Download the AssuredPartners NL Dec. 5, 2013 Compliance Observer here: Dec. 5, 2013 Compliance Observer.
Modified “Use-or-Lose” Rule for Health Flexible Spending Arrangements
Source: Thomson Reuters/EBIA
On October 31, 2013, The U.S. Department of the Treasury and the IRS issued a notice1 modifying the longstanding “use-or-lose” rule for health flexible spending arrangements (FSAs). To make health FSAs more consumer-friendly and provide added flexibility, the updated guidance permits employers to allow plan participants to carryover up to $500 of their unused health FSA balances remaining at the end of a plan year.
The modification of the rule was in response to public comments pointing to the difficulty for employees to predict future needs for medical expenditures, the need to make FSAs accessible to employees of all income levels, and the desire to minimize incentives for unnecessary spending at the end of the year.
- Plans may allow up to $500, may specify a lower amount, or may not allow the carryover at all.
- If a plan allows the carryover, the same amount must apply to all participants.
- Unused amounts in excess of $500 (or a lower amount specified in the plan) are forfeited.
- Plans may continue to allow employees a grace period after the end of the plan year. However, a health FSA cannot have both a carryover and a grace period: it can have one or the other or neither.
- In addition to the carryover, the plan may allow employees to also elect up to the maximum allowed salary reduction amount under Section 125 (currently $2500).
- Cash-out or conversion of carryover amounts to other taxable or nontaxable benefits is not allowed.
- Unused carryovers remaining at termination of employment are forfeited unless the employee elects COBRA under the health FSA.
- The uniform coverage rule- which allows participants to be reimbursed for expenses up to the full amount of his/her annual election, even if those reimbursements exceed the participant’s year-to-date contributions-continues to apply.
- During the run-out period, potential carryover amounts may be used either for prior-year or current-year claims. When both current-year contributions and carryovers are available to pay a claim, plans may use current-year contributions first.
- A plan must be amended to adopt the carryover provision.
- The amendment generally must be adopted on or before the last day of the plan year from which amounts are carried over and can be effective retroactively to the first day of that plan year, provided the plan operates in accordance with IRS guidance and participants are informed of the carryover provision.
- Employers adding a carryover provision for the 2013 plan year (i.e., to permit 2013-to-2014 carryovers) have until the last day of the 2014 plan year to adopt an amendment.
- To offer carryovers, a health FSA with a grace period must be amended to eliminate the grace period before the end of the plan year from which amounts would be carried over.
- Transition relief announced in the preamble to the proposed employer shared responsibility (play or pay) regulations allows non-calendar-year plans to be amended for the 2013 plan year to permit employees to revoke or change their salary reductions for health coverage once or to prospectively elect salary reductions for such coverage without a change in status. The guidance clarifies that—(1) this transition relief is not limited to “applicable large employers”; and (2) amendments may be more restrictive than what the relief permits (for example, by allowing election changes only during a one-month period).
The guidance did not address the impact of a carryover on eligibility for an HSA. Under current guidance, if an individual is covered by a general-purpose FSA or a health reimbursement arrangement (HRA), that person is not eligible to make or receive contributions to a health savings account (HSA). Until the IRS issues further guidance on this subject, it is not clear how access to FSA carryover funds will impact HSA eligibility.
- Decide whether to offer a grace period, carryover or neither.
- Assess the impact on current plan (amendments, HSA eligibility, participation levels, etc.) Employers with grace periods will need to proceed cautiously and decide whether terminating the grace period to allow for carryovers is a viable option.
- If carryovers will be allowed, decide amount (no more than $500) and timing.
- If you want to allow for a 2013-2014 carryover act quickly to communicate the change to employees and put systems in place.
- If you want to allow for 2014 plan year, inform participants before their 2014 open enrollment window closes.
- If open enrollment has already occurred you may reopen the election period, as long as it is done prospectively before January 1, 2014.
Considering a Wellness Program?
Are you considering a wellness program for 2014 or do you plan to make changes to your current program in light of the ACA? If so, make sure you understand the different options and requirements.
On May 29, 2013, the Departments of Labor, Health and Human Services and the Treasury (Departments) released final regulations2 that implement ACA’s nondiscrimination requirements for wellness programs. The final regulations clarify and reorganize the rules outlined in previous proposed regulations. They are intended to ensure that every individual participating in a wellness program can receive the full amount of any reward or incentive, regardless of any health factor. The regulations apply to both grandfathered and non-grandfathered group health plans and group health insurance coverage for plan years beginning on or after Jan. 1, 2014.
Employment-based wellness programs can be divided into two general categories, participatory wellness programs and health-contingent wellness programs.
Participatory Wellness Programs:
Participatory wellness programs either: a) do not offer a reward or b) do not require an individual to meet a health-related standard to obtain a reward. Examples of these programs include a fitness center reimbursement program, a diagnostic testing program that does not base any reward on outcomes, a program that reimburses employees for the costs of smoking cessation programs, regardless of whether the employee quits smoking, and a program that provides rewards for attending a free health education seminar.
Participatory wellness programs comply with the nondiscrimination requirements without having to satisfy any additional standards, as long as participation in the program is made available to all similarly-situated individuals, regardless of health status. There is no limit on financial incentives for participatory wellness programs.
Health-Contingent Wellness Programs:
Health-contingent wellness programs require individuals to satisfy a standard related to a health factor in order to obtain a reward. There are two subcategories of health-contingent wellness programs:
Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward (for example, walking, diet or exercise programs). Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome.
Outcome-based wellness programs require an individual to attain or maintain a certain health outcome in order to obtain a reward (for example, not smoking, attaining certain results on biometric screenings or meeting exercise targets). Generally, these programs have two tiers:
- A measurement, test or screening as part of an initial standard; and
- A program that then targets individuals who do not meet the initial standard with wellness activities. Outcome-based programs allow plans and issuers to target specific individuals (for example, those with high cholesterol for participation in cholesterol reduction programs, or individuals who use tobacco for participation in tobacco cessation programs), rather than the entire population of participants and beneficiaries, with the reward based on health outcomes or participation in reasonable alternatives.
As under current HIPAA rules, health-contingent wellness programs are required to meet five special requirements in order to be permitted in a group health plan. However, the final regulations have reorganized these requirements with the intent to clarify the individuals to whom a reasonable alternative standard must be offered. The five requirements are:
1. Frequency of opportunity to qualify
Plans are required to provide eligible individuals with an opportunity to qualify for the reward at least once per year.
2. Size of the reward
Rewards, whether offered alone or coupled with the reward for other health-contingent wellness programs, cannot exceed a specified percentage of the total cost of employee-only coverage under the plan. Effective for plan years beginning on or after January 1, 2014, the final regulations specify maximum permissible rewards may have a value of up to 30% (or up to 50% for programs designed to prevent or reduce tobacco use). The total cost includes both employer and employee contributions towards the cost of coverage. If, in addition to employees, any class of dependents (such as spouses and dependent children) may participate in the health contingent wellness program, the reward cannot exceed the specified percentage of the total cost of the coverage in which the employee and any dependents are enrolled.
3. Reasonable design
The final regulation states that a wellness program is reasonably designed if it has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease. Furthermore, an outcome-based wellness program must provide a reasonable alternative standard to qualify for the reward, for all individuals who do not meet the initial standard that is related to a health factor, in order to be reasonably designed. The determination of whether a health-contingent wellness program is reasonably designed is based on all the relevant facts and circumstances.
4. Uniform Availability and Reasonable Alternative Standards
An important element of the final regulations is the requirement that the full reward under a health-contingent wellness program be available to all similarly situated individuals. In order to satisfy the requirement to provide a reasonable alternative standard, the same, full reward must be available under a health-contingent wellness program (whether an activity-only or outcome-based wellness program) to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program’s otherwise applicable standard. Plans and issuers have flexibility to determine how to provide the portion of the reward corresponding to the period before an alternative was satisfied (e.g., payment for the retroactive period or pro rata over the remainder of the year) as long as the method is reasonable and the individual receives the full amount of the reward.
The final regulations reiterate that, in lieu of providing a reasonable alternative standard, a plan or issuer may always waive the otherwise applicable standard and provide the reward. These final regulations also do not require plans and issuers to establish a particular reasonable alternative standard in advance of an individual’s specific request for one, as long as a reasonable alternative standard is provided by the plan or issuer (or the condition for obtaining the reward is waived) upon an individual’s request. Plans and issuers have flexibility to determine whether to provide the same reasonable alternative standard for an entire class of individuals (provided that it is reasonable for that class) or provide the reasonable alternative standard on an individual-by-individual basis, based on the facts and circumstances presented.
While many requirements regarding the reasonable alternative standards are equally applicable to activity-only wellness programs and outcome-based wellness programs, some of the requirements apply in different ways depending on whether the program is an activity-only or an outcome-based wellness program.
Activity-Only Wellness Programs:
- Must allow a reasonable alternative standard (or waiver) for obtaining the reward for any individual for whom for that period, it is either: (i) unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard or (ii) medically inadvisable to attempt to satisfy the otherwise applicable standard.
- If reasonable, a plan or issuer is permitted to seek verification, such as a physician’s statement, that a health factor makes it unreasonably difficult or medically inadvisable for an individual to satisfy or attempt to satisfy the otherwise applicable standard.
Outcome-Based Wellness Programs:
- Must allow a reasonable alternative standard (or waiver) for obtaining the reward for any individual who does not meet the initial (healthy) standard based on a measurement, test or screening, regardless of any medical condition or other health status factor.
- Plans and issuers are able to conduct screenings and employ measurement techniques in order to target wellness programs effectively.
- A plan or issuer is not permitted to seek verification, such as a physician’s statement, that a health factor makes it unreasonably difficult or medically inadvisable for an individual to satisfy or attempt to satisfy the otherwise applicable standard as a condition of providing a reasonable alternative to the initial standard.
- The reasonable alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s circumstances.
- An individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard to meeting the reasonable alternative standard defined by the plan or issuer, but only if the physician joins in the request.
5. Notice of availability of reasonable alternative standards
The final regulations require plans and issuers to disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all plan materials describing the terms of a health-contingent wellness program (both activity-only and outcome-based). The disclosure must include contact information for obtaining the alternative and a statement that recommendations of an individual’s personal physician will be accommodated. For outcome-based wellness programs, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard.
New Hardship Exemption from the Individual Mandate
Beginning in 2014, most individuals must have health insurance coverage or pay a penalty. Various types of coverage can fulfill this requirement, including coverage through a health insurance Exchange. Open enrollment in the Exchanges runs until March 31, 2014, but the Exchange coverage effective dates could mean that anyone waiting until the end of open enrollment to apply will have to pay a penalty for months before they sign up. However, On October 28, 2013, HHS released an FAQ3 providing an exemption from the penalties for anyone who enrolls in an Exchange plan during the initial open enrollment period.
Mental Health Parity Final Regulations & Implementation FAQs
On November 8, 2013, the Departments of Labor, Health and Human Services and Treasury (the Departments) issued final regulations, along with new FAQ guidance, implementing the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)4. The MHPAEA generally requires parity between mental health or substance use disorder benefits and medical/surgical benefits under group and individual health plans. Plans also must provide parity with respect to non-quantitative treatment limitations (such as medical management standards).
The MHPAEA final regulations generally apply to group health plans and health insurers offering group health insurance coverage for plan years beginning on or after July 1, 2014 (until then, plans and issuers must continue to comply with the interim final rules issued in February 2010). For plans with calendar year plan years, the compliance deadline is January 1, 2015.
The final regulations incorporate clarifications from agency FAQs and provide new clarifications. They also include provisions implementing the MHPAEA in the individual health insurance market, and an unrelated technical amendment to the external review requirements for the multi-state plan program.
The MHPAEA contains the following parity requirements:
- The financial requirements (such as deductibles, copayments, coinsurance and out-of-pocket limits) applicable to mental health or substance use disorder benefits cannot be more restrictive than the predominant financial requirements applied to substantially all medical and surgical benefits.
- Treatment limitations (such as frequency of treatment, number of visits, days of coverage or other similar limits on the scope or duration of coverage) must also comply with the MHPAEA’s parity requirements. Non-quantitative treatment limitations (such as medical management standards, formulary design and determinations of usual, customary or reasonable amounts) are subject to a separate parity requirement.
- If medical and surgical benefits are offered on an out-of-network basis, a plan or issuer must also offer mental health or substance use disorder benefits on an out-of-network basis.
In addition, the MHPAEA requires plans to make certain information available with respect to mental health or substance use disorder benefits, such as the criteria for medical necessity determinations and the reason for any denial of reimbursement or payment for mental health or substance use disorder services.
The final rule also includes specific additional consumer protections, such as:
- Ensuring that parity applies to intermediate levels of care received in residential treatment or intensive outpatient settings;
- Clarifying the scope of the transparency required by health plans, including the disclosure rights of plan participants, to ensure compliance with the law;
- Clarifying that parity applies to all plan standards, including geographic limits, facility-type limits and network adequacy; and
- Eliminating an exception to the existing parity rule that was determined to be confusing, unnecessary and open to abuse
Proposed Changes to the Transitional Reinsurance Program
Source: Business Insurance
Proposed rules issued in late November provide certain self-funded group health care plans with relief from the financial burden of one aspect of the health care reform law, the reinsurance fee, while also allowing the fee to be paid in two installments.
Under the proposal, employers that self-insure and self-administer health coverage for their employees will be exempt from having to pay into the reform law’s three-year Transitional Reinsurance Program for the 2015 and 2016 plan years. However, all self-insured plan sponsors — as well as fully-insured employers — will be required to pay into the reinsurance program in 2014.
HHS said it decided against imposing the fee on self-insured, self-administered group health plans in 2015 and 2016 because they do not rely on outside commercial entities “for administration of the core health insurance functions of claims processing and plan enrollment.” Self-funded plans that use third-party administrators or other external entities only for ancillary support also are exempt from paying the reinsurance fee in 2015 and 2016.
The policy of allowing plan sponsors to make the payment in two installments “is designed to alleviate the upfront burden of the reinsurance contribution, allowing contributing entities additional time to make the payment,” HHS said in the proposed regulation.
The first-year assessment remains, as stipulated in earlier regulations, at $63 for each health care plan participant. However, rather than pay the full $63-per-participant payment by Jan. 15, 2015, employers, under the proposed notice, would make a payment of $52.50 per participant then, with an additional $10.50 per participant payment due late in the fourth quarter of 2015.
For those employers who must pay the fee for the 2015 benefit year, the $44-per-participant reinsurance fee could be paid in two installments: $33 in January 2016 and an $11 fee per health care plan participant payable in the fourth quarter of 2016.
The amount of the third-year fee has not yet been set.
The reinsurance program was designed to generate $25 billion over three years to offset insurers’ added costs as thousands of high-risk individuals purchase health coverage through public exchanges authorized under the Patient Protection and Affordable Care Act.
Court Refuses to Dismiss Claim That Premium Tax Credits Are Available Only in State-Based Exchanges
Source: Thomson Reuters/EBIA
A federal trial court has denied the federal government’s motion to dismiss a lawsuit challenging the IRS regulation that makes premium tax credits available in states with federally facilitated Exchanges (FFEs). (The government’s motion was based on issues such as standing, ripeness, and a claim that the Anti-Injunction Act bars the claim at this stage because no tax has yet been assessed.) The court also refused to enter a preliminary injunction blocking enforcement of the regulation, finding, among things, that the challengers had failed to show a sufficiently strong likelihood of success on the merits of their claim.
The lawsuit claims that under health care reform’s express statutory language, premium tax credits are available only to individuals who enroll in insurance plans through state-based Exchanges. The individuals and employers bringing the lawsuit, all from states with FFEs, seek to invalidate the IRS regulation under the Administrative Procedure Act, as exceeding the agency’s statutory authority. In defending the regulation, the government maintains that an FFE stands in the shoes of a state Exchange and that the IRS reasonably interpreted the statute to make premium tax credits available regardless of which entity operates the Exchange.
Looking Ahead to 2014
Some things to keep in mind as we move into 2014:
- Although the employer mandate penalties have been delayed until 2015, employers need to start planning ahead and putting their plans into action throughout 2014.
- Whether a company is considered a large employer (and potentially subject to penalties) in 2015 will depend on the number of full-time and full-time equivalent employees they have in 2014. So even though the penalties have been delayed a year, some of the related rules will matter for next year.
- The proposed pay or play regulations that came out earlier this year contained a number of special rules for 2014. Now that the penalties aren’t effective until 2015, it’s not clear whether those special rules will carry forward. A Treasury official has said that the IRS is aware that employers are interested in an answer on that topic and there should be guidance at some point soon.
- Those proposed regulations have yet to be finalized. Final regulations were on the IRS’s regulatory agenda for 2013 but the release date may have been impacted by the government shutdown in October. It’s hoped that final regulations will answer some open questions about the employer mandate, but they likely won’t differ significantly from the proposed version due to statutory requirements
If you have questions or need assistance with any of these or other compliance matters, please contact your AssuredPartners NL Benefit Team.
AssuredPartners NL continues to monitor all compliance matters in order to keep you abreast of the latest news and regulatory changes. In addition to this quarterly newsletter, our Compliance Alerts, distributed as needed, provide you with the most current and up-to-date compliance guidance.Share This: