible dependents. The Medicare Part D notice may be provided separately or combined with other benefit materials, such as enrollment packets, provided the notice is “conspicuous and prominently presented” in accordance with specific CMS instructions.

An employer may distribute the Medicare Part D notice by hand, by mail or by electronic delivery (in accordance with the DOL electronic disclosure safe harbor). Under this safe harbor, employees with integral access to the employer’s computer system at work can be defaulted to electronic delivery, with the option to opt out. For this population, if the employer posts the notice on the intranet, the employer must notify employees (e.g., via email) of the notice availability and significance, and the right to request a paper copy. Those without integral access to the employer’s computer system as part of their job would need to affirmatively consent to electronic delivery in accordance with the DOL guidance.

The purpose of the disclosure is to enable Medicare Part D eligible individuals to make informed decisions regarding their coverage and compare the available options. The notice is important because individuals who do not maintain creditable coverage for a period of 63 days or longer following their initial enrollment period for Medicare Part D are subject to late enrollment penalties. The penalties are based on the duration of the lapse in creditable coverage and continue for the duration of the Part D coverage. Although there are no specific employer penalties associated with this notice requirement, failing to provide the notice may be considered a breach of an employer’s fiduciary obligations to the plan.

The second requirement is that an employer must disclose the plan’s creditable coverage status to CMS within 60 days of the start of each plan year. A disclosure to CMS must also be made within 30 days of any change in the creditable coverage status or the termination of the plan. The process involves completion of a disclosure form on the CMS Creditable Coverage Disclosure webpage, which must be signed electronically by an individual authorized by the plan. For access to the form and related CMS guidance and instructions, please see: Disclosure to CMS Form  and Disclosure to CMS Guidance and Instructions | CMS

For more information, please ask your broker or consultant for a copy of our “Medicare Part D Disclosures: A Guide for Employers” white paper.

There are specific rules related to eligibility and changes of status related to the employer mandate. A change in status means that the employee has had a bona fide change in employment status from part-time (PT) or variable hour to full-time (FT) or vice versa. It does not include an employee who has not experienced a bona fide change in employment and whose hours are simply trending lower or higher.

As a reminder, an applicable large employer subject to the employer mandate has two methods for determining FT employees: monthly measurement and look-back measurement. An employer must use the same method for all employees in the same category. For this purpose, there are only four identified categories: collectively bargained and non-collectively bargained employees, employees covered by different collective bargaining agreements, salaried and hourly employees, and employees whose primary places of employment are in different states.

If an employer is using the monthly measurement method, then eligibility is determined on a monthly basis. If an employee had a bona fide change from FT to PT, the employee would lose eligibility at the end of the month when the change in status occurred. COBRA would be offered for a reduction of hours. If an employee has a change from PT to FT, the employee would be offered coverage the first of the month following the change.

If the employer is using the look-back measurement method, there are different rules for new employees versus ongoing employees. An ongoing employee is defined as one who has been employed for an entire standard measurement period.

Let’s first consider an ongoing employee determined to be FT upon hire and initially offered coverage following the plan’s waiting period. If that FT employee has a change in status to PT, the employer may terminate eligibility on the first day of the fourth month following the change (assuming the employee has indeed worked PT hours during the interim three months). If an employer terminates eligibility prior to this date, there is risk of an employer mandate penalty. Again, COBRA would be offered for a reduction in hours.

If an ongoing employee was determined to be PT during the most recent measurement period and experiences a change to FT, their ineligibility may remain through the corresponding stability period. An employer may be more generous and offer coverage earlier. For example, the employer may offer coverage following the waiting period or the first of the fourth month following the change.

Next, let’s discuss new employees under the look-back measurement method. If a new employee is determined to be FT upon hire, offered coverage following the waiting period and then experiences a change in status to PT, the employer may terminate eligibility at the end of the month when the change occurred. If the new employee was determined to be PT (or variable hour) upon hire, placed in an initial measurement period and then has a change in status to FT, the employee must be offered coverage by the first day of the fourth month following the change (or the first day of the initial stability period, whichever is earlier).

As one can see, these rules are very complex. NFP has a whitepaper and chart that can assist you in reviewing and applying these rules. Please ask your consultant for a copy of “ACA Look-Back Measurement Method: Offers of Coverage and Changes in Status.”

Following the expiration of any federal FMLA or state protected leave, an employee may stay on health benefits for as long as the eligibility terms of the plan allow. The Summary Plan Description, any employee handbooks or other communication describing benefit eligibility during leaves of absence should be consistent with the plan terms and approved by the carrier (stop-loss carrier if self-insured). In addition to ERISA’s fiduciary requirement to follow the terms of the plan, if a group unilaterally allows an employee to stay on the plan for longer than the carrier allows, then they risk having to self-insure claims incurred during the extended period.

A solid leave policy can support consistent and predictable benefits administration during extended employee absences. However, deciding an employee’s benefit eligibility while on leave as a one-off or promising more than what’s allowed in the plan document further risks setting a precedent or inadvertent discrimination, even if intended as generosity. For example, the ADA could be implicated if an employer has an informal practice of allowing only nondisabled employees on sabbaticals to remain on the plan longer than disabled employees on medical leave.

Applicable large employers (ALEs) also need to consider the employer mandate. If an ALE uses the look-back measurement method to determine health plan eligibility, an employee who earned full-time status in the most recent measurement period would remain eligible throughout the stability period regardless of the number of hours worked. The chosen measurement method should be incorporated into the health plan’s eligibility terms consistent with the SPD, employee handbook and other benefits communications. Note that when employment ends during a stability period, the individual is no longer an active employee under the terms of the health plan or for employer mandate penalty purposes.

A COBRA qualifying event occurs when benefits (but not necessarily employment) are terminated consistent with the plan’s eligibility requirements and any employer leave policy. That is, a reduction in hours (extended leave of absence) has caused a loss of coverage.

The right to continue those coverages during leave for other, non-health benefits (e.g., disability, life) is similarly governed by the eligibility terms of each respective plan document. Employers should review their disability and life plans and carrier contracts to determine whether they hold any administrative responsibilities for providing conversion notices or paperwork when coverage terminates.

Administering benefits during leaves can be complicated. There are different state and federal laws at play depending on a given employee’s reason for leave and work location. Employers should work with their legal counsel and HR experts to set up solid leave policies and ensure compliance with all applicable laws. Employment termination for those who do not return from FMLA or state protected leave is a separate issue for which employers should consult with employment law counsel.

The ACA requires medical insurance companies to pay annual Medical Loss Ratio (MLR) rebates to policyholders by September 30, 2022, if the insurer spent less than a specified minimum percentage of the premium on medical claims and certain healthcare quality improvement initiatives in the prior calendar year.

Depending on the employer and plan type, insurers will issue MLR rebates in the form of a premium credit or reduction (sometimes through a so-called “premium holiday”), or a lump-sum premium refund (via cash or check). Employers are then tasked with determining the proper use of an MLR rebate, which often requires distribution of a pro-rata share of the rebate to eligible plan participants within three months of the employer’s receipt of the rebate from the insurer.

Plan documents often include rules for treating these rebates, so it is a good idea to consult those documents when determining how to distribute them. When it comes to plans subject to ERISA, in which the employer’s contributions towards coverage comes from general assets (i.e., most plans), applicable guidance provides four steps to follow to determine how to use the rebate.

The first is that the employer must determine the plan(s) to which the MLR rebate applies. MLR rebates generally apply only to a specific plan option (such as an HMO, PPO or an HDHP). The insurer’s MLR rebate notice will specify the plan(s) to which it applies, and only the participants who contribute to the cost of the named plan option(s) should benefit from the rebate. If a rebate relates to two or more separate plan options with different MLR rebate factors, then the rebate should be applied separately by the employer based on the separate plan-specific calculations of the insurer. Remember that using an MLR rebate generated by one plan for the benefit of another plan’s participants or for the benefit of nonparticipants is likely a breach of fiduciary duty.

Second, the employer must determine the portion of the rebate that relates to employee contributions versus employer contributions toward the plan’s premium. The portion of the MLR rebate that relates to employee contributions is generally considered an ERISA “plan asset,” which may only be used for the benefit of plan participants (and any related administrative expenses). For example, if plan participants contribute 30% of the premium, then 30% of the rebate must be used for the benefit of plan participants. The employer may keep the portion of the rebate that relates to employer contributions; the employer portion of the rebate is simply returned to the employer’s general assets. However, if the plan pays benefits through a trust and the plan or trust is the policyholder, the entire refund amount would be considered plan assets and must be used for the benefit of participants.

Third, the employer must determine the participants to whom it will distribute the rebate. This is often the step that generates the most controversy. Note that DOL guidance gives employers some discretion when allocating the rebate among plan participants, provided employers follow ERISA’s general standards of fiduciary conduct. In determining whether to distribute the MLR rebate to all participants who contributed to the plan during the reporting year or only to current plan participants, and whether to weight the rebate ratably according to each participant’s actual contribution amount or to distribute the rebate in equal dollar amounts to all eligible plan participants, employers can follow these general guidelines:

• The allocation method must be reasonable, fair and objective (but does not have to reflect each participant’s actual contribution cost). This means that the employer could choose to provide a flat amount rebate to each participant or a percentage of each participant’s actual contribution, so long as the method is reasonable, fair and objective.
• If the administrative cost of distributing rebates to former participants approximates or exceeds the amount of the rebate, the employer may limit rebates to current participants only. The DOL guidelines do not specify what constitutes an administrative cost. It is generally accepted that these costs include only “hard costs” (such as the cost of producing a check and the related postage and handling) and do not include the effort to track down former participants. Note that the opportunity to exclude participants from MLR rebate actions based on a cost/benefit analysis pertains only to former participants and does not also apply to current participants.

Finally, the employer must determine the method for distributing the rebate to plan participants. MLR regulations provide four possible methods for distributing the rebate to plan participants:

• Premium reductions for plan participants.
• Benefit enhancements to the plan (adding a benefit or service).
• A refund back to plan participants, either through cash or check.
• A premium holiday (either by the employer passing along the insurer’s premium holiday or creating its own).

If it is not cost effective to distribute refunds to participants (both current and former) because the refund amounts approximate the distribution costs or would result in a taxable event to the participants, the employer may use the plan asset portion of the MLR rebate for other permissible plan purposes, such as making near-future premium reductions, premium holidays or benefit enhancements to the plan. Note that any such benefit plan enhancements must be implemented in full within the three-month time limit for using MLR rebates.

In any event, the employer should document the method it used for administering an MLR rebate according to the four steps outlined above or per the controlling ERISA plan document, as applicable. It should maintain records of all per-participant premium reductions or refunds according to its record retention policy. In general, records related to ERISA plans should be retained for eight years.

For more information on MLR rebates, such as how church plans should handle them and the tax treatment of MLR rebates, please reach out to your broker or consultant for a copy of our white paper on this topic.

Generally, an employer can vary benefits and contributions by bona fide employment classifications.

However, even where such classifications exist, the employer should ensure that the variations comply with the applicable nondiscrimination rules. Section 125 nondiscrimination rules apply to benefits and contributions made through a cafeteria plan. Section 105 rules apply to self-insured plans, including HRAs. Both sets of rules are designed to prohibit discrimination in benefits and contributions that disproportionately favor key or highly compensated employees (HCEs).
 
Under these rules, variances by class are allowed, provided the distinctions are based upon employment classifications consistent with the employer’s usual business practice (and not made solely for the benefit offerings). Examples of permitted classifications include, but are not limited to, those based on occupation, geographic location, business lines, job titles or hourly work expectations.

Therefore, the first step is to determine whether the class distinction is based upon a bona fide employment grouping. The idea is not to handpick individuals but to apply criteria used for other business purposes as well. For example, an executive class based on job title would normally be allowed. A distinction for a business unit located in another state would also generally be permitted.

If the distinctions are determined to be based on legitimate employment-based reasons, then the next step is to assess whether the variances disproportionately benefit the HCEs. Under §125, an HCE is defined as an officer, more-than-5% shareholder, employee who earned at least $130,000 in 2021 or if in the first year of employment, $135,000 in 2022. (These salary thresholds are indexed annually.) Under the Section 105 rules, an HCE includes one of the highest five paid officers, a more than 10% shareholder or owner and those amongst the highest-paid 25% of all employees. Where two or more employers are under common ownership, individuals of all employers must be included in determining the highly compensated group and in performing certain nondiscrimination tests.

At a high level, the nondiscrimination tests consider eligibility, benefits and contributions and, in certain cases, utilization (i.e., who is actually benefiting). If an employer offers richer benefits or pays more of the contributions for the HCEs versus the non-HCEs, this could raise potential nondiscrimination concerns. Therefore, particularly after a change in contribution or benefit structures or a business reorganization, the employer should consider having midyear testing performed to ensure the changes will not cause test failures. Test failures may result in adverse tax consequences for the HCEs. If the tests are not performed until the year-end, then it is normally too late for an employer to make any necessary adjustments to correct such failures.

Additionally, whenever there are changes to contributions and benefits, the plan documents and employee communications should be reviewed and updated to clearly outline the eligibility requirements, benefit offerings and contribution structures, so there is no confusion as to the applicability.

For more information on the nondiscrimination rules applicable to group health plan benefits and contributions, please reach out to your broker or consultant for a copy of our white paper on this topic.

An ICHRA is an Individual Coverage Health Reimbursement Arrangement. It is the only way an employer may reimburse an employee or directly pay the cost of an employee’s individual health insurance policy on a tax-advantaged basis. To do so outside of an ICHRA, an employer risks an excise penalty of up to $100 per day per employee for an impermissible employer payment plan.

An ICHRA can only be offered to a classification of employees who are not eligible for the employer's major medical plan. For example, an employer could offer a group health plan to employees in one location and an ICHRA to those in another. There are rules regarding minimum class size; however, they do not apply if the class is based on state. Thus, an employer could offer an ICHRA to those working in other states — even if that is only one employee in a state.

The following conditions must be met by an ICHRA.

• The employer cannot offer any group health plan to the same classification of employees being offered the ICHRA. However, an employer could also offer a dental-only or vision-only plan to those employees. Classifications include full-time, part-time, salaried, hourly, temporary staffing agency workers, seasonal, collectively bargained and different locations.
• The minimum class size is 10 for an employer with fewer than 100 employees; a number (rounded down to a whole number) equal to 10% of the total number of employees for an employer with 100 to 200 employees; and 20 for an employer with more than 200 employees.
• An ICHRA is subject to ERISA, which means it is subject to the summary plan description, Form 5500 and fiduciary requirements.
• An ICHRA is also subject to COBRA, including the Initial COBRA Notice, COBRA Election Notice and continued employer contributions.
• Expenses must be substantiated before each reimbursement. Thus, before each reimbursement or payment, the employer must confirm that the individual policy is still in effect and the premium amount.
• The same terms and reimbursements must apply within the same classification, though the employer may increase the maximum reimbursement based on family size and age.
• A notice must be provided to eligible employees at least 90 days before the beginning of each plan year or no later than the date an employee is first eligible to participate in the ICHRA. A model notice is available here.

An example of an impermissible design would be an employer reimbursing the cost of an individual health insurance policy for an executive working at the employer headquarters. This would not meet the classification requirements.

An ICHRA may be used by an applicable large employer to satisfy the employer mandate obligation. An ICHRA is considered minimum essential coverage for Penalty A. It will also satisfy Penalty B if the employee’s required contribution after the employer’s monthly ICHRA contribution is less than 9.61% (2022) of the employee’s earnings. The employer may use the lowest cost silver plan available in the worksite rating area based on the employee’s age as a safe harbor (rather than each residential area). That difference between the employer’s contribution and the premium cost is what would be reported on Line 15 of the Form 1095-C.

For more information on ICHRAs or to implement one, please contact your consultant.

Typically, group life insurance coverage ends when active employment ends. But there is often a right to convert group coverage to an individual policy built into the plan. Conversion rights and the process of converting a group life plan to an individual policy are controlled by the specific plan terms. Note that some state laws require that carriers and/or employers provide certain conversion rights and notices to employees. A carrier agreement may require employers to assist with this. It may come as a surprise that required notices are not always handled by the carrier, sometimes leaving the employer legally responsible. Employers sponsoring group life insurance plans should take care to understand applicable conversion terms and their administrative obligations.

First, employers need to know who is responsible for distributing conversion notices and when and how those notices should be sent. In addition to the plan documents, the carrier agreement may address this. Conversion notice responsibilities will vary by carrier. When notice responsibility falls on the employer, it is best practice to keep documentation of mailing and delivery of conversion notices (e.g., first-class mail return receipt requested). As to what documentation needs to be provided to satisfy notice, employers should look to the plan terms. When an employee's employment terminates, the SPD, plan document, and any leave policies that address conversion rights should be provided.

Second, even where the carrier is responsible for providing conversion notices, employers should have consistent procedures to respond to conversion information requests from employees. Steps should be taken to ensure conversion rights are clearly, completely, accurately and timely communicated to employees. A description of conversion rights with reference to applicable plan terms should be included with any leave policies, leave communications and offboarding materials. Anyone designated to respond to life coverage inquiries must be trained in when and how a group plan can be converted to an individual policy. This includes whether coverage continues during leave and when coverage otherwise terminates, including deadlines to convert. Importantly, an employer's response to inquiries should not be limited to answering precise questions because employees may not know which specific questions to ask. Meaning, there should be no potentially harmful omissions.

While most employers are very familiar with COBRA and state continuation rights and notice requirements when group health plan coverage ends, compliance obligations related to group life plan coverage are often overlooked. Without ensuring proper procedures are in place to provide notices and respond to coverage inquiries, employers may find themselves liable for claims under lapsed group coverage that was deprived of adequate conversion notice. We reported on two such cases in previous editions of Compliance Corner: Estate of Foster v. Am. Marine Servs. Group Benefit Plan, et al.

New transparency requirements include a mandate that health plans and health insurance issuers must disclose, on a public website, information regarding in-network rates and out-of-network allowed amounts and billed charges for covered items and services in two separate machine-readable files (MRFs).

The regulations define MRFs as files presented in a digital format that can be imported or read by a computer system for further processing without human intervention, while ensuring no semantic meaning is lost (such as JSON). Based on language in the final regulations, there is an expectation that researchers, legislators, regulators and application developers will compile the information into reports, studies and internet tools, so that it can more readily be used for price comparison purposes. In other words, the information provided may not be immediately understandable by the average layperson, but others may take that data and present it in ways that the average layperson can understand.

The requirement to publicly post the MRFs applies to the group health plan level. The plan sponsor must be sure that the files are on a site available to the general public, meaning not just employees, but regulators, industry groups, application developers, etc. Additionally, the files must be accessible and free of charge without having to establish a user account, password or other credentials, and without having to submit any personal identifying information such as a name, email address or telephone number. Beyond those requirements, the regulations state the sponsor has discretion as to the exact location on the public website, since they are in the best position to determine where the files will be most easily accessible by the intended users.

The regulations allow an insured plan to enter into a written agreement with the insurer to assume liability for the disclosures. Under such an agreement, the carrier would provide the required information and assume responsibility for maintaining and updating it as required under the regulations. Note that the regulations allow either a group health plan or an issuer to enter into an agreement with a third party (such as a TPA) to provide and maintain the required information; however, the responsibility remains with the group health plan or the issuer if the third party fails to perform.

Employers are increasingly choosing to offer fertility benefits to employees. However, it is important to ensure that such a benefit offering is properly structured.

To the extent the fertility benefits program provides medical care, it would generally be considered a group health plan and thus subject to the ACA, ERISA, COBRA and other laws. “Medical care” for this purpose is broadly defined to include amounts paid for “the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.”

Under the ACA, group health plans are subject to specific requirements (e.g., coverage of preventive services without cost-sharing). ERISA imposes fiduciary obligations, claims review procedures, plan document and Form 5500 filing requirements. COBRA requires continuation of medical coverage for a minimum of eighteen months following certain losses of eligibility.

A stand-alone program typically cannot satisfy these group health plan requirements independently. Accordingly, perhaps the simplest way to offer fertility benefits is to amend/expand the coverage provided directly under the group major medical plan, which is already satisfying ACA, ERISA, COBRA and other requirements. This approach would be coordinated with the insurer or stop-loss carrier.

Alternatively, the fertility benefits could be offered through an integrated HRA, made available to only those employees enrolled in the employer’s major medical plan (or confirmed to be enrolled in another group medical plan, such as a spouse’s, although this adds administrative complexities). The employer could determine the types of fertility expenses and dollar amounts of the HRA reimbursements.

Generally, to be eligible for tax-free HRA reimbursement, the expense must be for medical care (as defined by Code §213(d)) for the employee or their spouse or dependent (but not a surrogate). Infertility expenses eligible for tax-free HRA reimbursement may include procedures such as IVF (including temporary storage of eggs or sperm) to overcome an inability to have children. However, expenses related to the long-term storage (typically greater than one year) of eggs and sperm would not qualify. Furthermore, medical expenses must be for services incurred during the coverage period and not just prepayment for such services.

Please see June 8, 2021, Compliance Corner article.

If the employer offers an HSA-qualified HDHP, the fertility HRA would need to be designed as a post-deductible HRA to preserve the employees’ HSA eligibility. The HRA could not pay any benefits until the HDHP annual statutory minimum deductible ($1,400 self-only/$2,800 family in 2022) was satisfied.

The HRA would need to satisfy applicable compliance requirements. As a self-funded plan, these obligations would include, but not be limited to, Section 105 nondiscrimination testing and the PCORI fee filing and Form 720 reporting (although simplified reporting may apply).

Additionally, the employer should recognize that a fertility benefit vendor typically receives protected health information from covered entities (e.g., healthcare providers and/or the health plan) that are directly subject to regulation under the HIPAA Privacy Rule. So, a business associate agreement should be in place between the vendor and the covered entity.

Finally, given all the compliance considerations, it is always advisable for an employer to review the fertility benefits offering, structure and any related contracts with their counsel to ensure all legal requirements are satisfied.

Before discussing an employer’s health insurance obligations for an employee on workers’ compensation, it is important to note that workplace injuries and the state requirements surrounding them are employment issues that are outside of our benefits compliance scope. Employers should continue to work within their state’s rules for administering workers’ compensation for an employee that is injured on the job. Those rules may even involve requirements for the employer to provide medical care to address the workplace injury.

We can, however, address the question of what should be done regarding the employee’s group health plan benefits. Specifically, the continuation of group health plan benefits during workers’ compensation depends on whether FMLA must be offered or the terms of the plan.

FMLA
FMLA applies to private employers with 50 or more employees for each working day in 20 or more workweeks in the current or preceding calendar year. It also applies to all public agencies and local educational agencies no matter the size (including public school boards, as well as public and private elementary and secondary schools). An eligible employee who is absent due to their own serious health condition is eligible for up to 12 weeks of unpaid leave. An eligible employee is one who has worked for the employer for at least 12 months, has worked at least 1,250 hours in the last 12 months, works within a 75-mile radius of 49 other employees, and has suffered a serious health condition. Note that an employee’s location for purposes of the 75-mile radius rule is the office to which the employee reports (which is an important distinction given the number of employees currently working remotely).

Importantly, FMLA applies any time an eligible employee is absent from work due to a serious health condition — even if that condition is work-related. This means that an employee who takes leave under workers’ compensation would be eligible for FMLA if the injury for which they are taking leave is a serious health condition, and they work for an employer that is subject to FMLA and are otherwise eligible under FMLA’s eligibility rules.

While on FMLA, the employer must give the employee an opportunity to continue benefits under the same conditions as if the employee were still actively at work. An employee only must pay their normal contribution amount. If active employees contribute to the cost of coverage, an employee on FMLA would as well. If the FMLA leave is paid, then the deduction would be taken as normal. If the leave is unpaid, other arrangements must be made for the premium. For employees who continue their coverage during an unpaid FMLA leave, the following payment options may be provided: prepay, pay-as-you-go and catch-up. The employee may also choose to discontinue coverage during FMLA.

Plans should be mindful of COBRA requirements too. For an FMLA leave, the qualifying event for COBRA would be a reduction of hours and would be triggered if the employee does not return at the end of the 12-week FMLA leave period. The event date would be the last day of the FMLA leave. Even if the coverage was terminated during the leave (for failure to pay premiums), COBRA is still not offered until the end of the 12-week leave period.

Non-FMLA
If FMLA does not apply (either because the employer is not subject to it or the employee is not eligible), then coverage should be terminated according to the employer’s and carrier’s policy for inactive employees on unpaid leave (typically 30-60 days). If active employees must work a certain number of hours per week to remain eligible, and there is no special provision for inactive employees on non-FMLA leave, then an employee on leave due to a work-related injury should be terminated from coverage if that threshold is not met. Then, depending on the circumstances, COBRA or state continuation would be offered for the reduction of hours.

It is not recommended that a group health plan exclude coverage for Applied Behavior Analysis (ABA) therapy related to the treatment of autism spectrum disorder (ASD). The recommendation applies to both fully insured and self-insured plans. Please see considerations below.

In its recent 2022 MHPAEA Report to Congress, the DOL stated that ASD is a developmental disorder and ABA is a primary treatment for the disorder. As such, the DOL stated their concern over an ABA coverage exclusion. The report detailed cases in which the DOL requested a comparative analysis of the exclusion and found the plans to be noncompliant. As a result of the findings, the DOL has established a national enforcement working group focused on the coverage of ASD.

Most states mandate certain coverage related to ASD, and policies governed by that state must provide the required coverage for ASD, which generally includes ABA.

A self-insured plan is generally not subject to state insurance mandates. However, a non-grandfathered group health plan is subject to the federal prohibition on annual and lifetime maximums of essential health benefits. To administer this federal mandate, the plan must identify a state benchmark plan to which they will match for the purpose of defining essential health benefits. A plan should provide the same coverage as the benchmark and should not place a greater restriction on a benefit identified as an essential health benefit. (Many states include ABA therapy as an essential health benefit.)

Finally, there is also case law establishing the exclusion of ABA as a possible violation of the Americans with Disabilities Act and/or the Mental Health Parity and Addiction Equity Act.

If an employer wishes to exclude coverage for ABA therapy, we recommend working with outside counsel and documenting the comparative analysis for the exclusion.

In short, likely no. A growing number of states have implemented or are planning to implement statutory PFML programs soon. A statutory PFML generally applies to an employee who works in the state (including telecommuting) regardless of the physical office location or employee’s residence state. For example, an employee who works from his or her home in California is subject to California’s paid family leave (PFL) and disability insurance even if his or her company is located outside of California and does not have any physical offices there. Having a basic STD insurance from a private insurer is likely not sufficient to satisfy the statutory PFML requirements for several reasons.

First, many of the states’ PFML programs require employers to offer not only medical leave insurance but also family leave insurance. Medical leave insurance covers employees’ own serious health conditions or disability (including incapacity from pregnancy) like what standard STD insurance covers. On the other hand, family leave insurance covers an employee to take time off to care for the employee’s eligible family members’ serious health conditions or to bond with the employee’s new child, which is generally excluded from standard STD coverage.

Second, even those states that permit a private plan option require employers to purchase a private plan that meets the specific state’s PFML requirements, and a private plan must receive approval from each state. Therefore, simply having a STD policy does not automatically provide an exemption from complying with a state’s PFML program.

Third, Washington DC and Rhode Island’s PFML programs do not allow a private plan option. In these states, employers must participate in the district and the state’s programs even when an employer’s STD coverage is comprehensive and satisfies all the requirements.

Finally, below is a list of states that have enacted PFML programs. The effective dates are noted for the new PFML programs that will begin soon. Employers should review their employees’ work locations to confirm that they understand and satisfy the applicable states’ PFML program requirements, including private plan option availability, premium collection and submission processes, and employee disclosures (e.g., notices and poster).

• California
• Colorado (Payroll deduction begins on 1/1/2023 and benefits effective 1/1/2024)
• Connecticut
• District of Columbia
• Hawaii
• Maryland (Payroll deduction begins on 10/1/2023 and benefits effective 1/1/2025)
• Massachusetts
• New Hampshire (Participation is voluntary for private employers. Benefits effective 1/1/2023)
• New Jersey
• New York
• Oregon (Payroll deduction begins on 1/1/2023 and benefits effective 9/1/2023)
• Puerto Rico
• Rhode Island
• Washington

Note: The above list is current as of the date this FAQ is issued. Furthermore, some states, such as NY and CA, label their programs as PFL and disability insurance rather than PFML. However, for simplicity, the FAQ uses the term statutory PFML programs to include paid family leave and disability insurance.

Lastly, we have a Quick Reference Chart on Statutory PFML programs that provides each state’s PFML program’s highlights. To receive a copy of the publication, please contact your NFP benefits consultant.

Employers with workers employed in the state of Illinois should be aware of the Illinois Consumer Coverage Disclosure Act (or CCDA). The law became effective on August 27, 2021. The CCDA requires all private employers and non-federal governmental employers to provide Illinois employees with a disclosure that compares their coverage to essential health benefits (EHBs) required for coverage received through the Illinois marketplace. The employer must provide a disclosure for each group health plan that covers Illinois employees. The CCDA does not impose additional coverage requirements on these employers, only the disclosure requirements. Ask your account executive for a copy of our whitepaper on the CCDA, which includes links to the IL DOL FAQs and the model disclosure form.

The Illinois Department of Labor (IL DOL), the agency charged with administering and enforcing this requirement, maintains a list of FAQs that provide general guidance on this requirement. Although the IL DOL has not updated this information, the agency has provided us with a few answers to questions raised concerning the agency’s model form.

Many employers use the model form provided by the IL DOL. The form asks for the “Name of the Issuer.” According to the IL Department of Labor, the “Name of the Issuer” is the name of the plan’s issuer or carrier. Note that this would not apply to self-insured plans. The IL DOL has not provided guidance on that point, but one possible response for a self-insured plan is to provide the name of the employer, followed by “(self-insured, administered by [name of TPA]).”

The form also requires employers to identify the “Plan Marketing Name.” According to the IL DOL, this is the name the issuer uses or assigns to the major medical product. If the plan is self-insured, a possible response is the name of the employer followed by “(self-insured).”

The most important criteria to remember when completing the disclosure form is that the employee should be able to identify the plan(s) that the employer offers and which Illinois EHBs those plans provide. It should be emphasized that the disclosure requirement does not require plans to provide EHBs that they do not already provide.

In short, yes. A level-funded plan is often viewed as a blended solution for employers that want to switch from a fully insured plan but are not prepared to completely self-insure. An employer sponsoring a level-funded plan pays a set monthly amount to a carrier to cover the estimated cost of anticipated claims, the stop-loss premium and plan administrative costs. If the claim costs are lower than expected at the plan year-end, a refund may be provided to the employer.

However, a level-funded plan is considered a self-funded plan for benefits compliance purposes. Therefore, a plan transitioning from a fully insured plan to a level-funded plan should be aware of the additional compliance obligations, including (but not limited to) requirements under the ACA, HIPAA, ERISA and the Section 105 nondiscrimination rules.

With respect to the ACA, the employer would have additional ACA reporting obligations. For example, an applicable large employer (ALE) with 50 or more full-time employees in the prior year needs to provide information regarding minimum essential coverage on Forms 1094/5-C (in Part III). A small employer (non-ALE) needs to report minimum essential coverage using Forms 1094/5-B.

The employer would also be responsible for reporting and paying the PCOR fee required of carriers and self-funded plans. The reporting on IRS Form 720 and fee based on the average number of lives for the plan year is due on July 31 of the year following the last day of the plan year.

With respect to HIPAA, the level-funded plan would have to comply with the full range of HIPAA privacy and security obligations, including providing a HIPAA privacy notice (previously provided by the carrier under the fully insured plan), conducting a risk assessment, implementing more extensive privacy and security procedures and training staff.

Under ERISA, if the employer is holding plan assets in a segregated account, the plan would generally be considered funded and subject to the ERISA trust and fidelity bond requirements. If the plan is considered funded, then the exemption from the Form 5500 filing requirements for a small plan (with less than 100 participants at the plan year start) would no longer apply. Furthermore, if the plan receives a refund, any portion considered plan assets (such as amounts attributable to participant contributions towards premiums) must be returned to the plan participants (like an MLR rebate for a fully insured plan) in some manner.

The employer sponsoring the level-funded plan may also have ERISA fiduciary obligations regarding claim appeals (which were previously assumed by the carrier under the fully insured plan). Additionally, the level-funded plan would no longer be subject to state insurance laws, such as coverage mandates, because these would be preempted by ERISA.

Section 105 nondiscrimination rules will apply to level-funded plans, too. Under these rules, self-insured health plans cannot discriminate in favor of highly compensated employees (HCEs) with respect to eligibility or benefits. For this purpose, “highly compensated” includes the top 25% of the employer’s workforce, which is a broader definition than that found in Section 125 nondiscrimination rules (which apply to all cafeteria plans).

Accordingly, despite the funding differences between level-funded and self-funded plans, the level-funded plans are generally considered self-funded for benefits compliance purposes. Employers considering a change from a fully insured to a level-funded (or self-funded) plan should consult with counsel and their advisors for further information regarding the additional compliance requirements.

The Americans with Disabilities Act (ADA) applies to employers with 15 or more employees and requires them to provide individuals with disabilities an equal opportunity to benefit from the full range of employment-related opportunities available to others. However, an employee that experiences a reduction in hours due to a reasonable accommodation would not be entitled to remain enrolled on the health plan if their reduction in hours drops them below the eligibility threshold. Under the ADA, the only exception for this would be if the employer allows non-disabled participants that drop below the eligibility threshold to remain covered under the plan.

If the plan terms are such that the employee loses eligibility due to the lower numbers of hours worked, the understanding would be that the employer would terminate their coverage in accordance with the plan terms (i.e., end of the month after or date of event) and would then offer the employee COBRA.

Although the general rule is as discussed above, there are also two other compliance concepts that the employer will need to consider. First, under the ACA’s employer mandate, an employer may not be able to drop the person from coverage if the employer utilizes the lookback measurement method and the person is in a stability period. The rules for change in status don’t always allow employers to immediately terminate coverage when someone experiences a reduction in hours. So, the employer should also analyze whether they must continue to offer coverage to this employee due to the employer mandate’s rules. (We discuss the change in status rules at length in a white paper entitled “ACA Look-Back Measurement Method: Offers of Coverage and Changes in Status.” You may request the paper from your advisor.)

Second, if the employee’s disability would also entitle them to rights under the FMLA, they would be able to continue coverage based on the idea that they are taking intermittent FMLA. Remember that FMLA entitles employees to continued employment and benefits for a period of no less than 12 weeks per year. So, if their disability is also a serious condition or illness and they are eligible for FMLA, then FMLA could also entitle them to remain covered under the group health plan benefits.

No, distributing the COBRA Initial Notice (also known as the General Notice) to all newly hired eligible employees in an enrollment packet is not sufficient for several reasons. As a reminder, the notice must be distributed to all newly enrolled employees and spouses within 90 days after commencement of coverage.

First, the Initial Notice should only go to covered participants. The first paragraph of the notice begins, “You’re getting this notice because you recently gained coverage under a group health plan (the Plan). This notice has important information about your right to COBRA continuation coverage.” Providing the notice to all newly eligible employees before enrollment is providing them with inaccurate information of rights that they do not yet have and never will have if they waive coverage. A plan administrator is required to provide the notice within 90 days after the participant enrolls and coverage begins.

Second, the Initial Notice is required to be distributed to covered employees and covered spouses. An enrollment packet is distributed only to the employee. The spouse is not considered a recipient of an enrollment packet. As such, the notice should be mailed to the home address on file with the spouse indicated in some manner on the envelope, such as John Doe and Spouse, John and Jane Doe or Mr. and Mrs. John Doe. If the employee and spouse enrolled at the same time, a single notice is sufficient if they are not known to have separate addresses.

This is one of the most difficult notices for a plan administrator in terms of compliance dates. Many employers only think of the notice as a new employee notice. However, the notice is required to be provided to any newly enrolled employee or spouse. Consider the following scenarios:

• A newly hired employee waives enrollment when initially eligible but enrolls in single-only coverage during the next open enrollment.
• An employee is enrolled in single-only coverage. During the year, he gets married and adds his spouse.
• A newly hired employee waives enrollment when initially eligible but enrolls in family coverage midyear upon the loss of other coverage.

A COBRA Initial Notice is required to be distributed in all these scenarios. Failure to comply could put an employer at risk for legal action brought by participants and an ERISA $110 per day fine. If the violation is not corrected within 30 days of discovery, then the employer may need to self-report the violation on IRS Form 8928 with a civil penalty of $100 per day being assessed.

Finally, an employer who fails to comply with the notice requirement related to spouses could not impose the 60-day notification period following a divorce for an ex-spouse electing COBRA coverage. If the spouse was never notified of the obligation to notify the plan within 60 days of the divorce to preserve their COBRA right, the employer might be responsible for offering the coverage regardless of when they are notified of the divorce. Further, a carrier (including a stop-loss carrier) could deny coverage because of the notice failure, which would leave the employer paying out-of-pocket for the ex-spouse’s claims.

If an employer is not in compliance with this requirement, the best practice is to distribute the notice to all currently enrolled employees and spouses, then implement a compliant procedure going forward.

If you have any questions or would like to request a copy of the model notice, please ask your consultant.

ALEs are employers who employ on average at least 50 full-time employees (including equivalents) on a controlled group basis in the previous calendar year. ALEs are subject to the ACA employer mandate as well as annual ACA reporting via Forms 1094 and 1095-C. For the 2021 reporting, ALEs need to file Forms 1094 and 1095-C with the IRS by February 28, 2022, if filing by mail (available only for ALEs who file fewer than 250 forms) or March 31, 2022, if filing electronically. Additionally, by March 2, 2022, ALEs are required to furnish copies of Forms 1095-C to their full-time employees and other enrolled individuals (if they sponsor a self-insured plan).

An ALE who sponsors a fully insured plan does not need to report their retirees or COBRA participants if they were not active employees in any month in the reporting year (i.e., 2021 for this year’s reporting deadlines). If a retiree or COBRA participant was an active employee in any month before being terminated or retiring in mid-year, then the ALE needs to report them on Forms 1094 and 1095-C.

An ALE who sponsors a self-insured plan needs to report their retirees or COBRA participants if they were enrolled in the ALE’s plan during the reporting year, even if they were not an active employee in any months. This is because self-insured sponsors are also subject to another ACA reporting requirement under IRC Section 6055 to report whether a plan provided minimum essential coverage (MEC) to enrolled individuals during the year. Though the individual mandate provision’s penalty no longer applies, insurers and self-insured employers are required to satisfy the IRS Section 6055 MEC reporting continuously. For fully insured plans, their medical insurers have an obligation to satisfy the IRC Section 6055 reporting requirement rather than the employers. For non-full-time employees and non-employees who are enrolled in self-insured health coverage, the ALEs have an option to use Forms 1094 and1095-B rather than the -C forms. Additionally, they have an option to use the alternative manner of furnishing statements rather than furnishing the copies of Forms 1095-C. For more detailed information, the IRS’s 2021 Instructions for Forms 1094-C and 1095-C are helpful.

By contrast, a small employer that offers self-insured health coverage but is not an ALE member should not file Forms 1094-C and 1095-C but should instead file Forms 1094-B and 1095-B to report information for enrolled employees and non-employees, such as COBRA participants and retirees.

To summarize, ALEs sponsoring fully insured plans do not need to report on Forms 1094 and 1095 and issue Forms 1095 for non-full-time employees (e.g., COBRA qualifying beneficiaries and retirees) who were not active employees in any month in the reporting year. On the other hand, ALEs sponsoring self-insured plans need to report enrolled non-full-time employees and non-employees, including COBRA participants and retirees, on Forms 1094 and 1095.

Employers must report the creditable status of their prescription drug plan coverage to the Centers for Medicare & Medicaid Services (CMS) within 60 days after the start of the medical plan year (policy year or contract year, regardless of the ERISA plan year).

Plan sponsors must also provide the Notice to Part D Eligible Individuals on the occurrence of five different events:

• On an annual basis prior to October 15 (the first day of the Medicare enrollment period). Thus, the notice must be provided no later than October 14 each year.
• Prior to an individual's initial enrollment period for Part D. For most individuals, the initial enrollment period for Part D is generally concurrent with the initial enrollment period for Part B, which is the seven-month period that begins three months before the month an individual first meets the eligibility for Parts A and B and ends three months after.
• When the individual originally becomes eligible under the group plan. Upon a change in the plan's creditable status, including termination of the prescription drug plan. Timely delivery of the notice allows the individual the opportunity to enroll in Part D if creditable coverage is lost and avoid late enrollment penalties.
• Upon an individual's request.

There are no specific penalties for failing to provide these notices (at least currently), and CMS does not have a process for correcting if a plan fails to provide them. The only specified penalty relates to a retiree plan attempting to receive the retiree drug subsidy. Such a plan would be denied the subsidy if it had not complied with the required Medicare Part D notifications. Note also that plan sponsors have a fiduciary duty under ERISA to comply with all federal laws related to their plans.

However, the real issue here is that Medicare eligible individuals could have delayed enrollment in Part D because they believed their coverage to be creditable based on an incorrect or missing notice. The individual could be penalized when they go to enroll in Medicare. This is because a Medicare eligible individual can only delay Part D (without penalty) if they have creditable coverage. If they have gone without creditable coverage for 63 days or more, they will be limited as to when they can enroll in Part D (annual enrollment starting October 15) and will receive a premium penalty based on the number of months that they did not have creditable coverage.

If an employer failed to provide these disclosures in the past, then they should consider distributing these disclosures as soon as possible and make sure that they are distributed in a timely manner going forward.

Answer: First, it is important to keep in mind that the employee’s HSA eligibility is based upon whether she meets the HSA eligibility criteria, regardless of whether her spouse or any other individual enrolled on the HDHP is also HSA eligible.

To review, to be eligible to make or receive HSA contributions, an individual must:

• Be covered by a qualified HDHP.
• Not have other “impermissible coverage” (i.e., coverage that provides medical benefits before the HDHP statutory minimum deductible is met, with certain exceptions - e.g., preventive care).
• Not enrolled in Medicare (It is actual enrollment in, and not simply eligibility for, Medicare that precludes HSA eligibility).
• Not be claimed as a dependent on someone else’s tax return.

Therefore, if the employee’s spouse enrolls in Medicare, the spouse would no longer be eligible to make HSA contributions. However, the employee’s HSA eligibility would not be impacted.

Second, the employee’s HSA contribution limit would be based upon the IRS annual maximum for the applicable HDHP coverage tier. For 2022, the annual HSA contribution limit is $3,650 for self-only coverage and $7,300 for family coverage; the additional catch-up contribution (for those ages 55 or older) is $1,000.

Accordingly, if the employee maintains the family HDHP coverage through 2022, the annual family limit of $7,300 would apply. (The family HSA contribution limit applies to an employee with family tier coverage, regardless of the HSA-eligibility status of the other covered individuals.) If the spouse did not make any HSA contributions in 2022 prior to Medicare enrollment, the employee could make or receive a total of $7,300 in contributions to her HSA plus, if applicable, the additional $1,000 catch-up contribution. (Note that if the spouse had remained HSA eligible, the couple could not collectively contribute more than the annual family coverage limit.)

Alternatively, if the employee switches to single-only coverage midyear following the spouse’s Medicare enrollment, the employee could only contribute the maximum based upon the single coverage tier for the remainder of the year. For example, assume the employee is HSA eligible for the entire 2022 tax year but switches from family to single HDHP coverage as of July 1, 2022. In such a case, the employee could contribute 6/12 (or 1/2) of the family contribution maximum of $7,300 or $3,650, plus 1/2 of the single contribution maximum of $3,650 or $1,825. So, her maximum permitted contribution would be $5,475 plus an additional $1,000 catch-up if she is eligible.

Finally, the employee can use her HSA funds to reimburse the qualified medical expenses of herself, her spouse and any tax dependents on a tax-free basis. Her spouse can be enrolled in Medicare (or other disqualifying coverage) at the time the distribution is made. The HSA funds can be used to reimburse the spouse’s Medicare deductibles, coinsurance and copays, unreimbursed dental and vision expenses, over-the-counter drugs, medicine, equipment and other qualifying expenses.

However, the spouse’s Medicare premiums could only be reimbursed when the employee turns 65 and then, only prospectively. But Medicare supplemental policies cannot be reimbursed from the HSA on a tax-advantaged basis even after the employee reaches age 65.

To summarize, the spouse’s Medicare enrollment does not impact the employee’s eligibility to contribute to an HSA based upon the applicable HDHP coverage tier(s). Additionally, the employee’s HSA funds can continue to be used to pay the spouse’s qualified medical expenses after the spouse’s Medicare enrollment.

We do not recommend that employers create composite rates where the carrier is billing on an age-banded basis. This is because it can result in issues under ERISA and the Age in Employment Discrimination Act (ADEA).

Specifically, it is a violation of ERISA if the employer rate for some employees is higher than the insurer rate for those employees. Additionally, if the employer calculates its own composite rates, it becomes unworkable if new employees are hired or if employees present when the rates were set to terminate or retire. Essentially, if the client hires a new employee (or an employee is dropped from coverage), the average rate per employee would be affected (i.e., the employer will have to calculate a new composite rate based on the newly hired or fired employee). In other words, the insurer would be billing for a higher or lower total premium, and the employer’s calculated composite rate may not match the premium charged by the insurer.

This scenario is further augmented by the dependent tiers since even though an insurer could calculate composite rates for dependents, the employer composite rate for dependents may not accurately reflect the actual amount charged by the insurer. With or without the dependent tier structure, this would cause the employer to over or undercharge plan participants and would be viewed as a violation of their ERISA fiduciary duty. Conversely, where the insurer creates a composite rate, they are required to maintain that composite rate throughout the year regardless of the change in the employer’s employee demographic changes.

The other possible issue with an employer setting their own composite rates is the ADEA, which prohibits employers from discriminating against employees aged 40 and older. For a plan that is community rated with individual rates, the employer has two choices if they want to stay in compliance with the ADEA:

1. Contribute a percentage of the premium charged by the insurer (i.e., a percentage based on the individual rates received from the insurer); or
2. Implement a fixed dollar contribution amount for employees’ payroll deduction (and the employer would absorb the rest).

If the employer structures the employee contribution in any other way, including a set employer contribution, the result will violate the ADEA.

So, setting composite rates when the insurance carrier passes on age-banded rates could cause employers to violate both ERISA and the ADEA. Employers should consult with legal counsel if this is an issue they need to remedy.